The IoT Predicament
While telecom service providers see the big opportunity IoT offers, given the current financial health of the telecom sector they may be able to immerse in it completely only after a couple of years.
The world is not prepared for the onslaught of complexity that will result from 50 billion powerful devices in homes, offices, factories, and cities that will eventually break or suffer connectivity issues. Companies and industrial users, which are bringing Internet of Things (IoT) technology to everything from jet engines to mining equipment, have particularly complex needs.
However, telecommunication companies – with their long-standing ability to connect millions of devices to complex networks – are in a unique position to serve as active partners to commercial IoT customers, whom we expect to propel the IoT market to USD 470 billion.
First, only telcos have the necessary experience to deliver scale connectivity solutions at the center of the IoT. Second, telcos are also the only players with experience managing extensive directories and the life cycles of millions of devices. They also have a strong position developing and managing analytics at the edge of the network across a range of industries and uses. These strengths, combined with their trusted status, leave telcos uniquely qualiﬁed to facilitate the delivery of IoT solutions, says an insight paper by Bain & Company.
Together, these advantages provide telcos with a three-layered opportunity they can use to develop unique, differentiated strategies for the IoT.
Connectivity. Accustomed to navigating all manner of compliance and regulatory schemes, only telcos have the experience needed to keep a full-scale, global IoT industry tethered at the center – where billions of devices must interconnect with analytics engines and data centers. Telcos have an edge here, with the hard experience and capabilities needed to keep the IoT connected and humming along, as well as the trust of most businesses, consumers, and governments to do so.
Life cycle management. Meanwhile, established telcos know what it takes to manage the millions of phones, tablets, and other devices on their networks – from initial activation to secure decommission. And by 2020, everything from home thermostats to factory controllers may need the same type of managed upgrade as a smartphone, amounting to a USD 28 billion market globally. That is another huge opportunity for telecommunications companies to expand on something they are already good at. No other player in the IoT ecosystem has more life cycle-management experience than telecommunication companies. Their chance to seize that advantage is now, before others fill the emerging need for device-management solutions.
Vertical platforms. Finally, telcos are in a position to create powerful platforms that companies could use to manage their devices or improve their data use and analysis. Telcos could operate the directory and registration of devices, while also taking care of maintenance, upgrades, and decommissioning for consumer or industrial companies.
NB-IoT Networks or LTE-M
Telecoms operators’ more focused approach to bolstering their IoT businesses appears rooted in refining the technology inherent in their connectivity networks.
According to Analysys Mason analysts, Tom Rebbeck, Michele Mackenzie, and Ahmed Ali, operators have been generally centered on building out narrow band IoT (NB-IoT), which enables devices to be connected through bandwidths used by mobile phones, as well as LTE-M – which enables battery-operated IoT devices to connect directly to a 4G network without a gateway.
Analysys Mason also asserts that telcos have been working with the broader ecosystem, including developers, cloud players, and hardware vendors this past year – all of which should set the market up for an active 2018.
Some of the developments investors may anticipate in the year ahead include an uptick in the building of NB-IoT networks by Chinese mobile operators, while the United States of America is expected to continue its lead in LTE-M.
Further research indicated operators will launch NB-IoT and LTE-M, as opposed to separate deployments. The cost of upgrading from one standard to both is relatively small, around 10–20 percent for both technologies, for many operators, the question will be which technology to prioritize, and when to launch, rather than selecting only one of the technologies.
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 percent) of overall potential IoT revenue to the telecom services provider. Given this, telcos have increasingly also started to venture into building/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 percent value in the end-to-end value chain taking the telco share to ~40 percent of the overall value.
As they try to expand their footprint in the IoT value chain with an eye on improving the revenue quantum, telcos face a couple of key challenges, says Dr Shekhar Tankhiwale, head of business and IT transformation:
Emergence of low power WA (LPWA) solutions poised to replace existing high-bandwidth/narrow range technologies for connectivity, necessitates telcos to devise strategies to defend connectivity role/revenue in the emergence of LPWA solutions. 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. These forecasts include all the LPWA technologies that Strategy Analytics expects to be available in the market: the 3GPP standards-based LPWA solutions in the licensed spectrum, including EC-GSM-IoT, LTE MTC Cat M1, and NBIoT, as well as unlicensed spectrum solutions. Globally, Strategy Analytics forecasts that LPWA revenue will reach USD 13.9 billion in 2022 of which Europe will be contributing USD 3.1 billion.
Limited telco play in End2End (E2E). IoT value chain is primarily limited to connectivity and platform provider role for its B2B/B2C customers. 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 (IoT applications) and not being able to maximize the revenue potential for their connectivity and platform services.
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 an investment. However, Telstra, Telefonica, Deutsche Telecom, and other players 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 yet providing end-to-end health solutions that require a 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 the M&A route to bridge the domain gaps.
As new IoT manufacturers reach out to the telecom industry with their product lines, they may fail to understand the telecom industry and its security needs. Unfortunately, the burden of IoT security falls on telecom operators who need to understand the problems that IoT devices face as consumers have come to rely upon them for secure service.
IoT devices bring additional attack surfaces into organizations due to a lack of secured software and connectivity standards. HP discovered that 80 percent of IoT devices currently in use lack complex passwords and 60 percent have exploitable user interfaces. Personal data stored on the devices often have poor or no security measures, which can expose information such as user names and passwords to an attacker. Telecom operators need to provide encryption and secure authentication for IoT connections to limit the attack surface potential of these devices.
The IoT market will bring many innovative products to the telecommunications industry. The key to thriving in the IoT world is understanding the inherent security risks and addressing telecom-specific concerns directly instead of relying on manufacturer input.
Tethered to 5G
Although many analysts envision large-scale, global IoT connectivity, the technology appears to remain reliant on the successful implementation of 5G technology, which is widely expected to open up a vast array of services, including for broadband, mobile, and IoT, as well as the necessary bandwidth and low latency for 3D and virtual reality (VR) applications.
Indeed, analysts believe 5G will transform society by enabling new applications that connect people to everything. The emerging new technology is set to provide the agility, speed, and efficiency required by new services, as well as massive scale, which the projected surge in IoT devices will demand.
Wireless companies will deploy 5G coverage where they have an embedded fiber footprint and in urban areas. Despite industry experts’ upbeat views about the benefits of 5G, execution of the next-gen technology has been met with some skepticism – mainly on the grounds of financing. The cost of a dense millimeter wave 5G network is too high for a full national overlay. Analysts widely believe 5G simply will not come to fruition if the requisite small cell or fiber networks are not in place to deliver services.
The global IoT telecom services market size is estimated by MarketsandMarkets to grow from USD 2.90 billion in 2016 to USD 17.67 billion by 2021, at a compound annual growth rate (CAGR) of 43.6 percent.
North America is expected to hold the largest market share and would dominate the IoT telecom services market from 2016 to 2021, due to the presence of a large number of IoT telecom service providers offering tailored solutions to multiple application areas. North America has been witnessing a high adoption of IoT telecom services on a large scale as it is one of the early adopters of smart technologies. APAC offers potential growth opportunities for the IoT telecom services market to grow, as countries in the region are investing heavily in the development of IoT telecom services owing to major instances of rising adoption of smart devices and smart technologies.
The major vendors in the IoT telecom services market include AT&T, Inc. (U.S.), Ericsson (Sweden), Verizon Communications, Inc. (U.S.), Deutsche Telekom AG (Germany), and Huawei Technologies Co., Ltd. (China), among others.
The Indian Market
Indian telecom operators are repositioning themselves using digital platforms like IoT that combine connectivity, data, analysis, security, mobile, and cloud to support business. The real driver is reducing operational expenditure while enabling end-users to consume technology in a business focused manner, thereby saving time and money.
The modus operandi – Indian telecom operators are using their network infrastructure to deliver IoT solutions, consumer applications, and managed services to enterprises. Another potential revenue stream being tapped is application enablement platforms (AEP) that enable developers to rapidly deploy IoT application or services.
Reliance, Jio and Samsung have joined hands to deploy a nationwide cellular IoT network in India. The commercial NB-IoT has already been established in Mumbai in February this year. The aim is to roll out India’s first IoT network with new use cases for both the consumer and enterprises such as vehicle tracking, smart appliances, smart metering, security, surveillance, and more. The company plans to create an entire ecosystem before the rollout. Rather than doing a city-by-city launch, they plan to launch IoT pan India.
Tata Communications has recently announced its partnership with HPE to roll out a LoRa-based IoT network in India. The company is deploying one of the largest LoRa networks in India primarily focused on IoT spread across the geography, starting from Tier-I cities and depending on the requirements, it would be deployed down to Tier IV cities as well. The IoT platform is pegged an enabler for any application provider and can be leveraged across various verticals – retail, healthcare, manufacturing to even telecom. Tata Communications expects the telecom industry to be its number 1 use case, as it has tons of equipment that can be managed through this platform. It plans to roll out both licensed (i.e., 3GPP compliant Cat-M1 and NB-IoT modules) and unlicensed technology such as LoRa. LPWA too is on the roadmap.
Bharti Airtel’s role in IoT plays out through its connectivity management platform – a one-stop solution for all the IoT connectivity needs of global carriers and OEMs of connected devices planning to gain a toehold in India. The service provider has also teamed up with Nokia to advance the 5G technology standard and enhance the management of connected devices on IoT. In September 2017, Bharti Airtel partnered with SK Telecom to use its specialized network operating system, T Advanced Next Generation Operational Supporting System, also known as TANGO, which is an AI-assisted network operating system with big data analytics and machine learning capabilities. It features virtualization capabilities, helping mobile carriers to adopt new network capabilities, which include IoT and 5G. In November 2017, Bharti Airtel partnered with Amdocs to deploy machine learning and AI-based technologies across Airtel’s multiple lines of business.
Recently, BSNL entered into an agreement with Coriant to collaborate on the deployment of 5G and related technologies in the Indian networking ecosystem. As part of its strategic collaboration, BSNL and Coriant will work together to develop 5G and IoT use cases such as rural connectivity, connected healthcare, industrial automation, public safety, video surveillance, energy, and agriculture.
Hailed as the consistent global leader in IoT services by analyst firm Machina Research for the fifth year in row, Vodafone provides seamless IoT services, with IoT connections growing by 38 percent. Vodafone IoT service platform is a ready to use, self-service web interface that enables businesses to access vital information to reduce the costs of deploying and maintaining IoT solutions. Vodafone’s IoT solutions range from Smart Metering that enables monitoring domestic gas usage, large-scale grid management to wireless payments that enable end-to-end transactions between end devices and payment gateways. As part of its technology initiatives, Vodafone India recently launched an integrated solution known as SuperIoT which includes IoT applications like vehicle tracking, asset tracking, and people tracking. It is an industry-first solution that enables end-to-end management of device, application, connectivity, service platform support, and security.
However, Indian telecom operators’ lack of interest in buying the 5G spectrum till 2019 indicates that their chance to grab the IoT business opportunity will be in jeopardy for some time.