Building next generation sustainable cities: A road map for economic, social, and environmental sustainability

City governments can respond to the challenges of urbanization by taking a "digital city" approach, which involves using advanced infrastructure and solutions to deliver improved city services. This will allow them to provide services for more people, encourage economic growth, and implement environmental sustainability.

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Building nextgeneration sustainable cities A road map for economic, social, and environmental sustainability

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Contacts

Abu Dhabi Samer Bohsali Partner +971-2-699-2400 samer.bohsali @strategyandpwc.com Beirut Walid Tohme Partner +961-1-985-655 walid.tohme @strategyand.pwc.com Chicago Mike Connolly Senior Partner +1-312-346-1900 mike.connolly @strategyand.pwc.com Dubai Abdulkader Lamaa Principal +971-4-390-0260 abdulkader.lamaa @strategyandpwc.com

Düsseldorf/ Stockholm Roman Friedrich Partner +49-211-38900 roman.friedrich @strategyand.pwc.com Frankfurt/Dubai Olaf Acker Partner +971-4-390-0260 olaf.acker @strategyand.pwc.com Houston Kenny Kurtzman Senior Partner +1-713-650-4100 kenny.kurtzman @strategyand.pwc.com Kuala Lumpur/Sydney David Hovenden Partner +61-2-9321-1900 david.hovenden @strategyand.pwc.com

London Richard Rawlinson Partner +44-20-7393-3415 richard.rawlinson @strategyand.pwc.com New York Christopher A.H. Vollmer Partner +1-212-697-1900 christopher.vollmer @strategyand.pwc.com São Paulo Ivan de Souza Senior Partner +55-11-5501-6200 ivan.desouza @strategyand.pwc.com Shanghai Andrew Cainey Senior Executive Advisor +86-21-2327-9800 andrew.cainey @strategyand.pwc.com

Sydney Peter Burns Partner +61-2-9321-1900 peter.burns @strategyand.pwc.com Zurich Alex Koster Partner +41-43-268-2133 alex.koster @strategyand.pwc.com

About Strategy&

Strategy& is a global team of practical strategists committed to helping you seize essential advantage. We do that by working alongside you to solve your toughest problems and helping you capture your greatest opportunities. These are complex and high-stakes undertakings — often game-changing transformations. We bring 100 years of strategy consulting experience and the unrivaled industry and functional capabilities of the PwC network to the

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This report was originally published by Booz & Company in 2014.
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Executive summary

Urbanization is one of the most important demographic forces affecting municipal governments, and it will remain so for the foreseeable future. Some 70 percent of the world’s population will live in cities by 2050, up from slightly more than 50 percent today. As a result, governments must provide services for more people, while also encouraging economic growth and implementing sustainable environmental practices (despite sizable budget constraints). Technology can help policymakers address these challenges, through the creation of “digital cities,” which use advanced infrastructure and solutions to deliver better city services that meet the economic, social, and environmental challenges of urbanization. Digital cities require five elements: 1) infrastructure, defined as a backbone of fiber-optic cable that connects city agencies, residents, and businesses; 2) convergence, or a central integrated layer that can coordinate data among multiple applications; 3) services, or the digitally enhanced functions of city government, such as healthcare, transportation, education, and municipal services, among others; 4) access points, including smartphones, tablets, urban transit elements, and other devices; and 5) end users, or the government agencies, residents, visitors, and businesses that use these enhanced services. Becoming a digital city requires that urban governments become more mature in their application of information and communications technology (ICT). This can be particularly challenging in older environments that already have dense infrastructure in place, such as “brownfield” cities. However, governments that take steps — even small, incremental measures — to strengthen their ICT and offer enhanced e-services will reap sizable benefits. Brownfield cities can also take advantage of the disruptive effects of digital technologies to leapfrog obstacles. They will be able to more effectively deliver services to their constituents — residents, visitors, and businesses — while growing more economically competitive and environmentally sound.

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The challenges of urbanization

Urbanization remains one of the most potent demographic forces around the world, creating cities of unprecedented scale and complexity. According to the United Nations, more than half the world’s population currently lives in urban areas (the 50 percent threshold was crossed in 2008 for the first time); estimates project that 70 percent of the world’s population will live in cities by 2050. Although many of the fastest growing cities are in emerging markets, developed countries face a related set of problems with urbanization due to urban sprawl. The result is growing demand on infrastructure, services, and resources (including water and energy), which governments increasingly struggle to meet. This problem is exacerbated by the fiscal challenges that many cities and countries now face, due to continued economic uncertainty. However, the rise of digital technology gives policymakers the tools to better meet the challenges of urbanization. Digitization — the mass adoption of connected devices by governments, enterprises, and households — is transforming people’s lives. Digital applications, at both work and home, are driving economic growth across industries, leading to stronger job creation, an improved quality of life for citizens, and significant social and environmental benefits. For example, energy-monitoring technology and instant data feeds allow governments, companies, and citizens to use energy more efficiently. In the U.S., digital utilities infrastructure has reduced leaked energy and overall consumption.1 The next step is to apply digitization more directly to urban planning, with the goal of creating “digital cities,” or intelligent ecosystems that are better able to meet the challenges of growth and sprawl. Unlike traditional cities, which have emerged haphazardly, digital cities are designed around a multi-tier ICT framework that uses integrated infrastructure to deliver value-added services such as e-health, e-government, and e-transport, among others. The goal is to enhance the lives of citizens and visitors and streamline the operations of businesses and governments.

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For example, Singapore is currently implementing a 10-year master plan (called “intelligent nation 2015” or iN2015) that will transform the city-state through digital technology. Similarly, in 2012, the European Commission launched a European Union-wide smart cities initiative that uses digital technologies to foster sustainable urban growth in the areas of energy, transportation, and ICT. In the United Arab Emirates (UAE), Dubai announced “Smart Dubai,” a five-year plan to transform the emirate into a smart city.

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Digital city benefits

For city leaders, there are three key benefits to the digital-city approach: fostering economic development, improving the quality of life, and making cities more environmentally sustainable. Economic development Digital cities boost economic development by increasing the size of the economy and creating jobs in promising technology sectors.2 For instance, the city of Busan in South Korea nurtured local entrepreneurship among software developers by building the Busan Mobile Application Center (BMAC), a mobile application development platform and cloud-based services infrastructure that gave young programmers opportunities to build off the city’s open-access infrastructure. Coupled with training programs and various incentives designed to attract college students, recent graduates, and young entrepreneurs, BMAC has a target of creating 3,500 jobs and 300 startups focused on mobile applications. As job creation draws and retains talent in the local economy, it in turn makes the city more attractive to outside business investors, creating a positive cycle that leads to a more vibrant economy. With its Smart Dubai initiative, the city of Dubai is expected to boost its GDP by an additional US$5.5 billion and add 27,000 jobs to its workforce in the next five years. Quality of life Digital cities improve citizens’ lives in numerous ways. For example, Singapore developed a city-wide smart transit system that collects and processes traffic data from the location and speed of moving cars — through crowd-sourcing — and gives residents real-time traffic data on a public television channel. Singapore also has a large telemedicine initiative — some 3 million patients, or 60 percent of the population, are seen by medical doctors through remote consultations on digital media. In another instance, New York City invested in Internet-based education platforms that allow students and teachers to more easily exchange learning materials over a fast network.
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On the social front, city management tools help governments more effectively deploy services. For example, a city-wide monitoring system equipped with intelligence can detect suspicious behavior on public premises and can proactively prevent crimes; the result is a better allocation of law-enforcement resources and lower crime rates. Similarly, intelligent transit systems allow riders to map the best travel routes based on real-time location of buses and subways, resulting in less congested mass transit. Environmental sustainability Digital cities apply technology to reduce the waste of resources such as water and electricity. On an individual level, energy apps can make resource consumption more transparent to residents, giving them the information they need to make better conservation choices. On a city level, digital services can reduce CO2 emissions through features such as intelligent sensors and controls that more precisely tailor energy consumption to demand. In addition, transit agencies can reduce CO2 emissions from traffic congestion. For example, Seoul, the capital of South Korea, mandated that bus operators use GPS-enabled, clean energy vehicles that are integrated with the city’s extensive subway system. These measures were introduced to alleviate congestion and improve public transport as well as minimize its environmental impact. As a result, in addition to increased ridership and revenues for bus operators, the newly deployed bus network and intelligent bus management systems led to a decrease in CO2 emissions, nitrogen dioxide emissions, and particulate matter of 35 percent, 20 percent, and 40 percent, respectively.3 Similarly, a number of smart grid and smart metering projects are being deployed throughout the EU to reduce energy consumption. The five layers of a digital city A typical design of a digital city comprises five seamlessly interconnected layers (see Exhibit 1, page 8). First, the foundational layer of digital cities is infrastructure, at both the city and building levels. City-wide infrastructure links municipal-owned assets on a private Internet protocol (IP) network for the city. This level should also include a data center that can host the communications and technology components needed to enable digital city services. As the video and audio technology and mobile network evolve over time, cities will need sufficient bandwidth to transport large volumes of data (socalled Big Data).
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Exhibit 1 The digital city framework includes five layers
End users Access points services

Residents/Visitors Smart urban Digital Wearable transport signage devices Healthcare Government Phones

Government Smart phones Tablet/ e-readers Energy & Utilities Smart grid PCs

Businesses Kiosks Smart Smart TV appliances Media

Education Administration/student applications Certificates/ accreditations

Transport Transit connectivity solution Automated toll collection Traffic management solutions Digital signage Intelligent parking Transport integrated monitoring

Public safety Real estate & security Image surveillance Emergency management & communication Disaster response Weather information gathering Correction monitoring Simulation Interconnected services/API Smart hospitality

Public health Chronic disease management Home care Emergency services Smart care provisioning Payment reconciliation Convergence

Permits

Smart home

IPTV/OTT

Certificates Bills/ penalties/ fine payments Municipal service requests e-Info services

Water cycle monitoring

Smart office

Digital signage

Distance learning

Distribution management Smart meter data management GIS/asset management

Library services

Digital games

Digital notebooks Integrated operations center

Smart stadiums

Infotainment apps

Service delivery platform Broadband devices Fixed communications (fiber/copper)

Content management

Cyber-security Main distribution frame Data center

Infrastructure

In-building solutions Mobile communications (WCDMA/WiMAX/Wi-Fi)

Building automation Private networks (IP network/VoIP)

Note: API = programming interface, GIS = Geographic information system, IPTV = Internet protocol television, OTT = Over the top, VoIP = Voice over Internet protocol, WCDMA = Wideband code division multiple access, Wi-Fi = Wireless local area network, WiMAX = Worldwide interoperability for microwave access. Source: Strategy&

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Building-level infrastructure, by contrast, connects building assets to the city network and to other buildings. At this level, main distribution frames control data traffic and serve as an intermediary switch among building devices, linking them to the broader urban infrastructure. This is a key component for extending the network to residents’ homes and offices. It enables enhanced digital services ranging from high resolution–enabled home offices to automation services that optimize the use of energy, lighting, water, and heating and air conditioning within buildings. For example, Busan in South Korea built a 10-gigabyte IP network that connects all government agencies and private-sector companies. The network covers 319 organizations and uses nearly 1,300 kilometers of fiber, which enables fast transport of data across all organizations. To support its data management, Busan is building the largest global cloud data center in South Korea, a 133,000 square meter, earthquakeresilient facility. Busan’s municipal government believes that the data center could create up to 30,000 new jobs (see Exhibit 2, page 11).

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The second layer of the digital cities framework — and the most important one — is convergence, which aggregates, coordinates, and analyzes data and applications among different services. This aggregation and coordination takes place via a service delivery platform, essentially an intelligent platform that allows the city government to deploy new interoperable digital services to users across all verticals throughout the city (see Exhibit 3, page 12). Digital cities also typically set up an integrated operations center (IOC), from which the government can centrally monitor data from multiple sectors and govern potential issues in an efficient manner. For example, Rio de Janeiro established a partnership with IBM to build an IOC that can monitor citywide data on a real-time basis and anticipate potential problems. The decision to proceed with an IOC followed torrential rains in 2010, which caused floods and landslides that resulted in many deaths and brought much of the city to a standstill. The prefecture of Rio de Janeiro, the government of the core urban area, understood that it needed to be better prepared to handle all kinds of potential disruptions. Rio de Janeiro’s system integrates data from more than 30 government agencies under a single roof, including video streaming from subway stations, weather prediction algorithms, traffic updates (including car accidents), and power failures. When a 20-storey office building collapsed in January 2012, the city’s IOC played a central role in coordinating a rapid response. The IOC alerted the fire and civil defense departments, dispatched ambulances, communicated with nearby hospitals, asked gas and electric companies to shut down service around the scene, and activated civil guards to evacuate nearby buildings.

Digital cities also typically set up an integrated operations center, from which the government can centrally monitor data from multiple sectors and govern potential issues in an efficient manner

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Exhibit 2 Busan’s digital infrastructure includes a 10-gigabyte backbone and smaller access and sub-access networks
Busan City Government Network

City hall 10G backbone Busan Information Highway (BIH) Private organizations 2.5G access network Fire department - Busan’s population is 3.6 million people, with 4.4 million in the greater metropolitan area - The Busan area covers 760 km2 - BIH consists of a 10G backbone, 2.5G access points, and a 622MB sub-access network Community service center - BIH is the core network on which Busan’s smart city projects and initiatives are being built - BIH currently covers 319 organizations and 1,278 km of fiber length

Community service center

622MB sub-access network

Community health center

City public offices

Source: City of Busan website; Strategy& analysis

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Exhibit 3 A service delivery platform connects various digital services through a central convergent layer of infrastructure

Public safety and security - Real-time monitoring of neighborhoods - Proactive video surveillance analysis and response Healthcare services - Electronic medical record system - Remote diagnostic services (e.g., tele-health) Energy management services - Digital grid/smart metering - Environment monitoring system

Service delivery platform A city-wide integration network layer that connects citizens, buildings, facilities, and others to deliver services

Facility management service - Underground facility management - Drainage management

Transportation services - Digital traffic management services - Traffic and parking information

Source: Strategy&

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The third layer of the digital city framework consists of services, meaning the value-added applications that improve the lives of citizens and visitors and streamline operations for businesses and government entities. Cities typically arrange these applications in verticals by function and target populations. For example, a healthcare vertical could include services such as a remote diagnostics application for people with cardiovascular conditions. A transportation vertical could include apps that optimize vehicle flow and reduce fuel consumption and emissions, while an education vertical could include distance-learning services, among other offerings. The fourth layer, access points, covers a whole slew of media through which end users can access and consume value-added services. These media include smart cars, smart appliances, wearable devices, TVs, smart phones, and tablets. Google’s recent acquisition of NEST, a company that develops smart thermostats and smoke alarms, is a push from the company to increase its share of the smart home market and benefit from the large data sets generated through such technologies. As digitization becomes increasingly pervasive in people’s lives, this layer will grow to include newer technologies and increased service access points. The fifth and final layer in digital cities is the end users — governments that provision digital city services, and the residents, visitors, and businesses that use them.

A healthcare vertical could include services such as a remote diagnostics application for people with cardiovascular conditions

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A road map to creating the digital city
To become a digital city, governments will need an appropriate set of solutions that will help them advance to the next stage of ICT maturity (see Exhibit 4, page 15). The more a city takes advantage of the potential offered by ICT in terms of the provision of digital services and an integrated urban network, the higher its level of ICT maturity. In many ways, this is easier for newer cities in emerging markets, which are just now investing in urban infrastructure. For example, Lusail City in Qatar, Masdar City in the UAE, and Songdo in South Korea are all making digital technology, networks, and apps a central part of how they operate and interact with citizens. By contrast, existing — or brownfield — metropolitan areas face clear challenges in moving up the ICT maturity ladder, as they need to modernize their existing infrastructure with embedded sensors and control systems and retrofit old buildings — a complicated and expensive process. Indeed, in some cases it is impossible as the buildings cannot accommodate new technologies. However, becoming a digital city is not so stark a choice that urban authorities either achieve this transformation or fail. Rather, even taking small steps, particularly for established cities, toward becoming more digitized and offering enhanced digital services provides a variety of benefits. In some cases, established cities can use the disruptive power of digitization to leapfrog some of the obstacles. To make digital cities a reality, local governments must first address critical aspects of urban planning, including stakeholders and partners such as real estate developers and technology providers. Real estate developers have an incentive to build more digitally empowered buildings and developments, as value-added services allow them to command a premium for appropriately equipped properties. Cisco estimates that real estate developers can expect significant increases in property values, as much as an incremental $13 per square meter. In addition, service providers can monetize the recurring revenues of ongoing value-added services. Similarly, there is a clear opportunity for technology providers, and many are already targeting the digital-city realm. The market for urban technology infrastructure is expected to grow from $6.1 billion in 2012 to more than $20.2 billion in 2020, according to Navigant Research.
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Exhibit 4 The road map for a digital city shows the way to ICT maturity
Typical Evolution of a Brownfield City
Low ICT maturity The city does not have a private network to deliver services Medium ICT maturity Presence of city private network with only one vertical operating on the network Advanced ICT maturity Presence of city private network with most verticals integrated into the network Digital city1 Presence of city private network with all verticals integrated into the network and converged through an integrated operations center

Basic ICT solutions Basic ICT solutions provide a platform for transition to the next maturity stage: - City private network - Building network - One-point solution (e.g., healthcare point solutions and collaboration tools)

Advanced ICT solutions Advanced ICT solutions leverage existing city infrastructure to deliver additional functionality to the city: - Multiple-point solutions (e.g., education solution, public safety & security) - Building infrastructure

Convergence solutions Convergence solutions integrate data, network, and applications across verticals to maximize benefits to the city: - Integrated operations center

1

The term “digital city” is used to indicate a more advanced ICT maturity; however, it is not an end in itself because as technology evolves there will be new services and further convergence. Source: Strategy&

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Although the precise role and influence of municipal governments will vary from one city to another, governments must start by defining several foundational elements: policy, regulation, sector development, and e-enablement.4 They must set the parameters and ensure a level playing field, and then foster competition among private-sector operators to develop the best services, solutions, and applications. Local governments must also select and prioritize specific services to deploy, carefully evaluate city infrastructure, and define a path that will push them up the ICT maturity curve. In advancing along this curve, governments must answer key questions, such as: •  What are the triggers to advance from one stage to the next? •  What level of investment is required? • H  ow should the government monitor the quality and operations of the digital services? In laying out the implementation plan, local governments must find capable and willing partners that can manage multifaceted interactions with a wide set of stakeholders, including city and municipal managers, policymakers, regulators, ICT service providers, tenants, and contractors. Local governments then need to work with partners to find an appropriate business model that ensures commercial longevity for partners in the delivery and operation of digital city services. Although business models may vary depending on asset ownership, a common model is one in which the city contracts with master developers, which in turn contract with third-party service providers such as a capable ICT player or telecom operator. The third-party providers must be capable of delivering smart ICT, managing entertainment and telecommunication infrastructure, and interfacing directly with tenants to oversee services and collect revenue. This is the model that Lusail City recently used in its arrangement with Ooredoo Qatar (formerly Qtel) in Qatar. The importance of citizen engagement Digital services will not achieve their desired benefits without mass uptake from citizens and organizations. To drive engagement, particularly in the delivery of e-services, cities can learn from how game designers have successfully used “gamification” to engage with their users of varying age groups, demographics, and backgrounds.5 Gamification, in the simplest form, is the application of game-design principles to real-world environments: providing a sense of achievement, applying status recognition, and stimulating constructive competition.
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Digital services will not achieve their desired benefits without mass uptake from citizens and organizations.

The concept relies on human psychological effects to influence behavior. For the most part, people pursue rewards, seek status, aim to accomplish objectives, compete with others, and express themselves. Although gamification outside game industries is still at an early stage, the idea is gaining momentum as businesses realize that it can have considerable impact for a relatively low cost. In the context of city service delivery, gamification presents promising possibilities that can help cities stimulate changes in citizen behavior, create engagement and a sense of community, and increase the use of services. For example, some electric cars are equipped with dashboards that give drivers a score based on the fuel economy of a trip. This simple indicator — and a history of previous records — can influence a driver’s behavior to drive in a more energy-efficient manner, through positive competition. To be sure, there are privacy and data-security issues to consider. Governments will need to establish clear rules stipulating what personal data they can store, how long they will retain it, and how it will be protected. In addition, virtually any digital program would need to include clear communication with citizens regarding the benefits of analyzing behavioral data, along with a reassurance that their personal information will not be exploited or compromised.

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Conclusion

The value of digital cities is clear: They use technology infrastructure and applications to deliver better city services that better manage the economic, social, and environmental challenges of urbanization. Cities should define their paths to reach this objective according to their individual needs and current level of ICT maturity. Digital transformations are long, complex, and expensive. Given the political or economic obstacles that will inevitably arise, the process of transformation will require city leaders to ensure that all stakeholders agree on the right objectives and development efforts. Such stakeholder engagement, along with long-term planning and leadership commitment, will put cities on the path to digital transformation.

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Endnotes

Gregor Harter, Karim Sabbagh, Ramez Shehadi, and Danny Karam, “ICT for a low-carbon world: Activism, innovation, cooperation,” Booz & Company and the World Economic Forum, 2010.
1

Roman Friedrich, Bahjat El-Darwiche, Milind Singh, and Alex Koster, “Digitzation for economic growth and job creation: Regional and industry perspectives,” Strategy&, 2013.
2

“An efficient bus rapid transit integrated with the subway system,” ICLEILocal Governments for Sustainability, October 2011, (http://www.iclei.org/ fileadmin/PUBLICATIONS/Case_Stories/Case_stories_EcoMobility_Seoul_ PDF_print.pdf).
3

Karim Sabbagh, Roman Friedrich, Bahjat El-Darwiche, and Milind Singh, “Maximizing the impact of digitization,” Strategy&, 2012.
4

Ramez T. Shehadi, Dr. Raymond Khoury, Fady Kassatly, and Abdulkader Lamaa, “Winning the mobile government game: Mechanisms for better customer engagement,” Strategy&, 2013.
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Strategy& is a global team of practical strategists committed to helping you seize essential advantage. We do that by working alongside you to solve your toughest problems and helping you capture your greatest opportunities.

These are complex and high-stakes undertakings — often game-changing transformations. We bring 100 years of strategy consulting experience and the unrivaled industry and functional capabilities of the PwC network to the task. Whether you’re

charting your corporate strategy, transforming a function or business unit, or building critical capabilities, we’ll help you create the value you’re looking for with speed, confidence, and impact.

We are a member of the PwC network of firms in 157 countries with more than 184,000 people committed to delivering quality in assurance, tax, and advisory services. Tell us what matters to you and find out more by visiting us at strategyand.pwc.com.

This report was originally published by Booz & Company in 2014.

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