Infrastructure for smart cities and 5G: business models, partnerships and technologies to deliver efficiencies

MENA is such a diverse region, with some countries barely achieving full 3G rollout and others aiming to lead the way in 5G and smart cities over the next few years. At 2019’s TowerXchange Meetup MENA we brought together Phil Cooper, Managing Director and Operating Partner EMEA at Digital Colony, Gayan Koralage, Director of Strategy and Commercial at edotco and Wiktor Barcicki, who heads up technology economics at Etisalat International, to discuss some of the more innovative 5G solutions in the region and what the incentives and obstacles are to achieving smart city infrastructure. 

Smart Cities and 5G will be major topics at TowerXchange Meetup MENA 2020, in Dubai this January 28th and 29th, see more details here.

Download TowerXchange Meetup MENA 2020 prospectus

Gayan Koralage of edotco stated that Millennials want data at their fingertips, and smart city programmes will provide a way to capture data in real time, analyse and understand it. In this context, infrastructure becomes a great challenge as cells need to be densified, a small cell layer needs to be introduced and cloud companies have to enter the arena. 60-70% of the cost of building this infrastructure will be on the ground. 

A smart city is an umbrella group of solutions. Firstly they’re supposed to ensure a city’s resources are managed in an efficient way, with things like traffic energy lighting and routes for busses. All this is possible if you add a layer of automated efficiency that’s at the core of smart cities. Secondly it’s about how users interact with those interfaces. 

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 and for those we might need 5G to power massive IoT, which will power every trash can or lamppost. For operators who are being compelled to invest capex, there needs to be clear visibility into the use cases which will drive it. Virtual reality, augmented reality, remote factories, healthcare and other use cases are all being pushed as the future of 5G, but is there money to be made in each specific use case, and if yes, what’s the best way to do it? Does each use case support an operator’s investment in a specific area? 

Wiktor Barcicki of Etisalat said that when deploying technology in certain areas, it all boils down to the basic business case. Ideally, operators want to be able to build technology that can be shared across multiple use cases, but in some cases, say when connecting gas meters, a certain capex is required, which the operator won’t be able to monetise in any other use cases. For more general IoT networks, it’s about putting in a layer of connectivity and trying to work with partners to ensure the network is full while developing use cases together and collecting data on how users behave. 

Investors need to go back to first principles. If we look at why towers are a popular investment vehicle, it’s because they are similar to real estate with strong, investment grade counterparties and long term leases. When you move this into smart cities and converged infrastructure you have to get more comfortable with how the economics change. For Digital Colony, Phil Copper said they focus on what they can do and invest in and keep the characteristics their investors are looking for in terms of risk and returns. 

In the USA Digital Colony has over 30,000 small cell nodes in New York, they are rolling out smart city infrastructure with AT&T in San Francisco and their venture with Uber in Pittsburgh is pushing forward with automated vehicles. In Europe, Finnish Digita is looking into waste management with sensors on bins and evolving further. 

The most important principle is to look at whether they can maintain an economic model with long term leases, steady income and CPI related escalators. Smart cities are moving beyond just having mobile network operators as the counterparty. In building systems will see huge growth, often due to the fact that modern buildings are poor for connectivity and in these cases the real estate operator is the counterparty. For Digital Colony, they feel they can focus on the key criteria which drove them into the market in the first place, treating every small cell like a macro tower from an economic point of view. 

The main challenge is working out who will pay for it. Gayan said that edotco’s solutions are closer to the towerco model, creating multi-purpose infrastructures in places like Sri Lanka for real estate agencies or traffic control purposes. They barter with the municipal council for access and offer services based on this. In some cases edotco installs structures on behalf of the local authorities and then the location is available to lease up rent free. The impending 5G infrastructure and densification will result in a bigger role for independent towercos as smart city programmes will need to be driven by independent parties. MNO financials will make it impossible for them to pay for parallel infrastructure in smart cities, whereas the towerco model is return based and focusses on sharing the infrastructure. 

Etisalat owns a very diverse group of companies. In countries like the UAE and Saudi Arabia, there are high ARPU levels and a large share of public sector involvement in the economy, where small cells are more advanced and the government is often quite involved in the process. MENA governments often see the telecoms sector as a powerhouse for rolling out new technology. MNOs are currently tasked with taking on the infrastructure needed for the next generation of technology as there are so few independent infrastructure players in the market at the moment. When thinking about traffic per customer there are two ways of approaching it – either increasing the number of cells or the amount of available spectrum. In some markets it’s possible to obtain more spectrum and in others there are many new sites going in – it’s often a very different discussion market by market, and given the specifics of the region governments tend to take a much more active role than in the US or Asia. 

Government involvement (and a push for funding small cells) will stimulate demand. The question will be whether independent players, MNOs or the government themselves will drive the rollout. There are still unresolved questions around regulatory frameworks and the role of the public sector in the digital economy. It’s feasible that in the Middle East a government could take a large role in developing telecoms infrastructure, or at least will make street furniture available to whoever is willing to roll out the small cell layer. 

The towerco activity in the region will be a combination of local expertise and international independents with processes and backing coming in, each with their own sets of skills and knowledge to share. Phil Cooper from Digital Colony said that, as he sees it, in terms of smart cities and converged spectrum, markets are becoming more similar – edotco in Asia is doing what Digital Colony are doing in London, and towers are evolving in stages. While some towercos will stick to the knitting, others will enter more and more into the converged world. From an investment point of view, this means it’s easier to get into new markets, as long as towercos are prepared to start small and grow as long as there is access to strong counterparties, escalators and long term leases.  

Much of the challenge of urban infrastructure is that municipalities and local government can view it as a way to earn money, mistakenly assuming that operators have large budgets allocated to smart cities and digital infrastructure. This isn’t just the case in MENA and Transport for London are on their seventh attempt to make the London Underground a smart transport system while operators are struggling to make the economic case for investment. Governments need to make the journey from seeing 5G as a cash cow to conceiving it as essential for economic development. The benefits for governments aren’t through the rental of street furniture, but through reducing digital inequality and boosting economies. We need to see an increase in partnerships between private and public bodies rather than just form filling for permits if this is going to work. 

When you look at the value chain of smart cities, operators have only won a small part of that market, in a digital economy it’s the OTT players, not the mobile network operators, who have captured most of the value. Wiktor from Etisalat stated that when it comes to solutions for smart cities, mobile network operators want to be sure they can play a more relevant role in the value chain before committing huge amounts of capex. They are still trying to see which verticals are the most effective for them, and which models will work. 

Statistically 5G will roll out in urban areas first, using existing street furniture to do so. It’s imperative that towercos and MNOs work with government to find a commercial model which stands up, to allow a balance between towercos, MNOs and investors. MNOs need locations to provide speed and towercos must find pricing models which their investors are comfortable with, it will take time to get the balance right.

Smart Cities and 5G will be major topics at TowerXchange Meetup MENA 2020, in Dubai this January 28th and 29th, see more details here.

Download TowerXchange Meetup MENA 2020 prospectus