IOT Landgrab for connected devices and wireless Spectrum
AT&T (NYSE:T) recently announced plans to shut down its 2G network by the end of 2016. This will leave millions of customers and Internet of Things (IoT) devices without a network. For these 2G devices to continue to work on 3G or newer networks, an upgrade is required, which will be expensive. The Network upgrade is driven by AT&T’s need to free up its wireless spectrum for re-farming (currently used by 2G network for connecting to legacy devices) to build out its LTE Network. The upgrade allows AT&T to allocate additional spectrum for its higher-value customers (e.g., smartphone users) who are demanding higher speeds.
AT&T is estimated to have 29 million connected devices on its network – largest in the US. These devices include connected cars, vehicle and package tracking, and machine-to-machine (M2M) communication applications for enterprise customers. In 2014, AT&T had approximately 17 million machine-to-machines connections across its 2G, 3G, and 4G networks. While many of these devices have been upgraded, there is still an estimated 6 million devices on 2G network.
While AT&T is working on upgrading these devices to the newest network, the high cost of migration is not justified for low bandwidth applications (low revenue per device). This creates an opportunity for T-Mobile (NASDAQ:TMUS), with 14% more spectrum available per subscriber than AT&T and T-Mobile has decided to leave 5% of its total spectrum for IoT customers until 2020. T-Mobile has aggressively moved its customers to the voice over LTE (VoLTE) freeing up its legacy network. With roughly 60% of the spectrum on LTE, it allows T-Mobile to re-farm its 3G network for LTE while leaving 2G network for IoT devices and M2M communication until 2020.
IOT connections are expected to triple by 2020 creating a multi-billion-dollar industry that will need an inexpensive, reliable, and low-speed network. Monetizing these new devices and competing to retain its customers base which can be easily lost to a competing network provider will require a well-exected strategy.