Ericsson white paper - Device connectivity unlocks value

ericsson white paper284 23-3146 Uen | January 2011Deviceconnectivityunlocks value operator opportunity in an emerging business environment New revenue opportunities are emerging for mobile operators through the delivery of machine-to-machine (M2M) and consumer- device connectivity services, which add value for enterprises and consumers. Maximizing revenues in this area demands a cost-efficient, flexible approach that enables a high degree of differentiation and customization.

Serving aconnected worldthe world is already highly connected and it’s about to get even more so: today, there are about fivebillion mobile subscriptions worldwide. as devices of all kinds become connected, there will be moremobile subscriptions than people on the planet. ericsson envisions an increase in the number ofconnected devices by a factor of 10 over the coming decade. Market analysts strategy analytics[1] estimate that the mobile M2M communications market willgrow from the 2008 level of about Usd 16 billion to more than Usd 57 billion in 2014. technologymarket research firm aBi research[2] forecasts that the overall mobile M2M connectivity market willgrow from just more than 70 million connections globally in 2009 to nearly 300 million by 2015 – acompound annual growth rate of about 27 percent. the device connectivity business opportunity is here, but what do operators need to do to serveit successfully? solutions for connecting devices have been available for many years, but now we are entering anew phase of rapid growth in M2M services and consumer-device connectivity. the cost of connectingdevices is falling and the value of connectivityis rising for individuals, businesses and society Peoplein general. consumers are becoming accustomed todevices with built-in connectivity – devices suchas laptops, netbooks, e-readers, digital cameras,printers, navigation aids, vehicles and sportsequipment. consumers understand the valuethat connectivity brings to their lives, whetherit is in terms of convenience, safety or personal Business Societyhealth. the list of consumer electronics devicesoffering connectivity continues to grow as newways of enhancing lifestyle and delivering valueare identified. the millennial generation will find ithard to imagine a world where everyday devicesare not connected. among enterprises, M2M connectivity offers Technology enablersan increasingly attractive way of adding value,improving productivity and reducing cost - Broadband ubiquity Cost of connectivityparticularly opex - from a wide range of industrial Openness and simplicityand business processes. M2M applications helpdrive automation, improve product and asset Figure 1: device connectivity benefits people, businesses and society.management, and enhance sustainability. consumer and industrial equipment can be monitored and maintained through remote access andelectricity networks can be modernized into smart grids with the help of constant connectivity. wholeindustries can be connected in new ways when universal mobile connectivity has been attained. at the macro-socioeconomic level, connecting intelligent devices over highly efficient informationhighways is one of the key priorities in the development of sustainable societies because of its potentialability to reduce co2 emissions. connectivity also supports and strengthens the delivery of education,health care, transport and public safety services. as operations and services are automated using M2M connectivity, additional benefits are createdfor consumers. For example, the introduction of smart grid technologies that optimize consumption,production and delivery of electricity can help consumers to reduce their electricity costs by enablingawareness and allowing the consumer to control low-rate energy use in their homes and homeappliances. regulation is a strong driver of growth in connected devices. in europe, the ecall initiative[3] –UNlockiNg valUe with device coNNectivity • serviNg a coNNected world 2

expected to be implemented by 2014 – will see all vehicles fitted with a ‘black box’ that will transmit locationand other relevant information automatically to public safety services in the event of an accident or airbagdeployment anywhere in the european Union. in addition, many countries have introduced regulations forremote utility metering. the Us government is using funds to stimulate the deployment of smart grids thatwill rely on automated meter reading and, ultimately, demand management. For mobile operators, delivering this connectivity represents a vast new revenue stream, not just fromconnection charges, but also potentially as a key player in delivering new value-added services and buildingsustainable ecosystems.UNlockiNg valUe with device coNNectivity • serviNg a coNNected world 3

Making valuableconnectionsthe M2M market has to date been highly specialized; solutions are typically customized and verticallyintegrated. excessive development costs have meant that M2M solutions have typically been createdfor applications where productivity and efficiency gains have been significant. this is changing. the cost of 2g mobile modules has reached a point where mass-market deploymentmakes commercial sense, and 3g modules are following suit. the enormous economies of scale of3gPP/3gPP2 standard technologies continue to drive down both the cost of modules and the solutionsrequired to connect them. soon, the cost of connectivity will no longer be the deciding factor that it is today; if there is a benefitto connecting a device, it will be connected. an increasing number of business and industrial processes will be redesigned to introduce completelynew ways of working, as connectivity becomes cheaper to implement across a wider range of devices.consumer-focused businesses will be able to create new services and delivery models that make useof always-on connectivity. operators, as the owners of the connectivity,are in a strong position to profit from the new Retailecosystem. New business opportunities liein finding ways to maximize the connectivity Securitybusiness, monetize network and data assets, and Financial serviceexpand into new value chains. Industry specific solutions 3 Manufacturing the first challenge will be to enhance the Addressing industry verticals Expand intovalue of connectivity through horizontal service new value chains Transportenablement. an additional challenge will be Governmentto address industry-specific solutions that 2 Monetize Health caresatisfy vertical industry needs, and so drive the Horizontal network anddevelopment of the ecosystem, as illustrated in data assets Enhancing the value UtilitiesFigure 2. of connectivity 1 traffic volumes generated by device connectivity Maximize connectivityservices across a range of applications will be businessinsignificant compared to volumes generated by Operator businessvideo, music and other data-heavy consumerapplications. however, device connectivity couldhave a significant impact on the operator’s bottom Figure 2. three opportunities to address horizontal and vertical market needs.line. if operators can keep costs low, high-margindevice connectivity services will generate muchhigher revenues per megabyte than mobile broadband services for smartphones and laptops. sincedevice management can be performed simultaneously across a large population of devices, revenue,margin per contract or service is a more relevant metric than average revenue per user (arPU). according to aBi research, current mobile operator systems and processes were designed to servemobile handset subscribers at a typical monthly arPU of Usd 50–60 (up to Usd 90 for smartphoneusers). By contrast, the typical monthly arPU from device connectivity is Usd 5–15, and could beas low as Usd 4 per year. to be profitable at these low revenue levels the cost per connection must be kept down, whichdemands a new approach to service packaging and provisioning. service packaging will need toincorporate highly complex and multi-faceted business relations with customers and partners, as wellas being long-term sustainable, potentially for decades in the case of utility monitoring.UNlockiNg valUe with device coNNectivity • MakiNg valUaBle coNNectioNs 4

Adopting the rightbusiness modelthe first challenge is to decide which business model is the most appropriate for the market. shouldoperators adopt a wholesale model and deliver connectivity exclusively to enterprises and value-added resellers? or should operators develop their own value-added offerings and sell them directlyto the end customer? essentially, there are three main business models for device connectivity that operators may usein parallel.ConneCtivity provider– the operator offers basic connectivity as well as more intelligent, smart pipe services, providingwholesale airtime to its channel partners, who act as aggregators of the fragmented customer base,and handle all aspects of sales, provisioning and support. as a connectivity provider, the operator can sell directly, or indirectly via application service providers(asP), to enterprise customers.enabler provider– the operator offers ‘enablers’ to other enterprises improving the services delivered to customers.these enablers could relate to access, usage, preference, location, presence, Qos or application.the operator establishes service level agreement (sla)-based contracts directly with the enterprisecustomer or asP .value-added serviCe provider– the operator enters new value chains outside the traditional telecom domain by offering differentiatedsolutions. the operator provides the application and sells it along with airtime directly to its enterpriseand consumer customers. as a value-added service provider, the operator could co-sell and co-brand airtime and applicationbundles in conjunction with one or more asPs, which typically specialize in handling specific applicationtypes or vertical markets. the operator works with the asP to ensure that the application runs smoothlyon the network, and the operator’s sales force helps sell the application on behalf of the asP the .customer is billed by the operator for airtime and by the asP for hardware and support services.*Connectivity sold in bulkUNlockiNg valUe with device coNNectivity • adoPtiNg the right BUsiNess Model 5

Scale, diversityand complexitythe device connectivity market will be a high-volume one – an order of magnitude greater than todayby 2020. in addition, there will be a huge diversity in device and subscription types. a number of key market segments are already emerging for connected devices, each of which willhave quite different needs.ConneCted homes– in addition to phones and computers that are already connected, there will be a multitude of otherconnected devices including devices for home entertainment: connected domestic appliances alsoknown as domotics, which control, for example, the temperature, curtains and blinds; utility meters;and security equipment, such as sensors and cameras.personal deviCes– in addition to mobile phones, laptops, netbooks and e-readers, connectivity will increasingly be abuilt-in feature in all consumer electronic devices.intelligent transport– an already established segment for M2M technology, which will continue to grow in areas suchas remote vehicle monitoring and diagnostics, automated parking and tolls, in-vehicle infotainment,logistics, fleet management safety and security.smart utilities– large numbers of connected devices will be needed for metering, monitoring and management insmart grids, and other utilities, such as gas and water.tele-health– there is high growth potential in areas such as remote patient monitoring and products for elderlypeople at home or in assisted-living accommodation.automation, monitoring and asset traCking– a broad range of industries will deploy connected devices; everything from mining and agriculture,to manufacturing and commerce (in areas such as point of sale, vending, remote informationdisplays and digital signage). to serve the divergent needs of these different segments, operators will need provisioning systemscapable of handling very large numbers of connections, as well as infrastructure with Qos mechanismsthat can handle massive amounts of simultaneous, differentiated sessions. there are a growing number of mission-critical applications that have new and differing requirementsfor availability, reliability and resilience. operators will need to be able to offer a variety of slas andconnectivity profiles that can be enforced in the network. For example, a gaming device needs todownload new games quickly but infrequently, and usually only from one website. in this case, there isan established model for game purchases, where connectivity becomes an add-on or revenue share. thebandwidth needed to play the game is low, typically 64kbps, but the need for low latency is high. in contrast, a digital camera with automatic backup to online storage will send large amounts ofdata, but has no latency requirement. the data transfer can be scheduled for low-traffic periods. Price management will be a complex challenge, with charging and billing required across a two-sided business model with numerous charging parameters. attractive pricing for both national andinternational roaming will be important to satisfy the need for continuous coverage for devices andapplications.UNlockiNg valUe with device coNNectivity • scale, diversity aNd coMPlexity 6

Flexibility to meetdiffering needsa key requirement in the device connectivity market is flexibility. device platforms must allow operators’marketing and sales people to package and sell network assets in a way that matches the needs andexpectations of different customer segments. For example, a consumer who supplements a fixed broadband connection with a mobile broadbandone will have different needs, expectations – and willingness to pay – from a business user who travelsextensively and requires the highest mobile speed and best service available. similarly, a connectedwashing machine will have needs that are different from a connected car. to complicate matters further, user needs will change over time, meaning that operators need tobe able to package services for today’s customers, with the flexibility to develop their segments andcreate new sales opportunities tomorrow. consider or example, vendor a that is today a book supplier.tomorrow, vendor a might supply, books, films, music, the devices to download them and the servicemodel to supply and bill for customized content. getting customers to sign up is just the first step. the next step is to provision the network so thatagreed communication services are delivered to the customer according to their expectations anddevices. the ability to control service delivery will be a decisive factor in meeting slas. critically,solutions must be able to collect the correct payment for the service delivered, whether this is paidfor by the device manufacturer or by the consumer.UNlockiNg valUe with device coNNectivity • FlexiBility to Meet diFFeriNg Needs 7

Kick-starting aconnected devicebusinessto successfully break into and serve the rapidly Applicationsgrowing connected devices market, operatorswill need new tools and models to efficientlyaddress end-to-end sales, delivery and invoicingprocesses. this in turn demands a flexible end-to-end delivery platform capable of serving a wide Industry-specific VAS and enablementvariety of needs with customized and attractivelypriced offerings. Service and application enablement the tools and technologies needed to build sucha platform are available, but require additionaladaptation and systems integration to deliver M2M/consumer device connectivitysolutions that will meet the different needs ofcustomer segments and commercial partners. Figure 3 illustrates one cost-efficient approach to Networksimplementing the extra adaptation. this horizontallayer approach provides the functionality neededto deliver a wide range of device connectivityservices, while at the same time enablingcustomization to suit the diverse needs of vertical Devicesmarket segments. crucial requirements of this layered approach Figure 3: layered approach to device connectivity services.are flexibility, in key areas such as business supportsystems (Bss), simplified application developmentand focus on operational cost reduction.UNlockiNg valUe with device coNNectivity • kick-startiNg a coNNected device BUsiNess 8

Simplify andautomateBss are central to the operator’s ability to activate, manage and charge for new device connectivityapplications and services. they include functionality for business intelligence, revenue management,service fulfillment, service assurance and customer relationship management. Bsss today are often optimized for voice and sMs traffic. such systems will need to be extendedto handle the new applications, business models, device types and flexible pricing and billing thatthe device connectivity market involves. they need to be able to offer efficient device activation, bulkprovisioning and management capabilities. in addition to simplifying and automating key operator processes, the Bss should also enableself-provisioning capabilities for enterprise customers and partners. this reduces opex and enhancesservice value and flexibility for customers. M2M and to some extent consumer electronics devices are typically referred to as unattended. thismeans remote provisioning and intelligent management are important tools for device connectivity.efficient tools will be needed to monitor, manage and maintain many thousands of devices. For example,following a power outage, there may be several hundred thousand electricity meters simultaneouslyattempting to reconnect to the network. another example is connected e-readers trying to simultaneouslydownload a new version of the operating software. good device management and event handling isneeded to handle such situations. the goal is to have devices that require no manual intervention: no connecting of cables, sideloadingof data files, installation of gateways, and entering of encryption keys. Furthermore, a simplified siMprovisioning process will be key to reducing costs.UNlockiNg valUe with device coNNectivity • siMPliFy aNd aUtoMate 9

Ease applicationdevelopmentas part of the layered approach to device connectivity service provisioning, applications are treatedseparately from connectivity and management. this simplifies the solution and enables a greaternumber and variety of application developers to enter the market. it also speeds up development andenables reuse of functionality across applications. ideally, service and application enablement should support industry standards, such as the europeantelecommunications standards institute (etsi) M2M functional architecture and service capabilities. itshould also make use of widespread internet technologies, open aPis, web 2.0 and mash-ups. suchan open service creation environment will provide access to service enablers in the network, such aslocation, sMs and charging to support applications that need it. to enable end-to-end connectivity and leverage the enormous existing pool of competence ininternet-based development – including open source – devices need to be made fully present on theinternet. this requires an address translation workaround until iPv6 is introduced to the network. in addition to an optimized, end-to-end solution for sales, delivery, invoicing and applicationdevelopment, there are other factors involved in sustainable cost-efficiency of device connectivityservices. one main factor is the cost of wireless modules. continuous technological advances, broaddeployment and huge economies of scale of 3gPP and 3gPP2 standards (both for modules and theradio network) make them both affordable and attractive for many applications and very competitivecompared to other technologies. the geographical coverage and flexibility of 3gPP/3gPP2 mobileconnections will make them the dominant technology for connecting things to the internet, the cloud,applications and enterprise networks.UNlockiNg valUe with device coNNectivity • ease aPPlicatioN develoPMeNt 10

CONCLUSIONthe mass market for M2M and consumer device connectivity is here, growing fast and represents anenormous opportunity for mobile operators who can address the challenge of delivering cost-effectiveand customized connectivity with minimal process costs. device platforms are becoming available that meet the needs for both broadly applicable horizontalservice capabilities and industry-specific solutions at different price and service levels. these platformscan be integrated and grow with existing networks. the use of globally available technology based on 3gPP/3gPP2 standards and internet-basedapplication development will be key to ensuring the long-term attractiveness and cost efficiency ofdevice connectivity services.UNlockiNg valUe with device coNNectivity • coNclUsioN 11

References1. strategy analytics, a Brave New world in Mobile Machine-to-Machine (M2M) communications, 20082. aBi research, cellular M2M connectivity services –the Market opportunity for Mobile operators, MvNos, and other connectivity service Providers, 20103. http://ec.europa.eu/information_society/activities/esafety/doc/ecall/faq.pdfUNlockiNg valUe with device coNNectivity • reFereNces 12

GLOSSARY3gpp third generation Partnership Project3gpp2 third generation Partnership Project 2api application Programming interfacearpu average revenue per userasp application service providerbss Business support systemsetsi european telecommunications standards instituteipv6 internet Protocol version 6m2m machine-to-machinesla service level agreementsusd Us dollarsUNlockiNg valUe with device coNNectivity • glossary 13

Ericsson white paper - Device connectivity unlocks value

by Ericsson France on Mar 08, 2011

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Ericsson white paper - Device connectivity unlocks value — Document Transcript