Thinking About Buying a M2M Solution or Developing Your Own?Thinking About Buying a M2M Solution or Developing Your Own?

What enterprises need to know before they embark on contracts with service providers.

The International Consumer Electronics Show may have ended on January 11, but the excitement it generated while showcasing the potential uses of machine-to-machine ("M2M") devices continues to be felt. Vendors displayed a host of new M2M solutions at CES. Two examples include a wearable device that can call an ambulance if an elderly person falls down, and a built-in system for automobiles that will apply pressure to the brakes if a car comes too close to another automobile.

There is a lot of hype surrounding the possibilities of M2M, but perhaps no one is more excited than the mobile carriers. Verizon Wireless sees so much promise in M2M that in July 2012, it acquired the company--Hughes Telematics Inc.--that developed the two technologies we just mentioned. AT&T is right there too, announcing on February 25 that it will take over General Motors' OnStar business from Verizon to offer a variety of M2M services in General Motors' 2015 vehicles.

The enthusiasm for M2M is understandable given its potential. M2M innovation and deployment are projected to grow exponentially over the next 10 years. A recent article on RCRWireless.com predicted that revenue from M2M will reach "$1.2 trillion by 2022, of which $400 billion will be from M2M services alone."

As applications for mobile-to-mobile technology (formerly known as "telemetry") proliferate, more and more corporations are exploring whether to develop their own internal M2M solutions or take advantage of solutions that are already available in the marketplace. Whichever choice they make, it is likely that they will end up having to contract with a commercial wireless carrier for the connectivity. But if you think buying wireless data services for M2M applications is just like buying other wireless data services – such as for aircards or smart phones--think again. For reasons we can't fully comprehend, the carriers are treating M2M services as something sui generis. In this article, we explain what to expect when you're expecting to buy M2M mobile data, and why you should expect more from the service providers.

First, What is M2M?
There are infinite potential uses of M2M, but what is the underlying technology? The term "M2M" is used to describe the process of collecting data with one device and transmitting that data in real time over a network connection to another device. These devices can be loaded with applications programmed to collect and analyze the data and to track or monitor changes in an asset, such as its location, temperature, or the atmosphere around it. The key difference between one of these devices and a device like your iPhone is that the collection and transmission of data doesn't involve a human command (i.e., there is no "send" button to press).

Despite the carriers' marketing hype, this technology is hardly new: Think of the traditional telemetry devices such as GPS fleet management transceivers or utility meter readers that have been in use for decades. Newer M2M devices can be bespoke or procured off the shelf from a vendor whose technology has already been approved by the carriers.

Creating custom devices is generally cost-prohibitive: In addition to the long regulatory approval process and licensing costs, the wireless carriers may charge a corporation upwards of $100,000 to test a device and approve it for use on their networks. The more cost-effective option is to buy a pre-approved device from the wireless carriers themselves.

Regardless of the nature of the devices, the technology would not be called machine to machine without a network to link devices. A number of network technologies are available, depending on the nature of the solution, including Wi-Fi, Bluetooth, satellites (used mainly for maritime applications), or commercial wireless data services (most often used for large-scale terrestrial systems). Since many enterprises already have existing relationships with at least one major wireless carrier, and terrestrial coverage is virtually ubiquitous, most companies choose to connect M2M devices using commercial wireless data connections.

The carriers make it appear easy to buy M2M service under an enterprise's wireless contract, but there's a catch: While you might expect M2M services to be just another way of buying and using garden-variety data service, the terms, conditions and pricing for M2M plans differ from those of other mobile data offerings. And not necessarily in a good way.

The carriers will tell you that M2M service is a "new" service, "unlike" traditional data services, and therefore it warrants different pricing and contract terms. But the only difference is not the service itself but how it is consumed, namely, in small portions. The typical M2M transmission may consist of only a few bytes and occur sporadically at regular intervals. The unusually small payload of each transmission makes M2M challenging for the carriers to generate revenues, so the carriers compensate for the small payloads by marking the service up significantly.

Pricing Considerations
How Significantly?--As with other mobile plan offerings, M2M plan pricing is fairly consistent among the three major wireless carriers. Depending on the customer's needs, standard M2M rate plans tend to start at 1MB, and range up to 25MB, 50MB, or more of possibly shared (i.e., pooled) data. 1MB plans may start at $8.99/month per device. At that rate, 1GB would cost approximately $9,000 per month!

Also, the service discount applicable to M2M data plans is often from a different--and less generous--schedule than the service discount for all other voice and data plans. Why? Although M2M devices transmit relatively small bits of data, enterprises tend to deploy thousands of the devices. An example would be a company using a fleet with new built-in telematics to monitor their employees traveling in the field. With a per-byte cost notably higher than for other mobile data services, the cost of M2M service can mount quickly for companies and generate quick revenues for the carriers.

This is an understandable carrier strategy. While the carriers have rolled out new pooled pricing offers for mobile data devices, whereby multiple devices share data from the same pool, M2M is not yet included in those offerings. On the other hand, it is common to see data pools dedicated to M2M devices.

The carriers want to push the idea that M2M is a "separate" service offering; but like any other novel service, gross prices will eventually fall as competition increases. We've seen this already during competitive procurements for clients using M2M services. M2M pricing tiers drop significantly when carriers are responding to an RFP.

Next page: Increasing your leverage

There is opportunity to increase your overall leverage to lower your M2M per-line costs. Some questions to ask yourself are:

* How many M2M devices will your company deploy?
* What data service tiers will be needed (i.e., how much data are you pushing over each device or "line")?
* How does this number compare to the other wireless devices/smartphones that are already in use?

When the number of M2M lines is large or a customer has leverage in the relationship with the carrier, negotiations can certainly yield a more market-leading price.

Be aware of surcharges--Some carriers apply surcharges to M2M charges, in addition to the usual taxes and regulatory fees. But rather than being assessed as a percentage of total spend, these surcharges are often applied as a fixed additional charge per-line. Thus, because M2M charges are relatively low, the surcharge can become a disproportionately large part of the cost per M2M line. Hence it is particularly important to make sure you understand the surcharge structure and how the surcharges vary between the M2M carriers that you are considering so that you correctly understand the total comparative cost of the different carriers' offerings.

Terms and Conditions
While it may make sense to draw a distinction between M2M and other mobile data services when it comes to pricing, the same rationale does not justify separating M2M services when it comes to the terms and conditions that govern those services; and yet, some carriers do just that. There are a host of beneficial terms and conditions that apply to traditional mobile data services (and for that matter, voice services too) that some carriers refuse to extend to M2M services. At the same time, there are a handful of annoying terms and conditions that apply to traditional data and voice services and that the carriers have extended to M2M services. (One might ask why the justification of M2M being a "new" service warrants exempting it from some of the more customer-friendly traditional contract terms, but does not warrant exempting it from the less customer-friendly terms.)

A sampling of the terms and conditions for traditional wireless services and those for M2M services includes the following:

Service Discount--Some carriers have two sets of discount schedules, and the M2M discount schedule is significantly less favorable (i.e., provides for much smaller discounts) than the standard discount rate schedule, even at the same attainment tiers. In some cases, a carrier will simply refuse to extend any discount to the M2M rates. Of course, as always, the important thing to look at is whether the net price (regardless of whether or not a discount is applicable) is competitive or not.

Minimum Service (Line) Terms--We might expect that any carrier subsidies for M2M devices (if they exist at all) would be significantly less than for smart phones or even advanced feature phones, and yet some carriers require minimum line terms of 12 or 24 months for M2M lines--even in the absence of significant equipment subsidies (which are the traditional justification for minimum terms and early termination fees or ETFs). These minimum terms are particularly difficult to justify where the carrier refuses, as some do, to sell discounted devices for use with M2M service.

Early Termination Fees--Minimum line terms would be harmless without early termination fees (ETFs), but some carriers apply ETFs if an M2M line is terminated for any reason before the end of the minimum line term. And these ETFs are often at the same level as those for more costly, heavily subsidized devices!

Early Termination Fee (ETF) Waivers--Some carriers refuse to waive ETFs for M2M lines, or, if you're lucky, will agree to a paltry allowance of waivers for M2M lines--almost always less generous than for other types of lines.

Counting M2M Devices Toward Attainment Tiers--Although the monthly recurring charge for M2M devices may well be lower, some carriers refuse to count M2M lines toward the customer's attainment tier unless they generate a minimum level of monthly revenue--resulting in an artificially depressed line count for purposes of ascertaining the customer's overarching service discount and eligibility for certain rate plans and concessions (including ETF waivers for non-M2M devices).

Activation Fee Waivers--Some carriers are willing to waive activation fees for all devices other than M2M devices.

Exclusion from Credits--Some carriers will not allow a customer to apply "deal" credits (that is, credits intended as a pricing inducement rather than a penalty against the carrier) toward M2M charges.

Exclusion from Rate Plan Optimization--Some carriers will not include M2M lines in their rate plan analyses and optimization recommendations.

Equipment and solution vendors will continue to develop and adapt M2M technologies to consumer and business needs, and telecom carriers will remain eager to provide wireless connectivity to link these devices. As always with telecom services, it is important not to simply accept the carriers' standard pricing and terms, and you should expect to negotiate robustly to get market-leading pricing and balanced terms.

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Dorothy Hildebrandt is a consultant at TechCaliber Consulting, LLC, a global technology and telecom consultancy that advises the world's largest companies on strategies for reducing their costs for telecom and technology products and services. Kevin DiLallo is a partner in Levine, Blaszak, Block & Boothby, LLP, the leading firm representing large users in the negotiation of network services and related agreements. Dorothy and Kevin can be reached at [email protected] and [email protected], respectively.