Bharti Airtel Ltd
NSE:BHARTIARTL
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Bharti Airtel Ltd
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[Audio Gap] progress September 30, Present with us today is the senior leadership team of Bharti Airtel Limited. I must remind you that the overview and discussions today may include certain forward-looking statements that must be viewed in conjunction with the risk that we face. [Operator Instructions]
With this, I would like to hand over to Mr. Gopal Vittal for the opening remarks.
Thank you. Good afternoon, ladies and gentlemen. Thank you for joining us on this webinar to discuss Bharti Airtel results for the quarter ended 30th September 2022. Also present with me on this webinar are Soumen, Harjeet and Arpan. I want to focus this quarter's earnings calls on 3 things: our performance and the strength of our portfolio an update on 5G, and why we believe this will in the short term give our business to filler and finally, the opportunity in rural.
Before I dive in a few words on ESG. During the quarter, we progressed towards our ESG targets. Next became India's first data center company to deploy fuel cell technology. The aim here is to reduce carbon emissions through a cleaner hydrogen-ready fuel supply, while unlocking cost benefits. Nxtra is committed to achieving 50% of its power requirements through renewable energy sources in the next 12 months. Our core network operations have started experimenting with solar power and diesel elimination, and given us confidence on getting to our ESG goals.
Our headquarter at Gurgaon received Gold LEED certification last month. The certification is based on LEED v4.1. A next-generation standard for green building, design, construction, operations and performance. As a recognition of our ethics and transparency, we received the prestigious Golden B Corp Global Award for Excellence in Corporate Governance for 2022.
Let me now turn to performance and portfolio. We've had another steady quarter for Airtel. Our consolidated revenues for the quarter grew sequentially by 5.3% during 34,000 -- a little over INR 34,520 crores. In India, our EBITDA margins improved to 51.8%, benefited by continued cost control and the SUC benefits, which were part of the several telecom reforms of last year. 5G spectrum acquisition optically increased our debt levels, while a deleveraging continuum on the back of tight fiscal prudence and strong operating leverage. Equally, we continued our War on Waste program to help fuel margin improvements.
Despite this performance, our South Asia and India return on capital employed is at 8.4%. For a business that takes risk and puts in substantial CapEx in order to drive digital adoption, we believe this level of ROCE is very low. The only way to help remedy the situation is a tariff correction. Let me now comment on our various businesses and why each part of our portfolio creates greater customer stickiness while driving premiumization.
Let me start with at Airtel Payments Bank. Our Payments Bank has now crossed the milestone of 50 million monthly transacting users and clocked $25 billion of annualized GMV. Our take rates are now at 0.61%, the highest in industry. This translates into an annual revenue run rate of INR 1,233 crores, and we are the only profitable fintech player in the industry. The interesting and unspoken part of this business is that our telco churn comes down by almost 50%. The moment a customers' bank account number is the same as her mobile number. Our digital services on an annualized revenue of INR 960 crores, up from the previous quarter's run rate, growing sequentially at well over double digits. I mentioned before that these services have been built on some very significant digital capabilities that are helping our core business.
We see our business in 3 parts: the underlying digital infrastructure, including the massive data infrastructure we've created; the digital experience layer that follows a customer through their life cycle, enabling them to discover, buy, experience, refer; and finally, our digital services layer that leverages the foundation to create revenue streams at very low capital outlays. This is what makes our digital play special.
Now on to Airtel Business. This Business, as I said before, is a jewel in our portfolio. Over the last many years, we've delivered sustained profitable and competitive growth in this business. This quarter, we continued our momentum to deliver strong sequential growth of just under 7%. This has helped cement our position in the B2B market by adding a landmark of being the largest listed player in the B2B space in the country. Based on the results declared of the other players, it is clear we have solidified our position and gained revenue market share. The consistency of our performance can be attributed to 4 underlying reasons. The trust we enjoy with our customers the value we place to privacy of data and transparency in dealings, a steadfast focus on emerging businesses, including CPaaS, security, data centers, cloud, IoT and solid execution of our go-to-market strategy of going wide and deep, wide to cover more accounts where we are not doing as well and deep to create much more meaningful relationships with our customers by serving them with more and more products and solutions.
Let me now turn to our homes play. Our broadband business continued its acceleration on the back of growing need for reliable and consistent broadband in India. We're now present in 1060 cities through a combination of our own infrastructure and the SCO model. This has helped us add 417,000 customers and report about 7% sequential revenue growth during the quarter. While the DTH business saw a decline of 2% -- 2.6%, I'm actually glad the outcome of the strategy we put in place a few months ago is showing early signs of having delivered and creating some momentum. Our strategy was simple: double down on the largest cable markets of the South, Maharashtra and Bengal, simplified pricing, and make it easier for customers to choose their content, and finally bring the full power of our convergence proposition to win the high value game.
And while doing that, bundle OTT content, linear content along with broadband and mobile, which is a Airtel Black. This strategy is now seeing traction. The months of August, late August and September have seen growing momentum. October has been even stronger. To give you an accurate picture of the business, we are now harmonizing the definition of what constitutes a customer with our mobile business. As a result, we are applying the same stringent criteria for this business. A customer will be recognized as such, only if he or she is a revenue-earning customer. This means that the customer has to give us some revenue in a rolling 30-day period. We use the same definition in our mobile business as well. I'm more confident than ever before that we will deliver market-beating performance in this business going forward.
Let me now turn to the mobile segment. The mobile business saw sequential revenue growth of 4% on the back of up-trading, continued feature phone to smartphone upgrades and our focus on data monetization, based on our digital capabilities to get users to buy extra data on any day within the plan cycle when their allowance runs out. As a result, our ARPU moved from INR 183 to INR 190. This was achieved on the back of 5 million 4G net additions, a recovery from last quarter. Our postpaid segment saw net additions of 300,000. With this, we are now the decisive leaders in postpaid. In sum, we delivered steady results to grow our market share across all businesses. I believe we are very well positioned as a portfolio due to 2 critical reasons. Each part of our portfolio helps our overall premiumization strategy by moving people up on the ARPU level: from feature phones to data users to postpaid to broadband and eventually Airtel Black. We see a clear doubling of ARPU every step. We see this ARPU ladder providing us a strong run rate for growth.
The second reason is that when our customer buys more than 1 product in our portfolio, be it a digital service, consumer product or an additional B2B product, we see a dramatic reduction of churn. So the way to think of our business objectives, when we look at our portfolio, is simple: grow share of wallet on the one hand and drive stickiness on the other.
Let me now turn to the second part of my opener, 5G. There are 4 advantages we offer 5G that work seamlessly on all 5G devices -- sorry, the 5G works seamlessly on all 5G devices. All of Xiaomi, Oppo, Vivo and RealMe devices are now ready for our network. Samsung and OnePlus will be fully ready in the next couple of weeks. Apple soon thereafter. It looks like Apple will be ready by around mid-November to early December. This cannot be said with alternate technologies where many devices will deliver either an inferior experience or simply not work on 5G. A second advantage is that we offer is superior experience with anchor band riding on the underlying 4G layer, our 5G band covers an additional 100 meters to provide a compellingly superior experience. The third advantage is that our solution is more power and carbon-efficient for India. Finally, the cost of producing a gigabyte in India is the lowest for Airtel. On to our plans for rollout. We've now commenced our Airtel 5G+ launch starting with key cities. By March 2024, we expect to cover all towns in urban India as also for key rural areas.
As the networks start getting built out, we will see a significant part of our existing data graphic on 4G move to Airtel 5G+. This is important since it will allow us to gradually move more and more spectrum to 5G at the flick of a button. We have also started testing the SA mode on 5G. This more may be relevant for some enterprise use cases. While these specific use cases are very niche, we're already doing our trials to serve customers where needed. We're also testing our millimeter wave spectrum for fixed wireless access. You will hear more about our plans on fixed wireless access in the coming months.
Finally, let me just comment on the use cases. The use cases for 5G are still nascent, outside of high-speed broadband. That said, we are working across a large number of companies, including start-ups to test out use cases. These use cases span experiential education using virtual reality connected ambulances to save lives, productivity enhancements in manufacturing and agriculture, logistics and entertainment. These were showcased recently at India Mobile Congress. Over time, some of these use cases would potentially be game changing for the country.
At the end, while many of these use cases could come into India over the next few years, we believe that there is a serious short-term opportunity to grow share and disproportionately win quality customers leveraging the power of 5G. Given the financial press situation that one of the players in the industry is going through, we feel that the moment is ripe for Airtel pulling ahead, and being decisively the most aspirational brand in India. With this, we hope to take a further lead, particularly in the postpaid segment.
Let me finally turn to rural. In the last 10 years, we've moved our population under coverage from around 87% to 96%. Yet, we believe there is still headroom for expansion and growth. We now see over 40% of industry 4G net adds coming from rural areas, and believe the time is right to bridge a substantial part of the coverage gap in mobile against the leading player in the industry. As we do this, we are applying a whole host of lessons that we have learned. We're using our data science models to determine exactly where to go. At the same time, we're sending our people to the field to determine exactly where the opportunity is. Even more important, we have designed and built lower cost size that will allow us to expand profitably. As you're aware, we take great pride in treating every single network tower as a factory in itself, and we monitor the revenue and profitability across all of 254,000 locations. So our plan to expand rural coverage based on these lessons will lead to sustained competitive performance, and return profitably.
With the sub-gigahertz footprint we now have, this will provide customers with a very good proposition, thereby fueling our growth. In sum, we are now at an exciting juncture. Our portfolio is deep and resilient. It acts as a virtuous flywheel for our business, creating greater stickiness and providing opportunities to grow the share of wallet. Our performance consistency is in large measure due to the strength of our simple strategy backed by this powerful portfolio. We are ready and rolling with 5G. While in the short term, there may not be too many next-gen use cases. We believe Airtel 5G+ will be a strong lever for us to grow quality customers. Finally, rural, where our network coverage is lower, is a massive opportunity for us, and we will use all the lessons we've learned to roll out prudently and quickly. With this, I want to open the floor over to our Q&A session.
[Operator Instructions] The first question comes from Mr. Manish Adukia from Goldman Sachs.
My first question is, Gopal, on the market share dynamics that you talked about as a result of 5G, where you said that especially in the postpaid segment, you do expect that market shares could potentially move up for Airtel. Just wanted some clarification. Are you suggesting that you expect your market share trends to accelerate? I mean they have little been expanding in the last few quarters. So a result of 5G, do you expect that trend to accelerate? And a related question to that. I mean why should market share dynamics change? I mean the #3 player has generally been weak into the balance sheet and free cash flow. So what would change as a result of 5G that you believe your market share could further inch up higher?
And my second question is on free cash flow. The India business has started generating meaningful amount of free cash flow. And with no near-term spectrum payment, the free cash flow is only likely to go up higher. So how do you think about the use of cash over the next 2 or 3 years given spectrum and AGR payments are still some time away?
I think I don't want to comment on whether our market share will accelerate or not. I think you just have to look at our track record. Thus far, it's been consistent and steady. We've grown market share substantially over the last 8 to 10 quarters. We believe there still is a big runway for growth, competitive growth. And this is really around 2 parts. One is our strategy of going rural, which is where we have a big gap with our leading competitor. And we believe that this could be an opportunity for us to recover the ground given that we're not present in many of these villages across the country.
The second part is really a high-value game, and this is what plays to our strategy. I think our own -- whole strategy is based on quality customers. And whatever we do, whether it is the way we drive stickiness through multiple services and bundling it or whether we use our data science models to actually drive greater share of wallet, all of that plays to our advantage. I think 5G in addition to this, is a filler to actually have a narrative going which actually makes us a very aspirational brand. And for us, the reason we are also excited about is that our technology, which is Airtel 5G+, will really work on every single device.
Like I mentioned, I think -- Samsung, there are 27 models of 5G. 16 models are already ready and enabled. The rest will happen by late October -- sorry, early November, so around 10 to 12 of November. OnePlus, all 17 models will work on our network. Vivo, all 34 models will work on our network. RealMe, all 24 models will work on our network. Xiaomi, again, all 23 models will work. And Oppo, also all 14 models work. Apple has 13 models. They will have their release around first week of November. And by mid-December, we should have it already. Now I can't say the same for our competition because they're choosing a different technology.
So for all of these reasons, I think we have a real window opportunity to really step up our act on customer experience. And as you know, Manish, ultimately, customers want experience, and that's really where we want to focus. On the free cash flow front, on use of cash, I think we are a prudent company. We'll continue to pay down our debt retire some of our bank debt, make sure that we prudently pay off, again, whatever prepayments are to be done. So that will also be done.
And the third part is really on CapEx where we will be looking at rolling out both 5G as well as rural in the coming year, and there could be some elevation of CapEx in the short term, which is fundamentally an advancement of CapEx from the following year. So if you take '23, '24 we may have won some CapEx from '24, '25 to '23, '24.
Just a quick follow-up question on the market share response. You also talked about in your opening remarks about a need for tariff repair. So are you suggesting that the increase in market share and tariff repair in the industry can go hand in hand? Or do you think until the market share dynamics fully play out, there should not be any meaningful tariff, let's say, intervention in the foreseeable future?
Well, I hope that -- our wish would certainly be that tariff repair happens sooner rather than later. Because remember, there's a massive investment that is happening today as we speak. At INR 190 ARPU, while we do have the highest ARPU in the industry. The fact is that this ARPU was actually higher 7 years ago, it was almost INR 200. Secondly, if you look at the pricing structure today in India, whether it is ARPU or whether it is the rate per megabyte, rate per gigabyte, it is the lowest in the world, lower than sub-Saharan Africa lower than our neighboring countries here, low in Southeast Asia, a little on the developed markets. So every player will want a return on capital. Our belief is that 8.5% return on capital is very low.
I mean you don't need to take the risk that we do in putting in all of this investment. This money can be just put in a bond and you can still earn around that level of interest. So the fact is that this return on capital needs to go up. And the only way that it will go up is if there is a tariff correction. And we're not talking about massive corrections. We're already at INR 190 ARPU. We need to see 1 round of correction. When it will happen, I'm not at liberty to say because it's not just up to us, right? I mean, if we do it and competition doesn't follow then we have a problem. So we are watching this space, and we will see it when the time is right.
The next question comes from Mr. Piyush Choudhary from HSBC.
This is Piyush from HSBC. A couple of questions. Firstly, on the subscriber trends. We are seeing some tepid growth since last 1 year, and you alluded to rural push now. So in light of that, can you give us like whether Bharti subscriber growth or the industry subscriber growth would remain muted? Or you think it could accelerate from here going forward? Secondly, if -- there has been a steady and strong execution and market share gains for you. At this point of time, what do you foresee as key risks or challenges to the business? And if any, what are the steps taken to mitigate that?
Well, I think that the first -- answer to your first question, Piyush, is that, as I mentioned in the last earnings call as well, we have seen pressure on semiconductor prices. over the last 6 to 8 months, which have pushed up the -- actually since March of 2022, actually, which have pushed up the price of smartphones in the industry. So if you go back in time and look at the entry-level smartphones, this is to be about INR 6,500 vis-a-vis our feature phone, which would be in the ballpark of INR 1,000. Today, an entry-level smartphone is more like INR 9,000 -- INR 8,500 to INR 10,000. A reasonably good phone is about INR 10,000, close to INR 10,000. So now imagine a poor customer who has a feature phone and who's made a decision to come into a shop and change to a smartphone. And he's in his mind, has been told that the price is about INR 6,500 to INR 7,000. He lands up in the store and finds that it's actually INR 10,000. He is going to walk back and go away.
And that's why we've seen across the industry, a 30-odd percent reduction in feature phone to smartphone upgrades. This is by the way, it's across the industry. Now typically, what happens is, or at least I've seen in the consumer categories is when you have a period of high inflation, it takes some time for the shop to settle in. So the second time he comes back, he knows it's INR 10,000. When he comes back, he is prepared to pay INR 10,000. So I think it just has to be certain way to ride this out. We've seen some improvement in 4G upgrades this quarter, as you know. It's not a big improvement. We were at 5 million. I think last quarter, we were close to 4 million -- or just under 4 million. So there's been some improvement, but it's not good enough. And we are hoping that this drives back -- this comes back.
On the second question on risks. I think that there are always risks in this business. I mean there is risk in any business. So we have a robust process of risk and assessing risk within the company. But if you were to pin me down and say what are the big risks? I think I see it more as opportunities, but certainly, there are some risks. We had risks around geopolitical risk on supplier. That's now sorted. I think supplies of equipment is one. But the bigger one is really around talent. And attrition generally post pandemic has been high for most industries. We are slightly lower than what I have heard is the attrition across other companies. But it's a continuous process of making sure that we play to our strengths of really the culture that we offer our employees, which is the culture of empowerment, the culture of ownership. And that is something that we're going to just keep reinforcing and find ways to get across for every person who joins us newly.
the next question comes from Mr. Sanjesh Jain from ICICI Securities.
First, from my side is on the ARPU. 3.6% look extremely strong. Can you help us understand what's leading such a strong ARPU growth? You did mention about data monetization but I think that has been a case for a while but why is it such a big inflation in this quarter? And also help us understand how sustainable it is? Can this kind of data monetization opportunity can continue for few more quarters where despite no tariff hike we should be able to achieve 2 plus kind of a sequential growth in the ARPU? That's the first question. Second is on the data digital revenue, I think for thee first time we have disclosed that number for the quarter at INR 960 crores which has grown double digits sequentially. Can you help us understand how much of it is coming from the enterprise of the business, how much of it is coming from the consumer side of thee business and within thee consumer what is really driving the growth in the digital services? These are my initial 2 questions.
Thank you, Sanjesh. Sanjesh, I think the -- I will not comment on what our estimates are for the future and whether they're sustainable. I'll just tell you like the reasons why this ARPU has gone up. I think the point number one is that we are now applying a lot more sophisticated understanding of which customer to really go after. And the acquisition machinery that we have, while the churn looks on the face of it elevated, I think we're improving every week, the quality of our acquisitions. That's one driver. The second driver is the upgradation from feature phone to smartphone, which is an ongoing thing, as you know, and that's the 5 million that we talked about. The third is the premiumization from -- within prepaid to postpaid. But I think this quarter, we also did what we call data monetization that you referred to, where I think you use a lot of very contextual and scientific triggers to identify an individual consumer who is blowing through his core data allowance on a given day because most of our prepaid plans are 28-day plans or 56 day plants.
So the moment you blow through that allowance on that given day, we were really able to dramatically improve the experience of buying a 1-day, 3-day or 7-day data top-up for that plan cycle. I think it was a combination of all of this, which led to the ARPU performance. I think on the digital revenue, -- we have 3 streams of digital revenue. One is our marketplace revenue, which is where we use the use content and things like that. And also, we're doing some pilots on financial services where we are distributing credit cards and some of our partners on our platform, plus trying out some lending based on understanding of our data along with content. So, that's the marketplace piece. Second is our advertising part, which is really using our platform to drive advertising revenues.
And the third is Airtel IQ, which is our SaaS model, which really solves specific problems using our core network stack. And that is really what the 3 sort of drivers of this are. We're not -- we're not here disclosing very specifically how each of this add up is simply because these are still nascent, still volatile. So at the right point in time, you can be assured that we will start disclosing more [indiscernible].
Just a couple of bookkeeping questions. One on the cost inflation, I think selling expenses have significantly gone up. Why? And this trend has been -- at least, both the player who have announced the results. This has been a common thing. And the second one is how much SUC is still pending for us, which may accrue as in next quarter? So that's it from my side.
Soumen, you want to take that?
Yes. I think on SG&A, there are multiple initiatives, which is gone into the market. We are driving our homes, GTM team rolling out new outlets. And also, there has been a certain amount of aggression which has continued in the market, which has pushed up the SG&A pieces. As far as SUC is concerned, we've -- as you know, it was rolled out mid of August. So we've realized half of it. Half will be carried forward to the next quarter. So next quarter, we'll realize the full quarter benefit.
Yes. So will it be in the bulk number of close to INR 300 crores to INR 350 crores still coming in the next quarter?
No, a little lesser. More in the range of about INR 250 crores.
The next question comes from Mr. Subhradeep Mitra, UTI Mutual Fund.
Just wanted to have your guidance on the tower addition, given that we are now rolling out 5G [ pair India ], so over the next 2 to 3 years, if you can give out what would be the expected level of tower addition, which you are looking or from your sort of the tower company perspective?
So what do you mean by tower efficient? I didn't understand.
Tower addition.
Tower addition, I see. Got it. That's the only question Subhradeep?
Yes. That's the only question.
Okay. No, I think the existing 5G technology is basically going on at the existing towers. So we are unlikely to be in the medium term, forget about short term for the next couple of years, 2, 3 years, building more sites on account of 5G. Because, as I mentioned, the propagation of 3.5 gigahertz is a 100 meters more on the downing. In fact, it's better than the 2.3 gigahertz, the 3G band. Because of the mode that we've applied, which is on Airtel 5G+,you do get a 100 meters more on the downlink and that gives you a phenomenal experience even indoors without any densification.
Over time, as the capacity grows, maybe 5, 7 years out, 10 years later as the capacity starts growing, yes, there will be some densification. But right now, there's no sign of that. I think the place we are creating more towers, which will be leaner towers will be for rural area, where we are trying to see what we can do to reduce our dependence on diesel and really going for very lean sites, which actually come at a much lower cost than the operating cost per month that we are subjected to today on networks on account of fuel and rental.
The next question comes from Mr. Kunal Vora from BNP Paribas.
My first question is on margins. How should we look at EBITDA margin on incremental revenue going forward with investment in 5G and rural coverage? Would the margin on incremental revenue get impacted? You already -- in the past, you talked about 60%, 65% margin on incremental revenue, would that still hold?
So I think, Kunal, firstly, as you can well imagine, the 5G will certainly load on additional costs. And unless there is a serious -- an improvement in tariffs, this will be an additional cost on the P&L. That said, I think we have to work harder on our War on Waste program. And we are looking at all kinds of avenues to see what we can do on War on Waste, which includes further elimination of diesel, use of solar to reduce the overall energy build, particularly in rural areas, where we have space to put up solar solutions. We're looking at further digitization of our business to bring down cost of serving customers. I think in the short term, there has been an elevation in sales and distribution costs because of competitive intensity on account of channel commissions. They want to use a lot more sophisticated techniques to see how we can be even more efficient in what we offer channels to acquire the right quality customers.
So there's a whole bunch of things. I think we just have to work harder and stay in the same place. And that is our effort right now.
Sure. Sure. That's helpful. Just a follow-up on the first question on churn, like premium remains fairly elevated, 3.3% monthly, almost 40% annual. When do you see that stabilizing?
Yes. I think the churn, as I mentioned, is elevated, and we're not happy with the level of churn. And I think the large reason for the churn is less churn of tenured customers who have been with us more than 9, 12 months, but really poor quality of acquisition. And this is why I said that we are really trying to see what we can do to improve the quality of acquisition so that we can get a control on this churn. This is finally happening in the market because fundamentally, there's an arbitrage in pricing where a new SIM is available for probably a lower price given the channel commissions than what you would play for an existing plan.
And that leads to arbitrage. It is something that is a menace in this industry. It's been there for many, many years. It's gotten worse in the last few months. But I think we just have to find a way to get more clever, more sophisticated about what we do. There are many pilots that we have done in the last 30, 40 days, and we're hoping that some of these will rollout now in the coming weeks and months.
My second question is, if I observe, like IoT and M2M connections almost doubled over the last 1 year. Can you help us understand the potential size of this market? What are the main use case? What are the customers really doing, the growth trajectory which we can expect? And also, what kind of ARPU you're making on these IoT and M2M connections?
Yes. I think that historically, what we've done is like I think about 3, 4 years ago, we moved this M2M business under the B2B reporting because it's really a B2B business. But the reason we called it out in our investor pack this time as part of postpaid is because we wanted you to get a fair comparison of what really is our postpaid business when compared to our competitors because that's when they report postpaid, they report it along with M2M and IoT, and this is why we disclosed it because we wanted you to get a true and fair representation of what's happening. I think the M2M business is driven by multiple use cases, fleet management. It's going into cards, it's going into ATMs. It's going in into meters, large contracts, large plans by governments to move to electronic metering based on IoT devices.
And GSMA data study, I think, a few years ago where they were talking about 2 billion machine-to-machine devices over the next few years. So this is something that certainly is a big growth opportunity. The individual ARPU of an individual SIM is very low. I'm not at liberty to disclose specific number, but it's very low, but remember also the consumption that you're using there is very low. And also, it's a corporate paid connection. So to that extent, you're getting -- you're not being paid per SIM, you're being paid for, let's say, 50,000 or 100,000 or maybe 0.5 million SIMs where you have 1 billing and you're getting the money.
The place we have spent a lot of our time is creating this M2M platform of ours. Our own engineers have built it. This platform is amongst the best in the world. We offer all kinds of flexibilities where a customer is able to provision a SIM on the fly, can do it by themselves doesn't need to actually even contact Airtel. SIM is just delivered to them and they can decide where to use it and when to use it. They can take it off. They can get all kinds of analytics with it. So these are the use cases that we are actually building on top of this, which is actually -- exactly what our customers are looking for.
But like this number has almost doubled to almost 13 million, 14 million in last 1 year. What kind of...
It is growing fast. So it is growing fast.
What kind of growth would you expect going forward? Do you think this kind of growth is sustainable?
Well, I hope so. I think as more and more -- again, I'm not giving you a target or forecast. But as more and more automation comes in across many, many industries as more and more efficiency is being sought through using the power and information. Then yes, these are opportunities that everybody is going to look for because it's actually much lower in terms of cost than sending people to do with the metering, for example. Or a truck that's on the highway, you want to know what is the speed at which it's going. Is it over-speeding, is it traveling at the wrong time. Is it in the right -- is it moving in the right direction that we wanted it to. All of this is possible with this. Otherwise, it's not possible to even look at some of this. So many customers find this extremely because it adds value.
The next question comes from Mr. Vivekanand Subbaraman from AMBIT Capital.
I Have 2 questions. So firstly, Gopal, you've been highlighting how the non-mobile revenue streams are becoming more and more important. And we have been seeing strong growth traction both in B2B and Homes. So just wanted to understand from you in terms of your vision for the non-mobile businesses, how do you see the contribution trend in the next few years? So that's question one. Secondly, any thoughts on the substantial head count addition that you have done in the last 9 months and in this quarter in particular. Anything you want to call out here?
Okay. Thank you for that. I'm very excited about our entire portfolio outside of wireless. I think that every part of our portfolio is important. Within this, B2B as a jewel in the portfolio, it has done consistently well, and I explained to you all the reasons. I do believe that we are operating in a INR 14,000 crore connectivity market, but there's also an adjacent market to another INR 40,000 crores to INR 50,000 crores which comprises of CPaaS, it comprises of cloud, it comprises of cybersecurity and data centers. And all of these play to our strengths, our advantage. And this is where we are now building a stronger portfolio. So I see a runway for B2B over a period of time as we expand forth from our connectivity to beyond connectivity. In connectivity itself, there's a big opportunity.
So I can give you -- let me give you a few examples here. We have a customer in Bangalore, who is a large Internet company. By going deep in the B2B space, we were able to double the revenue within a 6-month period. We have a customer in Delhi, who is a financial service player, and we were able to quadruple the revenue by actually going deep, which is really offering a full portfolio of B2B solutions. So when you look at these case studies, and I think a few quarters ago, I did mention another customer, a bank or a financial service in Bombay, where we were able to go almost 4x. So when you look at these examples, whether it's in banking, it's in technology space, there's an IT IDS. These are opportunities which are particularly exciting for our field teams, and we've got to make this into a tool kit, which becomes a consistent way by which is replicated in more and more accounts.
The other part I do want to comment on is in our Homes business because here, again, is a very interesting business. broadband, as you know, is exploring and we are right there really at the forefront of trying to drive this. DTH has been a draw -- a drag. But I think with the recent strategy that we put in place I'm hoping that next quarter, we are able to report a better outcome. On head count, I think it's -- Soumen, do you want to talk about that?
Yes. So in our SME segment, we have channel partners who have deployed their [ voices ]. We believe that the SME segment needs to be attended to in a much more standardized and elevated method so that the width and the depth can be achieved where Gopal referred to. So we have in-sourced more than 1,000 people on that account who were earlier so-called off roles. So that is why you see a significant jump in the head count.
Okay. The head count point is very clear. Gopal, one small follow-up on the enterprises business. So has voice become that insignificant that the growth trends in enterprises now will be materially different from, let's say, what we are delivering in FY '20, FY '21? Because now we are consistently growing at double digits on the revenue side year-on-year.
Sorry, I missed that question. Can you just repeat that, there was a bit of a problem on the line. Just repeat that.
Sure. So Gopal, my question was on the B2B side, has voice within the B2B revenue become so insignificant that we are now consistently able to deliver double-digit growth led by connectivity and the other service revenue streams. Is that how one should look at it? The reason I'm asking is this segment was stuck in a rut over FY '17 to FY '21.
Obviously, it's become smaller in terms of its relative contribution. It's still reasonable. And yes, this is the 1 part of the business that's not growing. To that extent, the underlying growth is actually faster. But this is why with Airtel IQ and with all the CPaaS offerings, we are trying to move a lot of this on to the cloud. So they try to approach it in a different way. But yes, that is one of the headwinds in the business. But outside of that, all the other parts of the portfolio are growing, the connectivity part -- we're gaining share because of the expansion that we're able to do. And all the non-connectivity that is beyond connectivity, all the adjacencies -- these are virgin markets where we are really like -- every deal we win is an incremental revenue and incremental market share to us.
The next question comes from Mr. Nicolas Baratte from Macquarie.
Yes. Okay. Slightly complicated question maybe. But looking at your Indian -- your mobile ARPU or mobile tariff for India. You discontinued a number of very low ARPUs maybe 9 months ago, and then you restructured your ARPU pyramid maybe 6 months ago. I got the date wrong probably. And your ARPU keeps increasing, right? So do you think that the change in the pricing structure and in the pyramid that you've done over several quarters is still leading to further ARPU growth -- tariff growth today, meaning that it take some time for consumers to decide to upgrade from a feature phone to a smartphone. It takes time to decide to spend that kind of money that there is probably some substantial increase in tariff levels for some consumers. Do you think this -- there is some rippling effects, some delayed effect or long-lasting effect of the change in your pricing structure?
No. I think that the sharing of customers that we did was -- and if I remember right, almost 2 years ago, I think -- where we shed close to 49 million customers in 1 -- basically, in a few months. And I think that served us very well because it de-clogged our networks. It focused our organization to chase the right quality customers and really simplified our business. So that's the reason we did it, and it's worked very well for us in hindsight. At that point, it was a risky decision. There was a lot of concern whether it will work or not, but we did some pilots. And then we rolled it out.
I think ever since then, the drivers of ARPU increase are either tariff, which is -- we've had 2 rounds of tariff increase, or its feature phone to smartphone upgradation or its monetization of data or it's the movement from prepaid to postpaid and so on and so forth. So those are the 4 drivers, and those stay intact. And that hasn't changed in the last few years.
So that's what I meant Mr. Vittal, the 2 rounds of tariff increase, do you think this still plays a part in the increase in ARPU that we still see this quarter?
No. That is all done. That typically gets done in 3 months. So no. The last tariff increase, I think, happened in somewhere around November 2020.
Understood. Within your mobile revenue in India, very clearly, voice minutes are going down and data volumes are going up, right? How much does that explain the increase in EBITDA and EBIT margins?
No. It has nothing to do with EBITDA and EBIT margins. I think the -- we are in the business of actually getting customers and getting ARPU. I think those are the 2 drivers of our business. Customers into the ARPU that you get is really the revenue that we generate. The reason that people buy data packs is because they see a lot more value. Yes, voice minutes have declined in this quarter. That could be on account of the seasonal factors or just the fact that maybe we've reached a point where people don't see the value in continuing to speak more and more and more, and they have other things to do. So we -- I think the real driver for our business is the movement from feature phone to smartphones and the moment they get onto a smartphone, getting on to data consuming data so that you get the full ARPU that they are capable of returning to you.
So you would say, therefore, that EBITDA, EBIT margin on voice and data are similar.
Well, we don't -- I don't -- we don't kind of report it in that manner. So you have just looking at the whole business, yes. We don't give it the way -- [indiscernible] the way you're asking.
Understood. Last thing for me, sorry for being long. You talked about CapEx. When do you see -- or over which time period do you see peak CapEx?
Well, I think that we have a -- the following year is a year we're going to be able to both roll out 5G as well as rural. And like I mentioned, I think our CapEx has been moderately around the INR 23,000 crore, INR 24,000 crore number per year. There could be some advancement of CapEx from the following year, which is the '24, '25 into '23, '24. But we will keep me very flexible. We will see how the uptake is. We will watch the space on rural. We'll make sure that we are trying to see the power of our data science models and see if it's actually translate into revenue. We do the same thing on 5G.
So this is a modular business. And especially on radio investments, you can turn them in and off or off and on, literally in a matter of 30 to 60 days. So just the time line required to actually shift the material from the factories into the warehouses. So this is highly modular, and we will wait and watch how it plays out to determine what the ultimate level of CapEx will be for the following year.
Have you decided how to price, how to sell 5G?
I think that right now, we are -- the plans that we've offered are the same. So both 5G and 4G is at the same price. But to that extent, data is data. And if you've got a 5G device, your data will work on 5G. Right now that's the way how it works.
The next question comes from Mr. Rohit Kothari from GeeCee Ventures.
Gopal, congratulations on a fantastic set of numbers. Just looking into -- delving into your financials. This quarter, I saw that we generated of free cash of close to INR 3,500 crores. Can you -- am I wrong to see even with elevated CapEx, next year of free cash flow between INR 20,000 crores and INR 25,000 crores. That is number one. That's the first question.
The second question is on the 5G pricing. Given such elevated CapEx is happening on 5G, we believe that there would be a INR 75 to INR 100 premium on the 5G pricing. So could you highlight what are your thoughts on that? And third is on the Home broadband. We have close to 5 million, 5.5 million subscribers. And I heard somewhere -- or some statement that eventual goal is to reach a 20 million homes. And what is the time frame we should expect that to happen?
Thank you, Rohit. Thanks for your comments. I think on the free cash flow, we are not at liberty to share forecast for the next year because what you're asking us is the guidance of the entire business model. I think suffice it to say that we are comfortable as far as the operating cash flow is concerned to fund all our CapEx payments -- all our CapEx requirements even if it's elevated and pulled forward from the following year, in addition to payment of paying down some debt and paying down some of our spectrum dues. So to that extent, we are in a comfortable position there.
On the CapEx front -- I'm sorry, on the 5G pricing front. Look, we've seen and assessed what's happening in other markets. And in some markets, what operators have tended to do is price the 5G at a premium, small premium, maybe 10%, 15%, 20%. Thailand has done it, parts of the U.S. have done it, even, originally, Korea had started with it. And what we find is that the take rate of that is a fraction of the full base of customers. So in other words, the ARPU is a illusion because if you're not getting -- if you're getting a smaller numerator of a larger denominator, multiplied by the ARPU that you were supposedly getting. You're still not getting revenue. So ultimately, then what we need for monetization is the tariff table in itself to go up. That's the first part. The second part is having put the CapEx, you also wanted to be filled out fast because you don't want to invest as much in 4G that you can displace the traffic that's coming from 4G on to 5G and over time, reform the spectrum band and then use all of it for 5G. So that's the reason that we're currently at the same pricing.
We don't know how that will play out. And of course, we're also right now just building out the network. So we're still in the construction phase and then we take a decision as to what we do in maybe in 6 to 9 months. On Homes, I think we did say that the market could potentially be anywhere between 35 million to 40 million, maybe 40 million, 45 million homes. And we today are at about 5.2 million homes. We are doing -- we continue to accelerate this business. And we hope that we garner a significant part of that overall opportunity on Home broadband.
Yes. And just one more question, Gopal. What would be your aspirational target -- what should be the time frame when our net debt of INR 1.7 lakh crores today will touch INR 1 lakh crores. So INR 70,000 crore debt reduction, when do you seek to achieve that time?
Harjeet, do you want to comment? Again, I don't want to give any targets and guidance on this. I think I'm just -- I mean let me just headline it, and I'll hand it to Harjeet. I think our focus is to make sure that we run a tight prudent ship. We maximize our operating leverage. We try and find different sources of revenue and generate more and more free cash flow, which will ultimately pay down our debt. The debt that we have, by the way, a large part of this benign debt was just GOV debt, it's government debt. So in a way it's a lease for spectrum payments. Harjeet, do you want to add anything?
Thanks, Gopal. Rohit, it -- your question is fairly valid, but the 3 or 4 forward-looking variables there, how you project the EBITDA, which, of course, depends upon the tariff cycle, 5G utilization, et cetera. the CapEx, whether to the extent certain CapEx is brought forward or not, that's the second variable. And I would say the third variable is really the ability or incentive to prepay out some debt, depending upon the interest rate cycles.
So I won't be able to comment directly on what could be a time frame. But keep in mind, when you were looking at FCF for the coming year, probably you did not keep into account the finance lease unwinding portion that has to go out to the tower companies. So as you look at EBITDA less CapEx, you should also factor in the finance lease payments to be done to the Indus Towers and the ADC and other tower companies. Clearly, coming 2 years -- maybe 2.5 years balance, there is a moratorium, some bit of extra cash will be in the system, which can be utilized to pay down the debt.
And the last piece is what happens if something needs to either be changed or relooked at or not on the dividend policy. We have a very meager conservative policy or philosophy rather, of passing through the dividends that we receive from our subsidiaries. Airtel Africa, Indus Towers being dominant and a few others. That should stay, of course, but the Board can, of course, try and relook at basically the free cash flow profile, both the sustainability of it as also the pool being built up. So these are the 4 variables. Arguably, this FCF is building up and is sustainable, confidence is high, but how these variables play out and whether it takes 24, 36, 48 months, can't say today.
Due to time constraints, I would now hand over the proceedings to Mr. Gopal Vittal for closing remarks.
Thank you very much for joining this call and for the engaging discussion. I look forward to seeing you next quarter.
Thank you all. All the best.
Thank you.
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