MARKET STRATEGY: Taking a spin into the future
27 October 2015 | Gareth Willmer
The era of the ‘connected’ car is providing new opportunities for telecoms operators in the automotive sector. Which carriers are positioning themselves in the fast lane?
The Back to the Future film series predicted that flying cars would be all the rage in 2015. With the year drawing to a close, the chances of us seeing fleets of these vehicles take to the skies any time soon sadly looks slim. But rising carrier focus on multiple aspects of connected vehicles means this vision is perhaps lodged somewhere in the back of their minds.
Indeed, other developments that would have similarly seemed pure fantasy just a few years ago are now starting to become reality, with serious talk about self-driving vehicles and advances in, for instance, cars that can check their own health and improve their performance on the go.
And predictions suggest the automotive arena is a sector that industry observers expect to fly in the coming years. For example, Gartner has forecast a quarter of a billion connected vehicles on the road by 2020, equating to as many as one in five worldwide.
Carriers therefore appear to have a big opportunity to put their foot on the gas in this growing segment and strike up closer links with car companies, or original equipment manufacturers (OEMs). Legislation also looks set to have a hand in spurring operators towards the age of the connected car – with, for example, rules that require all new EU cars from 2018 to contain technology that contacts emergency services in the event of a crash.
“Telcos with comprehensive telematics offerings that are able to offer OEMs a menu of services have the potential to draw much value from this growing opportunity,” says Morgan Mullooly, an analyst at research company Analysys Mason.
AT&T is a carrier that repeatedly comes up in discussions on the connected car, with its heavy involvement in this arena leading to accelerating growth. The company gained one million net additions in its connected-car segment in the second quarter of 2015, by far the main factor behind one of its highest-ever quarterly rises in connected devices of 1.4 million.
AT&T has struck multiple deals with automotive OEMs, with the nine signed up so far including players such as Audi, Ford, General Motors (GM), Jaguar, Land Rover and Volvo. It has also teamed up with companies in other parts of the value chain, such as telematics and applications provider Autonet Mobile.
Furthermore, AT&T has launched its own services to aid growth in the sector, unveiling two big initiatives in January 2014: the Drive Studio, a dedicated facility for connected-car innovation and research; and the Drive platform, a modular global service that enables vehicle manufacturers to customise their offerings, and provides features from connectivity and billing options to data analytics and infotainment.
“The connected-car space is one of the bigger opportunities that we see here at AT&T,” says Joe Mosele, VP of the company’s IoT segment. “This has been far from an overnight success. It’s something that we’ve been looking at as an opportunity for the last seven to eight years.”
Mosele says AT&T views the connected car as “the ultimate mobile device”, representing the next big chance to hook people up to mobile networks because of the variety of opportunities it offers – from pure connectivity to over-the-air updates, navigation services and infotainment. “A lot of machine-to-machine verticals are growing, but there’s nothing growing as quickly as the connected car,” he says.
One of the reasons for AT&T’s recent success in the sector, says Mosele, is that the company understands that it is not a “one-size-fits-all” market and therefore consults closely with its customers on what they want. “AT&T could deliver a full turnkey solution, but we figure out what makes sense for each company, whereas many other players are more rigid in their approach,” he says.
From the perspective of a partner, Greg Ross, director of business development and alliances for the global connected customer experience at GM, says AT&T “had the right network and partnerships in place for us to execute a global roll-out of connected vehicles”.
GM launched a 4G LTE service on its OnStar telematics and connectivity platform with AT&T last year in the US and Canada, and has equipped more than 1.5 million vehicles with the technology. AT&T is also helping GM to broker deals with carriers in Europe, where OnStar launched in August in 13 markets, with plans to enter more in 2016 and expand its presence globally.
Vodafone is another carrier that has been building up speed in the automotive arena. This sector has “grown phenomenally over the last two or three years,” says Matt Key, commercial director of M2M at Vodafone Enterprise, making it a key driver behind the 20-30% annual growth the company is seeing in M2M revenues.
In August 2014, the company took the acquisition route to expansion by splashing out €145 million on Cobra Automotive Technologies, a provider of services such as telematics, security, vehicle tracking and usage-based insurance. One key benefit was that Cobra already had a presence in countries including major European markets, Brazil, China, Japan and South Korea.
Key says the integration of Cobra, now rebranded Vodafone Automotive, has proceeded well. The move contributes to Vodafone’s aim of providing a full package of services for automotive partners to add value and make its offering more “sticky”, from designing, testing and embedding technology to creating an aftermarket for services.
“It’s an end-to-end service, and that’s our philosophy,” says Key. “If we’re going to do something in a market, we’re really keen on getting deep end-to-end capabilities so we can understand what organisations require and then offer something that’s really different.”
Alongside this, Vodafone benefits from its broad footprint, with Key giving the example of a stolen-vehicle recovery service. If, for example, a Porsche is stolen somewhere in the world, Vodafone has 44 contact centres worldwide that can deal with the problem in different languages. For big car manufacturers seeking to strike deals for global services, this type of capability could be crucial. The Cobra acquisition represents part of Vodafone’s drive to expand its M2M capabilities beyond connectivity, which Key says is important but may ultimately represent just 5-10% of the revenue that can be achieved from this market.
William Hahn, an analyst at Gartner, echoes this point of view. “Pushing bits to millions of new devices means revenue [for carriers], but by itself that will not be enough to turn around the decline of legacy services and the margin is unlikely to be attractive,” he says. “So just as with other adjacent markets, most CSPs seek to push up the value chain.”
Other carriers also refer to the challenge of providing end-to-end services across multiple markets and languages in regions such as Europe. Large automotive OEMs often want a single telecoms supplier globally but with local tariffs that avoid roaming costs, says Hans Dahlberg, head of global M2M services at TeliaSonera.
With this in mind, Dahlberg points to the Global M2M Association that TeliaSonera set up with major carriers such as Deutsche Telekom, Orange, Telecom Italia, SoftBank Mobile and Bell Mobility to help provide seamless M2M services across multiple markets. “That gives us the possibility to have an offer towards these kinds of OEMs globally with one SIM card, one production interface and local billing,” says Dahlberg.
Some are taking an approach that points to a possible path for those below the scale of some of the larger global players. Nordic-based carrier Tele2 is, for instance, looking to team up with sub-suppliers to automotive OEMs and those in different parts of the value chain rather than going direct to big car players, says Rami Avidan, commercial director of M2M. This gets round the challenges of scaling up and finding ways to generate significant margins from direct OEM deals, he says.
One such deal is a year-old partnership on areas including automotive with Cubic Telecom, which offers an end-to-end cloud platform that seeks to capitalise on the opportunity for M2M services with leading brands. “We approach automotive from many different directions, except for head-on,” says Avidan.
In the context of there being more than a billion cars already on the road worldwide, carriers also have a big opportunity to retrofit a large proportion that are not yet connected rather than just embedding technology in new models.
“The vast majority of cars are used cars, not brand-new ones,” says Dahlberg. “Retrofitting cars with Wifi means we can address a larger customer base of existing models. It also enables other types of services by harnessing the data generated by vehicles, for example infotainment and navigation tools.”
The most common way of doing this is to bundle a mobile broadband device that offers Wifi with a mobile broadband subscription – something that TeliaSonera has already done in Sweden with car manufacturers such as Toyota.
Mullooly adds that telcos have the chance to tap into emerging services such as usage-based insurance, track and trace and stolen-vehicle recovery.
As with many developing market segments, one big challenge for carriers is navigating a complex ecosystem of potential partners and establishing their place within it. This is a point emphasised by Ignacio Alonso Junquera, head of consumer electronics and automotive at Telefonica.
“The connected car arena has many layers and multiple players and participants all relying on each other,” he says. “New business requirements will change priorities.”
And Claes Herlitz, VP of global automotive services at Ericsson, underlines the need for carriers to gear offerings to car manufacturers’ varying needs, with no “one-size-fits-all” solution: “Each car OEM has certain preferences on how their portfolio should look.”
They also have regional preferences – for instance, a connected-service portfolio in China will look very different from the very same OEM’s set-up in the US,” he says. Carriers also face a challenge to their automotive infotainment offerings from OTT platforms coming out from the likes of Apple and Google, with their CarPlay and Android Auto services – risking a reduction in the strategic importance of telcos to OEMs. However, AT&T’s Mosele says, for example, that its services can be geared more towards providing a differentiated service for a brand.
One of the biggest challenges from an overall industry point of view is around privacy as the demand grows for driver and vehicle information to monetise data, says Junquera. “There needs to be more transparency and education by and for industry and consumers,” he says.
But the market is certainly one that carriers believe holds promise. And the connected vehicle is not just about cars: AT&T cites its fleet-management services for trucks, for example. And others note how connected vehicles can stimulate parallel verticals, with, for instance, growing interest in usage-based vehicle insurance. In the future, the overall opportunity may become even more interesting as connected vehicles are combined more closely with Smart City programmes.
“Digital life is here to stay,” says Junquera. “It’s thriving in our offices, homes and devices, and customers are demanding to extend that experience into our vehicles. The car will become connected with our homes, cities and smartphones.”
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