Published on March 1, 2014
M2M and MVNOs Mobile telecommunications in 2014 Dr Martyn Taylor Partner January 2014
Overview GSMA intelligence: “M2M and MVNOs are driving current growth in mobile connections” (August 2013) Machine to Machine (M2M) growth • The M2M business model • Opportunities and international developments • Legal and regulatory issues • Case study: existing M2M operations and issues Mobile Virtual Network Operator (MVNO) growth • The MVNO business model • Opportunities and international developments • Legal and regulatory issues • Case study: the introduction of MVNOs in China Discussion 2 M2M and MVNOs – Mobile telecommunications in 2014 Dr Martyn Taylor Partner +61 45 777 4711 email@example.com
The M2M business model • Machine to machine (M2M) is the name given to a range of technologies that permit information to be exchanged automatically between machines or devices, without human intervention. • M2M has existed for many years (eg SCADA). However, greater use of low-cost broadband wireless and Internet applications is now driving innovation and rapid M2M market growth. • M2M covers a broad range of technologies and applications and has provides significant further potential for business innovation: • • More timely (including real-time) information flows. • Automated diagnosis and implementation of solutions. • Greater ability to react to information, providing greater control. • 3 Greater ability to collect more accurate information. Overall, greater efficiency and quality in service delivery. M2M and MVNOs – Mobile telecommunications in 2014
Elements of the M2M process An M2M process involves a number of discrete stages: • the collection of a data event by an autonomous hardware device, such as a sensor or meter; • the transmission of that data through a wireline and/or wireless communications network; • the receipt and analysis of that data by another autonomous device (sometimes as part of a set of data from multiple autonomous sources) using a telemetry-based software application; • the translation of that telemetry into meaningful information, including computer-generated directions given to further machines or humans. 4 M2M and MVNOs – Mobile telecommunications in 2014
M2M growth forecasts – a USD 1.2 trillion market Source: Machina Research (2012) • Currently around 2% of mobile connections, by 2022 this will increase to around 22%. • Global M2M revenue forecast to increase from USD 200 billion to USD 1.2 trillion, of which around 10% involves connectivity and associated services. • M2M data traffic usage is expected to remain low, at around 1 - 2% of network traffic. 5 M2M and MVNOs – Mobile telecommunications in 2014
Existing and future applications Areas of future innovation may include… • Remote security monitoring systems and monitoring smart metering for utilities 6 Qatar ‘Smart City’ initiative (Dec 2013) smart medical devices M2M and MVNOs – Mobile telecommunications in 2014 inventory management traffic management • law enforcement and surveillance • tailored insurance premiums • tailored products and marketing • anticipatory healthcare and support • intelligent transport networks ‘just in time’ inventory monitoring asset geotracking and monitoring • preventative maintenance • intelligent and networked cars • intelligent houses and appliances • information-intensive micropayments Automated provisioning
Customer expectations are driving industry innovation Customer expectation October 2013: Malfunctions in devices can be quickly distinguished from network malfunctions. Replacement of customer helpdesks with on-line network status reports and diagnostics. “The GSMA’s vision is a world empowered by the capability to remotely provision mobile operator credentials to support the huge growth of M2M devices.” Switching devices to different networks without swapping SIM cards. Embedded SIM cards with remote activation. Switching devices to different networks during a home network downtime. Domestic roaming where the home network has an outage. “To deliver this, the GSMA are working with operators and SIM solution suppliers from around the world to create a common, secure, interoperable architecture to facilitate the commercial deployment of systems that enable remote ‘over the air’ provisioning and management of the SIM.” Integrated M2M connectivity platforms, devices and software solutions. 7 Industry innovation Joint ventures and alliances between telcos and other suppliers of M2M solutions. M2M and MVNOs – Mobile telecommunications in 2014 “The automative industry is currently trialling the new remotely provisionable SIM to manage operator subscriptions and support the continuously evolving new services available in your car.”
Legal and regulatory issues • Common issue in 21st century telecoms are regulatory systems based on 20th century technologies. Pace of technological innovation has far exceeded pace of regulatory change. • While many legal issues are common to other technologies, there are some nuances and issues that are unique to the M2M environment. • Key issues: • • • • • • 8 spectrum management; device certification; numbering, data security and privacy; contractual liability. Also market liberalisation issues such as regulatory restrictions on roaming and restrictions on the use of MVNOs, as well as general competition policy where mobile operators refuse to provide access. M2M and MVNOs – Mobile telecommunications in 2014
Spectrum management • Key implications for spectrum policy: • greater flexibility in use of spectrum (technology neutral); • spectrum usage locked in for longer periods (e.g., 2G devices). • If an operator does not hold its own spectrum and wishes to sell M2M services, it would be necessary to enter into an MVNO or resale arrangement with an existing operator – see later slides. • Many existing wireless standards are optimised for traditional mobiles (high data rates with fewer devices), but would have difficulty supporting M2M (low data rates with many devices. • Some jurisdictions are considering allocating spectrum specifically for M2M purposes (e.g., US – auction in 2014 for 3.5GHz band). • Global industry standards are evolving, including in the context of LTE, to carve out a niche for M2M decides (e.g., low cost devices that use half duplex or single receivers on lower power levels). 9 M2M and MVNOs – Mobile telecommunications in 2014
Device certification • Most jurisdictions require certification of radiofrequency devices with certification requirements varying between regimes. • There are typically three layers of regulation: (a) regulator approval; (b) industry standards association approval; and (c) operator approval. The latter is often the most difficult to obtain. 10 M2M and MVNOs – Mobile telecommunications in 2014
Numbering – generally a scarcity issue • M2M devices require numbers to function, including: • IP-addresses (IPv4 and IPv6); • telephone numbers (E.164); • IMSI numbers (E.212). • Compatibility with IPv6 is mainly a software/firmware issue, so should be fixed. Regulatory intervention could be necessary to mandate updating of equipment. • Scarcity of E.164 telephone numbers is real risk, meaning that technology solutions may be required or that the ITU expands the E.164 numbering allocations. • A single network can allocate between 1 and 10 billion IMSI numbers, so IMSI number exhaustion is highly unlikely. • Open questions include whether M2M should have specific numbers and whether such numbers should be portable. . 11 M2M and MVNOs – Mobile telecommunications in 2014 Singapore IDA, April 2013: “It not clear when non- Mobile Subscriber Integrated Services Digital Network Number identification and addressing standards, e.g.,IPv6, for communication amongst M2M devices will be finalised and become mainstream for M2M addressing purposes.“
Data security and privacy • Significant increase in the range of information potentially gathered on individuals, including ability to assimilate and process information. • Key issues with generic privacy laws include: • obtaining consent to the use of personal data; • Requirements limiting the retention of personal data to defined periods; • Requirements regarding the security of personal data that is stored; • Restrictions on export of personal data to other jurisdictions. • Privacy laws can be applied to individual sectors and activities - such as collection of data from smart meters (e.g., California, Germany). • If proprietary rights exist in M2M data, it may be often unclear whether such data is owned by the end user, the distributor or the telco. The relevant contracts may need to address this issue. 12 M2M and MVNOs – Mobile telecommunications in 2014
Mobile Virtual Network Operators • A mobile virtual network operator (MVNO) is a company that provides mobile services but does not have its own spectrum, nor does it necessarily have all of the relevant network infrastructure. • Rather, the MVNO uses the spectrum and network infrastructure of an existing mobile network operator (MNO). • The MVNO enters into a wholesale arrangement with the MNO to obtain bulk access to the infrastructure of the MNO at wholesale rates. For example, it may buy airtime on a wholesale basis. • The MVNO supplies independently of the MNO in the retail market, as a competitor of the MNO, and can set its own retail pricing structures. • MVNO market is currently 3% of total mobile market. Hong Kong has world’s highest MVNO penetration at 7.5%. 13 M2M and MVNOs – Mobile telecommunications in 2014
Elements of MVNOs • The more elements in the core network the MVNO itself owns, the greater the functionality that the MVNO is able to offer that differentiates the MVNO’s services from the operator’s services. • An MVNO typically has its own customer service and billing support systems and its own customer relationship, marketing and sales personnel. • The MVNO does not own any spectrum and does not seek to share any of the radio access network (RAN) infrastructure (other than using the operator’s RAN). • An MVNO normally obtain bulk access to RAN network services at wholesale rates.
The MVNO business model • In mature markets, the existing mobile operators typically target the mass market, while the MVNOs target niche market segments that are underserved or have a low incumbent penetration: • Discount MVNOs, targeted at price sensitive consumers (eg Virgin Mobile). • Lifestyle MVNOs, targeted at niche market demographics, such as teenagers. • Ethnic MVNOs, targeted at particular ethnic groups, supported by cheap calls to the relevant home country. • Limited MVNOs, targeted at particular types of mobile services, such as data • As 4G LTE networks are being rolled out, we are also likely to see a growth in data-oriented MVNOs, such as M2M (see earlier slides). • A number of jurisdictions are achieving liberalisation by issuing MVNO licences, rather than permitting market entry by additional mobile operators. As a result, the number of global MVNOs continues to grow. 15 M2M and MVNOs – Mobile telecommunications in 2014
Categorisation of MVNOs RAN and spectrum Switching & core VAS & Apps Billing & CRM Subscriberspecific services Value added services Customer relationship management External interconnection Unique applications Interconnection revenue Rebrands SIM cards of network operator Branding & tariffs Own unique SIM cards and functionality Reseller Light MVNO Medium MVNO Heavy MVNO Full mobile operator Rebiller Customised invoicing Service differentiation Sales channels
Key differences between the categories ‘Skinny’ or ‘Light’ MVNO ‘Hybrid’, ‘Thin’ or ‘Medium’ MVNO ‘Thick’, ‘Full’ or ‘Heavy’ MVNO Does not own any spectrum or RAN infrastructure. Does not own any spectrum or RAN infrastructure. Does not own any spectrum or RAN infrastructure. Does not own any core network elements. Owns part of the core network for valueadded services. Has its own core network infrastructure. Does not issue its own SIMs, but rebrands those of the MNO. Does not issue its own SIMs, but rebrands those of the MNO. Has its own IMSI and network code. Responsible for its own billing and customer care. Responsible for its own billing and customer care. Issues own SIMs and is responsible for billing and customer care. 17 M2M and MVNOs – Mobile telecommunications in 2014
Network elements in a 3G MVNO 18 M2M and MVNOs – Mobile telecommunications in 2014
Interconnection in a 3G MVNO • • In this manner, a heavy MVNO can act as if it is a mobile network operator and negotiate interconnection arrangements separate from the MNO. • 19 M2M and MVNOs – Mobile telecommunications in 2014 Where the MVNO has its own network code, it has the ability to receive inbound calls at its gateway mobile switching centre. However, an MNO may have concerns that the MVNO may undercut the mobile termination rates offered by the MNO and transit calls.
Key commercial and regulatory issues Commercial: Regulatory: • • Rebillers, resellers and MVNOs tend not to be subject to significant regulation. • Mandated resale of mobile services is also less common, given existence of significant mobile competition in many jurisdictions. • Accordingly, there is a heavy emphasis on commercially negotiated arrangements. Regulators less inclined to intervene. • However, still scope for regulatory involvement to resolve issues with: • • • Rebill and resale arrangements are generally straightforward. The wholesale customer may acquire the retail service, less a wholesale volume discount. MVNO arrangements tend to be customised and non-standard hence are more document-intensive and heavily negotiated. MVNO arrangements may raise complex interconnect issues, such as whether mobile call termination charges are appropriate, and arrangements for MVNO interconnect with third party operators. May involve charges for transiting of calls, SMS, MMS. MVNOs offer heavily differentiated services. • network access and interconnection; • wholesale pricing (eg price squeezes); • discrimination (price and non-price).
Regulatory stance towards MVNOs • A regulatory regime friendly to MVNOs is important, given that MVNOs are dependent on the MNO and potentially at risk of discrimination. Regulatory stance Require MNOs to share with MVNOs Hong Kong, Norway Regulatory measures facilitate MVNOs Belgium, France, Denmark, UK Regime indifferent to MVNOs Australia, Canada, Japan, Portugal Discourage MVNOs Argentina, Bolivia Prohibit MVNOs • Example jurisdictions Italy, Greece Generally, nations that permit MVNOs have more competitive mobile markets. However, the extent of price competition associated with MVNOs will depend on the terms and conditions on which the MVNOs get access to the mobile networks of the MNOs. 21 M2M and MVNOs – Mobile telecommunications in 2014
China’s new MVNO policy • Over the past 15 years, China has built an extensive mobile infrastructure that now supports the largest mobile subscriber base of any country in the world. • In order to promote Chinese technology, the PRC Government required each of the three operators to use different 3G standards and technologies. • Following concerns with insufficient competition in PRC telecoms and a stagnation of investment and innovation, the PRC Government has been taking steps to open up the sector, but in a limited manner. • China is adopting an MVNO programme in which market entrants are permitted to acquire wholesale minutes from existing mobile operators and resell them at retail. • China is expected to announce which companies have been selected as the MVNOs by the end of this year. 22 M2M and MVNOs – Mobile telecommunications in 2014
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