M2M: An Alternate Personality for Telecom Companies

By Dr. Alastair Hanlon, Convergys

In a recent Webinar conducted by the Yankee Group titled, “How Can the Telecom Industry Start Growing Again?" Vice President and Senior Research Fellow Camille Mendler suggested that one way telecom companies could realize strategic benefit is by going insane, or more specifically, by developing multiple personalities. This was of course a clever analogy to help emphasize the need for telecom companies to explore alternate business models to survive a highly competitive industry, but it further confirmed my belief about the potential of the emerging Machine-to-Machine (M2M) market as a revenue driver for mobile operators.

There is a growing consensus among industry observers that M2M is poised to be a major growth area for telecom companies over the next five years. Spurred by recent advancements in mobile technology, supply-chain maturity and the need to offset declining consumer retail revenues, many tier-one mobile operators have already begun to crank up their investment in this market.

M2M isn’t new – some companies have been employing a form of M2M for more than a decade – but recently new and innovative ways to leverage the technology have been taking shape in a number of vertical sectors. Convergys has seen the utilities industry drawing on M2M for their smart-grid technology and meter reading, and applications have already been identified within the automobile, healthcare, security, retail, and finance industries, to name a few.

Skeptics question whether the extremely low value of each transaction renders M2M worthwhile for operators, but the sheer volume of transactions that M2M promises – hundreds of millions, potentially billions, monthly – more than compensates. An operator’s best strategy is to treat M2M as a separate function with a dedicated BSS and billing infrastructure tailored to the precise needs of the unique business model. An ultra-low ARPU business, such as M2M, requires a low-cost model, so it is essential to have an IT infrastructure that makes optimum use of automated processes, thereby reducing the need for costly headcount to operate the business. By selecting platforms that combine low ongoing cost of ownership, coupled with a highly flexible and scalable set of functions, M2M should be a viable and self-sustaining business.

The M2M opportunity is knocking and hesitation may prove costly. M2M contracts are likely to be much longer term than typical retail telecom company contracts because they will be tied to a product’s lifecycle, so the cost of delaying market entry could miss out on long-term revenue opportunities. But for those bold companies that take the necessary steps to appropriately position themselves in the market, M2M represents a potentially lucrative new personality to add to their business character.

Dr. Alastair Hanlon is the global director of telecommunications for Convergys’ Information Management line of business. Reach him at alastair.hanlon@convergys.com .