Beating the crash: What’s coming?

Signs of tougher times

Tough times are ahead…

As we look ahead, the world faces a number of significant challenges:

  • Global / OECD consumer confidence is diving to startling new depths as people increasingly feel the impact of inflation, supply constraints and a cost of living crisis.
  • This follows the war in Ukraine, the Covid pandemic and long Covid, stresses resulting from diverging political ideologies, growing social unrest, and the ever increasing realisation of the impact of climate change.
  • These seismic tensions are all driven by nearly 8 billion (and growing) people vying for resources and a vision of the future that they can continue to thrive in.

…but it’s not our first rodeo…

We have previously written about, for example:

And before that, there was the Credit Crunch series (2008), the Eurozone Crisis (2012), and technology and market disruptions too numerous to name.

There is always a temptation to think that the latest crisis is the worst. Each one tends to temporarily obliterate one’s view of the future as our imaginations are so absorbed in dealing with the nearby threat that all other considerations become secondary.

…and we believe we can bring some hope

Our solution to these challenges is two-fold. First, there is a lot that can be learned by looking at the lessons from previous traumas. Secondly, it is extremely helpful to be able to position all the individual events within an overall context, as it enables us to more rapidly reorientate after the latest shock.

Our context is The Coordination Age – the vision that the world is entering into a new era where:

  • The primary need is to make better use of available resources (e.g. money, carbon, time, assets, etc)
  • And that connecting technologies (e.g. telecommunications, data, automation and AI) are key elements of the solution.

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Making the Coordination Age work

making-the-coordination-age-work

Source: STL Partners

This report uses these learnings to look ahead to what we see as a challenging time. While some of the forces we outline in this report may seem alarming, this is not a pessimistic picture. We believe that the vision we describe brings opportunities for telecoms – but only if leaders in telecoms and elsewhere act on the vision. We are striving to make this happen, and we hope we can help you do that too.

A scale of discovery

To help contextualise the many forces of change, we have developed a six-stage schematic to generalise how people deal with new forces and changes in their lives. It progresses from the first recognition of a new theme or issue through to normalisation, the point where something is no longer new or different. The graphic below highlights the six stages, and general heuristic descriptions of what you might hear said, risks and threats, mitigations, and the general psychological and emotional mindset of those processing the change or issue in question.

Six stages of dealing with new ideas

six-stages-dealing-with-new-ideas-stl-partners

Source: STL Partners

The body of the report covers the drivers, their impact and consequences for telecoms:

  • Economic drivers, such as consumer confidence, inflation, and rising living costs
  • Environmental drivers, including climate change and carbon reduction
  • Political drivers, including the War in Ukraine, China / US tensions, trade wars and tensions
  • Social drivers, including Covid and Long Covid, inequalities and social polarisation.

Economic drivers: A crisis of confidence

In this section we examine drivers in consumer confidence, inflation / cost-of-living concerns and the consequences for telecoms.

Consumer confidence: An all-time low

The OECD consumer confidence index is a barometer of consumer sentiment. It reflects people’s confidence in their economic prospects. The chart below shows that it is currently reaching record new lows.

The OECD Consumer confidence index is at its lowest ever level

OECD-consumer-inflation-index-june-2022

Source: OECD

This means that consumers feel extremely pessimistic about their economic prospects. The average score is now below where it was at the peak of anxiety about Covid in early 2020, and below where it was in the financial crash in 2008-09. Indeed, the OECD average is now at its lowest ever level since global measures were introduced in the early 1970s, with only Mexico and Indonesia bucking the downward trend.

People are now preparing for a tough period in their economies. Some are worried about making ends meet – having enough to live to the standard they normally expect. This usually means that they will look to cut back on spending, especially for non-essential things.

Inflation is worrying everyone in Summer 2023

The pressures behind this trend are a generalised concern about inflation (rising prices on essential items like food) leading to a cost-of-living crisis.

Inflation overtook other global concerns in April 2022

Inflation-overtook-global-concerns-april-2022-stl-partners

Source: Ipsos

The Google trends chart below shows search interest in ‘inflation’ globally, which is an even more immediate signal of concern. It clearly spikes in July 2022.

Google Trends – searches for “inflation” spiked in Summer 2022

google-trends-searches-for-inflation-summer-2022-stl-partners

Source: Google

The problem is not confined to one or two economies: it is widespread, as the image from the interactive chart below shows.

inflation-global-challenge-2022-stl-partners

Source: FT

The rest of the analysis in this report reviews the macro-economic trends – i.e. the economic, environmental, political and social drivers of change. In a second report, we will cover telecoms industry trends, including technologies, policy, propositions and industry structure.

 

Table of Contents

  • Executive Summary
    • Not one crash, but many
    • 1. Actively realigning with stakeholders
    • 2. Accelerating operational innovation
    • 3. Enhancing resilience and customer security offerings
    • Next steps
  • Introduction: Signs of tougher times
    • A scale of discovery
  • Economic drivers: A crisis of confidence
    • Consumer confidence: An all-time low
    • Inflation is worrying everyone in summer 2022
    • Interest rates: A blunt tool?
    • Stock markets: Not quite sure…yet
    • Moving out of denial on economic problems
    • Consequences in telecoms demand
    • Recommendations
  • Environmental factors: Heating up fast
    • Climate change: Denial is hard these days
    • Decarbonisation: Digitising the industrial landscape, fast
    • Environmental concerns are now mainstream
    • Consequences for telecoms
    • Recommendations
  • Political: Drawing new lines
    • Ideo-conflict: Who’s side are you on?
    • The war in Ukraine: The first Coordination Age war?
    • China and Taiwan: Watching, waiting, wondering
    • Trade wars and barriers in general
    • Global instability: More trouble ahead
    • Consequences for telecoms
    • Recommendations
  • Social: A new order
    • Covid and Long Covid: Living with the virus
    • Rising resentment of inequalities
    • The United Nations Sustainable Development Goals
    • Consequences and recommendations for telecoms
  • Analysis
    • Getting the news in context
  • Appendix 1: Waste, pollution and air quality
    • Waste and pollution: Cleaning up
    • Refugees and migrations: Seeking solace in troubling times
  • Appendix 2: The 17 Sustainable Development Goals

 

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Telefónica’s 10 steps to sustainable telecoms

Telefónica’s sustainability: A 20-year journey

Sustainability in the Coordination Age

As part of STL Partners’ research on the opportunities for telecoms operators and the wider industry in the Coordination Age, where the ultimate goal for operators, their customers, and society at large is to make better use of the world’s resources, we have explored how telcos can integrate sustainability into their activities. Previous research on this topic includes:

During the course of this research, we have identified Telefónica as one of the most proactive operators in sustainability. Through our interactions with Telefónica’s sustainability team, we have also found the team to be seriously committed, organised and successful in achieving buy-in to their vision from both the executive leadership team and several business units and opcos. This is a highly impressive achievement for such a large operator.

With the support of Telefónica’s sustainability team, through candid interviews with the team and their colleagues across the business, we have created this case study on their experiences in embedding sustainability across the business. We believe this will help other telcos intent on following a similar trajectory to understand how they can embed sustainability into their corporate strategies and day-to-day activities.

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How Telefónica got to where it is today

Since the creation of Telefónica’s first sustainability team in 2001, the operator has gradually built up its sustainability activities into a company-wide approach with cross team participation over the last twenty years. The first move in this direction came with the creation of the Climate Change Office in 2007, which included senior representatives from Operations, Procurement and Social Responsibility.

Over the last ten years Telefónica has implemented more than 1,400 energy efficiency projects and has carried an annual Energy and Climate Change Workshop with more than 30 vendors for 12 consecutive years, to exchange challenges and solutions to reduce their energy consumption and carbon emissions.

It has three main climate targets: energy efficiency and reducing energy consumption; utilising renewable energy; and reducing its carbon footprint to achieve net-zero emissions in 2040, including its value chain. Figure 2 outlines Telefónica’s sustainability journey and key inflection points through the years.

Key activities and inflection points in Telefónica’s

Telefónica's sustainability

Achieving buy-in across the organisation

Embedding sustainability into Telefónica has been a grassroots effort on the part of the small but hardworking Global Sustainability Department (hereafter known as the environmental team in this report) to find the proof points necessary to convince Telefónica’s senior management to build sustainability into the corporate strategy. The team has used a mixture of bottom-up and top-down approaches, with management support at crucial moments, which will be explored later in the report.

Through our many conversations with Telefónica’s environmental team, perseverance stood out as the most important characteristic within the team. When they recruit new employees, their priority is to find people with the ability to come up with innovative ideas for meeting sustainability targets, resilience, and perseverance.

This determined and visionary approach means that the environmental team works intuitively and pre-empts other departments’ needs. By the time colleagues from other departments approach the environmental team with their requirements for sustainability-related projects (for example the finance team’s interest in launching a Green Bond), the team is already armed with a range of data, materials and resources needed to put together a business case for the activity. As a result of this preparation, the environmental team has been able to quickly support and capitalise on new opportunities as they have arisen, ensuring they can keep the momentum going whenever it builds.

However, the process of embedding sustainability into company strategy has not come without challenges and difficulties. In conversations with STL Partners, the environmental team said that one of the challenges of working with different teams has been picking the right moment to approach them with ideas. Telefónica also stressed the importance of finding strategic alliances and internal champions on other teams. Through strategic, considered and strong relationship building, the environmental team has found internal champions in their Spanish core network operations, finance, procurement, enterprise, and sales teams, who are fully on board with the Telefónica sustainability vision and strategy.

Although the environmental team is currently working with the marketing team to ensure its sustainability message and efforts is more present in its brands, the environmental team cited this as one of its top priorities in 2022. Aside from needing to build stronger relationships and buy-in, part of the challenge is working with the marketing team on how to accurately and effectively market sustainability, without appearing to be ‘greenwashing’.

Another challenge is adapting to the different ways in which the other teams operate when implementing sustainability initiatives across the company. For example, the sales team generally work towards quick deadlines with short-term results, hence it may be harder to create an aligned dialogue with this team. Having a strong insight into the way Telefónica works as an organisation, by working directly within other teams e.g., helping the sales team to complete RFPs, helps this challenge.

By embedding sustainability into the company in these ways, all departments see the benefit and engage with the process. Telefónica told STL Partners that its employees believe in sustainability on a personal level as well as seeing the business benefit and commercial opportunity. Employees are genuinely engaging with sustainability issues themselves and want Telefónica to work towards sustainability goals as a company. As one employee said to us, “you don’t have to work in the environmental team to want to protect the environment”.

Ultimately, this rigorous, patient, committed and collaborative approach to sustainability has enabled the team to achieve broad buy-in across Telefónica’s business units and international opcos. Throughout the report we will explore how it has done this in:

  • Core network operations
  • Finance
  • Enterprise services
  • International opcos.

Table of contents

  • Executive Summary
    • What makes Telefónica different to other telcos?
    • Next steps
  • Table of Figures
  • Telefónica’s 20-year sustainability journey
    • Sustainability in the Coordination Age
    • How Telefónica got to where it is today
    • Achieving buy-in across the organisation
  • Why Telefónica stands out among telcos
    • High level overview of achievements so far
    • How Telefónica compares with other telcos
    • How Telefónica collaborates with its peers
  • Network operations: The first step to embedding sustainability in Telefónica
  • Sustainable financing: A pioneer in telecoms
    • How the first Green Bond came to life
    • Subsequent green and sustainable bonds
    • Challenges and benefits
  • Eco Smart label and consulting services: Expanding from networks to services
    • How the idea came to life
    • Consulting services through Telefónica Tech
    • Eco Smart label in 5G services
    • Sustainability as a core component of digital transformation
  • Implementing sustainability across a global footprint
    • Aligning goals with individual market dynamics
  • Conclusion
    • Ten takeaways from Telefónica’s holistic approach
  • Index

 

 

 

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Stakeholder model: Turn growth killers into growth makers

Introduction: The stakeholder model

Telecoms operators’ attempts to build new sources of revenue have been a core focus of STL Partners’ research activities over the years. We’ve looked at many telecoms case studies, adjacent market examples, new business models and technologies and other routes to explore how operators might succeed. We believe the STL stakeholder model usefully and holistically describes telcos’ main stakeholder groups and the ideal relationships that telcos need to establish with each group to achieve valuable growth. It should be used in conjunction with other elements of STL’s portfolio which examine strategies needed within specific markets and industries (e.g., healthcare) and telcos’ operational areas (e.g., telco cloud, edge, leadership and culture).

This report outlines the stakeholder model at a high level, identifying seven groups and three factors within each group that summarise the ideal relationship. These stakeholder and influencer groups include:

  1. Management
  2. People
  3. Customer propositions
  4. Partner and technology ecosystems
  5. Investors
  6. Government and regulators
  7. Society

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1. Management

Growth may not always start at the top of an organisation, but to be successful, top management will be championing growth, have the capabilities to lead it, and aligning and protecting the resources needed to foster it. This is true in any organisation but especially so in those where there is a strong established business already in place, such as telecoms. The critical balance to be maintained is that the existing business must continue to succeed, and the new growth businesses be given the space, time, skills and support they need to grow. It sounds straightforward, but there are many challenges and pitfalls to making it work in practice.

For example, a minor wobble in the performance of a multi-billion-dollar business can easily eclipse the total value of a new business, so it is often tempting to switch resources back to the existing business and starve the fledgling growth. Equally, perceptions of how current businesses need to be run can wrongly influence what should happen in the new ones. Unsuitable choices of existing channels to market, familiar but ill-fitting technologies, or other business model prejudices are classic bias-led errors (see Telco innovation: Why it’s broken and how to fix it).

To be successful, we believe that management needs to exhibit three broad behaviours and capabilities.

  1. Stable and committed long term vision for growth aligned with the Coordination Age.
  2. Suitable knowledge, experience and openness.
  3. Effective two-way engagement with stakeholders. (N.B. We cover the board and most senior management in this group. Other management is covered in the People stakeholder group.)

Management: Key management enablers of growth

management-leadership-vision-growth-indicators

Source: STL Partners

Stable and committed long-term vision for growth

The companies that STL has seen making more successful growth plays typically exhibit a long-term commitment to growth and importantly, learning too.

Two examples we have studied closely are TELUS and Elisa. In both cases, the CEO has held tenure in the long-term, and the company has demonstrated a clear and well managed commitment to growth.

In TELUS’s case, the primary area of growth targeted has been healthcare, and the company now generates somewhere close to 10% of its revenue from the new areas (it does not publish a number). It has been working in healthcare for over 10 years, and Darren Entwistle, its CEO, has championed this cause with all stakeholders throughout.

In Elisa’s case, the innovation has been developed in a number of areas. For example, how it couples all you can use data plans and a flat sales/capex ratio; a new network automation business selling to other telcos; and an industrial IoT automation business.

Again, CEO Veli-Matti Mattila has a long tenure, and has championed the principle of Elisa’s competitive advantage being in its ability to learn and leverage its existing IP.

…aligned with the Coordination Age

STL argues that the future growth for telcos will come by addressing the needs of the Coordination Age, and this in turn is being accelerated by both the COVID-19 pandemic and growing realisation of climate change.

Why COVID-19 and Climate change are accelerating the Coordination Age

COVID-19-and-Climate-change-Coordination-Age-STL

 

Source: STL Partners

The Coordination Age is based on the insight that most stakeholder needs are driven by a global need to make better use of resources, whether in distribution (delivery of resources when and where needed), efficiency (return on resources, e.g. productivity), and sustainability (conservation and protection of resources, e.g. climate change).

This need will be served through multi-party business models, which use new technologies (e.g. better connectivity, AI, and automation) to deliver outcomes to their customers and business ecosystems.

We argue that both TELUS and Elisa are early innovators and pathfinders within these trends.

Suitable knowledge, experience and openness

Having the right experience, character and composition in the leadership team is an area of constant development by companies and experts of many types.

The dynamics of the leadership team matter too. There needs to be leadership and direction setting, but the team must be able to properly challenge itself and particularly its leader’s strongest opinions in a healthy way. There will of course be times when a CEO of any business unit needs to take the helm, but if the CEO or one of the C-team is overly attached to an idea or course of action and will not hear or truly consider alternatives this can be extremely risky.

AT&T / Time Warner – a salutary tale?

AT&T’s much discussed venture into entertainment with its acquisitions of DirecTV and Time Warner is an interesting case in point here. One of the conclusions of our recent analysis of this multi-billion-dollar acquisition plan was that AT&T’s management appeared to take a very telco-centric view throughout. It saw the media businesses primarily as a way to add value to its telecoms business, rather than as valuable business assets that needed to be nurtured in their own right.

Regardless of media executives leaving and other expert commentary suggesting it should not neglect the development of its wider distribution strategy for the content powerhouse for example, AT&T ploughed on with an approach that limited the value of its new assets. Given the high stakes, and the personalised descriptions of how the deal arose through the CEOs of the companies at the time, it is hard to escape the conclusion that there was a significant bias in the management team. We were struck by the observation that it seemed like “AT&T knew best”.

To be clear, there can be little doubt that AT&T is a formidable telecoms operator. Many of its strategies and approaches are world leading, for example in change management and Telco Cloud, as we also highlight in this report.

However, at the time those deals were done AT&T’s board did not hold significant entertainment expertise, and whoever else they spoke with from that industry did not manage to carry them to a more balanced position. So it appears to us that a key contributing factor to the significant loss of momentum and market value that the media deals ultimately inflicted on AT&T was that they did not engineer the dynamics or character in their board to properly challenge and validate their strategy.

It is to the board’s credit that they have now recognised this and made plans for a change. Yet it is also notable that AT&T has not given any visible signal that it made a systemic error of judgement. Perhaps the huge amounts involved and highly litigious nature of the US market are behind this, and behind closed doors there is major change afoot. Yet the conveyed image is still that “AT&T knows best”. Hopefully, this external confidence is now balanced with more internal questioning and openness to external thoughts.

What capabilities should a management team possess?

In terms of telcos wishing to drive and nurture growth, STL believes there are criteria that are likely to signal that a company has a better chance of success. For example:

  • Insight into the realistic and differentiating capabilities of new and relevant markets, fields, applications and technologies is a valuable asset. The useful insight may exist in the form of experience (e.g. tenure in a relevant adjacent industry such as healthcare, or delivery of automation initiatives, working in relevant geographies, etc.), qualification (e.g. education in a relevant specialism such as AI), or longer term insight (which may be indicated by engagement with Research and Development or academic activities)

[The full range of management capabilities can be viewed in the report…..] 

 

2. People…

 

Table of Contents

  • Executive Summary
  • Introduction
  • Management
    • Stable and committed long-term vision for growth
    • …aligned with the Coordination Age
    • Suitable knowledge, experience and openness
    • Two-way engagement with stakeholders
  • People
    • Does the company have a suitable culture to enable growth?
    • Does the company have enough of the new skills and abilities needed?
    • Is the company’s general management collaborative, close to customers, and diverse?
  • Customer propositions
    • Nature of the current customer relationship
    • How far beyond telecoms the company has ventured
    • Investment in new sectors and needs
  • Partner and technology ecosystems
    • Successful adoption of disruptive technologies and business models
    • More resilient economics of scale in the core business
    • Technology and partners as an enabler of change
  • Investors
    • The stability of the investor base
    • Has the investor base been happy?
    • Current and forecast returns
  • Government and regulators
    • The tone of the government and regulatory environment
    • Current status of the regulatory situation
    • The company’s approach to government and regulatory relationships
  • Society
    • Brand presence, engagement and image
    • Company alignment with societal priorities
    • Media portrayal

Related research

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How 5G can cut 1.7 billion tonnes of CO2 emissions by 2030

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The chartpack for this report is available to download as an additional file

Explore this research further by joining our free webinar 5G’s role in reducing carbon emissions on Tuesday November 10th. View the webinar here.

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Transitioning towards a carbon-neutral world

Carbon reduction targets have been set at global, regional, and many national levels to tackle climate change. The Paris Agreement was the first universal, legally binding global climate change agreement. Adopted in December 2015, close to 190 countries agreed the long-term target to limit the increase in global average temperatures to 2 degrees Celsius above pre-industrial levels. The EU also has a binding target to cut emissions to at least 40% below 1990 levels by 2030, as well as achieving at least a 32% share for renewable energy and at least a 32.5% improvement in energy efficiency.

This report will focus on the way in which technology, in particular 5G, can enable individuals, businesses, the energy industry and governments to accelerate the transition to zero carbon emissions.

This analysis is based on desk research, an interview programme and survey with industry leaders, as well as detailed economic modelling to quantify the benefits that 5G can bring, and the contribution it can make to achieving carbon emissions targets.

A framework for thinking through the carbon emissions challenge

The main mechanisms through which technology (including 5G) can reduce carbon emissions arising from our consumption of energy, fall under one of three categories:

  1. Green electricity generation: increasing the proportion of electricity generated from renewable energy sources
  2. Transition to electricity: as electricity becomes greener, moving away from energy that is directly delivered through combustion of fossil fuels towards delivery through electricity
  3. Energy efficient consumption: reducing the amount of energy required to achieve the same outcomes – either by not consuming energy when it is not needed or doing so more efficiently
A framework for outlining the key mechanisms for reducing carbon emissions

Source: STL Partners

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Greener electricity generation

Generating ‘greener’ electricity is a fundamental part of any carbon emissions reduction strategy. Energy analysts forecast that it will still take decades for a substantial amount of the grid to be powered by renewable energy sources. The chart below demonstrates the current prevalence of coal and gas in our electricity networks, with some contribution from nuclear and hydropower. By 2030, we will need rapid growth of wind and solar, but it only becomes a significant proportion of world supply by 2040.

Forecasts predict that future electricity generation will come from growth in solar and wind

Source: DNV

Renewable energy generation must grow enough to meet three challenges:

  • Replace current electricity generation from fossil fuels
  • Provide electricity to power directly supplied by fossil fuels as these transition to electric power (see transition discussion below)
  • Meet future demand arising from economic growth.

Moving from fossil fuels to wind and solar energy presents new challenges for balancing the electricity supply system. Due to the variable nature of these renewables (it’s not always sunny or windy) and our limited ability to store energy (with current battery technologies), the growing dependence on renewables means that supply cannot be controlled to meet demand. New business models enabled by millions of connected devices (washing machines, electric vehicle chargers) will allow us to reverse the market model such that demand meets supply.

Further in this report we describe in more detail how 5G networks will enable the acceleration of greener energy supply by:

  • Improving the cost competitiveness of renewables (in particular, by reducing operating costs).
  • Ensuring that renewables can contribute to the bulk of our energy needs, by supporting new business models ensuring energy demand across millions of appliances is managed in response to the fluctuating nature of renewables supply.

Transition to electricity

The second major mechanism to reduce carbon emissions is transitioning to using electricity as the primary source of energy for applications that currently rely on fossil fuel combustion. The two big transitions are the move from:

  • fossil-fuelled cars and trucks to electric vehicles
  • gas boilers to electric heat pumps.

Using electricity to power these appliances and processes is more energy efficient than burning fossil fuels and can therefore deliver an overall reduction in energy use and carbon emissions even if the grid is only partly ‘decarbonised’.

However, this will create a seismic change in energy consumption. Taking the UK as an example, the energy used for heating space and water is almost double that used for total electricity consumption in the country. Space and water heating is largely fuelled by gas today. Meanwhile, transport used over two exajoules of energy in 2018. Shifting these to electricity will put unprecedented burden on our electricity networks.

Comparing UK energy consumption for space heating, water heating and transport to total electricity consumption (2018)

Source: UK National Statistics

As well as the need to meet demand with supply discussed above, the other consequence of moving away from fossil fuels is that it may be more difficult to keep the electricity grid stable. Historically, turbines from traditional power generation stations have provided inertia, which has helped to maintain a buffer when demand for power changes over a short time. Power station turbines’ rotational inertia effectively absorbs and releases energy in response to fluctuating demand, resulting in grid frequency variations. To keep the grid stable and mitigate blackouts, frequency needs to avoid deviating by more than 1-2% from the target of 50 or 60 Hertz. Removing traditional thermal turbine generation means that solutions must be developed to provide highly-reliable sub-second responses – precisely the type of requirements for which 5G was developed.

5G networks can enable the acceleration of this transition from direct fossil fuels to increasingly renewable electricity by:

  • Improving the performance and cost-effectiveness of electric-powered alternatives (for example, by making electric vehicles much cheaper to buy and as convenient to refuel as fossil fuel vehicles through optimised battery lease-and-swap networks)
  • Providing high-reliability, low latency connectivity to the energy suppliers and users committed to maintaining stable frequency across the electricity grid
  • Ensuring that renewables can contribute to the bulk of our energy needs, by supporting new business models ensuring energy demand across millions of appliances is managed in response to the fluctuating nature of renewables supply (for example, by charging electric vehicles or heating domestic hot water when renewable supply is at its peak).

This report is part of a series of research on the role of 5G in accelerating digital transformation. Other reports within the portfolio include:

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Curtailing carbon emissions – Can 5G help?

With big data traffic, comes big energy costs

In 2009, mobile phone networks carried 91 Petabytes (that’s 9.1×1016 bytes) of data per month. Ten years later, mobile networks are estimated to carry around 30 Exabytes of data per month. That’s 30 x1019 bytes or 15 billion HD movies, or an average of 2.5 movies for the 6 billion smartphone users on the planet. This represents an increase of over 330-fold in data traffic. This rapid increase in data carried by mobile networks is projected to slow, but even a reduction in CAGR to 30% a year would see volumes reaching over 130 Exabytes a month in 5 years.

This increase in data travelling over mobile networks reflects the increasingly data-heavy applications running on mobile devices as well as the increasing penetration of smartphones in many developing markets. Although enterprises and public sector firms will also drive demand for mobile data, this is minor compared to consumer user demand. As mobile device penetration rates continue to increase and mobile device owners adopt more data heavy applications such as video streaming and immersive experiences, growth in volumes will continue far past 2024 and we could easily still see a 20-fold increase over current levels over the next 10 years.

In many ways this is exciting, as more computing power reaches the hands of more people around the world delivering applications that help billions of people in their daily lives. But this comes with a caveat – there is an input inherent in delivering this data traffic: the energy needed for running the network infrastructure.

The electrical energy required to power networks represents a cost to operators, but it also represents CO2 emissions arising from burning fossil fuels to power the network (either directly from local dedicated generators or through the power grid). Greenhouse gas emissions therefore also risk increasing significantly as a result of data growth, particularly in countries heavily dependent on fossil fuels for their electricity production. Previously, this has been managed by the fact that mobile networks have been optimised to support larger amounts of data with a similar topology in terms of infrastructure, if slightly higher energy needs and costs. However, as spectrum is a limited resource, continued growth of mobile traffic over current LTE networks would quickly lead to densification – an increased amount of antenna and network infrastructure – by some estimates this would be an increase of 160% by 2025.

Even with improvements in hardware performance, growth in mobile data over LTE networks would result in significant growth in energy consumption which represents a significant source of emissions. This is at odds with the goals that operators have set for themselves in terms of greenhouse gas emissions and risks breaching the standards to which (consumer, public and private sector) customers are increasingly holding their suppliers. Investors are also factoring in the higher risk profile associated with companies with high carbon emission exposure5. Finally, this also matters to employees – particularly younger ones with the digital skills-sets that operators are looking to attract.

The key question posed by this dilemma then is: How should mobile network operators deal with this rapid rate of growth in data and the associated energy consumption and CO2 emissions?

In this report, we focus on one part of the answer – accelerating the adoption of more energy efficient 5G technologies and associated operational practices. A faster roll-out of 5G networks is a key weapon in operators’ arsenal of measures for de-coupling energy costs and carbon emissions arising from data growth.

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Scope of this report

Network operators need to mitigate the ever-increasing energy costs and carbon footprint of their networks resulting from the forecast data growth in some way. There are six ways that the accelerated adoption of 5G can do this:

  1. Direct curtailment of energy consumption in mobile access networks through the better energy “performance” of 5G network equipment and operational practices relative to 4G.
  2. Direct curtailment of energy consumption in 5G core networks through the better energy “performance” of network equipment and operational practices relative to 4G core networks.
  3. Reduced energy consumption by devices (particularly smartphones and IoT devices).
  4. Decarbonising the grid: indirectly enabling lower levels of national carbon emissions from electricity generation through 5G supported “smart-grid” applications, increasing the proportion contributed by renewables and improving wider efficiencies in distribution and non-renewables generation.
  5. Indirectly improving energy efficiency across all sectors through reducing waste and improving operations. Reduced emissions are largely a by-product of improved productivity and process efficiencies.
  6. Reducing carbon emissions from travel through reducing the number of journeys (e.g. remote monitoring and management, virtual meetings) and reducing the emissions per journey.

Areas where 5G could impact global carbon emissions

Areas where 5G could impact global carbon emissions

Source: STL Partners

In this report, we focus on the first two – the management of energy consumption via increasing the carbon performance of the network (expressed as a reduction in the tonnes of CO2 per TB of data transmitted). While we see significant potential upside in “de-carbonising the grid”, in enabling greater energy efficiencies and reducing waste across the economy, these are not in operators’ direct control. They are also more challenging to estimate. We would recommend this form part of a future study.

For nearly all operators, over 90% of the direct energy usage of network operators is accounted for via electricity drawn from the grid to service their own networks. Limiting the growth of this would represent the largest direct reduction in future greenhouse gas production for a mobile network.

Four scenarios modelled

We have modelled our analysis around four 5G scenarios. We treat each of these scenarios differently in our model and scenario assumptions vary by country type.

No 5G roll out

No 5G roll out assumes that there is no roll out of 5G radio access or core technologies. This scenario shows emissions growth well below the growth in data volumes. This is because we anticipate reductions from lower-carbon power generation (e.g. renewables) and significant performance improvements in 4G core and access networking. These are discussed at length in this report.

Slow 5G rollout

A slow roll out of 5G would see the most delayed launch dates for 5G (between 2021 and 2024) and assumes that 5G accounts for the lowest share of data volumes over time (10-25% by 2025 and 60- 80% by 2030).

Medium 5G rollout

A medium roll out of 5G can be considered a base-case. This would see an average launch date of 2019-2022. There would see a significant volume of data running over 5G – up to 60% by 2025 and 85% by 2030. Implicitly, we would expect decommissioning of 2G or 3G (or even 4G) networks with spectrum re-farming to 5G.

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Table of Contents

  • Preface
  • Executive Summary
  • Introduction
    • Scope of this report
  • Four scenarios modelled
  • Our findings
    • Faster 5G roll out could reduce cumulative carbon emissions by 0.5 billion tonnes of CO2 globally by 2030
  • How will accelerating 5G roll-out reduce carbon emissions from mobile networks?
    • 5G technologies as drivers of sustainability
  • Country level findings: Uneven distribution of carbon savings
  • Conclusions and Recommendations
    • Operators
    • Regulators and other national authorities
    • Tower and power suppliers
    • Technology providers
  • Methodology
    • Projections
    • Scenarios
    • Country level differences
    • Other Assumptions
  • Appendix

Table of Figures

  • Figure 1: Faster 5G roll-out would have a material impact on greenhouse emissions
  • Figure 2: Areas where 5G could impact global carbon emissions
  • Figure 3: Cumulative reduction in emissions under different roll-out scenarios
  • Figure 4: Projected CO2 emissions from mobile networks under 4 scenarios
  • Figure 5: Where do emissions reductions come from
  • Figure 6: Access technologies’ evolving energy performance
  • Figure 7: Carbon intensity of different countries used in modelling emissions
  • Figure 8: Potential reduction in emissions from fast roll-out of 5G against carbon intensity of grid
  • Figure 9: Top 30 Countries by potential reduction in emissions from fast 5G roll-out
  • Figure 10: STL’s carbon emissions methodology