How to charge for Cellular connectivity?

By Lorenzo Amicucci February 19, 2020

costs of Cellular IoT

Who picks up the bill for the extra features from Cellular connectivity? The market is already adapting, and new business models allow to cover for the additional costs, opening up new market opportunities.

In this two-part article, I will start by looking at the market trends and tech for connectivity.

In the next part, I will look at the different business models for IoT.

The battle for differentiation

Lower cost of development and manufacturing, more flexible global supply chain, and new sales channels have lowered the barriers to enter the market for hardware equipment, thus making the competition tougher.

Without differentiation based on features, someone will always outprice you, whether you sell to consumers or you make industrial products.

The good news is that connectivity is such a differentiator, increasing product value by adding new features and services.

Read more: How IoT-based predictive maintenance can reduce costs

Connectivity is already utilized, and most markets expect products to come with some form of connectivity options going forward.

The new Cellular IoT technology will disrupt many markets due to its scalability and simplicity, enabling plug and play products without bothering about network infrastructure.

For this reason, it is worth to look at its implications on product definition and market positioning.

Cellular IoT enabling connectivity

Cellular IoT, with its NB-IoT and LTE-M standards, are developed to connect things, meeting requirements of such low data rate, low-power, long-range applications, and handling high density of connections. It leverages the current mobile network infrastructure (LTE and shortly 5G), so the end-user always has network accessibility.

Besides performances and network characteristics, Mobile Network Operators (MNO) offer services and “data plans”/subscriptions customized around IoT.

The costs of Megabytes

From a product perspective, adding hardware to enable connectivity comes with costs in terms of Bill Of Materials but also hardware development. Compared to some other wireless technologies, adding “Cellular” connectivity to things brings an extra cost: The additional cost of the subscription/data plan from the MNOs (i.e. cost/MB per device).

Network costs (deploying, running, and maintaining it) have always been a part of massive deployment of connected devices, even for unlicensed bands at 2.4GHz or sub GHz.

However, when using unlicensed bands or private solutions, the “network” cost was hidden. (Example: For a private sub-GHz network, the cost was concealed in the extra CAPEX paid for proprietary network elements – e.g. gateways and aggregators – and the additional OPEX costs to maintain them).

With Cellular IoT, this extra charge for using a third-party network is surfacing: In every product, there will be a SIM, (whether a classic SIM, an eSIM, a softSIM or an iSIM) and somebody will need to pay the MNO for the data.

Taking advantage of the quality of service, robustness of the network, coverage, and predictability of the costs, what everybody is wondering is who will pay for the connectivity.

The cost of Megabytes will not go away with the Internet of Things. Either the manufacturer of the device, the customer, or someone in between, will have to pay. 

New business models

Adding Cellular connectivity impacts the overall strategy of the company:

  • Positioning the product
  • Charging for the cellular connectivity
  • Deciding who will pay the MNO for the data plan

While LTE-M/NB-IoT enables new features (e.g., real-time monitoring of the asset) thus opening the way to new business models (e.g., predictive maintenance as a service), the opposite is as important: You may need to consider new business models to take a product to market with cellular IoT and handle the extra cost for the connectivity. This needs to be done from day one, during the product definition phase, and coherently with the overall company strategy.

In my next article, I will discuss the different business models for cellular connected devices.

 

Entering the Internet of Things: Opportunity, Risks & Strategy Download the free eBook now

 

Topics: NB-IoT, cellular IoT


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