Reality Check column: Is Brazil ready for ‘Internet of Things’?

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Editor’s NoteWelcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.

Brazil has finally awoken to the enormous opportunities in the machine-to-machine communications market. M2M communications are roughly defined as the interactions between two or more remote entities with no involvement of human interfaces. Also known as machine-type communications (MTC) by 3GPP, ubiquitous sensor networks (USN) by ITU or Internet of Things by the newest literature, the number of M2M applications has increased significantly during the past two years. Some aspects of the Brazilian market may be tremendously challenging for mobile network operators (MNO) and network infrastructure vendors.

Major applications for M2M include fleet monitoring, logistics, agribusiness, m-health, security applications, smart cities, remote control of vending machines, and utility metering. Many of these applications can be controlled by short-range radio communications, also known as near field communications (NFC), but as things move, it’s necessary to make them talk though wider area networks as Wi-Fi or cellular. When devices go to cellular networks, a huge set of solutions and dilemmas appear.

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In a Nov. 9 presentation, Ericsson CEO Hans Vestberg said there will be about 50 billion connected devices around the world in the near future, and the market ought to be prepared for this new kind of machine consumer. What makes the M2M busines model distinct is that the new “customer-thing” often has a low traffic profile and consequently small average revenue per user, does not pay his own bill, does not phone call centers and, in some cases (like real-time vehicle monitoring), is much more intolerant to network outages than any person. Unusual “customer-thing” behavior combined to current Brazilian regulatory issues have to be taken into account for a successful MNO Internet of Things strategy.

Initially, is important to emphasize that Brazilian regulation is currently human-oriented. Many MNO commitments with Brazil’s government are set up in terms of inhabitants or human customers in a predetermined region. For example, according to Brazilian existing regulation, if a service provider intends to sell only M2M applications over the cellular network in some region, is obligated to install an attendance point to receive complains, information requests and other consumer demands, which doesn’t make sense in a nonhuman environment.

Another crucial regulatory question concerns telecom taxes on service providers. According to existing regulation, mobile operators have to pay about U.S. $15 on activation plus $7 per year to Anatel (Brazil’s telecom regulator) to keep every mobile access operating. In an environment which the number of connected devices with low ARPU is 10 times the number of human subscribers, Brazilian regulatory duties would spoil the return of investment predicted in many business plans. It’s a natural conclusion that regulation models need to be transformed in order to support the communication between devices and the new “customer-thing.”

In fact, most of Brazil’s carriers — Vivo, Claro, Oi and TIM (but not Nextel, which has not yet gone commercial) — now have M2M services and applications in the in the corporate market segment of their product portfolios, but they do not treat M2M as a separate business as it really is, with separate revenues and costs. Human and thing behaviors are incompatible, and more than this, customized and optimized solutions are required for each one. The philosophy for providing services to things is very different from the culture for delivering services to people. It’s advisable even to build a separate network, not only because of traffic and processing capacity differences but because when the number of connected things achieves a determined threshold, the investments and the associated operational costs for keeping M2M and human communications in the same network substantially increase.

The truth is that Brazilian market is not ready for the Internet of Things. Regulatory questions associated to the “customer-thing” need to be solved and organizational culture of the market must be changed. The Internet of Things promises to revolutionize the way people, places and things relates to each other and do business.

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