For years, analysts have been saying that telcos must offer compelling new services to prevent being disinter-mediated or marginalized. Otherwise, they are just purveyors of “dumb pipes,” – a mere provider of connectivity which does not benefit from all of the value being generated by customers using their networks. In particular, telcos are not capitalizing on all the value added services and web software that other companies have developed (e.g. mobile apps, advertising, e-commerce, shopping/ daily deals, on-line games, etc).
Besides 3G/4G mobile broadband, triple play residential delivery systems (FiOS, U-verse, etc), and (possibly) Location Based Services (LBS), there haven’t been any new telco services that have gained market traction. We think this must change for telcos to be a relevant part of the communications ecosystem. Verizon’s new CEO Lowell McAdams recently told the WSJ, “My task is to take those platforms (mobile broadband and FiOS) and make services work seamlessly across those platforms, and then add a bunch of applications that frankly aren’t as capital intensive.” But how can telcos reinvent themselves to provide new value added services and applications?
This three-part article looks at two sets of new services- the broadband “connected or smart home” and wireless Machine to Machine (M2M) communications services for embedded devices (AKA the Internet of Things or IoT). In part one, we focus on the concept of the connected or smart home and then present Verizon’s Home Monitoring and Control system as a state of the art example. In part two, we look at the potential and power of M2M communications and identify the key issues that must be solved before it becomes the mass market that so many pundits have predicted. In part three, we interview Harry Wang, Sr. Telecom Analyst at market research firm Parks Associates. Harry is one of the very few truly knowledgeable and market savvy telecom analysts we’ve met in recent years. He will provide his personal perspective on the new services telcos might offer to capitalize on their already deployed broadband wireless and wire-line networks.
The Connected/Smart Home was one of the hot topics covered at the recent (June 28-30, 2011) Connections Conference in Santa Clara, CA. The concept of a connected home has many meanings. The basic idea is to connect many personal devices to a home area network (HAN) to realize advanced functionality. But there are several versions of the connected/smart home, depending on the functionality offered by the service provider. The one common thread seems to be broadband Internet access via a residential gateway. This on-line service model also includes: a home-wide software platform, a variety of web services, system integrator provided services, and pay-as-you-go apps that solve homeowners’ problems (as perceived to be needed or wanted by the user).
The most talked about type of connected home is for entertainment services – mostly video and audio. The concept is to be able to watch any video on your TV, notebook PC, tablet or smart phone, or other screen. You might also be able to stream audio (in any format) to any number of home connected devices/players. Of course, high-speed Internet and voice (usually VoIP) comes with the bundled service package.
The second type of connected (or smart home in this case) is for home access and security monitoring. These systems have existed for many years, but generally only offered alarms when intruders gained access to the front door or windows. The newer ones (e.g. from Vivint, ADT, Alarm.com and others) offer a much wider set of capabilities, including Internet-based access and control.
The third type of connected/smart home is for energy monitoring, management and control. You can think of it as an extension of the Smart Grid, but for home use. In addition to an Internet enabled smart thermostat and smart energy meter, your refrigerator, washing machine, or other heavy energy-consuming appliance would be connected to a HAN and its use regulated to save energy. Capabilities include: energy-efficient heating and cooling as well as appliance and lighting controls. Customer’s willingness to pay for these systems will depend on the value proposition offered. Please see Table 1. for the characteristics of Residential Energy Management and Control Systems.
In some smart home systems, both home security and energy monitoring are provided. Verizon’s forthcoming Home Energy and Monitoring Control is an example of such a system (see Discussion below). There may be other functions in the future – either stand-alone or add-on. These include: home medical monitoring, life-style control, insurance, retail, or home office automation.
The HANs for each system will vary depending on the supplier’s preference. For example, The Multimedia over Coax Alliance (MoCA) seems to be the predominant standard for home entertainment networking, at least in the U.S. But there are many others: Home PNA, IEEE 802.11 (WiFi), Home Plug Alliance, IEEE P1901, ITU-T G.hn, and Broadband over Power Line (BoPL)communications. It remains to be seen which HAN technology will be used for a given set of connected/smart home services. In some cases, it may be a combination of the above HAN “standards,” depending on the preference of the service provider.
When thinking about the grand scheme of the connected/smart home, many questions arise:
- Who will buy which system? What are their characteristics?
- Which feature sets will be attractive to customers?
- How will uptake be affected by: upfront costs (including installation), length of service contract, monthly fee, stand-alone vs. bundled offerings?
- How easy will it be to add or change functionality?
- What new business models will be spawned?
- What enticing ingredients can be injected into service provider connected home systems to change user attitudes from “nice to have” to “must have?”
- Will the service(s) be open to enable the system to integrate with new or complimentary services?
Verizon Home Energy and Monitoring Control System
Verizon Telecom is set to offer a Home Energy and Monitoring Control System, initially previewed at the CES in January 2011 and described at the previously referenced Connections Conference on June 30, 2011. This new Verizon home control service has been tested with company employees in New Jersey. It is now being readied for deployment in all the carrier’s U.S. territories and is to be formally announced later this year. Verizon’s primary equipment vendor for this system is 4Home – a developer of home automation engines for service providers. That company was acquired by Motorola last year.
Verizon will reportedly offer three different service plans for home owners or apartment dwellers that already have Verizon FiOS or broadband Internet. (In the future, the system might be sold to residents that have a different Internet access provider.) Pricing has not been announced, but it’s rumored that the entry-level service will cost $9.99 a month. Then customers would choose three levels of gadgetry to install in their homes:
- The entry-level option consists of home monitoring functionality, including remote door entry and video surveillance.
- The second level enables home energy monitoring with thermostats, wireless (WiFi) light and appliance controllers, and even a circuit-box mounted sensor that monitors whole-home energy usage.
- The third plan combines both services in a single package. Details on the user interface to monitor and control this functionality has not been publicly disclosed, but it appears that it will be web-based and accessible from a desktop PC, notebook/netbook, smart phone, or tablet.
Rather than adopt any existing equipment on the market for home automation, Verizon plans to sell all the equipment and software involved. We think that one stop shopping is great for customers! It avoids systems integration and troubleshooting by a “Home CTO” that would otherwise be needed. For the most part, customers would install the gear themselves, or Verizon will suggest electrical contractors for items like electric circuit panel sensors.
“What had to happen to make this possible is a lot of collaboration throughout the connected-home ecosystem,” said Eric Bruno, Vice President of Product Management at Verizon Telecom. Mr. Bruno presented a keynote speech and participated in a panel session at the aforementioned Connections Conference in Santa Clara, CA. He predicted 500M networked homes by 2015, but didn’t break down the type of “connected/smart home” services.
“This is about getting engagements with customers and keeping them,” Bruno noted. “It’s not about driving new business revenues.” Eric said, “For now, Verizon will only offer the service to its broadband-connected customers but will begin offering it to all broadband households in its service areas in the year ahead.”
At $9.99, the Verizon home control system and service appears to be the least expensive offering among the major home automation vendors, but that entry-level price reportedly does not include energy management and professional security monitoring, which alone tends to cost $25 to $30 per month from other service providers.
During the panel session that followed his keynote presentation, Mr. Bruno was asked by the moderator, “What is Verizon’s biggest concern in the successful launch of your new Home Control service?” Bruno’s answer: “The partners and pieces must come together to provide a great customer experience.”
Another concern (brought up during this panel session) was the requirement for a residential gateway in the connected home infrastructure. One suggestion was to have gateway functionality embedded in and IP connected, always ON device and bridge it to the service control panel.
Bruno said Verizon (as well as other telcos) faced several challenges in selling connected home control systems. Here are a few he identified:
- How many services can one telco provide?
- How to integrate what you pull in (from other vendors) vs what you do yourself (services the telco develops and provides to the customer)?
- Integration of consumer electronic devices (including smart phones and media tablets), security, energy metering and monitoring equipment with broadband communications?
“The more services they can get someone to sign up for, the stickier that customer is to them,” said Bill Ablondi, Director of Home Systems Research at Parks Associates. “Having a phone company take over home automation makes some sense,” he said. “People are more accustomed to gadgetry like live Internet video and cell phone applications for banking.”
Analyst Take on Service Providers and the Connected Home
Several Parks Associates research analysts participating in the Analyst Insights wrap-up panel discussion at the conclusion of the Connections Conference. Here are some of their opinions and forecasts.
The availability of compelling solutions that at last allow network service providers to get comfortable with offering a connected-home service will quickly drive such offerings into the mainstream, predicts Kurt Scherf, VP and Principal Analyst at Parks Associates. This marks a sea change in a business that up to now has been shaped by consumers’ purchasing fairly expensive equipment and contracting with specialists to set up security or other niche services.
“According to our research, by next year 50 percent of home networks will be deployed by network service providers,” Scherf said.
Parks Associates analysts made the following additional points regarding the connected home:
- There’s a huge opportunity to sell and service a home-wide platform that provides valuable services in an integrated platform. Eliminate silos that can’t be connected or integrated into a system.
- With a $6 to $10 per month price, there would be an explosion of opportunity for multiple players.
- Design and sell the service(s) as open and enable it for easy use by non sophisticated customers.
- There will be different business models depending on the type of IP services offered.
- Mobile broadband access (for smart phones, tablets, etc) as well as wired broadband Internet will be offered to gain access to information and/or control settings in the connected home.
- For entertainment, and possibly other services, there will be the concept of a “personal cloud” that stores all relevant user information needed for retrieval or playback (e.g. videos and music files).
- Service Providers need to educate dealers on how to use, install, sell the connected/smart home equipment and services.
- Telcos may be more successful than utilities in selling smart home energy management services.
- Monitoring electricity/gas consumption and cost can be separated from the delivery of electricity or gas/propane by the utility. IBM selling such a system in Germany that instructs washing machines to run at certain times of day when electricity pricing is cheaper. Such a system will minimize consumer energy bills.
- Customers may be able to choose between a “discrete hardware purchase” versus an “ongoing service contract” model for energy management, security, and other services.
- Huge problem: proliferation of vendor and service provider interfaces, e.g. different from Verizon, Comcast, ADT, others.
- Standards quagmire for HANs. Each service provider will determine which one(s) are installed in the home.
Part II. Of this multipart series of articles will feature the presentation Glen Lurie of AT&T made on the Internet of Things and Embedded (wireless communications) devices during the Connections conference. We’ll also here Sprint’s take on what it takes to make M2M communications successful in a world of 20B (or more) connected devices.
© 2011, Alan Weissberger