OPERATORS PIECE TOGETHER THE M2M PUZZLE
With the number of M2M apps growing, it's the perfect time for operators to jump into the market. They already have the networks; now they're gathering the know-how.
Wireless operators have decided to stake their claim in the mobile telematics market. In one sense, it was a market they were never absent from — those millions of pinging machine-to-machine modules had to use someone's networks. But operators had primarily served telematics customers tangentially, working directly with some of the largest enterprise customers, but leaving the bulk of the business to network aggregators and their mobile virtual network operators.
But that's no longer the case. First, the market is growing rapidly, as module prices fall and the cost and time of developing and integrating new M2M solutions drops. The industry is no longer dominated by a few verticals, such as security and fleet tracking. Broad new fields such as telemedicine, home automation, agriculture — even the insurance industry — are investing in M2M. And that's to say nothing of the nascent consumer market, led by devices such as Amazon's Kindle. No longer a niche market, carriers see M2M as a major growth opportunity that can add millions of new connections to their networks.
And while the vast majority of the connections won't bring in the same revenues as wireless voice and data subscribers — a connected smart meter might transmit a few dozen kilobytes a month, for instance — operators can still expect to collect a premium on each kilobyte transported, exactly as competitive pressures are forcing down the price carriers can charge for consumer data usage. But the biggest incentive operators have for embracing M2M is their biggest asset: the network.
“We're using the network for things it wasn't originally created for,” said John Horn, national director of M2M for T-Mobile. “It's sort of like the Internet. If you were to say, ‘I'm going to build this thing called the Internet and let everyone use it and then try to build a business model,’ people would think you were out of your mind. It never would of worked. But by using the Internet assets that were already there originally used by the universities to communicate and so forth — once that infrastructure is there, you can start building IP protocols and leverage that whole infrastructure out there for something else. We have the same thing. You couldn't go and build a network out there to do M2M. That would be nuts. But if you have a network that's there and it's a great network and it has great coverage and is very efficient, you can very easily leverage that asset for other things. One of those things is M2M.”
While operators won't have to invest in infrastructure, they'll have to invest in expertise. Their business models have been primarily driven by single-connection relationships — one customer, one device and one bill — while M2M by nature is a multiconnection relationship. Rather than just a limited portfolio of phones, augmented by the occasional laptop or Internet device, in M2M the end devices linked to their network range from harvester combines to ebook readers and every imaginable machine in between.
“The underlying network connectivity is just a small part of it,” said Kitty Weldon, senior analyst with Current Analysis. “There are so many different elements to put together in the M2M space: the connections, the modules, the billing plans and the business models. Carriers are trying to figure out which pieces they should take on and which pieces they should partner for.”
Those partnerships have already started to occur, the biggest of which was the Qualcomm and Verizon Wireless launch of an M2M joint venture that allows the companies to tackle the device customization, systems integration and network access components of an M2M solution together. While other operators haven't yet gone to such extremes, many of them have ramped up their own internal M2M development programs, and some have taken to partnering directly with the aggregators they once sold network access to. AT&T has contracted with Jasper Wireless to provide the device management platform that will support the launch of a new wave of emerging devices on the AT&T GSM and high-speed packet access networks, as well as support some of AT&T's enterprise M2M customers.
“[Jasper] really acts as a back room for our emerging devices business,” said Glenn Lurie, president of emerging devices and resale for AT&T Mobility and Consumer Markets. “They bring tools and capabilities that allow us to deliver the customer experience we want to on these devices. … They really act as an enabler for us for how we run our business. They help us with activation. They help us with rate plan structures. They help with real-time understanding of how the customer's device is acting, diagnostics.”
Jasper Wireless, however, isn't just temporarily departing from its traditional business model to partner with one of its largest access suppliers. According to Macario Namie, senior director of product management for Jasper, the aggregator saw the writing on the wall a long time ago and decided to exit the MVNO aspect of its business to focus exclusively on the platform side. Its relationship with AT&T won't be the exception but rather the norm.
“We're no longer in the business of providing direct connectivity services to our customers, period,” Namie said. “We realized a while ago operators wanted to serve this market directly. That wasn't the case two years ago.”
Alex Brisbourne, president and CEO of Kore Telematics, readily admits his company and his competitors will have to concede a healthy share of the M2M market to the network operators, but he doesn't see that as a negative. The operators' interest signals that the market is maturing and M2M's potential reach is broadening, Brisbourne said. While operators will target the new emerging consumer devices, he added, companies like Kore will always be in demand to handle the harder integration tasks in industries such as health care and vehicle management.
“There is a newfound delight in the M2M market from the operators,” Brisbourne said. “As the market matures, the carriers want to leverage the new consumer device market, but not everything is a one-to-one purchasing decision on the network. In cases where the complexity is great, there will always be a need for specialized companies.”
Current Analysis' Weldon agrees. The aggregators can expect to lose many of their larger customers as the operators go after that business directly, but as the market opens up to new industries, the smaller, nimbler aggregators will likely be on the leading edge, trialing new applications and testing the waters of new verticals. “The operators appreciate that a lot of innovation has come from the aggregators,” Weldon said. “They don't want to stifle that creativity.”
CHEAPER INSURANCE THROUGH WIRELESS
In the highly competitive automobile insurance industry, the difference between premiums is one of the single biggest ways insurers differentiate themselves. In a new effort to maximize its customers' cost benefits, Progressive has turned to an unlikely source: wireless machine-to-machine communications.
Progressive has been scaling up a commercial pilot program called MyRate that uses a M2M device — custom-designed by Xirgo — plugged into a vehicle's on-board diagnostic port to transmit information about a customer's driving habits back to the insurer. The application tracks any number of factors, from the frequency and intensity of breaking and acceleration to the time of day driving occurs, as well as the overall mileage driven in a month. Depending on how much of the driving is deemed safe or low-risk by Progressive's computers, the driver can qualify for steep discounts on his or her premiums.
“Customers value more competitive prices,” said Richard Hutchison, general manager of MyRate, which is now available to customers in 15 states. “The question is do they deserve more competitive rates. MyRate allows us to make that judgment by measuring the quantity and quality of their driving.”
Currently Progressive's program aggregates that data and uses it to calculate whether a customer meets the criteria for discounts over standard actuarial rates. It falls short of determining customers' premiums based on their driving performance. MyRate won't raise your premiums if it turns out you're a riskier driver than your accident history and demographic would imply. But such a deterministic policy may not be such a stretch.
By incorporating GPS into a program like Progressive's, insurance companies could track not just the mechanics of driving, but the context, allowing them to charge rates in real time by the mile. The concept, known as pay-as-you-drive insurance, has been tested by insurers around the world, but no commercial program has been launched, mainly due to the concerns about a private company tracking a driver's every move. But other GPS-powered automotive tracking applications, such as OnStar, have surfaced that have gained customers' trust. And GPS tracking has been accepted in other parts of the world in the insurance business for theft prevention and recovery purposes. It's only a matter of time before the benefits of such pay-as-you-drive programs overcome public fears about their abuse, said Peter Fowler, regional president of the Americas for Cinterion, the world's largest manufacturer of GSM modules.
“The concept is still being kicked around,” Fowler said. “They continue to work on the business models. There's no question that paying for insurance by the kilometer or mile driven will take off sometime in the future — just not right away.”
— Kevin Fitchard
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