M2M telematics: The need for flexible pricing models

M2M telematics: The need for flexible pricing models

As mobile network operators (MNOs) look to machine-to-machine (M2M) communications for growth, business models are still evolving. But wireless telcos aren't waiting to figure out the right pricing. Instead, MNOs are experimenting with tiered pricing and are also willing to work one-on-one with customers. "They will sit down with you and take a look at the overall business," says Roger Dewey, CEO of consultancy M2MV, “and they will price it on a deal-by-deal basis. This is something new over the last two years. Cloud computing is very hot." (For more on cloud computing, see Telematics and cloud computing: Hey you, get onto my cloud!, Telematics and the cloud: Building the business case and Cloud computing and fleet management.)

Indeed, telecom execs speaking at the recent Telematics Detroit conference broadcast loud and clear that flexibility is the new buzzword. At one panel, Sai Yagnyamurthy, manager of business solutions for Verizon Wireless, told the audience: "Verizon has customized data plans catering to embedded modules based on demographics like luxury or budget vehicles that OEMs can take advantage of. Any OEM working with us can work on multiple data tiers based on a wholesale and retail approach."

M2M connections of all kinds—Internet-connected TVs, thermostats, road sensors and many other devices—represent a lovely chunk of new business for the network operators. Research firm Analysys Mason suggests the total worldwide M2M device connections in the automotive and transport sector to increase from an estimated 21.6 million in 2010 to 276.5 million in 2020.

Internet-connected vehicles will communicate with a variety of remote servers to access applications and information in the cloud as well as to enable mobile phone calls, text messages and automatic updates of onboard software. (For more on M2M, see Telematics and M2M communications: The next step for the connected car.)

The price is right

"The operators in M2M are willing to look at what the business case is and the business model in order to help price it so it can be a successful application," says Dewey. They are very aggressive on pricing for things like meter reading, he notes, because it requires a very low-cost connection to tens of millions of units and can be done in the middle of the night. For a tracking application, however, for which the service provider gets around $29 a month for the app, operators will want more money.

Tim Johnson, Sprint's emerging solutions strategic opportunities manager, echoes that thought. "In terms of how and who pays for things, there's a lot more willingness to think out of the box,” he says. “In M2M, the churn situation is an utterly different story. Because they're physically embedded into something that will be used for years and years, you can have a longer view of your present value discussions."

The rise of automotive platforms for apps and services has also gotten wireless network operators off their obsession with the monthly recurring charge (MRC), Johnson says. He sees opportunities to produce revenue down the road from new models, including pay-per-use sessions, for example—a flat fee for a day's WiFi connection.

In addition to providing connectivity, Sprint wants to act as the orchestrator of the partner ecosystem, working with the Airbiquity platform to offer OEMs a complete "end-user experience," Johnson says. "There is a lot of opportunity in the space, and it will benefit many parties if some leadership is established." (For more on Sprint, see M2M telematics: Turning the OEM development model on its head.)

Appetite for risk

Verizon Wireless made the decision to go all-in on M2M two years ago, according to Aparna Khurjekar, executive director, open development, who handles M2M strategy and products for Verizon, integrating it into its core sales team, infrastructure and solutions. She notes that different OEMs have different appetites for risk. Many are willing to risk the opportunity for future revenue in return for less capital expenditure now. Verizon is willing to take on more of the upfront expenses and risk in return for a larger share of the revenue.

Khurjekar declines to give examples of revenue percentages being offered to or asked for by OEMs but says: "We have a framework, not one-off pricing, and we are all about providing flexibility in all M2M offerings. You want all the risk or none; we are here to work with you. We know one size doesn't fit all."

Bucking the trend, T-Mobile recently got out of the M2M racket, announcing that RACO Wireless will now handle new customers, although the carrier will continue to support existing customers. RACO was already one of T-Mobile's top partners. Emphasizing this shift in focus, John Horn, national director of M2M for T-Mobile, became president of RACO.

Pricing flexibility

Kathryn Weldon, principal analyst, enterprise mobility for Current Analysis, thinks the shift reflects the fact that, although T-Mobile pitched M2M for a long time, it always acted as a wholesaler. "They were very dependent not only on the partner ecosystem but also on mobile virtual network operator (MVNO) partners," she says. The move also establishes RACO's Omega platform for T-Mobile customers, while potentially easing the fears of M2M customers about the proposed acquisition of T-Mobile by AT&T.

"The service delivery platforms are providing this level of pricing flexibility,” Weldon says. That's important because some M2M applications are very low-usage, while for others operators simply can't charge that much. In these cases, according to Weldon, the service provider platforms make it fairly easy to provision as well as to come up with new rate plans.

In a recent briefing with RACO, Weldon saw several usage tiers, including an unlimited data option. Pricing depended on whether voice was enabled. "If they didn’t show some flex in the tiering structure, it would be crazy," she says.

Susan Kuchinskas is a regular contributor to TU.

For more on M2M, join the sector’s other key players at Telematics Munich 2011 on November 9-10 in Munich and Content & App for Automotive Europe 2012 in May 2012 in Germany.

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