1 The New Zealand Smart(er) Home Opportunity: 10 examples from around the world.Prepared by Tech Research Asia, September 2014 The new Zealand smarter home opportunity: 10 Examples

2 Executive Summary This Tech Research Asia report – commissioned by Chorus – complements an earlier report - The New Zealand Smart(er) Home Opportunity – which outlined the development of the smart home in New Zealand. We now take a brief preliminary look at examples of smart home-related services from around the world. The main findings from this exercise are: Although none of the services examined are likely to be transformative on a global or domestic level, there are several that offer providers strong differentiation and incremental revenue gains. It is too early to make a final judgment call on the success of the latest round of smart home services, but interest and investment remains strong among providers. Home automation and security are the two staple offerings of most smart home offerings. And most are marketed with a technology-led message or a generalized home improvement/security narrative. Nuanced and lifestyle-oriented marketing is lacking. The new Zealand smarter home opportunity

3 Executive Summary Security services are basic and may lack credibility. Providers are also yet to offer a way for customers to leverage their investment in a smart home security service to reduce their insurance policy costs despite obvious links between the two. Several providers are attempting to lock customers into multi-year contracts with monthly fees for various services. The sustainability of this approach is questionable considering the availability of off-the-shelf DIY control hubs that don’t have contracts and are more open. There is a lack of readily available information available to smart home customers about if any data is collected through the devices and services they use in their smart home and how this is used. The new Zealand smarter home opportunity

4 Executive Summary The following table is a snapshot of services examined in this document and their ratings. More detail on the methodology used along with each service is included in following pages. Provider Country Service Type Pricing Model Devices Used Service Status TRA Rating Verizon US Home automation Upfront control hub fee and monthly recurring contract Z-wave based control hub and any compatible devices. Stalled Exploratory AT&T Home automation + Security Device costs plus monthly charges per device type AT&T sold only. Live Differentiating SK Telecom South Korea Media Consumption + Control, Home Monitoring Monthly fee on three-year contact B Box is a SK Telecom manufactured device. Additional compatible devices can be added. Rogers Canada Home automation, control and monitoring + media consumption + broadband bundles Installation, Device costs, Monthly fees Zigbee Devices sold by Rogers Orange Poland Home Monitoring Monthly fee Z-Wave devices The new Zealand smarter home opportunity

5 Executive Summary Smart home examples continued: Provider CountryService Type Pricing Model Devices Used Service Status TRA Rating Swisscom Switzerland Home control and monitoring Device costs and Monthly fee Quing control hub and Zigbee compatible devices Live Differentiating HKT Hong Kong Home automation and control, media content Consulting, installation and multi-year contract Sold by HKT and based Zigbee BT UK Home monitoring Device cost IP Camera Me Too NTT Docomo Japan Media Consumption Docomo tablet Deutsche Telekom Germany Home automation, monitoring and control, security Device costs QIVICON control hub and Zigbee devices The new Zealand smarter home opportunity

6 Table of Contents Executive Summary The Smart Home StoryThe 10 Global Examples Conclusions Recommendations Disclaimers The new Zealand smarter home opportunity

7 The Smart Home Story The new Zealand smarter home opportunity

8 What is a Smart Home? The idea of a “smart home” first emerged 30 years ago but is a concept that undergoes frequent change as technological innovations emerge. Also sometimes referred to (not entirely accurately) as “home automation”, one of the more commonly accepted definitions of a smart home comes from 2003 and the former UK Department of Trade and Industry (DTI): "A dwelling incorporating a communication network that connects the key electrical appliances and services, and allows them to be remotely controlled, monitored or accessed." In the past 24 months the concept has gone through a renaissance. It is now for all intents and purposes considered one of the big opportunities for ICT vendors and service providers – along with many other industries. Definitions “A home equipped with lighting, heating, and electronic devices that can be controlled remotely by smartphone or computer.” Source: Oxford Dictionary Online (UK Edition) "A dwelling incorporating a communication network that connects the key electrical appliances and services, and allows them to be remotely controlled, monitored or accessed.“ Source: DTI Smart Homes Project The Smart Home Story The new Zealand smarter home opportunity

9 The Smart Home Provider EcosystemThere is a very diverse ecosystem of organisations that offer “smart home” related products and services from large IT vendors and telcos from Japan, the EU and US to small start ups across the globe. Some have holistic solutions for the whole home including from the point of construction which require professional installation, while others are point solutions for specific activities that can be plugged into existing electricity fixtures and in a sense, overlaid onto the home design (not built in at the start). Protocols still vary. While many products were initially based around the x10 protocol for fixed wirelines in the home, several wireless approaches have emerged including Z-wave, ZigBee, and Insteon – each has their own alliance of partners and vendors. A separate HomePlug group aims to use existing power lines to connect all devices. The chart to the right is from a GSMA report and offers one view of the smart home ecosystem. (Additional information on companies involved in smart homes is included in the appendix.) The Smart Home Story Source: GSMA Vision of Smart Home Report, 2012 The new Zealand smarter home opportunity

10 The Global Examples The new Zealand smarter home opportunity

11 Model of Evaluation Over the following pages we introduce and evaluate 10 different smart home-related services from around the world. For each service we offer a general description of what it is and how it is being taken to market. Where possible we also identify any evidence of success of the service. Also included is TRA’s view of the impact of the service today (not when it was launched) using the below scale. Transformational High: Service is likely to transform the global industry with long-term sustainable competitive differentiation and benefits for the provider. Service could become the core business for the provider, replacing traditional revenue models. Low: Service is potentially highly disruptive on a domestic scale and could fundamentally change the revenue model for the provider. Service also has potential to offer sustainable, long-term competitive advantage and benefits. Differentiating Service has a moderate degree of difference from anything else that has been offered domestically and is innovative yet with similarities to those services available internationally. Service could generate significant revenues in addition to core business models and a degree of competitive advantage. High Potential Impact on Industry Low The Smart Home Story The new Zealand smarter home opportunity

12 Model of Evaluation (cont’d)Exploratory Service is exploring a new market in a new way for the provider that will be in addition to existing businesses and is likely to be complementary, not transformational. Replication Service is a “me too” offering that replicates much of what is already available domestically and does not innovate. Service is unlikely to disrupt traditional business models. High Potential Impact on Industry Low Note: This scale and the evaluation of each service is a preliminary and indicative qualitative-only effort based on TRA opinions and market knowledge from public domain information. It is offered as one general way – among many possible approaches – to understand the potential impact of these services in global terms and should not be treated as a rigorous examination of any service. The model does not represent or attempt to analyse the respective financial performance or future prospects of any service. The Smart Home Story The new Zealand smarter home opportunity

13 Example 1: Verizon Service description: Verizon Home Monitoring and Control is a smart home service that focused on automating tasks and monitoring the home launched in 2011. Users needed to have a Verizon broadband service and purchase a starting kit for US$ which includes a “gateway” control hub (based on Z-wave technology) that connects all devices along with paying an additional recurring monthly fee of US$9.99. A variety of smart devices such as door locks, thermostats, lights, energy readers, cameras, sensors and others were also available for purchase. All can be remotely controlled or monitored from a computer or compatible smartphone/tablet, or FiOS TV (requires subscription). For example, users could adjust their air conditioning remotely, lock or unlock doors, or turn appliances on or off. The service was pitched to consumers as a technology to automate tasks or monitor the home. Evidence of success: Verizon announced it stopped accepting new customers for this service in early 2014 saying while it had customers, the numbers were not satisfactory. Verizon has publically stated it is looking to launch a new smart home service later in 2014. TRA Rating: Exploratory. Source: The Smart Home Story The new Zealand smarter home opportunity

14 Example 2: AT&T Service description: Launched in 2012, AT&T offers a Digital Life smart home service in 63 cities nation-wide that includes options such as security and home automation that users can manage and control via a website or mobile apps. To acquire a Digital Life service consumers must agree to a 2-year contract for a basic service (the security service starts at US$39.99 a month) and then can add any devices/services on top of this to suit their preference, of which there are a broad range including: cameras, garage and regular door locks, energy and water monitoring, etc. However, it is only available to “residential customers in single family homes and townhomes/duplexes with no shared ceilings/floors/walls only”. Services also require “Sufficient wireless signal strength, broadband internet service, and 3-prong outlet at service address”. Notably any consumers with a broadband connection (not necessarily AT&T) are able to sign up and they can experience the service offerings at over 1300 AT&T retail stores prior to signing up and the service is marketed as an technology-enabled general enhancement to the digital lives many in the US are already living. Source: https://my-digitallife.att.com/learn/ Evidence of success: AT&T does not release information on Digital Life customer numbers. However, in recent financial reporting it stated the service is “gaining momentum” and earlier in 2014 the availability of Digital Life was extended to six additional cities. Further, AT&T spokespeople have told media outlets in 2014 that Digital Life’s average revenue per user (ARPU) is higher than expected and that the company will be targeting small business and healthcare markets in future. This indicates the service is at the least performing well enough for the carrier to continue investing. TRA Rating: Differentiating The Smart Home Story The new Zealand smarter home opportunity

15 Example 3: SK Telecom Service description: The B Box is a home “Hub” device that allows users to control their media (including watching broadcast TV, IPTV and VoD), monitor their home with IP Cameras, use cloud storage services such as Google Drive or DropBox, and communicate with family members via a custom social networking application predominantly through a TV. Introduced in early 2014 and based on Android OS, B Box is designed to allow additional services and devices to be added over time. Subscriptions start from a basic service of 10,900 Korean Won a month on a 3-year contract. The B Box is mainly presented to consumers as a one-stop-solution for managing media and entertainment content across cloud services and TV. Evidence of success: SK Telecom has not released any data on the progress of the B Box service since its launch in January, However the company reported its IPTV subscribers had broken through the 2 million mark in late 2013, increasing by 45% year-over-year. Whether or not subscribers will take to B Box as they have other IPTV services is yet to be revealed. TRA Rating: Exploratory Source: The Smart Home Story The new Zealand smarter home opportunity

16 Example 4: Rogers Service description: Canadian telco and media company, Rogers, began offering a smart home service in addition to traditional telco offerings in Subscriptions to the main “Smart Home Monitoring” service starts from $19.99 (Canadian) per month as a base service with an additional installation fee and monthly or one-off fee for a touch pad controller device. Other connected devices and additional services require additional fees. Subscribers are able to have their homes monitored via IP cameras and motion sensors backed by a central monitoring service. On the control and automation side of the smart home service users can pick and choose among elements of the home including thermostats, water, energy, lighting, locks. The company also offers bundles that include IPTV services and broadband. In general, the services are presented as standard monitoring (security focused) and automation services with very little in the way of specific lifestyle enhancement marketing. Evidence of success: Rogers has not released data in relation to the performance of its Smart Home Monitoring service. However, it has continue to expand availability of the service in the past 12 months. TRA Rating: Differentiating Source: The Smart Home Story The new Zealand smarter home opportunity

17 Example 5: Orange PolandService description: Smart Home by Orange was launched in Poland in May, 2013 under the local language title of “Inteligentny Dom”. Subscribers to the service receive an initial pack of pre-selected sensors (movement, door and window opening, smoke, energy, etc) that are connected to a wireless control panel and are able to monitor and control activity in the home via a mobile application. They can also automate tasks and view events from an IP camera while receiving notifications via SMS or . Users are able to decide what kinds of sensors, devices and services make up their “smart home”. Overall the service is marketed as common smart home offerings in the form of automation, control, and security underpinned by technology. Evidence of success: Orange Poland has not yet released any details about the performance of the Smart Home service. However, the company has publically stated it is investigating whether to launch similar services in other countries. TRA Rating: Differentiating Source: The Smart Home Story The new Zealand smarter home opportunity

18 Example 6: Swisscom Service description: Swisscom’s “Quing” is a smart home offering that is marketed through three main use cases: controlling the home (or garden) atmosphere such as adjusting lighting; securing the home with cameras, intrusion sensors, and automating scenarios that can simulate being at home; and energy efficiency via remotely controlling devices or automating power turn off. Users are able to control aspects of these use cases and others via a portal (via a website or app) and also receive notifications. Subscriptions start at CHF19 per month and a CHF689 starter kit includes a Quing home panel device, remote control, sensors, electricity adaptors and a home router (acting as control hub using WiFi and ZigBee but with mobile network failover). Additional devices can be added as desired. Source: https://sso.quing.com/quing/ Installation is presented as “plug and play” with no need for professional services to get started (although this is also offered). Users also need a broadband connection from any provider, and an optional mobile phone contract both of which are charged separately in order to use remote capabilities and receive notifications. Evidence of success: Swisscom has not released any data on the performance of the service to date. TRA Rating: Differentiating The Smart Home Story The new Zealand smarter home opportunity

19 Example 7: HKT Service description: Hong Kong-based HKT launched “Smart Living” in 2012 to enable home owners to control and automate home settings and devices, monitor the home, and control media consumption through a customised remote control – the eye Tab – or through a smart phone application. To receive the service customers undergo a smart home consulting process at HKT’s dedicated “Smart Living” store in Shatin or other retail outlets. The service make up is based on the results of this process. These stores, in addition to an online portal, provide examples of automation possibilities. A range of connected devices from smart toasters and smart TVs through to healthcare monitoring devices are also able to be purchased and connected to the smart home network. HKT is further offering a cloud-based service (uHub) to store video and photo footage from IP cameras connected to the smart home network. In general, Smart Living is presented as general automation and lifestyle enhancement for all home owners. Source: Evidence of success: HKT has not releases any data indicating the performance of the smart living service. TRA Rating: Differentiating The Smart Home Story The new Zealand smarter home opportunity

20 Example 8: BT Service description: BT’s “Connected Home” service is essentially a set of technologies that can help a user connect more devices to a network that are available to purchase. The devices are split into four categories: broadband extenders (AV HomePlug Powerline technology), WiFi extenders and boosters, switches, and IP cameras. The main “smart home” element of BT’s approach is the Smart Home Cam 100 which allows users to remotely monitor the home (or garage/garden) and receive notifications of movement (along with a currently free but expected to be paid cloud-service for recording video). Users of the monitoring service must sign up for a BT account and use its portal for monitoring. Source: Overall, BT’s “Connected Home” approach lacks many of the automation aspects of peers internationally and does not offer any additional services. However, consumers can use the devices with any broadband subscription as part of a DIY smart home. Evidence of success: BT has not released any data that indicates the sales of devices offered under its “Connected Home” banner. TRA Rating: Me Too The Smart Home Story The new Zealand smarter home opportunity

21 Example 9: NTT Docomo Service description: Japan-based NTT Docomo’s Smart Home service centres around the sharing and viewing of content in the home on any screen including TVs and mobile devices. Content can be from the web (such as YouTube videos) or stored on a device or home storage disk. Docomo also offers a dTab tablet device that is integrated with the company’s market place, content and cloud services. In general Docomo’s service lacks any automation and monitoring options common in other smart home approaches globally and does not offer any further services. It also competes with many other devices from a range of vendors that allow media to be shared across devices. Evidence of success: Docomo has not revealed how many customers have opted for its dTab or other smart home offerings. TRA Rating: Me Too Source: https://www.nttdocomo.co.jp/service/convenience/smarthome/ The Smart Home Story The new Zealand smarter home opportunity

22 Example 10: Deutsche TelekomService description Launched in 2013, Deutsche Telekom’s smart home service is marketed as allowing users to be more comfortable through automating and controlling the environment and devices, more secure through remote monitoring, more energy efficient by being able to turn devices on and off remotely via an Android or iOS app. A smart home starter package which includes an QIVICON Homebase (hub controller), 2 heating thermostats, 1 socket switch, and 1 smoke detector is on offer for € Additional QIVICON-compatible devices such as motion detectors, wall switches and water detectors are also available for purchase. (Other ZigBee-based devices can also be integrated into the smart home network with the use of a wireless stick.) Users must have a broadband service and mobile phone subscription to use the service. Evidence of success: Deutsche Telekom’s 2013 annual report notes that the ”connected home” is a “growth area”. Although the company bundles “all revenue that we generate with our double- and triple-play packages, i.e., our fixed network-based voice, data, and TV services” the connected home brought in €6.3 billion in The company remains “optimistic that we will achieve our revenue goal of EUR 7 billion in 2015”. TRA Rating: Differentiating Source: https://www.t-mobile.de/smart-home/0,25475,28229-_,00.html The Smart Home Story The new Zealand smarter home opportunity

23 Conclusions The new Zealand smarter home opportunity

24 Conclusions What do these services tell us about the way companies are offering smart home services globally? There are many possible answers to this question and it must be kept in mind that the evaluation of each service shown above was a prefatory undertaking utilising public domain information prior to potential deeper examination and more robust investigation (that should be pursued by any provider seriously considering entering the market). However, as a general guide these initial evaluations tell us that: None of the services can be considered industry-transforming on a global or domestic scale. While one service (Verizon) is potentially being shuttered there are, however, many differentiated offerings that are adding incremental revenues to providers that could be expanded over time to include more innovative offerings. It is too early to say whether the services evaluated can be considered a success. However, there is clearly appetite for continuing to offer smart home services. The question for those not already offering smart home-related services is whether they have a role to play and what that is. For telecommunications providers the risk in not addressing smart homes is leaving the opportunity to over the top (OTT) players and loosing relevance in consumers’ lives. The Smart Home Story The new Zealand smarter home opportunity

25 Conclusions The way services are presented and marketed to consumers is generally focused on technology with some horizontal or generic “improve or secure your home” messaging. Few have presented a nuanced smart home narrative that acknowledges the different ways people live and tried to leverage individual lifestyles. The centre piece of marketing these services has been the home or the technology – not the lifestyle. This is a common trait of many telecommunications providers across different services and may be contributing to slow uptake. Home automation and security are the two main components for most services. None offer health- or assisted-living related services and very little integration with utility provider metering is evident (e.g. smart water or energy meters). Several telcos have also sold smart home services with their own tablets or touch panels – adding another device into the home mix with seemingly little value add considering the penetration of smartphones and tablets already in place. The Smart Home Story The new Zealand smarter home opportunity

26 Conclusions Security services on offer are basic monitoring and have yet to be integrated with insurance providers. In general the security services included in the smart home services evaluated are not backed by well-established and highly credentialed home security providers. The services are also not being offered in tandem with insurance policies for the home – despite the obvious link between better security and potentially lower premiums. This raises questions as to the credibility of these services and as a result their value to consumers. More robust security offerings that offer both piece of mind and help to reduce home insurance costs should be considered. Attempts at “customer lock in” and generating another “play” for telcos is potentially highly damaging to smart home service prospects. Considering the availability of independent and easy-to-use control hubs that don’t have a 2-year contract with monthly fees – just one upfront purchase cost for a control hub – it is unlikely users will accept attempts to force long-term contracts for smart home owners without considerable value and differentiation being offered. And that simply hasn’t been forthcoming to date. Put simply, most consumers don’t want to be locked in and expend more of their disposable income monthly when they can DIY a smart home cheaper and potentially with a better experience. The Smart Home Story The new Zealand smarter home opportunity

27 Conclusions None of the services’ marketing and public domain materials explicitly dealt with privacy of user data or offered any guarantees data wasn’t being misused or collected without consent. TRA acknowledges that it did not read all terms and conditions of all services. However none of the 10 services offered prominent or easy-to-find information related to this topic and we believe it should not only be discussed in the fine print. Many connected devices and smart home services are being used to conduct surveillance on users, often under the premise of “understanding the customer better” for one reason or another. As smart home services are increasingly adopted this will become an issue that providers must deal with directly and honestly. Being proactive and transparent about what data is collected and how it is used may offer a point of differentiation. The Smart Home Story The new Zealand smarter home opportunity

28 Recommendations Sell a specific lifestyle enhancement for a specific type of lifestyle, not a technology or generic home improvement. The possibilities of improvements or changes in home life are exciting, the technology is just an enabler. Technology-led or automation-led messaging has not been highly attractive to consumers. Everyone leads different lifestyles and yet most smart home offerings are generic and treat all homes the same. As such there is significant potential to steal a march on the global industry by tailoring smart home offerings to unique lifestyles. Aim for differentiation if not transformation. “Me too” services are unlikely to generate enough momentum to stimulate a level of demand that makes smart home businesses lucrative over the long-term. Providers also need to consider the competitive landscape which includes many over the top start ups looking to capitalise on interest in smart homes. Performance and experience are key. The right infrastructure to support an ever expanding multi-device (and multi-user) smart home will be important – poor experiences will be shared socially and inhibit adoption. Use fibre or equivalent scalable network connections with upload capacity to support connected homes, especially as high bandwidth applications beyond 4K TV emerge. The Smart Home Story The new Zealand smarter home opportunity

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