The M2M market is growing rapidly in the cellular industry and
is being used by a number of mobile network operators in North
America, Europe, and the Asia-Pacific region in particular. Major
operators are entering into M2M services as their voice and data
service markets reach a saturation point.
M2M refers to technologies that allow both wireless and wireline
systems to communicate with other devices of the same capacity. In
this regard, the third-largest U.S. wireless carrier
Sprint Nextel Corp.
(
S
) cut a deal with
France Telecom
's (
FTE
) Orange Business Services to offer machine-to-machine (M2M) data
services outside the U.S.
Along with Sprint's current domestic and global M2M services,
the latest M2M service is expected to reach 180 countries in
sectors such as automotive telematics, smart grid and metering,
healthcare, retail point-of-sale and security. The deal allows
Sprint's customers to use a single entity, manage global M2M
connectivity requirements with local implementation and enjoy local
contract negotiation support. It would provide the company with M2M
specific GSM Sim cards and a Web portal that would aid customers in
ordering and managing SIM cards.
Sprint expects the deal to enhance economies of scale, cost
control, faster project deployment, and an integrated M2M
supply-chain process ensuring a one-stop shop. We believe M2M
services remain well positioned for accelerated growth, creating
revenue opportunities for network service providers.
According to
ABI Research
, the M2M market is expected to grow to roughly 365 connections by
2016 from about 110 million last year. This corresponds to a
compounded annual growth of 27% by 2016 with connectivity revenues
of about $35 billion. Automotive telematics and smart energy will
likely be the largest contributor of the M2M market, representing
$15.5 billion and $7.5 billion, respectively, in 2016.
Other major operators like
AT&T Inc.
(
T
) and
Verizon Communications Inc.
(
VZ
) are also benefiting from this network service. However, we
believe the build-up of M2M solutions might be time consuming and
expensive, thereby hurting the company's profitability.
Additionally, inappropriate technology solutions could pose
impediments.
We currently maintain our long-term Neutral recommendation on
Sprint. For the short term (1-3 months), the stock retains a Zacks
#3 (Hold) Rank.
FRANCE TELE-ADR (
FTE
): Free Stock Analysis Report
SPRINT NEXTEL (
S
): Free Stock Analysis Report
AT&T INC (
T
): Free Stock Analysis Report
VERIZON COMM (
VZ
): Free Stock Analysis Report
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