Telefónica bets on renewables, efficiency and collaboration with towercos in Central America

Over the years, Telefónica has positioned itself as one of the telecom world leaders thanks to its global footprint and its innovation strategy. The company is strongly pushing efficiency, infrastructure optimisation and clean energy use to power its operations, and its Central America unit is a great example.

From Panama, the Planning and Economic Control Division manages, among other aspects, the MNO efficiencies and infrastructure optimisation initiatives in Central America. In this interview, Carlos Santiago Rodriguez Medina, the Division’s subdirector, addresses the company’s ambitious take on renewable energy and analyses how new business models, technological innovation and collaboration between operators and towercos can help unlocking the different barriers that are still slowing down infrastructure development in the region.

TowerXchange: Carlos, could you please explain your role at Telefónica and summarise the company’s infrastructure strategy across Central America?

My role has the particularity that our department integrates a multidisciplinary efficiency team that has the goal of identifying opportunities for simplification, efficiency and synergies across all the other company’s departments. This efficiency team, that works under the Economic Control Department, has achieved an annual saving rate of US$35mn for the five operations of Telefónica Centroamérica, which integrates Guatemala, El Salvador, Nicaragua, Costa Rica and Panama.

One of the singularities of Telefónica’s operational model in Central America is the implementation of a so-called Operative Costs Control area that integrates professionals with technical-economical profiles, which enables an integral management of all the network deployment resources and includes a Site Management unit. This unit participates in the strategic design of the infrastructure deployment models by choosing the most suitable economic conditions, depending on the technical needs of each deployment processes. Based on the network design, our Site Management Unit negotiates and allocates the search rings to tower companies, depending on the capabilities of those towercos and in accordance with the different commercial conditions that have been previously set during the framework agreements between companies.

In Telefónica Centroamérica, we use the built-to-suit (BTS) model for our network deployment so we can focus our investments in last generation technological equipment in order to lead the market and offer the best possible service to our clients. We trust our deployment partners as they have proven their experience and capacity over the last decade. Currently, over 80% of our equipment in Central America is installed on towercos’ infrastructure.

TowerXchange: What are the main operational and financial challenges that the company is facing when developing and maintaining its infrastructure?

In January, 2016, the IASB (International Accounting Standard Board) published a new rule on the accounting of lease contracts called International Financial Reporting Standards 16. That rule, that became effective on January this year, will have considerable accounting and economic impacts on MNOs. In summary, when you increases a company’s assets and debt, lots of measures and ratios are affected - from the Return of Assets (ROA) to the EBITDA. In general, companies will appear as more indebted and consequently, they might breach a number of covenants related to the level of leverage. Additionally, we could see relevant market changes related to lease agreements, where we expect less sale and leaseback contracts and shorter commitment clauses.

On the operational and maintenance side, we expect an increase of integrated services and more as a service models for energy, climate and access that guarantee continuity and availability of those services that are supported by the infrastructure.

TowerXchange: Can you talk about Telefónica’s energy strategy in Central America?

Both Telefónica Centroamérica and Telefónica Global focus our efficiency efforts in two aspects; energy consumption reduction and renewable energy use. For that reason, we have set some general premises that applied to all the company divisions and are based in four essential pillars for the next five years: opex and energy consume reduction and control, emissions reduction and control, auto generation and renewable energy use. Based on those pillars, we have set several actions in different areas:

Energy management:

- Unifying the consumption and energy expenditures databases as well as improving the billing management that comes from electricity service companies

- Optimising site management, creating a consumption profile based on theoretical data

- Audits in high consumption sites and using big data analysis tools.

Energy purchase:

- We are purchasing energy under the PPA (Power Purchase Agreement) model on those countries where regulation allows us. Particularly, we have recently signed a contract of 4,850Mwh per year for the biggest telephone centre in Panama, which will use solar energy backed by hydroelectric power, generating a 18% reduction on the final bill.

- Additionally, we have implemented different hybrid systems in remote and rural sites in countries like Nicaragua. Those systems use solar panels, batteries and generators, where solar is the main source, backed by batteries and ultimately by the generators that enable continuity and battery recharge.

Equipment modernisation:

- We are betting on data centre consolidation and the virtualisation of our platforms.

- Modernising our cooling equipment, replacing obsoleted terminals and installing high-efficiency equipment as well as replacing equipment with refrigerant R-22 for R-410A.

- Installing free-cooling equipment in sites where the exterior temperature allows a combination of external air and air conditioner to reduce energy consumption.

- Replacing energy and backup equipment for more efficient alternatives and also installing generators that consume less fuels.

- Finally, we are pushing lithium instead of acid-lead batteries, which improves backup performance and batteries lifecycle on top of reducing contaminating waste.

Unified infrastructure monitoring systems:

- The continuous network growth requires real-time monitoring systems implementation, which allow us to control energy and fuel consumption as well as observe any operational failure. Those unified monitoring systems allow us to automatise our activities based on tickets and reports. Moreover, they allow us to directly communicate with the workforce on the field and enable interaction between sites and centralized systems through mobile apps that can be used by technical employees. Finally, those systems enable the creation of second level structures as well as remote assistance and field workforce support.

- On the other hand, monitoring of administrative and operational buildings and their different components - from refrigeration and rectification systems to backup systems - allows us to control peak consumption points, automatizing those variables for energy consume reduction. A good example is the variation on the temperature set point on AC’s at the offices, shops or sites, where refrigeration demand is a relevant aspect of the general consumption.

Legacy equipment shutdown:

- Obsolescence shutdown and replacement of the network and refrigeration equipment for others that are more efficient and modern is part of our energy optimisation strategy. We can highlight the evolution of the cabinets access equipment, where internal radio systems have been replaced by inclemency instalment equipment, which reduces heat load and cooling needs, and therefore notably reduce electricity bills.

- We have to add the strategy of compaction for TDM central and/or IP conversion, where we have considerably reduced the quantity of cabinets in telephone centres.

TowerXchange: Telefónica has set very ambitious renewable energy implementation targets. How are you contributing to this corporate goal and what initiatives have you started?

On a global level, Telefónica has committed that 50% of its total energy consumption comes from renewable sources by 2020, becoming 100% by 2030. In Germany, we have already reached that 100%. In Central America, achieving that goal is a little bit more complex due to the regulation in some countries, which does not allow us to subscribe contracts with renewable energy generators and distributors, despite the big presence of hydro and solar providers.

In Panama, regulation does allow us to sign contracts with generators but the distribution and transportation agreements are regulated. In this context, Telefónica Panamá is signing a PPA with a solar generation company that will also be backed by hydro and wind, which means an important investment in power generation through renewables.” As mentioned, this contract will last five year and generate a 40% reduction in generation, taking into account all billing components—generation, transportation and distribution—and an 18% reduction in the total cost. Moreover, we will increase our renewable energy use in Panama by 8%.

In Costa Rica, based on the country’s energy matrix, we are consuming 99% of renewable energy. Additionally, we have objectives per production unit, which are based on the amount of energy required per data unit. Telefónica Global has set a 50% reduction of mWh/Pb (Megawatts per hour/ Peta Bytes)

On the other hand, we aim to reduce energy opex globally by US$109mn between 2016 and 2020, of which US$10mn correspond to Central America. Another pivotal goal is greenhouse emissions reduction that will have to be cut by 30% in 2020 and by 50% in 2030. On top of renewable auto generation and contract subscriptions, the reduction of fuel consumption on sites and company vehicles will also play a key role. With regards to generators, we are implementing energy as a service projects to replace them with energy services based on lithium batteries.

TowerXchange: Efficiency is an absolute priority for CALA MNOs. What are the other options that Telefónica is exploring to optimise your assets in the region?

In addition to the initiatives that I have already explained, we are looking for smaller size equipment, radiant systems and more efficient technologies. We are also exploring collaboration agreements with other operators where we would share radio access equipment (RAN sharing), centralised platforms and multi-vendor platforms. This is a natural evolution of the new deployment models that will increase their presence in the Latin American telecoms market.

TowerXchange: What are your views on the role of fibre and how can towercos benefit from its integration?

Fibre deployment is one of the most important aspects for telecoms progress and a pivotal element for the implementation of new technologies such as 5G. These technologies will require bigger transmission capacity as well as capillarity in the connectivity between base stations, which will be supported by the infrastructure. Therefore, having fibre will become as important as having energy. This is something to seriously take into account, since during the construction of new sites, there could be synergies in the development of grid lines that could couple the deployment of fibre, being compatible with the infrastructure that supports it, posts, overhead cables and underground pipes.

Offering a service of fibre connectivity as an integral part of the site infrastructure adds value for MNOs, as we would have a better time to market when launching services. Definitely, fibre deployment will better position towercos that invest in this asset, increasing their competitiveness.

TowerXchange: Next July, Telefonica will be back at the TowerXchange Meetup Americas in Boca Ratón. What are you most looking forward at the event?

For us as operators, joining the event is a great opportunity as we can meet and share experiences that improve our relationship as partners with other MNOs and infrastructure providers. We want to hear new propositions and learn about more integrated and innovative services across the region. There are still plenty of differences between continents and in some regions, infrastructure providers are already providing centralised power under energy as a service models, and in some case, they even offer multi-operator fibre connectivity that can be used by all the clients collocated in the same site.

We also want to discuss and explore the huge collaboration possibilities between operators and towercos in order to present creative solutions for Latin America, where there are still plenty of barriers that are slowing down the much needed infrastructure development. Finally, we want to explore new solutions that can highlight the real importance and positive impact that infrastructure makes in the evolution and development of society, in order to strongly position ourselves in front of regulators and social groups.