Mobile M2M Connectivity Revenue to Reach $24 Billion by 2025?

Machine-to-machine (internet of things)  communications supplied by mobile networks is predicted to support 69.39 million devices in 2020, growing to 177.87 million devices in 2025, estimates the Business Research Company.

Connectivity revenues are expected to grow from $7.19 billion in 2020 to $8.76 billion in 2021 at a compound annual growth rate of 21.77 percent, the firm predicts.

The mobile M2M connectivity services market is expected to reach $23.79 billion in 2025 at a CAGR of 28.37 percent, the firm believes.

source: Business Research Company 

For Some Consumers 5G Will be About Cost Certainty, Not Speed or Usage

There is no fundamental reason why the value of a 5G subscription, though including 5G network access, must be based on touted 5G performance advantages. In fact, in the U.S. market, incremental 5G revenue is driven primarily by customers upgrading from usage-based service plans to flat-rate plans, where 5G is a feature of the unlimited plans.

5G performance features are important, but arguably less important than the customer assurance that no extra charges for overages will happen. That has been a powerful incentive for other products, including voice, long distance calling, VCR or DVD rentals or internet access time.

In fact, customers have shown a willingness to pay a price premium precisely because doing so offers price predictability for a recurring purchase item. That might prove to be important, as many consumers might still have good reasons for questioning the value of 5G performance.

Though the launch of a next-generation mobile or fixed network always takes some time--especially in large countries--the rollout of 5G services has happened at an odd time. Since the unique value of mobility is communications “outside the home,” the Covid-19 pandemic has, for many, diminished time spent “outside the home” and “travelling.” 

Ironically, in some markets, the primary marketing pitches for 5G happen in context with use of “unlimited mobile data” plans that--also paradoxically--arguably have been less necessary when people were largely confined to their homes. 

To be sure, the backdrop is changing in many countries as restrictions loosen. Still, in the absence of compelling new use cases and applications, and with some perhaps long-term changes in life circumstances requiring people to be out of the house as much (hybrid work patterns including routine work or schooling from home), the value proposition for mobile 5G remains a work in progress.

Though better coverage eventually will help, use cases must still prove themselves. Many of us have worked from home for decades, pandemic or not. But the pandemic largely ended business travel and sharply limited personal travel. 

In some cases, this has meant a sharp drop in mobile data usage and consumption, as most connection time is to the Wi-Fi network. In fact, I frequently leave mobile data turned off when all I am doing is traveling locally on routine visits to grocery stores and other retail outlets. In such cases, I just use Wi-Fi in store to use my mobile device checkout and payment apps. 

The 5G value proposition, in other words, is upside down. I don’t really need faster mobile data speeds, as most usage now is indoors or at home, and I am rarely doing anything that really provides lots of upside if data is delivered faster than what Wi-Fi can support, for the limited uses I encounter out of home. 

Travel is the one setting where additional speed might be useful, though 4G normally works for my use cases, most places. And where 4G speeds are limited for reasons of coverage, I’m pretty sure 5G is going to be worse, in terms of coverage. 

To be sure, tethering for reasons of work, when necessary, is the one clear case where 5G would offer advantages over 4G, when available. But that has been a relatively rare need, during the pandemic. 

It is not that 5G has no value; it does. But 5G might  not offer significant new value, most of the time, to warrant extra spending--either on devices or service plans--at the moment. 

During the pandemic, the priority clearly has been any spending that optimizes my computing for support of video conferencing. Better mobility has not been an issue. I do not expect that will always be the case, but right now 5G does not offer enough new value to warrant more spending on it. 

For my typical limited usage, 4G works okay. As has been the case for decades, a fast mobile connection adds the most value when I am working remotely and the local Wi-Fi is flaky or slow. 

Until my business travel returns to normal levels, those known use cases will be few and far between. So will the perceived value of 5G. The new use cases, meanwhile,  are not yet visible. 

Other users will have different value drivers and use contexts. As has been the case since the days of dial-up internet access, consumers have shown a preference for fixed rate billing, rather than usage-based billing. 

That might still be the biggest attraction for many users shifting mobility plans to 5G. The expectation of faster data might be nice, but the assurance of known recurring cost might still be the single most important value. And consumers have shown a preference for predictability of cost, even when that means higher recurring cost. 

Singtel Still Faces Growth Problem

Singtel, Southeast Asia's largest telecoms operator, reported that annual net profit halved to S$554 million ($418 million), the lowest net profit in at least two decades. That performance by a leader in exploring additional lines of business illustrates three related issues.

The first issue is the exhaustion of legacy connectivity services markets. The second issue is the traditional difficulty or entering new markets, either in other parts of the ecosystem or in content or applications. 

The third issue is the valuation penalty any successful “up the stack” asset (content, platform, application) has when buried within the telco organization. 

Singtel has been trying to diversify for years, and has been a leader in exploring growth “up the stack” in the application layer, and beyond connectivity. So the inability to reap profit rewards is troubling. 

But some investments such as those in digital marketer Amobee and cyber-security firm Trustwave yielded weaker-than-expected returns, observers note. That is a recurring story for telcos who have tried for many decades to broaden their revenue bases in adjacent areas such as software or computing services. 

The next moves might pair infrastructure asset sales to fund investments in other growth areas such as financial services or gaming. 

At least part of the problem is valuation of telco infrastructure assets. Singtel notes that its infrastructure assets do not provide a valuation boost, compared to other suppliers that own fewer network assets. 

The other issue is that Singtel executives believe ownership of towers, satellites, subsea cables and data centers has not boosted Singtel’s valuation, compared to peers who own less of such assets. The expectation is that selling some of those infrastructure elements will free up capital to deploy in other growth areas. 

Weakness in mobile services revenue and market share is among the current issues. Mobile service revenue dropped 19 percent; blended average revenue per user fell 18.5 percent and subscriptions fell 3.6 percent over the last year, for example. 

That is not a unique problem. Globally, other service providers face low growth rates and falling ARPU. Saturation of mobile services--the industry growth driver for decades--is part of the problem. 

Beyond that, the typical telco must replace half of existing revenue every decade or so. We have seen that in fixed network voice services, mobile voice, long distance revenue and fixed network services generally. We have seen it in text messaging as well. 

source: IP Carrier

source: FCC  

That might seem hyperbole, but is a demonstrable fact. Globally, that means telcos have to generate about $400 billion in new revenue just to replace what they will lose over the next decade.  

Singtel’s issues really are the same issues every connectivity service provider eventually will face.

5G is Just the Next G

There are two different ways of looking at 5G, and both have merit. The first view is that 5G, by design, will support internet of things and other ultra-low-latency applications that 4G actually cannot. The foremost defenders of that view tend to be infrastructure suppliers, for the simple reason that this argument tends to spur purchasing by mobile service providers. 

The second view is simply that mobile networks get upgraded about every decade, to support higher bandwidths and lower costs per bit. Mobile service providers tend not to want to talk about that so much, for the simple reason that investors never are too excited about capital investment that essentially is “maintenance” spending, rather than investment to capture new revenue sources. 

Beyond that, some mobile service providers believe they are better positioned to capture market share, or have better assets in place, and can simply introduce 5G using normal or relatively normal capex spending they invest annually. 

"One of the questions I've gotten for years as we planned this midband-centric 5G mobile Internet pure-play is, 'how are you going to monetize 5G?' And I've always thought it was kind of a crazy question because 5G is just the next G," said Mike Sievert, T-Mobile CEO. 

source: Bloomberg 

T-Mobile's equity valuation, for example, has far exceeded that of AT&T and Verizon, both of which have been seen as no-growth assets by investors. The reason is simply that T-Mobile can continue to grow without necessarily finding or creating new revenue sources. It simply has to keep taking market share. Cable companies are in the same position. Invention is not required.  

T-Mobile’s  merger with Sprint gave it a trove of 5G spectrum and other assets that arguably mean it will enjoy at least a temporary lead in 5G coverage and, soon, speeds across its footprint. And T-Mobile has been taking 4G share for years. 

AT&T and Verizon, on the other hand, have had to spend heavily to acquire 5G spectrum, and also face market share losses to T-Mobile and cable operators. That being the case, they need new revenue sources to justify that spending.

3GPP Release 18 is 5G-Advanced, is a Steppingstone to 6G

5G Advanced, 3GPP release 18, is expected to focus on commercial needs, both near term and long term, including support for vertical industry applications, such as news gathering. 

Qualcomm believes 5G-Advanced will feature six key elements, many of which already are surfacing, but are not a formal part of the 3GPP set of 5G standards:

• Network designs featuring edge and cloud computing

• New radio designs that support technologies including full duplex communications

• Resilient technologies that block hacks and other threats

• Artificial intelligence and machine learning technologies

• Coordinated spectrum sharing techniques

• Services that merge the physical and digital worlds

Those are important themes because they will create the foundation for 6G. In fact, it is possible one or more mobile operators might refer to 5G Advanced, as a commercial service as something related to “early 6G,” as AT&T marketed advanced 4G as “5G E.”

Malaysia Broadband Trends Illustrate Revenue Growth Opportunities, Issues

This chart showing Malaysia fixed broadband prices and subscriptions suggests why the advice for connectivity providers to “stick to connectivity” and avoid efforts to “move up the stack” (towards applications) or “across the ecosystem” (occupying new roles other than connectivity}--though logical--is problematic. 

source: Khazanah Research Institute

Lower fixed network broadband prices do not lead to higher subscription rates faster than revenue per account drops.  

Mobile broadband has a different pattern. Lower prices have had the effect of boosting subscription rates. In part, that is because fixed network broadband is a much more mature product, compared to mobile broadband. 

source: Khazanah Research Institute

To the extent it is possible to grow broadband revenues, it likely lies mostly in the mobile realm, for the immediate future. Eventually, as mobile broadband matures, the link between lower prices and subscription growth will wane. 

Satellite Broadband is a Niche; Always Has Been

Starlink market share is limited, some argue. Others might argue it will always be so. Satellite networks are the lowest cost platform for isolated and very rural areas. But they are not the best value for customers able to buy cable TV, fiber to home or fixed wireless service. 

“Because of the higher relative cost of bandwidth transmitted via satellite versus terrestrial technologies, satellite is currently primarily used in situations where fiber optic cables and other high-capacity technologies are not financially viable due to low population densities and large distances between high-capacity networks and last-mile networks,” the Asian Development Bank rightly notes. 

source: Asian Development Bank 

Low earth orbit satellite constellations such as Spacelink will allow satellite broadband provides to serve 3.5 million subscribers in 2021, growing at an eight-percent compound annual growth rate to reach 5.2 million users in 2026, according to ABI Research.

To keep that in perspective, in 2021 there are about 4.93 billion regular internet users, using 1.2 billion fixed connections and upwards of seven billion mobile internet subscriptions, supporting mobile phone users, PCs and internet of things devices.

The point is that, as important as LEO constellations might be, they will remain a niche supplier of internet access services. By 2026, says ABI Research, LEO service revenue might reach US$4.1 billion. 

In 2020 fixed network internet access in the United States alone generated more than $100 billion in annual revenue in 2013, by some accounts.

We Don't Typically Think of Smartphones as IoT Devices

But this is an example of a useful internet of things use case that uses the smartphone as a real-time sensor, with an autonomous response. 

Starlink Access Deal with Google Cloud Supports Remote Area Access

SpaceX Starlink ground stations will be colocated within Google data center properties as part of a new deal between SpaceX and Google Cloud. In conjunction with Starlink ground stations at end user locations, the deal supports end user access to Google Cloud resources at virtually any remote location. 

The capability is expected to be most useful for organizations operating in rural areas, especially organizations with broad footprints, such as public sector agencies. 

The new access option is expected to be available in the second half of 2021. Though some might interpret the new capabilities as a way to extend Starlink’s role in “edge computing,’ that really is not the case. 

Starlink provides the access connection, in place of a fixed network or other access method. 

5G Has Not Yet Crossed the Chasm in Most Markets

Whether mobile service providers do a good or poor job marketing; despite initial coverage or battery life issues; before clear new use cases emerge for most users, 5G adoption eventually will reach more than 85 percent. Every next-generation mobile network has done so. 

Eventually, value propositions will be clear. But there perhaps remains a “crossing the chasm” challenge that has not yet been overcome: we have yet to make the leap from the “innovator” stage of uptake to most “early adopters.” Though 5G adoption has moved into the “early majority” phase in a few countries, globally 5G remains in the “innovator” stage. 

source: Geoffrey Moore 

At least 300 million smartphone users could take up 5G in 2021, Ericsson believes. But compared to global mobile subscriber count of five billion, 5G adoption remains far below one/tenth of one percent. 

Across the 20 lead markets where 5G commercial networks are available, an average four percent of consumers own a 5G smartphone and have a 5G subscription, Ericsson notes. That suggests markets in those 20 countries remain in the early adopter stage, and have yet to cross the chasm into the mass market. 

source: Ericsson

Sales of 5G-capable phones is misleading as well, as perhaps a fifth of 5G phones are used on 4G subscription plans, Ericsson notes. 

With a vested interest in rapid 5G uptake, Ericsson notes some early behavioral changes, but also suggests consumers are still waiting for viable new use cases and value. 

“5G users spend two hours more per week using cloud gaming and one hour more on augmented reality (AR) apps compared to 4G users,” Ericsson says. Some  20 percent say they have decreased their usage of Wi-Fi usage after upgrading to 5G. 

But indoor coverage limitations and a lack of compelling new use cases inhibits consumer uptake, Ericsson says.

Some 70  percent of consumers polled on behalf of Ericsson say they are dissatisfied with the availability of innovative 5G services and expect new applications making use of 5G.

One possibly important caveat: satisfaction metrics for 4G and 5G occur across very-different market segments. At this point, 4G is used by nearly everyone in mature markets. 5G serves an innovator or early adopter customer in most markets. Those customer segments have very different expectations. 

Innovators seek out novel technology; it’s like a hobby for them. Value, price and ease of use are not very important. Novelty is the driver: “it’s new.”

Early adopters, though quick to understand the benefits of new technology, do not value technology for its own sake. They value what new technology allows them to accomplish. In most markets, we are still in the early adopter stage. Already, though, value has become a more-important driver of adoption. That is likely why “what can it do for me?” has become something of a barrier to faster adoption. 

The early majority customer, in contrast, is practical. If a product seems useful, they will try it. But value has to be clear. Also, this type of customer will not tolerate “difficulty of use.” The technology has to be easy to use. And by this point, value--and therefore price and terms of use--matter. 

Late majority consumers are not confident in their ability to deal with technology and often buy from big companies, only after people they know use new products. 

Laggards are those consumers who, for personal and/or economic reasons, are not looking to buy new technology.

That likely accounts for the amount of interest in “innovative” features and use cases those surveyed on behalf of Ericsson express. 

The survey identified five jobs or outcomes that consumers hope 5G will accomplish:

• To be productive and efficient

• To be creative

• New ways of connecting and socializing

• The need for novelty (thrill, surprise, discovery)

• Rewarding me-time.

All that suggests there is yet work to be done in creating clear new use cases of value for most people. 

source: Ericsson

Comparing 4G, 5G and 6G

To some extent, comparisons between mobile generations are based, to some extent, on formal specifications, theoretical versus “real world” performance, degree of commercial deployment and other assumptions. Still, there are clear differences. 

Among the most basic, since the 2G era, is the tendency for each successive generation to feature an order of magnitude improvement in capacity (end user peak data rates), an order of magnitude improvement in latency and an improvement in spectral efficiency more on the order of a doubling between generations. 

source: Researchgate 

Since each successive generation has to run on new spectrum, to support legacy network operation while users are shifted to the latest generations, and since available spectrum not already assigned is to be found at higher frequencies, each new network platform uses new spectrum allotments at higher frequencies. 

Eventually or by design, new use cases and lead applications will develop. Most 3G use cases actually developed during 4G. It is a reasonable assumption that some touted 5G apps will not flourish until 6G. 

But there are some differences in intention, if less clearly in outcome. Both 3G and 4G were envisioned as general-purpose networks that could support all media types and many use cases. 5G is the first to specify support for machine-to-machine communication. No doubt 6G will be touted as supporting more-immersive features. 

Most likely, some combination of prosaic and innovative outcomes will happen. Mobile operators simply must supply more bandwidth at “equivalent prices.” So the basic need for the new platform is lower cost per bit. That is not incompatible with the emergence of new lead use cases, however. 

The emergence of those new use cases is less predictable than the need for networks that operate at lower costs per delivered bit.

Millimeter and TeraHertz Frequencies Will Be Essential for Mobile Operators

Radio spectrum is not by any means infinite, which means there are limits to the amount of usable spectrum any single use case or industry can be allocated. In most countries, mid-band spectrum between 2 GHz and 6 GHz available for mobile operator use will top out between 300 MHz of capacity and 600 MHz of capacity (available channel bandwidth rather than frequency of transmission). 

source: Rethink Technology Research 

Since low-band frequencies are even more restrictive, future growth of mobile capacity will have to come from new frequencies in the millimeter wave and teraHertz bands (up to 300 GHz for millimeter and between 300 GHz and 3,000 GHz for teraHertz spectrum).

Wireless Platforms are the Lowest Cost Bandwidth Platforms in Rural Areas

“Because of the higher relative cost of bandwidth transmitted via satellite versus terrestrial technologies, satellite is currently primarily used in situations where fiber optic cables and other high-capacity technologies are not financially viable due to low population densities and large distances between high-capacity networks and last-mile networks,” the Asian Development Bank rightly notes. 

“In a few cases, satellite connectivity is relied upon for international internet gateway traffic or as part of a country’s core network,” ADB says

source: Asian Development Bank 

As typically is the case, satellite connectivity has the best economics in rural and remote areas, the highest cost in dense urban areas. In denser areas mobile networks tend to have the best economics, followed by cable TV hybrid fiber coax networks, then fiber to home networks. 

The economics of fully commercialized wireless platforms such as high altitude pseudo satellite is not yet completely clear, but is expected to be higher cost than FTTH.

Low earth orbit satellite constellations are expected to have costs in urban areas also higher than FTTH. In remote areas mobile networks are expected to retain the cost advantage, but HAPS and LEO platforms will be lower in cost than cabled alternatives. 

source: Asian Development Bank

6G Early Commercial Deployments by 2028?

New 6G networks might see early commercial deployment by 2028 or 2029, ABI Research forecasts, with significant portions of the standard set as early as 2026. As always, performance metrics will improve by an order of magnitude to two orders of magnitude. 

That is likely to be the case for peak data rates, latency, spectral efficiency, ability to use any available capacity and device density. Support for devices with long battery life is likely to be built in as well. 

source: EDN 

As was the case for 5G, new use cases will drive some standards goals. 

As 5G was designed for machine-to-machine use cases, 6G might be designed to support various forms of extended reality (augmented, virtual, mixed).

source: Researchgate 

As was the case for 5G, 6G also will likely include measures to reduce network deployment costs and time to deploy, incorporating greater ability to use any available capacity. 

About all we can confidently predict is that 6G will feature faster speeds, lower latency and use of higher frequencies. Whether speeds are an order of magnitude faster or two orders of magnitude is not yet clear. 

Where 5G is designed to provide a peak data rate of 20 Gigabit per second (Gbps), and an average user experience rate of 120 Megabit per second (Mbps), 6G might be designed for 1,000 Gbps peak data rates and 1 Gbps average end user experience.

The expectation of new frequency allocations is based on history. Every next-generation mobile network has been based on new frequency allocations, higher in the radio spectrum, likely extending to teraHertz ranges. 

And as 5G latency performance has moved closer to zero, we might be forced to consider concepts such as negative latency, such as the ability of the network to anticipate demand in advance, prevent issues in advance or eliminate signaling, computation or data transport. 

The concept might be likened to the notion of prevention rather than cure: the ability to avoid computation or bandwidth operations because a potential problem is diagnosed and prevented from happening. 

Architecturally, cell-less operation might be defined, allowing any device to connect with multiple radio access points simultaneously. 

source: Researchgate 

4G Spectrum Aggregation is Different from 5G Aggregation

Even if licensed spectrum remains the foundation for mobile operator capacity planning, unlicensed spectrum is hugely important, first in the form of Wi-Fi offload, but also now in the form of spectrum aggregation, the ability to use both licensed and unlicensed spectrum as a single capacity resource. 

Carrier aggregation first was developed to support 4G operations, especially the ability to combine spectrum from disparate frequency bands. 

source: 3GPP

As used to support 5G, the more compelling use case is the ability to take advantage of unlicensed spectrum as though it were part of the carrier’s licensed spectrum inventory.

source: PCmag

The advantages are several. First, there is quite a lot of unlicensed spectrum to aggregate, shown as the blue bars in the illustration, especially in the 5 GHz to 7 GHz ranges. 

Unlicensed spectrum also does not have direct spectrum licensing costs, so offers significant additional capacity without licensed spectrum capital investment. 

Also, unlicensed spectrum in the 5 GHz to 7 GHz region has coverage characteristics similar to other mid-band spectrum. That means radio placement often overlaps other existing mid-band resources. That, in turn, means less investment in new tower or radio sites.