In a very real sense, mobile service provider success in the internet of things connections business requires mobile substitution for fixed network connections.
Internet of Things is both a strategic opportunity for mobile service providers and internet service providers and a huge challenge. The upside is that connectivity services for sensors and other machines represents the big “incremental account additions.”
The challenge is that revenue per device is going to be quite low, compared to connections supporting smartphones. Existing IoT connections sell for as little as $6 a year in the U.S. market.
Of a total of US$227 to US$581 billion in total IoT revenue in 2020, perhaps $10 billion to $29 billion will be earned by supplying connectivity services. That represents something between four percent and five percent of industry revenues.
Even with some scale, that might not be a terribly profitable or cash flow generating source.
Granted, many forecasts call for many billions of IoT connections. Still, most of those connections might rely on an existing local network of some type, producing nil incremental direct revenue.
In 2017, almost three-quarters of all low power wide area network connections used non-cellular LWPA network technologies, according to ABI Research.
The Ericsson Mobility Report estimates that in 2023, mobile IoT connections will represent 15 percent of IoT connections, with short-range networks handling as much as 67 percent of links.
Obviously, for service providers that have the scale, participation in other parts of the IoT ecosystem will provide a possibly-bigger revenue value contribution, and therefore revenue opportunity.
“When you’re looking at all the different ways in which connectivity happens today, less than 10 percent of all IoT is actually going over cellular,” said Chris Penrose, president of AT&T’s IoT business.
If you can now begin to bring a lot more devices onto the wireless (mobile) networks because you now have technologies that are secure, low-cost and really tap into a market that might’ve gone on to Wi-Fi or alternative technologies, you expand the size of the market which you can go to.”
In the connectivity part of the IoT ecosystem, mobile revenue will hinge on getting a higher percentage share of connections. For at least some service providers, bigger returns could come from participation in other parts of the ecosystem (platforms, apps, services, possibly devices).
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