Analysys Mason attended the IoT Nexus Connectivity event in London in March 2015. Stakeholders from across the IoT ecosystem participated in the event and shared their views on how the IoT connectivity market will develop. The event highlighted some of the broad challenges that connectivity providers face with regard to meeting the requirements of the IoT, but also served to show how the market has progressed. Few had heard of low-power, wide-area (LPWA) network technology a year ago, but it is now central to the debate and some mobile network operators (MNOs) are assessing it with a view to deploying a network to complement their established technology offering.1
LPWA technology will complement mobile operators' established technologies
The emergence of LPWA technology and the factors underlying its success were recurrent themes throughout the presentations and panel discussions of the first day of the event. The debate revolved around how disruptive LPWA will be and what threat it will pose to the established ecosystem and traditional telco models. Most speakers agreed that LPWA will be complementary to traditional cellular technology rather than a threat. We heard from connectivity providers – new ones, such as Concirrus, NWave Technologies and SIGFOX, and traditional MNOs – that are making progress in the IoT connectivity markets. The consensus was that LPWA technology will fill a void in the gamut of wide-area wireless technologies addressing the IoT, rather than threaten established solutions.
Many MNOs that are already active in the M2M market place have indicated to us in the last few months that they are assessing LPWA technology and how it complements established cellular technologies – for some, it is a question of when, and not if, they will deploy it. This was re-iterated at the IoT Nexus event and, as we have highlighted in our previous research articles, some operators are entering the market before standards emerge, often because of increasing competitive pressures in their core markets. LPWA will constitute a sizeable opportunity in the future (see Figure 1). LoRa Alliance, NWave and SIGFOX have all developed LPWA technologies that have been rolled out commercially in several countries – mostly in co-operation and partnership with MNOs, although there is direct competition in a couple of markets. Competition between proprietary players and MNOs may increase in a few months when the 3GPP agrees standards and the technologies are rolled out in more countries. However, few MNOs have accelerated their adoption plans because the geographical coverage of LPWA is limited so far. Instead, the technology has served to focus players on the opportunity and to assess the different routes to market.
Figure 1: LPWA connections, worldwide, 2015–2023
It is not clear how operators will generate new revenue streams beyond connectivity
Telecoms operators are aware that providing connectivity alone puts them in a marginal position, but there was little consensus or clarity from attendees at the IoT Nexus: Connectivity event as to how to generate additional value. Connectivity revenue is increasingly subject to commoditisation as competition increases in the IoT. Wipro indicated that connectivity constitutes around 10% of the total revenue from a typical 3–5 year IoT project, compared to 30% from systems integration. We know from our research that mobile operators are highly dependent on connectivity revenue – it constitutes over 90% of M2M revenue for most operators. Aeris highlighted that M2M ARPU in the USA is around USD3 per month and falling. LPWA networks will do nothing to reverse this – connectivity revenue could be as low as USD1 per year per connection. These data points reinforce the need for connectivity providers to generate additional value from the IoT services that they offer. The problem was clear, but the solution was less so. Partnerships to provide end-to-end solutions were suggested as a route to add value, as was the provision of a range of connectivity options to meet different requirements. We have highlighted some of the assets that connectivity providers can use to add value to the IoT offering and generate new revenue streams.
In summary, the event highlighted that the discussion around LPWA is maturing. A year ago, few players were aware of LPWA technology or whether it presented a threat or an opportunity. There is a growing consensus that LPWA will be a complementary technology, and many MNOs are assessing the business case of deploying it. This indicates that the market has moved forward in its thinking. However, LPWA networks will not solve the bigger problem for MNOs regarding value-added revenue generation. The focus is still on connectivity and no clear winning strategy has emerged to change this trend.
1 See Analysys Mason's recently published report: LPWA: the advantages and disadvantages of early market entry.