Potentially the most disruptive new trend impacting networks is the arrival of the Internet of Things, or IoT. Industry experts predict that by 2020, about 21 billion connected devices will be collecting data and sending it across the network to IoT applications. For service providers, the pending IoT boom presents a milestone opportunity as their mobile voice and data revenues slow.
For this opportunity to materialize, carriers must make some hard decisions. At Juniper, we see this as a pivotal moment in the IoT evolution. Much depends on the choices that carriers make today, and the partnerships they forge, to cultivate profitable IoT business models.
As IoT connected devices ramp up, service providers are struggling to find ways to make that multitude of connections profitable. Revenue from the machine-to-machine (M2M) communications that make up IoT is nominal compared to the average revenue per user (ARPU) from traditional mobile traffic. A smart meter, for example, might generate 50 cents a month in data transport revenue, compared to an ARPU of $70 for a monthly smartphone plan.
At these rates, it doesn’t make economic sense for carriers to serve this market with their traditional network architecture and service delivery cost structure.
In addition, IoT presents new challenges in terms of traffic behavior, device scale, security, and billing and provisioning—implying that mobile network operators (MNOs) should consider building overlay IoT networks to address them. For example, IoT generates widely diverse traffic patterns unique to each IoT application. That characteristic demands special attention to network capacity planning, load balancing, and quality-of-service implementation. The unpredictable nature of IoT traffic—especially during peak traffic periods—could also negatively impact the experience for existing mobile subscribers.
Further, IoT presents new vulnerabilities with far-reaching safety and privacy implications. What if someone gains wireless access to vehicles on the road? Or tampers with weather sensors to simulate an emergency? Or manipulates medical data?
The network of a bona fide IoT provider must be able to address all of these situations. But how can an MNO justify investments in IoT networks, when a typical IoT device generates less than a dollar of revenue per month?
To turn a profit with IoT, service providers need to look beyond providing solely connectivity and transport services. Most current research agrees that IoT’s true revenue opportunities for service providers will lie in applications and added-value services.
One promising avenue is data monetization. Successful service providers will collect, correlate, aggregate, and contextualize data from the network, devices, and applications, and then present it to third-party analytics platforms, or directly to customers.
Ultimately, IoT’s primary value for MNOs will lie in the management, analysis, and use of the data it generates—so it makes sense for carriers to provide data-centric value in addition to shuttling the data from point A to point B. The sweet spot where carriers can differentiate themselves and make real money lies beyond traditional transport.
It goes without saying that to make IoT pay, carriers must control OpEx—they cannot let orders of magnitude in the growth of connected devices lead to a significant increase in operational costs. At the same time, the sheer volume of IoT devices introduces new requirements for quickly provisioning, scaling, and securing data.
The key is for carriers to harness network and IT resources that meet their customers’ requirements dynamically. A flexible telco cloud, for example, can dynamically shift and manage resources, whether those resources reside within the end device, customer premises, carrier edge, or in the cloud.
The only way to reconcile minimal operating costs with the demand for fast, highly scalable provisioning is with automation. In communications networks, this translates to a software-defined network (SDN) architecture with Network Functions Virtualization (NFV).
SDN and NFV represent the path to quick service provisioning and transformation for all networks, but none more so than IoT. An operator cannot run an IoT network successfully, let alone profitably, without significant use of automation and virtualization.
Network operators need an easy, cost-effective way to harness NFV to deliver new services for users. One such way is to build a parallel IoT network using a virtual Evolved Packet Core (vEPC), dramatically changing network economics by using automation and intelligence for the highly efficient delivery of new services.
As previously mentioned, service providers will need to address IoT-specific security concerns. But rather than representing only an obstacle and expense, the new IoT security landscape could also offer a moneymaking opportunity.
How? The Public Key Infrastructure used by traditional VPNs consumes too much processing power for the battery-run devices that largely comprise IoT. And IoT application developers generally don’t account for all the necessary aspects of security—authenticating endpoints, preventing hacks, and maintaining the communications link integrity—in their software.
The situation suggests a potential requirement for a trusted security broker to handle IoT security processing in the network or cloud. MNOs are strong candidates for this role. These carriers already have several communication and security systems in place for mobile data traffic that would port over to IoT.
The world already trusts mobile service providers with managing phones and subscribers and securing connections. This basic trust model could extend to IoT, with operators providing secure IoT life-cycle management and shielding enterprises and IoT application developers from the complexities and risks of the IoT threat surface. At the same time, it would fortify MNOs with an additional revenue stream.
At Juniper, we look forward to helping MNOs navigate their way to IoT monetization. That means implementing end-to-end solutions tailored for particular verticals, and monetizing data, analytics, security, and SLAs. Success lies in the ability to build an open platform for ecosystem innovation, and to forge strategic, complementary partnerships.
While many describe IoT as “the wild, wild west,” as we see it, seldom does such a rich opportunity present itself. Its rewards will go to those who step forward to redefine the market through innovation.