Stuart Cochran joined Evolving Systems in 2004 when the company acquired Tertio Telecoms Ltd. From 2005 he was VP, Activation & Mediation Market Unit, before being promoted in 2007 to become Chief Technology Officer. In M2M Now’s first Talking Heads interview, he tells the Editor, Jeremy Cowan how communications network operators must re-invent themselves if they are to take advantage of the opportunities presented by connected devices.
M2M Now: There have been forecasts recently of enormous growth in the use of connected devices. Which forecasts do you work with and what are the implications for network operators?
Stuart Cochran: Yes, there’ve been forecasts of billions and even trillions of connected devices. Some data is looking at the machine-to-machine (M2M) base and blurring the definition. If you look at the industrial M2M market like telematics and telemetry, automotive applications and smart metering, there are two forecasts we’ve been using.
Berg Insight are looking at about 190 million end-toend connections by 2014. The other forecast comes from ABI Research, saying about 225 million connections by 2014. Let’s say it’s 200 million connections in three to four years time. The large forecast of 50 billion connected devices they also came out with was by 2020. I think the connected devices market is much broader than how people look at M2M today, and it’s a great opportunity for operators.
M2M Now: What is your definition of M2M then?
Cochran: We look at not just the industrial machine-to-machine market, but also at the market for connected consumer electronics devices. But, in terms of how our solution helps operators and MVNOs, then the challenge we see is that the M2M market (and even the connected device market) is very fragmented. We don’t think our solution will work in every single market, although it works in many and provides real value.
The big issue is that the operators have to find a way to reinvent themselves, and a way to provide connectivity services to other providers and their customers, to deal with this fragmented, diverse market opportunity. It’s quite different from what they’ve been doing for the last 10 or 15 years which is retailing handsets from their own stores.
M2M Now: Clearly, it isn’t just the volume of devices that’s the issue, it’s the nature of their communications. Can you give some idea of the scale and range of communications types you’re talking about?
Cochran: When we think about the impact of machine-to-machine on the operator it impacts in four areas – the commercial model and pricing approach that they take for these new customers; whether they’re enterprises, consumer electronics manufacturers, they’re smart metering companies, or whatever.
The second area is production and testing; say an operator wanted a cellular module to put into a connected photo frame. They may only be manufactured and tested in China, they may then be shipped and stay in warehousing for a long time before they’re distributed to retail, and then they’re sold in the high street store.
The third area is distribution and provisioning; how do you provide service to these devices?
And the fourth area is connectivity, support and diagnostics. Our solutions really focus on the last two, provisioning and distribution, and connectivity. You’re right, the connectivity model of a mobile phone or other communication device which I turn on in the morning, leave on and use throughout the day to send texts, browse the internet, and make calls, is obviously very different from many applications
Take smart metering; we’ve been talking to a company that’s looking at an application for gas line monitoring, putting a regulator module onto pipelines for storage tanks, and they record the storage levels once a week. Or you may have some devices that only report on an exception basis, they don’t have a regular schedule of reporting, they only report if a sensor is tripped.
The idea that these devices which work on wireless networks are permanently switched on, permanently connected, moving around and mobile is not true for many M2M applications. You may have devices that are only transmitting information occasionally, they call them intermittent transmitters. They send small amounts of data, a little data packet containing a meter reading.
That’s one of the key areas that industry needs to deal with; how do they cost-effectively support these devices that don’t need to be permanently connected to the network? It’s wasteful, inefficient, expensive and causes all sorts of problems to the downstream value chain, too.
M2M Now: That’s the challenge that service providers need to be aware of, but are they?
Cochran: They are becoming aware. There are two obstacles at the moment; the market is still quite small, it’s obviously of great interest but even 200 million connections in three or four years’ time is still a tiny drop compared to the billions of connections for traditional wireless voice and data services. Some of these issues can be ignored for a time because the volumes aren’t quite large enough, though that’s starting to end.
The second reason is that the operator understands the market is diverse, fragmented. There are these intermittent transmitters, but other applications that are machine-to-machine need to have permanent, full streaming, two-way connection every hour of the day.
There are lots of different approaches that operators have to support. But what they’re not saying is ‘In order to support this new market opportunity we’ve got to reinvent ourselves, we’ve got to rethink what we’re doing’. They’re trying to make do with the way the network has worked up to now, the way services have been provisioned until now. They’re not saying this can be done in a more cost-effective way.
M2M Now: Which companies have already demonstrated strong performance in this area?
Cochran: Operators have been creating dedicated machine-to-machine business units. Vodafone have done that, and Orange has done the same. Verizon have a joint venture with Qualcomm called nPhase, and in the US AT&T have created a machine-tomachine unit, as have KPN and Telenor.
In Europe the operating groups are trying to create a single point of contact. They’re saying, if you’re a consumer electronics manufacturer, in Europe, rather than having to deal with each operator in each country in which you want to do business, just deal with us and we will provide you with a pan-European or pan-national service.
The second thing they’re trying to do – and this is also true of operators in the US – is create dedicated customer teams; sales and marketing, business development, and customer support for these new kinds of customer. And they’re creating management portals and platforms which service providers and customers can use to manage their devices.
Of course, the revenue potential from some of these applications is far, far smaller than what operators have been used to. The revenue is often in the low single digit dollars or euros per month, ranging from two to six, compared to the 50, 60, 70 dollars or euros that operators have got used to. So, how do they create profits in that environment?
One way is through huge volumes, huge scale – if you can support billions of devices then you can make good money. But we’re not there yet and the forecast won’t get us there for years.
So, what the operators are doing is finding ways to strip out as much cost as possible. They have to take out operating cost and make the support of these applications, the devices, as cost-effective as possible.
M2M Now: You’ve talked about stripping out cost, how can Evolving Systems assist in this?
Cochran: If you think about these ‘intermittent transmitters’, they only send small packets of data every now and then. If they are provisioned as normal, if the network supports them just as it would a normal device, which means it’s permanently connected, there are quite a few areas of wastage.
First, you might be giving an MSISDN to every device. You don’t need to do that for a device that only wakes up on one day a month and sends you information for 15 seconds, it’s a complete waste. Also, things like the home location register; if you provision a device as normal you have to create entries in these databases, and operators have to pay their network equipment providers for every entry in those databases.
Again, if you’ve got tens of millions of M2M devices that only need to be connected to the network for a few minutes every day, if you’re paying for every one of those devices as if it is a normal subscription, then that increases your operating cost.
Obviously, resource is in the network. If you look at smartphones, there’s been a lot of talk about the growth in mobile data but many of the problems have been caused by the growth in signalling traffic, (such as) congestion and poor quality of service, because smartphones have been aggressive in signalling to the network.
And finally, we hear a lot about the need to optimise the device. We talk a lot about the impact on the operator, their network and cost structure, but also there’s an impact on the overall eco-system and the business model for M2M devices. If you’re selling a phone for $400 and the customer is going to pay $40 a month for the contract, then you can make really good money if the build cost for that phone is $200.
But if you’re trying to put modules into photo frames, home energy monitors, meters, gas pipelines, and all sorts of other things which only retail for a few tens of dollars, then you need to make those modules as low cost as possible. Part of the module cost is how sophisticated it needs to be, but also how much energy it uses, and so on.
One way to minimise the cost of the device and increase efficiency is to have a network that supports these devices more effectively by reducing the sophistication and processing on the device. By doing the processing on the network instead you can make the device cheaper. By making it cheaper the operator can open up new market opportunities.
These devices consume resources, numbers, power, and database space in the network. So we’ve created an intelligent gateway, that sits between the devices and the operator’s management portal or platform, and allows the platform or portal to communicate with and manage the device, without the device being permanently provisioned into the operator’s network.
We avoid having to treat this device as if it’s a normal phone, because it’s not a normal phone, it’s a different kind of device that only needs to connect to the network occasionally and it’s massively wasteful to give it a number permanently, give it a slot in an HLR permanently, when it can be managed using our gateway and still be integrated into the network in the normal way.
It’s not a proprietary device, it’s a normal device with a normal SIM card in it and a normal module in it, but our intelligent gateway is able to help the operator strip out the cost and manage these devices far more effectively.
M2M Now: What have you called your intelligent gateway?
Cochran: It is a version of our Dynamic SIM Allocation (DSA) product. DSA is used by operators to minimise the provisioning cost and provide logistics, supply chain and user experience benefits for any kind of device that has a SIM card.
These connected devices that have wireless connections also have SIM cards in them – they could be soldered onto the circuit board but they still have a SIM card and connect in the same way. So, our DSA for machine-to-machine acts as its gateway between the portal and the device to provide this intelligent management, avoiding waste.
“It’s wasteful, inefficient, expensive and causes all sorts of problems to the downstream value chain.”
– Stuart Cochran, Evolving Systems
M2M Now: What operator examples are there of best practice?
Cochran: I mentioned some of the service providers that have launched dedicated business units. What’s interesting is we’re seeing not just the operator creating these business units and trying to introduce those packages, but also we’re seeing MVNOs who are specialising.
In many cases operators have a go-to-market strategy that it’s not them doing it all themselves, but relying on MVNOs and other kinds of service provider. It requires different skills that the operators haven’t been used to.
We were talking with a company that was going to network operators in North America and saying, “I’ve got a concept for a connected device, I have a business plan for it, can you give me your best price? How much do I need to pay you per month for this device to be wireless enabled?” And the operators were quoting $1 to $2 per device, per month.
But this person was saying, ‘My business plan says I have to be only paying about 50 cents per month’. Unless they can get to that price point with these new devices, there’s a new industry that can’t be created.
There’s a company called Jasper Wireless which acts as an MVNO in some territories, but in other countries is really partnering with the network operator. The operator is saying we can’t do this all ourselves. For now we need to rely upon these service providers who are MVNOs to help us reach these markets, do this integration, and provide the management portal.
M2M Now: Where is the M2M market most advanced?
Cochran: North America and Europe are leading the market. If you look at the forecast data, where by 2014 there’ll be about 200 million M2M connections, that will still be less than 3% of total (global) connections.
It’s still small, but if you look at some countries, in Scandinavia in particular, but also North America, they’ve been more aggressive in supporting different devices and business models.
One of the drivers behind which regions are going to see most growth is the regulatory and government action. For example, the EU has an initiative called eCall which is looking at emergency calls from cars which are involved in accidents. Governments are also looking at investing in infrastructure projects like road building, smart metering, and smart grid.
It’s in the developed markets where we see the most volume at the moment. The bigger potential comes when you look at consumer electronics connected to consumer electronics and that market, electrical, is global.
M2M Now: How far away are we from that watershed?
Cochran: We’re starting to see it. When Amazon launched Kindle in Europe they were faced with this challenge of, ‘How do I wireless-enable something if I’m going to sell it in many countries and each country has different operators with different ways of doing things?’.
What Amazon did, at least initially, was say we can’t have a single way to work with all operators throughout Europe. So we’ll rely on AT&T for the US, and all those Kindles sold in Europe were given AT&T SIM cards as subscriptions and were just roaming into European networks.
Operators have to be able to appeal to consumer electronics manufacturers or retailers, in this case Amazon, to make it easy for the manufacturer to get panEuropean global solutions in place. Because the manufacturer doesn’t think, “I build my laptop, my tablet, my photo frame, and I build one for France and one for Germany and one for the UK and one for Belgium”. They build it for Europe or for the West and want to ship it into any country.
I guess the other example is the rumour about Apple embedding SIM cards into the iPhone and allowing the user to select the carrier from iTunes. It’s not about machine-to-machine, but it’s another breakdown in the way devices are currently provisioned and connectivity is divided. So, things are changing, but where there’s a tipping point is hard to say.
M2M Now: That touches on my last question which is, ‘What skill sets do operators lack that will be needed in M2M communications?’.
Cochran: Operators need to be able to market the existing development and sales into fragmented, diverse industries. And they need systems integration because every manufacturer, every industry might have a slightly different requirement. Of course, they need different billing and pricing models as well.
So the Kindle ‘comes-with-data’ model – where you don’t pay for access or gigabytes of data, you just pay for content, you pay for your device – is a challenge that operators are going to have to deal with.
M2M Now: It just seems to be one more way in which operators need to reinvent themselves.
Cochran: That’s right. And the other part of the challenge is can they do it quickly enough? That’s why they’re working with MVNOs as their providers; the business units within the operators recognise that they’re big companies and some of them are slow to change.
That’s a positive side; operators are saying we don’t have to do this all ourselves, we can work in a more extended eco-system, and supply chain.