The Quest for Telematics 4.0. Dialog With the Value Chain

The quest for telematics 4.0 Dialogue with the value chain Detroit executive roundtable summary 2014

1. Foreword 3 2. Executive summary 5 3. Focusing on the business model 6 3.1 What’s not working in the ecosystem 3.2 Toward a more open environment 3.3 Optimizing the value chain 3.4 Addressing the data imperative 4. Globalizing connectivity ecosystem 14 4.1 Who should run the global connectivity agenda? 4.2 How should regional services operate? 4.3 What are the bottlenecks preventing growth? 5. Breakout sessions 20 5.1 Managing customer data 5.2 Connectivity and urban mobility 5.3 Sales and channels 6. Looking ahead 24 7. Considerations for stakeholders 26 Contents

Foreword 1 To gain more insight into the strategic • Sustainable connected car priorities facing stakeholders, EY’s business models Global Automotive, Telecommunications • What is not working in the ecosystem? and Insurance Centers recently brought together more than 30 senior • Moving toward a more open decision- makers from across the environment connectivity ecosystem. • Making the value chain more effi cient This was the third in our series of and effective connectivity roundtables. The last time • Addressing the data imperative we were in Detroit, just over a year ago, we discussed the relevance of the • Globalizing the connectivity ecosystem value proposition and sources of ROI • Who should run the global connectivity for connectivity, looking at issues such agenda? as pricing, the role of dealers in the connectivity ecosystem and how best to • How should regional services operate? ensure that all participants in the value • What are the bottlenecks chain are incentivized to play their part. preventing growth? We also looked at the different entities in the value chain, their core competencies At both the local and the global levels, a and the importance of collaboration as a high priority is to fast-track commitment means of accelerating innovation. to a more collaborative approach. The At our subsequent roundtable in Munich, challenges and complexities are, quite we continued the debate, focusing simply, too great for any one constituency on the challenges facing adoption of in the ecosystem to “go it alone.” New connectivity — particularly those arising approaches to partnerships, shared from silos in development and across all business models and data-sharing are key indicators, not just in the ecosystem, urgently needed. Until now, OEMs, but in organizations as well. We also talked key drivers of the entire industry, have about the need for greater transparency sheltered behind a protective business and collaboration across the ecosystem, model mindset. Are there now signs that the potential value of data and the fact these mindsets are beginning to change? that few, if any, stakeholders are equipped On the consumer side, as we have pointed with the right metrics and tools to measure out at previous roundtables, there the benefi ts connectivity can provide. continues to be a lack of understanding around what services people want, and The latest event, held in Detroit, examined whether/how they will be prepared to pay the business model for connectivity. It was for these. Where data is concerned, more clear that changes are needed to remove needs to be done to overcome privacy- existing bottlenecks and drive wider related hurdles and encourage users to adoption, with a focus on generating ROI “opt in.” Looking ahead, the data privacy for customers and participants in the value regulations scheduled to be introduced in chain as well. We also looked at approaches Europe next year mean that packaging and to globalizing connectivity and realized usage of customer data will become even that a primary challenge is achieving a more challenging than before. balance between global connectivity and In the following pages, we summarize local deployment, particularly where data the key fi ndings of our roundtable and transfer and licensing issues are involved. highlight the opportunities and challenges During a day of far-reaching debate, we that lie ahead for all players in the brainstormed ideas in these two key areas: connectivity marketplace. The quest for telematics 4.0 | 3

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Executive summary 2 • Sustainable connected car business resource, and who will ultimately models: The need for a viable be responsible for its security? The business model is a top priority for all trade-off between insurers and OEMs is a stakeholders. For OEMs, the high cost key issue in this space. Instead of paying of embedding modules in their vehicles for the data they need, insurers need to must be justifi ed to the business. investigate what they can “give back” However, how can this be done when in exchange. Ultimately, the more data payback cycles are so long? And how can traffi c that fl ows in either direction, the dealerships be incentivized to push these more the entire ecosystem will benefi t. offerings at point of sale? Collaboration • Globalizing the connectivity holds the key, not just for OEMs, but ecosystem: To accelerate and maximize also for all participants, but this calls for ROI, stakeholders need to broaden the a reappraisal of previously protective scope of their offerings. How should they approaches. Relationships based on address the technical and regulatory mutual benefi t,or “co-opetition” will bear challenges that arise from globalization dividends, but more fl exibility is needed of connectivity, and what about tax? If before these can succeed. data is can be regarded as a service, is it • Creating a more open, less complex liable to tax? That will vary from country environment: As an enabler for this to country. Moreover, where tax must collaboration, open platforms will enable be paid, who should be liable? OEMs or stakeholders to jointly participate carriers? and innovate through an open-source • Focusing on the global/local approach. Above all, this will help Challenge: Regional deployments connectivity offerings to become simpler, have to take into account a wide more intuitive and consumer- focused. range of issues, from technology Connectivity technologies must become preferences and telecom protocols to smarter and capable of working local behavior and cultural differences. seamlessly across multiple devices. One-size-fi ts- all approaches are As well as helping to build momentum moribund. How can stakeholders adapt in the marketplace, this will provide their core engineering operations and new value creation opportunities. For how should connectivity strategies example, options to download and accommodate the resultant global/local install new content, perhaps through a issues that arise? Extensible platforms dedicated customer portal, will enable its will be vital and fl exibility will be a core monetization throughout its lifecycle. attribute. Furthermore, stakeholders • Addressing the data imperative: All will need in-depth local insight to build stakeholders recognize the primacy the best possible ecosystems in each of data in the connectivity equation. country/region. However, who should own this core TThe quehe quesst ft for tor telematics 4.0elematics 4.0 || 55

Focusing on the 3 business model However complex the connectivity ecosystem may appear, the future of this technology will depend on a simple equation — how participants can create a sustainable connected car business, grounded in collaboration, with ROI being generated for players throughout the value chain and end customers. Participants focused on where current develop sustainable business models. bottlenecks are holding up progress Having realized that they are not equipped throughout the ecosystem and how these to make a business out of technology can be cleared. Building on the consensus by themselves, some are partnering achieved at the previous roundtables, with technology-focused companies and they agreed on the need for a much more coming to terms with the impact this has collaborative environment, with players on their previously protective business across the value chain participating and models. Others are developing new ways innovating on shared platforms through an for their vehicles to be connected at a open-source approach. lower cost by offering customers different Well represented at the roundtable, OEMs connectivity packages — at the point of sale highlighted the high cost of investing in and throughout the economic lifetime of a embedded modules, and the pressure they vehicle. are under to justify those investments to What emerged is that notwithstanding all the business. They emphasized that as the discussion around business models customer-facing organizations, they have and the need for increased collaboration, to generate tangible revenues from their participants stressed how important it will connectivity offerings, but in the current be to keep the customer at the front and scenario, their dealership networks are still center of all initiatives. However, flexibility not sufficiently incentivized to push or sell is a core concern her as well. Consumers these offerings at point of sale. want a wider choice and connectivity, However, although still a “sticking” point, and offerings must be configured to increased open collaboration between provide this. Additional benefits will flow OEMs and other value chain participants by enabling dealers to sell this as an is likely. This will be driven by the need incremental cost and actively engage them for partners to share the huge IT costs in connectivity at point of sale, so they can involved in creating modular and flexible play their part in creating an experience connectivity offerings. throughout the lifecycles of vehicles. Flexibility is emerging as a key theme, with OEMs adopting various routes to 6 | The quest for telematics 4.0

“ Can you still plug in a chip that runs and supports “ There are some examples where the OEM is actually high screen resolution and high bandwidth stuff in an paying the dealer for selling mapping services, but electrical architecture that is 10 years old? That’s maybe it’s a better idea to provide information to the the thing we have to solve as a supplier in an OEM dealership, which has a certain value in making sure community.” the customers are really coming back to the dealer.” “ Aftermarket providers desperately want a standard “ If multiple industries are looking to purchase the interface in every dash, but the OEMs want to have package of aggregated consumer data, there’s a big something the consumer can actually look at and feel investment in setting it up … but eventually there’s a that this service is actually coming from the vehicle big payback as well.” manufacturer.” “ The manufacturers of head units won’t want us to, “ It’s challenging because it takes at least two years to but surely we can start to develop head units that are get anything in the car. Technology companies will not upgradable?” wait for the OEMs.” “ Then there’s fleet management and the amount of “ The bottleneck is the resolution of onboard memory data owned by fleet operators which could make and processing power … but it’s also the telecom privacy issues much easier to deal with.” hardware in the vehicle that you have to be able to scale.” The quest for telematics 4.0 | 7

3.1 What is not working in the ecosystem? Defusing friction between Previous roundtables have highlighted involved were unable to bridge from stakeholders in the the need for increased cooperation (or OEMs’ hardwired part-buying systems to “co-opetition”) across the ecosystem, subscriptions with multi-year contracts. connectivity ecosystem is with an emphasis on creating a “win-win” Service providers of telematics are also essential. For the moment, environment for all stakeholders — from finding it hard to adapt to this scenario. OEMs to end customers. This roundtable Having grown used to selling connectivity OEMs remain challenged was no different. Discussions included to subscribers, with ROI achieved within by how best to “sell” the new models for relationships, based on one-year windows, they now need to build mutual benefit, whether through revenue- connectivity into products and invest for benefits of connectivity to sharing or closer collaboration between the long term. their dealership networks, suppliers and OEMs at the design and while other value-chain development phase. The objective should The introduction of any connectivity be collaborative creation of embedded program demands huge investment, participants are frustrated hardware that can perform and scale first by OEMs in terms of designing and by OEMs’ unwillingness to across the lifespan of vehicles as well as developing new platforms and integrating from a software perspective and be easily this with their business as well as share customer data. refreshed. developing new services. It also needs OEMs must align their IT operations to substantial investment from telecom the accelerated cycles demanded by app service providers and other providers developers and other suppliers. New throughout the value chain. contractual arrangements are urgently What are the sources of revenues to justify required. For example, insurers could this investment? In a complex, multi-player secure cost-effective access to customer ecosystem, there are multiple answers. data needed to improve pricing and Consumers’ contributions through claims processing by undertaking to subscriptions have yet to take off and channel repairs back to OEMs’ workshops/ relationships with dealership networks dealership networks. need to be reassessed. Insurers can obtain Other barriers to a more effective payback for their investments in data, but connectivity ecosystem include the they need to rethink the basis on which incompatibility of business models they obtain it from OEMs. Above all else, between potential partners. For example, with greater collaboration set to transform participants complained of months being the market, more flexible revenue-sharing wasted in execution because the parties models are urgently needed. “We see a lot of similarities between ecosystems “That’s where you have to tell dealerships to belly up to in the home, in the car and all these other places. the bar now, because we’re giving you all these service And I think what’s going to be needed is fluidity and leads and they are not free.” simplicity.” “It’s a challenge for us, to go in there and do it right “When you’re integrating apps on six-week cycles, and with embedded modules, to cover that cost and keep the IT departments in OEMs are saying we’ll get to the organization patient enough to say, we see the that in four or five months, then you wind up with a long-term benefit.” backlog of apps.” 8 | The quest for telematics 4.0

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3.2 Toward a more open environment The need for an open A majority of participants (excluding Ultimately, for momentum to build in the platform is becoming more OEMs) agreed on the need for a more industry, connectivity offerings have to be open platform where stakeholders can simple, intuitive and consumer-focused. widely recognized as part of jointly participate and innovate through an Open platform environments will be the the drive toward increased open-source approach. As one telematics key to enabling this evolution, “At the end service provider put it, “We have plans of the day, you want simplicity … you don’t collaboration across the to transform our approach to become want to have to keep popping in an app ecosystem. Whether this more of an enabling platform that can and clicking in and figuring it out. You want participate more in the connectivity space it just to happen. The technology needs to means standards will have and other verticals, as well as providing be smart and it needs to work seamlessly to be imposed on the more value to this particular ecosystem.” across multiple devices.” industry remains to be This “open platform” mindset extended Of course, roll-out of systems that seen, but as a foundation to disruptive players. As one participant integrate mobile phone apps with said, “When you talk about Android, it’s in-vehicle digital systems (including the for more rapid and important to understand that they are not wide range of deals that have already coordinated development, it developing those apps, but are providing been struck with OEMs) is helping to the platform for them. What we’re talking crystallize debate. Rather than plugging in will be a major step forward. about here is including them in the their smartphones, a growing proportion ecosystem.” of tomorrow’s consumers seem likely to access connectivity through an embedded module of this type. “As a consumer, why would I want to pay three times “Many people see app providers as people who are over for the same information that is on a device that providing content to the ecosystem – not driving I actually trust?” innovation in the ecosystem. But they’re equal partners at the table.” “Creating apps, is for [the existing operators] and they’ll always be faster and cost-efficient because that’s the business they’re in.” 10 | The quest for telematics 4.0

3.3 Optimizing the value chain The pace of change in the As the connectivity industry matures, be refreshed to enable monetization connectivity marketplace participants are re-evaluating their throughout a vehicle’s lifecycle. position in the value chain. As one OEM However, carriers need to address some is now so rapid that all put it, “We had to learn that technology fundamental challenges. As customers participants — OEMs, is not a business for us; it’s an enabler add more and more devices, they incur for our services business and so then we incremental charges for using these on service providers, insurers developed new ways to be connected at the network. At some point, this becomes and carriers — are having to a lower cost. Now we have connectivity prohibitive in terms of their cost for at different levels for customers, for our consumers. Since people do not want to rethink how they will price dealers, and for ourselves…we’re trying to pay separately for every device they own, and package their solutions drive as much cost out of that connectivity carriers need to understand and implement for maximum efficiency as we possibly can.” measures to bring purchase of cars into and effectiveness in a The role of technology in the value consumers’ existing payment plans as chain is attracting significant attention. cost-effectively as possible. fast- changing environment. With customers demanding increased Meanwhile, insurers continue to grapple sophistication and interconnectivity across with the economics of connectivity. As one all devices, participants recognize that at of them put it, “For the most part, there’s the end of the day, it is all about quality of no insurance consumer experience. At content and ability to deliver this as rapidly least not one they enjoy. It’s a very tight and intuitively as possible. market … US$25 per vehicle for a year. Advances in technology are creating That’s the kind of margin we’re working on, exciting opportunities for value creation. maybe US$50 if you’re lucky. And we’re Once OEMs have embedded their talking about a technology that has a burn connectivity architecture, continuous rate of US$150-200 a year, even before engagement with customers — e.g., via you spend the IT and external resources to satellite links — is a real possibility. Options get it up and running.” to download and install new content can “So we can service multiple head-units inside any “As an actuary I know that once you’re inside the car make, model, trim. One platform – multiple head-units. and you know how that car’s being operated, you have So the tools are there to deliver dynamically.” probably got the single most predictive actuary in the rating plan.” “So we have people working in core R&D to develop things and try and balance those investments from “Where is the supplier that comes in that says we say a technology push to a customer pull perspective.” understand scalability, where it is going. Why don’t you guys start here, this is the main focus of where “The percentage of revenue associated with your market is, it will cover you for five years.” connectivity is small compared to the overall value of connected services or connected products.” “As a carrier, we have put a toe in the water in Europe with some aftermarket services and I think that will be a business, which will grow significantly.” The quest for telematics 4.0 | 11

3.4 Addressing the data imperative As always, access to and Participants accept the primacy of data in Changing attitudes to privacy create ownership of data is a core the connectivity equation, “Data privacy challenges and opportunities. Today, is something we cannot ignore. I think the consumers are more aware of intrusive concern right across the industry has been walking over consumers monitoring of their data — and more wary industry. Ensuring that and thinking we can own their data.” of the uses to which this information can However, who really “owns” the data and be put. However, at the same time, they privacy is respected — and who should be responsible for its security? are increasingly more willing to trade consumer information used The data trade-off between OEMs and privacy for improved and/or discounted responsibly — is uppermost insurers is a perennial favorite for debate. services. in participants’ minds. Insurers are beginning to look more closely OEMs are waking up to the huge value at the benefits they can provide OEMs in contained in vehicle-related data. As one exchange for the information they need summed up, “We hold data as far as what on drivers to optimize their pricing and the car is doing. So we can create content policies, “Instead of paying for the data we based around that information … content need, we are starting to investigate what that makes your experience richer, safer we can give back to OEMs in exchange. and gets you the right information at the It’s a two-way street and the more traffic right time to make the right decision. that flows in either direction, the more the That’s the end game.” ecosystem as a whole will benefit.” “How do we monetize our vehicle data? There are “Different kinds of things we can do in terms of multiple opportunities. It’s location-based and that’s a providing capabilities and providing richer data to real advantage.” select partners who are participating in this space to ultimately provide a better consumer experience in “There is a seismic shift taking place with regard to the context of a car.” how people look at privacy and from a consumer driver perspective that is going to be a big piece of how people think about this marketplace.” 12 | The quest for telematics 4.0

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Globalizing the connectivity 4ecosystem Wherever they are in the connectivity ecosystem, all stakeholders face a common challenge — how they can scale their connectivity strategies while taking account of local and regional differences in culture, regulations and technology. The balance between regional versus complex amalgam of capabilities and global development is difficult to achieve. disciplines, connectivity is, by definition, As connectivity deployments accelerate, cross-functional and cross-business in we wanted to understand the challenges nature. Once it crosses borders, who encountered by stakeholders as they should be running the connectivity move from country to country. As one agenda? participant put it, “Most connectivity Other issues relate to measuring the value service offerings start off by being global, of extended connectivity offerings (and but then once you start to permit them, the data these generate). A participant you meet a lot of local cultural, licensing, encapsulated this challenge in the data privacy, and data-gathering issues.” following words, “We need to make sure To accelerate and maximize their ROI, the right KPIs are being associated with players across the value chain have to the new business venture? But this can be broaden the scope of their offerings. hard. Increasingly, we’re moving from a However, as they do so, how can they product- to a service- oriented business — navigate the complexities? and product-orientated KPIs can’t be used Globalization of connectivity raises to measure the growth of connectivity.” technical, regulatory and tax-based Participants at the roundtable also issues. On the technical side, the module considered the bottlenecks and and package must be easily adaptable to opportunities around partnerships that local requirements. This has implications have not yet been fully captured? After for suppliers and OEMs. According to a all, this is another way of growing the participant, “In development, think global business. Last, but of real importance, from the outset. Instead of suppliers what about tax? If data can be regarded focusing on the OEM, they need to focus as a service, is it subjected to tax? This is on the actual product.” likely to vary from country to country, and The second issue arising in globalization where tax must be paid, who should be is within the actual organization. As a liable — OEMs or carriers? 141414 | T| T| The quehe quehe quessst ft ft for tor tor telematics 4.0elematics 4.0elematics 4.0

“ If you’re looking at globalizing your connectivity “ There are flexible platforms available, so on the offering, the flexibility of the platform model is key … strength of that, pick the ecosystem you need for so is ensuring you have the right APIs.” each region and do that with an open mindset.” “ Are we going to see more and more automakers “ Can you have some global providers in place who do partnering with global telematics service providers, local services?” or is there going to be room for a domestic-only telematics service provider as the only operator to get “ Complexity, that’s the problem … it goes back to the you to this space?” OEM again, who should manage this inside the OEM? We can’t find the budget for doing that ourselves.” The quest for telematics 4.0 | 15

4.1 Who should run the global connectivity agenda? Globalization of any Is there such an entity as a global Given the complexity and cost of connectivity offering is connected car program manager? Most deployment of global connectivity (in participants agreed that a two tier terms of local resources, technology, a complex undertaking. approach was essential, “Ideally, that’s compliance, data management and so on), Multiple technical, going to be a centralized person that is participants agreed that are most are likely going to say, this is going to be platformed, to look to OEMs to drive its rollout. Are regulatory, cultural and we’re going to invest in this as a company they up to the challenge? “The OEMs have strategic issues must be and run it this way with this kind of engineered the critical mass and I think technology, ecosystem and partnership. they’re now getting to the level where they taken into account and But then there’s going to be a regional can leverage what they’ve achieved to closely monitored. person that understands, say, Asia, create scale and globalize.” and that person knows exactly who the Increased collaboration between players connected car managers are in each of the in the connectivity value chain will need primary countries.” to underpin global deployments, “We’re Will we see OEMs partnering with global looking across the ecosystem for smaller service providers of telematics or do companies to provide technologies in domestic-only telematics service providers partnerships more on a broad base have an important role to play? The jury and what we wonder is whether the is still out. As one participant said, “Is the connectivity space would be helpful to market going to move toward globalized have an expanded set of alliances between organizations with local offerings or will we suppliers and insurance companies, the see outfits in, say, Malaysia staking a claim serious providers. Although we recognize for this work and setting up in the local this would be very difficult to do because connectivity space?” of the profit of who owns what.” “Can you scale some of these sales processes globally? The answer’s yes and no. For example, one OEM uses our core operations, those things we can scale across the globe; our costs and our application obviously need to be modified for different markets.” 16 | The quest for telematics 4.0

4.2 How should regional services operate? Deployment of global For OEMs and connectivity service work. Does the same apply to connectivity or regional connectivity providers, the challenge is to build offerings? Can you have a global Onstar modules/products that can be easily strategy or do you need to adapt it to other provides exciting adopted. As a connectivity service provider western countries and emerging markets?” opportunities for summed it up, “Over the past few years, Flexibility is the key. “You need to make we’ve tried to shift the focus from the sure you have platforms that are extensible monetization. As our OEM to more of a product solution. When because multiple use-cases can consume roundtable indicates, you’re thinking about local deployments, multiple sources of content. Provided the the bottom line is that it comes down to platform is extensible, you can just load it participants are adopting understanding behaviors and cultural and grow it.” Another participant agreed, multiple approaches to differences.” “The key is to pick one platform which tackle the next phase of From the standpoint of technological is flexible enough to really adapt to local their connectivity journey. implementation, there can be no one- markets. Remember too, the platform is a size-fits-all option. Different markets will fairly small part of the overall investment have their own operating systems. While needed to launch a connectivity program — in-vehicle infotainment systems linked to say 7% or 8%. mobile phones are expected to account Consistency is also vital. According to for around 80% of the people using another participant, “You need to ensure smartphones in the US, in some other you have the same API/SPU when it markets, including China, just 20% would comes to how developers are looking be covered. Core engineering operations for connectivity in your car. Although have to be adapted. According to a connectivity will be very different in participant, “From the time analogue went China, the US and Europe, ensuring the away, we were CDMA … now obviously, same elemental platform globally is the as we move into other markets, we have key — that provides for a tremendous to move to GSM. That’s fairly basic stuff amount of innovation and sticky customer that we’ve worked through already … but acquisition.” now there are other new technologies that we’re going to have to work through Selecting the right ecosystem is essential, globally.’ and that calls for in-depth local insight. How should connectivity-related strategies As a participant put it, “Your ecosystem adapt? An OEM said, “I remember when is going to be different for China, North every carmaker was trying to make an America, Mexico, Brazil and so on. It’s emerging market car and that car would fit important to pick the right ecosystem with every big, growing emerging market. Then an open mindset.” everyone realized that wasn’t going to The quest for telematics 4.0 | 17

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4.3 What are the bottlenecks preventing growth? Regulations, technology, A key challenge to globalizing connectivity Another challenge is complexity. To cultural variations and offerings is regulation. As one OEM put provide real value-added services, rich It, “The big issues we have are country data is essential According to a participant, complexity — across the licensing and certification. For every “We can start leveraging what the OEMs connectivity ecosystem, new generation of hardware, we have to have done to create scale, globalizing re-certify and re-license and that’s very and working to tap into what they have players are grappling with expensive and often very complex in done. The critical mass in this business these issues as they focus under-developed countries. So we have to for us at a global level is what we need to hire third-party people because sometimes have internally an IT architecture that we on developing models to it takes a yellow envelope to get it done. can use, plug into and play for the next globalize their offerings. There’s no real process there and it creates generation connectivity protocol.” problems because you need connectivity in And then there is tax. As globalized remote areas.” offerings increase, establishing who Of course, technology creates major is liable to tax and where is likely to challenges — from regional variations in become a complex (and expensive) issue. obsolescence to silicon lifecycles. As a A participant commented, “The issue is TSP summed up, “LTU is really getting to whether this is a telecom service or an be a mess, with 44 different bands, which information service. It’s becoming a fixed can be utilized by multiple operators. In cost for the OEMs because they’re paying the US, there are already four different for these services. They want the data, flavors of fallback. So, as a technology so the telecom service providers and cellular enabler, we’re trying to buffer the other service providers are charging that because the last thing OEMs want to them this. So these are the costs they deal with is all the separate lifecycles on are bearing themselves, and they want to silicon. They want lifetime tenure. That’s drive that cost down as well. One way to the value proposition we need to be able do that is to have it categorized as exempt to offer them.” from tax.” “It’s obviously important in the contract to identify “What about contacting customers if they’re having separation of telecom-linked charges versus data and an issue, and consider how different communication information-related charging.” methods are in China … they don’t tend to use the channel for emails the way we communicate.” “Another question, is the dealer a reseller or not? There are complications around you selling this “As soon as a state picks up on this and says this is service at point of sale if you want to do that.” a multi-million dollar industry, people are selling this information and we’re going to tax it, which is when it will really start hitting you.” The quest for telematics 4.0 | 19

5 Breakout sessions Stakeholders are being asked some tough questions across a range of areas — from management of customer data to investment priorities, revenue models and urban mobility opportunities. In a series of breakout sessions, we focused on some of the big questions confronting stakeholders across the connectivity ecosystem. 202020 | T| T| The quehe quehe quessst ft ft for tor tor telematics 4.0elematics 4.0elematics 4.0

5.1 Managing customer data Big data — the sum total of diagnostic, across the ecosystem. Because so much behavioral and unstructured customer of this data relates to vehicles, OEMs need data — presents a major opportunity, to support this process and help to drive provided connectivity players develop it forward. As one participant said, “The the capabilities needed to manage this technology is there to enable this in the core resource and mine it for in-depth non-OEM ecosystem, the willingness is insights. The challenge is to put in place there, the ideas, the strategies … it just an infrastructure that can manage all the needs to be enabled.” information and connect it to organizations “How can we build an infrastructure to manage that “I think for an ecosystem to work better we need some information and put it out and connect it back and type of standardization so there can be an application forth across the ecosystem to enrich it and do that works in different areas of the value chain.” something with it?” “It’s important to find a solution to the privacy “Data is only going to come off the car if it has the question… where we’re aggregating vehicle data right sensors in it, and if it is allowed to come off and with diagnostic trouble codes and behavioral data, be shared. So the OEM needs to have the vision.” including data that has nothing to do with the car … who owns this data and who has access to it?” “There are some pretty basic use cases that do relate to transactions, to customer value relative to the “The way you are going to catch dealers’ attention is driving experience, to the ingestion of raw data. So probably by seeing how these connected services can start there. All this technology is scalable.” drive business into their fixed operations?” The quest for telematics 4.0 | 21

5.2 Connectivity and urban mobility The Internet of Things (IOT) and Internet Connectivity is the catalyst for making of Everything (IOE) are enabling real this happen. Inspiring examples range innovations in urban mobility connectivity. from Iceland, where a countrywide pilot Cities are interacting with vehicles and is underway to assemble data geared their drivers in new ways — equalizing to understanding weather conditions supply and demand, providing improved and road usage, to New South Wales in environments, and driving efficiencies Australia, where the provincial government in road usage, parking and utilization of is using real-time data feeds from its fleets transportation. to better redirect traffic — saving tens of millions by improving utilization of roads that were being under-used. “Through a combination of differentiated modes that “A guy like Gabe Klein [until recently Head of the are readily accessible and, more importantly, from a Chicago Department of Transportation] is a great data perspective we have to ensure it’s used to enable example of someone who has taken new technologies seamless utilization of roadways, seamless interface from a parking payment perspective to a data of infrastructure assets in the city.” utilization perspective and made things open-sourced to drive value.” “There are some examples of Northern European cities that are looking to take vehicles off the road “Recently, the City of New York tendered a contract altogether. They want to have different train systems, for real-time payment on mobile devices for all of different capabilities that people can use and its street-parking assets. The winning bid negative they’removing parking outside the city.” US$1m, negative US$0.5m. That’s unprecedented in this market place.” “Often, in the US especially, we’ve seen how important it is to have thought leaders, from a mayor “It’s the same story in the City of Washington, DC. perspective or state leader prospective, to push these Fifty percent of all parking transactions go through kind of things through.” this platform. So that means cash is coming out of the business, more profit to the city, more utilization to the user.” 22 | The quest for telematics 4.0

5.3 Sales and channels OEMs need to re-establish the basis on on “pushing metal over the curb,” how which they interact with their dealership can they be persuaded to engage with networks. Their priority must be to foster connectivity? What will it take to get them relationships that depend on mutual to “sell” these services to their customers? benefit. With dealers being so focused “How can we get our dealers to start talking about the “Service leads can provide an answer…it’s a way connectivity products that are in vehicles? Do we of engaging customers via an email giving them provide them with training?” diagnostic information about their vehicle and, if the customer opts in, we can also provide data to the “It comes down to what is ultimately in it for the dealership of their choice.” dealer. And their focus is the first part of the conversation which we have…they’re focused primarily “Have you thought of having a connected vehicle on getting the next vehicle sold.” solution satellite with the dealership where it could make sense to have them finalize the package?” “What if someone from a corporate/OEM joins the dealership? We have a group of sales people “We’ll see a bell curve (with mid-size dealers) with specifically focused on infotainment and connectivity, these dealerships thinking, I can get service, I can they work for an automaker, and then they work with help my fixed operations business and I can get a group of dealers.” customers to come back and buy a car from me.” The quest for telematics 4.0 | 23

6 Looking ahead Participants agreed that the one key Until now, an important stakeholder has element still missing from the connectivity not featured in the dialogue that has equation is an appropriate model for taken place — the public sector. From monetization — a model that is inclusive now on, the participants agreed, it will for all participants from OEMs to service be critically important to include this providers of telematics and insurers. What sector in discussions, since there are is needed is a framework for a model that significant opportunities for public sector takes into account the interests of all key undertakings and wider society — ranging constituencies and is built on the in-depth from emissions and congestion control experience of revenue models, taxation to enforcement of parking zones and issues and how markets function in this road safety. They felt that the scale of industry. this deployment will provide the required As one participant put it, “Right now, a momentum for wider connectivity in the lot of the discussions we’ve been having industry. are driven by fear. Fear that people have When the industry will have the collective responsibility within their own companies commitment to come together and develop to generate revenue and maybe somebody this inclusive framework remains to be else will eat their lunch. We need to seen. However, feedback provided in this come together to develop a common roundtable is encouraging and indicates framework — one we can all agree on and an awareness of the urgent need for benefit from.” collaboration in the industry. 242424 | T| T| The quehe quehe quessst ft ft for tor tor telematics 4.0elematics 4.0elematics 4.0

“ It’s about time for someone to take the flag and go “ A likely analogy is with the Telecoms sector. It first. We’d like to see the OEMs doing something. But feels like 10 years ago or seven years ago when the we all have to take responsibility.” over-the-top (OTT) players arrived in the space and completely changed the way telcos work.” “ Yes, we need to align within a framework that is actually accessible and functional. But what we really “ There needs to be an ecosystem solution. I just need is “co-opetition”.” wonder whether there needs to be two parts. One that includes the OEM and one which potentially, for a “ So, from a corporate and a senior leadership level, short amount of time at least, circumvents them.” how do we say we’re going to compete, we’re going to differentiate, own our customers and make great product?” The quest for telematics 4.0 | 25

Considerations for stakeholders 7 Carmakers Telecom operators Motor insurers Service offerings • Integrate telematics offering with • Offer 4G/LTE connectivity • Develop an internal IT system to mobility solutions to support with high bandwidth services, leverage telematics-based intelligent transportation such as internet gaming, insurance data solutions videoconferencing, etc. for • Create attractive aftermarket • Build the cost of diagnostics passengers proposition to drive uptake in car and security services into the • Provide flexible data plans, such population on the road price of the new car, while as shared data plans or split • Offer specialized products for subscription model to be followed billing services fleets aimed at reducing the total in aftermarket • Focus on network security for 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 and • Integrate payment services within mining capabilities to support the vehicle (while ensuring data carmakers security) • Build telematics systems with enough capacity and performance to handle software upgrades Collaboration and • Partner with automotive suppliers • Partner with carmakers to offer • Collaborate with carmakers to partnerships to build open and scalable customer support services, such offer UBI based on integrated technology (HMI) as subscription management and connectivity solution • Collaborate with aftermarket charging and billing services channels for optimal utilization of • Partner with various sector vehicle data stakeholders to launch services in • Outsource non-core services, the aftermarket such as billing and subscription management 262626 | T| T| The quehe quehe quessst ft ft for tor tor telematics 4.0elematics 4.0elematics 4.0

Telematics has a very complex value chain, which involves players • Business diversifi cation strategy and risk assessment, market from various sectors. EY helps major stakeholders throughout this strategy for new products and services, research for uncatered ecosystem to develop and sustain the innovative business models product segments that are needed going forward. • Identifi cation and assessment of potential investment Our services include the following: opportunities and risks associated with new markets • Business process innovation and transformation (connected car, • Cross-border corporate income tax advisory and income tax fl eet management, car sharing) compliance • Blueprints for selection of suppliers to implement connected • Tax incentives for investments in car-sharing across geographies car-IT infrastructures, quality assurance after implementation • Legal and regulatory risk analysis and compliance, including • Transformation integrator, design of operating model, data security architectural design, IT risk and security management, transformation facilitation To discuss EY’s capabilities in the telematics and connectivity ecosystem or to find out about similar upcoming events, please contact our sector professionals for more in-depth information. The quest for telematics 4.0 | 27

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EY contacts Global Automotive and Transportation Global Telecoms Center Center Randall J. Miller Anil Valsan Jonathan Dharmapalan Global Automotive and Transportation Lead Automotive Analyst Global Telecommunications Sector Leader +44 20 7951 6879 Leader +1 313 628 8642 [email protected] +1 415 894 8787 [email protected] Regan Grant [email protected] Jean-François Tremblay Global Automotive & Transportation Holger Forst Advanced Mobility Marketing Leader Global Telecommunications Segment Leader +1 313 628 8974 Assurance Leader +1 514 874 4453 [email protected] +49 221 2779 20171 [email protected] [email protected] Dr. Rainer Scholz Staffan Ekström Mobility Innovation Group Leader, Global Telecommunications Advisory Services TAS Leader +49 40 36132 17056 +46 8 5205 9390 [email protected] [email protected] Amit Sachdeva Global Telecommunications Advisory Leader +91 124 671 4870 [email protected] 30 | The quest for telematics 4.0

Global Insurance Center Bart van Droogenbroek Simon Burtwell Kevin Koenig Global Telecommunications UK Head of General Insurance Partner, FSO Advisory Tax Leader +44 20 7951 0532 Enterprise Intelligence Global Lead +352 42 124 7456 [email protected] Insurance [email protected] Michael Barkham +1 269 830 2318 Rohit Puri European Actuarial [email protected] Global Telecommunications Practice Leader Director +44 20 7951 1516 +1 415 894 8991 [email protected] [email protected] Catherine Barton Adrian Baschnonga European Actuarial Retail Lead Telecommunications Insurance Leader Analyst +44 20 7951 5503 +44 20 7951 1724 [email protected] [email protected] Sherdin Omar Senior Manager European Actuarial Services +44 20 7951 7840 [email protected] Illustrations throughout summary are courtesy of The Grove Consultants International The quest for telematics 4.0 | 31

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