M2M power

Machine to machine (M2M) applications hold strong potential for operators to introduce advanced services while increasing their revenues.

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M2M power Bartosch: Convergence plays a major role in M2M service rollouts.
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By  Nithyasree Trivikram Published  January 4, 2011

Machine to machine (M2M) applications hold strong potential for operators to introduce advanced services while increasing their revenues. However, much preparation is needed from telcos to realise this potential.

Evaluation of M2M applications by operators in the Middle East and Africa is happening, but it is at a slow pace. Though M2M is still in its infancy, these applications have broad potential in areas including video surveillance and home security, automated meter reading, fleet management, remote equipment monitoring and public safety.

M2M reality

One application that is undergoing widespread pilots in the M2M space in this region is smart metering. Instead of reading power meters manually, intelligent devices are installed which use mobile networks to broadcast the corresponding meter values.

This remote real-time measuring saves on manpower and helps improve operational efficiency in the power grid. Sangeet Chowfla, chief strategy officer and EVP, global market units at Comviva, is one industry insider who sees strong potential for smart metering.

“Perhaps the most immediate promise for M2M applications is in the area of smart metering. There is a huge cost involved on utilities or even in energy management. M2M applications can help in timely intervention between the server and the power meter, thus saving huge costs.”

Equipment vendor Alcatel-Lucent’s EMEA Wireless Solutions VP, Valerie Layan says: “We are seeing pilots on smart metering in several regions globally. In Europe, Orange and Telenor are deploying smart metering, and we work with local municipalities and power companies to implement these projects. In Africa, Orange is working in the area of smart metering.”

However, Christian Bartosch, senior sales director for Middle East, Convergys, says that utilities in most of the countries in this region are still focused on establishing a stable and reliable supply. “Those utilities that are in the maturity level are the ones who will be thinking of moving into the next level of the playing field. So it is just a question of maturity,” he says.

Chowfla is also seeing some M2M activity in the financial services sector. “We are quite active in the area of financial services. In Tanzania, for example, electricity is based on a pre-paid system, whereby the power meter runs until the amount is expended. So using your mobile, you can conveniently top-up your electricity meter through money transfer or m-Payment.”

Some of the other areas where the M2M applications are being used include factories where all equipment is centrally connected via devices such as sensors that typically help in sending information back and forth. In automotive, it runs on the concept of smart highway whereby every car, at any point in time, will be talking to roadside monitoring systems, which will then be able to carry out actions that include managing traffic intelligently and location of cars.

Chowfla says that in all these communications or transactions, telcos will effectively be a transport mechanism driving the connectivity between various applications or devices, which will give a good revenue model for operators. “However, considering the diversity of M2M applications, they require a wide range of products, connectivity and support,” says Chowfla. “It is very early for the M2M industry now.

Definitely, much is being talked about, but in terms of implementation, it is still in its nascent stage. I don’t think there will be any telco that will have more than 1% to 2% of  revenue, even if that, which is from M2M.”

In the healthcare sector, Layan says that M2M is nascent as well as complicated, with ecosystem concerns such as liability, billing and regulatory issues. But she adds that the promise made by this sector is too important to ignore. She backs up her opinions by quoting a research study that states the market for telemedicine devices and services are to generate $3.6 billion in annual revenue within five years globally, and close to $150 million for the Middle East and Africa region.

Is LTE steering M2M?

Industry analysts are also seeing interest in the use of LTE-based applications for public safety, and all these are expected to be enabled by M2M communications.

Layan says: “In the Middle East, we see a lot of interest from ministries of interiors (MoI) and ministries of defence (MoD) to use LTE as a replacement to the existing communication systems by organisations such as the police. We have rounds of discussions, trials and workshops on LTE with MoIs and MoDs in several countries in the Middle East. This year we will be testing these projects and based on the results, we will be in a position to tie-up with the regulator to rollout LTE services so that we can have a full-fledged working solution in 2012,” Layan says. “Here I am talking about 4G types of M2M applications.”

“The broadband capacity of LTE will allow far more M2M services. When the 4G becomes mainstream, one of the most important applications will be automotive,” she says.

However, Nokia Siemens Networks head of LTE product management, Dr. Jurgen Schindler agrees that M2M will become a major industry for operators in the coming years. “M2M will be the driving force in future,” he says.

“It will increase the number of subscriptions for telcos and so it is quite important. But the question is how do telcos effectively handle the M2M traffic? There are various M2M applications existing today such as smart metering and car to car communications. For all practical purposes, the 3G networks or the HSPA+ networks also don’t seem to have been positioned by the operators or enterprises to be active in the M2M context yet. I think this is a new business field that needs exploration both by vendors as well as operators.”

M2M opportunity

There is a huge market potential for M2M applications in the telco sector, according to a Strategy Analytics report which predicts that the value of global M2M applications is to reach $40 billion, and that about 500 million machines are to be connected globally by 2011.

According to Layan, global operator revenues from M2M services reached $3.9 billion in 2008, which is expected to grow to $11.6 billion by 2012. She says that the Middle East and Africa region is expected to represent approximately 5% of the global M2M connectivity with a market value of over $500 million for MEA operators by 2012.

Riccardo M. Monti, chairman of Value Partners says that the M2M industry is currently not worth more than 3% of the market in the region. “M2M was considered to be the nirvana of the additional revenues, but the spending comes from humans. So, unfortunately, I don’t see M2M as a big business for the operator,” he says.

“The Middle East and Africa region is the fifth region globally, with about 2.51 million active connections in 2008, versus 58 million globally, rising to roughly 9.63 million active connections by 2014, compared with 225 million globally,” says Layan. Meanwhile, some 52% of modules shipped to the MEA region are for telematics purposes, mostly for the tracking of vehicles and truck-borne assets, followed by ATM/POS and OEM telematics.

Layan says that research indicates that over $50 billion in services revenue was generated across all industries worldwide through remote device connectivity and management, with a projected growth to over $190 - $250 billion by the end of 2012. This not only includes hardware and communication services, but also all related services including installation and maintenance, according to Layan.

By 2012, Layan says that the total value-added services through 4G dedicated to M2M applications could be worth up to $180 billion. “In M2M, we are seeing operator deployments in 2G and 3G. But, if you look at 3G, it is not very smooth. When 4G is deployed, we will be bringing in better bit per hertz, so better throughput in the spectrum, and less cost per bit. Ultimately, it will be better to do it through 4G as there will be quicker transmission and responsiveness,” she says.

Zoran Vasiljev, managing director of Value Partners agrees that operators in the region realise the value and the need for M2M connectivity as they are always talking about increasing their capacity. “With the increase of M2M, the need for capacity is only going to be exponentially higher,” he says.

However, Layan adds that it is important that telecom operators build an effective M2M service support platform that helps enterprises to more easily manage a large number of wireless terminals.

M2M challenges

Convergence plays a pivotal role in the effective rollout of M2M services as there are many transactions that need to be aggregated into a single bill for customers. “First of all, there is the need to process numerous very small value transactions when it comes to M2M,” says Bartosch of Convergys.

“In a typical M2M communication, operators need to set up a proper infrastructure that allows them to handle the amount of transactions for the M2M business model, without having a massive cost attached to it,” says Bartosch. “We have our billing systems that run 90 million customers in some of our installations, and we have M2M applications day over day to handle these millions of transactions.”

It is stated by Forrester Research that by 2020, M2M data exchange will be 30 times greater than the number of exchanges from person-to-person. “However, the challenge in M2M is that different industries have specific demands, different protocols and standards that are being used, terminal costs are high, and system development and maintenance costs are also high,” says Bartosch.

Another key factor for large-scale development of the M2M industry that Bartosch points out is the deployment of wireless modules at low cost. “Operators need to lay down relevant standards and specifications, and equipment vendors need to provide reliable, energy-efficient wireless modules that can meet industry requirements and allow for automatic upgrade for easy secondary development,” he adds.

Christian Fredrikson, head of network systems sales of NSN adds: “We see M2M as a good growth area. But I think though a lot of queries are making rounds on M2M, most operators still see this industry as fairly small. It is not about taking mobile phones out there, but you got to get different devices for it to function. In M2M, it is all about signaling. Because that is the way it is going to be. It is a great challenge,” he adds.

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