M2M: The Future of Telecom
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Suppose you've been diagnosed with arrhythmia, or an irregular heartbeat. In addition to taking the medication you've been prescribed, you're also hooked up to a monitor so that your cardiologist can keep tabs on how your heart is doing.
Fortunately, you don't have to make trips to the doctor or have to stay in one place, connected by a phone line. Your monitor is wireless, and can send the data over mobile networks to your doctor in real time, while still having the freedom to move around.
An Internet of Things
This might sound like science fiction, but this kind of technology is a reality today. It's called Machine-to-Machine or M2M and it's revolutionizing the telecom industry.
The idea behind M2M is that just as humans benefit from being connected via telecommunications technologies, so can devices. The intent behind M2M is to build an "Internet of things."
This is no pipe dream. It's an over $85 million business. Verizon (NYSE: VZ) has just completed an acquisition of Hughes Telematics, a major manufacturer of M2M solutions, for $612 million. Verizon posted a profit of $2.4 billion last year or $0.85 per share, with sales of $110.88 billion. Getting a piece of a valuable and growing market is a good move.
The device I mentioned earlier was created by a company called eCardio. AT&T (NYSE: T) touts eCardio as one of its M2M success stories. The company also makes more traditional heart monitoring equipment, but the advantage of the wireless solution is that patients can go about their normal lives while doctors are monitoring the electrical activities of their hearts. AT&T posted a profit of $3.9 billion last year, or $1.12 per share. Wireless accounted for 45 percent of the company's $126.72 billion in sales.
Another major application of M2M is in smart meters. You might have one already, or if not, you will soon, unless you opt out of it depending on where you live. Smart meters transmit information about your energy usage wirelessly back to the power company, instead of them having to send a meter reader out periodically. (They have attracted a fair amount of controversy, however, for the supposed radiation levels and the concern that the government could be tracking them via their power usage.)
Itron is the biggest player in this place. The company posted a quarterly profit of $31.62 million last quarter, or $0.79 per share. Most of its sales still come from conventional energy meters, though with power companies replacing old meters with smart meters, this will be reflected in its sales figures. Vodafone and Alcatel-Lucent (NYSE: ALU) have also collaborated on smart meter technology. They also posted annual profits of $11.15 billion and $1.4 billion, respectively, so they have the money to make M2M successful. Last year was Alcatel-Lucent's first profitable year, so the company seems to be headed in the right direction.
Besides power generation, another big market for M2M technology is in fleet tracking. If you're in charge of a large convoy of trucks, for example, you can attach little devices to them to keep track of where each truck is, so you can keep your logistics in order. AT&T touted fleet tracking on its website, and it's a big market for Hughes Telematics as well.
The technology is also increasingly used in car insurance. When you sign a policy with a company using insurance telematics, they stick a box in your car that tracks things such as how fast you drive, how hard you brake, and other things. If you prove yourself a safe driver, you can get lower premiums.
Challenges
M2M does face some resistance. As the smart meter example shows, a lot of people are concerned about privacy. Even something as innocuous as the heart monitor mentioned earlier can reveal personal information. This is a family blog, but think about things that can cause your heart rate to go up for a few seconds in order to discover some of the disadvantages of having that information continuously sent to your doctor.
Wireless signals are trivially easy to intercept, so just imagine some neighborhood kids snooping on you. Manufacturers will have to beef up security or use encryption in order to keep customer data safe.
And then there's the question of having connectivity at all. Most wireless M2M devices use 2G networks, which is not nearly fast enough for smartphones but more than good enough for devices transmitting simple data. The network providers are phasing out 2G in favor of 3G and 4G. AT&T plans to do so by 2017. Manufacturers will no doubt follow suit, creating devices for these new networks. As broadband changed the Internet forever, a broadband Internet of things will allow for some amazing applications.
Conclusion
The M2M market, though it's relatively new, is proving to be big business and it looks like an Internet of things will change our lives the way the Internet of people has already transformed the world. The applications are limited only by the imaginations of designers, and investors should pay attention to this growing market.
David Delony has no positions in the stocks mentioned above. He is a freelancer for TMCNet, a publication that covers M2M extensively. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Vodafone Group Plc (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
