From a recent Machina Research press release: “The role that mobile operators, and mobile connectivity standards, might potentially play in the consumer electronics market is severely limited by the cost of WWAN embedded modules. Chipsets for Wi-Fi and other short range communications technologies generally contribute under USD2.50 to Bill of Materials costs, and often less than USD1.00. By comparison, 3G embedded modules cost of the order of USD30-60, with 4G costing more still, and effectively price the technology out of the highly competitive Consumer Electronics market. If those prices don’t fall, then the mobile industry might just have to sit out the opportunity for M2M connected Consumer Electronics and stick to already established mobile broadband devices.”
There are three factors underlying the relatively high costs of WWAN connectivity:
* Any consumer electronics device incorporating WWAN connectivity really has to be multi-mode (2G+3G) and multi-frequency -- there's no real way around this (other than in the case of extremely low bandwidth devices, with sufficiently short expected lifetimes that 2G switch-off will not be an issue) and the increased complexity of the underlying chipsets increases the cost of those chipsets.
* IPR costs (fees for Qualcomm, mainly, and mainly in the case of 3G) are charged essentially on a per-device basis. That's fine in the case of a smartphone where 3G data transmission rates really improve the user experience: the additional upfront premium seems worth it. But in the case of a digital photo frame, the premium for 3G connectivity doesn't look like quite such good value. An easy way around this problem (well, easy in theory, if a little harder to implement) would be to persuade Qualcomm to accept royalties on the basis of 3G traffic carried, rather than 3G devices sold. This would reduce the licencing costs of typically low-bandwidth M2M devices. Qualcomm would win too, since a lower IPR payment received in relation to a 3G connected digital photoframe is better than nothing.
* Interoperability testing is expensive, particularly when expressed as a cost-per-device for devices with relatively low expected sales volumes. All devices with WWAN connections need to undergo interoperability testing of some form before they can connect to a carrier network, but it's complex and expensive. A CE manufacturer can reduce the testing burden by using WWAN modules, rather than chipsets, but, again, these add to BOM costs. From the perspective of a CE manufacturer, all this just serves to make WWAN connection options less attractive relative to WLAN connection options. Unfortunately, the trend here seems to be for mobile operators to close internal test departments and outsource testing capabilities in a tightly controlled way. Yes, the closed-system/ walled-garden strategy is getting another spin. If mobile operators took a more open approach to interoperability testing, then the market might benefit from competition between platforms and approaches. There would be scale benefits too, as individual test houses could be expected to have relationships with a greater number of mobile operators.
Of these three factors, it's probably the cost of interoperability testing that's the showstopper, and we're unlikely to see any breakthroughs in IoT cost levels anytime soon because of the relatively closed nature of the market. Reluctantly, we probably have to conclude that the mobile industry has effectively closed the door on the vast bulk of the potential M2M consumer electronics market (at least where viable alternative technologies, such as Wi-Fi, exist). Conversely, opening the market for interoperability testing might just have the potential to be a bit of an iPhone moment.