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M2M market overview

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  • 1. M2M market trends from Mobile NetworkOperator perspectiveJuly, 20101 m2m market forecast1.1 IT and telecommunications marketIT and Telecommunications market went through hard times due to worldwide economic crisisand the erosion of price and margin level. Overall, the IT and telecommunications market inGermany has decreased by 2% in 2009 in terms of market value (total revenue). Also the totalmobile market, especially mobile voice, is not the fast growing market of former times any more.In 2009 and 2010 all market players are facing hard competition, price war and shrinking cus-tomer loyalty.Fixed and mobile voice telephony had the same revenue decrease as telephone handsets, CPEand telecom equipment (3% to 7% revenue decrease p.a.).Only mobile data and internet access and related services will have a revenue increase. Mobiledata is defined as follows: SMS, MMS, data access, data content without interconnection reve-nues.Within the mobile data market, the m2m market is going to play a more and more important roleand is virulent part of the robust mobile data market growth.IT and Telecommunications market Germany 09/10[1]
  • 2. 1.2 Forecast methodTelegance conducted several projects for mobile operators and m2m end customers in coop-eration with module manufactures and system integrators in realization projects. For a realisticforecast, bottom simulation models, expert interviews and m2m project realization expertisehave been combined. We defined the following assumptions for m2m market forecast and usedestablished secondary market studies:• Becham Research Worldwide Cellular m2m Service Forecast (non optimistic eCall)• Berg Insight AB The Global Wireless m2m Market• Economic crisis (e.g. in automotive sector) was taken into consideration• simulation models, expert interviews and m2m project cross checks• No massive smart metering regulation for all households in Germany1.3 Definition market volumeDefinitions of market volumes in the m2m market are not easy to differentiate. Often, we see amixture between SIM cards and integrated solutions as well as shipped device modules andchipsets in the market.In this survey, we took the specific MNOs view on the m2m market, which has been defined asfollows:• As customer base, operators define the volume of m2m connections (SIM cards, integra-tivesolutions) at the end of calendar year.• MNOs do not focus at the number of hardware terminals, annual hardware shipments ormodules in operation• MNOs focus on the Average Revenue Per User (ARPU) development of pure m2m con-nectivity and/or data traffic volume• ARPU elements : m2m connectivity, Software, System integration• Not included in ARPU: - Hardware
  • 3. - Data processing - Service- und maintenance1.4 European market volume forecastIn Europe, we estimate a total amount of m2m connections of approximately 18 millions and aCompound Annual Growth Rate (CAGR) between 20% and 25% until EOY 2015.m2m connections EU 27+2 (incl. Eastern Europe) in million connections[2]In Germany we estimate a market volume of approximately 2 million m2m connections EOY2009 and a current market value of approximately 100 million EUR. The market value is definedas network operator revenue, offering m2m connectivity. The growth rate forecast will be ap-proximately 30% CAGR until EOY 2015. German growth rate will be above European averagedue to potential in automotive, consumer m2m and other verticals.1.5 Definition market value• Service enablement: modules, chipsets, hardware• Network operator revenues: This is income earned from the provision of data carriage to andfrom the mobile device using cellular technology.• Value added services: specific vertical solution offering by end customers/ clients in in-dividualvertical including system integration. The m2m services are provided at a layer above thetraditional network layer1.6 Worldwide market value forecastThe worldwide market forecast shows the different dimensions of service enablement, network(mostly MNO revenues and Value added services) and value added services.The absolute growth of the value added services market seems to be very attractive, whereas
  • 4. hardware/service enablement and network revenues are significantly smaller and will not grow inthe same dimension. Reasons for the smaller dimensions of these two specific market seg-mentscould be explained with:• complex, fragmented market structures in hardware and service enablement business• growing price pressure on chipsets and module hardware• Beginning ARPU erosion in the MNOs network revenues.The big question is: How can we define the value added services? Most current definitions arecloudy and not precise enough.m2m revenue forecast worldwide in billion EUR[3]2 Qualitative trends2.1 Value added services in IT and telcoLike in other industries, value added services are dominating more and more value generationand value chains of this industry.As shown in the exhibit below, telco services and access as well as hardware are becoming moreand more commodities with a decrease of market value. On the other hand software and ICTservices are growing.Market value IT and telco segments Germany in billion EUR revenues[4]
  • 5. 2.2 Value added services in m2mIn the definition of value added services we can find important elements.First of all we are talking about special vertical solutions offered and developed by end cus-tomers or service providers. One example could be automated services, such as automatic me-terreading in utility sector. Other examples from the automotive sectors could be call centrefunctions, such as driver assistance.Another aspect is system integration between hardware, modules and MNO. System integra-tionenables m2m services for the end customers, bridging the gap between their companies ITsystems and m2m systems are hardware. In system integration we can find a huge amount ofm2m companies in Germany with the characterisation of a clear vertical focus.The next aspect is the vertically specialised m2m consulting sector. A lot of m2m projects canonly be realised with IT and process analysis, project management and IT realisation supportprovided by specialised m2m consulting companies. A major share of this business can be con-tributed to the so called value added service sector.A big question is where the entire service and maintenance is located. Originally all service,maintenance, trouble ticketing etc. was located in the hardware, service enablement sector, whenall the m2m projects and solutions have been build in the past. Telegance assumes that thispicture has changed. Now service and maintenance is also a part of the value added ser-vices as
  • 6. far as it is not purely related to m2m hardware.The last aspect is the m2m software. A growing amount of m2m related software is not pureaccess or service enablement; it is to generate business and process improvement at the endcustomers side.3 Conclusions3.1 Key verticals of MNOs todayAt the moment MNOs have three main customer segments which contribute more than 80-90%of the entire m2m business.1. Road charging top accounts like Toll Collect in Germany, ASFINAG in Austria2. Domestic and roaming connectivity for navigation devices and services3. Data card services for logistic companiesThe current customer base is dominated by a few multinational corporations where we have longterm contracts. But now, with growing price and cost pressure, we see a slow ARPU dilu-tion inthose major contracts.For these reasons MNOs will have to address other verticals and also smaller customers besidethe multinational key accounts. We think that domestic corporations and bigger SMEs (small andmedium enterprises) will play an important role in MNOs future sales strategies.MNOs are reluctant to invest heavily in other m2m verticals where the growth market volume orARPU development is not clear in the future. One example is the automotive sector:Especially eCall and car to car communication solutions will not ramp up earlier than 2014 in theGerman market. The deep automotive crisis and cutting down of all product roadmaps of theTier1 suppliers leads to a two year delay of market entry of all relevant products. Teleganceforecast the same development for Western and Eastern Europe.On the other hand, there are several obstacles for MNOs to pursue a more aggressive m2mapproach in the automotive sector, e.g. the creation of necessary alliances in the automotivemarket, access to standardization bodies of the car making industry or the heavy investmentsrequired to produce solutions that meet the specific automotive safety regulations.3.2 Future MNOs m2m approachIn former times, m2m was sold by the regular mobile sales forces without special knowledge.These times are gone. At the moment we see the following MNO approaches in the classic m2mmarket:• Build up a specialized m2m sales force, with technical capabilities• MNOs will form global alliances to address highly sophisticated verticals with complexstructures (key verticals: OEM Automotive, M Health)• MNOs are building huge partner platforms to handle the challenges of big and complex ICT
  • 7. projects• MNOs need to build partner management platforms for m2m partners (like ICT market)3.3 MNOs approach to value added servicesIn terms of customer care and development of value added services in the mobile phone busi-ness, MNOs have a core competence to develop such services. We assume, that MNOs in-creasingly think about developing own m2m value added services platforms. However thesem2m services must be aligned with the market entry of MNOs in the ICT market.• MNOs will enter selected ICT market segments and customers segments, addressing also thevalue added services market• Value added services in the ICT market means managed services, selected system in-tegrationservices, selected consulting services• MNOs will look for synergies between ICT and the m2m businessFor further Information please contact:Telegance Consult GmbHGinsheimer Strasse 165462 Ginsheim-Gustavsburg[1] EITO report June 2009[2] Telegance estimate, market modelling, Beecham, Berg Insight[3] Telegance estimate, Strategy Analytics 2009[4] EITO report June 2010, Experton and Telegance estimate

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