Telecom operators have for long been dedicated to driving IT applications in the economy and society, and supporting the “Internet+” fusion in various sectors. Given their natural advantages in big data and cloud computing as well as their key capacities in managing 5G networks, telcos are well positioned to connect smart devices across the city and create a unified and efficient internet of things (IoT) platform, which will be indispensable to smart city infrastructure.

Natural advantages

Telcos have the following natural advantages in facilitating smart city development:

  • 5G network development: The 5G network is the foundation for the internet of everything (IoE) as well as the pipeline for big data collection and transmission. As network builders and operators, telcos enjoy a natural edge in network resource, operations and management (O&M).
  • Edge cloud deployment: Given the growing volume of data that will be generated by future smart cities, city managers and users will have higher expectations, such as the need for real-time data and information. As an extension of central cloud, edge cloud is an effective solution to bandwidth waste and long latency issues. By efficiently processing the massive amount of data that a city generates in real time, it can help users accelerate the decision-making process. Since edge computing facilities can be deployed close to or inside base stations to share land, electricity and other resources with the stations, operators enjoy competitive costs and superior efficiency.
  • Big data monetisation: The telecom network is a circulation channel for all internet-generated data and information. As smart terminals become prevalent, almost every aspect of urban life has moved online, generating tonnes of data that can be used to produce accurate user portraits. With the further development of smart cities, IoE will become a reality by using the huge amount of pooled data, thereby creating tremendous business opportunities and social value. Given their network and edge cloud facilities, operators will be one step ahead in data collection and processing.
  • Service capability: As the service providers of telecom networks, telcos have a large professional service team, covering every county, city and province in the country and capable of offering comprehensive professional services 24×7. They are not only experienced in catering to ordinary consumers, but are also well trained in serving government and corporate clients. After years of training and practice, they have gained the experience and know-how of working on important projects, a strong sense of confidentiality, and the ability to ensure secure and stable operation of their clients’ IT systems.
  • Industry strengths: In recent years, telecom operators have been driving the transformation and upgradation of other sectors and have been closely following the latest internet developments in the areas of government administration, healthcare, education, tourism, manufacturing, innovation and entrepreneurship. This has led them to found their own internet subsidiaries and execute internet-related projects across the country.
  • Operation and management of a digital twin cities: With the commercial use of 5G, futuristic ubiquitous sensor connections and the data transmission network are now a part of reality, driving qualitative transformation through the growing amount of collected data. With major breakthroughs in IT such as perception modelling and AI, cities have entered the era of intelligence of things, where the concept of a digital twin city, as a technological path for new smart city development, has emerged. It has become a cutting-edge model for smart and sustainable operation. By applying big data, cloud computing, AI, three-dimensional visualisation and other technologies, and integrating data from micro units and IoT, telcos can develop a digital twin city that connects governments, enterprises and residents. This platform fully senses the operating status of the city and assists operators in decision-making by providing timely advice. Telcos can serve as service providers operating the smart city platform. They can also provide value-added services, such as the operation, support and maintenance of smart cities and micro units, to governments and enterprises.

New business models

In the era of 3G and 4G, the only available fee structure for mobile network service is based on data usage. As 5G technologies mature, business model innovation has become not only possible but also necessary for operators. In the 5G era, network function virtualisation, software-defined networking and network slicing technologies will add new dimensions to the service and business models of operators. In addition to charging by data usage, services can be priced based on use scenario, duration, region, bandwidth, latency and the number of connected devices, or a combination of any of these. On the one hand, this meets the need of customers for customised services, and on the other, it maximises the value of 5G networks.

Operators can also outsource their 5G network slicing capabilities to third-party service providers, which will then allocate resources to their downstream application users, and design a refined pricing scheme based on speed, bandwidth and the number of connected devices. The advantages of this model include lower operating costs, as telcos only need to deal with a few network service providers, and reduced network operation and management costs.

To add more value to their service offerings, operators in the 5G era will have to increase their involvement in various vertical sectors, developing industry-specific 5G applications with profitable business models, building vertical platforms and providing industry-specific solutions. Interested operators may look at selling the network slicing service to a vertical partner, which then bundles the 5G network with its own product offerings and sells to downstream clients. The proceeds will be shared with the operator. Apart from this, the operator can combine its network expertise with the vertical know-how obtained via acquisition, joint venture (JV) or cooperation, and directly sell solutions to industry clients. For this model to work, operators need to strengthen their ability to cooperate with third parties.

Cooperation as the way forward

Given the challenges of smart city development, such as the large scale of investment and the complexity of technology integration, it is well beyond the ability of any government agency or company to carry it out on its own. Thus, the future trend will be institution cooperation across different fields in the value chain. Tapping into their network resources and positive brand image, operators can work with industry partners to build up technologies and professional experience and drive smart city initiatives.

Given the huge cost of 5G network deployment, an innovative cooperation model and a well-designed revenue sharing mechanism must be proposed to alleviate the financial pressure of participants. Operators can consider cooperating with downstream industry users to jointly fund the 5G base stations needed in city units. In this model, a pricing scheme that sets different rates for internal and external traffic will be designed, giving industry users network access at a discount and allowing the renting of idle network resources to help recover some of the initial investment. For example, operators can build 5G base stations together with industrial parks and open up the network for use by factories, companies and employees in the park. The factories and companies that have invested in these parks will be eligible for a special discount on the data consumed by their equipment during production and processing, while the data used by workers or outside visitors will be charged by the operator, with revenue shared among these companies.

If any network resource is used after working hours, companies can choose to rent their private networks to other factories or companies in the park for additional income. This will also incentivise more companies to join in the early stage of investment. Alternatively, operators may consider financing via asset securitisation. With their good brand image and business reputation, operators can raise money from society by securitising their base station assets to alleviate their financial pressure.

Telcos can also look at forming JV to draw on each party’s strengths in technology, market and resources. Smart city development not only depends on technological progress and integration, but also requires operators to understand the needs and business logic of each vertical. In view of this, JVs between operators and vertical players have emerged as a model for cooperation. A pre-requisite and basis for this model is mixed ownership reform for operators. s

Based on Deloitte’s “5G Smart Cities Whitepaper”, released in June 2020