At $25 Per MB, No Wonder Carriers Love M2M

Tablets are just the tip of the iceberg for the new fourth-generation networks that mobile operators are deploying. Sure the Consumer Electronics Show (CES) offered a tablet for every possible price range and use case, but the bigger news for carriers was buried in smaller items like pill caps or refrigerators or electricity meters. Connecting tablets will certainly show off the capabilities of the Long Term Evolution Networks deployed by Verizon (s vz), and planned by AT&T (s T), but the big profits will come from elsewhere.

For example? Your medicine cabinet. AT&T said last week it would provide the service behind an innovative pill cap that will connect to its network and text users when it’s time to take their medicine, or it could text a caregiver.

The nifty little pill bottle top costs $10 per cap and requires a $15 per month service plan. That’s likely worth it for people who need reminders about the drugs they or a loved one are taking, but on a per-megabyte basis that $15 per month nets out to about $25 per MB, although it’s not clear if AT&T gets the full $15. The folks at Vitality, the maker of the cap, said the connected cap transmits less than 20 kilobytes of data per day over the network — a mere crumb when compared to bandwidth hogs watching streaming video on their iPhones (s aapl).

Compare that to the price of 8 cents per megabyte under AT&T’s 200 MB per month plan for iPhone users or 1 cent per MB for those on the 2 GB for $25 per month plan, and suddenly the focus on falling Average Revenue Per User doesn’t seem as scary for operators who will have an entirely new class of subscribers to go after. There’s a very real possibility that consumers will draw the line at paying $15 per month for their fridge to tell them when to change the water filter, but for the right use case, operators might be able to share in texting-type margins to boost their profits.

Both AT&T and Verizon are looking for extra revenue and low-bandwidth needs from utilities, too, offering their networks to connect smart meters and smart grids. About a year ago, carriers dropped their prices dramatically for utility smart grid projects, evidently finally realizing the low maintenance, steady revenue stream that smart grids can deliver was worth smaller network rental fees.

Machine-to-machine connectivity is also a needed area of expansion in a saturated wireless market like the U.S. As I wrote a few months ago:

The nation’s two largest carriers added more connected devices [in the second] quarter than postpaid subscriptions, according to data released this morning by Chetan Sharma, a wireless analyst. Carriers added 2.6 million connected devices and 1.2 million contract customers. In his quarterly update, Sharma noted that wireless penetration in the U.S. reached 95 percent and surpassed 100 percent if one takes out children younger than five. While there are only 20 million connected devices out of 311.3 million subscriptions, the devices are where the growth is.

Fantastic profits and a chance to keep growing subscriptions? No wonder AT&T and other operators are betting on the Internet of Things.

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