US Mobile Operator Strategies for M2M Connected Devices 7-20-10

© 2010 Technology Business Research, Inc.

TBR

TECHNOLOGY BUSINESS RESEARCH, INC.

U.S. Mobile Operator Strategies for M2M and the U.S. Mobile Operator Strategies for M2M and the Developing Landscape for Connected DevicesDeveloping Landscape for Connected Devices


TBR

2 ALU – M2M and the developing landscape for connected devices

U.S. Mobile Operator Strategies for M2M and the Developing U.S. Mobile Operator Strategies for M2M and the Developing Landscape for Connected DevicesLandscape for Connected Devices

• Introduction/Overview

• Operator Strategies Summary

• Market Landscape Overview

• Q&A

Agenda


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Market and technology shifts are driving Connected Mobile Device sales

• Mobile operators are deploying new and advanced high-speed wireless networks: HSPA+, WiMAX and LTE.

• These networks enable faster data connections and greater capacity, in addition to laying the groundwork for a broad range of connected mobile devices such as eReaders, gaming devices, cameras, fitness monitors and media players.

• Connected Mobile Devices allow users to have an “always on” connection to the Internet and to their own content.

• Wireless modules have become cheaper, smaller and easier to integrate into a wide variety of mobile devices.

• Connected Mobile Devices represent a new revenue stream for operators at a time when the traditional ARPU-based business model is steadily eroding. For enterprises, Connected Mobile Devices offer new ways to connect with customers.

Mobile operators are rapidly embracing Connected Mobile Devices in Mobile operators are rapidly embracing Connected Mobile Devices in order to develop new data revenue streamsorder to develop new data revenue streams

Everything that will benefit from a network

connection will have one

Connected Devices and M2M Overview


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Operators and suppliers are in the early stages of developing M2M Operators and suppliers are in the early stages of developing M2M strategies and ecosystemsstrategies and ecosystems

• The Machine to Machine (M2M) stars are aligning- The volume of M2M connections will grow

to more than 55 billion devices in this decade.

- There is a growing ecosystem and an abundance of partnerships, yet little clarity:

• Who does what?

• Which app developers, SIs and vertical specialists hold the greatest profit potential?

• Operators are participating in multiple M2M segments:

Smart grid (utilities) Smart home Health care/

TeleMedicine Digital signage

Metering ATM Telematics and

LBS/Fleet management


Vending Automation and control Consumer electronics

management Security

Source: TBR Estimates


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Select operators are capitalizing on vendor partnerships Select operators are capitalizing on vendor partnerships to grow their M2M businessesto grow their M2M businesses

M2M & Connected Devices

Operator Responses:• Operators are creating platforms, applications and

billing systems that cater to the needs of the connected mobile device market in order to reduce barriers.

• Operators have begun to unveil new pricing plans and promise innovative new plans in the future. Customers can expect to have multiple devices on the same service plan, all drawing from a single bucket of data.

• Mobile operators will introduce a number of new connected devices in 2H10, though most will fall into the categories of devices that are already available. However, operators are working with OEMs and expect new classes of products, including mobile gaming devices, to be introduced in 2011.

• Vendors utilize partnerships with mobile operators to increase adoption of M2M offerings among midsize and large businesses.

• Some operators will grow their customer base by expanding into markets worldwide with international operator partnerships and a suite of M2M vertical applications targeted at global companies.

Market Challenges:• Bringing a new connected device to

market is challenging for OEMs and solution providers.

• Most current operator data service plans are not conducive to an environment in which individuals own many different connected devices, each of which use different amounts of data, in different ways.

• Beyond netbooks, tablets and eReaders, there is a limited number of connected devices available to consumers.

• Large operators must balance traditional subscriber growth with M2M offerings or risk losing a growth opportunity to more nimble competitors.

• SIs are at risk of being cut out of the distribution loop if M2M offerings are sold directly to customers.



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U.S. Mobile Operator Strategies for M2M and Connected Devices

Connected Devices and M2M


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Wireless operators are looking to drive data revenue growth from Wireless operators are looking to drive data revenue growth from M2M and connected devices in 2010M2M and connected devices in 2010

M2M & Connected Device Update• TBR believes the M2M segment is poised for rapid growth, as it represents a potent

new source of data revenue for wireless operators from both businesses and consumers.

• M2M connections and connected devices will provide incremental income, which will offset voice ARPU erosion.

• While the majority of consumer-based connected devices sold have been netbooks and eReaders, tablet (iPad) sales are taking off. The industry will expand rapidly in the coming years, with the next wave of devices expected in 4Q10.

• M2M has gained traction from early adopters in certain categories such as smart grid, fleet management, asset tracking and health care. However, consumer M2M has lagged enterprise adoption until recently.

Connected Devices and M2M Operator Strategies


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While AT&T and Verizon are both targeting M2M for growth, AT&T is While AT&T and Verizon are both targeting M2M for growth, AT&T is targeting both consumers and enterprisestargeting both consumers and enterprises

• AT&T- TBR believes it will take AT&T some time to gain a critical mass of connected

devices that significantly contribute to revenue; however, the company has reported encouraging early device sales.

- AT&T is a frontrunner in the consumer connected devices market, dominating the eReader segment with the Amazon Kindle, Sony Reader Daily Edition and Barnes & Noble Nook.

• Verizon- Verizon’s current M2M business is primarily focused on the SMB and enterprise

markets, and secondarily on consumers. Telematics, fleet management and asset tracking are believed to make up the core of its M2M customer base.

- Verizon currently offers little in the consumer connected devices segment; its device portfolio contains no eReaders, but does include several netbooks and a variety of wireless modems.



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Sprint Nextel’s decade-long dedicated focus on M2M gives it a key Sprint Nextel’s decade-long dedicated focus on M2M gives it a key advantage in understanding enterprises’ needsadvantage in understanding enterprises’ needs

• Sprint Nextel- Sprint was one of the earliest movers in M2M, introducing solutions in 1999.- Sprint announced a host of M2M-related partnerships, including Axeda’s

Platform-as-a-Service solution in 1Q10, that should result in additional traction in connected devices.

- Sprint made progress in both the consumer and enterprise segments since rolling out its Emerging Solutions division in October 2009.

• T-Mobile- T-Mobile has operated its M2M business since 2003 and experienced 100%

year-to-year growth for the five years through 2009.- Despite the company’s experience in M2M, headway into the consumer market

has been limited.



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U.S. Operators’ Connected Devices and M2M Strategies



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Connected devices represent the next significant Connected devices represent the next significant growth opportunity for AT&Tgrowth opportunity for AT&T

As postpaid subscriber

growth slows, connected

devices represent the

next significant source of

growth

AT&T’s consumer-focused M2M device segment includes eReaders, alarm monitors and other emerging devices. AT&T is demonstrating positive early results, as its connected devices growth has accelerated since 3Q09, topping 100% in 1Q10 and contributing to the acceleration of data revenue growth.

AT&T CONNECTED DEVICES AND CONNECTED DEVICES GROWTH

0

1

2

3

4

5

6

1Q09 2Q09 3Q09 4Q09 1Q10

Con

nect

ed D

evic

es (I

n M

illion

s)

0%

20%

40%

60%

80%

100%

Yea

r-to

-Yea

r G

row

th

Connected Devices Year-to-Year Growth

SOURCE: TBR AND AT&T.

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Connected Devices and M2M Market Landscape


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AT&T is more focused than its peers on consumer-oriented AT&T is more focused than its peers on consumer-oriented connected devicesconnected devices

• AT&T established an Emerging Devices organization in October 2008.

• The company’s early entrance into the consumer-focused M2M space was fueled by a desire to direct and guide the space as it developed.

• AT&T has identified nearly a dozen key segments for connected devices, including:- Computing Devices: netbooks, notebooks and tablets;- Consumer Devices: eReaders, digital frames, cameras, gaming devices;- Tracking & Monitoring: automotive, navigation, people, pet and object tracking;- M-Health: patient monitoring, medicine usage.

• AT&T added more than 1 million connected device subscriptions in 1Q10 and holds a leadership position in the eReader market in the United States.



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AT&T is working with vendors to speed new AT&T is working with vendors to speed new connected devices to marketconnected devices to market

• Pricing and costs – data pricing for devices costs too much for many consumers and high component costs make devices expensive.- AT&T has adjusted data plan prices and is developing new types of plans.- Key component costs are poised to drop dramatically.

• Vendors are facing technical difficulties integrating M2M technologies into products, as well as business model difficulties.- Components do not always deliver expected performance or meet package-size

expectations.- Securing funding for new business models is often a challenge.

• An important question remains: Who will fund the various pieces of the consumer M2M value chain?



TBR


AT&T relies on three business platforms to deliver its M2M solutionsAT&T relies on three business platforms to deliver its M2M solutions

• AT&T’s standard device platformTraditional branded data rate plans for consumer devices such as the iPad

• Enterprise-On-Demand (EOD) platformA wholesale billing and MVNO provisioning platform owned and operated by AT&T, customers include Amazon for its Kindle.

• Jasper Wireless partnershipA third-party platform operated and managed by Jasper, using AT&T’s data network.



TBR


Verizon is primarily focused on M2M for enterprise customersVerizon is primarily focused on M2M for enterprise customers

• Verizon began reporting data on machine-to-machine (M2M) and other connected devices, a new product category, in 1Q10.

• M2M devices comprise 7.3 million, or 7.3%, of Verizon’s total base of 101.1 million wireless connections.

Verizon Wireless's Mobile Subscribers and M2M Connections (1Q10)

92.7%

7.3%

Mobile Subscribers

M2M Connections

• Verizon is successfully building an M2M business, which appears to be focused almost entirely on enterprise customers.

• With the advent of LTE in 4Q10, Verizon will likely begin pursuing the consumer market in earnest.

Source: Verizon Wireless and TBR



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Verizon Wireless has not yet developed a strong Verizon Wireless has not yet developed a strong connected device businessconnected device business

• Verizon’s current device portfolio includes only a few netbooks and a variety of wireless modems.

• Verizon’s current M2M business is primarily focused on the SMB and enterprise markets, and only secondarily on consumers.- Telematics, fleet management and asset tracking make up the core of its M2M

customer base.



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nPhase is Verizon Wireless’ vehicle for serving the nPhase is Verizon Wireless’ vehicle for serving the enterprise M2M marketenterprise M2M market

• Verizon Wireless and Qualcomm are partners in an M2M joint venture named nPhase. - Partnership formed in June 2009.- Vodafone was brought into the JV in February to provide global coverage.

• nPhase is intended to help companies bring M2M solutions to market. - Provide service enablement, device development and integration, and access to

Verizon’s wireless network- To support smart grid, fleet tracking, asset tracking and eventually consumer-

focused B2B2C M2M applications

• But few announced customers indicates lack of traction for nPhase.- Smart grid trials with ABB Inc. to support utility customers represents the only

announced activity.



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Connected devices will begin to make up a larger portion of Verizon’s Connected devices will begin to make up a larger portion of Verizon’s portfolio once its LTE network is in place portfolio once its LTE network is in place

• Verizon Wireless will roll out its LTE network to 25 to 30 markets in 4Q10.- Initially covering 100 million POPs, the LTE network will enable Verizon Wireless to

offer new devices that take advantage of high-speed wireless data services.

- The number of M2M connections will grow rapidly with the advent of LTE.

• TBR anticipates most new M2M connections on Verizon’s LTE network will come initially from consumer devices such as eReaders, tablets and netbooks.

• Businesses will be slower to transition M2M devices onto the LTE network due to the higher cost of LTE equipment.



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Sprint’s M2M strategy comes from both the CDMA and iDEN side of Sprint’s M2M strategy comes from both the CDMA and iDEN side of the business, and now includes WiMAX as wellthe business, and now includes WiMAX as well

• Sprint views connected devices and M2M as the same thing, placing both categories under the “Emerging Solutions” umbrella.- Sprint claims to have been providing M2M solutions for more than a decade.- The company abstains from using the term “emerging devices,” since it believes that

the devices have already arrived.- M2M and connected devices include all embedded products.

• Sprint has not yet publicly quantified its own M2M market share, although it claims leadership in several key sectors.- Sprint’s M2M customer base is split 60/40 between retail and wholesale.- Sprint says that it has a leading share in M2M logistics- and GPS-related services in

North America, aided in large part by its legacy iDEN customer base.- WiMAX provides Sprint yet another opportunity to expand its M2M and connected

device business.



TBR


Sprint employs a number of strategies to address business markets, Sprint employs a number of strategies to address business markets, but its consumer products are limitedbut its consumer products are limited

• Sprint targets specific business verticals, including:- Utilities/Smart grid- Health care- Finance- Insurance- Fleet management / Telematics- Workflow management / Logistics- Public sector: emergency and security solutions

• Sprint offers M2M solutions to businesses through its own enterprise sales and through partnerships with:- Aggregators: Omnilink, Numerex, Aeris, M2M Datasmart, Qualcomm- OEMs: Digi, Multi-Tech, Sierra, Sixnet, Top Global- Platform-as-a-Service: Axeda

• Sprint addresses the consumer market mainly through its own retail channels- While Sprint offers several categories of devices in the connected or M2M category for

consumers, its current portfolio is fairly straightforward: eReaders, laptops, notebooks and netbooks.



TBR


Sprint operates multiple networks and offers many M2M solutions, Sprint operates multiple networks and offers many M2M solutions, giving it flexibility to support different segments and verticalsgiving it flexibility to support different segments and verticals

• Businesses often do not know how to go about developing M2M solutions.- Sprint’s Emerging Solutions group has engineers dedicated to helping businesses

develop M2M solutions.- Through relationships with third-party developers and partners, Sprint has a number

of “canned” solutions ready to present to businesses.

• To speed development of M2M solutions, Sprint is introducing a new platform for testing products and applications in 3Q10.- The platform will be available for application and device developers to test their

products and to ensure functionality and compatibility.

• Sprint operates multiple wireless networks, which enables it to offer M2M and connected device solutions to diverse market and customer segments.



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T-Mobile has a growing M2M business, but its connected device T-Mobile has a growing M2M business, but its connected device strategy is still evolvingstrategy is still evolving

• T-Mobile operates two M2M businesses – one for consumers and one for business customers.- Offers only a limited number of connected devices at this time

• T-Mobile USA established a M2M business in 2003.- Run as a separate business providing connectivity to devices- Has seen five consecutive years of 100% year-to-year growth

• T-Mobile’s M2M partner ecosystem is evolving.- T-Mobile USA relies on six solution aggregators to support the technical

requirements of its M2M customers.- Applications solutions from large vendors are increasing the breadth of solutions

available to companies seeking to deploy M2M.

• T-Mobile envisions M2M devices far outnumbering traditional subscribers in the future.



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T-Mobile USA relies on a separate platform to deliver its T-Mobile USA relies on a separate platform to deliver its M2M solutionsM2M solutions

• M2M uses a different business model that relies on operations/business support systems (OSS, e.g., billing and service fulfillment) and requires less overhead to manage than traditional mobile services.

• T-Mobile has developed a separate billing system to manage its M2Mbusiness. - M2M billing is based on data usage rather than MOU, as with conventional cellular

billing.- Billing based on Average Transaction Per User rather than ARPU- ATPU is typically less than $10 per month.

• T-Mobile’s M2M customers’ devices typical data usage averages 800KB to 1MB per month, equating to low revenue, while the sheer number of connections results in a sizable revenue stream.



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Growing T-Mobile’s M2M and connected device business Growing T-Mobile’s M2M and connected device business will pose a challengewill pose a challenge

• T-Mobile would prefer to see M2M customers migrate to 3G networks to improve efficiencies, but is finding that customers are less willing to do so due to higher module costs.- Network evolution from 2G to 3G is improving the efficiency of M2M service.- While T-Mobile USA would prefer that all of its M2M customers migrate to 3G modules,

it recognizes that module pricing does affect customers’ decisions to choose 3G over 2G.

- T-Mobile varies M2M package pricing based on network used.

• Its lack of an enterprise customer base and related sales focus limits T-Mobile’s ability to reach enterprise customers with its M2M solutions.

• Average revenue from M2M connections has remained well below $10 per month; difficult to increase per-connection revenue from M2M.

• T-Mobile established a strong early position in M2M in the U.S. but will be challenged to retain that lead as competitors seek to carve out a larger portion of the growing M2M market.



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Network upgrades are only one piece of the puzzle for T-MobileNetwork upgrades are only one piece of the puzzle for T-Mobile

• T-Mobile expects to expand its M2M base of customers as it migrates to HSPA+, thereby increasing efficiency and reducing costs.

• T-Mobile will add more connected devices to its portfolio, helping it to expand more quickly into the consumer M2M market.

• A focus on consumer M2M will help T-Mobile increase data ARPU rapidly, making up for the relatively low per-device revenue that its enterprise M2M business generates.

• Alliances with key M2M systems integrators could help cement T-Mobile’s market share with small and midsize companies (SMB).

• However, T-Mobile has yet to articulate a compelling connected device strategy for the consumer market that differentiates it from its peers.



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Q & A


Documents

US Mobile Operator Strategies for M2M Connected Devices 7-20-10