ANALYST REPORT
SMART UTILITIES AND SMARTER HOMES - still waiting for the paradigm shift
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ANALYST REPORT
Smart Utilities – still waiting for the paradigm shift… The idea of the ‘Smart’ utility has been around for almost a decade. What was first envisioned as a swift and radical revolution has however turned out to be a much more lengthy transformation of an industry that already faces a multitude of economic, political, technological and environmental challenges. The energy sector is seemingly incapable of keeping up with the pace of technology innovation, especially as regulations and structural issues set limitations for which applications that may be implemented, as well as where and when. Despite these barriers, the long-term trend is however clear - smart utilities are becoming a reality explains Tobias Ryberg of Berg Insight.
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Yearly smart electricity meter shipments (EU/US) 35 30 25 Million Units
Between 2010 and 2015, smart electricity penetration increased from 17% to 42% in the US and from 16% to 27% in the EU28+2. By 2020, Berg Insight projects that the penetration rates will reach nearly 60% in each region. Meanwhile, adoption is also taking off in Asia-Pacific, led by ambitious smart grid programs in countries like China and South Korea. Parallel to the adoption of smart meters, the installed base of smart home systems is also growing fast, enabling individual energy management applications based on devices such as smart thermostats. Berg Insight forecasts that the number of households using smart thermostats in Europe and North America will grow at a CAGR of 60.1% from 3.2 million in 2014 to 53.9 million in 2020. Finding the right formula for a mutually profitable coexistence with the emerging smart home industry will be one of the key challenges ahead for utilities who aspire to be called ‘smart’.
20 15 10 5 0 2014 USA
2015 France
2016 Poland
2017 Spain
2018 UK
Germany
2019
2020
Rest of EU
M2M Now - September / October 2015
Europe: Strong growth ahead for smart meters on the back of nationwide rollouts The EU28+2 currently has 281 million metered electricity customers and the annual demand for electricity meters for new installations and replacements is in the range of 12–16 million units. Penetration for smart meters, providing more comprehensive functionality than basic meter data collections, was 24% at the end of 2014. By 2020, Berg Insight projects that this penetration rate will increase to 58%, driven by large rollouts in Spain, France and the UK, in combination with nationwide rollouts in several smaller countries. The installed base of smart electricity meters is forecasted to grow at a compound annual growth rate of 15.8% between 2014 and 2020 to reach 163.8 million units at the end of the period. The rate of installations is expected to accelerate towards the end of the decade as nationwide rollouts in France and eventually also the UK get underway. Berg Insight also anticipates that deployments of a new generation of smart meters will start in Italy by around 2020 as the first generation of intelligent metering devices installed in the country reach the end of their technical lifespan. Moreover an uptake in adoption in Germany is likely, although full-scale installations cannot be expected to begin before the mid-2020s.
Regulations drive adoption Europe’s national governments play a key role in the adoption of smart metering. The EU’s highly publicised 20/20/20 targets merely include a recommendation for the member states to evaluate the technology and introduce it – if there is a positive business case. Over the past years, almost all European countries have performed cost benefit analyses of smart metering and the majority of the cases have resulted in a recommendation to go ahead with a rollout. Italy and Sweden were the first countries in Europe to complete smart meter rollouts in the late 2000s, followed by Finland at the end of 2013. A second wave of deployments is now prepared or underway in France, the Netherlands, Spain, the UK and several other countries in Western Europe. Estonia is doing
M2M Now - September / October 2015
the first nationwide rollout in Eastern Europe, where other markets with a high level of activity also include Poland and Latvia. At the beginning of 2015, a total of seventeen European countries had developed regulatory roadmaps for the full-scale introduction of smart meters and at least two more were planning for partial rollouts. Among the largest countries, only Germany remains indecisive about smart meters. The official position of Germany’s federal government is that the country should design the roll-out of smart metering systems in a targeted fashion which meets the needs of its energy reforms. A proposed plan for a partial rollout to around 30% of households is currently being evaluated. If approved, Berg Insight believes that it could result in a gradual ramp-up of smart meter deployments in the late 2010s and full-scale replacements beyond 2020.
Gradual progress in key markets The past few years have been mixed, with both positive and negative events affecting the smart metering industry. On the positive side, the major French utilities ERDF and GrDF finally announced that they were going ahead with their smart meter rollouts, signing large contracts with equipment vendors. There were also several new projects announced in Eastern European countries such as Poland and Latvia. On the negative side, the UK’s DCC announced that it will be unable to launch the national smart metering solution on time and proposed a one year delay until the end of 2016, which probably postpones the start of the mass-rollout until 2017. In the area of smart meter communications, the most significant event was the tie-up between Alliander and Enexis to deploy a joint CDMA450 network for smart grid applications in the Netherlands.
North America: Smart meter market stabilised after peaking in early 2010s North America has taken a different path to smart metering from Europe, reflecting fundamental differences in the
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structure and regulation of energy markets. Most of the region’s utilities adhere to the traditional model of vertical integration, with generation, distribution and retail combined in a single monopolistic organisation. This means that the North American utilities in general are better positioned to take a holistic approach to the smart grid than their European counterparts. Another key difference is that a majority of the largest players are investor-owned, as opposed to the still government-controlled energy industry titans in Europe. Regulatory fragmentation is however a characteristic shared by the regions. Utilities are regulated at the state-level in the US and by the provinces in Canada. In some jurisdictions like California, Texas and Ontario, the regulators have mandated the introduction of smart meters as part of their energy policies. Elsewhere, smart meter projects have been blocked by the regulators due to concerns over cost or privacy. The main stimuli from the US federal government was the Obama Administration’s Recovery Act of 2009 that included US$ 3.4 billion in investment grants for smart grid projects. The program accelerated a number of smart metering projects and led to a peak for smart meter shipments in 2010/2011. After the completion of several large high-profile rollouts in the past years, the focus of the market has shifted to small and medium-sized municipal and cooperative utilities, which constitute the majority share of the remaining addressable markets. Smaller projects contribute to stabilising demand and gradually increasing penetration rates in the coming years. While large populous states such as California, Texas and Florida are already at or near full penetration, there is still less than 15% coverage in major population centres such as New York, New Jersey and Massachusetts. In Canada, the early rollout in Ontario has been followed up by similar projects in other major provinces, including Quebec and British Columbia.
Private low-power wireless networks dominate the smart grid sector Smart meter solutions deployed in North America primarily rely on private wide-area wireless networks, controlled by the utilities. Berg Insight estimates that there were around 56 million low-power wireless network nodes utilised for smart
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metering applications in the region at the beginning of 2015. The networks are based on proprietary technology platforms utilising unlicensed spectrum in the 915 MHz or 2.4 GHz frequency bands. Silver Spring Networks, Itron and Sensus are the leading technology providers, with 15–20 million nodes each, followed by Landis+Gyr and Elster. Based on the expected life-span for smart metering solutions of 15–20 years, the networking environment is set to remain fragmented across proprietary technologies until the end of the coming decade. The next generation of smart metering systems will however most likely be based on more widely adopted IoT networking standards, whose applications are not limited to the energy industry.
Asia-Pacific: China to complete a smart meter rollout by 2020 Asia-Pacific is beginning to see a massive uptake of smart metering, led by the countries in East Asia. Large-scale rollouts to residential customers are underway in Japan, South Korea and China. South Korea has adopted a national plan for the construction of a smart grid by 2020. Japan already has the world’s most advanced power grid monitoring systems in place and several of the leading utilities have announced plans for smart meter deployments over the next ten years. China is investing massively in the expansion of the nation’s energy infrastructure to keep up with the rapidly increasing power demand. The national utility State Grid of China which provides electricity for almost 90% of the population, is in the second phase of a three phase plan for the adoption of smart grid technologies through to 2020. Since 2011, the utility has been replacing legacy meters among its 300 million customers with smart meters in a process that should be completed by 2015. The following year, State Grid began constructing a back-end network of data concentrators for collecting meter data via wired lines and PLC. During 2012 and 2013, the utility procured approximately 18 million data concentrators from around 30 different vendors, of which the vast majority are presumed to use cellular communication for network connectivity. In September 2013, State Grid announced that 166 million households were connected to its automated meter data collection system. Over the next five
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years it is intended that coverage should be extended to rural areas, though the operational conditions here are more challenging in both technical and economic terms. Australia and New Zealand are other early adopters of smart metering in the Asia-Pacific region. In Australia, installations of smart meters have started in the most populated states Victoria and New South Wales. New Zealand is on track to achieve almost complete coverage of all electricity customers, through a rollout entirely driven by the energy industry.
Smart gas metering: Europe next in line for adoption after North America The adoption of smart metering in the gas sector began in North America, where today the vast majority of all gas meters are remotely read. The coming years will see the first major rollouts of smart gas meters in Europe, while the AsiaPacific region is expected to show a low level of activity. Seven European countries – Austria, France, Ireland, Italy, Luxembourg, the Netherlands and the UK – have made positive assessments in their national cost benefits analyses and plan full-scale rollouts. The Netherlands made the installation of smart gas meters mandatory for new connections and replacements in 2012 and the UK has also started with replacements on a small scale. During 2015, large-
Yearly shipments of smart gas meters (EU) 12 10
Million Units
8
scale installations are planned to begin in France and Italy as well. Belgium has also appeared as a potential candidate for a mass-rollout as the country’s principal gas industry player ENGIE (formerly GDF-SUEZ) announced plans to deploy a nationwide IoT network based on Sigfox’s ultra-narrowband wireless technology. At the end of 2014, there were 2.5 million smart gas meters in operation, corresponding to a penetration rate of around 2%. By 2020, Berg Insight projects that the penetration rate for smart gas meters will increase to 40%, mainly driven by nationwide rollouts in the UK, Italy and France. The installed base of smart gas meters is forecasted to grow at a compound annual growth rate of 63.8% between 2014 and 2020 to reach 49.0 million units at the end of the period.
Dealing with smart meter data Smart meter rollouts are highly publicised projects with large capital budgets that attract similarly large bidders for equipment, installation and IT solution contracts. The combination of awareness campaigns and criticism over cost, technology and privacy issues tend to generate negative press coverage and sometimes even spark political debate. Projects are frequently delayed, but rarely abandoned. Eventually, every household in the utility service territory gets visited by an electrician who installs the new smart meter. After a while the customer is notified that the refined data stream from the new metering device will be used for billing purposes. Once the system is fully operational, the meter reverts to its natural role as an invisible recording device that the utility and consumer hopes will operate smoothly without creating any fuzz for the next 15 years. Only one question remains – how to make use of the data?
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Challenges ahead in data management and security
4 2 0 2014 France
2015 Italy
2016 Netherlands
2017 UK
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2018
2019
2020
Smart meter rollouts, especially large ones with nationwide scope, represent a paradigm shift for the understanding of energy consumption at all levels in the power grid. The volume of data that can be collected from smart meters is unprecedented. Ontario’s smart metering system, collecting
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ANALYST REPORT
hourly values from a population of almost 14 million, generates more data transactions per day than the province’s banking system. For a country with the size of the UK, the same level of granularity will result in the collection of more than 700 million meter values per day, which makes the repeated delays of the national centralised data collection system for meter data understandable. Based on recommendations from the EU, the European countries that currently deploy or plan to deploy smart meters are devising mechanisms for making the meter data available to end-customers and trusted third parties. In most cases, energy regulators plan for centralised secure data repositories where all access to information, except data required for billing and network management purposes, is controlled by the consumer. Germany, where the issue of if and when a mandatory rollout may take place remains unresolved, has gone one step further in its efforts to maintain privacy. Under the German smart metering regulations, energy data should be physically stored in a communication gateway located at or near the customer’s premises. If fully implemented, the model will result in a network of 10–30 million micro data repositories. To summarise, energy consumption data will largely be available to both the energy industry, consumers and trusted third parties after a rollout. How and in what form will however differ between countries, service territories and utilities.
Unlocking the value of smart meter data Traditional energy industry players are the first to benefit from smart meter data, through billing based on actual consumption and detailed statistics on energy use down to individual customers. The wealth of information accumulated from smart meters generates new demand for increasingly sophisticated data analytics tools. Leading smart grid data analytics specialist C3 Energy reports that 52 million meters are addressed by its applications, generating savings and benefits in a range of areas from energy grid capital asset allocation, transmission, distribution, and advanced metering, to the customer experience and energy efficiency programs. According to research cited by the company, smart grid analytics can save utilities US$ 50–65 per meter and per year just in the areas of predictive maintenance, grid cybersecurity
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and voltage automation. In customer-facing operations at a utility, the availability of individual consumption data creates several opportunities for closer relationships and interactions with clients. Energy consumption information can easily be made available for convenient access through web portals and smartphone apps. Furthermore, a closer analysis of the individual consumption profile can provide a sound basis for profitable advice on energy savings, something which energy retailers in many countries and territories are obliged to provide. A leading player in this field is Opower, whose customer engagement platform is used by nearly 100 utilities, serving more than 50 million customers in eight countries worldwide. Processes and applications supported by smart meter data
Utility
Customer
Regulator
• Billing/CRM
• Energy awareness
• Compliance reporting
• Cost savings
• Energy conservation schemes
• Grid analytics • Field services • Operation planning
• Smart home applications
Beyond the meter – smart homes versus the smart utility While the global utilities industry widely nurtures a vision of the grid-connected intelligent meter as the future hub for smart energy applications, leading IT industry players approach the market from a different perspective. In their view, energy management is a key part of a broader portfolio of smart home applications. Google’s US$ 3.2 billion acquisition of Nest in January 2014 signalled that the race is
M2M Now - September / October 2015
on for attaining the coveted position as leader in this emerging new marketplace. Apple’s HomeKit, Samsung’s SmartThings and a host of other platforms from various OEMs and service providers are also in the competition. The chances for individual energy industry players to prevail with their own solutions in such a fast-paced and competitive market are slim. Rather, they will need to work hard to find a relevant position in the value chain. One obvious strategy for energy suppliers it to act as resellers of smart home solutions for energy management. In competitive energy markets, energy saving technology help suppliers differentiate their value propositions while at the same time creating a positive brand image. By simply selling the solutions, energy suppliers can become one of multiple channels for smart home providers. Under the right circumstances, energy suppliers may however become the ultimate sales channel for smart home solutions by delivering a strong business case for energy management.
Finding incentives for energy conservation Energy management has turned out to be a more difficult business than expected. In the late 2000s, energy prices were rising fast and policy makers predicted that continued increases would stimulate large investments in energy conservation. Then the global economic recession hit, reducing demand for energy and ending the price hike. Particularly in Europe, the energy industry has been hit hard by the changing market conditions, making large capital investments in new technology that further reduce demand seem more financially unattractive than ever before. Consumers still pay a little bit more for energy year after year, but the average monthly cost is still far from alarming for most people, leaving them with little financial incentives for capital investments in energy savings. The only stakeholder left with a strong interest in energy savings is government, as overall reductions in consumption contribute to a wide range of policy goals. Governments have a strong influence on the energy sector everywhere in the world through detailed regulations and in many cases as controlling shareholders in major industry players. Publicly owned utilities generally make investments not only based on strict financial criteria but also take into account any economic benefits created for the whole society. In markets predominately served by private industry players,
M2M Now - September / October 2015
regulatory mechanisms can create powerful incentives for investment by providing a guaranteed financial return.
Regulatory incentives for energy conservation in the utilities industry In the context of smart energy applications, this means that energy suppliers may have different forms of incentives to promote energy savings among their customers. Public energy efficiency programs like ECO (Energy Companies Obligation) in the UK place legal obligations on the larger energy suppliers to deliver energy efficiency measures to domestic energy users in the areas of carbon emissions reduction and home heating cost reduction. In the US, thirteen states including California and New York have various regulated mechanisms that compensate utilities for lost revenues from decreasing sales due to energy efficiency programs. LRAM (Lost Revenue Adjustment Mechanism) is the most comprehensive scheme, providing utilities with full compensation for verified lost revenues. The right combination of regulatory mechanisms and smart home platforms with energy management can create a compelling value proposition that delivers significant cost savings for the customer.
Smart thermostats drive growth in the smart home market The global market for smart home systems is slowly taking off. North America is the leading region with an estimated installed base of 10.2 million systems at the end of 2014. Europe is a few years behind with approximately 3.3 million systems at the same time. A majority of the systems are primarily designed for home security. Energy management and climate control is the second largest application category, available in around a quarter of the smart homes. An average US household spends US$ 2,500 per year on energy, of which heating and cooling accounts for more than 50%. This explains why smart thermostats have acquired a prominent position as one of the main categories in the emerging smart home ecosystem in both North America and Europe. In addition to being a desired feature by consumers, smart thermostats are a major area of interest for utilities, as part of
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ANALYST REPORT
Homes with smart thermostats 60 50
Millions
40 30 20 10 0 2014
2015
2016 North America
36
2017 EU28+2
2018
2019
2020
Connecting the smart energy eco-system The fragmented nature of the smart energy eco-system results in a complex market for communication providers. There are three main forms of communication infrastructure in use – public telecommunications networks, private wide-area networks operated by utilities and private home-area networks operated by smart home providers or consumers. Among the public telecommunications networks, mobile Installed smart electricity meters by technology type in EU/US 300
250
200
Millions
the energy efficiency programmes as described above. Berg Insight estimates that the installed base of smart thermostats more than doubled in North America during 2014 to reach 2.5 million at the year-end. The market is led by companies such as Nest, Honeywell and Ecobee that have gained traction by marketing their products as point solutions especially in the retail, utility and professional installer channels. Furthermore, smart thermostats are popular as part of whole-home systems and are included in the standard automation packages offered by companies such as ADT and Vivint. In this channel, one of the leading thermostat vendors is Radio Thermostat Company of America. The European market is smaller, with around 1 million households having a smart thermostat in mid-2015. The leading smart thermostat vendor in this region is eQ-3 whose smart radiator thermostats have been installed as point solutions and as a part of whole home systems in around 0.3 million homes. Other successful examples include the smart thermostat programs led by the energy companies British Gas in the UK and Eneco in the Netherlands. British Gas’s Hive solution had approximately 0.14 million users at the end of 2014, whereas Eneco had signed up around 0.1 million users for its Toon solution. Berg Insight forecasts that the number of households using smart thermostats in Europe and North America will grow at a CAGR of 60.1% from 3.2 million in 2014 to 53.9 million in 2020. North America will remain the largest market at the end of the forecast period with 32.6 million homes having smart thermostats, whereas Europe is expected to reach 21.3 million equipped homes.
150
100
50
0 2014
2015
2016 PLC
2017 LPW
2018
2019
2020
Cellular
technologies are most widely used. A gradual transition is taking place from traditional 2G to 3G/4G to support larger data volumes from communication hubs and to future-proof solutions for operation in the next 10–20 years. The hardware cost of 3G/4G modules and limitations in radio coverage remain barriers against adoption that limit the uptake. The emerging LTE-M standard promises to alleviate these issues by reducing the complexity and cost of 4G radios and improving coverage at hard-to-reach locations. By the next decade this will result in rising adoption of LTE for smart grid networking at the expense of other technologies. Private wide-area networking is the most widespread solution for connecting smart meters all over the world. The networking platforms in use are either based on low-power wireless (LPW) or Powerline Carrier (PLC) technology. LPW is most popular in North America where a number of proprietary platforms using the 915 MHz band are in use. In Europe adoption is mostly restricted to the Nordic region where some mesh radio solutions using the 868 MHz band have been deployed. Private LPW networks are however on the rise in Europe, supported by emerging new standards like SigFox
M2M Now - September / October 2015
and LoRA. Both technologies are considered for large-scale smart gas metering projects. Moreover, the UK has decided to deploy a private radio network based on Sensus’ FlexNet long-range radio technology to enable the smart meter rollout in the northern part of the country. Elsewhere in Europe, PLC however remains the dominant smart meter networking technology. A majority of the smart meters deployed in the region in the next five years will have PLC communication based on one of two utility industry defined standards, G1/G3-PLC and PRIME. China has the world’s largest installed base of smart meters using PLC communication, comprising several hundred million devices. Smart home solutions rely on a range of short-range wireless technologies for connecting devices to a local network gateway. Ultra-low power consumption and minimal networking overhead are two key requirements, dictating the use of streamlined standards and protocols. ZigBee has emerged as the most widely supported standard for smart home networking, with annual shipments projected to exceed 100 million units in 2015. Google and other supporters of Thread hope that their new home networking standard will gain strong traction in the market once it becomes commercially available at the end of this year. There are also wellestablished proprietary platforms such as Z-Wave, which had an installed based on 40 million units in mid-2020. The two wireless standards most well-known to consumers – Bluetooth and Wi-Fi – have certain characteristics that make them less suitable for smart home networking. Wi-Fi is optimised for bandwidth, delivering high data rate at the expense of power-consumption and footprint and Bluetooth is primarily designed for communication at very short distances.
Tobias Ryberg is co-founder of the M2M/IoT analyst firm Berg Insight and a leading international expert on wireless IoT communication and applications. Having covered the M2M/IoT sector for more than a decade, he is one of the most experienced analysts in the industry and author of numerous reports and publications covering the market. He is also recognised as a leading authority on the smart metering market in Europe and worldwide. Mr Ryberg holds a degree from the School of Economics and Commercial Law at Gothenburg University, Sweden.
Berg Insight is dedicated M2M market research firm based in Sweden. We have been specialising in all major M2M/IoT verticals such as fleet management, car telematics, smart metering, smart homes, mHealth and industrial M2M since 2004. Our vision is to be the most valuable source of intelligence for our customers. Berg Insight can offer numerous market reports, detailed market forecast databases and advisory services. We provide custom research tailored to your requirements including focused research papers, business case analysis, go-to-market strategies and bespoke market forecasting. Our clients include many of the world’s largest mobile operators, utilities, smart metering equipment vendors, vehicle OEMs, fleet management solution providers, wireless device vendors, content providers, investment firms and venture capitalists, IT companies, technology start-ups and specialist consultants. To date we have provided analytical services to 750 clients in 69 countries. If you have any questions about our market report subscriptions and advisory services or simply want to understand how Berg Insight can help you, don't hesitate to contact us at info@berginsight.com
M2M Now - September / October 2015
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COMPANY PROFILE
Company Summary Enterprises, M2M Integrators, resellers, and MVNOs all require ubiquitous wireless coverage in the markets in which they deploy. By using GSM, the most widely available technology, AT&T customers benefit from a wider range and lower cost of solutions and devices, smoother network migration path, and easier integration with new and emerging technologies from legacy GPRS/EDGE to HSPA/HSPA+ to 4G LTE and beyond. Moreover, AT&T facilitates deployment with easy to understand billing, a single carrier/single SIM solution, and a global service management platform.
Smart Homes When it comes to the Smart Home, AT&T’s Digital Life solution provides customers with an easy to use app to help them manage their homes remotely. With programs to simplify daily routines and text and email notifications, Digital Life is aimed at giving users the flexibility to manage their home from almost anywhere using a smartphone, tablet or computer, covering a wide range of home security and automation functions, such as controlling their cameras, lights, locks, and thermostats or detecting leaks before they can do any damage, all through one integrated app.
Smart Energy In the area of Smart Energy for the connected home, AT&T is also helping modernise the USA's electric grid, working with multiple vendors in the smart grid industry. While smart metering was the original focus at the beginning of the development of smart grid, utilities are now moving beyond the meter and focusing on a whole new set of smart grid applications that will help transform the electric energy industry.
By combining smart meters, sensors and monitors with wireless technology and software, customers and utilities can closely monitor energy use and reduce consumption when the availability of electricity is stretched to its limit and proactively make repairs before an outage takes place. This smart grid model ultimately helps consumers understand the economics of their consumption patterns so they can make intelligent decisions about their power consumption. The smart grid technology available today from AT&T will also help to enhance reliability and energy efficiency, lower power-line losses and provide utilities with the ability to remotely automate service, improving reliability and providing cost-savings for consumers. In fact, the AT&T wireless network is already enabling the reading of millions of electric smart meters. For more than ten years, AT&T has developed a set of solution capabilities specifically to serve the needs of M2M customers. By combining their global network, service delivery and application platforms, with networking expertise, industry alliances and professional services capabilities, AT&T has and will continue to deliver best of breed M2M solutions that fit their customers' needs across a wide range of industries.
PREPARED BY AT&T
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M2M Now - September / October 2015