The need for capital sustainability is questioning previous thinking in a broader sense. It is now more important to manage rather than own networks, as uneconomic duplicity is a waste of physical and capital resources. This is a material step change in historical thinking within the sector.
Assets can now be shared, especially where it is difficult to differentiate or monetise, as operators identify core versus hygiene assets. At the same time, partnerships can reduce the risk of technological change, and access connectivity can be delivered as a service rather than a capital expenditure.
Meanwhile, environmental sustainability is the new dynamic influencing operators’ decision-making, as it becomes both an increasingly important competitive consideration and an issue exposed by the replacement of legacy infrastructure.
Luckily, the treasure trove of valuable metals and materials that constitute these systems will deliver much-needed residual value and make recycling the preferred approach. This will allow operators to focus instead on the broader scrutiny of their green credentials by enterprises, corporates and consumers when choosing suppliers.
To meet these, carbon offsetting will have a diminishing impact and more will need to be done by telecoms operators to reduce their actual and underlying emissions, around two-thirds of which come under Scope 3 and relate to the supply chain.
A sustainable telecoms sector will have to deliver environmentally, but critically, also improve returns or face the risk of long-term capital flight. Business model innovation will be another prominent challenge in the near future, and a requirement for all players wanting to avoid irrelevance.
Greater responsibility for decommissioning legacy networks, sustainability and shifts in societal demand for and usage of networks will be the driving forces behind the necessary changes here – which, coincidentally, are also the areas that offer enormous potential to differentiate and evolve. Whilst it may take time, we believe with a smart use of capital supporting long term returns, they could be achieved. It is just a case of prioritising future-focused approaches and investing now to build a robust telecoms future.
Written by Guy Peddy, a Division Director in Macquarie’s Specialised and Asset Finance (SAF) TMT business.