Green concerns start impacting telecom sector but profit goals will drive action

Matt Walker, Senior Analyst

Matt Walker looks at climate change from the telco CFO view and lists the three forces that will drive action.

First, energy - electricity, mainly - has significant direct costs for telcos. Power, Ovum estimates, currently accounts for between 2-3 percent of telcos' operational spending (opex), but this varies significantly around the globe. These costs are rising, in some cases dramatically, due to high-usage data centers and mobile network expansion, particularly into rural areas.

Second, environmental and energy cost concerns give rise to a number of sizable business opportunities for service providers. Examples include video and audio-conferencing, international connectivity, Ethernet LAN/ IP virtual private network (IP VPN), storage, power-line communications, radio frequency identification (RFID) tracking, and intelligent transport.

Third, green is 'in'. Credible, sustained commitments by corporations to environmentally friendly practices can pay off with public goodwill. Environmental policy and practice is becoming a key element of broader corporate social responsibility efforts. The telecom sector's environmental impact is mainly positive, and currently accounts for about 1% of global greenhouse gas (GHG) emission, yet 3% of global GDP. However, there is much room for improvement.

Energy efficiency opportunities

Matt Walker argues that the electricity costs that come with data traffic growth and increased overall network penetration are putting pressure on telco's operating budgets. In 2007, telco electricity opex accounted for roughly $8 billion in Europe, the Middle East and Africa (EMEA) and $6 billion in Asia-Pacific. Researchers at Japan's Advanced Industrial Science & Technology Institute (AIST) have estimated that routers alone, keeping technology constant, would account for 9% of Japan's total electricity consumption by 2015. Beyond the network, power consumption by customer premises equipment (CPE) is also significant, especially as broadband moves to fiber. For instance, NTT estimates that the electricity consumed by an FTTx passive optical network (PON)-based subscriber's CPE is around four times that of the network itself, per subscriber. Fortunately, a number of telco energy efficiency opportunities are within reach. Some of the tactics explored include:

• Data centers. Among the most power-hungry of any facility per square foot. Data center operators are carefully designing facilities (especially cooling systems) and locating them in locations with low electricity rates, and access to renewable sources.
• Routers. As power efficiency (watt per Gbps) improvements have lagged transistor advances, router power usage has become a huge problem. Possibilities being explored include all-optical switching/routing, nanophotonics, and the use of low-voltage LSI chips.
• Broadband. Moving from DSL-based broadband to PON, especially gigabit passive optical network (GPON) (versus Ethernet PON), saves power usage costs according to several vendor and carrier sources.
• Radio access networks. Power saving techniques include network sharing, cell optimization, site optimization, integrated power-saving features in the BTS, more efficient amplifiers, tower top-mounted radios, and alternate powering for remote base stations (biofuels, wind, solar).
• Energy-efficient Ethernet. Initiatives are aimed at reducing the leakage/waste from times when devices or functions are not in use, yet power flow is maintained.
• NGN implementation. Closing central offices is a key part of cost savings goals at BT, KPN, NTT and others.

Corporate social responsibility (CSR)

The issue of corporate social responsibility lies somewhere between broad public policy debates and the nitty-gritty details of profit & loss statements. In many developed western countries, GHG emissions-driven climate change has already become a real public concern. In such places, a corporation's environmental policy plays a big role in CSR evaluations, and more broadly in the public's image of the company, and hence the value of its brand. Recent consumer surveys suggest some differential willingness-to-pay for products/services sold by companies with good environmental reputations. In this light, Walker suggests that telcos consider:

• Global leadership in public venues. BT, NTT, KDDI, Vodafone, Swisscom, and Verizon are among the positive examples to date.
• Minimize truck rolls. Rollout your networks, and keep them up and running, with an eye towards energy efficiency in transport.
• Pursue online billing, advertising, and other dematerialization efforts. Telcos facilitate the use of these techniques for their customers but are sometimes late adopters themselves.
• Publish carbon impact. Making an effort to estimate on a quarterly or annual basis shows commitment to climate change mitigation, as does publishing targets in advance.
• Facilitate telecommuting and remote working. As large employers, telcos should 'walk the walk' on this point and encourage their own employees to work remotely.
• Think outside the box. Bringing unconventional design principles into the construction and operation of telco facilities is long overdue. One example is designer William McDonough and his 'Cradle to Cradle' philosophy.

Climate change, pollution and rising energy costs represent enormous problems that lack simple solutions. However, there are tactics that telcos can use to prosper amidst these challenges. Increasing the energy efficiency of your network, and the CPE needed to support services, is important. Deploying services that tap the public's interest in energy efficiency and the environment offer real revenue opportunities. Finally, becoming a good corporate citizen through measurable, sustained environmental action - even better, leadership - can set telcos apart from the mainstream.

Based in Asia since 2001, Matt Walker is a senior analyst in Ovum's Network Infrastructure practice.