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The LPWA market has massive potential, but developing a sustainable business will be challenging

Michele Mackenzie Principal Analyst
Tom Rebbeck Research Director, Enterprise and IoT

"Number of connections will be crucial for operators that focus solely on LPWA connectivity and do not sell other capabilities or solutions."

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The number of low-power, wide-area (LPWA) connections has the potential to reach 3.5 billion by 2025, but overall connectivity revenue from LPWA will only grow to USD5 billion. In contrast, cellular M2M connectivity revenue will reach USD23 billion over the same period. IoT service providers will need to build high volumes of LPWA connections to support the business case for LPWA networks and innovate to capture additional revenue streams.

This article discusses how IoT service providers can increase their share of a small connectivity revenue pot and highlights some of the results from Analysys Mason’s recent forecast report LPWA networks for IoT: worldwide trends and forecasts 2015–2025.1

Growth in LPWA connections is robust, but low connectivity revenue may not sustain a large number of network providers

LPWA connections will exceed cellular M2M connections by 2019 (696 million LPWA connections versus 589 million cellular M2M connections) and the number of LPWA connections will be over 2.5 times that of cellular M2M by the end of the forecast period. LPWA connections will grow from a small global base of 18.5 million in 2015 to 3.5 billion by 2025.2

Growth in LPWA connections has largely been driven by private, proprietary networks during the early phase of market development. Companies such as Sensus and Telensa developed proprietary LPWA networks to target specific industry sectors where there was a gap in the market for a network with these attributes (low power, wide area, low cost). However, now that NB-IoT has been standardised, many mobile network operators (MNOs) will provide LPWA services to complement their cellular offering. Vodafone has been at the forefront of developments in NB-IoT, establishing NB-IoT Open Lab jointly with Huawei to develop the ecosystem in preparation for a commercial launch.

LPWA-connectivity players have a number of strategic options to consider

Revenue from LPWA connectivity will be low, reaching only USD5 billion in 2025 (see Figure 1). LPWA connectivity applications will typically generate low volumes of traffic and average revenue per connection (ARPC) will be less than USD1 per annum for some applications. Our forecast overall ARPC for LPWA connections is only USD1.5 per year.

However, network costs are lower than traditional cellular M2M: fewer cell sites are required to achieve coverage, existing infrastructure can be reused, and there are no additional spectrum costs. For example, NB-IoT can be achieved by a software upgrade to existing cellular base stations and requires only a fraction of the number of cell sites necessary for cellular M2M to achieve national coverage. SIGFOX has stated that it achieved nationwide coverage in France with 1500 base stations. Barriers to entry are therefore low, which will intensify competition and potentially reduce margins. The lower cost of deployment of an LPWA network will offset low connectivity revenue, but the number of network owners the market will support remains uncertain.

Figure 1: LPWA connectivity revenue and ARPC per year, 2015–2025

Figure 1: LPWA connectivity revenue and ARPC per year, 2015–2025

Network operators addressing the LPWA connectivity market could pursue a number of options when deploying a network, some of which may be complementary.

  • Scale LPWA connectivity revenue. A network provider may provide connections on a massive scale to generate reasonable returns. SIGFOX is pursuing this model. Larger MNOs could take advantage of their size and ability to scale to pursue a similar model.
  • Provide end-to-end solutions. A company may build complete applications targeting specific industry sectors that rely on LPWA connectivity. Telensa has taken this approach, building a proprietary LPWA solution to support its street lighting application and management platform. Some MNOs may adopt this approach for a limited number of industry sectors. For example, AT&T, Deutsche Telekom and Vodafone may be well-positioned to adopt this strategy, as they have a focus on IoT and large investment budgets.
  • Complement other forms of connectivity. Existing MNOs and IoT solution providers may offer LPWA connectivity to provide a complete portfolio of IoT connectivity solutions. Low revenues and margins from an LPWA network may be less of a concern if they are supporting the higher margin traditional cellular business.
  • Provide development capabilities alongside LPWA connectivity.  Some IoT providers may provide LPWA connectivity in conjunction with enabling capabilities (such as application enablement, device management and security) for developers. Some mobile operators and IoT providers, such as Actility, have already adopted this model.

Pricing pressure on connectivity is likely to be intense

The relatively low barriers-to-entry of the LPWA market and the prospect of low returns from connectivity may make developing a sustainable business challenging. Size will be crucial for operators that focus solely on connectivity and do not sell other capabilities or solutions. The largest operator in the market should benefit from greater economies of scale and be able to place intense pricing pressure on smaller networks. However, selling capabilities or end-to-end solutions will require skills, and potentially an understanding of particular industry sectors, that many network operators lack. The potential of LPWA connectivity is vast, but network operators will need to make bold moves to develop a sustainable long term business.3


1 This report provides a forecast of LPWA connections and revenue for 74 countries, 6 industry sectors (plus an ‘Other’ sector to capture new use cases) and 22 applications.

2 Our IoT forecast considers cellular and LPWA connections that generate connectivity revenue, in contrast to broader IoT market forecasts, which include short-range technologies that do not directly contribute to connectivity.

3 One example of such a move is to invest in an alternative organisational structure to address the new growth opportunities. For further details, see Analysys Mason’s Article Bouygues Telecom and Vodacom show how operators can use separate units to develop IoT solutions