When AT&T, last year, said it would phase out its 2G network some people – including me- thought the move would hurt the company competitively in the machine to machine market, which relies heavily on 2G for communications.
But at least one industry research firm – ABI Research (News - Alert) – believes AT&T will, “maintain its leadership position” in M2M over the next five years at least.
I checked in with ABI practice director Dan Shey (News - Alert) to better understand the firm’s findings on this matter and I’m somewhat more enthusiastic about AT&T’s machine to machine prospects as a result. Although I’m still not as optimistic as he is, he made some good points and raised some new issues to consider.
GSM is Global
One key reason Shey is so bullish on AT&T, he said, is that, “if you’re a business that is thinking globally you’re going to be thinking GSM.”
That makes sense. Ultimately the world is expected to go to LTE (News - Alert), but that will take years and until then, GSM is much more of a worldwide standard than CDMA.
AT&T isn’t the only GSM operator in the U.S., however. T-Mobile (News - Alert) also has a nationwide GSM network – and although T-Mobile also plans to phase out 2G, it has said it will continue to devote some spectrum to 2G.
Shey doesn’t see T-Mobile as much of a contender in the M2M market, however. “T-Mobile is just not that mature an operator in M2M,” he said. “Although they have a respectable business, they haven’t invested as much as AT&T and Verizon (News - Alert).”
He also noted that in comparison with T-Mobile, “AT&T has done a better job of communicating a vision to the marketplace.”
Perhaps that’s true. The question is whether that vision is sufficiently compelling to persuade manufacturers of machine to machine equipment that they should use 3G or 4G modules, which cost considerably more and whose bandwidth many M2M apps do not require.
According to Shey, 2G modules cost $10 to $20, while 3G modules cost $25 to $40, with GSM modules generally priced less than CDMA modules. 4G modules cost six to 10 times more than 2G offerings, he said.
Not surprisingly Shey said he’s beginning to see some M2M device subsidization on the part of network operators. Although users of 3G and 4G services may not buy devices from the carrier, he said carriers may find other ways of “making allowances for the price of the module.”
Shey also argued that module costs will come down as volumes increase.
The likelihood of manufacturers of M2M equipment opting for 3G and 4G modules rather than lower-cost 2G modules will be influenced by how much bandwidth they need – and that varies from one vertical market to another.
Shey cited three key vertical markets that use M2M, including home automation and security, automotive telematics and, to a lesser extent, utilities involved with the smart grid. And Shey is the first to admit that of the key verticals he referenced, the only one that really needs greater bandwidth than what is provided by 2G – for now at least -- is automotive telematics. He said manufacturers of automotive telematics will want the bandwidth of a 3G or 4G solution because they believe they may need it to support entertainment capabilities and in-car Wi-FI.
Users of smart grid machine to machine applications, he said, will stay on 2G until the price of 3G comes down.
That leaves the home automation and security market, which has a large installed base of systems that use 2G/GSM to connect to a central monitoring facility. If the idea of sending video to the monitoring facility catches on, one would expect those manufacturers to want 3G and 4G connectivity. On the other hand, security dealers want equipment they can use anywhere, even to protect second homes in remote areas that lack 3G or 4G service.
And the security business is notoriously cost-conscious. Systems often are sold at less than cost upfront, with dealers eventually recouping their investment in ongoing monthly fees. Against that backdrop, those 3G and 4G modules are going to look mighty costly.
As Shey noted, 3G and 4G modules are in a bit of a chicken and egg quandary. Prices will come down when volumes go up, but volumes may not go up until prices go down.
Perhaps the wild card in all of this is device subsidization. If you’re AT&T and your only hope of maintaining your M2M position is to get people to use 3G and 4G, some form of device subsidization would certainly make sense.
Indeed that could be what ultimately determines whether AT&T’s m2m prospects play out as positively as ABI envisions.
Edited by Stefania Viscusi