For MNOs, IoT Opportunity Lies beyond the Underlying Connection Technology

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2Q 2019 | IN-5457

In February 2019, AT&T and Vodafone announced a business partnership to develop cutting-edge connected car solutions and experiences for end-user customers throughout North America, Europe, and Africa. The focus for both operators is to simplify the process of deploying these solutions while also increasing their value propositions. Additionally, the operators announced that the key focus for this connected car endeavor would be on leveraging 5G and autonomous vehicle technology and the intersection of the connected car with smart cities.

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New Investments and Risks

NEWS


In February 2019, AT&T and Vodafone announced a business partnership to develop cutting-edge connected car solutions and experiences for end-user customers throughout North America, Europe, and Africa. The focus for both operators is to simplify the process of deploying these solutions while also increasing their value propositions. Additionally, the operators announced that the key focus for this connected car endeavor would be on leveraging 5G and autonomous vehicle technology and the intersection of the connected car with smart cities.

For AT&T and Vodafone, two of the most successful Mobile Network Operators (MNOs) globally in terms of both Internet of Things (IoT) connections and revenues, this focus on building out and deploying innovative 5G technologies makes sense. They have the proven track records of success in leveraging existing and new technology infrastructures to develop end-to-end solutions that drive value for their Business-to-Business (B2B) and Business-to-Business-to-Consumer (B2B2C) end-users. 5G provides them with the opportunity to develop new innovations and continue expanding their market reach. Other operators who have a less than stellar track record of success in their IoT deployments to date should not be looking to 5G with the same gusto because of the limited revenue potential 5G will provide over the short- and medium-term. Instead of diluting their efforts by launching mediocre solutions utilizing multiple connection technologies, most operators should instead be focusing on working with their ecosystem partners to create high-value vertical-specific end-to-end IoT solutions.

Following the Revenue

IMPACT


Most of the IoT connection and revenue potential for operators currently utilizes legacy connection technologies such as 2G, 3G, and 4G. In 2019, more than 90% of cellular IoT connections will utilize these older technologies, generating over 95% of the year’s nearly US$14 billion cellular IoT connection revenues. By 2024, less than 40% cellular IoT connections will utilize 2G, 3G, or 4G, with 61% of the connections utilizing cellular Low-Power Wide Area (LPWA) technologies such as NB-IoT and LTE-M. Despite this fall in connection share, legacy connection technologies will still generate 84% of connection revenues, with a little over 2% of revenues being generated by 5G connections and the remaining 14% being generated by cellular LPWA connections.

  ABI Share of Cellular IoT Connections  

For the majority of operators, IoT revenues will be generated using existing infrastructure. As such, operators should focus on leveraging their existing assets and physical network infrastructures to expand their market footprint. Additionally, while cellular LPWA are relatively easy to deploy alongside existing infrastructure, they will generate a much smaller connection Average Revenue Per User (ARPU) than competing connection technologies, which are each at least five times larger. But for operators who are looking to simply expand their number of connections in the market to meet connection growth targets, such as China Mobile, China Telecom, and China Unicom, cellular LPWA technologies provide a significant opportunity to do so.   

  ABI Share of Cellular IoT Connections Revenues by Technology  

 

Leverage Legacy Infrastructure

RECOMMENDATIONS


For operators to succeed in IoT, they need to focus on actual, sizable market opportunities. Operators need to undertake a critical assessment of their own internal capabilities to see if they are truly able to expend the substantial investments and infrastructures needed to pursue particular market opportunities. If they’ve been unable to successfully leverage existing technologies, 5G will not be the answer they are looking for and will rather provide more complications and financial strains by not returning the Return on Investment (ROI) needed. By diluting their resources and focusing on deploying weak solutions across several connection technologies, operators will divert attention away from their existing customer bases and leave them open to new threats on their traditional business models.

That isn’t to say that operators should neglect 5G and cellular LPWA technologies. Rather, operators should ensure that they are truly able to work with partners to provide vertical solutions that meet a myriad of end-user needs across any of the connection technologies they are using. Otherwise, the value of their solution offerings will continue to be diluted across new infrastructures and investments while failing to maximize the value that legacy infrastructures can and will provide in the market.

If operators are truly looking to generate a substantial amount of revenue from their IoT investments, they must move beyond focusing solely on connectivity. Connectivity and connection technologies are not inherently more valuable than one another; the value instead comes from vertical-specific solutions that provide features that are desirable and drive value for end-users. Additionally, operators need to work with various public and private stakeholders to expand the addressable cellular IoT market into verticals such as smart city and smart utilities. By focusing beyond connectivity, operators will ensure that their solutions go beyond just meeting the bare minimum and deliver long-term value to end-users.

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