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Telcos role in smart homes

Part of STL Partners’ (Re)connecting with Consumers stream, this report analyses the role of telcos in the smart home market, which is now growing steadily in many developed countries, as consumers seek to bolster security, improve energy efficiency, adopt electric cars and further automate appliances. In most developed markets, there are scores of companies pitching often incompatible smart home products and services to householders, resulting in a fragmented mess in which consumers are often left to figure out what might work with what.

This fragmentation spells opportunity for both telcos and the major Internet platforms – both sets of companies can use their role as a supplier of a key part of the smart home proposition (connectivity and computing devices respectively) as a springboard into the smart home solutions space.

In the case of Apple, Amazon and Google that means using the smartphone, the tablet and/or smart speakers as a segue into this market, while telcos can build on their connectivity offering, which is a fundament to the concept of a smart home that can be monitored and controlled from anywhere.

The challenge facing both sets of players is essentially delivering the systems-level integration required to simplify the consumer proposition into a seamless end-to-end offering that will appeal to the mass market. Without coherent coordination, the smart home will continue to characterised by of point solutions.

This report begins with an overview of the smart home sector and the competitive landscape, paying particular attention to the strategies of the major Internet platforms – Amazon, Apple and Google. It then goes on to discuss Deutsche Telekom’s and A&T’s contrasting strategies in this space, before making some recommendations for telcos.

This report builds on previous STL research, notably:

This report is the first in a series looking at smart home/connected consumer propositions from telcos. Future reports will analyse how the leading Asian telcos are targeting this market, while exploring related propositions, such as connected bikes and scooters, pet tracking and asset monitoring and insurance.

The smart home market

In an ideal world, a householder would be able to remotely monitor and control all the systems in their home, simply by pressing a button to activate and deactivate heating, air conditioning, alarms, locks, cameras and appliances, such as washing machines and automated vacuum cleaners. Although this concept, known as a smart home, has been around for many years, it is only now beginning to come of age. The smart home could also become an enabler for the sharing economy, making it easier for people to rent out their homes, monitor energy usage and take out appropriate insurance cover.

Up until very recently, most so-called smart home implementations amounted to partial solutions, enabling a householder to check their energy usage or a CCTV camera, rather than get a complete picture of what is happening in their property. In other words, most suppliers have focused on discrete point solutions designed for a fairly narrow use case.

While homes in developed markets have a growing number of connected devices (such as televisions, sound systems, printers, smart meters and burglar alarms), they rarely exchange information and typically can’t be managed through a single app or desktop interface.

This lack of coordination is a result of the diversity of the many different players supplying consumers with connected equipment and services for their homes, ranging from utilities and security companies to equipment makers and tech companies.

The smart home value chain

Indeed, a smart home value chain can be very complex and diverse. To make a home really smart, you would typically need:

A central hub that can aggregate and analyse related data, such as energy usage and room occupancy. This hub could be in the cloud or a device in the home.
Middleware that enables connected things to exchange data with each other and the hub.
A large number of connected appliances, devices and sensors, ranging from boilers and washing machines to door locks and smoke detectors.
Suitable connectivity for all the components, which could be WiFi, Zigbee, Bluetooth or a cellular technology.
A user interface or interfaces, such as a voice-activated speaker or a touchscreen tablet or smartphone, the householder can use to monitor and control their home.

Today, most telco-led smart home implementations take an ‘inside out’ approach in which the hub is located in the home: short range wireless technologies collect data from connected devices, which are aggregated in the hub and are then made available to the consumer via a smartphone app. In this scenario, the hub is generally connected to a fixed-line network via WiFi. However, 4G and 5G technologies, such as NB-IoT and LTE-M, could make it feasible to connect more devices directly to a cloud-based hub, which could ultimately allow smart homes to emerge in the many communities not served by fixed-line networks.

In some markets, these two approaches may be combined: cellular connectivity may be used to back-up WiFi, while some data and services will reside in both the cloud and on a local device in case the wide area connectivity fails or is tampered with.

For telcos providing the underlying fixed-line or cellular connectivity, the sheer variety of players touting smart home products and services makes the market both complex and challenging. Figure 1, an overview of the smart home ecosystem produced by the GSMA, highlights how many different angles there are on the smart home concept. However, even this chart is an over-simplification – the smart home market also overlaps with the personal transport market to some extent. Some of the potential use cases, such as charging electric vehicles, require coordination between the consumer’s home and vehicle.

Figure 1: The smart home ecosystem is complex and fragmented

Source: GSMA Intelligence

Size of smart home market

Given the breadth of the smart home market and the blurred lines between it and other segments, sizing it in dollar terms is difficult. Research firm Strategy Analytics estimates worldwide consumer spending on smart home devices, systems and services totalled US$84 billion in 2017 and will reach almost US$96 billion in 2018.

However, ABI Research is more conservative, pegging the global smart home market at US$56 billion in 2018. The actual number will be down to what products and services are included and whether analysts are counting the total value of an appliance or just the embedded connectivity and processing power.

For example, should the total sale price of a washing machine with built-in WiFi be included? Or should analysts just count the value of the connectivity module? What if the WiFi is never activated? In any case, it is clear that the market is growing steadily as the cost of adding connectivity to consumer appliances and devices falls. The cost of adding a WiFi or cellular module to an appliance is in the region of US$10 to US$20, depending how many frequencies it supports and which radio technology is used.

Contents:

Executive Summary
Introduction
The smart home market
Sizing the smart home space
How important are smart speakers?
The Internet players and their strategies
The Internet platforms jostle for position
Amazon bets big on Alexa
Google plays aggressive defence
Apple plays the premium game
Facebook struggles to differentiate
Utilities/security companies
Consumer electronics/appliances
The role of telcos in the smart home
Deutsche Telekom offers data protection
Does DT need its own voice?
Differentiation through data protection?
AT&T changes course
Conclusions
A major opportunity to cut complexity
Internet players don’t have a stranglehold

Figures:

Figure 1: The smart home ecosystem is complex and fragmented
Figure 2: Amazon and Google face growing competition in the smart speaker market
Figure 3: Alexa is integrated into the control panel of Amazon’s new microwave
Figure 4: The new Google Home Hub is designed to be fairly proactive
Figure 5: Facebook’s premium Portal has a rotating screen and a video camera
Figure 6: The Magenta Smarthome app can manage temperature, security and lighting
Figure 7: Deutsche Telekom’s growing smart home service
Figure 8: DT’s new smart speaker
Figure 9: Some of the functionality available from AT&T’s Digital Life service
Figure 10: AT&T’s LTE-M enabled button works with AWS to perform a specific task

Introduction

As one of the most regulated sectors of the economy, telecoms services are the product of a complex mix of market forces and a multitude of rules governing everything from prices to the availability of spectrum. Many of these rules date from the days when an incumbent telco, often state-owned, was the dominant player in the market and needed to be carefully scrutinised by regulators. However, some of these rules, such as those governing Net Neutrality, are relatively new and relate to telcos’ role as the gateway to the Internet, which has become so fundamental to modern life. For more on this topic, please see STL Partners’ recent report: Net Neutrality 2021: IoT, NFV and 5G ready?

As telcos’ profitability has come under increasing pressure, they are lobbying hard for greater regulatory freedom. This report outlines and analyses telcos’ various campaigns to improve the business case for infrastructure investment and level the playing field with Internet players, such as Google and Facebook. It also considers whether telcos are actually putting their money where their mouth is. Is the current regulatory and competitive climate actually prompting them to cut back on investment? What will be the impact on 5G?

For their part, governments are increasingly aware of the need to stimulate new investments and new solutions in the digital economy. Greater digitisation could help solve important socio-economic problems. For example, most governments believe that digital technologies can improve the business environment, and support lower-cost, but effective, healthcare, education and security services, that will make their economies function and grow. The EU, for example, is trying to build a Digital Single Market, while the Indian government’s Digital India initiative aims to make all public services available online.

Thus governments need telcos and tech companies to succeed. Given that telcos are typically more national than global in their outlook and organisation, they tend to seem a more natural partner for national governments than the giant Internet players, such as Google and Apple.

In light of these factors, this report explores whether policymakers’ priorities are changing and how regulatory principles and competition policy are evolving. In particular, it considers whether policymakers and regulators are now taking a tougher stance with the major Internet platforms. Finally, the report analyses several areas of uncertainty – arenas in which telcos and others are likely to concentrate their lobbying efforts in future, and gives our high level analysis of areas of potential for telcos – and regulators – to make progress.

Introducton
Executive Summary
The regulatory constraints on telcos
Telcos’ lobbying efforts
More than just talk?
Policymakers change their priorities
Taking a tougher line with Internet players
Conclusions and areas of uncertainty

Figure 1: EBIT margins for various segments of the digital economy
Figure 2: ROCE in various segments of the digital value chain
Figure 3: Western Europe isn’t investing enough in telecoms infrastructure
Figure 4: Europe’s big five have stepped up capital spending
Figure 5: Vodafone & Telecom Italia invest more than 20% of revenues
Figure 6: The capital intensity of European telcos has been rising
Figure 7: Europe’s large telcos are seeing ROCE fall
Figure 8: Europe lags behind on LTE availability
Figure 9: In the UK, mobile operators already share infrastructure
Figure 10: The EU alleges Google uses Android to unfairly promote its apps
Figure 11: The key issues in telecoms regulation & their relative importance
Figure 12: The flywheel that can be driven by ROCE-aware regulation

Tag: data protection

Can telcos create a compelling smart home?