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Connecting a world of things

Aug 08, 2017 By Li Changwei, Wu Ling

Connectivity sits at the heart of interaction, innovation, value, and experience, with more connections coalescing into a sustainable ecosystem. With IoT gathering momentum, telcos need to target their strengths, business models, and strategies towards forming an ecosystem that benefits the whole industry.

From voice to data to IoT

With the inception of 3G in 2000 and then 4G a decade later, communication has shifted from voice-dominant to data-dominant, with traffic generated by IP applications and Internetized OTT services.

In 2017, machine-to-machine (M2M) connections will exceed the number of human connections, which will reshape communication networks, operations, and services. At MWC 2017, SoftBank CEO Masayoshi Son predicted that the number of connected things will exceed 50 billion in the next five years and 100 billion in the next 10 years. According to Son, IoT will generate untold opportunities for terminals in the area of data generation, the cloud in terms of data analysis, and artificial intelligence across the board.

2017 will be a breakthrough year for IoT following the official global launch of NB-IoT standards in June 2016 and the availability of US$1 dollar IoT chips in the US. 4G LTE networks are becoming widespread, with penetration exceeding 20 percent. We’re reaching a point where the conditions are right for wide-scale hyper-connectivity and an explosion in apps. 

Horizontal + vertical

The diversity of IoT application scenarios in different industries (horizontal) and specialized requirements (vertical) are reshaping services, networks, operations, and business models. Because IoT service scenarios are flexible, change in real-time, and offer infinite expandability, networks and platforms need to support breadth, depth, speed, low latency, cost efficiency, and security.

Resulting trends include 5G, which is necessary for driverless vehicles to avoid collisions due to millisecond latency and 10-Gbps transmission speeds. SDN and NFV will enable prioritized on-demand services. And the top-down construction of content delivery networks will transform cloud computing architecture into fog computing, integrating pipes and clouds to guarantee transmission and latency requirements when capacity continually expands.

The diversity of access terminals and near-field access technologies are creating new challenges for network uniformity and smart services. New types of converged gateways integrate various access technologies and terminals, and are now driving edge reconfiguration. 

New business, new operations

IoT networks and service complexity are skyrocketing, requiring new types of operating platforms and models driven by intelligent algorithms that yield data insights. In business terms, IoT is a new value creator based on innovative applications. As telcos have connectivity advantages, they can initially bundle connections and data with applications to monetize connections and data platforms. Over the long term, platforms will control user flow and data flow, while data platforms and converged ecosystems hosting applications will create cash flow. 

Services, enablement, connectivity

The development of IoT focuses on three sectors: vertical industries (led by GE, BMW, and Haier); Internet OTT services (led by Google, Amazon, and Alibaba); and telecoms (led by AT&T, China Mobile, and Vodafone). Strategic positioning for companies in these different domains varies; however, all follow the same principle: reinforcing strengths, forming cross-sector alliances, and challenging competitors.

Verticals: Leaders in specialized services

To automate smart connections, services, and operations, leaders in verticals have pioneered a deep, modular approach to IoT, cloud, big data, and Internet tech. For example, BMW and Bosch have set up Industry 4.0 standards in Europe, while GE has created new IoT applications by using its Predix platform to monitor and analyze 5 million points of data from 10 million sensors in hundreds of millions of devices. Thus, specialized services are emerging as a core competence of IoT.

Internet OTTs: Leaders of smart

The leadership, capabilities, and experience of Internet companies in big data, cloud, and Internet-enabling technologies lets them disrupt and supplant companies in other industries. Examples include IoT service innovations in logistics and retail. Google, Amazon, and Alibaba are morphing from providing data analysis functionality to specialized intelligence and smart applications that can transform traditional industries. 

Telcos: Leaders in connectivity

Telcos’ IoT strengths lie in network connections; for example, NB-IoT and 5G sit at the core of China Mobile, AT&T, and Verizon’s big connectivity strategies. In 2013, AT&T released its security-focused Digital Life smart home service, before moving to IoV and the M2X capability-opening platform on which it aims to operate one-third of its Internet of Vehicles (IoV) in the US. In its 2020 strategy, China Mobile focuses on big connectivity, aiming to deploy an IoT ecosystem using its vast superiority in connectivity and its OneNet IoT platform, which currently hosts 5.6 million devices, 27,000 developers, and 10,000 applications. Vodafone has transformed from selling SIM cards to selling services, expanding its geographical coverage and value along the way.

It’s difficult for telcos to form a profit model from connectivity alone. Constructing a data platform based on connections can accelerate innovation. But, to create successful business models for IoT, telcos must monetize platforms and applications.

From connections to data and apps

IoT is an extremely complex ecosystem. Horizontally, it covers all industry sectors and vertically it includes all links, that is, terminals, pipes, data, and cloud applications. The first step of an IoT strategy is to select the industry sector and focus, and then define the vertical depth of capabilities, competence, market structure, and business models. 

Thanks to strengths in connectivity and carrier-grade security, reliability, localization, and E2E services, the horizontal industries in which telcos shine are smart homes, security in smart cities, and IoV. Vertically, they need first to focus on network construction and find areas where they excel, so they can gradually build data capabilities and develop application platforms.

Telcos’ IoT strategy can be divided into three stages:

Stage one: Connection

Build a robust NB-IoT full-coverage network that expands from LTE to IoT connections and tests 5G; test near-field IoT network integration with technologies such as Bluetooth, Wi-Fi, and ZigBee; collaborate with leading service providers on IoT applications; and open up network capabilities using APIs to support innovations for quick breakthroughs and a leading network position.

Stage two: Data 

Innovate to overcome bottlenecks due to the complexity and diversity of IoT services, and exploit opportunities in precision innovation, smart operations, and lean management; build networks that integrate pipes and cloud based on a central platform that makes the dumb pipe smart; and construct a smart data platform to support service innovation and precise customer services.

Stage three: Applications

Build converged application platforms based on the power and scalability of data platforms that run like Internet app stores to spark service innovation in IoT stores; position ecosystem innovation as a strategic control point; and shift positioning to monetize network connections.

Now is the time

2017 is a turning point. Telcos must capitalize on their strengths and strategies to build new ecosystems, transform towards IoT, and embrace the arrival of a new wave of blue ocean opportunities in the nascent home Internet and industrial Internet domains.

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