Machine-to-Machine Profit Seen in Watch’s Emergency Call
Stock Chart for Swisscom AG (SCMN)
As the head of the geriatrics department in a Zurich hospital, Daniel Grob fully understands the dangers elderly people face alone at home. Lately, though, he’s gotten a lot less worried about his own 91-year-old mother -- who lives on her own about 50 miles away -- because she’s wearing a watch that can make emergency calls.
“One of the major risks for the elderly is falling,” Grob said. Those who can’t get back up can face dehydration, hypothermia, pneumonia or kidney failure. “If my mother falls now, she can request help. She knows she can always reach somebody.”
The watch, called Limmex, connects to the network of the country’s biggest phone company, Swisscom AG (SCMN), and is programmed to automatically dial as many as 10 numbers including Grob’s, his two brothers’ and her neighbors’ at the push of a button. The watch has a built-in loudspeaker and microphone to talk directly to the emergency contacts.
The service illustrates how mobile operators worldwide are trying to tap the $82-billion market for so-called machine-to- machine communications as revenue from traditional voice calling declines. For Swisscom, which posted its first quarterly loss in almost a decade in February, those new offerings are needed to boost earnings, executive Gerhard Schedler said.
“In the mid-term I expect each person in Switzerland to have at least 20 connected things around him such as smart switches, meters, watches, bicycles and temperature sensors,” said Schedler, head of the company’s M2M business. Though he declined to offer details, he said the business will increase Swisscom’s profitability.
The technology is an opportunity for mobile-phone operators to show that they can boost sales from additional data services. After losing the battle for online application stores to Apple Inc. (AAPL) and Google Inc. (GOOG), the companies are struggling to convince investors they are more than a platform that facilitates surging demand for data-hungry mobile devices.
Vodafone Group Plc (VOD), Europe’s largest mobile-phone company, in March agreed with Boston Scientific Corp. to jointly develop a remote health-monitoring system that allows patients to use mobile devices to send health information to their doctor without leaving home. Verizon Communications Inc. (VZ), co-owner of Verizon Wireless, agreed this month to buy Hughes Telematics Inc. for $612 million to expand offerings that transmit data between car components.
“Phone companies are looking for possible growth drivers and M2M is one of them,” said Matt Hatton, a director at London-based Machina Research, a consultancy that focuses on new mobile business models.
Phone companies could see revenue of 40 billion euros from M2M services in 2020, up from 5.8 billion euros last year, Machina estimates, as M2M connections are predicted to grow to 12 billion in 2020 from 1.2 billion in 2011.
In 2010, consumer electronics offerings accounted for 44 percent of M2M connections, followed by 12 percent for so-called intelligent building solutions such as systems that automatically control heating, cooling and security alarms, according to Machina. While the average revenue per user tends to be lower with M2M applications, the profit margins are usually higher than for traditional phone services, Hatton said.
The need of phone operators to find new data applications is a blessing for Limmex AG Managing Director Pascal Koenig.
The Limmex is “a combination of traditional watchmaking craftsmanship, high-technology electronics as well as a secure IT-system behind it,” Koenig said. Limmex investors include Zuercher Kantonalbank and Andy Rihs, co-founder of hearing-aid maker Sonova Holding AG. (SOON)
It’s a Watch
Since its introduction in October, Limmex has sold a “good four-digit number” of watches, and the company plans to start offering the service in several other European countries this year, Koenig said. Operators benefit from such offerings because they help them sell mobile subscriptions to new customers who otherwise wouldn’t have one.
Elderly people “are not used to cell phones and computers, SMS and e-mails, and other modern gadgets,” Grob said. “But they accept Limmex because it is and looks like a watch.”
The watch, which comes in 12 models, starts at 495 Swiss francs ($523) and comes with a subscription with Swisscom starting at 25 francs a month for the network connectivity.
Swisscom in February forecast lower revenue for 2012 and said prices will continue to decline. The company is seeking to offset pressure caused by increased competition and regulation with “new attractive products and continued cost control,” CEO Carsten Schloter said at the time.
Sales from corporate customers for fixed phone-line services dropped by about 20 percent over the past four years, Swisscom said Feb. 28. In the last quarter of 2011, demand for the company’s M2M offerings rose by about 10 percent.
The shares fell 0.5 percent to 373.70 francs at 11:47 a.m. in Zurich. The stock is up 5 percent this year, while the Bloomberg Europe Telecommunications Index has lost 8.4 percent.
Swisscom is marketing M2M technology to electric utilities, which can use it to read electricity meters remotely rather than sending staff. Consumers may use it for navigation devices that help them avoid traffic jams. And Schedler said the technology may also be used for more esoteric applications such as letting coffee machines re-order beans automatically.
In 2016, the number of mobile Internet-connected devices will surpass 10 billion as mobile data traffic will increase 18- fold over the next five years, Cisco Systems Inc. (CSCO) estimated in February.
So mobile-phone carriers need to realize that machines offer more potential growth than people, says Leif-Olof Wallin, an analyst at research firm Gartner Inc. in Gothenburg, Sweden.
“Mobile-phone companies can’t sell more SIM cards to human beings as the penetration rates in some European countries are well above 100 percent,” he said, referring to the subscriber- identity modules inside mobile phones. “So it’s quite natural for them to sell SIM cards to things.”
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