M2M revenues - Hype or high?

Tony Poulos
19 Jul 2012
00:00

As featured on TM Forum's Inside Revenue management newsletter

There has been a lot of hype around what will be the next big revenue stream for CSPs. Like the elusive ‘killer app’ there will likely be a number of smaller new revenue streams rather than one that will save the universe.

One area getting a lot of airplay is machine to machine (M2M), and most analysts have already come out with dramatic predictions as to the worth of that market. Based on Informa’s World Telecoms Financial Benchmarks database, which tracks the financial performance of the world’s 40 largest operator groups, this would indicate an M2M market value in excess of $65 billion by 2015. But how much of that will end up in the pockets of CSPs, and what exactly is it they will be charging for?

Today, CSPs are doing what they do easily and very well – selling connectivity. This represents almost 90% of M2M revenue in the current market, according to another Informa report sponsored by SAP, “M2M Communications - Turn Potential into Profit.” I realize our industry is bombarded with sponsored analysis and reports, but occasionally one comes out that hits the spot and answers many questions going through the minds of senior management at CSPs. Will we or won’t we and where’s the money being the two most common raised.

The report states that M2M connectivity revenues will continue to grow robustly. But the choice for CSPs is whether they want to tap into other revenue streams – or if a bit-pipe role offers sustainable profitability. The analysis indicates that either choice demands change in how M2M operations are run today.

M2M market dynamics mirror those of global telecommunications in the late 1990s, a heady time when liberalization was sweeping across the world. Wholesale – selling communications services to intermediaries – was a common entry strategy into newly competitive markets.

Today, many CSPs’ M2M operations report into a wholesale division, and are wholesale focused. As in the 1990s, carrier alliances and wholesale traffic exchanges are multiplying to help service providers operate globally.

Revenue growth expectations are as bullish now as they were over a decade ago. Seven out of every 10 CSPs we surveyed believe that M2M will generate 5% or more of their revenues within the next three years – despite the fact that it makes them little or no money today.

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