ROLE of CARRIERS in SMART CITIES and the Iot Dominique Bonte Vice President, Verticals/End Markets

ROLE OF CARRIERS IN SMART CITIES AND THE IoT Dominique Bonte Vice President, Verticals/End Markets

1. INTRODUCTION AND EXECUTIVE SUMMARY For more than a decade, carriers and mobile operators have actively been exploring opportunities ofered by the smart cities and the wider Internet of Things (IoT) markets. This coincides with a double transformation in terms of their role extending beyond providing (mere) connectivity services to capabilities and services higher up the value chain (applications, analytics, security, professional services, etc.), while at the same time moving from basic connectivity-centric consumer/enterprise ofers to complex solutions for verticals and industries. All of this is driven by declining growth in connectivity services against a background of decreasing margins, urging the telco industry to adopt the “untelco” paradigm.

New capabilities expected to become available with the transition toward 5G, such as mission-critical, low-latency, and massive IoT connectivity, will naturally drive carriers toward these new markets. However, one big question remains: will operators be able to develop the necessary expertise (both technical

www.abiresearch.com knowledge and market savviness), capabilities, and operational fexibility in-house (whether organically or through acquisitions) or will they cooperate with a wider IoT and smart cities ecosystem in a more collaborative, ad-hoc way with no single company maintaining end-to-end control or customer ownership? The answer to this “make or buy” decision very much depends on the type of mobile operator, local circumstances, and a host of other infuencing factors the discussion of which is at the heart of this whitepaper.

1.1 SMART CITY LANDSCAPE, IOT TECHNOLOGY TRENDS, AND EVOLVING NEEDS The IoT has captured and continues to capture the imagination of the entire Information and Communications Technology (ICT) value chain, in particular, mobile carriers and operators. In many ways, the smart cities paradigm forms the culmination of most, if not all, IoT technologies and verticals, aggregated into cross-vertical holistic solutions for a wide range of public and private services for citizens.

However, at the same time, both the smart cities and the wider IoT opportunity remains elusive; growth is healthy, but markets are by no means exploding. Why is this? Lack of killer apps and services? Lack of positive business cases and rapid Return on Investment (ROI)? Lack of budget availability? Lack of technological maturity? Lack of regulation and legislation?

The “inhibitors” mentioned above are heard too often and, unfortunately, are used as excuses by too many ecosystem participants eager to capture as much value as possible for themselves. The real reasons behind disappointing uptake of both the smart cities and IoT technology markets need to be found elsewhere: fragmentation, closed/proprietary solutions, failure to include the larger IoT ecosystem, monopolistic attitudes, and above all, the reluctance to think long term by building platformized, open, and standards-based solutions on top of which future, as yet unknown, use cases and applications, many of which will be frmly rooted in new sharing and service economic paradigms, can be built in a cost-efective and timely way. This necessarily involves collective ecosystem thinking and collaboration beyond the boundaries of individual suppliers. Think open platforms, marketplaces, “build and invest as you grow,” continuous optimization, and ecosystem participation.

The above defnitely also holds true for carriers, most of which are not used to operating in nimble and fexible markets. However, carriers are in a good position to adopt the roles of aggregators and market catalysts, due to their trusted brands and central role as connectivity enablers.

1.2 CARRIER STRATEGIES IN THE IOT AND SMART CITIES VALUE CHAIN AND ECOSYSTEM Figure 1 below summarizes carrier strategies in the IoT and smart cities markets. Several choices need to be made. At a basic technical level, a “build versus buy” decision in terms of platform and other IoT capabilities needs to be made: should one develop platform capabilities in-house or source/license platforms from one or more of many suppliers? At a business level, a more fundamental choice needs to be made between two extremes: vertical integration to control and manage end-to-end assets and services versus a standards-based collaboration model leveraging open-source platforms and marketplaces.

2 www.abiresearch.com ROLE OF SMART CITIES FOR ECONOMIC DEVELOPMENT Figure 1: Carrier Strategies in the IoT and Smart Cities Markets (Source: ABI Research)

Vertical Integration

Platforms

IoT Smart Cities

BUILD BUY

Standards-based Collaboration

1.3 RECOMMENDATIONS FOR CARRIERS While the overall recommendation for larger carrier groups leans toward a buy decision and standards-based collaboration, certainly in the longer term, a detailed Strengths, Weaknesses, Opportunities, Threats (SWOT) analysis needs to be performed to defne the right strategy, taking into account a number of factors:

• Maturity of the IoT and smart cities markets within local footprints • Internal strengths and expertise • Financial resources and scale • Company vision and brand values

Based on this analysis, one (or more) of the following possible carrier roles needs to be selected:

• Smart Pipe Provider: Added-value connectivity for mission-critical IoT and smart cities applications

• Aggregator, Ecosystem Orchestrator and Marketplaces Catalyst

• Untelco Role: Developing capabilities beyond connectivity and/or ofering end-to-end services to verticals

As a function of the selected role, implementation imperatives include:

• Selection of one or more appropriate acquisition targets • Selection of one or more open and standardized platform partners • Development of a commercial strategy

3 www.abiresearch.com ROLE OF SMART CITIES FOR ECONOMIC DEVELOPMENT Following the above recommendations and process will allow carriers to defne an explicit and visible strategy that provides a framework for a long-term and purposeful IoT and smart city program. This clarity is currently lacking, with many carriers confused about the nature of the opportunity presented by 5G, the IoT, and smart cities and/or the role they should play in the wider ecosystem.

1.4 KEY MESSAGE FOR CARRIERS: STANDARDS While carriers are facing many choices in terms of which role they should adopt in the IoT and smart cities and whether they should develop capabilities in-house versus sourcing from third parties, the overarching decision concerns the adoption of open IoT and smart cities standards.

The deployment of open standards-based platforms, solutions, and approaches is the only way to unlock more value faster from IoT markets and, at the same time, allows adopting new business models, opening up new roles for carriers, such as aggregators and orchestrators of IoT ecosystems and marketplaces. These approaches logically favor buy strategies.

This is not just a matter of choice for carriers, it is a matter of survival. The very future of carriers as it relates to their role in the IoT and smart cities heavily depends on these new paradigms and the adoption of next-generation technologies. In this process, further consolidation in the carrier space will materialize with a limited number of carriers emerging to take on a leading role in the IoT and smart cities.

2. FUTURE ROLES OF CARRIERS FOR SMART CITIES AND THE IOT While large carrier groups are keen to play a leading role in the IoT and smart cities markets, the reality is they are already often being disintermediated by both platform providers like Cisco, which is leveraging Jasper’s connectivity management assets to build out and infuence enterprise procurement decisions, and network suppliers like Nokia, which is adopting a strategy of addressing end markets directly. It is in this light that we need to assess the future role of carriers.

From a capabilities and business perspective, carriers can adopt a wide range of roles or even multiple roles from the list below:

• Connectivity Provider—“Dumb Pipes”: Providing only the connectivity between other service providers and charging data carriage costs only

• Connectivity Provider—“Smart Pipes” (5G): Ofering added-value services linked to next-generation connectivity services

• Connectivity Platform Provider

• Non-Connectivity Value-Added Services Provider: Ofering analytics, applications, security, and other end-to-end capabilities

• Aggregator: Orchestration, marketplaces

• Vertical Market Service Provider—Untelco Role: Smart cities, feet telematics, etc.

4 www.abiresearch.com ROLE OF SMART CITIES FOR ECONOMIC DEVELOPMENT Table 1 below shows a summary of pros and cons of each carrier role.

Table 1: Carrier Roles and their Pros and Cons (Source: ABI Research)

The sections below highlight recommended future roles for carriers in smart cities and the IoT.

Degree of Incremental Time to Carrier Role Ease of access Carrier strategy partner integration revenue opp. revenue/ROI

Connectivity provider - Very easy Low Low Short Build “dumb pipes”

Connectivity provider - Easy Low Medium Short Build “smart pipes” (5G)

Connectivity platform provider Easy Medium Medium Medium Build/Buy Non-connectivity value Moderate High High Medium Buy/Standards added services provider Hard High Medium Long Standards Aggregator and Market places Orchestrator

Vertical Market Service Moderate/hard High High Long Vertical Integration Provider (Untelco)

2.1 SMART PIPES PROVIDER: ADDED-VALUE CONNECTIVITY FOR MISSION-CRITICAL IOT AND SMART CITIES APPLICATIONS While many of the larger carriers can get carried away with vertical integration and end-to-end service provisioning, the fact remains that the core business of most carriers, defnitely Tier Two and Tier Three companies, will remain frmly entrenched in building, maintaining, and commercializing cellular connectivity networks. However, 5G will allow moving away from best efort, commoditizing basic connectivity services for consumers and enterprises toward a wide range of premium connectivity services with varying degrees of Quality of Service (QoS) powering a growing number of IoT and smart cities applications. This will both improve margins and allow carriers to work closer together with other players in the value chain.

Guidelines for Carriers

• This strategy is recommended for smaller and/or local mobile operators, allowing the leveraging of core network expertise

• Can be either based on build or buy strategies in terms of connectivity platform capabilities, depending on the size of the operations and available expertise

• Can form the foundation for other roles in the longer term (non-connectivity services, end service provisioning)

2.2 AGGREGATOR, ECOSYSTEM ORCHESTRATOR, AND MARKETPLACES CATALYST For the more ambitious, larger carriers, an “end game” role as aggregator and orchestrator of open IoT and smart cities ecosystems seems to be the most appropriate long-term opportunity whereby carriers can capitalize on their central role of enhanced connectivity services, while leveraging their status as trusted and neutral partner. This will be especially important for smart cites markets. This aggregator role does not necessarily require carriers continuing to own or license any platform resources. However, carriers need to

5 www.abiresearch.com ROLE OF SMART CITIES FOR ECONOMIC DEVELOPMENT also make sure they partner with platform providers that ofer open, future-proof solutions allowing cities to “invest as they grow.” In particular, business paradigms and models like the sharing and the distributed economy, marketplaces, and open-source approaches need to be integrated into the platform. Ironically, in this way, carriers might very well go back to their (semi-) public status of the past, being the trusted division of governments to provide public services to citizens, albeit in a fundamentally diferent way.

Guidelines for Carriers

• This strategy is recommended for large international groups or local market share leaders

• Can be based on BUILD strategies but would more typically involve BUY approaches

• Adoption of smart cities and IoT standards is a critical requirement

2.3 IS THERE A FUTURE FOR UNTELCO ROLES? The big question remaining is if there is a future for carriers beyond their connectivity heritage and whether they can go the “untelco” role alone. While some of the largest carriers are pursuing vertical integration strategies, they should be seen as exceptions and isolated initiatives amid a wider mobile operating environment moving toward collaborative models based on open-ended, standards-based and open-source approaches and marketplaces. In a way, vertical integration is diametrically opposed to this and will look increasingly futile and irrelevant. In the future, no single brand or supplier will be able to control and manage end-to-end value and supply chains in an IoT and smart cities environment, which will become exponentially more complex, both from a technology and a business perspective. Collaborate or die will be the mantra.

3. DIVERGENT CARRIER STRATEGIES While the entire mobile operator environment is actively exploring opportunities in the IoT and smart cities, attitudes and approaches vary widely across the diferent types of carriers, from large international groups like Vodafone and Telefonica to local players, both large and small like China Telecom or KPN, which are only active in a single country. Other diferences relate to the presence of local footprints (Mobile Network Operators (MNOs) versus Mobile Virtual Network Operators (MVNOs)), pure mobile versus mixed mobile/fxed plays, and established versus developing markets. This results in hugely diferent strategies, from carriers developing full technology stacks in-house to carriers staying absent in IoT and smart cities initiatives altogether.

3.1 CARRIER STRATEGIES FOR SMART CITIES AND THE IOT 3.1.1. BUILD VERSUS BUY One of the key decisions carriers have to make is to whether develop IoT and smart cities platform capabilities in-house or to source them from a wide range of specialized vendors.

Build A few of the largest carriers have decided to develop smart cities and/or IoT platform capabilities in-house, namely DT, Vodafone, and Orange, which have been pioneers in terms of developing IoT solutions and building market momentum for more than a decade.

6 www.abiresearch.com ROLE OF SMART CITIES FOR ECONOMIC DEVELOPMENT CASE STUDY: DEUTSCHE TELEKOM Deutsche Telekom (DT) subsidiaries T-Systems and T-Mobile combine homegrown IoT platform capabilities with ICT and enterprise integration expertise. Target verticals include smart cities, smart tracking, smart industries, smart health, smart agriculture, and smart property. Supported smart city applications include smart parking, smart waste management, smart lighting, smart public safety, smart Electric Vehicle (EV) charging, smart bike sharing, smart air quality monitoring, smart public transport, smart trafc management, and smart crisis management.

CASE STUDY: ORANGE Similar to DT, Orange has systematically developed IoT and smart cities capabilities in-house over the past decade. IoT platform components include Live Objects (devices management and data collection), Data Share (application and User Interface (UI) development), and Flexible Datasync (mobile backend-as-a-service). Initiatives include IoT Studio, LoRa network deployments, and the Orange Datavenue program. Orange focused on enabling and orchestrating a wider IoT ecosystem around its core capabilities. Orange was recently selected by MEEZA for the smart city project in Qatar (Msheireb Downtown Doha) for which Orange Business Services (OBS) will design the central command center for the monitoring of more than 500,000 embedded sensors in smart buildings, smart meters, security cameras, fre alarms, street lighting, waste management, car parks, and signage, as well as design smart applications for community services, wayfnding, and online payments.

Buy Carriers opting to purchase IoT technology are facing a bewildering array of choices with literally hundreds of commercially available IoT platforms many of which are supporting smart cities capabilities. While traditional IoT platforms are typically built around connectivity and device management capabilities, smart cities platforms often provide support for applications and services, analytics, and security. Smart Cities IoT platforms can divided in four categories as shown in Figure 2 below.

Figure 2: The Four Categories of Smart Cities IoT Platforms (Source: ABI Research)

GENERIC DEDICATED

VERTICAL-CENTRIC PRODUCT-CENTRIC

7 www.abiresearch.com ROLE OF SMART CITIES FOR ECONOMIC DEVELOPMENT At the same time, it is unlikely any single platform will ofer all current and future required capabilities. In a future “platform of platforms” environment, carriers need to be open to partner with multiple platform suppliers, some of which might be specialized in just one vertical.

CASE STUDY: AT&T AND CISCO In 2016, AT&T launched its Smart Cities Framework. It announced new strategic alliances, spotlight cities, and integrated vertical solutions. AT&T smart city partners include Cisco, Deloitte, Ericsson, GE, IBM, Intel, CIVIQ Smartscapes, HydroPoint, MetroTech, Streetline, and Qualcomm. Key smart city platform features and capabilities include advanced digital dashboards based on the Smart City Network Operation Center (SC-NOC); secure, holistic approach around transportation, lighting, safety, and sustainability; and applications centered around specifc segments like utility meters, street lights, and water systems, infrastructure monitoring, citizen engagement, transportation, digital signage, and public safety. The AT&T Foundry for IoT innovation in Plano, Texas brings together partners and suppliers. AT&T recently announced the integration of Cisco Kinetic for Cities platform into its Smart Cities Operations Center (SCOC). AT&T has also partnered with Cisco Jasper on connectivity management for many years. AT&T’s strategy is a clear example of maximizing the benefts of working with third-party platform providers, as well as closely collaborating with the wider IoT and smart cities innovation ecosystem. In Cisco, AT&T has found a partner pursuing advanced integration across the value chain, including the recently acquired Jasper connectivity platform into its network, security, and data analytics capabilities within a single unifed platform optimized for smart cities applications across a large number of verticals.

CASE STUDY: CHINA UNICOM China Unicom partners with Ayla, leveraging its Agile IoT Platform to develop a series of smart home, connected car, Artifcial Intelligence (AI), and other IoT solutions. Ayla’s IoT platform provides comprehensive device, cloud, and mobile app connectivity across product form factors. China Unicom also partners with Cisco Japer on connectivity management.

CASE STUDY: CHINA TELECOM China Telecom launched its own open IoT platform based on Ericsson’s global Device Connection Platform (which is part of Ericsson’s IoT Accelerator platform). China Telecom also partnered with Beijing-based bike sharing frm Ofo and Huawei Technologies to optimize smart bike technology based on the IoT.

Build and Buy

Some carriers adopt a hybrid strategy, developing some (horizontal) IoT platform capabilities in-house and sourcing others from specialized solution vendors.

CASE STUDY: VODAFONE AND PTC While Vodafone has developed its IoT platform capabilities in-house over the past decade in the form of the Vodafone Managed IoT Connectivity Platform, Vodafone’s smart cities business unit partners with PTC, leveraging its ThingWorx platform for rapid development new IoT applications and services and delivery of smart city solutions in a cost-efective and customized way.

8 www.abiresearch.com ROLE OF SMART CITIES FOR ECONOMIC DEVELOPMENT CASE STUDY: TELENOR AND ERICSSON An interesting example of the dynamics between build and buy is presented by Telenor, one of the pioneering carriers having developed a Machine-to-Machine (M2M)/IoT connectivity platform only to sell it in 2011 to Ericsson, which still licenses it back to Telenor. Telenor also works with Cisco Jasper in order to ofer its customers a choice in function of their requirements and preferences.

3.1.2. VERTICALLY INTEGRATED, END-TO-END PROPRIETARY SOLUTIONS AND SERVICE PROVISION Another strategic choice carriers are facing is whether they should ofer end-to-end services or just be one among many technology suppliers contributing to an IoT or smart city service. While most carriers shy away from service provider roles, the examples below show that some carriers see benefts in ofering services themselves.

CASE STUDY: VERIZON Verizon is a strong player in the IoT and smart cities, leveraging multiple assets, many of which it obtained through acquisitions (to the tune of many billions of dollars), and wide-ranging expertise consisting of both horizontal platform capabilities and deep vertical knowledge across multiple segments:

• Core business of fxed and wireless connectivity, including 5G, fber, and LPWA

• Horizontal ThingSpace IoT platform based on the nPhase M2M services platform, acquired by Verizon in January of 2012

• Sensity’s NetSense IoT platform, supporting smart Light-Emitting Diode (LED) sensors and lighting-as-a-platform

• LQD WiFi’s interactive kiosks for smart communities

• Strong global expertise in consumer and commercial telematics (various acquisitions, including Hughes Telematics, Telogis, Fleetmatics, and Movildata Internacional)

Verizon’s “Smart Cities and Communities” strategy is centered around six key applications and capabilities: intelligent lighting, intelligent video, intelligent trafc management, trafc data services, digital kiosks, and IoT security credentialing. Verizon explores cross-vertical closed-loop approaches, such as rerouting trafc around fooded areas or using digital signage for information sharing about emergency situations, helping communities become more resilient, while favoring economic development. Verizon’s open platform and ecosystem strategy combines vertically integrated solutions with partner solutions to build integrated, end-to- end smart cities oferings.

Verizon’s strategy is a clear example of vertical integration, combining assets developed in-house with acquisitions to fll remaining gaps across the entire value chain, aimed at ofering end-to-end services based on owned assets.

CASE STUDY: DEUTSCHE TELEKOM’S SMART PARKING-AS-A-SERVICE AND PARK AND JOY DT’s IoT strategy is based on an in-house developed platform, but this case study highlights its move to ofer a portfolio of pre-packaged, of-the-shelf IoT services. A frst incarnation of this strategy is Park and Joy, a fully managed smart parking-as-a-service solution consisting of sensors sourced by DT from hardware partners, and Narrowband Internet of Things (NB-IoT) modules and connectivity. DT deploys, runs, maintains,

9 www.abiresearch.com ROLE OF SMART CITIES FOR ECONOMIC DEVELOPMENT services, and licenses access to Park and Joy networks. As of the start of 2018, eight cities had signed up as partners, with many more expected across Europe by the end of the year. By assuming upfront Capital Expenditure (CAPEX) costs itself, DT hopes to accelerate the adoption of smart parking, while capturing a larger part of the value over and beyond connectivity, maybe even allowing for the potential negotiation of value-share payments. It also demonstrates its long-term commitment to an IoT market that often faces ROI periods of 10 years or more, which is a burden municipalities are often reluctant to carry.

CASE STUDY: V BY VODAFONE IOT, PLATFORM AND PRODUCTS V by Vodafone consists of IoT connected products launched in the United Kingdom, Spain, Germany, and Italy, with another 28 European countries to follow. V-Auto is an On-Board Diagnostic (OBD) dongle for basic telematics services, such as location tracking, geofencing, and driver behavior monitoring. V-Camera is a mobile surveillance camera solution with continuous recording. V-Pet and V-Bag are tracking solutions for cats and dogs and bags, respectively. All solutions require a dedicated V-Sim to be added to user’s account. Vodafone’s move into ofering end-user hardware products and the accompanying services has its roots in previous acquisitions, such as Cobra Automotive Technologies, which was acquired in 2014. It should be seen as both an attempt to help grow IoT markets and to demonstrate Vodafone’s connectivity, IoT, and verticals capabilities and expertise.

3.1.3. OPEN STANDARDS-BASED PLATFORMS, PARTNERSHIPS, AND MARKETPLACES A third level or component of carrier IoT and smart cities strategies is related to mechanisms to engage with and tap into the power of the wider technology and end-market ecosystems. It is closely linked to open platforms, the use of open-source approaches, the adoption of M2M and smart cities standards, and new commercial approaches like marketplaces for both applications and data. This forms the end game of carrier strategies, which would also position them well to take on aggregator and orchestrator roles.

CASE STUDY: TELEFONICA Telefonica’s global IoT platform is based on the FIWARE smart city standard and derives data from a wide range of sensors, including the city councils’ systems and citizens’ smartphones.

CASE STUDY: ORANGE Orange was one of the frst adopters and founding members, next to Telefónica, Engineering, and Atos, of the FIWARE Open Source Community to drive the adoption of global smart cities standards. Orange has been involved in smart cities projects for many years, leveraging its connectivity assets and vertical expertise.

CASE STUDY: SK TELECOM In 2015, South Korea’s SK Telecom introduced its ThingPlug open IoT platform, based on the oneM2M global standards initiative and co-developed with Korean IoT platform service company Daliworks.

CASE STUDY: KT In 2016, KT successfully completed the testing of its oneM2M server platform and middleware, achieving oneM2M certifcation by the Telecommunications Technology Association (TTA).

10 www.abiresearch.com ROLE OF SMART CITIES FOR ECONOMIC DEVELOPMENT 3.2 CARRIER STRATEGIES: ASSESSMENT AND DECISION CRITERIA This section addresses the respective pros and cons of the carrier strategies discussed above, as well as factors infuencing carrier decision making.

3.2.1. ASSESSMENT Table 2 below summarizes the pros and cons of the four carrier strategies. It is important to point out the below strategies are not necessarily mutually exclusive with some carriers adopting multiple strategies for example combing in-house development of core capabilities with sourcing additional functionality from partners.

Table 2: Carrier Strategies Pros and Cons (Source: ABI Research)

Carrier Strategy PROs CONs

Advanced customization High development costs (Operating Optimized integration Expenditure (OPEX)/CAPEX) Build: In-House Customer experience Required expertise Development Can be accelerated though acquisition Time to market but at high cost Integration complexity acquired assets End-to-end security

Time to market

Buy: Source Flexibility Limited customization from Partners Pay as you grow Revenue sharing with partners No upfront investments, OPEX only

Integration across the value chain Time to market End-to-end control Complexity Vertical Integration Capture larger value share Legacy strategy Own the customer relationship (lock-in) Flexibility End-to-end security Cost of acquisitions

Forward-looking vision Additional cost Interoperability Intellectual Property (IP) protection Open, Standards-Based Flexibility (vendor-agnostic) (open source) Platforms, and Marketplaces Leadership image Increased competition Prepares for aggregator role Eroding value share

A vertical integration strategy is increasingly hard and expensive to execute due to exploding complexity and very specialized domains like AI, machine vision, security, etc.

3.2.2. DECISION CRITERIA Having discussed the various carrier strategies and the benefts and disadvantages of each, this section takes a closer look at which parameters are infuencing or guiding the choice to adopt one or more strategies. Table 3 below shows strategies, partners, and key metrics of 24 carriers across the globe.

11 www.abiresearch.com ROLE OF SMART CITIES FOR ECONOMIC DEVELOPMENT Table 3: Carrier Strategies, Partners, and Key Metrics (Source: ABI Research)

Carrier National / International STRATEGY IOT Platform Smart City Platform Standards Subcriptions (Millions) Revenue ($BiIIion)

AT&T National BUY Cisco Jasper Cisco Kinetic 140 160 Verizon National ThingsSpace (In-house) NetSense, LQD Wi-Fi 150 125 DT / T-Mobile International In-house 180 93 Vodafone International In-house ThingWorx (PTC) 530 68,11 Orange International In-house FIWARE 220 52,08 Telenor International BUY Cisco Jasper / Ericsson 180 17,55 IOT Accelerator Telefonica International BUY Cisco Japser FIWARE 280 64,48 TIM International BUY Cisco Jasper 80 24,5 China Mobile International BUY Ocea nCon nect (Huawei)? 890 120 China Telecom National BUY Ericsson IOT Accelerator 250 59,2 China Unicom National BUY Cisco Jasper; Agile (Ayla) 290 43,2 NTT DoCoMo National BUY Cisco Japser 70 43 KDDI National 39 43 KPN National BUY Cisco Jasper 8 VEON International BUY Cisco Jasper 214 10 Etisalat International BUY Cisco Jasper 150 13,6 Reliance National BUY Cisco Jasper 12 National BUY Cisco Jasper, ZTE OneM2M 17 14 Airtel International 380 15 America Movil International 280 14 MTN International 240 11 STC International 180 13,6 SK Telecom (SKT) National BUILD/BUY Daliworks OneM2M 28 15,8 International Move 10T (In-house) 3

The 24 carriers in Table 3 above collectively represent close to 5 billion subscriptions and more than US$1 trillion in yearly revenue.

CIRCUMSTANCES AND FACTORS FAVORING BUILD STRATEGIES

• International Footprint: Allows reuse of platform and other assets across many countries in diferent regions, contributing to ROI and overall economies of scale

• Legacy/Historical Expertise or Developments: Carriers having pioneered IoT for more than a decade are in better position to pursue BUILD approaches; it is very hard to develop IoT capabilities from scratch for a carrier coming to IoT recently

• Overall Scale (Subscriptions, Revenue, Financial Resources, Research and Development (R&D) Budgets): The larger the scale of the carrier (group), the easier it will be to absorb the costs of in-house development of IoT capabilities. This sets apart Tier One carriers from Tier Two carriers, which often lack the footprint, scale, and/or expertise.

12 www.abiresearch.com ROLE OF SMART CITIES FOR ECONOMIC DEVELOPMENT • Market Environment: The degree to which it is viable to adopt a BUILD strategy largely depends on the maturity of the local IoT market, price levels, willingness to pay, etc., in order to achieve acceptable ROI and overall proftability.

• Vision and Strategy: Carriers not falling into one of the categories above might still decide in favor of a BUY strategy, but will fnd it hard to be successful. Vision and strategy, in any case, always play a role in combination with one or more of the factors mentioned above.

• Company Culture and Operational Flexibility: Somewhat linked to the previous item; only carriers with the right culture and organizational fexibility should engage in BUILD strategies.

• The above criteria are by no means universal, with a notable exception being AT&T clearly opting for a BUY strategy despite its size and scale.

CIRCUMSTANCES AND FACTORS FAVORING BUY STRATEGIES

• Immature IoT Market Environment: In markets with high degrees of uncertainty in terms of uptake of the IoT in general and the type of applications and verticals, a BUY strategy represents a much more cautious approach.

• Lack of Resources (Financial, Expertise): This is an obvious inhibitor for BUILD strategies.

• Time to Market Imperatives: Competitive pressures by which carriers are compelled to match IoT capabilities of local competitors as a matter of urgency.

• Strategic Considerations: Even in mature IoT markets and when carrier resources are available, it might still be preferable to go down the BUY path for reasons of fexibility in order to be prepared to address future needs and requirements in a cost- and time-efective way. This does, of course, assume that platforms and other assets purchased from third-party providers ofer the fexibility required in uncertain markets.

THE CASE FOR VERTICAL INTEGRATION Vertical integration can be achieved through either in-house development or more likely through the acquisition of platform, technology, and vertical-specifc assets. Despite the benefts mentioned in Table 3 above, the long-term prospects of vertical strategies seem limited in a future IoT and smart cities environment increasingly dominated by a “platform of platforms” paradigm amid an expanding ecosystem. Any form of vertical integration then becomes increasingly meaningless and irrelevant. Moreover, one of the main advantages of vertical integration, customer ownership, is very tenuous. In any case, it is a strategy that can only be contemplated by the largest carrier groups (Verizon, China Mobile, AT&T, DT, and Vodafone). An alternative for full vertical integration is presented by the opportunity to invest in smart cities vendors and startups, allowing the exertion of some infuence and control at a reduced cost. Large carriers like DT have an investment/Venture Capital (VC) division.

THE CASE FOR HORIZONTAL INTEGRATION In order to achieve a larger scale, Tier Two and Tier Three carriers can opt to join forces, either cooperating through partnerships or merging into a single operation. This opens up opportunities for developing in-house IoT capabilities and competing with market share leaders, locally and/or internationally. The planned merg- er between Sprint and T-Mobile in the United States would allow the combined company to mount credible

13 www.abiresearch.com ROLE OF SMART CITIES FOR ECONOMIC DEVELOPMENT competition against AT&T and Verizon, both much more advanced in their IoT operations than either Sprint or T-Mobile.

3.3 METRICS This section proposes some quantitative thresholds to be taken into consideration by carriers when developing buy/build or vertical integration IoT strategies:

• BUILD: It is fair to say only the top 10, mostly international carrier groups from Table 3 above have the scale and the expertise to successfully implement BUILD strategies; these are carriers with yearly revenue of more than US$50 billion and a subscriber base of at least 150 million.

• Vertical Integration: This represents an even bigger challenge in terms of fnancial resources to acquire assets and required expertise for end-to-end integration. Only the top global carriers like Verizon, DT, and Vodafone should even consider this. Required budgets to execute this strategy can be estimated at least US$10 billion.

4. TECHNOLOGY DRIVERS AND ENABLERS 4.1 MB-IOT AND LTE-M NB-IoT and Long-Term Evolution for Machines (LTE-M) are widely considered as the standards-based cellular Low Power Wide Area (LPWA) technology of the future, powering an increasing number of smart city use cases like smart meters, smart parking spaces, shared bikes, and smart street lights. It has become a focus area of large carrier groups across the globe, especially in China, where China Mobile is actively involved in smart parking pilots in Yunnan and Southeast Guizhou. Proprietary LPWA technologies LoRa and SIGFOX ofer alternatives to NB-IoT and LTE-M, but are expected to be challenged by the scale of NB-IoT and Cat M. Some carriers, such as Orange and SK Telecom, have deployed both types of LPWA networks. The 3GPP SCEF function allows operators to manage NB-IoT and LTE-M, and, expose and monetize their networks to enterprises through a well-defned set of Application Programming Interfaces (APIs).

4.2 5G Next-generation cellular technologies are expected to play an important role in the transformation of carriers’ strategies, with 5G supporting low-latency, high-reliability connectivity for mission-critical vertical use cases, allowing carriers to ofer more comprehensive, premium connectivity solutions, especially within cities where 5G networks will be deployed frst. It will also allow them to become more involved in the design and provision of end-to-end solutions.

Other important aspects of 5G include Cellular Vehicle-to-Everything (C-V2X) powering driverless car sharing, smart mobility, and intelligent transportation. Carriers across the globe are involved in trials, such as China Mobile partnering with Huawei and SAIC working on several projects, including smart trafc lights enabling informational Green Light Optimal Speed Advisory (GLOSA) services.

5G will also become important for powering multi-use case smart city solutions like Lighting-as-a-service systems, whereby light poles accommodate not just smart street lights but also surveillance cameras, small cells, Wi-Fi networks, environmental sensors, and small cells requiring broadband connectivity.

14 www.abiresearch.com ROLE OF SMART CITIES FOR ECONOMIC DEVELOPMENT Finally, through its unifying nature, 5G is ultimately expected to drive more openness and a level playing feld, enabling the involvement of the larger ICT ecosystem. Essentially, it is a natural ally of the standards-based open platform and marketplace approaches discussed in this whitepaper.

On the other hand, private cellular networks are being developed by network infrastructure vendors like Nokia, adopting a hybrid strategy, increasingly going direct to the vertical markets and industries with their own solutions based on private LTE networks and cloud technology, without alienating their carrier client base.

4.3 FIBER Owning fber assets is a critical carrier asset for addressing the smart cities market in terms of connecting an increasing number of roadside infrastructure assets like smart kiosks, backbone networks for free W-Fi, and small cells, which in turn will play a role as roadside equipment for V2X and other deployments.

4.4 STANDARDS-BASED PLATFORMIZATION While the benefts of IoT and smart cities platformization are well understood in terms of the fexibility enabled, leveraging third-party developer ecosystems through open APIs, and its unifying cost-efective approach, the shift to standards-based approaches is more controversial. However, standards for both the IoT and smart cities are now being fnalized through organizations like the European Telecommunications Standards Institute (ETSI) (oneM2M, TC SmartM2M, the Smart Appliances REFerence (SAREF), and Smart City/Semantic Interop), FIWARE (open-source platform with public and royalty-free APIs, Next Generation Service Interface (NGSI), Orion Context Broker), and others. The ETSI is consortium partner in the H2020 European Commission (EC)-funded project UNIFY-IoT (IoT Platform interoperability). The ETSI recently also announced the creation of a new Industry Specifcation Group on cross-sector Context Information Management (ISG CIM) for smart city interoperability.

IoT standards are critical for interoperability, scaling, and extensibility of multiple platforms, allowing the support of future use cases and the management of technology life cycles, even more so for smart cities than for any other vertical due to its aggregated and holistic nature combined with very long Operational Technology (OT) product life cycles. This is even more important for carriers if they are going to take up their purported role as aggregators and orchestrators of open marketplaces. Orange and Telefonica are leading the way in standards- based smart city platforms through the adoption of and active participation in the FIWARE initiative.

15 www.abiresearch.com ROLE OF SMART CITIES FOR ECONOMIC DEVELOPMENT TABLE OF CONTENTS

1. introduction and executive summary ...... 1

1.1 Smart City Landscape, IoT Technology Trends, and Evolving Needs ...... 2

1.2 Carrier Strategies in the IoT and Smart Cities Value Chain and Ecosystem ...... 2

1.3 Recommendations for Carriers ...... 3

1.4 Key Message for Carriers: Standards ...... 4

2. Future roles of carriers for smart cities and the ioT ...... 4

2.1 Smart Pipes Provider: Added-Value Connectivity for Mission-Critical IoT and Smart Cities Applications ....5

2.2 Aggregator, Ecosystem Orchestrator, and Marketplaces Catalyst ...... 5

2.3 Is There a Future for Untelco Roles? ...... 6

3. divergent carrier strategies ...... 6

3.1 Carrier Strategies for Smart Cities and the IoT ...... 6

3.1.1. Build versus Buy ...... 6

3.1.2. Vertically Integrated, end-to-end Proprietary Solutions and service provision ...... 9

3.1.3. OPen standards-based platforms, Partnerships, and MarketPlaces ...... 10

3.2 Carrier Strategies: Assessment and Decision Criteria ...... 11

3.2.1. Assessment ...... 11

3.2.2. Decision criteria ...... 11

3.3 Metrics ...... 14

4. technology drivers and enablers ...... 14

4.1 MB-IoT and LTE-M...... 14

4.2 5G ...... 14

4.3 Fiber ...... 15

4.4 Standards-Based Platformization ...... 15

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