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The Internet of Things (IoT) is essentially the next phase of ongoing digitalisation. Beyond standard digital transformation efforts—such as automating workflows or offering services via web-enabled platforms—companies are now equipping machines, products and production facilities with sensors and network connectivity. While similar shifts have occurred before, the communications industry will play a far more central role this time around.
Leading telecom operators can expect IoT to account for roughly 3–5% of their revenues over the coming years. Although that share may appear modest compared with the hype around IoT, it is a substantial increase relative to today’s levels: many large operators currently derive only about 1% of their revenue from IoT. Growing to 5% therefore represents meaningful progress and a return on the investments operators have been making.
IoT is not a new concept—the term dates back to the late 1990s—and major operators in the US and Europe have been investing in it for several years. While IoT’s overall contribution to revenues remains limited, lucrative opportunities are emerging in high-average-revenue-per-user (ARPU) verticals such as connected vehicles. Operators that capture these markets stand to boost their revenue significantly.
How will operators increase their financial gains from IoT?
Operators typically generate IoT revenue through a horizontal connectivity strategy: they provide network access for many users across diverse industries. Some operators are going further by leveraging their core capabilities to move up the value chain—offering platforms, building ecosystems and acting as transformation partners. Large providers with strong fixed and mobile networks, system-integration expertise and roaming capabilities can deliver end-to-end IoT solutions, which yields higher returns than connectivity alone.
The commercial rollout of new cellular low-power wide-area (LPWA) technologies—such as NB-IoT and LTE-M—will unlock additional business opportunities by enabling connectivity for new categories of devices. As these technologies and their ecosystems mature over the next few years, they will drive measurable subscription and revenue growth. With rising consumer demand and improved connectivity options, the number of active IoT devices will expand rapidly. In fact, forecasts indicate that IoT devices will outnumber mobile phones in the near term. Ericsson estimates there are about 400 million cellular IoT connections today, growing to 1.5 billion by 2022, while total IoT connections could reach 18 billion—supporting increased operator revenue.
The current state of the IoT market mirrors broader enterprise trends. Large ICT investments tend to flow into software development, business-process redesign and systems integration, where companies such as Microsoft and IBM are prominent. The communications sector plays a smaller role in those investments, and IoT spending follows a similar pattern.
At the operator level, smaller carriers are likely to capture a share of the IoT market comparable to their share of the broader enterprise market, focusing mainly on small and medium-sized enterprises (SMEs). SMEs typically have less specialised needs and can be served with standard offerings rather than highly customised solutions. For these operators, the most pragmatic approach is to maximise revenue from connectivity rather than investing heavily in vertical-specific capabilities; for them, IoT will remain a modest portion of total revenue.
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