21.03.2019 by Pamela Buchwald

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The digital economy is built on networks. According to a study by Ernst & Young (EY), this offers telecommunications companies plenty of opportunities for growth. But first: They have to develop new business models based on the Internet of Things and machine-to-machine communications. 

The network expertise of the major telecommunications providers – also known as telcos – is undisputed. But that doesn’t necessarily guarantee solid business in the future. The Ernst & Young study "More than Connectivity – Digital Opportunities for Telcos" warns against relying on networks as the sole business model due to the tough competition and price pressure. It would be better to exploit the opportunities provided by digitalization and develop new business models for the Internet of Things (IoT) and M2M communications, which can be built on the companies’ existing network infrastructure. There is huge potential: EY expects global IoT/M2M revenues to rise from $656 billion in 2014 to $1,677 billion by 2020. 

According to the study, a good 80 percent of the world's leading telcos are aiming for IoT business models. That’s hardly surprising. In the Industry 4.0 ecosystem, connectivity and transport services account for only between 5 and 14 percent of total sales. The EY experts therefore advise telcos not to leave the rest to online and software companies such as SAP, Intel, Google and Amazon or to the platforms of industrial groups such as Bosch, Siemens or Trumpf. Instead they should build their own digital service portfolio from the Cloud.  

INTELLIGENT NETWORKING: FOCUS ON INDUSTRIAL COMPANIES

Particularly since many customers still have some catching up to do when it comes to M2M. According to EY, 40 percent of manufacturing companies in Germany currently use IoT applications, while the figure for service companies is already 47 percent. Meanwhile, 14 percent of industrial companies plan to enter Industry 4.0 in the short term, compared to 6 percent of service companies. EY’s tip: This sector should therefore be the focus of attention for telecommunications companies.

PARTNERSHIP AS A RECIPE FOR SUCCESS

The EY study considers the telecommunications companies to be in a good position when it comes to the business of intelligently networking objects via the Internet and analyzing the data this generates, thanks to their reputations and their expertise in 5G and security. However, since no one company is currently in a position to develop and offer the full range of IoT applications from sensors to apps, the study advises partnerships with business customers. With the support of partners and their own IoT platforms, telecommunications companies can position themselves as service enablers across the entire value chain: in addition to their own networks, they offer SIM cards and sensors, device management, analysis and visualization tools and IoT services for various industries. 

TAILOR-MADE INDUSTRY 4.0 SOLUTIONS IN DEMAND

The areas where M2M applications can be used is also growing in the B2B sector: the agricultural industry is remotely monitoring its arable land, the retail industry is developing new marketing strategies to evaluate the purchasing behavior of its customers, smart factories can use predictive maintenance solutions to reduce their machines’ downtime and logistics companies can track the transport routes of their freight thanks to the energy-saving NarrowBand IoT radio technology. However, many companies are still not aware of the business opportunities that the Internet of Things provides. This is where the telcos, with their broad customer base and knowledge, come in. Johannes Kaumanns, Vice President of IoT Strategy and Business Development at Deutsche Telekom, agrees: The challenge with regard to IoT is "to gain a broad understanding of customer-specific processes and thus to identify optimization and innovation potential through tailor-made end-to-end IoT solutions."

OWN PLATFORMS REQUIRED

If you want to launch an IoT business model, you have to fulfill three important conditions: Telecommunications companies must build an open technological platform that guarantees the connectivity and interoperability of IoT devices. The IoT services can be commercialized on a service platform that also integrates the IoT offerings of partners. According to EY, anyone who wants to professionalize their own IoT offering needs, first and foremost, a clear customer focus.