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