Low Power Wide Area Network for IoT: Will it be a Threat to MNOs?

Jun 09, 2016

There has been a number of emerging trends over the last few years but none has been given as much attention as the Internet of Things (IoT).  The concept behind IoT is not new. RFID has been used extensively for toll collection, tracking of goods and preventing shoplifting since the 1990s while M2M via Ethernet played a critical role in supporting supervisory control and data acquisition in factory floors. Notwithstanding that IoT has been used for a long time, rapid adoption emerged just a few years ago.

One of the drivers is that sensors have evolved to be small and economical enough to be embedded into ubiquitous objects. While sensorizing will entail giving them an identity and capturing data on things to be tracked, dumb objects must first be connected to the internet before they can be made intelligent. While IoT was historically deployed over a closed network, the evolution of ubiquitous connectivity is driving the growth of IoT. As various standards compete for dominance, cellular technology has established itself as the leading one. 

There is no doubt that cellular technology has thus far been suitable for many IoT applications especially for consumer devices. But not everyone agrees that mobile network providers (MNOs) are in the best position to support the connectivity requirements of enterprises in the commercial and industrial sectors.

The cellular network is more suited to support IoT applications with high bandwidth requirements. Moreover, utilizing cellular networks for industrial use might compromise the quality of experience of mobile subscribers as more devices get connected over time. So even though cellular was key to the growth of IoT, whether or not it will eventually monopolize the connectivity platform remains debatable. 

Enterprises in these sectors have different requirements from the consumer segment. Here, they have four key requirements for connecting mundane things like infrastructure, parts of a machine and surveillance devices. What they need is long battery life of at least 10 years, low subscription cost for a combination of critical and non-critical objects, low data throughput supported by short period burst of data transmission and a signal range that is comparable to cellular.

Efforts are currently underway by the cellular community. However, the cost of LTE-enabled chipset remains comparatively high at about US$40 each. Meaning that it is way too costly to be embedded into ubiquitous objects. How fast prices will come down will depend heavily on the economies of scale coming from deployments. On the other hand, LPWAN chipset are significantly cheaper at US$10 to US$15 each.

Another flaw of cellular technology is that it consumes too much power. Release 12 requirements by 3GPP is addressing this issue by capping data rates at 1 Mbps. Chipsets released by Altair is in compliance to this by offering lower speed in return for lower power consumption with battery life of up to 10 years for LTE-M. Release 13 is even more compelling with data rates at 200 kbps. Unfortunately, compatible devices will not be ready until 2017.

While competing standards from WiFi, ZigBee and Bluetooth also specialize in small data packets, their relatively short range means that they are more suited to be deployed in smart home applications rather than for industrial use.  

But MNOs are not without serious competition. Over the last few years, the emergence of low power wide area network (LPWAN) operators are raising the competition for MNOs in more ways than one. These players offer competing networks in the form of low power consumption and low throughput solutions. Its use of unlicensed spectrum bands means that significant cost savings can be translated into lower cost for their customers. They open the floodgates by deploying private networks for non-telecom entities. In doing so, it effectively erodes the value proposition of MNOs in providing connectivity.

Their threats to the viability of MNOs cannot be underestimated. Cellular networks are expensive for MNOs to deploy, costly to maintain and consume too much power. As it translates to higher cost for enterprises, cheaper alternatives are sought after for applications that do not require high data throughput.

The cost of building a LPWAN is relatively compelling. For instance, Sigfox could cover the city of San Francisco with 20 base stations, each one costing as low as US$2,000 to US$3,000 while the subscription cost per device per month is approximately US$1. To put it into context for comparison, the M2M service by an MNO will cost an enterprise US$2 for the same. There are competing LPWAN providers can go even lower than US$0.5 per device per month using LoRa’s open source solution.

Among the various LPWAN providers, Sigfox is generally leading the camp in terms of rollout. It offers a proprietary communication protocol in the form of ultra-narrowband technology that competes with cellular. Besides low power, it is building on its second value proposition. As it rolls out nationwide and city wide deployments, it is possible that roaming services across these destinations may be offered at local rates.    

However, LPWAN operators have their share of challenges such as getting major original equipment manufacturers to produce devices compatible to their network. An obstacle like this implies that compatible devices and components will remain costly. Any cost savings from the subscription will be offset by the total cost of ownership. As enterprises take a wait-and-see approach, OEMs will probably hold off any commitment until prominent drivers show up. Ingenu attempts to convince OEMs by driving widespread adoption with a nationwide public network in the USA.

So it is not just the superiority of each of their technology but more importantly the business model that they have that will determine whether or not LPWAN operators will have a long term viability. An important question to ask is whether some of these start-ups will still be around in 15 to 20 years’ time. On this note, MNOs offers a much safer bet.

Although LPWAN operators have yet to perfect their pitch, their value proposition and stakeholders’ backing thus far are strong enough to suggest that MNOs have to take their threats seriously and start deploying a parallel network to supplement their cellular. But even that will exert price pressure on MNOs as more and more enterprises deploy their own private LPWANs.

At this juncture, it seems obvious that the future of MNOs will no longer be in the connectivity business but in providing end-to-end solutions for their customers. There are billions of dumb objects that need to be connected but the money that can be reaped here is not significant if you compare it with smartphone subscriptions. So rather than counting the number of connected devices, MNOs should focus on target segments with innovative products, services and content that sit on top of a heterogeneous network.

MNOs are generally not known for being highly innovative but they have the financial means to involve various forms of start-ups to supplement their business. Innovations are commonly assumed to be in the form of applications but devices and/or wearables driving new use cases are just as critical. Partnerships with local start-ups serve to keep prices affordable to set the stage for early adoption.

As LPWAN is at a nascent stage, it is an opportunity for MNOs to adopt one of the standards for themselves. While the jury is out as to which LPWAN standard will eventually prevail, some degree of risk is inevitable in placing the right bet. As we draw a parallel between Sigfox and LoRa with the Apple vs. Google camp in deciphering whether a proprietary solution or open source protocol will dominate the connectivity platform, it should not come as a surprise if both will be neck-at-neck with each other for some time. Stalling for time will not produce an outcome that MNOs are expecting to see. At this point, Huawei already has already arrived at a decision with the acquisition of Neul, a start up from the UK using the Weightless standard.

While connectivity as a value proposition will continue to erode for MNOs, they have to find new sources of revenue stream. MNOs will have to rapidly evolve beyond connectivity play and applications as these become increasingly commoditized. But the business model will change as more and more data gets captured with a heterogeneous network. When that day comes, MNOs will have the ability to transform an industry with data products. 

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Serene Chan


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