Connected car: an opportunity for telecom operators

Monday 8 July 2013 | 16:47 CET | Background

The Connected Car is a chance for telecom operators, according to Pavan Mathew, Global Head of Automotive Telematics at Telefonica Digital. Operators have a bigger role to play than just 'data pipe'. They can also develop applications and become an important partner for automakers. Competition is heating up though in this emerging market, and to take advantage of the window of opportunity, timing is important, Mathew said.

Telecompaper spoke with Mathew at the LTE World Summit in Amsterdam in late June. Telefonica Digital has been an independent business within the Telefonica group for the past 18 months and already has around 2,000 employees. The unit works on developing M2M applications, location services and other new digital services such as eHealth.

It's still early days for the connected car services market, but the number of cars fitted with such services is expected to increase sharply in the coming years. According to estimates from Telefonica Digital and Machina Research, there will be around 1.8 billion automotive M2M connections in 2022. As part of its Smart Mobility strategy, the European Union is making the eCall system mandatory for all new cars from 2015. With the growing need for constant connectivity and entertainment, cars won't be able to do without such services either. 

The operator is much more than a distributor of Sim cards and a bit pipe, Mathew said. It can also play a role in developing and facilitating services. In the UK, Telefonica Digital has launched 'Priority Moments', a platform for location-based advertising in and around the car. It also supplies services for fleet management. This is an important market for automakers, which supply up to 10 percent of their vehicles to fleet owners. Driving a company car is more common in the UK than in other EU countries.

Car brands stand to benefit from selling subscription services, said Mathew, but it will never be a core activity for them. Uptake is often high in the first year, when a subscription is sold with new cars. Selling a subsequent subscription only works in at most 55 percent of cases. An operator can provide the Sim cards, as well as Wi-Fi equipment and billing solutions. They can even offer on-demand subscriptions, for example only available when the car is in use. 

Market perspective

According to a recent report from Telefonica Digital about the market for connected car services, there are multiple issues to address. 

Automakers have a longer product cycle than the mobile world, working over a number of years. They don't want their technology to be outdated by the time it reaches the showroom. Telefonica Digital expects the automakers will use systems that can be updated, with swapable head units. Telefonica expects that by choosing LTE, their investment should be protected for 5-10 years to come. 

Another still unresolved dilemna is the choice of built-in or brought-in: Which communication systems are built-in to the vehicle and which are brought by the user? eCall is a typical example of a built-in application. Another area in development is maintenance and help with break-downs. The dashboard computer signals when maintenance is needed and provides detailed information if the 'check engine' light goes on.

Manufacturers already provide multimedia systems in the dashboard, but entertainment and connectivity are often introduced in the form of a smartphone with a data subscription. Automakers are more likely to choose a hybrid model, with some functionality in-built and some facilitated through smartphone apps, according to Mathew.

Auto apps need to be interesting, safe and relevant, leaving a limited number of possibilities. Music, navigation and (as long as it's safe) messaging are among the possibilities, in addition to applications directly related to the functioning of the car, such as eCall.

In an emerging market, competition can heat up quickly. Telefonica Digital sees a future in working as a development partner for auto OEMs and a supplier of after-market systems for fleet owners operating a multitude of different brands and nameplates. Competitors are busy too. For example a consortium such as Genivi and CCC, which is working on an app ecosystem. 'Brought-in' ecosystems are also prevalent - Google is not standing still in this area and Apple is using iOS 7 to introduce automotive functions and applications. "There is a window of opportunity, but the timing is becoming important," Mathew noted.

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