Telecom operators evolution to becoming next generation IoT services provider
The Internet of Things (IoT) represents a huge paradigm shift for Telecom Service Providers (TSPs) in terms of business models, products and business processes. It has also came in as a big opportunity for the Telcos who saw in it possibilities to offset the decreasing voice revenues coupled with stagnant data revenues.
The IoT Value Chain
The end to end IoT value chain is depicted in below diagram. This diagram also depicts the approximate percent split of revenue across the value chain components such as connectivity, service enablement, system integration etc.
So far, the large majority of Telcos have followed a low risk bottom-up strategy where they have built and expanded on their core network capabilities by being the connectivity providers. But being a mere connectivity provider has fetched only a fraction (5-10%) of overall potential IoT revenue to the Telcos. Given this, increasingly Telcos have also started to venture into build/acquisition of a dedicated IoT platform for themselves so as to expand into being a service enabler, provide IoT platform services to their B2B and B2C customer base and thus grab additional ~25% value in the end to end value chain taking telco share to ~40% of the overall value.
The key challenges facing Telcos
- Emergence of Low Power Wide Area (LPWA) solutions.
- A lack of Telco play in B2B2C (Enterprise customer’s customer) markets is leading to Telcos not being able to fully leverage the ever expanding IoT services market and not being able to maximize the revenue potential for their connectivity and platform services.
How Telcos are evolving to become next generation IoT Service Provider
Embrace LPWA for IoT solutions
As of today, smart ecosystems are limited to reaching their full potential based on the underlying connectivity technologies, such as fiber, cellular and Wi-Fi. Due to their insufficient capabilities with respect to high energy consumption, cost of network rollout and hardware investments, many important use cases (such as tracking, parking and lighting) are economically difficult to realize. LPWA technologies have potential to replace the existing short-range wireless and mobile WAN technologies such as Bluetooth, Near Field Communication (NFC) and Wi-Fi which are great for short distances but are not well suited for some IoT applications due to power consumptions levels, the associated costs or the complexity of the infrastructure.
The LPWA connections are likely to serve a diverse range of vertical industries and cover a range of applications and deployment scenarios. The applications possessing at least two of the following characteristics makes it a good case for LPWA leverage - 1) A need for wide area coverage, 2) Strong propagation (for example, a location deep indoors) 3) low cost and 4) no access to the mains power.
Analysts anticipate the number of LPWA connections is likely to grow gradually over the next years as standardized LPWA technologies gain economies of scale and are proven in the marketplace. Strategy Analytics, for example, forecasts there will be well over one billion LPWA connections worldwide by the end of 2018 and more than two billion by the end of 2019. It predicts this figure will rise to more than five billion by the end of 2022. Emergence of LPWA solutions essentially mean Telcos have to brace for the changes in their networks to defend their core connectivity role.
Move up the value chain in B2B2C segment
In some sectors, potential connectivity revenue alone is not enough to attract the interest of operators. Consequently, they are exploring ways to generate revenue from deeper involvement in vertical market solutions. An example of this is healthcare. As shown by Analysys Mason’s research, the volume of IoT connections from healthcare will be low – even by 2020, there will probably be fewer than 50 million health devices with a dedicated connection, and the average volume of data used by these devices will be relatively low.
Purely in terms of connectivity revenue, healthcare does not warrant investment. However, Telstra, Telefonica, Deutsche Telecom and others are attempting to move up the value chain by offering a platform of connectivity, hosting, security, BSS and analytics that can be opened up to healthcare companies. Most operators are not providing end-to-end health solutions yet that require deeper understanding of the domain. This is typically left to the healthcare specialists and the current thinking in Telcos is to embrace the strategic partnership as well as M&A route to bridge the domain gaps. E.g. AT&T and other carriers are forging relationships with cloud based application delivery and management platform vendors such as Axeda, Vodafone has its own set of European-based partners to add service enablement features such as device level diagnostics, data analytics, and software updates. These include Zelitron, a Greek company in which it holds a majority stake, and a German analytics company, Device Insight. Vodafone has set up a separate partnership organization to build an entire ecosystem of partners and expedite moving up the value chain in IoT markets.