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AT&T Is 3 Steps Closer to Seizing the $1.7 Trillion Smart City Opportunity

By Scott Levine - Jan 31, 2016 at 11:00AM

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Building the city of tomorrow requires an innovative infrastructure -- these days, mobile connectivity is as important as steel and concrete.

Source: AT&T

It will be difficult to recognize our most advanced cities -- after all, there will be neither wrecking balls nor cement mixers crowding the urban streets. However, AT&T (T -0.24%) and other companies behind the Internet of Things are making American cities a lot smarter. Recently, AT&T launched an initiative to further facilitate the transition -- a transition worth $1.7 trillion according to research from McKinsey.

Testing, testing, 1, 2, 3
Already working to increase connectivity within cities, AT&T has created a new framework that provides IoT solutions for city managers. The company will be piloting it in three locations: Atlanta, Chicago, and Dallas. Partnering with Cisco Systems, Qualcomm, IBM, Intel, and General Electric, AT&T is offering the cities the ability to address infrastructure needs, such as remote monitoring of roads, bridges, and buildings; citizen needs, such as real-time notifications of street lights and parking meters; transportation needs, such as real-time updates of train and bus arrival times; and public safety needs, such as gunfire detection technology for police officers.

Overall, the value proposition AT&T offers city managers is considerable. According to Mike Zeto, general manager of Smart Cities, AT&T IoT Solutions, the company's "holistic strategy can help cities save money, conserve energy, improve quality of life, and further engage with their citizens."

Plenty of opportunities . . .
Though AT&T's announcement focused on those three locations, the company will be testing the new framework in seven additional cities. During a September announcement when the Obama administration announced a smart city initiative that will invest more than $160 million in federal research, AT&T stated its intent to test its smart city technology in a total of 10 U.S. cities. The federal initiative builds on growing momentum for smart city innovations. According to Navigant Research, smart city projects have increased nearly 40% over the past two years, growing from 170 in third quarter 2013 to 235 in third quarter 2015.

Availing cities of the ability to implement smart solutions requires some infrastructure upgrades. For smart city projects to succeed, there must be sufficient bandwidth -- all of those sensors and devices generate massive amounts of data. Preparing itself to meet this demand, AT&T has spent the past three years aggressively expanding its fiber network. Last week, the company announced that it has added one million additional business customer locations to its fiber network since 2012. By 2018, AT&T plans on completing its fiber expansion plan, at which time it will reach more than 14 million residential and business customer locations.

And threats, too
As AT&T pushes further and further into the smart cities market, it's bound to face increasing pressure from fellow telecoms Verizon (VZ -0.55%) and Sprint (S).

Sprint, partnering with Cisco, is deploying an intelligent Wi-Fi network that Kansas City, Mo. is using as the basis of its Smart+Connected City ecosystem. The project will take 10 years to complete and cost an estimated $15 million. The conversion from traditional to motion-activated LED streetlights alone could yield savings of more than 80%, according to installer Sensity Systems.

Generating $690 million in IoT revenue -- an 18% year-over-year increase -- in 2015, Verizon is the largest fiber optic Internet provider with availability for more than 40 million people. In providing smart city solutions, Verizon helped the city of Lansing, Mich. reduce the energy and maintenance costs of its street lighting by 70%. Street lighting, in and of itself, looms large in city budgets -- Navigant estimates that, excluding maintenance costs, street lighting can account for up to 40% of a municipality's electricity bill.

The takeaway
In presenting its new framework to Atlanta, Chicago, and Dallas, AT&T is further distinguishing itself as a leader in smart city connectivity. Moving forward, though, the company is up against fierce competition within the IoT space. Regardless, AT&T will surely seize some of the $1.7 trillion smart city market. Interested investors should dig deeper, or course, before donning a construction helmet as AT&T retrofits American cities.

Scott Levine has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Qualcomm. The Motley Fool owns shares of General Electric Company. The Motley Fool recommends Cisco Systems, Intel, and Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

AT&T Inc. Stock Quote
AT&T Inc.
T
$18.52 (-0.24%) $0.04
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$45.55 (-0.55%) $0.25
Sprint Corporation Stock Quote
Sprint Corporation
S
International Business Machines Corporation Stock Quote
International Business Machines Corporation
IBM
$138.11 (1.14%) $1.55
Intel Corporation Stock Quote
Intel Corporation
INTC
$35.90 (-0.81%) $0.29
General Electric Company Stock Quote
General Electric Company
GE
$80.02 (-1.29%) $-1.05
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
CSCO
$46.91 (0.31%) $0.14
QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
QCOM
$149.18 (-0.57%) $0.85

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