By Ansgar Schlautmann, Global Head of the “Innovative Business Designs” competence Center at Arthur D. Little

Smart city initiatives are constantly evolving around the globe.

At present, more than 100 cities are implementing some kind of smart solution within their ecosystem.

By 2020, we predict that the global market will grow to a whopping size of more than $2 trillion (€1.8 trillion).

Establishing a smart-city concept usually starts with a significant marketing campaign, followed by selective “pilots” that cover only one or two vertical segments with very limited scope, which over time will be extended (although this is often not the case).

This evolutionary approach tends to lead towards a non-integrated, vertically driven service concept that lacks cross-vertical use cases, such as multi-modal mobility, and the ability to understand and gather customer requirements from an end-to-end perspective, hence reducing the effectiveness of the overall smart-city concept. 

Telecommunication players around the world are engaging in the smart-city context – but, as of today, mostly as “connectivity suppliers” rather than significant drivers of overarching smart-city initiatives.

In order to tap into the smart-city opportunity, operators need to consider the following strategic questions:

A vertical or horizontal service offering?

Selective vertical activities often seem to be attractive opportunities for operators, as the complexity is relatively low and short implementation time results in fast, though limited, revenue potential.

As an entry point, we recommend focusing on single verticals within the smart-city context, but keeping the horizontal service enablement in scope, in order to allow use of the capabilities also across other verticals.

For example, the enablement of smart-metering solutions (energy/utility driven) will allow direct adoption of the capabilities for the smart building vertical service space with different players, such as security, police or housing cooperations.

This logic already implies that there is huge potential for horizontal service aggregation and enablement.

Which business model?

Operators generally start as connectivity providers, for example by providing wireless broadband access – mostly for free – within selective places within the city.

Given that this business model is not only jeopardizing mobile broadband revenues, operators need to consider how to move up the value chain towards more solution-oriented services in which clear differentiation and revenue potential exists.

We suggest they position themselves in the platform/aggregator role, moving from a passive platform operator towards an active managed services provider.

This will result in the provisioning of their own, horizontal, services towards the various vertical segments of a smart city.

How to partner?

Operators traditionally are very good in connectivity and service provisioning, but lack capabilities, particularly within the platform space and system integration.

To credibly position themselves in the managed service space and as aggregators, telcos should therefore carefully select key solution partners.

The ability to effectively manage various partners, especially in the application space, will become even more imminent when third-party enablement becomes part of the overall smart-city concept.

This will result in a developer community that requires clear standards, commercial models and lifecycle management capabilities.

The organisational set-up of such a smart-city service provider significantly differs from the classic telco organisation.

It might therefore require structural separation of the smart-city enabler or even a joint venture with the most relevant partners within this context.

Ultimately, the ability to replicate smart-city solutions across a wider region leads to higher returns and scale effects.

To conclude, operators can significantly benefit from the increasing “smartization” of cities across the globe.

In order to fully exploit the benefits of smart cities, governments and councils will need to look increasingly for smart enablers that bring the various use cases together and aggregate information to allow powerful, cross-vertical use cases.

Operators should consider stepping into this horizontal service space by offering not only connectivity, but also powerful platforms and horizontal capabilities.

In order to accomplish this quickly, they need to team up with partners, such as system integrators and IT players, and form conglomerates and joint ventures that also have the ability to adopt these services across multiple cities and regions.


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