Executive Summary

  • Telecoms companies can enable a more inclusive and sustainable economy by improving equitable access to services and opportunities, by substituting travel-related emissions, and by providing a platform for a cleaner electricity grid
  • Global data consumption continues to rise courtesy of three trends: smartphones, homeworking and connected devices
  • We believe that regulatory dynamics could support demand-led growth for well-positioned telcos in selective markets

It is as hard to overstate the importance of data flows to the modern economy as it is to avoid clichés about data being ‘the new oil’.

There are many layers to the digital infrastructure that enables the seamless flow of 150,000 or so gigabytes of data around the world every second.1 Communication networks run by telecoms companies (telcos), including the likes of fibre-optic broadband cables and the masts that transmit mobile signals, are at its core.

These networks’ pivotal role was underscored during the COVID-19 pandemic. Without digital connectivity, the global economy would have proved far less resilient: one study, for example, estimated that telecoms infrastructure saved Latin American and Caribbean countries 20% to 25% of GDP during periods of restricted movement.2

We believe telcos are important enablers of the transition to a more inclusive and sustainable economy. Connecting almost two-thirds of the world’s population to internet-based services helps broaden access to essential services and professional opportunities in both developed and developing countries.3 Telcos can also enable lower greenhouse gas (GHG) emissions by facilitating remote meetings and the emergence of a smart, decentralised electricity system. Global internet traffic has soared roughly 1,000-fold since 2002 and is set to rise further, courtesy of mobile data, homeworking and connected devices.4 We perceive long-term opportunities for telcos arising from the world’s growing appetite for data, particularly in markets where regulatory dynamics are supportive.

Enabling a more inclusive and sustainable economy

The companies that operate the assets, networks and systems that underpin global information flows are important enablers of the transition to a more sustainable economy in four ways, addressing both social and environmental elements of this transition.

First, the connectivity they provide improves access to vital services and can advance equitable inclusion, not least in remote areas and developing economies. In Kenya, for example, the adoption of mobile banking services led to a trebling in access to finance among the poorest in society from 2011 to 2014, to 63%. Research shows that overcoming geographic, demographic and institutional barriers to financial services can help spur economic growth.5

Telcos also provide the infrastructure for innovative health and educational services to be remotely delivered, at the convenience of patients and students and at potentially lower cost. McKinsey has estimated that up to US$250 billion of annual US healthcare spending could be shifted to virtual or virtually-enabled care.6 Meanwhile, virtual reality headsets could potentially transform the delivery of distance learning.

Second, telcos’ services are helping to better democratise access to opportunities. Remote and hybrid working – only made possible by strong internet connections – make it more possible for people with disabilities, carers and single parents to perform professional roles that office-only settings may prohibit. As well as helping to overcome physical barriers to quality work, digitally-enabled flexible working can improve work-life balance.7

Infographic: 18 percent corporate travel forecast to be replaced by virtual meetings in 2023

18%: Corporate travel forecast to be replaced by virtual meetings in 20238

Third, telcos provide a platform to lower transport-related GHG emissions. Following technological advances and attitudinal shifts, video conferencing tools are now deemed a reasonable alternative for many in-person meetings. Corporate travel is one of the biggest drivers of aviation demand, which accounts for over 2% of global energy-related CO2 emissions.9 With many companies looking to limit travel-related emissions and costs, virtual meetings will substitute for an estimated 18% of corporate travel in 2023.10 This trend hinges on fast and reliable internet connections.

Fourth, telcos have a critical role to play in the emergence of a cleaner, more flexible grid. Electricity distribution is shifting towards a more decentralised model as renewable generation gradually replaces larger coal and gas-fired power plants. Energy consumers are also becoming producers as more homes generate electricity from solar panels – and increasingly store it using batteries. Reliable data flows are key enablers of a more flexible grid that matches demand with more intermittent supply, in part through two-way flows of electricity. Telcos provide this essential interface between homes, utilities and grid operators.

Drivers of opportunities for telcos

Telecoms may be a mature sector – the Bell Telephone Company was established in 1877 – but the ‘data age’ ushers in a new period of opportunity for companies whose services underpin the near-instant transmission of information around the world. The main growth driver is accelerating data consumption courtesy of three trends: smartphones, homeworking and connected devices.

First, global mobile data traffic is projected to grow nearly four-fold by 2028 as 5G networks – which can transfer data up to 16 times faster than 4G – are rolled out.11 Soaring traffic is a function of more smartphones in circulation and rising data volumes per subscription, mainly from video streaming. In fast-digitising developing economies, rising demand for mobile-based services creates growth opportunities for telcos like Vodacom, whose network covers eight African countries with a population of over 500 million. Yet the share of sub-Saharan African people who use the internet remains only 36%, despite having more than quadrupled in the decade to 2021.12

5G services will enable soaring data demand

Estimated monthly global mobile data traffic by technology

This bar chart shows the estimated monthly global mobile data traffic by technology for the years 2018 to 2028. It’s broken down into three technology categories.

Category one: 2G/3G/4G,
Category two: 5G,
Category three: Fixed wireless access

Total data demand in 2028 is forecast to be 17 times greater than in 2018. From 2023 onward, this growth is largely driven by adoption of 5G and, to a lesser extent, fixed wireless access technologies.

Numerical values presented on the image:

Estimated monthly global mobile data traffic by technology (in billion gigabits per month)
wdt_ID Year 2G / 3G / 4G 5G Fixed Wireless Access*
14 2018 22.2 0.0 4.4
15 2019 33.4 1.3 6.2
16 2020 47.2 1.7 9.7
17 2021 60.9 6.7 16.6
18 2022 74.8 15.2 24.6
19 2023 84.5 31.0 33.4
20 2024 95.4 50.7 45.8
21 2025 104.4 79.2 61.8
22 2026 110.3 117.5 81.0
23 2027 110.7 166.2 103.1
24 2028 99.6 224.6 128.5

* Fixed wireless access (FWA) technologies connect homes and businesses to broadband services using radio frequencies
Source: Ericsson, 2022: Mobile data traffic outlook. Estimated data for 2022 to 2028.
There is no guarantee that any forecasts made will come to pass.

Second, the rise of homeworking in service-based economies means fast and reliable broadband networks have taken on pivotal importance as umbilical cords to colleagues and the office. More than half (58%) of US workers surveyed in 2022, for example, reported being able to work from home at least one day a week.13 The shift to hybrid and remote working patterns will continue to support online data traffic growth.

Third, the fast-growing trend towards the ‘internet of things’, whereby smart devices and machines are digitally linked, is driving a corresponding rise in data flows. Technology company Cisco has forecast that the number of machine-to-machine connections will have risen from 6.1 billion in 2018 to 14.7 billion this year, driven by connected home appliances like white goods and connected car applications.14 This trend also provides telcos with the opportunity to monetise their data and venture into new fields, including intelligent networks, data analytics, billing and cloud services.15

Opportunities in an unloved sector

Supporting demand-led growth are regulatory dynamics. Industry incumbents benefit from the growing regulatory burden placed on telcos in more established markets. Limited radio spectrums, which are typically allocated by competitive auction, provide a high barrier to entry in an industry where companies must demonstrate commitments to customer service.  

Encouragingly, regulatory proposals herald the possibility that the huge investments historically shouldered by telcos will be shared. The EU is considering whether to force companies whose ‘over-the-top’ (OTT) video and streaming services generate enormous volumes of data traffic to contribute to the cost of upgrading Europe’s telecoms infrastructure. It has been estimated that delivering OTT traffic costs telecoms providers in the EU as much as €40bn a year.16 The prospect that telcos’ cost burdens could be reduced provides potential upside in Europe and elsewhere, should the EU’s proposals be adopted and replicated.   

In highly digitised developed markets, the local regulatory environment is particularly important in determining prospects for telcos. In Japan, for instance, government-allocated (rather than auctioned) spectrum licenses help foster a stable industry structure in which providers are encouraged to make long-term investments in infrastructure and ensure fast connections for consumers.  

As well as being selective between developed markets, we believe it is important for investors to be selective within them, not least because of high levels of debt within the sector. Network-sharing models, whereby providers like Sweden’s Tele2 pool their physical infrastructure assets including cables and masts, can help lower costs and enable higher returns on capital.

Some incumbents are also proving more successful in capitalising on the long-term shift away from call and text services, and towards data. For instance, KDDI – Japan’s second-largest mobile carrier – offers an ecosystem of revenue-generating services on its platform, such as utility bill and digital payments.17 Pricing data packages by usage can meanwhile help it capitalise on rising data usage, rather than shoulder the costs of uncapped streaming.

Telecoms may not excite investors as they did during the ‘dotcom bubble’, but we believe there are compelling opportunities in selective markets. Not only can well-positioned companies facilitate the continued growth of global data traffic, but they can also make a meaningful contribution to a more inclusive and sustainable economy.

1 World Bank, 2021: World Bank Development Report

2 Inter-American Development Bank, 2020: The Impact of Digital Infrastructure on the Consequences of COVID-19 and on the Mitigation of Future Effects

3 Statista, 2023: Number of Internet and Social Media Users Worldwide, January 2023

4 World Bank, 2021: World Bank Development Report

5 Rosengard, J., 2016: A Quantum Leap over High Hurdles to Financial Inclusion: The Mobile Banking Revolution in Kenya

6 McKinsey & Co, 2021: Telehealth: A quarter-trillion-dollar post-COVID-19 reality?

7 UK Parliament, 2022: The impact of remote and hybrid working on workers and organisations. ONS data show that 78% of those who worked from home in some capacity said that it improved work-life balance

8 Morgan Stanley, 2022

9 IEA, 2022: Aviation

10 Morgan Stanley, 2022: 2023 Outlook – Business Travel Bounces Back

11 Ericsson, 2022: Mobile Data Traffic Outlook

12 World Bank, 2023: Individuals using the Internet (% of population) – Sub-Saharan Africa

13 McKinsey & Co, 2022: Americans are embracing flexible work—and they want more of it

14 Cisco, 2020: Cisco Annual Internet Report (2018-2023) White Paper

15 Intellias, 2023: IoT in Telecom: A Data-Driven Path to Growth

16 Frontier Economics, 2022: Estimating OTT traffic-Related Costs on European Telecommunications Networks

17 Statista, 2023. KDDI had 27% market share of mobile phone subscriptions in Japan in 2022

The specific securities identified and described are for informational purposes only and do not represent recommendations.

Nothing presented herein is intended to constitute investment advice and no investment decision should be made solely based on this information.  Nothing presented should be construed as a recommendation to purchase or sell a particular type of security or follow any investment technique or strategy.  Information presented herein reflects Impax Asset Management’s views at a particular time.  Such views are subject to change at any point and Impax Asset Management shall not be obligated to provide any notice.  Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary.  While Impax Asset Management has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability or completeness of third-party information presented herein.  No guarantee of investment performance is being provided and no inference to the contrary should be made.

Harry Boyle

Portfolio Manager

Harry is a co-Portfolio Manager of the Impax Sustainable Infrastructure strategy. He joined Impax in 2017, having previously worked for the firm as a consultant assessing portfolio carbon risk. Initially he worked as a Portfolio Specialist gaining in depth knowledge of investee companies and the investment process. In 2021, Harry began work on the creation of Impax’s Sustainable Infrastructure Taxonomy, before becoming a Portfolio Manager in 2022.

Harry began his career in 2006 as an analyst at Bloomberg New Energy Finance, where he helped investors understand the evolving dynamics in energy, carbon and power markets. He subsequently worked at Aurium Capital as an investment manager investing debt into infrastructure projects before becoming an independent consultant raising capital for early-stage energy businesses.

Harry has an MA in Modern History from the University of St Andrews and an MSc in Finance from London Business School.

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