Telematics and network operator business models

The biggest telematics news at the Consumer Electronics Show in Las Vegas was Delphi's cloud-connected aftermarket device, Vehicle Diagnostics by Delphi. It promises to be compatible with most cars sold in the United States in 1996 or later, offering diagnostics, vehicle locating and tracking, security and monitoring.

Even more interesting is that Vehicle Diagnostics by Delphi will be sold by Verizon Wireless at its retail outlets, with the first generation expected to hit stores in March. While telecoms have delivered car-related apps through their app stores, this is the first time that one will sell an automotive device. (For more on apps, see Industry insight: Telematics and apps.)

Victor Canseco, director of software and services for Delphi, says his company has been actively looking for partnerships outside the traditional automotive ecosystem, and one with Verizon was natural. Beyond the mobile connectivity itself, he says, "Verizon Wireless, through its retail presence, can bring together the mass market in the United States. One of the biggest problems for a product like this, before we innovated on the business model, was, Where do you buy this product?"

Most consumers going to an auto parts store are not in browsing mode, nor are they thinking about connected devices there. In a store that sells phones and tablets, on the other hand, adding on telematics makes more sense. This partnership may not have worked, of course, without Verizon's purchase of Hughes Telematics last year.

Ecosystems and technology

Praveen Chandrasekar, Frost & Sullivan's telematics and infotainment program manager, points out that Verizon has had a relationship with GM since OnStar, but "they have just been very passive. Now they realize that, using their technology and capability, they can play a much broader role in this game. They have the ecosystem and the technology, why be held back in a passive role?"

But maybe not all the capacity, says Mark Boyadjis, senior analyst and manager, infotainment and HMI, for IHS Automotive: "The big question is whether or not Verizon knows how to sell those systems in its own stores. Installation is not the problem; it's the questions and the compatibility. If people have issues, will normal Verizon employees at each store be eloquent enough to talk about telematics systems?"

Canseco says that Delphi expects to handle tech support, and the two companies are working to coordinate their call centers, so that device-specific calls can be routed to Delphi's agents.

Selling to fleets

Another advantage for telecoms morphing into telematics device or applications providers is their existing customer relationships. Sprint is another carrier selling telematics applications directly to customers, most recently teaming with Aegis Mobility to offer the FleetSafer distracted driving application.

FleetSafer is software for mobile devices that auto-activates when the vehicle is in motion, preventing texting, emailing and Web browsing. The product also works in conjunction with the OBD2 port and can be triggered by the GPS on the handset or embedded telematics devices in the vehicle.

Last year, Sprint launched DriveFirst, another Aegis product, which is a consumer-safety application that blocks calls and texts while the car is in motion.

According to Kevin Quirk, product marketing manager for Sprint, Sprint will take the Aegis-branded FleetSafer into its own enterprise sales channel and bill on behalf of the provider. "If a customer already has an agreement with Sprint, it's easier to purchase it directly from us," he says.

He sees selling these services as expansions of the model Sprint has used for close to 10 years. "With Sprint having such a background in fleets before, and our penetration with Nextel Push to Talk [now Sprint Direct Connect] we are seeing great deal of interest from our existing fleet customers, in the tens of thousands." He adds that, "without giving guidance," Sprint's 2013 strategic plan includes quite a few more solutions, with probably 50 percent developed in-house. (For more on fleets, see Industry insight: Fleet telematics.)

Levels of complexity

Nancee Ruzicka, director, OSS/BSS Global Competitive Strategies, for Stratecast, a division of Frost & Sullivan, says there are a couple of reasons why mobile network operators are taking the lead in creating and marketing telematics applications.

First, the communications part is hard. Ruzicka says that OEMs originally thought, "We'll just buy the service and plug a SIM card in." While that might work, she says, it's expensive, hard to track services among networks and hard to manage them. Now, OEMs are saying to operators, "We'll let you put it together."

Second, it took a while for wireless network operators to get their systems in order. While they've managed to handle the complexity of mobile phone apps, games and services, automotive applications add another level of complexity. Ruzicka says, "They've been dealing with complex things forever. It just took them a while to get their operational structure there."

Still another change in the role of network operators is an increase in partnerships among themselves. Noting that KPN, NTT DOCOMO, Rogers, SingTel, Telefonica, Telstra and VimpelCom announced a global M2M partnership for roaming and development of other M2M services, Steve Hilton, principal analyst at Analysys Mason, says that this is due to the rapid, multi-national growth of M2M. Analysys Mason forecast 124.4 million M2M device connections at the end of 2012, growing to 2.1 billion connections by 2021. (For more on M2M, see Industry insight: Telematics and machine-to-machine communications.)

In a research note, Hilton wrote, "We expect these seven carriers to provide connectivity solutions and a variety of M2M managed and value-added services including SLAs, systems integration and managed security services."

Hilton says, "Some of these operators that work in one country or a few want to partner up. These alliances are trying to take the problem of the connectivity jigsaw puzzle away." Most of the carrier alliances are coalescing around M2M platforms, according to Hilton. "The idea is that the platform makes it easier to onload and offload the communications chip in these M2M modules, as well as activate or deactivate them, and manage the billing function. It makes it easier for the buyers who want to buy an international solution."

Rise of CSPs

Stratecast's Ruzicka sees still another role emerging for network operators, what she calls a communication service provider, or CSP. These are replacing the telematics service providers, or TSPs.

Sometimes, the network operator is in the background, handling the back end of things. For example, Sprint established, hosts, operates and maintains Chrysler's Uconnect Access service via Velocity, Sprint's connected vehicle solution. When drivers sign up using the screen in the vehicle, they go to what looks like Chrysler's service center but what is actually Sprint's back office.

In a recent research report, Ruzicka called Uconnect "the tip of the M2M iceberg for communication service providers. She added, "Most businesses are realizing, as did Chrysler, that fulfillment, assurance and billing are best left to CSPs.

At the end of the day, telcos have an ace in the hole. "The key piece in telematics is a cellular connection with the ability to send data," Frost's Chandrasekar says. "They hold the key. OEMs can manufacture a box to hold the technology, but these are the guys who control the costs. So they are a key member in the business model."

Susan Kuchinskas is a regular contributor to TU.

For more on network operators, see Industry insight: Telematics and apps and Industry insight: The connected car.

For more on network operators, visit Telematics Detroit 2013 on June 5-6.

For all the latest telematics trends, check out Telematics for Fleet Management Europe 2013 on March 19-20 in Amsterdam, Telematics India and South Asia 2013 on April 17-18 in Bangalore, Insurance Telematics Europe 2013 on May 7-8 in London, Content & Apps for Automotive Europe 2013 on June 18-19 in Munich and Telematics Russia 2013 in September in Moscow.

For exclusive telematics business analysis and insight, check out TU’s reports: In-Vehicle Smartphone Integration Report, Human Machine Interface Technologies and Smart Vehicle Technology: The Future of Insurance Telematics.

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