Verizon, the first operator to launch a 4G network in the U.S., is now the first to update its network specifically for Internet of things devices. The cellular carrier is using a standard called Cat-1 LTE that limits upload speeds to 10 Mbps, lowers the modem costs, and cuts power demands, so cheap, connected devices that rely on batteries can operate on the cellular network instead of only on Wi-Fi or Bluetooth.
This means that products that track your stuff, such as Tile, can work with a cellular signal, instead of relying on people nearby with the appropriate app installed on their phones. It also opens up the door for devices such as a pet tracking collar that requires less charging and is cheaper to buy and hopefully has a less costly subscription fee.
Verizon (VZ) first tested this network configuration in 2014 with Ericsson (ERIC) and its modem provider Sequans. The company said in October it planned to launch a specialized network for connected devices as well as a modem that would be about 50% cheaper than the current LTE modems for phones. And given that Ericsson is Verizon’s partner in figuring this stuff out, one likely only needs to look at the Swedish network equipment maker’s own tests for the Internet of things, to see how it is accomplishing some of these feats of engineering. Ericsson and Sequans are cutting modem costs by limiting the function of the modem and thus, the electronics inside the modem.
They are cutting battery consumption by making software updates that tell the chips governing the modem to “sleep” more often instead of staying awake to listen for a signal from nearby wireless towers. The idea is that many wireless sensors and other connected objects do not have to continuously communicate with the cellular network because most of them are designed to measure something and only wake up and say something when that measurement gets out of whack. Otherwise they report on a regular schedule.
Now that Verizon’s planned network upgrades are available, the only real question that awaits developers hoping to use it, are the costs. Verizon has cut the costs of the modems, but for any company planning to use the network, the cost of connectivity is what will make or break the service, and is what has hurt cellular in the past. Wi-Fi is free, while Bluetooth takes advantage of the phone’s existing cellular connection to provide a connection back to the Internet. And as nice as it is to get a direct connection to the Internet, most consumers balk at paying an additional $10 a month for the privilege.
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Can Verizon’s fancy network upgrades solve that? So far, its showcase customer, the Hahn Winery in California, is actually connecting its vineyard sensors using a 900 MHz network as opposed to Verizon’s cellular network. (The cellular network could be used to bring the aggregated sensor data back to the Internet). This goes to show that the networking part is not the essential value Verizon hopes to bring to customers as it sells the Internet of things. As Mike Lanman, the senior vice president of enterprise products on the Product and New Business Innovation team at Verizon told Fortune in an October interview:
“We’ve figured out how to drive revenue, and it’s not a connections market, it’s really about how to grow revenue for your customers and serve your customer better,” Lanman says. He adds that Verizon has figured out that 80% of the revenue opportunity in the Internet of things comes from applications and 15% comes from the platform and only 5% is in the connectivity so if Verizon were to only focus on connectivity it wouldn’t be playing in the market at all.
One of those ways is the new ThingSpace cloud which also opened to developers today. The cloud offers tools from a startup called BugLabs. This should be an improvement over Verizon’s own efforts at building tools, another lesson Lanman had said Verizon learned from the mobile OS battles Verizon tried to fight in the early aughts. BugLabs counts customers such as Ford, Renesas, and now Verizon as customers. Its APIs let customers bring in sensor data easily and then turn that data into easy-to-understand charts, and then into software that will notify people if temperatures go to high or other parameters are breached.
Peter Semmelhack, the CEO of BugLabs, says that many of his customers are not necessarily aware of how difficult it can be to tie all of the data coming from things together until they start. “It’s not the things that are hard, or the Internet, it’s the ‘of’ that’s difficult, getting everything to talk to each other,” Semmelhack says. Verizon wants to play that role of a facilitator, not just offer the Internet. Slowly it’s launching its partnerships and pieces of its plans. But until the industry sees more of the costs, it’s hard to judge how Verizon will fare.
In the networking world Verizon is a behemoth with a huge advantage in the network, but when it comes to services like ThingSpace, it will compete with lower-cost providers such as Amazon and Microsoft Azure. And if only 5% percent of Verizon’s revenue comes from the network, it will remain to be seen where it makes its traditionally rich net margins (last quarter they were 12.6%) as it transitions from a provider of network services to a provider of cloud and consulting services.
Clarification, Dec. 1, 2015: This story was updated to clarify that Verizon’s Cat-1 network upgrades are on its existing LTE network. It will launch a new, dedicated Cat-1 LTE network for connected devices in 2016, but for now, these devices will run on Verizon’s existing 4G network.
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