DEN Networks Ltd
NSE:DEN
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DEN Networks Ltd
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Ladies and gentlemen, good day, and welcome to DEN Networks Limited Q4 FY '18 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not guarantees for future performance and involves risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference to Mr. S.N. Sharma, CEO of DEN Networks Limited. Thank you. And over to you, sir.
Good afternoon, ladies and gentlemen. Thank you so much. Welcome to all the analysts on the call, and thanks for being part of Q4 FY '18 and Annual Results Earnings Call for DEN Networks. Cable subscription ARPU, including taxes fourth quarter for DAS 1, 2, 3, 4 markets stood at INR 144, INR 113, INR 78 and INR 66 per box, vis-a-vis INR 142, INR 113, INR 76, and INR 66 per box respectively in the previous quarter. Please note that ARPUs are average for the quarter inclusive of taxes on per-box per-month basis.Cable subscription revenues has marginally improved to add INR 175 crores for the quarter compared to INR 174 crores during quarter 3 FY '18. There is a growth of 12% during the quarter compared to Q4 of FY '17. Phase 3 witnessed a robust growth of 30% during FY '18 compared to FY '17, 30%, 3-0. Overall, ARPU has improved from 19% from the previous INR 74 during FY '17 to INR 88 during FY '18.During the quarter, the company has undertaken successful free trials of new-generation android boxes by providing high-quality 4K services, graphic-rich interactive games, voice search using mobile app and content sharing.In summary, ARPU of Phase 3 has witnessed remarkable growth over the past 2 years. INR 46 in Q1 of FY '16/'17 to INR 80 in Q4 FY '17/'18, which are fast catching up with ARPU of Phase 1 and 2. As Phase 3 is 50% to 55% of our universe, Phase 3 market is a potential growth driver for us.Growth in Phase 1 and 2 during the year was achieved by way of maximizing our share by continuing to build our relationship with LCU partners on the ground. Technology is a great enabler for future growth. In this regard, tie-ups with BARC gave us an edge for the data analytics, which will be leveraged for better consumer experience. We are currently focused on increasing HD box penetration and new-generation android boxes. Broadband business continues to be stable, despite drop in revenue due to competition in our core Delhi-NCR market. EBITDA losses have reduced from INR 9 crores during FY '17 to INR 1 crore loss during FY '18. This is all due to focused efforts on cost optimization, primarily. EBITDA during quarter 4 '18 continues to be at breakeven as was during quarter 3 of FY '18.As DEN Networks has got cable footprint in over 13 states across the country, then it is strategic -- is then a strategic advantage to tap the huge broadband market by utilizing the existing cable infrastructure, which has the potential of delivering value to all the stakeholders concerned, including the customer who will get the final product at affordable price. In this regard, we have launched a plan to expand our broadband presence in 100 cities on a CapEx-light model.With this, I would like to hand over to Mr. Himanshu Jindal, our CFO, to walk us through some of the important financial numbers. Thank you. Over to Himanshu.
Thank you, sir. Good afternoon, ladies and gentlemen. We've already circulated the presentation for the quarter 4 financial results of 2017/'18. This year's summary, which I am about to share it with you, is been reported INDAS numbers and are like-to-like comparisons but excluding the discontinued businesses. As you know, we have exited the TV shopping and the football completely and, therefore the figures -- the comparative figures are really on the basis of the continued businesses. The net debt for the company has reduced to 157 crores as of 31st March '18, compared to 169 crores in March 2017. Net debt-to-EBITDA is 0.55, which means the balance sheet is pretty healthy. The credit rating has also been upgraded by ICRA in November to A company minus. Consolidated revenues for the full year were at INR 1,287 crores from a base of INR 1,142 crores last year. That gives us a growth of 13%. The subscription -- cable subscription revenues were also up 22% to INR 667 crores. The cable ARPUs, net of taxes for the year stood at INR 116, INR 92, INR 63 and INR 47 per box, respectively, versus INR 100, INR 76, INR 49 and INR 33 per box, respectively, for DAS 1, 2, 3, 4 areas during the previous year. Waterfall ARPU was almost flat sequentially, which is on a net of tax basis.Consolidated EBITDA has jumped to INR 283 crores during the year compared to INR 183 crores a year ago, which is INR 100 crores improvement and signifies a growth of 55% as far as EBITDA is concerned. Along with the associates, which are not getting consolidated at the moment, the EBITDA figures stands at INR 326 crores versus INR 220 crores last year. With this, the total cable EBITDA margins stands at 22%.Revenues for the Broadband business stood at INR 75 crores during the quarter compared to INR 82 crores during the previous year. Drop in revenue has been offset by the cost optimization initiatives, and as a result, broadband EBITDA loss is reduced from INR 9 crores to INR 1 crore during the current financial year.The company as a whole has reported a consolidated PAT loss of INR 17 crores during the year versus a loss of INR 183 crores in the previous year and minus INR 433 crores on continued business basis in the previous year. During the quarter, PAT loss is reported at INR 10 crores compared to a PAT of INR 2 crores during quarter 3, primarily due to reduction in the activation revenue by INR 12 crores.On -- a little bit on the quarterly numbers as well. On the cable front, revenue was INR 299 crores, the content cost was INR 142 crores and the other OpEx INR 98 crores, and EBITDA of INR 59 crores is what we achieved. On the tax front, we were -- so maybe on the broadband, the income was 17 crores, EBITDA was flat, the PAT was minus 8 crores. Broadband ARPU for the quarter was 565 versus the quarter 4 last year, which was 733. With that, I would like to open the floor for question and answers. Thanks a lot.
[Operator Instructions] The first question is from the line of [ Utsav Shah ] from CapGrow Capital.
I wanted to know what you are doing to take Reliance as a competitor and to battle that? Because Reliance Network is growing fast and their data connectivity is the main source of data in Mumbai right now.
Sorry, can you repeat the question? We are not able to understand the question.
I was wondering how are you trying to fight the strength of Jio as a data competitor for your [ own ].
Okay. Now I understand. All right. See, you are absolutely right that Jio has mega plans to do -- roll out broadband business, and we all have been hearing this and are in know of this for last 2, 3 years. When, how, what they do, only time will tell and nobody could comment on other's business. We have all seen a lot of stress in the fixed-line broadband ARPUs of all the major networks, be it Bombay, Delhi, Bangalore, Kolkata. All the -- rather, I would say, the top 10 towns of the country. Even in the city of Delhi, we, ourselves, so far as whatsoever broadband business we have done has been done in city of Delhi only. And we have seen huge slide in the ARPUs because of turf war or the tariff war amongst the telcos. That is still limited to wireless business, but definitely it has impact on the overall business. That's why realizing the fact that the telcos are yet to wire up, are yet to reach the homes. They are all wireless. They are still far away from laying fiber optic reaching the homes. And we, for video business, already have the infrastructure. Our network, combined with the network of last-mile of cable operator, our fiber is 600 meters away from each of the subscriber that is being served by us. So in view of the whole thing, we have planned out that instead of just focusing in Delhi, Bombay, Chennai and all these places, we’re already very distressed on broadband tariff structure, why not cover the rest of the country where it is all virgin area and demand is equally good? So in this year, we will be covering 10 states of the country. Overall, DEN is present in 13 states. We have earmarked 10 states. And out of those 10 states, we have earmarked 100 cities wherein we'll be rolling out the broadband. The process has already got started from April onward. And as we move forward, as we start enabling different towns, we will be sharing the details with you. Over there, our ARPUs, as of now as per our plan, are in the range of INR 550 a month. That is, I think, quite competitive in view of the fact that we will be giving 20 MB speed on an average, 20 to 50 MB, and definitely there will be different packages. Telcos today are operating with a speed of 5, 6 MB, a max speed of 9 MB being delivered. Any telco, overall, that is what TRAI data says. And even in terms of data, monthly data is not more than 45 GB that they are delivering. And in our case, data will be sort of unlimited to ensure that subscriber gets stick to our network.
The next question is from the line of Naval Seth from Emkay Global.
A couple of questions on cable. First of all, if you can share the collection efficiency for the quarter.
Collection efficiency for Q4 is 91%.
And sir, any specific reason why the same has fallen both on Y-o-Y and Q-o-Q basis?
Yes, definitely, I'll be happy to share that, right, and it is for a simple reason. If you -- you all must [ remain ] that lot of content was denied to the subscriber during Q4. There that was due to some issues with the leading-most broadcaster, that is Zee Network, wherein there was issue related to high data offering. The annual hike that was being asked and that we were willing to pay, that issue now solved and settled. Instead of giving any discount, we simply followed a procedure wherein the -- instead of discount, we defer the collections to an extent possible. And I am pretty sure that very soon this money that is got stuck, after all Zee bouquet meant that annually it -- a select of 50-plus channels. So denying the content and then asking and ensuring the same kind of number is slightly difficult. But going forward, that money will be taken out by us on the ground to the maximum possible. And then when it happens, it will be reflected in upcoming quarters.
And the same can reach to 95%, 96% level, both ESP and the...
It will be back in the range of 94%, 95%.
Okay. Second on the subscription growth. So going forward, your ARPU improvement strategy is working well. Until when we can expect double-digit subscription growth coming in from like ARPU increase, or there is also strategy to further increase our focus on the subscriber market share and drive with the balance, both volume and value growth?
As far as volume is concerned, we are in no hurry to increase the volumes without ensuring that proper subscription will be paid by the subscriber to us or if the LCU collection gives us a fair share of revenue that it collects. Otherwise, we are not going to go for expansion just for sake of expanding and extending any subsidy. That has been the principle we have been following for the last 2 years, and we are still going to stick to that. Yes, definitely, there will be increase in the subscription rate. I have already found -- in so many quarters, I have you been telling and highlighting that Phase 3, 4 revenues also have to go up to the level of Phase 2, 3 sequentially, over a period of time step-by-step. And I'm quite confident that whatsoever hike that has come to us, that has hit us from broadcasters, will be passed on to the subscriber not just hike, including some inclinatory increase in the overall OpEx. If whatsoever could cover all the aspects, suitable hikes will be taken out, extracted from the ground going forward.
And sir, on competition, it has -- the competitive intensity reduced or say health competition is now aligned with us on the ARPU increase. Any comments on that?
Yes. Initially, we all know that competition was not getting aligned. But I am happy to share that after a lot of turf war and whatsoever they were wanting to do, things have started changing. There are 2 national players who are in competition to us. I would at this stage say that one of them has got aligned and is just 3, 4 months behind us. The other one is, also, I'm hearing good updates. But I am yet to see. But I am sure that they also would not be ending -- quarter 2 onwards, they won't be much away from us. That's my expectation. As per my direction from the sources that I won't like to -- I am not entitled to share, that it is other sources. But I am quite confident, even the other peer of mine will also start following the same course.
And my last question is on box seeding in 4Q and CapEx guidance for FY '19?
So box number, that was -- you want to know the number of boxes we did in Q4?
Yes.
That is 75,000. Primarily, the number got dropped for another reason of lower content being offered to the subscribers. So one major bouquet was off, so definitely naturally any subscriber would like to have the entire thing, and that's why we didn't bother. And I am not hiding anything. Yes, that is a fact. So we didn't give enough focus on this number until the things are settled. There's no point in absorbing or taking the fault and just go on expanding, expanding without any meaningful business. What is the other question you asked?
Guidance for FY '19?
For '17/'18?
For '19.
For '19.
So Himanshu [ this side ], Naval. On the CapEx for the last year, maybe I should start from there, that's 138 crores, which is a very meager number spent on broadband, which was around [ 1,214 crores. ] Coming to the next year, a lot will depend on what we intend to do, which is basically we are trying to focus more on HD seeding now. This is going to have a play. Obviously, the moment we spend money on HD boxes, we recover it also simultaneously from the customer. So on a product basis, this will be the funding, but that would obviously have a play without getting into numbers that would stick for the next year.
The next question is from the line of Sanjay Chawla from JM Financial.
First 2 questions, housekeeping questions related to cable business. You said that you seeded 75,000 boxes, but we haven't seen any increase in the net digital customers which remains at 7.4 million. So is the entire thing is the number of current customers?
Sanjay, sometimes the box -- so one is conversion of the boxes from SD to HD, okay, so that is also happening. The other factor, given that you looked at it from a broader basis, 7.2 million has gone up to 7.4 million. There are boxes that we purchased giving the [indiscernible] product full year. So we purchased boxes, there are certain boxes which are still under scheme, there are boxes which are inactive and there could be multiple reasons that play -- examinations, festivals, et cetera. So certain -- so you see here the number is not really -- so if you try and combine our numbers quarter-on-quarter, it may or may not happen that the total number of boxes add up at a particular point of time in a year. But yes, these boxes are there and they will start giving us the subscription revenue that we so desire in the coming years.
And just to add it to Himanshu, in the past, we have been saying that we have so much beginners, and these are the active boxes, these are the boxes. So there used to be queries that what is the clear number, and the ARPU is not matching. Henceforth, we have decided consciously that we'll be giving you the actual build boxes to take off any confusion in life.
Yes, I know that is very good. Quite appreciate that. And my second question is reactivation income collected as per I-GAAP in the fourth quarter and on a full year basis also, FY '18?
So activation number in that was 24 crores this quarter, which was slightly lower than the last quarter, which was 36 crores. So you see a drop of 10 crores there, but that's on a broader level basis.
Sir, my question was on -- in the Indian GAAP basis, I-GAAP basis, in terms of actual collections?
He is just cross checking the...
8 crores you can say roughly.
8 crores in the fourth quarter?
I think he was asking in terms of [indiscernible].
[indiscernible]
No, he is asking for the whole year.
Whole year.
Are you asking for the whole year?
Both. Both, both.
Sanjay, we have exceeded 75,000 boxes. Like I said, there is no subsidy anymore. So INR 1,000 box, that's probably the number which comes in the system that [ we are in now ].
Yes. So that for last quarter almost 8 crores as you said?
Yes.
And the amount for the full year?
Full year is 20 crores -- sorry, for the full year, that's 117 crores activation.
117 crore as for Indian GAAP?
[indiscernible]
No, he's asking you, I guess, with that.
So first, [indiscernible] happening, so that's not going to change so much. Sanjay, it should be probably the same.
Oh, okay. Okay. Fine. What is the STB inventory, which is reflected in your working capital in progress, the number of boxes?
Sorry, can you repeated the question?
Yes. Set-top box inventory in terms of not thousands or hundreds of thousands of boxes, but just in your balance sheet currently.
[indiscernible]
Sorry, I didn't get it.
100,000 STBs roughly, Sanjay.
Okay. Okay. And finally, can you update us on the content deals that you have signed so far for the coming calendar year and the fiscal year and the kind of increase in our content cost that one should expect in terms of gross basis?
As of now, whatsoever has been done, it's all settled for next 12 months, but for [ starts ], targets renewed after 9 months, that is in January. The rest of the deal will all settle in April '19.
Okay. And all these deals have been signed up?
All these have been signed up and firmly in place.
Okay. And what kind of increase, broadly, we should expect in the content costs for the coming fiscal year?
It's in the range of less than 15%.
Less than 15%?
Yes.
So my question is you have reported a 14% increase in your content cost in the last fiscal -- FY '18, right, and we're expecting a similar kind of increase next year. So given the fact that you're not seeding too many boxes in terms of going after new territories, new areas, one would have expected a lower increase in the content cost, but that doesn't seem to be the case. What would be your thoughts on that?
The forecast area has been -- for last 2 years, they have been repeating: monetization, monetization, monetization. Phase 3 ARPUs are still at a very low level in comparison to [ forget ] Phase 1, [ here we're in the new ] Phase 2. The ARPUs has to be taken up to do and many meaningful business. When we do the deals with the broadcaster, as per regulation, regulator doesn't distinguish the content cost to the difference between Phase I, 2, 3 and 4. Analog times are different, were different. Today, the content cost happens to be the same across countries. So even if you go in for expansion more and you don't recover the content cost doesn't makes sense to us, at least to us, others I can't say. So we are, as of now, focusing on increasing the ARPUs majorly in Phase 3 and 4, which happens to be 50% of our base. And some incidental increases will also be taken from Phase 1 and 2 also. Although Phase 1 is at a level of INR 144. But I'll be able to stretch so far these results further in Phase 1. Phase 2, considerable hike will be taken, and so is the case in 3 and 4. Besides that, we have a plan, I've been telling you in the past also, going forward, to convert 10% of our SD base into HD. And if I'm able to do it, which I'm quite confident, whatsoever we have been claiming and telling in the past that would had happened in reality also. So that will bring in extra [indiscernible] to me because that doesn't drive any extra cost or any extra content burden on us. So these are the 2 areas. That's how we are going to not cover the hike in the content, but we'll be getting additional revenue generated in that city.
Sir, why is that the only issue in this industry has been that -- I mean, so they had tended to lock at a certain level of content cost increase. Whereas, there is obviously lesser than [ be able ] to increase in monetization. I'm not saying monetization will not grow, it will happen. But obviously, you're still locking in a certain level of content costs and that becomes the base for the next year increase. So I'm just wondering, 15% just seems too high to me that's why I thought -- well, anyway, I guess we'll have to wait for monetization to progress.
But all I can say is just see our trend record of that -- trends record of last 6 quarters, that gives you answer that query. There's nothing more I can share in it. All I can say is, you would have -- you can see a growth of vis-à-vis financial year '17, the subscription in Cable has -- got increased by 22%. So that also itself speaks about what we have already delivered. I will not speak more than that.
Sure, what is the number of, actually, boxes and number of, actually, paying customers that you have on your network as of March end?
As of now, it is close to 1 lakh only, 1 lakh plus something. It's not [ whatsoever ] you people keep are asking me. I have already said that let's talk of -- start talking it from Q3 onwards, the boxes are being seeded aggressively under different schemes. As the volumes build up, then it will be worthwhile to mention the subscription levels of HD. And we will be very happily to share it because that is going to add to the revenue, [ picking up ] mine. After all, I also have internal AOP on which I am functioning based on KPIs I am supposed to deliver also. So I'm quite confident I'll be able to do justice to that.
Realistically, over what time do you expect 10% of the SD base...
More or less, 12 months [indiscernible].
Next 12 months. So by March '19, you should expect that.
Yes, March, April. Something like that.
Sure, sure. This is good. Just a last question, a housekeeping one. Again, on your balance sheet that you have shared for the year-end, there is an amount -- pretty a large amount on account of deferred revenue of INR 472 crores. So what are the sources of this and can you share the breakup also of this, please?
Sanjay, this is basically the activation that you have seen. So you know we'll receive it and we bucket that so that we can amortize it over a period of 8 years, as is the life cycle of the set-top boxes.
Okay. So this entirety belongs to unamortized -- unrecognized activation revenue?
100%.
The next question is from the line of Gautami Desai from Chanakya Capital Services.
Yes, I just wanted to recheck the net of taxes ARPUs [ cable ] per month. It's 92, 63 and 47. Am I right?
So I'll repeat [ set box net of taxes ] ARPUs for you Gautami. So the cable ARPUs net of taxes for the year were 116, 92, 63 and 47 per box versus 100, 76, 49 and 33.
So these are full year, right?
Yes, this is for the full year.
But can you tell me for Q4 how these numbers trend?
Sure, I can give you that as well. So Quarter 4 numbers for Phase 1 was 122, Phase 2 was 96, Phase 3 was 68, Quarter 4 53. So all in all flat over Quarter 3.
Okay these are Q4? So basically I would be right if I just remove 18% from your [ group ] taxes [ further? ] That's the only adjustment [indiscernible]
Sorry, I missed your last part.
To get at the net of taxes figure, I just have to remove 18%, right?
18%. Absolutely.
Okay. And all your reported content cost and everything is after GST, right?
Correct, correct.
I would like Himanshu to clarify again on GST.
So anything, which is going into the P&L is without GST -- excluding GST. So landed cost and landed revenue too.
The next question is from the line of Kunal Vora from BNP Paribas.
I wanted to get a sense on high-definition boxes and like how we are doing it aggressively without offering subsidies? Should we take it as a given that going forward you will not be offering any subsidies?
Subsidy is my out of my syllabus, sir. My board doesn't allow me to even spell the words. I have forgotten the spellings of subsidy, sir. I've been very upfront and forthright with that. Our HD box offerings is pretty strong. That is the strongest box that is being offered. It has an external memory device feature. You add our specific, what do you call it, dongle kind of device to it. That will enable lot of apps from your handset to be displayed on the TV. A normal old-time TV set can be converted into Smart TV, not HDTV. But the old-time, even those, if you remember, box kind of TVs that used to exist in our lives, even 80% of our country still has those boxes. If that subscriber goes in for our HD box, his old-time TV can be used as smart TV. And all these apps, not all, but plenty of the apps that will be controlled by us from the back end will be enabled on the TV. Not just that, the controlling of the TV that is the remote can also be loaded on your smartphone that is being used in every household. Every household nowadays practically has a smartphone in the home. So that TV can be controlled using a smartphone, which is a very user-friendly kind of arrangement. So with these kind of features, the offering is great. The box is being offered at INR 1,500 to INR 1,600 depending on various schemes and numbers that are being asked by the updaters. This includes 3 months free subscription for HD. So basically, I don't see any reason that for an HD box the subscriber is willing and the boxes have started going out also. So I'm quite confident that we will be able to and this is for the first time we have deviated from the past wherein we used to deal with these LCO and never bothered to explain our schemes to the subscriber. This time, we have gone to the subscriber end, and we have openly transparently displayed our hardware prices so that there is no jugglery and misguiding to the subscriber. Of course, it led to a situation there was some resistance in initial days, but those days are over and operator has realized that this is the way forward. And we have all the reasons and logics to tell the subscriber the end price of [ our offering. ]
Sure. But like still convincing a customer who is not even willing to move from CRT to panel television, the additional INR 1500, INR 1600. Like how are you doing it and like would you be confident that...
Sorry, please complete.
Yes, yes. So what gives you confidence that customers will do it? Because like if it was your portion, if you're giving subsidy and like the price for upgrade was very small, it would have been easier. But with the INR 1,500 additional amount which the customer is to shell out, how are you convincing them?
Sir, a lot of marketing efforts are going into play. Broadcasters have also aligned with us. A lot of workshops are being conducted, lot of training sessions are being conducted across the country. Below the line activities are being undertaken by us and whole lot of system is into -- is put into place to enable this conversion, and I am not talking about 30%, 40% conversion of my HD box. I'm talking of the top 10%. So it's not that the subscribers of cable TV are not willing to pay for the quality product. Definitely, they are willing to get a quality -- pay for a quality service provided the service is enabled. Till now, we ignored on this since we were busy in correcting our SD subscription model where there was roadblock. You're right, earlier it was not possible to even connect INR 30, INR 40 on the LCO, but today the same LCO is paying me INR 144 in Phase 1. And this is just in 2 years' time it has happened. So the beauty of cable is it took us 4 years of Phase 1 going to INR 144. For Phase 3 to go to INR 90, it has taken us less than 1 year. And very soon, it will be inching toward the same level. So I am 100% convinced that there is a demand. The subscriber definitely is looking for HD services. And the price also that we have given. In earlier days, we were offering HD box at a very high price. The hardware prices have also fallen down. That time it was being offered for INR 4,000 or INR 5,000 where we felt lot of resistance. Today INR 1500, 1,600 is not a big growth as far as [indiscernible] is concerned.
Sure. And what are you doing with the old boxes, higher-definition boxes, you were taking back from the customer?
Those are being used to replenish some boxes that go out of warranty that go dead and in some nominal expansion in some far-off places of Phase 4 where the ARPUs levels are pretty low. That is what we are being -- what is being done to the boxes [ as they fall off. ]
Sure. That leads me to the second question actually. So with content cost similar for Phase 2, Phase 3, Phase 4 customers and the ARPU being so different like INR 50 versus INR 100. Is it profitable to add customers in Phase 4 markets? Especially if you don't think those customers have an ability or potential to pay a lot more compared to what they're paying -- specifically content costs are similar, sorry.
I'm not talking of volumes. In this session only, there were questions on expansion that was the reason Phase 1 and 2 is all set to [ go to ] market. Phase 3 also, in terms of seeding, majority of it has been done. Now how do you go and do further seeding is naturally if somebody subsidizes. And subsidizing is out of syllabus of DEN Networks, I can [indiscernible] and upfront tell you. Phase 4 is the only place where 20% to 30% of market is you have to be seeded wherein you gradually and I am not very keen in expanding to the place where my delivery cost of content is also more than the content cost. You're talking of content cost, I am talking of delivery of content is also becoming abnormal. So in that area, we better don't go. We only go Phase 3 and 4 on sort of [ war needs ] [Foreign Language] and we get dues the way we want, after all they are also going to increase their channels from 50, what they are watching today, to 300 meaningful channels. So the life changes and gradually they are forced to increase the subscription. What you are asking is a valid question, but 2 years back it used to be a different perspective altogether. The industry was not able to connect all even. Even if the operator was connecting, we were not able to deal with the operator and bring out our fair share of money, but that has happened. So going forward, I'm quite confident that we will be able to recover more and more subscription.
Sure. And my last question. How has the response been to your new broadband offering? You are doing broadband business? How has the initial interaction been with the LCOs and any launches, which you've already done?
Yes, it's pretty good. We are moving very swiftly in that front. We have a plan to enable 15 towns in the first quarter. We have, overall, 100 towns have to be enabled and you will be surprised that LCOs themselves are approaching us, besides our team approaching because we already have the infrastructure in place. Our local offices have been put into action. They are signing our LCO. There is a -- please understand that from signing to enabling a town, it is a 2 to 3 months' gap that is involved because you got to tie up with telephone for delivery of bandwidth. You got to put up some electronic -- nominal electronic [ that is involved ] in local town. So a lot of logistics are involved so whatsoever 15 towns we sign up, rollout, really impact the results that will be shown to you or shared with you will be the work of Q1 will start delivering in Q2 onwards. And then there is -- this is generally from 1 subscriber to 100, to 1,000 or 2,000 or the way it increases, we'll keep on sharing. So every quarter, there is a milestone on which we are working. And these 15 towns vary from different states to states. It's not just we are focusing in Uttarakhand or UP. We are going to Bihar also. We are going to Rajasthan also. We are going to Madhya Pradesh also. So a whole lot of variety of states are being planned out, even on Q1.
The next question is from the line of Rohit Dokania from IDFC Securities. Please go ahead.
Just 2, 3 questions from my side. I actually joined the call later. So apologies if that is a repeat. One is if you can talk about I believe sort of net ARPU in this quarter was probably flattish on a sequential basis across phases. So could you please explain the reason why?
Rohit, the basic reason as I explained earlier there was a shortage of content being offered to -- rather short delivery of content not shortage. There was an issue with the networks, and the content of the network that means roughly around 50-odd channels. But now there is a split. Turn up channels have moved out so the number is reduced during this issue that prevailed between us and Zee-related to hype being demanded and being offered that led to a chaos. That issue is now settled. But since there was a short delivery of content of the Zee Network instead of passing on any rebate, we just deferred our collections that -- and the suitable hype will be -- henceforth, we will start enabling the hype. All that hype that has come in the shape of content will be passed on to the ground, to the cable operator. We are very clear about it.
Sure, understood. Okay. Clear. I don't know if you have any sort of guidance -- a small guidance, at least broad indication of where one should look at in terms of phase-wise ARPU towards the end of this year. So if I'm not wrong, for example, let's say if we close the area at INR 122 in Phase 1, how should we look at INR 122 towards the end of FY '19 and if you can give some indication...
On this platform, all I can say is please look at my past track record, and I will ensure that I keep on delivering on the same level in the same manner, and I request you to kindly wish me the same on this. But I'm afraid we won't like to make any future guidance on that front. I have not -- never been doing so. All I have been saying and whatsoever I have indicated, the track record says that we have delivered that.
Yes. Yes. Absolutely, the last 6 quarters has been great in terms of the metrics. Just one last question also in terms of the length of content deals. I mean I remember earlier there was an issue of our content deals probably 1-year long whereas DTH was able to sign 2- to 3-year long deals. So what would be the average sort of length of the deals that we are able to sign with broadcasters currently?
Sir, the deal with Sony and I. Cast were 2 years' deal. Star and Zee have come -- begun into a string that they are now signing only one year deals. So as of now our content deals are all frozen till March, April -- March and April next year. So that is the length. And then all of them become due for renewal. So as and when it happens, whatsoever is the process, we follow that process. Because you see the broadcaster is also now getting confused as the time passes by as these updates on upcoming tariff order also come into our life. So nobody is willing to sign up for a long-term deal, and that is where we stand today.
The next question is from the line of Dipesh Mehta from SBICAP Securities.
Just 2 data-related questions. Can you help me with that digital subscriber base, which you have at the end of year?
7.4 built customers plus 1 million for the associates. So total built customers, Dipesh, would be 8.4 million.
Total set-top box figures. Earlier, let's say, last quarter digital sub base was around 11.2 million. What would be that number now?
So that's the universe, Dipesh. So what we are billing now, I think that here has been a request in the past that you want to know how much is the billed customers. And this is what Sharma Ji also mentioned earlier. This is what we have indicated in our releases as well.
So just to get...
The box that doesn't produce any revenue is of no use to you, to me, for any kind of analysis. So let's talk of the pure money that is being received by us. That's why we are avoiding those numbers.
Sure, sure. And can you help me with the broadband subscriber base? Because it seems to decline substantially while revenue remain more or less same. So if you can help me understand Q4 performance.
Broadband subscriber base.
Yes.
So Dipesh, that's 107,000. This is the same figure, [ we were supposed to try ]. I think, in the past we have been showing home passes. We have been showing total subscriber base as more than 200,000. But this time, considering that we want to bring in more transparency to the entire team, we are showing you what we billed today -- how many customers we bill today.
So can you help me with quarter-on-quarter kind of movement, how it changed?
The number has been more or less stagnant. If you see Quarter 3 and Quarter 4, it will be more or less flattish.
Okay, and do you believe now the ARPU pressure...
Just for your understanding, sorry. This is just for your understanding. Otherwise, we have done a close to 9 lakh home passes upgradation wherein we are receiving money from the numbers that Himanshu just mentioned. Yes, please carry on with the next query.
So I have 2 related queries. About -- I am not very clear about the difference between 200K-plus number what earlier we used to refer because that was separate from home pass numbers. Now we are saying 100, which is only paying versus modem kind of number or how one should look at it?
So the right way to look at it would be that you know these 200,000-odd customers are the customers that we did business with at some point in time. Today, the business that we are doing is 107,000. This is how we should look at the numbers. So 11 million like the same logic, 11 million versus 8.4. This is the same logic coming here as well.
This is active base kind of number?
This is the active base kind of a number, yes.
Okay. And second question is about broadband strategy kind of whether we have put some numbers, how much subscriber base we would like to have because now we have changed our business model to franchising model. So are we putting some numbers or internal target, which we have set for ourselves? And can you say those things so we can monitor how we are tracking things?
In one year that we'll be enabling 100-odd towns. Definitely, we are working on a target, and there are numbers being -- going to be achieved. But this year, it will be externally enabling and putting the things into place. So as I explained any town that I want to go in from the town that I plan to go in, there is a lot of activity that is involved from date of signing, then training, then giving them all the details, then explaining them the quality standards that they are supposed to follow. The franchise -- this is unlike cable TV. Cable TV, we inherited the business that was being managed by cable operators, the ground level things were set up by cable operators. Herein, we will be ensuring from day 1 that he follows the quality standards being prescribed by us. He goes in for hardware that we allow him to go so that 100% delivery of specification and quality is ensured. In view of this, the numbers are not going to be very high. In first year we are targeting for 1 lakh subscribers. Going forward in year 2 and year 3, the real growth will come in. I will won't like to give you the numbers at this stage, that is part of the annual plan that we have given to our board. But I'm quite confident you all will feel happy since it's a very CapEx-light kind of model. It is not going to bring in much stress on us.
Sure. And the last question is about content related. How one should look net content carry cost kind of thing? Because if I look from INR 10-odd in FY '17, now we are at around INR 15 for the full year and '17 on exit basis. How one should build this number?
See, Dipesh. I think if you not look at content minus placement, these 2 are separate things. For a few broadcasters there is a deal done on a net basis, but more importantly, there are others also with whom we are dealing on a gross basis and there are free to air channels also where we are getting [ carriage. ] So I think these 2 are separate elements and should be considered accordingly.
Okay, so you don't expect -- because broadly, what you are indicating is your subscription revenue growth to be better than your content cost growth. So even -- never you're indicating their numbers would not increase further.
What should not increase further? What you said?
The [indiscernible]...
We are not able to understand the question. Can you repeat the question in totality?
Yes, so when I say net carry cost is content minus placement, now you're indicating you should look both separately. If I look both separately, you are indicating your subscription revenue growth stood out with your content cost inflation, which is roughly 15% as you are indicating. So in a way, you're indicating your netted one would like to look at it. It should not have further dent kind of thing on overall profitability?
See, Dipesh. I think you should try to appreciate that you know like Sharma Ji also mentioned ARPUs that's moved across all phases. Alternatively it's about convergence and further move up. So whatever costs come in -- and in terms of input cost would have to be passed on to the market one way or another. The other elements which will help us to be able to pass on the entire thing and maybe earn something more is the HD monetization. So there are levers in place, which should help us realize what we need ultimately on an operational front.
Maybe I can take it offline. But last thing. HD, I think Sharma Ji mentioned content cost will not increase even if it is promoted into HD. Whether we have signed such deals with the broadcaster?
Yes. It's all in place. What I am speaking here, I am 100% sure of. I'm not going to give you any surprise till the date deal is signed. And I have just given the dates for duration for which deals are already in place.
No, no. My question was for us HD subscriber base and HD subscribers, we pay the same amount to broadcaster?
So HD is part of the package.
It's a consolidated deal. The amount that is being paid to them is made up of both SD and HD services.
Irrespective of the mix kind of thing, at least for near future?
Yes, yes.
The next question is from the line Ishpreet Kaur from Pharma Capitals.
Sir, just taking cues from the previous question, like you said, so the 15% increment in the content cost. That is on an absolute basis. Does that take into account the INR 7.4 million subscriber base that we have or are you factoring in...
Ishpreet, can you repeat the question? Your voice is a bit feeble. Can you be a bit little louder please?
So the content deals that have happened and now that you've signed, are they on an absolute basis or an a per-subscriber basis?
It's a fixed deal, not on per subscriber basis.
So the 15% that you've guided for, that takes into account the 7.4 million subscribers we have or are you factoring in...
8.4.
8.4, yes. So no addition to it, right? So when we take that into consideration for the Phase 1, Phase 2 ARPU is not going to increase at that kind of a pace. Of course Phase 3, Phase 4 will catch up. So our margins could probably stay at a little lower level. They would likely see a drop probably in Q4 a little improvement from there, but not major.
See everyone is catching up, like I said. Obviously, realizations have to move up. Even if there is an increase in the content cost which has happened, even the Phase 1, Phase 2 ARPUs to whatever extent is possible, the prices have to move up as well. So the content, like I said, you know it is fixed deal. So irrespective of the customers that we have, this is what I need to pay. So if I seed more boxes tomorrow, all this in a way helps me build up more realizations.
Correct.
And today, when Phase 3 and 4 were paying less, we were taking care of it from the collections that were happening on the ground, even including Phase 1 and 2. So look at the business in totality. Don't look at it in piecemeal basis. So there won't be any stress on the margins, I am quite confident.
And even if [ she ] is going to have a play, so you know -- so that is something that we are very clearly focusing on.
And on the Phase 1, you mentioned that we could probably see another INR 4 to INR 5 of an increment. That could happen not holding on to the...
You please keep on wishing me all the success.
Sure. And I could just get a breakup of Phase 1, Phase 2, Phase 3, 4 in terms of subscriber base?
So Ishpreet, I think -- we'll give it to you.
[Operator Instructions] The next question is from the line of Sanjay Chawla from JM Financial.
Two more questions. First one is what was the exit ARPU in the broadband business like fourth quarter ARPU?
That's around 570, roughly.
5 7 0.
5 7 0, roughly. You want precise, it's 565.
Okay. No that's fine. And what was the consumption that you've seen -- data consumption per customer on a monthly basis?
85 to 95 GBs per month per subscriber.
Okay, okay. Last question is there is some talk of City Networks entering some Phase 2 areas of your core UP market in the coming months. So what kind of realistically impact we should build in, whether in terms of maybe churn or ARPUs? What would be your thoughts on that?
With due regards, I would like to highlight we have been increasing the ARPUs for the last 1.5 years. And the same universe, the same kind of competition, the same kind of competing players have been there in my life -- in our life. So irrespective of what we have been doing and what others are doing, we are not seeing any threat to our existing universe in a very significant manner. If somebody has to churn or take away my box, he naturally has to subsidize. If he subsidizes by giving the box free of cost to a subscriber who has already paid up for the box, I don't think that will make any business sense to a man in normal sane, but if somebody wants to whimsically decide and somebody has the power and magnitude to give free of cost boxes all across the country. I'm sorry, then there is no business sense to do any business to anybody. Then why not them, it can happen to any other investor also. There used to be talks in city in State of Punjab that after change in government, there will be change in the boxes. Nothing of that sort has happened. I don't see, to the best of my capacity, all that is passed, now all my competent members, my peers have also started following the process that we have established. We have laid down the pitch, now simply they have to go and start demanding more. As they demand more, that helps me to further back up my subscription revenues with the subscribers. So I'm not bothered with some whimsical speculation being spread by some quarters. I have no comments to make on that.
So broadly you're saying given the state of the industry, some of the irrational behavior that we may have seen in the past you think that is very unlikely going forward, given that the collections are and the content the cost is.
Yes, sir. There is a lot of [indiscernible] that has already prevailed. I am dealing with all my competing members on a daily basis in different localities, not just UP, Bihar, Jharkand, West Bengal, all these low-paying areas, even there I'm not seeing witnessing heavy churn or -- not heavy just, even significant or even worth-mentioning churn. If something goes to DTH for slackness of cable operator or some nominal 5, 10 boxes moving due to XYZ reason, I don't think this is the platform I need to elaborate on that. A lot of sense has started prevailing on my peers also.
Ladies and gentlemen, as there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.
Thank you very much. Looking forward to more and more meaningful interactions with all of you in times to come. Thank you, and goodbye.
Thank you. Thank you, everyone.
Thank you very much, sir. On behalf of DEN Networks that concludes this conference. Thank you for joining us and you may now disconnect your lines.