Proceedings of the Second International Conference on Electrical, Electronics, Computer Engineering and their Applications (EECEA2015), Manila, Philippines, 2015

Connectivity Issues on IoT Business - The Korean Case of Smart Home Network Ji Yeon Cho1, Hye Sun Lee2, Bong Gyou Lee1* Graduate School of Information, Yonsei University 2 Technology and Business Administration, Yonsei University [email protected], [email protected], [email protected]* 1

ABSTRACT Connectivity is one of the most important factor that may affect as a great benefit to various domains for the next era of the IoT(Internet of Things). However, securing connectivity requires various industry stakeholders to access freely which cause business and regulatory issues. The purpose of this study is to explore challenges in implementing market based IoT industry, focusing on connectivity issues. We have investigated cases of the smart home industry in Korea, presented implications based on the literatures and the in-depth interviews. As a result, newly emerging industry based on technology like IoT tend to have conflicts between service providers and network providers. And it expands towards political issues on data traffic and fostering spectrum managements by private sectors. Moreover, connectivity with device-platform-service protocols and compatibility tend to be monopolistic structured. Our implications suggested supplementing ideas for improving ways of establishing regulations. KEYWORDS IoT(Internet of Things), Smart home, Connectivity, IoT Business, Spectrum policy

1 INTRODUCTION IoT technology has more advanced abilities and social impact compare to smartphones. In other words, IoT is an intelligent service from collect and generated information, analyze and share them by the Artificial Intelligence [1, 2].

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It is obvious that the expansion of connectivity will bring the big change beyond smartphone. Global IT companies – Google, Cisco and etc have launched IoT related products and services. Korea government has been preparing for IoT industry as a new growth engine [3]. Major Korean enterprises have also begun to make inroads into the smart home markets [2]. Currently, the market players are from wide ranges of industry sectors - positioned as a different domain of the value chain, launching smart home services with the purpose of sustaining their market dominance. Thus, this can work as entry barrier for others introducing IoT services. The tendency as explained above directly effects on service connectivity – full scaled IoT environment, will eventually change the value chain structure [4]. Moreover, IoT connectivity may raise several key issues similarly with the past experience of smart device industry such as IPTV and Smart TV. Korea government has struggled with network occupancy subject issues and management with IPTV stakeholders and Mobile industry regarding network neutrality, interconnection [5]. Therefore, our research question is “what challenges will be emerging to support IoT industries competitiveness?” This study is organized as follows. In chapter 2, importance of IoT connectivity and smart home network were reviewed. In chapter 3, we have analyzed smart home industry in Korea. Finally comprehensive implications from both industrial and political perspective regarding IoT connectivity were given in chapter 4.

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2 RESEARCH BACKGROUND 2.1 The Effects of IoT According to the Gartner, the number of connected devices in the Internet of Things will increase 30 times, approximately 26 billion devices by 2020. When Kevin Ashton first used term ‘IoT’, definition is focusing on utilization of RFID and sensors throughout the daily activities. Since then, the notion of IoT has been constantly changing according to the development of technologies. Nowadays, IoT means advanced connectivity of anything such as devices, systems, and service and people at any time in anyplace [1, 2, 3]. As growing the number of connected device and related industry, IoT is one of the most hyped technology trends in recent years. IoT technologies have significant impact on not only ICT business but also other converged industry. Jeong et al.(2013) examined economic effects of IoT industry in Korea through the Input-output Analysis [6]. As a result, the economic effect of IoT industry on production inducement is over 400 million dollars; effect on value-added inducement is over 300 million dollars during 2013 and 2017 in Korea domestic industry. According to the GSMA(2012), connected devices will make revenue in a global business as much as 4.5 trillion dollars by 2020 through facilitating new business models, and improving existing services [7]. This impact is caused by extension of the connectivity with everything. This is the reason why IoT connectivity issues have been studied in different domains as common research interest [4]. As illustrated in Figure.1, IoT connectivity issues have been discussed a lot with various perspectives such as devices, sensors, infrastructures and services [8]. 2.2 IoT Connectivity IoT connectivity issues are studied a lot in technical perspective including the evaluating network technologies, testing IoT device and

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Figure 1. The perspective of IoT Connectivity modified from M. Skilton. [8]

studies related to IoT platform. In the connected environment, it is very important to make any devices connect all the time with the most efficient connection methods. Accordingly, IoT connectivity technology studies are tend to focus on finding way to interconnect any product in the physical world with the virtual world through the any network [9]. So this issue has been studied a lot in interconnected real network systems regarding finding methods to improving network efficiency and related wireless sensor networks [10]. Also connectivity issue can be found in existing studies regarding analyzing IoT architecture and technologies. According to M. Abomhara et al.(2014), IoT supporting technologies concept are mainly categorized as following: 1) identification technologies 2) networks and communication technologies 3) software and hardware technologies [9]. Architecture is basically consists of 4 layers including contents layer, service layers, network layers, device layers [11]. IoT has a more complicated architecture because of increasing connected device and its different range of networks. M2M architecture is almost similar to IoT. Including various range network protocol and platform [4]. And this architecture identified three main IoT technical domains which are device, connectivity and application

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Figure 2. Roles in an IoT ecosystem [13]

service domain. Studies on IoT architecture have something in common that connectivity domain were emphasized. The key architecture components of IoT are focusing to support all connected environment. Research approach on the IoT connectivity according to this architecture tends to focus on technologycentric issues. However, nowadays IoT agenda has interests on not only the technology augmentation but also creating an additional value for other industry [2]. In this context, IoT connectivity studies with social science perspective are needed at the moment. The ecological approach is useful to understand comprehensive industry structure and to find out critical issues from interaction among participants [12]. Several studies on IoT value chain and ecosystem have been made and it is focus on deriving IoT business boundary and analyzing business model. Compare to studies regarding ICT convergence industry value chain which are identifying industry based on C-P-N-D(Contents, Platform, Network, Device) concept, IoT ecosystem studies identified various entity and roles of player related to connectivity. This approach to IoT industry will be improve to understand issues regarding political issues, value chain and business model in the various industry level. According to Mazhelis, O. et al.(2012)[13], core of IoT ecosystem should be explained interconnection

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of things. Figure 2 is the map of IoT ecosystem and key players [13]. The key player’s roles in the figure 3 are mainly organized as followings: 1) service delivery dimension, 2) connectivity 3) device. The roles of player are also categorized with the concept of lifecycle which is consisting of development, distribution, provisioning, assurance, and billing. One of the critical point of this ecosystem framework is that they are explains the importance of the political perspective. The legislative, regulatory, standardization roles are regarded as essential roles on IoT ecosystem in this study. Korean learned from the experiences in smart phone industry as well as IPTV which is convergence of broadcasting and telecommunication industry. Because of the technological advancements, the boundaries between broadcasting and telecommunications are confused. This industrial change makes it difficult to handle the conflict with the current regulatory. The current regulation framework cannot be applied on the new connected environment with IoT technology. It is expected to cause players in the IoT industry feel as if they are being subjected to an inconsistent regulatory system. Consequently, it is very important to tackle the relevant issues of a regulatory framework from the beginning of making business ecosystem.

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Figure 3. Various industries related to smart home (Home IoT) [17]

2.3 Smart Home with IoT The IoT Technologies can be converged in a variety of industry and Smart home is considered as one of the most promising IoT application domains [3].Naturally, smart home became the center of interest for both scholars and global leading companies. Google has acquired Nest Labs, smart home appliances start-up, for 3.2 billion dollar in 2014. Samsung electronics also announced the plan to achieve a leading position in emerging businesses such as smart home industry on IoT platform. They continuously released the innovative home appliance at the CES tradeshow and have entered into IoT platform business for smart home [14]. The Smart home concept has been studied for the last decades with different name such as home network, ubiquitous home and digital home [4]. Smart home can be defined as a residence that use an advanced ICT technology to promote their convenience, security, entertainment and communication through the home network within the home and connections to the world [15, 16]. In other words, Smart home is a phenomenon that ICT technology is applied to daily life at home and related area. The range of smart home field is expanding rapidly as IoT technologies are converged [16]. Many researches on smart home defined smart home and identified related business with broad perspective. As shown in Figure 3, smart home encompasses a variety of

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industry and applications including telecommunications, home appliance, education, security and healthcare etc [17]. To support this various application service under connected environment, wired and wireless home networking technologies considered as core and basic domain in the smart home era. Because smart home environment is subject to a connected everything in an intelligent way. KCA(Korea Consumer Agency) also place a stress upon ubiquitous home network system which is convenient to manage home environment. According to KCA, stable wired and wireless network system must be established first to make smart living space. Common points in recent definitions of smart home are as follows: 1) electric home appliances and service are getting smart. 2) IoT function and concept is applied 3) network environment supports IoT business 4) devices are making information and exchange them itself. 5) Collected information makes various services and identifies consumer demand. Although smart home industry is not matured enough to promote innovative IoT application service, it is expected to market growth through diffusion of the communication function equipped device. Figure 4 shows the changes of connected device market structure according to communication module [18]. When completely new product with connectivity is emerging in the smart home industry, the largest new market creation effect will be expected.

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Figure 4. Connected device market structure: Traditional vs. New market [18] Table 1 Main Components of the Smart Home Ecosystem [17] ECOSYSTEM SUB ELEMENTS ELEMENTS Wired network VDSL, FTTH, GiGA Network Wireless network LTE, nationwide broadband LTE-Advanced Home appliance White goods Smart Device New smart device Energy, security, health related device All smart devices IoT Standards B2B Business area Home Hub(device/cloud) HomeKit, Nest, TV, Set-top etc. Platform Operation O/S iOS, Android, Tizen Control device TV, PC, smart phone, tablet Display Home appliance contents Home appliance remote control, Intelligent control Content New smart device content Energy, security, health related service

This is similar to the phenomenon in the mobile ecosystem which is mobile technology get applied in the various industries. As previously mentioned, study with ecological perspective is useful to identify the industrial issues and to find business strategy. Table 1 is ecosystem framework for smart home under the IoT environment that it is difference in including IoT standards and platform. Device and content level in C-P-N-D value chain was divided in more detail. Device level is specified into home appliances and smart device and content level is also identified new type of content service. This changed ecosystem has effects on key player’s business strategy regarding smart home device development, network connection methods and service diversification based on generated data from connected things. All these issues are directly related to connectivity issues and collaboration with other key players same as in ISBN: 978-1-9491968-07-9 ©2015 SDIWC

smart phone ecosystem. For this reason, smart home industry in IoT paradigm is expecting to be a battle ground as secondary mobile warfare [19]. The strategic movements among the key operators from various fields are expected to secure a leading position in the smart home ecosystem with their competiveness. 3 CASE ANALYSIS OF KOREA 3.1 Research Methodology We have analyzed Korea smart home network industry in order to draw issues on smart home connectivity with IoT convergence. Because smart home and IoT embodiment in Korea is rapidly actualizing yet it is still ongoing activities that can be seen as a contemporary phenomenon [20].

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Table 3. Visible Presence of the Smart Home Market

Table 2. Interviewed Experts Domain EXPERT’S DOMAIN

POSITION

Smart Home(including Home Network), IoT, M2M, Smart Plug and Smart Grid service, Building Constructor, Device/Appliance manufacturer

Professors, CEOs, Managers, Executive director, Consultants

Note: Interviewed 10 experts (+10 years of work experience)

Thus, we have conducted in-depth interviews as a data gathering method with smart home and IoT related industry experts from August 18th to 27th in 2014. As a result, total 10 experts with work experiences of over 10 years in this domain have been selected for face-to-face indepth interviews. 3.2 The Market Movements of the Smart Home Industry in Korea Korean Smart Home industry is rapidly converging with the IoT sector by introducing products that are compatible with smart home services. In this study, we have categorized into two groups that can be described as visible presence of the current market movements – home appliances and newly commercializing products(See Table 3) based on in-depth interview. 3.2.1 Home appliances market Home appliances market in Korea consists with various local firms but the market size of smart home products has been majorly led by Samsung and LG for the past few years. Overall market trend including minor products(eg. rice cooker and etc.) are tend to introduce various features of smart control with the purpose of occupying market dominance. Firstly, for the case of general home appliance manufacturers are introducing smart products that connect manufacturer’s platform by Wi-Fi

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HOME APPLIANCES Digital TV, Refrigerator, Washing machine, Vacuum cleaner washer, Microwave

NEWLY COMMERCIALIZING Black box, Smart Meters, Digital sensors & Alarms,

Secondly, Samsung electronics’ home appliances are embedding smart applications features for the new products and supplying an external device(dongle) for legacy system [21]. Currently, Samsung SDS, which is a subsidiary of Samsung group providing information technology services, is staring business on smart homenet application in android and iOS connecting with their wallpad – existing home network system installed in residents or Raemian apartments(Samsung C&T)[22]. Lastly, LG is introducing technology named by ThinQ and homechat, focusing on realizing Artificial Intelligence service for automated home appliance voice control. The aim of this technology is to support their appliances to be controlled over the smartphones as well as automated diagnosis and upgrade firmware, save electricity, smart management by Wi-Fi and ThinQ. The two companies are based on their home appliances communicating with smartphones but soon will shift into smart TV for an overall control box. Thus, characteristics of the home appliance sector can be described as follows.  Home appliances manufactures are expanding inherent industry sector towards own service platform based on the strength of product distribution.  Samsung and LG are planning to expand full-scale of the smart home infrastructure for the coming IoT service dominance.  Smart Home application and different brand of appliances are not compatible.

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Figure 5. Visible presence of the Smart Home Players Modified from [17, 23]

3.2.2 Newly commercializing product market Newly commercializing products that we have categorized are sensors and devices, can be connect with the smart home environment CCTV, energy saving and monitoring for lighting, thermostats, home security, u-health, home hub and etc. However, currently there are no distinctively dominant products or service providers in the market. That is these categorized products and services may be individual yet relates with large number of stakeholders across the industries. Therefore, it has been a time consuming progress for the standardization or unification to collaborate with another for providing services. Current market movements within this sector tend to be supporting more than one standard formats rather than unifying service formats by single consortium. Although the market is in initial stage, there are visible presences of potential players mutually competing for the platform dominance - telecommunication operators, IT firms, home appliance vendors(See Figure 5). Firstly, Korean telecommunication operators are focusing on dominating platform. For the case of SKTelecom, has recently announced business plan smart home. They are targeting to compete with Samsung and LG in home appliance sector by collaborating with other local home appliances firms(See Table 4). SKT has picked up problems of mutual compatibility between manufacturers and products [24, 25]. Thus, SKT is aiming to release various smart

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home products with high market share and provide connectivity by their wired and wireless services. However, as a telecommunication company, SKT has to charge service rates to manufacturers or users that there was an announcement for plan yet no specific rate is opened. On the other hand, the case of LG telecom is collaborating with affiliated companies. Unlike Samsung, LG has a telecom company that makes their strategy different. Samsung is focusing on developing standards while LG is planning to collaborate with others to fulfill better features of LG’s consumer products. Table 4. Consortium of SKT and the Local Firms [25] PRODUCTS MANUFACTURERS Boiler/ Heater Door Lock

KDNavien

1st market share of boiler

DSceltic

Condensing boiler

Irevo CLK corp

Home Appliances

in

the Air

Winix corp

Dehumidifier

Monueual

Robot vacuum cleaner

Yujin Robot

Robot vacuum cleaner

GE Lighting Lighting

1st position market Carrier, conditioning

Kumho Electric

AP

IPTime

Gas Circuit breaker

Time Valve

Global lighting company Local lighting company 1st position in Wi-Fi AP Timer type gas circuit breaker

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That is LG doesn’t have intention to develop own smart hub device to avoid conflict with other telecom operators [26]. But in the same time, LG U+ adopted Z-Wave for the next home network protocol differentiate with others. SKT is planning to shift LTE smartphone users to SKT smart home network rather than enabling Zigbee or Bluetooth [27]. Therefore, presently telecom companies are in the initial progress to see the market consumptions and they are preparing for brief business model. Thus, various wireless protocols cannot be coexist in the market due to customer’s cost benefit. Universal connection across the products and networks should be waited until the dominant de facto protocol appears. Secondly, IT platform in smart home service act as a passage between devices and contents. Like other countries, Korean OS platform has not been widely used as Apple or Google’s. With the smart home service platform, currently Samsung and LG are looking into TV for embed and diffuse as own platform(see Table 5). Samsung has embedded Tizen 3.0 in smartTV that can be compatible with android OS and contents for wearable devices. LG is planning to use smartphones or mobile devices as the platform rather than TV. Field experts are seeing this strategy from status of webOS that it needs more time compare to Tizen [28]. On the other hand, there are ongoing progress by the ones who has been owned market dominance in traditional industries such as KDN(Korea Electric Power Data Network Co., Ltd.) for smart grid, major security companies and etc. These firms’ approach towards smart home is very similar with telecom companies, Table 5. Samsung and LG’s platform SAMSUNG

LG

Control method

Voice

Text

Communication standards

OIC

AllJoyn

TV OS

Tizen 3.0

Web OS

Smart home Hub

M&A Smart things

Collaborate with Telecom company

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but the service network and business model is very independent. Thus, characteristics of the newly commercializing product market sector can be described as follows.  Players in this area are from wide range of industry sectors - manufacturers, technology developers, telecommunication providers, service providers and energy suppliers.  The market is currently in initial progress that there is no visible dominant product or service.  Most of the commercialized products(final products yet close to test the market) are based on Wi-Fi protocols. 4 IMPLICATIONS 4.1 Industrial Implication for Connectivity The framework was drawn through the literature review and experts interview that reflect key player’s originality and their market positioning [4, 17, 18, 30]. Firstly, the most critical implication in the industrial perspective is identifying the stakeholder’s connectivity position. In order to make connectivity more substantial, some experts have argued that stakeholders should understand their diversity and make an effort to define exact market position in smart home market. In other words, connectivity issues begin from market positioning and that is directly related to connectivity solutions. We divided smart home market into two groups based on the device characteristics. First part is home appliance market which is traditionally dominated by global leading company such as Samsung electronics and LG electronics. Second part is newly commercializing product market involved many companies in making new type of smart home service. This category is related to original competiveness and to roles of player in smart home ecosystem. If business operators defined their market position considering competiveness, device life cycle and service level, then they should try to find out connectivity position.

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Figure 6. Conceptual Framework for IoT Connectivity Strategy

Competition among key players around connectivity can be occurred every connectivity level regarding communication network, platform, device standard. For Korea smart home ecosystem, some experts emphasized that the basic connectivity with wired and wireless internet access will be the first and the foremost in the beginning stage of smart home ecosystem with IoT. Connectivity related to devices standard and platform is following after. Past experience in mobile ecosystem shows that when data traffic increasing rapidly, network operators has lost their revenue base and uncertainty of return on investment in network infrastructure is expected. It has significant impact on destroying virtuous cycle of mobile ecosystem and this phenomenon eventually causes the frequency issues and the decline competitiveness of connectivity [29]. Therefore, to make a successful connectivity strategy in smart home era, key players should understand their connectivity position and keep favorable relationship with network operator. Second important industrial implication is related to providing smart home service level. According to the evolving smart home service level, connectivity issues regarding capabilities of supporting network, data exchange and industry boundaries are different. M. Porter et al.(2014) has explained about transforming competition with the capabilities

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of smart connected products which are four areas as shown in figure 6: monitoring, control, optimization, and autonomy [30]. The evolution of service in smart home means encouraging innovative business model and redefining industry boundaries through connecting everything based on connectivity. The relationship between service operators will be very different depends on the service level positioning. For example, if entrepreneur aims at doing business within his origin industries, connectivity capability with other partner is may not the main concern. However, if he plans to expand industry boundaries and to have leading position in convergence industry by providing comprehensive service, it is expected that integrated systems and collaboration strategies will be the essential. To sum up, through this conceptual framework, regulatory issues in connectivity can be identified. In all connected industry, stakeholders from different industry can be located in same connectivity position. So, setting the balanced regulation system is crucial with understanding of connectivity issues in business perspective. 4.2 Political Implications on Spectrum Issues For the next IoT era, connectivity of the smart home network needs to be accessed freely for

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users and the stakeholders in the value chain. Currently, Korea is using a very large number of wireless communication devices for 2.4GHz band - ISM for wireless LAN such as wireless home phones, Bluetooth devices. This means when IoT with personal preference services are provided as a full-scale, it is expected shortage of frequency bandwidth [31]. Currently, most of the Korean smart home services and products are based on Wi-Fi protocols rather than low powered protocols. Therefore, scarcity of the spectrum resources needs to take complementary measures to promote the smart home industry. One of the complementary measures that may supplement the current spectrum issues can be an open access. Based on the expert interview, we draw political implications on realizing open access as 1) deregulation on unlicensed band and spectrum sharing and 2) considerations of market based spectrum management. Firstly, value of utilizing unlicensed band can be very high, estimated within U.S.A is assumed to be over 140 billion US dollars by annually [32]. Unlicensed band may meet the requirements of smart home services - a low powered and flexibility for universal connectivity. Korean government is also actively looking forward to support the spectrum sharing technology and DSA(Dynamic Spectrum Access) for the industrial competiveness. However, government’s execution on allocating new band or deregulation often challenges practical issues as well as time consuming for considering stakeholders position. Thus, it can be a key that government promptly produces additional measure to redress all the related possible drawbacks of the spectrum policy to go along with the market changes. Secondly, commercial band manager and secondary spectrum market needs to be examined thoroughly in short period time for ensuring more efficient spectrum usage [33]. This is because realistically it is difficult to secure a new frequency bands that have mostly assigned below 3GHz(suitable for mobile

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communication). Also, 700MHz bandwidth that is digital dividend by digitization of terrestrial broadcasting is having conflicts for its usage with various sectorial stakeholders’ demands. 5 CONCLUSION This paper has explored a smart home market of Korea to assess barriers in implementing market based IoT industry, focusing on connectivity issues. Full-scales of IoT service demands by interconnecting various devices and information may raise new policy issues. In the case of new technology based industry where in formative period, it is important for the government to policy making and settle potential conflicts of business players. From the past experience of IPTV and smart TV, Korean government has been investigating various ways to promote flexible and innovative IoT ecosystem. In this paper, implications have drawn based on the literature reviews and in-depth interview to explore current status of the Korean smart home industry. As a result, some of the barriers found in the case analysis were political issues on fostering spectrum managements by private sectors. And connectivity with device-platformservice protocols and compatibility tend to be monopolistic structured. Thus, the established firms from the traditional industries are beginning to strategize to sustain privilege by expanding their infrastructure for occupying smart home serviced platform in advance. That is home appliance manufacturers are framing a service platform based on their devices, or telecom operator tend to frame a service platform affiliating with other smart devices based on their wired and wireless platform. Thus, smart devices with enhanced inter-device communication is important to the firms for leading smart systems with high degrees of intelligence and autonomy, facilitating the rapid IoT application deployment and creating new services [18]. The suggested barriers and implications assumed to supplement idea for improving ways of establishing regulations.

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Blog,

Moreover, conditions for optimum allocation of industry positioning between private and public sectors of IoT will need to be examined for further study. [9]

ACKNOWLEDGEMENT "This research was supported by the MSIP(Ministry of Science, ICT and Future Planning), Korea, under the ITRC(Information Technology Research Center) support program (NIPA-2014-H0301-14-1042) supervised by the NIPA(National IT Industry Promotion Agency)"

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