In Business Model, Internet Access, Mobile, Spectrum

Internet of things access revenue might be quite smaller than many expect, in part because many of the connected sensors are going to use existing connections. On the other hand, an incremental $28 billion worth of global Iot-driven access revenue (in 2025) will be helpful. At that point, IoT access revenue might represent about three percent of total service provider revenues globally.

The implied bad news is that even those incremental new IoT revenues will only replace lost revenues from legacy services.

Assume total mobile industry revenue grows about one percent annually between 2016 and 2025. On a base of perhaps $810 billion, that would imply $886 in 2025 service revenues.

That, in turn, assumes that mobile operators, on a global basis, will add $8 billion to $9 billion in annual revenues, every year.

Now consider internet of things revenues. If you assume global IoT connectivity revenue already is about $6 billion, and grows about 18 percent annually to 2025, then we might expect global IoT connections revenue to be about $27 billion by 2025, adding a $1 billion or $2 billion incremental access revenue lift in the the early years, and perhaps as much as $4 billion in incremental new revenues closer to 2025.

One has to assume that the global increase in mobile operator revenues of $8 billion to $9 billion annually already includes the expected contribution from IoT access revenues, all other sources, and includes erosion of existing sources as well.

As always, the distribution of that revenue matters. It is possible that some providers will capture “more than their share” of the incremental revenue. A would-be business with zero or low current revenue might be quite happy with a new revenue stream worth a couple of billion dollars annually.

The “real money” might come elsewhere, in apps, devices and platforms, as seems always to be the case for any industry ecosystem (Facebook, Google, Netflix, Apple and Amazon make more revenue, more profits and have higher valuations than access providers supporting those industries).

Analysys Mason estimates that revenue from IoT solutions enabled by mobile operators will exceed US$200 billion in 2025, representing a compound annual growth rate of 18 percent.

In 2025, total mobile service provider revenue is expected to be about $888 billion, Analysys Mason predicts. GSMA says global revenues already have reached perhaps $1.3 trillion (including device sales).

While connectivity will generate $28 billion of revenue in 2025, on IoT solutions (applications, enablers) will reach $123 billion.  Sales of IoT hardware will account for US$50 billion.

In other words, the bigger–and tougher–opportunities will lie elsewhere in the value chain.

Vodafone reported that IoT accounted for only 1.3 percent of its revenue in the third quarter of  2016, and Verizon reported that IoT accounted for only 0.8 percent  of its revenue in the fourth quarter of 2016, Analysys Mason says.

That suggests mobile operators “must” move up the stack from IoT access if IoT is become a significant revenue contributor.

They might consider “horizontal functions” such as IoT security, hosting, application enablement or devices.

A possible third role is similar to the second role but specifically focusing on vertical markets, such as healthcare or connected cars.

The fourth role is supplying a complete vertical market platform, end to end. That might seem fanciful, and it will not be easy. But, conceptually, it is not different than AT&T owning Time Warner, the content producer and program network asset, as well as supplying video distribution and access.


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