Industry Trend Analysis - FreedomPop's IoT Strategy To Drive Further Competition - JUNE 2017


BMI View: FreedomPop ' s USD1 IoT plan is a further indication, and confirmation, that connectivity will soon become commoditised and that services are the way to profitability in the market. It will bring further competition, and price pressure, in the US market, which is developing more quickly than anywhere else globally.

Following international expansion in Spain and the UK, FreedomPop is entering new markets domestically with new enterprise and Internet of Things (IoT) offers (see ' Brexit To Weigh On FreedomPop's New 'Freemium' Model ' , March 10 2017). The operator wants to offer free services to small businesses if they use less than 2GB of data per month, but its IoT plan - connecting objects for less than USD1 per month - will have the most impact. This reinforces our view that connectivity will soon become commoditised in the IoT market (see ' IoT Key Themes 2017 - Enterprise Drives Focus On Cost Cutting ' , January 31 2017).

Pure Connectivity Not Profitable
Sweden M2M ARPU (SEK), 2008-2016
Source: PTS

The fact that an operator not using its own network could offer connectivity for USD1 is further indication that services will be the key component for IoT monetisation. Data from the French and Swedish regulators has shown that average machine-to-machine (M2M) average revenue per user (ARPU) keeps declining, falling below EUR1 in France and SEK10 in Sweden (both representing around USD1.1). Connectivity will still be required to offer right type of services, whether data, software or platform-based, but it is facing the same threat, at a quicker pace, than voice and data services are facing in the retail segment, where operators also need to focus on content to monetise their infrastructure investments.

Sprint Relying On Partners
Sprint Connected Devices (mn), 2015-2016
Source: Sprint

FreedomPop is planning a global service, and we expect it is partnering with Hutchison's Hue subsidiary, having already reached a deal with 3 in the UK for its MVNO service (see ' Hutchison Focuses On Global IoT Market ' , March 27 2017). But it is in the US where its strategy will have the most impact, as the IoT market is heating up (see ' AT&T-Verizon Rivalry To Heat Up US IoT Market ' , April 3 2017). Both AT&T and Verizon have undertaken premium strategies with IoT, looking to gain some profitability they lost in the consumer market. This is because the level of competitive pressure was lower in the IoT, as both Sprint and T-Mobile have primarily focused their efforts on the retail segment (see ' T-Mobile "Un-Carries" The IoT ' , September 19 2016). With a USD1 price tag, that competitive pressure is now coming to the IoT market, and it also highlights an interesting strategy by Sprint, FreedomPop's main wholesale partner. The operator is using partnerships, instead of its own brand, for connected devices, with 10.6mn out of 12.6mn subscriptions held by wholesale and affiliate partners. This highlights that Sprint still wants to primarily focus on strengthening its position in the retail segment before it competes more strongly in the IoT market, but is happy offering low wholesale rates for third-parties to do so.