THE GLOBAL WIRELESS M2M MARKET Summary Executive summary M2M is an abbreviation for machine-to-machine, or technology that supports wired or wireless communication between devices. The abbreviation is also sometimes used to stand for man-to-machine, meaning communication between a man operated device and a machine. Wireless M2M comprises all wireless network technologies, even though the term is generally used in reference to systems connected to cellular networks. This report is aimed at describing and analyzing wireless M2M based on commonly used wireless wide area network technologies such as GSM/GPRS/EDGE, WCDMA/HSPA and CDMA. Alternative wireless technologies such as satellite networks, RF tracking and wireless mesh are also covered to provide a complete overview of the market environment. Defining the addressable market for wireless M2M is a highly complex task. In theory every machine on earth with a microprocessor inside could become networked. However there will not likely be any business case for connecting ultra-low value products to cellular networks in the near term. Berg Insight estimates that about 750 million machines were produced in 2007 for housing, transportation and industrial use. This figure includes approximately 300 million major home appliances, 200 million energy meters, 100 million HVAC equipment, 75 million motor vehicles, 50 million assorted machinery and equipment and 25 million communication devices such as POS-terminals and security alarms. Among these energy meters, motor vehicles and communication devices will remain the principal vertical markets for wireless M2M in the coming five years. Adoption of wireless M2M technology is still in a very early phase. As a share of total cellular connections, M2M generally accounts for 1 3 percent in developed markets and less than 1 percent in emerging markets. Some individual markets have higher adoption rates as a result of large-scale deployments such as GM OnStar in North America and smart metering solutions in Scandinavia. Automotive and fleet remains the largest vertical market and is expected to increase its share of the total market as more and more OEMs adopt telematics STRATEGIC M2M RESEARCH SERIES 1
THE GLOBAL WIRELESS M2M MARKET technology. Smart metering and other utility industry applications continue to grow, with initiatives triggered by the challenges facing the energy industry in all parts of the world. Fixed to mobile substitution drives the growth in the POS-terminal and security alarms segments. There are also high expectations for significant deployments of remote product and asset management solutions. Europe is seeing large-scale adoption of wireless M2M technology across a wide range of vertical markets. The largest applications in terms of volume have generally been developed in response to local conditions. EU s two top consumers of electricity per capita Sweden and Finland to a wide extent use point-to-point GPRS for smart metering. Germany has deployed a national road toll system for trucks using GSM/GPS tracking. The Italian motor insurance industry has embraced telematics technology for risk mitigation. Few applications are however yet deployed at a European level. In the Americas, adoption of wireless is largely focused on the automotive industry. Berg Insight estimates that GM OnStar alone accounts for more than 70 percent of cellular M2M connections in the US and almost 60 percent in the Americas region. Among other world regions, Asia-Pacific is in an early stage of development while the Middle East and Africa is very much focused on fixed-line replacement and security applications. Berg Insight believes that shipments of cellular M2M devices will grow steadily at a high rate over the coming five years. But as volumes increase, unit prices are set to decline in the same way as all other electronics components. Maintaining profitable growth amidst stern competition and avoiding commoditisation will be the foremost challenges for cellular M2M device vendors in the coming years. With increasing shipments, Berg Insight believes that cellular M2M devices will account for a significant share of new mobile network connections on mature markets in the coming years. Some operators will see M2M become their top category of mobile subscriptions, while others may decide to stay out of the market completely. Exactly what role operators should play in the value chain remains to be seen as their strategies are still evolving. STRATEGIC M2M RESEARCH RESEARCH SERIES SERIES 2
THE EUROPEAN WIRELESS M2M MARKET Summary Executive summary M2M is an abbreviation for machine-to-machine, or technology that supports wired or wireless communication between devices. The abbreviation is also sometimes used to stand for man-to-machine, meaning communication between a man operated device and a machine. Wireless M2M comprises all wireless network technologies, even though the term is generally used in reference to systems connected to cellular networks. This report is exclusively aimed at describing and analyzing wireless M2M based on commonly used wireless wide area network technologies such as GSM/GPRS/EDGE and WCDMA/HSPA. GSM/GPRS is the leading technology for wide-area wireless M2M in Europe with almost complete market dominance. So far there has been little interest in UMTS/HSPA, due to high component prices, limited coverage and less reliability. Some of the characteristics of HSPA, such as lower latency and radically improved data uplink (HSUPA) are however attractive for many M2M applications particularly video surveillance, but also for instance fleet management. If multimedia and entertainment is included in future passenger car telematics systems, HSPA could also become attractive within that segment. There are billions of devices in Europe that could potentially be networked using fixed or wireless technologies. Generally, the cost of connecting a device to a GSM/GPRS network must be justified by the perceived value of the information it communicates. The most obvious cases are remote monitoring of mission critical equipment or tracking of high value assets. This type of applications however tends to be deployed in relatively small volumes. Mass market opportunities only exist in segments where valuable information can be generated by a large population of devices. Examples of this are found in the utility, transportation, security and retail industries. Europe has 345 million energy meters, 254 million motor vehicles, 8 million security alarm systems and 6 million POS-terminals Altogether these segments represent a potential market of over 600 million wireless M2M connections. STRATEGIC M2M RESEARCH SERIES 1
THE EUROPEAN WIRELESS M2M MARKET The European wireless M2M market is in a solid growth phase with strong demand across a wide range of industries. Berg Insight estimates that deployments of wireless M2M units, defined as deployed and activated devices, reached 4.1 million units in 2006. Growing at a compound average annual growth rate of 42.9 percent, the market size is expected to reach 24.4 million units by 2011. In the medium term, the annual growth rate will however be more moderate. Not until after 2010 will the anticipated mass-market adoption of telematics by automotive OEMs push growth rates above 30 percent. Other key vertical markets are forecasted to see a more linear growth. Security alarms and POS-terminals are expected to reach their natural saturation point in a relatively near future, whereas the full growth potential for energy meters will remain far from realized even at the end of the period. Mobile operators are positioning themselves differently in the M2M value chain. Most of them are actively or passively limiting their role to provide network connectivity services. Some such as Orange, Telefónica O 2, Telenor and TeliaSonera are participating directly in the market, whereas others like Vodafone have adopted an indirect approach with partner resellers. Telenor Sweden is arguably the most advanced mobile operator in the area and expects the number of wireless M2M connections expected to exceed regular handsets by 2008. The greater part of the connections derive from the regulation driven deployment of remote meter reading in Sweden that will result in 1 million electricity meters being connected to Telenor s GPRS network. Several MVNOs and MVNEs have also established themselves as providers of wireless M2M connectivity services and solutions on the European market. Modes of operation range from reselling the network capacity of mobile operators to providing partial or complete network infrastructure via a hired air-interface. Value added resellers like Mobius Networks and Wireless Logic work closely with one or a few mobile operators, while international carriers like Jasper Wireless and Wyless seek to offer global coverage on a single communications platform. Rather than competing with traditional network operators, the wireless M2M communication providers are becoming a major distribution channel for mobile data services in large parts of Europe. STRATEGIC M2M RESEARCH RESEARCH SERIES SERIES 2
THE NORTH AMERICAN WIRELESS M2M MARKET Summary Executive summary M2M is an abbreviation for machine-to-machine, or technology that supports wired or wireless communication between devices. Virtually any communication network may accommodate M2M applications. Fixed-line networks are viable for monitoring fixed assets, whereas wireless networks may be used under all circumstances even though they are required for mobile assets. North America has a great diversity of licensed and unlicensed wireless network technologies. Cellular wireless the focal technology family of this report is only one of numerous wireless options available for M2M solution developers. These range from satellite communication to technologies utilizing unlicensed radio frequencies. Also the cellular domain itself is perhaps more fragmented in North America than anywhere else in the world. Parallel GSM/GPRS/EDGE, CDMA and iden networks cover most of the population on the continent. HSDPA, EVDO, WiFi-hotspots and soon also mobile WiMAX provide high speed Internet connectivity in urban centers. Older technologies such as AMPS/TDMA and Mobitex are gradually fading away, if only to make way for more newcomers. The North American wireless M2M market is in a transitional stage where analogue wireless technologies disappear at the same time as the growth for digital wireless M2M is accelerating. Berg Insight estimates that shipments of cellular and satellite wireless M2M devices in North America reached a record level of 5.3 million units in 2006. Growing at a compound average annual growth rate of 27.3 percent, the market size is expected to reach 22.6 million units by 2011. Private vehicles will remain the overwhelmingly largest segment, underpinned by mass-market OEM telematics offerings from GM and other auto manufacturers. Steady growth is also expected in the commercial vehicles and energy meters segments. Shipments of energy meters with cellular capabilities are expected to accelerate at the end of the period due to large scale deployments of AMI. Demand in the security alarms and POS-terminal segments is expected to peak in 2007 due to replacement of analogue technologies. STRATEGIC M2M RESEARCH SERIES 1
THE NORTH AMERICAN WIRELESS M2M MARKET Two vertical market segments stand out as those with the overwhelmingly largest potential for wireless M2M utility meters and motor vehicles. North America has about 256 million motor vehicles and 217 million electricity and gas meters. Motor vehicles require wireless communication links, whereas fixed line and non-cellular wireless are potent alternatives for utility meters. Other segments with more limited potential include security alarms and POSterminals. There are about 32 million monitored alarm systems in North America and the population of POS-terminals is estimated to 15 million. Both types of devices are today predominantly connected to fixed line networks. In the case of security alarms, cellular networks can serve a vital role as backup communication links. POS-terminals become more versatile with cellular connectivity and in some cases dedicated fixed lines can be replaced by cellular connections also at fixed locations. Apart from standardized high volume devices, whether it be utility meters and car telematics units or security alarms and POS-terminals, there is also a sizable market for general purpose cellular M2M modems and terminals. Those are frequently sold through the distribution channel to system integrators who develop tailored wireless M2M solutions on behalf of enterprise clients. This market segment is still relatively important, but is increasingly being diminished by the high volumes achieved for standardized solutions. Several categories of network operators and other service providers offer wireless M2M communication services on the North American market. The nationwide cellular network operators mainly service the M2M market through indirect sales channels and major customer accounts. In their place, a number of cellular M2M communication service providers have emerged. These include Aeris, Jasper Wireless, KORE Telematics and Numerex. Furthermore there are several non-cellular communication providers like SkyTel and Orbcomm offering solutions based on technologies such as paging and satellite networks. STRATEGIC M2M RESEARCH RESEARCH SERIES SERIES 2