Large strategic players are trying to get into telematics but there seems to be a steep learning curve.
Wells Fargo SecuritiesWe recently traveled with Mark Licht. Licht is president of Licht & Associates, a strategic advisory services firm specializing in telematics, Internet of Things and location-based services.Today there are about 100 million vehicles equipped with telematics -- 40 million of which are in the U.S. Assuming there are about 250 million vehicles in the U.S., this implies a telematics penetration of only about 16%. Of the approximately 15 million vehicles manufactured every year, only 40% are telematics-enabled. This is all on the consumer side. On the fleet side, there also exists a very long runway. Licht estimates telematics on fleets with over five vehicles, penetration is only 25%-30% depending on the segment. While average revenue per user (ARPU) in the telematics business is lower than traditional wireless service, telematics requires much less spectrum and capacity than the typical individual wireless connection. As Licht noted “3G and certainly LTE is good enough” for today’s telematics product set. That said, he did acknowledge more spectrum and capacity will be required with the increased use of WiFi hotspots, video analytics and in the future of autonomous driving.Through its three telematics acquisitions (Hughes Telematics, Telogis and Fleetmatics), Verizon Communications (ticker: VZ) has “triple downed” on the telematics space. While it has some telematics vehicles in its portfolio, these acquisitions have put Verizon more on the services side of the telematics’ house. Licht estimates Verizon makes $30 a month per fleet connection -- over 10 times the typical Internet of Things (IoT)/machine-to-machine (M2M) ARPU. Verizon’s IoT revenue is $1 billion a year, of which telematics represents about 55%. Factoring in acquisitions, Verizon’s IoT revenue increased 60%-plus in the fourth quarter....MORE