Vodafone Idea Ltd
NSE:IDEA
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Good afternoon, ladies and gentlemen. This is Margaret, the moderator for your conference call. Welcome to the Idea Cellular conference. [Operator Instructions]We have with us today Mr. Himanshu Kapania, Managing Director of Idea Cellular; and Mr. Akshaya Moondra, Whole-time Director and Chief Financial Officer of Idea Cellular; along with other key members of the senior management on this call. I want to thank the management team on behalf of all the participants for taking valuable time to be with us. Given that the senior management is on this conference call, participants are requested to focus on the key strategic and important questions to make sure that we make good use of the senior management's time. I must remind you that the discussions on today's call may include certain forward-looking statements and must be viewed, therefore, in conjunction with the risks that the company faces. With this, I now hand the conference over to Mr. Himanshu Kapania. Thank you, and over to you, sir.
Thank you, Margaret. On behalf of Idea, I welcome all participants to this earnings call. On 30th July 2018, our Board of Directors adopted the audited results for the first quarter of financial year 2018/'19. The detailed press release, quarterly report and complete results have been uploaded on our website, and I assume you had a chance to go through the same. In view of the impending merger of Idea Cellular with Vodafone India, we will not be responding to any forward-looking questions regarding the merged entity strategy and plan on today's call. My opening remarks will cover the major developments as regards regulatory approval for merger of Idea and Vodafone India, update on various fundraising programs, along with key operational highlights, while Mr. Akshaya Moondra, the company's CFO, will provide details on the company's financial performance for the first quarter of financial year 2018/'19. First, birth of new Idea imminent. On 26th July, 2018, the company received the Department of Telecommunications, DoT's final approval for the merger of Vodafone Mobile Services Limited and Vodafone India Limited with Idea Cellular. The Ministry write its letter dated 9th July, 2018, and demanded from Idea the transferee company: a, an amount of INR 39,263 million towards the differential between the entry fee paid and the market-determined price of up to 4.4-megahertz spectrum that was assigned to Vodafone India; and b, submission of bank guarantees amounting to INR 33,224 million towards Idea's onetime spectrum charges known as OTSC for its spectrum holding beyond 4.4 megahertz. The company has, under protest, complied with the above demands raised by the DoT by making necessary payments and submitting the requisite bank guarantees. With receipt of DoT's approval, we are in the final phase of merger completion. The combining companies, Vodafone India and Idea, have already received approval for the proposed combination from the honorable Competition Commission of India, CCI, SEBI and stock exchanges and National Company Law Tribunal, NCLT benches of Ahmedabad and Bombay. The merging entities are now in the process of completing certain procedural formalities and expect the merger to be effective and operational very shortly from August 2018, itself. Second, update on asset monetization and fundraising. A, on 13th November, 2017, Idea and Vodafone had announced the sale of their respective standalone tower business to ATC, the American Tower Company, for a combined enterprise value of INR 78.5 billion to strengthen the balance sheet of the merged entity. Vodafone India had already received INR 38.5 billion for the standalone towers during the last quarter of the financial year 2017/'18. On 31st May, 2018, Idea also completed the sales transaction of its nearly 10,000 standalone towers to ATC for a enterprise value of INR 40 billion. B, on 25th April, 2018, Bharti Infratel, BIL, an Indus shareholder, had announced the merger of Indus with BIL to create the largest tower infrastructure company in the world, excluding China, with 163,000 towers pan-India. This transaction gives an option to Idea Cellular to either: one, sell its 11.15% stake to BIL before the merger for cash based on valuation formula linked to a VWAP for Bharti Infratel shares during the 60 trading days at the end of Idea's election period, which triggers post-completion of all regulatory approvals required for the merger. At the time of announcement, this equaled to a cash consideration of INR 65 billion; or alternatively, second, received new shares of the enlarged merged entity at an aggregate share ratio of INR -- 1,565 shares of Barth Infratel for every share of Indus Towers, amounting to nearly 7.1% stake in enlarged new merged listed entity. Even in the case, Idea decides to exercise the full cash option, Idea will have certain rights, either in perpetuity or for a period of 5 years, which will help us significantly protect the interest of our mobility business, including the most favored partner, or MFN status until publicity. Vodafone, the joint venture promotor of the listed mobile services business entity, post-completion of Idea Vodafone India merger will continue to remain in joint control of the new enlarged tower entity, post Bharti Infratel in this merger along with Bharti Airtel. This announced merger of Bharti Infratel and Indus is progressing well with the honorable Competition Commission of India, CCI, SEBI and stock exchanges already awarding their approval to their proposed transaction. Bharti Infratel expects to complete this merger by the end of this financial year 2018/'19. C, in line with the Idea-Vodafone India merger arrangement, Vodafone's India contribution of net debt in the merged entity at the time of completion of merger will be INR 25 billion, more than that of Idea Cellular on closing. Accordingly, Vodafone Plc is progressing on equity inclusion through a rights issuance to reduce Vodafone India's debt. D, separately in quarter 4 FY '18, Idea has successfully completed equity raising of INR 67.5 billion, which included preferential allotment to promoters as the bill approve for a consideration of INR 32.5 billion, and qualified institutional placement, QIP of INR 35 billion. To summarize, with equity inclusion of INR 65.5 billion by Idea in quarter 4 FY '18, sale of standalone towers of Idea and Vodafone for INR 78.5 billion, planned equity inclusion by Vodafone Plc and availability of option of monetizing Idea's 11.15% in the stake by March 2019, the merged entity would have completed this phase of augmenting its long-term capital resources. Third, key operational highlights. Since FY '18, the Indian mobile industry has continued to pass through a phase of unprecedented disruption, post the entry of a new mobile operator. The [ abysmally ] low priced, below cost, unlimited voice bundle data plans, introduced by the new operator, forced the existing mobile operators to respond commensurately in order to retain existing subscribers. Mass uptake of such below-cost unlimited bundle tariff plans by Indian mobility subscribers, resulted in an exclusive growth of both voice and data volumes. But the company crash in mobile service, rate realization and the ensuing decline in customer ARPU led to a record drop in industry revenue during the year. As for the TRAI release, the adjusted gross revenue, known as AGR of the industry, declined to INR 1,108 billion in FY '18 an astronomical drop of INR 296 billion, at the rate of negative 21.1% from the FY '17 AGR levels. Idea continued to maintain its competitive performance amongst the leading industry operators, excluding the new entrant. The company was able to curtail the loss in its AGR revenue market share to 2% from a level of 20.3% in FY '17 to 18.3% in FY '18, in spite of new operator gaining an AGR market share of 14.5%. During the first quarter of FY '19, the extreme pricing pressure being witnessed by the industry further compounded with the new entrant's heightened aggression to acquire more subscribers with a subsidized 4G-feature phone offering. Equipment operators attempt to retain their subscribers coupled with growing consumer preference for deep discounted unlimited voice and bundle data plans continue to maintain downward pressure on the ARPU levels of all operators. Idea's revenue during the quarter 1 FY '19 declined to INR 58,892 million, against a revenue of INR 61,373 million in quarter 4 FY '18, a quarter-on-quarter normalized drop of 2.9% post-adjustment for impact of 1 month tower revenue on account of completion of sale of Idea's standalone towers to 83 with effect on 31st May, 2018, and the full quarter impact of TRAI-directed international IUC rate reduction versus 2-month impact in the previous quarter. On a Y-o-Y basis, the company recorded a revenue degrowth of 13.1%, post-normalization for the full quarter year-on-year impact of steep downward revision in both domestic and international IOC settlement rates by TRAI and a sale of Idea's standalone towers. The decline in company's revenue this quarter was primarily an outcome of 2 factors: A, continued downgrade in consumer ARPU level. Idea's average revenue per user in quarter 1 FY '19 fell to INR 100 as against INR 141 in[Audio Gap]Over the last year, the market has witnessed successive rounds of intensifying pricing aggression, especially in the category of unlimited voice bundle data plans. First, effective January, 2018, the prices of monthly unlimited voice plans bundle with data at a higher level of 1.4 to 2 gigabytes a day were revised downwards to INR 165 or lower from all-year higher levels of INR 300 for first 28 days net of taxes in April 2017. Second, starting February 2018, mass promotion of unlimited voice bundle plans at INR 49 with subsidized 4G feature phone and introduction of mass market INR 99 unlimited voice bundles and INR 149 unlimited voice offerings with 1.5 gigabytes per day data plans, delivering a net monthly post-tax and channel margin ARPU of INR 130, by one operator especially targeting the voice 2G customers post-response by all other operators resulted in further fall in ARPU realization of unlimited bundle plans. Resultantly, even though Idea continued to charge a premium over the new operator [indiscernible] in the category of unlimited voice bundle data plans, the overall ARPU of the consumers opting for such unlimited plans fell steeply by over INR 75 over the last 12 months period. Similarly, company's effort to retain subscribers who prefer the non-unlimited plans by opening them discounted voice and data tariffs, resulted in ARPU decline as volume velocity from this segment of non-unlimited customers was not commensurate. B, weak new subscriber issue during quarter 1 FY '19. With a consolidation process nearly complete, Idea decided to calibrate its market aggression, shift from an expensive high new subscriber addition, high churn model of growth, and rationalize its channel payout and promotions for new customers, resulting in lower new subscriber additions during the quarter. This combined with higher churn from less than 180 days for customers arriving from robust growth addition in the prevailing 2 quarters, quarter 3 and quarter 4 FY '18, resulted in overall degrowth of INR 4.4 million VLR subscribers during quarter 1 FY '19. Idea's EoP subscriber base now stands at 187.9 million, a decline of 1.2 million users from quarter 1 FY '18, and its VLR base at the end of quarter 1 FY '19 is at INR 203.4 million. However, over the last 12 months between May 2017 and May 2018, the company remained competitive and improved its VLR market share by 1.4% to 20.9%, despite the new entrant cornering 17.5% on industry VLR shares, as for the latest TRAI release.Moving forward, the new management would be deciding on the approach to the market. In my estimate, the company's uptick in subscriber trend should be visible during the October-to-December quarter, as the benefit of larger coverage and capacity becomes available to the combined entity. Moving on, with the introduction and the subsequent proliferation of unlimited voice and bundle data plans, the Indian mobile industry continues to witness fundamental changes. A, with an estimated 450 million customers as of exit June 2018, across the entire Indian mobile industry, choosing unlimited bundle plans, out of the 1 billion people, such offerings have now become the new norm. Growing popularity of these plans is expected to result in even higher adoption rates amongst Indian mobile subscribers in the forthcoming quarters from the current validation mark of nearly 40%. B, the introduction of unlimited user bundle plans has resulted in tectonic shift in the consumption habits of Indian mobility user with a quantum jump in the first subscriber usage. Idea's mobile revised usage per subscriber witnessed a whopping 38% increase on a Y-o-Y basis during quarter 1 FY '19. The monthly voice consumption per subscriber for the company rose sharply to 609 minutes in quarter 1 FY '19 from 441 minutes in quarter 1 FY '18. Similarly, monthly usage of mobile broadband data per subscriber also experienced an exponential multiplier of nearly 2.7x on a Y-o-Y basis to a broadband data usage at 8 gigabytes per month in quarter 1 FY '19, compared to 3 gigabytes of data usage per month in year back. C. Further, the increasing mass market adoption of unlimited voice bundle data plans have led to an explosion in the overall mobile voice minutes and broadband data volumes in the Idea's network. During the first quarter of FY '19, Idea delivered a total of 349.5 billion mobile voice minutes, a staggering Y-o-Y growth of 39.4%, versus the 250.7 billion minutes registered in quarter 1 FY '18. The mobile broadband data volumes too reached a record level as Idea's pan-India wireless data network carried 992 billion megabytes during quarter 1 FY '19, more than 3x increase compared to mobile broadband data volume of 229 billion megabytes during -- carried during quarter 1 FY '18. The robust growth in mobile broadband data volume was also aided by Idea's expanding broadband coverage and growing smart phone adoption on its network which resulted in a healthy addition of 14 million wireless broadband users over the last 1 year. The company's wireless broadband subscriber EoP base now stands at approximately 41 million. Moving on to network expansion, keeping in mind the company's imminent merger with Vodafone India, Idea adopted a calibrated approach in its network rollout during the quarter, and deployed an incremental 5,688 mobile broadband sites. For broadband capacity expansion, Idea has placed the next round of network orders for TDD sites on 2300- and 2500-megahertz spectrum in its 8 key markets. This quarter supplies were slow, but the network equipment provider are gearing their manufacturing capacities to meet Vodafone and Idea's combination burgeoning demand for 4G services on TDD bands and new FDD 9-megahertz band. Idea's cumulative mobile broadband presence at the end of quarter 1 FY '19 stands at 160,598 sites, an increase of 43,212 sites over the last 1 year.The company's overall network footprint as of 30th June, 2018, stands at a total of 291,555 sites, including GSM, 3G and 4G technology sites. Idea's wireless broadband, population under coverage now extends beyond 662 million Indians, spread over 170,000 towns and villages across all the 22 service areas, which will expand definitely post-merger as the overlapping 3G and 4G sites are redeployed. During the quarter, Idea launched its Voice over LTE or VoLTE services, for its customers across all its 20 4G telecom circles. Idea's VoLTE delivered high-definition voice services over 4G, LTE network and allow subscribers to continue experiencing uninterrupted 4G internet while simultaneously being on a voice call. Leading smart phone brands, including Samsung, Xiaomi, Vivo, OnePlus, Nokia, Panasonic, Huawei, et cetera cater to 75% of mobile market in India have already released the first Idea VoLTE patch on their popular devices. The future models of these brands will come with Idea VoLTE patch embedded in them. Going forward, I estimate the merged entity will strive hard to rapidly expand its broadband coverage by redeploying the large number of overlapping equipment without incurring any significant CapEx and build sufficiently higher data capacity by consolidating and reforming its large-spectrum block of 18 and 15 megahertz across 900, 1800, 2100, 2300 and 2500 megahertz. In the interim, both the companies have entered into active infrastructure sharing for broadband services and 4G and 2G intra-circle roaming, ICR arrangement, wherever spare capacity is available. Under these arrangements, both operators are currently sharing nearly 66,000 sites. As you are aware, post-completion of merger, the combined entity, Vodafone Idea Limited, will kick-start its operation as India's largest and world's second-largest mobile operator. Based on the latest financial reporting for quarter 1 FY '19, the new merged entity will have: a, a subscriber base of nearly 408 million users, approximately 20% higher than that of the current market leader; b, a data subscriber base of over 123 million users, 1.3x that of the current market leader, though definition may be different; and d (sic) [ c ], a combined quarterly revenue of over INR 150 billion, nearly 30% more than that of the current market leader. The leadership team of Vodafone India has already been announced on 22nd March, 2018, and the new management team is ready with an extensive plan to consolidate the operations and network of the merging companies in a phased manner. With such a large-scale operation, the key focus area for the merged team will be to pass over the substantial cost synergies, estimated at approximately USD 10 billion in NPV returns and consolidate its market position. To remind you, at the time of merger announcement, we had provided a market guidance that we will -- we expect over INR 84 billion savings as a part of OpEx synergy from the fourth full-year operation as merged entity. And the new management effort will be to fast forward the initial guidance. To summarize, the ongoing phase of consolidation in the Indian mobile telecom sector is now heading towards its culmination with subscale operators having exited the industry by either shutting down their network or combining with other operators. Going forward, only 3 large private operators and one government operator are expected to offer mobility services to Indian consumers. Meanwhile, the consumption habits of Indian mobility subscribers has undergone a likely permanent change with most mobile voice and broadband data services becoming an integral part of their lifestyle. After the dust from their current disruptive storm settles down, even in minor market correction in the form of slight ARPU increase, will be revenue-accretive for the industry and translate into commensurate improvement in the financial health of the operator while resting with a long-term vision in the Indian telecom sector. While the near-term challenges persist, the merged entity, Vodafone Idea Limited, will be well placed to benefit from the opportunities that the sector offers and emerge as a strong mobile service provider of both voice and broadband services across 2G, 3G and 4G platforms. As I conclude my final earnings call, I would like to take this opportunity to thank all the institutional investors and telecom analysts for our fruitful interactions and incisive feedback on Idea's strategy and programs over the last 7 years, and wish all of you happy investing in future. I now hand over to Mr. Akshaya Moondra, Idea's CFO, for details on the financial performance for the quarter.
Thanks, Himanshu. A very good afternoon to participants from India and a good morning or evening as applicable to overseas participants. The revenue for the quarter declined to INR 58.9 billion in Q1 FY '19, as against INR 61.4 billion in Q4 FY '18, mainly on account of downtrending of ARPU. After adjusting for impact of exclusion of 1-month tower revenue, post-sale of Idea's standalone towers, and full quarter impact of TRAI-directed international IUC rate reduction versus 2 months impact in last quarter, the normalized quarter-on-quarter operational revenue decline is 2.9%. The company has adopted Ind AS 115, that is revenue from contracts with customers, which has become mandatory from 1st April, 2018. The effect of the adoption is insignificant on these results. The EBITDA for the quarter stands at INR 6.6 billion. The previous quarter had some one-offs and higher year-end write-backs. After accounting for those factors, the EBITDA decline is broadly in line with revenue decline. The depreciation and amortization charge for the quarter stands at INR 20.9 billion. The interest and financing cost net has increased to INR 13.9 billion in comparison to INR 9.7 billion in Q4 FY '18, mainly due to interest income on certain income tax refunds in Q4 FY '18 and higher ForEx loss during the current quarter. The ForEx loss in this quarter is INR 1.9 billion. During the quarter, Idea completed the sale of standalone towers to ATC, for an enterprise value of INR 40 billion, resulting in a gain of INR 33.6 billion. No tax outflows is expected on this gain, given the current position of tax losses. Further Idea received a dividend of INR 3 billion from Indus Towers during the quarter. The standalone tax for the quarter, after including the above, stands at INR 5.1 billion. CapEx for Q1 FY '19 was INR 9.8 billion. Net debt as of June 30, 2018, stands lower at INR 505.8 billion as against INR 523.3 billion in March '18. The cash and cash equivalents balance as of June 2018, is INR 132.4 billion. With this, I hand over the call back to Margaret, and open the floor for questions.
[Operator Instructions] The first question is from the line of Sachin Salgaonkar from Bank of America.
Congrats to the Idea team for getting all the key approvals and best of luck for your new journey. I have 3 questions. Firstly, in this quarter, when we look at the CapEx numbers coming from your peers, those are pretty high. And I understand, Idea's CapEx guidance of INR 70 billion and perhaps INR 70 billion more coming from Vodafone, and even the synergies and overlapping equipment and so on and so forth. But still the amount looks a lot lower than what your peers are spending. So it would be great to understand your thoughts on how you look at this spend, and if there are any upside risk to this? Second, I understand, again, you don't want to talk on the merged entity, but would be helpful to understand the -- some of the next steps of integration, and by when we could see the integration getting done? And thirdly, I read your notes, in which it was mentioned that you do expect the ARPU to revive. But what if tariffs don't go up at all for next, let's say, couple of years? And how do we see Idea, and perhaps, Idea Vodafone on either merged entity from a gearing perspective?
Thank you, Sachin. Let me answer your third part. I think, end of the day, all of us are crystal-gazing into the future, and it will be not right on any of us to start making any assumptions into the future. There is a general belief that the business, economic activity in any country is carried out in any sector is carried out for financial gains. And the current price level that is being offered in the market, along with the quantum that is available to consumer, is far below cost levels. So given this, it is a natural expectation that economic logic will prevail. Beyond that, it's crystal gazing, and it will be difficult to answer any question which is beyond economic logic. If you are fine with this part, I will move to the first 2 parts as well.
Sir, no, sir, pretty clear and completely understand. But again, when we look at Reliance Jio numbers, we do see on their reported numbers an EBITDA positive, a net income positive, and the statements continue to be from a point of view that we continue to make money at these levels. So I mean, hence this point that maybe these tariffs may continue for some elongated points. So I was coming from that perspective.
So I will give the answer into 2 parts. First part is the accounting practices of 2 companies are different. So it will be unfair to make comparisons of these 2 sets of companies, even though both of them are listed. I will leave it at this part. The second part is, as far as Idea is concerned, it has taken the most important strategic step of merging itself with Vodafone India, and we intend to bring down our operating cost. Our costs are very much known to the market for so many years. And we've been trying to bring them down on a standalone basis. But this is that much we can do. With the combined entity, we expect our overall cost to significantly fall and fall more efficient. So given our accounting standards, our reported standards, we expect our cost to go down. Beyond that, we will wait to see.
This is clear, sir.
So come back to your first question. CapEx numbers is high. You are absolutely right, and there is no disagreement that the CapEx number is high. Before I respond specifically on CapEx numbers, I have to keep reminding you that, even as we speak, the total number of radios that have been installed by combined entity is highest in India over 600,000 combined radios across 2G, 3G, 4G, is currently available. And a lot of these radios are upgradable to 4G services. And the specifics over a period of time will be shared with you. This is the first part. The second part for us is very important for CapEx is linked to coverage, and is linked to capacity. As far as coverage, we are committed once the overlapping sites are made available to us to be able to roll out and expand coverage to wherever we currently offer 2G services, over a period of time, and very fast to be able to offer 4G services. So that is the first focus, and that is why, whatever outlay of CapEx that we intend to have during this year most likely will cover more than 80% to 85% of coverage needs. The second part is the capacity needs. The capacity for the combined entity will come from 2: one from CapEx expenditure, second from spectrum consolidation. I think, we are missing out the second part. In the estimate, the combined entity has the largest quantum of spectrum and a very large independent fee, those -- both standalone companies are presently deploying a large portion, more than 50% spectrum, outside 4G. Once, we combine together, more than 70% of our spectrum will be reformed or -- in a phased manner and will be used for 4G services, which will help us expand our capacity. So we should not ignore the importance of spectrum consolidation. So I've covered the coverage part, I've covered the capacity linked to spectrum consolidation, that leads to the fact as capacity expansion for -- through additional CapEx. Now, currently, while we are building capacity as the demand comes in, we expect this capacity improvement will become significant as a combined entity because of overlapping sites. No doubt, others are also building larger capacities, but I would rather focus on somebody who is discounting very significantly. The current market leader capacity and ours, there is a small gap, and we are very hopeful, once we operate as a combined entity, that gap will [indiscernible]. So this is what I can talk about. It is difficult to talk about specific numbers.
This is clear, sir.
Your second question was on integration, merged entity. As I mentioned in opening remarks, that new management has been working quietly now for more than 1 quarter, in fact, I will say over 5 to 6 months, and it has got all its plans ready. The minute the merger is announced, it will start unfolding the plan. It has got plans which cover not only network and IT, but also on the distribution, band and service as well as the people side. And its focus will be not only to be able to get cost synergies, but also to go to expand -- and get the benefit of revenue and expense. So there is a comprehensive integration plan, and we are quietly confident that when we start executing it, you will see the outcome of that in the coming quarters.
Okay. Sir, just a small follow-up on this. I believe, in the past, you guys have mentioned that INR 10 billion NPV could have an upside risk in terms of being around INR 11 billion INR 12 billion. Is that, perhaps, a right representative? You guys still believe that's the case?
I am going to give it to Akshaya to give you more color.
Sachin, I think the difference between INR 10 billion and INR 12 billion was more a question of timing. When we had given the figure of INR 10 billion, it was on the date of merger announcement, assuming an implementation period of 2 years. The inherent figures of the synergies haven't changed. And so if you look at as on the date of merger, that figure would be INR 12 billion. And that was really the distinction between INR 10 billion and INR 12 billion.
Okay, Akshaya. And, Akshaya, at the end of the day, telco is more like a fixed-cost kind of a model. So since you gave the guidance, clearly, the revenue growth has slowed down or the overall revenue growth has been much lower. Does that in any way change these synergies, both at OpEx and CapEx levels, or it's largely the same?
So let me put it this way, as far as the OpEx is concerned, it's all cost basis and those synergies do not change. They remain the same. As far as the CapEx is concerned, it is a bit of a hypothetical calculation at some extent, that if the 2 entities had operated separately, what would have been their CapEx, and by combining together, what is the revised CapEx level? This cannot be a very accurate calculation, and to that extent, I would say, the best way to look at it is that what is going to be the CapEx of the merged entity going forward. But as far as the OpEx synergies are concerned, they remain the same despite the revenue decline that we've seen in the market.
The next question is from the line of Manish Adukia from Goldman Sachs.
Two questions, please. My first question is simply on your data subscribers, which, of course, are flat in this quarter, while industry seems to have added more than 30 million subscribers in the quarter. Can you throw some light on exactly what is happening there? And could this phenomenon last for some time during the time period where you integrate your operations with Vodafone, et cetera? Second question, which is somewhat related to the first one, is that what is the kind of trend you're seeing for customers who are high-end feature phone users on your network. Reliance has amassed about 25 million Jio phone users in about 6 months from now. So what are the kind of trends you're seeing for your high-end feature phone users? Are you seeing them churn out of your network, and what are you doing to try to retain those users?
Thank you, Manish. Yes, I agree, with you that we were a little disappointed with this quarter data subscribers. And we are making some changes in our operating strategy to be able to convert a larger portion of our customers who got 4G and 3G handsets to be able to start using our data services. As we have shared the KPI in our quarterly results, Idea has over 100 million customers, close to 110 million customers who have a broadband device, but only 41 million of them are currently using the services. And one of the most important task the marketing team has been assigned to be able to get a large portion of them converted and start using our 3G, 4G services. There is no doubt about 30% of them are in areas, which are currently not covered by us, and which is a benefit which we'll get once the merged entity starts operating and cover areas which are not covered, and overlapping sites should be quickly be able to cover those subscribers and give them an option. But besides that, we are also looking at what could not happen, but we've placed a significant amount of orders in the TDD space, as I mentioned in the opening remarks. And we are expected to enhance significant capacities in our leadership markets in top 8 markets by installing TDD of around 2300, 2500, and a large portion we'll be able to get completed in quarter 2. So besides the merger, these new equipments -- that's coming into view to help us get data subscribers. But I agree that this is a task which is given to the marketing department, and we are very hopeful that what could not be achieved last quarter, but we did have good results in the quarter 4, we'll recover going forward.
So essentially you...
Are you okay?
Yes, so just a quick follow-up. So can we assume that the June quarter was in that way somewhat of a one-off, and probably starting September quarter, you could see at least some pickup on data subscriber addition, or is that still some time away?
So there are 2 parts to subscriber addition: one part is on account of new subscriber addition; and one part on data subscribers with some upgrade. I covered the upgrade part -- and which is the focus of the marketing department, especially, but as far as new subscribers, as you saw, there was a change in strategy for us in the previous quarter, we went -- with a new approach of reducing payout to the customers and our new subscriber addition was significantly lower that we were getting in quarter 3 and quarter 4. So there were some of the losses on account of that. So the marketing department is reviewing its overall strategy to see what is the best way forward for this. But as we're building large capacities as well as expanding coverage on data, we will remain focused to be able to get most of our current subscribers to be able to start using data. So that, for us, is a growth opportunity. I could keep reminding you, which I've said in my closing remarks, is that the total number of data subscribers as a combined entity for us, is significantly higher than the current market leader -- current equipment market leader. Are you okay? Shall I move to the second part of your question?
We seem to have lost his line. [Technical Difficulty]The next question is from the line of Kunal Vora from BNP Paribas.
Sir, slightly similar question to what you just answered. Those are revenue divergence, like compared to Airtel and Vodafone this quarter. Like, what do you think in your assessment what went wrong compared to your peers? Were you less aggressive in terms of pricing? And that's question one. And second is, what's the total amount of bank guarantees given by the merged co to the department like DoT, and for various litigations which we have? And when do we expect the key litigations, take onetime spectrum, excess spectrum, to be resolved? And lastly, your thoughts on the feature phone market, and how it's going to evolve from here? You have significantly lowered the entry barrier to INR 500 now. And according to some news reports, we have almost 47% market share in feature -- like incremental market share in feature phones. So your thoughts on with the feature phone market going forward?
Kunal, I'm going to ask Akshaya to talk about bank guarantees before I cover the market-related topics.
Okay, so Kunal, so I think, as a part of merger compliance, we have given a bank guarantee for about INR 3,300 crores. This is against a single matter, which is the onetime spectrum charges matter, where actually a court stay has been given, but as per the M&A guidelines of DoT, this bank guarantee was to be provided. We have given it under protest, because in the other mergers, which have been recently concluded, this kind of a bank guarantee requirement was stayed by the TDSAT. There is no bank guarantee against any other demands, because as per M&A guidelines, the demands which are subsidized, there is no bank guarantee to be provided for that. And those things will follow their own course as the litigations get decided.
Understood. Still the only bank guarantee, which is outstanding right now. And when do you expect these issues to be settled? These are going like long-standing issues, like for almost like 7, 8 years now? Any visibility on when we expect these contingencies to go away?
These are basically dependent on the judicial system and how things progress there. We would also want this thing to get settled as soon as possible. But sometimes, these things take their own time. So we'll just have to be dependent on the judicial process for the conclusion of these litigations.
Sure, Okay.
So let me come back to market-related questions. Your first question on revenue divergence. You are absolutely right. I will acknowledge that there is a divergence in revenue of Idea versus Airtel and Vodafone. Reason is we tried a new strategy. While they have been -- mostly of market have been focused on unlimited plans, I alluded to this in my conversation, we wanted to balance unlimited plan given that we were taking a -- we wanted to see whether non-unlimited plan as a category can be retained in the non-unlimited category by offering aggressive offers to them. And while most of the customers did take -- or a significant portion of customers did take these plans from us, it ended up in an overall ARPU decline rather than ARPU increase. We'll estimate -- we are hoped that this ARPU will increase by the benefit of volume increase. So volume did not compensate for this. So it's a learning for us in the 1 quarter, but it is worst experiment that we carried out. And it is very clear that given that the strong pull for unlimited plans, other strategies, short-term strategies of giving aggressive STDs or minutes bundle doesn't stand a chance. It's a hard learning for us. And we're reversing our strategy going forward or the new management will review. That's why I said the new management will decide what is the way to go forward. But this is -- this was 1 single factor, which has some reason for divergence. The second factor is, we have been very strong in subscriber growth through new acquisitions. And we chose the route of reducing the channel payouts, because given the fact that there are no more top scale operators in the market. [Audio Gap] Have been already anticipated, but these are some corrective steps[Audio Gap]sure that the numbers are very similar to what other 2 numbers are. If you're okay with this answer, I will go to the third part of your question.
Sure. Yes.
Yes. So yes feature phone market is now in metamorphosis stage. It was predominantly led by 2G, now the 2G handset manufacturers are in a state of shock. They are currently from a level of INR 1,000 to these handset, they are also now forced to sell their 2G handset in the price range of INR 400 to INR 600, which will be the competing factor against the 4G handsets. We are also closely watching the situation to see what will be the overall impact of 4G feature phone on our total business. The bill-of-material of the 4G feature phone is significantly higher than that of a normal feature phone. Our -- one operator decided to subsidize significantly that it's, obviously, not reflecting in their books of account. And we are closely watching the situation to see its overall impact. As of now, about 25 million is our assessment is the total 4G feature phones that will enter the market. The numbers are small, we'll keep a close watch. And then the new management will decide, what are the options with it? Whether we have to bridge the gap only from a tariff basis or through a handshake basis? But I think, it's early times, we will watch for another 2 or 3 quarters, and then take a long-term view on that.
Sir, [indiscernible] at INR 400, INR 600, like, how do you think these 2G phones will compete against 4G phone at INR 500 tariff? And do you think there'll be need to subsidize devices by the incumbent as well?
So I expect that, and it is not about device, it is about the use of the customers. Is the customer a dedicated voice user, or is it a voice plus data user. If he is a voice plus data user, definitely, he is going to buy a 4G phone, and the entry price of the 4G phone is an important component. And we have to find a solution for the right entry price for customers who are the lower end of the income category and want to use both voice and data. 2G feature phone is a best solution for customers whose dominant requirement is voice. And to keep reminding you that there is still about 300 million Indians to -- even more, who still don't own mobile services in India. It is one of the few markets in the world, where there are number of customers who don't own any mobile services. And I still believe that the pure voice customer, 2G remains the best choice. So I'm not in this discussion or a debate about 2G versus 4G, the debate is about pure voice user versus voice and data user.
The next question is from the line of [ Vinay Jay Singh ] from [indiscernible] Asset Management.
Firstly, I just want to thank Himanshu for over the years helping us all both investments and the research team so much, and all the best for the future as well, sir. Thank you so much. My 2 questions okay, first, you commented about the industry stabilizing, but needing to look at a crystal ball. What should we look at if Jio or any other operator does not change their tariffs at all? Would we start seeing uptrending of ARPUs incrementally? If nothing else happens, just that usage pattern keeps on moving up and people move from the 50 to the 100 and 100 to the 150 and the ARPU packages, would we start seeing that if normal ARPU cuts come in. That's my first question. My second, you spent a lot of time on explaining your change in strategy, but a little bit more comment if you could do on the subscriber loss. Because this has been a first which I've seen, maybe a second for Idea throughout the last since coverage. So that's a little worry. So any thoughts on these 2 questions would be very helpful.
Thank you, Vinay. You're absolutely right. I think, first and foremost, whatever I'm going to comment, it is very guarded and can't hold me, because it's still crystal gazing. But let's assume what you're saying, it's a realm of a possibility that tariffs don't go up. So let's take an example of Idea which has an ARPU of INR 100 and unlimited plan broadly sold between INR 150 realization net of taxes and margins, or slightly more. And the rest of the consumer that we have, are in a much lower ARPU branch. So now the remaining consumers, if I'm able to attract them to join in an unlimited category, definitely, there will be an ARPU improvement, and for that, which is where I mentioned about last quarter, we went about trying to sell nonunlimited in a much bigger way, and which we are working back to put all the focus back on selling unlimited plan. In the previous quarters, we were short of voice capacity, but now with the rollout of vaulted services on the ban in databases and across 40 circles, our voice capacities are now sufficiently available, and we will go after selling maximum number of unlimited plans. So you're absolutely right, as the current price levels, our limited plans, if we are able to increase adoption of unlimited plans on current levels are too much higher percentage, it would be natural even that the overall ARPU will improve. If you are fine I think the answer, I'll take the second part.
Absolutely.
Okay. As far as the subscriber loss is concerned, we are also worried about subscriber loss. I will just summarize the understanding of subscriber loss. We have been a very strong component of acquiring new subscribers, and we were doing a significantly high number of any acquisitions, which is to come at a high cost, channel market cost. In order to bring our overall cost down, and to be able to prepare ourselves to the merger we have decided to cut down significantly, both on channel margin as well as initial promotion for the customers. When you -- whenever you do that, the first 180 days as a subscriber who ever knew subscriber comes, has a tendency to churn more than subscribers use stay for more than 6 months. And that is exactly what happened in our quarter 3 and quarter 4, we had a high new subscriber acquisitions. Quarter 1, we had a lower subscriber acquisition. We had a larger percentage of customer in the 0- to 180-day age bracket, that is why the churn was higher than the new subscribers that we got, that's the reason of the negative. The also the unfortunate part is, we're are cutting into quarter 2, which is traditionally a weak quarter for Idea. That is the reason, I mentioned that, the confidence is high in the team, that the subscriber growth will come back, it's only a matter of that having lost an [indiscernible] in quarter 1 and a little more stability coming in quarter 2, the uptick should come by up to December time period, is my own estimates, but new management will review the overall situation and take best character steps. We are as focused on subscriber growth as we will be focused on growth of ARPU, that I can tell you on behalf of the new management.
The next question is from the line of Srinivas Rao from Deutsche Bank.
This is Srinivas. Two questions. First is, at least, based on the last available data, the merged entity have almost a 42% share of the industry active adds, So as we've mentioned in the past, your strategy, would it be to kind of keep your subscribers rather than gain, given that you are a market leader by a wide margin? On that context, would it be fair to say that your focus would be to get those 100 million people converted into 4G? And are you looking at any KPIs on the new management on that count? So that's my first question. The second one is as you've mentioned for the new operating is discounting, would you think of any plausible reason why the new operator is willing to take what you believe is a below-cost strategy, assuming that the new operator is rational. [indiscernible] revenue base and the operators looking at [indiscernible] beyond the connectivity revenues. Those are my 2 questions, sir.
Thank you, Srinivas. You are absolutely right. The combined entity will have 408 million subscribers. And I just want to, first and foremost, a little caution there will be some subscribers which are multi-SIM subscribers, which could be using each other's network with some adjustment will happen with a short period of time. But these are small hiccups. And then the new management will take over, and will definitely make sure there is no way that any company is going to give away the growth of subscribers in India. India continues to be a large market, India continues to have a large number of customers who still have not acquired mobile services. It also has a lot of customers which are still only [indiscernible] voice customers. And the focus of the new entity will be not only to increase subscribers who are not currently users of mobile services, but also be able to convert all the voice customers into data using customers. So I have no doubt that what you have mentioned that we will do 1 of the 2, I will say we will try to do both. We will try to acquire new customers who are not currently into category, as well as to existing customers to maximum to start using data services. It is not either/or, it will be both in my mind. And we are at 408 million and the plan should be to be able to get as many more as possible to our best value as well as superior consumer experience. That's the reason, as in more entities, the benefit of larger spectrum block and the views of the largest number of radios that we currently have as a combined entity, will be the first focus of the new management. If you're okay, with this part, I'll move to the second part.
Sure. I mean, just, if I may highlight the common investor feedback. I'm sure, you've heard is that, is the company potentially will be starved for capital, and hence, not be able to defend its franchise. So I've asked this question in that context.
So, Srinivas, on that point, I think we've been telling repeatedly that between starting from the beginning of this calendar year in the time of Indus monetization, the shareholders, either through way of investment or through divestment, would have brought an equity funding of about INR 30,000 crores roughly. As and when further funding is required, the shareholder remain committed to this business. It is a strong business for both the shareholders, and I think, there are committed behind this business. Beyond this, I think we can only address this question when the situation arises. It is difficult to say so much in advance, because, I mean, I think, I have said in my opening remarks also, that we are so well funded today and there's more cash likely to come our way. So there's no need to concern as of now. And when the situation arises, the shareholders are committed to the company.
Akshaya, this is really helpful. I had an additional question, I think Himanshu was answering.
Yes, Srinivas, it is difficult to respond to your question as regarding what is the reason, why the new operator is behaving in the way it is? so -- although only point is that he is also focused to establish himself strongly in the market and compete. And it is the way of his approach. So we'll have to wait and see why -- what he is doing, and how we'll continue into future. It will be difficult to comment beyond that at this point of time.
The next question from the line of Sanjay Chawla from JM Financial.
I have got 2 or 3 housekeeping questions mostly. Can you share, first one is, what is the impact of tower sale to ATC on revenue and EBITDA in rupees million terms, in the first quarter. Second question is, there's a dispute in the liberation charge of nearly [ INR 40 billion ] has been paid under protest, what is the exact nature of the dispute here? And thirdly, we've seen a significant slowdown in the mobile [indiscernible] addition, 1.1 million, 1.2 million only this quarter. Can you please break it down this 1.1 million net debt into a gross act and the churn customers in the first quarter?
Sorry, Sanjay, I didn't get the third part of the question. Can you repeat that, please?
Yes, just a breakdown of -- you've 1.1 million broadband customer additions this quarter. So what was the gross add on that front, and what are the churn in this segment?
So I won't have an answer for you third question offhand, and maybe, at the side, we can share with you. That there is a currently is -- only thing I would be able to give you is a very macro picture. What is changing at the Indian landscape as telecom is concerned, there is [indiscernible] multi-SIM environment in the past, the multi-SIM in the voice category has been on the decline quite significantly. And our last study shows that it is down to 15% to 20% of our users who are voice users are in the multi-SIM range. The multi-SIM in the data category has significantly increased post the few spread of 4G services. So if we -- we can see a slightly higher churn, currently, at the broadband side, then we see a churn on the voice side. This is my macro answer, the specifics, we can separately do at the side. Are you okay, with this?
Yes, yes, yes.
As regards liberalization cost, the M&A guidelines provides for -- so first and foremost, I will not use the word liberalization, it's a wrong terminology that you're using. M&A guidelines require that the transferring company need to be able to pay for a spectrum from 0 to 4.4%. There has been aspirant errors in the calculation of the demand that has been raised on us. And that, we have sent even our calculations to departments telecommunication and waiting a word on that. But we do not wait and want to wait in the meantime, while they are really looking at the calculations at the authorities, it is a significant number. And that is the reason, why we have gone ahead and made the payment under protest. If you are okay...
What would be the -- how significant would the number be, if your calculations were to hold eventually? I mean, are we looking at...
I will not like to disclose in the larger forum, because until the final decision is taken by DoT, it is will not be fair, because it's not -- I would not like to give guidance which is based on our internal calculations. I'm going to ask Akshaya to respond to the first part of the question.
So on the Towers, I think, we will not be able to give too much detail. But I can just say that, and I'll give only indicated in the past also is that, the annualized EBITDA for the tower business was in the ball part of INR 350 crores to INR 400 crores [indiscernible] [ AMM ].
The next question is from the line of Rajiv Sharma from HSBC.
Just a few questions from my side. Firstly, Bharti made a comment that they are happy to lose some of their low-end feature phone subs to Jio phone, if the case may be ended, they don't want to subsidize handsets in that category. Your thoughts on the same? Also, about any upward movement in the pricing in the next 6 months? Are your thoughts on the same. Secondly, if network integration if you could help us with some timelines in your top markets, merged entity, how much time could this take overall process, how much time could this take? And lastly, on FTP edge, Jio is coming with this whole home broadband, [indiscernible] started expanding on home broadband, and Vodafone acquired you broadband some time back. So if you could provide us some color as to how the merge-co could look at the fixed-line business? And will be have adequate ability to invest both in the closing the 4G gap and the fixed line in that case?
Thank you, Rajiv. Let me follow the same order in the questions that you asked. First, what Bharti has articulated, we are saying in a very quiet way that we are not currently reacting to the feature phone onslaught that have been done and waiting for that situation. So we will be at the site, as I mentioned, as a response to previous question till the time and see the overall impact is. So we are of the opinion that a pure voice customer were happy to stay on 2G. A customer who wishes to be on a voice plus data bases, will upgrade himself to 4G services. And our current focus is to be able to build, cover the back of both in coverage and capacity as early as possible. And this merger will help us do that. And till that time, we are waiting and watching, and we'll observe the situation before we react. Are you okay with answer?
Yes.
Can you just remind me of the question B, some upward movement, what is it that he wants. movements of[indiscernible] tariffs in there, as I mentioned, it's to a crystal gauge? I don't think we can't give any guidance on this.
Okay.
Okay. As regards to network integration. I had answered this question in the previous quarter also. This is, obviously, the most critical of the events as well as new management is concerned, I am aware as they have a comprehensive plan, where the focus is threefold: number one is views of overlapping equipment; number two is to reform 2G spectrum for use for -- primarily for 4G, 2G and 3G spectrum, wherever multiple carriers exist for use for 4G. And number three, we are, as a combined entity, lower on [ PVD ], and increase our presence on the [ PVD ]. So these are the 3-way part as far as the radio is concerned. But similarly, there is a integration process on for fiber, because there's a -- combined together, we have a large fiber over 300,000 kilometers of fiber. And integrating that and making it one network, is the same plan that exists. So there's an overall plan, the focus is obviously, get first and foremost, key markets, second is leadership market, third is easier circle, and fourth is weaker markets. That is the order of preference that will be carried out based on whatever CapEx get allocated to them from the shareholders. And significant wins will be in the few -- first few quarters, while the process may take long, but the initial quarters will -- should get you some good results. Okay?
Yes. And thoughts on fixed-line strategy?
I think it's very premature at this point of time to start talking about fixed line. I'll leave this to the new management to get their thoughts together, and come back with a comprehensive response. At this point of time, we are too focused in getting our merge activity together, so to get our act together both on synergy as well on CapEx. And we will come back at an appropriate point with a response. But I think it's very premature to respond at this point. I won't do this.
And just one last follow-up. Have you started reversing the channel payouts? And what you took as a conscious strategy in first quarter? Has that started changing in this month of July, August?
No. We are continued to be very calibrated effort [indiscernible].
The next question's from the line of Vivekanand Subbaraman from AMBIT Capital.
I have 2 questions. One is on the fiber consolidation that you're planning. Is that -- is this also an asset that you will potentially look to monetize given that tower [indiscernible] are also keen to expand presence in the fiber space? And if so, can you help us understand what would be your considerations while evaluating such deals? Secondly, on the platforms, the content platforms that other telcos have built, do you have any update on how your platforms are doing, and thoughts on the way forward on the content side?
So I am going to ask Akshaya to give you a little more detail on private consolidation.
So on the fiber consolidation, I think, it is very clear that as happened in the case of towers, where the utilization of towers was not optimized, when these towers were housed in different telecom operators. And so there was a lot of merit in combining towers into a single portfolio and maximizing the use of assets. I think the same largely applies to fiber, so initial discussions are on us to see how that can work. The only difference is that in case of towers there was not so much technology involved, in case of fiber, there could be 2 ways it could be done, it could be dark fiber it, it could be band width. And these are some of the considerations which come into play as to what should be the structure, what could be a long-term pricing? What should be the arrangement between the fiberco and the telecom operators. So I think, this is preliminary early stages, there's a lot of value which can be created by better utilization of the assets. And so we are looking at that possibility.
Vivek, in incremental I'm going to add that we are happy to report that worldwide, there is a trend of aggregator for fiber. And the U.S. is currently leading on it with 2 or 3 aggregators present. And we're looking at models how investing in other parts of the world, and then [indiscernible] to see if it can be replicated as far as India's concern. As Akshaya mentioned, early time, we don't know finally, what direction it will take. Are you okay with it?
Just one small follow-up. Specifically, if one looks at fiber, there are multiple nuances that you mentioned, dark versus [ let ] fiber. Is there anything else connected to say capacity versus [indiscernible] fiber linking to I mean, sell side and so on, that one needs to consider and are there any KPIs that one can look at to understand how saleable, say, and parcel of fiber is, vis-à-vis another one?
So first and foremost, this is one of the largest fiber network on a [indiscernible] country, both intra city and intercity. And all the topics that you mentioned are relevant there. But unless we are -- we studied all the models and decided to be able to pursue a particular model. It will not be fair for us to give you more details.
Alright. That's useful.
As regards content, content remains very much part of our strategy. And as a part of our quarterly release, we have given the numbers for total number of users, if I remember correctly, there are over 20 million users who are currently digital users, who are using Idea's content across Movie, Music, and Games. And this continues to grow.
Sure. Actually, I went through the release. I was just wondering if you feel that this is a monetizable venue? Or any other thoughts on can there be a B2B business, say, you're getting a revenue. Do you have, I mean, do you also consider looking at our models are thoughts on that will be appreciated.
And so the teams at Idea and Vodafone have all such thoughts, so I will leave it to the new management to be able to decide what is the best way forward to us. So digital remains the part of an overall strategy. And, as we go to acquire, more and more data customers, all elements of content as well as online IOT, are some of the strategies that will unfold going forward.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Himanshu Kapania for closing comments.
Thank you, Margaret. I would like to thank all the institutional investors and all our telecom analysts, friends and colleagues, who over the years have been very helpful at being able to -- for us and being very kind for our ups and downs. And helping us with their incisive questions, and commenting on our strategy. It's been a hell of a lot of a journey over the last 7 years. And I will like to thank all of you in the journey. So all the very best, and continue to invest well in the telecom sector. Thank you so much.
Thank you. On behalf of Idea Cellular Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.