The phone companies spent decades extending internet access across the U.S., first to homes and then to mobile devices, only to be stuck collecting relatively small service fees while Google and Amazon built lucrative online empires. Now that a surge of American cars are getting their own internet connections, Verizon Communications Inc. and AT&T Inc. don’t want to be relegated to mere pipe providers yet again.
Verizon is regrouping all its telematics and vehicle logistics businesses into one unit called Verizon Connect, and AT&T has amassed partnerships with more than two dozen major car and truck makers as it tries to ingrain itself in the connected-car business. Both are fighting for a larger role than just mobile-service supplier and are jostling for new revenue from everything from security and entertainment to the sale of data mined from drivers and vehicles. The problem: Everyone from traditional carmakers to tech giants and startups has already crowded into the nascent space.
Embedded modems were in just a fraction of cars earlier this decade, data from consulting firm Strategy Analytics show. But that will rise to 51 percent next year and only accelerate further as cars become self-driving, leaving captive passengers looking for new sources of entertainment and interaction. By 2023, three-fourths of new cars will come with connections.
“Carriers are facing an existential crisis, as usual,” said Roger Lanctot, associate director of Strategy Analytics’ global automotive practice. “They know they can’t afford to not play in the connected car space.”
So far there isn’t much money to be made linking vehicles to the internet. The carriers don’t disclose financial details about their connected car units, but analysts estimate the average monthly revenue from car subscriptions is in the range of $1 to $2 per vehicle. It’s a growth area, however, with new car connections exceeding new phone subscribers last year for the first time. Wireless carriers, struggling with maturing subscriber businesses, are eager to push into new areas such as smart cars, media, advertising and connected machines.
“We believe Verizon has a right to play and win in this space, given that it all starts with the network and the connection,” Andres Irlando, Chief Executive Officer of Verizon Connect, said in a March interview at Bloomberg headquarters in New York. “We aren’t just focused on the wireless connectivity: We play at the software and platform layer.”
One area that Verizon and other companies find potentially lucrative is collating user and vehicle data—things like location, engine performance and driving patterns like number of left turns, which are a big predictor of accidents. But harvesting user information has become a troublesome endeavor in the wake of scrutiny around Facebook Inc., which said data on as many as 87 million people, most of them in the U.S., may have been improperly shared with research firm Cambridge Analytica.
Customers who opt in could allow data collected in a connected car to inform things like mechanics hotlines, usage-based insurance rates or roadside assistance with pinpoint accuracy, Irlando said. But driving data can also make Verizon money if sold on a large-scale, anonymous basis, like pushing information on roadway conditions to traffic aggregators, he said.
“We don’t do anything with data that is individualized without the expressed permission of our customers. But on an aggregated basis you can imagine multiple business models to support that,” Irlando said.
While the tech industry grapples with a privacy firestorm, car-data specialists like Telenav Inc. and Israel-based Otonomo are angling for deals with automakers to do things like share driver data with insurance companies, gas stations or fast-food restaurants, which could use it to sell ads or provide coupons.
Roger Entner, an analyst with Recon Analytics, said he’s skeptical carriers can tap significant revenue from the current connected-car market. Verizon and AT&T aren’t collecting any user information that’s greatly different from what Apple Inc. gets with its iPhones or Google and carmakers could collect currently, he said.
Carriers will fight the role of being just a data pipe—or straight internet connection—but there’s a lot of value in that pipe, Entner said. “The carriers should stick with their strengths, and that strength is having 300,000 cell sites connecting across the country,” he said.
Like everything ahead in wireless, the next big opportunities will be in fifth-generation or 5G technology. These future networks promise as much as 100-times faster connection speeds, opening up the possibilities of cars communicating with other cars, autonomous vehicles and connected infrastructure.
“Self-driving cars are basically network servers on wheels, and all that data needs to be offloaded from the car. That will require the robust connection and edge-computing power of 5G,” Entner said.
The first wave of connected cars provided an early lesson in just how transient the wireless service providers’ role can be. OnStar, which was introduced in 1996 and allows some General Motors Co. drivers to summon roadside assistance, started out as a partnership with Verizon. But GM controlled the service, and when the contract was up, it simply switched to AT&T.
The next wave of connected cars won’t necessarily be a repeat of that experience, said Mary Chan, a managing partner with VectoIQ, an auto technology company that connects suppliers and startups. Chan previously worked with wireless-equipment supplier Alcatel-Lucent and later at GM on connected-car services.
“5G is going to take a major investment in sensors, infrastructure and bandwidth to serve much higher data capacities,” Chan said. “Whichever carrier can get to the best architecture and best system will have the most stickiness and success.”
Still, it’s not going to be a smooth road. Even in 5G, carmakers are the gatekeepers and they really only want the carriers for one thing: super-fast connections, not a host of add-on services and revenue-sharing relationships.
“As you can imagine, we don’t want it,” Peter Schwarzenbauer, a member of the board at BMW AG, told reporters at the New York International Auto Show when asked whether he was comfortable with wireless carriers eying a bigger slice of the connected-car pie. “There is a natural competition on this area.”
But while car companies may not want Verizon and AT&T encroaching further into tomorrow’s cars, they still need them to contribute the 5G wireless service.
“You will not see Level 5 without 5G,” Schwarzenbauer said, referring to fully self-driving cars. “There’s no way the current systems can handle all the data we need to really operate robots.”
So the two sides need each other, but that doesn’t mean they'll see eye to eye.
“Carriers and car companies do not have a long history of getting along well with one another,” said Strategy Analytics’ Lanctot. “It’s not clear how it all turns out—but the Grail of being more than the pipe remains as elusive as ever.”