9/9/11

Hyper Connectivity: Billions of Connected Devices in 2020

“There will be no limit on the number of connections as part of the mobile grid. Everything has the potential to be connected .. Call it the 100 percent ceiling.”

– CEO Verizon

Wireless Connected Devices Ecosystem

Feature Phones

Smartphones Mobile Computers

Tablets M2M

Notebooks Netbooks Air Cards

Consumer Electronics

Transportation & Telematics

Financial Services &

Retail

Healthcare /Wellness

Smart Grid, Utilities,

Industrial

Security & Home/Building

AutomationOthers

eReaders

Connected Display,

Navigation, Gaming

Vehicle Convenience,

Safety, & Diagnostics

GPS & Fleet Tracking

POS Terminal Solutions

Vending Machines, ATM,

Kiosks

Wireless Patient Monitoring

Patient Care & Scheduling

Smart Metering, Smart Grid,

Utility Routers

Remote Telemetry,

SCADA

Intrusion Detection &

Safety Systems

Remote Surveillance,

Access Control, Building

Automation

Business Apps

Miscellaneous Systems

MiFi

Source: Frost & Sullivan.

M2M connections on cellular networks in North America to approach 80-85 million in 2017. These figures do not include laptops, netbooks, notebooks and tablets, which would be in

tens of millions as well(around 50 million) .

Cellular M2M Communications - Market Forecasts

Source: Frost & Sullivan.

2001-2008 2009-2011 2012-2018

Medium HighLow

Market Adoption

Service & SupportRequirements

ARPU

Bandwidth Consumption

3G/4G Usage

Key Market Realities in M2M (Past , Present and the Future)

Source: Frost & Sullivan.

Exceptional growth expected in the global M2M communications market.

Virtually all segments of the value chain need to work hard to maximize

the M2M opportunity.

Ease of deployment ,and ease of management of existing implantations

will be the key to achieving long-term success in this market.

Frost & Sullivan believes that eventually, both direct connections and

revenues from M2M could become larger than traditional mobile phone

business in several regions of the world, including North America – this

could take 20-25 years.

Conclusions

Vikrant GandhiSenior Industry Analyst, Frost & Sullivan

vgandhi@frost.com, 2103481000

About Compass Intelligence

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If M2M was a Baseball Game, What inning are we in?

Spring Training!

Why?

Why deploy M2M?

Market or Revenue Growth Cost Reduction

How big is the market opportunity?

“Soon, there will be more than one trillion connected devices…” IBM TV Commercial

“…there will be 50 Billion connected devices by 2020.” Hans Vestberg, CEO of Ericsson

“In this model, there is literally no limit on the number of connections that can be part of the mobile grid: cars, appliances, buildings, roads, sensors, medical monitors and someday even inventories on supermarket shelves. All of these have the potential to become inherently intelligent — perpetually connected nodes on the mobile web.” Ivan Seidenberg, CEO of Verizon

“When you look at the numbers between M2M and social networking companies, LinkedIn counts as its market every professional on the planet; that’s 1 billion people. Facebook is a little bit more ambitious, it counts as a potential customer over 2 billion internet users and counting. But if you look at M2M, we have a market which consists of over 7 trillion machines…” Dale Calder, Founder of Axeda

“Once you embed it [wireless M2M application] in a business process, for example, customers are probably not going to rip you [out] when your annual contract is up.” Danny Bowman, Sprint Nextel Corp

Quotes

U.S. Next-Generation M2M and Connected Device Application Market Share, 2011

U.S. Next-Generation M2M and Connected Device Vertical Market Share, 2011

• Roads and Vehicles: 4M miles of roads, 254M vehicles, 11.8M heavy trucks and busses

• Rail: 140,000 miles of railroad tracks and 1.4M rail cars

• Air: 5,200 airports including 5 of the 25 largest in terms of air freight and 13 of the top 25 in terms of passenger traffic

• Pipeline: 1.7M miles of gas and oil pipelines

• Waterways: 25,000 miles of navigable waterways

• Shipping Containers: 14.8M TEUs globally. (At any time, over 1/4 could be in the United States or inbound to the United States.)

Focusing on Transportation and Logistics

Why now? Operator interest in M2M intensifies

• Many telecoms operators are seriously looking at the M2M opportunity (again)– A stream of recent announcements, particularly partnerships and new organisations– Some interesting customer wins

• Why now?– Economies of scale, especially in the market for M2M hardware– Increasing importance of connectivity in consumer electronics devices, and the advent

of ‘cloud’– Availability of device management software, which has become an integral part of M2M

platforms and makes it possible for solutions to be deployed on an industrial scale– More realism from operators - more acceptance of partnership/wholesale role

• Main obstacle to growth– Absence of an agreed architectural framework for M2M - some limited progress towards

this from smaller players

M2M – poised for growth?• M2M market has been slow to deliver to

date:– Lack of scale - specialized industrial

applications in narrow industry verticals– Value chain is complex and fragmented– Lack of standardization – The lack of a new revenue model - M2M has

looked like a small market for operators – Need for partnerships - MNOs’ lack network

coverage.

• What is driving change now:– Corporate customer focus within mobile

operators – Falling costs as scale grows– Regulation, particularly in some verticals– Consumer electronics companies are

interested – New delivery and commercial models – Operators are recognizing that there is

value in M2M – it’s not (just) about ARPU, it’s about margin.

– Device management has become mainstream

– The size of the market opportunity

Global M2M for MNCs

Consumer market

opportunity

Lack of standards

Market fragmentation

Lack of scale

Old revenue models

MNO interest

Local opportunities

Falling component costs

RegulationCloud delivery

model

Low ARPU

Global M2M for MNCs

Consumer market

opportunity

Lack of standards

Market fragmentation

Lack of scale

Old revenue models

MNO interest

Local opportunities

Falling component costs

RegulationCloud delivery

model

Low ARPU

Operators do not want to miss out on a potentially huge opportunity, which some see

as many times the size of the current (personal) mobility market.

The role for the operator in the M2M value chain

B2B value chain

Hardw

are customisation &

testing

Hardw

are manufacture

Integration of M2M

solution

Applications development

Device provisioning &

support

Applications support

Billing & reporting

The M2M value chain

Consulting/sales

Customer care

Customer

Connectivity

Connectivity monitoring &

support

Operator core positioning

Key decision areas for operatorsB2B

M2M approach

Revenue model

Coverage

B2B2C

Horizontal

End-to-end Connectivity

Revenue share

Wholesale

Segments

Local Global

Centralised Decentralised

Outsource DIY

Applications Vertical

Organisation

Platform

Decision point

M2M issue Partnering will be essential,even for core services

• Strict definition: communication where a remote machine is monitored and/or controlled by a central server.

• Broad definition: the extension of connectivity to consumer electronics products, particularly where the role of the network operator in providing this connectivity is not apparent to the end user, and where the provider of the consumer device presents itself as the service provider.

What is M2M? - Key Horizontal Applications

Remote sensors/monitoring

Vehicle telematics

Track and trace

Narrow definition:Based on lack of

user interface

retail relationship for operator

E-reader

Smart metering/grid

Broad definition: based on lack of

Digitalpictureframe

Connectedcamera

Satellitenavigation

device

“White Label Network Devices”** Where the overall

proposition presents the connectivity as an attribute of

the device rather than as a service provided by a network

operator.

Summary• Operators recognise there is a significant opportunity in M2M

– M2M's time might finally have arrived– The market has developed in a fragmented way – it is not one opportunity, but a collection of opportunities

• Learn from other operators’ experience– Operators have a much more realistic appreciation of their own position in the M2M value chain than in the past

• You must partner to profit– Partner for the M2M platform, at least in the early days– Partner for applications development – you will need to foster M2M application ecosystems– You must build robust and friendly partnerships with complementary providers as the M2M market matures and wider

opportunities grow • Provide an organisational focus for M2M

– Link to the enterprise business unit – the majority of early leads will come from business customers, even if applications are B2C

– Opportunities will span fixed and mobile– Build a core of dedicated expertise for M2M, but use and train the enterprise sales team and channels

• Focus on obvious first verticals – these are not country-specific– Logistics & fleet management– Vehicle telematics

• Local regional opportunities will exist– Process monitoring in manufacturing– Utilities – linked to regulation– Retail - POS– Healthcare

Mike Sapien - Ovum

Mike.sapien@ovum.com

(760)931-8025

Who We AreWhy We Are Relevant to M2MIndustry Impact

TAPA: Who We AreThe Transported Asset Protection Association (TAPA) represents

businesses fighting back against cargo crime that want to use real-time intelligence and the latest preventative measures to protect

goods in the supply chain.

Manufacturers ~ Carriers ~ Insurers

AMERICAS EMEA ASIA

We Are:• Abbott Laboratories ADT AFC Worldwide Express, Inc. Air and Ground World Transport Allianz Global Corp

& Specialty Alterra E&S (formerly Max Speciality Ins.) Amerifreight, Inc. Amgen, Inc Aon Risk Services APL Logistics, Ltd. Applied Materials Associated Global Systems Astellas Avnet, Inc. Best Buy, Inc. Brightpoint, North America Bristol-Meyers Squibb Cargo Screening Solutions Challenger Freight Systems, Inc. Crane Worldwide Chubb Insurance CVS/Pharmacy CEVA Logistics Chartis Insurance Dell, Inc. DHL Express Americas DW Morgan Eastman Kodak Eli Lilly Expeditors International Falvey Cargo Underwriting Flextronics International FM Global Cargo Insurance Co Freight Logistics, Inc. FreightWatch International, USA Genzyme Corporation Glaxo Smith Kline Hewlett-Packard High Tech Cargo Insurance Program (Insurance Associates of the Southwest) Intel Corporation International Business Machines (IBM) Johnson & Johnson Kingston Technology Kraft Foods Kuehne & Nagel LoJack SCI Marsh Risk & Insurance Services Max Specialty Insurance Co. McCabe Associates Microsoft Corporation MillerCoors Motorola, Inc Motorola Solutions National Air Cargo National Retail Services New Breed Logistics Nike Nippon Express USA, Inc. NNR Global Logistics USA, Inc Ocasa Logistics Solutions, Inc. Pfizer OHL Purolator USA OnAsset Intelligence Performance Team Panalpina Inc. Purdue Pharma Technologies Quantum Corporation Research In Motion (RIM) R&L Carriers Relcor Samsung Telecommunications Sandisk International Sanofi-Aventis Sanofi-Pasteur Seagate Technology Sealock Security Systems, Inc. Shasko Global Logistics Smith & Associates Sony Electronics, Inc Spansion Speedmark Transportation Starr Marine Agency, Inc. Synnex Corp. Tech Data Corporation Travelers Tyden Brooks (formerly EJ Brooks Company) UPS Watson Pharmaceuticals Willis of New York, Inc. Xerox Corporation Yusen Air & Sea Service (USA) Inc. Zurich Services NA

Today, in the Americas, Europe, the Middle East and Africa (EMEA),and Asia, TAPA’s membership is at its highest ever level – and growing every month. The Association’s 700+ members include many of the world’s leading consumer product brands as well as their logistics and transport providers with combined annual sales of over US$900 billion, law enforcement agencies (LEA),insurers and other trade associations.

Relevance to M2M TAPA Global Standards

– Freight Security Requirements (FSR – revised in 2011)– Truck Security Requirements (TSR – due 2012)– Parking Standards (Europe only)– Air Cargo Standards (TACSS – EMEA and ASIA

IIS (Incident Information Service)

Benchmark Studies

Industry ImpactCargo Theft: Low Incidence, High Impact Events

2010: The volume of cargo theft is consistent with 2009, but value per loss continues to increase dramatically

•The average value per loss increased by 69%

•Extreme high value thefts are occurring more frequently:– $76 million warehouse theft, Enfield, Connecticut (pharmaceuticals)– $37 million full truckload loss, Carlisle, Pennsylvania (pharmaceuticals)– $10 million electronics warehouse theft, DFW

•Trends in 2010:– Televisions are the most sought after electronics products– Pharmaceutical theft rates equal to 2009, yet value of shipments sharply rising– Multi-load theft incidents becoming more common

•Assessing General Routing

•Requiring Checks of Documentation

•Different Government Agencies for Different Cases

From

•Risk Assessments Per Individual Shipment

•Checking for Fraudulent Documents and ID’s

•One platform for interacting with multiple agencies

To

SHIFTS IN FOCUS

9/9/11