Edzcom, Tampnet, and Company: A New Generation of Network Operators is Entering the Stage

While we now see the deployment of private cellular networks becoming ever more popular among factory and warehousing owners, as well as operators of offshore windfarms, oil rigs, mines, and shipping ports, large reservations on the enterprise side prevail when it comes to working with “traditional” Communication Service Providers (CSPs) to manage these networks, as discussed in the ABI Insight Making the Impossible Possible: How CSPs Can Resolve Their Complicated Relationship with Manufacturers (IN-5698).

While large enterprise players like Bosch, DHL, and Siemens have the necessary resources to manage a cellular network on their own, Small and Medium-sized Enterprises (SMEs) (which outnumber the Tier 1 enterprises) would possibly refrain from cellular network deployment and move toward a different technology to address their connectivity requirements: They do not have the capabilities to build up their own network operation divisions, but the reservations prevent them from siding with a traditional CSP for network operation. Therefore, there is a considerable market for a new type of network operator that brings its network management know-how, combined with a thorough understanding of enterprises’ pain points and technology requirements, to the table.

Against this backdrop, we see a new type of network operator entering the stage: Belgian CityMesh, Finish Edzcom, and Norwegian Tampnet are examples of traditional system integrators that have come into possession of licensed 4G/LTE spectrum (e.g., through the acquisition of bankrupt nationwide CSPs). While their system integrator heritage equips each of them with valuable know-how and experience in working with enterprises, their acquisition of spectrum allows them to offer cellular connectivity solutions at the same time.

For the traditional telco industry, this is the perfect illustration of the changing shape of the value chain for enterprise cellular network deployment, which was discussed in The Changing 5G Value Chain and What It Means for Mobile Service Providers (IN-5618). To elaborate on how the emergence of these new network operators will change the position of traditional CSPs towards enterprises, it is important to look at common characteristics of their business models.  

While the specific offerings differ due to the different sectors they address, the underlying strategy points toward important similarities: even though they appreciate the fundamental importance of spectrum assets to provide cellular connectivity to enterprise, their business models are characterized by an “Anything-as-a-Service” approach, which allows the maximum degree of customization of the network for the implementing enterprise. In order to address as large a community of enterprises as possible, flexibility between Capital Expenditure (CAPEX) and Operational Expenditure (OPEX)-based offerings is required.  Furthermore, their monetizing strategy does rest not immediate cashing opportunities (by selling connectivity), but rather focusses on upselling potential to turn each new signing into a long-term sustainable revenue stream. 

While these operators still are widely unknown within the traditional telco industry, there is no reason to assume that they will just be temporary appearance. Quite the contrary: Their business model is about to internationalize. The finish operator Edzcom, for example, secured access to licensed mobile network spectrum in Sweden as well as in Belgium (in the very lucrative 2.6 GHz band) through sublicensing from respective national CSPs. The idea behind this for those CSPs is to prevent national regulators from licensing valuable spectrum in the C-band for enterprise usage exclusively (as has been done in Germany).

Embracing the fact that these new network operators will remain within the industry, the important question to ask is how the “traditional” telco ecosystem players should react to this new development.

While, for infrastructure vendors, the emergence of these new network operators should be a very welcomed development (since more cellular network deployments in enterprises results in more business activity for infrastructure vendors), the situation for traditional CSPs is somewhat different:

Since it provides a viable alternative for enterprises that either do not want or do not have the capabilities to manage a private cellular network on their own, it puts pressure on traditional CSPs to tailor their offerings towards enterprise-specific pain points.

Most notably, CSPs need to understand that they cannot rest all their hopes on trying to convince enterprises to use the already existing public cellular network and create a virtual campus network by renting one or more slices. Rather, this is the last chance for CSPs to appreciate the enterprises’ key demand for private cellular networks. Following from this, CSPs need to have a dedicated strategy in place for private network deployment for enterprises. This in turn forces traditional network operators to move away from business models that rest on pricing connectivity as such and move to a more service-oriented monetization strategy. Following the examples of the likes of CityMesh, Tampnet, or Edzcom, CSPs should also consider offering their network as a platform and open it up for applications from third-party developers.

Another opportunity for CSPs would be to acquire these private network operators to help them scale. In doing so, however, CSPs need to be careful not to weaken the value proposition of these Private Network Operators (PNOs). This means PNOs should be guaranteed maximum possible degree of independence (retaining the original name and sales structure as well as unrestricted loyalty towards the XaaS business model) toto avoid being associated to a traditional CSPs by enterprise implementers.

In short, traditional CSPs should consider the emergence of this generation of network operators as the last wake-up call to preserve their spot in the value chain, which is associated with enterprise deployment of cellular networks.