M2M perspective

Convergys Perspective Papers
Machine-to-Machine
The next big mobile opportunity?
There is a growing sense that Machine-to-Machine (M2M) technology now
offers a signifcant opportunity for operators to grow revenues through
service innovation and diversifcation. M2M has been around for some time,
and some companies have been employing a form of M2M operation for
over a decade. Ìt is only now, however, that the concept is really starting to
permeate the mainstream mobile operators' psyche. Key variables, such
as technological advances in mobile, supply-chain maturity and the need
for operators to offset declining voice revenues in the Person-to-Person
(P2P) space are spurring interest. Regulation will undoubtedly play a part in
defning the market too over the next fve years, but the revenue-generating
opportunity that M2M represents is now too great for operators to ignore.
The fact that some tier one mobile operators are already cranking up their
investment in this market testifes to this.

Observers' growth predictions may vary - with forecasts ranging from
hundreds of millions to billions of deployed M2M devices by 2014 - but
there is a growing consensus that M2M is set to be a major growth area
over the next fve years. Sceptics may question whether the extremely low
value of transactions renders M2M worthwhile for operators, but this is more
than offset by the sheer volume of transactions that M2M promises. Ìt is a
volume-driven business. And this requires a separate business model and
appropriate BSS infrastructure if operators are to capitalise on revenues from
incremental network traffc.
Executive summary
Defning the M2M
business model
Ìn essence, M2M is a new type of business, and
certainly one that owes more to existing wholesale
rather than retail models. Treating M2M as a
separate operation, with a dedicated business
model will be critical to success. Employing a
retail telecoms approach would be futile, as retail
is characterised by direct relationships with a live
customer. This may deliver greater ARPU than
M2M, but customers are fckle and increasingly
disposed to churn in competitive markets. The
cost of retaining customers is considerable too,
whereas in an M2M environment there are no
live customers to retain, so there is no need for
elaborate and costly customer care operations.
Likewise, retail-style above the line marketing
would be superfuous in a M2M model, reducing
the operating cost base still further.
Critically, M2M contracts are likely to be much
longer-term than typical retail telecoms contracts.
The opportunity cost of delaying market entry
may be lost deals not just for a few years, but for
a much longer period. Ìn the case of a high-value
manufactured product with a lifecycle of fve or
more years, for example, the opportunity to embed
mobile connectivity may only arise when it aligns
with the manufacturer's plan.
The ability of operators to forge and sustain
relationships with enterprise customers is plainly
important, and resources commensurate with
achieving this needs to be part of any M2M plan.
Unfortunately, operators' record of satisfying
enterprise customers in the more traditional
or standard telecoms services is not always
exemplary (on the billing side at least, Convergys
2010 research suggests that many enterprise
customers are not entirely satisfed with the
service received), which can lead to lost revenue
opportunities.
Ìn many cases the M2M business model is
likely to involve a complex web of partners and
highly complex value chains. With this capability,
operators will be able to derive new revenues
from settlement and interconnect opportunities.
Settlement and commission payment for multiple
different parties is, thus, arguably a prerequisite for
M2M. Ìn some cases global reach will be pivotal
and operators will need to partner with network
providers in other countries. Ìn such cases,
wholesale settlement is essential.
Opportunities and growth
markets
Opportunities to exploit the M2M model exist in
many verticals. The way in which operators seize
these will depend on many factors, not least the
nature of their business. Multinational operators, for
example, may be able to lever internal economies of
scale, whereas smaller or domestic operators may
require a larger partner network to support M2M and
interconnectivity.
Key vertical markets for mobile M2M include:
· Transport: Some car manufacturers are already
looking into innovative options to embed a
mobile SÌM card for fault reporting and servicing.
M2M is also likely to increase for road freight to
determine the location and status of vehicles and
inventory
· Ìnfrastructure and buildings: Ìn addition to
security-type uses, M2M could be useful for a
range of maintenance and service-related issues
· Retail and fnance: The potential for M2M in both
retail and fnance is considerable. Cost-effcient
support for just-in-time ordering systems,
inventory management, logistics and money
transfers are just a few obvious examples
· Utilities: Smart grid technologies and meter
reading are already drawing on M2M
technologies, and some commentators predict
that M2M will transform energy production,
distribution, and consumption like the Ìnternet
transformed communications
· Healthcare: Mobile patient monitoring and health
management are seen as ripe for M2M, which
promises cost effciencies in the way health care
is delivered
· Security: ÌP-based video surveillance is tipped as
a key a driver for M2M security applications
· Consumer and home: M2M offers the potential
for operators to increase household ARPU by
providing a range of services, such as: M2M for
smart meters, integrated home entertainment
networks and location tracking for pets.
The ability of BSS and billing
systems to scale, reduce operational
costs through automation, fexibly
support a mix of recurring and
usage-based micro-payments, and
handle settlement for complex value
chains will be crucial.
Regulation and industry standards
As the adoption of M2M increases and operators around the world evolve
strategies, so the regulatory environment will evolve and shape the
competitive and operational landscape. Ìn Europe, areas such as healthcare,
congestion charging and automatic meter reading, for instance, are already
subject to regulation that impacts M2M. Globally speaking, however, the
regulatory nuances and potential issues are too complex and multifarious to
address here; suffce it to say that operators will obviously need to be aware
of political and cultural differences that may impact regulation and the rollout
of M2M strategies.
At a much more general level, it is not diffcult to see a need for clarity when
M2M involves the sharing of personal data. The role of the regulator may
prove to be central in those areas where data protection rubs up against
service provision; such as using mobile connectivity in patient monitoring
systems or in a security and surveillance context, for example.
The role of industry standards in the development of mass-market M2M is
the subject of much debate. Some commentators argue that growth to-date
in M2M has been impeded by the lack of standards covering areas such
as M2M SÌM cards. This seems reasonable, though the 'chicken and egg'
scenario ÷ which comes frst, a breakthrough market with mass appeal that
drives standards or vice versa? ÷ is persuasive too. Convergys' expectation
is that increased interest in M2M by more operators will be the catalyst both
for greater standardisation and mass market appeal.
Key billing challenges
Ìf operators' best strategy is to treat M2M as a
separate operation, the logical extension of this is
a dedicated BSS and billing infrastructure, tailored
to the precise needs of the business. Attempting to
lever functionality and operations through a shared
infrastructure with a retail operation would seriously
hinder both the M2M and the retail business.
An effcient BSS for M2M requires a number of
key attributes, not least automatic fault recognition
and reporting, policy management, a user-friendly
interface and a confgurable billing and settlement
engine that can handle negotiated pricing and
fexible charging models. The solution needs to
excel in three key areas:
Drive an automated, low cost model
An ultra-low ARPU business such as M2M requires
a low cost model. ARPUs for M2M may be as low
as C/$0.1 to C/$10 per month, so it is essential to
have an ÌT infrastructure that makes optimum use
of automated processes, thereby reducing the need
for costly headcount to operate the business. Ìn
very broad terms, a retail telecoms operation may
require anywhere between 50 and 100 support
people to operate, whereas the target for an M2M
operation needs to be 10 to 20 people in order to
be proftable. Operators need to select platforms
that combine low ongoing cost of ownership
coupled with a highly fexible and future-proof set
of functions. With these in place and the optimum
level of automation achieved, M2M should be a
viable and self-sustaining business.
Provide effcient scalability
Not surprisingly, the massive number of
transactions that typify M2M operations demand
a rating and billing system that is highly scalable.
The challenge is not simply one of processing
hundreds of millions (or potentially billions) of micro
transactions between unique connected devices.
The differentiator here is the ability to do this at
a reasonable cost, so platforms that are fexible
enough to run on Linux and a variety of hardware
are at a premium. With real-time transactions
becoming increasingly prevalent, an M2M billing
system must also be able to process a blend of
real-time and non-real-time (or batch) transactions
and be able to aggregate and summarise usage.
Enable fexible charging/settlement
across complex value chains
At a pricing level, fexibility is arguably as crucial
for M2M as it is for retail. Support for a mix of
recurring and usage-based micro-payments
will be needed if operators are to provide M2M
customers with the nuanced service they demand
while generating fxed and variable sources of
revenue. At a broader level, the BSS and billing
infrastructure must empower a business model
that may involve numerous partners and a highly
complex value chain. With this capability, operators
will be able to derive new revenues from settlement
and interconnect opportunities. Settlement and
commission payment for multiple different parties
is, thus, arguably a prerequisite
for M2M. Ìn some cases
global reach will be pivotal
and operators will need to
partner with network
providers in other
countries. Ìn such
instances, wholesale
settlement is
essential.
M2M represents a signifcant and growing revenue
opportunity for operators. Technological advances and
the potential of M2M applications across numerous
vertical markets will drive huge numbers of transactions.
Ìnvesting in M2M now is the key. Procrastination may
prove to be extremely costly given the long-term nature
of M2M contracts.
Once operators have committed to M2M, they also need
to commit to a separate business model with a distinct
support infrastructure. Within this, the ability of BSS and
billing systems to scale, reduce operational costs through
automation, fexibly support a mix of recurring and
usage-based micro-payments, and handle settlement for
complex value chains will be crucial.
Conclusions
© 2010 Convergys Corporation. All rights reserved. Convergys and the Convergys logo are
registered trademarks of Convergys. Convergys refers to Convergys Corporation and its wholly
owned subsidiaries.
PP01- M2M - September 2010
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