With 3 million connected cars on its network and an expectation of connecting 10 million more by 2017, AT&T (NYSE:T) is driving innovation in the auto market. And with a presence in over 30 devices from 13 companies -- more than any of its competitors -- AT&T has established a strong presence in the connected devices market. But it's the applications to industrial operations that round out the company's surprisingly vast Internet of Things (IoT) presence.
Industrious expansion of IIoT
In addition to dominating the consumer market, AT&T is committed to expanding its presence in the Industrial Internet of Things (IIoT). Otherwise known as machine-to-machine (M2M) communications, the IIoT, according to AT&T, has a use in every industry, from aviation to logistics. AT&T's M2X Data Service platform is the base-level solution for customers looking to leverage the power of IIoT.
One illustration of AT&T's IIoT capabilities is its collaboration with Rockwell Automation (NYSE:ROK) -- a partnership that helps Rockwell's customers "securely collect, manage, and take action on data from industrial equipment located in plants and remote sites around the globe." A global leader in industrial automation and information, Rockwell has, through its collaboration with AT&T, helped bring its Connected Enterprise solution to customers. Identifying less than 14% of manufacturers who have connected their machines to the network, Rockwell finds tremendous growth possibilities in delivering its Connected Enterprise solution, and it's looking to AT&T to help it take advantage of the opportunity.
Elsewhere, AT&T is bringing its solutions to companies involved in transportation. In this field, AT&T believes there's ample opportunity, and the value proposition is promising. According to a global survey it conducted in 2014, AT&T found that about 43% of companies that responded don't have real-time monitoring, data collection, and/or operational visibility technology in place. For companies that already have those systems in place and are looking to expand their use, 80% expect the payback period to be less than two years on their new deployments.
One solution that AT&T offers in this industry is its Cargo View with FlightSafe solution. With cloud-based application software and global data collection in 200 countries, the solution provides real-time data on the environmental conditions in which the cargo is stored -- with applications ranging from live freight to perishables to electronics.
Less than 20/20 vision
Although AT&T is already deriving value from its IIoT offerings and will surely continue to do so, it's difficult to quantify exactly how these revenues are affecting the company's operations. One way to approximate the effect is by looking at the business-solutions segment -- specifically, fixed strategic services. Though this segment accounts for more than just IoT services, it's a logical place to turn to in the company's earnings report. For the recently completed third quarter, AT&T reported $2.8 billion in revenue from fixed strategic services, good for roughly 7.1% of the company's total revenue for the quarter and a 12.6% improvement year over year. Of the five sources of segment operating revenue in business solutions, fixed strategic services represented the second largest gain. Until the company breaks out more specific figures related to its IoT services, this is the closest we can get to a true value of the business segment for AT&T.
Competition in communication
Inking IoT agreements with more than 136 companies across a variety of industries through the first six months of 2015, AT&T is committed to continuing its leadership in the IoT space -- a market that research firm IDC estimates to exceed $1.7 trillion by 2020. Verizon Communications (NYSE:VZ) is also looking to grab a slice of that $1.7 trillion pie. Several weeks ago, Verizon announced a new global initiative to drive growth of its IoT offerings. This initiative builds on the success it experienced last year, when it reported 45% in revenue growth, year over year, in its IoT business -- namely, from the manufacturing sector, from which M2M connections grew by 204%. During the announcement, the company also reported that revenue from its IoT and telematics solutions totaled $495 million year to date.
Telecommunications companies have come a long way from rotary phones and wall jacks -- nowadays AT&T is helping companies keep track of their cargo as they make trans-oceanic flights. Industry experts are in agreement that the IIoT will experience tremendous growth in the coming years -- and it's this growth that suggests that there's still plenty of reason to be optimistic about the company's long-term prospects.
Scott Levine has no position in any stocks mentioned. The Motley Fool recommends Verizon Communications. 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.