Mobile operators in the M2M market – Telenor Connexion's view

Wednesday 8 September 2010 | 16:53 CET | Background

Following on from Telecompaper's first research report on the Western European mobile M2M market, we conducted an extra conversation with Robert Brunbäck, Head of Market Strategy at Telenor Connexion, about the role of the mobile operators in the current and future mobile M2M market.

Telenor Connexion is a mobile operator based in Sweden and part of Telenor Group which operates globally. Telenor Connexion was established based on the Telenor Sweden M2M Business unit, active in M2M since 1998.. The reason for establishing a separate entity was that Telenor wanted a more solid technology solution for M2M and a better marketing and sales structure, which also required a different mindset compared to the traditional telecoms set-up. Telenor Connexion has grown into a global provider of managed M2M connectivity solutions.

Until recently most MNOs took an indirect role in the value chain, providing only basic connectivity through agreements with resellers, MVNOs and dedicated service providers. But now that the traditional cellular market is experiencing saturation, and the M2M market is evolving more and more into a consumer sector, operators are looking at new ways of increasing their revenues and utilizing the capacity on their networks even more. Many mobile operators have been showing an interest in the mobile M2M field and increasing their participation in this area, mostly by setting up dedicated business units, such as at Vodafone, Telefonica and Deutsche Telekom. The increased interest and investment by many mobile operators across Europe is good for the M2M market, as when the volume goes up, the module prices will come down further.

However Telenor Connexion believes that the M2M units of many operators are likely to face several issues:

  • They have to compete internally with the consumer division for resources. As the consumer divisions are generally ‘the face’ of the operator, these are likely to have first priority.
  • M2M requires a different mindset compared to the traditional telco operations, as offering set propositions doesn’t work in the M2M field and the upcoming consumer electronics segment will require yet another approach. Billing and customer services also need to be approached differently.
  • They also have to focus less on single ARPU. ARPU may be low per individual SIM, but with low costs and thousands of SIMs per client as well as minimal churn, there is still a good profit margin to be had.

Mobile operators need to figure out how to position themselves in the M2M market. They can be just a bitpipe or get more involved in the value chain. Telenor Connexion has chosen the middle road of focusing on managed connectivity, ie not just the connectivity but also services around connectivity such as design services integrating connectivity in various terminals, testing/validating its solutions on different networks, more flexible billings solutions etc.

Over the past few years research companies have been predicting enormous growth for the M2M market. In 2008 Berg Insight forecast that the number of wireless M2M connections would grow at a compound annual growth rate of 33.0 percent, and in 2006 ABI Research forecast that M2M would achieve a yearly unit growth of 40 percent. Despite the economic crisis hitting it hard in 2008 and 2009, the market has been growing, but the expected exponential growth has not yet materialised. Mr Brunback believes that one of the reasons is that these predictions were often based on module or SIM sales, but the business model of service and support is very important for the product to be successful, and it takes time to get that organisation into place. Technology is not the issue. The main problems are concerned with that connected servicers often imply a change from a product-orientation towards a service orientation troughout the organsiation which naturally takes time and have slowed the uptake. A good example is the car industry, which has been looking at connectivity for quite a number of years. One of the main problems is how to sell the services in the car, as car sales are based on selling the car itself, not any services usable from within the car. Another reason why it hasn’t grown as quickly is that although regulation can push the market forward, it can also hold it back. In many verticals, such as the health segment, legislation and certification varies across countries, and the lack of sufficient standardisation in the market creates problems for roll-outs.

So what can the mobile operators do to take more advantage of the growing M2M market?

First they need to make sure that their platforms are stable, reliable and able to handle redundancy, as many M2M applications are business critical and can even be life critical. Second they need to allow flexibility in their business model, as the M2M solution needs to enhance the customer’s business model and cannot be a set model applied to each customer. Third they need to change the mindset away from the traditional telco approach. Many operators are realising this, and setting up separate business units is a start to this process. Last, mobile operators should co-operate more to enable global deployments of M2M - both to assure that the price structure do not hinder M2M type of traffic but also in terms of increased cooperation across networks to ensure that higher demands on service levels are met

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