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Carriers get wise to the M2M opportunity

In part one of a four-part series on the emerging M2M market, Connected Planet investigates the changing roles of the network operator and the M2M aggregator

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A year ago, Jasper Wireless saw the writing on the wall: Its business model as a machine-to-machine (M2M) service provider was in jeopardy. The threat was coming from Jasper’s key suppliers, the wireless network operators that for so long had left the M2M space to their mobile virtual network operators (MVNOs) or connectivity resellers.

Seeing the M2M market grow and the proliferation of new embedded consumer electronics devices, carriers decided it was time to move and stake their claim in telematics. For a company that focused on connecting consumer-facing applications such as the Tom Tom personal navigation device and OnStar, that spelled danger, said Macario Namie, Jasper senior director of product marketing. Jasper decided if you can’t beat them, join them. In May, Jasper signed an agreement with AT&T (NYSE:T) to be the brains behind its new emerging devices strategy, and last month AT&T launched the first device on the platform: The Plastic Logic eReader.

“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.”
Jasper had always been part MVNO, aggregating data services from various operators, and part technology platform provider. By abandoning the MVNO aspect of its business, Jasper is now free to focus on the part of its business that differentiates it: its device provisioning and management platform and its design and integration services.

“[Jasper] really acts as a backroom for our emerging devices business,” said Glenn Lurie, president of Emerging Devices and Resale at 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.”

The mobile operator has never really been absent from the M2M space, said Kitty Weldon, senior analyst for Current Analysis. Rather, they’ve taken a hodgepodge approach to the market, she said. For major customers, they’ve provided M2M services directly, though without publicizing those deals, and the rest they left to the M2M aggregators like Kore Telematics, Aeris Communications and Jasper. But as the potential of the M2M market becomes apparent with the emergence of devices like the Amazon Kindle, operators have realized there is a huge potential market for connected data devices in the consumer space, not just in the industry verticals, Weldon said.
Consequently operators have redoubled their M2M efforts, but tackling M2M is fundamentally a different market than connecting mobile phones. The Kindle and the eReader don’t operate under the same business model as a mobile phone or even a netbook. Rather than charge a monthly rate for data services, carriers get their revenues whenever their end users download a book or newspaper. There are no pre-set plans an operator can devise for applications like smart grids, either. A utility metering grid could contain millions of devices, each transmitting the minutest amount of information each month, while a video surveillance grid could contain hundreds of devices transmitting massive amounts of traffic in a single day. And rather than deal with a portfolio of a few dozen phones, the operators suddenly have to contend with thousands of different devices, many of which have been optimized for their specific customers. Operators simply haven’t been equipped to deal with those kinds of scenarios, Weldon said.

“The underlying network connectivity is just a small part of it,” Weldon said. “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.”

Verizon Wireless (NYSE:VZ, NYSE:VOD) has been particularly aggressive in pursuing the M2M market, launching its open development initiative last year in an effort to lure both industrial and consumer wireless applications and devices onto its network. Since the program’s launch, Verizon has certified dozens of M2M devices, though it has yet to announce any big-ticket consumer item like the Kindle.

That could change very soon, though, as Verizon has moved from merely certifying other devices to becoming a full-blown integrator and designer. Last month, Verizon Wireless and Qualcomm (NASDAQ:QCOM) created a joint venture that will take on the M2M market from every angle, from chipset to network connectivity. Until now, no operator has been a true M2M systems integrator, Weldon said. “The joint venture between Qualcomm and Verizon will be very interesting.”

According to VZW vice president of open development Tony Lewis, the new JV will allow Verizon to go directly to the customer to develop tailored applications and devices for their needs, rather than wait for a customer with a pre-integrated solution to come knocking on VZW’s door. Lewis believes the opportunity in M2M is enormous. The number of data connections on the Verizon 3G and future long-term evolution (LTE) network could easily dwarf the 87.7 million subscribers on Verizon’s network today. “We will attack every piece of the marketplace,” Lewis said. “M2M is going to exponentially grow the number of connections we use every day.”

If the network operators are playing a more active role in M2M, where does that leave the MVNOs and aggregators that served the market for so long? Weldon believes a shakeup in the market has already begun, but there will be room in the market for independent telematics operators that can provide the right combination of global connections and applications to meet specific application needs. Furthermore the operators need the aggregators to develop new M2M markets, just as the aggregators depend on operators for their networks, Weldon said. With the exception of the Qualcomm-Verizon venture, operators don’t have the resources to handle the intricacies of many of the specifically tailored industrial and vertical applications in the market, Weldon said.

“The operators appreciate that a lot of innovation has come from the aggregators,” Weldon said. “They don’t want to stifle that creativity.”

Kore Telematics President and Chief Operating Officer Alex Brisbourne 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 is evolving from a few niche applications to a much broader market, Brisbourne said. While operators will target the new emerging consumer devices, Brisbourne said, 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.”

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© 2014 Penton Media Inc.

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