Mobile Network Investment, Including 5G Rollouts, May Be Postponed in the European Market Due to the Ongoing Energy Crisis

According to the E.U. Commissioner for Crisis Management, the European Union is preparing for emergencies and power cuts in the coming winter. For example, French electricity distributor Enedis has put forward plans for a worst-case scenario that would cut power for up to two hours on a rotational basis. The power cut could disrupt mobile network services if it exhausts the capacity of the power backup system in the mobile network. European operators have been working with different parties to mitigate the impacts of electricity shortages on mobile network operations. For example, telecom lobby groups are negotiating with their local regulators to prioritize communication services for electricity usage. Operators are also working on technical solutions to save network energy consumption, such as dynamically shutting down towers at idle times. At the same time, CSPs in the European market will likely delay investment plans—including for 5G rollouts—due to rising energy bills, according to several European operator executives.

5G networks can bring better energy efficiency in terms of per unit of traffic base—90% more energy efficient than 4G, according to ABI Research (AN-5500); however, the initial deployment will take a significant amount of capital, and that is not currently a priority for CSPs. Given the high market volatilities driven by the energy crisis, CSPs have to focus on cash flow in the short term. On the one hand, industrial energy prices have more than doubled in the European Union over the past year, corresponding on average with ongoing, unpredictable events—for example, Nord Stream’s leaking gas pipelines and OPEC’s reducing oil production. On the other hand, the growth in energy prices will drive inflation and living costs, increasing labor costs for operators because of pressure on rising salaries. Labor costs have been a large part of operators’ OPEX—over 30% in many cases. It would be hard for CSPs to expand their head counts for network rollouts that rely heavily on frontline workers and engineers to design and manage the installation of equipment, fiber networks, and devices. As a result, the European market will continue lagging behind its global peers—South Korea, China, Japan, and the United States, for example. ABI Research estimates that the average 5G adoption in major European countries will be below 15% by end of 2022—less than half of that in South Korea.

It is still important to upgrade network infrastructure to the next generation. Consumer data traffic is expected to grow at about 35% of the compound annual growth rate in the European market for the next five years, according to ABI Research. A major driver is services provided by the 5G network for better user experience. And the recession could increase online economic activities to save commuting and logistic costs, bringing a good opportunity to sell data packages. CSPs need to provide suitable bundle choices as consumers become more price sensitive during the recession. Those CSPs that retain a high percentage of postpaid customers would stabilize future revenues and gain a leading position for an earlier rollout of the 5G network.

Innovations for network energy saving are the top priority for the coming years; expect more aggressive progress. In the short term, software-based solutions will be preferred by CSPs as there will be no replacement costs on the existing infrastructure. However, upgrading to the 5G infrastructure will bring more energy-saving technologies, such as new antennas, high-performance chipsets, and liquid cooling (IN-6384). Additionally, the virtualized and disaggregated architecture of the 5G network will allow more trending cloud-based solutions that will help CSPs rely less on local power supplier systems and benefit from third-party developers when disruptive events happen. Another benefit of cloud-based operations is to improve automation with intelligent solutions in artificial intelligence/machine learning that will help CSPs to reduce labor costs. At the same time, it is important to emphasize network security and consumer data privacy in the cloud as these are key areas for CSPs to differentiate and protect themselves.