MWC Takeaways: IoT Creating Inflection Point for Service Providers

As expected, the Internet of Things was front and center at Mobile World Congress ’15 and was the topic of keynote addresses, general sessions and vendor booths. Everyone wants a piece of the action in this global industry segment that is expected to hit $7.1 trillion by 2020, according to research firm IDC. Gartner predicts 25 billion connected devices in that same time period.

These two different figures—dollars and volume of devices—are important for many reasons, but for one in particular: monetization. Combine billions of connected devices with hundreds or thousands of data events from each device, and you get…well, you get a lot of usage data. How are today’s networks and billing systems going to handle that demand?

Many billing systems today are based on the “all you can eat” model—pay one price and consume all you want. However, these systems were never meant to handle hundreds of billions of events per month. There’s a reason, after all, that many service providers capped mobile data limits. It becomes expensive for service providers to maintain that volume on an all-you-can-eat basis. With IoT surging, service providers are at an inflection point: Is it time to consider changing the model for how we bill for IoT events?

One emerging model that counters the shortcoming of the subscription model is usage-based rating. In this “usage economy”, the user pays for the services they consume in increments determined by the service provider (minutes, hours, bytes, API calls—whatever makes the most sense for the provider at hand). Think about the flexibility usage-based billing has brought companies like Amazon Web Services, which is selling operating systems by the hour. Verizon last year also announced it is selling Oracle in the cloud by the hour.

Can that model work for the IoT? Here are five key takeaways from MWC as it relates to usage-based billing for the various Machine-to-Machine (M2M) transactions that enable the IoT:

1. Service providers need to be more agile than ever before. Their billing systems need to be flexible enough to allow for different usage rate configurations that support changing monetization strategies as a result of rapidly fluctuating market demands.
2. Scale is going to be an issue for many providers. The Gartner estimate is considered quite low by many industry pundits; some analyst firms and vendors at the heart of the IoT community have this number nearly double, at 50 billion by 2020. This high volume/low average revenue per unit is the new reality that IoT introduces. It’s going to require significant innovation in network and cloud infrastructure, and in billing software, to meet this level of demand. Can competitive service providers meet this challenge?
3. Service providers need more visibility into their profitability. The usage data generated around the IoT has the potential to allow service providers an unprecedented look at aspects of their business in terms of profitability…but they need the flexible usage rating systems in place to support the ability to slice and dice data from an event level, product level, customer level and more.
4. Rated usage data can help fight fraud. The IoT means a lot of data to analyze, but it also helps provide key information that providers can use to spot trends. For example, if data usage jumps unexpectedly, the provider can take steps to see if there has been a change initiated by the customer causing the data spike. Much like a credit card company will call a customer if they make same-day charges in London and Shanghai, services providers can use the data at hand to make similar calls.
5. Personalization locks in customer loyalty. Being able to fine-tune service plans and pricing models quickly and efficiently enables front line sales folks to offer pricing that better aligns with unique customer requirements and budgets. 

If there’s one thing that Mobile World Congress made clear this year for communications service providers, it’s that change is coming. The big question CSPs need to ask themselves: Will they be open-minded enough to reap the benefits?

Flavio Gomes is CEO of LogiSense Corporation, a global provider of real-time usage rating and billing solutions for data and voice communications headquartered in Cambridge, Ontario, Canada.