The Explosive Growth of M2M Traffic

The Cisco Annual Internet Report for 2018 – 2023 is full of interesting predictions this year. One of the more intriguing predictions is that Machine-to-Machine (M2M) traffic (which they also refer to as Internet of Things (IoT) traffic) will become a little more than half all of the traffic on the web by 2023. That’s an amazing prediction until you stop and think about all of the devices that communicate with the Internet without needing a human interface.

Cisco forecasts several reasons why M2M traffic will grow so much in the next few years. The primary way is through the proliferation of M2M devices. They predict over the 5-year period there will be a 2.4 times growth in connected devices from 6.1 billion in 2018 to 14.7 billion in 2023. That’s a 19% compounded growth rate and by 2023 equals 1.8 connected devices for every person on earth.

The second reason for the growth is that we are using M2M devices for a lot more functions than just a few years ago. Cisco is predicting fast growth in the following categories of M2M

  • They predict the number of worldwide connected home devices will grow by 20% per year. This is the largest category of devices and will represent just under 50% of connected devices by 2023. This category includes things like home automation, home security and video surveillance, connected white goods (the new term for connected appliances), and our communications and entertainment devices like smart TVs, laptops, desktops, and smartphones.
  • They predict that connected car applications will be the fastest-growing sector, growing at 30% per year. This includes connections made for things like fleet management, in-vehicle entertainment, emergency calling systems, vehicle diagnostics, and vehicle navigation.
  • Cisco predicted that connected city applications will be the second fastest-growing M2M category with a 26% compounded growth. This includes things like smart traffic systems, surveillance cameras, weather and environmental monitors, smart parking systems, gunshot monitors, etc.
  • They predict that connected health will grow 19% annually. This category mostly consists of telemedicine monitors used for outpatient monitoring.
  • Connected energy applications are predicted to grow by 24%. This includes smart grid monitors that track utility usage and loads, and pinpoint network outages quickly. It includes energy monitors, which can turn off air conditioners during times of heavy peak usage. In includes sensors in water systems that track pressure and usage and that predict underground leak locations.
  • Cisco predicts connected work will grow by 15%. This is used for things like inventory tracking, surveillance and security monitoring, and tracking and connecting to employees working in the field.
  • They predict that connected retail will grow by 11% annually. M2M traffic is being used to track inventory. Big chain stores are starting to track the shopping pattern of individual shoppers to see how they traverse the various departments.
  • Connected Manufacturing and Supply Chain will grow by 8% annually. Supply chain monitoring tracks the status of delivery for components needed in the manufacturing process. This also includes smart warehousing that automates packing and shipping or orders. Smart manufacturing supports monitors that track the performance of machinery and manufacturing processes.
  • They predict all other M2M traffic will grow by 19%. This would include things like smart agriculture where monitors are tracking individual herd animals and are just starting to be deployed to monitor crop conditions. This would include other things like sports monitors.

The volume of traffic generated by M2M traffic surprises people. So much of what we do happens in the background and we either forget about it or don’t even know it’s happening. For example, there was an article in the Washington Post last year by a reporter that left the country for a month and left his cellphone in his home. During his absence, the phone used a significant portion of his monthly data plan by updating apps and communicating regularly with remote web sites. My wife’s car connects to the web through or WiFi every time she pulls into the driveway and uploads diagnostics of the various monitors and checks for and downloads needed software updates. Whether for good or bad, our machines and electronics are connecting to the web and using broadband.

Broadband is Now a Mature Market

One of the most interesting things revealed by Cisco’s latest Annual Internet Report is the extent to which North America is now largely a mature broadband market. In this case, North America is the combination of the US and Canada and Cisco does not provide the data for each country.

Consider the following statistics for North America between 2018 and 2023:

  • The percentage of people using the Internet in 2023 will grow to 92% (345 million users) up from 90% (328 million users) in 2018.
  • The percentage of people using cellphones in 2023 will grow to 88% (329 million users) up from 86% (313 million users) in 2018.

This paints a picture of North America as a mature broadband market. While there are still new customers to land, ISPs collectively will not be winning many new customers. The growth of landline users from 328 million to 345 million over 5 years represents an annual growth rate of only 1%. In economic terms that’s a mature market.

There will likely continue to be movement within the market. In the year ending in the third quarter of 2019, the big cable companies took at least 2 million customers from telcos – a trend that is likely to continue. However, some telcos are fighting back by building fiber, such as the 12 million fiber passings built by AT&T over the last few years.

Cisco is painting the same bleak future for cellular customers and is predicting the same slow 1% annual growth for North America. The cellular companies have been waging a marketing war and stealing customers from each other – a largely zero-sum game. The cellular market is getting tougher as Comcast and Charter continue to win cellular customers and Dish Networks is poised to enter the market in a few years.

The mature nature of the broadband and cellular industries exposes the FCC’s fiction that carriers will be spending a lot more capital due to relaxed regulations. It’s hard for any ISP to justify spending a lot of capital in a stagnant and slow-growing market. Any capital spending is being done to upgrade to newer technologies, but there is not a lot of capital needed due to customer growth.

Equipment manufacturers aren’t focusing on North America. While the US will add a net of 17 million people to the Internet over 5 years, Asia Pacific will be adding a billion new people, the Middle East and Africa will be adding 230 million people, and Latin America will be adding 83 million people. Europe is also a mature market and will only be adding 25 million people to the Internet over 5 years.

These numbers show why the administrations attempt to somehow squelch Huawei is likely doomed to failure. Huawei doesn’t need North America or Europe to succeed and can far outstrip European and American vendors by concentrating on Asia and Africa.

This slow growth also highlights the dilemma of the publicly traded ISPs. With a 1% annual growth rate the big ISPs start to look like electric utilities in terms of growth potential. Comcast and Charter  are still meeting Wall Street expectations due to taking customers from DSL, but even that growth has to slow and shrink away at some point. All of the other big cable companies are faced with trying to please Wall Street with stagnant customer counts – something that only can be done by raising rates, cutting costs through mergers, or introducing new revenue streams.

The industry doesn’t have far to grow after 2023. Numerous surveys have shown that most of the people that don’t buy Internet access either can’t afford it or live in a rural market where it’s not available. Since the big ISPs aren’t chasing either of those customer segments they are already collectively at their peak. Growth now comes only from general population growth – and even that news is not great as the US birth rate keeps dropping and immigration has been curtailed.

There is nothing wrong with a mature market from an economics perspective. Unfortunately, the high growth of broadband customers over the past twenty years has created an expectation on Wall Street that telecom companies have fast growth potential. I look at the basic numbers and wonder how long it will be until Wall Street resets that expectation. We’d all be a lot better off if the big ISPs didn’t feel huge pressure to grow the bottom line.