Telco spending on utilities (electricity, fuel, and water) amounted to 5.2% of OPEX (excluding depreciation and amortization, or D&A) in 2020, a bit up from the previous three years. There is modest evidence that 5G adoption is driving costs higher, as several early adopters saw increases in utilities spend (as a % of OPEX ex-D&A) in 2020. This includes China Mobile, Ooredoo, Swisscom, Telecom Italia, and all three of Korea’s big telcos (SKT, KT, and LG Uplus). Increases generally weren’t big, but serve as a good reminder that telcos will need to seek out energy-efficient equipment, software, and network architectures as 5G penetration grows.
Telcos also need to rise to the challenge of truly serving as enablers of sustainability. Rather than just viewing energy as a cost center, they should work with customers and partners to move rapidly towards green energy and reductions in usage. Some telcos are already on this path, but not nearly enough.
Energy costs rising with 5G deployment
Based on a sample set of 17 telcos that report the data, utilities as a percentage of OPEX (ex-D&A) was 5.2% in 2020. That’s up from roughly 4.8-4.9% in each of the previous four years and 5.0% in 2015. Given that we are working with a small sample of the universe, the 2020 increase is not overly alarming. However, focusing on specific companies, it does appear that early 5G deployment is a factor in the rise. Figure 1 shows utilities as a % of OPEX (ex-D&A) for 2018-20, for some of the key early 5G adopters in our database.
All of the companies in the chart above began their 5G deployment by mid-2019, at the latest. For every one of them except China Unicom, utilities spending either rises or stays flat in 2020, as a percentage of OPEX.
This trend is not surprising. In early 2020, we issued a report focused on telco energy issues: “Operators facing power cost crunch.” The report concluded that, with the shift to 5G mobile access networks, there will be upwards pressure on the utilities/OPEX spend ratio. A typical 5G base station consumes up to twice or more the power of a 4G base station. The disparity can grow at higher frequencies, due to a need for more antennas and a denser layer of small cells. Edge compute facilities are needed to support local processing and new Internet of things (IoT) services add to overall network power usage. The bottom line is that in an increasingly 5G world, telcos could face significant growth in their energy bills. To address this issue, telcos will need to take action at the organizational, architectural, and site levels. Vendors have an important role to play in this effort.
Energy costs a function of many factors
Telco energy spending is a function of a wide variety of factors. Some of the factors: the price of energy, the mix of energy types, the % loss (high in India), relative age of network equipment, need for high-cost diesel fuel in mobile base stations, whether a company owns its own data centers, how much energy is self-generated, local green regulations, and so on. The network is not the only issue; the workforce also matters. Energy consumption in office buildings and for customer and site visits, for instance, are also factors. Let’s not forget, though, that 2020 saw widespread office closings and a shift to telecommuting amidst COVID-19’s spread. As such, the network likely grew as a percentage of overall telco energy consumption in 2020. This is an issue we will follow as better data becomes available.
Costs are one issue, sustainability is another
The telco CFO may be concerned mainly with the direct cost of energy consumption. The CEO needs to be concerned with the company’s overall carbon footprint, and how it is working with customers and partners to address climate change.
Most big telcos issue annual sustainability reports, where they report various energy stats and detail their efforts to reduce consumption and move towards renewability. A growing number of telcos are committing publicly to target dates for achieving carbon neutrality and/or net zero status. Some have already achieved carbon neutrality, including Swisscom and KPN. Telco commitments to environmental targets are laudable, especially when they address the telco’s role as an enabler of sustainability. It’s also promising to see telcos like Swisscom educate customers about CPE energy usage, which is generally much more than the telcos’ direct energy consumption in the network. Swisscom advertises energy efficiency features in its blue TV set-tops, home routers, and “climate-compensated” smartphones.
What is even more appealing, though, is telcos’ growing efforts to monetize their environmentalism; that could make sustainability programs stick. Vodafone, for instance, detailed a few of its efforts earlier this week: its Smart Building product helps customers optimize heat, light and cooling systems in their buildings; telematics products help fleet managers shorten routes, cut idling times and reduce fuel consumption through intelligent route planning; and, a smart substation effort with UK Power Networks aims at integrating more renewable sources.
You can’t talk about climate change and sustainability programs without addressing how to measure progress.
Measurement tools and standards are proliferating, thanks to organizations like the Science Based Targets initiative (SBTi), the European Green Digital Coalition (EGDC), and the International Standards Organization (ISO). There is still a lack of consistency in reporting, though, which affects the credibility of telcos’ claims. The green movement would really benefit from a set of widely accepted measurement principles comparable to IFRS. One promising development, in fact, comes from the IFRS: in concert with COP26, the accounting standards group announced an International Sustainability Standards Board (ISSB).
Webscalers benefit from green fields
Webscalers get a lot of attention for their investments in renewable energy and general commitment to sustainability. However, they are in a fundamentally different place from telcos. Webscalers have been able to attack costs and target sustainability from the start, focusing efforts on their 10s of data center sites. Telcos have older networks, with 1000s or 100s of thousands of sites to manage, and several generations of technology in the network. They also have existing relationships with power suppliers that cannot be replaced overnight.
Moreover, even as energy usage is rising rapidly in the webscale sector, telcos consume more. Figure 2 illustrates electricity use for a number of telcos for the 2018-20 period, along with Facebook, one of the biggest webscalers.
As shown, China Mobile is a giant, and growing; moreover, it is a laggard in terms of environmental commitments and is based in a coal-centric economy. Facebook is growing even more rapidly, but like many webscalers Facebook relies heavily on renewable energy. In 2020, it claimed 100% renewable energy (including offsets), from 44% in 2016. And as stark as Facebook’s electric usage growth is, it just surpassed SK Telecom in 2020; SK Telecom is an important telco, but accounted for just 0.9% of the global telco market in 2020 (based on revenues). The telco industry as a whole faces a tougher slog than webscalers in achieving their carbon neutrality and net-zero ambitions.
COP26 and where telcos fit
The United Nations is holding a major climate change conference this month, “COP26”, in Glasgow, Scotland. There is widespread evidence that the global warming that’s already occurred is causing serious problems worldwide. Collective action aimed at curtailing these trends is proving extremely hard to cement. As such, it’s all the more important for private companies to take voluntary action. Unfortunately, they’ll only do that if they get public credit for such actions, or if the changes turn out to save money.
Telcos have a role to play here. They have an intimate relationship with millions of customers, and an understanding of how their behavior impacts energy usage. It’s time for them to start monetizing these things: help their customers decrease consumption, save cash and position themselves as climate-friendly. Recent offerings from European telcos such as KPN, Swisscom and Vodafone point in the right direction.
By Matt Walker, Chief Analyst, MTN Consulting [[email protected]]
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