Machina Research
Research Report Sponsored by Cisco
Service Provider Opportunities &
Strategies in the Internet of Things
Matt Hatton, Co-Founder & Chief Executive Officer, and
Godfrey Chua, Principal Analyst
December 4, 2015
2
1 Executive Summary
1.1 IoT is a huge opportunity and some SPs are seeing rapid
growth
The Internet of Things (IoT) represents one of the most transformative technological phenomena to
emerge in the 21st century. Its impact will be far reaching, touching practically every aspect of day-today human life and profoundly disrupting business and commerce. Such a transformation also brings
with it a market opportunity that will have unprecedented scale – one that we see amounting to
USD4.3 trillion by 2024. There are many different players vying for a slice of that revenue, not least
telecommunications service providers (SPs), many of whom have identified the IoT as a significant
growth opportunity.
Market leading SPs, such as Vodafone and AT&T, have already developed new technological
capabilities and business competencies to address the IoT. Many have seen substantial growth in socalled machine-to-machine (M2M) connections over the last three years. With connections and
revenue growth typically around 25%-30%, this line of business in connecting new devices is
outshining more traditional telecoms activities. However, to truly thrive in the IoT-enabled world, SPs
need to look beyond simply connecting devices, to developing a broader set of competencies
associated with the wider requirements of the IoT.
1.2 SP strategies for IoT are diverse and evolving fast
This report was based on an extensive set of discussions with 26 SP groups around the world, looking
at their IoT-related activities, supplemented with Machina Research’s ongoing research on the SP
environment. The key findings are as follows:


Globally there are eight SPs that Machina Research considers to be ‘Players’. These SPs have
established the key horizontal capabilities necessary to support connecting IoT devices,
formed alliances, developed strategic partnerships and generally set the agenda for how IoT
connectivity is managed today. There are a further 17 ‘Builders’ who are on their way to
establishing a strong IoT-related offering. The remaining global operators can be considered
‘Learners’, watching to identify best practice, in some cases implementing some of the
horizontal capabilities necessary for IoT, but not yet really ‘taking the plunge’ into the IoT.
There is a set of horizontal capabilities which have become the baseline for SPs that are
seriously looking to address the IoT. These include establishing a dedicated IoT business unit,
implementing a Connectivity Support Platform (CSP), having dedicated core network elements
for IoT, joining global alliances, and establishing meaningful partnerships with other
companies in the IoT ecosystem. Effectively this is a linear evolution path, associated with
greater engagement in the IoT, leading from ‘Learner’ via ‘Builder’ to ‘Player’.
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

SPs have a decision to make about how to pursue vertical opportunities. As SPs become
more sophisticated in their offerings they tend to turn their attention to the vertical
opportunity, developing their own products and services, or establishing partnerships to help
bring products to market. This reflects a desire to expand the revenue opportunity beyond
pure connectivity. All SPs need to make a decision about how deeply they want to get into
verticals. At one extreme some players will develop offerings across a range of verticals,
although certainly not all, while at the other end some will prefer an approach of providing a
platform for third party service providers and SI partners to develop the vertical element.
There is no ‘right answer’ to where SPs should fit in this spectrum; that decision will be
determined by the individual SP’s scale, capabilities and appetite for risk. Amongst the 26 SPs
covered in detail in this report, all of them were pursuing automotive/transportation, with
industrial applications and retail the next biggest sectors, with the latter being noticeably
interesting for emerging markets SPs.
There are some emerging technology trends that SPs will need to embrace to stay ahead in
IoT. In particular we identified four areas: platforms, Low Power Wide Area (LPWA) networks,
Network Function Virtualization and Software Defined Networking (NFV/SDN), and data
analytics. It is well established that SPs need to deploy a Connectivity Support Platform,
however it is increasingly common to see SPs adopting a multi-platform approach in order to
both capitalize on different capabilities in the various offerings, as well as tap into various
communities of operators. Increasingly SPs are also embracing Application Enablement
Platforms (AEPs). Large numbers of SPs are looking carefully at the opportunity presented by
LPWA, and 2016 is expected to be a critical year, with the Narrowband IoT standard imminent
within 3GPP, as well as lots of LoRa deployments anticipated from SPs1. NFV/SDN is one of the
key broader trends in telecoms, and the capabilities will be valuable for IoT, although the
extent to which this has been realized, or is being acted upon, varies tremendously. Finally
data management and analytics is a nascent area for SPs. There is a realization amongst some
of the leading players that it is at the heart of IoT, but most SPs have yet to seriously address
it.
1.3 The evolution to becoming a Next Generation IoT Service
Provider
The aim of SPs should be to implement the necessary capabilities to maximize the opportunities within
the Internet of Things. As noted above, we see an evolution path from ‘Learner’ via ‘Builder’ to ‘Player’.
However, the path does not stop there. We have also identified a number of different capabilities that
should be built by a Next Generation IoT Service Provider, as illustrated in Figure 1-1. Specifically these
include:

Data management and analytics. As noted above, the true value of IoT lies in what is done
with the data once it is gathered from these remote devices.
1
For more details see Machina Research Strategy Report ‘LPWA: disruptive new networks for IoT’ (November
2015)
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


Low Power Wide Area Networks. SPs should aim for a degree of network agnosticism if they
want to be the most effective partner for IoT. In particular this extends to deploying new IoTfriendly LPWA networks to complement their existing networks.
Harnessing the power of their networks to truly deliver the capabilities that IoT demands.
IoT devices and applications have an infinitely more diverse set of demands than traditional
devices such as handsets and PCs, in terms of bandwidth, latency, geographical distribution,
security, reliability and vast array of other characteristics. SPs must harness technology
developments such as NFV/SDN in order to properly serve all the requirements of IoT
applications, rather than just provide the ‘best efforts’ service that dominates in the telecoms
sector.
Professional services offers an opportunity for SPs to own the IoT relationship. Helping
enterprise customers along the journey to IoT requires some hand-holding, supporting those
companies in the business process transformation as well as the nuts and bolts technology.
SPs are in a unique position as trusted technology partners for almost every enterprise in the
world.
Figure 1-1: Segmentation of SPs, and their capabilities, in IoT [Source: Machina Research, 2015]
Service Providers today are broadly positioned in one of the groupings noted above, although as with
any attempt to model the real world, there is some diversity. What is clear is that there is an
increasingly well-defined evolution path emerging in terms of the capability sets required to succeed
in IoT, along with best practice. SPs need to get involved, make the investments, and progress their
offering towards that of the Next-Generation IoT Service Provider if they are really to maximize their
opportunity in the Internet of Things.
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2 Contents
1
Executive Summary ......................................................................................................................... 2
1.1
IoT is a huge opportunity and some SPs are seeing rapid growth.......................................... 2
1.2
SP strategies for IoT are diverse and evolving fast ................................................................. 2
1.3
The evolution to becoming a Next Generation IoT Service Provider ..................................... 3
2
Contents .......................................................................................................................................... 5
3
Scope and methodology ................................................................................................................. 7
4
IoT market growth is an appealing target for Service Providers .................................................... 8
5
SPs are seeing rapid growth in what is still a nascent business .................................................... 10
6
Segmenting the SP market in IoT .................................................................................................. 12
7
8
6.1
IoT Players ............................................................................................................................. 13
6.2
IoT Builders ........................................................................................................................... 13
6.3
IoT Learners........................................................................................................................... 14
6.4
The path from Learner to Player ........................................................................................... 14
Technology building blocks for IoT ............................................................................................... 15
7.1
Platforms are a foundation for the IoT business .................................................................. 15
7.2
New access technologies emerge as SPs broaden their portfolio ........................................ 16
7.3
NFV and SDN ......................................................................................................................... 18
7.4
Data management and analytics .......................................................................................... 19
Vertical vs horizontal approach .................................................................................................... 20
8.1
Which verticals are SPs targeting? ........................................................................................ 20
8.1.1
Automotive and Transport are key anchors ................................................................. 21
8.1.2
The Industrial sector forms a substantial opportunity ................................................. 21
8.1.3
Emerging markets highlight retail ................................................................................. 21
8.1.4
Healthcare and Smart City are on the horizon ............................................................. 22
8.1.5
Consumer lags, but shows signs of life in China ........................................................... 22
8.2
SP approaches to vertical vs horizontal ................................................................................ 22
8.3
Partnerships are essential ..................................................................................................... 24
8.3.1
Alliances with other Service Providers .......................................................................... 24
8.3.2
Connectivity partners .................................................................................................... 24
8.3.3
Service-oriented partners ............................................................................................. 25
8.4
Solution development enables broader value capture ........................................................ 25
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9
The path to becoming a Next-Generation IoT Service Provider ................................................... 27
10 Conclusions & recommendations ................................................................................................. 29
11 Further Reading ............................................................................................................................ 31
12 About Machina Research .............................................................................................................. 31
12.1
The Advisory Service ............................................................................................................. 32
12.1.1
Reports and other published content ........................................................................... 32
12.1.2
Strategy Briefings .......................................................................................................... 33
12.1.3
Analyst Enquiry ............................................................................................................. 33
12.2
Custom Research & Consulting ............................................................................................. 33
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3 Scope and methodology
This report was compiled between August and November 2015 and is a continuation and extension of
Machina Research’s extensive existing work on the Service Provider (SP) market 2 . It is based on
discussions with 26 SPs around the world. Conversations were comprised of face to face, telephone
and email dialogue with contacts in each of the SPs.
The goal of the study was to further deepen our understanding of key market and technology issues
facing the SP. In order to broaden the perspective and offer greater context in the state of the SP IoT
business today, we extended our research to cover SPs with more nascent and underdeveloped IoT
strategies, as well as those from less developed economies. This group of SPs together account for
nearly two-thirds of the global installed base of cellular based M2M connections.
Discussions revolved broadly around, but were not limited to, the following areas:





History, experience, reach and success in IoT (e.g. scale of IoT connections, revenues, ARPUs,
etc.)
Business models for IoT, including where they operate in the IoT value chain, horizontal and
vertical focus areas
Organisation of the IoT business (e.g. dedicated business units, scale, etc.)
Approach to key technology topics, including software platforms (i.e. connectivity and
application enablement), access solutions (e.g. cellular, LPWA, satellite, etc.) and NFV/SDN
Key challenges to growing the IoT business
Analysis of these discussions were then structured along the following framework:
1. What capabilities do SPs have today in IoT?
2. What capabilities will SPs need in the future to maximise their opportunity in IoT?
3. How can they bridge the gap between the two?
Research
Stream(s)
Keywords
IoT Strategies, M2M Strategies
M2M, machine-to-machine, IoT, Internet of Things, SP, Service Providers, CSP,
Communications Service Providers, MNO, Mobile Network Operator
Companies SP discussions were held in confidence, only aggregate results and analysis are being
presented. Any mention of individual SPs (i.e. best practice examples) represents
publicly disclosed information derived from our ongoing research into SP activities in
IoT – it does not imply participation in the survey.
2
See, for instance, Machina Research’s ‘M2M Communications Service Provider Benchmarking Report 2015’
(September 2015)
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4 IoT market growth is an appealing target
for Service Providers
The growth of the Internet of Things (IoT) will be the defining trend in the technology landscape in the
next ten years, and it will permeate every vertical sector and influence the majority of business
processes in some way. The falling cost of connectivity and hardware is creating an environment in
which numerous sectors are exploring the benefits of using the IoT. Motivations are incredibly diverse,
including increasing the efficiency of business processes, adding new product features, build closer
relationships with customers, and facilitating whole new business models. Historically the focus has
been on the more mundane efficiency savings, but increasingly companies are seizing the opportunity
to use embedded intelligence and connectivity to switch from selling products to selling services.
One way of measuring the explosive growth in the IoT is in the number of connected M2M devices3,
as illustrated in Figure 4-1.
Figure 4-1: Global connected devices 2014-24 [Source: Machina Research Forecast Database, 2015]
45
40
PCs, Tablets & Handsets
Connected Car
Connected Cities
Connected Health
Connected Industry
Connected Living & Working
35
Connections (billion)
30
25
20
15
10
5
0
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
3
Machina Research defines these connected devices as ‘machine-to-machine (M2M)’. The ‘Internet of Things
(IoT)’ is a wider concept incorporating application development, data sharing, analytics and a whole ecosystem.
Therefore when talking about connected devices, we refer to them as M2M devices, but they are part of an
Internet of Things.
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In 2014 there were around 8 billion connected handsets, tablets and PCs, i.e. more traditional
connected devices. In comparison, other connected devices across Machina Research’s five top level
vertical sectors stood at 5.3 billion. This includes everything from connected cars and industrial
implementations through to Zigbee connected building lighting systems and WiFi-enabled consumer
electronics devices. By 2024 the total number of connected devices in total will have grown to 39
billion, of which the majority (69%) will be in the category of new devices, i.e. not handsets, tablets or
PCs.
The growth in these connected devices will also, of course, stimulate a significant revenue
opportunity. Overall Machina Research forecasts that the total IoT revenue opportunity will be USD4.3
trillion by the end of 2024 (as illustrated in Figure 4-2).
Figure 4-2: Global IoT opportunity, 2014 and 2024 [Source: Machina Research, 2015]
5,000
IoT Revenue (USD billion)
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
2014
2024
Device
Installation
Connectivity
M2M services
Platforms and middleware
Applications
Data monetization and IoT services
Systems integration and strategy
Machina Research identifies two main categories of revenue. The first set relates to the ‘machine-tomachine’ portion, and consists of the up-front cost of devices and installation and the recurring fees
accruing for connectivity and M2M services. This part of the revenue is based on end user average
spend on hardware and services for each of the multitude of different applications multiplied by the
number of connections.
The second, and increasingly important, element in IoT revenue relates to revenue that cannot be
explicitly associated with an individual connected device. It deals with application development, the
integration of IoT data into enterprise back-office systems, data analytics and various other
opportunities associated with managing and monetizing the data that comes from connected devices.
These elements are accounted for in the chart above in the categories ‘Platforms and middleware’,
‘Applications’, ‘Data monetization and IoT’ and ‘Systems integration and strategy’. Over the forecast
period this element grows from 17% to 42% of all IoT revenue.
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5 SPs are seeing rapid growth in what is still a
nascent business
Top Service Providers (SPs) are achieving meaningful scale in their IoT operations today. The business
delivers a substantial number of connections and is generating meaningful revenues, especially for
global players aggressively pursuing the segment. Leading global players such as Vodafone and AT&T
for example reported nearly 20 million M2M connections each at the end of 2014 (we do not include
e-readers and tablets in these figures). AT&T indicated over a year ago that revenues for the M2M
unit were already in excess of USD1 billion.
The fast scaling business is not unique to Europe and North America. In the last few years telecom
giant China Mobile has brought the notion of scale to an entirely new level. The SP reported a
whopping 43 million M2M connections at the end of 2014, with growth remaining strong as it
exceeded the 50 million connection mark halfway through 2015. Other large-scale M2M and IoT
players include Verizon, Deutsche Telekom, Softbank/Sprint and Telefónica. China Unicom also finds
itself in the tier of large-scale SPs with M2M connections well in excess of the 10 million mark. The
scale of the top ten SPs in global IoT, by cellular connections, are illustrated in Figure 5-1.
Figure 5-1: Cellular-based IoT connections by top ten service providers, 2012-14 [Source: operators,
Machina Research estimates, 2015]
Cellular M2M connections (million)
50
45
40
35
30
25
20
15
10
2012
2013
2014
5
0
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Growth in SIM connections is typically 20-30% per annum (as illustrated in Figure 5-2), with the top
ten SPs all delivering solid results in 2014, a trend that has shown no signs of abating in 2015. It is also
notable that anecdotally SPs are seeing, if anything, an increase in the average revenue generated for
each of these connections. SPs reported
average revenue per unit (ARPU)
“Despite the highly challenging business and
generally between USD2 to USD6 per
month. A fast growing Southeast Asian operational environment we are facing, our IoT
SP for example reported an average team is ahead of plan and among the stars in the
monthly ARPU of USD3, while another company.” – Global SP
emerging market SP shared one of the
highest blended average we’ve seen:
USD30. For the larger players in more established markets, the figures were typically USD4 or USD5.
Growth is where statistics are most stellar. The IoT business for many SPs is well outpacing traditional
mobile services, with the upshot that IoT business units are typically the rising stars in the
organization.
Figure 5-2: M2M cellular connection growth for top ten service providers, 2013-14* [Source:
operators and Machina Research estimates, 2015]
40%
35%
30%
25%
20%
15%
10%
5%
0%
*Telefonica figures are based on guidance provided by the CSP. When factoring shuttered connections (over 550k connections
in 2014) as well as other items not accounted for in its Annual Report, organic growth was reported to be 27%. Figures
published in its Annual Report only show a 14% increase in M2M accesses (please see Section 4.12).
Another important aspect of the SP business in M2M and IoT is that it is still nascent. Machina
Research estimates there were some 256.5 million cellular M2M connections at the end of 20144. The
majority of these connections, 60%, were accounted for by the top ten SPs in terms of connection size
(see Figure 5-3). The concentration of M2M connections is in part due to the fact that most SPs have
yet to fully embark on building a dedicated business in M2M and IoT. It is not unusual for current
4
The total figure is sourced from Machina Research’s Forecast Database
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efforts to be a mere extension of the enterprise division. As was the case of a major SP in the Japan
market, a regional player in Latin America and several other SPs we spoke with for this report, many
IoT teams and strategies are just being formalized in 2015. This certainly speaks to the nascent nature
of the business and the notion that growth will be further bolstered in the years ahead as the rest of
the world catches up and their respective local and regional markets truly begin to develop.
Figure 5-3: Total global M2M cellular connections and share of top major global operator groups*
[Source: Machina Research, 2015]
China Mobile
Other
Vodafone
AT&T
Verizon
NTT Docomo
China Unicom
Orange
Telenor
Telefonica
DTAG
SoftBank/Sprint
*The “Other” category also includes M2M connections that CSPs may not necessarily include in their official figures. For
example, there are a significant number of active M2M SIMs that generate traffic but do not qualify as active since this traffic
is generated in a highly intermittent manner (i.e. it could be several months between data transmissions).
6 Segmenting the SP market in IoT
While the research for this report consisted of discussions with 26 Service Providers, Machina
Research also gave consideration to (including discussions with) the wider SP IoT landscape. By our
estimates, of the 50 major Service Provider groupings in the world, eight fit into our category of
‘Players’, 17 are ‘Builders’ and the remainder ‘Learners’ . These three general categories of SPs see
different phases in the evolution of their IoT businesses (see Figure 6-1). As such, they have varying
requirements and necessitate different approaches in building their IoT businesses.
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Figure 6-1: Segmentation of SPs in IoT, with typical attributes and approaches [Source: Machina
Research, 2015]
Learners
Builders
Players
Usually <1 million
Usually 1-5 million
Usually >5 million
Part of enterprise team
Dedicated IoT team
formed
Experienced IoT team
<10
10-50
>50
Maybe
Yes
Yes
No
Maybe
Yes
No
Maybe
Yes
Maybe
Yes
Yes
Connectivity only
Vertical partnership
and/or limited offering
Usually strong vertical
offering
Limited
Yes
Yes
Scale (SIMs)
Structure
Size of dedicated
IoT team
Connectivity
Support Platform
App Enablement
Platform
Dedicated core
network elements
Membership of
global alliance
Vertical vs
horizontal
Established
partnerships
6.1 IoT Players
The SPs with the most sophisticated offerings are the ‘Players’. They represents global leaders in the
industry, including the likes of AT&T and Vodafone. They have unmatched scale in their IoT business
with most of these SPs exceeding the 5 million cellular M2M connection mark. Players are, however,
not about scale alone: they all have IoT connectivity platforms as well as application enablement
platforms deployed, have dedicated and experienced teams comprising thousands of IoT and vertical
specialists, and have invested significantly in technology, companies, partnerships, marketing and
human resources to expand their IoT operations. This group also includes China Mobile, which is more
oriented towards its local market but cannot be ignored given its tremendous scale, over 50 million
connections by mid-2015, and growing sophistication in IoT. However, there is much more to the SP
than just its scale, China Mobile is also making meaningful investments in technology, working closely
with partners to develop purpose built infrastructure for IoT (critical to enhancing customer value
propositions as well as optimizing network costs for IoT applications). Overall, this group of SPs offers
the key benchmarks and best practices for SP participation in IoT.
6.2 IoT Builders
Builders tend to be more recent entrants into IoT. While most of them will have dedicated IoT teams,
operations are still relatively small and likely to be more localized or at best regional. They are either
actively developing their IoT strategy or are in the midst of executing it. Companies like SingTel and
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Telstra fall into this category. These SPs have assessed their prospects for IoT and have built teams
and aligned resources accordingly. However, teams are relatively small and investments remain
tempered. Their scale varies with the majority having less than 5 million M2M connections. Early
traction and demonstrated market acceptance of their IoT solutions remain critical factors in order for
efforts and investments to be accelerated further. We believe there is much the ecosystem can do to
improve the velocity with which SPs in this group pursue IoT as they can be cautious in their approach.
They need specific ideas (e.g. IoT solutions with strong market prospects) and go-to-market support
(e.g. creative revenue and risk-sharing collaborations in order to encourage these SPs to broaden their
IoT offerings). Vendors in the IoT ecosystem must engage with these SPs proactively – those that don’t
risk being left out of the IoT conversation.
6.3 IoT Learners
Finally, most SPs fall into the ‘Learner’ category. As our discussions with SPs time and time again have
revealed, most have yet to truly embark on the IoT journey. IoT services, while gaining more attention,
still fall within the purview of the enterprise business and are typically connectivity based. Given the
recent media and industry attention given to IoT, these companies are well aware of IoT. However,
deeper IoT understanding and translation of market opportunities to local conditions remains lacking.
None of these SPs exceed the 1 million connection mark with
most actually still working on how to best determine and
track connection figures for the segment (important to “We have of course heard of IoT.
creating appropriate incentives and quotas). Even more so However, we are still focused on
than with the Builder group, the ecosystem can do much to
mobile
broadband
and
help these SPs amplify efforts in IoT. This can start with a smartphones.” – CALA SP
basic education in IoT and, specifically, the potential
opportunities it presents to SPs. Learners need
encouragement to enter the IoT space as current priorities see them focused on building the
traditional mobile broadband business. In many cases, they are in the midst of the smartphone
revolution, working hard to transition feature-phone subscribers to the more mobile broadband
centric smartphones. This focus also means that guidance from the IoT ecosystem will be extremely
useful. Learners do not have the resources nor expertise to evaluate IoT’s relevance to them. It will be
incumbent upon the ecosystem to help jumpstart such a process.
6.4 The path from Learner to Player
In examining SPs in IoT across the world, we observe a clear linear path that transforms an IoT Learner
to an IoT Player. This generally sees the SP taking the key steps of team formation, strategy
development, investment, and partnership development. This then culminates in an execution phase
that sees the SP building the kind of knowledge and experience in IoT that sets the stage for them
becoming a Player (see Figure 6-2). This involves implementing the necessary platform capabilities
and various other technology elements, as discussed in Section 7. IoT players then have a decision to
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make about what they do about directly addressing the vertical opportunity. This is where the clear
linear path splits. More on this in Section 8.
Figure 6-2: Building a path towards an IoT business [Source: Machina Research, 2015]
7 Technology building blocks for IoT
Network requirements for IoT use cases and applications typically vary from and are much more
diversified than traditional mobile broadband and voice communications. Tuning the network to
better fit these unique and disparate use cases require platforms and technologies that offer greater
flexibility, scalability and improved economics. For SPs aspiring to have a meaningful business in IoT,
technology considerations will be critical to long term success. Indeed, as outlined in Section 6 above,
putting in place many of these technology capabilities are essential for developing an effective IoT
offering.
7.1 Platforms are a foundation for the IoT business
Building an IoT business begins with implementation of a baseline software platform that manages
the connectivity and subscription requirements of the wide variety of emerging IoT use cases.
Connectivity management is then complemented with a platform that enables application
development itself. These are critical to speeding and simplifying deployments. The leading SPs in the
space, those in the Player group, all have connectivity and application enablement platforms (AEPs) in
place. In fact, discussions with them revealed the recent trend of multi-platform approaches (see
Figure 7-1). The approach allows an SP to offer their customers greater choice as well as enables them
to potentially tap into a pre-existing customer base (delivered via existing users of the platform, such
as a Jasper or Ericsson DCP user looking to procure services in the SPs local market). When it comes
to AEPs, SPs note they improve value propositions and deliver pre-baked applications that help them
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to more effectively target specific
verticals. Connectivity Support
Platforms thus enable the
horizontal strategy of the SP in
IoT. AEPs, on the other hand, can
be quite effective in enabling the
vertical strategy.
“We don’t have the number of connections to justify a
connectivity platform today. However, we are actively
talking to platform providers as we see it as essential to
scaling our IoT business.” – Asia SP
Figure 7-1: SPs’ emerging multi-platform strategies [Source: Service Providers, 2015]
n = 26
7.2 New access technologies emerge as SPs broaden their
portfolio
When it comes to access technologies, cellular is naturally at the heart of all efforts. This explains the
importance of the automotive and transport verticals as outlined in Section 8.1. Cellular is unique in
its ability to enable IoT use cases requiring full mobility and wide area coverage. SPs are also beginning
to explore technologies complementary to cellular. These include various Low Power Wide Area
(LPWA) options, as well as, satellite and short range technologies such as WiFi.
LPWA is a particularly hot area as SPs see this as a means to further extend the applicability of existing
SP IoT uses cases such as advance meter reading (AMR) for utilities. LPWA’s improved economics, long
battery life and focus on narrowband IoT makes it an effective complement to cellular. Public
announcements were plentiful in the last year, with leading global players such as Vodafone,
Telefonica and Orange all announcing plans or investments in LPWA.
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In Figure 7-2 we categorize the approach of the 26 SPs that were interviewed. 15% are actively
investing in the space, 19% are exploring the opportunity and a further 39% are keeping a close watch.
Just over a quarter are not active in the area at all.
Figure 7-2: SP interest in LPWA [Source: Service Providers, 2015]
Investing
15%
Don't know/Too early
27%
Exploring
19%
Observing
39%
n = 26
When asked about which of the technologies they were likely to deploy, there was a diverse set of
views. 22% did not know what they were going to do, and a further 26% were yet to decide (see Figure
7-3). Of the twelve SPs who have made up their mind, one is focusing on Sigfox and another two on
LoRa, but the majority see their LPWA future as residing within the 3GPP family of standards either in
the form of Narrowband IoT or some variant of LTE.
The lack of certainty around these network choices, both in terms of how aggressively they are
pursuing, and which technology they are picking, is symptomatic of the rapid change ongoing within
this space. Narrowband IoT is not yet standardized, and neither are LoRa or Sigfox. Ongoing
developments such as standardization, shifts from licensed-exempt to licensed spectrum and changes
to technical specifications mean that the landscape is rapidly shifting. Over the next 12 months we
expect much greater clarity in all these issues5.
5
See Machina Research Strategy Report ‘LPWA: disruptive new networks for IoT’ (November 2015) for more
details on the evolution of LPWA.
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Figure 7-3: SP LPWA technology activity (likely) [Source: Service Providers, 2015]
LoRA
9%
Don't know
22%
Still Exploring (All)
26%
SigFox
4%
NB IoT
17%
LTE-M
22%
n = 26
When it comes to providing coverage in areas where cellular is not available, SPs such as AT&T and
Vodafone have announced solutions incorporating satellite technology. Among the potential
complements to cellular, exploration of the key IoT access technology, WiFi, remains relatively
nascent. It does find relevance with SPs like Telefonica that are pursuing a more access agnostic
approach to the IoT market. Several SPs also noted that, while WiFi was not being actively pursued
yet, it was an area of interest and they were especially curious about seeing technology vendors
develop more enhanced management capabilities for devices connected via the medium. It is also
worth noting that a couple of the SPs did mention WiFi initiatives, but only as they were related to
voice and mobile broadband (to enhance coverage, especially in-building).
7.3 NFV and SDN
In varying degrees of near and medium term relevance, Network Function Virtualization (NFV) and
Software Defined Networking (SDN) are critical enablers for
the SP’s IoT business. There are many facets to this, including
“Virtualization will be essential the fundamental requirement that networking costs need to
as IoT use cases are hugely be significantly lowered and better aligned with the much
varied in their networking broader and varied cost structures IoT presents. Additionally,
requirements and will ultimately requirements for tremendous scale, flexibility in service
demand unprecedented scale.” offerings, and superfast provisioning means that the
attributes most often associated with NFV/SDN architectures
– Global SP
are directly relevant to the IoT market.
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The extent to which IoT is driving and will drive the adoption of NFV/SDN however varies from one SP
to another. For global players aggressively pursuing the space, relevance exists today and their
initiatives clearly show the influence of IoT. For the rest of the SP world however, M2M and IoT traffic
remains nascent. It represents such a small proportion of overall network traffic that it does not yet
make pragmatic sense to base network investments and architecture on IoT (see Figure 7-4).
Figure 7-4: IoT as a driver for NFV/SDN SP initiatives [Source: Service Providers, 2015]
n = 26
7.4 Data management and analytics
Data management and analytics is a nascent area within the SPs’ IoT strategy. Early efforts fall into
the general categories of additive value added services offered to customers, as in the realm of
security, and solution enhancement for applications targeting segments such as the smart city. These
efforts can be enabled internally or via strategic partnerships. For example, security is a top of mind
concern and critical friction point in enterprise adoption of IoT today. Recognizing such concerns, SPs
like AT&T have introduced network based security analytics features such as anomaly and threat
detection services. Given the many elements that comprise an IoT solution and the inherent challenge
in securing each and every element, a network based security “wrap” should prove appealing to
enterprises highly concerned with security (i.e. those deploying mission critical IoT applications such
as utilities and smart city transport and surveillance organizations). This is certainly an area that speaks
well to the core competency the SP brings into the IoT conversation – networking knowledge.
When it comes to data analytics for enhancing IoT applications themselves, SPs explore partnerships
with organizations possessing strong capabilities in priority segment targets. For example, companies
like IBM and Cisco are popular partners for smart city initiatives in part because of their big data
capabilities in taking monitoring data, such as vehicle transport flow, parking and congestion statistics,
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and analyzing it in order to aid city transport authorities in optimizing traffic and parking planning
(such analysis can also be applied to cellphone congestion data, something SPs like Vodafone and
AT&T are actively offering). Another area involves a vertical segment increasingly being targeted by
SPs: Industrial IoT. Here, a company like GE, who has emerged as a partner to the likes of AT&T and
NTT Docomo, proves appealing to the SP as the industrial giant’s big data capabilities in the areas such
as predictive analytics for equipment maintenance can enhance the SPs overall value proposition to
customers in target verticals like manufacturing and agriculture.
The real value of IoT lies in how data is managed and analysed. The SP has a much greater potential
role to play in providing the building blocks for complex data analytics. Few have yet made any
significant in-roads in this area.
8 Vertical vs horizontal approach
In the sections above we examined the horizontal capabilities required by SPs to correctly address the
IoT market opportunity. However, IoT cannot be simply considered as a homogenous market. IoT
comprises a vast array of use cases, applications and ultimately markets. Given the tremendous
diversity of opportunities, SPs need to give serious thought to how to address different verticals. In
this section we examine which verticals SPs consider represent the greatest opportunity, as well as
the different approaches being taken in how to address them.
8.1 Which verticals are SPs targeting?
When discussing key business areas, the automotive and transport segment emerges, by a wide
margin, as the most prolific connectivity and revenue generator for SPs. Other top verticals include
industrial (this includes references to agricultural, utility and manufacturing use cases), retail, smart
city, healthcare and consumer (see Figure 8-1).
Figure 8-1: Key IoT vertical segments* [Source: Service Providers, 2015]
Number of operators
(mentions)
30
25
20
15
10
5
0
Auto/Transport Utility/Agri/Mfg
Retail
Smart City
Healthcare
Consumer
*Number of times segment was mentioned as a top M2M and IoT business area.
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8.1.1 Automotive and Transport are key anchors
We cannot emphasize enough the importance of the automotive and transport vertical. In fact, every
SP we held discussions with (for this report, as well as from our ongoing conversations with other SPs
in general) sees the vertical as critical to their IoT business. For the vast majority, the segment is the
largest generator of IoT revenues today. More specifically,
use cases such as fleet management, connected car and
“The automotive and transport usage based insurance (UBI) were the most popular. Fleet
segments have historically been management is especially prevalent as SPs from both
and are our largest verticals developed and emerging markets highlighted the application.
today. The connected car is now In fact, several SPs even acknowledged that there is probably
especially robust, but both more fleet management “going on” in their networks than
continue to grow strong.” – they know of. This is especially true in emerging markets
where enterprises may deploy a fleet management solution
Global SP
themselves and simply procure SIM cards, with traditional
data or SMS plans, to connect them. Connected car and UBI,
on the other hand, are more commonly cited in developed markets. For example, AT&T is a leader in
the connected car, now adding in excess of one million such connections per quarter via a mobile
infrastructure and platform developed in partnership with Cisco. UBI, for its part, sees SPs from North
America and Europe reporting strong traction.
8.1.2 The Industrial sector forms a substantial opportunity
Industrial IoT is another important area highlighted by SPs. For this broad vertical, the use cases vary
significantly but are unified by the broader notions of asset management and monitoring services.
Strongest among these is the utility sector, where smart meters have had a long history. Major SPs
such as Telefonica report substantial contracts in this realm. This is now being extended to areas such
as agriculture, where condition monitoring (e.g. moisture management) use cases are proving to have
a strong business case and ROI. Manufacturing, which traditionally has not been a strong vertical, has
seen significant growth recently as some SPs seek to diversify their IoT positions (i.e. beyond
automotive/transport). For instance, Verizon’s fastest growing vertical segment for 2014 was in
manufacturing.
8.1.3 Emerging markets highlight retail
One of the more telling regional variations observed was in the strength of the retail vertical in
emerging markets. While certainly a notable vertical for most, emerging market SPs were especially
enthusiastic. The specific use case in emerging countries is
connectivity for retail point-of-sale systems. In the
“Unlike what we hear from the
developing world where the wired communication
rest of the industry, retail is our
infrastructure tends to be poor and cellular technology is the
largest vertical today. Transport
access medium of choice, SPs have found a strong IoT
business in providing wireless connectivity for payment is today however growing the
fastest.” – Asia SP
terminals and ATMs. In fact, an emerging market SP even
noted that this vertical was larger than its fleet management
business (although fleet management is today starting to
grow much faster).
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8.1.4 Healthcare and Smart City are on the horizon
Healthcare and smart city are certainly among the more popular verticals in IoT. For SPs, many
discussions mentioned their potential. The verticals account for a tremendous amount of economic
activity and thereby present a sizeable foundation for IoT opportunities. However, SPs were cautious
in their near term expectations around monetization of these two verticals. Market development is
challenged by regulatory (healthcare) and bureaucratic (smart city) challenges. While global leaders
such as Vodafone, AT&T and Telefonica have been public about their investments in these areas, the
general consensus is that these are important, albeit longer term bets to make. This however does not
mean that the two segments are not growing. For example, Vodafone noted strong expansion in its
healthcare related segment in the last twelve months. When it comes to smart city, efforts seeking to
accelerate market development are actively being put in place. Public and private partnerships, such
as those initiated by Sprint with the city of Kansas, Telefonica with Valencia and Etisalat with Dubai,
are the emerging model of choice for spurring the market (these are a contrast to China where with
over 300 smart city initiatives in the country, local SPs are thus far only playing a minor role in market
development). SPs certainly see near term incremental opportunities for connection growth resulting
from such smart city initiatives. For SPs that seek to play a lead integration role in the smart city, such
as a Telefonica, the opportunity is even greater.
8.1.5 Consumer lags, but shows signs of life in China
Finally, consumer IoT, which often receives the most media attention, only saw modest emphasis.
China was an interesting exception as SPs in the country shared enthusiasm for consumer based
monitoring solutions. These centered on tracking services for children, the elderly, pets and personal
assets such as bicycles. While other SPs around the globe have launched similar services, China was
notable for highlighting strong initial traction. Another key consumer IoT segment, the connected
home, also saw modest mentions. AT&T is the most public and aggressive with its efforts and
investments in the Digital Life offering. However, for the rest of the SP community the connected
home is still nascent. In fact, some SPs mentioned having to retreat from it in order to reboot
strategies. To be sure, SP efforts in IoT today are largely focused on the enterprise.
8.2 SP approaches to vertical vs horizontal
The vertical opportunities, identified in Section 8.1, can be addressed in a number of different ways.
SPs, once they have established the base line of technical and structural capabilities as discussed in
Sections 6 and 7, have a decision to make: do they operate simply as a horizontal connectivity
provider, or do they pursue vertical market opportunities. Horizontal strategies see SPs focusing on
broad-based IoT connectivity services that seek to be agnostic of the application and vertical customer
base. This allows the SP to address a broad base of potential customers while tempering the
investments required in terms of human resources (i.e. vertical specialists) and technology. A vertical
strategy, on the other hand, sees the SP looking deeper into application development. It thus requires
more significant investments into vertical specialists and go-to-market efforts.
This is not a simple binary choice. No SP will seek to address every IoT opportunity directly, and most
will look to do something other than simply sell SIM cards, even if this is just to establish a few
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partnerships with a few vertical application vendors. There is also no right or wrong answer; SPs will
need to determine the position along the vertical-horizontal spectrum that is most appropriate to
them, given capabilities, resources, and appetite for risk.
In Figure 8-2, we plot the different approaches of the 26 operators that we spoke with for this study.
We plot their approach, either more focused on the horizontal (i.e. provision of connectivity) or on
the vertical (i.e. addressing specific applications with own products and services). As we can see, the
result of this segmentation is that smaller players tend to favor a horizontal approach, whereas as
volumes increase, SPs tend to focus more attention on becoming experts in vertical sectors, launching
their own products, and even acquiring assets, with the aim of generating more revenue than the
simple connectivity would allow. So, broadly, SPs move from a role of ‘Simple connectors’ to ‘Revenue
optimizers’. There are a few exceptions to this general trend, with some operators developing
specialist capability in particular verticals in order to address an obvious market opportunity, which
tends to give them a more vertical focus. There are also large scale operators that have tended to
favor a simple horizontal approach, focusing on their core business.
Figure 8-2: SP approaches to vertical vs horizontal [Source: Machina Research, 2015]
Based on the trends above, we tend to see SPs, as they grow, focus more attention on developing
vertical capabilities. This is largely an issue of scale and available resources.
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8.3 Partnerships are essential
Regardless of whether SPs adopt a vertical-focused or horizontal-focused approach, they will need to
strike partnerships. SPs cannot do everything in IoT. There are numerous aspects to what partnerships
mean in IoT. For example, we see distinct horizontal and vertical based strategies implemented by SPs
– which in turn have an impact on the types of partnerships they choose to pursue.
Choosing the right set of partners ultimately provides a means to fill key gaps in areas such as
technology, systems integration capabilities and go-to-market channels. It is also about facilitating and
speeding the IoT journey for themselves and their customers.
Figure 8-3 illustrates the types of areas where SPs could be striking partnership agreements. In the
sections below we explore these in a little more detail.
Figure 8-3: Potential target partners for SPs [Source: Machina Research, 2015]
8.3.1 Alliances with other Service Providers
One of the key features of the global M2M SP landscape is the prevalence of alliances between SPs.
The motivation in forming these groupings is typically twofold: technical cooperation for delivering
cross-network fault resolution, device certification and localization using eUICC/subscription
management, and commercial cooperation to establish frameworks for co-bidding for projects
requiring global coverage. Both of these motivations were stimulated largely by the perceived
demands of customers, and in particular automotive OEMs and multinational companies, for millions
of SIMs that could operate globally and with as simple a commercial relationship as possible. Four
alliances are significant today: the M2M World Alliance, the Global M2M Association, Vodafone’s
Partner programme and the Bridge M2M Alliance. All of these continue to attract new members.
8.3.2 Connectivity partners
A further set of partnerships form on the basis of enabling the SP to address a broad base of IoT
opportunities. These often start at the module level, with companies such as Telit, Sierra Wireless,
and U-Blox being mentioned by SPs. By pre-certifying modules on their respective networks, SPs
provide the developer community and their customers readily available connectivity solutions that
accelerate IoT solution development. Another important technology partnership in this area is with
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IoT connectivity platforms. These platforms enable effective device and subscription management,
critical to the SP being able to scale the scope of their IoT business.
8.3.3 Service-oriented partners
The other set of partners relate specifically to the way in which SPs might seek to address vertical
market opportunities. We see this taking form in areas such as Application Enablement Platforms
(AEPs), specialist Systems Integrators as well as actual tie ups with major companies from the verticals
themselves.
In the AEP arena, technology providers do tout their systems as being horizontal. However, what can
make an AEP appealing to an SP, beyond simply facilitating application development, are the predeveloped applications and customers the AEP provider may actually be able to bring with them. This
is of interest because it can help the SP jumpstart the IoT business in targeted vertical segments. Take
for example AEP provider Thingworx. As part of the PTC family, the company has a tremendous
presence in industrial IoT. PTC itself has noted that it sees field services as a potential “killer
application” in IoT. With such a pedigree and given the appeal of industrial IoT to SPs, it should be no
surprise that Thingworx now ranks as one of most popular AEPs among SPs. Going beyond AEPs,
partnerships also evolve with segment companies as both parties seek to develop specific IoT market
opportunities. For example, NTT Docomo announced an agreement with GE Japan to target the
industrial IoT sector (interestingly, the SP also has a partnership with Thingworx). SIs, such as IBM, are
a popular partner for smart city solution and business development efforts.
Other areas include provisioning and integration related
partnerships with SIs and VARs. These relationships save the
SP from having to shore up their own human resources
capabilities and the costs associated with doing that. It also
allows them to scale up and down as the IoT business
demands.
“SIs help us fill capabilities gaps
as well as can provide an
effective channel to market.” –
European SP
Finally, to address some market opportunities, SPs partner
directly with providers of IoT services. A good example is Telefonica’s work with fleet management
vendor Masternaut. The latter provides the solution which Telefonica rebadges as its own fleet
management service, thereby allowing it to offer the relevant service, without having to develop it inhouse.
8.4 Solution development enables broader value capture
The question over whether to pursue a more vertical or more horizontal strategy (as outlined in
Section 8.2) is determined by how aggressive SPs want to be in addressing more or less of the revenue
opportunity in IoT. One aspect of the M2M and IoT business, often highlighted as a negative, is the
relatively low blended average revenue per unit (ARPU) realized by market players. To be sure,
discussions with SPs across the globe typically see M2M blended ARPUs ranging between USD2 and
USD6 per month. These statistics however mask the reality that revenues are highly varied – much
more so than in the traditional mobile business. Equally important is that these blended ARPUs
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represent only what is being mostly captured by SPs today – connectivity service revenues for M2M.
SPs also report that while these figures may be low, profitability is often high.
The broader opportunity for SPs in IoT is in going up the value stack. This means delivering the
application itself, the associated services around it, and even going as far as amortizing or financing
device costs into the solution offering. In doing this the SP can
capture a greater portion of the IoT opportunity and thus
“Shifting our offering from realize even more meaningful revenue growth. When
connectivity to an actual solution development is done effectively and successfully
solution or application can help targets the right use case or application (that is one with
us derive between 5-times to 10- significant unmet demand), SPs report that they can realize
times more monthly ARPU.” – additive revenues as much as 10-times greater vis-à-vis the
base M2M connectivity service revenue (see Figure 8-4).
European SP
In one example case quoted by one of the emerging market
SPs interviewed, its focus on a high value segment, in the
form of fleet management, has led to an ARPU for its ‘M2M’ line of business of USD30 per month. This
level of revenue depends on the provision of a full solution offering (including amortization of the
device). However, it does demonstrate that IoT can be incredibly valuable for SPs if they are successful
in capturing the full value of the solution.
Figure 8-4: Value capture in IoT [Source: Service Providers, Machina Research analysis, 2015]
Value capture is not unique to the global market leaders or SPs in the more developed economies.
SPs, regardless of their maturity in the business or geography, confirmed that solution development
broadened the revenue potential for them in IoT. Value capture is therefore a function of the SP’s
approach to M2M and IoT – whether they choose to simply provide connectivity services or commit
to the more complex process of IoT application and solution development.
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While the reward for IoT solution development can be high, there are significant risks as well. The
most fundamental of these is that the solution may simply not sell. Solution development requires
significant financial and human resources. The market opportunity and customer targets must be ever
so carefully evaluated. IoT solution development is a high risk, high reward scenario.
9 The path to becoming a Next-Generation
IoT Service Provider
In the sections above, we examined the broad based strategies that SPs are adopting in pursuing the
IoT opportunity. The underlying reason for preparing this report is to identify the assets and
capabilities required by SPs to maximise their opportunity in IoT and identify strategies for bridging
the gap with what they currently have. To explore this in further detail, in Figure 9-1 we present our
scorecard for SPs, illustrating how far they have progressed to date in their goal of becoming a Next
Generation IoT Service Provider. It illustrates how well the average SP is doing vs. best practice, and
the potential for SPs to really perform a vital function in IoT.
Figure 9-1: Where are SPs in bridging the gap from the traditional role to the next-generation IoTenabled Service Provider [Source: Machina Research, 2015]
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Breaking down the different categories:




Networks – If there’s one thing that SPs do well, it is run networks. However, the legacy
cellular networks that worked well for mobile handsets, PCs and tablets are not appropriate
for all IoT use cases. What is required is a more heterogeneous approach, in particular
embracing LPWA networks and other complementary technologies. Many operators are
adopting a wait-and-see approach here, while others are set to wholeheartedly embrace it.
The other aspect of networks that will help with IoT deployments is the use of NFV/SDN.
Again, there is variable pace of change with SPs generally moving to embrace it. Leading IoT
SPs such as Vodafone and AT&T are aggressively transforming their networks (i.e.
virtualization) as well exploring the portfolio of access technologies available (i.e. LPWA) in
order to further enhance their value propositions. Much consideration is given to these areas
in the sections above.
Billing and monetization6 – Service Providers are able to bill for IoT solutions, a capability that
immediately sets them ahead of most other companies in the space. However, IoT covers a
diverse range of enterprise and consumer use cases, each with its own requirements for
monetization. Some will be simple, based on the transmission of data, but over time we expect
the business models associated with IoT devices to become ever more complex. For instance
we will see the emergence of multi-sided business models where IoT devices support multiple
services charged for in different ways including ad-funding and sponsorship (we already see
early steps into this in the connected car, where basic telematics services are paid for by the
automotive manufacturer while at same time services are also offered to the car owner) . We
also expect many enterprises to take advantage of the opportunity presented by connectivity
to move to ‘servitisation’ business models, i.e. the move from product-based, one time sales
to a services based offering around the product). Even more sophisticated will be the business
models based on data analytics and data exchange, all of which will require complex
settlement between multiple parties. While SPs are better than most today, there is still an
opportunity associated with being able to support the more complex monetization models
implicit in IoT.
Channels – SPs have another great asset in IoT in the form of channels to market. They have
retail stores for selling connected devices and establishing relationships with virtually every
business. Converting that into an IoT-based relationship is another challenge. AT&T has for
example exerted great effort and made significant investments in re-designing their retail
outlets and re-training staff in order to better present and sell Connected Home services.
There is also clearly an opportunity on the enterprise side to reach out to existing customers,
using the valuable asset that the SPs have in the form of their enterprise customer base. To
be sure, no-one can argue that most SPs are not already a significant technology supplier to
enterprises and consumers worldwide.
Dedicated business unit – One of the most common developments amongst SPs deploying
IoT in the last 5 years has been the establishment of dedicated business units (BUs). These
BUs tend to pull together technical and product experts with specialist sales teams.
Establishing such an overlay team is one of the key criteria for success in IoT. These business
6
For more on monetization of the IoT see Machina Research White Paper ‘Successful monetization of the
Internet of Things will bring a $1.3 trillion opportunity’ (November 2015)
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



units tend to have the benefit of some degree of autonomy within the wider business, perhaps
even with their own P&L, and are responsible for technical assets such as dedicated IoT core
network elements and platforms (see below). All the global SP leaders in IoT have such teams
in place.
Standard platforms – One of the major steps that SPs have undertaken in supporting the IoT
has been in implementing IoT-related software platforms. These help significantly in
simplifying the process of deploying IoT, and generally speed deployment. Most SPs today
have deployed some form of dedicated IoT-related Connectivity Support Platform. A few still
rely on legacy platforms, but this is increasingly rare. The Connectivity Support Platform is not,
however, the only software implementation necessary to maximise the opportunity from the
IoT. Increasingly another aspect of platforms is application development, with the
implementation of an Application Enablement Platform (AEP). Success for SPs in IoT depends
on deploying a connectivity platform and would benefit from use of one or more AEPs. For
instance, one of the leading SPs, Telefonica, possesses internally developed as well off-theshelf platforms for both connectivity and application enablement.
Professional services – Helping enterprise customers along the journey to IoT requires some
hand-holding, supporting those companies in the business process transformation as well as
the nuts and bolts technology. Here SPs are a very mixed bag. A number of SPs provide IT
services/systems integration capability. Orange for example leverages its global Orange
Business Services (OBS) organization to enhance its IoT value proposition, especially to
multinational enterprise customers. For others today the extent of professional services is
really just a bit on supporting application developers. There is an opportunity here for SPs,
should they wish to invest.
Vertical expertise – The question of vertical versus horizontal approach is one that splits the
SP community. Some have chosen to adopt a deliberate horizontal approach, providing
connectivity and other underlying functional capabilities. Others SPs have identified that
generating substantial revenue depends on being active in providing the service itself. There
are a number of examples of operators strongly pursuing verticals, including AT&T and
Vodafone in automotive, Telefonica in retail and Orange in healthcare. Typically this is not an
either/or choice.
Data analytics and management – The value of IoT is often seen as being in the data, hence
why there is such interest in data analytics. As yet few SPs have done anything meaningful in
data analytics and management. We are however seeing early efforts related to tap into the
potential opportunity, particularly in areas such as security related analytics (i.e. AT&T) and
via partnerships that seek to enhance applications and services being offered (i.e. with
companies like IBM, GE and Cisco).
10 Conclusions & recommendations
IoT is a sizeable and rapidly growing market for Service Providers around the world. However, they
must adapt to the new reality of supporting IoT, adapting their technological and commercial
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capabilities. Machina Research makes the following recommendations for different types of SPs in
addressing IoT, based on the three-way segmentation identified in Section 2:
‘Learners’



Get involved. The advice for SPs that have not been active in IoT until now is relatively simple:
act. Massive investment is not necessary, but some focus is.
Set up a dedicated team focused on IoT. While Machina Research would always advise SPs to
make use of existing technical resources and commercial capabilities (such as sales teams)
there is no avoiding the fact that success in IoT depends on SPs pulling together a dedicated
set of expertise within an IoT team.
Invest in a set of dedicated resources, particularly an IoT connectivity platform. In recent
years there has been a tendency to conflate the act of implementing a third party connectivity
platform with having an IoT strategy. However, implementing such a platform is necessary for
simplifying the process of deploying cellular-enabled IoT.
‘Builders’





Develop an IoT strategy that plays to your strengths. There is no one-size-fits-all strategy for
SPs in IoT. The correct approach will depend on the SP itself. The key for Builders is to identify
the optimum strategy to pursue in IoT, which will be determined by the SP’s market position,
e.g. the sophistication of its markets, public policy support of IoT, its network assets, its
existing customer base, presence of multinational corporations, and its appetite for risk.
Resolve the horizontal vs vertical conundrum. As SPs move through the Builder phase they
must decide their approach to vertical sectors. They must work out how their product mix
breaks down between wholesale, connectivity-only, partner-led products and own products.
Build partnerships. SPs cannot do everything in IoT. They need to find partners in a host of
different areas, including application providers, device manufacturers, systems integrators
and software platform providers.
Get involved in SP alliances. There are strong opportunities associated with allying with other
SPs as part of one of the global alliances.
Explore the application enablement platform (AEP) opportunity. AEPs offer an extra tool for
simplifying application development as well as the opportunity to bring in ready-made
applications.
‘Players’


As global leaders in IoT, ‘Players’ need to help define the sector. They will need to take lead
positions in terms of horizontal alliances, driving the take-up of LPWA networks, adopting
capabilities such as eSIM, exploring the benefits of a multi-platform approach, looking at the
opportunities presented by NFV/SDN, and generally defining the way in which SPs deal with
IoT.
Build value propositions in vertical sectors. The key to driving real value in IoT is in vertical
application expertise. Major SPs in the IoT space will need to build, borrow or buy capabilities
in vertical sectors. In most applications building vertical expertise will not be viable, so
partnering becomes critical.
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

Resolve the commercial opportunities associated with multi-operator alliances. As well as
the vertical partnering, major operators need to build horizontal partnerships in the form of
alliances. Technical capabilities have been deployed already today, but there is an absence of
commercial arrangements in many cases.
Explore new areas where SPs can and should be opening up opportunities. There are a
number of areas in IoT where SPs could be playing a significant role. Players should be
exploring opportunities associated with data analytics, billing/monetization, professional
services and security. As they embrace these additional opportunities, SPs will move towards
the role of the Next-Generation IoT Service Provider.
11 Further Reading
Machina Research recommends the following further reading:
‘Successful monetization of the Internet of Things will bring a $1.3 trillion reward’ (November, 2015)
‘2G and 3G switch-off: a navigation guide for IoT’ (November, 2015)
‘Systems integration capability is a valuable asset for CSPs in IoT’ (September, 2015)
‘CSPs have mixed attitudes to Low Power Wide Area network deployments’ (September, 2015)
‘Machine-to-Machine (M2M) Communication Service Provider Benchmarking 2015’ (September,
2015)
12 About Machina Research
Machina Research is the world’s leading provider of market intelligence and strategic insight on the
rapidly emerging Machine-to-Machine (M2M), Internet of Things and Big Data opportunities. We
provide market intelligence and strategic insight to help our clients maximise opportunities from these
rapidly emerging markets. If your company is a mobile network operator, device vendor,
infrastructure vendor, service provider or potential end user in the M2M, IoT, or Big Data space, we
can help.
We work in two ways:

Our Advisory Service consists of a set of Research Streams covering all aspects of M2M and
IoT. Subscriptions to these multi-client services comprise Reports, Research Notes, Forecasts,
Strategy Briefings and Analyst Enquiry.
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
Our Custom Research and Consulting team is available to meet your specific research
requirements. This might include business case analysis, go-to-market strategies, sales
support or marketing/white papers.
12.1 The Advisory Service
Machina Research’s Advisory Service provides comprehensive support for any organisation interested
in the Internet of Things (IoT) or Machine-to-Machine (M2M) market opportunity. The Advisory
Service consists of thirteen Research Streams (as illustrated in the graphic below), each focused on a
different aspect of IoT or M2M. They each provide a mixture of quantitative and qualitative research
targeted at that specific sector and supported by leading industry analysts.
Advisory Service Research Streams [Source: Machina Research, 2014]
For more detail on each of the Research Streams, please see the ‘Machina Research Advisory Service
– Guide to Research Streams’ document.
12.1.1Reports and other published content
Our research content consists of a number of broad categories of deliverable:




Strategy Reports – Extensive and in-depth reports focusing on specific key major themes in
M2M and IoT.
Research Notes – Shorter reports examining key issues and developments in the world of
M2M and IoT.
Application Spotlights – Regularly updated profiles of each M2M application. Each
Application Spotlight comprises Definitions, Drivers & Barriers, Market Analysis, Forecast and
Conclusions & Recommendations sections.
Forecasts – Many of our Research Streams include extensive market forecasts. These are
available through our online Forecast tool.
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
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Research Stream-specific content – Some of the Research Streams have specific content
types, for instance the Regulatory Profiles in the M2M & IoT Regulation Research Stream.
Previous publications – Clients enjoy full access to our library of past publications from the
Research Stream.
Each of the Research Streams includes a varying blend of the above. For details of the specific contents
of each of the Research Streams, please refer to the ‘Machina Research Advisory Service – Guide to
Research Streams’ document.
12.1.2 Strategy Briefings
An opportunity for direct face-to-face interaction between the client and the Machina Research
analysts. Typically a Strategy Briefing will involve a presentation at the client’s premises on a theme
agreed with the client within (or closely related to) the scope of existing research.
There are no Strategy Briefings bundled as standard with any of our Research Streams. These need to
be included as separate items in the subscription.
Relevant travel costs will apply.
12.1.3 Analyst Enquiry
All clients also get direct access to our analysts in the form of enquiries about the published materials
and topics with the Research Streams to which you subscribe.
You may want to request clarification on something within the report, ask for a brief update or pick
our brains on any issue.
We provide clients with unlimited access to our analysts, up to a maximum of one hour per enquiry.
We are happy to undertake more substantial enquiries as custom research.
12.2 Custom Research & Consulting
Machina Research’s analysts have a wealth of experience in client-specific consultancy and custom
research. Typical work for clients may involve custom market sizing, competitor benchmarking, advice
on market entry strategy, sales support, marketing/promotional activity, white papers or due
diligence. Subscription clients are eligible to purchase our custom research and consulting services at
discounted daily rates.
For more information on Machina Research, visit our website at http://machinaresearch.com.
Machina Research//Strategy Report
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