Smart Cities – seizing opportunities and managing risk

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Wireless sensor networks, open platforms, high-speed broadband and cloud computing are the building blocks of smart city infrastructure. Clearly, without these technological foundations, smart cities are a non-starter. But for smart cities to truly thrive, ecosystems need to evolve which create consumer engagement and trust, business confidence and investment, and commercial relationships (often involving the public sector). By having an awareness of the regulatory context in which these ecosystems evolve, and the contractual relationships which come into play, businesses can maximise their chances of success in this modern world.   

Anticipating resistance 

With innovation comes disruption - disruption which stakeholders who benefit from the status quo are likely to resist. Equally, regulators are likely to be uncomfortable with uncharted (and potentially unregulated) territory. Whilst it might be tempting to ignore such resistance (particularly when buoyed by experimental growth and consumer take-up), it is far better to anticipate and address potential resistance than to try deal with its consequences after the event. 

For example, technology, or rather (according to the recent decision of the CJEU) “transport services” company Uber has undoubtedly found huge levels of success. However, it has also found itself on the receiving end of extensive litigation around the world. Uber’s own journey, so to speak, provides a useful illustration of the barriers that even the most successful technology companies can face when disrupting an established industry.   

Similarly, whilst Airbnb’s business model has been embraced by travelers across the globe, it has regularly found itself battling against the decisions of courts and legislators worldwide. It has sought to highlight the financial benefits which an influx of tourists (who might not otherwise have travelled) might bring to the cities where its model is being challenged, including London, Barcelona and New York. However, as it continues to expand and disrupt such opposition will clearly provide an ongoing challenge.   

Doing data right   

A glance on the Information Commissioner’s Office’s website reveals a list of household names which have been subjected to fines for breaches of data protection regulations in recent years. With the General Data Protection Regulation (“GDPR”) coming into force across Europe in May 2018, carrying penalties of up to 20 million Euros, or 4% of worldwide turnover (whichever is greater), data protection should not be taken lightly.   

That isn’t to say that collecting data isn’t worth the trouble. With data fast becoming one of the world’s most valuable commodities, it might well be worthwhile. Instead, it just means that businesses intending to collect data should consider from the outset how this can be done both effectively and legally, particularly since, if data is not collected in line with the law, it is difficult, if not virtually impossible to cure this after the event. Equally, continuing to hold customer data unnecessarily can itself prove to be a liability, particularly in an age where hacking can so easily cause serious reputational damage to a business. In a gesture which grabbed headlines last year, we saw pub chain J.D. Wetherspoon voluntarily delete its entire mailing list. Over the coming years, voluntary deletion may well prove to be an increasingly attractive risk mitigation strategy. 

The public-private crossover 

Cities are by definition a mix of private and public spaces, with underlying assets being owned by both public and private stakeholders. Public and private sector collaboration has always been an important fixture of the economy. As technology evolves businesses will seek to identify where the value lies in that overlap. One example of how opportunity can be found in the bridge between the public and the private is Helsinki’s ‘Whim’ application. Whether they wish to travel by car, train, bike or boat, the residents of Helsinki can now plan and pay for any combination of public and private transportation within the city instantaneously. This Icelandic vision represents the future of mobility: mobility as a service. 

Similarly, local councils in London have been working closely with technology companies to find innovative solutions to everyday problems. Camden Council has taken steps towards making street parking easier and more efficient for local drivers by deploying technology developed by parking technology company, Smart Parking Ltd. This involved the installation of over 300 RFID-equipped vehicle detection sensors in and around the local area, which are all linked together via data transmitters. Drivers can download the Smart Parking application to view a photograph of parking spaces near to them, and can then be guided to the nearest unoccupied bay, thereby minimising the need to drive around the area adding to congestion and pollution. Using the same application drivers can then pay for their parking session directly. 

Innovations of this kind will require a web of creatively structured agreements to achieve the desired result, and will give rise to a range of interesting questions. Who will own any data which arises out of the collaboration? Who is responsible if one piece of the puzzle doesn’t perform? How do payments work? What funding requirements will there be? The list goes on. Being alive to these issues when engaging with other stakeholders will pay dividends down the line. 

Safety first 

Making cities heavily reliant upon digital networks and interconnected sensors creates a vulnerability to cyber-attacks and technological malfunctions. To take an example, in 2015, a self-driving Jeep Cherokee was “hijacked” by external hackers using just a laptop while on the road (in a test experiment), removing control of the vehicle from the driver and communicating with him verbally over the car’s speaker system. 

All participants in the smart city ecosystem should seek to understand their potential exposure where relying upon technology, and put in place contingencies in the event of its failure. Non-digital, manual alternatives should be considered (for example, manual document delivery rather than email) - something which may seem alien to organisations run by those who have known nothing but a digital age. Additionally, where there is interdependency on multiple parties in a network it should be carefully considered how responsibility between those parties is contractually assigned when things go wrong.    

Final thoughts 

Understanding the regulatory landscape and being on top of contractual relationships won’t necessarily ensure the commercial success of businesses. However, whilst perhaps not the most glamorous aspects of operating a business, the impact of these factors in a smart city environment should not be ignored.   

Ingrid Silver, Partner at Reed Smith 

Alexander Mackay, Trainee at Reed Smith 

Image Credit: Jamesteohart / Shutterstock