Good afternoon, ladies and gentlemen. This is Margaret, the moderator for your conference call. Welcome to the Vodafone Idea Limited Conference. For the duration of this presentation, all participant lines will be in listen-only mode. After the presentation, a question-and-answer session will be conducted. If you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. We have with us today Mr. Ravinder Takkar, MD and CEO of Vodafone Idea Limited, and Mr. Akshaya Moondra, CFO of Vodafone Idea Limited, along with other key members of the senior management on this call. I want to thank the management team on behalf of all the participants for taking valuable time to be with us.
Given that the senior management is on this conference call, participants are requested to focus on the key strategies and important questions to make sure that we make good use of the senior management's time. I must remind you that the discussions on today's call may include certain forward-looking statements and must be viewed therefore in conjunction with the risks that the company faces. With this, I now hand the conference call over to Mr. Ravinder Takkar. Thank you, and over to you, sir.
Thank you, Margaret. A warm welcome to all participants to this earnings call. On 21st January, our board of directors adopted the unaudited results for the quarter ending December 31, 2021. All the results-related documents are available on the website, and I hope you had a chance to go through the same. As usual, I will start with a briefing on all our strategic initiatives and key highlights for the quarter. I will also elaborate on some of the points related to equity conversion of interest in regards to spectrum and AGR deals. Post this, I will hand over to Akshaya to share details on the company's financial performance. The first strategic initiative for us remains focused network investments. We continue to follow a focused approach to investments biased towards our 17 priority circles, which contribute over 98% of our revenue.
This helps us in utilizing our CapEx effectively while ensuring that we continue to offer superior customer experience in these areas. We continue to rapidly upgrade our 3G network to 4G. We closed around 5,700 3G sites during this quarter, while we added around 4,000 4G FDD sites, mainly through reforming of 2G and 3G spectrum. As a result, our broadband site count was marginally lower quarter-over-quarter by approximately 200 sites. During the quarter, we also invested in upgrading our core network and transmission network. The reforming of 3G spectrum to 4G on majority of sites in various circles has substantially enhanced the given net 4G capacity in those cities. Our data capacity is now over 2.8 x compared to September 2018, just after the merger.
Vi's 4G coverage has already crossed the benchmark of 1 billion Indians last year, which continues to expand. It remains our constant endeavor to be the best 4G network in the country. It gives me great pleasure to announce that we continue to lead the league tables on both data and voice for several months now. We continue to have top rankings on 4G download speeds in independent external reports. We have also had the highest-rated voice quality in the country as per TRAI's MyCALL app data for 12 out of the last 14 months. We continue to future-proof our network. We have the advantage of having latest 4G equipment and technologies which are capable of upgrade to 5G. We have the latest edge cloud deployment as well as the largest massive MIMO deployment in the country.
Our focus on leveraging new technologies and partnerships for a better tomorrow for Vi users has led us to showcase a wide range of 5G use cases for enabling smart cities, smart infrastructure, smart auto, sports training, remote healthcare, connected schools, drone-based surveillance, gaming, and many others during our 5G trials in Pune and Gandhinagar to make our enterprises and citizens smarter. Moving on to market initiatives. We have taken several tariff interventions in the last couple of months, such as increasing the entry price level on non-UL prepaid plans from INR 49- INR 79, as well as rolled out hikes on some of our postpaid plans in a phased manner during Q2. Effective November 25th, 2021, we increased the prepaid tariffs across all price points, including unlimited plans as well as combo vouchers, moving the entry-level prepaid plan to INR 99 for 20-day validity.
All these initiatives are ARPU accretive, benefits of which have flown into this quarter and likely to accrue into next quarter as well. We also continue to focus on increasing 4G UL penetration to help improve ARPU through various initiatives on handset financing tie-ups. We are running multiple campaigns to incentivize our 2G handset customers upgrading to 4G devices by offering INR 100 cashback on monthly charges of INR 299 and over for the next 24 months to experience our 4G network. 0% EMI schemes on device financing and attractive offers on refurbished devices are also available. Now on to business services. This has always been a strength area for us owing to our long-standing relationship with our enterprise customers, as well as our relationship with Vodafone Group.
In line with our stated strategy of transformation from telco to tech co, we are offering services beyond connectivity and becoming a preferred choice of partner for our customers in their digital journey. We are thus having incremental focus on new revenue streams and strengthening our propositions on IoT and cloud services. In the ongoing 5G trials, we have showcased, in a first of a kind manner in India, a wide range of real-world enterprise use cases which could enable a better tomorrow for businesses. The use cases demonstrated include Industry 4.0, public safety in smart cities, smart healthcare, smart construction, emergency response using drones, improving sports coaching for high performance, and OTT in car, and driver safety monitoring in connected vehicles. The next strategic initiative is driving partnerships and digital revenue streams.
One of our key focus areas is to grow our digital footprint through strategic digital and content partnerships. We have a very strong pipeline which will start to unfold over the next few months. In a recent initiative, we integrated Vi Movies & TV app content with Vi App to allow easier access without having to download multiple apps. With this integration, Vi users can watch movies, web series, over 400 live TV channels on Vi App. In line with our focus to offer the best entertainment service to our customers, we also recently launched music service on Vi App for our entire base. The service has been launched in partnership with Hungama Music. With this, we now offer six months of free premium ad-free music experience with ultimate downloads.
Customers can choose from over 30 million songs across 20 different languages and a rich library of podcasts as well. One of the key differentiating features of this service is weekly music concerts that customers can tune into on Vi App, which is going to be rolled out soon. Hungama Music is also integrated with the Vi App to offer easy access to our customers. We also have some very exciting propositions lined up in other categories like gaming, education, skilling, and health, which will be available on the Vi App as part of an integrated access. All these propositions should help us build our digital community, increasing customer stickiness. We also have a pipeline of projects to enable the monetization of this digital traffic.
We have seen considerable growth in our monthly average users on our digital app over the last few months, and we should see further acceleration of this in coming quarters on the back of the strong pipeline of digital propositions that we have made ready. Lastly, on our cost optimization exercise, we have achieved approximately 90% of the targeted annualized cost saving of INR 40 billion. With this, we have achieved the desired cost optimization in line with our operating model. Moving on to other highlights for the quarter. Revenue for the quarter was INR 97.2 billion, a quarter-on-quarter improvement of 3.3%, aided by several tariff hikes since July 2021. ARPU improved to INR 115, up 5.2% quarter-over-quarter versus INR 109 in Q2 FY 2022.
The subscriber base declined to 247.2 million, versus 253 million in Q2 FY 2022 because of these tariff interventions. However, the 4G subscriber base continues to grow, with 800,000 customers added in Q3. 4G base now stands at 117 million. Data volumes are down 5% quarter-on-quarter, primarily due to rollback of promotional offers such as double data offering on certain packs. Lastly, let me talk about the reform package announced by the government and the recent announcement by us on equity conversion. The comprehensive telecom relief package announced by the Government of India was groundbreaking in many ways. Several of the financial, structural, and procedural reforms have started to lead to significant positive developments on ground.
The reforms include deferral of AGR and spectrum dues by four years, clarity on AGR definition, reduction in bank guarantees, removal of penalty and reduction of interest for delay in payments of license fee and SUC. All these reforms are expected to provide long-term benefit to all operators. The reforms package and the implementation has been welcomed by all stakeholders, including banks and investors. We had opted for four years of deferment for both spectrum and AGR dues in October 2021. This will provide us liquidity support and direct the cash flow generation towards CapEx investment and business growth. DoT has also provided a one-time opportunity to exercise the option for upfront equity conversion of interest arising from deferment of spectrum installments and AGR dues.
Our board of directors on 10 January 2022 approved the conversion of the full amount of interest related to spectrum auction installments and AGR dues into equity. The conversion of this DoT debt into equity will reduce the overall debt of the company. The net present value of this interest is around INR 16,000 crore as per the company's best estimate. The detailed working of the NPV of the interest on spectrum and AGR dues have been shared with DoT and is subject to change based on the conclusion of our discussion and final confirmation by the DoT. The equity shares will be issued to the government on a preferential basis. The relevant date for pricing is 14th August 2021, as communicated by the DoT.
Following conversion, the government will likely hold around 35.8% stake, while both the promoters will jointly hold 46.3%. The equity shares will be issued post-confirmation of the final amount, as well as some procedural clarifications by DoT. We believe the entire exercise will be completed in the coming months, post which the shares will be allocated through the statutory undertaking of the Unit Trust of India on behalf of the Government of India. In light of the conversion of interest into equity, the promoters have mutually agreed to amend the existing shareholder agreement for reducing the minimum qualifying threshold from 21% - 13% for the purposes of retaining their existing governing rights, such as appointment of directors, appointment of certain key officials, et cetera. This amendment to the articles of association shall be subject to the approval of the shareholders in general meeting.
All these reforms are seen very positively by the investors, as these announcements have provided clarity on government's intent to maintain a healthy market structure. These announcements and the subsequent action for actual implementation have brought a much-needed clarity to the way the government is looking at the telecom industry's revival. Government has also clarified that post-conversion of interest into equity, these companies will continue to run as professionally run private companies. We believe all these developments will be helpful in our ongoing discussions of funding. We have seen renewed interest from investors. We will make suitable disclosures on the fundraising as appropriate, and we target to conclude this exercise during this fiscal year. With that, I hand over to Akshaya, who will share the financial highlights for the quarter.
Thanks, Ravinder. A very good afternoon to participants from India and a good morning or evening as applicable to overseas participants. As Ravinder mentioned, revenue for the quarter improved by 3.3% compared to last quarter, aided by tariff interventions over the last few months. Adjusted for India AS 116 impact, EBITDA was INR 16.2 billion for the quarter. This was higher by INR 2.1 billion compared to Q2 EBITDA of INR 14.1 billion, adjusted for one-off of INR 1.5 billion on account of higher revenue and incremental cost optimization, which was partially offset by higher marketing spends during the quarter. CapEx spend was INR 10.5 billion in this quarter. With this, nine months FY 2022 CapEx stands at INR 32.8 billion.
The gross debt as of December 31, 2021 was INR 1,989.8 billion, comprising of deferred spectrum payment obligations of INR 1,113 billion, AGR liability of INR 646.2 billion that are due to the Government, and debt from banks and financial institutions of INR 230.6 billion. The cash and cash equivalents were at INR 15 billion. As a result, net debt at the end of the quarter stood at INR 1,974.8 billion. As covered by Ravinder in his opening remarks, the Government reforms package has been a significant positive development. We have opted for the deferment of spectrum and AGR dues payable over the next four years, as well as for conversion of the interest arising from such deferment into equity.
The net present value of this interest is around INR 160 billion, as per company's best estimate. Post-conversion of interest into equity, the net debt will go down to the extent of the interest converted into equity. The accounting treatment of this will be done once the shares are issued to the government. We therefore have no government dues payable over the next four years towards spectrum and AGR, except for spectrum installments pertaining to March 2021 auctions, which will start in FY 2024. We continue to repay our other debts to banks and financial institutions as they fall due.
The deferment of government dues provides the needed liquidity to enable us to make further CapEx investments. Additionally, we are in discussion with banks and investors for debt and equity funding for further investments. With this, I hand over the call back to Margaret and open the floor for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Anyone who would like to ask a question, please press star and one at this time. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Kunal Vora from BNP Paribas. Please go ahead.
Thanks for the opportunity. The first question is on the recent tariff hike. Have you seen any meaningful change in consumer behavior, like accelerated SIM consolidation or down trading as consumers are also facing high inflation across multiple categories? If you can talk about the initial response which you've seen to the recent tariff hike.
Okay. Thank you, Kunal, for that question. Yes, as we mentioned earlier, we have slowly been taking tariff hikes throughout actually the second part of Q2, as well as obviously significant hikes that took place in Q3. Of course, the biggest one of them being in November, on November 25th, when we announced the 20%-25% increase in prices for prepaid, both non-unlimited as well as unlimited plans. As you would normally expect in any price increase to take place, first of all, two, three things happen. One, which is the recharges.
Obviously, people wait to see what other announcements potentially will happen. Is this going to be an industry-wide increase or whether it will be related only to one particular operator. As we saw, the increase took place across the industry. Generally, what we see is recharges slow down a little bit for a few days, and then they start to pick up again. Of course, we saw that part taking place. We also see a phenomenon of SIM consolidation. This usually takes place in low-end subscriber base, mostly non-UL subscriber base.
Sometimes you see in other categories as well, that those consolidations start to take place, which basically means that, people who have multiple SIMs either decide now it is too expensive for me to continue to recharge multiple SIMs and they make a choice, or they hold off on their recharges for a period of time. Certainly we saw some of that as well. As I mentioned, some of our subscriber losses very much can be attributed to this, price increase. Generally speaking, on the consolidation, as you said, of tariff or actually of usage, we don't see any particular big impact on that, predominantly because I think first of all the prices are still quite affordable compared to share of wallet.
Every now and then on certain price plans, you see some sensitivities where a customer may downgrade from a, you know, 2 GB plan to a 1.5 GB per day plan or something like that, but those are very small and fewer. Most of the usage continues. Any consolidation is usually taking place on dual SIM low-end type of subscribers.
Sure. Just continuing on that question, what's the extent of revenue increase you expect from the recent tariff hike? Should we expect mostly the entire amount to reflect in fourth quarter? Do you see a possibility of another prepaid tariff hike in this year, 2022?
Obviously, this tariff hike has pretty much only had, you know, one month, which is the month of December. Even if you think about how the recharge cycle works, in reality, it's even less than a month because anybody who had recharged a month before, they would come up for renewal only in the middle of the month and so on. It's not even had a full, I would say, month of input. Obviously a significant amount of impact will also come, hopefully in the next quarter as well. We would see that roll over taking place. Now, in regards to specifically your question around whether we see the full amount, obviously, time will tell, and we'll have to observe and see how that goes.
Generally, you know, the price increase, if it takes place across industry, which it has, and at the same time takes place across all price plans, which it has as well, generally you tend to see that most of it will eventually end up flowing through the entire base. As I said, we expect that to take place in Q4. Although for longer validity plans, you can imagine maybe there will be some impact potentially in Q1 of next year as well. We certainly expect this to flow mostly through in the Q4 time frame. Specifically to your question about price increases, I think these prices are quite a significant impact and an effort not only for the industry, but for consumers as well.
To some extent, those have to be done in an appropriate manner because it creates a lot of movement in the industry for the retailers as well as for consumers. We would expect that it's possible that there could be another price hike in 2022. Certainly, you know, at some point, a price hike will take place. This last one that took place was almost two years later, which I believe is a bit too long. We certainly would expect less than two years. In 2022, we will have to wait and see how quickly these prices get embedded. Probably, potentially it could be in 2023 as well.
Thanks. My second and last question is, if you can share thoughts on, 4G subscriber additions from here for the industry and for Vodafone Idea. Would the higher tariffs become a barrier for remaining 2G customers to upgrade to 4G?
No. I think generally speaking, what we are seeing is, as the price increases have taken place, 4G continues to grow and we had a growth in 4G customer base as well. I think generally speaking, you know, when a customer acquires a 4G phone and has a smartphone, which are, you know, depending on the price points, it could be somewhere, you know, around INR 8,000, INR 10,000 and of course, the prices can continue to go up. I think a service incremental payment of 100 INR or even in some cases, maybe even less, is not necessarily the biggest barrier in the customer. You know, let's say that they don't want 4G service even though they have acquired a handset.
Of course, we also have done, Kunal, as you may be aware, we have had several plans going where we can even make the handset upgrade part a lot easier for customers, whether it is through the EMI options that we offer on several handsets, both new as well as used. At the same time, we also offer now INR 100 discount on any price plans above 299 for 24 months, where a customer can get discount on their recharges when they upgrade from a 2G to a 4G device. We are also trying to help them any way that we can in moving up the value chain there.
Sorry. Go ahead, sir.
Yeah, Kunal, I mean, if I may just add, I mean, my personal belief is that the affordability of 4G services is not really an issue. It will basically boil down to as the proliferation of digital services happens in the country, which for a large segment of the population has happened, but this continues to proliferate, and people just have to find that this service is useful for them and they want to consume this service. I don't think INR 100 additional spend for consuming the services for the utility brings is going to be an issue around affordability. It is more an issue around relevance. As we are saying, over a period of time, relevance is bound to increase. That's the way I would describe it.
The point here is that a customer who was typically paying INR 50 six months back, we are now expecting him to pay INR 250. Even if you are, let's say, giving a discount of INR 100 on 299, we are still talking about INR 200 for a customer who was paying maybe INR 50, INR 100 earlier. Do you believe that, like, you can still continue this at the same pace of upgrades that you've seen in the past?
Kunal, I think the question has been answered, which is again, we don't see a INR 50 customer who is, let's say, non-UL customer, voice-only customer, generally, you know, they are when they move to 4G, they don't necessarily, first of all, go for the high-end plans. They start off with maybe starting packs for 4G. But at the same time, I think this is the share of wallet for a service for telecom is so small compared to some of the other things that we don't see that as an issue.
Especially because if they're upgrading for reasons of you know getting on and using digital services, those are considered small quantity of spend on a monthly basis compared to some of the other things that people spend their wallet you know charges on. We don't see that as a big issue.
Understood. Thanks for that. That's it from my side.
Thank you.
Thank you. The next question is from the line of Sanjesh Jain from ICICI Securities. Please go ahead.
Good afternoon. Thanks for taking my question. Probably, the first question is continuation of what we have discussed earlier. It looks like on the 2G base pack, the affordability is really a challenge there. If I go to, say, pre-Jio era, the base 2G Sachet pack was INR 5. Today we are at this INR 299. We have taken to a 20x increase in the starting price for 2G pack for somebody to remain on a network. That's quite a bit of inflation there. On the higher end state, the marginal higher payment, the allowances look like abundance there. Do you think we are in a situation where we need to relook at?
Sorry to interrupt you, Mr. Jain, but your voice is not clear, sir. It is breaking up. I would just request you to please check your line and if you can put it on handset mode.
I'm on handset mode. Can you hear me now?
This is better, sir. Please repeat your question. Sorry about that.
Okay, sir, I was talking on the 2G base pack affordability, which has gone up to INR 99 from INR 5, an annuity term, where on a marginal cost, the higher end premium customer who also have ability to pay are enjoying abundance of allowances. Now, that looks quite an anomaly, and that also. In a way, the ability of telco to monetize the people who can pay, we are keeping affordable. The people who have challenges to pay, we are making them expensive. Do you think we are in a stage today where we need to relook the entire pricing structure afresh?
Sanjesh, in the sense of increasing the overall, let's say, pricing or let's say, creating a situation where somehow affordability of telecom services is in question, I don't think that is the case at all. We've talked about this before. If you go back five years ago, the ARPUs in the country were north of INR 200. We are looking at, not even adjusting for inflation or time value of money, ARPUs in the industry which are today less than INR 150. In the sense that people are paying overall significantly lower than what they used to just a few years ago, compared to where they are.
I don't think, you know, during this period of time, if you think about share of telecoms and from the wallet has reduced significantly. We don't believe that for a very, very critical and important essential service like 2G connectivity for voice and being able to connect and be able to receive phone calls and so on, I think the INR 99 charge is too prohibitive. Again, we don't see a situation where people are walking away from the category at all. What we do of course see is people make choices to say that there is some consolidation to be done, then that of course will happen and that will continue to happen. We see that as a trend, especially as we expect the prices in the future hopefully will go up further.
In regards to the bundles and allowances for high-end plans, I think we have mentioned in, you know, in the prior time frames that yes, this you know the way the pricing tables are set up today, and unfortunately in the industry they're set up in that way, is that as the usage and consumption goes up on a particular price plan, amount of headroom that you have is quite significant. You can increase your usage quite a bit without necessarily having to jump into a new price plan, unless there's a very significant increase. Obviously the normal packages that go in, maybe let's say in other countries where you pay more for more are not necessarily easily achieved through this.
I think from this perspective, increasing quantum of increasing in price plans, as we have done in this case, will have to continue to compensate for overall ARPUs, and we expect that to continue. Unless the industry pricing structure changes, these price increase steps that we are seeing are the only way in which, of course, price jumps can take place and of course, migration of customers from 2G to 4G, which we believe will continue to happen as well.
Just to add a point there. I think average, looking at average really doesn't give the right picture, right? As I said, we have been discounting the people who are paying 1,000 + today hardly exist, and we have a significant base earlier. I think averaging is something I don't think I am really looking at as a affordability perspective. It really is not giving me the picture. For me, affordability is can the bottom 100, 200 million people, are the cost for them gone up? My answer at least prima facie look, yes, it has gone up significantly. As a percentage of GDP, it makes sense when I start looking at in terms of category. I think that's what is missing today in Indian telecom.
I think we are heavily discounting on the premium side for whatever the reason could be. That's why I was not really looking at average as a parameter to look where were we five years back and where are we today. Point taken. Let's see how the doubling of the tariff, because even on the lower end we have went from INR 49 - INR 99. At the same point of time if. Hello?
Mr. Jain, we cannot hear you, sir. We seem to have lost the audio from his end, so we'll move to the next question, which is from the line of Peter Milliken from Deutsche Bank. Please go ahead.
Yes, good afternoon, and thanks for the call. My question is just a simple one, and that is on the interest that you will save from the AGR and spectrum dues. Can you tell me what the annual interest payment is that you will not now have to pay?
Let me take that, Clement. You see it's like this. You are talking about the conversion of interest or conversion of debt to equity.
Mm-hmm. Yes.
Let's just put it very simply speaking, if the amount of debt which is getting converted to equity is about INR 16,000 crores, which is the best estimate we have today, the reduction in interest will be about INR 1,600 crores per year. That's a very rough figure. Generally, these DoT payments have been converted to equal annual installments. Really speaking, you will not see a difference in interest and principal. They are not segregated generally. The way to look at it is that it will have an impact on the annual installment, which will apply after the moratorium period. However, from a PNL charge perspective, the interest charged to PNL should reduce by about INR 1,600 crores per year. Does that answer your question?
Very clearly. Thank you very much.
Okay, thank you. The next question from the line of Vivekanand S. from Ambit. Please go ahead.
Hello. Thank you very much for the opportunity. I had two questions. One of them, now that our quality of service is improving, given the additional capacity that we have created due to refarming of 3G spectrum, why is it that our 4G additions are still somewhat anemic? Is it something to do with the market itself or are we not investing enough in branding? What is the missing link? I'm just not able to relate the opening comments that you made where your network quality is clearly improving due to additional capacity being made available and the 4G subscriber addition. That's question one. The second question is with respect to the rationalization of bank guarantees against license fees and other levies.
Now this reduction in bank guarantees, has the government returned the bank guarantees to you? If so, how much is the return of bank guarantee that has happened, and how much money can you borrow in lieu of these bank guarantees that have been returned? Thank you.
Thank you, Vivek. Let me take the first question, and then I will ask Akshaya to talk about the bank guarantees which have been returned. Vivek, on the quality of service part, absolutely. The quality of service is improving. It's continued to be good, and we and our customers continue to enjoy a very good quality of service. I think on the 4G part, I would say that this quarter, of course, anytime you have, as you've mentioned before, you have price increases, and we have taken significant price increases that we talked about earlier throughout later part of Q2 as well as in Q3 throughout.
That has an impact on SIM consolidation and subscriber losses, and we saw some of that in 4G, but also bulk of it is obviously all in non-UL plans. As a result, still we were able to grow our 4G base. We expect the 4G base to continue to grow and certainly. I would not call the 4G base growth as anemic. Overall, we have managed to grow the base even in a challenging price increase environment in this quarter. Obviously, you saw the Q2 numbers. The quarter before we had over 4 million net additions on the 4G base. I don't think that is the case.
Probably part of the difference in our case is coming on the basis that we have a coverage gap on 4G. Clearly our coverage is different than our competitors. Maybe part of the reason why we see some gap is because of that coverage difference, which is our intent as part of our capital and fundraising is to actually close that gap in coverage, which I think will also give us a boost there. Within the geographies and the areas that we are, we see a robust improvement in the 4G subscriber base. Akshaya, on to you for the bank guarantees.
Vivek, the total bank guarantee which we expect to receive from the government is about INR 170 billion. Out of this, about INR 2 billion. Sorry, INR 20 billion are coming from the license fee and license-related bank guarantees. These have started getting returned, and a large chunk of this amount has already been received by us, and this process is going on because this is distributed across 22 circles, so it is taking a bit of processing time. I would say more than 50% of these bank guarantees have already been returned. As far as the spectrum-related bank guarantees are concerned, these will be returned also in due course. That is what is assured by the government. These bank guarantees have certain process to be completed within the government, and that process is currently being followed by the DoT.
In terms of how this helps us in funding this, as I think we had alluded earlier also is that we are expecting that based on this bank guarantee reduction and the exposures of the banks going down to this extent, we should be able to substitute it by new facilities, which would be a mix of funded facilities and also some non-funded facilities in the form of LCs, which will enable us to get lender finance, which then effectively becomes a funded facility. We are expecting that the entire return of bank guarantees should become available to us in the form of new bank funding.
Okay. This is very clear. Akshaya, did you mention the quantum of spectrum bank guarantees that will be returned? I'm sorry, I may have missed that.
The total is about INR 170 billion, out of which INR 20 billion is license related and INR 150 billion is relating to spectrum.
Okay. Understood. Ravinder, just one small follow-up. You said that the operating environment was challenging due to the price hike. So are you saying that the 4G smartphone addition was Muted for the industry on the whole as well because of this pricing?
Well, I mean, I can't say specifically for industry figures. These are things for Q3, some of those are not quite out yet. Generally, I would imagine that given any time that there is you know, price increases, SIM consolidation takes place. As we said, SIM consolidation takes place not only on low-end devices, which of course it does in predominant cases, but in some cases also takes place on 4G devices. Obviously, if you have 4G devices which have multiple SIMs and are using multiple connections, then sometimes those get consolidated as well. There would be some impact, I would imagine, on the industry as well. Of course, there has partly been slightly slower growth in 4G devices anyway because of the chip shortage and prices are going up as well.
Generally speaking, I would say that this has been because of the price increase that takes place and some amount of SIM consolidation as a result of that price increase.
Right. Effectively, you are ruling out the impact of the cashback and the handset financing offers that your competition came out with during the current quarter, right? Is that interpretation correct, that it was not a major factor in 4G addition this quarter?
No, we see no impact of that at all on any of those type of offers.
Okay. Thank you very much, and all the best.
Thank you.
Thank you. The next question is on the line of Sanjesh Jain from ICICI Securities. Please go ahead.
Yeah, sorry, I think I dropped off previously. Ravinder, continuing on your observation on average blended tariff being lower, my whole point is that I think average doesn't represent the lower end of the customer where we are talking about affordability. But yes, do you think there could be a risk that some of the 4G customer and have you seen any sign now that it's been two months and we have doubled the pricing while on the 4G the pricing is still much more benign? Or do you think a risk could exist where we may see some exit permanently because of affordability on 2G side? Are we seeing any sign over there like that?
Yeah, Sanjesh, welcome back. I think, you know, to your question, you're right. To some extent, I think averaging obviously sometimes simplifies. I was just explaining that on the basis that that's how in a bigger trend, if you look at the industry, obviously you get a view of the overall affordability. I can tell you that I don't see the telecom density in India reducing as a result of the fact that prices have gone up. I don't see that at all. I think what you of course see is that people who have multiple SIMs, so some consolidation takes place.
I, as I mentioned to you, I don't see any situation today in which the essential service that somebody gets for, let's say, INR 99 in this country today, that people are saying it is not affordable enough where I will exit the category. We don't see that at all, I don't expect that to happen. I think if you are talking about very high-end price plans, where somebody who is using excessive amount of data, there could be consolidation there. There could be, you know, maybe a reduction in consumption. On the essential service of voice, I don't see any sign of where a customer basically leaves the category. I think that's the question that you're asking, and I don't see that from an affordability perspective.
Ravinder, if I may add something which you made earlier, but just to reiterate that point, I think the point is INR 99 has to be compared with what are the other things on which you are spending INR 99 and what is the utility of this service to a consumer for INR 99 compared to the other things they are spending on. As we will see the share of wallet or what services one is spending on, it is very clear that the utility which this service offers today is very, very high. I think the other point I would say, Sanjesh, is that it is right that ultimately we want to move to an industry situation which existed before, where people pay for higher usage. Probably the industry would evolve in that direction, but it'll take some time.
It will not happen in a very short period of time. We will see a mix of tariff increase in the current structure, but also seeing that higher usage will result in higher payment because that's the right principle to be followed over a longer period of time for any industry.
Got it. My second question though, we have tried answering that, but on the 4G subscriber addition looks now, again, here, are people again going from INR 99- INR 100? Are we seeing the challenge? Because this is five, six months of a trend where the subscriber addition for the industry has been low. Do you think the premiumization what we used to see, say, two year back, that has materially come down?
Sanjesh, I think we had an earlier question from Vivek earlier on the same topic, but let me just quickly reiterate. I think again, if a person has acquired a 5G or a 4G handset and has spent that money, I think we don't see the service part, which is the subscription service part, to be the barrier of entry for paying more or not being able to upgrade. Maybe some consolidation, but we don't see that as the issue at all, especially because, again, the utility that it provides and the reason why you go and connect to digital services is much more compared to the pricing that you would have in the market today, because we believe the pricing is actually quite low.
What you do see as a result of in this quarter is that when we do consolidation of SIMs, of course, bulk of the consolidation happens on plans, but sometimes it happens on 4G handsets as well, or 4G subscriptions. We saw some of that as well. Even with that, we were able to see a growth in 4G subscriber base. In earlier months that you talked about in Q2, we had over more than 4 million subscriber additions on 4G, which is again a positive trend. Overall, we don't see a demand for 4G going up going forward as well. As the price increase just generally, you see a little bit of a hiccup in the quarter that you do it in on a short period of time.
We don't see overall demand in 4G slowing down again as a result of this price increase.
No, no, I'm telling you, we are in a quarter where we had the highest handset sales in India. Now, if I look at dissect the handset sale, majority of them are coming at INR 7,500+. I think that people who are sitting at a fringe, probably most of them are today on the 4G. My concern is that I was anticipating lower-end smartphone to accelerate. That's where the entry-level feature phone to smartphone would be happening. I think that trend is not picking up. That lower end entry-level smartphone acceleration is actually not happening, and most of the smartphone sales in India is $100+.
Now, that's a data point that again concerns me that the entry-level smartphone sales being slower tells that the transition from 2G to 4G, whether it's affordability on the handset side or affordability from the services side, clearly doesn't look like so affordable to the next 200 million whom we are now targeting to shift to 4G.
Sanjesh, you said it yourself, the number of handset sales have gone up, so clearly the challenge is not in acquisition of handset sales. I'm not really sure how I can see that, the answer. The price points itself, you're right, the average selling point is going up by a little bit. Again, I don't think that in the demand side that is creating a big
Got it. The other point on the customer engagement, I think on the voice side, we have been declining consistently. It looks like it's not stabilizing both on the total minutes and minutes per customer. Engagement clearly is not something we are encouraged with. The second, on the data, again, it concerns me a lot. It's just not Vodafone who has seen decline. I think Jio also had a sudden deceleration in the data consumption, and we are talking in a quarter where IPL was there and everybody tried to push the IPL packs along with total packs. Do you think we are hitting the saturation in the data consumed per user in the industry?
Sanjesh, let me answer that question in multiple parts. It's a very important question, so let me answer it in detail. First of all, I think we have to start off with the fact that the consumption of data in India by far is actually very, very high compared to any standard across any place that you look at across the globe. It's a significant amount that takes place. In some ways, the Indian consumers are using, consuming a lot of data. At some point, you cannot assume that breakneck, you know, let's say, increase will just continue, because at some point there are 24 hours in a day, people can consume only so much data, and so on. I think that's the first part.
By itself, we're starting off with a number that is quite large. Then the second part you talk about is just overall engagement. That, where you said that you are not excited about or you're not seeing good results. Actually, we see the opposite of that. We see actually quite a significant engagement that is taking place. Data volumes in this quarter are down, but I explained in my opening part that they're down primarily in our case because we had promotional offers of double data and so on, which we talked about quite a bit. Obviously in the context of a price increase that we were going to take and other tariff interventions that we were doing, it made sense for us to withdraw that.
At least we saw a result directly of that, where the data consumption went down on those particular promotions that were taking place. We didn't see any other decrease otherwise within the consumers. Also, we had a significant growth. Q2 was a very large, I mean, year on year basis, we see a big number increase. Q2, we saw a very strong increase in data consumption that was taking place. That, of course, you know, again, I don't see that engagement from the customers dropping at all. I'm not quite sure about that part. On the voice minute parts, there is of course a drop there as well.
Some of it is going, you know, if you have a situation where you are seeing SIM consolidation starting to take place in the industry, and as we said, most of the SIM consolidation, while some of it takes place on 4G, a lot of it takes place on voice customers as well. As a result, there is some shrinkage that we see. Also, of course, there's an industry trend of migration to OTT for voice minutes and so on, which is a smaller trend, but it does contribute to some of that. I would say that the engagement is actually quite strong. By the way, the last part of engagement, which is also very important, is we are seeing a huge engagement increase starting to take place on the digital side.
Strong monthly active user increases that are starting to take place. 50% of our recharges are now taking place digitally. People are spending more and more time on our digital assets and properties. Maybe, you know, in the future, we'll talk a little bit more about that as a trend that we're seeing. We don't see an engagement reduction at all. In fact, what we see is more and more engagement through this essential service and overall a positive behavior by the consumers.
No, because data, I got your point. I picked up earlier when you said that you have cut down on the allowances. But I'm telling you when the competition is seeing slowdown, and for me, that also means that why are everybody so much rushing towards deploying the 5G from the B2C perspective. I cannot imagine today any other big use cases for B2C category for the mobile users but for a higher and a better speed, and decongestion of the 4G network. Why the rush for the 5G in the case, assuming that we saturate the data usage at the level we are today?
Sanjesh, on the I obviously can't comment on what happens in other networks in my competitor's network. Obviously, I don't have any insight into that. I can only comment about what we saw. On the 5G side, I think you are saying rush for that. I don't see a rush for that. Every time the auction has taken place, it has not, nobody has participated. The rush part, I am not seeing the rush that you are suggesting. I agree with you that the use cases for 5G will have to emerge. We have showcased several use cases from the test frequencies that we've got. These are all use cases that are possible, but of course will take time to develop and for consumers to adopt.
Today, the use case for 5G across the globe for the most part for consumers is really around building more capacity. There's of course a little bit of speed involved as well. Really it is really more for adding capacity when you have congestion on the 4G side, which of course is not as much of a challenge in India today. I would tend to agree with you, but I'm not sure that the rush that you are talking about for 5G actually exists as you have stated.
No, because we haven't seen any C-band auction at. In any case, it looks like at least government is trying to push the 5G adoption in India. Yeah, yeah. Just one last bit from my side. We have done multiple trials now on 5G. So what is your initial thought on 5G? How well can it get integrate with your existing network? And the requirement of fiber, do you really see that as a big game changer in the 5G rollout?
First of all, in terms of upgrading the network to 5G, we don't see that as a challenge at all. As I mentioned before, our network has the latest 4G technology, and most of the time when we put the latest 4G technologies, many of those come already ready to be upgraded to 5G. There's an easy upgrade that takes place. Most of them are in software upgrades that take place. Also, we have deployed several of the 5G technologies within our network. Massive MIMO is a very good example of, you know, key 5G radio technology that we are the one that have already deployed that at a massive scale within India.
From that perspective, we find ourselves, you know, much more ready potentially compared to other players. Now, in terms of the use cases itself, as I said, we have showcased several use cases to the various government officials from the test frequencies that we have done. I think those use cases are eminently possible. The question is really where does the demand come in for those and of course how that rollout takes place. On the fiber side, we expect also the E-band and V-band frequencies to be auctioned off, I think in India clearly.
The backhauling will be done with a mix of fiber as well as the E-band and V-band spectrum that will be handed out, and I think it'll be a combination of both of those things. I don't think that fiber will come in as quickly to every site, every location in a manner. Some of those frequencies will be quite critical as well, which is certainly a part of the discussions and the consultation that TRAI is doing. Those are within scope, and we expect those to be considered and bundled into the 5G spectrum.
If I understand it on the fiber side, you're telling if E-band and V-band are allocated along with the 5G, you don't see fiber to be a big advantage for anybody or not having fiber as a big disadvantage to anybody.
I think the E-band, V-band auctions, which they take place along with the 5G spectrum, I think should be a reasonable enough place to start. In any case, if 5G starts off from inside to outside, meaning it starts from more denser areas and it goes outside, there is already sufficient fiber in the industry anyway in those areas. I don't see that as a big immediate challenge.
That's great. Thanks, Ravinder Takkar, for answering all the questions patiently and explaining it in detail. Best of luck for the coming quarters.
Thank you.
Thank you. The next question is from the line of Piyush Choudhary from HSBC. Please go ahead.
Hi, good afternoon.
Piyush Choudhary. Yes, please go ahead with your question.
Yeah. Hi, good afternoon. Thanks for the call. Most of my questions are answered, just a couple of them. Firstly, in your 17 priority circles, could you talk a little bit more about your network coverage objectives and how is the discussion with vendors proceeding to enhance your network investment, if any? And, secondly, as a promoter group stake is going down, are you witnessing any concern from vendor partners or, you know, potentially, churn, increasing churn among employees? What steps are taken to address those concerns and retain talent within the company? Thank you.
On the priority circles, I'm not really sure if the question is about concerns from vendors at all. I don't see any reason for concern from any of the vendors. Our vendors have been very supportive. They continue to provide actually really best-in-class service, given the fact that we've talked about the fact that our network quality is by far the best. We're seeing great experiences that has been validated by all the third-party reports that come out, including TRAI call data and so on. Actually the vendors have done a phenomenal job given the complicated integration exercise that we have been through earlier on. As a result, I think we are seeing actually the work done by vendors to be fantastic.
They continue to be very supportive, and I don't see any challenge. I'm not sure what you were referring to there. In regards to the promoter group stake, the reduction has had no impact on our ability to retain talent, to attract talent. The promoters have made it very clear that while their stake is getting diluted as a result of this tax reduction, which I think is considered a very positive step, meaning they have chosen to strengthen the balance sheet of the company at the cost of reducing their stake, and that is seen as a positive sign.
They have also, as I mentioned in my opening remarks, that they have further confirmed that they will continue to provide support and governance and control to the company, even at a reduced shareholding structure, compared to before. They have reduced that now to a further amount, and they will continue to provide that support. That I think is further confidence to the company from the promoters. So far, there's no reason for any either employee or vendor or anybody to feel that there is any lack of engagement from the promoters. In fact, the promoters are very much engaged in the daily aspects of the business.
Thanks, Ravinder. If I may follow up, my question was more on the CapEx side, actually in the 17 circles. Basically for the last probably 10 quarters, if I'm seeing the data correctly, your average CapEx is around INR 10 billion. So what would trigger a higher level of investments? Would it be only post, you know, some funding or you have, you know, headroom post the recent tariff hikes to increase, CapEx?
I misunderstood. I think on the CapEx side of the situation, yes, there are both events like you mentioned. First of all, the moratorium from the government allows for any cash that will be generated because we don't have to make the payments to the government to come back into the company in the form of investments in CapEx. That part helps. Tariff increases as it results in improved cash flow situation. Obviously, that extra cash can also come in for CapEx as well. Of course, the other part, which is our further bank support and investment, equity investment funding process that we are going through, all of those will further increase our CapEx capabilities and our ability to deploy CapEx in those circles.
All of those three things will be contributing to increased CapEx.
The third thing is still not known, but the first two things are known already. Based on the first two things, are you looking to increase the CapEx? Like, is the company looking to materially increase the CapEx investments? If so, like what's the target for next year?
I'll let Akshay answer the quantum part. I don't think we will disclose that, but if there's any insight that he can provide. Generally speaking, yes, as part of our fundraising and other two exercises, we are looking to increase the CapEx spend in those regional circles. Akshay, I don't know if you have anything more insight to add.
No. I think at this point of time, we cannot provide the guidance, and we are also in the process of our annual budgeting exercise. Probably by the time we have the next quarterly results, we'll be in a better position to provide the guidance. Definitely it is on our plan that with this relief package being available from the government and also the additional funding that we are doing, I think our primary focus will be to increase the 4G coverage to match our 2G coverage. As we said that in terms of capacity, our network experience today is already the best or amongst the best in the country. Capacity investments have not been a challenge. The challenge has been around 4G coverage, which would be a priority once we get back to a higher CapEx cycle.
Got it. Thanks a lot.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to Mr. Ravinder Takkar for closing comments.
Thank you, Margaret. Following the announcement of the government reform package, we believe the industry is on the path of recovery. The recent tariff hikes will go a long way in alleviating the sector woes and improving overall profitability. The significant liquidity provided by the government reform package and the recent tariff hikes will enable VI to make more network investments and compete more effectively from a position of strength. Thank you very much for joining this call. Have a good evening.
Thank you. On behalf of Vodafone Idea Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line.