Will Connected Cars Be the Next Major Growth Market?

The connected-car is quickly becoming industry-standard. It's time to consider its impact.

Feb 4, 2014 at 4:00PM

The Department of Transportation just gave the connected-car its stamp of approval, planning regulatory proposals that will make vehicle-to-vehicle communication mandatory. The goal is to prevent crashes, decrease fuel consumption, and ease up traffic congestion, a task that can be accomplished when automobiles are capable of communicating with each other.

According to officials, 80% of accidents could be prevented with this technology, which is capable of automatically taking evasive action to avoid collisions. Scott Belcher, president and CEO of the Intelligent Transportation Society of America, stated:

Over time, we'll see a reduction in crashes. Automobile makers will rethink how they design and construct cars because they will no longer be constructing cars to survive a crash, but building them to avoid a crash.

Apparently, the technology would only add a few hundred dollars to the cost of each car. Many wireless carriers already plan, or have been planning, to implement the technology as well.

First-mover's advantage
The very first carrier to implement a proprietary and global SIM platform was AT&T (NYSE:T)This "made it possible for automotive, consumer, and M2M equipment makers to work through a single carrier to wirelessly enable and connect products across the globe." Cars embedded with this SIM technology include models manufactured by Tesla Motors and Ford. General Motors will also be connected by AT&T's network starting in 2015.

The company is serious about its goal to be "the best carrier for connected car innovation in the world," recently announcing AT&T Drive, its global automotive platform. It also announced its 5,000 square foot Drive Studio, a full showroom that integrates its solutions across numerous companies. AT&T's Drive Studio is meant to "serve as a hub" where it "can respond to needs of automotive manufacturers and the auto ecosystem at large."

Competition is heating up
Starting in 2015, Hyundai will officially offer its customers connected vehicles, with Verizon (NYSE:VZ) as the wireless carrier that will provide the service. A spokesman for Hyundai stated, "We chose Verizon because of their coverage and quality, while other outlets have issues with dropped calls... Verizon's coverage is more robust."

Verizon also has deals signed with Toyota and Kia, and will continue to be a main competitor to AT&T. Last year in the United States, Kia and Hyundai sold 535,179  and 720,783 automobiles, respectively. GM alone sold 2.8 million, so even with Verizon's progress, AT&T will likely still be a leader in connecting cars going forward.

Not just a domestic market
The connected-car concept is also gaining popularity outside of the United States. The global growth of this market is expected to be major, with leading research predicting over 100 million connected cars on the road by 2016. Canada's largest wireless company, Rogers Communications (NYSE:RCI) wants in on this growth. 

In a new partnership, Rogers will leverage its networks with Sprint's (NYSE:S) Velocity technology. Rogers is the largest wireless network operator in Canada by number of subscribers. Its VP of advanced business solutions noted that there are approximately 20 million vehicles on the road in Canada, which provides his company ample opportunity for growth. He said that with Sprint's help, Rogers "will bring to Canada the ultimate connected car experience on the road, with a combination of smartphone, tablet and in-dash capabilities, while also delivering safety features and communicating vehicle maintenance information seamlessly to manufacturers."

Sprint Velocity is a customizable, end-to-end solution specifically made for the connected car industry. The technology is also being implemented in the United States and can be seen in recent partnerships with International Business Machines and Chrysler. Cars that utilize Sprint Velocity will benefit because they can send data in much smaller packages on lower bandwith. 

The bottom line
The next few years will be highly competitive, with AT&T, Verizon, and Sprint all signing big deals. The next leg of growth for wireless carriers will come from connected cars. If the federal government makes V2V communication mandatory, it will speed up the process and set a standard for the connected vehicle. This will also especially benefit companies that are already positioned to prosper from it, as all auto manufacturers will need to get connected. Either way, the connected-car is coming soon, and it should bring a good amount of growth with it over the next 5-10 years. 

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Joseph Harry owns shares of AT&T.; The Motley Fool recommends Rogers Communications (USA). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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