The Internet of Things (IoT) offers seemingly boundless potential: 85% of global organizations say they are exploring an IoT strategy and their enthusiasm about IoT’s potential to transform the way we work and live is matched by consumers.
Industry analysts estimate 80 billion endpoints (connected devices) by 2025. To put this in context, this would be 10x the amount of IoT devices today. Telcos have embraced IoT with a bold vision across the value chain, spurring growth through strategic partnerships and alliances while leveraging differentiated options for investment and acquisition.
Telcos are singularly positioned to lead the IoT revolution. They:
However, moving past the pilot phase to scaling and operationalizing an IoT networks is a major challenge. Carriers have the proven Business Support Systems (BSS) and Operational Support Systems (OSS) that can do everything from billing of IoT services to ensuring the performance of the IoT network.
While IoT-related revenues currently represent only a small fraction of total telco revenues, the prospect of providing connectivity—with the right partners in place—to the many billions of “things” in both industrial and consumer end-markets has informed the deal-making strategies of the leading telcos, who envision themselves front and center in an IoT-enabled world. Their example has demonstrated that M&A can be a catalyst for growth by delivering on IoT strategies.
Moving past core connectivity, the major telco players have pointed the way forward by investing in a myriad of opportunities including adoption of platform strategies (end-to-end solutions), application-centric approaches, creation of new services for their customers, and entrance into new product categories. Some are acquiring companies that manufacture semiconductors—the building blocks of every smart device; others are developing portfolios of telematics capabilities to manage commercial fleets and track physical assets; and many are investing in startups developing applications and devices for products and services for the rapidly growing connected car industry. Their strategies reach far beyond acquiring “things” (devices) with comprehensive approaches to innovation across the value chain in both consumer and industrial end-markets. The expansion of “X” as a Service is a prime example of the unique opportunities for telco platforms to enable billing and validate that Service Level Agreements (SLAs) are being met. Telcos realize that they must provide IoT offerings across the solution stack and to keep up to the speed of technological innovation. Many are turning to deals—sometimes significant—to accelerate their role in these new ecosystems. A sampling of recent billion dollar game changing deals includes:
Deals don’t have to mean multi-billion dollar buyouts. In fact, telcos are setting themselves apart not only in the range of approaches to IoT but also with their diversity of investment types. Venture, buyout, and partnerships are all proving to be viable options as telcos—from industry leaders to start-ups, use a variety of deal types to accelerate delivery on their IoT strategy. We expect to see particular focus in deal-making moving up the stack, into cloud computing and analytics, as businesses look for new ways to monetize the unprecedented volume of actionable data generated by connected devices.
The telco/IoT landscape is both rich with opportunity and rife with complexities. Before considering an IoT-related deal, companies should ask a number of key questions to assess both potential opportunities and risks:
New categories of telco-led IoT products and services will continue to increase, dramatically transforming these companies’ addressable markets and bringing new opportunities and risks. By considering a diverse set of structures and asking smart questions at the outset, telcos are poised to play a unique role in this area of rapidly evolving technologies.
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