Director of Studies, IDATE DigiWorld
The connected object market today shows a real complementarity between the major players in terms of their current positionings, aligned with their core business.
In the longer term, however, IDATE DigiWorld anticipates that competition will grow in ferocity, around the platforms and services which are set to be the next source of revenues.
The automotive market
Around the connected car business, is key for Internet giants and telcos. Competition today is, in the main, on the platform side as both telcos and Internet giants are aiming to position themselves here today. Indeed, it is the platform that is the cornerstone of the next connected car strategy. Looking further ahead, the main competitors will most likely be OTT service providers, as they will offer services by exploiting the data generated by sensors in the vehicle – Uber-like companies are one example. Some industry incumbents are already engaged in the battle: earlier in 2016, GM invested half a billion USD in Lyft, the main competitor to Uber. The major involved players are AT&T and Verizon on the side of the telcos and Google (and Apple to a lesser extent) for Internet players.
The wellness market
This market is very recent. Telcos are absent from its value chain, with the exception of very limited volumes of cellular objects. They only focus on the distribution side, where the reselling business can grab them a sale commission on wearable objects, linked to smartphones. OTT Internet players are eying this promising consumer market for the opportunities it will offer in the near future to manipulate and monetise masses of personal data.
The healthcare market :
A specific market for a long time, its very promising market has been in the growing numbers of potential ‘clients’ as their age increases. The key objectives of healthcare applications are to optimise the treatment of disease and to save costs for national healthcare services. Even though solutions will be provided in partnership with experts, both telcos and Internet players will be push platforms and services.
The smart home market
It will be the arena for immense competition in the next few years. It is considered as a growth area for fixed telcos which are already facing competition from cablecos. On the side of the OTT Internet player, smart home applications are seen as a complementary way to follow their consumers/audience, even though they have different approaches. Competition – again, it will be heavy – will on the platform and services side as all players will be wanting to manage the data.
Today, the industrial Internet market is considered as an extension of the Industrial M2M business for telcos. The Internet giants are notable by their absence, even though some could provide cloud-based tool: Google, and Amazon with its specific IoT AWS offering, are prime examples. Analogous with traditional online services, the main threat for telcos is that they yet again become the pipe, and only the pipe. They have, however, anticipated the connectivity commodity trend by offering data platform solutions and related services. The ARPU from connectivity is very limited and the telcos expect only a small share of connected devices will be equipped with a SIM card. Before services, telcos have backed their core business, by setting their eyes on LPWA technologies (SIGFOX or LoRa) or collaborating on LPWA-like cellular ones such as the NB-IoT ahead. They are also backing the next 5G technologies, which aim to empower various verticals, including healthcare, manufacturing, smart cities and the automotive. It will be a tough battle, given that Internet giants are global by definition. Moreover, compared with traditional Web services, the main difference is that Internet giants manufacture their own objects, providing almost an end-to-end solution of product, platform and services on top. Faced with this kind of solution, traditional players in the industry will also suffer from the invasive nature of the OTT Internet players and their fierce competition.
Find out more information on "Telco's Connected Objects Strategies" in our dedicated market report
Head of Regulation Practice, DigiWorld by IDATE
Vertical markets that are highly coveted by telecom operators
IDATE has just published its report "Vertical markets: Health, Government and Finance: What potential for operators?”. Capturing vertical markets is clearly an objective shared by many operators. In fact, for Christoph Pennings, Project Manager for this report, "Telecom operators increasingly favour a targeted approach to vertical markets, which they see as a means of developing their activities, in a context of eroding margins, by positioning themselves in new market segments, through greater customization of the services they offer." While vertical markets are certainly not the only remedy to the strong pressure on telcos, they can still provide a considerable boost."
The international benchmark set up in this report is based on a selection of 25 operators, offering services that target specific vertical markets: incumbent operators and new entrants as well as cable operators, operating either fixed and mobile networks or one of the two. This systematic analysis of offers shows that operators consider financial services, health and e-government as the most promising vertical markets and by far the most coveted. This is partly due to their appeal as an area of investment and transformation, but each of these markets also offers specific opportunities for electronic communications services.
"Vertical markets" are a useful concept to describe a move from generic offers to more tailor-made solutions designed to meet the specific needs of 'an industry'. However, customers' requirements within a given industry segment vary almost as much as those of different industries. Within healthcare, services range from remote monitoring to the transmission of critical high-resolution video in real-time or infotainment solutions for patients and staff in hospitals. POS payment solutions are very different from bulk data transmission in finance and so on. Hence, targeting the 'government vertical' is too broad to describe an operator's business and will need further detail. In practice, further segmentation is required and, in order to be successful, operators will need to be very clear about which niche in a given vertical they plan to address and how.
The vertical offers that are available in the market today or under discussion do not imply an entire re-invention of telecom operators' product portfolios. Instead, most vertical offers centre on traditional connectivity but ideally add a few QoS features that make them appealing to the targeted industry, like low latency or security. One of the telecom operators interviewed during the study actually confirmed that about 80% of its healthcare division's revenues come from connectivity. For vertical products somewhat further from their core business, telecom operators with a strong ICT-branch are in a better position to develop the necessary added value to make a product successful in the targeted vertical than players which cannot tap into this kind of resource in-house.
The question is how much impact on revenues (and margins) offers aimed at vertical markets can ultimately have? Clearly, verticalisation of communications solutions is not going to transform the industry as for instance the arrival of mobile did. A match of great innovation and huge market opportunity such as in the case of the M-Pesa service (money transfer service by mobile at Safaricom in Kenya), will remain an exception and a successful replication of such services across different countries will be even more challenging. Yet, the added value of smarter offers, customised to a vertical's requirements, will allow telecom operators to charge a premium over generic plans. The magnitude of this premium will vary widely and depend heavily on the product and the vertical. All in all, vertical markets are most likely not a game changer for the industry, but if operators succeed in addressing the right markets and provide truly differentiated services, vertical offers can collectively deliver a meaningful contribution to set the industry on a more upward sloping growth path.
Head of Regulation Practice, DigiWorld by IDATE
> More information about this study available on our website