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.
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