Decommissioning efforts place M2M, enterprise markets up for grabs

The wireless industry is quickly heading towards relying on LTE-based next-generation networks that offer superior performance and efficiency compared to legacy 2G and 3G systems. However, in order to fully support those LTE efforts, wireless carriers are beginning to seed the need to turn down their legacy networks in order to free up precious spectrum resources in order to fortify their LTE networks.
These network decommissioning efforts have already begun with some carriers and are beginning to pick up momentum at others. One market segment set to be significantly impacted by network decommissioning efforts is the machine-to-machine space, which has come to depend heavily on the coverage and predictability of 2G and 3G services. This space has seen increased attention as of late due to the growing push behind the “Internet of things” heading that will see a growing number of electronic devices connect to the Internet using wireless technology.
A recent report from Infonetics Research noted that the M2M segment has become a fast-growing revenue driver for wireless carriers, thus the need to make sure that those customers are not left behind. In 2013, Infonetics found that the global M2M module market totaled $1.4 billion in sales, up 6% from the previous year. More importantly for decommissioning plans, 2G modules continued to account for a majority of units shipped, though the firm expects 3G module shipments to account for 67% of module revenues by 2018.
“The services built upon mobile [M2M] modules, such as fleet management and connected car, are already a sizeable business and are growing much faster than traditional business lines,” explained Godfrey Chua, directing analyst for M2M at Infonetics. “We look for the market to accelerate beginning in 2015 as M2M services inflect and module sales shift toward higher-ARPU 3G and 4G systems, ultimately just about doubling to $2.9 billion in 2018.”
While the M2M segment has never been a significant revenue driver for wireless carriers, those connections also require very little in terms of care or maintenance, thus providing a healthy profit margin for operators. However, with some operators looking to turn down 2G and 3G networks that have become the transport backbone for many M2M services, the market is set for upheaval.
“One of the biggest issues we have seen with decommissioning efforts has been on the enterprise and M2M side,” said Dan Hays, principal and U.S. wireless services advisory leader at PwC, noting that these market segments have become entrenched users of 2G and 3G services.
AT&T Mobility and Verizon Wireless have been viewed as leaders in the M2M space due to the scope and reach of their wireless networks, though they are also carriers seen as being the most aggressive in moving towards decommissioning their legacy networks.
AT&T Mobility, which has already announced a shut down date of Dec. 31, 2016, for its GSM-based 2G network, has taken a very aggressive approach in attempting to lure current M2M customers to upgrade to its more advanced networks. The carrier has set up an M2M migration program that includes resources explaining how and why companies should look to make the generational move.
“The M2M market has indeed been one of the bigger impediments for carriers looking to decommission their legacy networks,” explained Michael Thelander, founder and CEO of Signals Research Group. “AT&T has been very vocal in pushing M2M partnerships to 3G and LTE so they can free up those resources dedicated to 2G, but have attempted to do so in a way that does not cause those customers to churn.”
Hays noted that retention efforts are a significant challenge for carriers in handling the M2M migration, noting that every enterprise customer becomes an opportunity for churn if they need to replace a device or change service.
“Managing enterprise customers is a make-or-break challenge for network decommissioning efforts,” Hays said. “These are customers that in some cases have built customer applications on top of platforms running across these networks and you can’t just cut these off.”
Both Thelander and Hays noted that it’s often in the best interest of the carrier to offer financial assistance to larger enterprise and M2M customers in order to maintain those high-margin agreements.
Brian Partridge, VP at Yankee Group, said that should those efforts fail, decommissioning plans could open up opportunities for the likes of Sprint and T-Mobile US, both of which seem to be looking at keeping their 2G and 3G networks running for a longer time frame.
“I do think it will create some opportunities, but also think that the move will not remove AT&T or Verizon from the list of possible carrier partners for M2M services,” Partridge said.
John Horn, president of M2M provider Raco Wireless, echoed Partridge’s comments, noting that Sprint and T-Mobile US have plans to continue to support 2G and 3G services into the mid-term, which makes them an attractive option for M2M applications that either don’t need 4G speeds or in environments where a customer does not want to pay to upgrade a module.
Partridge noted that module pricing has indeed come down significantly for 2G and 3G, with LTE modules still priced at a premium.
“Modules for 2G are now under $10, 3G is between $20 and $25, and LTE is about five-times that price,” Partridge explained.
Life in the fast lane
One area in which the move to higher-speed networks could see considerable growth in the M2M space is through in-car telematics. A number of auto manufacturers have already announced deals to embed LTE modules in their cars in order to power in-car hot spot, navigation or entertainment services, areas that wireless carriers with extensive LTE coverage are sure to take advantage of.
AT&T, in particular, has been very aggressive on the in-car space, having recently scored deals with Audi and General Motors, a deal in which it stole business away from rival Verizon Wireless. The Audi deal initially only includes the car maker’s A3 model, with T-Mobile US continuing to provide services for the A8, A6, A7, A4, A5, Q5 and Q7 models. In the GM deal, AT&T said its offering would include voice calling, streaming audio, Web access, applications and video for backseat passengers as well as powering GM’s planned in-vehicle Wi-Fi hotspot offering.
The more feature-packed parts of those agreements would seem to rely heavily on robust data connections, something not achievable from 2G and some 3G connections, showing the increased reliance AT&T is placing on its network-wide move to LTE.
“AT&T and Verizon say that they are pushing higher-bandwidth modules, looking at the auto space, which typically have a longer lifecycle,” Partridge said. “That is something that has the need for higher bandwidth or has the ability to absorb the cost of higher priced modules.”
Bored? Why not follow me on Twitter