Saturday, December 4

‘Usage of IoT can improve bottom-line, ESG rating’

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While many are aware of the potential benefits of implementing IoT in the industrial environment, adoption is still largely in its infancy. — AFP photo

KUCHING: The usage of the Internet of Things (IoT) creates a win-win situation for a company’s bottom-line and green score as there is increasing emphasis on environmental, social, and governance (ESG) matters.

Kenanga Investment Bank Bhd’s research team (Kenanga Research) highlighted this in a sector review following its latest Webinar Series titled ‘Internet of Things – Opportunities aplenty for Malaysia’ with Malaysia IoT Association chairman James Lai.

“Implementing IoT in the industrial environment can reduce operating costs like electricity. Sensors can be installed in manufacturing facilities to monitor the temperature in real time and adjust the chiller system to an optimal setting instead of running at peak power throughout the day.

“This creates a win-win situation for the company’s bottom-line and green score as there is increasing emphasis on ESG,” it said.

However, it pointed out that the adoption of IoT is still largely in its infancy due to conventional mindset, high investment cost and limited technical knowledge.

“While many are aware of the potential benefits of implementing IoT in the industrial environment, adoption is still largely in its infancy. Implementing IoT would entail up-skilling the existing workforce and revamping an organisation’s modus operandi which many senior managements and decision makers are most often than not reluctant to do so.

“Not helping either is the constant pressure from investors who are only fixated on quarterly profit growth which could discourage organisations from investing in new technology such as IoT,” it explained.

“To continue pushing the adoption of IoT in such an environment, system integrators came up with a few business models such as subscription based – where customer pays a monthly recurring fee which includes implementation and maintenance on a regular schedule, outcome based – moving away from the selling and responding to maintenance call, to selling system uptime and not charging during system downtime, asset-sharing – involves a minimum or free implementation with the exception of data sharing between customer and system integrator, and razor blade model – where a dependable good are sold at cost or loss to increase sales of its complementary good which generates high margin (such as Amazon Dash),” it added.

When asked about solutions to improve the adoption rate of IoT in the local industrial sector, Lai mentioned that the government should continue to provide grants to encourage adoption among local businesses, especially among SMEs.

He also noted that it is imperative to have a sustainable ecosystem where there is an open community data framework for data sharing to prevent the occurrence of information silos and an open innovation framework for a common technology platform.

With announcement of Budget 2022 around the corner, Lai is optimistic that the government will offer more goodies to incentivise the local IoT market.

Meanwhile, Kenanga Research said it believed that against a backdrop of increasing mobile competition from a lack of network differentiation (all telcos will be leasing 5G network capacity from Digital Nasional Bhd’s Single Wholesale Network), and a need for new sources of revenue growth, telcos will be looking to provide enterprises with not only IoT connectivity, but also the IoT application/use cases to the end user.

“We think that the telcos will become system integrators, where they will source/develop the necessary software and hardware for an end-to-end IoT experience for the users.

“Thus, in-line with James’ thinking, we wouldn’t be surprised of future telco acquisitions/partnerships with firms that provide IoT capabilities.

“While we foresee gradual revenue growth from enterprise solutions in the near future, we think that the telcos will start to experience meaningful enterprise revenue contribution from FY24 and beyond, driven by a maturing 5G ecosystem, more advanced IoT R&D, and greater IoT adoption,” it opined.

Similar to existing IoT solutions, it also believe certain 5G-enabled IoT applications will fetch higher margins than others.

“Solutions which are homogenous and easily applicable across industries will likely fetch lower margins, with potentially higher customer churn.

“In our view, we think that there is a first-mover advantage in providing IoT solutions to enterprises, especially because the first-mover telco would have an edge (in data, know-how and experience) over others to deploy similar solutions to other firms in an industry, allowing the telco to capture greater market share.

“Among the telcos under our coverage, while Digi, Maxis and Celcom have shown impressive progress in developing 5G-enabled IoT use cases, we think that TM leads the pact. TM R&D (TM ONE’s innovation arm) already has an arsenal of in-house developed 5G-enabled solutions across transportation, tourism, retail, agriculture, utilities and public safety,” Kenanga Research added.

“In summary, we think that IoT applications will fuel telcos’ enterprise revenue growth in the years to come.

“More importantly, with potentially more resources at hand (leasing 5G capacity instead of building individual 5G networks), the telcos would also have the means to do so,” the research team concluded.