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The future of AMR or why you better brush up on your Mandarin

The AMR business today is concentrated in western countries with deregulated energy markets. And the growth in this business, while quite spectacular (currently in the range of 15-20% per annum) is a reflection of the deployment of AMR systems, not the growth of metering points in these markets. These systems are going into the costly-to-read and profitable-to-read markets, or into those where AMR is dictated by government decree, such as in Sweden where a law was passed recently to provide AMR to all that country’s meters by 2009.

Either way you cut it, the writing is on the wall. Today’s penetration rates of approximately 20% will very soon approach the 80-100% band where de facto saturation occurs. When this happens (and I predict it will do so in the next ten years) the AMR growth rate in the developed world will fall to the single digit growth rates of mature replacement markets.

What then? Won’t the market leaders in North America and Europe turn their marketing forces towards the rest of the world (ROW) – where over 1 billion meters remain stand-alone, a figure which is growing rapidly – before this drop in growth happens, and thereby achieve dominance in these markets too? Possible but unlikely; and this is why.

The market leaders in the western countries have developed systems that are not adapted to conditions found in the ROW. Their business models and structures are unsuited for export, too. Last year the international sales of Itron, the North American AMR leader, actually dropped. ROW markets are just as difficult for the large, traditional western meter suppliers.

Within this context, the following is the prescription for success in the ROW AMR market (i.e. the one that will be especially significant from 2010 onwards):

  1.  Establish strong local partnerships. This does mean giving up a piece of the pie. However, for several reasons the choice is between doing this or getting nothing at all. That being said, you also need staff of your own who understand local customs, languages and nuances. This maintains the equilibrium between the players.
  2. Provide an AMR system with a communication technology that can easily be adapted to local conditions. This might mean changing frequencies or signalling schemes. The standard in western country ABC means nothing in ROW country XYZ if it does not meet their requirements.
  3. In high population density countries, the power line medium is more appropriate than radio frequency. Since it is also cheaper and harder to tamper, it’s the natural medium to use. Make sure you have a PLC technology to offer.
  4. Some communication services are especially desirable. For example, giving each node the ability to be a dynamic repeater of the signal is a big plus in those environments where distances between the transformer and the meters may be quite significant.
  5. It’s a low cost world out there – and if you forget it, your customers won’t. However, keep in mind that low-end services like one-way meter reading don’t cut it anymore. The trend is towards digital meters that can support time-of-use pricing simply because these are tools needed to balance energy demand and supply. This means that two-way is the only way to go.
  6. Don’t adopt the vertical integration path by becoming a meter supplier (or should I say don’t follow the Echelon-MTC and Itron-Schlumberger path). You will be squeezed between the large western meter suppliers and the low-cost local ones. What’s more all parties will become suspicious of you, and this is a business built on partnerships (see #1) not go-it-alone approaches.

The billion-meter+ ROW market is the next frontier. Because imbalances in energy supply are even more acute there than in the western world, it stands to reason that these markets should be more propitious for AMR systems. The development to watch is which companies will end up dominating this market. For my part all I can say is: “Mandarin Domosys”.