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The M2M Debate Rages On: 2G vs. 3G – Why Not Let the Customer Decide?

by Chuck Horne

With the first consumer-oriented smart phones and tablet computers accessing the Internet, making calls and sharing data using the fastest 4G LTE wireless networks in the world – there is certainly an argument that the paradigm shift to 4G is well on its way for the consumer electronics market. These popular new consumer devices present the opportunity for us to look at the ongoing network technology debate that rages on for the machine-to-machine (M2M) communications industry.

2G, which has been in existence since 1994, has long been the sole network for well over 90 percent of the M2M connected devices in North America. Subsequently, the network has undergone more than a decade of development and features a built-in infrastructure and extensive service footprint for most M2M devices and applications. For a variety of reasons both economic and service-related and the fact that it is the legacy network, 2G has been the network of choice for the majority of M2M solution providers in North America, even though 3G and 4G are faster and could offer new features such as video to an M2M application.

However, the roll-out of the 4G network begs the question: should M2M devices begin to deploy exclusively on 3G and 4G or should they continue relying upon the older, but cheaper and more geographically reliable 2G networks – and if so, for how long? When you consider that 3G devices are more costly and are typically less power efficient, than 2G devices, 3G M2M devices are less attractive to the lower ARPU models on razor thin profit margins in the M2M solutions marketplace. This should lead the M2M market to determine what makes the best sense for its device manufacturers, application providers and end users.

The 2G networks are completely paid for, fully depreciated, expense items. Yet, keeping them running poses operational overhead and maintenance costs as well as opportunity costs of limited spectrum by the traditional carriers who own and operate the network infrastructure and license the spectrum from their respective governments. The carriers therefore have incentive to decommission 2G networks and migrate those dollars and spectrum to support 3G and build-out 4G networks.

There is, however, a price that will be paid for this "progress" in the form of new devices, using new modems, many of which will have to go through an extensive and expensive network certification process – will have to be replaced and upgraded from 2G to 3/4G by the M2M solution providers – a costly, time consuming and operationally disruptive exercise in which there is, unlike the smart phone consumer market, no subsidization for hardware costs by the traditional carriers themselves. 100% of the costs will be paid by the M2M solution providers and thus their downstream customers.

The M2M solution providers will not experience improved performance due to the extra bandwidth capacity provided by 3 and 4G, however, the majority of their applications do not require this extra burst of capacity and are just fine within the current limitations posed by 2G networks. What's more, the network pricing on 3 and 4G is typically higher than its 2G counterpart, making M2M solution providers pay extra for capacity and performance their applications simply do not need. Add this monthly recurring expense item to the other costs of migration (hardware, etc.) and this forced migration is potentially very disruptive to M2M solution providers and their customers.

So the questions remain: Can M2M devices stick with the existing 2G network before being phased out? For how much longer? Or is it time to move on toward the 3G network or possibly jump straight into 4G LTE? Or should the networks evolve into each other, thus progressing from 2G to 3G to LTE? The predictions continue to foreshadow that costs and spectrum utilization will likely continue to be THE deciding factors in these decisions and further promote that 2G and 3G are simply more cost effective for M2M applications than LTE.

What is most interesting in these spaces is the lack of answers from many of the national carriers as to whether or not they will continue to service customers in the 2G space or if/when they will end-of-life it for good. Asked directly, most will deny the intention to end 2G but that answer flies in the face of the economic and spectrum realities of the market. The one thing we do know is that the M2M market will continue to remain a separate beast from more consumer-driven services market. As a M2M pioneer and partner, KORE will continue to communicate the status of this tradition as openly as possible and provide its customers with the network bandwidth that their applications require to operate efficiently and cost effectively, whatever its flavours. We urge the tier 1 consumer-focused network operators to take a look at the unique needs of their M2M customers before making any rash decisions on the elimination of any network services.

By Chuck Horne, VP Product and Service Management

Chuck Horne currently serves as Vice President of Product and Service Management for KORE Telematics, an industry leader providing wireless M2M network services for enterprises and solution providers. Chuck is a senior marketing and product executive with over 30 years of strategic product management and business consulting experience in the wireless, internet, and telecommunications industry. In his current capacity, Chuck is responsible for product planning and management of KORE's wireless services portfolio.