• Telcos account for c.2-3% of global green-house gases (GHG) emissions or just under 1Gt of CO2e. While US and European operators are at the decarbonisation forefront with independently validated disclosures, Asian operators are impeded by grid access, although most are making decent progress with new emissions reduction targets unveiled. Within our coverage, Singapore spearheads decarbonisation initiatives with the most comprehensive emissions disclosures, followed by Malaysia. Indonesia’s disclosures are incipient and yet to be mandatory. Singapore and Malaysia telcos are committed to attaining net zero (NZE) by 2050, with Indonesia aligning with the nation’s 2060 aim.

• Energy constitutes a significant portion of a telco’s overall opex at c.20- 40%. With the exponential growth in data traffic and transition to 5G networks, energy costs are set to rise in correlation – primarily due to the increased number of base stations and site densification works. This calls for the application of more innovative energy solutions, with solar energy being the most authoritative decarbonisation use case for the industry.

• Compelling business opportunities for the industry with 5G as a climate change enabler. There are strategic revenue opportunities for telcos to address climate change via innovative products and services that can effectively harness the industry's wealth of big data, as well as leveraging on artificial intelligence (AI) and machine learning. 5G represents a highly scalable and cost-efficient technology, setting a precedent as the first mobile technology to prioritise energy efficiency during its standardisation phase, with up to 90% reduction in energy consumption per GB when compared to conventional 4G networks.

• Common decarbonisation measures adopted by operators include: i) Offgrid solar systems for mobile base stations (BTSs) and solar solutions to power operations and switching centres, ii) deployment of more energy efficient direct current (DC) rectifier systems and radio network sleep modes, iii) decommissioning of legacy equipment (including the shutting down of 3G networks), and iv) network infrastructure sharing with a multi-operator core network (MOCN) model applied.

• Risks to meeting NZE targets: i) Critical and interdependent decarbonisation goals not being achieved in time, ii) access to the grid, iii) renewable energy (RE) sources that are not all-encompassing, and iv) regulatory approaches.

• Featured stock ideas. While the telcos across the region are making steady progress in reducing their carbon footprints, more needs to be done to meet aspirational targets, with governments and regulators playing pivotal roles. Of the operators covered in this report, the best proxies to the decarbonisation theme, in our view, are Singtel, Axiata Group, CelcomDigi, Telkom Indonesia (TLKM), and XL Axiata (EXCL). Singtel scores highly for having the most comprehensive GHG disclosures with Scope 3 emissions (typically the most difficult to measure and track) assessed in full for a second year running.

Source: RHB Securities Research - 23 Nov 2023