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IoT and Globalization

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How the fate of the CSP is decided by the size of its country’s industrial sector

The term “bit-pipe” flooded the mobile telecom literature for the last 10 years or so. We have seen alliances, mergers, and acquisitions among operators fearing the worst to come, and looking into new ways of collaboration to compete against competition from the OTTs (Over The Top applications, like Whatsapp and Facebook).

The emergence of the IoT era brought new hope with its promised fruits to the operators … but definitely not all of them.

The IoT business for CSPs (Communication Service Providers, or mobile operators) does not mean the same thing across all countries. Today, CSPs are laying the infrastructure for the IoT with the following targets in mind:

  • Providing the needed connectivity for products manufactured abroad, containing SIMs (or embedded SIMs) that enable them to communicate with a central server (or cloud).
  • Providing the needed connectivity and “tools” for local companies planning to embrace IoT into their business lines or products.

Regardless of the technologies or approaches the CSPs are adopting, whether they are focusing on horizontal or vertical layers, the above two targets are still governing their strategies.

There will be multiple business models in the IoT market, but it is clear that the winning one will be consisting of a manufacturer contracting with a local CSP to provide the connectivity for its devices before shipping them abroad. The “importing” markets will have to cater for the Internet connectivity of those devices (if they want them to work).

The payment relationship of such a model will be between the customer and the enterprises providing the service (think of car dealers. The customers will pay for the diagnostic/emergency services to the dealers in a monthly/yearly subscription model). No direct relationship will exist between the end-user and the CSP.

Would enterprises approach local CSPs to buy connectivity for their imported devices? Most probably not, because the latter will be so slow in handling the requests from thousands of such dealers (cars, washing machines, refrigerators, etc…). Early experiences show that CSPs are trying hard to follow that model, but will not be able to cope with the increasing cost of management of the different requirements set by each dealer in their countries.

On top of that, local dealers’ business systems (payment handling, accounting, customer care, etc...) need to be integrated with those of the original manufacturer of their products (usually located abroad). Through those business systems, they need to be able to activate, deactivate, upgrade, and monitor the data consumption of their devices in the local market.

Should the enterprises (dealers) get their connectivity locally, they need to integrate their systems with those of the local CSP (through APIs) which will be a tiresome task, not to say a lengthy and costly one. Also, this means that local dealers for a car manufacturer need to integrate with 200 different APIs in 200 different countries around the globe.

The solution for that would be for the original manufacturer to contract with one major operator for the supply of SIM cards, with which their BSS’s will be integrated together once and for all. Local dealers will have to use those business systems (on the cloud) with an account for each.

The only driver for getting the Internet connectivity from the local markets’ CSPs is high price of data roaming charges. But again, with the latest regulatory action from the European parliament, literally ending the roaming charges starting June 15, 2017, enterprises will find themselves adopting the roaming model for their shipped devices across the borders of their home country.

This brings us to the conclusion: the CSPs in industrial countries (like those in Europe) will have the competitive advantage of “proximity” to the industries in their home countries. The industrial market size will have a spill-over effect on those CSPs, because of multiple factors: banking facilities, established relationship, language and culture, and most importantly the local support they can provide to their customers (the manufacturers).

On the other side of the picture, CSPs in under-developed countries will find themselves lagging behind, thanks to the weakness of the industrial capabilities in their home countries. Not only will they have a smaller global market share compared to those tier-one players because their local market is small, but they will also find themselves relying on wholesale interconnectivity revenues generated by devices located in their territories, though managed by an operator beyond the sea.

On top of that, IoT revenues are expected to be based on the “number of subscriptions” as opposed to the traditional “pay as you use” model that reigned the market for long.  A simple formula for the global market size of each operator will look like:

M (iot) = M * E/I

M (iot) = the global market share of IoT subscriptions issued by a CSP.

M= current global market share of the CSP.(in percentage).

E= the Industrial exports of the CSP home country.

I = the industrial imports of the CSP home country.

Example:

A CSP having currently 1 percent global market share, operating in a country of $5 billion industrial exports and $20 billion imports, will end up with an IoT market share M (iot)= 1 percent * 5/20 = 0.25 percent.

This is a simplified formula considering that all industrial imports and exports will include some sort of intelligence using IoT.

Can CSPs in non-industrial countries fight back and stick to their high roaming charges to stop this fast-paced evolution? Time will tell, but history showed that the economies of scale always have the upper hand. Which will leave those operators with the options of either “cooperating” or getting themselves (and their local markets) isolated from the global advances in IoT, without which their economies will plummet into a deep pit.

After all, globalization is not good for everyone!

About the Author

Rami Assoum has been working in the field of mobile telecom for 20 years. He worked on different parts of the telecom value chain including: core networks, intelligent networks, Value added services and BSS (Business support systems). His experience covers the different aspects in providing the final product to the end-users. Assoum is a renowned speaker on his vision and philosophy in the BSS domain in many conferences around the world (New York, Dubai, London, and other summits).




 
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