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While the overall IoT market is continuing to grow rapidly, this growth is benefiting certain connectivity players and industries far more than others. LPWAN rollouts are growing quickly, and take-up will be rapid over the coming five-year period. However, for the next few years, M2M will continue to be the source of most telco IoT revenue.

The M2M market is dominated by 10 key M2M connectivity players. These service providers were providing 69% of total connections globally at the end of 2016. In total, the top 15 connectivity providers provide more than 77% of global M2M connections.

Scale matters and players in large markets such as China and Russia, as well as operators with multinational operations, are ranked the highest. As shown in Figure 1 below, the three Chinese operators (China Mobile, China Unicom, and China Telecom), together with Vodafone and AT&T, lead the pack. The Chinese market accounted for 35% of total global M2M connections by the end of 2016.

Fleet and logistics, automotive, and metering have provided the greatest CSP opportunities

Certain industry verticals are driving growth in telco IoT contracts. Ovum's IoT Service Provider Contract Tracker shows that the greatest number of IoT contracts for telcos over the past five quarters has come from a handful of verticals: fleet and logistics, connected car, and smart metering, as seen in Figure 2 below. Together, these three categories account for just under half of all reported telco IoT deals (45%) in the 14 different vertical and application categories that Ovum tracks. Industrial IoT also accounts for a significant share (10%).

The high number of fleet management and connected car contracts reflects the relative maturity of IoT solutions in the transport vertical. Similarly, energy and utilities was one of the earliest adopters of M2M and IoT, and communications service providers (CSPs) continue to support smart metering initiatives led by utilities. The growth of LPWA will create new opportunities here (e.g., for water metering), but not all of these will come to CSPs.

In addition, in 2016 and early 2017 Ovum recorded a spike in CSP industrial IoT contracts – a trend we expect to continue. Closely related is asset tracking, which saw many contracts awarded in 2015, with fewer in 2016 but another spike during the first quarter of 2017. Telco IoT manufacturing propositions are often brought to market in partnership with companies more directly linked with manufacturing IT and operational technology. Focus applications include asset management, predictive maintenance, and logistics. CSPs have looked to integrate IoT solutions with their existing network, services, and security offerings to the manufacturing sector.

Another key vertical for CSPs is smart cities. During the last five quarters, this was the fifth largest service/application for telco IoT contracts. However, when analyzing the first quarter of 2017 in isolation, smart cities was the third largest vertical by number of contract awards, indicating increasing activity by CSPs in smart city projects. CSPs must be ready to support the different ways cities are approaching the "smart journey," and to work with a wide range of stakeholders and would-be participants.

In smart cities – and to a great extent in other IoT verticals – CSPs can play an important coordinating role, providing connectivity and in some cases applications, but should not necessarily expect to own the value chain. As the value of connectivity continues to decline, many service providers are exploring ways to move beyond connectivity in their IoT strategies, whether through vertical industry specialization, managed services offerings, or systems integration and consulting services. However, these initiatives face significant competition from other players in the IoT market, and small-to-medium-sized providers may find that taking advantage of partnerships with larger providers, vendors, or software and applications firms offers the most attractive route to market for them to serve would-be IoT customers.

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