AT&T (s T) is launching a new business division in Atlanta called Digital Life Services, focusing on new opportunities like remote health care, energy management and home security, according to a report from the Atlanta-Journal Constitution. The details on what the unit will do are still vague and AT&T isn’t saying anything about it yet, but AJC reported that it would reside in the wireless side of the business, squarely under the Emerging Devices division responsible for the tablets, e-book readers and other non-phone devices accruing to AT&T’s network.
AT&T isn’t a newcomer to the energy smart grid or telemedicine, by any means. But what’s new here may be the way AT&T is approaching these vertical markets. Digital Life Services could be the vehicle AT&T will use to become a retailer of applications that it currently addresses through the wholesale market.
AT&T’s machine-to-machine (M2M) strategy basically has two facets: it sells new emerging devices such as tablets and netbooks directly to its customers and it powers the connections between devices — whether it’s an e-book download to a Kindle (s AMZN) or a network link to a smart meter — leaving the sale and customer relationship to its partners. Pure M2M connectivity isn’t a bad business model and the return on bits shipped is high, but it’s pennies on the dollar compared to what AT&T could make. Earlier this year, Stacey wrote about how the maker of connected pill bottle caps Vitality charges $15 a month for sending roughly 20 kilobytes of data a day over AT&T’s network. While that amounts to $25 per MB (compared to the $25 it charges for a 2-GB smartphone plan), AT&T probably sees only the tiniest fraction of that revenue. If it sold the service as well as access to the pipe, AT&T could make serious bank. Plus AT&T has a bunch of whiz kids at Emerging Devices and its new Foundries working round the clock to design and test these new applications. I’m sure AT&T would rather see a much higher return on that investment than mere carriage fees.
Why a new business division? Well, AT&T’s back office is set up do one thing very well: Sell specific telecom services at set monthly rates through contracts. These new M2M business models don’t gel easily with that concept. AT&T’s wireline division may be better equipped to handle such services, selling home health monitoring or energy management applications on top of broadband, TV and home phone subscriptions. But AT&T’s wireless customer base and mobile network is a heck of lot bigger than its residential footprint. It doesn’t want to run a DSL or passive fiber line to every customer that wants a $5 a month smart thermostat — or write off every customer outside of its Bell operating territory — when it could much more easily and much more cheaply embed a GSM module into that thermostat.