Global IoT cellular connections grew 41% annually to the end of 3Q 2017, having already crossed the half billion mark earlier in 2017. At the end of 3Q 2017, Chinese operators dominated the market holding more than 46% of IoT cellular connections. China Mobile was the world’s leading operator in terms of IoT connections. However, outside China, Vodafone leads in IoT cellular connectivity globally. Cellular IoT acts as the backbone in driving secure connectivity for different devices to the internet and across different verticals. The type of access used will depend on the nature of the application. 3GPP WAN technologies like GSM (2G), WCDMA (3G), 4G LTE and upcoming 5G technologies, operate in licensed spectrum and have primarily targeted high-quality mobile voice and data services. However, they are being complemented with new functionality and the new radio access standards like EC-GSM, LTE-M and narrowband IoT (NB-IoT), specifically tailored to be an attractive solution for emerging low power wide area (LPWA) applications that will be the key IoT connectivity drivers alongside 5G in coming years. At the end of 3Q 2017, 4G LTE connections were leading, accounting for more than half the cellular IoT connections and registering 84% YoY growth. Today, 4G LTE supports IoT with legacy 4G and LTE-Cat1 connections. The main application areas are for Energy Utilities and Remote Asset Monitoring. However, going forward most of these applications will be supported by cellular LPWA technologies like EC-GSM, LTE-M and NB-IoT, especially for low-power, low-data, battery-powered use-cases. These cellular LPWA connections are in the early deployment or trial phase and amount to less than 1% of the total cellular IoT connections.

Exhibit 1: Global IoT Connections Share by Cellular Access Technology

IoT cellular connectivity has been modest so far, but we expect the next half billion IoT cellular connections to be added by 2020. The upcoming dual-mode modules supporting both LTE-M and NB-IoT will further drive LPWA connections, and we will see a decline in legacy connections, as most of the earlier M2M type applications will migrate to LPWA networks. Players such as Vodafone will be able to accelerate the NB-IoT roll-outs across multiple countries, leveraging global scale to accelerate the cellular LPWA adoption internationally. China serves as a model, where Chinese operators such as China Mobile and China Telecom are ramping up the roll-out and deployments at a rapid pace. This is also having a knock-on impact of lowering the overall module (see here), device and service costs Cellular IoT operators are well-positioned to become a single and preferred source for IoT solutions by bundling IoT devices, secure connectivity, platform and data management. While some operators might lead in offering end-to-end IoT solutions for specific verticals e.g. connected cars or asset tracking, for some verticals operators will still depend on system integrators and other solution providers to help customers deploy the complete solution. Having said that, operators are better positioned to capture maximum value in IoT, unlike in the smartphone space where much of the business opportunity was captured by OTT players. We should see a more integrated play by leading operators in the IoT space in mid- to long-term, at least is some application areas.

Exhibit 2: Global Cellular IoT Connections Share by Operator in 3Q 2017