Having reached 11.9 million accesses in June 2016, Brazil is by far Latin America’s largest machine-to-machine (M2M) communications market. However, it isn’t necessarily the region’s most advanced market in terms of applications, compared to other countries where M2M adoption is a more recent development.
Over the past several years, the Brazilian M2M market has seen little change in its makeup, constituted mainly from legacy services of little complexity, with the vast majority of accesses being used for narrow band (2G) connectivity in card payment, or Point-of-Sale (PoS), machines.
The PoS market in Brazil is highly concentrated, dominated by two large players with strong bargaining powers, which has pressured prices, and therefore margins, for carriers’ M2M services. This is a price war carriers cannot afford in a segment in which they are placing such high bets.
M2M, Telecommunications and IoT
M2M and its evolution into Internet of Things (IoT) truly are high potential markets for telcos. In a recent report, 2015 Brazilian Cellular M2M Market, Frost & Sullivan predicts market revenues will more than double by 2021. This will occur with the emergence of new applications and through the wide adoption of IoT integrated into myriad new technology services. Businesses are looking to increase efficiency in the wake of recession, and mobile connectivity will continue to be an important technology, given its coverage advantages over other connectivity technologies in Brazil, leading to the continued growth of IoT and M2M.
Currently, M2M represents less than 1% of wireless carriers’ revenues in Brazil, despite amounting for 4.7% of cellular lines in service. Although revenue growth has accelerated more recently, this is mainly due to increasing demand for traditional applications such as PoS and fleet tracking rather than a growth in value. These more basic uses of M2M, however, are expected to register slower growth rates in coming years, as cost reduction efforts and more efficient M2M management solutions will allow these businesses to better manage their excess stock of activated M2M SIM cards, therefore reducing lines in service.
In this environment, 2016 represents a turning-point for Brazilian carriers as they launch new applications for M2M, targeting end-users with personal care, connected car, and smart home solutions. Another game-changing new offer is the M2M management platform, which has long been required by clients and is only now becoming available commercially in the Brazilian market.
Pushing Government to Grow M2M
The industry has also been lobbying for more government incentives to help drive M2M adoption in Brazil: in 2014, Congress passed a law exempting M2M connections from Fistel fees, obligatory for all mobile lines in service. However, the exemption was limited to M2M applications which do not depend on human interaction, excluding the vast majority of existing uses of M2M such as PoS. Today, carriers are pushing for the incentive, which currently applies to 37.2% of lines in service, to be extended to all M2M connections. This measure would significantly improve margins for this highly commoditized product.
Among other regulatory restraints are the repeal of the Contran 245 mandate, which decreed that all new vehicles manufactured in Brazil must include embedded connectivity, and the delay in passing regulations for the replacement of all mechanical electricity meters for smart meters. These measures would be significant drivers for the adoption of M2M in the automotive and utility verticals in Brazil.
M2M in New Verticals
In order to continue accelerating growth, Brazilian carriers must look for opportunities for new M2M applications, preferably in industry verticals where there is greater revenue potential and demand for higher value connectivity services using 3G and 4G broadband connections. Carriers must also incorporate value-added services to their M2M offers, currently limited to connectivity, and integrate the service with convergent end-to-end business solutions.
Brazil’s industrial and agricultural sectors are two large industry verticals ripe for investments in improving operational efficiency. M2M can play a key role in these applications and has a variety of uses, from asset tracking to environment monitoring to security. By bundling M2M into big data analytics and data communications solutions, and leveraging the existing knowledge of key partners on these verticals, Brazilian carriers can vastly increase the value and potential of their M2M offers in the following years.