M2M: Where WiMax Meets Lindsay Lohan
M2M historically has been the province of only mundane applications, such as automated meter reading and tracking of everything from shipping containers to DUI offenders. The latter includes Lohan, whose court-ordered SCRAMx ankle bracelet alerts authorities when it detects her use of alcohol.
At the other extreme is the Amazon.com Inc. (Nasdaq: AMZN) Kindle, which debuted in November 2007 and began posting sales that indicated a mass-market opportunity for e-readers and similar devices, which now include the Apple Inc. (Nasdaq: AAPL) iPad. Today, myriad other devices and services – such as digital photo frames, digital cameras, and residential energy-management consoles – are categorized as M2M.
"Kindle was the inflection point," says Steve Pazol, president of nPhase, which has a joint venture with Verizon Wireless and Vodafone Group plc (NYSE: VOD) to target the M2M market. "M2M or not, it was one of the first special-purpose devices that people got, and all of a sudden, carriers said, 'I want to do that.' It opened their eyes."
But as detailed in a new research report from Heavy Reading Mobile Networks Insider, "M2M on the Rise: The Technology Perspective," humans and machines are fundamentally different in terms of their wireless needs, and understanding these differences is an important first step toward success in the new, broader M2M market.
For example, consumers and business users in developed markets are rapidly upgrading to 3G and WiMax in order to use bandwidth-intensive applications, while most M2M services – even video surveillance – work just fine on 2.5G. While humans typically replace their handset every 18 to 24 months, M2M applications frequently use the same module for five to 20 years. For example, 10 years is common in residential security, while automotive, trucking, and utilities modules often remain installed for 15 years.
That longevity affects technology choices. For example, some M2M users are concerned that carriers will start phasing out their 2G and 2.5G networks over the next few years to focus on 3G and 4G. This fear has a precedent: Several years ago, the two largest US carriers shut off their analog and cellular digital packet data (CDPD) services, and Telstra Corp. Ltd. (ASX: TLS; NZK: TLS) closed its CDMA network in 2008 to focus on UMTS/HSPA. Today, a growing number of M2M users and their suppliers are considering upgrading to 3G technology simply because those networks are likely to remain in operation for at least another 10 to 15 years.
The different needs also show up in the sums that M2M users are willing to pay for hardware and connectivity. 2G and 2.5G technologies are widely used partly because they have had 10 to 20 years to ride down the cost curve, making them more attractive for price-sensitive M2M applications than 3G and WiMax. But WiFi and some private radio technologies have an even greater cost advantage, which is why they remain major players in M2M.
WiMax is emerging as a major force in M2M, for a couple of reasons. First, its newcomer status allays fears of 2G and 2.5G phaseouts, at least among M2M companies that are not equally concerned that many WiMax operators and vendors will defect to LTE. Second, WiMax is a good fit for bandwidth-intensive applications, such as two-way digital signage and in-vehicle infotainment.
One big drawback is that WiMax's geographic coverage in a given country – even the US – will remain spotty compared to 2G, 2.5G, and 3G for at least another two years. So for applications where the device is portable or mobile, WiMax requires a fallback technology – usually 3G – which drives up the cost of the module and service.
But for applications that do not need a fallback, WiMax is attractive because it is surprisingly cheap from a module perspective. At the end of 2009, single-mode WiMax chipsets – that is, with no other wireless technology as a fallback – cost about $20 in volume. Some chipset vendors expect prices to drop to $12-$14 by the end of 2010.
Add in the rest of the hardware required to create a module, and WiMax costs about $35-$40 in volume. By comparison, a GSM/GPRS module goes for about $25, while CDMA 1X runs $50-$55. HSPA costs about $85.
Some in the industry might be surprised by the competitive price of WiMax modules, if only because the technology is relatively new and thus has not had a decade or more to build volumes. One reason the price is already so low and falling is that WiMax does not have the burden of royalty payments to companies that have patented certain aspects. For some rival technologies, that royalty can be 5 percent.
The catch is that no one is sure how long WiMax will enjoy this advantage. Many companies have intellectual property (IP) for WiMax but have not yet pursued royalties, perhaps because the market isn't big enough yet to translate into a lot of money.
"I wouldn't be surprised if at some point, those companies say: 'I've got a lot of IP in them. I should be compensated,'" one WiMax chipset vendor says privately. That's something everyone from investors to M2M end users should keep in mind when assessing WiMax.
The upshot is that as the M2M market expands, so does the number of technologies and companies competing for a piece of the action. But one thing hasn't changed: The choice often comes down to price.
— Tim Kridel, Contributing Analyst, Heavy Reading Mobile Networks Insider
This report, "M2M on the Rise: The Technology Perspective," is available as part of an annual single-user subscription (six issues) to Heavy Reading Mobile Networks Insider, priced at $1,595. Individual reports are available for $900. To subscribe, please visit: www.heavyreading.com/mobile-networks.
A sister report, "M2M on the Rise: The Services Perspective," is also available now from Heavy Reading Mobile Networks Insider. Subscribe now to receive both reports!