US Telcos Covet Pretty Things: Outlook for IoT Buys in 2017 – Investopedia

December 20, 2016 Facebook Twitter LinkedIn Google+ Uncategorized

Telecommunications companies have been pursuing diversification strategies this year, branching into everything from drones to the Internet of Things (IoT) as they look to move beyond a saturated handset market. And while Verizon Communications Inc. (VZ) was the boldest in terms of IoT buys during 2016, its competitors may need to step it up in the new year and engage in their own M&A activity.

That’s the assessment of market research firm Analysys Mason, which released its predictions for the IoT market in 2017. “Currently, revenue from IoT accounts for less than 1% of most operators’ total revenue. It will take until 2025 for IoT to exceed 5% of operators’ total revenue, even starting from 1% and growing by 20% per annum (assuming flat top-line revenues), which is roughly in line with current growth rates for operators’ IoT businesses,” wrote Analysys Mason in a recent research report. “Senior management may view this as too long a timescale and some operators may explore acquisitions or investments as a result.”

Analysys Mason pointed to Verizon’s acquisitions of Fleetmatics, Telogis and other smaller IoT firms as an example of a U.S. telecom player that made bold moves in the IoT market this year. It predicted more of the same from the other players as the market for connected devices heats up.

Verizon Made IoT Buys This Summer

In August, Verizon spent $2.4 billion to acquire Fleetmatics, a GPS vehicle tracking company. The move was designed to enhance Verizon’s presence in the connected vehicle and fleet management markets. A week before that buy, it acquired Telogis, a GPS tracking software company for an undisclosed sum. Analysys Mason estimates Verizon spent $3 billion on IoT deals this year. (See also: Verizon to Buy Fleetmatics.)

For many of the telecom companies, 5G is the holy grail for the IoT market, but according to Analysys Mason, if they wait for 5G (not expected until 2020), they will be playing catch up. “IoT firms are already developing solutions and are not waiting for the launch of 5G. Massive machine-type connectivity (in other words, IoT) has been one of the key use cases proposed for 5G, but we think this aspect will receive less attention in 2017.”

While Verizon was highlighted as an early mover in the IoT space, it’s not the only telecom company eyeing the market. AT&T Inc. (T) has identified a new way to capitalize on it: selling data plans to developers. In October, AT&T announced the initiative in which it will hawk data plans for developers and businesses to wirelessly connect their IoT projects. With the plans, developers and businesses can purchase a bucket of prepaid data to power up to 1,000 devices on the AT&T network. (See also: AT&T Selling Internet of Things Data Plans.)