1) The document discusses opportunities for mobile operators to generate new revenue through machine-to-machine (M2M) and consumer device connectivity services. 2) It notes that the number of connected devices is increasing rapidly and will outnumber people within the next decade, creating vast opportunities for operators. 3) To capitalize on these opportunities, operators will need cost-efficient and flexible solutions that allow for customization and differentiation to serve the diverse needs of various market segments in a highly scalable way.

1. ericsson white paper
284 23-3146 Uen | January 2011
Device
connectivity
unlocks 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.

2. Serving a
connected world
the world is already highly connected and it’s about to get even more so: today, there are about five
billion mobile subscriptions worldwide. as devices of all kinds become connected, there will be more
mobile subscriptions than people on the planet. ericsson envisions an increase in the number of
connected devices by a factor of 10 over the coming decade.
Market analysts strategy analytics[1] estimate that the mobile M2M communications market will
grow from the 2008 level of about Usd 16 billion to more than Usd 57 billion in 2014. technology
market research firm aBi research[2] forecasts that the overall mobile M2M connectivity market will
grow from just more than 70 million connections globally in 2009 to nearly 300 million by 2015 – a
compound annual growth rate of about 27 percent.
the device connectivity business opportunity is here, but what do operators need to do to serve
it successfully?
solutions for connecting devices have been available for many years, but now we are entering a
new phase of rapid growth in M2M services and consumer-device connectivity. the cost of connecting
devices is falling and the value of connectivity
is rising for individuals, businesses and society People
in general.
consumers are becoming accustomed to
devices with built-in connectivity – devices such
as laptops, netbooks, e-readers, digital cameras,
printers, navigation aids, vehicles and sports
equipment. consumers understand the value
that connectivity brings to their lives, whether
it is in terms of convenience, safety or personal Business Society
health. the list of consumer electronics devices
offering connectivity continues to grow as new
ways of enhancing lifestyle and delivering value
are identified. the millennial generation will find it
hard to imagine a world where everyday devices
are not connected.
among enterprises, M2M connectivity offers Technology enablers
an increasingly attractive way of adding value,
improving productivity and reducing cost - Broadband ubiquity Cost of connectivity
particularly opex - from a wide range of industrial Openness and simplicity
and business processes. M2M applications help
drive 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 and
electricity networks can be modernized into smart grids with the help of constant connectivity. whole
industries can be connected in new ways when universal mobile connectivity has been attained.
at the macro-socioeconomic level, connecting intelligent devices over highly efficient information
highways is one of the key priorities in the development of sustainable societies because of its potential
ability 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 created
for 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 enabling
awareness and allowing the consumer to control low-rate energy use in their homes and home
appliances.
regulation is a strong driver of growth in connected devices. in europe, the ecall initiative[3] –
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3. expected to be implemented by 2014 – will see all vehicles fitted with a ‘black box’ that will transmit location
and other relevant information automatically to public safety services in the event of an accident or airbag
deployment anywhere in the european Union. in addition, many countries have introduced regulations for
remote utility metering. the Us government is using funds to stimulate the deployment of smart grids that
will rely on automated meter reading and, ultimately, demand management.
For mobile operators, delivering this connectivity represents a vast new revenue stream, not just from
connection charges, but also potentially as a key player in delivering new value-added services and building
sustainable ecosystems.
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4. Making valuable
connections
the M2M market has to date been highly specialized; solutions are typically customized and vertically
integrated. excessive development costs have meant that M2M solutions have typically been created
for 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 deployment
makes commercial sense, and 3g modules are following suit. the enormous economies of scale of
3gPP/3gPP2 standard technologies continue to drive down both the cost of modules and the solutions
required to connect them.
soon, the cost of connectivity will no longer be the deciding factor that it is today; if there is a benefit
to connecting a device, it will be connected.
an increasing number of business and industrial processes will be redesigned to introduce completely
new 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 use
of always-on connectivity.
operators, as the owners of the connectivity,
are in a strong position to profit from the new
Retail
ecosystem. New business opportunities lie
in finding ways to maximize the connectivity Security
business, monetize network and data assets, and Financial service
expand into new value chains. Industry specific solutions
3 Manufacturing
the first challenge will be to enhance the Addressing industry
verticals Expand into
value of connectivity through horizontal service new value chains Transport
enablement. an additional challenge will be
Government
to address industry-specific solutions that 2
Monetize Health care
satisfy vertical industry needs, and so drive the Horizontal network and
development of the ecosystem, as illustrated in data assets
Enhancing the value Utilities
Figure 2. of connectivity 1
traffic volumes generated by device connectivity Maximize
connectivity
services across a range of applications will be business
insignificant compared to volumes generated by
Operator business
video, music and other data-heavy consumer
applications. however, device connectivity could
have 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-margin
device connectivity services will generate much
higher revenues per megabyte than mobile broadband services for smartphones and laptops. since
device 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 serve
mobile handset subscribers at a typical monthly arPU of Usd 50–60 (up to Usd 90 for smartphone
users). By contrast, the typical monthly arPU from device connectivity is Usd 5–15, and could be
as low as Usd 4 per year.
to be profitable at these low revenue levels the cost per connection must be kept down, which
demands a new approach to service packaging and provisioning. service packaging will need to
incorporate highly complex and multi-faceted business relations with customers and partners, as well
as being long-term sustainable, potentially for decades in the case of utility monitoring.
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5. Adopting the right
business model
the first challenge is to decide which business model is the most appropriate for the market. should
operators 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 directly
to the end customer?
essentially, there are three main business models for device connectivity that operators may use
in parallel.
ConneCtivity provider
– the operator offers basic connectivity as well as more intelligent, smart pipe services, providing
wholesale 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 enterprise
customer or asP .
value-added serviCe provider
– the operator enters new value chains outside the traditional telecom domain by offering differentiated
solutions. the operator provides the application and sells it along with airtime directly to its enterprise
and consumer customers.
as a value-added service provider, the operator could co-sell and co-brand airtime and application
bundles in conjunction with one or more asPs, which typically specialize in handling specific application
types or vertical markets. the operator works with the asP to ensure that the application runs smoothly
on 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 bulk
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6. Scale, diversity
and complexity
the device connectivity market will be a high-volume one – an order of magnitude greater than today
by 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 will
have quite different needs.
ConneCted homes
– in addition to phones and computers that are already connected, there will be a multitude of other
connected devices including devices for home entertainment: connected domestic appliances also
known 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 a
built-in feature in all consumer electronic devices.
intelligent transport
– an already established segment for M2M technology, which will continue to grow in areas such
as 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 in
smart 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 elderly
people 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 information
displays and digital signage).
to serve the divergent needs of these different segments, operators will need provisioning systems
capable of handling very large numbers of connections, as well as infrastructure with Qos mechanisms
that can handle massive amounts of simultaneous, differentiated sessions.
there are a growing number of mission-critical applications that have new and differing requirements
for availability, reliability and resilience. operators will need to be able to offer a variety of slas and
connectivity profiles that can be enforced in the network. For example, a gaming device needs to
download new games quickly but infrequently, and usually only from one website. in this case, there is
an established model for game purchases, where connectivity becomes an add-on or revenue share. the
bandwidth 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 of
data, 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 and
international roaming will be important to satisfy the need for continuous coverage for devices and
applications.
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7. Flexibility to meet
differing needs
a 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 and
expectations of different customer segments.
For example, a consumer who supplements a fixed broadband connection with a mobile broadband
one will have different needs, expectations – and willingness to pay – from a business user who travels
extensively and requires the highest mobile speed and best service available. similarly, a connected
washing 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 to
be able to package services for today’s customers, with the flexibility to develop their segments and
create 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 service
model 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 that
agreed communication services are delivered to the customer according to their expectations and
devices. 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 paid
for by the device manufacturer or by the consumer.
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8. Kick-starting a
connected device
business
to successfully break into and serve the rapidly Applications
growing connected devices market, operators
will need new tools and models to efficiently
address end-to-end sales, delivery and invoicing
processes. this in turn demands a flexible end-to-
end delivery platform capable of serving a wide Industry-specific VAS and enablement
variety of needs with customized and attractively
priced offerings.
Service and application enablement
the tools and technologies needed to build such
a platform are available, but require additional
adaptation and systems integration to deliver M2M/consumer device connectivity
solutions that will meet the different needs of
customer segments and commercial partners.
Figure 3 illustrates one cost-efficient approach to Networks
implementing the extra adaptation. this horizontal
layer approach provides the functionality needed
to deliver a wide range of device connectivity
services, while at the same time enabling
customization to suit the diverse needs of vertical
Devices
market segments.
crucial requirements of this layered approach Figure 3: layered approach to device connectivity services.
are flexibility, in key areas such as business support
systems (Bss), simplified application development
and focus on operational cost reduction.
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9. Simplify and
automate
Bss are central to the operator’s ability to activate, manage and charge for new device connectivity
applications 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 extended
to handle the new applications, business models, device types and flexible pricing and billing that
the device connectivity market involves. they need to be able to offer efficient device activation, bulk
provisioning and management capabilities.
in addition to simplifying and automating key operator processes, the Bss should also enable
self-provisioning capabilities for enterprise customers and partners. this reduces opex and enhances
service value and flexibility for customers.
M2M and to some extent consumer electronics devices are typically referred to as unattended. this
means 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 simultaneously
attempting to reconnect to the network. another example is connected e-readers trying to simultaneously
download a new version of the operating software. good device management and event handling is
needed to handle such situations.
the goal is to have devices that require no manual intervention: no connecting of cables, sideloading
of data files, installation of gateways, and entering of encryption keys. Furthermore, a simplified siM
provisioning process will be key to reducing costs.
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10. Ease application
development
as part of the layered approach to device connectivity service provisioning, applications are treated
separately from connectivity and management. this simplifies the solution and enables a greater
number and variety of application developers to enter the market. it also speeds up development and
enables reuse of functionality across applications.
ideally, service and application enablement should support industry standards, such as the european
telecommunications standards institute (etsi) M2M functional architecture and service capabilities. it
should also make use of widespread internet technologies, open aPis, web 2.0 and mash-ups. such
an open service creation environment will provide access to service enablers in the network, such as
location, sMs and charging to support applications that need it.
to enable end-to-end connectivity and leverage the enormous existing pool of competence in
internet-based development – including open source – devices need to be made fully present on the
internet. 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 application
development, there are other factors involved in sustainable cost-efficiency of device connectivity
services.
one main factor is the cost of wireless modules. continuous technological advances, broad
deployment and huge economies of scale of 3gPP and 3gPP2 standards (both for modules and the
radio network) make them both affordable and attractive for many applications and very competitive
compared to other technologies. the geographical coverage and flexibility of 3gPP/3gPP2 mobile
connections will make them the dominant technology for connecting things to the internet, the cloud,
applications and enterprise networks.
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11. CONCLUSION
the mass market for M2M and consumer device connectivity is here, growing fast and represents an
enormous opportunity for mobile operators who can address the challenge of delivering cost-effective
and customized connectivity with minimal process costs.
device platforms are becoming available that meet the needs for both broadly applicable horizontal
service capabilities and industry-specific solutions at different price and service levels. these platforms
can be integrated and grow with existing networks.
the use of globally available technology based on 3gPP/3gPP2 standards and internet-based
application development will be key to ensuring the long-term attractiveness and cost efficiency of
device connectivity services.
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12. References
1. strategy analytics, a Brave New world in Mobile Machine-to-Machine (M2M)
communications, 2008
2. aBi research, cellular M2M connectivity services –the Market opportunity for
Mobile operators, MvNos, and other connectivity service Providers, 2010
3. http://ec.europa.eu/information_society/activities/esafety/doc/ecall/faq.pdf
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13. GLOSSARY
3gpp third generation Partnership Project
3gpp2 third generation Partnership Project 2
api application Programming interface
arpu average revenue per user
asp application service provider
bss Business support systems
etsi european telecommunications standards institute
ipv6 internet Protocol version 6
m2m machine-to-machine
sla service level agreements
usd Us dollars
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