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| 4 minutes read

Energy costs are soaring – what can telcos do about it?

There cannot be a more opportune time than now for telcos to drive efficiencies in energy usage and to seek alternative energy sources. 

Telcos run energy intensive operations. They drive 2-3% of the global energy demand. Mobile RAN, central offices (especially, powering copper networks) and data centers are key drivers of energy consumption. Therefore, energy is also a significant expense on the telco books, running at around 2% of their revenues and 4 to 5 % of their operating costs. As telcos cater to higher data demand across their footprint while supporting multiple technologies, annual energy consumption has been rising.  

With the recent run-up in the fossil fuel prices and utility tariffs, telcos are now facing more margin pressure. In the last year, utility prices have increased north of 20% in many markets including Singapore, Japan and Germany. The problem is acute in markets that exclusively depend on fossil fuels for electricity generation, meaning telcos are aggressively looking at the demand side of energy spending. In parallel, they are beginning to sign up for more stringent ESG goals. Verizon is working towards zero carbon emissions by 2035 and Telefonica now plans to reach a similar target by 2040 instead of the earlier-planned 2050. These aspirations are clearly good for the environment and for the bottom-line. But how should the telcos that are yet to get organized and programmatic on this topic begin their journey? 

First, where should telcos look for energy saving opportunities? Based on my recent experience, there are three key sets of opportunities to go after:

  1. Quick-wins / hygiene elements: These opportunities offer low execution risks but are more operational in nature. These include setting up the right accountability at office / regional level, plugging insulation issues in cooled spaces, adding low-cost partitions in central offices to reduce the cooling footprint and using reflective paint on offices and cabinets. As trivial as these opportunities may sound, they are often overlooked. In a recent field visit at a telco located in an island market (where energy costs are very high and at 4-5% of revenues), we observed several such instances with simple, tactical fixes that provided high ROI. Further, on the supply side, we observed that the telco had not optimized for the industrial tariff that they were already qualified for. Migrating sites to the industrial tariff from a commercial one resulted in a 13% reduction in unit prices.
      
  2. Software driven features and advance analytics: OEMs of servers and active elements are providing increasingly reliable and comprehensive energy management features. The key challenge in the past was configuring, activating and running these energy management features in an automated manner. However, recent advances in closed loop automation and RPA have provided the much needed unlock. Further, with machine learning, energy operations policy (covering savings features, identified parts of a footprint, when to activate, the extent of optimization etc.,) development and revision can also now be automated.
      
  3. Capex investments: Energy infrastructure has received less than the required investment over the years as telcos prioritized investment in mobile / FTTH coverage and capacity.   The legacy infrastructure has borne the burden of each new advance in “G” and the exponential growth in data consumption. It is time to invest for efficiencies and create headroom for future growth. High efficiency rectifiers / SMPS, IoT enabled integrated gensets, high-efficiency energy storage solutions, EV fleet and new HVAC systems are some of the high-impact and low-execution risk investments. While a few telcos have also been investing in offsite and onsite renewable power generation, the feasibility and execution risks are highly market dependent and need to be carefully evaluated.  

Secondly, how should telcos alter their overall approach? Three key shifts are needed here:

  1. Smart baselining: Telcos are typically challenged to figure which class of network elements / sites drive what share of the energy costs. While the quote “You can't improve what you don't measure” is as relevant here, building a comprehensive baseline can take months while the telco continues to rack up energy costs. This is where the opportunity for smart baselining comes. Through a combination of quick site visits, equipment specs review, archetype modeling and utility bill analysis, reliable consumption models can be built. Using regression models built on site inventory and location scope adds another layer of sophistication.
        
  2. Making a comprehensive case: Many investment initiatives for energy efficiencies fail either at business case stage or at execution stage. The initiatives themselves are typically built on a narrow base of looking only at direct energy savings. While the recent surge in electricity unit prices improves the business case, there is also an opportunity to broaden the base of benefits considered for the business case. For instance, modernizing an HVAC system not only delivers at an obvious energy efficiency level, but also allows for reduced maintenance and redundancy costs. Besides reducing energy consumption, legacy footprint reduction helps drive tangible savings through CO / site space consolidation, fewer truck rolls for preventive and reactive maintenance, reducing warehouse usage for spares and OEM support costs. When making the business case, the installation costs of new equipment need to be moderated by the eventual cost of decommissioning a legacy network. By pushing out decommissioning, the telco is only benefitting from the time value of money on the decommissioning costs and not saving the costs themselves.
     
  3. Rounding out on the execution: Having too many initiatives increases complexity and makes accountability difficult. Rather, a thematic grouping and execution helps keep the program manageable. Establishing accountability for energy efficiency as Objectives & Key Results (OKRs) at a granular organizational level (CO and mobile site cluster level, ideally) and creating an “eco-conscious” culture across the workforce is as important as running the individual initiatives. There is a spike in communications and discussion around sustainability close to the World Economic Forum event every year. This provides a good opportunity to springboard and set the agenda for the year. However, the continued engagement and integration of an energy efficiency program into the overall operations efficiency program considerably improves the chances of success. 

Beyond the enterprise, telcos need to locally engage on energy programs with ecosystem partners / suppliers, regulators and, importantly, competitors. At a global level, an open-source model driving innovation in on-site sustainable power generation (sharing designs, best practices and learnings) can help fast track the collective outcome. Telcos shouldn’t be battling energy efficiency and net zero emissions alone. 

Tags

operations, tmt, operational improvement, technology, energy
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