Wednesday, 30 March 2011

Mobile market forecasting: you can predict WHAT, but not WHO

There's been a lot of noise (like this) over the last few days about IDC's smartphone forecasts. The issue seems to revolve around how the 5 year forecasts from 2006 missed the growth of Apple (of course, it didn't exist) and Android (basically ditto), so how can the 2011 forecasts be relied upon out to 2016. Even a year or two ago they were forecasting that Symbian would dominate, which is now clearly not going to be the case. I'm very sympathetic to their plight. I've done more than my fair share of mobile forecasting at Yankee, Analysys Mason and now at Machina. However, it seems obvious to me that this is the problem that you run into as a market forecaster if you try to predict WHO (e.g. which companies or OSes or whatever), rather than WHAT (e.g. smartphones vs featurephones, number of subscribers, prepaid vs postpaid, ARPU).

There are a number of fairly predictable trends that will influence the WHAT: macro-economic trends, Moore's Law, market liberalisation, technology, regulation, competition etc etc. All of these change gradually (for the most part). Unfortunately, when it comes to predicting WHO, it comes down to individual decisions made by executives. Clearly the WHAT factors are also influenced by a multitude of decisions by the WHOs, but if company A makes a stupid decision company B can jump in and seize the opportunity, which tends to level things out. Every so often you do get a game-changer like 3's massive price reduction on mobile broadband to GBP15/month which effectively created a consumer market. Those things don't happen very often though.

My focus in the past has tended to be on forecasting things like subscriber adoption and ARPU. These tended to rely on some of the trends I outlined above. Every so often, however, clients would ask me to forecast individual operators. I generally said no, or attached the caveat that they were likely to be so wildly inaccurate as to be virtually useless. If a single person can make a single decision that completely invalidates your whole forecast (like Stephen Elop's decision to dump Symbian for Windows) then forecasting with any accuracy at all is impossible. So, forecasting the number of smartphones, or the number of subscribers or the revenue generated is do-able and worthwhile. Forecasting which OS or operator will dominate is basically impossible.

At Machina Research we're currently going through a long process of forecasting each of the constituent parts of the M2M market. Nowhere will we definitively predict which companies will dominate. We will offer some views on whether it will be operators or SIs or service providers, for instance, although the business models are almost too uncertain today for even that level of forecast. We'll never forecast at the level of individual operator. A single decision by an executive at Vodafone, Orange, Jasper or whoever could change their fate totally.

Friday, 25 March 2011

Top 10 tips for M2M

Jim and I recorded a podcast of Machina Research's top 10 tips for M2M last week and it's now up on the M2M Forum Europe website.

The highlights are as follows, although you'll need to give the whole thing a listen to get the detail (and the pleasure of listening to our dulcet tones):
  1. There's no such thing as M2M. There are many many ways in which embedded connectivity can benefit vertical sectors. All of the sectors (and applications within those sectors) have different dynamics. So homogenising it as "M2M" misses a lot of the complexity.
  2. There's no common currency or agreed segmentation or terminology for the opportunities. That's what drew Machina Research to this area. It's not been covered in a consistent and comprehensive way.
  3. Business models are unclear. There are still a lot of players jockeying for position in the value chain, be they MNOs, SIs or service providers.
  4. M2M isn't just a top-down or B2B sale. In most sectors, end-users are involved in the process, either because it's a B2B2C sale or because it needs some form of buy-in from them. Neglect the end-user at your peril.
  5. M2M initiatives are part of an environment and need to move in step with that environment. There's no point, for instance, in implementing an ambulance system where there is no hospital system to talk to and no electronic records.
  6. A lot of the benefit is not really M2M. It's in the SI development and additional capabilities which are unlocked by M2M.
  7. The business logic of the M2M world is very different from mobile, so MNOs beware! There are a many differences from the MNOs' usual area of comfort. For instance, it's business critical (and often life critical) rather than best effort. The device isn't always on. The end points don't complain if there's no service. And many many more.
  8. One SIM does not equal one account. Users will have multiple SIMs on a single account. So MNOs will need to bill appropriately.
  9. Remote SIM provisioning is coming. Are you ready? The various standards bodies are looking at methods for remote provisioning of SIMs to allow M2M clients to swap operators once they've installed the devices. It will happen. The question is how, and are the operators ready for it?
  10. There are a lot of tough technology choices to be made, both by MNOs but also by potential customers. When will MNOs switch off GSM? What are the implications of the arrival of LTE? What about short-range wireless?
All of these issues and many more will be addressed during our session at the M2M Forum Europe on the 6th June.

The M2M Forum Europe is 6-9 June 2011 at Chelsea Football Club. Day 1 will be a full day workshop from Machina Research looking at strategies for network operators, vendors and all the relevant industry sectors to maximise the benefits of M2M. It will build on all the valuable work we're doing at Machina Research examining the way in which embedded connectivity will affect each and every vertical sector and major application type.

Thursday, 24 March 2011

Orange's M2M strategy will focus on utilities and intelligent environment

I had a call this morning with the M2M folks over at Orange. Very edifying with lots of talking points. They've not been doing that well with M2M recently. They've picked up some good wins (e.g. the ERDF trial) that gave them a pretty good growth rate in 2010, but they're decidedly tier-2. So it seems they're sensibly focusing on those sectors/markets where they have a competitive differentiator. They can't compete with the scale of Vodafone (despite the deal with T-Mobile announced at MWC) so they're adopting the strategy in M2M that has permeated the rest of the Orange group: go deep in a few territories. It has been the policy of the wider group for a few years to focus on cross-selling in the UK, France, Poland and Spain where they have fixed and mobile assets (although obviously the UK has now been hived off to Everything Everywhere).

Their approach (and it's a logical one) is to say:
  • Orange has a potential competitive differentiator in a few countries where it has both fixed and mobile operations.
  • There are some M2M segments that benefit from the use of fixed and mobile connections. Let's not be blinded that M2M has to be mobile. M2M is nothing more than (to quote the Machina Research definition): "Connections to remote sensing, monitoring and actuating devices, together with associated aggregation devices." Nothing in there that says it has to be mobile. In fact businesses were using fixed lines for SCADA for years before "M2M" arrived or anyone realised that was what SCADA was.
  • There are some sectors and applications that require national level connectivity only. Orange announced a win with Coyote, a national radar detection and alerting system, in France. This is national as most of the relevant motoring is national (plus it's banned in a number of neighbouring countries). As an aside, it's now fraught with problems mentioning Orange alongside anything animal-related. What with Dolphin, Canary etc. it'd be easy to assume they had a Coyote tariff now.

All of this puts Orange in a strong position to win contracts with utilities. Their requirements are national and, since meters and network infrastructure don't move much there is a strong argument for using a fixed connection (in fact that's what's been happening for decades). So we can expect FT/Orange to bring in some utilities deals in France, Spain and Poland where it has that strength as an integrated operator. There's something in the works at the moment and I'll let you know about that once it's not embargoed.

There are a bunch of other sectors where local or national contracts will dominate: intelligent buildings, smart cities (see Orange's trial in Cagne-sur-mer) and emergency services to name a few.

I'm currently working on the Machina Research report on embedded connectivity in the Utilities sector, which will be published next month. Lots of lovely opinions and forecasts on smart meters, smart grids etc. Drop me a line if you want more information or would like me to let you know when it's available.

Tuesday, 22 March 2011

UK LTE spectrum: how likely we'll see a new operator?

Looking through the Ofcom document on digital dividend and 2.6GHz awards, one question crossed my mind: "Why couldn't I have been a professional cricketer instead?". Then another more relevant thought was "what is the likelihood that we'll see a new mobile entrant in the UK market?".

Ofcom has not mandated a new entrant in the same way that it did with the 3G awards where 5 licences were offered to a market with 4 exisiting operators. It's nice to see that they're "ruling it out" though. Any potential new entrant must be stunned by the regulator's enthusiasm for increased competition :

"We have also considered the potential for market entry. In proposing a minimum of four licensees capable of being credible national wholesalers it is important to realise that we are not ruling out the potential for some of those licensees to be new national wholesale entrants. We would not be surprised if one or more prospective new entrants were to bid for the minimum spectrum portfolios that we have identified; for example in the recent 800 MHz auction in Sweden two of the bidders were prospective new entrants. Our proposals are neutral as to the identity of the four licensees; they seek to provide all parties with equality of opportunity to bid for sufficient spectrum to be credible national wholesalers in the future."

The fact that it's four operators does lead one to suspect that it'll be the existing four players who tie up the spectrum between them. The award does place some limits on the amount of spectrum that each operator can own, but it's unlikely to hinder them. H3G alone, if it decided to go on a spending spree, would be allowed to buy 72% of the spectrum available (2x30MHz at 800MHz and 2x70MHz/1x50MHz at 2.6GHz). O2 could buy 44% and Vodafone 40%. Everything Everywhere is the most limited due to its hulking great 2x45MHz (down from 2x60MHz due to merger requirements) at 1800MHz and the fact that it currently holds 48% (to be reduced to 40%) of UK allocated spectrum. It would be allowed to buy 32% of the newly awarded spectrum. Added together that gives 188%. So it's difficult to foresee a scenario in which all of the spectrum is not hoovered up by the existing 4 players.

But maybe there's hope for a new entrant. One of the blocks of 2x5MHz spectrum in the 800MHz band (lot A3) has a coverage requirement:

"We propose to include a coverage obligation in one licence for the 800 MHz spectrum to deploy an electronic communications network that is capable of providing mobile telecommunications services with a sustained downlink speed of not less than 2Mbps with a 90% probability of indoor reception to an area within which at least 95% of the UK population lives. We believe this should result in coverage of future mobile broadband services that approaches today’s 2G coverage by the end of 2017. We consider that such an obligation would be proportionate taking in to account the likely costs and benefits. A key question on which we are seeking views from stakeholders is the best way to specify such an obligation, in particular as regards coverage in more rural areas."

But will that encourage a new entrant? With the roll-out obligations, that licence will be cheaper. But it's a double-edged sword as the roll-out obligations would require a huge investment. Risky when demand is unproven and they'd be reliant solely on selling data plans which are much less profitable than voice. Also it rather depends how the existing incumbents see it. If they plan for 95% population coverage anyway (I rather doubt it, but just for argument's sake) then the discount on that piece of spectrum would be modest.

[Update] After some thought I'd not rule out BT (and at a push maybe Virgin) bidding on the basis that they'd be filling a gap in their portfolio, there is a good opportunity for synergies with their existing business and they already have the channels to market. Cell sites and infrastructure deployment costs is clearly a major issue but maybe they'll find an innovative way of deploying LTE, e.g. a focus on femto to give something like what FON should have been.

Monday, 21 March 2011

AT&T/TMO's 43% market share would be normal in Europe, but this ain't Europe

My first thought on AT&T's acquisition of T-Mobile USA was that it's by no means guaranteed that the competition authorities will allow something that gives one operator 43% market share. Initially it looks to be handing too much power to one player. However, if US authorities choose to look overseas they'll find that such a thing is the norm. Eighteen months ago, when T-Mobile and Orange (which co-incidentally also gave them a market share of 43%) were merging their UK assets I examined what was a normal market share for a #1 operator in Western Europe. When that merger was announced, the UK was the only market in Western Europe where there was no single operator with a market share of >35%. In 11 of the 15 other major Western European there was an operator with 43% market share or greater. So this merger puts the US on a par with the norm in Europe.

However, there are some differences. Firstly the scale. European markets are much smaller and most operators operate across multiple countries. So, for instance, Vodafone, T-Mobile or Telefonica will make some handset purchasing decisions on a regional basis. To some extent what is important in Europe is regional market share, and this is much more fragmented.

Secondly there is the issue of technology. While AT&T/TMO has a 43% market share in mobile it has ~85% market share for GSM, and thus a de facto monopoly for the purchase of handsets and network equipment*. That's not what the general public would consider to be the issue for consideration by competition authorities, but it's definitely a competitive issue.

Thirdly there is the question of whether it will spark further mergers. A T-Mobile/AT&T tie up creates a GSM powerhouse with 130 million customers. It is likely that the CDMA operators will consider doing the same to give themselves 150m subs and a nearly 50% market share, thus effectively creating a duopoly for services and another monopoly for the purchase of handsets and infrastructure.

* Once everyone starts rolling out LTE equipment the network element disappears, although handsets is still an issue as they'll need to be multi-mode, either CDMA/LTE or GSM/W-CDMA/LTE.

Monday, 14 March 2011

Delays in LTE spectrum awards will help UK operators

The other day I was asked by a journalist to comment on the delayed (and still legally threatened) UK 800MHz and 2.6GHz spectrum auctions. My comment was something pithy about MNOs crying out for spectrum while at the same time delaying the award with their squabbling. And it's true, they are crying out for it. And it's also true that they're delaying the award. That's not to say that they don't have some justified grievances of course. For instance that it's impossible to bid for spectrum if they don't know what's happening with refarming.
However, all this set me wondering whether a delay in award of spectrum for LTE might not have some positive consequences for them.
  1. It will save them money. If the UK doesn't manage to get LTE deployed until 2014 or 2015 then the equipment should be cheaper, due to scale.
  2. There's not really any point deploying LTE until LTE Advanced anyway. Plain ol' LTE doesn't offer many advantages over HSPA+. They both run at about 50MBit/s and the greater spectral efficiency of LTE only applies with big chunks of spectrum (which none of the MNOs have, but they may be able to negotiate during the current discussions). It's only with LTE+ that the benefits of spectral efficiency can cut across fragmented spectrum. So, the smart operators have generally taken the view that they'll upgrade their networks to HSPA+ and wait a bit until deploying LTE. In this the UK operators are being forced to make the smart decision. Not that I don't have ultimate confidence they would make the smart decision anyway you understand, but this at least guarantees it.
  3. It delays the inevitable '4G' arms race. MNOs will be trying to outdo each other with who has the best '4G' network. Leaving aside whether LTE really counts as 4G, it will be interesting to see whether T-Mobile imports from the US its tactic of describing HSPA+ as 4G.
  4. It worked for O2 with 3G. O2 is the leading operator in the UK. Part of that is down to adopting a pragmatic approach to deploying 3G. They did it when they had to (based on regulatory requirements) and when they felt the technology was up to the job (i.e. when HSPA kicked in).
  5. It encourages innovation. The solution to greater and greater bandwidth demands and squeezed margins is not simply to keep adding more macro network capacity. If mobile broadband is unprofitable, as many MNOs are claiming, then STOP SPENDING MONEY ON ADDITIONAL EXPENSIVE KIT. Focus your attention elsewhere. I'd argue that a delay in LTE encourages MNOs to execute on these cheaper initatives first (as they should do) rather than last. There are numerous good examples: femtocells for offloading home traffic; better subscriber management to make all the bandwidth hogs pay up; and then there was this announcement from O2 that it would be rolling out a massive network of 'free' (i.e. ad-funded) WiFi hotspots. All good stuff.

So, my conclusion is that making the UK operators hold off LTE deployments might be the best thing for them. I'm pretty sure they're not going to see it that way.

Sunday, 6 March 2011

ECJ ruling on insurance gender discrimination means 100m more M2M connections in Europe

Part of my job is to predict the future. It is only very rarely that I can make a prediction with virtually 100% confidence. One seemingly unrelated event happened last week that will definitely have significant consequences for M2M. The European Court of Justice ruled that insurers will no longer be able to take gender into account when setting premiums. The ruling comes into effect from December 2012.

Gender is one of the prime statistical determinants of how safe a driver is. It's arguably not fair for the many many male drivers who are perfectly safe, but statistics ain't fair. The insurance industry works with what it has and knowing gender gives a pretty good indication of risk. That said, if particular ethnic groups had statistically greater risk and car insurance companies were using that to profile users and determine premiums, people would be up in arms. And rightly so. But I digress.

For the car insurance industry the ruling has taken away one of the main methods of segmentation. That will definitely push insurers in the direction of insuring based on actual usage rather than profiling since they can't really do the latter very effectively (and what happens when age discrimination is also banned?). So, they're going to rush for any solution that can monitor users' actual usage patterns. If they're a bad driver they have high premiums. No need for statistics. And what does that involve? Some form of black box travel monitor, ideally connected to allow insurers to provide new and innovative pricing models (as discussed in an earlier blog post). This means that the 250 million cars in the EU will need to be fitted with a device and many of them will have a wireless modem. So maybe 100 million extra M2M connections as a result of this piece of legislation. Of course no-one will be obliged to fit one of these devices. However, anyone who opts to do it the old way (i.e. just a flat annual fee) will look suspicious and attract higher premiums.

All this is bad news for Sheila's Wheels. But it does mean it might be a wise time to buy shares in these guys.

We at Machina Research will have a report coming out on M2M in the Automotive sector in Q2. Please get in touch if you would like me to keep you posted on when it is released.

Friday, 4 March 2011

M2M and CDMA-450, a match made in heaven?

A very interesting article on Mobile Business Briefing yesterday quoting Harbir Sing Nat, CEO of Zapp, a portuguese CDMA-450 operator. There's a bit of ranting about: how MNOs can expect low ARPU from utility meters (no big surprise there), how no-one's likely to want to support M2M customers on 700MHz LTE networks (again, not a shocker) and that shutting off 900MHz will leave big gaps in GPRS coverage (it won't for the many operators that only have 1800MHz spectrum and we can't see all MNOs in a given market switching off GSM for the foreseeable future). So nothing earthshattering there.

But, after that he does mention something pretty sensible: M2M and 450MHz were made for each other. 450 has good coverage, particularly CDMA, making network economics better. At a low frequency it should have better indoor coverage than other frequencies. It's largely unused spectrum that has become commercially redundant. There are some disadvantages, notably support for the frequency amongst module manufacturers. Also, there's no consistency internationally, so no good for any M2M application that requires roaming.

Overall I think it's a bit of a bonkers idea since the economics of running a 450MHz network just to support M2M almost certainly don't add up. But, there may just be a kernel of an idea in there for anyone with 450MHz spectrum.

Vodafone network outage this week should moderate M2M ambitions

In my last post I looked at how Vodafone had signed a bunch of strategic agreements with Bosch, Hyundai and Intel covering M2M. However, it's interesting that two of the announcements (Bosch and Hyundai) came in the same week that a break-in at a Vodafone UK data centre crippled the network for almost a day.

There is a massive trust issue associated with M2M. Customers could be putting business critical (and indeed life critical) connectivity into the hands of its trusted communications partner. Can they afford for that network to go down in its entirety. Now there's no doubt that the network issue Vodafone experienced this week was unusual. It rarely happens, but it does go to show that MNOs still have a long way to go to provide anything other than best effort services. Fine for reading your gas meter, alerting you when your car needs servicing or letting your toaster know what time you'll be home. Not so good for health applications or critical business functions such as transport and logistics.

So what's the answer? Greater network robustness? Maybe although M2M revenue is unlikely to justify that. Some sort of fall-back option in the event of macro network failure? Probably. Setting your sights a little lower in the short-to-medium-term and focusing on M2M applications that only really need best effort? Yes.

By the way, it's not my intention here to criticise Vodafone specifically. Every operator has the same issues. The networks were built for best-effort service. That's how they brought cheap communications to billions of people.

Thursday, 3 March 2011

Vodafone signs strategic M2M agreements with Bosch, Hyundai and Intel

Anyone who keeps an eye on Vodafone won't have helped but notice a couple of announcements in the last week on strategic partnerships that big red has signed with Hyundai (Monday) and Bosch (Tuesday). This on top of an agreement in February with Intel.

Naturally, all of the announcements are light on detail, talking about strategic exploratory partnerships and the like. However, it does point to a few things. Firstly, the rest of the world is starting to take an interest in M2M. It's not just the MNOs who are pushing this. Companies that make stuff, like Bosch and Hyundai, are genuinely interested. Secondly, it's automotive and consumer electronics that are first off the mark. OK, not quite first as transport and logistics and security applications have been around for a while. However, the more B2B2C segments will tend to be faster to move. We shouldn't underestimate the role of the consumer in driving M2M both in terms of their active adoption or passive buy-in (e.g. pay-as-you-drive insurance). I've touched on this before in a previous post, but I'm sure it's one I'll come back to again and again: the consumerisation of M2M.

We heard this week at CEBIT from Vodafone Germany CCO Jan Geldemacher that the company expects M2M to account for 10% of data revenue in 5 years. Not a wildly ambitious target that, as data only accounted for 17% of VF DE's revenue last quarter. So 1.7%. I think we can set our sights a little higher than that.