• Telcos account for c.2-3% of global green-house gases (GHG)emissions or just under 1Gt of CO2e. While US and European operatorsare at the decarbonisation forefront with independently validated disclosures,Asian operators are impeded by grid access, although most are makingdecent progress with new emissions reduction targets unveiled. Within ourcoverage, Singapore spearheads decarbonisation initiatives with the mostcomprehensive emissions disclosures, followed by Malaysia. Indonesia’sdisclosures are incipient and yet to be mandatory. Singapore and Malaysiatelcos are committed to attaining net zero (NZE) by 2050, with Indonesiaaligning 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 increasednumber of base stations and site densification works. This calls for theapplication of more innovative energy solutions, with solar energy being themost authoritative decarbonisation use case for the industry.

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

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

• Risks to meeting NZE targets: i) Critical and interdependentdecarbonisation 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 steadyprogress in reducing their carbon footprints, more needs to be done to meetaspirational targets, with governments and regulators playing pivotal roles. Ofthe operators covered in this report, the best proxies to the decarbonisationtheme, in our view, are Singtel, Axiata Group, CelcomDigi, Telkom Indonesia(TLKM), and XL Axiata (EXCL). Singtel scores highly for having the mostcomprehensive GHG disclosures with Scope 3 emissions (typically the mostdifficult to measure and track) assessed in full for a second year running.

Source: RHB Securities Research - 23 Nov 2023