A good business model is hard to find

Though each has a different market focus, automakers, service providers, wireless companies and hardware companies all have kept an eye glued on one potential revenue-generator: telematics. Wireless carriers are determining what their place is in this space and whether they can establish revenue streams that are amicable to the car makers they work with.

For now, all companies working in this space continue to develop plans for telematics, hoping ultimately to prove that marrying wireless applications with the car industry makes sense — and cents.

Companies such as Ford Motor Co., General Motors, Sprint PCS and OnStar all realize the potential of telematics. The challenge now is not whether these players are willing to work with one another — most of them already have been doing that — but whether they will be able to maintain relationships once they determine who should own the customer and the bulk of the revenue (Figure 1).

“A lot of the activity is driven because carriers see this as a way to generate additional subscribers. Telematics is one of the major growth opportunities that have to drive margins,” said Andrew Cole, head of the global wireless practice at Adventis.

Last March, Sprint PCS, the most aggressive carrier pursuing the telematics space, hooked up with Ford to collaborate on telematics services such as voice-activated dialing, emergency and roadside assistance (Figure 2), and other information services such as news and weather.

The offering, which began with select 2001 Lincoln models, includes a Motorola StarTAC phone equipped with Sprint PCS Wireless Web service that is used outside the car like any wireless phone.

When docked inside the vehicle, the phone provides automatic, intuitive information for the vehicle via the car manufacturer's Remote Emergency Satellite Cellular Unit safety and security telematics system.

Figure 2 Emergency aid

Interest in emergency roadside assistance, by household income

	Less than $40,000	$40,000 to $80,000	More than $80,000
Extremely or very interested	25%	40%	48%
Somewhat interested	28%	36%	37%
Not too or not at all interested	46%	23%	15%
Source: The Strategis Group

Most recently, Sprint PCS announced that it would deliver wireless voice and data solutions to all 2001 Jaguar vehicles in North America.

“We see telematics as an opportunity to better serve Sprint PCS customers, and we view the car as an extension to wireless,” said Joe Averkamp, senior director of automotive telematics business at Sprint PCS. “We're watching and actively engaged with people but we are not sure how relationships will work.”

Although Sprint PCS will be the exclusive wireless network provider for 2001 Jaguar cars, it will be just one of three network operators to support telematics services for other Jaguar models. Sprint PCS prefers it this way, Averkamp said. “We think we can compete in more of an open-competition atmosphere. We have the ability to give consumers choice because we have a data-capable network.”

In its November report about the telematics space, Forrester Research tried to determine how relationships might play out. The firm predicted that service providers such as Wingcast, formed by a partnership between Ford, Qualcomm and OnStar to develop telematics applications, could be the companies that will bill consumers monthly for content and service. They then could hand money over to companies such as CNN or ESPN for the rights to distribute their content. The service providers would continue buying minutes from wireless carriers such as Verizon Wireless or Sprint PCS in order to deliver the content to consumers. Via this model, consumers paying monthly subscription fees to OnStar or Wingcast would not realize that they also will have paid a wireless carrier for airtime.

Ford and one of its partners, Vodafone, announced that they would launch telematics services in Germany, with the United Kingdom expected to follow later this year. Although telematics will take off in the U.S. as well, there are issues that need to be hashed out first.

‘We see telematics as an opportunity to better serve Sprint PCS customers, and we view the car as an extension to wireless.’
— Joe Averkamp, Sprint PCS

“The carrier's role vs. the automotive manufacturer's role still is question-marked,” said Elliott Hamilton, an analyst with The Strategis Group. “Because OnStar uses Verizon's network, there is an issue of wireless carriers not wanting to make current partners mad [by driving] their own telematics plans,” he added.

Joanne Coleman, vice president of marketing for Wingcast, does not foresee carriers delivering a telematics offering unless they strike direct relationships with car manufacturers.

“Telematics in any environment that is not a car is not really telematics,” she said. “Unless carriers pursue a direct relationship with the automotive companies, telematics cannot be provided.”

Carriers can provide voice and navigation, but the greater part of telematics is accessing information from inside and outside the vehicle, she continued.

Until carriers have their own wireless location technology, they will just want to position themselves with the auto companies to get the reselling revenue, Hamilton said. In addition to Ford, Jaguar and GM, Hamilton predicts that DaimlerChrysler will be the next big car manufacturer to strike a deal with a wireless carrier.

“Every provider in the telematics mix brings something to the table, and carriers continue to partner with telematics companies,” Coleman said. “At this point it is hard to say who will be the clear winner.”

While partnership agreements remain uncertain, carriers seem to be coming around to the view that this could become more of a revenue source than they originally may have thought.

“The best way to make telematics work is to ensure seamless integration so that folks can take the handset out of the car,” Cole said. “Since the customer most likely will not want to have Sprint PCS service and pay money for telematics, some kind of bundle most likely will be compelling.”

According to Averkamp, it would make the most sense if the in-vehicle offering eventually works with the handset offering. “I don't think there will be a separate in-vehicle service. I am not sure consumers will want to get a separate subscription for in-vehicle service,” he said.

A major roadblock to telematics remains the confusion surrounding the business model and, in effect, the revenue that stands to be gained (Figure 3).

“OnStar is great in terms of safety and diagnostics, but it is pure voice interaction. It is a great base-level offering,” said Dan Garretson, an analyst at Forrester Research. “When there are services built around that then it will get to the point where people will not want another phone number and cellular account to keep track of.”

Because it might become difficult for providers such as OnStar to ensure an ongoing revenue stream from telematics services, car manufacturers will be forced to open their platform so phones can be plugged into a cradle, Garretson said.

“Cellular carriers are better equipped to provide services which will force OEMs to open up their system to allow different carriers to provide the service,” he said.

OnStar's pricing per minute currently exceeds most wireless plans, which also could affect its revenue model.

“Figuring out revenue streams is sensitive to what we assume the business model is,” Garretson said. “Revenue stream could go to the carriers, and there could be extra margin for car companies. We will see a bunch of ideas out there and different models and will get some sense as to where the business model is heading in the next couple of years.”

While the lack of a secure business model has limited wireless carriers' success in telematics up until this point, automobile manufacturers may be recognizing it as a way to make up for their troubled core business, Cole said. “Automobile guys own the car environment, so to add wireless would be a good thing. Our belief is that auto manufacturers will become mobile virtual network operators [MVNOs],” he said.

Both GM-backed OnStar and Ford-backed Wingcast could be considered MVNOs. Therefore, it is important that carriers strike relationships with auto manufacturers because there are a limited number of potential MVNO brands that are suitable for telematics, he said.

Carriers that have one or more well-known car brands associated with their network will be better off, considering there are more networks than brands, Cole continued.

Although Sprint PCS said it would continue to engage in MVNO relationships, which are predicated on providers like OnStar and Wingcast buying airtime, the carrier is not convinced that there is a clear path as to how MVNOs will succeed.

“We want to accommodate the wireless device and service consumers already have,” Averkamp said. “Our view is that people want to rely on their primary wireless provider.”

However, because nothing currently is cut and dry, Averkamp acknowledged that people could be willing to pay for a second service depending on which turn the market should take in the next four years.