M2M insights for mobile network operators

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1 About Analysys Mason 1 M2M insights for mobile network operators March 2013 Steve Hilton Executive summary Mobile network operators (MNOs) have an opportunity to seize upon the burgeoning growth in the machine-tomachine (M2M) ecosystem. The number of wireless M2M device connections around the world looks set to grow strongly from 102 million in 2012 to 2.0 billion in Total worldwide M2M connectivity revenue will increase from USD6.5 billion to USD51 billion during the same period. This Viewpoint provides five recommendations to help MNOs foster growth in their M2M businesses. Invest in a dedicated M2M team and infrastructure. Focus on a communications-rich offering with value-added services. Establish credible partnerships. Ensure network security with robust, scalable device certification processes. Implement a solution-based business model. These recommendations (see Figure 1) are based on Analysys Mason s research and discussions with MNOs around the world. Figure 1: Elements of a successful M2M business [Source: Analysys Mason, 2013] Solution-based business model Dedicated M2M team and infrastructure Secure network with device certification processes Communications -rich offering with value-added services Credible partnerships

2 M2M insights for mobile network operators 2 This Viewpoint presents insights into the latest developments and challenges facing MNOs, and looks at the principal requirements of enterprise M2M buyers. It then presents the results of proprietary research into the net present value (NPV) of device connectivity management platforms; this research has shown that M2M service platforms supplied by vendors can create a NPV that is more than double that of those deployed under other models such as internal development or using legacy platform infrastructure. Recommendations for operators MNOs offering an M2M solution can benefit from following these five recommendations. Dedicate a team and technical infrastructure specifically to M2M business. The MNOs that have the most successful M2M businesses have teams that are dedicated to M2M business activities including marketing communications, product marketing, sales support, platform support and partnership management. These MNOs have the human resources to best address the unique needs of the M2M ecosystem, which include long sales cycles, intensive presales effort and a solutions-based sales approach. MNOs that dedicate M2M infrastructure primarily at the platform layer, but also key pieces of network hardware such as core elements will also be able to bring solutions to market more quickly, provide a more customised M2M solution to enterprises, and offer better service-level agreements (SLAs) to help improve customers critical business processes. A dedicated team and infrastructure are required for any MNO wanting to enter the M2M market, irrespective of its long-term growth strategy. Focus on communications plus a series of value-added services. MNOs should offer M2M solutions that focus on communications, plus a clearly defined set of value-added services including billing and rating, billing on behalf of enterprise customers, customer support as a service, network connectivity, consultancy services and other systems integration that has an impact on networks and communications. MNOs should also develop a robust set of SLAs around their network and ancillary services to help differentiate their M2M offerings and provide enterprise-grade quality of service (QoS). We generally do not recommend that MNOs offer a large number of M2M applications. Applications development, testing, implementation and management are competencies often better done by other players in the M2M ecosystem. MNOs may have the resources and skills to compete develop some M2M applications, but identifying and selecting these applications requires careful business and technology planning. Seek well-known, credible partners for key infrastructure and connectivity platform enablement. Picking well-known M2M partners that offer unique M2M solutions and integrated offerings is critical for a well-run M2M business. A partner s technology offering is important, but equally important are those partners that bring enterprise customers to an M2M business. We highly recommend finding partners that have experience with enterprise customers in key M2M sectors, including energy/utility, automotive, healthcare and industrial/heavy manufacturing. Partners should have extensive R&D capabilities and the ability to support an MNO s business needs at an international level. Those partners that have a deep understanding of core networks can provide ancillary support and ensure optimal integrations between established and new infrastructure. It is also important to choose partners that can support multiple MNOs and facilitate the creation of worldwide M2M footprints. Enterprises seek simplicity in the provisioning and management of devices, so having multiple MNOs using the same platforms adds value to an enterprise s M2M deployment. Protect businesses and infrastructure with appropriately designed certification processes and support. M2M certification processes are critical to protect business and network assets. M2M certification processes also need to be specifically tailored to the unique needs of M2M suppliers rather than traditional smartphone suppliers. Partners can offer outsourced certification support for M2M businesses. Certification

3 Mobile M2M connetions (billions) M2M insights for mobile network operators 3 also helps device manufacturers to reduce support and usage costs and time to market, thereby lowering the total cost of an M2M solution for enterprises. Follow a solutions-based sales approach that addresses the changing nature of M2M business models. M2M pricing must be uniquely created to support enterprises changing business models. MNOs must consider various M2M pricing strategies, including subscription sales, pay-per-use and prepaid approaches in B2B, B2C and B2B2C models. These strategies help link an MNO s success to the business models of enterprise customers. Forecast The market for M2M services is one of the fastest-growing areas within the communications sector. The worldwide market for mobile M2M device connections will increase from 102 million devices in 2012 to 2.0 billion connections in 2021 (see Figure 2). The fastest-growing sectors will be utilities, healthcare, security and automotive/transport, growing at respective compound annual growth rates of 51%, 44%, 36% and 27%. The largest sectors by number of connections by 2021 will be utilities, with 1.3 billion, followed by automotive and transport with 451 million, and security with 279 million. Figure 2: Mobile M2M device connections and developed markets share of connections, worldwide, [Source: Analysys Mason, 2013] % % % % 0% Mobile M2M connections Developed markets' share of connections Total revenue from worldwide M2M connectivity is forecast to increase from USD6.5 billion in 2012 to USD51 billion by 2021, at a CAGR of 26% over the forecast period. Mobile operators share of worldwide revenue will increase from 74% to 84% during the same period, because most new M2M deployments will be over mobile networks. Mobile networks generally provide enterprises with a more affordable connectivity solution for most of the device connections in our forecasts. MNOs and their partners are also creating solutions to increase the speed of deployments and management of solutions, thereby making mobile networks more desirable relative to other M2M connectivity options.

4 Revenue (USD billions) ARPU (USD per month) M2M insights for mobile network operators 4 We expect that MNOs in developed countries will continue to focus their efforts on building scalable, multiregional M2M business during the next 2 3 years, in order to capture the anticipated revenue growth. We expect these operators to focus on the M2M deployments with the highest ARPU and most readily understood business models, namely M2M solutions in the automotive and transport, utility and security sectors (see Figure 3). Figure 3: M2M connectivity revenue by industry sector and total connectivity ARPU, worldwide, [Source: Analysys Mason, 2013] Utilities Security Automotive and transport Healthcare Retail Government Financial services ARPU The financial services, government, and automotive and transport sectors will have the highest ARPU rates throughout the forecast period. The financial services sector generally demands high levels of security and SLAs associated with its connectivity. This allows operators to charge a premium compared with lower-quality connections. Government-sector applications involve video-based solutions requiring higher ARPU-generating fixed-line connectivity. Automotive sector solutions, particularly fleet management, continue to provide healthy ARPU, because enterprises find strong returns on investment in reducing fuel consumption and labour-related expenses associated with fleet operations. Key challenges for MNOs offering M2M services This section examines three key challenges for MNOs as they consider offering M2M services (see Figure 4). We present some of the overall strategic insights and recommendations for MNOs, which highlight some of the pressing concerns and opportunities faced by MNOs in developed and emerging regions. These insights also include key recommendations for building successful MNO M2M businesses. We then discuss some common current and future M2M requirements of enterprises. These requirements drive strategic and tactical plans for MNOs and the partners supporting them. Finally, we look at the value of M2M partnerships with particular emphasis on the platform layer. M2M partnerships that provide both technology and sales channel enablement are poised for optimal success in the market.

5 M2M insights for mobile network operators 5 Figure 4: Key challenges for MNOs offering M2M services [Source: Analysys Mason, 2013] Opportunity prioritisation Dedicated business unit considerations Network security and device certifications Solutions-based business model Communications-centric offerings Service level agreements (SLAs) Value-added services Simplicity in geographic roll-out Economies of scale Time-to-market considerations TCO comparisons for platform deployment models Strategic insights and recommendations Enterprise requirements Partnerships and platform Strategic insights and recommendations for MNOs Opportunity prioritisation key industry sectors MNOs are focusing on a small number of key industry sectors in order to attain the highest levels of M2M growth. These sectors, according to MNOs, will yield the highest cash flow during the next few years. According to data collected from seven large MNOs and recently published in Analysys Mason s M2M scorecard for communications service providers: 2012, 1 MNOs are focused most keenly on the automotive, energy and security/surveillance sectors. Figure 5 presents the average rankings for industry sectors that MNOs gave in the M2M scorecard. Figure 5: Top M2M industry sectors for MNOs [Source: Analysys Mason, 2013] Industry sector Ranking of importance (1 = most important; 10 = least important) Automotive 1.1 Energy 3.7 Security/surveillance 4.9 Consumer electronics 5.3 Asset tracking 5.7 Industrial/manufacturing 6.1 Retail 6.4 Healthcare 6.9 Financial services 8.2 Smart cities 8.5 Given the myriad opportunities in the evolving M2M ecosystem, MNOs must identify their target industry sectors. Success is likely to depend on operators ability to target a small number of sectors with the greatest potential. However, niche opportunities are also available for all MNOs, either because of unique geographical coverage or established enterprise relationships. Niche opportunities may arise in the heavy equipment or construction sectors, in mining and agricultural sectors, or in the government or public safety sectors. 1 Available at

6 M2M insights for mobile network operators 6 Dedicated business units MNOs need dedicated M2M business units. Large and small MNOs benefit from centralised M2M teams that are responsible for M2M product development, platform support and marketing. Sales organisations can be both centralised and local. According to our M2M scorecard, small MNOs need organisations of around 50 employees, whereas larger CSPs need 150 or more employees for an M2M business unit. MNOs in the process of forming M2M business units should create a structure similar to the one put in place by TeliaSonera. TeliaSonera Global M2M Services is a dedicated unit within the TeliaSonera group with a full global M2M business responsibility. Hans Dahlberg, TeliaSonera (Head of Global M2M Services) The TeliaSonera Global M2M Services unit is set up with the following functions, reporting to a global head of TeliaSonera M2M. Product management: Global ownership of the M2M product portfolio and offerings. Special sales: Driving M2M sales activities across all regions. Supports local sales teams with local dedicated special sales resources and drives individual M2M opportunities. Partner and marketing: Responsible for partner programmes and ecosystem creation, providing the full value-chain of joint customer solutions. The programme also heads up global M2M marketing and public relations. Network security and device certifications Maintaining mobile network security is important for any MNO and an M2M business needs to consider the impact it makes on overall network security. One of the key considerations for maintaining network security is creating acceptable device certification processes for an M2M business. Several years ago, the standard mobile device certification processes used by MNOs were onerous when applied to the M2M world. MNOs generally expected their M2M suppliers to follow the same device certification processes as suppliers of smartphones and feature phones, which led to extremely long and expensive M2M device certification processes. However, MNOs now have device certification processes tailored to the needs of the M2M ecosystem. As MNOs increase the scale of their businesses, we believe they should revisit their M2M device certification processes and in some cases consider outsourcing these processes to third parties like Ericsson. Communications equipment vendors can supply device certification programs that scale with MNOs M2M businesses. These programs, when coupled with other pieces of an M2M portfolio, can allow an MNO to focus on the pieces of the M2M supply chain of greatest value. Ericsson s global market leadership makes it a true one-stop-shop for device and application verification Glenn Lurie, AT&T (President of Emerging Devices, Resale and Partnership)

7 M2M insights for mobile network operators 7 Solutions-based business model Discussions with enterprises about pricing should be solution-based rather than focused on a price per megabyte per device or connection. MNOs must price M2M solutions to highlight the value of the connectivity plus ancillary services. Tariffs that mimic consumer mobile broadband service are not necessarily the best option for enterprises or MNOs. Enterprises require unique M2M pricing to match the alternative M2M business models. These business models B2B, B2B2C and B2C require MNOs to consider subscription-based pricing, payper-use and prepaid M2M rate plans. Telenor Connexion has a useful approach to pricing M2M connectivity solutions. Telenor Connexion uses a solution sales approach, not a simple SIM sales approach that is used in the consumer mobile broadband sector. It prices its products and services according to the enterprise s requirements in terms of: level of service types of information being collected off the network desire for its managed services offerings need for integration support expectations around enterprise-grade security. Our solution-based selling approach is essential in understanding and delivering on our customers key requirements. Our solutions and processes are integrated into our customers solutions so a traditional SIMbased sales approach is simply not applicable. We seek to empower our customers businesses and make them more competitive. Robert Brunbäck, Telenor Connexion (Chief Marketing Officer) Telenor Connexion does not simply price each M2M SIM at a flat or capped rate. Those consumer-style business models minimise the overall value of the enterprise connectivity solution, deliver a sub-optimal solution to the enterprise customer and therefore can result in negative end-user experiences associated with the complete M2M solution. Enterprise M2M requirements Enterprise M2M buyers have varying requirements for solutions and ongoing support. However, enterprise buyers have some common expectations when they engage with MNOs. Communications-centric offerings The core of an MNO s offering should be focused on communications and the value communications bring to an M2M solution. When large enterprises purchase any technology solution, they generally seek best-of-breed suppliers. Enterprises purchase M2M solutions from MNOs because MNOs are specialists in communication services. The entirety of an MNO s M2M solution should hinge on the communications-related value of the offering. Hitachi Construction Machinery s General Manager, IT Promotion Office Corporate Management Division, Fujio Matsuda states this concisely when speaking of his relationship with Telenor Connexion: Our relationship with Telenor Connexion allows us to take advantage of their global scale and footprint, including their strong track record of M2M managed connectivity solutions and mission-critical experience managing large-scale roll-outs. Some MNOs are focusing on the overall M2M customer experience. The customer experience extends from the early-stage awareness of an MNO s offering, through the sales process and implementation. MNOs that excel in

8 M2M insights for mobile network operators 8 providing a holistic customer experience can reduce churn, increase customer share-of-wallet and increase the probability of solution upselling. According to Dr Arkav Juliandri, General Manager of Cloud and Machine-to-Machine at XL Axiata, Rather than being trapped in the M2M price wars, XL believes that the industry must provide a better customer experience to its M2M enterprise customers. Especially for a new business like M2M, better customer experience is mandatory to support our expected exponential growth. As illustrated by Hitachi Construction Machinery, Telenor Connexion and XL Axiata, M2M offerings from MNOs must not be perceived as a lowquality, easily substitutable connectivity solution. Differentiation between MNOs often relates to the actual or perceived differences in the quality of the communications network and ancillary services, such as customer support, accompanying the underlying communications. Service-level agreements (SLAs) Enterprises expect high-quality M2M offerings from MNOs. Therefore, MNOs must position their solutions similarly to other enterprise-grade communications solutions and offer a relevant and supportable set of servicelevel agreements (SLAs) that reduce business and technology risks for the enterprise buyers. These SLAs allow MNOs to differentiate their offerings from other MNOs and convince enterprises of the quality of the solution. According to Analysys Mason s M2M scorecard, the best MNOs are able to provide SLAs associated with their network, platform, SIM-related logistics, customer support, trouble escalation, certification processes, and various other ancillary services that are meaningful for M2M customers. Not all enterprise buyers require SLAs, but MNOs that can offer solution assurances are more likely to convince enterprise buyers of the uniqueness and high quality of their offerings, compared with MNOs unable to offer SLA assurances. Offering SLAs is only one way that MNOs can convince enterprise buyers of the quality and reliability of their M2M services. Many MNOs dedicate infrastructure for M2M services; these dedicated infrastructure components assure a reliable and uniquely tailored M2M solution for enterprise buyers. The most commonly dedicated infrastructure includes the device connectivity management platform (often incorporating relevant billing and rating tools), HLR and GGSN. According to TeliaSonera, There are many different elements that need to be dedicated to M2M. At the network layer, we believe the core network nodes should be dedicated, including the GGSN, HLR and SMSC. At the platform layer we have dedicated M2M rating, billing and a device connectivity platform. In addition, we believe it is important to have a dedicated web interface for enterprise customers self-service, and specific, dedicated APIs for various integrations. Value-added services Many enterprise buyers are looking for an MNO to simplify the communications portion of an M2M purchase. Many enterprises are willing to purchase additional value-added services from an MNO, particularly if those value-added services are related to the communications portion of an M2M solution. Depending on an MNO s expertise and familiarity, these value-added services could include: SIM logistics support; billing and other operational systems support; portal design, development and testing; helpdesk support; packages of network consultancy services; and fixed-line, enterprise communications for secure, dedicated access. Many MNOs and some MVNOs bundle these types of value-added services into their offerings. An example would again be Telenor Connexion s engagement with HCM is an example. Telenor Connexion offers HCM four M2M solution components, including M2M connectivity, an operational services platform, a series of consultancy-related activities to drive continuous process improvement and a quality-of-experience package comprising rich SLAs and a service/helpdesk. By offering a solution with connectivity plus value-added

9 M2M insights for mobile network operators 9 services, Telenor Connexion creates a higher level of satisfaction, revenue and profit for its customer while differentiating its M2M connectivity offering from those of other operators (see Figure 6). Figure 6: Aspects of the Telenor Connexion M2M solution for Hitachi Construction Machinery [Source: Analysys Mason, 2013] Single provider 110-country deployment Complex billing and invoice splitting Custom reporting requirements Customised pricing plans Carrier M2M connectivity Operational services platform Quality of experience Continuous process improvement Network availability SLAs Service object SLAs Logistics enablement SLAs Service desk availability Joint technical workshops Technology and operations roadmap development Future service design Data aggregation and analysis and the actual enterprise applications are important aspects of an M2M solution for an enterprise buyer, but we believe that this layer of the solution is usually better provided by service providers other than MNOs. Independent software vendors, OSS vendors, systems integrators and specialty application consultancies have the resources, experience and cost structure to offer enterprise application, data aggregation and analysis solutions. Some MNOs have more experience in offering applications than others, but we recommend that MNOs carefully consider the financial and resource commitment required to successfully offer M2M applications and data aggregation and analysis. Communications operators have dabbled in offering applications in the past and some are partnering with, or in some cases, acquiring services companies, that create, test, implement and manage M2M applications. However, an MNO must make trade-offs in choosing its M2M focus areas. MNOs can possibly offer applications or data aggregation and analysis for particular M2M solutions, but in these cases the MNO must carefully weigh the overall value of the solution to the business and the opportunity costs involved. Geographic requirements M2M alliances Enterprise buyers who are procuring multinational or worldwide M2M services expect their MNO partners to provide a solution matching their geographic needs. These requirements sometimes necessitate a virtually worldwide footprint, at other times the geographic requirement is limited to a single country. These geographic requirements can prove difficult for many MNOs. Multinational roaming agreements are common in the mobile ecosystem, but the needs of enterprise buyers often extend beyond simple roaming requirements that impose stringent business model limitations. Enterprise buyers require common portals for provisioning, billing, trouble ticketing and other pieces of systems management.

10 M2M insights for mobile network operators 10 In order to start meeting these enterprise needs, MNOs have been forming operator alliances generally built around underlying MNO device connectivity management platforms. We believe these alliances provide more clarity around inter-carrier agreements for M2M roaming and eventually common platforms used by the carriers to facilitate simpler, cost-effective provisioning and management of SIMs. This would allow enterprises to have a common interface between enterprise resource planning applications or inventory management systems and multiple MNOs device connectivity management platforms. According to Orange Business Services, Orange strongly believes that the Global M2M Association (GMA) together with Deutsche Telekom and TeliaSonera is a great performance lever for M2M solutions implementation and management. Through this partnership, Orange commits to delivering best-in-class and seamless M2M services to customers across an extended European footprint, while sharing beneficial knowledge and processes with the GMA members and partners. Today in Europe, the GMA covers 28 countries representing 450 million people. We believe these MNO alliances will also address some of the more complex, inter-operator systems management challenges that enterprises face. The goal of these alliances is to increase QoS for M2M solutions both on-net and off-net. Being able to offer multi-country, multi-regional or worldwide SLAs to customers depends partially on an MNO s ability to provide consistent QoS when an M2M device is off-net. This requires inter-operator co-ordination of systems; a key mandate for these MNO alliances. On the technology side, platform vendors and SIM vendors have started to integrate deeply in order to support new requirements imposed by these MNO partnerships. There are several M2M alliances. Global M2M Alliance formed by Deutsche Telekom, Orange and TeliaSonera. In 2012, these operators agreed to work on roaming-related issues, systems management and other aspects of providing an enterprise-grade M2M solution. Multi-operator M2M Alliance formed by Etisalat, KPN, NTT DOCOMO, Rogers Communications, SingTel, Telefónica, Telstra and VimpelCom. These operators all use some version of the Jasper Wireless M2M device connectivity platform. Vodafone Alliance formed by Vodafone and several other operators, including Belgacom, which all use the Vodafone M2M device connection management platform. AT&T AT&T s ambition is to play a worldwide role in the M2M ecosystem. AT&T uses its AT&T Control Center Powered by Jasper Wireless or its custom-built Enterprise on Demand platform for device connectivity management. Partnerships and the value of the M2M platform Partnerships between MNOs and technology vendors are critically important in the M2M ecosystem. No single MNO is able to offer an enterprise a complete M2M solution, including chipset manufacturing, module manufacturing, equipment design, worldwide connectivity, platform enablement, portal development, application development, application management and systems integration. Partnerships are required to make the enterprise purchasing, implementation and ongoing management process feasible. One of the most important partnerships is that between the MNO and the provider of its M2M device connectivity platform. The device connectivity platform provides an MNO with three key benefits.

11 M2M insights for mobile network operators 11 Faster time-to-market Implementing a vendor s device connectivity management solution allows an MNO to launch M2M solutions more quickly than if the MNO had to build its own solution. Solutions can be implemented and launched within weeks, whereas it could take an MNO more than a year to custombuild its own device connectivity management solution. Continuous platform improvement Implementing a vendor s device connectivity management solution benefits an MNO as the vendor makes ongoing product improvements to the platform. Vendors provide these platform improvements funded by substantial R&D in subsequent product releases and allow the MNO to offer new services to its customers. The best vendors also allow their products to be customised for specific MNO needs, affording MNOs added flexibility. Economies of scale When an MNO launches its M2M business it needs a way to provision affordably and manage non-traditional devices in a financially sustainable way. The ARPU associated with M2M can be 10% or less than that of traditional smartphone and feature phone ARPU. Therefore, the costs of developing and running the operational support systems must match the expected revenue of the M2M business. Providers of device connectivity management platforms offer their solutions on a pay-as-you-go model. This reduces risks for the MNOs that adopt the solution and provides an affordable way to scale the system. If an MNO were to custom-build its own solution, it could incur large software and systems development costs, plus sizeable fixed costs of maintaining the system, irrespective of the number of M2M device connections. The device connectivity platform market is led by two major players Ericsson and Jasper Wireless which are capable of delivering these three key benefits. Each has a strong MNO user base and developed solution portfolio. They have also formed strong synergistic partnerships with SIM vendors Gemalto and Giesecke & Devrient (G&D), respectively, to manage dynamic SIM provisioning. Given the market positions of these device connectivity platform vendors, we do not anticipate others successfully entering this market in a substantial way. Analysys Mason recently completed an in-depth study looking at the operating cash flow impact of MNOs choice of one of the three implementation approaches for M2M device connectivity platforms. No M2M platform: The MNO elects to have no specialised device connectivity platform and chooses to use its legacy management platform, which is most commonly used for management of smartphone, mobile broadband and embedded laptop SIMs. The primary costs associated with this approach would be the incremental costs of using the legacy management platform. In-house platform: The MNO elects to build, test and implement its own device connectivity platform using either its own IT staff or systems integrator staff. The primary costs associated with this approach would be the incremental development costs of a new device connectivity platform. Vendor-supplied platform: The MNO elects to use a vendor-supplied M2M platform like the Ericsson Device Connection Platform, a cloud-based device connectivity platform. The primary costs associated with this approach would be pay-as-you-go usage fees to the vendor, based on the revenue generated from M2M sales to an MNO s customers. Over the five-year model horizon, the vendor-supplied M2M device connectivity management platform can create a net present value that is over 100% more than either of the other two M2M management system deployment options. Analysys Mason, analysis of NPV of device connection platform.

12 Net present value (USD millions) M2M insights for mobile network operators 12 At a relatively low volume of 1 million device connections, the vendor-supplied M2M connectivity management platform allows an MNO to create 14% more net present value (NPV) than an in-house developed solution, and 71% more NPV than using legacy platform infrastructure (that is, no unique M2M solution) in a five-year period. The higher NPV from the vendor-supplied solution derives both from costs savings from deployment and integration, and revenue generation from faster time-to-market and enhanced features (see Figure 7). Figure 7: Five-year net present value of three M2M device connectivity management platforms with 1 million device connections [Source: Analysys Mason, 2013] No platform In-house platform Vendor-supplied platform At 3 million device connections, the vendor-supplied M2M platform also provides a higher NPV than both alternative deployment options. At 3 million connections, the vendor-supplied M2M platform yields a NPV that is 137% higher than the option where an MNO has no specialised M2M device connectivity platform. The NPV from the vendor-supplied M2M platform is also 13% higher than the next-best alternative, the in-house built M2M solution (see Figure 8). However, none of these NPV calculations takes account of the significant risks of building an in-house solution. These risks include potential development and integration delays; misspecification of system requirements; and changes in M2M market dynamics during the implementation process. These risks, if factored into the model, would increase the NPV of the vendor-supplied M2M platform, making it an even more desirable approach than the two other deployment options. The vendor-supplied M2M connectivity management platform solution with its cloud-based, pay-as-you-go pricing model, allows an MNO to share the risk of an M2M implementation with its vendor partner, by reducing total cashflow outlays significantly during the five-year model horizon. During the five-year model horizon, the vendor-supplied solution could create a NPV that is more than 100% higher than either of the other device connectivity system deployment options.

13 Net present value (USD thousands) M2M insights for mobile network operators 13 Figure 8: Five-year net present value of three M2M device connectivity management platforms with 3 million device connections [Source: Analysys Mason, 2013] No platform In-house platform Vendor-supplied platform Conclusion MNOs that seize the opportunity to build vibrant, communications-centric M2M businesses have a chance to capture their fair share of a USD51 billion connectivity revenue business by 2021, plus billions more dollars worth from value-added services including managed services, network systems integration and consultancy services. Offering M2M services to industry sectors including energy/utilities, automotive/transport, healthcare, public safety, security/surveillance, consumer electronics and others gives MNOs the ability to supplement their established enterprise lines of businesses with a series of new offerings. Enterprise buyers require high-quality, reliable M2M solutions from MNOs. The best MNOs are establishing dedicated business units and infrastructure to take advantage of the opportunities. They are carefully weighing the various M2M opportunities presented and selecting partners that can provide both world-class technology and channel-to-market support. These MNOs will be rewarded with national and international M2M business opportunities during the next decade and beyond.

14 2 About Analysys Mason 14 About Analysys Mason Knowing what s going on is one thing. Understanding how to take advantage of events is quite another. Our ability to understand the complex workings of telecoms, media and technology (TMT) industries and draw practical conclusions, based on the specialist knowledge of our people, is what sets Analysys Mason apart. We deliver our key services via two channels: consulting and research. Consulting Our focus is exclusively on TMT. We support multi-billion dollar investments, advise clients on regulatory matters, provide spectrum valuation and auction support, and advise on operational performance, business planning and strategy. We have developed rigorous methodologies that deliver tangible results for clients around the world. For more information, please visit Research We analyse, track and forecast the different services accessed by consumers and enterprises, as well as the software, infrastructure and technology delivering those services. Research clients benefit from regular and timely intelligence in addition to direct access to our team of expert analysts. Our dedicated Custom Research team undertakes specialised and bespoke projects for clients. For more information, please visit 2 Published by Analysys Mason Limited Bush House North West Wing Aldwych London WC2B 4PJ UK Tel: +44 (0) Fax: +44 (0) research@analysysmason.com Registered in England No Analysys Mason Limited 2013 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher. Figures and projections contained in this report are based on publicly available information only and are produced by the Research Division of Analysys Mason Limited independently of any client-specific work within Analysys Mason Limited. The opinions expressed are those of the stated authors only. Analysys Mason Limited recognises that many terms appearing in this report are proprietary; all such trademarks are acknowledged and every effort has been made to indicate them by the normal UK publishing practice of capitalisation. However, the presence of a term, in whatever form, does not affect its legal status as a trademark. Analysys Mason Limited maintains that all reasonable care and skill have been used in the compilation of this publication. However, Analysys Mason Limited shall not be under any liability for loss or damage (including consequential loss) whatsoever or howsoever arising as a result of the use of this publication by the customer, his servants, agents or any third party.