With many leading wireless service providers and utility companies jumping on the bandwagon and the growing support from states like Texas and California, M2M applications are set to become very successful in the coming years.

1. Smart grids are set to become a new driving force for many wireless carriers and utility companies

M2M apps like smart grids could become a new revenue opportunity for many wireless service providers as they could help boost data ARPU and offset declining voice ARPU. The ARPU for M2M apps is likely to be pretty small compared with traditional voice or data services. However, through M2M apps like smart grids, carriers could potentially benefit from much higher volume than generated by traditional wireless services. Smart grids being self-contained and fairly easy to deploy, carriers do not have to subsidize devices or implement a large customer care structure, which is a key advantage.

For utility companies, smart metering apps probably present the biggest potential as smart grids could be used to control and monitor energy consumption in order to help customers save energy. Ultimately, consumers would receive incentives or discounts for using their electronic devices during low-pick hours.

2. AT&T, Sprint Nextel/Clearwire, T-Mobile and Verizon are out in front

Due to the growing interest in M2M apps, many carriers have made inroads into this emerging market. Today, companies like AT&T, Verizon, Sprint Nextel/Clearwire and T-Mobile USA appear to be out in front, as M2M apps like smart grids could become a key element of their upcoming 4G (LTE/WiMAX) strategy. Carriers probably recognize the huge potential for smart grid apps in many vertical markets like industrial, commercial, agriculture, retail, healthcare, and especially utility. In fact, the Utility Telecom Council estimates that as many as 1.3 billion meters in China could be used for smart metering apps, against 300 million in the U.S. and 470 million in Europe. Thus, carriers want to capture a large portion of this future revenue opportunity.

For instance, in March AT&T teamed up with SmartSynch to create a smart meter offering to be used by utility companies. Smart grid apps are also set to become a core component of the carrier's open-network initiative (especially for AT&T's Connected Consumer Electronics initiative). Meanwhile, T-Mobile USA has developed a new SIM card providing wireless connectivity to smart electric meters. Echelon, which develops technology for smart meters used in building smart electrical grids, already announced its plan to use T-Mobile's new SIM.

Verizon already teamed up with Itron, a leading provider of intelligent metering, in order to develop secure, two-way communications for smart grids, and plans to use its LTE technology in the 700 MHz band for M2M apps. Like AT&T, smart grid apps are also likely to play a key role in Verizon's open-network initiative. On the other hand, Clearwire already announced its plan to support smart grids in the future. Lastly, we believe that M2M MVNOs like Kore Telematics and CrossBridge Solutions could also play a key role in this market.

3. Competition will be among LTE, mobile WiMAX, WiFi and ZigBee in the smart grid market

Network technologies including LTE, mobile WiMAX, WiFi and ZigBee potentially could be used for future smart grid applications. While it is still too soon to tell which technology is likely to become the big winner in this market, mobile WiMAX appears to have an edge over LTE due to mobile WiMAX's time-to-market advantage. Mobile WiMAX also has the advantage of being more reliable and secure than "pure" unlicensed technologies like WiFi. WiMAX can also count on support from leading companies like GE, Intel, Sprint Nextel, Clearwire, Motorola, Samsung and Google, among others.

Most importantly, WiMAX will enable carriers, utility companies and other key players to build open-standards based smart meters. Ultimately, through WiMAX, third parties will be able to develop many applications and devices, helping to reduce cost. With WiMAX chipsets currently running about $36, some observers believe that the cost could become as low as $8 or $6 in the next 18 months.

In the meantime, WiMAX-based smart meters are already available in the U.S. For instance, GE, in association with Intel and Grid Net software, has built one of the first WiMAX-based smart meters. Intel Capital and GE both invested in Grid Net in 2006. Companies competing with GE include companies like Trilliant, Itron, Silver Spring Networks (also one of GE's partners) and Landis & Gyr.

However, over time, LTE could become a valuable option for many companies involved in this space as LTE becomes widely adopted and prices associated with it start to come down. LTE's larger coverage capacity and ability to support a higher number of points should play a key role here. In our opinion, it will also become critical for LTE carriers to offer a decent revenue share with utility companies and other key players.

Although being a short-range technology, ZigBee could also have a role to play in the M2M apps space as several companies have expressed some interest in the technology. In fact, U.S.-based startup Tendril Networks is well positioned to become a pioneer in this space; the company, which teamed up with Itron and Landis & Gyr, has already developed a product called Tendril Residential Energy Ecosystem (TREE), compatible with various ZigBee-based devices to be used for smart grid apps inside homes.

Lastly, if fully secured, WiFi could also become a disruptor. WiFi-based smart grid apps appear to be gaining traction in the U.S. and Europe. For instance, the city of San Jose, in association with Echelon, is currently testing a whole smart streetlight network using WiFi-based smart grids set to be launched this summer. The system may receive federal stimulus money, and if it does the city plans to revamp the entire 65,000-light network, which would help reduce energy costs by 40 percent. That figure is consistent with the performance of two European cities: Milton Keynes in the United Kingdom and Olso in Norway, which have been implemented by Echelon.

Bottom line: Smart grid apps appear to have the most potential in the M2M space. In fact, these types of apps present tremendous potential for many wireless carriers and utility companies, as they could become a new revenue opportunity. But most importantly, this could become a core technology to fight global warming and save energy. From a network technology standpoint, while WiMAX appears to have taken an early lead over LTE, it remains unclear which technology will win the battle over the time. It also remains unclear whether utility companies will choose to build their own networks or partner with wireless carriers to do so.

At the end of the day, with utility companies investing heavily in smart meter deployments, and growing support from states like California and Texas (as well as the Obama administration's regard for these types of applications), smart grid apps may face a bright future in the years to come.