There isn't a lot of money in connecting a smart meter or a bit of factory equipment. Pumping mobile data to yuppie owners of Apple's iPhone X is far more lucrative for telcos. But while iPhone-less yuppies are in relatively short supply, there are countless machines and objects that still lack connectivity. With the sheer volume of business, it shouldn't matter if a connection costs less than a Primark T-shirt. Service providers can still profit. (See Overpriced & Underwhelming, Apple's New iPhone Lacks X Factor.)
This logic is almost sacrosanct in the industry, and so operators scouring the details of Ericsson's mobility reports must feel rather alarmed. In keeping with industry opinion, the latest report, published this week, does forecast an Internet of Things (IoT) boom, with connections rocketing from 8.6 billion this year to 22.3 billion at the end of 2024. But it sees a rather limited role for mobile technology in all this. Of its projected 22.3 billion connections, just 4.1 billion will have anything to do with "cellular" systems. (See Eurobites: Europe Will Remain a 5G Laggard, Says Ericsson Report.)
Let's not forget that the end of 2024 is a whole six years away. That's long enough in any context. If he's still in the job, US President Trump will have to leave the White House around then -- unless he can imitate tyrants in other parts of the world and somehow force through a constitutional change. Six years ago, your correspondent was still a young man in his thirties. Six years from now, he'll have notched up half a century. But in the technology world, six years is an eternity. Internet companies rise and fall in that span of time. Entire ecosystems come and go.
Ericsson AB (Nasdaq: ERIC) hammers home this point in its latest mobility report when it says next-generation 5G networks, which are only just being launched, will cover 40% of the world's population in 2024 and support 1.5 billion customers. That estimate is probably conservative, too. Even in slow-moving Europe, Deutsche Telekom AG (NYSE: DT), the region's biggest operator, expects to cover 99% of Germany's population with a 5G service by the end of 2025. Indeed, it seems highly unlikely that anyone will be talking about 5G with much enthusiasm in 2024. They'll be discussing quantum computing and how 6G can address all the problems 5G hasn't. (See Deutsche Telekom targets 99% 5G coverage in Germany by 2025 and When Will 6G Arrive? Hopefully Never, Says BT's McRae.)
Connected people to outnumber connected machines
Despite all this, Ericsson thinks mobile technologies will account for less than a fifth of IoT connections in 2024. For all the excitement about the billions of objects just waiting to be hooked up, there will still be far fewer cellular IoT connections than mobile phone customers in 2024, predicts the Swedish company.
Of course, 4.1 billion is not an insignificant number. It's a big increase from the current figure of 1 billion cellular IoT connections. Cellular will also be increasing its share of the pie, from 13% today to 18% in 2024. The problem is that most of today's cellular connections are handled with sub-optimal 2G technology. The recent emergence of NB-IoT and LTE-M (or whatever the industry is calling it these days), designed specifically with IoT in mind, was supposed to be a cellular IoT catalyst. Do an extra 3.1 billion connections in the next six years really qualify as an explosion?
Probably not in the way service providers would like. For starters, only 1.4 billion cellular IoT connections will be outside North East Asia (read China) in 2024, according to Ericsson. China already appears to account for hundreds of millions of NB-IoT connections, and it's not necessarily because Chinese companies have a unique love for the technology. Put simply, NB-IoT is backed heavily by the Huawei Technologies Co. Ltd. Chinese juggernaut, and a helpful government push is seeding it in all sorts of places. In other parts of the world, it seems destined to remain comparatively niche. Across the whole Americas region, for instance, there will be fewer than 500 million cellular IoT connections in 2024, says Ericsson. (See China Mobile Sees NB-IoT Boom as Profits Rise.)
What's more, a quadrupling in the number of connections will not translate to a quadrupling in service revenues, because prices are dropping fast. Vodafone Group plc (NYSE: VOD), one of the few operators to break out details of IoT connections and revenues, made €12.91 ($14.57) per IoT connection in the fiscal year ending March 2017. The following year, it made just €10.99 ($12.40) per connection. The rollout of NB-IoT and LTE-M, conceived as low-cost alternatives to non-cellular technologies, will hasten the decline. In its last fiscal year, just 1.6% of Vodafone's revenues came from IoT services. Even if Vodafone grew connections in line with Ericsson's forecast, and held prices steady at last year's rates, IoT would account for just 6.2% of the company's revenues six years from now, assuming there were zero growth in headline sales. The actual percentage seems likely to be much less. (See Vodafone Brings NB-IoT to UK, Starts Trial With Scottish Power.)
So what are the technologies that will account for most of the IoT connections growth? "Most of it is about narrowband, short-range applications where cellular technology is not really that competitive," said Bengt Nordström, the CEO of analyst firm Northstream, during a conversation about IoT several days before Ericsson published its latest report. "The more broadband it is, the better for cellular. The more narrowband, the better for other technologies. And the more indoor, the more alternatives there are." Think of commonly used technologies like WiFi and Bluetooth, for instance.
The answer for some mobile operators will be to offer more than just basic IoT connectivity, providing a service "wrap" and acting as systems integrators for business customers rolling out IoT applications. Yet their efforts to play this role continue to attract skepticism from the likes of Nordström. "If you take a company like Cisco, they have more than 100,000 channel partners to do the legwork to sell to huge corporations, and that is what it takes to address the enterprise segment," he said. "That is a very different business from the one telcos are in today."
— Iain Morris, International Editor, Light Reading