Vertical applications are all of a sudden one of the hottest topics in wireless. No longer limited to narrowband connections to monitor truck drivers' location, they are set to create the "Internet of things" with an explosion of connected devices, from your toaster and fridge, to the largest nuclear power plant. The potential for growth is huge--for each person there are multiple devices that may eventually get connected to a wireless network.
Safety, security, transportation, health, education and utilities are among the market segments that have been most receptive to the benefits brought by wireless connectivity. Any smart grid initiative has a wireless component that acts as a glue for many locations--households, distribution lines, generation assets--that may otherwise be difficult to reach.
Mobile operators have traditionally shown little interest in vertical applications--low ARPU, but demanding requirements, customized devices. Recently, at a time of declining growth and ARPUs, they have started to realize that they are a safe source of steady revenues and that they can generate higher margins than their average iPhone user, as they produce much less traffic and vertical customers don't churn quite as often. Mobile operators are learning to live with lower ARPUs, if volumes are there. (They are not there yet, but there are encouraging signs that they will materialize).
But is the interest from mobile operators for vertical players being reciprocated? The first answer is yes, but if you dig deeper the answer is more nuanced. If you are a utility deploying a smart grid infrastructure, the first calls you want to make are to mobile operators to see if they can help. They have spectrum, coverage, expertise. Network performance keeps improving, and so does coverage. Many utilities are accustomed to run their networks and know that it is a task that requires substantial effort. Is someone can do it for you, why bother?
For most vertical applications, this is a compelling argument. For companies like Cardionet, which collects cardiac data from patients across the country, cellular networks are indeed the best solution. The same holds for Progressive, an insurance company that tracks driving patters of (some of) its customers to adjust insurance premiums. Building a dedicated network to support individual applications that require wide coverage but generate little amount of data would be pure lunacy.
Taking the more demanding and expensive route
However, there are many situations in which vertical players may want to build and operate their own infrastructure, even though it requires a higher capex and considerably more effort and expertise.
Energy, security, education and transportation are the markets where building an independent network infrastructure may makes sense, in the right locations and for the right applications. The best candidates are the vertical players with the most demanding requirements, prior telecom experience in operating networks, with coverage requirements that are not easily met by cellular networks, and--it never hurts--with spectrum allocations, or at least a willingness to use unlicensed bands. Even more importantly, these players have a broad vision of how wireless broadband can support a wide range of applications concurrently, that have the potential to massively improve, but also change, the way they operate.
In my experience, vertical players often end up considering building their wireless infrastructure after talking to mobile operators and realizing that do not really understand their business, or they are unwilling or unable to meet their requirements (e.g., QoS, emergency priority access, SLAs), or they charge more than they think it is fair to pay. (Operators assumptions about the profitability of vertical applications may be overly optimistic after all.) Mobile operators have definitely become more receptive to vertical markets requirements, but fragmentation across vertical segments is challenging for mobile operators. Requirements, culture, business models vary greatly across vertical segments, and forming a sales team for each is expensive, but a requirement.
After meetings with the mobile operators, vertical players often go back to the drawing board. They realize that their three top requirements--reliability, control and security--cannot be met in shared network, with a high contention for bandwidth, and no QoS or traffic prioritization offered. During an emergency, the utility staff may be competing for bandwidth with the above-mentioned iPhone user uploading a movie of the accident to YouTube. 4G will bring QoS and more sophisticated traffic management, but today functionality is very limited, even within WiMAX networks, where operators have not yet implemented the new tools that are available.
Developing a separate network, give the utility, university, hospital or police agency a much finer choice over the performance levels they are willing to pay for, the wireless interface that provides the right capacity and latency, the coverage they can afford. By definition, vertical players are committed to support their own infrastructure until required. This is very important to many vertical players as they operate on time scales (e.g., 10 years or more) which are substantially longer than those for mobile operators, who may find it difficult or impossible to guarantee that they will continue to operate a network that supports current devices for 10 years.
There are also financial advantages for some vertical players that build their own networks. Leasing capacity from a cellular network drastically reduces the capex (and typically the time) needed to launch the service, but requires a much steeper ongoing opex. It turns out that money is not all created equal. Many vertical players find it easier and more cost effective to get capex allocations, than fight for an opex contribution from their budget every year. For instance, in the United States, many stimulus grants are limited to capex. With the equipment prices going down and performance improving, and with mobile operators fees still too high, vertical players increasingly find out that when assessed over a five-year period, it pays to build a separate infrastructure in terms of ROI.
Ready to go? Well, no...
In most cases, decisions are still being made by vertical players. Building a network requires a large expense and effort, but the real challenge comes in integrating all the applications within the core of the organization IT infrastructure, and ensuring that all the business units and all the staff is on board to support the network. Needless to say, this is often the execution bottleneck (I would say more often so than financial considerations) that slows down many wireless projects.
But interestingly for the cellular operators, they find out that they are called to join the discussion again. For extended projects that require support for a wide range of end-users, applications, devices and geographical environments, no single technology can meet all the requirements, everywhere. And cellular networks are just what vertical players need for some of their applications in parts of the territory they cover.
Monica Paolini is the founder and president of Senza Fili Consulting and can be contacted at [email protected] Senza Fili Consulting provides expert advisory services on wireless data technologies and services.