#2 – Operators to refine their ‘Cellular IoT strategy’ to better seize the global digitalization opportunity

In 2019, the telecom industry will be wiser about its role in the global digitalisation trend. It will be more apparent to operators that the Cellular IoT (CIoT) connectivity option is suited to certain use cases; the automotive and logistics verticals being among the most promising ones. We believe that operators will revise their CIoT strategy from a broad, all-encompassing ‘IoT’ approach, to tailored connectivity solutions designed from the enterprise client’s digitalisation context. We believe that operators will mostly engage with enterprise clients through their existing B2B channel rather than setting up new, specialised, business units. Naturally, operators with a historically strong enterprise offering are likely to fare better in selling ‘CIoT’.

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As the telecom industry improves its understanding of the drivers behind various IoT use cases and their wider digitalisation context, estimates of IoT connection volumes are being revised to reflect more realistic scenarios. The industry now has a better view of how many devices will likely be deployed in various verticals; and more importantly, there is a better understanding of which industries and use cases that are likely to be more compatible with cellular IoT (CIoT). The latest projection of global CIoT connections, by Ericsson, is estimated at 4.1 billion by 2024.

While connection volumes are expected to grow at approx. 30% CAGR (from 2017 to 2023), CIoT revenues are expected to constitute a fraction of total operator revenues, typically less than 3%. The bulk of CIoT revenue is expected to be driven by:

  • A mix of standard connectivity similar to the 4G/3G consumer segment and ‘low power’ type of applications which are associated with low ARPU, low data volumes and long-term deployment,
  • Automotive, smart meter and logistics are expected to be the most dominant verticals, while in many other verticals CIoT is sometimes expected to serve as a capillary gateway,
  • The automotive segment is of particular interest because its wide area broadband nature is likely to be more lucrative than the narrow band applications where there is substantial cost pressure from an end-to-end product perspective, which is due to competing connectivity alternatives.

Besides the CIoT portion of the overall IoT spend, the other, much larger, proportion of IoT revenues is expected to come from solution integration and data platforms. While some operators may successfully venture outside of the connectivity segment, we believe that most are likely to stick with connectivity, mainly because of the highly competitive nature of the platform segment as well as the low margins associated with the integration business.

We therefore foresee that operators will acknowledge the verticals where they have the most strength, i.e. where cellular connectivity is the primary option (e.g. automotive, logistics, etc.) and will align their focus towards those. We believe that operators will start to think less in terms of general IoT and more in terms of specific solutions/value propositions pitched from the client’s context such as ‘car as a service’, digital asset tracking, etc. where they will be part of a larger and more complex solution. There will also be a long tail of other verticals which will require cellular technology in the mix but not as the only or primary connectivity method.

We foresee that the majority of operators will handle these opportunities (both the dominant verticals and the long tail) just as they currently handle enterprise or B2B connectivity; they will not require particularly specialised business units and processes to manage them – as evidenced by many operators moving away from reporting IoT as a separate line item. However, operators with strong enterprise sales units, particularly the incumbents with a ‘fixed’ service offering, are likely to fare better in selling CIoT. Of course, we will still see some operators, especially those who had taken the lead from the old M2M platform segment, continue to run a separate IoT business, but these will be an exception.

In conclusion, in 2019, the cellular community will find its place within the ‘digital universe’ and will begin to focus more on the connectivity aspects of cellular-compatible use cases, they will do this by sharpening their connectivity value add for specific applications – i.e. a move away from the abstract IoT concept and towards integrating into the client’s vision of connected products/services. For many operators, this shift will be handled within their existing B2B business units, borrowing from many of the existing enterprise service management practices.

 

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