Cellular M2M connections are set to reach more than 450 million globally by 2018, according to a new study from ABI Research.
The market-research company says that Europe dragged down worldwide connection growth in 2011 and 2012 but that an improving world economy will help connections to increase at a compound annual growth rate of 26% between now and 2018.
Nevertheless, while connections appear to have been growing, average revenue per user (ARPU) has continued to decline, notes ABI.
“The market for M2M connections can be classified as very competitive to hyper-competitive depending on the country,” said Dan Shey, a practice director at ABI. “As a result, connection ARPUs have declined dramatically over the last two years as operators fight for M2M business.”
A slower-than-expected migration to 3G and 4G technologies, which offer better margins per megabit of traffic, has contributed to the “pain of declining ARPUs”, reckons ABI.
Research indicates that more than 70% of cellular M2M connections were still on 2G networks in 2012.
Traffic and application needs have not grown sufficiently to warrant a shift to 3G and 4G connections, while 3G modules are twice as expensive and 4G modules as much as times as expensive as 2G ones.
Even so, recent deals have indicated rising interest in the use of higher-speed cellular technologies to support M2M applications, possibly because of rising concern about the prospects for 2G, with both AT&T (Dallas, TX, USA) and Verizon Wireless (New York City, NY, USA) – the two biggest operators in the US – saying they will shut down their 2G systems over the next decade.
The connected-cars agreement between Verizon Wireless and module maker Sierra Wireless (Richmond, Canada) is a recent high-profile example of a deal based on the use of LTE rather than GSM technology.
Despite the focus on connectivity, most M2M revenues come from other parts of the value chain.
“While connection revenues are important, the money in the M2M market is in value added services – applications, systems integration, big data and analytics,” said Shey.
“Operators dedicated to the M2M market are aggressively moving up the stack and either adding services or partnering to grow their share of the M2M pie.”