Bharti Airtel Ltd
NSE:BHARTIARTL
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Bharti Airtel Ltd
Earnings Call Analysis
Q2-2024 Analysis
Bharti Airtel Ltd
As the tale of the earnings call unfolds, the company comes across as a well-diversified entity, boasting a resilient portfolio comprising 28% of revenues from Africa, 57% from India's mobility segment, and a growing 15% from India nonmobile. Their growth levers across each segment have been characterized as robust, with a particularly strong performance in Africa, where revenue was delivered with a 6% sequential growth in constant currency terms.
The narrative of growth also extends to their digital services and financial offerings. Their digital layer, deemed crucial for the company, signifies a strategic entry into digital services and sets the stage for future growth. Airtel Finance marked a significant milestone, with assets under management exceeding INR 1,000 crores from personal loans and the issuance of over 200,000 co-branded credit cards on the platform.
Revenue growth saw a moderate uptick in the company's ARPU (Average Revenue Per User) by about INR 3, fuelled by a combination of prepaid to postpaid upgrades, data monetization, and international roaming. This incremental growth suggests a positive, albeit modest, trajectory for revenue generation, particularly as it grapples with a shrinking gap between entry-level and smartphone plans. Additionally, the much-anticipated 5G launch is viewed as a driver of brand aspiration, despite the current limited applicability of 5G's speed advantage being largely tied to a small range of use cases and a temporarily free cost structure for users.
The company provided insights into its capital expenditure (CapEx), which is set to moderate in the upcoming year. While the company refrained from specific CapEx guidance, they indicated that radio CapEx, pertinent to the 5G and new 4G site rollouts, will likely decline, observing that the peak year of CapEx is the current fiscal year. Nonetheless, the necessity for ongoing transport CapEx and continued investment in data centers and home broadband suggests that while radio-related expenses might decrease, other areas of CapEx will persist, maintaining a composite CapEx outlook for the year.
On the technology front, Fixed Wireless Access (FWA) is posited as a complementary technology to fiber due to its identical pricing and a more accessible experience, despite being a shared network compared to fiber's guaranteed performance. The company recognizes that FWA won't capture the entire market but sees it playing a significant role where budget constraints create obstacles to widespread fiber adoption.
The call touched upon regulatory concerns, emphasizing the need for harmonized rules across different technologies within the industry. The argument is laid out for equal regulatory treatment of DTH, cable, and OTT players to circumvent regulatory arbitrage. The executive's commentary suggests a push for modernizing regulation to keep pace with technological advancements, potentially affecting business models and market competition.
Looking ahead, the company seems confident in its strategic market positioning, acknowledging the current negligible monetary benefits of 5G but foreseeing its long-term significance. On the topic of tariffs, the company signals that even though market pressures imply a need for tariff increases to sustain industry viability, the timing and quantum of such increases are inconclusive and largely dependent on competitive dynamics. These statements highlight a cautious stewardship over pricing strategy with a 'wait and watch' approach.
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Good afternoon, ladies and gentlemen. I am Vaidehi Sharma, the moderator for this webinar. Welcome to the Bharti Airtel Limited Second Quarter ended September 30, 2023 Earnings Webinar. 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 risks that we face.
Post the management opening remarks, we will open up for an interactive Q&A session. [Operator Instructions] With this, I would now like to hand over to Mr. Gopal Vittal for his opening remarks.
Thank you, Vaidehi. Good afternoon, and welcome, everybody, to this earnings call for quarter 2 FY '24. With me on the call is Soumen, our CFO; Harjeet Kohli; and Naval.
Let me start by giving you a quick update on our business, but let me start with ESG. During the quarter, we received the Golden Peacock Award for sustainability for the year 2023. And just to spell out a few initiatives that we've undertaken towards our ESG agenda. On diversity, we had a target to achieve at least 20% women participation in our workforce by 2025 as compared to 11% in FY '23. This is tracking very well through structural changes brought in along with the introduction of differentiated employment models focused on balanced slate hiring and bespoke programs to grow our women talent.
On an environment, we've taken significant steps at each level of our business towards environment-friendly procurement. From the next quarter, for example, we will -- most of our SIM cards will be sourced from recycled plastic material. DTH boxes will also come with compostable packaging material.
Before I go any further and talk about our business, I just want to lay out our experience on 5G. Airtel took a very bold position to go with NSA. And as I explained a year ago, the power of the strategy, which was predicated, and I had mentioned this, I think, a few -- about 6 quarters ago, was predicated on better coverage, better experience, lower power and lower CapEx. This has been proven in the marketplace.
As a company, we have invested very smartly and designed our network based on very sound network engineering, resulting in incredible coverage over 5,000 cities and about 20,000 villages. We are now delivering decisively the best experience for our customers on 5G. In fact, OpenSignal results have awarded almost all the category awards to Airtel. So whether it is video streaming experience on 5G as well as overall, live video experience on 5G as well as overall, gaming experience on 5G as well as overall, voice experience on 5G as well again as overall or upload quality, Airtel is a standout winner. Specifically, on 5G experience of the 6 awards, we are #1 for 5. This is why Airtel has been consistently gaining our quality customers, continues to have the highest ARPU in the industry and the highest active users in the industry.
There have been some reports that one of the players in the industry has seen higher share of more than INR 20,000 phones on their network. I would like to point out that given the reset in prices of entry-level smartphones, this is indeed an industry-wide trend in the last 18 months. So if overall price of smartphones has gone up, with this growth of more than INR 20,000 smartphones, generally in the marketplace, the share of more than INR 20,000 smartphones has increased on all networks.
The real number to look is the relative market share growth of high-end phones on 3P platforms, which is a third-party platforms, which is platforms that there are other OTT platforms. And from our understanding, Airtel, in the last 12 months, has added close to 100 basis points of market share of high-end phones reflecting the consistency of our strategy and the strength of our brand.
As regards stand-alone versus nonstand-alone architecture, Airtel will switch to stand-alone when it's required and only when there are additional benefits. This is certainly not the case at present. As you will see, this has been borne out by both OpenSignal and by what is happening across the world where more leading networks are on NSA.
Airtel has the added advantage unlike other players in India on mid-band spectrum, which allows us to work with NSA, deliver a better experience and with lower CapEx. We also believe that merely throwing more CapEx and installing more radios is not a race as radios are in an abundant supply and keep getting better with every version. Airtel will keep a step ahead of the market and customer needs, but will not put unnecessary CapEx to kick -- make a claim of our largest rollout. Instead, we will focus on where the market is and deliver the best experience to our users.
On tariffs, we've been very clear that we don't believe in a higher 5G tariff, but we will continue to strive for overall hike in tariffs while keeping our service most affordable and delivering high-quality service. We also understand the different needs of segments of customers and really don't believe in one size fits all.
For the telecom industry to continue to invest and deliver the digital vision of India, the industry needs to be viable and cross subsidization, therefore, or using the power of the balance sheet is not a sustainable proposition at the end. Vibrant competition, affordable tariffs and financial viability of the industry can all go hand in hand.
Lastly, I just want to make a mention on satellite. Airtel like Jio is a mere distributor of third-party satellite constellations. Airtel uses SCS for its DTH business, Hughes for VSAT, and we now use the latest and highest technology-based OneWeb solutions to serve the Indian market. Airtel also benefits that its promoter group entity, Bharti, has the highest stake in Eutelsat, which holds both LEO and GEO constellations.
Let me now, with that, switch to our financial performance. Overall, I would say we delivered a satisfactory performance. Consolidated revenues of just above INR 37,000 crores was impacted by a full quarter flow-through of currency devaluation in Africa, where the naira was devalued. India continues to grow steadily by 2.3% sequentially, delivering a little over INR 27,000 crores.
EBITDA margins came in at 53.7%. This was an expansion of 0.3% from the last quarter. Mobile and Homes delivered sustained performance, while the Airtel business saw some moderation, which I will explain in a moment. We remain committed to our stated strategy to focus on quality customers, give them a great experience, yet be digital at the core and to really strip out waste, which has become a way of life for us.
The company generated operating free cash flows of over INR 6,700 crores for India despite a front-loaded CapEx. CapEx for the quarter was INR 7,787 crores. And these investments are really focused towards 5G rollout, rural expansion, fiberization covering homes and B2B under our One Transport strategy and data centers.
Of course, CapEx was a little lower this quarter than last quarter because of the monsoons and some moderation in our ability to deploy. Despite the elevated CapEx, our net debt to EBITDA for India continues to trend lower every quarter and now stands at 3.08 versus 3.19 in quarter 1.
A quick update on each of our segments. In mobility, 4G net add was strong at 7.7 million. Postpaid momentum was even stronger with another quarter of the highest ever net adds, which is a share lower than 1 million, contributing almost 26% of total net adds for the quarter. ARPU is at INR 203 versus INR 200 in quarter 1. The ARPU improvement, as I have mentioned before, is an outcome of our clear and simple strategy of premiumization and razor-sharp execution.
What is really driving this? Well, there was one extra day this quarter. The core drivers of ARPU remain intact, feature phone to smartphone upgrades, prepaid to postpaid, data monetization through simple and contextual triggers based on data science and the growth of international roaming. Our 5G network coverage and customer base continues to grow, though there is no monetization of 5G, given the unlimited data plans that run on 5G.
We now have about 55 million unique customers on our 5G Plus network across the country. On broadband, we added the highest ever quarterly net adds of 4.7 lakhs. Now we're present in 1,239 cities, up from 1,060 last year's same quarter. We are rapidly expanding the home passes with more than 1.5 million additions per quarter.
Let me give you some insights on the quality of customers we're adding. Customers added on a converged Airtel Black Plan has improved more than 500 basis points compared to the last year same quarter and continues to grow into this quarter as well. There's a significant focus on improving sales force productivity to keep the momentum intact.
In addition, we are working through a full plan to raise the go-to-market game using a combination of deaveraging, digital marketing and empowering front end with tools based on data science. This will be in place next quarter. DTH, while we lost 169,000 customers for the quarter, we exited September with increased momentum. Revenue growth was driven by the price increase initiated during the quarter. Having said that, we continue to gain market share, and this is driven by our focus on quality acquisitions and simplified pricing.
As I mentioned in the last call, our market-specific strategy to address the challenges of DTH has started to show some green shoots in Maharashtra and Gujarat. In the Airtel Business segment, the revenue growth moderated to 1% sequentially. And let me deaverage our revenue performance. There are 2 broad geographic segments. There's domestic business as well as data centers, which is one segment. And the second is the global business, which serves carriers and OTT companies for a range of needs, including wholesale traffic data and bandwidth and CPaaS. Both these verticals are more or less equal sized.
Our domestic business has doubled its growth run rate over the last 4 quarters and continues to accelerate momentum, driven by both connectivity and adjacencies around connectivity, which include CPaaS, security and IoT. However, our global business has seen a slowdown. This is because large global OTTs have begun to defer their spends and are also optimizing on bandwidths and messaging given the largest slowdown in Western markets. This is, by the way, impacting telcos around the world. And as you can see, it's impacting the broader IT sector in India.
Our strategy in this context is to double down on the domestic business, step up investments in our digital adjacencies and dramatically improve our go-to-market efficiency. In specific, we are creating a managed services pool in Pune with a focus on IoT, security, cloud and CPaaS. On the go-to-market side, we have revamped our entire account management plans for the top 200 accounts and are using large pools of opportunity where we don't play as much to step up specific capabilities, particularly around managed networks.
For the global business, we expect the order book to look up in about 2 to 3 quarters. On the Payments Bank, our monthly transacting users recorded a growth of 7% to reach 58 million. Deposit growth remained robust at 50% over last year, and the annualized revenue run rate now stands at about INR 1,700 crores versus INR 1,600 crores in quarter 1. On the digital businesses, we are tracking well with an annualized run rate of just under INR 1,500 crores. Our focus remains in CPaaS, financial services, security and cloud.
A quick update on Airtel Finance, which I talked about last quarter. We've crossed 2 milestones this quarter. Assets under management have now crossed INR 1,000 crores of personal loans and more than 2 lakh co-branded credit cards, which were distributed on our platform until date. We are now disbursing loans at a run rate of INR 550 crores per quarter growing at about 22% quarter-on-quarter. We now have 4 partners across banks and NBFCs on the loans marketplace.
As I mentioned before, the future of Airtel is based on 5 core strengths. The first is a resilient portfolio. Our portfolio is now diverse, with Africa accounting for 28%, India mobility at 57% and India nonmobile at about 15% and growing. The levers for growth across all 3 parts of our portfolio are very strong.
On Africa, the continent continues to perform well on an underlying basis even as there are currency headwinds. Africa delivered 6% sequential revenue in constant currency terms. Nonmobile has strong potential, particularly in homes and enterprise. There are a range of digital businesses that are growing. And finally, intrinsic premiumization and headroom for tariff increases make mobility very attractive.
Our second strength is our consistent strategy on quality customers. As I've mentioned, we look at our opportunity through 2 key lenses: rural and 150 cities. In rural, we're deploying more than 30,000 sites under this project to expand coverage in high-potential 16,000 villages to win our share of 4G net additions. These results are in line with action standards, both revenue per site and cost per site ahead of plan.
Our rollout is now a very finely honed model based on data science, digital tools at the front end and exceptional execution by our field teams. The second part is 150 cities. Given that more than 80% of our postpaid homes and B2B opportunity is here, we have stepped up focus on both One Airtel network planning, including transport and go-to-market.
On the transport side, we're now aggregating demand for both homes and offices based on mobile usage data, external sources of data such as GST, et cetera. And we've split the country into individual catchments of about 10,000 homes and 100-odd offices. All transport planning is done based on this, which is providing us very interesting insights on how to lay fiber, where to lay it and what we can expect. It's also bringing in a new cost model of how we ensure this rollout is viable.
A little texture on each of the 3 relevant segments within the 150 cities, postpaid, homes and B2B. Our strategy here on postpaid is clearly working with strong momentum on net adds. I want to remind you that these customers give us more ARPU, are locked in for longer and eventually are an excellent top of the funnel for us to drive broadband and home convergence where we see a massive ARPU upside.
The 3 levers for the postpaid acceleration are really the small format store expansion, our family plans and 5G as a way to drive this aspiration for the brand. On the Homes segment, we rolled out, as I mentioned, 1.6 million home passes every quarter, and we are on track to reach 40 million targeted home passes. We are very squarely focused on driving convergence. Almost 35% of our acquisitions are now on Airtel Black and growing.
As regards fixed wireless access for homes, I want to reiterate that fixed wireless access, which is Airtel AirFiber will complement FTTH, which is fiber to the home, and help in bridging the gap in catchments with weak fiber reach. The cost of the equipment has been falling and is likely to fall further with increase in volumes, which will make FWA a good complement to fiber. We have commenced our FWA testing in key cities, and we will be rolling out in full by the end of this calendar year.
Our preferred choice of device is outdoor not indoor. The experience from telcos in the U.S. suggests that FWA can cause network congestion over time. So eventually, there has to be a concerted move to fiber, which is why I said FWA will always be a good complement where fiber has not yet gone or cannot go.
In B2B, our focus is on 2 areas. On the one hand, our ongoing go-to-market retooling to inform our product strategy. As I mentioned, we're doing this retooling across the top 200 accounts to identify in great detail the potential opportunities we are missing in our product suite. One such area where we've begun making investments is in managed services, which throws up an interesting annuity revenue stream, locks customers in for longer and positions us as a partner of choice. We are investing in these capabilities in Pune.
On the other hand, we have stepped up investment on improving our delivery and assurance. We are digitizing the entire network for lower human dependency, better tracking, process agility and efficiency. All of this will lead to real-time visibility of network performance where we will be able to proactively identify issues. There's also significant investment being made on digital tools to improve our delivery processes.
Finally, we are making investments in high-quality and resilient networks for the growing needs of banks and data centers. Our third strength is the obsession we have for delivering a brilliant experience. We continue to make fundamental changes at every level of process for structural resolutions, deliver a great experience to our customers. All of this is through our platforms-focused approach.
As I mentioned, we work on 4 key platforms: buy, build, pay and serve. Each of these platforms is powered by our underlying foundational data layer and all exposed omnichannel. Over the quarters, in order to improve customer experience, we've deployed in-house developed AI and ML tools for managing network experience.
Let me give you 3 examples. We do something called intelligent load balancing to manage the different layers of technology that we use, the different spectrum bands. We also mitigate one of the challenges that we face in the environment, which is something called atmospheric ducting which leads to radio interference. It's all done on the fly. There are also something called sleeping cells, which we again rectify on a site, which are automatically reset in seconds to improve the experience.
During the quarter, we also refreshed our eSIM journey, which has a world-class customer experience and is benchmark to the best-in-class. Our workforce management platform Airtel Works is now optimizing and driving productivity for more than 80,000 users across our contact centers and on ground fleet to better serve customers. All of this has led to a significant reduction in customer interactions, 20% plus in some of our businesses over the last few quarters. The fourth strength that we use is a part of our strength is the underlying digital capabilities to build new digital services. We continue to get better on digital every day. I've already spoken about how we see Airtel. At its core is the digital infra layer. The second stack -- part of our stack is our digital experience layer. And if we do this well, we have a right to play in digital services.
Our digital services portfolio include Airtel IQ, IoT, Ads, Cloud, SD-WAN and Airtel Finance. Let me provide some texture on our Airtel IQ platform, which is now delivering industry-specific solutions across communications, security and customer experience. It's the world's first network-embedded CPaaS written on top of the robust and reliable telecom network of Airtel. This segment contributes almost 20% of domestic Airtel business, and is growing exponentially.
I want to talk about 3 key offerings under the IQ umbrella. The IQ Spam Shield, which addresses the needs of the BFSI industry. IQ Spam Shield is designed to combat spam and fraudulent messages. So the spam shield uses AI at a network layer to block suspicious messages that could reach the consumers' device. It's currently being used by one of the leading banks in India, and the results have been reasonably impressive. There's been a significant drop in fraudulent messages of almost 2 million spam messages that have been blocked daily, and this is now being taken across to all banks.
A second product is IQ Reach. This is focused on addressing the needs of SMB customers to generate an ROI based on their marketing investments as they engage with target customers in a cost-effective manner with prepaid plans. It's a self-serve product, a one-stop destination to empower businesses, especially these small businesses to have full control of their campaign execution in just a few clicks.
Our third product is IQ Voice. IQ Voice center caters to the increasing demand for what's called CCaaS and UCaaS, unified communication tools. So it provides platform software like scalability to voice network and is compatible with a variety of contact center solutions like Avaya, Genesys, SlashRTC and Cisco as well as unified communication suites like Teams, Google Meet and Zoom. IQ Voice center uses unifies Voice as a Service cloud and the best of contact center and unified communications software from leading providers. Through this product offering, we enable enterprises to take advantage of true, Voice as a Service, where both software and network are made available in a per user per month pricing model.
The fifth and last strength I want to talk about is War on Waste. This is now ongoing and another special product to eliminate wasteful expenditure. We've seen meaningful headway in our network OpEx per sites. We still have headroom to improve on this. Use of data science and digital tools has provided a lot of scope on OpEx per site improvement. As a result, OpEx per site for rural expansion has been lower than our plan. Our decision to stop investing in 4G capacity expansion after the 5G rollout is showing up with traffic offload trends. Almost 66% of our 5G sites now offload 4G traffic, and this is one of our key factors in our prudent capital allocation.
To sum up, we've had another quarter of satisfactory performance with strong cash flows despite elevated CapEx. As I mentioned, we're making future -- Airtel future-proofed with a simple strategy to focus on quality customers, deliver a superior experience to our customers, continue to leverage our digital capabilities and strip out waste.
With that, let me hand it back to the moderator for Q&A.
[Operator Instructions] The first question comes from Mr. Manish Adukia.
Yes. This is Manish Adukia from Goldman Sachs. My first question is on the subscriber momentum. Clearly, you've had a few quarters of really strong subscriber additions, especially at the high end 4G, 5G and postpaid. Now one question here is that where are these subscribers really coming from? Because competition is also doing well. The #3 player doesn't seem to be losing as many subscribers as they were, and smartphone shipments still seem to be weak. So if you can just throw some color on where these subscribers are coming from. Are they largely converged from your existing subscriber base?
A related question there is, we are not seeing the kind of ARPU improvement maybe that you would expect. Like you called out, Gopal, this quarter, you had the benefit of an extra day. So if I take that out, then ARPU didn't increase as much as we thought it might, given just the high-end subscriber increase which would have led to uptick in ARPU. So if you can just maybe provide some color on that. That's my first question.
So Manish, I think on the -- on customer momentum, as far as postpaid is concerned, I think there are 2 fundamental drivers -- actually 3 fundamental drivers. One is the launch of the family plan, which has been a big driver of our growth because as people consolidate the SIMs within the family, we do pick up users from either our prepaid base or we pick up users from competition.
The second is the densification of stores. I'd mentioned that we have -- we launched the small format store, which is a small 100- to 150 square foot store at a significantly lower cost. We now have about 300-odd stores. There are another 150 to 200 under construction. So this has been, again, a strong driver of growth.
And the third driver of growth is really around the launch of 5G and how that is used to drive a sense of aspiration for the brand. When it comes to ARPU, I think we've seen a growth of about INR 3. So if you strip out the days, which is roughly INR 1.70, INR 1.80, INR 1.80, you still see a growth of about INR 1.20. This growth is really coming on account of the combination of this portfolio that I talked about, which is prepaid to postpaid data monetization as well as international roaming.
You must remember that the entry-level plans now that we've taken it up, the gap between the entry-level plans and smartphone plans has now started compressing because in the past, our entry-level plan was at INR 99. Now our entry-level plan is close to INR 179. So from INR 179 to INR 239, which is the entry-level 4G plan, the gap is only INR 60. So to that extent, every prepaid -- every feature phone to smartphone upgrade gives you a slightly lower upside when compared to what it was in prior quarters.
That makes sense. And now you have close to 70% of your subscriber base, which is on 4G. I'm not asking for guidance, but is there like a theoretical upper limit as to what this ratio can get to, let's say, in next 2 or 3 years?
Well, my sense is that if you look at markets like, for example, Gujarat or Delhi or even Kerala, 2G devices now account for less than 7%, 8% -- Mumbai City, less than 7%, 8% of the total number of devices on the network. But you still have places like Bihar and UP, Orissa, Rajasthan, where you have a reasonable chunk of 2G devices.
I think in any consumer category, you have a cycle of upgradation or a cycle of movement, which takes its time. I would imagine that in the next 3 to 5 years, all of these 2G users will switch to smartphones and the sooner they do it, the better it is. Obviously, for us to run the 2G network doesn't cost us very much money because it's just software that is really enabled on a very small chunk of spectrum. But at some stage, many of these customers will move.
And as you recall, we were the first to shut off our 3G networks. Of course 3G had to be shut off because all the smartphones that were coming in were 4G ready. But it's just a big entry barrier -- or sorry, a big barrier for users to move from a INR 800 to INR 1,000 device to a INR 7,000 device. And that's the right of passage that happens. It will take its time, but it will happen soon enough.
Sure. The other question was on CapEx. You mentioned that this quarter, CapEx was down because of monsoon, the seasonality. But just when we think about, let's say, the near to medium term, are you still on track to complete most of your rollouts by March '24 and starting fiscal '25, we should start seeing a meaningful decline in CapEx. Maybe I'll just end by also asking if you can maybe give us any color on the recent, I think, curative petition that you filed in Supreme Court regarding AGR. Is this regarding just the mathematical errors? If you can maybe give any color on that, that will be helpful. That's all.
Yes. I think that second question is, in any case, in Supreme Court, we have to get a confirmation on when the hearing will be or whether there will be a hearing or how that will be taken forward. The large part of this curative is to do with the errors, the arithmetical errors, the errors commission and commission that were there. But this matter is sub judice, so I will not comment any more on that.
Your second question was on CapEx. On CapEx, I think we will pretty much be in the same ballpark that we had indicated earlier on, on the overall for the year. And we do expect to see some moderation of CapEx in the coming year. We, as a company, don't give guidance on CapEx. But the peak year of CapEx will really be in this fiscal because the source of spends on CapEx are really a combination of many things. Radio CapEx is high because of a lot of 5G rollout as well as new 4G sites rollout. That rollout of both 4G and 5G will start moderating as we go into next year.
On the other hand, transport CapEx is high because that is something that just needs to keep getting done every year and that will continue. Data center CapEx is the third area where we are still in the phase of build-out of data centers. Home broadband is another area where we're in the rapid phase of landgrab and build-out. And of course, B2B CapEx continues to be what it is based on the growth of the business. So the real place where CapEx will cool off will really be around radio. And therefore, you should see a moderation of CapEx in the coming year.
The next question comes from Mr. Piyush Choudhary.
This is Piyush from HSBC. Two questions. Firstly, as you also mentioned, 4G subscriber base addition has improved. Would it be fair to assume that consumer sentiment or expectation is reset now to higher level of prices and we can progressively see the pace of 4G migration to continue or accelerate from here? And how your rural expansion is helping over there? That is the first question.
Secondly, 5G FWA launch, can you share the initial response? And as you mentioned, the CPE prices are coming down. So how are you looking at the outlook for this product and addressable market?
So I think on -- I mean, Piyush I think the thesis that I had and I had mentioned this I think a year ago when the entry-level smartphone prices rose because of semiconductor shortages that there will have to be a reset because you think about it from a user's perspective. Here's a customer who's made a choice to go and buy a new smartphone. He's got a phone for INR 800 or INR 1,000. He's been told it costs INR 5,500 to INR 6,000. He lands in the market and find it's now INR 7,500. So he goes back quite shocked, he's not got the money. But that will happen only once.
The second time, he's back in the market. He's got that extra INR 1,500. So my sense is this slowdown will moderate. I hope that this Diwali, the shipments of devices are actually better than last year. So we'll see how that plays out. But it's a matter of time, in my view.
Rural is a slightly different story because in rural, our challenge was that -- the -- we were not historically covering about 60,000 to 70,000 villages. And we've done a lot of work to identify which are these villages, which really have highest potential, and this is the basis on which we have gone out and have said that we will deploy about 30,000 sites in the course of this fiscal year.
We still see some headroom for expansion of coverage. It's not 30,000 sites. It certainly not -- a couple of thousand sites will be somewhere in between. But this is a number that we will need to assess based on some more work that will happen over the coming months.
On fixed wireless access, what we did was when we initially launched, of course, the cost of the CPEs were very high when we did our beta testing. But this was really on an indoor CPE, indoor customer premises equipment. And while it looks very nice and sleek, we are picking up some challenge that users tend to take this device and take it into different parts of the house, maybe take it in their car and travel around to see where they can get -- if they go into some other places, they carry the device with them.
And in every place, if you don't have 5G, then the experience is not good. So I think we've decided now to go with the outdoor CPE. That will get launched in the coming months. We've already placed the orders. We are in the process of working through several issues around appropriate digital journeys, training our people and so on and so forth. So all of that will now happen.
As regards FWA, the opportunity for FWA, in my view, would just be a complement. Don't forget that users will need to pay INR 500 a month on the minimum plan and with GST that comes to almost INR 590. Given that telecom tends to be about 2% of GDP spend, users who have a household income of INR 50,000 is what we're talking about because they have one broadband, maybe 2 mobile connections. So that's INR 50,000. That number of homes in India, we believe, is in the ballpark of about 60 million homes. We already have 40 million home passes, and we are rolling out 1.5 million home passes every quarter.
So we believe that FWA will be a complement to fiber for 2 reasons. One is that the pricing is the same. And therefore, the experience on fiber will always be better than FWA because it's more a guaranteed experience unlike a shared network that you use on mobility. And the second, of course, is that the total addressable market will not certainly be 200 million homes because that very homes will not be able to afford to spend INR 1,000 a month on telecom expenses.
Got it, Gopal. And if I may just ask on 5G operating expense. Is some of it being still capitalized and if you can quantify that?
Well, I would say that broadly, we are -- we have a policy in place, which is based on when every circle reaches a certain threshold in terms of its rollout. And this is a historical policy that's done for the last 2 decades for any spectrum that we buy. This -- you will see that some of the capitalization has hit our P&L this quarter. All of it will unroll. I would say, Soumen by sometime next year, right?
Yes, in the next fiscal.
But Piyush, it's progressively happening every quarter.
The next question comes from Mr. Sanjesh Jain.
First question -- probably first is a small request. Gopal, can you also help us providing more detail on enterprise? At least a geographical mix will be helpful for us to analyze because I think there is a divergence now in the growth and it would be really appreciable if we can have the segregation between how the domestic and international is behaving. That's number one.
Second is on the -- understanding more on what's happening with the enterprise segment particularly. Have we seen any slowdown in the domestic market also or it is largely only international that we are seeing? And -- within international, whether it is more a bandwidth kind of demand, which has slowed down or you're seeing it across the portfolio?
Yes. Sanjesh, thanks for the question. We will certainly consider your ask. I think the trade-off has got to be -- one is the geographical segment. The other is, I think there's also been some conversation on how much product information we provide. We'll need to balance all of that and then come back to you. But this is why I thought it would be good to actually just give you a texture of half the business in the domestic and half the business in global this quarter.
Domestic business has actually seen an increase in growth, so it's not a slowdown. It's on the contrary, we're actually like ratcheting up our growth. The top 500 accounts -- the top 500 companies in India account for almost 90% of the industry growth, and we are seeing strong traction on all lines of business, data centers, our CPaaS, our security, even connectivity, where we are growing market share.
In the global side, we've seen a slowdown in -- actually, it's a deferment of bandwidths that -- and it's largely from the OTT side. The second move that the OTTs are looking is to see whether they use alternate channels to deliver SMSs and messaging. So some of the OTT companies have started doing some testing on this. There are challenges here on things like phishing and fraud and spam for which telcos are liable. And so I think COAI has written a letter I would, I think, in the last couple of days to DoT on this move, and we will wait and see what DoT does on this. It's not yet started but some of the testing has begun. But really, the primary place where there's been some deferment is on bandwidths.
Got it. My second question is on more capital allocation. In this quarter, we have seen prepayment of spectrum due. Going forward, will this be the way of utilizing the excess capital we will be -- keep paying the -- or keep brining down the dues? Or do we also want to consider more dividend payout? What's the outlook on that?
Well, let me just quickly comment on it. I will then hand it on to Soumen. I think there was a specific branch of spectrum that was the 2015 spectrum, which was at a 10% interest. So some of that we paid. But like I mentioned last time, I think we are getting to a situation where some deleveraging, as we look at it on the balance sheet, followed by dividend is really our strategy that we would ideally like to do given where the industry structure now is. Soumen, do you want to add anything?
No, the answer is the same. Sanjesh, we have this 10% coupon spectrum of 2015, which we paid down about $1 billion. Going forward, we will try to pay down this 2015, we still have about INR 10,000 crores of that level. But that and as our OFCF becomes stronger, it will be a mix of 2, as Gopal mentioned.
Got it. Soumen, one follow-up, again, probably on the balance sheet side. From last year to this year, 1H, we have seen the intangible come down by 1/3, which is INR 33,400 crores, so INR 21,800 crores on the underdevelopment side. So 1/3 of the spectrum, I think on 5G, has been put to utilize. So on an exit basis, is it fair to assume that 1/3 of the cost on the 5G is now getting charged to the P&L broadly on an exit basis?
No, it will lag by a month.
Okay. Month is fine, but that's the right way to look, right? How we capitalize the spectrum will be a right indicator to look how we are charging?
Yes.
Got it. Got it. Gopal, one last question probably on 5G. It's been now while in few city. Can you help us understand the user behavior? I know it's still free. But there has been a hypothesis on the 5G that there will be a significant increase in the usage of 5G per customer, and hence, will lead to a significant upgrade in the ARPU. Is that trend visible today in the usage pattern behavior that we have seen?
Well, let me step back a little bit. I think the challenge on 5G is that the experience that the real use case on 5G is today only speed. So on your small device that you carry in your pockets, you may get 400, 500 mbps speeds, but the fact is for the applications that you use on that device, which is typically messaging or video or some e-mail, you really don't need more than 4 to 7 mbps speeds.
So users are actually oblivious of whether they have 5G or 4G. They're looking for a good data experience. So you need -- the broad point I'm going to make is you need more applications to be written on 5G networks, which really use the benefit of this technology, which unfortunately is not the case, not just in India, but in no market anywhere in the world. So with the exception of some private 5G networks and some B2B use cases, which have modest revenue stream associated with it, fundamental use cases are still not there.
That said, I think the reason the usage on 5G is today much higher simply because of speed. So it's -- the data is corrupted by the fact that it is free. So once -- if it is not free, then the real usage is what we will be able to study. But as of now, we are not able to study how much is incremental usage. For a couple of months, it was not free. We did see for a particular user, who had moved from 4G to 5G, about a 5% to 8% increase in usage. But at that point, it's still very early days. The network hadn't rolled out, the 5G was not everywhere. So it was very, very early days. So I'm afraid I don't have more insight on that because everything is free right now.
Fair enough. But do you get worried looking at globally the 5G rollout has significantly decelerated?
No, I'm not worried, I'm glad because I think everybody is realizing that -- this is a long haul. This is why I started by saying we're not in any race to beat our ground to say that look, we have the largest rollout, fastest rollout. We will go where the devices are. We go where it makes sense for us, where we can get an offload from 4G so that we don't have capacity investments going on in 4G. And as a consequence, our overall CapEx profile, while it may be elevated right now, starts to moderate and looks more or less sensible for a business model like us.
The next question comes from Mr. Vivekanand Subbaraman.
I'm Vivekanand from Ambit Capital. My 2 questions. The first one is on the Supreme Court disallowing the license spectrum usage royalties deduction for tax purposes. So I just want to understand, is there any legal recourse here? And on a related note, the provisions that Airtel has taken during the current quarter, was that validated by the income tax department? Or was it Airtel's own calculation? And of course, I want to understand how likely or how confident are you that this is -- the provisions that were made cover the total legal -- or our total impact of the Supreme Court order -- October order. So that is question one.
The second one is on the recent ongoing consultation of the TRAI on regulating OTT services. Gopal, from your vantage point, how plausible is it for the regulator to enable a move where there could be a violation to net neutrality? And of course, I know that the government is thinking about this from a monetization of the telecom investment standpoint and the returns being too low for the industry. But I just want to hear your thoughts on this subject.
Soumen, you want to take the first one? I'll take the second.
Yes, Gopal. So Vivekanand, yes, the legal case has been dealt by the Supreme Court. As far as further recourse is concerned, the standard procedure is review and curative. We are evaluating our options along with the merits of the judgment. In terms of whether the provision was validated, you would appreciate that the order came on 16th of October. And after that, there was very little time for the income tax department to raise the [indiscernible]. So yes, this is a calculation which has been done by the company. Whether they are accurate or not, I would like to believe that we would not do the inaccurate calculation in our financials. If it gives you any confidence they have been vetted by our auditors also, and they also concur with our calculations. Of course, such calculations can have a little bit of 1%, 2% here or there. But directionally, the auditors and us were both aligned in terms of the calculations.
On the second question, firstly, I want to debunk this -- the obfuscation that what the consultation that TRAI has put out has anything to do with net neutrality. I mean, net neutrality has nothing to do with this. Let me explain.
Let's take the DTH on the one side and let's take messaging on the other side. For broadcast content, we're only talking about linear broadcast content, which is put on any 1 of 3 pipes. It's either on the DTH pipe or it's on the cable pipe or it's on a -- delivered through a broad broadband pipe in the form of an OTT app. But again, we're only talking about linear content. So let's assume there are 3 homes all living next to each other.
The DTH home, the provider of DTH, is subject to price regulation, is subject to cross-holding restrictions where the player cannot have any investments in the content company and is subject to a license. If you're delivering the very same content to a second home on cable, you are subject to price regulation, you are not subject to cross-holding restrictions and as a consequence, only one of these things applies to you.
If you are delivering the very same content through a broadband pipe in the form of an application into the same screen as a neighbor, you are subject to nothing, no regulation, whatsoever. So our limited point is please subject everybody to the same rules. Let's not have regulatory arbitrage determine the course of technology in the industry. I think that is the first ask.
The messaging ask is the same because as a telco, there is a lot of discussion and debate, and as you know, phishing, fraud, spam, this has become a menace today. And we are liable for a lot of -- through the license. So a lot of requirements to make sure that the phishing and fraud and spam, we are given penalties on this from the regulator. But at the same time, if this is delivered through an alternate technology, which is over the air on any one of the messaging apps, then there is no regulation. So again, always saying is have the same regulation, either you don't have regulation for us or you have a regulation for everybody. This is an archaic situation that India operates in today because new technologies have come in, but regulation has not kept pace. So always saying is regulation ship keep pace with the advent of technology since business models are determined not on the basis of technology but on the basis of the business model. So whichever technology you use, let the most efficient technology win, but let the rules be the same.
Okay. Got it. So you're saying that there's no demand or rather there is no case here that the TRAI consultation and the industry demand of improved monetization basically getting the OTT players to pay for bandwidth. That is not the primary issue. These -- the ones that you outlined, the broadcast content and messaging, those are the main issues, is it?
Yes. Those are the main issues.
The next question comes from Mr. Kunal Vora.
Yes. This is Kunal Vora from BNP Paribas. So first question is on spectrum auction. Can you share your thoughts on the next auction, which might happen in FY '24 itself? And do you see a need to renew like to revise 700-megahertz spectrum as well as your thoughts on the renewal of your spectrum piece coming up for renewal?
Well, I've already made our position quite clear even in the past that we have sub-gigahertz spectrum between 900 and 850 of anywhere between 5 and 10 megahertz in every circle, and we've already made that investment. 5 or 10 megahertz of spectrum gives you basically coverage. It doesn't give you great capacity. And so if you buy another 700 5 megahertz of spectrum, you may pay INR 30,000 crores, INR 40,000 crores, but it's again giving you only small, modest coverage, no capacity, it's doing coverage.
So we already have sub-gigahertz spectrum. We have massive mid-band holdings, anywhere between 20 and 30 megahertz of spectrum in all circles, which, through NSA, we are getting 30% greater coverage, data reach and propagation of that NSA band. And then, of course, we have the workhorse spectrum of 2300 and 3.5 gigahertz is 100 megahertz plus millimeter wave of 800 megahertz.
So in a sense, I would not imagine that the company needs any further spectrum for some time to come. The only place where some small chunks of spectrum may be needed is renewal spectrum in some of the circles. There's very few circles, 3 or 4 circles where some spectrum may expire. But that is a function of what the traffic patterns are, how much do we need, do we need it at all? I think those discussions are still underway. And as and when the spectrum auction is announced, we'll have a strategy here.
But fair to say that there will be very little spending on spectrum, at least in the next couple of years?
Oh yes, absolutely. Yes.
Okay. Second is, what I observe is there is a large difference in investment, which the 3 operators have been making. But if I look at the revenue growth differential, that seems to be narrowing. What explains this, and when do you start seeing the benefits of the kind of investments which are being made?
I think that -- like I said, I think the large investments that are going on 5G are more for perception and so on and so forth. It is really -- there's very limited monetization on 5G, as I have mentioned already. I think we're clearly seeing the benefit of our rural expansion that we're doing on our 4G coverage. These 30,000 sites that we are now in the process of launching, we have 2 action standards. One is a revenue per site that's monitored on a cannibalized basis based on a cluster that is defined. There's also an operating cost per site. On both those parameters, we are well ahead of our action standards, and this is the reason that we continue to gain market share.
Sure. And lastly, any thoughts on tariff hike timing, quantum of tariff hike? How should we think about tariffs in near to medium term and factors that you would consider while looking at raising tariffs?
I think that I've already mentioned that this is not all in our hands. Tariffs are very low in India, both the average revenue per user as well as the rate per GB. If you plot both of those on 2 axis, then we are right at the bottom on both. I think tariffs do need to go up. The industry needs to become viable. But it is not all in our hands, I would -- let's say, I would just say, wait and watch. The question is not whether it will happen, it's just when it will happen. We've already seen 2 rounds of tariff increase since the since the launch of Reliance. And hopefully, it will happen at some stage, not in the distant future, but I can't give you a specific time line on this.
But what's stopping you from taking the lead right now? Or let's say, what sector would we watch out for before raising tariffs?
We may do that at some stage. At this point, we are already trying to see, like, for example, we took up the prices of the entry-level plans. We did that unilaterally. We didn't see the competition follow, but we did it. We were also making some adjustments in some of the smaller plans. So we are looking at that. That's an ongoing exercise that keeps happening. At some stage, we may well do it. So you just have to have just time it and do it when we think. And then, of course, if it doesn't happen, then you roll back and it's business as usual.
With this, I would now like to hand over the proceedings to Mr. Gopal Vittal for his closing remarks.
Again, thank you very much for joining us this afternoon. It's been great talking to you, and thank you for all the questions. I look forward to seeing you at the next earnings call. Thank you.
Thank you, everyone, for joining us today. Recording of this webinar will also be available on our website for your reference. Have a good day ahead.