The M2M market is growing rapidly in the cellular industry and is being used by a number of mobile network operators in North America, Europe, and the Asia-Pacific region in particular. Major operators are entering into M2M services as their voice and data service markets reach a saturation point.
M2M refers to technologies that allow both wireless and wireline systems to communicate with other devices of the same capacity. In this regard, the third-largest U.S. wireless carrier Sprint Nextel Corp. (S) cut a deal with France Telecom‘s (FTE) Orange Business Services to offer machine-to-machine (M2M) data services outside the U.S.
Along with Sprint’s current domestic and global M2M services, the latest M2M service is expected to reach 180 countries in sectors such as automotive telematics, smart grid and metering, healthcare, retail point-of-sale and security. The deal allows Sprint’s customers to use a single entity, manage global M2M connectivity requirements with local implementation and enjoy local contract negotiation support. It would provide the company with M2M specific GSM Sim cards and a Web portal that would aid customers in ordering and managing SIM cards.
Sprint expects the deal to enhance economies of scale, cost control, faster project deployment, and an integrated M2M supply-chain process ensuring a one-stop shop. We believe M2M services remain well positioned for accelerated growth, creating revenue opportunities for network service providers.
According to ABI Research, the M2M market is expected to grow to roughly 365 connections by 2016 from about 110 million last year. This corresponds to a compounded annual growth of 27% by 2016 with connectivity revenues of about $35 billion. Automotive telematics and smart energy will likely be the largest contributor of the M2M market, representing $15.5 billion and $7.5 billion, respectively, in 2016.
Other major operators like AT&T Inc. (T) and Verizon Communications Inc. (VZ) are also benefiting from this network service. However, we believe the build-up of M2M solutions might be time consuming and expensive, thereby hurting the company’s profitability. Additionally, inappropriate technology solutions could pose impediments.
We currently maintain our long-term Neutral recommendation on Sprint. For the short term (1-3 months), the stock retains a Zacks #3 (Hold) Rank.
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