2014/01/28 Three essential M2M strategic considerations for small operators

M2M is a growing market and is expected to generate USD15 billion of cellular connectivity revenue worldwide in 2018, according to our latest M2M forecasts (see Figure 1). Much of the value is tied to a small number of large contracts with players such as automotive manufacturers and utilities, but there is considerable value in the long tail of smaller contracts. We believe that small mobile network operators (MNOs) can position themselves effectively to win these M2M contracts, even if they lack the resources to win large single contracts. This article outlines three steps that smaller operators can take to strengthen their M2M strategy.

Figure 1: M2M cellular connectivity revenue, worldwide, 2013–2018 [Source: Analysys Mason, 2014]

Getting the basics right: infrastructure and dedicated teams

The tools and processes that MNOs use for the consumer retail market cannot be used for M2M. Small MNOs (typically those that cover a local or small regional market) that want to compete with larger players need to recognise this and invest in the following two basic elements of an M2M service.

• A device connectivity platform: For M2M, MNOs need the systems in place to automate the provisioning, in-life management (for example, fault monitoring and policy management) and decommissioning of SIMs because of the potentially large volume of M2M connections. Some global operators, such as Vodafone, have developed their own systems, but small operators should consider buying a device connectivity platform from a vendor such as Ericsson or Jasper Wireless as a low-cost and low-risk solution. At a low volume of 500 000 connections, this option represents an NPV increase of 78% in comparison with using legacy platform infrastructure, when calculated over a 5-year period.
• A dedicated M2M team: Successful MNOs in the M2M sector have dedicated teams for M2M business activities, including marketing communications, product marketing, sales support, platform support and partnership management. These MNOs have the human resources required to best address the unique aspects of the M2M ecosystem, which include long sales cycles, intensive presales effort and a solutions-based sales approach. TeliaSonera provides a good example of how an operator should structure its M2M business unit (see Figure 2).1

Figure 2: TeliaSonera's global M2M services business structure [Source: Analysys Mason, 2014]

Targeting established customer bases

Challenger MNOs should prioritise their current enterprise customers as targets for M2M solutions. From interviews we have performed with enterprises buying M2M services, we know that they are more likely to look to their current telecoms provider than a new operator when adopting M2M services.

To increase the effectiveness of their M2M business development effort, MNOs should segment their sales force based on the enterprise's volume of connections rather than its number of employees, which is operators' typical approach. Large enterprises do not necessarily have a high number of M2M connections, while small and medium-sized enterprises (SMEs) might.

Avoiding highly competitive verticals

Small MNOs should avoid M2M applications such as those for the automotive sector, in which large operators (such as AT&T, Telefónica and Vodafone) are likely to win the large contracts on offer. Instead, the contender operators should focus on a small number of verticals where they can offer greater differentiation.

As part of this approach, MNOs should analyse their established client base to identify groups of customers that will require similar solutions, and then partner with applications providers that can help provide those solutions. For example, operators could look to partner with companies such as:

• MB Connect Line (Germany) for remote maintenance of heavy equipment
• Aerotel Medical Systems (Israel) for remote patient monitoring systems and personal trackers
• Priva (the Netherlands) for building energy management systems.

MNOs can struggle to decide which vertical markets to focus on when thinking about entering the M2M market because of the wide range of industries that M2M can address. Large operators with significant financial resources may want to invest in solutions for multiple vertical markets, but small operators need to be more selective in which applications they offer. We recommend that they do so through partnerships, rather than trying to develop their own solutions.

Source: MRG Analysis