#5 – IoT makes waves, operator divergence emerges

Globally, operators’ IoT revenues as a share of total revenue have been increasing steadily over the last few years. Some operators are now generating up to 1% of their revenue from IoT services and Northstream expects that though most will remain under or around 1% in 2017, a selection of leading operators will succeed in reaching up to 3%.

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IoT revenues for leading operators in the US and European markets are currently hovering around 1% of total revenue. The Vodafone Group reported IoT revenue of €477 million for the first three quarters of 2016, which amounts to 1.18% of total revenue (and 1.79% of mobile revenue) for that period. Verizon reported $617 million for the same period, which accounts for 0.66% of the total revenue (and 0.94% of the mobile revenue).

Northstream expects that Tier-1 operators in the US and Europe (such as AT&T, Vodafone, Telefonica, DT) will see IoT revenues contributing up to 3% of total revenue in 2017. These players are capturing revenue not only from connectivity, but also from system integration, security, analytics, connectivity management platforms, and vertical solutions. In addition, these large operators have also struck major deals in the connected car market, which has high ARPU and growth.

Smaller operators in developed markets and operators in emerging markets will find their IoT revenue share of total revenue stay mostly below the 1% threshold in 2017. This is due to both their smaller number of connections and more limited capabilities, restricting them to the role of connectivity providers.

The commercial launch of new cellular LPWA technologies (such as NB-IoT and LTE-M) next year will open up new business opportunities for operators, connecting objects that were previously too remote or expensive to connect, but the effect on subscription and revenue growth will still be small in 2017, as these technologies and their surrounding ecosystems will need at least 2-3 years to mature.

As IoT grows in the next few years, we expect to see even bigger differences in operator revenues across regions and based on operator size and positioning in the IoT value chain. Tier-1 operators’ IoT revenues will amount to 3-5% of their total revenues, Tier-2 operators will reach 1-3% and the rest will remain mostly under 1%. In 2017, this divergence will start to become noticeable.

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