M2M: From Millions To Billions In 10 Years

BMI View: We have long-held a positive view on the potential of machine-to-machine (M2M) technology to transform the telecoms industry. We expect to see strong growth in this area over the next 10 years, with the technology forming a key part of our 2024 outlook (see 'The Telecoms Industry In 10 Years', 12 June 2014).

For telecoms companies, M2M represents the next step in the transition from voice to data, with huge revenue growth opportunities presenting themselves as more SIM cards are connected to networks. Mobile phones are generally limited to one per person in any market. However, with M2M, the ratio could be anywhere between five to 10 connected devices per person. We believe this will enable the number of connected M2M datacards to outnumber the amount of cellular subscriptions within 10 years.

We are growing increasingly optimistic towards M2M technology as governments are also taking notice of the sector's potential and playing an active role in the technology's development. For example, Brazil's government has lowered taxes on M2M SIM cards, while in the UK, smart meter contracts have been auctioned off. Alliances between operators and M2M vendors are becoming increasingly common and a critical part of the M2M ecosystem, as telecoms operators' investment in upgrading to 4G networks provides the backbone infrastructure for M2M connectivity. Auction of 'white space' spectrum from the digital switchover should also provide a boon for the M2M market, allowing companies further bandwidth and greater coverage of rural regions. Meanwhile, the switch to 700MHz frequencies is expected to be completed by the end of 2015 and should also provide a global standard of technology which will allow M2M to flourish.

M2M Moving Beyond The Hype
Selected Operator M2M Connections (mn)

BMI View: We have long-held a positive view on the potential of machine-to-machine (M2M) technology to transform the telecoms industry. We expect to see strong growth in this area over the next 10 years, with the technology forming a key part of our 2024 outlook (see 'The Telecoms Industry In 10 Years', 12 June 2014).

For telecoms companies, M2M represents the next step in the transition from voice to data, with huge revenue growth opportunities presenting themselves as more SIM cards are connected to networks. Mobile phones are generally limited to one per person in any market. However, with M2M, the ratio could be anywhere between five to 10 connected devices per person. We believe this will enable the number of connected M2M datacards to outnumber the amount of cellular subscriptions within 10 years.

What Is Mobile-To-Mobile (M2M) Technology?
  • Technologies that allow businesses to wirelessly connect everyday devices, heavy equipment, vehicles and utilities to each other and to central hubs using mobile operator networks.

  • SIM cards are used to remotely capture events and record data that can then be disseminated by users and algorithms to create efficiencies and cut costs for businesses.

  • The data from these 'smarter' products translates into actionable business intelligence.

  • For example, an insurance company can remotely monitor the driving habits of its customers to offer tailored rates that reduce risk for the company.

Source: BMI

We are growing increasingly optimistic towards M2M technology as governments are also taking notice of the sector's potential and playing an active role in the technology's development. For example, Brazil's government has lowered taxes on M2M SIM cards, while in the UK, smart meter contracts have been auctioned off. Alliances between operators and M2M vendors are becoming increasingly common and a critical part of the M2M ecosystem, as telecoms operators' investment in upgrading to 4G networks provides the backbone infrastructure for M2M connectivity. Auction of 'white space' spectrum from the digital switchover should also provide a boon for the M2M market, allowing companies further bandwidth and greater coverage of rural regions. Meanwhile, the switch to 700MHz frequencies is expected to be completed by the end of 2015 and should also provide a global standard of technology which will allow M2M to flourish.

M2M Moving Beyond The Hype
Selected Operator M2M Connections (mn)

The costs associated with M2M technology have also come down significantly. M2M is a low margin business, as the small amounts of data transmitted means that it requires thousands of connected SIM cards to translate into strong revenue growth. However, the declining cost of SIM cards will help to bolster margins and is a further indicator that M2M is becoming a reality with multiple industries beginning to explore the potential benefits.

Automotives & Fleet Management - Connected cars, driver monitoring for insurance premiums, vehicle tracking, GPS navigation

Power/Energy - Smart meters, smart grids

Logistics - Improved parcel/pallet tracking

Consumer Electronics - Connected devices, smart appliances, wearable technology

Healthcare - Telecare, wearable technology, clinical remote monitoring, assisted living

Security - Asset monitoring, surveillance, alarm management, employee security

Smart Cities - Intelligent buildings, traffic monitoring, public transport, parking, CCTV, digitised signage

We expect developed markets and China to show the strongest M2M growth over the next two to three years. However, there is still enormous long-term potential in emerging markets over the next five to 10 years. China is currently the largest market for M2M in the world in terms of total connections and we expect it to stay in front, as its huge population creates a larger market. There has also been significant progress in the US, Japan and the Nordic countries, where we expect to see M2M connections account for a greater proportion of mobile subscriptions.

Further To Rise After Hype Plateau
BMI M2M Index

To help us assess the accuracy of our bullish view towards the M2M industry (by way of determining whether investors share our positive outlook) we have created a market cap weighted custom index, denominated in US Dollars. The companies included are those which we believe are heavily exposed to the M2M growth trend, and can therefore expect to benefit as vendors of M2M SIMs, as well as M2M software and service providers. The index saw strong growth between 2011 and 2013. However, it has dropped by 9.8% since the start of 2014. While we believe much of this earlier growth was based on hype surrounding the M2M industry with little concrete results, we are now seeing strong growth in connections reported by mobile operators as well as revenue and profit growth from M2M vendors. With further positive developments expected, such as the release of digital dividend spectrum, lower costs of M2M equipment and favourable government policies, we believe that M2M has further to rise, with the number of connections expected to increase into the billions and overtake mobile phone subscriptions within the next 10 years.

BMI M2M Index
Company Security Weighting (%) Value
CalAmp CAMP US Equity 5.2 10.221
Comarch CMR PW Equity 1.7 3.285
Digi International DGII US Equity 1.8 3.504
Elecsys Corporation ESYS US Equity 0.3 0.676
Fleetmatics Group FLTX US Equity 9.2 18.139
Gemalto GTOMY US Equity 68.7 135.914
Numerex Corporation NMRX US Equity 1.8 3.512
ORBCOMM Inc ORBC US Equity 2.7 5.355
Sierra Wireless Inc SWIR US Equity 5.0 9.816
Telit Communications TTCNF US Equity 3.1 6.218
USA Technologies Inc USAT US Equity 0.6 1.106
M2M Index Total 100.0 197.75
Source: BMI, Bloomberg

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