Towercos and MNOs drive forward smart cities

At this year’s 2nd Annual TowerXchange Meetup MENA the role of smart cities and 5G in enabling connectivity remained a major topic of discussion. Executives from edotco, Etisalat, DXB Entertainments and former COO of Digital Colony shared insights into the innovative smart city services being rolled-out in the region and addressed some of the key challenges and opportunities involved.

A smart city is an urban area that integrates information and communication technology and various physical devices connected to an IoT network. This enables the municipality to optimise the efficiency of city operations and services using sensors to collect data and then use that data to manage assets, resources and services efficiently.

If you break it down, smart cities are a group of use cases, some of which can be satisfied with 4G infrastructure, while others require shorter latency, more bandwidth and more connections – for those we might need 5G to power massive IoT. Many basic smart city applications are already in operation on existing infrastructure. However, a better and denser digital infrastructure is still required to enable greater capacity and/or latency use cases on a large scale, such as smart transport, and city-wide surveillance.

The requirements for providing connectivity presents significant opportunities for both mobile operators and towercos. Partnerships with municipalities and landowners will be crucial to enable the rollout of critical infrastructure. 

Participating in the creation and maintenance of smart cities will require a new way of working for towercos and MNOs. They may consider either forming new relationships i.e. with fibre companies or may opt to provide fibre themselves, consider managing active equipment in small cells and inbuilding solutions, providing data centre services or building data centre partnerships. There are a varying degree of considerations that towercos and MNOs will be undertaking.

Ultimately both towercos and MNOs are entering a new world, with new business models and transforming to new ways of working in the smart city landscape. But fundamentally the same models will hold; MNOs will look for new services to provide to consumers, enterprises and cities, and towercos will look for new digital infrastructure they can own and lease.

MENA is such a diverse region, so discussion of smart cities at TowerXchange Meetup MENA focused on what happened in the gulf, although smart city projects are live in less developed markets in North Africa and West Asia. Several countries within the region including the UAE and Saudi Arabia have commenced commercial application of 5G with smart city rollout of application and services.

According to a KPMG study the digital market is expected to double in size for the MENA region over the next two years. Many governments have issued digital strategies for their countries and significant investment is expected in infrastructure. With ambitions to become digital economies, there is a great impetus for towercos and MNOs to capture a share of the activity. 

New smart cities within MENA are being built from scratch through the strategic long-term vision and leadership of the governments and regulators in certain municipalities. It is this vision and endorsement that is allowing investment in the right technologies to enable the smart cites to progress. 

It is envisaged that in the next twenty four months the UAE will follow a leap-frog approach to smart cities with further enhanced connectivity. This will inevitably see a change in the social engagement of citizens. An example shared by Satyan Abraham of DXB Entertainments included the use of sensors detecting emergency vehicles within a certain vicinity, and the changing of traffic lights from red to green to allow free movement of traffic. 

5G will play a pivotal role in the enablement of smart cities. As increased data throughput becomes possible, operators need to explore ways to monetise the data and position themselves well to take advantage. 

The towerco business model is tried and tested, but towercos have almost always reached scale through purchase and leasebacks with mobile network operators. The model for smart cities will more closely resemble build-to-suit opportunities where towercos can provide the capex for new smart city and network infrastructure in return for lease payments. Whilst new opportunities are increasingly exciting in terms of the innovative services that can be provided by both towercos and MNOs, their business models set to look to change as smart cities develops, including inbuilding solutions, small cells and IoT. New technologies require that we adapt existing models.

Business models can vary from large public-private partnership contracts like in Saudi Arabia, UAE and Egypt in which capital is deployed according to an existing masterplan to other more bespoke arrangements. For example, Etisalat in the UAE offer some smart city services to a small population by monetising those services directly, such as parking and digital signage. The MNO formed a new division five years ago called "Etisalat Digital", comprising of more than 500 employees focused on introducing digital and smart services through end-to-end connectivity. 

With big projects such as Saudi Arabia’s mega city project – NEOM – comes big investment.  One of the biggest challenges to the development of smart cities is the cost of capex, with infrastructure being the biggest outlay. Government projects are largely driven by huge investments, however there remains an increasing number of small size local communities and enterprise zones that are looking to offer smart services to their citizens. 

Financing the capex required to create smart cities is a major blocker to creating the smart city and IoT-enabled world we expect. Besides the challenge of the capital required for investment, another barrier to entry is finding the right way to coordinate all the different elements of the smart city project, so it can go forward into its implementation stage. The major cost to run smart services, albeit small or large, require cities, operators and infrastructure owners to build and operate all the varying layers of infrastructure, including sensors, connectivity, hosting and processing data, building the interface for services et cetera. All this requires huge capex, with ROI relying on other infrastructure coming online at the same time, which is where most projects inevitably get stuck. 

As stated by Fadi Shanaah of Etisalat, the role of operators is not just to provide the connectivity. Operators need to orchestrate the whole framework across the ecosystem including contractors, banks and citizens. 

Etisalat have rolled out something they call “smart city as a service” which has proven to be an attractive model for the operator. They not only provide the connectivity and infrastructure for the client but also include the initial capex outlay, which is converted into a complete managed service approach. Services include deploying sensors, managing data and connectivity and providing a dashboard with relevant information that is collected and passed on to the client: all-in-all, offering a complete managed service approach. It is by taking this approach that the operator has enabled many companies to enter the digital transformation space due to capex availability from the very beginning.

Creating an off the shelf smart city model is difficult, but it is one way to drive scale and coordinate the mass uptake required to make smart cities work. It is a chicken and egg scenario in that the more people adopt smart services, the more sustainably services can be provided; the more services are provided, the more people will adopt. This is key to scaling up and achieving a return on investment. 

In the past decade MNOs have divested some of their tower assets and towercos have focused on managing sites and providing power, a relatively limited service. Moving beyond steel and grass and power, how does a towerco decide what capabilities to provide in the future? For example should a towerco become a fibre provider or offer fibre last mile connectivity? edocto have taken the decision to partner with solutions providers including small cells and inbuilding solutions rather than doing it themselves. By partnering edotco are able to offer the base layer of infrastructure which enables urban connectivity and smart city initiatives in their markets.

On the other hand, Etisalat decided that digital would play a big part of their strategy. Relying on telecom services alone is no longer a sustainable model and with declining year-on-year like for like sales. Therefore digitalisation became a natural growth area for the operator who invested heavily in creating “Etisalat Digital” which now contributes a big part of overall revenue. Fadi Shanaah explained that the operator is expanding “Etisalat Digital” regionally into Saudi Arabia and Egypt and currently engaged in many strategic projects in these countries. 

Smart cities require someone to play the role of master system integrator, as Etisalat has done. They must lead and bring together other partners in the ecosystem that are required to help deliver the different types of services. The role is not simply a project management one but looking at the services and creating stories can be replicated across multiple clients across different verticals. The operator deploys cloud-based services and offer them as a managed service through a monthly subscription model to clients, enabling for mass adoption of the services. 

Thinking through the business case and justifying the investment for smart cities and 5G is a challenging process for all. 

In the UAE, most of the country has 5G coverage with 1,000 5G sites installed by Etisalat. For the operator, their ROI will not come from the consumer, whilst they will pay a part of the contribution, it is regarded that the main ROI will recovered from B2B use cases. 

5G offers operators the opportunity to engage in multiple verticals including industrial, healthcare, education, entertainment et cetera to enable them to generate new revenue streams through 5G services. Leveraging 5G investment to enable live traffic control, security services or IoT opens up new streams of revenue with government and commercial partners.

In the coming year when adoption of 5G devices increases in the mass market, there will be many smart city applications and services ready for consumers to enjoy which will drive demand for sites, and as a result a new way of doing business will be introduced. The panel agreed that 5G opens up new dimensions for companies allowing them do more with consumer engagement. 

With the rollout of smart city programmes across the MENA region, the fundamental question of how to monetise the investment occupies board-room discussions.

Towercos and MNOs have to have an open mind on how smart cities open up new opportunities for profitable investment in communications infrastructure, as it is an evolution of the standard towerco and MNO business models. Europe provides an example of monetising inbuilding solutions, whereby the connectivity provided indoors is charged to the landlord. Operators do not incur the cost, it is passed on to the tenants, owners or property developers, and in essence the real estate community becomes the customer. Therefore, monetisation strategies will differ depending on what the service is and who pays for it.