Good afternoon, ladies and gentlemen. I'm Rajyita, the moderator for this conference. Welcome to the Bharti Airtel Limited third quarter ended December 31, 2019, earnings call. For the duration of the presentation, all participants' names will be in the listen-only mode. After the presentation, the question-and-answer session will be conducted for all the participants on this call. In case of a natural disaster, the conference call will be terminated post-announcement. Present with us on the call today is the senior leadership team of Bharti Airtel Limited. Before I hand over the call, I must remind you that the overview and the screen-skipping may include several overlooking statements that must be viewed in conjunction with the risks that we face. I now hand over the call to our first speaker of the day, Mr. Badal Bagri. Thank you, and over to you, Mr. Bagri.
Thank you. Good afternoon, ladies and gentlemen. Thank you for joining us today for this call to discuss our results for the third quarter and nine months ended 21st December 2019, which we announced yesterday. Present with me on the call today are Gopal, Harjeet, Nakul, and Komal. The quarter gone by was very eventful for many reasons, including customer issues, industry repair initiatives, regulatory changes, and judiciary outcomes. As you are aware, the industry is faced with an unfavorable verdict on the AGR deficiencies from the Honorable Supreme Court. As per the supplementary order, the affected parties were directed to pay the due amount due to duty within a period of three months, which ended on 23rd January 2020.
Since the repeat petition filed by the operators seeking a re-examination of the matter was rejected, the operators have filed an application for modification of the supplementary order before the Honorable Supreme Court, which is pending disclosure. The COAI, on behalf of the industry, has only made representation to the government for providing relief by way of the settlement of the payouts, despite granting a monetary period and continued interest rates. We are hopeful of a constructive engagement with the judiciary and the government on this matter. We will not be able to comment on this topic any further as the matter is sub judice.
The government continues to be cognizant of the stress faced by the sector, and after deliberation by a high-level committee of sector, has approved the option for the telcos to defer the payment of annual spectrum auction installments due for the next financial years, while keeping the overall tenure of payments unchanged. This will provide a much-needed cash flow release to the sector. Also, based on the plea from the industry seeking a full tariff on data, COAI has floated a consultation paper and is currently inviting comments from all stakeholders. This quarter also saw regulatory changes in the form of extension of interconnection usage charges till 31 December 2020. Moving to business performance, let's talk about our mobile business. The global industry, having now consolidated to three large players, continues to see some semblance of stability and growth.
The industry, in a long-awaited move, revised the tariff for the prepaid mobile customers on purge in December 2019. A combination of record 4G data customer additions, our continued focus on upgrading and high-value customers, coupled with tariff revisions, has resulted in an ARPU increase of INR 7 in the quarter to reach INR 135. We continue to believe that the industry ARPUs need to move up further to ensure vibrancy of the sector, especially at a time when the incumbent players are being saddled with a large regulatory burden and yet have to continue to invest towards next-generation networks and 5G. We believe that industry ARPU needs to move to INR 300 in the long term. This will provide the right balance between customer aspirations and subsidy investments.
The RFO enhancement on the back of tariff hikes, data net adds, and overall upgrading of customers ensured that we continued the sequential revenue growth trend that we have been witnessing in the past few quarters. This quarter, there has been a reported change on account of reorganization of our optic fiber operations, which have been transferred to a wholly owned subsidiary. As a result, the group reorganized the business whereby the assets and the liabilities pertaining to bandwidth capacities have been allocated directly to all the respective segments. Previously, these operations were part of the mobile segment, and bandwidth capacities were billed by the mobile services segment to other segments. To this extent, there has been a reduction in the reported mobile revenues. However, there is no change in RFO on account of this reporting change, as the same has always been reported based on customer revenues.
Our underlying mobile services revenue accelerated their growth trajectory this quarter and grew by 5.1% quarter over quarter, which is one of our highest sequential growth rates recorded in the last five years. The quarter four has held highest-ever 4G data customer additions of 21%. With this, we have 138 million data customers, of which about 124 million are on 4G. We do believe that 4G handset penetrations still have significant headroom to increase, and therefore, in the foreseeable future, this number has potential to grow further. Our focus on quality customers is also evident from the best-in-class yet improving operational parameters. The network continues to witness strong engagement of the customers as the monthly average data usage from the customer base grew by 6.2% sequentially, and voice usage was at 898 minutes per term, a growth of 5.9% sequentially.
On the network front, we added more than 4,200 sites due to shutdown and close to 12,000 mobile broadband stations. We also further added capacities across the network through additional sectorization and massive MIMO. We completed 3G shutdown in 11 circles and refarmed mid-band to 4G. During the quarter, we became the first mobile operator to introduce Voice over Wi-Fi in India. This product leverages cutting-edge technology to enhance the indoor voice calling experience for Airtel smartphone customers. In one of the fastest uptake of a new network technology in India, customers using Airtel's Voice over Wi-Fi have already reached 1 million during the first month of launch. Our focus on creating an ecosystem of digital services has been yielding good results. Wynk Music, our music streaming app, continues to see a surge in its popularity among smartphone users in India, with over 50 million monthly active users.
According to AppAnyData, this app was the most popular music streaming app in India, with the highest daily active users for the month of October 2019. We continue to expand our partnership ecosystem and join hands with global leaders, including Lionsgate, Starzplay, and Curiosity Stream, to provide best-in-class content on Airtel Xstream. Talking briefly about other businesses, digital TV services business continues to grow on the back of customer additions. This quarter, we added over 100,000 customers, also scaling our pools. Our converged digital equipment play, Airtel Xstream, has taken off to a very strong start, and we are hopeful of scaling its setup even more. Airtel business continues to grow, led by the demand of connectivity, data centers, and solutions across the spectrum. Reported numbers were a shade low due to seasonality around the hubbing traffic.
While we continue to enjoy a very strong market leadership across the enterprise market in India, we are pushing further on growing the enterprise offerings in the SME space. We recently partnered with Google Cloud to boost collaboration, productivity, and digital transformation by offering G Suite to small and medium-sized businesses. Home broadband revenues have also grown this quarter on the back of our strong fiber network and simplified license propositions. We remain excited about this portfolio and continue our quest for focused expansion in the segment. Overall trends in other lines of business remain unchanged. Moving on to other noteworthy areas and significant events for this quarter. On Infratel, as you would be aware, the Board of Directors of Infratel have approved the extension of the long stop date for the proposed merger, which ends in 24th February.
We await the finality of the same to be able to comment on this topic any further. Subsequent to the balance sheet date, Airtel successfully raised INR 22 billion through QIP, which is the largest ever by a private sector issuer in India, and $1 billion through FCCB, which is the largest offering from an Indian issuer in the last 12 years. Both the QIP and FCCB were priced at the tightest possible, with the QIP issuance at a mere 1.57% discount to the CB floor price, and the FCCB at a coupon of 1.5% and conversion premium of 20% over the QIP price. The transaction was anchored by many existing and new shareholders. Several of the large global long-only funds, sovereign wealth funds, domestic mutual funds, insurance companies participated in the offering in sizable quantities. Long-only investments comprised 80% of the total demand for the QIP.
We intend to use the fund-raised proceeds for augmenting our long-term resources and strengthening the balance sheet besides any AGR-related eventualities. Moving quickly to consolidated results, consolidated revenue for the quarter closed at INR 219 billion, up 3.9% compared to INR 211 billion in the previous quarter. Consolidated EBITDA was at INR 94 billion during the quarter, compared to INR 89 billion in the last quarter. EBITDA expansion was broad-based across India and Africa. EBITDA margin for the quarter was at 42.6%, as compared to 42.3% in the previous quarter. Reported India EBITDA margin was at 41.2%, flat quarter over quarter. However, on a likewise basis, without the impact of higher license fee due to the adverse AGR adjustment, margins would have been higher at about 41.5%. EBIT margin for the quarter was at 10.9%, as compared to 9.4% in the previous quarter. Net finance cost for the quarter was at INR
30 billion, slightly up due to higher gross debt, even as the net debt for the quarter was lower. The resultant loss before tax and exceptional items for the quarter was at INR 4.5 billion, as compared to a loss of INR 6.2 billion in the previous quarter. There was net exceptional charge of INR 10.5 billion during the quarter, which comprised of various items, including interest on license fee and spectrum usage charges pursuant to the AGR adjustment, charges relating to accelerated depreciation of 3G network equipment, and a release of revenue on account of full and final settlement of customary indemnities to a cluster of investors of Airtel Africa. The resultant net loss for the quarter ended came in at INR 10 billion. Consolidated net debt of the company has decreased to INR 1,146 billion from INR 1,180 billion in the previous quarter.
This does not take into account the proceeds from QIP, which were realized only in January 2020, but includes the impact of the perpetual bond range in the company during the quarter. The net debt to EBITDA ratio as of December 2019 was very heavy at 3.07 times, as compared to 4.41 times as of December 2018 and 3.3 times in the previous quarter. To sum up, the telecom industry in India is finally seeing industry repair through tariff hikes. Our mobile business has accelerated their growth trajectory, while our non-mobile business continues to keep the upper trend intact. Africa remains on its profitable growth journey, with reporting eight consecutive quarters of year-over-year double digit revenue growth, while improving EBITDA margins. We are hopeful that we will get a favorable outcome from the engagement with GDC and regulators, going forward to ensure long-term growth and viability of the sector.
With this, we open up for questions and answers.
Thank you very much, sir. We will now begin the question-and-answer interactive session for all the participants who are connected to the audio consent service from Airtel. Due to time constraints, we would request if you could limit the number of questions to two to enable more participation. Hence, management will take only two questions per participant to ensure maximum participation. Participants who wish to ask questions, please press star one on their touch-star enabled telephone keypad. On pressing star one, participants will get a chance to present their questions on a first-and-last basis. To ask a question, participants will please press star one now. The first question comes from Mr. Manish Adukia , from Goldman Sachs, Mumbai. Mr. Adukia, may I ask your question now.
Yes, hi. Good afternoon, and thank you for taking my question. I have two questions. Firstly, if you could tell us what is the initial customer response to the tariff hikes that you did in December? If you can comment on the trend that you've seen in December and January to these hikes, and have you seen any evidence of downtrading or some consolidation as a result of the tariff hikes? Second, the 4G subscriber momentum in the quarter in December was quite strong, making that acceleration over the September quarter. Can you help us understand what was driving this acceleration in 4G customer ads, and how sustainable are these trends? Thank you.
Manish, this is Gopal. I think on the 4G customer additions, we had a strong momentum in the last quarter, and this was on account of some changes in tariffs that happened back in October and November, where one of our competitors was charging for off-net nets.
I think that led to a surge of customers consolidating their second SIM and switching to our network. I think that was one of the drivers. I think the overall response to the tariff hike, I would say, has been satisfactory. We've seen large parts of it come through without much of a concern, primarily because tariffs are at a very, very low level, exorbitantly low level in the country today. We think that while this is a welcome relief, it's not good enough. I think in the end state, we need to see an ARPU of about INR 300 in Indian telecom. I think that is when we will turn a reasonable return on capital on the overall business. The short answer to your question is that the response seems to be overall good.
Right. Gopal, you talked about the fact that you do not see a need to go up further, but given the fact that the recent tariff hike magnitude was pretty material, what do you think to say that there might be some time now before we see another round of price increases? In the question, what is your expectation on the slow tariff consolidation that the TRAI has initiated?
I cannot comment on timing on tariff hikes. I think even with this round of tariff increases, today our ARPU was about INR 135, 135 rupees, while our ARPUs will go up next quarter because of the tariff increases. They are just not good enough. I mean, INR 200, we will barely be head above water in terms of return on capital. It is clearly something that we need to see moving. I cannot comment right now on what the timing is.
I think the TRAI consolidation has now been delayed in terms of response to the end of February. We are readying with our response, and then, of course, the regulatory authority will decide how to take it forward. I think the situation in the industry has come to a pass where tariffs, which have largely been under forbearance for over two decades, have reached such an abysmally low level that the authority has put out this consultation to discuss it with industry. Let's await and see what happens from now.
Thank you so much and all the best .
Thank you very much, Mr. Adukia. The next question comes from Mr. Sachin Salgaonkar from Bank of America, Mumbai. Mr. Salgaonkar, you may ask your question now.
Hi. Thank you for the opportunity. My two questions are first on CapEx. Now, Gopal, is it fair to assume that directly CapEx may continue to go down before 5G hits on? At the same time, we are seeing good net additions in number of towers or base stations, what you guys are seeing. I just wanted to understand how are you thinking in terms of overall investments going forward. That is the first question. Second question is predominantly on competitive landscape. Are you guys generally looking to invest into areas, let's say, where one of your competitors is not aggressively investing and seeing some incremental room for market share at their expense? I just wanted to understand on that as well.
I'm sorry. I could not understand that question.
One of your competitors, Vodafone Idea, is talking about investing in those areas where they are relatively strong. I just wanted to better understand that. Is there room for you guys to sort of capitalize on that opportunity and gain more share?
Okay. Understood. I think firstly, just to say that two years back, our CapEx had hit a peak of about INR 24,000 crore. We have consistently said that our CapEx outlook will be lower than our peak, while we do not give guidance. I would say that it is a dynamic situation. We have seen a surge in demand in the data on the transport side, on the access side. At the end of the day, we are in a very competitive market. For us, one of the important barometers that we would look at is market share, profitable market share, with a focus on chasing quality customers.
There may be some increase in CapEx in the immediate future, but overall, like I said, it will be significantly lower than where our peak CapEx was. From a competitive standpoint, the way we look at it is that we have about 190,000 towers. Almost all of our towers are now with 4G broadband. We are adding capacity as we speak. We have refarmed all of our 2100-band spectrum, more or less all of it, and by March, everything will be done. The second part is that we are looking to expand our towers. This year, we set up about 12,000 towers. We will continue to see some increase in towers next year as well. This will primarily be focused on rural areas where we need to, where we believe there is an opportunity to go and expand to drive 4G.
When that happens, obviously, we do that very prudently, very smartly, so that we get the best deal from the assets that we put out. Hopefully, that should also drive revenue for us. Competitive landscape, I would say we look at opportunities across. The only one guiding force that we put in the heart of our strategy is that we want to really chase quality customers.
Got it. One follow-up is, what is your exit ARPU coming out of this quarter?
We have recorded our ARPU at INR 134. I think exit would be close to INR 140.
Okay. Got it. Thanks.
Thank you very much, Mr. Salgaonkar. The next question comes from Mr. Parag Gupta from Morgan Stanley, Mumbai. Mr. Gupta, you may ask your question now. Hi, Gopal. Just a couple of questions.
Firstly, just to understand, when you talked about a INR 300 ARPU in the long term, I just want to understand how quickly can you get there? I just want to understand can we see something happening on the postpaid side, sometime this year itself, or that's not on the anvil? The second is, do you think we can see tariff hikes for prepaid customers in succession given the starting point itself is pretty low? I just want to understand how quickly can we go up and what exactly does long-term mean out here? The second question is with respect to asset monetization. You have talked about the intention to monetize in the past, and there has been a fair bit that has already happened.
Can you tell us about what is the level of preparedness on some of your other plans, be it towers, be it optics fiber, or anything else, just to get a better sense of what can we expect sometime this year? Thank you.
Let me take the first question. I think the INR 300 ARPU is a level at which we will return close to 15% return on capital. I'm not able to comment on when that will happen. I think that if India needs to see, or we need to see, substantial investments in 5G over the next few years and to make sure that we build future-ready networks, which is in line with the developed parts of the world, then I think operators need to have healthy balance sheets and the capital required to actually put in those investments.
That is the reason why we believe that that's where the R2 must go. On post-paid, you will appreciate that the post-paid pricing is still substantially higher than prepaid. The arbitrage has come down with the recent increase in prepaid pricing. We are beginning to see some momentum restore on our post-paid side of our portfolio. We are beginning to add customers in the months of December and January, and that bodes well for us. I think that we will have to wait and let this tariff increase settle down. Sometime next year, we will have to reassess and see whether the market can absorb a second round of tariff increase.
I'm not in a position to comment on it because it also depends on what happens with the rest of the competition, simply because if we were to pick up pricing, which we can, which we did, in fact, on the 2nd of December, the good news was that the others followed. If we didn't and took up pricing and went completely off-tilter in terms of the premium, then you potentially could lose market share. One of the things that we need to assess is how the market will absorb it. I think that's an evolving situation. You want to pick up the asset monetization?
Thanks, Gopal. Hi, my name is Harjeet. On your question on monetization, frankly, the way to look at this is two poles.
You could seek monetization for the purpose of fundraising, or monetization is an activity in the right evolution point of the business or sub-business vertical that we have. In the context of fundraising, I think it's important to see what has happened. There is no great necessity to be able to raise either for liquidity purposes because of the recent fundraisers that have been done, both globally and, of course, over the last one month in India. From a perspective of even managing the fundraise for a better capital structure or a greater equity mix, I think the recent round of equity raise does bolster the capital structure, provides the right financial flexibility that one needs to have. Monetization driven out of, I think, any large fundraise required may not consistently be the objective.
I think the choice is, one, from our earlier stated position on the tower side, where both the potential mergers, which are still waiting for approvals, there is a possibility of a stake sale there. That continues to be the stated position, but frankly, we have to be guided by how the merger process evolves. We still have three or four weeks to go before the long-term update expires. Assuming that were to go through, we will evaluate whether it is the right time to have a stake sale done here. That is more in the way our historical evolution on the tower-co portfolio has been. Apart from that, frankly, fiber has been a bit down in the subsidiary sector. There are some verticals which are evolving fairly fast. BTS, you have seen earlier they have done a monetization.
One could argue over time they have entered at a decision point. All of these have to be driven by the business objectives and not necessarily because either the company needs funds or needs to monetize. To that extent, I think we'll stay agile. In general, both do well once before there is any plan on that count.
Got it. Thank you. Gopal, just to follow up on the fourth question, you talked about generally 15% return on capital employed, which is what can get you there at 300. Just want to understand in the upcoming spectrum auctions, are you going to be looking at picking up 700 MHz or anything for 5G now, or do you think it's not appropriate given that the balance sheet is still not fully repaired?
I think on 5G, if you look at it, the ecosystem is still nascent. Devices are still very expensive, and the applications are still to be developed. I think both in China and the U.S., it's a very, very nascent ecosystem. The second factor, which we have talked about in past earnings calls, is that the reserve price on the spectrum that is being put on the block, which TRAI had recommended. We have to see what the government does. What TRAI had recommended on the 3.5 gigahertz band is close to INR 49,000 crore or INR 50,000 crore for 100 megahertz of spectrum, which 5G requires large blocks of spectrum, as you know. At 100 megahertz, INR 50,000 Crores is just something that we can't afford, and we believe it's too high priced. We will not pick it up at those prices.
Got it. Thanks, Gopal.
Thank you very much, Mr. Gupta. The next question comes from Mr. Pranav Kshatriya from Edelweiss Securities, Mumbai. Mr. Kshatriya, you may ask your question now.
Hi. Thanks for the opportunity. A couple of questions. Actually, if I look at the exit ARPU, if I just take INR 120 as a base ARPU till 6th of December and then calculate what to add in ARPU for the remaining fee, I get a fee of around INR 150 crore. Your comment of INR 150, I think ARPU, just want to get some clarity on that. The second question is, you talked about Jio's charging for IUC led to some customers coming back to Airtel and 3G. That's the reason for the spot in 4G subscriber research. Has things changed after Jio started offering bundle plan with 1,000 minutes off net? Thank you.
I think on the ARPU, it's a bit premature for me to comment on where it will end up.
The reason being that the price increase went through on the 2nd of December, and customers have different types of plans. There are 38-day plans, there are 56-day plans, 84-day plans. It is a mix of all kinds of plans. The full impact of whatever we did will be visible only in quarter four. Like I said, I think quarter four ARPU will certainly be better than quarter three. How much better it will be is a function of what happens from here until March, which is dependent on the consolidation that we see, any downtrading that happens, and so on. All of that, we will track closely. I think the market is settled. October, November was the period when there was instability, or there was instability.
There was a change dynamic given the charge and that one of our competitors did on the off-net pricing. Since then, I think it's kind of settled. I would like to an even keel, and from here, it is, I mean, we're driving the business in the same way that we have been.
I mean, just to sum it up on the second point, we should be expecting more like 8-10 million kind of subsidiary going forward. I mean, is that what we should take from here?
No, we don't give that guidance, Pranav. That's something that we don't do.
Got it. Thank you so much.
Thank you.
Thank you very much, Mr. Kshatriya. The next question comes from Mr. Kunal Vora from BNP Paribas, Mumbai. Mr. Vora, you may ask your question now.
Thank you for the opportunity. On post-paid subsidiary reduction, it seems very strong, almost 1.5 million, 11% increase across quarter. What's driving this? Are you seeing movement of customers from the competition, or is it Airtel Thanks ? If you can share some data on what's happening there?
Kunal, this is Badal here. I am assuming you have stayed back calculating the post-paid customers from the prepaid percentage, which has been revised by the IRC. Yeah. There is a small tamper on here. Instead of 94.4, there is a 94.5. The revised rate has not circulated to the transistor community. There has been an add in post-paid customers in the quarter, but not as much as you have mentioned.
Sure. Okay. That is helpful. Second is, Jio's charging for off-network outgoing minutes this quarter. How did it impact you in terms of your IUC revenue?
I think that there was a change in the symmetry or gauge symmetry of traffic that we had during the quarter, primarily because of this. The way we look at it is that we picked up extra customers. We picked up 21 million of OB customers. Net net, you can see the numbers reflected in our gross revenue growth. Clearly, it was a profitable mix that we were able to acquire.
Gotcha. Did IUC revenue itself go down? Let's say what net IUC you have been receiving so far. What's the net IUC receipt or payment that you have made this quarter?
I would just say that the ratios have changed. We do not report those numbers specifically. The ratios have changed, but that is what I would say.
Okay. Sure. Thank you so much.
Thank you very much, Mr. Vora. The next question comes from Mr. Vivekanand Subbaraman from Ambit Capital, Mumbai. Mr. Subbaraman, you may ask your question now.
Hello. Thank you very much for the opportunity. I have two questions. One is on the ARPU trends. Could you help us with the broad contours of the 4G ARPU versus the non-4G ARPU base? Similarly, postpaid versus prepaid? Could you comment on whether the tariff hike has resulted in any change in consumer behavior? Are they opting for longer duration recharges to save money from SIM consolidation or any other trend that you are noticing that is worth calling out? Second question is on the CapEx. You mentioned that there could be some increase in CapEx as you look to add quality customers. Could you comment on the capacity utilization levels at present, and where do you look to keep this going ahead also? Thank you.
On the 4G ARPU, I think you mentioned in prior periods that we did get an increase in ARPU as and when people upgrade from 2G to 4G.
On the average, that translates to about INR 60-70. Post-paid ARPU tends to be higher. If you look at our post-paid plans, our minimum plans start at INR 399 and then go up from there. You can do the math based on your competition. Clearly, it is a substantially higher ARPU than what you get on prepaid. On the trend, both the tariff increase, I think it will be a bit early to tell you what happened. I would broadly say that whether you look at ARPU, whether you look at SIM consolidation, or whether you look at data consumption, all of those metrics seem to be on track. Broadly, I think it has gone in line with what we were expecting. On CapEx, I think with the 3G refarming, on 2100 band refarming that we did, we were able to—sorry.
Yeah, we were able to get a utilization of about 70-72%. The CapEx is not going up in a way. What we're trying to do is to pull forward some of the CapEx given the incremental consumption that we've seen on the data side. I think that's a sensible thing to do because ultimately, we have to serve customers in a profitable way.
Okay. Just one small clarification. The refarming of the 2100 megahertz spectrum is giving you 70-72% higher capacity. Is that what you're saying?
No, no, no. I just said that the overall—you were asking about the overall capacity utilization. I was commenting on that.
Okay. Where should this be on a specific basis? The utilization level that you target?
There's headroom to drive that up further. There are many things to look at. It's not as simple as just looking at capacity utilization because it's not just the capacity utilization, but it's also concurrency of traffic in a given location. When there are many users using the network, you're not able to—you may still run a lower capacity utilization, but you're not able to carry all of those customers because of load on the signaling side. It's a combination of different factors that need to be looked at. I think one of the important things that we look at is to see, are we delivering the best experience on video streaming, on download speeds, things like that? That is the basis on which we look at where we need to invest. It's done very prudently then on a site-by-site level.
On the transport side, it's more about the—it's a direct correlation with the overall payloads that are happening across our businesses, whether it's home broadband, enterprise, or wireless. I think that's the way we look at it.
Great. Thanks a lot for the clarification. All the best.
Thank you very much, Mr. Subbaraman. The next question comes from Ms. Anna Zhang from T. Rowe Price, Hong Kong. Ms. Yang, you may ask your question now.
Thank you for the opportunity. I just have one question about your ratings. How's your conversation with BNP going this quarter compared to you on Netwatch, especially after you have done a good job in terms of addressing the regulatory dues?
Yeah, it is Harjeet. That is a continuing communication. I'm glad to report that there are some triggers, and at least from a fundraising perspective, the capital structure perspective, most or all of them are getting met.
Clearly, as a rating agency, they also have to see the operating dynamics, which clearly are showing positive signs or rather changed operating dynamics. The price increase is also kicking in. I believe this is staying in with them. They have to reflect back on our results, and post that, they will do their own independent assessments. I can't guarantee you anything on the rating side. I see no reason why post-pause there should be any stress. That said, how it evolves in terms of stability and/or potential rating improvements is something we'll have to guide by what the rating agencies think. Operating dynamics are improving. Leverage overall is coming down, and capital structure is clearly well positioned.
Thank you.
Thank you very much, Mr. Zhang. The next question comes from Mr. Rajiv Sharma from SBI Capital Securities, Hong Kong. Mr. Sharma, you may ask your question now.
Yeah. Hi. Thank you for the opportunity. Just a couple of questions from my side. The first one being, Gopal, what kind of ARPU stabilization do you see post this tariff hike has fully percolated to the entire subscriber base? Where will we be in the next three quarters in your view? Second is, Vodafone's future is confusing, and there are a lot of assumptions there. Hypothetically, if it was to shut down, what kind of implication it has for the telecom ecosystem, Bharti's towers, vendor ecosystem? What are the negatives here? Positive is understood that subscriber base goes between two operators, and pricing power goes up. What are the other sides of the coin? Lastly, if this was to play out, will Bharti need more spectrum to add this subscriber base? That's it from my side.
ARPU stabilization, I think we can see what happens. Like I said, I think quarter four, we should certainly see a higher ARPU than where we are in quarter three. I think by March, this round of tariff increase, we should have fully flown through into ARPU. Beyond that, any ARPU increase would be a function of two things. One is the natural upgrade that happens from 2G to 4G. Actually, three things. The second is any acceleration that we're able to get on post-paid. The third is that any material change in tariff. I think the first two are underlying drivers, which we should keep trying to drive, and we've got a whole program of metal tanks and all of that to drive that.
The third one, which is the tariff round, we've talked about at length earlier on the call, so I won't go and repeat that. On Vodafone, I think my view is that they will remain. I wish that they would thrive. India needs a three-player market. It's a large enough marketplace to absorb three players. I think it will be good from all perspectives: investment, jobs, reputation, that Vodafone survives on price. I have no doubt that they will do so. The hypothetical question that you raised, I think, would need to be assessed based on what happens, and I think it's premature for us to go into that.
The matter is, as you know, as Badal mentioned in the Supreme Court, and we have this sort of petition to try and seek permission from the Supreme Court through the government to allow us to negotiate the terms of payment. Once that matter is dealt with, we will then assess what needs to be done.
Okay. Just one small follow-up from my side. You are at 70-72% capacity utilization. If the 4G subscriber increase was to continue at this 25 million or, let's say, accelerate for some reasons because of change in the competitive dynamics landscape, do you think you will need some 4G spectrum in the next 6-12 months? Or no, you can do with the power increase and the capacity you already executing on?
I think that if you look at the power spectrum, we have some reserved spectrum in about 11, 12 circles. Most of it has been fired up. 2100 band will be all reformed by March. That also will be fired up. On the 1800 band, on the mid band, we have pretty much all across the country, we've band India 4G network. Particularly, which is on the 2300 band, we still do not have most of our towers covered with TDs. So there is a big capacity headroom to actually deploy 2300 there. The second place where we believe there's a significant headroom is to sectorize the sites. In other words, most sites have a three-sector configuration. We could look at a fourth sector as well as a fifth sector. It needs to be done smartly in order to prevent interference.
That means that the fourth and the fifth sector essentially just need a set of radio units, and you can kind of densify the network and get capacity. Finally, there are other solutions which we have access to, things like massive MIMOs, which give you substantial capacity because they have almost 256 beams that can simultaneously do both downlink and uplink through individual channels. That is the sort of technology that we could use before we actually start putting up more towers and so on. The large number of the primary growth around towers is to actually expand into rural areas where we're not able to deliver 4G coverage. The second area where we expand is where cities are expanding. As you know, our cities are expanding constantly. Some of those coverage sites are required to actually meet that.
There is a second area of investment, which is around transport and electronics. This is a modular investment based on surge and demand. It comes in chunks. If there is a—and we have made a substantial investment over the last 15-18 months on the transport side. It will come in chunks based on where that moves. Of course, there is fiber, which is dark fiber that you lay out. Most of our sites are now one hop away. It will look 250 Mbps. It is only in rural that there are about two hops away. Some of that fiber will need to get towed down, but that is secular CapEx that goes in. Finally, there is core CapEx, which is a small component that is completely modular and based on how capacities move. I think that is the way we look at CapEx.
It is very helpful. Thank you so much.
Thank you very much, Mr. Sharma. The next question comes from Mr. Tuni Rao from NR, Hong Kong. Mr. Rao, you may ask your question now. The next question comes from Mr. Varun Ahuja from Credit Suisse , Singapore. Mr. Ahuja, you may ask your question now.
Yeah. Hi. Good afternoon, everyone. I've got three questions. First, Gopal talked about increasing ARPU to INR 300 level. I just wanted to understand how do you think it can be achieved given India now reaches a stage where the pricing is more like a flat or there needs to be usage-based pricing of pyramid kind of structure? How fundamental change do you think has to be done in the way mobile is being priced or retail is being priced in India? Wanted to hear your thoughts how this can be achieved.
Number two, the ARPU increase during this quarter was INR 7 or 5% quarter on quarter, and you're seeing this addition into 4G. Just wanted to get a bit of clarity how much is because of this 4G subscriber, what do you think the price like? Did the price like contribute to the ARPU increment during the quarter? Number three, just a housekeeping question. If you look at the mobile service revenue that has been reported under operating section, it's around INR 113 billion, and what is reported is INR 111 billion. That delicate negative always needs to be positive. Wanted to understand what is happening because of this change in recent things that has been done. Thank you.
Why don't I just take the last question first? As mentioned in our IFS, if you go to the management discussion analysis section, which we highlighted in the opening speech as well, that there is a reorganization which is done whereby the mobile segment used to house the bandwidth capacity, which was being charged to other segments, which is homes and also business, and that was sitting as revenue in the mobile segment. Now those assets are sitting in their respective segment and are getting so that revenue in the mobile segment no longer continues. We have given a table which just clearly reflects what it would have looked like if the mobile revenues were sitting, and the growth would have been close to 5.4% sequentially on a mobile external basis.
On an underlying basis, we also highlight the customer-facing unit revenue, which indeed is increasing 5.5%, and that is a—this is an incremental information which has been given historically throughout. And ARPUs are calculated based on this customer-facing unit revenue.
Yeah. I think, Varun, on your first question on ARPU and the construct of how to get to 300, I think it's a very legitimate question because today we have this unusual situation in India where if you can afford to pay INR 500 or INR 1,000, you're still paying only INR 150 or INR 270 or INR 200. If you can't afford to pay more than INR 100, then in any case, you can't pay INR 200.
These bucket plans, which give you everything that you need, including one to one and a half GBs of data and A+ unlimited calling, take it about INR 200-250, is, I would say, an unusual situation when you benchmark to any other part of the world. India, as you know, has rich middle class and poor people, and I think you need a construct where you get more allowances for paying more. Ideally, if you have a INR 100, a INR 300, and a INR 1,000 plan, that would be the right kind of architecture. I'm just giving a very broad summary. You can have nuances within this. That kind of an architecture needs to come about to make a very fundamental shift. Having said that, you will know that people spend four to four and a half hours on their device.
The consumption on average is about 13.5 GB per month, and people are speaking almost 800 minutes per month. That is a lot of consumption that is happening on the device, and the device has become—the mobile device has now become almost a necessity because it does everything, whether it is entertainment, commerce, payments, and so on and so forth. Chances are that there is a high propensity to—there will be a high propensity to pay as you even move up these bucket plans. I think that is really what I would say. On this quarter, we have seen a INR 7 ARPU increase. We still have not seen the flow-through impact of this tariff round because, like I said, on the 2nd of December is when prices went up. Typically, people are on either 28-day plans or 84-day plans.
Even all the 28-day plan customers would not have switched because if you moved on the 2nd of December, you still get to the end of the month. It still is something that will get reflected only in the next quarter.
Thank you, Badal. I think I read the MD&A, so probably I will keep it offline because if the mobile ARPU service every day does not include, it should not be negative. Gopal, just a follow-up. I remember you mentioned two or three quarters back the feature phone customers who were paying the activation monthly minimum fee. We will see what is the subscriber base now. What is the common feature? Thank you.
It is quite a meaningful base. We do not give that number, but it is a pretty meaningful base that I have been talking about, the 49 INR plan, which is a minimum ARPU plan, right? It's a pretty meaningful base, and there is opportunity to upgrade some of them.
Okay. Thank you.
Thank you very much, Mr. Ahuja. The next question comes from Tammy Wee from Tahan Capital Management, Singapore. Mr. Wee, you may ask your question now.
Hi. Afternoon. Congratulations on the complete house. My first question relates to, again, the credit rating. When is the next rating to be viewed by S&P? What is your confidence level on reaching or not reaching the downgrade triggers? That's my question.
Yeah. This is Harjeet here again.
I think we just covered it, but I can reinforce that some of the downgrade triggers that we have had earlier over the last three to six months ensuing from the Supreme Court negative order, as also over the last 12 to 18 months, basically operating dynamics in India, which has taken the avatar down heavily in mobile segment in India. All of those triggers were well kept on. I think the key is clearly if you and I were at the rating agency, we need to see the sustainability of what changes are at work, both in the operating mobile industry in India and also the corrections on the leverage and on capital structure. I think the second piece we are working on, what we have absolutely in our hand, we have had all of those aspects tied in.
I think the sustainability of the operating dynamics is what I would guess the rating agencies will have a look on. One of the rating agencies also had a trigger that is more event-based, whether there is any deployment of capital in buying RCOM assets, etc., which, as you know, that process is over and we are not there. In general, from our perspective, we are reasonably well positioned. That said, this is our submission. I think they have their independent assessment. I would assume in the next three to six weeks, a lot of rating companies will work over what they think is the right plan on this, and we will hear from them or from us.
Sorry. Just one follow-up question. I understand that your total ETR is $6 billion, correct me if I'm wrong, and you've gained $3 billion from the second market by QIP and company for bonds. Where is the 3%? Where does this all 3% then come from?
Badal, you want to talk about the overall ADR, basically provisions, and then I can take the funding question.
No, no, no. I'm not talking about provisions. I'm talking about funding.
Yeah. Yeah. What I meant was I think the amount which you have is $6 billion, which is slightly more than what the company has assessed. The details of that assessment that we had done, and accordingly, whatever net incremental provisions had to be done in the quarter of September 30, will be announced, results in mid-November, are available.
The sum total of that is close to $5 billion, but I'm just taking a very round number, please. You're right, from a funding perspective, in the unfortunate and ultimate event of the entire money being asked to be paid upfront, the $3 billion we had secured from the fundraise, if you went to your cash and equivalent and the investment started at the end of December 21, you will see a significant draw of existing facilities that has already happened. Cash along with the funds raised is 100% backstopping any of the possibilities. That said, this is a matter which is a bigger matter. Gopal mentioned on the evolution that has to be happening over here. We are waiting for direction from the Supreme Court, and accordingly shall keep you posted .
Okay. Thank you very much.
Thank you very much, Mr. Wee. We do time for screen. The last question comes from Mr. Bharat Shettigar from Standard Chartered Bank, Singapore. Mr. Shettigar, you may ask your question now.
Yeah. Thanks for the call. One question. This is on the derivative liability line in the cash flow statement. Last quarter of cost, the INR 25 million. I believe this pertains to the Africa indemnity. Can you throw some color and, more importantly, have you seen the end of it, or could we see some further outflows in future quarters?
Yeah. Hi, Bharat. This is Nakul. I'll answer this question for you. Yes, certainly. There is the amounts that you've alluded to in the cash flow is pertaining to the sector.
What you've also mentioned in our accounting is that this has actually resulted in a full and final settlement of any of the indemnities that we have carried in the books on account of the pre-IPO or, sorry, on account of certain investors off it in Africa. You will not see any exceptional item with respect to this going forward in the future. This is where it ends.
Okay. Thanks a lot.
Thank you very much, Mr. Shettigar. At this moment, I would like to hand over the call proceedings to Mr. Badal Bagri for the final remarks.
Thank you all for taking part in this call. I look forward to talking to you again next quarter, and we can have a few updates in between as well.
Ladies and gentlemen, this concludes the conference call. You may now alternate your lines. Thank you for connecting to Bharat Conference Services. Have a pleasant evening.