NB-IoT is a highly significant technology in the wireless communications space for IoT. Transforma Insights forecasts that there will be more low power wide area (LPWA) wireless connections supporting IoT devices in 2025 than there will be ‘traditional’ (people-centric) cellular technology connections (2G, 3G, 4G, 5G non-mMTC) supporting IoT devices. 65% of those LPWA connections will be mMTC, and of this group the majority will be NB-IoT (with the rest being LTE-M).
Enough of the acronym soup: NB-IoT is going to be a very significant technology for connecting ‘things’ over the coming decade, at least. The main strengths of the technology are low power consumption (hence long battery life), wide area connectivity (so users can often just assume that coverage exists where they need it, much like cellular network connectivity does today), and low cost.
Low cost is, of course, great for end users, but it’s less than great for mobile network operators (MNOs). Absolute margins for NB-IoT connections are low, certainly compared to margins that an MNO could expect to generate from a more traditional consumer, or business, connection. And the costs of running an NB-IoT network are real and directly attributable to IoT, whereas in the past IoT connected devices have essentially piggy-backed on investments that telcos have made to support their traditional core businesses. Some operators may decide that they are unlikely to generate enough revenues overall for their NB-IoT business to survive. NTT DoCoMo has already made that decision.
From an end-user perspective, therefore, it makes sense to procure NB-IoT connectivity from an MNO that is committed to support the technology in the long term. Generally, that means selecting a provider that has significant capabilities in the IoT space, and a significant business that is dependent on supporting NB-IoT. That selection bias is likely to drive up market concentration relative to overall market concentration for more traditional consumer and business services.
There is another unfortunate dynamic at play, which is that most MNOs have currently deployed early-release network software to support NB-IoT, and this software tends to significantly impair the battery life of connected devices. Battery life being one of the key differentiators for LPWA connectivity, this isn’t ideal. Software upgrades are available, but they have to be paid for. We’re told that winning a nationwide smart-metering contract generally results in enough revenue for an MNO to pay for the necessary network software upgrades. But there aren’t many potential contracts out there in individual markets that are of the scale of a smart metering contract. Does that mean that the MNO that wins the first smart metering contract in a market can then afford to deploy the necessary network upgrades to deliver superior performance, also demonstrates that they are committed to the market, and thereafter cleans up? It might do.
There are a couple of potential solutions to this dynamic. First, NB-IoT networks could be deployed as national shared infrastructure. Given the low (absolute) margins associated with connectivity, the competitive dynamics in the NB-IoT space will always be very different to those in traditional MNO markets. And anyway, MNOs should compete for NB-IoT connections on the basis of their wider IoT capabilities, rather than simple cost per connection. A shared national network for NB-IoT could make sense in a way that it generally wouldn’t for traditional MNO services.
An alternative solution would be for network software vendors to offer the necessary network software on more flexible terms. Rather than a licence fee to upgrade a whole network, they could charge a licence fee per connected device. It would be more complex to administer such a scheme, but everyone would win: end-users would have access to better services and better coverage, investment in NB-IoT networks would be de-risked for MNOs, whilst network software providers would probably generate increased revenues (due to accelerated market growth, and also the premium that could be charged for de-risking MNO investments).
