OPERATOR APPROACHES TO IoT: FROM CONNECTIVITY TO PLATFORMS AND FULL SOLUTIONS

analysysmason.com RESEARCH STRATEGY REPORT OPERATOR APPROACHES TO IoT: FROM CONNECTIVITY TO PLATFORMS AND FULL SOLUTIONS TOM REBBECK Analysys Mason Limited 2016

About this report This report analyses the roles that telecoms operators can play in the IoT market. It describes four approaches that operators can take to the IoT value chain, based around: connectivity a generic platform a vertical-specific platform an end-to-end solution. The report provides recommendations for telecoms operators, but also provides a framework that may help vendors understand the IoT landscape. It is based on: Analysys Mason s research on IoT a series of interviews and discussions with stakeholders in the IoT market, including telecoms operators and vendors. KEY QUESTIONS ANSWERED IN THIS REPORT What role should an operator play in IoT? What are the benefits of each of the different potential roles? What type of connectivity should an operator offer? How will market developments affect operators opportunities in IoT? What is the market opportunity for each of the different roles? WHO SHOULD READ THIS REPORT M2M and IoT teams within telecoms operators. Strategy teams and senior executives within both telecoms operators and vendors trying to define their organisations roles in IoT. Analysys Mason Limited 2016 2

CONTENTS EXECUTIVE SUMMARY FRAMEWORK APPROACH 1: CONNECTIVITY APPROACH 2: GENERIC PLATFORMS APPROACH 3: VERTICAL-SPECIFIC PLATFORMS APPROACH 4: END-TO-END SOLUTIONS COMBINING THE APPROACHES APPENDIX ABOUT THE AUTHOR AND ANALYSYS MASON Analysys Mason Limited 2016 3

Executive summary IoT is one of the few areas of growth for telecoms operators. Analysys Mason forecasts that there will be 1.3 billion traditional cellular and 3.5 billion low-power, wide-area (LPWA) connections worldwide by 2025. 1 However, connectivity only represents a small share of the total opportunity available to telecoms operators and they are considering moving along the value chain. This report provides a suggested framework for operators assessing the opportunity and recommendations on how to address it. Figure 1: Share of addressable market for each approach Operators can potentially increase their revenue by moving along the value chain, but this comes at a risk. Competition will be more intense, margins may be lower and operators will be positioned further from their core expertise. Operators are selecting their role carefully. There is no single model to follow: roles will vary from market to market and from operator to operator. This report explores all the options available to operators. This report recommends that: all operators should boost connectivity revenue by offering a full range of network options operators should explore offering capabilities, not just end-to-end solutions. The latter may be a valid strategy for a select set of opportunities, but the market for capabilities will be broader. 1 For further details, see Analysys Mason s Reports Cellular M2M device connections and revenue: worldwide trends and forecasts 2015 2025 and LPWA networks for IoT: worldwide trends and forecasts 2015 2025. Analysys Mason Limited 2016 4

Operators need a clear view of the value chains beyond connectivity if they are to extend their addressable market Operators face a tension between offering only connectivity or offering a more complete IoT solution. Core connectivity revenue has a high margin, but it only represents a small share of total IoT revenue. Other parts of the value chain, such as applications, represent a greater share, tempting operators to provide more parts of a particular solution. However, operators will face increased competition in these areas and could generate lower margins. Figure 2: Revenue and margins for IoT services using cellular and LPWA connectivity, by value chain element Figure 2 shows the total revenue for IoT solutions that use cellular and LPWA connections for connectivity, which are the key opportunities for operators to consider. It excludes all services using local area connections for example, smart home solutions using Wi- Fi are not included. Operators should consider how to position themselves to gain a greater share of IoT revenue. They will capture a greater share if they offer more than connectivity, but they will then need to become more involved in the value chain of either their suppliers (for example, if they move into devices) or of their customers (for example, if they move into applications). There is no single value chain for IoT. Each vertical market, and even each single application, will have a different one. Operators need to map the value chain for each application, then identify where they have strengths and differentiators and where the opportunity is large enough to be interesting. Operators should use the results of this process to develop their strategy and identify their role in the market. 1 Devices includes both the value of the hardware and that of installation. Analysys Mason Limited 2016 5

We recommend that operators base their IoT strategy around four approaches A telecoms operator should consider IoT opportunities in terms of the capabilities it can provide to its customers. Figure 3: Overview of operator approaches to new IoT opportunities An operator can take four basic approaches to the IoT value chain, as shown in Figure 3. Connectivity: this will form the basis of almost all operators IoT solutions and operators need to ensure they are well-placed to provide it. Generic platform: an operator can provide basic capabilities (for example, device management) to help developers create IoT solutions across several verticals. Vertical-specific platform: an operator can offer capabilities (for example, applications) tailored to a specific vertical market, but stop short of providing all components of these solutions. End-to-end solution: an operator can offer all components of a solution. These approaches are not mutually exclusive and operators will need to be flexible. Some customers will only require connectivity, some will be open to operators providing other capabilities (but not a complete solution) and others will require complete solutions. Analysys Mason Limited 2016 6

Recommendations 1 Operators must be well-placed in the connectivity market. Connectivity will form the basis of most, if not all, operators IoT solutions. It seems unlikely that an operator would support an IoT solution without also providing connectivity. We believe that operators need to provide a range of connectivity solutions (LPWA, satellite and fixed, as well as traditional cellular) if they are to meet all their clients needs. Operators will increase their addressable market for connectivity by providing a full range of solutions and will also be better placed to provide a wider range of solutions in other parts of the value chain. 2 Connectivity and complete solutions are not the only approaches to the IoT market: an operator can also exploit the space between these two extremes by offering generic or specific capabilities. Many of operators early activities in IoT (or M2M) involved providing a complete IoT solution, often based on a partner s offering. However, operators can also provide capabilities (for example, device management or application enablement) that they can offer to other IoT developers. This approach reduces the risk to the operator and can build on its traditional strengths. 3 Each operator needs to select the vertical markets it intends to address carefully. Each operator needs to carefully select the markets for which it provides full end-to-end solutions. We argue that operators should focus on markets that have high barriers to entry and are nationally bound. This plays to an operator s strength as a national player and avoids competition with global companies, which have greater scale in a given vertical market. Smart cities and healthcare present attractive opportunities that meet our criteria, but others (such as smart homes) are more complex. Analysys Mason Limited 2016 7

CONTENTS EXECUTIVE SUMMARY FRAMEWORK APPROACH 1: CONNECTIVITY APPROACH 2: GENERIC PLATFORMS APPROACH 3: VERTICAL-SPECIFIC PLATFORMS APPROACH 4: END-TO-END SOLUTIONS COMBINING THE APPROACHES APPENDIX ABOUT THE AUTHOR AND ANALYSYS MASON Analysys Mason Limited 2016 31

About the author Tom Rebbeck (Research Director) leads Analysys Mason s Enterprise and IoT research practice, drawing on more than 15 years of experience in the telecoms sector. He is based in our London office, but works for clients worldwide. Tom is a specialist on the Internet of Things (IoT) and other new digital services. He has written articles and reports exploring the potential for these new services and possible roles for telecoms operators. He has worked for a range of clients including operators, regulators, industry bodies and vendors exploring the opportunity for new services. Many of these projects have been supported by original research, such as expert interviews and surveys of enterprise and residential customers. Analysys Mason Limited 2016 32

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