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Phone in 60 Seconds
by Jonathan Collins
tele.com
09/04/00, 3:00 a.m. ET
Telematics drives revenue home for wireless providers
A new market for wireless operators is emerging across America, and service providers aren't in the driver's seat for once. This time automobile manufacturers are in control, installing wireless connections in their cars to offer a range of services. They believe these services will not only attract new customers but also extend their relationship with the customer throughout the life of the car.


But telematics, as wireless services for cars have been dubbed, also offer a new and potentially sizable revenue stream for wireless operators. Early telematics services include one-button console access to roadside assistance, car diagnostics and maintenance alerts. In the near future, owners will be able to make hands-free wireless calls that will even include voice-activated access to some Internet data at a set price for a bucket of minutes.

Telematics is still in its early days, but the number of subscribers is expected to reach 820,000 by year's end. With car manufacturers equipping more and more cars with wireless connections, that number is set to explode. "By 2004, 16 million vehicles in the U.S. will have wireless connections as car manufacturers push telematics as a competitive differentiator," says Elliot Hamilton, senior vice president at The Strategis Group (Washington, D.C.), adding that wireless revenue from in-car connections is expected to be about $8 billion by then.

General Motors Corp. (GM, Detroit), one of the earliest players in the market, launched its telematics roadside assistance service, OnStar, in 1997. According to the company, the service has 375,000 subscribers today. GM projects 1 million OnStar-enabled vehicles will be on U.S. roads by year's end, with 35 of the company's 54 models carrying it as an option in 2001.

Building on an existing deal with GTE Corp., Verizon Wireless (New York) recently signed an exclusive agreement to supply all the wireless connectivity for the OnStar network. But Verizon isn't the only wireless operator looking to cash in on telematics. In March, Sprint PCS (Kansas City, Mo.) announced it will work with Ford Motor Co. (Dearborn, Mich.) to supply Sprint PCS-branded wireless services and handsets in 2001 model Lincolns. AT&T Wireless Services Inc. (Kirkland, Wash.) currently has no deal in place but says it's looking to sign a telematics deal shortly.

But Verizon Wireless isn't playing up its exclusive deal with OnStar. "It's just a wholesale deal. It's as uncomplicated as that," says Verizon Wireless chief technology officer Dick Lynch. Verizon's attitude may stem from the fact that it won't be able to leverage the service to reach new customers directly, since all customer service, billing and branding will come from OnStar.

Still, analysts maintain that telematics will prove to be a smart move for wireless operators. "Operators need ways to get more traffic on their networks, and in-car wireless is one good way to that," says Mark Zohar, industry analyst at Forrester Research Inc. (Cambridge, Mass.).

Next year's OnStar models will include two new services that will extend the service into more traditional mobile telephone services. The first will let OnStar subscribers dial any phone number, and the second will use voice recognition to deliver information from the Internet, such as stock quotes, news, weather and e-mail.

OnStar's original 1997 telematics service came with a wireless phone installed at the dealership. Customers had to set up their cellular service independently, which meant two bills for the same car every month. With its new service, OnStar isn't sharing the customer. Pricing details haven't been released, but the company says there will be no long-distance or roaming charges and that unused minutes will be carried over at the end of the month.

Adding the ability to call anyone anywhere from the OnStar service could affect the existing cell phone market drastically, analysts say. "Between 60 and 80 percent of all wireless calls are made from cars. With telematics providing the same calling services, there is certainly potential conflict over who owns the customer," says Strategis Group's Hamilton.

OnStar insists it isn't looking to get into the wireless market but adds that its voice-controlled connection may provide a safer way for drivers to make wireless calls, says Steve Schwinke, OnStar director of operations systems.

Despite being cut out of the customer relationship, telematics may still be a strong play for Verizon. "There is a huge volume play to be made in the wireless market. Verizon still gets access to additional revenue from OnStar subscribers," says Forrester's Zohar.

Sprint PCS has taken a different approach to telematics. Under its agreement with Ford, it will put Sprint phones into Ford's Lincoln automobiles and connect them for traditional telematics services like diagnostics and roadside assistance, as well as general wireless connectivity. This means connecting the Sprint PCS-branded Motorola StarTac phone with the Ford-developed Remote Emergency Satellite Cellular Unit (RESCU) assistance service, for example. Like OnStar, the Sprint PCS service also promises a range of Internet-based services.


One key difference between the two offerings is that Ford plans to use Sprint's all-digital network for connectivity while OnStar will use Verizon's older analog technology. "Analog is the only way to guarantee a nationwide footprint. Our subscribers need to be guaranteed a connection in every county across the country," says Schwinke.

Analysts are certain that services will shift to digital networks over time, opening up opportunities for a new set of in-car wireless data services. Until then, though, wireless operators and telematics providers still have work to do--like steering toward a better understanding of what types of content and applications apply to in-car use.