If current trends continue, consumers will be spending more time on carrier-provided services whether or not they realize it.
The rise of the Internet of Things (IoT) opens many new doors for telecommunications companies to explore additional revenue streams and customer relationships. And the timing couldn't be better: Telcos across the globe face tough market conditions as a result of increasing competition from over-the-top players, high subscriber churn rates, and shrinking margins.
Gartner predicts that by 2020, 20.8 billion connected things will be in use worldwide. The research firm also estimates that the IoT will support total services spending of $263 billion by 2020."IoT services are the real driver of value in IoT, and increasing attention is being focused on new services by end-user organizations and vendors," saysJim Tully, vice president and analyst at Gartner, in a statement.
The telecom industry faces a huge opportunity to provide added value in an economy increasingly powered by connected devices. Industry experts highlight the lucrative areas for telcos to pursue in an IoT landscape and the complex customer experience issues that will need to be addressed.
What can telcos do in an IoT world?
The IoT offers telco companies a wide variety of avenues to explore. Starting with network connectivity, carriers could provide the infrastructure to connect more sensors and machines. Indeed, companies are already planting stakes in this area. In January, AT&T launched its Smart Cities framework in partnerships with Cisco, Deloitte, Ericsson, GE, IBM, Intel, and Qualcomm Technologies to build connected communities. The framework will enable cities to remotely monitor road conditions, water systems, and traffic lights, and even detect gun shootings.
Of course, network connectivity is only the beginning, notes Christian Renaud, research director of 451 Research's Internet of Things practice. Carriers can also provide analytics and vertical applications as a service or create a partner ecosystem that plugs directly into the cloud.
"If you're looking at this in the boundaries of the U.S., telcos could go crazy with all sorts of solutions, systems integrators, and app stores in addition to monetizing their own cloud, and that will be the battlefield," Renaud says. "The question will be, where do your apps reside? Do they reside with who provides your bandwidth or do they reside with the person who provides your cloud?"
Another key issue is who will be accountable for the customer experience, observes Daniel Lyons, an associate professor at Boston College Law Schoolwho specializes in telecommunications, property, and administrative law. Using connected sensors as an example, "you have the expertise of the tech company that designs the sensor and puts the software in it, and also the expertise of the telco that connects the sensor to the database, but it's not clear who will be leading the way in shaping the value proposition for the customer."
AT&T, Verizon, and T-Mobile did not respond to a request for comment on the IoT. Some companies appear to be waiting for the market to gain more speed before jumping in. In a December blog post, T-Mobile CEO John Legere predicted that in regard to the IoT "in 2016, we'll start to see some real implementations practicedand for T-Mobile, when we see these markets get ready for prime time, we'll be ready to disrupt them."
What about net neutrality regulations?
The Federal Communications Commission (FCC) reserves the right to "review telco activity that it views as unreasonable interference in the relationship between a customer and an Internet-based service, but the FCC is supportive of IoT services," Lyons says.
In October for example, the FCC approved measures to open up four wireless frequencies above 24 gigahertz for "flexible use." Doing so helps free up resources to support fifth-generation (5G) wireless technology that is expected to underpin many Internet-connected devices and objects. "The move to bring to market high band spectrum in bands above 24 GHz offers the potential for increased capacity and speeds, lower lag time, and high density connections to unleash the Internet of Things," notes Scott Bergmann, vice president of regulatory affairs at CTIA-The Wireless Association, in a statement.
But while it's unlikely that telcos will try to throttle traffic speeds for Internet-connected devices, they might still be accused of monopolistic behavior. "As telcos provide more and more services at the network edge, competitors could say this gives telcos a last mile advantage and that they're monetizing in an unfair way," Renaud says. For example, AT&T could potentially offer cities edge analytics about the data they're capturing from traffic light sensors exclusively through an AT&T network, which would "piss off" other players like Cisco and Intel. "Telcos are positioned on a really good place in the battlefield to make that kind of play," Renaud observes. "And I'm sure there are some who would object because that closes out a large portion of the IoT market."
Adding more complexity to customer service
Telecom companies are accustomed to managing a relative handful of devices and services with mixed results. Bundled services and "triple play" packages were a big win for telcos when consumers saw the convenience of getting their telephone, Internet, and television programming from the same provider. The IoT, however, introduces even more complexity.
Companies that offer IoT services will need to understand not only the technology of the smart home, for instance, but how to deliver and manage higher levels of customer service, observes Charles Sutherland, chief research officer at HfS Research. "In every example of IoT, there are varying levels of overlap in terms of who's doing what and for telcos, it'll be a challenge to provide customer service," Sutherland says. "You're already seeing it when they stumble over home automation."
Nest, the Google-owned smart thermostat company, stumbled recently when a faulty software update caused some Nest smart thermostats to shut down or behave erratically. Customers took to social media and community forums to complain.
"Nest becoming slow, non-responsive, and not heating yet again. Software glitch needs to B fixed ASAP! Close to throwing it away," tweeted a customer under the hashtag #nestfail. "Woke this morning to a dark NestThe battery was completely drained," a user wrote on a forum. "During the winter, this isn't a good thing."
Nest released a software update to fix the issue and provided instructions on its website on how to reset the thermostat manually if customers were still experiencing difficulties. Waking up to a cold bedroom points to a much larger issue though: Software glitches will have a greater impact as more devices become connected online. And as telcos expand their reach, "the carrier who also handles your Internet access could also be your content provider, your security provider, and provide a multitude of other services," notes Rob Frieden, professor of telecommunications and law at the College of Communications at Pennsylvania State University.
Given how deeply embedded telcos are in homes and in businesses, their role in managing the customer experience becomes crucial, presenting both a significant opportunity to better serve customers but also new challenges. Consumers should expect to experience "some horror stories" before best practices are developed around the IoT, Frieden adds. "On a good day, you'll be able to say look at all this efficiency and convenience," he says. "On a bad day, someone's hacking my car and turning down my thermostat."