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Internet of Things and M2M: as the market matures, we expect some operators’ questions to be answered in 2016

Michele Mackenzie Principal Analyst
Tom Rebbeck Research Director – Digital Economy

"In 2016, we expect many of the key questions relating to M2M and the Internet of Things (IoT), such as which technologies will dominate LPWA or how operators should use IoT, to be at least partly resolved as the market matures."

In 2016, we expect the market for Internet of Things (IoT) and M2M solutions to mature markedly, as some of the key questions facing operators around technology, use cases and opportunities will be resolved. In this article, the analysts that lead Analysys Mason's IoT and M2M Solutions research programme share their expectations for 2016.

Technology and network predictions

The contest for worldwide dominance in LPWA networking technology will be confined to NarrowBand IoT (NB-IoT) and LoRa1

Probability: Medium

We expect NB-IoT and LoRa to prevail because:

  • LoRa has significant momentum, boasting networks in five continents. The technology has backing from vendors such as Cisco and IBM and communications service providers (CSPs) such as Du, Swisscom and KPN.
  • The weight of the established telecoms industry (including Ericsson, Huawei, Intel, Nokia, Qualcomm and Vodafone) will be enough to make NB-IoT one of the main contenders.

Other technology options look more likely to be adopted in only a small number of countries.

  • SIGFOX has a strong position in France and has announced a number of network deployments elsewhere, but lacks broad industrial support. Its business model may also be unattractive to many potential partners.
  • Other technologies such as RPMA, which is being used by Ingenu, and Weightless SIG have not built significant momentum.
  • Niche players, such as Telensa, will continue to win smart city contracts but do not have the scale of backing of LoRa or NB-IoT.

Even if our prediction that NB-IoT and LoRa will prevail proves to be incorrect and other technologies succeed instead, we expect to be in a much clearer position by the end of 2016 than at the end of 2015.

Some will be disappointed by the number of LPWA connections in 2016; they shouldn't be

Probability: High

We are forecasting that LPWA will 'only' have around 50 million connections by the end of 2016. Compared with the forecasted billions of IoT connections, this number will disappoint some. However, it shouldn't because most of the initial use cases –especially for smart city projects – are for large contracts that take years to finalise. We expect connection volumes to accelerate towards the end of the decade as greater clarity emerges about the technologies, ecosystems develop and more applications emerge.

More CSPs will publicly outline 3G network decommissioning strategies in 2016, partly because M2M is now a constraining factor on 2G network decommissioning

Probability: High

While some operators (for example, AT&T and Singtel) have announced plans to close their 2G networks, Telenor Group instead plans to maintain 2G and close its 3G network. The need to preserve 2G M2M connections, which account for a majority of M2M connections worldwide, is a significant constraint on fully decommissioning 2G networks. We expect more telecoms operators to follow Telenor's lead by decommissioning 3G networks before 2G.

Predictions for IoT and M2M use cases

M2M in 2016 will be dominated by the connected car: the number of connected vehicles will accelerate to over 150 million, with the largest operators reaping the benefits

Probability: High

The connected car opportunity is the most attractive M2M opportunity for telecoms operators because of its massive scale (we are forecasting over 800 million connected vehicles by 2023) and the potentially high average revenue per connection (ARPC).

Operators with worldwide reach will enjoy the largest rewards, thanks to the embedded connectivity deals that they already have with car companies. We expect smaller carriers to continue to struggle to gain traction in the automotive space.

We expect tighter integration of the various pillars of IoT

Probability: Medium

We expect to see more attempts to use IoT to create unified user experiences, for example linking connected car service to the smart home. Progress was made in this direction during 2015. For example, at IFA 2015, Deutsche Telekom demonstrated the integration of its QIVICON smart home platform with the infotainment unit of BMW's i3 connected car. In addition, the Smart Citizens project, supported by Cisco and Intel enables consumers to share data from multiple devices (including phones and wearables) to provide inputs for smart cities.

The Internet of Things will begin to talk

Probability: Medium

In 2016, we expect to see greater emphasis on adding other capabilities beyond basic data connectivity to IoT devices, such as voice and video. This could include a health monitoring device that also allows users to make a voice or video call in an emergency. WebRTC may be a component.

Predictions for IoT and M2M strategies

Expect some restructuring of M2M teams as operators' approaches to market opportunities mature

Probability: Medium

We expect telecoms operators approach to M2M and the broader IoT opportunity to mature in 2016, potentially resulting in the reorganisation of M2M units.

We expect operators to focus on three approaches:

  • Using M2M to generate new connectivity revenue (for example, connected cars). These activities most closely align with the existing activities of M2M business units. Operators will aim to differentiate their offers and make them less susceptible to churn, as we have seen with AT&T's Drive initiative.
  • Using IoT to protect existing revenue (for example, smart homes). These activities may be more closely aligned with other parts of an operator's business. AT&T and Comcast are using smart home solutions to complement their fixed broadband businesses. New connected gadgets could be used to help protect the core mobile business.
  • Providing platforms for vertical markets, especially where connectivity revenue alone appears to be low. Healthcare is a key example of this. We are forecasting fewer than 50 million healthcare cellular connections in 2020. CSPs are using their scale to develop a platform of additional services to take a greater share of revenue. Operators doing this include Deutsche Telekom, Telefónica and Telstra.

M2M business units were originally created to produce new pricing plans for mobile broadband SIMs. However, they are now creating platforms and some end-to-end packaged solutions, becoming specialists in a range of vertical markets and are a driving force behind new, lower-power networks. Consequently, some degree of reorganisation seems likely.

1 We have excluded LTE-MTC from this discussion because we believe that LTE-MTC fits a different market need and is closer to a replacement for 2G than these very low bandwidth networks.