Will Telcos Bypass Utilities and Become Regional Renewable Energy Providers?

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2Q 2022 | IN-6529

The mobile industry is seeking to develop its own environmentally sustainable businesses. With 5G deployments enabling energy-saving and proactive adoption of the Internet of things (IoT) and Artificial Intelligence (AI), the telco business is pressured to comply with ESG and carbon emission reductions. Will the telco and utility sectors go hand in hand through a structural business transformation, or will telcos be brave enough to cut the utilities from the energy supply chain?

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What if...?

NEWS


  1. Telecommunication and electric utility industries have a number of operational similarities, such as they require significant capital for setting up the infrastructure, equipment, control centers, and the network itself. Both industries also have similar structural needs due to technological advancements, such as billing, client management, and maintenance of the equipment. However, those industries have fundamental differences in service provision, business model, operational model, and pace of digitalization. Yet, given those differences, it is important to highlight, that both utilities and telcos are the leading polluting verticals that rely heavily on the use of fossil fuels, and require constantly growing electricity demand.
  2. Interestingly, deployments of 5G wireless networks have increased the telco sector's electricity demand, putting more pressure on the utility network, which has been further increased by the deployment of new cooling and electric equipment, data centers, and new sites for coverage expansion. Due to the increase in demand for electricity, telcos are exploring alternative electricity sources and ways to reconfigure cross-sectoral relations. The question is:

What if telcos can bypass the utility sector and position themselves as regional electricity and telecommunication services provider?

Options for Telcos Bypassing Utilities

IMPACT


Telcos are heavily pressured by the emergence of Environmental, Social, and Governance (ESG), Corporate Social Responsibility (CSR), and strategic objectives for the Information and Communications Technology (ICT) industry to become carbon neutral and achieve net-zero goals. As a result, the telco industry heavily invests in renewable energy sources. This transition also signifies the departure from traditional utility-telco relations, and telecommunication companies are presented with opportunities to bypass incumbent utilities. An example of such a development is showcased by Japan’s NTT DOCOMO, which reduced over 40% of grid power usage by deploying solar panels and high-capacity batteries. Hence, one of the strategic options for telcos is to invest and create their own site of distributed renewable energy production. Such an operation might not necessarily make a telco a new utility provider; however, it would provide its own operation with electricity, enabling it to become greener, from a sustainability perspective, and in a way partially bypass utilities, to sustain and meet current and future electricity demand.

On the other hand, in 2011, in Greenfield, Indiana, Central Indiana Power and Hancock Telecom merged to create a new company, NineStar Connect, which became the first official telco to offer both telecommunications and electricity distribution, implementing triple-play media, plus smart grid functionality. This merger created a precedent for regional telcos and electricity providers to become a single unit and provided local customers with broadband connectivity and advanced energy management capabilities. It should be noted that such scenarios might be challenging to implement in a state where either telcos or utilities are heavily regulated as critical national infrastructure (e.g., in the United States). This is clearly a one-off, yet exciting development in the telco-utility ecosystem. Telcos are putting themselves in a position to provide universal services for both telecommunications and electricity by using the innovation smart grid capabilities. Perhaps there are opportunities to go even further and offer energy distribution to customers as-a-Service.

The idea of the telecommunication industry penetrating the utility business and/or investing in distributed renewable energy infrastructure, smart grids, and connectivity has interesting market implications.

Synergy and Similarities of Telco and Utility Infrastructure

RECOMMENDATIONS


While this is an exciting business opportunity for telcos, the more realistic development of the market would be increasing synergies between telcos and utilities. All electric transmission companies already have a significant telecommunications infrastructure between Supervisory Control and Data Acquisition (SCADA) and their core control systems, applications, asset monitoring systems, video surveillance, and high-speed protection packages.

Arguably, there are more common grounds for utilities and telcos to co-partner to meet societal needs and grow by developing high-speed broadband for the rest of the country, which could be ensured with sustainable electricity supply. The telecommunications infrastructure can play an important role in enabling Digital Network Operators’ (DNOs) transition to electricity, networks, and, ultimately, a low carbon economy. The smart grid will allow greater visibility, control, and protection of network assets with enhanced centralized control functions and autonomous-centralized functions.

Telecommunication vendors will become a strong investment force in the distributed renewable energy infrastructure. First, this ensures an additional electricity supply for the operations in close proximity to the site/tower/data center; second, it enables them to have a positive outlook for achieving net-zero goals, complying with CSR, and increasing their sustainability initiatives. Will telcos decide to offer renewable energy as electricity providers? For now, it is fair to argue that it will not. Utilities have different operation structures, business models, and paces for digitalization, so telcos will have to build entirely different operations and business streams. Investing and expanding their infrastructure toward renewable energy generation to cover their growing electricity demand might become an industry trend.

 

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