The Year Ahead: Appliances And Cities Get Connected

As operators face high infrastructure maintenance and upgrade costs as well as the ever growing demand for data, strategies turn to generating income from new sources. While BMI expects the consumer will remain the largest proportion of revenues, we see a gradual increase in the use of wireless technologies for alternative applications such as smart cities, telecare and telematics.

Global forecasts for mobile connections go far beyond the planet's total population. This is not simply a case of consumers holding more than one mobile subscription but machine-to-machine (M2M) connections will far outstrip the number of mobile device connections, including those in consumer devices such as tablets and connected notebooks. The drive for this will be other connected devices such as fridges, cars, electricity infrastructure, freight vehicles among many, many others.

Appeal To Operators

Tech-Savvy Markets Pull Ahead
M2M Connections ('000)

The Year Ahead: Appliances And Cities Get Connected

As operators face high infrastructure maintenance and upgrade costs as well as the ever growing demand for data, strategies turn to generating income from new sources. While BMI expects the consumer will remain the largest proportion of revenues, we see a gradual increase in the use of wireless technologies for alternative applications such as smart cities, telecare and telematics.

Global forecasts for mobile connections go far beyond the planet's total population. This is not simply a case of consumers holding more than one mobile subscription but machine-to-machine (M2M) connections will far outstrip the number of mobile device connections, including those in consumer devices such as tablets and connected notebooks. The drive for this will be other connected devices such as fridges, cars, electricity infrastructure, freight vehicles among many, many others.

Appeal To Operators

Tech-Savvy Markets Pull Ahead
M2M Connections ('000)

The sheer volume of possible M2M connections that could be added to mobile networks means this is an area of the market that operators are keen to invest in. As networks have already been built and M2M connections do not use large amounts of bandwidth it is a means of getting more return on the large investments already made in cables, base stations, towers and spectrum.

M2M consists of using a device such as a sensor or a meter to capture an event such as inventory level or location, which is relayed through a network to an application. The application then translates captured data into actionable information.

Although data on revenues from M2M connections are limited, several studies and a few operator disclosures have revealed that average revenue per user (ARPU) for M2M connections is very low. While US operator Sprint said its M2M connections had an ARPU of US$5-10 in 2011, this varied widely between digital signage at US$150 a month and smart meters bringing in US$1 a month. Telecoms network equipment manufacturer Ericsson suggests M2M ARPU is around 10% of consumer ARPU and signs are that it will continue to decline.

While this would make the segment less appealing, its limited impact on operator network capacity and bandwidth makes it a viable addition to existing services. In many cases, the low data requirements mean that existing 2G networks can be leveraged while consumers move to 3G and 4G platforms.

Online Cities Of The Future

So are we forecasting that all cities be connected in 2014? No. However, we do expect M2M product developments and roll outs to continue throughout the year with mobile operators keen to build their revenues from new sources. M2M's expansion comes as operators continue to struggle to boost ARPUs in economies still experiencing the hangover from the global financial crisis. Many deals announced by operators have long term goals and the true impact on revenues and subscriptions are not necessarily immediately apparent.

Emerging Markets Get In On The Act
Brazil M2M Connections ('000)

Technological early adopters tend to be developed markets such as Western Europe and North America where next generation networks were rolled out first and consumers are more willing to pay for new services. However, M2M has such wide scope, that BMI does not expect developed markets to drive the market entirely. All eyes will be on Brazilian city Rio de Janeiro in 2014 as it is one of the host cities of the FIFA World Cup. An operations centre in the city, built by IBM, integrates data for 30 different 'agencies' such as the police and traffic management to enable real-time information to plan resource usage and anticipate problems.

Not only does the Rio Intelligent Operations Centre provide forecasting information that can help with response to floods or adverse weather conditions, the city's inhabitants can use the data to avoid busy routes or track alerts on social media sites.

At a cost of US$14mn for the project, many emerging market cities would baulk at spending so much on a smart city solution and have little incentive to do so all in one go. Songdo, a purpose built smart city outside South Korea's capital has not yet been a complete success with both residential and commercial property underutilised. It is another project that has gained plenty of attention and its development will be used as a blueprint for other proposed projects.

Small Nimble Players Will Drive Developments

However, smaller projects that focus on single developments are more likely to proceed and this is where BMI sees the greatest growth potential in 2014, with these developments building into greater acceptance of connected cities and devices.

The market will remain fairly fragmented with few major companies leading the way as M2M's potential applications in different industries will see a number of smaller players emerging with unique solutions to individual developments. Rather than inhibiting the market's development, BMI believes these smaller players will attract the attention of larger IT solutions companies and become targets for mergers and acquisitions. This is a view that will play out over the medium to long term.

M2M is a long term development for the telecoms industry, rather than the kind of consumer technology that is driven by early adopters and then majority sales. While we highlight it as a potential revenue earner for mobile operators, we believe the number of M2M connections will not have a significant impact on the market until scale is reached where more and more devices are connected and operators can begin to charge for them.

BMI believes different industries will lead the demand for M2M, with auto manufacturers seeking connected car developments and healthcare providers looking at ways to reduce the time patients stay in hospital. Efficiencies that keep costs low will appeal to companies that have worked through the global financial crisis encouraging the use of M2M.

The greatest challenge to expanding M2M, in BMI's opinion, is concern over data usage, storage and security, particularly in light of ongoing revelations of western governments' access to consumer data. Although we do not expect this to stop growth, it remains in the headlines across the world, keeping communications security at the front of people's minds.

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