To connectivity and beyond: the IoT payments opportunity for telcos

December 6, 2019

Jonathan Kriegel


Communications services providers – including telcos and mobile network operators (MNOs) – have a crucial role to play in enabling the Internet of Things (IoT). By providing the connectivity that links hundreds of thousands or millions of devices to back end databases and analytics platforms, they are in an ideal position to help facilitate mobile payments on IoT devices themselves. IHS Markit estimates the number of those devices worldwide will expand 12% per year from 27 billion in 2017 to 125 billion by 2030. IDC puts the figure at a more modest 42bn devices by 2025 which will collectively generation 79 zettabytes of data, much of which will be transmitted over a variety of fixed and wireless networks for centralised storage, processing and analysis.

Fifth-generation (5G) architecture has been specifically designed and built to support large numbers of IoT devices with fast, reliable low latency connectivity, but delays in its arrival and a lack of cost efficiency in certain locations mean it will not always be the best solution. To fill in the coverage gaps MNOs have also been instrumental in developing short-range networks for home, office and campus environments. Vodafone, China Mobile, T-Mobile, Deutsche Telekom and SingTel have collaborated in the development of Narrowband IoT (NB-IoT) for example, a low power wide area (LPWA) technology built to support new IoT services connecting low power devices with long battery lives for use in remote environments.

Though the IoT ecosystem is likely to involve long chain of suppliers – including device manufacturers, utility companies, retailers, managed service providers, and cloud hosting companies for example – telcos and MNOs have a strong foundation for further expansion in the form of existing machine to machine communications (M2M) businesses which have been running successfully for decades. Vodafone, for instance, estimates that its managed M2M/IoT connectivity services contributed around €800m revenue in the first six months of its current financial year with customers spanning a broad range of automotive, manufacturing, retail and transportation. Other operators – including Verizon, KPN, AT&T, Orange, Telstra and Telefónica – all derive small but steady chunks of turnover from providing M2M/IoT connectivity according to statistics compiled by Analysys Mason.

Basic device connectivity is billed either on a pay per use model (that charges fees only when data is uploaded); a flat rate in the form of a fixed monthly fee for all the customers’ connected devices; or a data tariff calculated on the volume of information being transmitted. The precise commercial arrangements usually depend on who “owns” the customer – which could be anybody from the telco, to the device manufacturer, or third-party service providers that manage M2M services on somebody else’s behalf.

While existing M2M service platforms and billing models hint at what is possible, rapid IoT expansion is likely to take the telecommunications industry in new and innovative directions. The type of IoT devices telcos predicted to come online in the next five years is certainly as long as it is broad – anything and everything from cameras, refrigerators, smartwatches, fire alarms and door locks to bicycles, smart speakers, medical sensors, fitness trackers, thermostats, lights and security systems alongside industrial sensors measuring temperature, humidity, light, air quality as well as health care devices that monitor blood pressure, heart rate and other physical conditions.

In it’s Worldwide Global DataSphere IoT Device and Data Forecast, 2019–2023 report, IDC expects industrial and automotive industries will see most robust IoT adoption initially. Smart homes and wearables will see growing traction in the near term followed by video surveillance implementations. The challenge for operators now is working out how to retrofit existing connectivity revenue streams while simultaneously building new models that put them front and centre when it comes to both enabling, and profiting from, mobile IoT payments, the value of which according to Juniper Research’s IoT in Finance: Payments, Insurance & Banking Opportunities, Transaction Forecasts 2018-2023, report will grow at an average of 75% per annual between 2018 and 2023 to be worth US$410bn by 2023.

Smart-speaker voice-enabled commerce transactions alone will reach US$51bn according to Juniper, though maybe hard for telcos providing fixed broadband subscriptions to monetise on a per transaction basis. Some of those purchases will involve digital content through connected TVs and other devices like laptops, tablets and smartphones, however, where DCB represents an alternative payment method to OTT digital content libraries like Amazon Prime and Netflix. Consumers and businesses alike may also use DCB to fund on-demand subscriptions to security monitoring services through connected IP cameras when properties are left unoccupied, refill empty fridges, buy bus tickets, order taxis or hire bicycles.

Establishing and building on existing partnerships with device manufacturers and IoT service providers will be critical if telcos are to fully exploit the opportunity, particularly in verticals like automotive, healthcare, retail, smart cities and transportation [check]. To that end, KDDI acquired business to business (B2B) IoT business platform Soracom in 2017, while Deutsche Telekom will 1NCE’s platform to supports its IoT applications. NTT, our parent, acquired a majority stake in Transatel in 2019 as part of its bid to become a global IoT solution provider.

Mass implementations of IoT over the next few years will inevitably present opportunities for new applications and processes that nobody in the telecommunications industry has even thought of yet, let alone implemented. At this point in IoT’s evolution, flexibility and a willingness to push beyond traditional M2M and establish new business models, billing arrangements and partnerships are likely to prove the MNO’s greatest attribute.

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