Friday, 19 October 2012

Do not miss the Machina Research webinar on 8th November

Machina Research is running a free webinar on the 8th November at 9am GMT and 5pm GMT to provide a spotlight for our updated view of the global M2M market opportunity. This will be the first outing for our new improved forecast methodology including more countries and greater insight into the value chain dynamics (showing off more granularity in terms of where revenue is generated in M2M). We sincerely hope you can join us. Follow the link from our website here.

Thursday, 11 October 2012

Implications for M2M of Huawei and ZTE ban from the US

On Sunday a draft of the US House Intelligence Committee report on Chinese telecoms vendors became public reporting that they "cannot be trusted" to be free from state interference and so could be used to undermine US security. Story here.It also said that Huawei and ZTE kit, even components, should not be used in government systems or by contractors supplying the US government.

The prime implications of this clearly relate to core network infrastructure. However, extending the logic, if telecoms infrastructure can not be provided by Chinese vendors because the telecoms network is a key national asset, then the same must apply to some M2M. Smart grid implementations are clearly critical national infrastructure, but so too are connections related to healthcare, transportation and supply chain. Other than consumer electronics most of M2M could be considered in some way critical. With that in mind, will companies looking to buy M2M modules be willing to buy from either Huawei or ZTE? It will certainly be a difficult sell for the Chinese giants.

The impact of this is to strengthen the hand of Cinterion, Sierra and Telit in the US market. And it's also to guarantee that modules in the US will be more expensive than elsewhere in the world.

This is all slightly speculative but I can't believe it won't impact on Huawei and ZTE's ability to do business in the module space in the US.

Telefonica sets up for data analytics...and the expected headlines ensue

Telefonica launched a data analytics division this week. All the details are here. I don't think there's much doubt that making use of all the 'exhaust data' that MNOs have access to is going to be a key revenue generator. The way in which this might manifest itself for M2M is an area where we're focusing an increasing amount of attention. Doubtless this is a potential gold mine for operators and other players. NEC's Connexive platform for instance is specifically focused on supporting this kind of analysis.

The big concern is, of course, around privacy. There have been numerous examples of service providers getting into trouble for reselling users' data (usually to the police) even in aggregated and anonymised format. And there is the potential for negative publicity. I already saw one emotive headline on the topic along the lines of "Telefonica to resell user's data". Not exactly accurate, but that is how it might be perceived.

This kind of analytics is an important revenue stream and Machina Research believes that it will actually be a driving force for M2M, but Telefonica and others that follow them have to be very careful indeed about how it is handled. More to come from us at Machina Research on this topic.

Verizon to switch off 2G AND 3G by 2021...wow!

I saw this news article today stating that Verizon Wireless will turn off their entire CDMA network by 2021, leaving it as a 100% LTE operator. This was quite a surprise. I'm not entirely sure I believe it, but let's have a look at the implications for M2M.

***UPDATE: This was apparently just a "guideline" with Verizon spokesperson Brenda Raney stating on Thursday that "The Verizon Wireless 2G and 3G networks will be available as long as necessary to support customers who may have mission critical projects on those networks. We haven't made a sunset decision like our competitors."***

First thing to say is that we ask for clarity from operators about roadmaps and this is definitely clarity.

Second is the question of cost. Today LTE modules are 3-4x the price of CDMA. But that doesn't mean that will be the case in 2021. Much of the price premium is a function of scale. By making this decision Verizon has guaranteed a certain scale for LTE modules which by itself will reduce the cost. Conceptually, LTE production at scale could bring the price down dramatically (particularly as this will be a single mode LTE device, rather than including CDMA too). How far it can bring down cost is the big question.

In a way the cost of buying LTE modules in 2021 is not really the issue, however. The issue is the cost of modules for devices that will be in the field in 2021, i.e. devices that are being bought between now and then. AT&T set itself up for a few problems with acquiring M2M customers 4 years + from when it plans to sunset GSM/GPRS (1st Jan 2017). Basically, as soon as it announced the sunsetting in the summer of 2012 its competitors, RACO Wireless in particular, rubbed their hands with glee at all the customers that would shift their business. At a minimum Verizon will start to have problems from about 2016, but possibly earlier, as users start thinking about putting devices in the field that they will need to futureproof through their lifespan.

Another possibility is that Verizon could bring down the cost by subsiding LTE devices. Taking a chunk of the cost savings that come from network rationalisation and pouring it into subsidising LTE M2M devices would mitigate the problems caused by switching off CDMA.

Of course none of the decision is due to M2M. It's a small fraction of revenue and key strategic decisions about network roadmap are made with virtually no reference to impact on M2M. For Verizon it strikes me as a bold move and I give it the thumbs up (if it's right). The M2M unit just has to live with whatever technology choices the parent company makes.

Tuesday, 9 October 2012

Telit Developers Conference - Ian Paice's drums and a bucket of hubris

I spent yesterday at the Telit Developers Conference in San Diego*. It was an interesting day and I thought I'd put out a quick blog post on my views on Telit.

During the introductory keynotes from CEO Oozi Cats and the rest of the senior management team the word that came to mind more than any other was 'hubris'. I recognise, of course, that Telit has done a great job in the M2M modules market. In particular I'd applaud a strong portfolio and I think the way they've embraced a wide range of different technologies (e.g. Zigbee, GPS) is to be applauded.

But I was surprised by the lack of concern about the threats posed in their market.

Their legacy modules business is heavily threatened by cheaper rivals. The fact that the sector has consolidated massively recently points to a lot of competitive pressure, as does a constant pressure on ASPs. At one point Mr Cats put up a chart showing growth in their module sales from 2007 through to 2016. The historical numbers look good but the assumption presented in the chart that Telit will see growth tracking the market growth rate (as estimated by an analyst firm) of 24.1% is, I think, highly ambitious.

I'm put in mind of two things: the expression "historical performance is no indicator of future performance" (or words to that effect), and the experience of companies such as Option. They could have made a similar analysis in around 2006 of the datacard/modem mobile broadband market. Their growth had been good and market growth was set to explode, which they would have assumed would have benefited them. Actually it didn't, all the growth went to Huawei and ZTE. Ditto Nokia with the Smartphone market. They were Johnny-On-The-Spot to take advantage of the boom in smartphone sales but all of the growth went in the direction of Apple and Samsung.

I also see no guarantees at all that their move into the services market will pay dividends. That is a very competitive market too and one that our research indicates will soon turn into a bit of a bloodbath.

So in conclusion, Telit is a company that is very pleased with itself. I would prefer to see a little bit of humility if they aren't going to encounter hubris's old friend nemesis.

*At the Hard Rock Hotel, I got to see a signed set of Ian Paice's old drums.

America Movil wants more synergies between Telekom Austria and KPN. In M2M?

In the last few months America Movil has been on the acquisition trail in Europe. It now has a 27.7% stake in KPN and 23% of Telekom Austria, and with a view to taking larger stakes. With that in mind I began to wonder what the implications might be for M2M. Clearly the main impetus for the acquisitions was not M2M. However, America Movil has stated that it is looking for synergies between the groups (link here). Is there potential for synergies in M2M?

Initially it seems not. KPN has tied itself in to the emerging grouping based on the Jasper platform, whereas Telekom Austria is using its own in-house platform and does not seem likely to make the shift to Jasper. However, I understand that there is no specific bar to non-Jasper operators joining the grouping. That said, America Movil was not one of the founder members of the grouping despite being a Jasper operator. Possibly this is due to Telefonica being such a prominent member of the grouping.

Of course the situation is completely up in the air today and there is little clarity in how things will develop. Possible that Telekom Austria and KPN could be working much more closely in M2M though.

Thursday, 4 October 2012

T-Mobile USA merger with Metro PCS - the implications for M2M

So the big news in the wonderful world of mobile this week was the announcement of a merger between T-Mobile USA and Metro PCS. So I've mulled over the implications for M2M and come to the following conclusions...

When looking at T-Mobile it’s impossible to ignore the fact that the implications for M2M are all tied up with the abortive AT&T merger. All of T-Mobile's M2M capability was effectively farmed out to RACO Wireless in expectation that T-Mobile USA would cease to exist. At that point T-Mobile and M2M virtually parted ways in the US. In the near future one of two things will happen. Either this move will be reversed and RACO will be brought in-house, or T-Mobile USA will have to build its capabilities back up again. It's certainly something that the group is looking at right now. That all needs resolving before we can even think about what the Metro deal might mean for M2M.

That aside, the deal will leave us with a bigger, stronger T-Mobile. The ideal scenario for T-Mobile would have been a merger with another 3GPP player, which would have given it a further boost in differentiating from AT&T’s sunsetting 2G network. 2G is fine for much M2M and AT&T’s decision to switch off GSM in 2017 would have left T-Mobile as the sole major GSM/GPRS/EDGE operator in the US. A robust set of roadmap guarantees around continued support for 2G can help T-Mobile differentiate. A bigger T-Mobile with those guarantees and a reduced requirement for national roaming (and thus dependence on other operators’ roadmaps) would have been a better outcome. As it is, the benefits of scale across this CDMA/GSM marriage are all about LTE and for the most part M2M does not need LTE, other than for high bandwidth applications such as digital signage and CCTV. Some automotive OEMs are also building in LTE simply because of the long development cycle for cars. So as far as the nitty-gritty of delivering M2M is concerned, the announcement doesn’t mean a great deal. No-one has really had serious cause to deploy multimode GPRS/CDMA devices (although Sprint and Orange started flirting with the idea this year) and I don’t anticipate a big rush to do so from the new T-Mobile/Metro entity.

However, a bigger stronger T-Mobile USA does mean that the company is likely to be around for a long time. It indicates that the German parent company is not looking for a quick exit. Deutsche Telekom is in the US, in the form of T-Mobile, for the duration. That being the case, the deal has the potential to reinvigorate the wider group’s pursuit of the M2M opportunity in the US, which has been largely on hold (or farmed out to RACO Wireless) since the AT&T merger was announced. It also spurs the DT M2M team on to taking advantage of the asset that it has in its North American operation. Other than Vodafone/Verizon there are no other groups that span the two regions. Between them, Europe and North America account for more than 55% of the global opportunity for M2M. The ability to address both markets is critical. It is this potential in Deutsche Telekom, through the T-Mobile USA ownership, that is part of the reason why DT ranks number 2 in Machina Research's M2M Leaderboard.