Machine-to-Machine (M2M) Communication in the Utilities Sector 2010-20

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Machine-to-Machine (M2M) Communication in the Utilities Sector 2010-20

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Executive Summary

1.1 Automotive M2M: 1.4 billion connections and EUR157 billion in revenue in 2020

The automotive sector represents one of the greatest opportunities for machine-to-machine. From less than 90 million connections globally in 2010 the automotive M2M market will grow to almost 1.4 billion connections by the end of 2020 (see Figure 1-1). Of these, one billion will be application specific 'aftermarket' devices, well over 300 million will be vehicle platforms supporting multiple applications. There are numerous vehicle-related applications that would benefit from being connected. Today the market is dominate by security and tracking applications, particularly in markets such as Brazil and South Africa where car theft is rife. By 2020 the emergency assistance device will be the dominant type of connection on the back of regulatory mandates such as eCall in Europe. Multiapplication vehicle platforms such as GM's OnStar will be the second biggest category followed by insurance and security & tracking.

Machina Research expects the automotive M2M sector to generate EUR157 billion revenue in 2020, up from EUR10 billion in 2010 (see Figure 1-2). The biggest revenue generating segments will be security and tracking, emergency assistance, navigation and insurance. However, in general, automotive M2M applications do not generate a tremendous amount of traffic (160TB in 2020). As a result the guaranteed revenue for mobile network operators (MNOs) is limited, amounting to EUR5 billion globally in 2020. Only one application (entertainment and internet access) generates enough traffic to really create a lot of revenue for the MNO. By 2020 this application will account for over 80% of traffic and 70% of mobile network traffic revenue.

In the early years aftermarket device sales account for a large proportion of the revenue associated with automotive M2M; 40% in 2011. Over the forecast period, as the market starts to saturate and applications gradually migrate to the vehicle platform, the importance of aftermarket hardware diminishes. By 2020 it accounts for only EUR32 billion or 20% of revenue. The proportion of revenue generated by mobile network traffic will decline initially from 2010 to 2012 and then gradually increase to 3.2%, or EUR5 billion. The remaining EUR120 billion is accounted for by non-traffic service revenue.

1.2 A diverse market

Within automotive M2M the different applications have very specific characteristics but divide into two broad categories:

· Vehicle-centric low bandwidth services with embedded SIMs where the connectivity is most likely completely unseen by the end users (such as vehicle diagnostics, pay-as-you-drive insurance or stolen vehicle recovery). The cost of the connectivity is typically low and will be charged for indirectly, i.e. bundled in with the price of the vehicle or absorbed by the service provider in some way.

· High bandwidth consumer-oriented applications (such as In-Vehicle Infotainment or Satnav) where user intervention is taken for granted and users pay more-or-less directly for the connectivity. In many cases the potential revenue opportunity in this category will be captured by brought-in devices such as smartphones and portable gaming devices.

Furthermore, the way in which high bandwidth applications can be delivered differs from how low bandwidth applications might be organized, at least in the short term. For low bandwidth, data charges make up only a small proportion of the total cost of delivering the service. A high per-MB price can be absorbed. Therefore it is fine for an MNO to be relying on roaming for coverage in countries outside its footprint, either for true roaming (i.e. where the driver goes abroad) or simply for them to sell regional services to OEMs. Most OEMs want to do regional rather than national deals. A charge of EUR1/MB (typical roaming rates) rather than EUR0.01/MB.

Another complicating factor in the automotive M2M space is the role of the vehicle platform. Will this be an open environment for third party application developers taking advantage of all the cars functionality? Or will it be a closed shop controlled by the automotive OEM? Machina Research believes that it will be largely the latter as a result of the OEMs' desire to retain control of the user experience. As a result, the high-bandwidth consumer applications will tend to be carried via dedicated after-market devices. However, should the automotive OEMs opt for an open approach either through the GENIVI initiative or by partnering with the likes of Google or Microsoft, the situation could be rather different.

"The Automotive sector represents a huge opportunity for M2M. The benefits of connectivity are obvious in applications such as life-saving eCall or the added functionality of a connected Satnav. In fact, as we migrate to electric vehicles it will be difficult to imagine a time when the car wasn't connected, so essential will it be to the driving experience. What's also good news for mobile network operators is that it is one of the few sectors where the thing you're trying to connect is definitively mobile"

Matt Hatton, Director

The automotive sector represents one of the greatest opportunities for machine-to-machine. From less than 90 million connections globally in 2010 the automotive M2M market will grow to almost 1.4 billion connections by the end of 2020. Of these, one billion will be application-specific 'aftermarket' devices, well over 300 million will be vehicle platforms supporting multiple applications.

There are numerous vehicle-related applications that would benefit from being connected. Today the market is dominate by security and tracking applications, particularly in markets such as Brazil and South Africa where car theft is rife. By 2020 the emergency assistance device will be the dominant type of connection on the back of regulatory mandates such as eCall in Europe. Multi-application vehicle platforms such as GM's OnStar will be the second biggest category followed by pay-as-you-drive insurance and security & tracking.

Machina Research expects the automotive M2M sector to generate EUR157 billion revenue in 2020, up from EUR10 billion in 2010. The biggest revenue generating segments will be security and tracking, emergency assistance, navigation and insurance. However, in general, automotive M2M applications do not generate a tremendous amount of traffic (16TB in 2020). As a result the guaranteed revenue for mobile network operators (MNOs) is limited, amounting to EUR5 billion globally in 2020. Only one application (entertainment and internet access) generates enough traffic to really create a lot of revenue for the MNO. By 2020 this application will account for over 80% of traffic and 70% of mobile network traffic revenue.

The automotive M2M market is a diverse one and MNOs, module vendors, automotive OEMs and all other service providers must be aware of the dynamics of each of the sub-segments. It involves a combination of B2B, B2C and B2B2C sales either provided via aftermarket devices or through the vehicle platform. Services range for very low bandwidth, high integration and rarely-used applications such as security and tracking through to high bandwidth in-vehicle infotainment which is more reminiscent of consumer mobile broadband.

About the report

Machine-to-machine (M2M) Communication in the Automotive Sector 2010-20 provides invaluable qualitative and quantitative analysis of the emerging opportunity for machine-to-machine communications in cars, motorcycles and other road vehicles. The report reviews the major drivers and barriers for growth of M2M in the sector and analyses the key market dynamics, including how MNOs, fixed operators, service providers and vendors might go about identifying and realising addressable opportunities. Each application is examined individually with case studies and forecast analysis.

The forecast excel data sheet includes very granular 10 year market forecasts for 54 countries and 6 regions. The forecast covers numbers of connections, traffic and revenue for each of the identified automotive application groups (including Vehicle Platforms, Security & Tracking, Emergency Assistance, Vehicle Recovery/Roadside Assistance, Entertainment & Internet Access, Navigation, Voice, Insurance and Manufacturer) with splits by technology (2G, 3G and 4G) and a break-out of mobile traffic revenue.

Table of Contents

1 Executive Summary ......... 2

2 Contents ............ 5

3 Scope ... 7

4 Drivers and Barriers .. ...... 9

4.1 Drivers ....... 9

4.1.1 Government regulation and funding of smart grids ............. 9

4.1.2 Public demand ............ 11

4.1.3 Utilities gearing up for a competitive environment ............ 12

4.1.4 Reduced energy theft and improved fraud detection. ....... 13

4.1.5 Service differentiation for utilities .......... 13

4.1.6 Government push for electric vehicle adoption ... 13

4.1.7 Business topography ... 14

4.1.8 Network technology developments ........ 14

4.1.9 Mobile Network Operator (MNO) revenue stagnation ...... 15

4.2 Barriers .... 15

4.2.1 Lack of infrastructure and availability of utilities .. 15

4.2.2 Lack of incentive to deploy smart metering for gas and water ........ 16

4.2.3 End-user opposition to smart metering .. 16

4.2.4 Security ......... 16

4.2.5 Opposition (albeit subtle) from the power industry ........... 17

4.2.6 Meter manufacturing and installation capacity .... 17

4.2.7 Technology uncertainty ............ 18

5 Utilities Market Analysis and Forecast ...... 20

5.1 Key market developments .. 20

5.1.1 Increasing penetration of basic utilities. . 20

5.1.2 Rising costs of fuel (and increasingly water). ........ 20

5.1.3 The green agenda ........ 20

5.1.4 Competition in the utilities market ......... 21

5.2 Market dynamics .. 21

5.3 Market forecast ..... 30

6 Application Analysis and Forecast ............ 33

6.1 Smart metering ..... 33

6.1.1 Definition ....... 33

6.1.2 Application Market Analysis ..... 34

6.1.3 Forecast ......... 36

6.2 Transport & Distribution Management (T&DM) .......... 39

6.2.1 Definition ....... 39

6.2.2 Application Market Analysis ..... 40

6.2.3 Forecast ......... 40

6.3 Electric Vehicle (EV) Charging ........... 42

6.3.1 Definition ....... 42

6.3.2 Application Market Analysis ..... 43

6.3.3 Forecasts ....... 43

6.4 Home Energy Management (HEM) ... 46

6.4.1 Definition ....... 46

6.4.2 Application Market Analysis ..... 46

6.4.3 Forecasts ....... 46

7 Recommendations ........ 47

7.1 Vendors ... 47

7.2 Mobile network operators and service providers ........ 47

7.3 Utilities .... 48

8 About Machina Research ............ 49

8.1 Our approach ........ 50

8.2 Connected Intelligence reports ......... 51

8.3 Our people ............ 52

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