Verizon's Smart Cities And How The Company Envisions Their Future

Smart cities. A few years ago, the term wasn't really a thing, but the development of technologies like automation, artificial intelligence, and the Internet of Things (IoT) has thrust the concept into the limelight. This nascent industry carries the potential to improve the quality of life in the country's most densely populated areas.

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As with all new things, however, challenges abound. To get up-to-date on the smart city initiative, I spoke with Lani Ingram, Verizon's (NYSE:VZ) VP of Smart Communities.

What exactly are smart cities?

In short, "smart cities" are all about helping municipalities use technology and communication services to manage increasingly crowded urban centers and improve citizens' lives. Ingram explains her job this way:

What gets me excited about this industry is that it's one of the most human portions of technology. Everyday I get to work on things that make people's lives better by leveraging technology and leveraging partnerships with governments to make that happen. All of these things are very new. Government has not necessarily been the most tech savvy industry, and technology hasn't necessarily really focused on the ability to fix some of those problems that cities have.

Since smart city initiatives are all about the people, Ingram says her team at Verizon sees the actual tech as being only one-third of the solution. Applying tech to a municipality is very physical in nature -- "it requires working with infrastructure: climbing up poles, digging up asphalt, working with right of ways, understanding load balancing issues, partnering with the community, and understanding how all of that fits together." Thus, working with a city's infrastructure is another third of the job.

The last part of the equation is change management -- managing how people and organizations deal with disruption -- but not just for the city government itself. Prepping the community for coming changes is also important, and Ingram said helping city governments tackle their problems required Verizon to change how it thought about its services, as well.

The city of Sacramento is an oft-cited example for how smart cities are starting to come together, as it was the first in-depth public-private partnership for smart city initiatives in the U.S. The city has been trying to rebrand itself as a hub for tech and the arts, so the local government worked with Verizon to help make building out its 4G network more efficient and affordable.

Sacramento was also a test city for the next-gen 5G network. The partnership was a win-win for both parties and is now being used as a template for new network buildout in other cities.

We listened a lot up front to [Sacramento's] pain points: everything from digital inclusion to education to traffic management to security to citizen engagement. Then we went to work and looked at the level of investment we were making and made them a test city for 5G, and now they're one of four to have the first 5G launch.

In addition to the launch of 5G, Verizon did other things, like bring WiFi to 27 parks around Sacramento. Digital inclusion like this is helping bridge "the homework gap" -- a term used to refer to parts of a community where people don't have access to high-speed internet. When that's combined with primary school STEM (science, technology, engineering, and math) training and internships, it helps get kids involved in the digital economy at an early age.

Why is the 5G network so important?

Verizon already has been hard at work on its smart cities segment with the current 4G network, but the initial rollout of 5G starting in October is key to future growth. It all has to do with the infrastructure. Ingram said:

Because [smart city buildout] is so physical in nature, you're not going to change out solutions every couple of years as technology changes. So it's really important that we build for the future. The beauty of 5G is that with the latency and bandwidth capabilities of this particular kind of connectivity solution, it just opens the world up to being able to leverage that in many different industries, but definitely in the smart cities area.

Besides fast speeds and low latency -- the amount of time it takes a packet of data to travel between two points, Verizon provides cities with software services and devices that help them sort through their data. These range from sensors embedded into asphalt to recognize vehicles and the direction they're headed to high-definition surveillance cameras scattered around the city. Information like that could help with traffic studies, giving cities the ability to better manage traffic and safety and cut down on the amount of time it takes to implement changes. The 5G network will help tie all of those devices together to give each city a better look at what's happening in real time.

Examples for how 5G can be used are being launched in other cities, especially around the network's capabilities handling ultra-high-definition video (think security cameras and video streaming). Vehicle-to-infrastructure communication is one example -- getting cars to communicate in real time with what's happening around the city via 5G. Neither autonomous vehicles nor human drivers can see everything. However, a city camera or sensor might be able to fill those gaps, getting information to other vehicles fast enough that defensive action can be taken.

How big is Verizon's smart city segment?

Verizon doesn't give specifics on how big this segment is yet, but the execution stage of smart cities is only beginning. During the second quarter of 2018, revenue from the IoT division was $241 million, a small figure compared to the $32.2 billion the company earned overall. In the comparable period a year ago, IoT was $220 million.

Ingram says it's hard to say when the movement will reach a tipping point.

This isn't the Angry Birds app where you can go very fast. This is infrastructure, this is people's lives, this is people's data, you have to be very careful and very protective about it. So I do think in general this industry will continue to take time to develop. It is moving very steadily, but I think we have to be careful at the same time. We can't rush this one.

In the meantime, there's room for more use cases, more cities that want to sign up and test out the possibilities. Since 5G is only beginning to launch in select U.S. markets, its expansion might be the catalyst for growth. However fast it may go, Verizon's move into the next-gen network puts it in prime position to help cities with their traffic, security, and energy management needs.

Nicholas Rossolillo and his clients own shares of Verizon Communications. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.