> Executive Briefing

Lars Theobaldt
Lars.Theobaldt @ detecon.com

Living Cities
New convergent business
in urban markets
The world’s population is concentrating increasingly into cities. In
some areas the boundaries between buildings and ICT business are
blurring. This is enforced by construction activities in the Middle East
and Asia, where completely new cities are being created and throwing
the legacy world over board. Advertisers and retail are viewing the
towns in the light of their potential for proximity marketing and
location-dependent services. The technology is there, but who will
bring the complex B2B2C business models together?

We have identified about 250 Living City initiatives world-wide. For

telecom operators, this trend is resulting in the emergence of new
customers and competitors. Living cities ring-fence the current
customer base and enable an early positioning for the lucrative urban
hotspot market. Furthermore, big cities are the starting point for taking
the reins of the end-to-end customer value chain for Next Generation
Network Services. Last, but not least, Living Cities are a perfect
testing ground for convergent services, customer care and partner
platforms.

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Living Cities: New convergent business in urban markets2

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Significant demand for urban quality of life

60% of the world’s population will live in cities by 2030. The environmental situation and
quality of life to cope with this increasing urbanization have to be ensured. Although
urbanization is truly global, it is particularly interesting to analyze the construction of
completely new cities and agglomerations, in particular in the Middle East and Asia, as a
show case. Here property development and construction firms are competing fiercely for
multi-billion-dollar projects.

Whereas the battle for the living room is being fought by telcos, content providers,
broadcasters, and advertisers, it is also important to note that the construction business is
starting to harness ICT. In their eyes, convergence gets a new meaning. Broadband is a
‘must’, like electricity or water. Linking the Outlook calendar to the meeting room door or to
enhance security at the main entrance is only one example of where ICT and buildings
converge.

Leaving the building, fixed-mobile applications like interactive city light posters on bus
shelters turn telecommunications into distribution networks, where business can connect
with customers over a near-field-communication mobile device. Proximity Marketing, i.e.
targeted advertising, creates new channels for business and advertisers. Municipalities can
deliver integrated city infrastructure management services, like crime prevention or road and
travel information services. Citizens then experience a better quality of life by means of fully
convergent ICT services, what we define as the ‘Living City Concept’. The different aspects
of ‘life’ in ICT terms can be broken down into the components: administration, culture and
entertainment, tourism and city marketing, shopping, health, security (public and
environmental), public transport, and education.

There is significant demand for urban quality of life and convergence, and the technology is
there. However, municipalities and citizens are challenged by the fact that they need to act
as their own systems integrators to ensure seamless information, communication,
entertainment and transactions. The major challenge is a meaningful combination of these
components on a limited geographical scale. But who is going to translate this into a
sustainable business model?

Enabling B2B2C business models is the key to success

There are compelling reasons for telco operators to be interested in Living City concepts.
Their success and profitability in migrating towards NGN/FTTH will be determined in the
most densely populated areas, with the highest customer penetrations. Enabling usage-
based B2C telco business as well as transaction-based B2B models is key to success. The
‘local community’ is an important step towards ‘social communities’ for the IP world.

Detecon International GmbH z 05/2008 2 www.detecon.com

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Winning a position as the mediator between the residents and visitors of a city on the one
hand, and the businesses and public services on the other is a complex endeavour, and no
one can achieve this on their own. All participants in today’s IP-Eco-Systems are closely
linked. The framework used for the ICT value creation analysis has three interdependent
levels:

1. Access & Connectivity: at home, low and high mobility, seamless handovers.

2. Communication & Enabling Services such as instant LBS messenger, proximity

marketing and transaction services.

3. Networked living, for example the virtual town hall, public transport, parking and
one-stop-shopping.

On this basis a variety of business models are to be identified (refer to figure 1). They range
from a connectivity provider to running a target advertising platform and offer, depending on
the positioning and the business partner network, interesting opportunities at limited risk.

LC Value Creation Framework for B2B2C Possible Business Models

@ home These different business models
@ hotspot present a first level and need to
@ mobile be detailed according to the
partnering requirements
Customer Business
Visitors
(Residential) Partners* Q Target Advertising/CRM
Provider (Service Delivery
Billing, Platform)
Content
Payment ICT Services and Lifestyle Applications Provision
Transactions
Q Ubiquitous Control Center
Service Provider for e.g.
Devices

municipality services

Billing, Network Enabling Service Enabling Application/ Q Facility Management Provider

Accounting, Content
Payment, Mgmt.
O Intelligent buildings
(CRM) Enabling Platform Management System O Urban services

Q Connectivity Provider/Teleport
ICT
(retail & wholesale)
Networks (e.g. NGN)

* examples for illustration only

Fig. 1: Value Creation Framework for Living Cities

The future is now: The Living City experience today

Flagship projects for Living Cities can be found all around the world: From Korea to Saudi
Arabia, the United States, Belgium, or Germany. Detecon has identified approximately 250
Living City projects being planned and implemented around the world. The different
characteristics of the Living Cities can be explained by the varying regional cultures as well
as by the divergent, sometimes conflicting, interests of the market participants. Whereas in
South Korea for example the ‚Ubiquitous Cities’ are an expression of the central political will

Detecon International GmbH z 05/2008 3 www.detecon.com

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– Korea Telecom is working on more than 10 different U-City projects where numerous
different aspects of life and applications are to be managed using centralized servers – the
trend in the United States still concentrates on access (free WiFi).
Even within Europe there are regional trends: whereas in central and southern Europe
integrated telecommunications companies are driving the initiatives, there are a significant
number of municipality and utility-driven Open Access Networks in the more northern
countries: Sweden, Finland, Denmark and also the Netherlands. They see opportunities to
reduce their costs and improve general living conditions for their residents and businesses.
At least one ICT vendor was identified in each analyzed Living City project. In addition to
testing the equipment the suppliers can gather experience in Managed Network Solutions,
which are of increasing importance to them. It is very tempting for vendors to view big cities
as customers to be won directly, thus cutting off their telco customers’ access to added
value.
All this puts pressure on telco operators. We could determine a set of compelling reasons for
them to launch or get involved in Living Cities. The first obvious objective is to position early
for the lucrative urban hotspot/connectivity market. Furthermore, big cities are
important ‚communities’ in the Web 2.0 era, thus the starting point for taking the reins of
the end-to-end customer value chain. New and effective customer control points are
mandatory between the customers’ homes/offices and high mobility in various contexts
where most communication needs arise. If well-managed, a participation in a new,
transactions-oriented B2B2C business model (ICT as a sales & marketing network) can be
ensured. Last, but not least, Living Cities are a perfect testing ground for convergent
services with limited risk involved: not only for new products, but also for sales, service and
customer care. Some telco operators have realized that it is important to address financial
property developers and construction firms, partly in view of their international strategy.
Figure 2 shows four different types of Living City projects from a telco perspective
strategy.

Existing cities New cities

Municipality & utility-driven Top-down state initiative

Q The Netherlands: Amsterdam CITYNET Q Korean government ‘ubiquitous society’ concept

Q Sweden: Borlänge City
Q US: San Francisco TechConnect, NY Downtown
Alliance
Q Canada: Toronto Digital City Network
Q Taiwan: Taipei, Free WiFi
with their premium partner Korea Telecom runs
and plans 10 comprehensive Living Cities
Q Saudi Arabia Smart City Riyadh
Q iDA Project in Singapore

Company Innovation Flagship Cities Top-down state initiative

Q Germany: Deutsche Telekom’s T-City in Q Tecom, DU & SAMA: Dubai Internet City as well
Friedrichshafen with Alcatel Lucent as two other projects on Malta and Kochi. Up to 5
Q Belgium: Microsoft, Cisco, Telenet, NSN are more cities by 2010 announced
participating to i-City in Hasselt/Leuven

Fig. 2: Typology of Living City Projects

Detecon International GmbH z 05/2008 4 www.detecon.com

 Recommendation
Living Cities: New convergent business in urban markets5

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Conclusion & Recommendation

The demand for increasing the urban quality of life is significant and will be at the heart of the
Next Generation Network roll-outs, services and business models. Although the B2B2C
Living City business models are more complex, well-defined opportunities can have a
significant leverage on your business at comparatively low risk.
Before setting up a new or getting involved in an existing Living City project, we recommend
adding the following discussion points to your boardroom agenda:

How dependent is your current business on cities? Review your existing customer
segmentation with respect to geo-marketing criteria and NGN deployment plans.
What are your target markets and preferred partners with respect to ICT convergence?
Identify new initiatives and opportunities with cross-industrial players on a national and
international level. Match it with your international/emerging market strategy.
Do you have the right offer for key customers? Define value propositions (incl.
extended partner portfolio, building automation, application software, CRM service providers,
transaction providers) for property developers and ‘mega municipalities’ and establish
key account bid teams.
Does it make sense for you to use ‘Living Cities’ as a testing ground for innovation
management, partner plazas and pre-launch trials?
What is the sense of urgency for your company to join the Living City bandwagon, and how
strong is your ability to go for this opportunity?

At the end of the day, Living Cities can be an important competitive weapon on the journey
towards Telco 2.0!

Detecon International GmbH z 05/2008 5 www.detecon.com