Is the wireless industry ready for M2M?

Editor’s Note: This article originally appeared in RCR Wireless News’ January Special Edition Wireless Infrastructure: The Engine for Economic Recovery. Look for our March Special Edition, coming soon.
With U.S. wireless penetration surging past 90%, wireless carriers are being forced to become more creative in finding ways to continue to grow their subscriber bases.
Recent movements have been made around the prepaid market in an attempt to coax the few remaining consumers who have shied away from wireless services either due to poor credit scores or those averse to signing a contract for service. But, that is only expected to be more of a market share shift amongst carriers than any real increase in customer numbers.
More lucrative efforts have been made around luring customers into acquiring more than one mobile device with PC cards and embedding cellular services into a broader range of consumer electronic devices.
Carriers have also begun to move more aggressively into the machine-to-machine space as a means of generating revenues. While these offerings typically pale in generating revenues with more traditional services, there is often a much lower operating cost associated with M2M that makes the services appealing.
“It’s all about carriers being able to monetize their assets,” said Kittur Nagesh, director of worldwide service provider marketing at Cisco Systems Inc. “Whether it’s their spectrum assets or their infrastructure assets. That’s an important operating pillar for wireless carriers. In the past every bit across the network made money. Now there is almost a negative correlation; the amount of data is exploding and the cost of transmitting those bits is going up, but the revenue generated from those bits is going down.”
A number of operators have announced partnerships with M2M companies looking to tap into a market that is expected to generate billions in revenues worldwide as well as billions more in device and equipment sales. These partners include Kore Telematics, nPhase and Jasper Wireless, among others.
The diversity of such M2M offerings is mind boggling. For years analysts and industry observers talked about embedding wireless technologies into everyday household appliances. That thinking has now exploded into the possibility of embedding wireless technologies into virtually every appliance, machine or device imaginable.
Sufficient support
Some question whether the wireless industry is ready for such an explosion of potential “users.”
“The scale is really unprecedented,” said Nagesh. “If it takes off like I think it will over the next 10 years, the scale could be in the billions of dollars in the U.S., and worldwide could be $50 to $100 billion. Are they ready for that type of scale? Every machine needs to be authenticated. How do you know it’s not rogue? There’s a huge bombardment on the control plane.”
Nagesh added that while the industry may have the coverage and capacity to handle the current load of voice and data customers, more or less, the thought of millions of “machines” trying to access wireless networks could prove a monumental challenge.
“Many of the verticals that would tap into the wireless network would do so using low-bandwidth applications that would have minimal impact,” Nagesh explained. “However, these could also have a trigger that would allow them to morph into a high performance, high data-rate transmission device. If it’s surveillance, it may not transmit anything until someone intrudes into its coverage zone. But once that happens the device may change into a high-definition streaming video mode that would be transmitting live images to an operations center. I’m not sure people have understood this level of impact for M2M.”
One way to handle that impact is for carriers to fortify their networks with next-generation wireless technologies like LTE and WiMAX that use an all-IP core that can more efficiently move bits of traffic over the network compared with today’s circuit-switched, packet-data hybrid networks. That is already being done by a number of nationwide operators as well as smaller, regional players.
These networks are expected to allow operators to transmit greater volumes of traffic that could allow for better integration of “bursty” users like M2M equipment.
One downside to current plans are that those networks are not expected to provide the same level of coverage of today’s 2G and 3G networks for several years, if ever. This was one of the sticking points to the Federal Communication Commission’s plans to auction off 700 MHz public-safety spectrum that would have required the winning bidder to build out a next-generation network with greater coverage than current commercial networks provide.
Deeper challenges
Beyond the basic network challenges, analysts note carriers will need to develop new business models in order to support M2M services. Low recurring revenues must be balanced by low acquisition costs and tempered with a customer base that is very unlikely to churn.
“No one is going to spend $60 per month for grandma to have a wirelessly enabled picture frame in her house,” said Steve Linke, associate director of product development at Verizon Wireless. “We are working on different pricing models to manage this.”
There are also issues of making mobile connections as easy to configure as current wired ones.
ABI Research’s Sam Lucero noted that it’s 30 times more difficult to arrange a remote connection over cellular than over wired Ethernet. And device self diagnostics need to be improved.
“The industry has to solve this if cellular is to be ubiquitous in the market,” Lucero said.
Lucero also noted that the industry needs to work on standards that will provide those looking to integrate wireless modules into consumer and enterprise customers with some future-proof assurance that their integrated products will continue to be supported.
Despite the numerous challenges, there is little doubt that the M2M space is set for tremendous growth. The biggest question remaining is whether the wireless space is in a position to take advantage of that growth.