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How the internet of things will change the telecoms industry
The internet of things (IoT) is set to be the next big opportunity for telecommunications operators in Asia, with possibilities for new revenue streams, new business models, and partnerships with producers of consumer products.
The Asset 10 Mar 2017

The internet of things (IoT) is set to be the next big opportunity for telecommunications operators in Asia, with possibilities for new business models, partnerships with producers of consumer products, and new revenue streams.

The IoT is the networking of physical devices, vehicles, and buildings, enabling them to send and receive data. If the internet is simply a ‘network of networks’, the IoT encompasses the physical devices attached to a network, allowing them to be sensed or controlled remotely.

Think smart homes, which allow users to control devices such as sound systems, air-con and energy usage remotely. The possibilities extend to smart offices, smart factories, smart traffic monitoring and control, remote healthcare monitoring, energy management, and wearable technologies.

With a tech-hungry crowd-funding generation keen for the next best thing, the opportunities for technology firms to capitalize on the IoT are not hard to imagine. However, the potential for established telecoms operators is somewhat less clear.

The role of telecoms providers is examined in a recent report by Daiwa Capital Markets, which shows the IoT will change consumers’ demand for telecoms services markedly. Daiwa CM expects operators to introduce new business models by partnering with producers of consumer products, IT devices, solutions, and other vertical services.

The best strategy may be to transform their existing assets (e.g. networks, subscriber base, data, service expertise) into platforms, where they can leverage their competitive advantages in offering devices, acquiring subscribers, and monetizing data traffic.

New streams of revenue may be possible for telecoms providers, by offering services which can operate alongside existing mobile network services. The hope is that this will not cannibalize existing users in the way mobile cannibalized landline, due to the growing scale of data, subscribers and transactions. Further, increasing demand for B2B services based on IoT devices, and offering bundled products to existing wireless-service subscribers, could provide further opportunities.

With this in mind, Daiwa CM are positive on the Pan-Asia telecoms sector, which is reflected by a positive view of the stocks they cover, having assessed their business models. Key drivers of a positive growth outlook include the rising penetration of smart devices, the rise of IoT-dedicated networks, and powerful analytic solutions and scalable platforms.

Korea and Japan are seen as leading the way for telecoms providers. For the top three Korean telecoms operators, combined IoT revenue is forecast a CAGR of 53% for 2016-2018. Proactive support from the government bodes well for Singapore, whilst China is set to be the largest market for IoT service providers.

Daiwa CM’s top investment picks to lead the industry transition to IoT include KDDI (Japan), NTT (Japan), LG Uplus (Korea), China Mobile, and Singapore Telecom.

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