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H ELIOSA DVISERThe Internet ofImportant ThingsSmart grid: an intelligent test case Analysis & commentary for decision makers in the telecoms industry

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About HeliosHelios is an independent consultancy providing business, regulatory and technicaladvice to the ICT and transport sectors. The company specialises in thedevelopment, application, exploitation and regulation of terrestrial (fixed andwireless) and satellite-based communications, surveillance, broadcast andnavigation technologies and also has significant expertise in aviation and associatedmarkets.We provide high quality consultancy encompassing everything from conceptdevelopment to regulatory impact assessment; from technology roll-out andcommercialisation to business case analysis and investment appraisal.We support businesses, governments, regulators and other institutions. Ourcustomers usually work in complex regulatory domains, in safety critical industriesand are supported by advanced technology. Our aim is to improve corporateperformance.Our success has been recognised through two Queen’s Awards for Enterprise (in 2004and 2009).Get in touch…For further information please contact:Richard WomersleyHelios29 Hercules WayAerospace BoulevardAeroParkFarnboroughHampshireGU14 6UUUKE richard.womersley@askhelios.comT +44 1252 451 651F +44 1252 451 652W www.askhelios.com

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The ‘Internet of Things’IntroductionTelecommunications began by enabling people to talk with other people. As “It has long been an axiom oftechnology has progressed people started to communicate in a variety of mine that the little thingsways using ‘machines’ (computers) as intermediaries. Machines are are infinitely the mosteffectively communicating with other machines, largely guided by human important.”operators. It is logical therefore, that machines will begin to communicate Sir Arthur Conan Doylewith other machines without human intervention. As smaller and smallermachines become able to communicate, a new Internet paradigm emerges:an Internet of machines, sometimes called machine-to-machinecommunication but increasingly being called the Internet of Things (IoT).One of the great questions relating to the IoT is exactly how devices willconnect to each other, given the large number of potential entities on anetwork. Wiring things together would be cumbersome and expensive andtherefore the obvious means of achieving connectivity is through the use ofwireless networks. This paper considers the opportunity for cellularoperators to capitalise from the impending growth in the IoT. Arguably, theIoT starts with the Internet of important Things and first amongst theimportant uses of the IoT is likely to be smart meters. Using smart metersas an example, we consider the size and scale of the opportunity forcellular operators and how a joint cellular-mesh network approach mayprove to be the ‘dream team’.Smart grid and the Internet of ThingsIt is widely recognised1 that the next stage in the evolution of the Internet “[The] next step in [the]is to move from connecting people (using computers) to connecting objects. development [of the Internet]This concept of interconnected objects has been termed the ‘Internet of is to progressively evolvethings’. In reality, however, the IoT is an ‘Internet of Internets’ in which from a network oflike objects may form internets (or intranets) of their own, which are then interconnected computers toin turn joined together to form the wider IoT. a network of interconnected objects, from books to cars,Machine-to-machine (M2M) communication, which has typically been from electrical appliances toaddressed by GSM-based technologies, represents one widely recognised food, and thus create anexample of a part of the IoT, but this is just one small part of a much larger ‘Internet of Things’.”jigsaw. Each of the different elements which will together complete the IoT Internet of Things — Anjigsaw will have varying sizes and connectivity requirements. One issue yet action plan for Europeto be addressed, however, is whether there is a ‘one size fits all’ solutionto connecting devices together. It seems highly likely that low power, smallsize devices, may require different data transmission protocols from larger,higher power devices. This means that a ‘one size fits all’ approach maynot be efficient.Some ‘Internets’ are also more easily implemented than others due to size Offering a new means ofand power availability: developments in ‘smart grid’ technology which delivering connectivity for theinterconnects utility meters are therefore a logical first step towards the smart grid is potentiallygrowth of the IoT, given the availability of local power sources and of space lucrative for telecoms servicewithin meters to accommodate a connecting device. Offering a means of providersdelivering connectivity for the smart grid, and for future M2M devicestherefore delivers a potentially lucrative business opportunity fortelecommunication service providers. 1

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“[The Internet of Things] The size of the opportunity is vast: the European Commission estimates requires truly ubiquitous that there may be around 50 to 70 billion machines across Europe that need wireless capacity that can to be connected2. This equates to an estimated 5 billion in the UK alone, handle several magnitudes which is more than the current worldwide total number of cellular more data.” subscribers3. This is before many of the new ideas come to fruition, such as Future Internet 2020 those suggested by thought groups such as the European Commission’s Future Internet 2020 task force. All these objects will require data connectivity and it is envisaged that this connectivity will be almost universally wireless. Further, the capacity required to connect objects together will be very significantly more than is currently available using 2.5G and 3G technology today. Given its immediacy, the remainder of this paper uses the concept of smart meters as a case study to examine the opportunities that may be presented to cellular operators by the IoT. It is important to remember, however, that today’s smart grid (the Internet of important Things) is only one part of tomorrow’s IoT and represents the tip of the iceberg insofar as its likely eventual development. UK smart meter plans The UK government has There are currently 28.5 million electricity meters in the UK4, together with committed to roll out smart a similar number of gas meters, and around 8 million water meters (though energy metering to all this is expected to expand to 16 million by 20305). Thus there are well over households by 2020 60 million utility meters in use in the UK today. The UK government has committed to roll out smart energy metering to all households by 20206. In parallel, the UK water industry regulator (Ofwat) is hoping to piggyback on this roll-out to connect water meters too. The plans for this smart grid require two-way connectivity and thus there will be a need to provide solutions for these 60 million units over the next 10 years. Wireless offers advantages In some countries, the use of wired means of connecting smart meters into over wired connectivity the necessary management and monitoring systems using power line telecommunications (PLT) is being considered, however this has a number of drawbacks: as well as only being directly applicable for electricity meters (as they are the only devices immediately connected to the electricity infrastructure), there has been strong vitriol in the UK against PLT devices7. They are unpopular due to the amount of radio interference which they generate. Unpopularity aside, PLT has not been proven to meet the reliability or throughput requirements necessary for a truly smart grid, therefore the UK’s smart grid will be largely wireless. This represents a significant opportunity for cellular network providers across both the UK and Europe to secure additional new revenue streams, assuming that a suitable business model can be found in which the connectivity can be delivered profitably.2

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Smart grid using a cellular networkAdvantages of a cellular solutionWireless smart metering offers cellular operators the chance to capitalise Wireless smart meteringon their existing network infrastructure by offering a connectivity solution offers cellular operators theto the 60 million UK utility meters, thereby generating additional revenues. chance to capitalise on theirHowever, such connections will inevitably deliver low Average Revenue Per existing network infrastructureUser (ARPU), while consuming network resources such as signallingcongestion and upstream bandwidth.The straightforward means to access this opportunity is to place a SIM and Each meter will generateassociated wireless card (whether 2G, 3G, 4G or beyond) into each meter. <2kByte of traffic per dayGiven the small volume of traffic that each meter is likely to generate(< 2kByte per day), this would not present a significant growth in networktraffic (assuming that the load is spread throughout the day). Of note, mostpricing plans offered to date are restricted to off-peak meter reads, whichdiscourages a more interactive smart grid.Managing this number of subscribers should not present a significantheadache. Not only can modern networks deal with these kinds of numbersof subscribers, but the fact that the meters are static means that thefrequency of location updates can be reduced (or forced updates onlyemployed) further reducing the overall load on the network.Disadvantages of a cellular solutionA large obstacle in a cellular solution arises as technology is upgraded. If As networks are upgraded,each meter is fitted with a suitable radio modem, as networks are modems will need to bemodernised, these modems would need to be replaced. With 60 million replaced. This could meanmeters in the UK, even if it is simply a case of replacing each module, this 120m visits by 2020would represent a significant effort on the part of either the network or themeter supplier or fitter.This is a significant challenge: whilst normal cellular users willautomatically migrate to new technologies as their handsets are upgraded,fixed installations of any kind will require wholesale manual replacement.The level of work involved would be similar, for each technology upgrade,as for the initial roll-out of services and whilst a gradual migration from onetechnology to another could take place, the need to revisit 60 million sitesstill represents a significant undertaking. This is a very real possibilityshould GPRS be chosen as the sole smart metering communicationstechnology in the UK. Even if this is limited to one visit to each of the UK’sapproximately 27 million residences, due to the strong likelihood of GPRSobsolescence within 7 to 10 years, there may be a second visit prior to the2020 mandate deadline.An arguably larger problem is that of coverage: smart metering and smartgrids require ubiquitous coverage. Meters are located indoors and in hard-to-reach locations. Handsets are mobile, meters and transformers are not.Another problem posed by a solution of this type is that the necessary The Average Revenue Per Userinvestments may not yield significant financial returns, especially if the from embedded devices isannual line rental charged for each device is small. The ARPU from likely to be very small 3

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embedded devices of this type is likely to be very small. In some instances it may be so small that the amortised cost of the SIM and wireless card may take longer to recover than the life of the card itself. A UK government’s Impact Assessment (Baringa Partners) estimates the yearly GPRS backhaul cost as £4.83 for one off-peak meter read per day. Evidence exists that competitive pressures will further drive this price down. And once-a-day, instead of true on-demand interaction, is an impediment to a truly useful smart grid. As mentioned, coverage may be a concern, not least because many meters Many meters will be situated will be situated in locations where coverage is difficult to achieve, notably in locations where coverage is indoors and in particular in basements. GSM coverage of the UK population difficult to achieve is upwards of 98% and as such most domestic and commercial properties should be within an area of coverage. However, whether this would be available indoors, particularly in less dense non-urban areas, is less certain and it is likely that some additional sites would be needed to make coverage ‘deeper’. The penetration loss at 900MHz8 for a signal passing through two walls is around 19dB which is higher than the 10dB building penetration loss which operators normally plan for when attempting to deliver indoor coverage. An additional 10% indoor penetration requires 4 to 6dB of additional signal strength, requiring an increase in site density of 3 to 4 times. To deliver an additional 9dB of signal strength may therefore require up to 10 times the number of cell sites. The use of femtocells may alleviate some of this problem in the longer term. However, it is unclear how the problem of lack of coverage would be dealt with in areas where this technology is not available if a cellular solution were to be universally adopted, and whether or not a ‘non 100% compliant’ solution would be politically acceptable, leaving some users unable to use smart metering. Wireless mesh networks Advantages of mesh networks With mesh networks, each Mesh networks are communication networks in which each mesh radio (or node connects to many other node) is capable of connecting to one or more other nodes and of injecting nodes, and networks are data into the network, receiving data destined for it, and passing data from capable of self-healing one node to which it is connected to another. In the case of smart metering, think of each meter as a unique picocell. Mesh networks are also capable of self-healing: in the event that any node is lost, traffic can usually be re-routed around it. In essence, wireless mesh networks form a ‘wireless internet’. ZigBee is an example of an early mesh technology and this and other meshing technologies using 2.4GHz spectrum have proven adequate for short range, intra-home applications. However, due to range limitations using 2.4GHz, mesh networks has proven impractical to deploy at scale due to coverage issues and infrastructure costs. Much work has been conducted to assess the effectiveness and efficiency of wireless mesh networks9 and they are already delivering significant benefits, in particular in applications such as smart metering. The coverage4

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of a mesh network is determined by the geometry of the nodes themselves Much work has beenas they are rolled-out. In an application such as metering, nodes will be conducted to assess thesituated in domestic and commercial properties and coverage will be effectiveness and efficiency extended as new nodes are of wireless mesh networks installed. If appropriate radio and they are already frequency and power levels delivering significant benefits are used, the short distance between nodes means that it becomes relatively straightforward to provide connectivity in otherwise difficult to access locations such as in basements or deep inside properties. As the nodedensity increases, the number of nodes that any particular device will beable to connect to will increase providing alternative connectivity optionsand resilience of coverage in the event of any failures.One of the advantages of mesh technology over cellular in a smart metering There is no need to changecontext is that the mesh radio node can be designed with the exact data the radio device unless therate needed, and transmitter duty cycle in mind, so that it is optimised for requirements of the meters orthe throughput of the meter or other device to which it is connected (and the devices themselves changeto supporting connected nodes). The knock-on effect of this is that there isno need to change the radio device unless the requirements of the metersor other underlying devices themselves change. Should any changes inmetering take place, which would require a change to the metersthemselves, the associated mesh device could be replaced at the sametime. There is thus no need to replace mesh radios unless the underlyingdevice to which they are connected also changes.Disadvantages of mesh networksUnlike mobile networks wherein each user inherently has a way into and As networks grow, the numberout of the mobile network to connect to third parties, as a stand-alone of nodes connected throughnetwork, wireless mesh delivers limited connectivity, only permitting any Access Point can begin toconnection between nodes on the network. To enable ingress and egress exceed its capabilitiesfrom a mesh network, mesh access points (APs) need to be deployed atappropriate locations (the equivalent to cellular base stations in a mobilenetwork). Typically 1000 or more mesh nodes can be served by each AP −the exact number depending on the density of node installations and radiorange (a function of spectrum and transmit power). These APs, orgateways, provide points for network management as well as for collectingand distributing data amongst the nodes.In theory, APs can be located anywhere amongst the various nodes, and it One solution might be to puthelps if the AP can connect with multiple neighbouring nodes. The more a GPRS or 3G card in everynodes it can connect to, the shorter the path between remote nodes and meterthe central AP, minimising delay and latency, and providing additionalresilience. If the number of APs is fixed, as networks grow, the number ofnodes connected through any AP can begin to exceed its capabilities suchthat additional APs would need to be established. One solution to this mightbe to put a GPRS (or 3G) card in every meter. If each meter were fittedwith both a mesh node and a mobile device some meters could act as APsand in others, the GPRS (or 3G) device need not be activated. 5

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There are a range of solutions Connecting the APs to the central management function and data back-haul for connecting the Access network can be achieved through a variety of means, and commonly fixed Points to the central or wireless broadband or cellular connections are used. management function • Fixed broadband connections are limited in that they require the AP to be situated in a location where there is a telephone line available. These locations are often not optimum for providing connections to multiple nodes without additional cabling between the telephone line and a vantage point providing better coverage from the AP. • The use of a bespoke wireless network may be suitable where nodes can be situated in line of sight positions to a central concentrator site, or in line of sight situations to each other. This restricts flexibility and though any AP located in a position with a good line of sight is likely to be able to connect to multiple nodes, it does restrict the choice of sites. • A cellular solution is a particularly flexible option to provide the necessary connectivity for mesh network APs. Not only is coverage likely to be present in locations which are also good sites for accessing multiple neighbouring nodes, but the additional flexibility of being able to move APs easily offers the opportunity to optimise the location of APs as the mesh network grows. Even with 1000 nodes connected to a AP, the total volume of data generated (from a smart meter network) is very much within the capability of even 2.5G cellular networks and would present a very small load on a 3G or 4G network. UMTS Terrestrial Access Network (UTRAN) The cellular network can be Node B + configured to act as a virtual Mesh AP tunnel for mesh traffic, overcoming restrictions on Radio Radio to Mesh Network Network Network gateway capacity Controller Controller to Core Network Node B + (RNC) (RNC) Mesh AP Node B + Mesh AP There are strong synergies Thus, there are strong synergies between mesh APs and cellular networks. between mesh Access Points In many cases, the cell sites themselves would represent ideal locations for and cellular networks the positioning of the APs, providing an alternative model both for cellular operators and for mesh operators. Instead of using the cellular radio interface for the backhaul from the mesh APs, the data could be routed directly over the UTRAN and either interconnected at the RNC or continue to the core network to a point of interconnection further towards the edge of the network. From the point of interconnection, mesh traffic could be routed to a separate interconnection point and thus the cellular network would act as a virtual tunnel. The advantage of a connectivity model of this kind would be to overcome the restrictions on gateway capacity.6

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A hybrid cellular-mesh solutionThe ideal solution?There are undoubtedly cost benefits to using a wireless mesh network to Operators can remove the riskprovide the connectivity into and out of buildings given the self-provided of technology upgrade andcoverage that mesh networks deliver. Further, there are clearly capacity enjoy deployment flexibility benefits in optimising the by using cellular connections “Telecommunication operators are usually use of scarce radio or sites to activate mesh called for with regards to the long distance part resources for a particular network Access Points of the picture … However, the other area where application by tailoring the we think that operators can add value is the local data collection network … GSM might not radio technology to the be appropriate in all cases to connect the meter requirements of the device up to the information system … and also it to which it is connected.might not be economically viable to roll outbased on GPRS. So, we think there is a business Smart metering and smartcase for advanced radio technologies - mesh grids have limited data andnetworks.” throughput requirements, Valerie Le Peltier, Director M2M Vertical, often resembling a process 10 Orange Group control application; here, reliability trumpsthroughput. Using cellular connections or sites to activate mesh networkAPs provides an unsurpassed amount of flexibility in deployment andimportantly removes the risk to operators of technology upgrade.The combination of mesh and cellular technology provides a ‘dream team’for smart metering in that it is:• Scalable: Alone, cellular networks would begin to creak as the number Mesh networks adapt with of IoT devices grew to the kind of levels foreseen by the IoT. Mesh each new connection networks adapt with each new connection, but would require an increasing number of easily configurable, and well located APs. Importantly, mesh networks are today being designed to leverage the vast address space made available using IPv6. The two together allow for planned and for ad-hoc expansion to the kinds of hundreds of millions of devices which are likely to emerge.• Adaptable: Cellular networks are restricted to certain message sizes They permit new types of which may not suit the variety of different applications that will make devices to be connected up the IoT, making inefficient use of the valuable network resources. On the other hand, mesh networks can be specifically combined to deal with certain traffic types. Combined they offer the ultimate in adaptability, permitting new types of devices to be connected in the most effective and efficient manner.• Able to deal with obsolescence: Replacing the immense number of The radio connection is only wireless devices the IoT may comprise, would be an almost impossible changed when the device task. With mesh technology, the radio connection is only changed when itself changes the device itself changes, minimising the effort of replacement and reducing the carbon footprint caused by equipment scrappage. The obsolescence cycle for smart meters, for instance, is 15 to 25+ years, markedly longer than that of mobile technologies.• Of sufficient coverage: Cellular network coverage, whilst widespread, is insufficient to ensure the depth of penetration required for IoT devices. Coupling cellular’s star topology architecture with a meshed, 7

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Coupling cellular coverage peer-to-peer architecture extends coverage without needing to build with a meshed peer-to-peer additional base stations, offering a cost attractive way ahead. architecture is practical and • Profitable: Putting all IoT devices onto a cellular network clearly cost-effective maximises revenue potential, however this revenue comes at a high cost and thus may be low profit. Working together with mesh technology to deliver a blended solution may reduce revenue, but at much reduced risk and cost and thus potentially higher profitability. Smart metering: how each solution compares The following table highlights the advantages and disadvantages of the three potential solutions to cellular operators. Network type Pros Cons Cellular only Large anchor tenant providing guaranteed income. Management of the tens or hundreds of millions of connections. Control of M2M/IoT connectivity maximising long- term growth opportunities. Widespread, deep coverage requirement requiring up to 10 times as many sites. Potential for expensive replacement programme when technology upgraded. Limits in the number of simultaneous connections may be a problem with millions of devices. Integrated Exceptionally straightforward and flexible roll-out. Requires cellular operators to permit access to some cellular and mesh elements of UTRAN to mesh traffic. Shared network management ensures best tools for network specific connection. Close working relationship with suitable mesh Achieves indoor coverage at low cost. provider needed. Additional coverage can be provided quickly and Ensures revenue from mesh network stays with one with minimal investment. operator. Mesh using Equipment upgrade only when underlying service Mesh provider would be able to use alternative (non- cellular as back- changes. cellular) connection means, reducing revenue haul Optimised for particular device to which it is potential. connected thus low replacement cycle. There are clear benefits for cellular operators to work closely with mesh providers, and close integration of the networks/technology may deliver the significant additional benefits of securing mesh traffic and thus revenues to one particular network. Whilst in the first instance, such close integration of mesh and cellular technologies may seem unnecessary, as the IoT grows, such a model may be the most effective and perhaps the only means of ensuring the bandwidth and flexibility necessary for growth. Beyond smart metering At a concentration level of 5000:1 as in systems deployed in the Americas and Australia, meeting the UK’s smart metering requirements would require 12,000 APs to support a mesh network (coincidentally similar to the number of cell sites currently deployed by each of the UK operators). For cellular operators, using mesh networks as the ‘last mile’ connection presents a number of distinct advantages: • An enormous reduction in the necessary investment in additional infrastructure to provide coverage8

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• Thousands instead of millions of devices to replace in the event of network technology upgrade• Thousands of high ARPU connections instead of millions of tiny ARPU connections• Simpler subscriber and network management• Lower risk of network overload due to multiple simultaneous connectionsHowever, as the IoT develops from smart metering, initially into M2M The challenge for UK andconnectivity and beyond, the advantages of a joint solution would become European cellular operators isincreasingly large. to ensure that the benefits of a ‘best fit’ approach toThe challenge for UK and European cellular operators is therefore to ensure delivering smart metering,that the benefits of a ‘best fit’ approach to delivering smart metering, M2M M2M and IoT connectivity areand IoT connectivity are realised. realisedHow Helios can helpHelios appreciates the challenges facing both those implementing smartgrid and those whose role is to provide the necessary connectivity. Weunderstand the business, technical and regulatory environment and areideally positioned to support organisations wishing to be some of the firstmovers in the race to deliver the benefits of smart grid and of the Internetof Important Things.References1. http://ec.europa.eu/information_society/policy/rfid/documents/commiot2009.pdf2. http://www.future-internet.eu/news/view/article/future-intenet-2020.html3. http://www.itu.int/ITU-D/ict/newslog/ ITU+Sees+5+Billion+Mobile+Subscriptions+Globally+In+2010.aspx4. http://www.parliament.the-stationery-office.co.uk/pa/cm200607/cmhansrd/cm070518/ text/70518w0013.htm5. http://www.defra.gov.uk/environment/quality/water/industry/walkerreview/documents/ walker-call-for-evidence.pdf6. http://www.decc.gov.uk/en/content/cms/consultations/smart_metering/ smart_metering.aspx7. http://www.rsgb.org/news/pla_dispute_law.php8. http://www.its.bldrdoc.gov/pub/ntia-rpt/94-306/94-306.pdf9. http://www.ofcom.org.uk/research/technology/research/emer_tech/mesh/10. http://www.telecomengine.com/newsglobe/article.asp?HH_ID=AR_5940 9

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