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These 3 Obstacles Are Standing Between Telcos And IoT Market Domination

Telecommunication firms already have a a significant share of the B2B IoT market. But faffing around at this critical phase might prove to be deadly

Evan F.P.
May 29 2018

Exponential leaps forward in hardware are ushering in an age of unprecedented connectivity. The age of the Internet of Things (IoT), in which even the smallest objects will record, store, send, and receive data through the internet, brings with it the promise of powerful new business efficiencies. It’s a shift that professionals from all industries are working diligently to understand and predict, in hopes of exploiting first-to-market opportunities that could afford them a competitive advantage. It’s the wild west, with all comers striking their own balance between exploration and risk. One particular vertical, however, is uniquely positioned to snatch an early lead.

Telecommunication firms, with their massive networks and active user-level databases, have already learned many tough lessons that newcomers to the IoT world are learning the hard way. Analysts from management consulting firm Bain & Company explain in a recent brief how “Only telcos have the necessary experience to deliver scale connectivity solutions at the center of the IoT. (They’re) the only players with experience managing extensive directories and the life cycles of millions of devices.

They also have a strong position developing and managing analytics at the edge of the network across a range of industries and uses. These strengths, combined with their trusted status, leave telcos uniquely qualified to facilitate the delivery of IoT solutions.” This is fantastic news for telcos, as it means they’re first in line for a very big slice of a very big pie.

How big? A recent report by Boston Consulting Group estimated the B2B IoT market will reach $276 billion by the year 2020. It might not yet be on par with existing global telco market value, which is estimated to reach nearly $1.2 trillion by 2019, but an early foothold in IoT could end up being be just as valuable considering the sector’s meteoric rise over a few short years.

Before that can happen, telcos need to address some key challenges standing between them and market dominance. Concerns over privacy and data security loom large in customers’ minds, especially in B2B sectors, where anything less than 100% security is unacceptable. Rapid and sustainable growth strategies will also need to be devised if telcos are going to capture market share. Finally, telcos will need to find ways of monetizing their investments without alienating potential customer segments. It may seem like a long list, but it’s shorter than the competition’s, making this an exciting time to be a telecommunication executive.

Privacy & Security

Even the most well-defended devices can be compromised by bad actors, at least in the case of those that use wifi. Telecommunication firm Carritech explains, “WiFi is one of the least secure ways of connecting to any device. This puts our personal security at risk. We could be allowing hackers access to our most valuable items as well as the data which explains when and where we use them and details about other products that are connected to them.”

This kind of exposure understandably hasn’t sat well with businesses or consumers, and it’s one of the biggest reasons for delaying what many see as an inevitable IoT revolution. Another Bain & Company study found that 45% of customers surveyed listed security concerns as one of their company’s top three barriers to implementing IoT solutions, placing it ahead of the next most popular choice by a margin of 13%. Unless telcos can find a way to waylay these concerns, vendors will be fighting an uphill battle for adoption in the foreseeable future. This is especially problematic considering the fact that the window of opportunity may be closing.

Scale

 Stable expansion takes time, but for many telcos looking to move into IoT, time is in short supply. Estimates predict overall IoT market value will double in as little 3 years, rendering gradual growth strategies non-viable. For those with the means, the solution has been M&A. IoT startups are being snatched up left and right as players from all spaces look for cost-effective inroads. A few particular telecoms have been fortunate enough to acquire multiple firms that compliment their existing offerings.

Multinational telecommunications conglomerate Verizon Communications recently acquired two companies for the purpose of moving deeper into the IoT-enabled field of connected commercial vehicle operations. Before being acquired, Fleetmatics and Telogis both developed and maintained cloud-enabled IoT solutions for mobile workforces. Verizon has since rolled these services up under its Verizon Telematics brand, which offers “comprehensive wireless, software and hardware solutions to consumers, enterprises, automakers and dealers to power connected-vehicle products around the world.” Even for those able to buy their way into the game, there still exists one final challenge: extracting value.

Monetization

Facilitating data transmission for countless internet-connected devices, even when optimized for efficiency, produces massive volumes of data. In order to keep any aggressive expansion moves ROI positive, telcos are having to give considerable thought to how they’ll turn that market share into revenue. According to a report by McKinsey and Company, this is something that providers have historically been relatively conservative with, explaining, “While global mobile data traffic increased 40 times from 2008 to 2013, the revenues associated with it barely tripled.” The report attributes this to an increasingly competitive market that has forced many competitors to prioritize flat-rate pricing for the sake of customer experience.

Further exacerbating the issue is the inherent challenge of marketing a largely unproven product. With most B2B IoT customers hesitant to be first through the door, vendors are struggling to illustrate the value of IoT products in the absence third-party ROI data. The same study by Bain & Company found “High price or unclear economic benefits” to be the second most cited reason that customers were hesitant to pull the trigger on an IoT investment, with 32% of respondents ranking it in their top three.

With privacy concerns, challenges of scale, and price-point sensitivity discouraging many customers from getting onboard, telco firms (and all IoT vendors for that matter) have their work cut out for them. Given the market’s growth trajectory, there’s little doubt that IoT is here to stay, but what remains to be seen is how much of the burgeoning market will be captured by those at the greatest advantage. The remainder will almost certainly go to smaller, more agile firms willing to tolerate the risk in exchange for their share of the ample rewards.

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