Belgian Private Network Operator Citymesh Ventures into the Consumer Domain—The Start of a New Trend?

While enterprise 5G continued to run the show at this year’s Mobile World Congress (MWC) in Barcelona, it became clear that scalability of offerings becomes an important factor for success both in the consumer as well as the enterprise 5G domain. This becomes particularly important for so-called private network operators, whose System-Integrator like approach to deployments does not scale very well.

As discussed in a previous insight (IN-5893: Private Networks Operator Edzcom Gets Acquired by Cellnex), there are different strategies for private network operators to intensify their market traction and, therefore, increase their serviceable market. They can do so either by being acquired and integrated in a larger business structures (as has been the case with Edzcom being acquired by Cellnex). Alternatively, private network operators can engage in strategic partnerships with established telecom players. The Belgian private network operators Citymesh, for example, signed an MVNO partnership with the country’s nationwide operator Proximus in November 2020 and announced a strategic partnership with European IT company Cegeka in December 2020, which has come into force in March 2021. As part of this partnership, Cegeka acquires a majority stake in Citymesh. Part of the shares will remain in the hands of the existing Citymesh shareholder (the sustainable energy company Nuhma, established in Limburg), and Citymesh’s management.

This partnership is remarkable for a few reasons, that point towards key trends within the telecom industry, that are worth to discuss.

Firstly, it gives CEGEKA access to seamless connectivity to include into their existing IT solutions, consisting of cloud, software, and platform services, and therefore offers a full End-to-End digitization platform to enterprises. This move is a critical step for Cegeka to complement their existing product portfolio.

For Citymesh, this partnership carries two main implications: Firstly, it increases their exposure to the market, as Cegeka has a proven track record and as a system integrator enjoys an incumbent advantage when introducing new technologies to enterprises. Secondly, an important change in the share structure equips the private network operator with new financial opportunities— as Cegeka acquires a majority stake in Citymesh, this will open new investment opportunities for the private network operator to increase their reach beyond the enterprise opportunity.

As part of this partnership, the operator announced to have investment more than US$119 million (the equivalent of e equivalent of €100 million) into acquiring full range of operator spectrum assets in the 700 MHz, 900 MHz, 1400 MHz, 1800 MHz, and 2000 MHz spectrum bands, on top of their already existing assets in the 2600 MHz and 3500 MHz bands. With these additional spectrum assets, Citymesh not only wants to extend their enterprise connectivity (B2B) offering, but also wants to venture into the consumer busines with their own B2C offerings.

The move from the enterprise space into the consumer domain does not come without risks: Success in the enterprise domain requires a different mindset and different expertise than the consumer domain, as a recently published competitive assessment of network operators’ enterprise 5G offering shows (CA-1290). While the enterprise business depends on innovative business models and the ability to integrate connectivity into a wider digitization platform (as discussed in IN-6178: Enterprise Requirements Towards a Full Digitization Platform - Powered by 5G), the consumer business requires a different skillset and market understanding.

Furthermore, private network operators need to bear in mind that by entering the consumer domain, they will set foot into a much competitive market than what they are used to from the enterprise verticals. Increased market competition carries two important implications. Firstly, it increases the pricing pressure and minimizes operators’ prospects to achieve any financial profits. Secondly, it increases the pace of technology advancements, as the increased number of vendors all seek ways to differentiate their offerings from competing CSPs. Any new party entering this market needs to incorporate these implications into their business planning before investing in additional spectrum resources and deploying a public macro network.

Private enterprise network operators need to bear in mind additional specificities: While in the enterprise domain, the likes of Ambra, Citymesh, Edzcom, or Tapmnet can benefit massively from their System-Integrator legacy (as enterprises require a partner to integrate a full private network solution for them), this will not be the case in the consumer domain. In other words: There will be no incumbent advantage for private network operators. Like traditional CSPs in the enterprise domain, these private networks will have to invest considerable effort and money to establish their brand within the market. In addition, these private network operators need to develop easily scalable and replicable offerings to target a wide range of consumers.

A venture into the consumer domain might be an interesting option for private network operators with a strong partnership in place (as is the case with Citymesh, as it currently acts as MVNO for nationwide operator Proximus), while other private network operators should watch the effects of this business decision carefully to make an educated decision, carefully analyzing their competitive advantage over other CSPs. Realistically speaking, the opportunity for private network operators in the direct consumer facing business are rather slim. As they bring valuable expertise in the B2B domain, a much easier opportunity for them to succeed in a consumer-facing business lies in providing connectivity to third parties (such as existing IT service provider), enabling them to sell cellular connectivity services to consumers in a B2B2C model.