Thursday, 21 April 2011

AT&T M2M success is built on semi-familiar CE. Other sectors will be more disruptive.

AT&T's Q1 2011 results are just out. The most interesting thing for me is how they're doing in their emerging devices category, which basically comprises everything that ain't a phone. As it turns out it's another good quarter and another major revenue driver. Of the 2 million net adds recorded by AT&T in Q1 2011, 1.3 million were "connected devices" (i.e. M2M) with a further 300,000 embedded computing (i.e. laptop) connections. The total for the emerging devices category now exceeds 12 million on a subscriber base just shy of 100 million.

But for me the question is always this: how does that number break down? What types of devices? What types of applications? AT&T has certified more than 1000 products and I got to check out a few of them at Mobile World Congress, and was impressed. But, how many of them actually account for more than a handful of connections?

Of the 12 million total, 3.4 million are "branded computing". Of the remainder, the lion's share seems certain to be accounted for by eReaders (particularly the Kindle) and other consumer electronics devices. When the Kindle 2 International was released via AT&T in Q4 2009 there was a very pronounced spike in the number of "connected devices" connections.

That spike during 2010 is pronounced. This, and a few other qualitative comments from various people leads me to believe that non-consumer electronics M2M makes up only a small fraction of AT&T's "connected devices". What's more, the announcement of the availability of the Kindle 3G through AT&T direct channels means there will be a further boost to the CE sector.

Why does this matter? Well, in a way it doesn't. CE's as good a segment as any. In fact ARPUs will be distinctly healthier there than in, for instance, utilities. The point is that selling a slightly different form of CE doesn't represent much of a fundamental shift from the usual job of selling phones. It's a bit different, not least in the prevailing wholesale model, but not miles away from what MNOs are used to. It's one SIM to one device. It's used by a person and with fairly predictable patterns. Carriers such as AT&T, who are ostensibly at the cutting edge of M2M, haven't had to adapt very much to take advantage of the CE opportunity. There's much more change coming and anyone at AT&T who thinks they're on top of M2M because 12% of their subs base is "connected devices" has got another thing coming.

Wednesday, 20 April 2011

Smart meter growth 2010-2020

I'm currently putting the finishing touches to the Machina Research Connected Intelligence Report on M2M in the Utilities segment. So I thought I'd drip-feed a little bit of data from the report as I get finished.

Firstly, the total size of the installed base of smart meters globally is set to grow from 100 million in 2010 (dominated by Italy and the US) to 1.6 billion in 2015 (by which time China is comfortably the #1 market in the world, accounting for almost 1/3 of smart meters).

The report, entitled "The Global Market for Embedded Connectivity in the Utilities Sector 2010-20", to be published in April 2011, examines the M2M market opportunity in the Utilities sector. The report examines the drivers and barriers of M2M adoption and looks at the prevailing business models, the major players, technology developments and regulation.

A major feature of the report is the detailed market forecast for 54 countries and six geographical regions (North America, Latin America, Europe, Middle East & Africa, Developed Asia and Developing Asia). For each application category (smart meters, transmission/distribution monitoring, electric vehicles and home energy management) and each country the report forecasts number of connections, traffic, technology used (cellular, powerline, MAN etc) and revenue.

The reports provide invaluable insight for those companies (such as network operators, service providers and device manufacturers) that want to understand the size and structure of the M2M market and wish to address the opportunities presented by the Utilities sector.

The price is EUR4,000 for the stand alone report and EUR6,000 including client enquiry hours and a strategy session. For further information please contact me by clicking here.

Tuesday, 19 April 2011

Ericsson acquires Telenor Connexion's platform: good business all round

Well that was a big bit of M2M news! Yesterday Ericsson announced that it would be acquiring the technology platfrom of Telenor Connexion, the Norwegian telco's M2M arm, and effectively fusing it into its Device Connection Platform, adding technological capabilities and practical know-how of M2M implementations. The DCP is a software-as-a-service (SaaS) managed service aimed at allowing MNOs to offer M2M services to enterprise customers. Telenor will be the first operator using the platform. Full article here.

So what do we think about that?

  1. It shows how seriously Ericsson is taking M2M. It always recognised that it'll be massive, obviously. That's evidenced by the 50bn devices splash headlines that have been doing the rounds, seemingly for years. But this is really putting its money where its mouth is.

  2. Telenor Connexion has clearly been finding it difficult in an increasingly competitive environment. Why did Telenor sell? Rumour has it that they've been struggling to acquire new customers and keep hold of those clients that they signed up a few years ago when they were the only game in town. Now that the johnny-come-latelys (i.e. the established MNOs) are coming to the table unencumbered by roaming level pricing it's tough for Telenor to compete outside its few home markets. This deal allows them to piggyback on Ericsson's scale.

  3. Scale is everything in M2M. Some M2M applications naturally work well at a national level, such as utilities, but many don't, e.g. consumer electronics. The success of Jasper Wireless is evidence that multinational customers appreciate being able to port onto the same platform across multiple geographies and operators. The recently announced deal between DTAG and France Telecom/Orange was aimed at a similar desire to gain scale.

  4. It reinforces that M2M is a managed services play where the large vendors see a bit opportunity. Developing a platform in-house is expensive and largely unnecessary for small MNOs. Ericsson is strong in this field and always has been. It allows them to pursue smaller MNOs with a SaaS approach to M2M.

  5. It's good news for smaller MNOs with national footprints. Previously these guys were left behind. Now they can get in on the M2M act.

  6. It strengthens Ericsson ability to compete with SIs and pursue enterprise clients. We heard this at MWC. Ericsson can more effectively market vertical-specific M2M products to the end user, i.e. the enterprise. And critically, it can do this globally, with global clout.

At first glance it looks like a good piece of business for both companies. Ericsson gains some practical managed services experience and Telenor gets out of an increasingly rough marketplace. The above are just some thoughts at midnight. I'll possibly have something more once I've been able to speak with all parties.

Sunday, 17 April 2011

Get a room already...DTAG/FT and why M2M will drive more consolidation.

More news emerged over the weekend of closer and closer collaboration being planned between France Telecom/Orange and Deutsche Telekom. News article here. This is just the latest in an ongoing series of cosying-ups that have been occuring in the last few years. There have been acquisition/disposal deals over assets where they have had too little market share (Austria and Netherlands). There has been the merger of the UK assets to form Everything Everywhere. In February they also announced an agreement to collaborate on various things.

The latest agreement focuses on joint purchasing of network equipment, network sharing in Poland and collaboration on a number of M2M projects. In an increasingly mature industry it's natural that we get consolidation. Sometimes it takes the form of good ol' fashion M&A. For the mobile industry, though, there are lots of other ways to consolidate that fall short, such as network sharing.

For me, obviously, the most interesting thing in the announcement relates to M2M. FT and DT have the potential to dominate their home markets for those applications that are national or local in character. See my blog post about Orange. For instance smart metering. However, the multi-national agreement announced in February between T-Mobile and Orange should also bring them some benefit for cross-border applications such as transport and logistics, although the scale was somewhat limited.

M2M may be a contributing factor to an increasing amount of M&A. It's not the only factor, of course. Reducing costs and improving the bottom line are all encouraging MNOs to move in this direction. However, it seems increasingly apparent that MNOs need regional (and in some cases global) scale for some M2M applications. Those MNOs who have to pay national data roaming rates will struggle to compete with those multinational MNOs with a domestic network, rendering them uncompetitive. Therefore, pooling geographical resources will be essential. More alliances are inevitable, as is more M&A one suspects.

In fact there could be an M2M behemoth heading our way. If the AT&T acquisition of T-Mobile is successful it will give DTAG an equity stake in AT&T and thus a strategic partner in N America. AT&T is strong in M2M in the US. Partnered with a resurgent T-Mobile and Orange in Europe this will be a very strong global player.

Monday, 11 April 2011

Why do forecasters still split Eastern & Western Europe?

I'm up to my ears in M2M forecasts at the moment and one of the things we decided to do at Machina Research was to abandon the old split of Eastern vs Western Europe. Why? Here's the reasons...

  • Geographically it's a nonsense. I don't want to dwell on this one too long as it's not really a big deal but there's lots of W Europe that's actually pretty east. Greece and Finland were historically western Europe even though they're way east of Prague. That's fine. But, for instance, where do I put Turkey in my forecasts? If we're considering it to be Europe (and we at Machina are), does it go in Western or Eastern? Neither make sense according to the old definitions.

  • The market dynamics are broadly the same. OK, so Belarus and Belgium are pretty different, but there's little to choose between say Czech Republic and Austria in terms of fundamental dynamics of the telecoms markets.

  • In terms of wealth, it's becoming less and less relevant. Czech, Hungarian, Slovenian and Baltic GDP/capita is catching up and in some cases exceeding those for Portugal and Greece.

  • In terms of politics and regulation it makes no sense at all. OK, so it made sense in 1988 when there were Soviet and US spheres of influence, but last time I looked the iron curtain had well and truly rusted. Today half of what makes up E Europe is in the EU. So they're following the same rules as most of W Europe. It would surely be more sensible to split EU vs non-EU. But Norway and Switzerland tend to follow the same rules as the EU and (as noted above) they don't have a lot in common with Ukraine, Belarus and Moldova. Also, as new countries accede to the EU the definition would keep changing.

  • Telcos don't see it that way. Many many European MNOs have presence in both Eastern and Western Europe. Vodafone, T-Mobile, Telefonica/O2, Orange. For the most part they consider them as part of a single European footprint. And so should we. Most of my contacts within European operators want to know about implications for the whole of their footprint. It makes no sense for me to have to say "I can tell you about France and Denmark, but you'll have to wait 3 months before I can tell you about Estonia and Romania". As it happens, at Machina ALL our forecasts are global, so for any given sector we'll always have all countries covered.

So, the only real argument is that (a) we've always done it that way and (b) you have to split it some way or it's too big to do. The former is a nonsense argument. The latter has some credibility. As forecasters you need to segment. For instance, we have 6 global regions. However, the fact that a European telco wants Europe level data and that the countries have such fundamental similarities means that the old Eastern/Western split for Europe makes little sense.

Machina Research will soon be publishing our market forecast reports for embedded connectivity/M2M in the Utilities and Health sectors. The reports include detailed market forecasts for 54 countries. If you'd like more details, email me.