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IoT

Have CSPs got what it takes to succeed?

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VanillaPlus Insight Q1 I January/February/March 2017

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INTERVIEW Nigel Chadwick, the chief executive of Stream Technologies, tells Jim Morrish, the chief research officer at Machina Research, how he sees the IoT market developing and how the world look very different in 2020

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IoT ANALYST REPORT Our specially-commissioned analyst report, authored by Matt Hatton, the founder and chief executive of Machina Research

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IoT OPPORTUNITIES Jonny Evans explains why IoT is a big challenge and a big opportunity for CSPs

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EXPERT OPINION Service assurance and analytics is essential to support narrowband IoT, writes Inna Ott

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EXPERT OPINION Richard Stevenson explores the challenges CSPs face in supplying the capacity and coverage IoT demands

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O/BSS FOR IoT Nick Booth finds that CSPs’ O/BSS could be an ideal platform for launch into the IoT market

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INTERVIEW John English and Mike Serrano discuss how CSPs are adapting to assure mission critical services for IoT devices

INTERVIEW

Nigel Chadwick

47 IoT OPPORTUNITIES

52 EXPERT OPINION

54 O/BSS FOR IoT

VANILLAPLUS MAGAZINE Q1 I JANUARY / FEBRUARY / MARCH 2017

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ANALYST REPORT

The author, Matt Hatton, is founder and chief executive of Machina Research

Introduction In 1956, Swiss journalist Peter Schmid published a book called ‘Beggars on Golden Stools’, referencing the economic condition prevalent in Latin America at the time. He was of the view that countries in the region had all manner of assets necessary to drive substantial economic growth but had never managed to harness them. While many might disagree with the naïve economics, the concept that organisations have fantastically valuable assets that are not necessarily exploited to their fullest extent is one that resonates well with the current state of the Internet of Things (IoT), and particularly the role of communications service providers (CSPs) within it

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What is the role of the CSP in IoT? Machina Research’s analysts have been deeply involved with guiding and advising CSPs around the world on shaping their IoT strategies for many years. In September we published our annual IoT Communications Service Provider Benchmarking Report, profiling the IoT activities of 17 of the world’s biggest CSPs. We are uniquely placed to offer views on where CSPs can hope to realise the opportunity presented by the rapid growth of IoT. In late 2015 we developed a loose framework for understanding the relative positioning and evolution path for CSPs in IoT. The framework identified four groupings of CSPs: learners, builders, players and next-generation. Learners are yet to truly embark on the IoT journey. Responsibility typically sits within the wholesale or enterprise business and

or the last five years CSPs have been wrestling with what their role should be in IoT. All the major global CSPs have identified IoT as a potential growth opportunity to counter-balance stagnating revenue in their traditional lines of business. However, there is little consensus on the appropriate approach to take; inevitable given CSPs’ diverse capabilities. The challenge for CSPs today is two-fold: how to take advantage of the assets that they currently have, and where they should additionally invest to take advantage of the anticipated growth in IoT. In the first section of this VanillaPlus IoT Insight, we examine the possible roles that CSPs might play in IoT. In the second section, this being VanillaPlus, we delve in to the billing and OSS requirements, including examining how CSPs are well placed to address the complex charging requirements for IoT.

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Next-Gen Professional services Network flexibilty LPWA Players

Data analytics

Scale

Scale

Strong vertical offering

Strong vertical offering

Builders

App Enablement Platform

App Enablement Platform

Partnership

Partnership

Partnership

SP Alliances

SP Alliances

SP Alliances

Dedicated BU

Dedicated BU

Dedicated BU

Learners

Connectivity Platform

Connectivity Platform

Connectivity Platform

Wholesale

Wholesale

Wholesale

Wholesale

Figure 1: Evolution to next-generation IoT service providers for CSPs [Source: Machina Research, 2016]

they still need to resolve how they address the IoT opportunity. Builders tend to be more recent entrants into IoT. While most of them will have dedicated IoT teams, operations are still relatively small and likely to be more localised or at best regional. They are either actively developing their IoT strategy or are in the midst of executing it. They have started to collaborate with partners along the value chain as well as other CSPs as part of alliances, and they have typically implemented some form of connectivity management platform, such as those from Ericsson or Jasper/Cisco. IoT Players include the likes of AT&T and Vodafone and represent the global leaders in IoT today. They have invested significant effort in all of the above initiatives, as well as typically pursuing vertical offerings more aggressively, for instance in the case of Verizon’s aggressive acquisition of fleet management companies to directly support that application. Over the next few years we also expect CSPs to pursue a further set of capabilities most notably in data analytics, professional services and the greater use of diverse network capabilities to support IoT, for instance using network functions virtualisation (NFV) and the emerging Low Power Wide Area (LPWA) technologies to position themselves for addressing all of the opportunities presented by IoT.

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While approaches to network deployments may vary, there is consensus amongst CSPs that the network is a key constituent element in IoT, necessarily involving the CSP in a large proportion of IoT implementations. The CSP’s ambitions in IoT should certainly not be limited to the network. The golden stool that was referred to earlier is more than this. CSPs tend to have a wider range of assets that they can bring to bear on IoT. The first relates to the network itself. CSPs are custodians of vast amounts of incredibly valuable data that can be harnessed for supporting IoT. Telefónica, for instance, is looking very closely at the opportunities created by the unique access that it has to network information and anonymised demographic information. In October 2016 it launched LUCA, its new business unit focused on big data, pulling together some diverse assets that it has in the field. Telefónica’s approach is to maximise the ways in which network-related data can be used for diverse applications. Examples include providing anonymised demographic information on commuters to display advertising companies, or using network information to refine threat algorithms for credit card fraud testing.

The starting point for CSPs when thinking about IoT is inevitably the network. Historically we tended to think of the CSP opportunity in IoT as being intrinsically linked to cellular networks, but the portfolio is much more diverse. Any CSP should also be considering: satellite – for instance as part of a dual-mode cellular/satellite asset tracking solution; short-range for connected home, for example; and low power wide area

(LPWA) connectivity at least. LPWA is perhaps the most exciting development in IoT access technology. With the recent 3GPP unveiling of LTE-NB1 – also known as NB-IoT – and LTE-M1 as part of 3GPP Release 13, CSPs have a great tool for addressing an additional range of IoT applications, specifically those that require lower cost, have no access to power and will be in the field for five to 10 years; deployments that might not be appropriately supported through traditional cellular networks.

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ANALYST REPORT

If the Internet of Things is about anything, it’s about data. Telefónica’s approach demonstrates how a CSP can harness its own data to support IoT. But it doesn’t need to stop there. A number of CSPs around the world are establishing themselves as focal points for the exchange of data which is the inevitable consequence of the emergence of the IoT. To break out of the application siloes implicit in last generation M2M services, IoT requires the interchange of data from remote devices with diverse other data sources, all made available to multiple stakeholders. Take the smart cities sector as an example: being able to remotely monitor and control streetlights is valuable, but being able to combine that with weather information, demographics, traffic information – to be used to adjust lighting levels depending in the amount of traffic, or even emergency services – for applications to provide increased lighting at the location of an accident, is more valuable still. Across IoT it is well understood that IoT data is most valuable when combined with other sources. This necessitates a central intermediary to act as a hub. The CSP has a strong case to claim that role. BT in the UK has been involved in such an initiative as part of the MK:Smart activities. Telia has also been active in the space, specifically in the automotive sector as part of its TeliaSense offering. Ultimately this role as data aggregator gives way to that of data bourse, that is: managing the trading of data between various participants. CSPs are well placed to play these critical data-centric roles in IoT. Another under-realised resource for CSPs in IoT is the customer base. CSPs touch almost every enterprise on the planet, and there are many enterprises that need their hands holding as they navigate IoT, and CSPs can be at the front of the queue. In some cases, CSPs already have established systems integration (SI) and professional services arms. This is a perfect conduit for turning enterprise customers in enterprise IoT customers, a fact realised by, for instance, Deutsche Telekom, which is increasingly using its T-Systems SI unit as the lead element of its IoT strategy.

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A further asset that a CSP should seek to exploit is its monetisation capability. This is explored further later in this report. Of course, CSPs are not just passive creatures, happy to simply use the existing assets. They are also investing significantly in IoT-related capabilities, in particular in developing vertical expertise. One of the factors that define CSP approaches to IoT is the extent to which they are focusing on developing and deploying applications for vertical sectors, or pursuing instead just horizontal capabilities, such as the provision of connectivity. The standard-bearer for the vertical approach is Verizon, which has placed a multi-billion dollar bet on the fleet management space, acquiring first Hughes Telematics for US$612 million in 2013, and Fleetmatics for US$2.4 billion in August 2016. The reasoning is clear: the lion’s share of the value in IoT is in the provision of the end application, so Verizon is aiming to be the provider of end services in that specific sector. Other CSPs have pursued similar approaches, for instance Vodafone with its Cobra Automotive acquisition, and the likes of Orange in healthcare, Telefónica in smart cities and retail, and numerous others. Historically the evolution of CSP approaches to IoT was quite linear, it moved from a wholesale approach based on selling SIMs, through to setting up dedicated units, implementing IoT management platforms and then delving deeper into verticals to realise more of the value in IoT. However in the last 12 months we have seen some variation from that. Firstly we have seen some CSPs taking a more horizontal approach to the market. This is not necessarily a less sophisticated offering, more a case of focusing on offering enhanced horizontal capabilities such as those around supporting multiple access technologies or security. Tele2 is probably the best example of this type of CSP. Secondly there is also an emerging trend of smaller CSPs, mostly operating in a single country, accepting a secondary position in the support of IoT. Part of the stimulus for this change of attitude comes from the bigger CSPs and from value added resellers (VARs) who are offering to effectively provide an outsourcing partner for those smaller CSPs’ IoT offerings. One example of this kind of activity is Vodafone’s licensing of its global data services platform (GDSP) platform to other CSPs, and its support for partner market operators. Another is the

The benefit of a large customer base is not limited to just enterprises. CSPs with fixed-line assets are probably the dominant providers of customer premises equipment (CPE) that could be used for supporting the connected home. The biggest challenges with smart homes today are fragmentation and cost. Incumbent fixed-line providers can provide a consistent environment, albeit national, for vendors to develop devices and applications. Furthermore they can take the view that adding a portfolio of additional services creates stickiness for the core proposition, so can be priced aggressively. Just

don’t expect miracles overnight: smart home is likely to be a slow-burn.

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example of Wind Hellas in Greece which recently struck and agreement with Telefónica for the latter to support Wind on deploying IoT solutions. Even value-added resellers are getting in on the act. The best example is Aeris Communications which has become increasingly focused on its line of business associated with supporting CSPs which may not themselves have the IoT-related expertise necessary to support the market opportunity. The CSP has a critical role to play in IoT even if it is only in the provision of connectivity; and this is even more true with the deployment of extensive new IoT-friendly networks in the form of Low Power Wide Area (LPWA) networks. However, there are many additional potential roles that CSPs can play. These range from those that will basically outsource all elements of IoT bar the connectivity, all the way through to those that embrace the substantial opportunity associated with monetising the data generated by IoT, a topic which we have not even touched on here. The key recommendation that Machina Research always makes is ‘use what you have’, there is no single correct strategy for every CSP. Each starts from a different position based on network assets, historical anomalies – such as previous experience with healthcare related issues, geographical coverage, business structure – such as whether they have an IT services arm, sensitivity to risk, and numerous other factors. Each must shape its strategy according to those characteristics, or, to put it another way, the number of carats in its golden stool.

What are the billing and OSS implications of IoT? The Internet of Things cannot be supported in the same way as traditional handset and mobile broadband services. It has many peculiarities that require a different approach from CSP operations. The first thing to note is that IoT is predominantly low average revenue per user (ARPU). Because of that, CSPs have needed to find cheaper and more efficient routes for onboarding and managing connections. Furthermore, once deployed IoT devices have an inherent requirement for remote management. This has led to the rise of specialist connectivity management platforms such as the Control Centre from Jasper/Cisco and Ericsson’s Device Control Platform (DCP). It also accounts for part of the continuing success of valueadded resellers in IoT which have been very good at efficiently onboarding and managing subscribers.

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Customer care also changes dramatically for IoT. Once you remove the end user from the equation, as is usually the case with IoT, CSPs need to be much more proactive in their approach to customer care. Furthermore the skills required for managing IoT client requirements, not least because they will often involve large volumes of devices with usual requirements, will be very different from those required in customer care in more traditional lines of business. Many CSPs are significantly ramping up their IoT-specific customer care capabilities. While the above issues are doubtless important, billing trumps them all. In a White Paper published in conjunction with Redknee last year, Machina Research identified a potential revenue opportunity of US$1.3 trillion in the IoT over the next ten years associated with the use of innovative monetisation models. CSPs, with their relatively sophisticated billing capabilities are in a better position to support that than most. One of the defining characteristics of the Internet of Things is its diversity, incorporating industrial, connected home, public transport, retail, supply chain, smart metering, agriculture, smart cities, connected car and numerous others. The monetisation methods used in IoT are also diverse, ranging from simple monthly charging for remote monitoring solutions through to supporting the increasingly sophisticated, business models which are emerging which necessitate more complex approaches to monetisation. Take a vending machine, for instance. Initially the connected service may simply need a monthly fee or traffic-based pricing. But the benefit of having the vending machine connected allows for more sophisticated charging, for instance time-of-day or day-of-week pricing, or variegated pricing depending on what items it has remaining in stock. Or it may need to support response advertising, coupons and various types of payments. Another example is the smart meter which, rather than simply reporting automated meter readings will become part of a distributed electricity generation and consumption ecosystem which involves settlement between home users/producers and electricity distributors as part of the management of load balancing across the network. Any application that touches the consumer must also allow for evolving payment patterns. For instance, in

The concept of service assurance also becomes all the more important given the absolute criticality of many IoT applications.

Service level agreements (SLAs) are much more prevalent in IoT than in the best-effort world of traditional telecoms services. There is also a further extension to this role which might see the CSP, acting as a one-stop-shop for IoT, needing to monitor SLAs on behalf of its customer. This adds another dimension to service assurance.

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ANALYST REPORT Information sources

Type of insurance

Payment

Charging basis

Unconnected

Traditional car insurance

Annual fee

Aggregated demographic data, so highly inaccurate.

Limited driving behaviour information (such as time of day)

Pay-as –you drive

Payment per kilometre

Combination of demographic data combined with km driven, and perhaps factors such as time-of-day. May be connected, or may be a datalogger.

Detailed driving behaviour information

Pay-how-you-drive

Payment based on risk

Credit is reduced at variable rate depending on driver performance (for example, harsh braking, speeding).

Real-time two-way

Pay-how-you-drive with real-time feedback

Payment (real-time) based on risk

As above, but driver is informed in realtime of how driving behaviour is affecting premium.

Scale of sophistication for usage-based insurance

connected car the monthly fee model is likely to dominate. However, there are other monetisation methods including appstore type models, and multi-sided business models involving, for instance, the trading of data about the vehicle performance, or sponsored ad placement in navigation applications, or contingency-based models, for example only paying for stolen vehicle recovery in the event that the car is actually stolen. The addition of data analytics, and the monetisation of that, adds a further degree of complexity. The most prominent IoT application where data analytics is applied today is usagebased car insurance (UBI). For these policies, the amount that users are charged for insurance policies is based on a wide variety of parameters, including time of day, distance travelled, speed, harsh braking and many more. There is a direct link between the amount of data coming from a device and the options and complexity of charging, as illustrated in the figure, below. One of the most disruptive business models in IoT is servitisation – organisations using the connectivity to remote assets to switch from selling products as a piece of hardware, to selling it as a service. This is a reasonably well-established practice for some specific sectors, in particular associated with high value items; aeroplane manufacturers have bought engines on a pay-per-use basis for many years. With the advent of cheaper and more easily deployed IoT we have seen a rapid expansion in this x-as-a-service approach, across both industrial equipment and consumer applications such as caras-a-service models like Zipcar, Mobility or DriveNow. Pay-peruse or even shared success business models, such as where the provider of the service is paid based on the impact of the service, will become increasingly popular.

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prospect of much more complex monetisation models. To give an example, a connected car manufacturer, or other third party providing some associated service, would be aware of when a particular vehicle needs to refill, or has been driving for three hours so the driver might be tired or hungry, or the car needs to be repaired. These are valuable pieces of information to a gas station owner, restaurant owners and car repair companies. The revenue flows in these multi-sided business models are quite complex. The monetisation opportunity here would involve payments between various different parties in several different ways. This data marketplace role also involves dealing with policy management to define who can access data and how, combined with potentially highly granular monetisation methods which might be – amongst other things – timesensitive, customer-specific and based on multi-lateral trading of data. This coming real-time, multi-party data trading environment involves a further evolution of monetisation models. The aforementioned White Paper prepared by Machina Research for Redknee also identified the seven key characteristics required of a monetisation engine required to embrace the IoT opportunity: • Scalable – IoT will be enormous, with billions of devices performing trillions of actions. Therefore, scalability is critical. A monetisation system for IoT must be proven as highly scalable. This almost inevitably means using a cloud-based software-as-a-service (SaaS) model. Using SaaS-based platforms is increasingly the default for IoT application development and associated functions, simply due to the speed of development and ease of deployment enabled by using these building blocks. • Open – It is not possible for a single company to deliver all of the elements of IoT. Therefore, cooperation is essential. We will see multi-tenanted platforms, multi-sided business models, and data sharing between multiple parties. Openness, interoperability and standards will be the watchwords in the IoT.

In the first section we explored the opportunities that CSPs might have in acting as a data aggregator. Clearly this role of data federation, aggregation and distribution, with the associated multi-sided business models, also raises the

[Source: Machina Research]

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• Real-time – One of the key characteristics of the IoT and the opportunities that it brings is to react to events in realtime, such as adjusting traffic lights to reflect changing road traffic patterns, to think of a relatively unsophisticated example. Part of the point of connecting IoT devices is to allow for real time rating and billing. As data management and analytics becomes more sophisticated, it will increasingly need to be acted upon in real time. This will have implications for monetisation. For instance, retail signage will need to change in real-time, or industrial equipment leasers may want to change according to time of day, just as a couple of examples. As IoT solutions become more sophisticated, the real-time requirements become even more pronounced. For instance, application providers may want to charge for data based on timeliness. • Flexible – IoT monetisation platforms must deal with diverse models as outlined above, as well as highly variable demands from different verticals. Billing capabilities must be able to cope with diverse and constantly evolving business models which might include any conceivable – and many not-yet-conceivable – subscription, usage-based, behaviourbased, ad-funded models. IoT opens up endless possibilities, many of which are unpredictable today, so the platform needs to be able to cope with all these. • Transparent and secure – As explored elsewhere, IoT is a multi-tenant system with a complex partner ecosystem. The interdependency between vendors and multi-sided business models necessitates a monetisation model that allows for total partner transparency as well as needing to ensure security. • Agile – The motivation for deploying IoT is usually to be able to stitch data from distributed assets into a wider business process. Therefore, any monetisation platform must be able to cope with that integration. Servitisation models involve IoT permeating the whole of the business process. The way in

which monetisation occurs is likely therefore to change. For instance, there could be much more substantial integration of settlement occurring during any business process, rather than having a single transaction at the point of completion. Retailers may bid in real-time for manufacturing capacity to be allocated to them for their product line rather than simply waiting for the box to emerge from the factory gate. These types of models make for a much more complex challenge. • Vertical understanding – IoT incorporates a very diverse set of applications. As a result, there is no generic one-sizefits-all answer to monetisation. Therefore it is critical to have a good understanding of the specifics of the verticals, to ensure the monetisation tools are appropriate. While the system should be service agnostic, it’s still valuable to understand the requirements of the verticals to be sure of meeting them most effectively. And it’s not just about understanding, it’s also about being able to plug into verticalspecific back office systems, such an enterprise research planning (ERP). CSPs have correctly identified that IoT represents a significant growth opportunity. To date the focus has largely been on connectivity, albeit with some rapid deployment of horizontal capabilities to support IoT, for instance rolling out connectivity management platforms, and the establishment of dedicated IoT teams. In just five years the biggest CSPs have built a good degree of capability in IoT. Many are now turning their attention to building either further horizontal capabilities, for instance in data management or professional services, while others are pursuing the full vertical solution, often through acquisitions. The truth is that CSPs still have some way to go to take advantage of many of the assets that they have simply by virtue of being CSPs. These include their large customer base and channels to market, vast amounts of network usage data, and relatively sophisticated billing systems, to name a few.

About Machina Research Machina Research provides market intelligence and strategic insight on the newly emerging Internet of Things (IoT), Machine-toMachine (M2M) and big data opportunities. The Internet of Things is the single most important technology trend today. IoT technologies are already enabling new and innovative business opportunities, proving a significant disruptor of traditional business models and processes. It is front-of-mind for many corporate management teams as well as the myriad of technology vendors that support and supply them. Staffed by industry veterans, we provide market intelligence and strategic insight to help our clients maximise opportunities from these rapidly emerging markets. If your company is a mobile network operator, device vendor, infrastructure vendor, service provider or potential end user in the IoT, M2M, or big data space, we can help. www.machinaresearch.com

VANILLAPLUS MAGAZINE Q1 I JANUARY / FEBRUARY / MARCH 2017

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COMPANY PROFILE

Profile by VanillaPlus

Company summary Founded

1983

HQ

Stockholm, Sweden

Employees

170+

Customers

More than 110 CSP customers in more than 50 countries utilising analytics, CEM, managed services, network monitoring, and service assurance. Customers include Telia Company, Telenor, Tele2, T-Mobile, Singtel, Telefonica, Belgacom, Bell Canada, Three and others.

Partnerships

Polystar has an active and broad set of both OEM and channel partners.

Financial Status

Privately held

IoT enabling solutions and products Polystar offers world-class end-to-end IoT Monitoring Solutions for CSPs that give the insights needed to deliver IoT services at the right quality, consistently and cost effectively. Polystar’s solutions capture all IoT traffic and provide clear, visual, customisable reporting through graphs and reports that give an instant picture of IoT service usage and quality performance for each customer. These can be adapted by users, allowing them to keep pace with changes in the rapidly evolving IoT market.

Network Performance Insights Solution

• Solutions under Network Performance Insights include network, device, roaming and interconnect analytics as well as network monitoring. Together they derive actionable intelligence and create a visual understanding of network and service performance across domains and technologies.

Business Insights Solution

• Solutions under Business Insights include subscriber, marketing and corporate/VIP analytics. These solutions help CSPs understand what services customers use, how much they use them and whether they experience problems using them.

Executive Insights Solution

• Solutions for c-level management help companies’ executives get an overview of the usage, service level and performance of their networks and services from the business perspective.

KALIX

• Helps CSPs become more customer-centric and optimise network efficiency. It enables real-time visualisation that identifies how users are affected by network and service issues. Using a common data source, users can define which metrics are important to creating their particular view of the customer.

OSIX

• The OSIX network monitoring probe extracts information from the control and users planes, then processes, consolidates and stores the information for both real-time and historic analysis and visualisation. The system maps the end-to-end view of service performance to each subscriber.

Key differentiation and competitive pressures The flexibility and usability enabled by the exposure of dedicated Insight portals that offer rich insights from real-time network data, optimised to the needs of different user groups within CSP’s organisations, sets Polystar’s solutions apart. Combined with Polystar’s support for all network technologies in a single platform, from 2G to 4G, VoLTE and beyond, it creates a uniquely differentiated offer. This is backed by an industry recognition and a strong roadmap that supports network transformation and the IoT revolution.

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IoT - Have CSPs got what it takes to succeed?