In the recent Transforma Insights Communications Service Provider IoT Peer Benchmarking Report, we identified a series of key trends in the cellular IoT connectivity landscape. One of the major macro-level trends was the continuing requirement for MNOs and MVNOs to find mechanisms to differentiate their propositions.
In large part the requirement to do so is a reflection of the need to mitigate continuing declines in average revenue per connection. In the report, we note that this challenge can be somewhat overstated as much of it stems from increasing support for low revenue use cases rather than necessarily precipitous declines on a like-for-like basis. Nevertheless, there is a perpetual requirement to continue to support growing numbers of connections at a lower cost-per-unit. The overall impact is that CSPs continue to look for mechanisms to reduce costs, differentiate propositions and diversify revenue.
Differentiation of the service offering and securing additional revenue streams are two sides of the same coin. Effective differentiation tends to mean higher revenue per connection for the core connectivity proposition. In the report we highlights of the ways that CSPs can differentiate their propositions, based on 6 ‘S’s, Supply, Scale, Software, Services, Solutions, and Systems.
This relates to the main core connectivity proposition from CSPs, i.e. wholesale and roaming data access. In many cases the most successful MVNOs have been those that have managed to secure through relationships with MNOs a set of direct access agreements or similar that set them apart from the majority of their peers which build undifferentiated propositions based on sponsored roaming agreements and MVNE offerings. The shift to more eSIM localisation potentially upsets the existing dynamics, with implications for some operators. Both MNOs and MVNOs need to strike new trusted partnership arrangements.
Scale economics also very much comes into play for IoT connectivity. While the underlying pricing model is cost+, i.e. a mark-up on a price per GB of data, over which the CSP has little control, there are ways to differentiate an offering through scale. Bigger scale gives greater negotiating power in direct access agreements. A side benefit of that is likely to be having access to more, and varied, networks per geography, which is increasingly important in a fragmented technology landscape. There is also a benefit of spreading fixed costs, such as for in-house developed middleware, or even implementing compliance or security features, across a larger revenue base.
The middleware to support IoT connectivity is broadly similar across most CSPs, particularly at the basic level of SIM management, billing, and reporting. However, there is also a quite wide range of additional features available to enhance the proposition, including eSIM management, cloud integration, and security. This can include in-house and third-party value-added services. It has always been a struggle for most CSPs to monetise additional features, but we have noted enterprise adopters favouring CSPs based on features and functionality. We include also the increasingly sophisticated - but still relatively nascent - use of AI, e.g. for anomaly detection. We also suggest that adding ‘AI’ to VAS may provide a much-needed bump.
Here we consider professional services, ranging from higher tier customer support through enhanced pre-sales/post-sales to full consulting and systems integration. This incorporates development labs and, particularly, hardware development support. All of these may or may not be directly monetised. Some of the additional services are very much brand-oriented, or even 'vibes-based', i.e. positioning the CSP as providing a higher degree of trust, counter-party risk and compliance. In a space where differentiation is difficult, having a long heritage and/or being associated with a strong and trusted (usually telecoms) brand is a potential line of differentiation.
There is a perpetual debate about going 'up-the-stack' to deliver end-to-end solutions. Few CSPs have ever done this particularly successfully. Even modest success is heavily dependent on the CSP having a 'right to play' in very crowded marketplaces. For most CSPs this applies only to a few, if any, verticals. However, we note lots of innovation recently in more horizontal capabilities relating to video analytics, managed gateways, branch connectivity, and some non-IoT use cases, applicable across numerous verticals. We also consistently advise CSPs to focus on 'contextualisation', i.e. presenting a horizontal proposition in a way, and place, that is appropriate for verticals.
Reducing the cost-to-serve IoT connections drives a requirement to streamline the underlying systems and processes, something upon which many CSPs have been focusing a lot of attention in the last year. This includes more automation, including self-service portals, cost optimisation tools, proactive incident management, and automated and integrated ordering and fulfilment systems. It also includes new approaches to globally deployed cloud-based infrastructure, and typically a favouring of opex-based approaches, over those requiring high capex spend.
You can learn more about the approaches for Communications Service Providers differentiation of IoT services in the Communications Service Provider IoT Peer Benchmarking Report.
