Vodafone’s M2M deal with GM brings out the importance of multinational coverage

General Motors (GM) announced on 22 February 2016 that it is using Vodafone’s network for its GM OnStar connected car services in Europe.

This news further bolsters Vodafone’s credentials for major connected car contracts, and represents a significant setback for other major European operators – most notably, Telefónica, which had previously announced an agreement with GM for providing connectivity, says Tom Rebbeck, research director at Analysys Mason.

We estimate that the GM contract could, in time, be worth over EUR20 million per year in revenue to Vodafone. This article discusses how this agreement may strengthen Vodafone’s position as a provider of multinational M2M contracts, and highlights further implications that this deal has for other operators.

Deal overview: Vodafone will act as AT&T’s roaming partner for GM cars in Europe

GM’s OnStar system provides services such as emergency response, security, diagnostics and in-car connectivity. This new service will be operated in Europe by Vodafone, in partnership with AT&T. The agreement between AT&T, GM and Vodafone took effect when production of the new Opel and Vauxhall Astra began, before being expanded to all other models.

In the first year of activation, connectivity to this service will be offered through GM’s existing partnership with AT&T in the USA. The SIMs installed in each car will act as AT&T connections that roam on the Vodafone network, and in-car Wi-Fi connectivity will be included in the price of the car.

At the end of this first year, car owners will have the option to continue the service by buying connectivity directly from Vodafone. If they choose this option, then the SIM will become a Vodafone SIM, rather than an AT&T SIM roaming on the Vodafone network. GM’s share of the European car market was about 7% in 2014, and this potentially provides Vodafone with direct access to a significant M2M revenue opportunity.

Deal implications: This agreement highlights Vodafone’s position as a strong, multinational M2M player

There are several important points to note from this deal.

  • The contract could, in time, be worth over EUR20 million per year for Vodafone. If the deal covers all GM models sold in Europe (around 1 million cars per year), this could generate over EUR20 million a year in revenue for Vodafone, even if only a quarter of GM’s new cars include connectivity.
  • GM’s deal with Vodafone appears to be a setback for Telefónica. Telefónica announced in 2012 that it would provide connectivity for GM cars outside the USA. Vodafone’s news seems to supersede this previously reported partnership. It is not clear why Telefónica was replaced as the preferred service provider, but it comes at a time when Telefónica is gradually withdrawing from most European markets, with the exception of Spain.

    Tom Rebbeck
    Tom Rebbeck, research director at Analysys Mason
  • It reinforces the need for operators to have multinational coverage to win the largest customers. In our recent article ‘To win more IoT and M2M business, telecoms operators may have to adjust geographical focus’, we argued that multinational companies prefer a single agreement for a region, rather than multiple local deals. Vodafone, through its subsidiaries and partners, is able to fulfil such an agreement. It is unclear whether other alliances, such as the Global M2M Association, can move as quickly or as flexibly as Vodafone.
  • A small number of operators are dominating the connected car market. The connected car market is the largest mobile market by some margin – both in terms of number of connections and connectivity revenue. We estimate that connected cars will account for around 70% of all cellular M2M connections worldwide in 2020. It is also a concentrated market: just six companies – BMW, Ford Motor Company, GM, PSA Peugeot Citroën, Renault-Nissan Alliance and Volkswagen (VW) – account for over 70% of sales worldwide. Furthermore, connectivity contracts tend to be binary – for example, we would expect VW to have only one connectivity provider in Europe. Operators that are not part of an alliance seem likely to miss out on car contracts.
  • AT&T and Vodafone make an interesting match. Vodafone has partnerships with more than 40 operators in countries around the world, but notably lacks partners in the USA, despite its past shareholdings in Verizon Wireless. `Other car companies using AT&T for North American and Vodafone for European connectivity include Porsche and Jaguar Land Rover. We understand that Vodafone and AT&T’s contract with GM is a unique arrangement, and does not signify any broader co-operation. However, given their complementary footprints, we would not be surprised to see other agreements between AT&T and Vodafone.
  • The complexity of the deal will make the regulation of M2M more difficult. In the first year of activation, each connection will effectively be an AT&T SIM that roams in Europe. Over time, this could lead to hundreds of thousands of SIMs that are registered and regulated in the USA (because they count as US M2M connections), but active in Europe. This would complicate attempts to regulate the market.

The author of this blog is Tom Rebbeck, research director at Analysys Mason.

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