The Internet of Things faces a chicken and egg problem:
Europe is building a network for the Internet of Things before it really has the “things.”
by Russ Juskalian July 19, 2016
With much industry fanfare last month, Dutch telco KPN announced that it had completed nationwide coverage of the Netherlands in a wireless Internet of things network. Like a traditional cellular network, but with far lower costs and energy requirements, KPN’s network can connect sensors monitoring everything from rail switches at Utrecht Central station to depth sounders at the Port of Rotterdam and baggage handling at Schiphol Airport.
A spate of similar Internet of things (IoT) networks are going up in France, Germany, South Korea, and elsewhere across the globe. Still, it remains a question whether enough fee-paying devices will connect to cover the cost of building this infrastructure.
So far, KPN has contracts inked to connect 1.5 million devices, according to Jacob Groote, the executive in charge of mobile services at KPN. Not all 1.5 million are yet connected, he says, and even when they are, it won’t be enough to have a substantial financial impact on the company, which had annual revenue in 2015 of $7.72 billion (€7 billion).
KPN, says Groote, sees opportunities with a variety of customers: governments, which use sensors to monitor infrastructure, such as whether dikes in remote areas are getting too wet and risk failing; corporations, like Ziut, a specialist in lighting, traffic control, and security, which uses IoT sensors to dynamically control lighting intensity along bike paths in Rotterdam; and consumers, who could attach fobs to a bicycle or pet to monitor its location.
KPN shoulders the cost of building the network, though it won’t say how much it has invested so far. Experts say it’s orders of magnitude cheaper to build an IoT network than the billions of dollars in licensing and hardware costs associated with laying large 4G networks. The IoT network operates on unlicensed frequencies. To recoup its investment, KPN will charge a subscription for each device on the network, currently between about $4.50 and $16.50 per year, depending on data requirements.
“The problem is the revenue will only start when the network is there,” says Pedro de Smit, the managing director of Clickey, a designer of hardware devices for KPN and other IoT networks. Already, says de Smit, Clickey has experienced a noticeable uptick in customer sales since KPN announced nationwide coverage in the Netherlands at the end of June.
For growth to accelerate, says de Smit, a few things are necessary. The first is for the KPN network to enable location-based features, which would, for instance, allow a shipping container to be tracked in transit across the country—something expected to go live before the end of 2016. The second is IoT coverage beyond national borders. Siemens, Shimano, and other large companies are very interested in gaining access to IoT networks, but only when there is enough geographic coverage, says de Smit. That may take a few years.
KPN is not the only company building out the IoT. SigFox, a French startup, claims its competing wireless grid already covers 340 million people in parts of 22 countries. The company raised well over $100 million in investment in 2015 alone, and is using the money to expand as rapidly as possible.
The goal, says Thomas Nicholls, executive vice president of communications at SigFox, is to quickly drive the subscription price for each connected device as low as possible—in order to move early adopters onto the network in high volume and attract new users.
Its largest customers pay subscription fees of $1 per device per year, and make up a substantial proportion of the 7 million registered subscriptions that SigFox has already collected, according to the company. Covering the cost of building a nationwide network in a country like France, Germany, or Spain requires only “a few million” subscriptions, estimates Nicholls.
One early adopter is home security company Securitas Direct, which has a million anti-burglary devices connected to SigFox systems in Spain, and another 200,000 devices on its French network. Other KPN and SigFox customers have connected monitoring devices in cows, shipping containers, and fire hydrants.
But it will take more time, and more networks, before we know whether these IoT devices and others will add up to the 30 to 100 billion connected things analysts predict will come online within a decade.