Over the last few years, communication service providers (CSPs) and telcos found themselves marginalized, becoming network pipe providers while OTT companies reaped the benefits of 3G/LTE. With numerous industry analysts predicting that billions of IoT endpoints will be connected by 2020, CSPs hope IoT can propel their next big growth phase.
However, the nature of IoT, along with standards complexities and ecosystem challenges, makes monetization equally complex.
To understand this dilemma, this article sheds light on the new 3GPP IoT standards, fragmentation and monetization challenges, as well as offers guidance on the best path for CSPs to take forward.
Nature of IoT
A number of potential high-volume IoT applications involve the transfer of small amounts of data that’s captured from remote low-power battery-driven sensor units statically located in either dense urban areas or remote areas where cellular coverage is poor. Batteries are expected to last many years and connectivity module and subscription costs are expected to be much lower.
With 2G “sunsetting” and no networking mode within 3G/LTE for CSPs to offer to customers deploying IoT over long-range low-power networks, proprietary vendors saw the gap and stepped in with innovative proprietary technologies running over unlicensed bands.
Even for traditional cellular M2M applications such as fleet management/tracking, with 2G phasing out and faced with increased costs of 3G/LTE modules, many customers have been reluctant to migrate. In many regions, 2G is more reliable and continues to have a much larger spread. 3G/LTE has yet to displace it.
To take advantage of this situation, vendors such as Sigfox, Semtech and the LoRa Alliance, Ingenu and more have developed proprietary low-power wide area networks (LPWANs). These networks have already been deployed in multiple countries, creating an ecosystem of end customers, module makers, SoC companies and system integrators. The momentum and growth has been significant. In fact, some CSPs are supporting vendor and community-driven initiatives, such as LoRa.
Challenges with two modes
Telecom standards body 3GPP recognized the threat facing the telecom industry by potentially missing out on many IoT verticals and quickly approved the LPWAN standard. The LPWAN standard offers a choice of two modes — Narrowband IoT (NB-IoT) and LTE-M. Both operate within LTE-deployed infrastructure. NB-IoT operates with a much lower data rate, has lower power consumption (batteries are expected to last 10 years) and is appropriate for static device environments.
LTE-M offers higher data throughput, lower latency and can be used if endpoints are mobile. It also supports two additional modes to further reduce power consumption: power saving mode (PSM) and extended discontinuous reception (eDRx). A subset of LTE, LTE-M requires less complex upgrades.
Since the two modes are not compatible, one of them likely will eventually dominate. Over the next few years, competing ecosystems and proprietary vendor solutions will increase their market share.
The NB-IoT/LTE-M modules are still undergoing field trials or are in early stage deployments, while the proprietary solutions have been already deployed.
Even if these challenges are resolved, CSPs still have a monetization and ROI problem.
IoT sensors are not individual subscribers to be charged per sensor/per month. CSPs must design completely new billing approaches and systems. Plus, net-net connectivity revenue averaged per sensor must be extremely low if high volumes are to be achieved.
Competing LPWAN providers charge several dollar subscription fees per month, with LPWAN modules costing $5 to $10 per unit. To compare, these numbers are significantly lower than standard 3G/LTE module cost and subscription rates. Estimated costs of LTE-M/NB-IoT modules are expected to be $10 to $15 per unit.
Without volumes, the NB-IoT/LTE-M module costs are going to remain higher than proprietary solutions. If the costs remain high, end customers will be reluctant to deploy. And if volumes don’t happen, CSPs cannot recover their investment cost.
CSPs are also used to achieving royalties per cellular endpoint connection and these are at least a few dollars per unit (or even more in 3G/LTE). At this stage, it’s not clear how the competing CSPs who have influenced and contributed will charge royalties for NB-IoT/LTE-M.
The module, royalty and subscription costs overall must come down dramatically for low-cost IoT services to make sense.
Operating only in LTE infrastructure regions precludes NB-IoT/LTE-M from IoT applications in parts of the world where 2G GSM is still dominant, especially in rural and remote areas.
Additionally, multiple industries may deploy private networks with only the final gateway pushing out part of data over cellular. Supporting a private infrastructure is possible with LoRa, but is ruled out for NB-IoT/LTE-M.
End-to-end upgrade costs and investments to LTE infrastructure to support NB-IoT/LTE-M must also be considered. Solutions such as LoRa take advantage of existing cellular infrastructure with the help of low-cost connected gateways. Their net deployment investment appears to be much lower, and can be managed by customers themselves.
For any standard to be successful, an ecosystem of SoC, module vendors, system integrators, platform providers, software application developers and more is necessary. NB-IoT/LTE-M has a long way to go to form this successful ecosystem.
The NB-IoT/LTE-M module/connected equipment certification process, test equipment makers and general test procedures are not yet established. Provisioning of SIM cards is neither a trivial procedure nor cost. It’s also not clear whether CSPs will support embedded SIM or external SIM. Embedded SIM makes more logical sense.
The lifecycle of industrial equipment which will embed connectivity is expected to run five to 10 years. Large volume end customers may not be willing to pay subscription fees of even a few dollars per month, per unit for many years. Clearly, the connectivity costs have to fall dramatically as volumes scale over the years. When this happens, CSPs may find it costs more to manage the network and connectivity.
End customer requirements for IoT vary across applications, requiring customization. For example, connecting a remote smart utility meter is different from deploying connected sensors in remote areas, sending data over NB-IoT/LTE-M. Embedding an NB-IoT/LTE-M module in a smart meter is different from embedding one in a remote power station generator.
The ecosystem to make this happen successfully involves equipment makers, module makers, hardware, board and box makers, system integrators, certification bodies, software app developers, IoT platform vendors and more. For CSPs to realize volume deployments, this complex ecosystem must work together.
This is different from the mobile ecosystem, where CSPs dealt primarily with handset OEMs and there was a standardized system for the connectivity embedded with standardized SIM.
LTE versus NB-IoT
In the U.S. market, with heavy LTE penetration from its two largest CSPs, LTE-M is more likely to find faster adoption. The software upgrade required to support LTE-M is only on the base stations. LTE-M also supports firmware over-the-air (FOTA) software upgrades. Overall security is better than NB-IoT and other proprietary solutions and supports low-power modes with PSM and eDRx, although the module costs may be higher.
For NB-IoT, spectrum deployment considerations (e.g, the 200 KHz in deprecated GSM band, side band, guard band, etc.) must be decided. The implications are commercial, as well as technical, making NB-IoT a more complex deployment.
Advantages of NB-IoT/LTE-M
We’ve looked at the challenges; now let’s look at the advantages.
End customers prefer CSPs to manage the networks; it’s a tried and tested model. The model of competing LPWAN solutions is attractive cost-wise, but still has not provided long-term assurance of network connectivity. This advantage remains with CSPs.
Where the cost of equipment and devices which embed connectivity is much higher compared to module plus hardware cost, and data must be remotely monitored, without installing and managing intermediate gateways, NB-IoT/LTE-M is a better approach.
NB-IoT/LTE-M technology will operate in the licensed spectrum and naturally be less affected by interference, compared to LPWAN devices in the unlicensed spectrum.
NB-IoT/LTE-M also offers a higher data rate, especially LTE-M.
Guidance for the future
CSPs should first investigate realistic IoT/M2M market size and volume potential for 3G/LTE, LTE-M and NB-IoT in various regions. Then in each category, drill down to fewer verticals and focus on the top 10 high-volume potential customers. For example, utility smart meters is a good area for LTE-M. It has higher volumes, higher data rates, both government and private industries have created plans in various regions, and module costs are smaller than meter/equipment costs.
In contrast, verticals such as smart farming are unsuitable. Many are remote, sensor costs are low and near-term volumes may not be high enough.
CSPs should also carry out an exercise with select customers to understand the deployment, maintenance, partner ecosystems and revenue/costs over the years. Then, based on this exercise, project realistic volumes and examine ROI before beginning mass deployments.
Additionally, CSPs should participate in solution development beyond merely providing connectivity. This not only gives more services opportunities, but also controls the overall deployment timeline.
Vendors such as Huawei, Verizon and AT&T go beyond enabling connectivity, offering connectivity/management platforms, reference kits and system integration. Naturally, these CSPs have a larger ROI potential.
The projected billions of IoT connections are unlikely to happen by 2020. The IoT ecosystem is way too complex for this kind of volume to hit in just a few years. It’s important for CSPs to focus on bringing fewer, larger volume customers to production on the chosen standard, rather than spreading themselves thin across too many customers and applications.
It’s better to focus on connecting devices and equipment whose cost is more relative to the connectivity module cost. Also, it is always harder to open legacy equipment and devices to embed connectivity. Instead, partner with manufacturers to enable embedding connectivity modules during manufacturing.
It’s the home segment where CSPs can best monetize per subscriber. Success potential lies when CSPs become more complete solution and managed service providers, rather than being merely connectivity providers.
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