Internet-of-Things
Expense Management

Beacon Insights:

Trends

Variance in IoT/M2M Pricing Creates Opportunity for the "Have Nots"

Spencer Freeman
President - Beacon Pricing Advisors
A rapidly changing Cellular IoT Market has created a clear division between "Haves" and "Have-Nots" in regards to Service Pricing.  Below are some trends and considerations that will help companies better understand the Cellular IoT market and how to reduce service costs.
Pricing Variance
Carrier Subsidies
Pricing Structure
"Long-Term" Disadvantages
 
Pricing Variance in the Cellular IoT Market

The cellular IoT service market is commoditized.  The difference in platforms, coverage, and service is typically insignificant between the major domestic and global telecom Carriers.  With limited ways to differentiate, Carriers are quick to lower their pricing in competitive bids for new business—and prices can drop dramatically.

 

This phenomenon creates a market of Haves and Have-Nots among the cellular IoT customer base (Figure 1).  The Haves consist of IoT heavyweights with astronomical volumes, as well as some IoT newcomers that have exciting, high-growth use-cases. The Have-Nots are everyone else—many of which loyal IoT customers who have never challenged their rates.

 

Many customers incorrectly believe they are receiving best-in-class pricing.  A lot of companies with respectable volumes simply renew their Carrier contracts every two or three years, pushing for a modest reduction in pricing terms upon signing.  What those companies don’t know is that new, emerging businesses can receive much better rates with just a fraction of the volume, simply by challenging standard pricing and selling Carriers on a large forecast.

Figure 1:

Source:  Beacon Pricing Advisors analysis based on industry experience, client data, and published Carrier rates

 
Availability of Carrier Credits and Subsidies

When iPhones cost a few hundred dollars, Carriers commonly offered credits in exchange for multi-year service commitments.  This is because, financially, the $300 phone subsidy is a reasonable tradeoff for 24 months of guaranteed $40 service revenue.  The same concept holds true for cellular IoT.  Although rarely promoted, Carriers are often willing to subsidize hardware or provide activation credits to lure new business—but only if the financials make sense (Figure 2).

 

Any upfront credit from Carriers usually needs to be offset by 1) a term commitment, and 2) a Monthly Recurring Charge (MRC) that financially covers the credit amount.  In our experience, many customers could justifiable request a credit from their respective Carrier(s) to help offset upfront costs such as hardware.

Figure 2:

Source:  Beacon Pricing Advisors analysis based on industry experience and client data

1  Total profit, per-device, to the Carrier over the lifetime of a Connected Device's telecom service

 
The Importance of Pricing Structure

Cellular IoT plans typically come in one of two pricing structures: 

  • Standard Plan:  Very similar to Retail Mobility plans, Standard plans are charged an MRC (Monthly Recurring Charge) per device, and each device receives a set amount of data per month; if the device uses more than the allotted amount, then overage is applied; data amount refreshes every month

  • Pay-As-You-Go Plan:  Each device pays a MRC to access the network, but from there, the customer simply pays a $/MB or $/GB amount based on how much data the entire account uses each month

 

Each pricing structure has its unique benefits and drawbacks, but customers should to be aware of which structure optimizes monthly IoT service costs.  The decision can be made based on data usage, number of devices, forecast, number of data plans, and several other variables.  At a very high-level, we find that customers with large data needs tend to benefit from a Pay-As-You-Go structure, while smaller data needs benefit from Standard Plans (Figure 3).

Figure 3:

Source:  Beacon Pricing Advisors analysis based on industry experience and client data

1  MRC:  Monthly Recurring Charge

 
The Cost Disadvantages of Long-Term Cellular IoT Customers

Imagine owning a home and paying $80 per-month for high-speed internet from Acme Internet.  A new family moves into the neighborhood, and they tell you they received a great internet offer from Acme for $50 per-month for the same service you receive.  You then call Acme, requesting that same $50 price, but they inform you that it’s valid for “new customers only”.  The $80-rate in this scenario represents a stale, outdated price from the Internet Provider, while the $50-rate is the more accurate market price for new customers. 

 

Now image again that you are the first homeowner, but there’s no way of knowing what anyone else in the neighborhood pays for internet service.  In addition, Acme simply renews your contract, year-after-year, and the same $80-rate.  If you push them on it, they may lower the rate by 10-20% just to keep you happy, but you’d still be paying much more than the “real” market rate of $50.

 

This latter scenario is that in which long-term Cellular IoT customers find themselves in.  Many companies who have needed Cellular IoT service from Telecom Carriers for over five years—and thus signed their original IoT/M2M agreement over five years ago—have no benchmarks on updated, lower market rates.  These customers are not aware they overpay for their cellular service, and the Carrier is certainly not going to tell them.

 

We feel it is fair to segment IoT customers—in the context of “years-of-service”—into the following groups:

  • New:  Cellular IoT Customers who have required Cellular IoT service for less than 3 years

  • Moderate:  Have received Cellular IoT service from 3 to 5 years

  • Long-Term:  Have received Cellular IoT service for over 5 years

Based on data from the numerous contracts and pricing offers for 1MB or less, Long-Term customers—on average—pay 36% more for Cellular IoT service than “New” customers, while Moderate customers pay 22% more (Figure 4).  We at Beacon hear the same thing over and over again from Moderate and Long-Term Customers:  They never benchmarked their Cellular IoT rates against broader market trends, and were satisfied with nominal Carrier price reductions every 2-3 years.  While Long-Term customers were content with small rate reductions, New IoT customers received the benefit of updated market pricing, and were able to realize cost advantages vs. more mature Cellular IoT companies.

Figure 4:

Source:  Beacon Pricing Advisors analysis based on industry experience, client data, and published Carrier rates

Please contact us to learn more about these and other trends.  We offer a free initial assessment of your current Cellular IoT pricing.