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Ericsson(s eric) and Philips(s phg) have developed a type of LED street light that comes bundled with a tiny mobile base station. It may sound like an odd or niche combination, but this Zero Site concept is designed to solve two common urban problems in an efficient way, that will coincidentally prove highly lucrative for the Swedish telecommunications equipment giant and the Dutch electronics conglomerate.

Those problems are the so-called mobile data explosion, and the increasing need for cities to cut their energy consumption. And for Ericsson in particular, the Zero Site scheme could see its equipment embedded into urban infrastructure in an unprecedented way.

Densification, illuminated

The inexorable rise of the mobile device, particularly in this 4G era, is causing a change in the way cellular carriers design their networks. People are using so much data that the traditional setup – a fairly widely distributed scattering of large mobile masts – can’t cope. So the current trend is towards network densification: smaller and more numerous access points that can serve more people and the gigabytes they want to use.

The question is, where do you put them? Answer: pretty much anywhere you can. Equipment makers like Ericsson are experimenting with all kinds of placements to make sure that there’s coverage from street level all the way up to the city skyline. A lamppost is about the ideal height for this sort of thing — and what’s more, it means discreet deployment and not having to pay for patches of real estate.

Philips, meanwhile, is all about smart lighting these days, and it wants to sell its next-generation LED street lights to municipalities. It says they use between 50 and 70 percent less energy than traditional sodium street lights, and as it happens those savings go even higher if you throw in smart controls.

“If you then add sensors that, for example, monitor traffic density and then make the street pole lighting react to whether it’s busy on the street or whether it’s 3 at night and there’s nobody on the street, you can go from 50 percent savings to 80 percent savings,” Philips CEO Frans van Houten told me. “We are giving cities the opportunity to manage city lighting in a better way, as all these light bulbs are part of the internet of things.”

So if Philips is embedding connectivity into its lights, why not see what else can be done with that connection?

Meeting of minds

Van Houten and Ericsson CEO Hans Vestberg started talking lights a year ago, when they met at the World Economic Forum – according to Vestberg, what they came up with is an alignment of strategies that is “unique” for two giants the size of Ericsson and Philips.

With Zero Site, Ericsson’s transmission kit goes in a protected enclosure at the top of the pole, twinned with that Philips smart light, with fiber or microwave providing the link to the internet.

Launched at Mobile World Congress in Barcelona on Monday, the system isn’t merely a product to be sold to municipalities with the promise of making savings: it’s an active revenue-generator. The idea is that cities will be able to rent these small cells to mobile carriers that use Ericsson equipment – and there are a lot of those. Vestberg says Ericsson is the number 1 mobile broadband infrastructure supplier in the top 100 cities, with 2-3 carriers using its gear in most markets.

“We would do this in any case,” Vestberg told me. “This is just a strong combination to do that quicker and reuse the infrastructure of the city. It’s all the win-wins for all the parties. The last consumer research we did, where we asked about the most important factors to live in a city, broadband and internet were top of the list. That plays very much for the competitiveness of the city. And if they want to compete… they need to have 21st century sustainability.”

Vestberg and van Houten see this as the ideal time to launch their concept. LED technology only has a single-digit percentage of the municipal lighting market now, but the Philips chief says public lighting can eat up more than half of a city’s budget, and there are also environmental factors to consider.

“Lighting-as-a-service”

“As cities will change over their street pole infrastructure, this is a unique moment to go together with Ericsson and have an integrated value proposition and make all the street poles connected and smart,” van Houten said. “For municipalities, it will make the economics of upgrading street poles to LED, with the additional revenue they will get, even more attractive.

“We also offer a new business model where we sell lighting-as-a-service, and we can fold the embedding of transmission equipment into this value proposition.”

Wait. “Lighting-as-a-service”?

“If you look at cities, much of the infrastructure is 25-30 years old,” van Houten explained. “There are still sodium lamps everywhere. It’s inefficient. We also know cities are cash strapped and don’t have capital expenditure budgets to upgrade, so we have teamed up with financing partners [and the municipalities can] pay for it out of their energy savings.”

The efficiency and financial and environmental benefits of Zero Site are hard to argue with, but it does concern me that one telecoms supplier’s equipment would be embedded into the very fabric of the city in such a comprehensive way, with the lampposts themselves designed to hold Ericsson base stations. Wouldn’t it risk locking cities – and indeed the carriers operating in those cities – into using Ericsson and Philips for a long time? Low upfront costs are attractive, but what about interoperability with alternative suppliers’ products?

“We’ve been working together on how our different infrastructure can work together,” Vestberg said. “There’s no reason to start doing it with others right now.”

My concerns remain, but on the face of it this really is, as Vestberg puts it, “a win-win for the city, the population of the city and mobile operators.” A quietly successful pilot has already taken place with Verizon(s vz), and others are going on now.

“Hans and I said we are now ready for the world stage,” van Houten said. “We’re ready to roll it out on a mass scale in all parts of the world.”