At the end of last year there were about half a billion IoT devices with cellular connections, and the IoT market is expected to continue to grow at an impressive rate. Within the next five years, it’s expected that there will be 20 billion IoT connections across the globe, spurred by an accelerating uptake of cellular IoT connections.
While IoT will impact all types of businesses, telecom service providers will be particularly affected because they are the fundamental building block in connecting growing numbers of IoT devices. Not only will they be focused on enhancing network infrastructure with IoT-friendly technology (like LTE Cat-M1 and NB-IoT) on the road to 5G, they will also be forced to consider how to transform their businesses as the IoT market matures.
Telecom service providers are already exploring how to move from merely connecting devices to providing services, like platforms and even applications. According to Ericsson’s recent study, “Exploring IoT Strategies,” leading service providers recognize that they will have to adjust the way they operate. This means moving from traditional key performance indicators like revenue per subscriber to a completely different revenue model. And, while revenue growth has been unanimously confirmed as the chief driver for entering the IoT market, we have found multiple paths to revenues that service providers are pursuing.
The Ericsson research also shows that service providers are looking to create value-added services that go beyond networking and connectivity. In fact, fully 80 percent of respondents indicated that they have plans to move up the IoT value chain in coming years and become more involved in the delivery of platform and application services – after all, most telecom service providers have vertical industry solutions, even if they don’t specifically offer platform services today.
Telecom service providers and the IoT value chain
There are two ways telecom service providers can move up in the IoT value chain. Both require service providers to leave their comfort zone.
The first, which is a more natural extension, is to provide products and services that complement their current network and connectivity offerings. Though this may sound simple, adding products and services to offerings often requires new investments and capabilities.
In this first approach, telecom service providers can add extra value to their services by diversifying existing offerings. For example, they may offer cellular and non-cellular IoT network integration services or device lifecycle management on behalf of enterprise customers. These diversifications lay a foundation for them to adopt more sophisticated roles in the future.
Which leads us to the second approach: Progressively offer end-to-end solutions involving platforms, applications, and services. This approach will most likely need vertical industry expertise and ecosystem orchestration.
An example is self-driving cars. When a critical mass of these vehicles starts to operate on the street, they’ll require extremely reliable and fast connections like 5G to communicate constantly. Service providers are in a strong position to connect vehicles, but there is clearly the potential to provide applications in those cars or platforms that help them communicate. In order to do this, service providers will have to build new capabilities and may need to partner with other specialists.
Each of these options requires special skills, which means providers will have to expand beyond their comfort zone to move up the IoT value chain.
Moving up the IoT value chain: A challenge worth the reward
The art of operating at the network and connectivity levels is service providers’ bread-and-butter. They have mastered this, but getting to the platform and application levels requires a deliberate and significant effort. After all, the platform business is basically an IT endeavor, with software and applications delivered as-a-service. For service providers, this is both a new area of technology and a new market with new service delivery methods.
As the IoT market becomes more mature, more businesses will be looking to get involved and own more of the market, which is why moving up the IoT value chain is a compelling strategy for service providers. To get a head start, telecom service providers need to leverage and build off of their current strengths before they can consider taking on new roles to add value. At the end of the day, true success will call for industry-wide collaboration.
Warren Chaisatien is Global Head of IoT Customer Engagement Marketing at Ericsson, where he leads the company's engagements with telecom service providers on IoT business and technology strategies. Generating demand for the regional sales organizations, his C-level engagements focus on telecom service providers’ roles and opportunities in the IoT value chain. Warren brings 20 years of international ICT industry experience in marketing and strategy, as well as consulting and sales, spanning North America, Europe, and Asia Pacific.