Ansgar Schlautmann Issue: North America I 2016
Article no.: 13
Topic: “Internet of Things” – How Telcos can “connect the dots” within the ecosystem
Author: Ansgar Schlautmann
Title: Head of Gobal Competence Center “Innovative Business Designs”
Organisation: Arthur D. Little
PDF size: 218KB

About author

Ansgar Schlautmann is the Head of the global competence center “Innovative Business Designs” within in Arthur D. Little’s TIME (Telecommunications, Information, Media and Electronics) practice, which supports companies to adopt and profit from emerging technologies and business models.

For the past 18 years, Ansgar has worked for large international telecommunication companies as well as media and internet players He is in charge of the growing IoT (Internet of Things) ecosystem services and has done multiple projects in this space, primarily focusing on the emerging ecosystem development and business-models required for Smart Cities, Connected Cars and Smart Buildings.

Article abstract

Telecommunication players across the world are engaging in the smart-city context, but mostly as “connectivity suppliers” rather than significant drivers of the initiative. However, we see very successful telco engagement in cities such as Valencia and Nanjing, where operators are playing a significant role in enabling smart-city platforms. Telecommunication operators therefore should assess the possibility of stronger positioning within this space, engaging in more services than pure connectivity provisioning.  

Full Article

The “Internet of Things” is one of the hottest topics within the global industry environment. All kind of products are becoming “connected” or “smart”– from home appliances to cars and trucks to vending machines and fitness devices (wearables and smart watches).

Enabling products to communicate with the outside world offers tremendous
opportunities for value-added services and opens up significant space for new and innovative business models around the connected device (“smart object”). However, the market for services around connected devices is still in a relatively immature stage – sustainable business models are in “trial-and-error” mode.

Within the “Internet of Things” environment, the “smartization” of cities currently looks to be the most promising and pushed topic – smart-city initiatives are constantly evolving around the globe. At present, more than 100 cities are implementing some kind of smart solution within their ecosystems. By 2020, we predict the market will grow to a whopping size of more than two bn USD globally.

As of today, Europe, North America and Asia are the dominant regions adopting this concept – investing in big data-enabled services. This is also extending into the private sector by providing information to allow the development of “open” smart-city services.

The majority of smart-city investments today, however, flow into smart grids and the reduction of carbon emissions, public broadband (e.g. free Wi-Fi), and building automation. During the next five years, we expect a shift in focus towards more complex solutions such as security solutions, smart transportation, smart health and smart government systems.

Overall, the scope of smart cities is diverse and highly complex due to the enormous amount of use cases that apply within the government, the public and the private sector. Arthur D. Little has developed a framework consisting of ten vertical segments that are relevant within the overall smart-city ecosystem:

Establishing a smart-city concept usually starts with a significant marketing campaign, followed by very selective “pilots” that cover only one or two vertical segments with very limited scope, which will be extended over time. However, this evolutionary approach tends to lead towards a non-integrated, siloed service concept that lacks cross-vertical use cases (e.g. 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.

To overcome this short-coming, cities need to implement “horizontal” service platforms that aggregate and share information and services across the various verticals. This, however, is a difficult task once a significant amount of independent verticals are established. Arthur D. Little therefore recommends a more strategic approach for cities to allow the smart city to unleash its full potential. A common framework and dedicated “aggregation” on a centralized platform (e.g. Nanjing, Valencia) ensures a high degree of usability and hence allows significant improvement in GDP growth of the relevant city.

Telecommunication players across the world are engaging in the smart-city context, but mostly as “connectivity suppliers” rather than significant drivers of the initiative. However, we see very successful telco engagement in cities such as Valencia and Nanjing, where operators are playing a significant role in enabling smart-city platforms. Telecommunication operators therefore should assess the possibility of stronger positioning within this space, engaging in more services than pure connectivity provisioning.

Based on recent projects, Arthur D. Little has developed a framework for telcos to engage in this environment that allows clear positioning within this highly complex ecosystem. It is based on three main dimensions:

1. Vertical segments: Which vertical service spaces are part of the smart-city initiative, and what are some capabilities required within these verticals that can be enabled from a customer perspective?

2. Business model: Which capabilities exist/are required within the telco to position itself along the value chain? E.g., will only connectivity be provided, or can the operator position itself as a “general enabler” for the overall smart-city ecosystem?

3. Partnering: Within the smart-city context, telecommunication players will require solution partners (e.g. platform suppliers, application developers, hardware, etc.) that need to be managed across the ecosystem. Hence, telcos need to develop clear partnering strategies that allow an end-to-end service space towards the government and city.

In order to define the possible positioning within the smart city context, telecom operators need to consider asking strategic questions:

1. Vertical or horizontal service offering:
Selective vertical activities often seem to be an attractive opportunity for operators, as the complexity is relatively low and a relatively short implementation time results in fast, however limited, revenue potential. Arthur D. Little recommends not focusing on single verticals within the smart-city context without keeping the “horizontal” service enablement in scope, i.e. also allowing use of the capabilities across other verticals. As an 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 (e.g. security/police/housing cooperation). This logic already implies that there is huge potential for “horizontal” service aggregation and enablement across the various vertical service spaces.

2. Business model options
Within the smart-city environment, telcos generally act as connectivity providers, e.g. providing wireless broadband access for free in selective places within the city. Given that this business model is not only jeopardizing mobile broadband revenues from classical mobile broadband tariffs, telcos need to consider how to “move up” the value chain towards more “solution-oriented” services in which clear differentiation and revenue potential exists.

Therefore, Arthur D. Little suggests that telcos position themselves, rather, in the platform/aggregator role, moving from “passive” platform operators towards active “managed services” providers – resulting in the provisioning of own (horizontal) services towards the various vertical segments. However, to achieve this strategic position, telcos need to have a clear mandate from the government/city council, as the Telco effectively becomes the “hub” for the smart-city environment.
As a further enhancement of the positioning, telcos eventually could move into the enablement of specific vertical services – which would allow for further enhancement of the value share.

3. Partnering approach

As within the overall “Internet of Things” value chain, the breadth of capabilities required within the smart-city context is huge, and no player as of today has the ability to cover all areas at once. Hence, teaming up with partners is paramount to successful engagement within this ecosystem.

Telcos traditionally are very good in connectivity and service provisioning; however, they 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 partners from these areas and join forces through dedicated partner management.

The capability 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 (e.g. the City of Manchester: “Open Innovation platform”), resulting in a “developer garden” that requires clear standards, commercial models and lifecycle management capabilities.

The organizational setup of such a smart-city service provider, hence, significantly differs from the classical telco organization – it might therefore require structural separation of the “smart-city enabler” or even the setup of 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.

Conclusion:

Telecom operators can significantly benefit from the increasing amount of “Internet of Things” activities within a city, or even in a state or private sector. In order to fully exploit the benefits of a smart city, governments and councils will need to look increasingly for smart “enablers” that bring the various use cases together and aggregate information to allow provision of powerful, cross-vertical use cases and data-based business models to the ecosystem. Telcos should consider stepping into this “horizontal” service space by offering not only connectivity, but also powerful platforms, big data analytics and horizontal capabilities. In order to accomplish this quickly, telcos need to team up with partners (e.g. system integrators, IT players) and form conglomerates/joint ventures that also have the ability to adopt these services across multiple cities/regions.

Arthur D. Little has gained significant experiences within the “Internet of Things” Ecosystem. We are supporting leading global smart cities and working permanently on “smart home”, “connected car” and “smart energy” projects in the private sector on a global scale