April/May 2011

Communiqu

Contents
2 Cyber security: how to protect your organisation from this very real threat
Welcome back to this, our April 2011 issue of Communiqu. Despite the financial and budget difficulties affecting many economies, we are pleased to see positive signs from the financial community that should give all of us some reason for optimism. We are already working again in a significant transaction and M&A opportunities in particular cable, broadcasting and towers, mobile operators as well as specific fixed fibre projects. This issue of Communiqu includes several Media articles about some of the issues at the core of many of these transactions the changing pay TV ecosystem, pay TV in Asia-pacific and DSO). It also includes some updates on spectrum valuations as we continue with major auctions and awards throughout the world. We wanted to highlight the positive outlook for investments in Africa which is also together with Asia-Pacific an area of focus for growth. Finally, we also cover some aspects abut cyber security that should be a major concern to all of us who support the digital economy and want to avoid the potential negative effects on the sector by this threat. As always, we hope you find them both thought provoking. We would be pleased to work with you in achieving your targets this year. Llus Borrell, Partner

4 Will fibre work in Africa?

End game for European DSO close, at last

Digital switchover (DSO) has now developed considerable momentum, and after nearly 13 years (in the case of the UK) the end game is finally in sight, driven by EC targets and the desire to free up spectrum for other uses. With the EC-recommended target for analogue switch-off a little over a year away, and a looming deadline of June 2015 for the end of the protection of analogue service from neighbouring interference, we can expect a new wave of DSO programmes. ensuring the right deployment and coverage understanding the current presence of terrestrial TV channels and their value to consumers as a broadcasting platform allocating a sufficient number of multiplexes for a compelling proposition The success of the DTT platform paves the way for the DSO. Therefore, before looking at DSO planning it is important to consider the key parameters that will ensure the DTT adoption:

5 Swedish spectrum auction fails to reach German bid prices

Securing the social network

6 Pay TV in AsiaPacific the next opportunity?

7 The pay-TV ecosystem needs to evolve: insights from IP&TV World Forum 2011

13 countries in Europe have completed DSO already mainly those where terrestrial TV is not the dominant platform. Spain, where the DTT platform is dominant, is a notable exception as it completed DSO in 2010, well ahead of the 2012 Western European target, and it is probably a

creating the right consumer proposition that balances choice (number and quality of channels) against picture quality (high definition) raising consumer awareness working closely with STB manufacturers, retailers and installers. DSO planning requires the successful coordination of a number of important initiatives, including:

8 Driving the energy sector toward the M2M-enabled smart grid

good benchmark for other countries in similar circumstances. Among the remaining nations, four have planned DSO in 2011, and the rest are taking steps to bring an end to analogue transmission by

About Analysys Mason

between 2012 and 2015 at the latest.

www.analysysmason.com

End game for European DSO close, at last continued

There are still challenges ahead, such as
Written by Pat Kidney Senior Manager, Consulting Division Lluis Borrell Partner, Consulting Division

the DTT broadcasting network activities from those of the DTT channels, by creating one or more independent broadcasting tower companies. There has recently been strong interest from investors in these assets, and this might well help the DSO process. The next wave of countries can and should take advantage of the lessons learned from the DSO processes already completed. We at Analysys Mason have worked with DTT channels, broadcasting networks and

ensuring the affordability and universal availability of the offering; in many cases this has led to the launch of complementary free DTT satellite offers. There may be difficulties in completing DSO for some market segments, such as the elderly and the less well off. Overall, DSO planning could bring many benefits but it can also be a very expensive exercise. Therefore, the potential DSO costs and associated funding require detailed analysis. Moreover, in some cases where DTT network infrastructure is owned by a single TV channel, there are potential conflicts of interest between the network and the TV channel activities. These conflicts could negatively affect the prospects of DSO. In order to ensure a level playing field and facilitate DSO, it might be necessary to separate

clearly defining the governments role in the process agreeing on standards for the network deciding a simulcast policy (including any subsidisation of broadcasters) deciding and planning the switch-off programme, including the type of switch off (big bang or phased) involving all the different stakeholders, in many cases led by the national public service broadcasters but also the commercial TV channels.

governments on DTT and DSO and related issues, and are ready to pass on the lessons learned from these projects. For more information, please contact Pat Kidney, Senior Manager, at pat.kidney@analysysmason.com

Cyber security: how to protect your organisation from this very real threat
cyber assets.
Written by Edward Hamilton Senior Manager Consulting Division

attacks to exploit the weaknesses identified. Well-configured traditional technical security controls will limit the potential weaknesses of an IT system. However, many traditional security controls work by identifying the signatures of an attack, but because many cyber security attacks are bespoke, these signature-based security controls have their limitations.

2.Industrial espionage the use of advanced security compromise techniques to extract valuable corporate information.

The serious cyber attack on the European Commission and External Action Service that, was reported last month, and the recent breaches of cyber security that have affected many governments, have raised the profile of cyber security and highlighted the importance of mitigating the threats. There are many definitions of cyber security, but Analysys Mason uses the following: Cyber security embraces both the protection of the interests of an organisation or government from the threats associated with the Internet and other connected networks, and also the pursuit of the security policy of that organisation or government through exploitation of the many opportunities that the Internet and connected networks offer. Cyber security typically falls into one of three main areas: 1.Cyber warfare the use of advanced security compromise techniques by governments to extract intelligence information, or to affect the ability of another nation to deploy military and 2

3.Cyber-crime the use of security compromise techniques to commit crimes. It is very difficult to ascertain the scale of the cyber security threat, as many countries do not require organisations to report security breaches. The UK governments Office of Cyber Security published a study undertaken by Detica that estimated the cost of cyber-crime to the UK economy at GBP27 billion per annum. Cyber security attacks Cyber security attacks can be very sophisticated. Two main threat actors undertake the majority of cyber security attacks and breaches national governments and groups involved in organised crime. Both of these groups have access to skilled individuals with considerable IT resources. Cyber security attacks are heavily researched, with the attacker taking significant time and effort to look for business processes and technical weaknesses that could be exploited. When the research is completed, the attacker can craft specialised

Figure 1 below outlines some of the common cyber security attacks and summarises their potential impacts. Analysys Mason security consultants have investigated a number of major cyber security breaches. Most of these breaches bypassed the installed security controls and were only detected because of side effects related to performance of the IT systems or network, mistakes made by the attackers, or information provided by national security bodies. The management boards of many private and public companies perceive IT security as an unwarranted drain on their resources, and so allocate minimal security budgets to ensure nominal compliance with regulations and legislation. The boards of these organisations need to understand the potential impact of cyber security and ensure they set aside

Cyber security: how to protect your organisation from this very real threat continued

Targets of the cyber attack

Type of attack

Potential impacts

Intellectual property (IP) Financial information Personal information Government information

Carefully targeted attacks to extract specific data

Compromise of the confidentiality of information. The extraction and/or use of IP, sensitive or personal data, potentially leading to: financial betterment loss in confidence reputational damage

IP Financial information Critical national infrastructure / government systems

Alterations of key data for financial or political gain

Modification of data leading to a compromise in its integrity, which in turn could lead to a loss of confidence in: a governments ability to protect sensitive data private organisations products or services.

IT Infrastructure / networks

Denial-of-service attack against core infrastructure / networks, leading to reduced or loss of service

A reduction in the ability of an organisation, region, government body or ultimately a whole nation to operate effectively

Figure 1: Cyber security attacks [Source: Analysys Mason, 2011]

appropriate budgets to achieve an adequate level of security. In this way, their organisations will be able to deter and resist cyber security attacks.

Organisations need to focus on their security strategy, which should include: traditional security controls a range of good-

detection of unauthorised changes organisations need the ability to quickly detect and alert staff in the event of a successful cyber attack. The most practical method is to detect unauthorised configuration changes in the IT environment. Suspicious changes can be investigated by security teams so that any security breach can be rectified continuous monitoring an appropriate level of event logging and monitoring must be configured on an organisations IT systems. Without this essential information it is impossible to establish which company assets have been compromised,making it impossible to ascertain the scale and impact

What do organisations need to do to combat cyber threats? To combat cyber security threats, organisations have to significantly change their attitude to IT security. The four basic technical security control elements that organisations must deploy to help them maintain cyber security are illustrated in Figure 2 and discussed below.

practice security controls, covering people, process and technology, to create a multi-layered approach to security across the organisation detection of abnormal behaviour supplementary security controls should be deployed that do not rely on signatures to detect suspicious activity, so that organisations can detect bespoke security attacks

Traditional security controls

of any breach. By deploying a range of IT security solutions, organisations can not only significantly reduce the likelihood of a successful cyber attack but also enable their security teams to quickly identify any breach and minimise its impact.

Monitor continuously

The report can be downloaded from Analysys Masons website at http://www.analysysmason.com/forms/gsma_study

Advanced security controls to detect abnormal behaviour

Detecting change

For more information about the study or our expertise in the embedded mobile market, please contact Edward Hamilton, Senior Manager, at edward.hamilton@analysysmason.com 3

Figure 2: Approach to IT security [Source: Analysys Mason, 2011]

Will fibre work in Africa?

Written by David Eurin Senior Manager Consulting Division

Governments and operators in emerging markets need to review their fibre investment plans, while regulators create an appropriate regulatory framework, to build sufficient supply to answer a growing demand for Internet access. Following a wave of investment in submarine cables around Africa, fibre is now laid in the ground of most sub-Saharan countries. This answers a growing demand for high-capacity telecoms networks in emerging markets driven by: Mobile operator cost reduction: fixed incumbents expensive pricing means it may be economical for mobile operators to selfbuild fibre or to find an alternative provider (and the regulatory conditions for building networks are becoming more favourable). Mobile broadband take-up: growth in mobile broadband penetration increases the backhaul capacity requirement and speeds the transition from microwave links to fibre. Economic growth: growth in international trade and greater information requirements drive demand for Internet connectivity. Broadband access for businesses: new submarine cable landings mean domestic networks can also provide international connectivity to businesses. Transit connectivity: fibre can sometimes provide cheaper transit connectivity for other players in landlocked countries (which typically rely on satellite bandwidth).
Figure 4: Number of cities covered with fibre backbone by service providers in India [Source: Analysys Mason, Company websites] Figure 3: Sub-Saharan countries with large fibre roll-out plans [Source: Analysys Mason, Hamilton Research]

Over USD50m fibre planned

700 600

All providers cover the top 8 India cities

200 130 110 60 44

BSNL

RailTel GAILTEL

Airtel PowerGrid Tata

Reliance

Efficiencies: a lot of African governments are planning to meet many of their Millennium Development Goals and are lowering the cost of public services (education, processes, information dissemination, voting) by increasing the access of communities to the Internet (often with broadband capabilities). Governments and operators in sub-Saharan Africa have announced their plans to deploy fibre-optic networks worth between USD50 million and USD1 billion (see Figure 3) over the next few years. These terrestrial fibre networks are being built by incumbent fixed network operators, mobile network operators, utility companies (electricity and rail) or specialised international connectivity companies (such as Liquid Telecom). 4 The changing regulatory environment (including In a few countries, e.g. Nigeria and South Africa, and in other regions like India (see Figure 4), this is likely to create a duplication of network infrastructure, as is the case in developed countries. Our policy development experience strongly supports the view that no undue restrictions should be imposed on fibre network construction. In South Africa, despite two nationwide fibre networks already existing, key players (mobile operators, ICT companies) continue to find value in deploying further fibre. Our work in India has shown that duplication of networks does not necessarily lead to high telecoms prices for end users. For more information, please contact David Eurin, Senior Manager, at david.eurin@analysysmason.com the treatment of submarine cable landing stations) and the new balance between supply and demand for fibre networks make the business case for additional fibre networks in Africa a complex and challenging endeavour. A leading telecoms consulting and research firm in Northern and sub-Saharan Africa, Analysys Mason has been involved in many submarine and terrestrial fibre projects, preparing analyses to support investments, developing regulatory frameworks and forecasting supply and demand.

Swedish spectrum auction fails to reach German bid prices

The comparatively low prices paid in Sweden
Written by Philip Bates Senior Manager Consulting Division

subject to much more stringent technical restrictions in some parts of the country to avoid interference with TV channel 60. The commitment to cover remote areas attached to the highest block is also an interesting feature of the Swedish auction. Net4Mobility is obliged to serve remote homes and businesses on a list to be issued by the regulator, which is expected to comprise 10001500 premises. Net4Mobility will be required to serve 25% of the premises on the list in 2012 and 75% in 2013. Thereafter, the company will be required to add coverage for specific premises until the SEK300 million (EUR34.2 million) commitment has been exhausted. The throughput requirements for the remote service specify a nominal speed of 1Mbit/s or better to a fixed terminal with a directional antenna (with an average speed of at least 750kbit/s over a 24-hour period and at least 500kbit/s in the busiest four-hour period). Net4Mobility is, however, permitted to use a frequency band other than 800MHz if this is demonstrably less expensive, suggesting that there may be scope for the company to subcontract some or all of the remote coverage obligation to Net1. For more information, please contact Philip Bates, Senior Manager, at philip.bates@analysysmason.com

reflect the relative lack of competition in the auction. There was a spectrum cap of 210MHz in place, ensuring a minimum of three winners, and although five companies entered the auction, two of them were significantly weaker than the others: Net1 (which currently operates a CDMA 450MHz network with fewer than 50 000 subscribers) and ComHem (which is Swedens leading cable operator, but a virtual network operator in the mobile business). The facilities-based GSM/UMTS/HSPA operators TeliaSonera, Tele2, Telenor and Three were all able to win 210MHz of spectrum because Tele2 and Telenor, which are already partners in a 2600MHz network in Sweden through a joint venture called Net4Mobility, decided to bid jointly. It is interesting to note that Three was able to secure the lowest frequency block of 210MHz for SEK431 million (EUR49.1 million). This is significantly lower than the prices paid by TeliaSonera for the middle block (SEK854 million or EUR97.4 million) and by Net4Mobility for the highest block (SEK769 million or EUR87.7 million with the coverage commitment taken into account). This contrasts with the situation in Germany, where the lowest block actually attracted the highest bid. However, the lowest block in Sweden is

The Swedish 800MHz mobile spectrum auction ended on 4 March 2011, with bids totalling SEK1754 million (EUR200 million) plus a commitment from one of the winners to spend SEK300 million (EUR34.2 million) on covering homes and businesses in remote areas of the country. The total bids amounted to EUR0.35 per MHz pop (or EUR0.42 per MHz pop if the commitment to provide coverage is taken into account). This is only around half the EUR0.73 per MHz pop paid in the German auction in May last year, and less than 30% of the EUR1.28 per MHz pop paid in the Hong Kong auction, which ended the day before the one in Sweden.

Securing the social network

network service consists of a representation of
Written by Nigel Strutt Associate Consulting Division

Businesses are also increasingly using social networking sites to track down individuals, based on various search criteria, e.g. identity, industry accreditations, social and/or work interests. But despite these advantages which give

each user (often referred to as a profile), their social links, and a variety of additional services. This service allows users to share ideas, activities, events, and interests within their

Social networking whether it be Facebook, MySpace, LinkedIn, YouTube or Twitter is fast becoming a way of life for millions of people for personal or business reasons. But it comes with risks that include identity theft, malware infections, and the potential for reckless remarks that damage corporate and personal reputations. Social networking refers to an online service, platform, or site that focuses on building and reflecting relationships between people who usually share interests and/or activities. A social

individual networks. However, it is not just about individuals. Social networking offers real advantages to organisations such as the emergency services in reaching out to the public, as shown by campaigns such as the Facebook appeal launched by Avon and Somerset Police as part of the Joanna Yeates murder investigation, or the Twitter control room experiment by Greater Manchester Police (which has more than 18 000 followers on the site). legitimate reasons for employers to allow staff to access social network sites there are some serious problems attached to social networks. The sites can be accessed from a variety of devices, including desktop computers, laptops, tablet devices and smartphones. Most of these devices (whether owned by the individual or by a company) provide access to corporate applications, e.g. email, calendar and contacts. Organisations therefore risk untrusted software 5

Securing the social network continued

accessing corporate data. Social networks can be attacked by hackers seeking user passwords and other information, while one survey suggests that 57% of users claim to have been spammed via social networking sites, and 36% claim they were sent malware via these sites.1 Social networking sites are also famous for their widgets (third-party applications that can be added to accounts). But in some cases these can turn into warriors with a single mission stealing your data. Many organisations permit staff to access the Internet for personal purposes. There will of course be constraints, for example, in terms of time spent browsing, blocked versus unblocked sites, and restrictions on content that may be downloaded. But it should be noted that when corporate resources are used to access social networking sites, organisations are responsible for the actions of their employees. Conversely, there is mounting pressure particularly in the public sector for individuals actions outside the
1

Staying safe with regard to social networking means: implementing a corporate policy and working knowledgeably within a set of simple guidelines providing education and awareness to employees monitoring compliance.

work place to reflect the roles which they undertake in society, which has resulted in a number of dismissals, including in the teaching sector.

Source: Sophos, February 2010

For more information, please contact Nigel Strutt, Associate, at nigel.strutt@analysysmason.com

Pay TV in AsiaPacific the next opportunity?

reach compared to IPTV/cable and is likely to be
Written by Lim Chuan Wei Partner Consulting Division

The threat to pay TV from over-the-top (OTT) services cannot be underestimated. Broadband, the key enabler for such video content, has grown significantly. The core business in pay TV will remain scheduled programming, although we can expect that on-demand viewing will become more popular as part of the liberalisation when it comes to anytime, anywhere programming. Pay TV is moving into the digital age in most of the AsiaPacific market. Besides the headend upgrade cost, the biggest component cost is the set-top boxes (STBs). Controlling the STB cost in terms of unit price and logistics cost will be essential, and could create a significant impact on the valuation of the companies. In order for cable operators to compete with satellite operators, the line deployment cost will have to drop. Line deployment costs vary across markets and much depends on the local regulation with regard to roll-out. With ARPUs at less than USD20 in AsiaPacific, the payback period based on line roll-out alone is going to be quite significant. Analysys Mason has significant experience conducting both commercial and technical due diligence on pay-TV assets in the AsiaPacific region. Our Singapore team has completed close to ten due diligence exercises in the pay-TV sector. For more information please contact Lim Chuan Wei, Partner, at lim.chuan.wei@analysysmason.com

much more cost-efficient in rural areas. In contrast, IPTV/cable provides for a better viewing experience, and potentially offers a higher profitability since the same asset can be used for

The pay-TV market in the AsiaPacific region has undergone significant changes over the past decade. In contrast to the 1990s, the market is now more professional and developed. Whilst there are still regulatory and policy constraints because of the political sensitivity of media, there remains a significant opportunity to invest in the market. Market themes for pay TV can include leveraged buyout, consolidation, capital injection for digitisation and hence revenue growth, and turnaround situations. In reviewing the opportunity for pay TV in AsiaPacific and elsewhere, a number of questions needs to be considered: Is cable/IPTV or satellite the more appropriate technology?

delivery of broadband and interactive services. Over time, there may be a possibility that market share moves towards cable as infrastructure becomes more developed, but satellite will continue to play an important role in large geographical markets such as Indonesia and India. Cable has seen a more significant increase in profitability compared to satellite in the past few years, driven by the re-use of assets by broadband. In some markets, for example Indonesia, broadband revenues have even exceeded payTV revenues. Surprisingly, despite the higher profile of FTTx technology, cable continues to make a comeback in market share, as is the case with Taiwan, partly as cable operators recognise the incremental revenue benefits. Content is the key driver for pay TV takeup. In

How can the assets be further leveraged? Can access to content be maintained or better still remain exclusive? What is the potential for additional services? How can the cost of deployment be controlled? The competitive industry dynamics between satellite players on one hand and IPTV/cable operators on the other can differ significantly across markets. Satellite provides a much wider 6

markets where free-to-air content remains competitive, pay TV has been making less headway as people do not see the need to switch. In most other markets however, content on pay TV is significantly better than on free-toair. In markets where pay TV is more dominant, in order for the pay TV operators to remain dominant, content cost will become more expensive. How the pay TV operators continue to acquire appealing content while maintaining control of the cost and exclusivity of content would be one of the key drivers in assessing the likelihood of success for the operator.

The pay-TV ecosystem needs to evolve: insights from IP&TV World Forum 2011
Written by Cesar Bachelet Senior Analyst, Research Division Lluis Borrell Partner, Consulting Division

This year, the IPTV World Forum has subtly been renamed the IP&TV World Forum, reflecting the fact that, although Internet Protocol TV (IPTV) has failed in most countries to have a significant impact as a standalone pay-TV platform, the integration of IP with traditional broadcast technologies is transforming the way video content is distributed and consumed. The traditional, vertically integrated model of delivering pay-TV services is becoming too rigid in developed countries, where vast quantities of video content are increasingly delivered to the TV set through ubiquitous fixed broadband connections. In order to maintain their relevance and appeal to consumers in a rapidly changing environment, pay-TV operators should continue to adapt to a more open video ecosystem in which: However, the emerging, more open model of traditional broadcast video content can be seamlessly blended with other forms of digital content that complement it, including online video content or other contextually relevant information a mix of distribution platforms, incorporating traditional broadcast and IP networks, is used to deliver the above content to consumers content is consumed on a wide range of terminals, not just traditional managed devices, such as operator-supplied set-top boxes, but also unmanaged devices connected to the home network, which consumers may have bought from third-party retailers, including games consoles, tablets and smartphones the user interfaces on these terminals need to bridge the gap between broadcast and broadband content, enabling aggregated navigation and search across both, in order to provide consumers with an integrated entertainment experience. This new ecosystem represents both a threat and an opportunity for traditional pay-TV operators. The more open ecosystem means that barriers to entry are lower, because it is far How do they ensure that their OTT services How widely do they want to distribute their content? Will they deliver their own OTT services to any consumer over third-party infrastructure, i.e. a competitors fixed broadband connection or limit themselves to their own platform? For more information, please contact Cesar Bachelet, Senior Analyst, at cesar.bachelet@analysysmason.com 7 delivering content is giving pay-TV operators the opportunity not just to complement the core pay-TV service that is delivered to existing subscribers via traditional platforms, but also to reach a wider audience with their content, thus leveraging their position as aggregators and packagers of content. Individual pay-TV operators will need to decide to what extent they are willing to immerse themselves in the new ecosystem. Some of the key strategic questions they need to consider include the following: How and when will they combine new forms of Over-The-Top content with traditional broadcast content? How do they manage their rights negotiations accordingly? To what extent do they use IP to bring interactivity to their platform? However, pay-TV operators will need to ensure they do not get carried away by the urge to offer increasingly advanced features, and forget about the underlying fundamentals of their core pay-TV service, which is all about delivering a good selection of quality content to their subscribers with a guaranteed quality of service. Amid all the innovation, it was refreshing to see vendor ADB Global highlight back-to-basics features, such as fast channel changes and an eight-second reboot time for its set-top boxes. easier for any player with content rights, such as Netflix, Apple, Amazon or YouTube, to reach a wide audience with a TV-like experience without having to invest in their own video distribution infrastructure. It also makes it possible for traditional broadcasters to enrich free-to-air TV with value-added services. The start of the IP&TV World Forum coincided with the launch of a new set-top box developed by EchoStar, which enables Freesat viewers in the UK to access online catch-up TV services, such as the BBC iPlayer, on their TV set instead of the PC, and also to placeshift their content to other devices, including the Apple iPad, through built-in Slingbox functionality. At the IP&TV World Forum, a multitude of vendors offered solutions enabling pay-TV operators to adapt to the changing market, and differentiate themselves from increasingly sophisticated services provided by third parties. For example, middleware vendor NDS demonstrated a mock-up of a digital version of Sky Magazine, which enables consumer interaction between the magazines content and the pay-TV service. An example of this would be reading about a forthcoming TV programme in an article then embedding the ability to schedule that programme to be recorded on a DVR within the article. NDS also launched Infinite TV Exchange, a global B2B content marketplace enabling pay-TV operators to incorporate special interest video content within their proposition. Which devices should they provide video services to? Which distribution channels should they use to make these devices available to consumers wishing to use their services? How future-proof is their service delivery platform in a rapidly changing world? How and when should they upgrade their user interfaces and the underlying middleware? do not cannibalise their traditional linear payTV proposition?

Driving the energy sector towards the M2M-enabled smart grid

Written by Steve Hilton Principal Analyst, Consulting Division with Ed Reed Principal Consultant,Cornwall Energy
M2M device connections (million)
1400 1200

Analysys Mason forecasts 1.3 billion residential and commercial smart meter connections by 2020, with a CAGR of 56% over a 10-year period, according to a recent Analysys Mason machine-to machine (M2M) forecast (see Figure 5). This high level of growth happens primarily in the developed world economies from 201015, but by 2016 we also expect very high levels of growth in the emerging world, especially in the AsiaPacific region. Utilities must do three things to be successful in the smart-grid space. First, they must prioritise deployment of the top cost-reduction and revenue-enhancing applications associated with the smart grid. The complementary aspects of cost reduction and revenue enhancement promise utilities a multitude of new opportunities. But choosing too many applications or deploying them in a haphazard fashion will reduce the effectiveness of these new programmes. Second, they must work with a system integrator (SI) or communication service provider (CSP) that can provide a pre-integrated or pretested solution. SIs or CSPs need to offer solutions that include equipment, communications, a hardware/software platform and applications. Trying to piece together a solution from 57 vendors will prove financially painful and time-consuming. Third, they must pick application vendors with a proven track record in actual deployments in their countries of interest. While M2M solutions are relatively new in the energy/utility sector, we have seen some notable successes from

1000

800

600

400

200

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

2015

Figure 5: Utility/energy-sector M2M device connections, worldwide, 201020 [Source: Analysys Mason, 2011]

Trilliant, eMeter, EnerNOC and others. And the experiences of application vendors matter a lot in this new field. The roll-out of smart metering is the first step in smart-grid development and introduces the potential for utilities to start offering additional value-added services to residential and commercial customers. In the UK for example, suppliers will be under licence obligations to complete the roll-out of smart metering to 25 million households, most likely by the end of the decade. Within this, a degree of flexibility is expected over the pattern of installations, with some utilities seeking to engage with local delivery partners to increase deployment efficiency, and others focusing on early adopters. The regulator Ofgem has suggested that suppliers discretionary installation rate could peak at an annual 17% meter replacement rate during the middle of the decade 201020. We find it is the applications layer of the M2M supply chain which can make or break smart-

grid solutions and a utilitys ability to meet its cost-reduction or revenue-generating goals. The top six applications include pre-paid metering, home energy management, residential or commercial security, smart metering, storage management and demand response programmes. However, identifying the field of vendors for each of these six applications is no trivial task. Providers include Eschelon, OPower, Tendril, Eragy, Alertme, eMeter, Trilliant, Current Energy, EnerNOC and many others. Top application providers for smart-grid solutions will have exponential growth for their services. Making sure they have the proper supply-chain partnerships is key in quickly bringing to market cost-effective, valueenhancing solutions. For more information, please contact Steve Hilton, Principal Analyst, at steve.hilton@analysysmason.com

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