Top five telcos for sustainability in path to net-zero

STL Partners’ 2022 telecom’s sustainability scorecard benchmarked performance of 45 companies (telecoms operators’ and a selection of adjacent market companies) against seven sustainability related criteria. Companies included Telefonica, Verizon, Microsoft, Amazon, KPN, Apple, BT, Meta – see the full 45 companies here.

Sustainability Criteria

STL Partners’ sustainability scorecard benchmarks the performance of a selection of companies against seven sustainability-related criteria which extensibly relate to company commitments to net-zero, biodiversity, and social and governance targets, as well as their activities to enable customers to achieve net-zero ambitions. They are designed to highlight the areas in which the listed companies are more and less mature in their sustainability strategies.

  • Based on this seven criteria, the scorecard shows that companies with a global footprint are generally more mature with their sustainability strategies and energy market dynamics play a big role in companies’ carbon intensity.

Top five sustainability telcos

KPN ranked 4th

stl-partners-sustainability-score-card-top-five-telcos-2022

Source: STL Partners

The sustainability scorecard recognises the top five telecom telecom operators in terms of their sustainability efforts and journey towards achieving net-zero. They include:

  1. Telefonica has been reporting on its scope 1 and 2 emissions for more than 10 years, and achieved its 2020 sustainability targets two years ahead of schedule. Its goal to reach net zero in scope 1 and 2 emissions by 2025, and including scope 3 emissions by 2040 is among the most ambitious in the industry. In 2021 it was on the CDP’s “Climate A List” of 200 best practice companies for the 8th year in a row.
  2. Verizon – Since 2014, ESG factors (split equally between diversity, supplier diversity and carbon intensity reduction) have accounted for 5% of short term incentive rewards for employees. In 2020 this increased to 10% of the STI award for corporate employees — including for their CEO, Hans Vestberg. In 2019 Verizon appointed a Chief ESG Officer, reporting directly into the board, supported by an Executive Climate Oversight Committee. In 2020, Verizon aligned their reporting with the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD). By 2021, Verizon had issue three individual green bonds of $1bn each.
  3. Proximus – Like Telefónica, Proximus scores highly on its transparent and detailed reporting on sustainability KPIs. In 2021, alongside its annual report Proximus published an excel ESG Factbook for the first time, covering energy, emissions, abatement, circularity and supply chain (as well as social and governance KPIs) back to 2017.
  4. KPN uses both short-term and long-term incentives to promote sustainability in the Board of Management. If sustainability targets are met, KPN grants its Board of Management share-based awards. For example, sustainability targets made up 12.5% of share-awards until 2018. In 2018, environmental targets rose from 12.5% of total LTI to 15%.
  5. SK Telecom has evaluated its CEO’s performance on financial and non-financial KPIs for over 5 years, but in 2019 increased social value to 50% of the CEO’s KPI – although it does not specify the contribution of environmental targets to the social value KPI. Nevertheless, the strong focus on social value has likely contributed to SK Telecom’s efforts to begin applying its experience in digital service innovation to carbon reduction. Examples of this can be seen from SKT’s happy habit project and mobility as a service initiatives (see our Telecoms net-zero enablement use case directory for more detail).

How did 40 other telecoms and adjacent market companies score?

This research tool is part of STL Partners’ Sustainability Insights Service, which aims to identify how the telecoms industry can drive growth through sustainability

• It is accompanied by an excel scorecard
• It builds on recent reports, as well as our Telecoms net-zero enablement use case directory

MWC 2022 – 10 Observations

SK Telecom Stand at MWC 2022 – STL Partners

GSMA’s Mobile World Congress – MWC 2022 revealed a subtle but significant shift taking place in the telco industry, showing how the market’s need is changing to ‘connecting technologies’ rather than ‘connectivity’. This has deep implications for the industry and telcos in particular.

Here are 10 observations the STL Partners’ research team came across as they traversed the halls of the Fira Gran Via Exhibition Centre, Barcelona at MWC 2022. A full overview and analysis of the event is available in our report: MWC 2022: Sensing the winds of change

1. CAMARA, the Telco Global API Alliance

Deutsche Telekom exhibited CAMARA, a new Telco Global API Alliance, which includes many leading telcos such as AT&T, Vodafone, Telefónica and Orange, as well as technology players such as Ericsson, Google Cloud and Microsoft. DT was at pains to demonstrate that it had learned from past mistakes, emphasising the inclusion of a wide range of partners – beyond just operators. Its first API came quickly to market within six months of establishing the alliance. The “Quality-on-Demand” API prioritises data packets to ensure high reliability and stability. One proof of concept (PoC) in Munich is enabling BMW to deliver Automated Valet Parking, where a BMW driver can leave their car at the entrance to a parking lot and the car drives autonomously to an available parking spot.

2. Becoming better partners

Operator’s discussed how to partner better, both on the network technology side as operations move to the cloud, and with start-ups, content and industry specific service providers to build and expand new services. Some operators expressed their wish to kill off request for proposals (RFPs) explaining how they can limit the scope of what can be achieved in a partnership, while also taking away from the customer outcome as the priority of the partnership. Some expressed instead a need to shift away from narrow partnerships with a specific focus, to more broad ranging ones that covering multiple areas across both B2C and B2B. 

3. Metaverse

It didn’t take long to find the Metaverse at MWC 2022. As the buzzword de jour, it was pretty much everywhere, often accompanied by NFTs – non-fungible tokens or certified digital goods. MTN, SK Telecom and Telefónica were among the telcos talking up the Metaverse. MTN Group, for example, claimed to be first African company to enter the Metaverse by purchasing land in Africarare while SK Telecom presented its ifland social VR and virtual meet-up metaverse platform as part of its “4D Metaverse” exhibition which also demonstrated future urban air mobility transportation.  There was surprisingly little discussion about the one thing that will determine whether these concepts fly and flop – trust. Neeraj Roy, founder of Hungama Digital Media conveyed that it will be critical for “the seven big tech companies who’ve all sort of announced their plans of the Metaverse” to ensure their creations are interoperable – it ought to be a single Metaverse. If not, people won’t be able to move their digital identities and assets from one platform to another, limiting the usefulness of the whole concept. 

4. AR and VR Applications

Metaverse and VR applications were popular throughout the show highlighting an emerging ecosystem of VR/AR and 3D developers seeking to build metaverse applications for both consumer, enterprise and government (education). VR for enterprise solutions included facilitating company meetings, sales and marketing of products as well as company training. Meanwhile Korea Telekom (KT) also showcased its developmental K-pop dance coaching smartphone app called “KT Real Dance” which features KT video-based AI capabilities. Users dance to a virtual dance instructor displayed on their phone. 

5. Video and AI 

SKT showcased its camera and vision AI service which offers real-time safety applications for enterprise and smart city by analysing and processing live video in the cloud to monitor real-time human activity and provide alerts in cases such as patient falls in hospital settings, driver behaviour monitoring to detect when drivers’ heads drop as they are falling asleep and social distancing regulations. The camera and vision AI service is part of SKT’s efforts to enter the era of hyper connected intelligence connecting people, things and society. 

6. Sustainability

Operators such as Deutsche Telekom and Vodafone showcased their sustainability efforts which included Deutsche Telekom’s Fairphone 4, a modular 5G device with interchangeable parts that enable easy repairs and increase the overall lifetime of the device – which has a guaranteed service life of five years. Vodafone also highlighted that where customers hold on to their phone for an additional year, the device’s carbon lifetime impact is reduced by 29%. At MWC 2022, Vodafone announced its circular economy plan for extending the lifetime of devices and encourage reuse and recycling. 

7. Heavy and highly physical industry emphasis

There was a new emphasis on heavy and highly physical industries: ports, airports, mining, manufacturing, construction, energy, logistics and healthcare for example. In the next ten years STL Partners believes the efficiency and productivity issues of these businesses must be addressed. To reach sustainability and carbon goals anywhere near net-zero, the profile of emissions, waste and efficiency in these businesses must be radically improved. There were a plethora of examples and use cases on show, widely varying in quality and depth, but nonetheless demonstrating what can and is being done.

8. Telco cloud

Operators such as Telefónica outlined their progress in Open RAN deployment citing its four main markets: Spain, UK, Germany and Brazil where the operator is in its last phase of its pilot programmes. The operator indicated that carrying out interoperability testing (12 weeks minimum) is a timely exercise and that due to high integration costs, open RAN as of now is more, not less, expensive, than legacy RAN. Meanwhile, Dish Network’s Marc Rouanne spoke enthusiastically of the operator’s cloud native standalone core and open RAN architecture that delivered an all software, fully autonomous, self-healing network. Having outsourced all its cloud operation to AWS in 2020, Dish’s network architecture team consists of fewer than 20 people. 

9. Further Analytics, AI and automation use cases

Spirent, with IBM and Palo Alto Networks, demoed a slice management solution with integrated security. Spirent’s active assurance product emulates security attacks both at activation and on an ongoing basis. It also, provides assurance for validation of initial end-to-end provisioning and any further scaling by IBM Cloud Pak. Lastly, the Spirent solution emulates traffic loads that trigger faults to identify the fault, apply impact policy and automatically trigger remediation to the orchestrator.  

Nokia demoed the use of its Network Data and Analytics Function (NWDAF) product within the telco ecosystem. Nokia discussed the ability to share network insights with an ecosystem of partners; allowing them to understand real-time quality of experience and past trends. It also provides predictive analytics from the NWDAF data to allow simple controls for the partners such as spinning up new slices or traffic rerouting when future issues were expected. 

10. Xiaomi AIoT and Huawei

Xiaomi showcased a range of IoT consumer electronics, (some) with artificial intelligence (marketed as AIoT), including its popular electronic scooters. A representative of the Chinese electronics manufacturer highlighted its three-pronged strategy focuses on growing smart home, smartphone and its retail footprint (stores and telesales). The company has experienced increased demand for its smartphones, particularly from customers who were previously Huawei device owners. Huawei mobile services such as Petal Search, Petal Maps, the Huawei App Gallery (App Store) and Huawei Ads was a reminder to the removal of Google’s Android Apps and services from its devices. 

Sustainable financing: A pioneer in telecoms

In 2018, the environmental team started considering sustainability from a finance perspective, and the finance team started to incorporate ESG targets. Telefónica saw the opportunity to enlarge its investor base, explore opportunities within sustainable financing, and to start conversations with its investors that had not happened before.

After developing its SDG financing framework, Telefónica launched a roadshow with investors to kickstart and socialise the project. Telefónica knew its existing investors (and investors generally) were already interested in sustainability and the effects that climate change has on the financial world. Despite this, it was unsure how its own investors would react to the idea initially and whether they would buy into it. However, the sustainability and finance teams were both confident that Telefónica was well-prepared to join the emerging trend of green bonds in other industries. It had the credentials required to convince investors of its idea, i.e. the creation of the sustainable financing framework, and demonstrable progress on achieving ambitious energy saving targets with its fibre efficiency and building closures. Between 2016 and 2018, Telefónica reported its copper to fibre transition had already delivered 208GWh of energy savings and avoided 56,500 tonnes of CO2 emissions, equivalent to the carbon absorbed by 900,000 trees.

Initially Telefónica did receive a small pushback from investors because of the scant knowledge of the sector from an environmental perspective. However, the evidence it was able to present investors was clearly compelling, given the level of enthusiasm for the bond. The Green Bonds have been extremely popular, with the first and third bonds being five times oversubscribed, and second one being seven times oversubscribed.

Telefónica works with third parties, Sustainalytics and PwC, to verify and audit its sustainable financing framework and annual sustainable financing reports.

Telefónica launched a hybrid Green Bond (of debt and equity) in 2020, the first of its type in the telecoms industry, amounting to €500 million. This Green Bond further also served finance projects aimed at transforming the copper network to fibre optic in Spain. This bond saved 50 GWh between May 2019 and August 2020, avoiding 10,075 tonnes of carbon emissions, equivalent to the carbon absorbed by 165,000 trees.

In February 2021, Telefónica launched its third sustainable bond, a sustainable perpetual hybrid issue22 amounting to €1 billion, and another first of its kind in the telecoms industry worldwide. A perpetual bond has no maturity date, which allows it to be considered as equity rather than debt, while a sustainable bond is a mixture of both green and social bonds. This means that the proceeds must be used for either social or environmental projects that impact as it was stated in the framework. This third Green Bond was met with much enthusiasm from investors, with demand from over 500 institutional investors. This suggests that Telefónica has built enough trust with investors to achieve greater leeway in how it invests financing to achieve ESG targets.

In November 2021, Telefónica launched another sustainable hybrid bond, amounting to €750 million. Telefónica is using these funds to finance or refinance social and environmental initiatives in Spain, Germany and Brazil. The environmental initiatives continue the focus on transforming the copper network to fibre (85% more energy efficient); the social initiatives focus on bringing connectivity to undeserved areas and improve internet access, therefore reducing the digital gap and further encouraging worldwide digitalisation.

In January 2022, Telefónica refinanced its main €5.5 billion syndicated facility under sustainable criteria. The company´s interest rates will depend on the compliance with an environmental objective (the reduction of direct and indirect greenhouse gas emissions) and a social objective, (the increased percentage of women in executive positions), both of which will be verified annually. Sustainalytics provide the framework for the bonds, writing yearly reports on them which are verified by PwC. These reports are published on Telefónica’s websites with PwC’s verification.

In STL’s Partners report Telefónica’s 10 steps to sustainable telecoms, we explore what other telcos can learn from Telefónica’s experiences.

Save energy and extend network coverage

Stratospheric Platforms Limited (SPL) has developed an alternative to traditional, terrestrial cell sites as a means of achieving network coverage in rural locations. The solution (Stratomast HAP) consists of a fleet of hydrogen-powered High Altitude Platform (HAP)-mounted antennas designed to provide 4G and 5G coverage to locations across the UK.

Rural areas typically have poor mobile coverage because it is unprofitable to deploy and run under-used network cells. Traditional cells consume large amounts of energy, when they are only required to deliver relatively small data volumes to a few customers. This is not only resource inefficient, it is also a big Capex and Opex outlay. STL Partners estimates a cumulative energy saving of over 4.5 million MWh for 4G networks in the UK up to 2035 if operators were to adopt High Altitude Platform (HAP)-mounted antennas and decommission inefficient terrestrial sites for rural coverage. The chart shows three scenarios based on rate of decommissioning.

Over 4.5 million MWh of energy savings in the UK by 2035

Modelling scenarios

Source: STL Partners

Our modelling shows that by 2035, the use of HAP-mounted antennas could save over 4.5 million MWh of energy in an accelerated scenario as a result of energy savings from two key mechanisms:

  • Cell sites not built: these are terrestrial cell sites which would have been built by operators to fulfil coverage goals but will no longer be required thanks to Stratomast HAP-type solutions. We forecast over 4,600 cell site build-outs could be averted.
  • Cell sites decommissioned: these are terrestrial cell sites currently part of the network which could be decommissioned by operators when HAP solutions serve the area. These will either be sites which are more expensive to run than they are to decommission, or sites which need renewal and are cheaper to decommission than to re-invest. We modelled different scenarios based upon the rate of decommissioning, in the most conservative estimate we would expect over 4,100 cell sites to be decommissioned between the four UK operators by 2035, with over 8,300 decommissioned in the fastest scenario.

Additionally, this type of solution can also help to reduce the carbon emissions used to provide rural mobile services by 95%. Even in the most conservative estimate, over 2.7 MTCO2 could be cumulatively saved by 2035 (at the peak of the accelerated scenario in 2027, nearly 0.5 MTCO2 are saved annually). This will advance the telco journey to net zero.

For more detail on this, please see our report Stratospheric Platforms: A faster route to mobile net zero.

Related research can be found on our Sustainability Hub.