How AT+T’s 2G shutdown will impact M2M
It was not much of a surprise when AT+T announced last week that it would be shutting down its 2G mobile network by 2017. Even casual industry observers are aware that the telecom giant finds itself facing a spectrum crunch. Executives from AT+T have publicly stated this fact several times in recent years, and the company’s attempted acquisition of T-Mobile in 2011 was, at least in part, an attempt to help resolve this growing concern. Though the acquisition of spectrum licenses from NextWave Wireless, Comcast, and Horizon Wi-com have improved AT+T’s spectrum holdings, it has become increasingly clear that the company would need to take additional, more drastic steps in upcoming years. With the forthcoming 2G network shutdown, AT+T can now begin to re-farm its 2G spectrum, a move that will allow it to increase 3G capacity while simultaneously expanding its nationwide LTE network.
For the most part, the consumer device market will only be marginally impacted by this event. According to AT+T, only 12% of its subscriber base still use 2G devices. With the growing consumer demand and the increased affordability of smartphones that operate on 3G or 4G networks, this percentage will be much less by 2017. AT+T also promised in its announcement that it would work proactively with these customers to manage the process of moving to 3G and 4G devices, and that it does not expect this transition to have a material impact on their operating results.
However, I believe the impact on cellular machine-to-machine (M2M) communications will be substantial. According to the 2012 Edition of IMS Research’s The World Market for Modules in Cellular M2M Communications, over 88% of the cellular M2M modules shipped for M2M communications in 2011 operated on 2G technologies (GPRS, EDGE, or cdma 1x). Not only are these modules available at lower prices than 3G alternatives, the limited data transmission requirements of the majority of M2M applications (such as security alarms and remote monitoring devices) means 2G technology is a perfectly suitable wireless communication solution for most of the market.
Despite this market dominance, AT+T’s announcement is the best example to date that modules using 2G technologies might not provide a long term connectivity solution. In general, this concern regarding “future proofing” is less of a factor in consumer devices, which are replaced every 24 to 36 months. It is an important issue, however, in M2M devices that incorporate cellular technology, as they are typically designed to have a much longer life span. In the case of automobiles and electricity meters, this could be up to 15 years. OEMs now choosing to use a 2G technology in their M2M applications must consider the possibility that they might need to eventually replace legacy embedded modules, or simply have to “turn off” a service to existing customers. This scenario has actually happened in 2008 when GM’s OnStar had to terminate service to approximately 500,000 subscribers in North America whose systems still used analogue (or 1G) cellular technology.
The future proofing concern has been a hot topic in the M2M market in recent years, and it was a factor that IMS Research took into consideration in the 2012 edition of the World Market for Cellular Modules in M2M Communications. In that report, we noted that this issue, along with the emergence of data-intensive applications and dropping module prices, will drive increased uptake of 3G and in later years 4G modules into the M2M market. By 2015, we forecast that 3G modules alone will make over 40% of total market. We expect that this trend to accelerate in the second half of this decade, as more network operators follow AT+T’s lead and begin to shut down their 2G networks. It is also important to note that AT+T is likely to use its considerable influence to drive down the price of modules using its 3G WCDMA/HSPA technology, making this transition more palatable for its new and existing M2M customers.
In the near term this move toward 3G in M2M will be most evident in the North American market. (Europe for the most part is moving at a snail’s pace toward LTE, and many areas of Asia and MEA still rely 2G as a primary cellular technology) Another potential result of this development is that M2M customers will simply turn to the 2G options still being provided by Verizon Wireless, T-Mobile, Sprint, and several MVNOs. One particular segment of the M2M market that IMS Research projects will see increased uptake as a result of this news are cdma 1X modules (which run on Verizon and Sprint’s 2G networks). Total annual shipments of these devices are now expected to approach 6.7 million in 2013, about a 50% increase from 2010. These shipments could move even higher if these operators are able to make long term guarantees to M2M customers regarding the long term viability of their 2G networks.
I don’t expect last week’s announcement to adversely impact the cellular M2M market globally or even in North America. As I noted earlier, this issue is not new, and has not stopped a wide range of industries from using cellular M2M technology in their applications. I believe the cellular M2M market will continue grow and evolve, just like the mobile networks on which it relies.
Josh Builta is a senior industry analyst at IMS Research (IHS Inc.)