As pointed out in Part 1, discussion as to whether ZTE's stated ambition and target to be the world's leading vendor of smart city solutions cannot be divorced from a thorough analysis and critique of what we mean by a Smart City in the first place and what that implies about the size and structure of the related market. This is particularly so given the wide variation, up to 80x, in consultant estimates of the size of the global smart city market. One way of looking at this is to examine a few of the national programmes that have now been announced in a large number of countries.
The Indian drive for smart cities
The Modi government has taken what superficially looks like a very positive approach to the issue of the creation of smart cities in India, with 100 cities listed and the first 19, plus New Delhi (NDMC) to be funded this year, spread across 11 states are as follows: Andhra Pradesh - Visakhapatnam and Kakinada; Assam – Guwahati; Gujarat - Ahmedabad and Surat; Karnataka -- Belagavi and Devangere; Kerala – Kochi; Madhya Pradesh - Bhopal, Indore and Jabalpur; Maharashtra - Pune and Sholapur; Odisha - Bhubaneswar; Punjab – Ludhiana; Rajasthan - Jaipur and Udanpur; and Tamil Nadu - Chennai and Coimbatore. Reportedly, the remaining 80 cities will be funded in 2017.
There are two main points to make, other than a discussion on the crucial issue of funding. The first is that despite the hopes (and hype) of U.S. vendors there does not seem to have been particularly strong emphasis in the announcements of the programme on IT issues other than that of communications. The main emphasis has been on making them clean, healthy and attractive environments, and that leads on to the second point that these are, by Indian standards, already some of the best places to live. In other words, Modi is making the decision to make some of India's nicest cities even nicer, rather than spend the money on the slums of Mumbai and Calcutta. There seem to be at least two reasons for this. First, many of these are tourist cities and the money being spent is an investment in success - hopefully the return on the money spent will be high in terms of increases in visitors. Second, several of these cities are growing quite fast and there is a good argument that setting high standards that will then be maintained despite the pressure of growth is a sensible investment in the future as it may be easier for these cities to efficiently absorb the drift of migrants from rural areas than poor congested cities.
As far as the funding is concerned, this is quite a complicated issue as it may involve at least four different sources: grants from the federal government; grants from the state government; grants from foreign governments, in some cases in support of vendors from their country, or international NGOs; and international consortia who see the opportunity to take advantage of the momentum created by other sources. Also, all this is a work in progress and if it proves successful investments may rise or if it proves otherwise may be cut off.
Specifically, under the Indian Smart City program, these 100 cities will be developed as smart cities by 2019/20 (this looks ambitious), with the central government providing around INR 48,000 crore ($8 billion), or an average of almost INR 100 crore per city per year for 5 years. An equal amount is supposed to be contributed by the state, region or municipality, plus funds from other sources such as PPI, municipal loans and foreign governments.
The minimalist Australian approach
On April 29th Australian PM Malcolm Turnbull, speaking at a Cities Summit in Melbourne, announced government support for a national smart city program designed to support what he called the '30 minute city', i.e. where any individual can gain access to any of the locations or services they need within 30 minutes. The official report on the project noted that it had been long observed that people across the world's cities will average no more than 90 minutes travelling each day. If commuting time starts to exceed that limit, most people will adjust their transport mode, change job or move home. Specifically, the Turnbull program will establish an infrastructure financing unit to work with the private sector on innovative financing solutions, and has committed A$50 million to accelerate planning and development work on major infrastructure projects to develop business cases and investment options.
The Ericsson approach
In November 2014 Ericsson released its second annual interactive Networked Society Report, in which it looks at the relationship between what Ericsson calls ICT maturity and urban development for 40 cities worldwide. Ericsson's definition of ICT maturity is based on a number of parameters such as smartphone usage and on the face of it there should be little reason to question its conclusions. The ranking was as follows: 1. Stockholm; 2. London; 3. Paris; 4. Singapore; 5. Copenhagen; 6. Helsinki; 7 New York; 8. Oslo; 9. Hong Kong; 10. Tokyo; 11. Los Angeles; 12. Seoul; 13. Taipei; 14. Munich; 15. Miami; 16. Berlin; 17. Moscow; 18. Barcelona; 19. Sydney; 20. Warsaw. There were some changes from 2013, with Munich, Berlin, Barcelona and Warsaw added to the Top 20.
The urban issues Ericsson looks at in its report cover issues such as social inclusion, collaboration of people in the management of their cities and economic competitiveness, all of which it believes are significantly driven by a city's level of ICT usage. This ranking can be broadly assumed to be Ericsson's ranking of the world's smartest cities, although it does not provide any absolute reference standard. However, if one looks at a city like London, which Ericsson ranks second in its listing, it is a very long way from having the kind of integrated management systems for the city that are implied by the smart city ideal.
The U.S. approach
In September 2015 during the White House Smart Cities Forum put on by the Office of Science and Technology Policy, it was announced that the federal government would be making available more than $160 million in research and technology collaborations to help communities across the country tackle key smart city challenges, from fighting crime to reducing traffic congestion to fostering economic growth, as well as developing new solutions in safety, climate preparedness, energy, transportation and health. The $160 million guaranteed figure would be made up of $45 million from The National Science Foundation and NIST, plus $115 million from the Departments of Transportation, Homeland Security, Energy, Commerce and the Environmental Protection Agency, to develop new solutions in safety, climate preparedness, energy, transportation and health.
At the same forum a number of other smart city initiatives were announced, including the launch of a Pittsburgh-originated program based on more than 20-city-university R&D collaborations, supported by a grant from the MacArthur Foundation, which it was claimed could result in more than 60 smart city projects in the next year. It also announce the extension to national level of Envision Charlotte, a PPP in Charlotte, that reportedly has achieved a 16% reduction in energy use in participating buildings, an IBM Smart Cities Challenge initiative in Detroit, a project in Chicago called City Digital and the setting up of a group in Dallas called the Dallas Innovation Alliance to look at ways of upgrading the city.
The above shows that there is still far from any meaningful consensus by governments or vendors on what is meant by a smart city and that is confirmed by the fairly low levels of investment being made by governments, which seem driven as much by political pressure and the smoke and mirrors presentations of vendors. Considering how many years this theme has been around and the volume of self-publicity putout by Cisco and IBM this still all looks very tentative and confirms the view that at least for the moment, this is still quite a small market and one that is not growing that fast. That is not to say that there is not a genuine long term opportunity that may eventually reach a decent size.