As telcos look for alternative revenue sources, (Internet of Things) IoT represents a major business opportunity for them. Machine-to-machine communication relies on wireless networks to provide connectivity. In addition to connectivity, IoT services are dependent on applications, which end users interact with, and platforms, which the applications run on. The IoT ecosystem can therefore be seen as reliant on 3 layers, the connectivity layer, the platform layer and the application layer. While analysts’ 2020 estimates for the size of the IoT market vary greatly, ranging from USD 500B to 1.5T, many agree the connectivity layer will make up the smallest part of these revenues- only 5%-10% by most estimates.
Figure 1 below shows the revenue potential of each IoT layer versus core telco competencies illustrating the challenges telcos face operating in the more lucrative areas of IoT. The Platform and Application layers will be dominated by specialist players who benefit from global scale to develop world class products. Based on this dynamic, telcos will be forced to compete at the shallowest end of the IoT revenue pool which will also be highly competitive. Mobile telcos can expect to see their peers as well as fixed telcos competing. A new breed of start-up market entrants operating in unlicensed frequencies with technologies such as sigfox and LoRA will also be in the mix. The result may be similar to what has played out for telcos’ Voice, SMS, and Data revenues- IoT connectivity will become a commoditized service with limited margins due to heavy price competition.
Figure 1: Despite lacking core competencies in apps and platforms, how can telcos secure a greater share of revenues from the IoT ecosystem beyond simply partnering with 3rd parties?
Telcos must identify localized IoT opportunities where they can add value to a partner’s platform or application based on their existing core competencies.
In what way? Some examples are
Telcos can leverage their call center expertise to provide value added service like home security watch centers to complement smart home devices and applications
Mindful of data privacy rules, telcos can use their vast data warehouses combined with IoT information transmitted over their networks to provide big data analytics insights to other corporates such as banks, car companies, or credit agencies
Telcos can provide localized market places for needs generated by IoT sensors. i.e. if a car with IoT sensors has a flat tire, the telco can provide information where to get a new tire nearby for those who subscribe to the service. Fees could also come from vendors who wish to promote their services.