Vodafone s comments to the BEREC Machine to Machine Expert Working Group on an appropriate regulatory framework for Machine to Machine communications and the Internet of Things 1 31 st July 2014 1 Vodafone welcomes comments or questions on the views expressed in this document. They should be directed to Robert MacDougall at robert.macdougall@vodafone.com
Executive Summary Vodafone is pleased to provide comments to the BEREC Machine to Machine ( M2M ) Expert Working Group ( EWG ) as part of BEREC s review to identify the most suitable regulatory approach to M2M and the Internet of Things ( IoT ). The M2M market is fast moving, with keen competition across different technologies a constant feature, which is in turn driving innovation. M2M also has a number of distinct commercial and technical characteristics which set it apart from other electronic communications services, particularly those in the mobile sector. In such a market the key regulatory approach will invariably be one of forbearance. Where a need for regulatory intervention has been demonstrated, on the basis of a clear cost-benefit analysis, it is vital to ensure it is proportionate, technology neutral and targeted to the issue at hand. Otherwise, it risks having a damaging or chilling effect. With that in mind, Vodafone considers that the soft law policy approach that the European Commission adopted in relation to the internet of things and M2M in 2013 was the correct approach to take. 2 It would be an appropriate starting position for BEREC to focus on initiatives such as empowering self-regulation and supporting and promoting knowledge sharing & research in respect of this nascent activity. In this response Vodafone provides responses to the requests for information that have been highlighted by BEREC in its correspondence to date 3 and also the meeting with the BEREC review team that took place on the 26 June 2014. 2 See Europe s policy options for a dynamic and trustworthy internet of things, 9 August 2013, at http://ec.europa.eu/information_society/newsroom/cf/dae/itemdetail.cfm?item_id=11701 3 Documents of 2 June 2014 entitled Brief introduction to the M2M Project Team and its activities and Invitation to the BEREC M2M Project team meeting. Page 2 of 12
1. Market context Providers of M2M services There are many different actors involved in the development and delivery of M2M services, across a number of different technologies. As Berg Insight has stated in its report The Global Wireless M2M Market 2013 4 : Virtually any communication network may accommodate M2M applications. Fixedline networks are viable for monitoring fixed assets, whereas wireless networks may be used under all circumstances even though they are required for mobile assets. There is a great diversity of wireless network technologies available in different parts of the world. Cellular wireless the focal technology family of this report is only one of several wireless options available for M2M solution developers. These range from satellite communication and legacy wireless networks to next generation wireless broadband technologies. Given this diversity, estimates of market size will differ according to the M2M technologies that have been included within scope. For example, Machina Research has calculated that in 2012 there was an installed base of 3 billion M2M connections worldwide, of which 57% were short range connections (e.g. wi-fi). 5 The use of mobile technology for M2M is rapidly growing, with global M2M connections reaching 195 million in 2013, growing at almost 40% per year (38% CAGR) between 2010 and 2013. It is estimated that there will be 250 million cellular M2M connections worldwide by end of 2014. 6 Vodafone set up a dedicated M2M business unit several years ago with a significant investment in technology because M2M is different from the traditional mobile communications business. Vodafone provides M2M services via a centrally hosted, secure self-service platform which delivers authentication and access control, and near real-time usage and management of any Global SIM, on any Vodafone and Vodafone M2M Partner mobile network anywhere in the world. It has a web selfservice interface that allows M2M business customers to log in and access the management information required to effectively manage their M2M enabled devices. 4 Berg Insight, The Global Wireless M2M Market, M2M Research Series 2013 5 Machina Research, M2M Global Forecast and Analysis 2012-22, December 2013 6 GSMA, From concept to delivery: the M2M market today, February 2014 at https://gsmaintelligence.com/files/analysis/?file=140217-m2m.pdf Page 3 of 12
Figure 1 provides an illustrative overview of the different technical elements involved in the delivery of Vodafone s M2M service. Figure 1 Vodafone s M2M service The SIM or communications device will be embedded in a Machine or Asset (in this example, a vending machine) which will have a secure private connection with Vodafone s M2M services platform. The device will also communicate with the host mobile network, for example via SMS. The business customer (in this case the owner of the vending machine) will be able to access the platform to manage the SIM, including SIM activation and production of reports on performance and data usage (for example, monitoring how quickly items are depleted from the vending machine so it can be restocked at appropriate time intervals). Partnering The M2M market is also characterised by partnerships between different players in the value chain M2M is a complex market and cross-industry partnerships (involving hardware providers, device suppliers, application developers, communication service providers and systems integrators) enable the market to meet the differing requirements of the businesses that are now integrating M2M technology within their everyday operations. So the M2M market is by no means closed. Page 4 of 12
Figure 2 Vodafone Group M2M partner ecosystem (selected partners) Customers of M2M services Vodafone has just published its M2M Adoption Barometer 2014 which provides a detailed insight into the changing world of M2M communications and the Internet of Things. 7 This report paints a vivid picture of the M2M market, its speed of change, and industry use of M2M. In carrying out this research, Vodafone (in conjunction with the business-to-business market research agency Circle Research and the technology research and consulting firm Machina Research) conducted interviews with over 600 executives from companies around the world on their understanding of M2M and attitudes towards it, current use of M2M (including which applications they were using) and plans for the future. In terms of industry usage, three sectors (automotive, energy & utilities, consumer electronics) emerged as front runners of M2M adoption, with a further four industry sectors (Retail, Transport & Logistics, Healthcare/life sciences and Manufacturing) forming their own cluster of adoption in second place. This is set out in figure 3: 7 The M2M Adoption Barometer 2014 at http://m2m.vodafone.com/cs/m2m/insight_news/2014-07-02-the-m2m-adoption-barometer-2014 Page 5 of 12
Figure 3: Adoption of M2M by industry sector 8 In conclusion, there is a fluid interaction between different market players in the M2M service delivery chain. The variety of market players shows that M2M is a convergent technology, both between the IT and Telecoms sector, and also across different industry segments where M2M is being deployed. The M2M landscape has developed very quickly and will continue to do so, with new entrants continuing to enter the market. 2. Factors that may affect the growth potential of M2M services (e.g. potential obstacles for interoperability) Security is a key consideration for businesses adopting M2M technology, which means that for many businesses M2M is not a simple plug and play technology. Vodafone s 2014 M2M Barometer found that 72% of respondents said that security breaches are a major concern, but just 12% said that security was the main barrier to use. Vodafone has a team of M2M specialists who are responsible for securely integrating M2M customers onto our global M2M platform. The BEREC M2M EWG has asked for feedback on the introduction of the so-called soft SIM. We understand this is a reference to the GSMA s embedded SIM specification for M2M services, which can be remotely provisioned with the subscription profile of the operator providing the connectivity, and subsequently 8 Uses 2013 and 2014 Vodafone M2M Barometer data (n2013 = 653 and n2014 = 603) Page 6 of 12
changed or modified over the air. This is good example of an industry approach which will help facilitate interoperability, and demonstrates how providers of M2M services in the mobile market are driving innovation in order to meet the requirements of M2M customers. For M2M customers in certain industry sectors, the embedded SIM specification may be attractive. For M2M customers in other industry sectors, it may be less so. We would note that the use of the phrase Soft SIM could cause some confusion. Traditionally Soft SIM implied that there was no SIM element within the device with the SIM functions being fulfilled by other elements on the device (e.g. the baseband processor). Embedded SIM as a term is taken to mean that there is a SIM element within the device that can be remotely configured / reprogrammed. Since the key SIM functionality is that of authenticating the subscriber to the network it is central to the billing assurance of any mobile operator. Consequently, with embedded SIM there is reduced risk of hacking as compared with an approach using unknown elements on the device to provide authentication. Contract duration for M2M services should not in itself be seen as a factor limiting the growth potential of M2M or a driver for a particular technical approach. Certain M2M applications, for example those in the utilities or energy sector, may be characterised by longer contract durations. 9 This reinforces a point that has recently been made by the International Telecommunications User Group ( INTUG ) regarding the requirements of the business sector more generally: at times the needs of businesses and consumers are completely opposite: e.g., consumers generally prefer shorter contract periods while businesses prefer longer agreements. Yet, the regulatory environment does not seem to acknowledge the serious differences. 10 It is M2M customers will ultimately drive the adoption of specific technologies, embedded SIM or otherwise, as they will be best placed to determine the approach 9 For example, the UK Department for Energy & Climate Change announced in October 2013 that two communications service providers had each signed 15 year contracts with Capita PLC to provide wide area communications to and from smart meters across England, Scotland & Wales (https://www.gov.uk/government/speeches/award-of-smart-meters-dcc-licence) 10 INTUG Position, The economic and social benefits of providing business users with a single market for telecommunications, September 2013, at http://intug.org/main/wp- content/uploads/2013/01/economic-and-social-benefits-of-providing-business-users-with-a-single- Market-for-Telecommunications.pdf Page 7 of 12
that best suits their needs, in their specific industry segment. The industry should have the flexibility to determine the best model that facilitates the rapid and economically viable deployment of M2M services. 3. Are there regulatory barriers for the development of M2M services? In the material previously circulated by the BEREC EWG, numbering and roaming have been listed as the two potential regulatory barriers that may exist in this area Numbering European NRAs have been well able to investigate and determine whether a specific numbering range is required for M2M service in their Member State, in particular due to concerns about depletion of E.164 numbers from the national numbering plan. Some NRAs have introduced a specific range for M2M services in country, others have not. It is therefore not obvious that numbering represents a barrier to the development of M2M services. The Electronic Communications Committee, within CEPT, has also previously considered that the transition to IPv6 might address any concerns about availability of numbering resources for M2M in the long term. Roaming Before considering how to regulate a service, it is important to assess whether that service should in fact be regulated in the first place. The public policy rationale that may apply to regulation of roaming voice and data services simply does not apply to the majority of M2M services. For example, Vodafone already offers a pan-european tariff for M2M services if requested by the customer to do so. Also, the business customers that purchase M2M services are able to exert control over their installed base of their M2M SIMs, using the functionality of the M2M platform. Customers use M2M to support specific business processes and as a result the amount of data used is often predictable upfront, costed and planned for. They also control where the SIM can roam, and the lifecycle state it is in (i.e. active, inactive or dormant). As a result, there is no risk of bill-shock. In addition, from a practical, technical, operational and commercial point of view, M2M services may display very different characteristics to regulated retail roaming services, for example: Page 8 of 12
For a regulated retail roaming service, connectivity is the key element of the service. For M2M, connectivity is merely a delivery mechanism, with the key service being the value added functionality offered by the M2M platform; the M2M service may be provided by a company other than a licensed mobile operator (as set out above, a significant proportion of M2M services are provided by companies that are not licensed mobile operators); roaming is concerned with traditional tariffed services provided directly to consumers or business users (B2C), whereas many M2M services are B2B2C; M2M services may not be based on a public communication network as defined in Article 2(d) of the Framework Directive 11 ; concepts such as home and visited network operator do not obviously apply to M2M platforms operated by mobile operators; a very large number of M2M applications are static. Roaming Regulation envisages that users of regulated roaming services can and do cross international borders; the economics of an M2M service provided by a mobile operator differ considerably to a regulated retail roaming service. As the GSMA has found, M2M is characterised by relatively low ARPUs for connectivity (as compared to traditional voice and data services); and a very large number of M2M applications do not involve human interaction. For an M2M service to be even considered as a regulated retail roaming service, it would necessary to take a case by case approach, with the M2M service displaying at least the following characteristics: 11 Directive 2002/21/EC of The European Parliament and of The Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (Framework Directive) Page 9 of 12
the service should involve the provision of communications capabilities across the European Union, rather than being confined to a particular Member State and there is some ability for the service to roam onto alternate networks; the service should involve break out into a public network (e.g. PSTN or open internet) in order to involve the provision of a public connection at both ends of the service; in respect of the application of the Regulation to a mobile operator or MVNO, the end user price should be determined by the mobile operator or MVNO engaged in the provision of the M2M service, rather than by an unrelated third party; the service should involve some form of usage-based pricing, rather than being provided as part of a fixed price contract for which conveyance costs are incidental; there should be a material risk of substantial usage based roaming charges being incurred up by the end user; and the service should be deemed to be a substitute for other roaming services and/or device by the user. 4. Main regulatory tools that may facilitate the development of this sector in the short and in the longer term. In a market such as this, which is developing quickly to meet the needs of customers, Vodafone believes that the key regulatory considerations will invariably be those of forbearance, proportionality and technological neutrality. For example, consider a scenario where an M2M provider concludes an agreement with an M2M customer based in one Member State, with the M2M customer installing M2M SIMs in equipment that is then shipped to numerous other Member States (which may sometimes be in static locations in those Member States). It would be disproportionate for that M2M provider to be authorised as a provider of electronic communication services in each of the Member States where the customer has Page 10 of 12
shipped the M2M-enabled equipment the provider may not have a presence or be engaged in any commercial activity in these other Member States. In addition, it is important to recognise that many providers have supranational numbering resources which are integrated into their M2M architecture, and there should be flexibility as to the numbering that should be used for M2M services. The key consideration should be whether use of the supranational numbering resource puts a strain on national E.164 numbers. Where there is no such strain, then the proportionate approach would be to allow use of the supranational range. Regulatory intervention in this area should be on the basis of a clear cost-benefit analysis. One example is in relation to number portability for M2M. This was introduced as a requirement in the Netherlands for the 097 number range at the start of 2013, at a cost to industry. At the time of writing, Vodafone Netherlands has not received any requests for M2M number portability. It is also the case that certain customers may have a requirement for traffic management, now or in the future. One such example would be a customer requirement for prioritisation of traffic for critical points in a smart grid in case of congestion. Future applications which may require service prioritisation could include drone technology or self-driving cars. It is critically important that innovative M2M services are not caught by the unintended consequences of net neutrality regulation. Again, this would have a chilling effect on the market. In relation to privacy and security, Vodafone considers that regulatory focus needs to shift from operational risk management to design risk management. Concepts like privacy by design within an accountability model are essential to helping regulate this fragmented environment in a way that is adaptive and flexible, but allows innovation and development. The Privacy Impact Assessment ( PIA ) is a flexible model that can be used to complement this approach. For example, in 2012 the European Commission published a Recommendation on the roll-out of smart metering systems. This included guidelines for member states on data privacy, including a recommendation for PIAs. In the UK, the Department of Energy s Privacy Impact Assessment considered a number of issues such as transparency & consumer awareness - and built in requirements into operator licences & an industry code. There is no reason why we can t take such a PIA approach for other important M2M applications. Page 11 of 12
The rationale for the use of privacy by design principles applies equally to security of critical M2M supported infrastructures and security by design. Finally, in such a diverse market with many different competing technologies, it will be vital that NRAs maintain a technologically neutral approach to regulatory intervention. 5. Areas for co-ordination between NRAs (e.g. policies for the management of scare resources) and, if applicable, regulatory intervention. It is vitally important that M2M providers are able to provide a consistent service across markets, and any regulatory coordination that can help facilitate this is most certainly welcome. Vodafone s 2014 M2M Barometer found that consistent service provision across markets was one of the main benefits for companies with an M2M solution in place (only marginally behind greater revenue as a key benefit), and one which had risen significantly from 2013. More customers of M2M services are looking at M2M beyond a local or regional level. Finally, it is important to note that there is great opportunity for public authorities to introduce regulatory requirements which help to realise the socio-economic benefits of M2M. ecall and Smart Meter roll-out requirements are good examples of this. Page 12 of 12