The quest for Telematics 4.0 Creating sustainable value propositions supporting car-web integration

In-car connectivity: huge potential remains untapped Providing in-car connectivity is going to be essential for every carmaker, but the industry is still looking for viable business models. The global telematics market is poised to grow exponentially in the future, with approximately 104 million new cars expected to have some form of connectivity by 2025: • Penetration of global integrated telematics to touch 88% EY’s Global Automotive, Telecom and Insurance for new cars by 2025, while that of tethered telematics Centers have developed this telematics blueprint to flatten around 28% with the aim of: • Penetration of integrated telematics to be driven by • Defining the telematics ecosystem and its growing importance of smartphones and regulations for components, including market needs, services, driver safety infrastructure and stakeholders • US to continue its lead with sales of approximately • Identifying commercially viable business 16 million new cars with embedded telematics by 2025 strategies and the associated risks, rewards and • EU, Japan and BRIC nations present huge potential, considerations for stakeholders primarily due to upcoming regulations • Evaluating the position and future role of the automotive, telecom and insurance sectors in Evolution of automotive telematics this emerging ecosystem Hands-free calling and screen-based • Analyzing differences in telematics strategies Telematics navigation across the ecosystem through business model 1.0 case studies Telematics Portable navigation and satellite radio “ Soon you will not be able to make money 2.0 anymore with cars that don’t integrate Introduction of comprehensive connectivity customers’ smartphones.“ Telematics to the vehicle 3.0 — CEO, premium global carmaker Seamless integration of mobility and the Telematics web – the biggest opportunity yet 4.0 “ When we look at the car, we see another smartphone.” Source: 2025 Every Car Connected: Forecasting the Growth and Opportunity study, by SBD and GSMA, published in 2012 — President, global telecommunications company

The evolving telematics ecosystem Effective delivery of connectivity-based services will require seamless integration of infrastructure by various stakeholders. The telematics ecosystem can be divided into three layers: services for end users (both vehicle-independent and vehicle-centric), the infrastructure enabling delivery of those services and the stakeholders who manage them. What are the telematics Vehicle independent services Vehicle-centric services end-services? On demand Navigation Safety and Diagnostics Vehicle-to- Other infotainment Security vehicle services* How are telematics Service delivery User interface Wireless network Customer support services delivered? infrastructure (connectivity) Automotive sector Government Telematics service Insurance sector Stakeholders provider Information technology Telecom sector Device manufacturers Others** *Other services include usage-based insurance, fleet management and payment (tolling, parking). ** Others include business process outsourcing (BPO) and roadside assistance providers. Packaging end-customer services • Bundled basics are safety and security services • Pay-per-use and “freemium” services are navigation, that will be required by law or the market, such as entertainment or similar applications that are mostly emergency call services, stolen vehicle tracking and supported by advertising or paid for with each use, basic navigation services. While their cost will be built somewhat like a pay-as-you-go mobile phone data into the vehicle’s price, stakeholders—particularly plan. In this case, the limited revenues may be shared carmakers and dealerships—will have to generate between the carmakers, content providers and returns through operational efficiencies and by telecom operators. cultivating a closer connection with the customer. There are short-term opportunities to generate • Premium subscription services are applications that subscription revenues, however only until regulations car owners are willing to pay for on a contractual basis, standardize the installation of basic blackboxes for such as access to integrated mobility solutions and safety and security services. in-car occupant health services. In this context, the carmaker may own a significant proportion of the cost and subscription revenue stream. Similarly, telecom operators can charge end customers on the basis of type and quality of connectivity opted by them.

Key strategies in the quest for Telematics 4.0 As in most emerging sectors, the boundaries of telematics will be quite fluid at first, then gradually harden. As the market matures, companies unsuccessful at forging strong partnerships with carmakers and other major players will have an increasingly difficult time staying in the space. Telematics business strategy variants Stakeholders to continuously evolve the business strategies in order to gain ownership of the end customers Pr Risk Reward o vider s who deliv er the har dw ar e , c ommunic ations and c on t en t t o cr e at e a s tr ong t elematic s c onnection: S t ak eholder s: c on t en t pr o vider s , t elec om oper at or s and aut omo tiv e supplier • s In fr as truct ur e and c on t en t p artner s Pr o vider s who o f f er specific v ehicle-independen t s ervic e s that ar e deliv er ed thr ough either bolt -on applianc e s or do wnlo Pr ad: oprie t ary End s ervic e s: v ehicle-independen t s ervic e s • na vigation De vic e c onnectivit y: t e ther ed s olution • and End c us t omer s: o f f er s s ervic e s t o bo th aft ermark e t and c armak er • s in f o t ainmen t S t ak eholder s: port able na vigation/ in f o t ainmen t de vic e manuf act ur er s , t elematic s plat f • orm s ervic e pr o vider and aut omo tiv e supplier s Pr o vider s who o f f er c on t en t , c ommunic ations , main t enanc e diagno s tic s and CRM s ervic e , pr ob ably thr ough a br o w s er-lik e in t erf ac e: End s ervic e s: bo th v ehicle-independen t and v ehicle-c en tric s ervic e s • C armak er De vic e c onnectivit y: embedded and In t egr at ed s olution • -br anded End c us t omer s: o f f er s s ervic e s t o c armak er s who then br and the s olution as their o • wn c onnectivit y S t ak eholder s: c armak er s in p artner ship with whit e label t elematic s plat f orm s ervic • e pr o vider and t elec om oper at or s Pr o vider s who o f f er similar s ervic e s f or the aft ermark e t , s ome what ligh t er on diagno s tic s , and include insur anc e t elematic s: Br anded End s ervic e s: bo th v ehicle-independen t and v ehicle-c en tric s ervic e s • aft ermark e t De vic e c onnectivit y: embedded and t e ther ed s olution • c onnectivit y End c us t omer s: o f f er s s ervic e s t o the v ehicle aft ermark e • t S t ak eholder s: insur anc e pr o vider s , t elematic s plat f orm s ervic e pr o vider and aut omo tiv • e supplier s Low Medium High

Next move for carmakers, dealers and automotive suppliers No single player holds a dominant position in the telematics market yet, and we believe no one will ever own it alone. The development of most of these services will force every major player to work outside its core competency. C armak er s ha v e a unique opport unit y t o build a ne w w a y t o in t er act with their c us t omer b as e and c ould find in t elematic s a ne w t ool t o e xp and the br and e xperienc e . Ho w e v er , the c armak er s: Need t o impr o v e their o wn dat a managemen t skills t o analy z e dat a and main t ain c on tr ol o f in f • ormation that will be gener at C ed armak er s Migh t no t be able t o k eep up with t echnology updat e s and r elat ed c o s t s if the y t ak e o v er t • oo much de sign and t echnology c on tr ol, while bundling modulariz ed s y s t ems o f their o wn in t o the v ehicle Need t o c onsider po t en tial fut ur e s ervic e s , such as insur anc e , that c an help e xp and their t ouch poin t • s with the c us t omer s De aler s will enjo y an unpr ec eden t ed opport unit y t o under s t and their c us t omer s be t t er and t o in t er act with them on an ongoing b asis . Ho w e v er , the de aler s: Lack e xperienc e with c ommunic ations and c on t en • t Need t o ha v e s tr onger link s with c armak er s be f or e the y c an mak e pr oductiv e us e o f this dat De • a aler s Aut omo tiv e supplier s will ha v e a huge opport unit y in human-machine in t erf ac e (HMI) de v elopmen t , in p art bec aus e o f their abilit y t o or ganiz e a ne t w ork o f p artner s t o pr e s en t a br o ad menu o f t elematic s s ervic e s t o the c armak er s . Ho w e v er , the aut omo tiv e supplier s: Aut omo tiv e Don ’t y e t kno w which s ervic e s r egulat or s will r equir • e supplier s F ac e engineering challenge s: Ho w do w e fut ur e-pr oo f the plat f orm ? W hat kind o f in t erf ac e will w • ork be s t ? Ho w much in f ormation c an be put on a he ads -up s cr een without dis tr acting the driv er ?

Next move for telecom operators, motor insurers and mobility integrators Instead of competition, the journey to Telematics 4.0 will be more about cooperation — about how the stakeholders learn to work together to develop an integrated offering that not only takes the car online but turns telematics services into a way to gain a share of mobility beyond the car. T elec om oper at or s will ha v e an opport unit y t o claim the only hour s in the da y s till lar gely out o f r e ach o f br o adb and. T his cr e at e s additional us age o f their ne t w ork s and mor e r e v enue . Ho w e v er , the y need t o: W ork out a wide v arie t y o f b andwidth and billing challenge s , p artic ularly in deliv ering a s e amle s s mobilit • y e xperienc T e elec om Deliv er pricing plans that pr e v en t c annib aliz ation o f e xis ting c us t omer smartphone us age but do no t r equir oper • e at or s c us t omer s t o mis s out on the utilit y o f an y e xis ting SIMs and plans • Find a w a y t o r e sis t being r elegat ed t o the c ommodit y s t at us o f a “ dumb pipe ” b y cr e ating or ganiz ations that f oc us on aut omo tiv e as a k e y s ect or s egmen t T elematic s mak e s insur anc e t angible t o the c us t omer in an en tir ely ne w w a y , incr e asing the po t en tial f or be t t er risk managemen t and mor e c onsumer t ouch poin t s . Mo t or insur er s and br ok er s will gain ac c e s s t o richer individual and c ollectiv e ( de s crip tiv e ) dat a than the s ect or has e v er kno wn. Ho w e v er , the y need t Mo o: t or insur er s Cr e at e a pr oduct that is de signed t o mee t the c us t omer’ s emo tional and logic • al needs and L e arn ho w t o manage a v as t mobile dat a ne t w br • ork ok er s De v elop s tr ong af finit y p artner ship s with c armak er s or o ther major c ar br • ands R e-engineer their c urr en t pricing s truct ur e s and de v elop s tr at egie s that ar e mor e at t uned t o c us t omer s • ’ needs and af f or dabilit y Mobilit y in t egr at or s will enable the in t egr ation o f priv at e c ar s , shar ed c ar s and o ther mode s o f tr ansport ation in t o a s e amle s s tr ansport ation ne t w ork. Ho w e v er , the y need t o: L e arn ho w t o manage and in t erpr e t enormous quan titie s o f c ar dat • a In t egr at e dat a f eeds fr om o ther s t ak eholder s such as public tr ansport oper at or s , c ar sharing c omp anie Mobilit • s y and p arking authoritie in s t egr at or s

Considerations for key stakeholders Carmakers Telecom operators Motor insurers Service • Integrate telematics offering • Offer 4G/LTE connectivity to • Develop an internal IT system offerings with mobility solutions offer high bandwidth services to leverage telematics-based to support intelligent such as internet-gaming, insurance data transportation solutions videoconferencing, etc. for • Create attractive aftermarket • Build the cost of diagnostics passengers proposition to drive uptake in and security services into the • Provide flexible data plans such car parc price of the new car, while as shared data plans or split • Offer specialized products for subscription model to be billing services fleets aimed at reducing the followed in aftermarket • Focus on network security for total cost of ownership • Focus on vehicle data as well vehicle-related data as integration of data in the • Telematics service platform environment to offer end services either • Leverage other revenue directly to the customers or in streams such as location-based collaboration with carmakers advertisements • Leverage data collection/ • Integrate payment services mining capabilities to support within the vehicle (while carmakers ensuring data security) • Build telematics systems with enough capacity and performance to handle software upgrades Collaboration • Partner with automotive • Partner with carmakers to offer • Collaborate with carmakers to and suppliers to build open and customer support services such offer usage-based insurance partnerships scalable (HMI) as subscription management (UBI) based on integrated • Collaborate with aftermarket and charging and billing connectivity solution channels for optimal utilization services of vehicle data • Partner with various sector • Outsource non-core services stakeholders to launch services such as billing and subscription in the aftermarket management This is the executive summary of a detailed analysis conducted by Ernst and Young’s Global Automotive, Telecom and Insurance Centers. Please contact our sector professionals for more in-depth information.

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