Economics and Misaligned Incentives

What makes good business sense for traditional wireless carriers doesn’t make sense for IoT devices.

At least not with the cellular industry’s current dynamics. Anybody or anything that isn’t high ARPU will naturally and rightfully be relegated to lower priority. And the lowest ARPU customers are the same devices that LPWA is fit to serve. According to James Brehm & Associates, 86% of current IoT devices use less than 3 MB of data per month — those are hardly power users. And the devices that have yet to be developed, the “greenfield applications” as industry insiders would say, are projected by the 3rd Generation Partnership Project (3GPP standards development body) to have an average of 32 KB a month of data. What’s more is that the same 3GPP standards development body, which is responsible for the LTE standards, has built IoT traffic de-prioritization into its LPWA candidate standards, including LTE-M and others.

In other words, carriers can turn down or turn off machine traffic whenever their expensive spectrum gets clogged with higher ARPU traffic.

And it doesn’t take much for that to happen. If you’ve ever been at a sporting event, you’ve probably experienced delays in receiving even a text message because so many people have cell phones connected to the cellular towers in the area.

How would this type of prioritization impact businesses that have their device messages blocked out by the carriers? Naturally, some proportion of the delayed messages will have a minimal impact on business. But some proportion of them will be majorly impacted by these unpredictable interruptions. The more important point is that your business would be subject to the whims of the carriers. And these whims are based on the carriers’ sound business reasoning.

Voice/data needs are what have pushed the cellular generations from 1G to 2G to 3G to 4G, soon 5G and inevitably to 6G and beyond.

Always Second Tier

The conclusion to be drawn from this is that connected machines will always be second tier to voice/data connections using the same spectrum. Carriers’ current business models depend on this.

Their cost structure dictates it. These economic forces will not just go away, and will continue to relegate machine connectivity to the bottom tier.

The misaligned incentives between connected businesses and traditional cellular carriers go beyond lower priority machine connectivity. Because human consumption of voice/data is the highest ARPU customer, their needs will continue to be the primary driver of cellular technology’s development. Voice/data needs are what have pushed the cellular generations from 1G to 2G to 3G to 4G, and in the coming few years, 5G. These cellular generations begin about every nine years.

Sunsets are fine for voice/data customers using smart phones as these devices are upgraded every couple of years. But, the incessant cellular sunsets are completely anathema to the longevity needs of IoT devices.

The current cellular ecosystem will be unable to provide adequate IoT device longevity due to the incessant sunsetting cycle which is driven by sound business decisions.

Download our Cellular Sunsets by Country infographic to learn how these sunsets will propagate worldwide in the coming years.