Recession in the European Union (E.U.) has been a drag, but growth in cellular machine-to-machine (M2M) connections will accelerate and grow at a 26% constant annual growth rate (CAGR) through 2018, according to the latest forecast from ABI Research.

Declining average revenue per unit (ARPU) is another problem market participants face, according to the latest update to ABI’s M2M Market Data research service. “The market for M2M connections can be classified as very competitive to hyper-competitive depending on the country,” ABI practice director Dan Shey was quoted in a press release. “As a result, connection ARPUs have declined dramatically over the last two years as operators fight for M2M business.”

3G and 4G cellular technologies offer providers better margins per megabit of traffic, but the migration to those technologies has been slower than anticipated. More than 70% of M2M connections in 2012 occurred on 2G networks, according to ABI. “Connection traffic and application needs have not grown enough to require 3G and 4G connections,” the market research firm’s analysts pointed out.

With 3G cellular modules selling at over two times the price for 2G modules and 4G modules selling at six times more than 2G options, the disparity in pricing is also limiting ARPU in the M2M cellular module market, they added.

Providing value added services is where the real leverage lies, however. “While connection revenues are important, the money in the M2M market is in value added services – applications, systems integration, big data and analytics. Operators dedicated to the M2M market are aggressively moving up the stack and either adding services or partnering to grow their share of the M2M pie,” Shey explained.