The Value of Cellular Connectivity – From Mobile Devices to the Internet-of-Things (IoT)

Abstract

This study investigated the value that cellular connectivity enables for the existing mobile device market and the emerging IoT market across multiple industry verticals, resulting in the following key insights and conclusions:

• The adoption of cellular connectivity has increased worldwide with the number of cellular subscriptions surpassing the global population in 2016.

• Each cellular generation (G) requires investments of tens of billions of dollars in R&D, millions of person-hours in standard development by hundreds of market actors through an open, consensus standardization process. Cellular standard development at 3GPP results in tens of thousands of contributions and over a thousand technical documents (i.e., TS/TR) per year.

• Cellular standards advance in performance by orders of magnitude across generations in addition to providing interoperability. This process combines the revolutionary development of functional capabilities with evolutionary progress within each generation. 5G is an excellent example of a revolutionary step that opens up entirely new capabilities and markets, as did the smartphone with 3G.

• Macroeconomic studies have shown that cellular standards have a positive impact on GDP growth, ranging from 0.3-0.6% (GDP per capita) and 0.5-1.2% (gross GDP) for a 10% increase in mobile adoption globally across different periods.

• The total market value based on revenue from five interrelated cellular markets was calculated at $2.1T in 2019, with a growth estimated to approximately $3T in 2025. The total economic value (including consumer surplus) was estimated at $4.8T and $7.5T, respectively. Other microeconomic studies have forecasted $13.2T in gross output by 2035 (corresponding roughly to $7.5T in total market value based on revenue).

• A smartphone is a market platform, not merely a device, where the most value is generated upstream of the device sale. The total market value based on revenue for the smartphone-related markets was calculated at approximately $1,600 per smartphone sold ($2,800 including consumer surplus) compared to $392 for only the smartphone device in 2017 in the US.

• Growth in mobile applications (direct revenue and advertising) and IoT solutions will drive overall market growth enabled by 5G. The largest source of value generated by IoT will likely come from efficiency/productivity gains that will create both direct and indirect increases in revenues, but primarily decreases in costs.

• The Cellular Value Added for Apple and Samsung cellular devices were calculated based on current and historical prices for devices with and without cellular functionality. This included the iPhone ($275-500), iPod ($130-150) and Galaxy Tab ($80-140), and Apple Watch ($100) and Galaxy Active 2 ($140) and Galaxy Watch ($40).

Keywords: cellular, standard, patents, value, IoT, connectivity, 5G

JEL Classification: D22, D46, L11, L24, L62, L96