Show me the IoT Money – Opportunity for investment

Within the telecoms industry, views differ widely on the scale of the IoT investment opportunity

Asked at a recent conference when the Internet of Things (IoT) will make a material difference to his company’s financial performance, the CEO of one major telecoms operator replied: “Not in my tenure.”
That response highlights the lingering doubt within the telecoms industry about the scale of the addressable opportunity represented by the IoT. That’s important because telcos need to see a strong business case to justify the investment in additional connectivity that will be required to bring billions of sensors, monitors, switches and devices online.
Part of the problem for carriers is that raw connectivity will only generate a small fraction of overall IoT revenues, according to analysts. To really move the needle, telcos need to also provide provisioning and device management services, systems integration, data analytics, together with flexible platforms and middleware.
Earlier this month, Machina Research predicted the value of global IoT market will rise from 892 billion USD in 2015 to a massive 4 trillion USD in 2025. However, that forecast encompasses the extended value chain, in addition to connectivity, taking in:

• Project work, including work by systems integrators and strategy consultancies
• Platforms and middleware, including middleware and all platform activities other than connectivity support
• Applications, including application provision and hosting and application development
• Data monetization, including API monetization, and sales of data and IoT services

Strong growth from a small base

The recent round of earnings reports suggests that most telcos aren’t yet tapping these opportunities. Telefónica, which has operations in western Europe and Latin America, said its M2M (machine-to- machine) revenues in the first quarter amounted to a modest 43 million euros. Still that figure grew almost 42% year-over- year – a marked acceleration on the 36% growth seen in the fourth quarter of 2015.
Other telcos are also seeing strong growth, albeit from a low base. In the first quarter Deutsche Telekom reported the addition of 354,000 new M2M SIM cards “in a very aggressively priced market. This growth was due to the increased use of SIM cards, especially in the automotive and logistics industries.” Year-over- year, the number of M2M connections to Deutsche Telekom’s networks rose 33% to 5.3 million. Most of these are likely to be in Germany where the telco has a strong enterprise proposition. That compares with the more than 60 million Internet of Things connections supported by China Mobile, which is probably the world leader in this market.
Staying in Europe, the CEO of Dutch telco KPN, Eelco Blok, recently told investors: “In [the business market], we are in a transformation phase with lower revenues from traditional telco services, partly offset by promising growth in multi play and new services, such as cloud and Internet of Things applications.”
In the US, Verizon reported IoT revenues grew 25% year-on- year to approximately 195 million dollars in the first quarter. Indeed, Verizon does appear to be moving up the value chain. “We have launched our own utility, transportation, and healthcare solutions with products like Networkfleet, Grid Wide, Verizon Share, hum, and one of our newest products, Intelligent Track and Trace,” it said. “Our ThingSpace platform is set to accelerate the adoption of Internet of Things products and solutions by making it easier, faster, and more accessible to develop applications.”

Are partnerships the path to prosperity?

Although Verizon’s main rival, AT&T, didn’t discuss the IoT in its recent earnings announcement, the largest US telco continues to be very active in this space. AT&T is expecting to connect more than 10 million cars by 2017. It says it has already connected more than 1.9 million fleet vehicles.
It is also targeting the energy sector. At the end of April, AT&T entered into an agreement with SunPower to bring IoT technology to SunPower’s newest home energy solution—SunPower Equinox. Over the next two years, AT&T and SunPower expect to wirelessly connect at least 100,000 solar electric systems in the U.S. providing customers with access to system performance information through AT&T’s IoT capabilities. The collaboration is designed to reduce the need for onsite homeowner visits by allowing SunPower to wirelessly support solar power systems as needed and in near real-time.
As even the largest telcos lack the in-house expertise to pursue all the IoT opportunities identified by Machina, it is these kinds of partnerships that will help telcos to move up the value chain, earn more revenues and justify the investment in new networks. The arrival of 5G technologies, in particular, could also open new doors for telcos. The ability to slice up capacity on a 5G network and provide dedicated bandwidth to specific applications will make it easier for telcos to add value beyond raw connectivity.

It is clear that the health of the IoT depends on the whole-hearted involvement of telcos and that depends on their CEOs believing in the business case.

Source:Telecoms.com