27 September 2022
The cost-of-living crisis is biting. With enduring financial gloom forecast, what are the options for operators? Lee Sanders, Managing Partner at Aetha Consulting, sets out the challenges and opportunities ahead.
These are testing times for telecoms operators. Rising energy costs and high inflation dominate the headlines but the full story is more nuanced.
Operators are being hit in three ways. General inflation is driving costs up across the board, squeezing margins. The banning of Chinese equipment vendors from 5G networks in many countries creates a second pressure point. Over the past decade, operators have benefited from the aggressive pricing of the likes of Huawei and ZTE. Their removal leaves operators with just two main vendors – Ericsson and Nokia – weakening the competitive element that encourages innovation and lower costs. While the development of Open RAN to address concern about lack of diversity in the vendor supply chain promises a solution, the level of change requires time that the current conditions cannot afford.
Finally, there is the pressing problem of the cost of energy – which is hitting power-hungry mobile operators hard. Just last week, Telenor warned that it will struggle to hit its profit targets for 2022 due to “energy price development”. This marks a first – I certainly cannot recall energy being previously named as the main cause for an operator to miss its profit targets, but I fear it is indicative of what’s to come.
Faced with these increasing costs, there is a question as to how much of the additional outgoings operators can pass on to customers. Until recently, intense competition between mobile operators has typically caused ARPUs (average revenue per user) to fall – they have rarely risen. But market conditions are changing and inevitably operators will adapt accordingly. Operators will need to be disciplined to ensure that sufficient price rises are implemented to counterbalance the current high levels of inflation.
While the cost of energy has always been a sizeable consideration for mobile operators it has now gained unprecedented attention. Power costs have doubled, even tripled, in just the last few months. Historically, energy costs have contributed less than 1% of typical mobile operator’s revenue. This figure may rise to possibly up to 5% in the coming years. While the current spike in the price of energy may ease, the trend for energy costs to rise faster than inflation is not new – and is expected to endure.
One key aspect of 5G is the use of active antennas, which can provide a step change in the capacity of mobile networks. However, they are power hungry. Operators are now having to carefully consider the accompanying additional power required – specifically the cost of that power. In current circumstances, switching on active antennas is not insignificant and spiralling costs could even see delays on their deployment.
Energy use is under scrutiny like never before, and this new focus invites both innovation and behavioural changes that can deliver savings. Many of our clients are responding in a number of ways that include some short-term fixes and longer-term gains. More operators are switching off high-frequency spectrum bands overnight when demand decreases and lower frequencies can provide adequate capacity. Others are introducing smart breakers to completely switch off hardware rather than simply idling – a capability that will be standard with 6G, which is being developed with energy efficiency in mind. Clients turning off high frequencies for four or five hours are looking at extending this period to six or seven. These energy efficiency measures make sense and are delivering savings in the millions.
Longer-term initiatives include investing in new equipment that offers greater efficiency. Interestingly, we are hearing from clients that the business case for equipment refreshes can be made on power savings alone. As power costs rise, these initiatives are imperative – and bring opportunities for new technologies and approaches to promote resource efficiency.
The global energy crisis will recover but it will not disappear – energy use is key to broader discussions of sustainability and climate change. With mobile operators being some of the largest consumers of energy, their focus will remain keenly on the use and cost of power – and the biggest beneficiary could be the environment. While telecom organisations are already navigating the path to net zero, the current energy crisis throws decision-making, behavioural changes and opportunities to create a better future into sharper relief.
