2G or not 2G?

In a filing with the Securities and Exchange Commission earlier this year, AT&T announced a plan to shut down its 2G network by 2017. This event formally confirms the fact that companies need to plan their connected device offerings on the basis of (more expensive) 3G modules (although it should be noted that AT&T had already adopted a '3G only' modules strategy for quite some time).

Several M2M service providers, including Aeris, Sprint and RACO Wireless, subsequently highlighted their commitment to existing, second generation networks and the M2M applications these are able to support. In essence, connected-device companies were being asked “why should they employ more costly 3G modules when (low data rate) M2M applications can be implemented with far less expensive 2G modules?”

This US-market dynamic will be replicated in other markets around the world as other operators resolve their spectrum re-farming positions. The issue of whether to pursue a 2G or non-2G strategy is therefore an important one for businesses that are currently planning to adopt connectivity.

Much of the discussion around this topic boils down to the fact that 2G modules are less expensive than their 3G (and 4G) counterparts. On this basis, the case is made that applications based on 2G technologies represent the right business choice. However, this is not universally the case. The situation is complicated because there are several other important dimensions to the decision. Chief among these are the following:

• Data Rates and Volumes – Low data rate applications can be handled by 2G and 3/4G networks. However, as throughput rates and/or data volumes for a given application rise then 3/4G networks have the advantage of inherently superior ‘cost/bit’ characteristics. High data volumes can indeed be carried over 2G networks but this would entail additional design and hardware costs for buffering and to ensure transmission integrity. This becomes a design trade-off with attendant costs to engineer a 2G solution compared to a 3/4G module.

• Service Life – M2M technologies lend themselves to a huge variety of applications from eReaders to machine sensors. This spectrum from consumer gadgets to industrial machinery means that some devices will have a short service life – comparable to the 1.5 – 2 year life of a Smartphone – while others will need to remain in operation for significantly longer periods of time; some industrial M2M providers report an average service life of over 7 years for devices they currently support. If there is a likelihood of a network switch-out within this type of operating interval then the costs and logistics of such a change need to be factored into the overall business case.

• Use Case Road-map – some M2M applications are defined for a specific use case which is not expected to evolve, examples of which include remote reading of utility meters and eCall (emergency call) for vehicles in European markets. These applications were initially considered as strong candidates for low-cost, low data rate 2G approaches. Over time, there has been a growing recognition that other services – driver assistance, infotainment, predictive maintenance etc. - could be offered for connected vehicles. In the case of utility meters, future use cases include dynamic energy management and integration with home automation and local-generation capabilities. These examples illustrate that an initial service concept is capable of evolving into second- and third-generation services which may, in some cases, call for the use of 3/4G wide-area connectivity technologies. 

Each of these factors has a different influence depending on the particular application under consideration. The following graphic contrasts three example applications – digital signage, CCTV (security) and industrial sensing – against key dimensions of solution design. This representation also highlights the impact of each design dimension on the business model:

• data rates have an impact on operating costs (airtime charges),

• service life determines the revenue window of opportunity,

• the services road-map for a given use case influences potentially new revenue streams and the ability to engage customers.

In addition to these factors, companies adopting mobile connectivity also need to consider the perspective of mobile network operators when they define their connected-device product road-map. Network operators have an incentive to optimise their use of spectrum. Since re-farming of 2G spectrum using newer technologies improves spectrum efficiency there will come a point where mobile operators will have a commercial incentive to make the switch if regulation does not intervene earlier.

This raises the issue of who should pay to upgrade an operational M2M device – the owner of the device or the communications service provider supporting the service. Companies exploring their business case using device service life analytical tools, for example, can easily compare the impact of commencing with a 3/4G module versus the probabilistic cost of upgrading from 2G during the life of their device. They would also be wise to include precautionary, module-replacement terms in present-day service agreements.