Bharti Airtel Ltd
NSE:BHARTIARTL
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Bharti Airtel Ltd
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Good afternoon, ladies and gentlemen. I am Beverly, the moderator for this webinar. Welcome to the Bharti Airtel Limited Fourth Quarter ended March 31, 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 very much. Welcome to the earnings call for Airtel. With me on this call are Soumen, Harjeet and Naval. This quarter's earnings call will be really focused on a stock take of 2023 -- the full year 2023. In addition, I will underscore yet again why we are so well-positioned for the future.
Let me start with a quick update on our business, and let me do that with ESG. During the year, we received multiple accolades, the Golden Peacock Global Award, the ICSI National Award for Excellence in Corporate Governance in [ Bristol ], GVC Level 1 rating, which is the highest rating on governance. Also received -- we received a rating upgrade from MSCI and CDP. Finally, we've received the ESG excellence award at the inaugural addition of the Dun & Bradstreet ESG Leadership Summit 2023.
We take great pride in our governance, the diversity of our Board and the quality of transparency of disclosures. Equally, the environmental impact of our business operations has now been embedded deeply into the business. And I do believe while the road ahead is a long one, I want to give you a few examples of some work that has happened in the quarter.
We started construction of our 25-megawatt data center. This is the first in Calcutta, which will operate fully on green energy. A large part of our rural site expansion now has solar energy access. Airtel 5G plus network, as you know, is also kinder on the environment because of its special power reduction solution. We've also joined the WEF Initiative, Alliance's CEO, Climate Leaders India. This alliance is aimed to serve as a high-level platform for business leaders to support concrete plans and ideas to step up India's climate action and green transition efforts.
Let me turn to our performance, and let me do that with a quick round up on the full year '23 results. I want to start by underscoring the simplicity of our strategy. Our focus is to drive quality customers, give them a great experience. We want to be digital at the core and use this digital capabilities to build new streams of revenue and do this while we are stripping out waste.
We've delivered strong revenues and operating margins across the portfolio during the year. And the overall free cash flow, which is EBITDA minus CapEx, as we look at it, is about INR 23,000 crores for the India business in full year '23. This was despite heightened CapEx, rural expansion and really no meaningful tariff hikes. Our net debt now is at [ 3.4 ]. This is at the India level. It's at a comfortable level in India. And overall, of course, the consolidated level is at [ 2.8 ].
Our performance is really based on solid execution. We've delivered strong growth in postpaid for the year, we've delivered strong growth of 4G net adds, and we have seen sustained growth in both homes and B2B. There's been a historic movement on the network. We added almost 37,500 sites in a year, 37,492 to be precise, and about 33,650 kilometers of fiber.
One of the interesting things that we're doing is to leverage FTTH, which is fiber to the home to wire up our towers. And this has been a huge game changer for us in terms of wiring up our towers on a very, very smart and efficient basis. In fact, our smart investments and obsession with experience resulted in us staying out of the expensive 700 megahertz band because we bolstered our mid-band holdings over a 4-year period. It was a [ bold ] decision to go with NSA, which is not stand-alone architecture of 5G. This is already giving us better coverage, lower CapEx, lower carbon footprint and better experience.
At the same time, standalone architecture, which is SA, is also ready for enterprise. We've already had it ready in our environment. And today, on 5G, we are in about 3,500 cities and towns of the 7,000 that we have in India. We're adding almost 35 to 40 cities every single day, and we believe we will conclude our urban coverage this year and some of the key rural pockets as well.
Let me turn to a quick update on our performance for the quarter. We've delivered a consistent and competitive performance despite 2 lesser days in the quarter. Our consolidated revenues grew by just under 1%, 0.6% to be precise sequentially to over INR 36,000 crores. Our EBITDA margins were at 52.2%.
We've seen continued efforts on War on Waste. In fact, one of the most interesting deliveries that we're very proud of is our network OpEx for India went up just by 7.5% in full year '23 despite serious cost headwinds in terms of energy as well as rollouts.
In the mobility business, we added 7.4 million 4G net adds. We added a strong -- we had strong momentum on postpaid with net additions of 663,000. Our reported ARPU came in at INR 193. But do remember that this quarter, we had 2 lesser days. So on a normalized basis, if I don't take the 2 days, but take 1 day basis, on a normalized basis, we're already at INR 195. This was led by smartphone upgrades, data monetization efforts and a modest flow-through from the increased tariff on the entry plan where we took pricing up from INR 99 to INR 155.
On the broadband business, we had a strong end to the year with 4 lakh net adds. The full year impact was at INR 1.6 million. Today, we are present in just under 1,200 cities, up from 847. But we're now hitting the tail end of the cities because we're seeing bulk of the growth coming from the key cities, the top 200, 300 cities.
In the DTH business, we lost 39,000 customers in the quarter, but this was largely due to seasonality. Cricket, as you know, has an impact on DTH. And if you strip out the cricket viewers out of the customer base, which we do now on a very scientific basis, this results in the core business looking strong or looking better, let me put it that way. We do expect this to play out in the coming quarter. In fact, April and May have been strong in terms of net additions. And I do want to say that our strategy of convergence, which is bringing the aggregation of all video content, linear content along with broadband is working and we believe we are now outperforming the DTH industry by a margin.
On the Airtel business, Revenue in the quarter was flat sequentially, but we did let go of some low-margin deals, and therefore, I do want to say that the underlying business remains strong. This was reflected in the margin expansion of 1.3% in quarter 4. And for a year, as a whole, we've delivered just under 16% revenue growth, the highest in the last decade.
Our connectivity market share has moved up by 220 basis points and is now at 34%. Our IoT market share is now close to 53%. And new businesses such as cloud, IoT, are now growing at well over 50%.
Let me turn to the digital businesses. Our Payments Bank saw strong momentum. Our monthly transacting users were up by 14.5% sequentially to just under 55 million. The deposit growth is growing at 58%. Annualized revenues are now at INR 1,516 crores, 18% up over the last quarter, actually more like 19% up over the last quarter. Digital businesses now are at well over INR 1,100 crores annualized.
Let me now turn to the future of Airtel, and let me talk about the 5 critical areas that, I would say, make us really well-positioned. The first is our portfolio. This is now growing in strength. Africa is now at 31% of the overall portfolio and continues to do well. India wireless is at 54%, where we still have significant upsides on smartphone upgrades and a reset on data. The homes and enterprise business constituted the balance at 25%. And here, there is a momentum that we're seeing, led by a structural change in the market with growth coming at the top end.
Growth of broadband and convergence as well as increased digitalization of businesses, are the tailwinds in the homes and enterprise space. All of this play to our strengths and therefore, investments are now being stepped up in line with where the growth is to drive this portfolio and make it even more resilient.
The second reason I would say we are well-positioned is a brutal focus on quality customers. And today, what I want to do is to take a geographical cut on these quality customers. The first lens or the first cut that we look at geographically is rural. I mentioned last quarter that we have an opportunity to expand into 60,000-odd high-potential villages to win a greater 4G share of net additions. This expansion is in line with our plan and early results have been encouraging. As a result, we are now at a lifetime high in terms of revenue market share at just under 39%, 38.7% on a comparable basis. I say comparable because our reporting reflects segmental performance [indiscernible] for mobile, broadband, DTH and B2B.
The second lens of this geographical cut is the top 150 cities. These cities account for almost 40% of the overall telecom market in India, and they're growing rapidly. Specifically, 80% of the market are postpaid, broadband, converged homes. In fact, on B2B, it's more like 95% is concentrated in these 150 cities. Our focus is to win these cities, bringing the full power of the Airtel network, our channels and all power using digital tools. Let me explain this in a little more detail.
Let me start with postpaid. As I said, 18% of the market is in 150 cities. 5G is the pivot around which postpaid performance can truly accelerate. Today, almost 32 million of the 335 million users we have already have a 5G handset. But for postpaid users, this number is as high as 33%. So while for the aggregate, it's a little under 10%, for postpaid, this is 33%.
The structure of families in these top cities is also changing. They're more and more nuclear families. And this is the reason for our INR 599 plan launch in postpaid, which locks a nuclear family, let's say, a husband and wife into one plan.
Homes against 75% of the market for broadband is in the top 150 cities. We have a renewed focus on fast rollout. We're rolling out almost 1.6 million home passes every single quarter. And as I mentioned, convergence is the route around which we are entering the home. Broadband plus linear content and XStream, where we are aggregating over 20 of the 35-odd OTT apps are all provided in the form of one plan.
Another area is channels. All high-value channels are predominantly focused on these 150 cities. Our own stores, our installation teams, our digital marketing focus and the 30 million existing high-value homes who use one or more of the services that we offer are already in these cities. Our channels are now, therefore, fully integrated on an omnichannel basis. 30% of our high-value acquisitions are now starting online and are integrated omnichannel.
Every one of our people across our own employees as well as our partners, 60,000 of them, are integrated on Airtel work. As a result, we see massive synergies in the delivery of SIMs, installation of broadband, installation of DTH. The store, which is our own store is the fulcrum around which all of this revolves. And this is one of the reasons why we're expanding our low-cost single-seater stores across the key cities in the neighborhood catchments to reach the customer directly.
And lastly, let me talk about B2B. As I said, 95% of the B2B market is in the top 150 cities. And within this, the top 500 accounts, so the top 500 businesses are growing disproportionately. Account management brilliance is what we want to drive in these accounts. For every account, we are mapping the key decision makers, understanding their needs and the problems they're trying to solve across a range of areas and then bringing a full suite of solutions to bear. We've seen early successes. 50 of our top accounts grew by 300% versus 25% growth seen in the overall top 500 account segment.
The third area that we are -- that I want to talk about is an obsession with customer experience. And this is another reason why I would say that we are well-positioned. We have renewed our focus on improving experience. The whole company is focused only on one metric, and we call these interactions. So we want to drive down interactions. Every interaction, we believe, is an underlying fault or a lack of understanding where we have not been able to ensure with our customers. And these interactions go across all our channels, whether it's call centers, it's stores, it's the web, it's the app or it's on social media.
To solve this, what we're now doing is building 4 critical platforms: Buy, build, pay and serve. So buy is about customers buying anything. Bill is really all about billing. So any kind of bill that is done, whether it's a bill or an add to bill. Pay is about paying from any channel through any mode whatsoever. And serve is both self-serve as well as assisted care. Each of these platforms is exposed to a common channel layer, which is integrated omnichannel. And underlying all of this is our foundational layer, which is our data layer, which is all about our unified customer master.
The fourth reason I would say we are well-positioned is really all about building our digital businesses, which leverage our platform. As I mentioned before, we see Airtel in 3 parts. The bottom layer is our digital infrastructure, which includes our data infrastructure. The layer on top is our digital experience, which I've just spoken about. And the layer on top, which allows us to actually build these services on top of these underlying platforms is really the digital services.
Our digital services now span CPaaS, Airtel IQ, cloud, SD-WAN and ads. Our ads business is now being pivoted to put dramatic finance -- dramatic focus on Airtel finance. We have partnered with Axis bank and NBFCs such as DMI Finance, through deep API integrations on the Airtel Thanks app to natively offer loans and credit cards to our customers.
By leveraging an industry-first proprietary machine learning and AI-led model, combined with an end-to-end digital experience, Airtel Finance is offering instant loan disbursal, flexible EMI options and a native post-purchase experience on Airtel Thanks. Our co-branded credit card with Axis Bank comes with various offers in telecom, utility, various offline and online payments. Within a few months of launch, this part of our business has served more than 2.8 lakh customers. We've already hit about INR 1,200 crores of annualized lending run rate and INR 2.4 lakhs of annualized credit card insurance run rate. As you can see, the power of this platform enables us to participate across the value chain by leveraging core strength.
Finally, the fifth reason that I want to underscore on why we're well-positioned is War on Waste. We've relaunched our War on Waste program to bring renewed energy behind it. Four big areas we're looking at. First is network costs. We have started relocating high-cost sites. About 66,500 sites have been identified for specific actions around energy, rental as well as reengineering the site. This is seeing good traction, which is why network OpEx has been well controlled despite massive rollouts.
The second area is sales costs, where we're taking actions to lower the reliance on inefficient channels that either have a high cost per gross addition or high early churn. Massive data science is being deployed to identify the early churn right down to a single outlet and a retailer level.
The third area is on CapEx. We stopped all capacity investments into 4G since we are now seeing traffic offload of up to 30% in a site where 5G has been launched.
Finally, we're seeing a [indiscernible] on failure and interactions, which will also lower cost.
So to sum up, I think we -- I would say we've had a satisfactory performance as we close the year with share gains across our businesses. We're building a future-proof Airtel that's bringing renewed focus on execution around a simple and cohesive strategy. We are financially in a stronger place and operating cash flows are expected to more than meet CapEx needs while reducing leverage as well, yet our concern on return on capital employed remains at 8.5%. This is way too low. And we hope some sense will prevail in the industry to move up tariffs sooner rather than later.
With that, let me hand over for questions.
Thank you very much, sir. We will now begin the Q&A interactive session for all the participants. [Operator Instructions] The first question comes from Mr. Kunal Vora.
This is Kunal from BNP Paribas. So my first question is on postpaid. On postpaid, you've seen an acceleration in customer additions. Is this being led by 5G? And can you talk about how the postpaid ARPU is standing versus prepaid? And have you seen any increased aggression by any of the peers?
Yes, as I mentioned earlier, we are using 5G as a pivot to accelerate postpaid. We've also launched our INR 599 plan targeted specifically at nuclear families, that's also seeing some good traction.
As far as ARPU is concerned, you know that the pricing of postpaid has a significant premium over prepaid. And so clearly, the ARPU is much stronger than what you would see on prepaid.
Gopal, question was on the change. The delta, if I look at like last 6 months, 1 year, how is the postpaid ARPU pending versus prepaid? Is it like similar trend or postpaid is declining or any of that?
No, it's broadly around the same.
Okay. Okay. Okay. And my second question, I just wanted to get some sense on how we are looking at AI. You've seen rapid progress since the launch of ChatGPT in the last few months. How do you see AI impact on your business? And are you seeing any cost rationalization, customer experience upgrades, revenue growth opportunity, whatever -- any thoughts on how AI will impact the business in the longer-term?
Yes, that's a great question. I think we have a full team now assessing the impact of these on our business. Yes, you're right, there are opportunities around experience. There are opportunities in go-to-market. There are opportunities in procurement, there are opportunities in analytics. There are also opportunities in prediction of upgrades of [ wear ] devices, which devices will move up. So across our businesses, there are opportunities. There are also attended related risks around cybersecurity and things like that. So all of that is being studied.
There are some experiments that we have begun and in small areas, nothing really meaningful to report back. But we are -- really, we're looking at this very closely, and we are -- we have a team working on how we can bring in some of these technologies into our core business.
And just one last question, if you can share your thoughts on CapEx for FY '24 and '25?
So I think the quarter's CapEx at INR 9,000 crores is a little elevated. But if you take the full year's CapEx was about INR 28,500 crores for the full year. As I mentioned before, if you take a 3-year view, we'll be broadly in that same ballpark of what we normally do. And we have reason to believe that the full year CapEx for '23, '24 will be in the same ballpark as what we had in the current year, I mean, in that broad ballpark.
Understood. So in FY '25, would you expect a reduction in CapEx considering that rural expansion will be behind 5G, urban expansion will be behind and rural 5G might not really be happening. So would like -- would it be fair to expect that in FY '25, there'll be a decline in CapEx?
Yes, I would imagine that our 4G rollout with [ more or less ] be completed. I think there'll be a few places, very small rollouts in a few circles. But broadly, that will be completed. We are not investing anything more in 4G capacities, as I mentioned.
Transport investments will continue as we wire up towers. We are also investing in some of our other businesses, businesses like data centers. Homes will continue to see strong investments and so on. Wireless CapEx on 5G will certainly come down relative to what we would have seen in this year because we would have completed the urban coverage more or less during the course of this year. And we will start hitting some of the sort of villages as well, top villages.
How far that will then go into '24, '25 is something that we will assess. This is a modular business. You know wireless is modular. You've got to string a set of radios on the tower based on where the traffic is, where devices are coming up. So we're going to be tracking that closely. I think one of the things that we've seen on devices is that shipments are slowing down at [indiscernible] you've seen it as well. This is happening all over the world because I think device replacement cycles are extending and that also entry-level smartphone prices have moved up. So to that extent, if that trend continues, that will also give you some relief on the amount of CapEx that will be needed in rural areas as we get into '24, '25.
The next question comes from Mr. Piyush Choudhary.
This is Piyush from HSBC. Two questions. On the 5G subscriber, could you share some color on how the behavior is against a 4G subscriber like data usage, use of applications now since we are in the second quarter? And can I just confirm how much customers in postpaid were on 5G? I missed that number.
So the second question -- on the second one, about 30-odd percent, 32% of our postpaid users already have a 5G handset.
On the -- on 5G I think that today, what's happening is that 5G on an existing plan is being given away free. So it's unlimited data on a 5G device. Not everybody is -- has opted for it because you do need to get on to Thanks app -- Airtel Thanks app to take it for the period of which your recharge or your cycle exists. So not everybody is taking it. But people have taken it, obviously, they're using a lot more.
I think the broader point, Piyush, is that this is one of the first times that I think the telecom industry is moving well ahead of the rest of the ecosystem. If you look at the telecom industry, what is 5G? 5G is not just a radio technology anymore. In my view, 5G is a supercomputer. It's a supercomputer that's connected to the cloud because it is able to dramatically change things in terms of not just speeds, which we are delivering. You see 400, 500 mbps speeds. It also gives you significantly lower latency because the compute will now move towards the edge. And it allows you to have 100x the number of devices in a given square kilometer of area relative to 4G. So it is a supercomputer.
Now if on a supercomputer, you are -- the applications that you need on a supercomputer are very different from your regular applications, the applications today that most people use are the same applications, messaging, video, browsing. So if you're getting a supercomputer using this to -- basically for Microsoft, Excel or Word, then you're not using the supercomputer in its entirety. And this is where I feel that the rest of the ecosystem needs to catch up with the telecom industry.
Now the rest of the ecosystem across devices, across applications, content, all of that needs to change. And we hope that over the next coming years, this ecosystem will flourish because remember, 4G -- industries have been built on 4G networks. Ridesharing was built on it. Food delivery was built on it. E-commerce has been built on it. Payments has been built on it. So this is a [indiscernible] around which more applications need to come, but the telecom industry is right now well ahead of the rest of the ecosystem.
On second question is on home broadband. ARPU is coming off. It is down 6% year-on-year. Is it due to price competition or mix change of lower ARPU subs as you're expanding new cities? And what's the outlook of home broadband ARPU?
So I think that when you look at the rollout that you're seeing, many of the customers who are coming in beyond the top 100 cities are coming on slightly lower in plans, and that is leading to some dilution in ARPU. The -- I mean I'm quite relaxed about the dilution ARPU that we're seeing because this is profitable business, number one. Number two is revenue is growing strongly, and the margins are strong. Even the cost of doing business in these cities has been done on the basis of a very innovative model, which is a partnership with local cable operators where the CapEx requirement is much lower than what we would have in the top 100 cities. So all in all, I think we've got the right business model for accelerated growth in home broadband.
The next question comes from Sanjesh Jain.
Sanjesh here from ICICI Securities. I got a couple of questions. First on the 5G subscriber, knew it's a very short period, but what is the average usage for 5G customer versus a 4G customer? And have you seen any early signs that the 5G customer upgrading the plans to the higher plan where the data allowances are more. I know we have an unlimited plan, but still any signs, do you think people will shift to this kind of usage once we move them from unlimited to limited and that can benefit ARPU, say, in FY '24, '25?
You had a second question, Sanjesh? This is all you have?
I've got a few more. But, yes.
Okay. So I'll take this one, and then we can ask your other question. The -- what we are seeing is a growth in usage. So if you leave the unlimited, obviously, there's a big growth in usage there, and that is not necessarily monetized because that's unlimited. But we are seeing for those who don't take the 5G, they don't sort of go and claim the unlimited on the app. We are seeing a growth in -- we are firstly seeing lower churn and we're also seeing a growth in consumption. And that growth is a direct impact on some revenue because what happens is we have this concept of data breaches, which essentially means that on a given day, given a daily plan construct, the number of days that a customer breaches their allowance for the day. And we have a lot of data science and a lot of contextual triggers to buy impulse data packs on the go in a very easy way.
That revenue stream of data monetization is beginning to see some growth. And yes, the effort to upgrade them to a higher data plan obviously continues along with that. Because for those who breach on a regular basis, let's say, 8, 10x a month, clearly, they benefit by moving to a higher plan, which then gives you annuities similarly. So both those moves we are seeing. At this point, this is small because remember the handsets that are 5G-enabled on our network are only about 10%, 11%. So to that extent, as this grows, there should be some impact on ARPU.
Fair enough. But on the unlimited pack, can you just share the data, what is the usage per subscriber there? I know it is not sustainable, but still a ballpark number would really help.
I think it's early days, Sanjesh. Maybe next quarter, we'll give you a better color on it. It's too insignificant right now because the adoption rates are very low. And I suspect they will continue to remain low. They're not going to be anywhere upwards of maybe 15%, 20%. Today, they're in the low single digits. And so therefore, this really doesn't have a material impact.
But don't forget that the capacities that are there on 5G, given 100 megahertz tranche of spectrum that we have along with the efficiency that this has is like massive. So I'm not worried about this having any impact on CapEx for the next 5 years. The challenge only is that I believe, at some stage, you need to price in this because the tariffs that are operating, the amount of allowances that we are giving, whether you look at rate per GB or the ARPUs that we have in India, amongst the lowest -- they are the lowest in the world. And they're the lowest compared to even markets like Pakistan or Sudan or Sub-Saharan Africa, let alone markets like Indonesia and Thailand and all that where in many parts or many states in here is getting towards those income levels. So it really does need to move up.
Fair enough. Second, on the enterprise side, I can see the CapEx has gone up, which indicates that we have now started investing in the data center. We have told that we will grow by 4x. How should we see this revenue coming up? Have we prebooked this to be hyperscalers. So as soon as the CapEx is completed, we will be booking revenue? With this, what does it mean to our enterprise revenue growth?
So I think that this quarter's CapEx is elevated on the enterprise business fundamentally because of some specific deals that have happened on -- this is a combination of some cables, cable investments. And so it's a lumpy investment, cable investments, and some bandwidths that needed to be bought to support our network, but these are lumpy investments. This will peel off in subsequent quarters. This has not had any meaningful impact on our data center. I mean, the growth -- the incremental growth is not on account of data centers, the data center investment continues.
The broader answer to your question is that as soon as the data centers are built out, we've already -- typically, when we're building for hyperscalers, we build in advance. So we build it to suite. So to that extent, we've got the commitment already. And as soon as it is ready which typically a data center takes maybe 12 to 18 months to complete, the moment it's done, it's handed over, the revenues begin and then those are annuity revenues.
But if you're building smaller data centers, then you need to fill that out, that takes about maybe 6 months because you get smaller domestic players where the margins are also better. The returns are better. They come in and actually fill out the data center.
Got it. Got it. My next question is on the 5G OpEx and the network on the 5G. Are we charging the entire 5G OpEx? Or it is capitalized, considering that we are yet to do a commercial launch? And Jio shared that they have created close to 60,000 sites. Where are we in comparison to Jio in terms of number of sites, presence on the 5G?
So as of now, this -- the project is still underway. So as of now, it's capitalized. So the project is still underway because the rollout has just about begun, and we hope that this will start peeling off in the coming quarters as we start sort of lighting up more and more 5G and meet the central criteria on which we peel that off.
As far as -- your second question was -- sorry, Sanjesh, I missed that.
Jio mentioned that they have created 60,000 sites...
60,000. So I think one thing that I do want to underscore, Sanjesh, is that we are not in a maniacal rush to compete on the number of sites. The technology we are using is different. NSA is fundamentally different from NSA. It gives us more coverage. In fact, I have mentioned to you, I think, about 3 quarters ago that from my house in Gurgaon to the office, we have about 18 -- actually 23 sites in that stretch. And I was surprised early on to find that 8 -- 6 sites that we had put, 6 sites that we put was giving almost seamless coverage on 5G from what was needed on 4G. So NSA gives you better coverage. I think that's the reality. And that's because the mid-band is doing the uplink and the 3.5 is traversing much further on the downlink. I explained that in some detail a few quarters ago. So we are not chasing number of sites.
What we are instead chasing is coverage where we need it. And that we are absolutely -- we're already there in 3,500 cities. So to that extent, we are not going to be at any disadvantage whatsoever on coverage.
Got it. I'm squeezing one last data point question. The SG&A cost in India grew by 36% in FY '23, this is a significantly a sharp jump. Can you help us understand what's leading to such a sharp jump in SG&A cost? And how should we factor this for the years coming?
Maybe Soumen, you can answer this question?
Yes, Gopal. So Sanjesh, I think the SG&A cost is primarily driven by the competitive intensity to acquire customers in the market. We have always held that this is fruitless money being spent and people keep on churning. But to remain competitive in the market, we need to have our terms, which are like full.
You would see there is some softening of that in Q4 because we have taken some steps through data analytics, we have tried to find out places where we can optimize. But in the center of the plate, the competition is very stiff and we need to match what the other players in the industry are doing in terms of acquiring customers and hence, you see that increase.
I just want to supplement what Soumen says. I really think beyond a point, like SG&A, the cost that the commissions and all that, that are being given by the industry at large, unfortunately, you have to match it because otherwise, you tend to lose is not a healthy practice because it leads to a very high level of early tenure customer churn. And that's what shows up in the overall churn number. So if you split the churn into first 4 months churn and subsequent churn, our subsequent 4-month churn after 4 months, the churn is very low. It's the first 4 months that's high. And I hope better sense would prevail.
We have, in fact, started making some moves to lower some channel commissions on SG&A on our own. And we are tracking the impact of that over the last 45 days. We hope that this will sustain. But we do hope that better sense prevails.
The next question is from Vivekanand Subbaraman.
This is Vivekanand Subbaraman from AMBIT. So my two questions. The first 1 is on millimeter wave spectrum. Gopal, could you please tell us the plans of utilizing the spectrum? Is it going to be used for enterprises or FWA? Also related to this, could you just give us an update on the FWA? You said that you are looking at it. What's the update on the primary annual viability of this? That's one. .
Secondly on B2B, noted your opening remarks on you're giving up certain low-margin business. But we don't seem to have come off here. So how should we think about fiscal '24 and '25 revenue growth with respect to B2B revenues? And I understand that there is some lumpiness with respect to data center also.
Yes, I think there's somebody talking on the other side. So maybe you can just mute your...
Sorry, sorry.
So I think on the millimeter wave spectrum, this is really precious spectrum. It's a large tranche. It has helped us save us spectrum user charges as well with -- so to that extent, it's paying back for itself, that spectrum, but the fact is that it is still early days. We've got 5G networks. These are currently empty. They're rolling this out. So I think that there is no plan right now to use the millimeter wave. I think we're doing some trials to check propagation characteristics and so on. But those are more for -- on a long-term basis of when if and when we need it. So at this point, there's no plan whatsoever.
On the fixed wireless access, the cost of the CPs are still very high, and I've mentioned this before. If you look at the cost per home pass on fiber, we are cost per connected home bus given our utilization, the cost per connected home bus typically is in the ballpark of $100 to $120 for us, $120 per connected home bus. In the LCO side, it's even lower. And if you look at the CPE, which is we go into a cost of connected home bus because for every connected home, you need a CPE.
In any case, in your router, it's the same as what we would do in a broadband home. The cost of the CPE is more like $170 to $180. So it's much higher than the cost per connected home bus. And remember, fiber gives you consistent experience. So you're going to get the same experience every day, whether it's a dedicated pipe into your home. In the case of fixed wireless access, you may get a very good experience when the networks are empty. But in 5, 7 years like we're seeing in the case of T-Mobile in the U.S., we're already beginning to see challenges on network experience through fixed wireless access.
So it's, at best, a technology that can be used to go where fiber is not able to go and then follow that up with fiber. That said, we are -- we have a team looking at this. We are working on it because as scale mounts, you may see some reduction in fixed wireless access. CPE costs, right now, that doesn't seem to be on the handle.
On B2B, I would not worry about the growth seeming to come off this quarter. As I said, it was some lumpy business that we actually chose to walk out off for the right reasons. The underlying growth trajectory seems to be strong. And the funnels that we're seeing in the order books, which will translate into revenue for this coming quarter, we already know we finished April and we're into May, looks strong. So I would not read too much into this last quarter.
That's helpful. Just one small follow-up with respect to FWA. So since you are thinking about your DTH business from a converged firms lens perspective, which is linear TV plus nonlinear in the same bands, is there a possibility of you bundling FWA with perhaps the high-value DTH homes that you're currently offering and potentially some innovation on the box side here?
Yes. I mean that can be done because that box works on WiFi. So to that extent that obviously can be done. .
Okay. And any thoughts on whether this is viable for the higher-value customers? I mean I understand that the reliability is not great. So...
No, it's not just the reliability. It's also the economics.
The next question comes from Paresh Jain.
The next question is from Gaurav Rateria.
Beverly, should you try and take another question? Maybe there is...
Sure. The next question is from Aliasgar Shakir.
This is Aliasgar from Motilal Oswal. Gopal, I have just one question on the 5G CapEx trends. So I hear your thoughts in terms of the point that we have, for the first time, telecom operators are ahead of the curve in terms of 5G investments. I just want to understand in terms of typical trends of how a new technology rollout happens with initially focus on coverage, then densification and then moving back to your -- from probably NSA to AC, refarming, how these trends will follow? Do you think unlike 4G, this will be a very long -- prolonged 5G rollout? Or it will be probably between 3 to 5 years? And based on these factors, how the trends of CapEx will follow? Do you think things could probably make you prepone some of your CapEx? Or how are you thinking about this?
So Aliasgar, I think let me sort of just say this, a couple of things. Number one is that while disproportionately shipments that are happening in India are smartphone-led, there are still almost 25% to 30% -- 25% to 30% of shipments that are coming in on feature phones. So when the world has moved to 5G, there's still customers out there who are buying 2G phones because they simply can't afford it And India is, as you know, a disparate society, right? So there are people who are very rich, high-end homes, there's a big middle, which is smartphones. And then there's also a bottom, which is -- needs to think about every rupee that they spend.
The second trend that you're seeing is the device replacement cycle has started extending. And if you're carrying a phone, which -- remember, we have 10% odd 5G devices in our base. The total shipments that are coming in about 30% of new phones are already 5G enabled, 35% or so because these phones are over 50 -- about over INR 20,000 all are -- 100% are 5G enabled, above INR 50,000 is smaller. And below that, it's even smaller. So as people upgrade, if the device replacement cycle is in itself extending, then the movement to 5G will be also a little more limited. So that's the second thing.
The third thing to look at is the structure of the network. Any network has 20% of sites which have very high utilization. The next 20% is slightly lower, and the bottom 20% is almost -- is very, very low. So if your utilization of your sites of the 235,000 sites, let's say, 70,000, 80,000 sites are very, very low in terms of utilization, the existing spectrum that you have, the existing technologies that there are, are already delivering fabulous experience. I mean they're giving you 20, 30 Mbps and like we talk for the applications that use these devices 3 to 4 Mbps is more than adequate.
So I think this is going to be initial heavy rollout like we have seen in -- or like we are seeing in FY '22, '23. There'll probably be continued rollout in '23 -- sorry, '24, '25. So '23, '24 heavy roll out. '24, '25 continued rollout. And then some moderation. And over a period of time, as all of these devices start shipping out and moving up to 5G, you will start seeing operators beginning to refarm spectrum. We have plenty of mid-band spectrum. We have 2,300 spectrum. All of that can slowly be refarmed towards 5G. And once you've got the mid-band spectrum really refarmed to 5G. And maybe 1 or 2 cities may move faster than other cities. Delhi could move faster. Mumbai could move faster. These cities will move to say first. That's the way that you have to think about it. But I do not have any reason to believe that the elevated levels of CapEx they you are seeing in the short term will continue forever in the medium term. It can't be like that.
Understood. This is very, very helpful. Just one question on the digital avenues that we are targeting. I see about a decade back when telcos were a dumb pipe. Today, we have so much more to offer to the customer. How big do you think this can become over a 5-year period? Can this really become a reasonable contributor to your revenue?
How big it will be, I don't know. I think the core business, because we are in an annuity business, we still have a lot of headroom for growth, particularly in homes even on wireless with tariffs having to go up, et cetera, is still high. B2B has a lot of headroom for growth, as I've already mentioned, not just on connectivity, but also on the digital services and adjacencies around connectivity, things like cloud, cybersecurity, IoT, the data centers that we spoke about, CPaaS, et cetera. And these digital businesses, if you include all of these as digital business, so I think it could be quite meaningful.
But I think it will never be in the same sort of ballpark as what you have on the large mothership. But the good news is all of this is very capital efficient because it sits on an existing infrastructure. And like I talked, I think it rides on the underlying data infrastructure that we've built over the last 5 years. And that makes it incredibly efficient.
Let me give you an example of the lending part, which we spoke about earlier. I said that we are doing about INR 100 crores of lending and we started this literally a couple of months ago. By the way, it's only 15 people who are working on it because these 15 people are really building the machine learning and AI led algorithms, which are credit profiling an individual customer, and we have 60 million users on our network who are pre-credit approved, who are ready to be offered a loan. That power of our data infrastructure, I think very few companies will have, very few industries, and that's the advantage that we bring. And it costs nothing because the infrastructure is already there. It's just now intelligently looking at what that means and how you can use it.
Got it. I think this will probably also more used to create a sticky customer base.
Absolutely, without a doubt. Because we also add other value besides, of course, a native journey on the app where you can lend, you've got the credit model. We're also able to remind for collection and use our outreach to actually collect the money on behalf of the bank. So to that extent, that's another powerful value-added service that we can offer and that's what gives us a margin on the disburse without carrying any of the balance sheet risk of actually or the book of the lender.
The next question is from Gaurav Rateria.
This is Gaurav Rateria from Morgan Stanley. A couple of questions from my side. First, Gopal, what's your view on the pricing differential between consumer on the end of the data consumption bucket versus lower end? You think it's appropriately priced right now? And can this change when 5G becomes more ubiquitous?
Second question is on the capital allocation. What would be the right capital structure post which the free cash flow will be used to return -- a bulk of it will be used to return to the shareholders?
And lastly, any reiteration of what is strategic versus nonstrategic from a core asset perspective, which you can look to monetize over time? And where does Indus Tower fit in, in the scheme of things?
I think that the structure of pricing and I've spoken about this earlier, I feel in India is unfortunately broken because you have a one-size-fits-all pricing approach. It's not the way that any industry works, any consumer industry. You will typically have people who are able to pay more, get a lot more for the upgrade. People who pay less, get a lot less. In our case, our plan starts at INR 240 or INR 250 gives you 1.5 gigabytes of data a day plus unlimited calling, plus 100 text messages. There's very little reason for them to actually buy a higher plan unless they are unique users at the margin who are actually like flowing through their allowances using a lot more. .
So to that extent, I think it's not the right price architecture, which we need in a market like India. And you look at other markets, forget about even Western Europe which also operate like this. But look at even markets like Indonesia, Thailand or Philippines. I mean all of them have these kind of price structures. So ideally, you should have INR 100, you get very little. INR 200, you get more. And let's say, for INR 1,000, you get a huge amount. Now that would actually maximize the ARPU. But the other alternative to raising ARPU is that everybody pays a little more. That's really what's been happening in the Indian context. So I think the price architecture is a little bit wonky.
I think our -- on our capital allocation, I think we are very clear that we will continue to invest in the business for competitive growth. And then we would like to leverage down, delever our balance sheet and then the time will come, we will be able to return money to shareholders. I think at this point in time, we want to get our debt down to come -- even more comfortable levels. It's not that we are uncomfortable, but it just gives you a lot more headroom for maneuver to do things that are -- that the business needs to do to sustain growth.
On strategic versus nonstrategic assets, I would say all our businesses, whether it's B2B homes, mobility and you can see the way I articulated it rural, 150 cities, all our business coming together, channels coming together. It's one relationship. It's one business, it's riding on existing infrastructure. So all of this is core.
The infrastructure business is never core to us. So to that extent, when I talk about infrastructure, I'm not talking about fiber. I'm talking about data centers, towers, which is why we got Carlyle into data centers. That's why we set up a joint venture with Vodafone Idea on Indus Towers. The fact is the tower business is a heartbeat. So we cannot afford to have that, in any way, face volatility. So if it means that in the short term, to prevent volatility because one player could have challenges. If we have to creep up and actually take control, we will. But it is not the -- if the Dow business is stable, there's no intention for us to actually put any capital into Indus, right, in fact, up to the contrary to actually maybe even dilute our stakes. But that is, I would say, a theoretical question because at this point in time, we just need to have Indus be a strong tower company. That's really how we look at it.
With this, I would now like to hand over the proceedings to Mr. Gopal Vittal for his closing remarks.
I want to thank you again for a very engaging discussion. I think we've had rounds of questions around all areas. I think we've had, as I said, a satisfactory end to the year and a competitive -- consistent performance and a profitable performance. We hope to continue this into the coming year as well. Thank you.
Thank you, everyone, for joining us today. Recording of this webinar will also be available on our website for your reference.