Beyond the World SIM

Enterprises seeking to deploy cellular IoT or M2M solutions want a single service that functions worldwide. This is true whether they want to buy service for a large number of subscriptions that will each be homed in a number of countries, or whether they have subscriptions that need to travel frequently across national boundaries.

Presently, this is very difficult to achieve. Spectrum is viewed as national property, and it is regulated and licensed for use at a national level. Consequently, service providers (carriers) are licensed and operate only within national boundaries. Even for those cases when one carrier can actually buy another carrier in a different country, the owning carrier is required by law or regulation to keep the operations separate and operating at arm’s length. So international consolidation among cellular service providers has not been possible like it has been with almost every other multinational product or service. Cellular service can only be purchased country by country.

Each of these national cellular carrier wants to make sure that they get the revenue when they are providing service to the subscription, and they get to count the subscription in their publicly reported subscriber numbers. The historic way that national carriers enforce that they are getting their “fair” share is to require a separate, direct contract for service with them. And international roaming rates are set at onerous levels to discourage bypassing this arrangement. Shutting off permanently roaming subscriptions has been another mechanism to force local contracting in the M2M business.

So, traditionally, an enterprise needs to enter into a commercial relationship with each national carrier in whose country it wants cost effective cellular service for M2M applications. That also means that the enterprise has to use each carrier’s unique device management portal to manage the subscriptions that operate in that country. Enterprises that want to acquire worldwide cellular service under one contractual relationship, managed with one portal, with one low price, are stymied.

Enter the World SIM. The World SIM is an attempt to provide enterprises with a single subscription that can operate anywhere in the world and that can be managed through one portal.

In practice, service under a World SIM is provided one of two ways. Under the first approach, the home or primary carrier enters into roaming relationships with a broad number of other national cellular carriers (although usually only one per country) so that the World SIM can operate in each country, even roaming permanently, while still being managed through the primary carrier’s portal. The drawback of this World SIM approach is that the unit is still roaming when outside of the primary carrier’s country, at the higher prices that roaming entails. A characteristic of this approach is that the price for service is tiered into “zones” (i.e., groups of countries), with the prices in secondary and tertiary countries usually being relatively steep.

The other approach to providing a World SIM is to use technology to turn the SIM into a local subscription in whatever country in which it operates. One method is to get a subscription identifier (i.e., IMSI) from each target country, and to embed that identifier into a more intelligent, capable SIM. The SIM will recognize the country code of the network in which it is attempting to operate, and will register with the local IMSI that will provide service at the lowest price. Another method is to program the appropriate local IMSI into the SIM over-the-air so that the device is receiving service at local carrier rates. The drawback of these approaches is that the enterprise still needs to enter into a separate contract with each individual national carrier, and to negotiate appropriate pricing (so, for instance, that a single device is not bearing a monthly recurring charge for each IMSI that could possibly be programmed into it, whether it operates in that country or not). As with the first World SIM approach, the enterprise can manage all of its M2M subscriptions worldwide through a single device management portal, but the effort to set up these programs in more than a handful of countries is onerous.

None of these approaches to providing a World SIM truly accomplish the overall goal, which is to allow a subscription to have access to cellular service anywhere in the world under one commercial agreement, with one low price (MRC and usage charges).

Providing worldwide M2M service is a commercial problem, not a technical problem. What some visionary carrier really needs to do, is develop a “product” that solves the overriding commercial problem with a purely commercial solution. That solution should enable an enterprise to enter into a single world-wide agreement with a “consortium” of cellular service providers. The enterprise's subscriptions should roam and receive service from any consortium carrier’s serving network just like today. No changes to the SIMs. No changes to any carrier’s OSS. No changes to the carrier interconnects. But in the background each carrier’s BSS should treat these subscriptions differently. The consortium lead carrier, or a third party, would sets up a clearinghouse operation for collecting billing and “roaming” records from all consortium carriers for these worldwide enterprise subscriptions. The clearinghouse would provide one invoice to the enterprise for all subscriptions (either directly or through a “primary” consortium carrier), charged at the one “local rate” price regardless of where the subscription actually received service. The clearinghouse would also then provide the proportionate share of the enterprise payments to each carrier that provided service to the enterprise worldwide subscription, along with the “right” to claim that subscription in its base numbers for the billing period.

A consortium with clearinghouse is one way of accomplishing this. Having one lead carrier act as a master distributor for all other participating carriers would be another, and there are probably other possible structures. But the overall objective is to provide a single, simple, transparent, worldwide cellular M2M service to enterprises, with the carriers working out the commercial reconciliation among themselves in the background.

A World SIM with high costs in some countries is not the answer enterprises need. Nor is making the enterprise strike contracts with each separate national carrier. Just solve the commercial problem directly. The cellular carriers already have standards and interconnected systems that can provide cellular service worldwide to any subscription. The only issue that hasn’t been solved to make it simple for the enterprise is how to divide up the carrier revenues.

Update on the Cost of M2M Applications

As with any other implementation of technology, M2M applications only make sense when the benefits of implementing them sufficiently exceed the costs to achieve an attractive return on investment. While the potential benefits of implementing M2M differ with each application, the structure of implementation costs are similar. There are three major costs to implement an M2M application:

1.       Development Costs
The costs to develop an M2M application include the costs to design the overall system solution, to develop an application-specific device (or to adapt an off-the-shelf product), and to develop or integrate the back-end system that manages and pulls information from the M2M devices.

2.       Deployment Costs
Deployment costs include the cost of manufacturing or buying the M2M device itself, as well as the cost of installing it.

3.       Operating Costs
For cellular-based M2M applications, the on-going cost of operating the M2M application is dominated by the cost of cellular service. The costs of operating the back-end application, providing on-going support and powering the remote device is usually small by comparison. For certain applications, the cost of replacing batteries over the life of the device can also add up.

Over the past two years, some of the important costs of M2M applications have continued to decline considerably. Specifically, the costs of cellular communications for M2M applications has declined. This has enabled even more potential M2M applications to become cost effective, and is fueling the accelerating growth of the M2M industry.

For most cellular-based M2M applications, the total life cycle cost of the application is dominated by on-going operating costs, which are driven by cellular communications charges. The costs of cellular service for M2M applications has fallen significantly over the past two years. In 2011 a typical M2M application may have been designed to use 100 KB of data traffic monthly for a charge of $1.50 to $2.00. An application requiring 1 MB of data traffic could easily have incurred monthly charges of $5.00 or more.

In the ensuing years, carriers have expanded their network capacity by upgrading their networks using 3G and 4G technologies. In addition, carriers are starting to behave more competitively in the M2M market. The M2M market is larger and more attractive to carriers, while traditional consumer subscriber growth within their national market boundaries has largely stopped. Carriers looking for new sources of subscription growth have become more competitive in pursuing M2M business, partly by reducing the premium that M2M applications have paid for data services.

So cellular charges for M2M services have dropped. Today, in the first half of 2014, monthly cellular costs of $1.50 to $2.00 for 1 MB of data traffic are common. Costs can obviously be even lower for applications with lower data requirements and a large number of devices, and monthly communications costs for these applications can be under $1.00 per device.

These rates not only significantly reduce the life cycle costs for an M2M application, but they loosen the design constraints that used to force developers to minimize the data that their application sends and receives. M2M applications are evolving from using SMS, or even UDP, data transports to using the more familiar TCP protocol that is common on the Internet. Lower costs for data communications also enable less experienced application developers to create viable applications since communications efficiency is not as important as it had been.

Cellular M2M costs still have plenty of room for improvement, though. Even at $2 per MB monthly, M2M data costs are still a couple of orders of magnitude higher than the effective $0.01 to $0.06 per MB charged with consumer smartphones and tablets. M2M cellular costs will continue to drop, particularly after LTE radio module costs become cost effective for M2M applications.

Another development that has reduced the costs of M2M applications is the continuing decline in the cost of cellular radio modules. In most M2M devices, the cellular radio module is the single most expensive component. In 2011, GSM 2G cellular radio modules could be obtained in moderate volumes for $26 to $30 apiece, and CDMA 1xRTT modules could be had for $30 to $36. At that time, 3G radio modules were just starting to appear, but they were two to three times the cost of 2G modules.

Since then, 3G cellular radio modules have grown to dominate the designs of new M2M devices as their costs have come down with volume. Chinese manufacturers of cellular modules have entered the US market with aggressive pricing. In addition, some carriers have announced that they will not allow new 2G radio-based devices onto their network any longer, which probably presages future restrictions by the remaining carriers. With the resulting growth in volume, 3G radio module prices have dropped to the former level of 2G modules – and beyond. Today GSM 3G radio modules are available for $22 to $28. CDMA 1xRTT modules are a little less expensive, at $21 to $24. Prices can be even lower with very high volume purchases.

The costs of deploying and operating an M2M application are generally the largest components of an overall M2M solution. The decline in the costs of cellular radio modules over the last three years, especially for CDMA, has reduced the costs of deploying M2M devices. More importantly, the significant reduction in cellular data costs have lowered the costs of operating an M2M application. Together, these developments have improved the total life cycle cost of using M2M technology, thereby enabling more potential M2M applications to become economically attractive. These developments will drive accelerating growth of M2M deployments as part of the Internet of Things, and will lead to even further reductions in M2M technology costs. 

M2M Middleware Platforms

Sean Horan of AT&T recently wrote a very good blog entry on “4 Reasons to Justify M2M Middleware Solutions.” Basically, Mr. Horan argues that M2M middleware makes it faster and easier to develop a broader range of more functional M2M applications. He especially sees M2M middleware helping large enterprises implement diverse M2M initiatives across their business units.

The four major benefits of using M2M middleware that Mr. Horan points out are:

·         Support for Multiple M2M Device types
There is a large and growing variety of M2M devices that an application or set of applications may need to support. Each of these devices comes with their own protocols, particularly for device management, and middleware helps insulate application developers from these differences by making their applications device agnostic.

·         Reduce M2M application development costs and standardize deployment
M2M middleware provides a number of M2M application and communication functions, as well as a framework to simplify the development of the application’s custom logic. M2M middleware also provides the architectural underpinnings to enable users to scale and manage M2M applications easily.

·         Integration enablement
The data collected from remote M2M devices is useful only if processed, analyzed and used in central applications. This is particularly true for larger enterprises in which the M2M data is often used to enhance the operation of existing enterprise applications. M2M middleware makes it easier to interface M2M data or applications with general enterprise applications.

·         Support Multiple Connectivity optionsBroadly speaking, M2M applications need to communicate across a broad range of wireless networks in addition to cellular – WiFi LANs, satellite, and low power wireless technologies. Applications also sometimes need to accept connections over the Internet. M2M middleware helps applications to be network agnostic and well as device agnostic.

Without a doubt, M2M middleware platforms enable you to develop and deploy M2M applications more easily and quickly. They can help deliver the four important benefits that Mr. Horan describes.

But there are two architectural approaches to M2M middleware that differ significantly in their approach to trying to deliver these benefits. They each have their pros and cons. It is advantageous to use an M2M middleware platform in developing your application, but it is critical to pick the middleware architecture that best meets your application's requirements and environment.

One type of M2M middleware platform follows the paradigm of classic information systems client/server middleware, in which one half of the middleware is implemented on the central application server, and the other half (the "agent") is implemented on the remote device. This approach can deliver all of the benefits Mr. Horan describes, and it is especially effective for migrating the rules engine, exception handling, and sophisticated diagnostics to the network "edge." This is particularly beneficial for applications that operate over networks that charge for usage, like cellular networks.

The downside with this approach is that EVERY device manufacturer involved in the application must implement the agent in their firmware. This may not be an issue if you are developing the hardware in-house, or only buying a single device from a manufacturer with whom you have leverage. This is more challenging if you are trying to get the agent implemented by the manufacturer of the vehicle-tracking device, the retail kiosk manufacturer, the vending machine manufacturer (all models), etc. Also, these agents are not lightweight, which is often an issue with many embedded devices. Implementing an agent in the full computer that is built into an MRI machine is easy; implementing it on the 8-bit microcontroller in a tank level monitor, not so easy.

The other major type of M2M middleware platform centralizes the device translators on the server and allows the many multiple M2M device types to communicate to the central server in their unaltered, native mode. This makes it easier to incorporate devices from many different manufacturers, and to handle the manufacturers' upgrades to hardware and firmware. The manufacturer does need to share their devices' communications protocols so that the appropriate translator can be created, but this is usually easier than getting the manufacturer to incorporate licensed agent firmware into their product. Otherwise the equally powerful server component of this middleware platform delivers the four major benefits that Mr. Horan profiled.

The downside of this approach is that functionality is not standardized across devices, particularly for device management and diagnostics. It is also more difficult to optimize application performance and wireless costs when incorporating unaltered, inexpensive, off-the-shelf M2M devices.

Either one of these major types of M2M middleware platforms can deliver the major benefits that middleware provides -- multiple device support, easier application development, integration enablement, and multiple connectivity options. But the specific difficulty and cost of developing, deploying and operating your application can differ markedly between the two architectures. You should carefully consider how your application requirements match up against the specific capabilities of the two approaches to select the best middleware for you.

What Do Carriers Really Think of M2M?

There has been some discussion in the trade press and in analysts’ reports that cellular carriers are starting to focus on M2M as their next growth opportunity. Many of these carriers in both the United States and Europe have established or greatly expanded their M2M-focused business units to try to grow and capture this emerging market for cellular devices and service.

For many reasons, the M2M business should be very attractive to carriers. First, the potential market size is very large – there are many more machines and devices in the world than there are people, and carriers like large markets. Second, the M2M business is largely a wholesale business, with some other company selling the product or service which incorporates cellular communications, so the carrier does not take on the significant expense of marketing and sales. Whether it is a tablet computer, an e-book reader, a home health diagnostic unit, or an oil pipeline monitoring device, the manufacturer of the product sells the cellular service as part of the overall product. Third, the M2M market is developing without the use of upfront equipment subsidies, as are common in the US cellular handset market, so that the carriers do not face a large upfront investment to add each new M2M “subscriber.”

There are other characteristics which should make the M2M business economically attractive to carriers.  Because this is largely a wholesale business, the acquisition cost of each individual subscriber is very low. In addition, outside of the consumer data appliance category, the average service life of the devices using cellular communications is very long, sometimes as much as a decade.  This means that the churn of M2M devices is very low. Except for consumer appliances, most M2M applications tend to be tightly defined and change little over time. Once they are working, they tend to simply keep working, so carrier support costs are relatively low per unit. In fact, most direct support is actually provided by the product manufacturer. Finally, the network usage of M2M devices tends to be relatively low, predictable and stable, so these applications do not place unforeseen demands on network capacity (other than simply adding more devices to the network).

But carriers are actually somewhat ambivalent about the M2M business. The problem for them is that M2M devices usually provide a much lower monthly Average Revenue Per Unit (ARPU) than do traditional cellular subscribers. In fact, M2M ARPUs are often a full order of magnitude lower than standard consumer handset ARPUs.

Cellular carriers are public companies whose operational performance is evaluated on three numbers – subscriber count, average monthly revenue per unit, and churn (i.e., the percentage of customers who drop cellular service with that carrier during the month). While the stock price of cellular carriers does partly reflect the carriers’ recently reported quarterly financial performance, investors also attempt to gauge the carriers’ future financial performance by tracking these three operational metrics. These three numbers impact an investor’s view of the carrier’s future prospects, and investors incorporate this view of the future into the stock price.

In terms of these investor metrics, then, a significant increase in M2M subscriptions will cause the subscriber count to increase, but will also cause the ARPU metric to decline. The greater the number of M2M subscriptions added, the more dramatic will be the impact on the carriers’ overall metrics. But when investors see a carrier’s overall ARPU numbers declining, they can not easily tell whether that is caused by a growth in M2M subscriptions, or whether it is driven by general price erosion in the consumer handset business, from customers shifting from higher cost plans to lower cost plans that better fit their usage, or from a shift in customers from traditional post-paid cellular plans to prepaid plans. All of the other possible explanations for declining ARPU are generally viewed as “bad” from the investors’ perspective, since they threaten to reduce the carrier’s future profitability from declining revenue with no corresponding decline in costs.

The reason that carriers are actually ambivalent about the M2M business, and remain uncommitted to really growing it, is because the faster this business grows, the less attractive the carrier looks to investors. Even though an M2M business might be extremely profitable as a stand-alone business (even after allocating its share of the full cost of the network capacity that it consumes), it is impossible to convey this fact to investors using the summary financial and operating reports that carriers disclose publically and that investors use to evaluate carriers. So growing an M2M business will make a carrier’s stock price go down – at least in the near term. Like most public companies, carriers focus on short term stock price performance as their primary guide for managing their business. Most of the carrier palaver about supporting M2M is really about high end consumer appliance subscriptions, not about the average low ARPU M2M applications.

Reality Check – The Cost of M2M Data Services

The M2M industry is still relatively small and new, and consequently many application developers are planning and developing their first M2M application. Many of these developers’ only prior experience with the cost and capabilities of cellular service is through their personal experience using consumer cellular appliances, particularly smartphones, tablets and data cards for laptops. In particular, their frame of reference for the cost of cellular data comes from its cost with these devices. Their assumption is that if they can develop an M2M application that uses a half or a tenth or less of the data of these consumer appliances, the cellular cost of will also be proportionately lower.

And in this assumption they will be wildly wrong.

The cost of cellular data service on personal devices has declined significantly over the past five years as the popularity of intelligent connected devices has increased, and as the range of available appliances has also grown. Smartphones generally did not exist five years ago, and cellular data services were largely confined to PC cards that were inserted into laptops. Phones had Internet access back then, but it was cumbersome and lightly used. Now smartphones with downloaded applets make up over 40% of US mobile subscribers in late 2011. On top of that, tablets have experienced explosive growth in adoption, along with e-book readers, digital picture frames and other graphical devices, many of which have cellular data connections.

It is easy to see what pricing conventional wireless data users expect. With smartphones, it is tricky to isolate just the cost of the data plan from the overall cost of the service since the monthly charges for smartphones include voice and text messaging services, along with amortization of the subsidized purchase price. The data plan price on a smartphone is an incremental price. With that caveat, the minimum incremental data plan price for an iPhone, at the end of 2011, is $15 for a 2 GB data plan, which works out to $0.0075/MB per month. More “pure” data plan pricing offerings exist for the iPad. Monthly data plan prices on the iPad range from $15 for 250 MB to $25 for 2 GB, which calculate to monthly data costs of $0.06/MB to $0.0125/MB respectively. The iPad pricing is 2x to 4x the incremental data pricing on an iPhone, and is the better example of wireless data pricing on a consumer data-only device.

The situation in M2M applications is markedly different. M2M applications use significantly less data per month than do consumer devices. There are a number of M2M applications that require miniscule data traffic, less than 100 KB per month. Even many verbose, “high volume” M2M applications require no more than 1 MB to 5 MB of data monthly. In general, M2M applications use at least two orders of magnitude (i.e., 100 times) less data than are used by consumer appliances.

Given their lower data usage, you would expect the monthly service cost for an M2M device to be lower -- and it is, but not as low as the consumer device benchmark would suggest. Typical M2M pricing for a device using a miniscule 100 KB of data monthly is $2 to $3. That is the equivalent of $20-$30 per megabyte. Higher data volume M2M applications, which consume 1 MB to 5 MB monthly, also have relatively low monthly charges of $5 to $8 respectively. Those monthly charges, however, are the equivalent of $5/MB to $2/MB.

Clearly if an M2M application only needs to use 100 KB or 5 MB of data service monthly, then M2M pricing from carriers is less expensive than putting the device on a standard consumer data plan. But the price for M2M data is extremely expensive, by comparison, when measured on a per megabyte basis. In fact, the price per megabyte of data service for an M2M device is two to three orders of magnitude (i.e., 100 to 1,000 times) more expensive than the price charged for data for consumer appliances. An order of magnitude difference is a glaring difference – two or three orders of magnitude is huge. This pricing difference is one of the reasons why new M2M application developers are shocked when they calculate how much their application is going to cost each month, given how little data service they are using.

Both sets of devices – consumer appliances and M2M devices – are using the exact same cellular network with the exact same data communications facilities. So why do carriers appear to charge 100 times more for the capacity used by M2M devices compared to that used by consumer appliances?

One major difference between the two sets of devices is breakage. Breakage reflects the fact that subscribers almost never use their full data plan allowance each month. Because cellular users of all types – both businesses and consumers – hate to pay the overcharges incurred when they go over their plan allowance, cellular users invariably sign up for a plan that provides more data than they need. The difference between the allowed usage in the plan and the user’s actual data usage is called breakage. An iPad subscriber on a 2 GB plan may only use 500 MB of data in a month. The unused 1.5 GB allowance is lost, which makes the iPad user’s actual data cost that month $0.05/MB, not the $0.0125 that optimal, full usage of the data plan allowance would provide. (As an aside, some carriers instituted “rollover minutes” to reduce breakage on cellular phone plans as an effective price reduction. There are not currently any “rollover megabyte” plans in the industry).

Breakage differs significantly between M2M devices and consumer appliances. Because consumers do not understand their data usage very well, and because carriers only provide a few data plans of significantly different sizes, most consumers pay for a much larger data allowance than they need. Average breakage on consumer data plans is probably over 50%, and may be as high as 80%. By contrast, M2M application developers usually know exactly how much data their devices will consume each month since the application behavior is tightly defined and controlled. Also, M2M data services are usually available in a large number of pricing tiers so that the application developer can select more closely the appropriate data allowance for the application. And finally, some M2M pricing plans are available as “pooled” plans across a large number of devices, in which the under usage one month by one device can be used to offset the over usage that month by another device, thus largely avoiding overcharges. Consequently, breakage on M2M data plans is much less than 50%, and probably closer to 20% on average.

The difference in breakage then may mean that M2M data is only 75 times more expensive than consumer appliance data, rather than 100 times. It does not begin to explain the wide variance in the cost of cellular network data capacity implied by the two sets of pricing.

Another consideration is that M2M applications place a proportionately larger load on the signaling capacity of the cellular network than do other data applications. Signaling is used on the cellular network to start and stop data communications sessions. Carriers only charge for the data contents of the session, not for the signaling transactions themselves. An M2M device using 1 MB of data over the month may have the same number of data sessions as a consumer appliance (say, 1000 separate sessions). The carrier is collecting more money from the consumer appliance’s higher data traffic to cover the “cost” of the signaling than from the M2M device, which is only consuming a relatively small amount of billable data for the same signaling. Consequently, carriers are probably charging more for the measurable, billable M2M data to help cover the signaling overhead costs incurred by M2M applications.

The fact, though, is that neither of those reasons, nor any other cost driven explanation can justify the extravagantly higher price that carriers charge for M2M data compared to any other data service. M2M applications do not incur two orders of magnitude more load on the cellular network per megabyte of data communicated (or at least, per megabyte of data allowed).

The explanation has to be that carriers are value pricing M2M data. They are grabbing as much revenue as the market can bear. Because the M2M market is still relatively small, because M2M applications give the lowest monthly revenue per device that carriers see, and because carriers do not believe that lower pricing will generate significant new revenues quickly, they feel no need to compete in the M2M market based on price. To some extent, carriers still view true M2M applications as more of a nuisance business that they reluctantly agree to accommodate. A carrier’s business is not going to be significantly impacted if high pricing keeps a million $5 per month M2M devices from being developed and deployed on their networks (and by the way, there is not a single 1 million device M2M application deployed in the US today – most are much smaller than that). Carriers reserve their most aggressive data pricing for those devices that look more like smartphones – tablets, e-book readers, etc. – which individually provide more revenue per month or which can be sold in very large volume to one entity (e.g., Amazon).

Carrier value pricing of M2M data will eventually give way to more aggressive price competition as the M2M market grows large enough to be worth chasing. Until then, M2M application developers will have to closely watch the ROI of their solution and design their applications to minimize on-going data costs.

Picking Which Wireless M2M Device To Use

When designing an M2M application, engineers will need to connect a cellular radio to the remote device. There are several considerations when deciding on which type of cellular radio to use. Each consideration basically involves trading off the cost of the cellular radio against other factors, such as performance, coverage, engineering effort and cost, and time-to-market.

The decisions to be made on selecting an M2M cellular radio are basically three-fold:

·         Should you implement GSM cellular technology, CDMA technology, or both?

·         Should you use 2G level technology or 3G (or maybe even 4G)?

·         Should you use a separate modem, embed a pre-certified “socket modem”, or design in a basic cellular module?

Each of these trade-offs has unit cost implications on the final device. They also carry implications for available cellular coverage, cost of cellular coverage, product form factor, product longevity, and upfront engineering cost and risk. Each of these decisions can be made independently, but they should usually be made in roughly the order presented above. First select the cellular technology that will be used, then select the evolution of the technology to implement, and then finally select how deeply the cellular technology is to be embedded into the device.

Cellular Technology – GSM vs. CDMA

The first decision to make is whether to implement cellular technology based on the GSM standard or on the CDMA standard. This is a significant choice in the United States and Canada, since these are the regions of the world in which the CDMA standard is broadly commercially deployed. There are a number of new networks in other countries based on a CDMA technology called CDMA450, but it is not interoperable with the CDMA technology deployed in North America. If your solution needs to operate around the world, including North America, then implementing GSM is the only real option.

Solution developers have several factors to consider when deciding whether to implement GSM or CDMA. Both technologies have large coverage footprints in the US from two Tier 1 carriers each. Neither of these technologies have a marked coverage advantage over the other, but in less populated areas, there are places where CDMA coverage is available and GSM is not, and vice versa. The monthly recurring costs for service are roughly equivalent between the two technologies; in fact, there tends to be more difference between the rates charged between the largest and second largest carrier in each technology than there is between the technologies. There are also differences between the communications speeds or data rates provided by the technologies, with CDMA generally offering higher speeds in the basic, low cost technology evolution. M2M applications, however, neither require nor can take advantage of CDMA’s higher data rates.

One factor in which there is a clear difference between GSM and CDMA technology, however, is in the cost of the radio device hardware required to implement it. Regardless of the hardware platform selected – separate modem, embedded socket modem, or embedded module – CDMA technology costs at least 25% more than GSM technology. Table 1 shows illustrative prices for radio hardware for each of these two technologies in the summer of 2011 (in quantities of 1,000).

Table 1

Hardware Costs For Cellular Technologies

Cellular Technology	Separate Modem	Socket Modem	Embedded Module
GSM	$125-$165	$94	$23-$28
CDMA	$157-$167	$153	$30-$36

These cost comparisons are based on the actual selling prices of devices in the United States in the summer of 2011. The price ranges reflect the differences between various manufacturers, as well as the differences between different products with varying secondary characteristics (e.g., form factor, I/O count, brand, etc.).

Clearly GSM technology is the less expensive approach. Together with its global footprint, its lower cost has made it the most popular technology for M2M applications.

Although GSM technology may be the most cost effective choice, some applications desire to also have a CDMA design alternative to provide service in those locations where there is CDMA coverage and GSM coverage is unavailable. While this is easy to provide with external modems, and relatively straightforward for socket modems, the cost and complexity of providing supplementary CDMA support – in addition to GSM -- is significant when using embedded modules.

Technology Evolution – 2G vs. 3G

The second decision is whether to implement the most widely deployed cellular technology evolution – 2G – or to use the newer evolution that will soon become as widely deployed – 3G. Wireless carriers continue to upgrade the technology evolution of their networks is to provide greater capacity for handling cell phone subscribers with the spectrum they have available.

The original digital cellular data standard for GSM networks (called GPRS, not “1G”) is still available, as are modems and modules supporting it. GPRS offers no advantages over stepping up to the evolutionary level that is broadly deployed today – 2G. Carriers have recently upgraded most of their networks to the next evolution – 3G – which offers higher data rates and enables the carriers to support more devices on their networks. Carriers also are adopting 3G technology to provide better support for high bandwidth applications – sending and receiving pictures and video, playing on-line games, downloading applications, and making other file transfers. Most M2M applications do not need nor can they use the higher bandwidth provided by 3G technology.

Because 3G technology is just becoming available for M2M applications, it is primarily available through embedded modules. 3G options are not readily available for the other hardware platforms, socket modems and separate, stand-alone modems, although this should improve over the next year.

There is a significant cost difference between using 2G radio technology or 3G technology in an M2M device. Basic 2G embedded modules from major manufacturers can be readily obtained in moderate volumes for $26 to $30 apiece. On the other hand, 3G modules from major manufacturers still cost between $50 and $80 apiece, although those prices have come down significantly over the last year and are expected to continue declining. New 3G modules from less proven Chinese manufacturers are becoming available for as little as $38 at $40, at comparable volumes. Together with its lack of compelling performance advantages, the significantly higher cost has kept 3G from being adopted in M2M applications so far.

Carriers are expected to convert their networks exclusively to 3G some time within the economic life of many of the M2M devices being designed today. At that time, carriers are expected to discontinue support for 2G devices (at least with GSM). Consequently, and in spite of its cost premium, many device developers are beginning to move towards selecting 3G technology for their new designs.

Hardware Platform – External vs. Embedded

The final decision is whether to add cellular communications by using an external modem, or by embedding a wireless communications radio inside the actual device itself. External modems are self-contained devices in their own enclosures and often with their own, independent power supply. They usually connect to a standard communications port on the host device – usually serial, USB or Ethernet – and the device sends and receives data over that connection. On the other hand, embedded modules are designed to be built into the device, and they generally require a modification to the device design to support the module. Usually the module is attached to the device’s printed circuit board (PCB) and has signal and power connections with it.

In considering what type of radio to use, the basic trade-off is between the unit cost of the radio platform and the upfront, non-recurring engineering cost of supporting the radio.

With an external modem, the unit cost is relatively high because the modem is a complete, working device. It has its own power supply and enclosure. It also has its own embedded processor and memory, and the programming to drive it. There are also a PCB, connectors, LEDs and other components that add cost. On the other hand, to use an external modem, the device only needs to connect through a common communications port and implement some basic send and receive functions. The upfront engineering effort to implement an external modem is relatively low.

Embedding a wireless modem into a device, whether directly onto the main PCB or through an attached daughtercard, adds cellular communications capability to a device at the lowest unit cost. The only other major component required in addition to the module itself is some form of antenna (although even that can sometimes be implemented as traces on the PCB). On the other hand, the cost to build in a cellular module is significant. A PCB almost certainly has to be significantly redesigned to support a cellular module. Not only does space have to be made for the component itself, but the power supply usually needs to be modified to accommodate its high peak current draw. Since the cellular module is an active, relatively high powered RF device, the PCB also has to be designed to provide signal isolation and strengthen the grounding.

The other major upfront cost to embed a wireless module is the cost of certifying compliance with the different regulations governing cellular devices. The cost of testing by a certified lab can be as great as the engineering cost just to create the design. The engineering sophistication to achieve compliance is non-trivial, and is primarily a function of the product design. Engineers who are designing their first embedded cellular device will almost always fail to pass regulatory compliance on the first attempt. Redesign and retesting will add to the upfront cost of adding cellular connectivity.

“Socket” modems are an alternative to designing in the traditional embedded module. A socket modem still needs to fit into a connector on a main or host PCB, and there is some initial engineering effort to add that connector. But the socket modem avoids the need to conduct any additional certification testing, including for emissions, since it is entirely self-contained and pre-certified. The unit cost of a socket modem lies somewhere between the low unit cost of an embedded module and the higher unit cost of an external modem.

It is difficult to categorically estimate the upfront engineering costs to implement the three different cellular device alternatives because the design challenge differs so much from one product to another. One thing that can be compared, however, is the unit cost of the hardware. Those costs are evident in Table 1, above. The separate, external modem is the highest unit cost solution, while an embedded module yields the lowest unit cost. A socket modem provides some cost reduction over an external modem, but it is still significantly more expensive than an embedded module. In the case of GSM 2G, the socket modem is three times more expensive.

So which hardware platform should an application developer use? The answer must be determined on a case-by-case basis, and including all other considerations, such as form factor constraints and time-to-market objectives. But in general, when the application is going to be implemented in low volumes (such as for internal deployment within a company), then the most cost effective approach is to use an external modem. If the application is going to be deployed in any meaningful volume, of around 1000 to 2000 units (or more), then it is usually most cost effective to design in an embedded module and complete the regulatory certification process. The socket modem serves applications cost effectively that will be implemented in a modest volume. At a forecast volume of 1000 units, however, the embedded module can absorb almost $70,000 of incremental engineering development and certification cost (enough for many types of devices) and still be at parity with a socket modem.

Conclusion

Adding cellular wireless communications capability to a device requires careful consideration to select the most cost effective approach to using this technology. There is no answer that is optimal for all applications and situations. A good way to approach the problem is to first select the cellular technology, then select the appropriate evolution of that technology, and then to finally select the proper hardware platform of that cellular technology.

A Personal Trek into the World of Wireless Data

[Note: I recently found this article that I had written 18 years ago in a publications database on the web. For context, this article was written 12 years after the first introduction of the IBM PC, and two years before the initial public availability of the World Wide Web. Some of the topics of discussion are quaint today, such as the focus on mainframe terminal-based applications and on the proprietary wireless networks that prevailed at the time. But the fundamental observations I made then are still true today. Wireless data applications have been a long time coming. – WS]

Wireless datacom is a jump-shift from conventional datacom. A look at some of the fundamental differences.

As technologies change the face of business communications, those who develop, market, manage and use new communications technologies also must go through a rite of passage to understand, interpret and implement new solutions. One particularly challenging transition is the shift from the world of conventional, wireline data communications to the wireless data communications world.

Two factors are stimulating interest in wireless data communications. One is the explosive growth of cellular service. Technology brought a unique and much-needed solution to an area--mobile voice communications--that had been poorly served in the past.

The second factor is the growing disparity between the automation tools available to those who primarily operate from fixed locations (i.e., traditional office desktops) and those who are "mobile." This disparity was not an issue when corporate information systems were primarily host-based transaction processing systems, but personal computers and workstations have altered expectations for employee productivity and effectiveness. As a result, organizations are now investigating ways of bringing mobile employees into the information network.

Last year, I made a personal and professional transition into the emerging world of wireless data communications. Even though I had worked extensively with large corporate data communications environments--IBM SNA, NetBIOS and Netware PC local area networks and "open systems" communications (i.e., TCP/IP and X.25)--my years of experience with traditional data communications proved to be of limited value.

Many fundamental differences exist between the new wireless data communications world and the familiar data communications environment from which I had come. I will focus on wireless data communications in wide area or metropolitian area data networks, as opposed to wireless LANs.

Scarce Spectrum

One of the most striking differences between traditional datacom and wireless data is that the basic, fundamental medium is extremely limited. Only so much radio spectrum is available, and unlike copper or optical fiber, there isn't any more being made. This fact affects all aspects of wireless communications, including its availability, cost and data rates.

The total amount of raw usable spectrum bandwidth available for wireless data communications is roughly equal to 1,700 to 2,000 T1 circuits, 250 to 300 Ethernets or 25 to 30 FDDI networks. While the wireless datacom industry is developing techniques for more efficient frequency reuse and allocation, data compression and high-efficiency protocols, the laws of physics will prevent us from converting to a totally wireless communications world.

Some industry pundits argue that spectrum isn't really scarce but it used inefficiently. While it is true that spectrum in the U.S. isn't used efficiently, the reality in today's market is that virtually all of the most usable frequency bands have already been allocated, either to a specific user or to an industry.

Moreover, the mechanism for allocating spectrum in this country is intensely political, and the rules of the game have been set up such that it is a win-lose situation: If you want access to spectrum, you have to dislodge whoever is currently using it. This process is expensive and uncertain.

In many cases, the incumbent owners of spectrum have long-standing relationships with the regulators, and regulatory authorities have a long history of favoring voice over data communications. The bottom line is that spectrum for data communications will remain scarce.

The scarcity of spectrum is part of what makes wireless communications so much more expensive than traditional landline communications (see Figure 1). Corporations should be wary of implementing wireless data communications casually or in volume, because it can quickly add up to serious money.

Telecommunications managers who pay the bills for cellular telephone service can appreciate how quickly wireless communications expenses can run up. In addition, many wireless data networks charge by the packet, which can accelerate costs even more.

The Federal Communications Commission's historical philosophy toward spectrum allocation is not consistent with efficient wireless data communications services. For example, spectrum tends to be allocated in channels that represent the spectrum capacity needed to carry human speech--about 25 kHz. The present practical maximum amount of data that can be pushed down such a channel is 19.2 kbps, hardly significant by conventional telecommunications standards.

Even though wireless data seldom achieves this maximum because of these networks' high errors rates, the effective data rate is usually enough to support the kinds of interactive terminal-oriented applications that are in common use today. Moving larger amounts of data, such as file transfers and faxes, tends to happen at speeds characteristic of dial-up telecommunications rather than the rates supported by LANs or backbone landlines. If the objective was to extend existing terminal-oriented applications out to the field using wireless communications, the scarcity of spectrum would prevent enough channels from being available to support a significant population of terminals going on line concurrently.

Another problem is that a single slice of spectrum is usually allocated to several geographically separated users. Various users in Seattle, Dallas and Boston may receive an allocation for the same frequency because their transmissions could not interfere. Most of these frequencies were originally allocated to local-only services, such as public safety and taxi dispatch, and little attempt was made to make coherent and consistent frequency assignments across the nation.

As a result, it is difficult to get a single uniform national channel assignment. Thus, a company may have data radio equipment in one city that won't operate in another city. While today's data radio equipment is usually "frequency agile," and thus able to operate on a broad range of frequencies, this capability doesn't come free--it increases the cost of the already expensive equipment. Moving data over the cellular telephone system and over certain national packet data services, however, provides national service on the same frequency bands.

Hostile Environment

Reliability problems are another surprise waiting to happen. Wireless data is not as reliable or accessible as data moving over wireline telecommunications or LANs. The radio environment has significant signal quality problems compared with copper wire or fiber optic media, and these problems are particularly troublesome for data communications, where small interruptions in the link can corrupt data or even drop the link.

Radio signals attenuate sharply over distance, and signal strength typically falls proportionately to the distance between the sender and receiver. In wireless communications, the sender and/or receiver is often moving, and it is impossible to install signal repeaters or amplifiers between them. As a result, a rapid decrease in signal strength is unavoidable.

This significantly limits the practical distance between sender and receiver. The equipment to increase that range--to detect a weak signal and to amplify and process it to a usable form--becomes more expensive as the desired separation between sender and receiver increases.

The radio environment is much noisier than the telecommunications environment, and a variety of factors make it difficult to distinguish the sender's attenuated radio signal from other radiated spectral energy in the band being used. Some of this noise is natural (like the interference from sun spots), while some comes from artificial sources--e.g., licensed in-band transmitters that are not operating properly and are spilling energy into the signal band.

Interference can also come from the sender's own signal as multiple reflected versions arrive at the receiver's antenna at different times (i.e., multipath effects). The strength and nature of interference is changing constantly, and when it is strong enough to disrupt the ability to distinguish signal from noise, bits of the data stream can become lost. This is especially common when one end of the link is moving. Again, more capable and expensive equipment can overcome some of these problems, but there are limits to what the technology can achieve.

The effects of range and interference, combined with the ever-present limits on available bandwidth, severely constrain the data rates that wireless systems can sustain. Wireless local area networks can support data rates of millions of bits per second, but the rates are still far below those provided by high-speed LANs like FDDI.

Conventional data protocols are not practical in the wireless environment

The difference in data rates is even more pronounced for metropolitan and wide area networks. In a world where wide area telecommunications networks often are designed with T1 as the minimum unit of capacity and new low-cost modems are achieving 56 kbps over dial-up connections, wireless data networks are struggling to deliver 19.2-kbps links to mobile users.

Unfortunately, the practical throughput on wireless networks is usually about half of this "rated" capacity because of the high overhead of signaling and error correction protocols. This will significantly influence the architecture of potential wireless applications. Many companies will find that it is neither feasible nor affordable to extend even terminal-oriented interactive transaction networks out over the wireless environment unchanged, let alone extend native connections to LANs.

As if the wireless data environment did not offer enough challenges for users, it is also not dependable. Those who "rent" airtime--which you will do unless you are one of the elite group that already owns spectrum--cannot assume that a wireless link will be available on demand. Most cellular telephone customers who live in large cities and use their phones during rush hour are already familiar with this phenomenon.

Spectrum is indeed scarce, and there are more people who want to use it than the available bandwidth can support. Even the largest wireless packet data network in this country is reported to hit capacity limits during peak use periods. The lack of dependable availability is likely to worsen as wireless data services become more accessible.

Yet More Data Protocols

Another surprising aspect of wireless data networks is that they use protocols that are entirely different from anything else you have ever seen. Conventional data protocols are not practical in the wireless environment because the bandwidth is too scarce and because normal bit error rates are too severe.

To maximize the bandwidth for user data, wireless protocols cannot afford to use large packet sizes, large packet or frame headers, frequent positive acknowledgments, inefficient error recovery methods (i.e., send the packet again) or other protocol overhead such as address and route broadcasts, or excessive link and session synchronization. Conventional data link and transport protocols--such as SNA, TCP/IP, NetWare, Ethernet and X.25--won't be used because they are spectrally inefficient and inadequate to deal with the error-prone radio environment.

Even modem-based data communications over standard cellular telephone channels increasingly use custom wireless protocols such as MNP-10 and modified versions of V.42bis. While wireless packet data network protocols are unique, most of these networks provide somewhat transparent gateways for the corporate network using conventional protocols such as SNA/SDLC, X.25 or bisync. The connection at the mobile radio modem is somewhat different, however, and often requires the end user device to incorporate some awareness of the wireless network protocol.

Wireless data protocols are newer than their wireline counterparts, and thus, not surprisingly, they tend to be less mature, robust, functional or integrated than their older siblings. For example, network managment functions are generally not supported into the wireless network, let alone across it.

With the exception of the cellular modem protocols, most wireless data protocols are proprietary to the network or equipment vendors. This contrasts with the trend toward "open systems" protocols that are controlled by vendor-independent standards organizations. This level of maturity does not yet exist in the wireless data communications industry. The consortium behind the evolving protocol for the Cellular Digital Packet Data network is dominated by network service providers.

While most of these proprietary protocols have published interfaces, they are still vendor-controlled, and in this regard they are no more "open" than SNA or NetWare. Most users will find the wireless data environment less "open" and more enslaved to the proprietary interests of the vendors than their corporate information networks.

The consequence is that users who are entering the wireless data world will have to learn about a different communications environment with new architectures, capabilities and protocols. While many of the concepts and techniques of classic datacom also will apply to wireless, the transition will be confusing, frustrating and challenging for a while.

The Need for Client/Server

Because wireless data communications is expensive and prone to errors, it is imperative to send the fewest bits possible through the air to perform the application. Looking at it from this context, most companies will conclude that they will not be able to run existing applications just by moving the operator out to the end of a wireless link.

Mainstream corporate transaction applications usually work interactively with operators using terminals. These applications send full screens of data as character streams, and often include additional bytes for screen formatting and other user interface functions. Many interactive terminal applications echo characters back to the screen from the application or resend the entire screen contents just to update one field.

LAN-based applications tend to move even larger volumes of data between the file or application server and the user's workstation. However, the cost of operating applications in a manner that sends a lot of data over the wireless connection quickly becomes prohibitive.

While the use of compression techniques can help reduce these costs, they are only a partial answer. Most companies will need to rewrite existing applications to migrate to a wireless environment. To minimize the data sent over the radio link, the application should send flags, codes and preformatted data rather than English-language character streams.

Applications should send dynamic data to a mobile user workstation that can interpret the coded data and manage the user interface locally with predefined screens. This implies an intelligent workstation for the mobile user, which further implies closely designed cooperation between the central application and the user's interface workstation. If this sounds like a client/server architecture, it is.

The original intent of the client/server architecture was to take advantage of the processing power of increasingly low-cost user workstations to handle local, user-specific processing tasks--e.g., graphical user interfaces, data formatting and editing, and local data manipulation. Under this concept, central application servers can be dedicated to functions that need to be centralized, such as core application and data-base transaction processing.

Adopting this architecture of application-to-application communication between the central server and the user workstation tends to reduce the volume of information that needs to flow between those two systems. A properly designed application can even more effectively minimize the data movement between the client and the server.

Most companies will need to rewrite applications to migrate to wireless

The client/server architecture is ideal for developing spectrally efficient, cost-effective applications for the wireless data environment. While corporations have been conservative and deliberate about adopting the client/server architecture in their existing information systems, the benefits of client/server are much more compelling in the wireless environment.

Looking to the Future

Wireless data applications will benefit many organizations as the need grows to provide large numbers of mobile workers the same automation advantages as office workers. The strong growth of portable computing will only amplify the need to tie mobile workers into the organization's information system.

This new wireless data communications environment presents unique challenges and pitfalls. Because spectrum is scarce, wireless data will never be cheap or easy to use. It will always require that the organization's systems and communications architects design applications and networks specifically for the radio environment.

Implementing applications in the wireless data world is difficult, but things will get better. While most of the companies that serve the wireless data market come from the voice side of the industry, they are getting increasingly sophisticated about computer systems and data communications. The FCC has developed a progressive, open-minded stance toward wireless communication, and it has actively fostered technological innovation and responded to market needs. These initiatives will stimulate revolutionary changes in corporate information systems similar to those that came from the introduction of the personal computer and the local area network.

Published in Business Communications Review, Vol. 23, Issue 4, April 1993.