Telcos should specialize IoT offerings for customer segment to succeed

With the advent of the Internet of Things (IoT), billions of consumer and industrial devices are connected around the globe. Because connectivity is a critical factor to manage all these devices, telecom operators (telcos) have a bigger role to play in IoT. The global telecommunications sector is facing a financial crunch due to huge upfront investments for next-generation infrastructure and declining revenue streams. Telcos are struggling to cope with defining their next chapter and new revenue sources to replace declining core communications revenues.

IoT provides an excellent opportunity for telcos to increase both their top and bottom lines. Opportunities such as becoming integrators of connected devices and applications, offering payments, and other IoT capabilities can help them reimagine their businesses. In this PoV, we discuss the emerging IoT use cases that telcos can use as key growth levers.

Telecom is the third-largest vertical for IoT engagements

In 2018, HFS published the HFS IoT Services report in which we analyzed approximately 10,000 IoT engagements across different industries, as described in Exhibit 1. Based on our analysis, we found that the telecom sector accounts for around 10% of total IoT engagements, making it the third-largest sector for IoT engagements.

Exhibit 1: Percentage distribution of IoT engagements across industries

_{Source: HFS Research 2018}

Infrastructure, connectivity, and point solutions are the three primary IoT use cases for telecom operators

We observed three types of client engagements:

Specialized connectivity services: Telcos primarily provide connectivity services for data and voice, but now they need to upgrade networks to provide machine to machine (M2M) services for a large volume of data and remote connections. The connectivity should be suitable for both wide area and local networks having compatibility across different network protocols. In IoT, low power connectivity (e.g., LPWAN, NB-IoT) is going to be a hot trend for telcos.

Infrastructure and platform-as-a-service models: With the advent of 5G, telcos can opt for a more flexible functional split of networks, such as differentiated services based on data volume, latency, or the criticality of applications. Telcos will be responsible for managing the connectivity infrastructure and network uptime of operational management platforms such as those for asset monitoring and supply chain track-and-trace.

End-to-end and value-added services: Telcos are in a sweet spot to provide data analytics services to third parties for customer segmentation (e.g., target audience and personalized offerings), predictive modeling (e.g., asset monitoring and maintenance reporting), and other purposes. Also, telcos have begun to provide end-to-end IoT solutions such as smart home functions (e.g., remotely controlling the electronic and electrical compliances), connected cars, and infotainment solutions.

Telcos are investing in IoT to cash in on the opportunities

We have observed several initiatives, acquisitions, and partnership announcements in the IoT space among the global telcos since 2018; here are some notable events:

• Deutsche Telekom and SAP have expanded their partnership to include the IoT solutions for real-time logistics. (Link)

• Vodafone Romania acquired Romanian IoT company Evotracking, which specializes in advanced telematics solutions in the local fleet management services market. (Link)

• Sprint launched its Curiosity IoT platform with two major components: Core (IoT network) and OS (operating system). (Link)

• Reliance Industries acquired Radisys, the US-based open telecom solutions provider, to enable Reliance Jio’s position in 5G and IoT. (Link)

Three ways telcos can leverage IoT for their business growth

• Be clear about your IoT strategy: IoT use cases offer different sets of capabilities and revenue opportunities for B2C and B2B offerings. Within the B2B segment, telcos need to identify their target segments to support industry-specific offerings. Overall, telcos should discard old-school thinking about connectivity and networking and devise strategies for future go-to-market approaches and investments.
• Create distinct connected device offerings that offer value-added services beyond connectivity: In the B2C segment, telcos are focusing on connected device offerings as a part of consumer mobility offerings in which devices are connected as a part of data services. Consumers generally don’t want to pay more for what they perceive as already being covered by an existing plan. However, customers would be willing to pay more for additional value-added such as connected car functionality and smart home monitoring.
• Offer industry-specific B2B IoT services: Telcos need to go deep on their go-to-market for IoT offerings in the B2B segment. Telcos need deep industry domain expertise and a strong partner ecosystem to cater to promising opportunities such as connected factories, connected healthcare, and smart retail. Services offerings in IoT also need specific capabilities in the areas of platform management, software control, and device management besides traditional network connectivity services.
• Spotlight your investments for IoT offerings: Telcos need to prioritize their investments to bolster their IoT services. Focused investment on some of the critical areas can be beneficial for the telcos’ clients. Asking the following questions can help the telcos to move in the right direction. Have you invested in low-power wide-area networks, telemetry, or machine-to-machine communication? What is your capability in device management platforms and the capability to integrate with networks having different operability standards?
• Build IoT enabled analytics capabilities: Data integration and data insights are the two key areas for the telcos’ IoT service offerings. Beyond offering device connectivity and related implementation and management services, telcos’ ability to provide data analytics services (e.g., customer insights or trend prediction) can be defining factors in providing tailored data services to drive the growth and revenue forward.

The Bottom Line: IoT holds new revenue opportunities for telecom operators if they build specific solutions for target customer segments

Telcos need to integrate several technologies (e.g., SDN, NFV, AI) and industry depth to offer use-case-specific or industry-specific IoT solutions. Integrating newer technologies with IoT can help telcos create new opportunities that enable new revenue streams and improve bottom lines through network optimization. Some large operators such as Orange, AT&T, and Telefónica have adopted a model in which they charge a fee to both providers and consumers to manage and maintain connected services. Telcos need to maintain a strong focus on their target segments and need to develop a long-term strategy to build capabilities and client success stories.