MARKET FORECAST Telecom IoT Strategies and Regional Market Outlook SEP 2016 Brian Partridge, Research Vice President As telecom operators globally build out their cellular machine-to-machine strategies to prepare for the Internet of Things computing era, we examine the approaches being taken by a number of leading providers. We assess IoT strategy, technology and networks, go-to-market partnering and competitive impact. 2016 451 Research, LLC WWW.451RESEARCH.COM
ABOUT 451 RESEARCH 451 Research is a preeminent information technology research and advisory company. With a core focus on technology innovation and market disruption, we provide essential insight for leaders of the digital economy. More than 100 analysts and consultants deliver that insight via syndicated research, advisory services and live events to more than 1,000 client organizations in North America, Europe and around the world. Founded in 2000 and headquartered in New York, 451 Research is a division of The 451 Group. 2016 451 Research, LLC and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication, in whole or in part, in any form without prior written permission is forbidden. The terms of use regarding distribution, both internally and externally, shall be governed by the terms laid out in your Service Agreement with 451 Research and/or its Affiliates. The information contained herein has been obtained from sources believed to be reliable. 451 Research disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although 451 Research may discuss legal issues related to the information technology business, 451 Research does not provide legal advice or services and their research should not be construed or used as such. 451 Research shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice. NEW YORK SAN FRANCISCO LONDON BOSTON 20 West 37th Street 3rdFloor New York, NY 10018 P 212-505-3030 F 212-505-2630 140 Geary Street 9th Floor San Francisco, CA 94108 P 415-989-1555 F 415-989-1558 37-41 Gower Street London, UK WC1E 6HH P +44 (0)20 7299 7765 F +44 (0)20 7299 7799 1 Liberty Square, 5th Floor Boston, MA 02109 P 617-261-0699 F 617-261-0688 ABOUT THE AUTHOR BRIAN PARTRIDGE RESEARCH VICE PRESIDENT Vice President Brian Partridge leads 451 Research s mobility coverage, including the Internet of Things, Enterprise Mobility and Mobile Telecom Channels. In this role Partridge has overall responsibility for the mobility team s syndicated and custom research services. As a researcher he contributes to machineto-machine (M2M)/Internet of Things (IoT) research along with a number of additional topics in the telecom and enterprise mobility domains. II
Key Findings IoT deployments are ramping up. 451 Research s Voice of the Enterprise (VotE): Internet of Thing (IoT) research reveals that IoT deployments are accelerating 65% of organizations have what we would consider an IoT project in place. Respondents expect to launch a mean of three new IoT initiatives over the next two years. While numerous connectivity methods will support IoT data transmission from fixed, personal, local and wide-area networks, telecom operators have the most to gain by positioning all flavors of licensed cellular especially LTE and its IoT-friendly iterations. The total number of cellular IoT lines is set to triple over the next five years to more than one billion. The good news is that active machine-to-machine (M2M) or cellular-connected IoT devices are forecasted to reach more than 1.2 billion globally by 2020, according to 451 Research s M2M Cellular Forecast (June 2016). This will equate to 15% of all mobile subscriptions globally and account for over 50% of mobile subscriptions in advanced and consumer-saturated mobile markets like North America. Asia- Pacific is the largest cellular IoT region, and China the largest individual IoT country. IoT connections will soon become a dominant source of data connections on telecom operator networks, which will require a rethink of supporting architectures. The bad news? Average revenue per device is set to primarily decrease. Telecom operators are universally seeking to deliver more value beyond managed connectivity. The market for connectivity will be supported by a number of telecom operators, API-driven PaaS providers, MVNOs and unlicensed-spectrum network operators. With their combination of financial resources and legacy business pressure, telecom operators are also making investments to provide more than connectivity services alone. The promise of developing new sources of growth and profit is clearly outweighing the benefits for most global operators. A typical tier 1 operator now has more than 1,000 staff dedicated to IoT services, and IoT opportunity is creating a hyper-competitive playing field that puts downward pressure on pricing and strong competition at every layer of the IoT stack The effective transition to narrowband LTE variants, including narrowband IoT (NB-IoT) and ultimately 5G, will be critical as 2G/3G networks are retired and unlicensed-spectrum alternative vendors deploy coverage worldwide. Mobile telecom operators will no longer be the only game in town for long-range, low-power networking options for connected devices. A range of upstarts, headlined by SIGFOX, have stormed into the market at the very time that network operators are in a state of network transition. The entire telecom ecosystem will need to rally and deliver on the promises of both LTE-M (in the US) and, more importantly, NB-IoT and 5G (globally) while effectively communicating the premium value of licensed-spectrum alternatives. III
Executive Summary INTRODUCTION A majority of tier 1 telecom operators have been offering machine-to-machine (M2M) connectivity services for the past 10-15 years. These have historically been and still are primarily low-bit-rate telemetry services, such as remote asset monitoring or vehicle tracking, or wireless data services such as connecting point-of-sale (POS) terminals and smart meters or providing backup connectivity service to home alarm systems. Globally popular mobile technologies such as GSM/ GPRS and CDMA/1xRTT provided adequate technical specs to support the majority of these applications, and device and traffic volumes were low enough that network planners didn t have to plan specifically for M2M impact. All of this is now rapidly changing. Only in the past five years or so has the M2M business evolved from an opportunistic and tactical revenue opportunity into a strategic one for many operators as the potential volume of devices they can attach to their networks explodes and, more importantly, they are starved for revenue diversification. Revenue diversification is a major priority for global operators as traditional businesses have seen slowing growth. In 2015 global mobile service revenue totaled $997bn, according to our December Global Wireless Subscriber Forecast. By 2019 we are forecasting total revenue of $1.07 trillion globally. Though there is still growth potential, it s modest by historical standards, and a large proportion will come from developing markets where mobile and smartphone penetration remain relatively low. For most telecom operators in mature and often highly competitive markets, the prospects of significant growth in their legacy voice and data businesses are not good. In this context, the need to diversify into new growth areas is more pressing than ever. In today s flat-revenue environment, the diversification imperative is more pressing, and in some cases is becoming urgent. In this context, the evolution of the M2M market has received significant attention globally. This next generation of M2M has been dubbed the Internet of Things (IoT), which is defined at the most basic level as the virtualization of the physical world and creation of new sources of economic value and societal benefit. Operators Verizon and Vodafone have already invested more than $1bn each over the past five years to support the IoT opportunity. Operators with fewer resources are nonetheless investing to support one or more of several possible roles, from connectivity to end-toend service provider. 451 Research believes there are significant opportunities in IoT for mobile network operators (MNOs) if they can understand where among the wide variety of use cases and value chain positions they should invest. As fast as IoT hype and overall awareness have risen and costs and viability of enabling technologies (such as sensors, SOCs, and connectivity modules) have fallen dramatically, the last five years have seen an explosion of new use cases spanning both the consumer and enterprise segments. Some of these applications are data-intensive enough to require the horsepower of LTE (e.g., connected cars, digital signage and video surveillance), while others sip bandwidth but require extremely long battery life due to costs of replacement (e.g., agriculture sensing, oil and gas machinery, and environmental monitoring devices). In addition, new IT technologies including cloud and big data/analytics provide platforms to efficiently cope with the massive amounts of data produced by edge devices taking advantage of greater available bandwidth. The network technologies to support IoT are also at an inflection point as 2G and 3G networks are starting to be retired while IoT-friendly variants of LTE are already coming online, from LTE Cat 1 to narrowband IoT (NB-IoT) and 5G. In this report, we dive deeper into the telco role for the next decade of IoT growth. We discuss how telecom operators are migrating from connectivity-driven service to non-traditional roles as solution integrators, full-service application providers and IoT ecosystem builders. The report includes a review of major developments in the telecom IoT landscape, including leading operator strategies and upstart strategies of vendors seeking to displace operators, such as IoT MVNOs and unlicensed-spectrum service providers. The geographic focus is primarily on the North American and European markets, where the rates of investment and evolution are particularly rapid and impactful right now. IV
TELECOM IOT STRATEGIES AND REGIONAL MARKET OUTLOOK EXECUTIVE OVERVIEW METHODOLOGY Our research and findings are based on discussions with leading telecom operators concerning their IoT strategies and network planning, as well as their partnership strategies, value propositions and commercial performance. The companies covered include AT&T, Verizon, Sprint, T-Mobile, KORE, Aeris, Arkessa, Orange, Telenor, Deutsche Telekom (DT), Telefónica and Vodafone. In North America we also include references to Rogers, Telus and Bell Canada. Later in the report we assess in detail the IoT strategies of four of the most active players in Europe: Orange, Vodafone, DT and Telefónica. We focus heavily on North America and Western Europe within this report because these regions are highly competitive and offer a wide range of strategies. Toward the beginning of the report, we also include regional and global forecast data for cellular M2M connections and refer to survey data from our Voice of the Enterprise: Internet of Things (VoTE: IoT), Workloads and Key Projects 2016 study, conducted in Q1. Reports such as this one represent a holistic perspective on key emerging markets in the enterprise IT space. These markets evolve quickly, though, so 451 Research offers additional services that provide critical marketplace updates. These updated reports and perspectives are presented on a daily basis via the company s core intelligence service, 451 Research Market Insight. Forward-looking M&A analysis and perspectives on strategic acquisitions and the liquidity environment for technology companies are also updated regularly via Market Insight, which is backed by the industry-leading 451 Research M&A KnowledgeBase. Emerging technologies and markets are covered in 451 Research channels including Business Applications; Cloud Transformation; Data Platforms and Analytics; Datacenter Technologies; Development, DevOps and IT Ops; Enterprise Mobility; European Services; Information Security; Internet of Things, Mobile Telecom; Multi-Tenant Datacenters; Networking; Service Providers; Storage; and Systems and Software Infrastructure. Beyond that, 451 Research has a robust set of quantitative insights covered in products such as Voice of the Connected User Landscape, Voice of the Enterprise, Cloud Price Index, Market Monitor, the M&A KnowledgeBase and the Datacenter KnowledgeBase. All of these 451 Research services, which are accessible via the web, provide critical and timely analysis specifically focused on the business of enterprise IT innovation. For more information about 451 Research, please go to: www.451research.com. V
Table of Contents 1. ADOPTION OF IOT IN DEVELOPED MARKETS 1 Figure 1: More than Two-Thirds of Survey Respondents Are Using or Piloting IoT...................... 1 Figure 2: Datacenter IT Equipment Is Most Popular IoT Endpoint in Use............................ 2 Figure 3: Motivation Behind IoT Projects Varies by Vertical..................................... 2 2. GLOBAL TELECOM OPERATORS EVOLVING IOT STRATEGIES 3 Figure 4: Telecom Operators Options for IoT............................................... 3 WHOLESALE............................................................... 3 MANAGED CONNECTIVITY...................................................... 4 Figure 5: M2M ARPCD Forecast by Region (USD per Cellular Connected Device/Month).................. 4 IOT SMART PIPE............................................................. 4 END-TO-END SOLUTIONS....................................................... 5 3. TELECOM IMPLICATIONS OF LPWAN AND 5G 6 5G AND IOT................................................................ 6 4. NORTH AMERICA: US BIG FOUR TAKE DIFFERENT TACKS ON IOT 7 UNITED STATES.............................................................. 7 Figure 6: US Active M2M Lines by Operator Q1 2014-Q1 2016.................................. 7 Figure 7: Verizon and AT&T Timelines for Supporting IoT LTE Variants.............................. 8 CANADA.................................................................. 9 Figure 8: Canada Active M2M Lines by Operator Q1 2014-Q1 2016.............................. 9 Figure 9: IoT Cellular Connections North America......................................... 10 NORTH AMERICA DEEP DIVES................................................... 11 5. WESTERN EUROPE: OPTING FOR NB-IOT AND SELECTIVE USE OF UNLICENSED ALTERNATIVES 14 Figure 10: IoT Cellular Connections Western Europe....................................... 14 WESTERN EUROPE DEEP DIVES.................................................. 15 VI
TELECOM IOT STRATEGIES AND REGIONAL MARKET OUTLOOK EXECUTIVE OVERVIEW 6. CHINA AND JAPAN DRIVE ASIA-PACIFIC OPPORTUNITY 17 Figure 11: Cellular Connected IoT Forecast Asia-Pacific..................................... 17 Figure 12: Cellular Connected IoT as Percentage of Mobile Lines Asia-Pacific (Select Countries).......... 18 7. CONCLUSIONS AND RECOMMENDATIONS 19 8. FURTHER READING 20 9. INDEX OF COMPANIES 21 VII