With user connections quickly reaching saturation point, telcos are looking to machine-to-machine (M2M) communications as a new revenue driver, research firm Frost & Sullivan said in an analyst briefing this week.
Yiru Zhong, research analyst for ICT at Frost & Sullivan, said telcos have refreshed their resources and approaches to introduce interim services for the M2M market more effectively.
She noted that telecoms have come under increasing pressure, as global ICT spending growth has slowed in the past two years. Zhong pointed to the World Bank's global economic outlook, which shows world GDP contracted in 2009, with less than 4% real growth in 2010. “ICT spending as a percentage of GDP is likely to fall further as GDP recovers,” she added.
“The reality is the telecoms industry is facing a demand landscape of lower absolute spending ability, and telcos need to be innovative in their service offering to capture new kinds of revenue.”
Another factor fuelling diversification is a maturing telecoms industry, said Zhong, as markets for consumer communications reach saturation point. “Telcos are seeing the bulk of their traditional services maturing, and looking to connecting machines now that connecting humans is well on its way.”
She pointed to the explosive growth in connectivity, with the world's four billion mobile connections in 2008 - a population penetration of 60% - jumping to five billion the year after.
“Meanwhile, the number of machines that are connected is still relatively low, and the potential of linking these remote machines at the 15-to 16-billion mark is promising.”
Machine-to-machine is broadly defined as communications between machines without the need for human physical intervention to facilitate, record or track an event, explains Frost & Sullivan. It is used in sectors such as transport, healthcare, oil and gas utilities, retail, public safety and environmental services.
ABI Research forecast earlier this year that the mobile M2M connectivity market will grow from 58 million connections globally in 2008 to approximately 225 million in 2014, a compound annual growth rate of about 25%.
Connected everywhere
According to Zhong, an increasingly digitalised environment has changed the way people use media. “An overall digital society makes connecting devices easier, as well tracking, recording and analysing a specific event. This enables businesses to achieve cost efficiencies, by looking at the potential to automate previously human activities.”
Gartner research shows there are one billion transistors for every human on the planet, with 30 billion RFID tags to be embedded into products by this year. “The number of 'smart' devices is growing every day and the volume of data they produce is growing exponentially - doubling every 18 months,” the firm states. It predicts five times more data will be stored in 2012 than in 2008.
“By 2012, more than $150 billion of global telecom spending will shift from services to applications. This will reshape the telecoms industry as service providers transition their business models to these new services, while at same time moving away from traditional siloed voice services,” it says.
Zhong concurs, saying telcos are now looking at markets in the M2M communications space, such as telematics, for new revenue streams.
Niche strengths
She noted that wireless network providers can tap the strength of their core communications networks, as they can offer local and international connectivity, ensure security of transactions, and speed to market.
“Telcos certainly believe they are able to offer a direct route to customers and provide both the hardware and software parts to enable an end-to-end solution,” said Zhong. “This is mostly because of their connectivity assets, and their ability to provide the analytics that will be necessary in current and future end-to-end functions.”
She pointed out that telcos see their core assets as differentiating factors to the niche interim service providers, and are taking on several activities in the value chain that were previously undertaken by M2M vendors.
“They definitely see themselves as a group of new entrants competing credibly with the more traditional players because of their overall network coverage, ease of deployment, and ability to enable cost efficiencies to the customer.”
Telcos are also capable of fulfilling some of the traditional integration, connection and analytics functions, partly because many already enable such services as part of their enterprise offering, which usually comes not just with connectivity but an IT communications services component.
All together now
Zhong pointed out there are still unresolved issues in the market, most importantly the security of transactions. “One outstanding issue is intelligence - who owns the data being communicated and how should it be protected?”
Another issue, she said, is optimisation throughout verticals. Zhong explained that the industry still faces standardisation and interoperability challenges, as various players including device manufacturers, system integrators, applications developers, M2M vendors and telcos all have to be able to function together for ease of deployment.
“Each vertical seems to have different requirements for the entire architecture, including devices modules and SIMs. Until we find a way to standardise how things are done we will continue to have fragmentation and interconnectivity problems.”
She said future collaboration and standardisation efforts are necessary, which are currently idling, and eventual cooperation between sectors will enable complete end solutions to customers.
“The immediate market remains fragmented, with a mix of traditional interim providers and telcos. We see this landscape becoming more transparent, and when this happens there's potential for consolidation.”
The main point, Zhong stressed, is that telcos are now credible market entrants, especially since reorganising to enable M2M focused solutions. “There is real growth potential for telcos and the rest of the market, driven not only by increased demand, but also as new players reorganise their resources to facilitate interim connectivity and solutions.”
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