Opportunities and Challenges in the U.S. Cellular Machine-to-Machine Communications Market

Vikrant Gandhi, Senior Industry Analyst

Mobile & Wireless CommunicationsJune 29,2011

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Presenter for Today

Vikrant GandhiSenior Industry Analyst, Mobile & Wireless Communications

Frost & SullivanNorth AmericaSan Antonio

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Focus Points

5 Cellular M2M Communications – Vertical Segmentation

7 Cellular M2M Communications – Key Drivers Summary

2 U.S. Cellular Market—Market Engineering Measurements

1 Connected Devices Ecosystem – Market Segmentation

3 U.S. Mobile Communication Markets – Connections, Voice Revenues, Data Revenues

4 Machine-to-Machine (M2M) Communications – A Simplified View of the Value Chain

8 Cellular M2M Communications – Key Challenges Summary

9 Cellular M2M Communications - Market Forecasts

10 Cellular M2M Communications - Other Key Highlights

11 Cellular M2M Communications – Overview of Operator Strategies

6 Key Market Realities in Cellular M2M –Past , Present and the Future

12 Cellular M2M Communications – Key Conclusions

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Connected Devices Ecosystem – Market Segmentation

Mobile & Wireless Connected Device Ecosystem

Feature Phones

Smartphones Mobile Computers

Tablets M2M

Notebooks Netbooks Air Cards

Consumer Electronics

Transportation & Telematics

Financial Services &

Retail

Healthcare /Wellness

Smart Grid, Utilities,

Industrial

Security & Home/Building

AutomationOthers

eReaders

Connected Display,

Navigation, Gaming

Vehicle Convenience,

Safety, & Diagnostics

GPS & Fleet Tracking

POS Terminal Solutions

Vending Machines, ATM,

Kiosks

Wireless Patient Monitoring

Patient Care & Scheduling

Smart Metering, Smart Grid,

Utility Routers

Remote Telemetry,

SCADA

Intrusion Detection &

Safety Systems

Remote Surveillance,

Access Control, Building

Automation

Business Apps

Miscellaneous Systems

MiFi

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U.S. Cellular Market—Market Engineering Measurements

Market Stage

Mature

Market Revenues

$172.6 B

(2010)

Mobile Connections

311.5 M

(2010)

Average Revenue Per Connection

~$52.50

Connections at End of Forecast Period

418.0 M

(Projected 2017)

6 Year Forecast Feature Phones

6 Year Forecast Smartphones

6Year Forecast Mobile Computing

6 Year Forecast M2M Market

6 Year Forecast Tablets

Market OverviewMobile Connected Devices Market: 2010-2017

Stable IncreasingDecreasingNote: All figures are rounded. The base year is 2010. Source: Frost & Sullivan analysis.

(Revenue/Connections/12)

(CAGR)

Connections:

Data Consumption:

-21.0%

-2.0%

(CAGR)

Connections:

Data Consumption:

20.4%

49.1%

(CAGR)

Connections:

Data Consumption:

18.4%

36.7%

(CAGR)

Connections:

Data Consumption:

49.0%

91.8%

(CAGR)

Connections:

Data Consumption:

22.3%

38.6%

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U.S. Mobile Communication Markets – Connections, Voice Revenues, Data Revenues

Connections and penetration expected to exceed 400 million and 125 percent respectively by 2017.

Wireless will become the prime data connectivity medium for multiple types of devices which will drive adoption.

Total market revenues to reach $ 240 billion by 2017. Within the next five years, data revenues will exceed voice revenues.

Eventually, all services – including voice will be packet-based and all we will have it plans for ‘data’.

Source: Frost & Sullivan.

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Machine-to-Machine (M2M) Communications – A Simplified View of the Value Chain

Data Collection

Data Sharing

Data Interpretation

M2M Devices and Endpoints

Wireless / Wireline Networks

Enterprise Backend Systems

In its simplest form, M2M communications refers to data sharing between endpoints (electronic devices) and an enterprise backend systems through a wireless/ wireline channel. The device may be used for monitoring, control and notification, or information sharing and presentation purposes.

Key Functions

Key Enablers

Key ParticipantsDevice & Module

VendorsAccess Network

Providers Application /

Platform Providers

IIIIII

Communication Flow

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Cellular M2M Communications – Vertical Segmentation

•Laptops/Netbooks/Notebooks•eReaders• Others - Connected Consumer Display, Picture Frames, Others

•Laptops/Netbooks/Notebooks•eReaders• Others - Connected Consumer Display, Picture Frames, Others

Consumer ElectronicsConsumer Electronics

• Vehicle Convenience & Safety• Vehicle Diagnostics• Others - Fleet & Asset Tracking, Others

• Vehicle Convenience & Safety• Vehicle Diagnostics• Others - Fleet & Asset Tracking, Others

Transportation and TelematicsTransportation and Telematics

• Patient Monitoring & Reporting• Adherence & Reminders• Others - Patient-Provider Collaboration(video communication, image uploads & management), Others

• Patient Monitoring & Reporting• Adherence & Reminders• Others - Patient-Provider Collaboration(video communication, image uploads & management), Others

HealthcareHealthcare

• Intrusion Detection & Safety Systems• Remote Surveillance & Access Control• Others - Roadside Speed Monitors, Automatic Lighting Controls, Others

• Intrusion Detection & Safety Systems• Remote Surveillance & Access Control• Others - Roadside Speed Monitors, Automatic Lighting Controls, Others

Security & SafetySecurity & Safety

• Smart Grid Components• Industrial Monitoring & Control Applications and Devices• Others - Industrial Routers, M2M Gateways, Agriculture Systems, Others

• Smart Grid Components• Industrial Monitoring & Control Applications and Devices• Others - Industrial Routers, M2M Gateways, Agriculture Systems, Others

Utilities & IndustrialUtilities & Industrial

• POS Terminals & Devices• ATMs, Vending Machines, Kiosks• Others - Digital Signage, Asset Tracking

• POS Terminals & Devices• ATMs, Vending Machines, Kiosks• Others - Digital Signage, Asset Tracking

Financial Services & RetailFinancial Services & Retail

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Key Market Realities in Cellular M2M – Past , Present and the Future

2000-2008 2009-2011 2012-2016

Medium HighLowSource: Frost & Sullivan.

Market Adoption

Customer Care Requirements

ARPU

Bandwidth Consumption

3G/4G Usage

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Cellular M2M Communications – Key Drivers Summary

Other Unique Aspects

of Cellular M2M – Mobility, Location

Strong Demand from Different

Industry VerticalsProven Benefits &

Industry’s Experience with M2M

Support & Focus of Mobile Operators

Independent M2M Service Providers and M2M MVNOs

Lower Pricing for Modules & Data – Esp. over 2G-2.5G

Source: Frost & Sullivan.

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Device & Module Certification

Immense Service & Support

Requirement for Evolving M2M

Market

Need to Generate Price Premium –

‘Beyond Bandwidth’

Pricing

Driving Adoption of 4G

What to Focus On –

Connections or Revenues?

Cellular M2M Communications – Key Challenges Summary

Source: Frost & Sullivan.

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Cellular M2M Communications - Market Forecasts

M2M connections on cellular networks in the United States to exceed 75 million in 2017.

These figures do not include laptops, netbooks, notebooks and tablets, which would be in tens of millions as well .

Top three categories by connections will likely be Transportation and Telematics, Consumer and the Utilities and Industrial.

In many cases, a single endpoint (such as a rugged router) will support a large number of other connected devices. The ‘wireless-supported’ vertical breakdown will likely look very different then.

Source: Frost & Sullivan.

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Cellular M2M Communications - Market Forecasts (contd..)

A large majority of cellular M2M connections still use 2G-2.5G networks. This is changing rapidly due to a strong adoption of consumer devices as well as various other high-bandwidth applications across the other verticals ( in-car infotainment, security and surveillance, digital signage, and others).

Source: Frost & Sullivan.

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Cellular M2M Communications - Other Key Highlights

5

6

2

Different pricing for different speeds

Role of M2M cloud to become increasingly important going forward

Base data access revenues of more than $ 4.0 billion by 2017

1 Annual data consumption of nearly 7000 million MB by 2017

3 4G module pricing to become less than half of what it is today

4 Tiered pricing for high-bandwidth M2M applications to become more prevalent

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Cellular M2M Communications – Overview of Operator Strategies

Optimize Data

Pricing

Certification & Training

Other Value-added

Services

Promote M2M

MVNOs

Partnerships &

Ecosystem

The Network

• Reduce time for network certification

• Approve devices with approved modules faster

• M2M innovation centers

• Tiered Pricing• Low pricing for slower

networks, off-peak hours

• Position high-speed networks for high-bandwidth M2M apps

• Complete network enhancements to support M2M

• Partner with specialized M2M platform vendors to simplify device on-boarding and management

• Focus on vertical solutions

• Rely on specialized M2M service providers

• Enable business collaborations through their network platforms

• Multiple pricing options – large vs. smaller upfront investments

• Reduced limits of liability

Source: Frost & Sullivan.

Operator Strategy for

M2M

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Cellular M2M Communications – Key Conclusions

Strong growth expected in the M2M communications market in the United States

Virtually all segments of the value chain working hard to support growth of the

M2M segment

Ease of deployment ,and ease of management of existing implantations will be

the key to achieving long-term success in this market

Frost & Sullivan believes that eventually, both direct connections and revenues

from M2M could become larger than traditional mobile phone business in

several regions of the world, including the United States – this could take

anywhere from 12 to 24 (or 30) years.

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For Additional Information

Mireya EspinozaCorporate CommunicationsInformation & Communication Technologies (210) 247-3870Mireya.espinoza@frost.com

Craig HaysSales ManagerInformation & Communications Technologies(210) 348-6420chays@frost.com

Brent IadarolaGlobal Research DirectorMobile & Wireless Communications(210) 481-0752biadarola@frost.com