Connected Car Bandwidth: Who's Going to Foot The Bill?

January 19, 2016  |  By Michael O'Shea  |       

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Expanding interest in connected car technologies suggest a host of values for manufacturers and customers going forward. According to statistics provided by statista.com there were 1.14 billion active vehicles operating worldwide in 2012; while 4.5 million of those vehicles housed embedded active telematic systems.

However, by 2015 that number has grown to 11 million and climbing. As an economic matter, then, while there will certainly be even more telematic and infotainment data being passed in the future, who is likely to pay for the added bandwidth?

When it comes to the pricing of digital packets measured between information-based portals and vehicle-equipped systems, there are four currently-accepted transaction models:

1. Initial Option

This model first appeared in 1996 with GM’s On-Star program, and other first-stage telematic competitors like Ford, Mercedes and BMW subsequently followed suit. In this era, first-year bandwidth costs were typically absorbed within a new car’s total MSRP. Going forward, then, customers would be required to pay for follow-on data transfers by means of a series of early subscription offers.

At the time, the business approach made sense for all involved, since at the outset telematic systems were largely offered as premium-line vehicle accessories. Shortly after these systems emerged, however, mid-size and economy car customers began to demand similar technologies. The consequent consumer pressure forced manufacturers to respond to these requests, potentially reducing already thin business margins.

Ultimately, these sensitivities lead most large auto manufacturers to quickly develop and evolve expanded vehicle data-transfer plans.

2. Evolved Subscription Option

While today’s top-tier luxury lines such as Rolls-Royce, Jaguar, Cadillac, BMW, Mercedes and others continue to offer several years of general data connectivity as part of a car’s initial purchase, mid-size or economy cars typically utilize two central pricing tiers. They range from basic telematic access utilizing minimal bandwidth, demanding little or no cost; to dense infotainment values requiring enhanced bandwidth managed by multiple pricing plans, such as active Internet, streaming video-on-demand (VOD) programming, or satellite radio delivery.

While the model is one way to get the job done with a minimum of muss and fuss; as a general rule the approach can be cumbersome to manage, and offers a potential for hidden customer/manufacturer ‘cost-creep’ over time.

In addition to options 1 and 2 above, traditional telecommunications companies including AT&T, Verizon and others are now trying to carve out significant pieces of the connected-car market using traditional 4G mobile networking.

3. Automotive Data Plan

In this scenario, various telecommunications providers offer discrete data sharing plans, utilizing proprietary firmware systems to integrate vehicular WiFi capabilities. In this case, a secondary billing process is required by the consumer.

4. Tethered Mobile Device

In this case, a customer’s traditional mobile 4G device is directly integrated within the vehicle, and subsequently serves as its communications head-in. All customer bandwidth is aggregated to include both vehicle/non-vehicle activity, resulting in a consolidated billing process.

These two telecommunications models offers two significant advantages over previous approaches:

  1. Ultimate bandwidth pricing will undoubtedly be more economical in time, since costs associated with connected-car data transfers will typically aggregate within a telecommunication company’s larger bandwidth per bit cost footprint and, therefore, offer enhanced economies of scale.

  2. A seamless ability to tether one’s personal mobile device to the car will create enhanced overall customer value.
The two big advantages to the tethered option are:

  • The consumer isn’t required to purchase an additional data plan. Based on our research, consumers are apprehensive about purchasing an additional plan for their vehicles. Instead consumers prefer to use the data from their existing phone data plan.

  • The consumer can always keep their system up to date by using the latest mobile device over the life of the car. On the other hand, embedded modems and built in hardware degrade over time.
All told, the last method appears to offer the greatest long-term customer value as the connected car concept evolves in complexity and sophistication. In the end, then, the tethered approach can lead to entirely new ways to apply already understood mobile-device technologies, pricing plans, and thin systems development to foster expanded connected-car values over time.

Topics: Connected Car - Other

Michael O'Shea

Michael O’Shea is the Founder and CEO of Abalta Technologies. He is responsible for all aspects of executive management of Abalta and a direct participant in many client engagements, particularly in management advisory projects.

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