Vodafone Idea Ltd
NSE:IDEA
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Good afternoon, ladies and gentlemen. This is Janice, the moderator for your conference call. Welcome to the Vodafone Idea Limited conference. [Operator Instructions] We have with us today, Ravinder Takkar, Managing Director and Chief Executive Officer of Vodafone Idea Limited; and Akshaya Moondra, CFO of Vodafone Idea Limited, 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 their 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 discussion 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. Ravinder Takkar. Thank you. And over to you, sir.
Thank you, Janice. On behalf of Vodafone Idea, I welcome all participants to this earning call. As this is my first earnings call, let me start with a brief introduction. I am Ravinder Takkar. Prior to moving in the role of Managing Director and Chief Executive Officer in August 2019, I was on the board of Vodafone Idea, which I still continue to be. I have been associated with Vodafone Group since 1994 and have handled several leadership roles in markets across the world. My association with Indian telecoms has been since the entry of Vodafone Group in India in 2006. At a point in time, I was also the CEO of Vodafone Enterprises in India and have been on the board of [ Essar ] Vodafone India Limited as well. In the issue today, I'm also the Chairman of Indus Towers Limited and I am also the Chairman of COAI, Cellular Officers Association of India. Now moving on to results. Yesterday on 14th November 2019, our Board of Directors adopted the unaudited results for the second quarter and 6 months ending September 30, 2019. The detailed press release, quarterly reports and unaudited results have been uploaded on our website. I assume you had a chance to go through the same. I will start off by providing an update on the various strategic initiatives we have undertaken, followed by operational highlights for the quarter. After which, I will hand over to Akshaya to share details on the company's financial performance for the quarter. Our 5-pillar strategy, which has been our roadmap since formation of Vodafone Idea, remains unchanged. Our topmost priority is to ensure that integration moves swiftly and without any hiccups which will strengthen our overall position in the market. We continue to focus on driving 4G investments in our key markets to expand coverage as well as to add large capacity. We believe this will improve overall customer experience and in turn drive better 4G additions consequently improving revenue, profitability, cash flow and our competitive position in the market. Let me elaborate on the progress we have made so far on the integration exercise. We continue to execute our network integration extremely well and with great efficiency. This quarter, we have completed net book consolidation in 4 more circles, mainly Orissa, Rajasthan, Karnataka and Kolkata. Taking the total count to 14 circles. The remaining 8 circles are UP-East, UP West, Kerala, Delhi, Mumbai, Gujarat, Tamil Nadu and Maharashtra are all major markets for us and integration is progressing well, cluster by cluster, ensuring minimal disruption. At a district level, we have consolidated 78% of the 681 districts. We are thus tracking extremely well on integration and we are confident that improving this exercise latest by March 2020. We have the largest spectrum holding and significant spectrum across 900, 1,800, and 2,100 megahertz bands. We are continuously evaluating spectrum needs and refarming spectrum across 1,800, 900, 2,100 megahertz bands from 2G or 3G to 4G depending on traffic patterns. On 900 megahertz alone, we have launched LTE, including 2 BSR deployment in 8 key circles, adding another 80 megahertz spectrum in select locations per site. Introduction of 4G 900 megahertz band has significantly increased the coverage footprint in our key cities, especially the Indo reach in congested markets and also improving the voice experience to VoLTE. The additional spectrum being released has helped us increase the 4G capacity. Based on customer usage trend, we will continue to refarm spectrum in the remaining circles. All the network integration activities, coupled with spectrum consolidation deployment of TDD sites and Massive MIMO has started to yield results. Our data capacity in 14 integrated circles has nearly doubled since September 2018. This has improved utilization levels, leading to higher download speeds and thus led to superior customer experience. The download speeds have massively improved compared to pre-integration levels. In fact, spectrum consolidation, TDD and Massive MIMO deployment is underway across all circles. Our capacity has substantially moved on an overall basis compared to a year ago. As a result, our 4G download speed continues to improve across all circles. We are now ranked #1 or #2 for at least one of the brands in 18 circles based on 4G download speeds for the month of September. This compares to 14 circles where we were ranked #1 or #2 as of June. As certified by Ookla, based on download speeds in Q2, we now offer fastest 4G download speeds in the circle of Delhi, West Bengal and MP, as well as in the city of Chennai and Sikkim. The recently reported release by Ookla on 22nd August 2019 shows Vodafone and Idea bands improved much more than competition on mobile speeds. We can confidently tell you that as we stand today, our speeds are improved even further than July speeds reported by Ookla in that report. Additionally, Vodafone began the first operator in India to the Opensignal's new, first-of-a-kind Voice App Experience award. The progress on network integration is thus clearly reflecting in improving network KPIs across all circles, which has led to enhanced customer experience, our 4G trends have thus improved quarter-on-quarter. The 4G trends are even more encouraging than we look at month-on-month data for September and October. Our October 4G adds is the strongest we have seen over the last 12 months. As we now have started to integrate our major markets, we remain confident that 4G trends will further improve. Same applies to the trend of customers on renewal plans where month on month trends are encouraging. As a result of the integration exercise, we have removed surplus equipment from nearly 50,000 sites, part of the total of 73,000 colocated sites, further benefiting our cost base. As of September end we have achieved 75% of our target synergies. To summarize, we are moving at a great pace and are well-placed to realize full OpEx synergy of INR 84 billion by June 2020. Moving on to other strategic action, that is network investment. We continue to focus on driving 4G coverage and capacity, especially in our major markets or the high potential districts. On an overall basis, our target remains to cover 1 billion people by March 2020. This quarter, our 4G FTD additions have further ramped up by approximately 12,000 sites. Our overall broadband site count now stands at around 405,000 as of September end. The redeployment exercise is still underway and the broadband site count and subsequently, the population coverage, would further improve upon completion of this exercise. We have also added more than 10,000 small cells to date to improve our coverage as well as capacity in dense urban areas. Our 4G population coverage now stands at 72.2%, compared to less than 50% for each of the brands in August 2018. While our target of reaching 1 billion population coverage on 4G remains unchanged, the CapEx guidance have been revised to approximately INR 130 billion from INR 170 billion for FY '20, primarily on account of savings resulting from better pricing and disintegration of components while ordering and reduction in planned 4G footprint in nonpriority areas. Further, lower capacity requirements during the year have also resulted in deferment of some CapEx to the next financial year. This quarter, we added 6,000 4G TDD sites to augment our 4G capacity and most of the deployed capacity is in our priority districts. We continue to aggressively deploy Massive MIMO and to date have deployed nearly 10,000 Massive MIMOs which remain the largest in India. We are thus progressing extremely well on the capacity creation front, not just on account of TDD and Massive MIMO deployment, but further supported by the integration activities including spectrum consolidation and refarming. As a matter of fact, today, 70% of our liberalized spectrum is being used for 4G as against 59% for Essar Vodafone and 57% for Essar Idea. As already mentioned, such large capacity creation has reduced the utilization levels and improved our overall download speed and in turn improving customer experience. As we continue to prioritize investments in the key areas, we are also rapidly consolidating traffic on the stronger network in the nonprofitable districts and rationalizing weaker of the 2 networks. By the end of this quarter, we exited 16,000 low utilization sites. This exercise enables us to reduce operating expense as well as improve the coverage and experience of the weaker of the 2 networks without impacting customer experience for the stronger brand. Now let me briefly touch upon the various market initiatives we are taking to drive ARPU improvement. As our network coverage and capacity is improving we remain focused on driving UL penetration which will help improve ARPU. We have already started to see benefits of the various strategic and pricing initiatives we have taken over the last 3 to 4 quarters. We are seeing healthy adoption of UL plans on both fixed data as well as daily data plans and are improving UL penetration as thus been leading to a better customer mix. On the non-UL side, we had launched a INR 45 plan at the start of this quarter, offering full top line at 1 paisa per second tariff with a benefit capped at 28 days. This plan, which is available across all circles for all customers, has seen good traction, especially among 2G handsets. We believe this will help in further improving churn in the low ARPU segment. Last week, we had launched RedX, plan for Vodafone postpaid customers, which has some excellent features to attract high ARPU customers. The plan, which is priced at INR 999 per month, offers 50% higher speeds which is an industry first. The plan also has an in-built Netflix subscription with full access on mobile as well as TV and 1 year membership on Amazon Prime, ZEE5, Sony, along with other contents. The plan offers some exclusive privileges such as use of industry-first complementary 7-day international roaming pack, airport lounge access, discount on hotel bookings and special deal on handsets. In just a few days since launch, we have already seen a very strong expression of interest for this plan. Now let me provide a quick update on various monetization opportunities we are exploring. On our Indus state monetization. While the merger of Infratel Indus has gotten delayed on account of regulatory approvals, we remain hopeful that it will conclude soon. The launch start date has now been moved to 24th December, 2019. We intend to monetize our 11.15% stake as and when the merger concludes. Further, we continue to explore various options to monetize our 160,000 kilometers of intra-city and intra-city fiber. We have already carved this asset out into a separate subsidiary and are actively engaging with bankers. Separately, we are also exploring options for monetization of our data center. We believe all these initiatives will provide us financial flexibility. Moving on to operational highlights for the quarter. Q2 FY '20 which is seasonally a weak quarter was further impacted by severe floods in many of our major markets. We also continued to see downgrading of high ARPU customers. As a result, revenue declined by 3.8% this quarter. However, on account of improving 4G and UL additions, as I have alluded earlier, we have seen month-on-month increase in daily revenues, both in September and October 2019. Subscriber churn continues to improve and is now at an all-time low of 3.5%, compared to 3.7% during Q1 and 7.2% in Q4 last year. During the quarter, gross subscriber additions have also increased quarter-on-quarter. Overall subscriber base stood at 311 million. On the 4G subscriber front, we added 5.5 million 4G subscribers compared to 4.1 million in Q1 and we continue to see improving trends on 4G net adds. Overall, 4G base stood at 90.3 million. As we improve our 4G coverage and capacity through network integration and fresh CapEx, coupled with other market initiatives on products, we expect to build strong momentum and further improve our 4G net adds. Now an update on the regulatory matters. On the AGR matter, the Honorable Supreme Court on 24th October announced judgment which has significant financial implications for the industry. The Supreme Court has provided 90 days’ time to pay the amount and a full compliance. We have accounted for the estimated liability, the details of which would be shared by Akshaya. We are also in the process of filing a refute petition. Further, the company through COAI has made representations to the government to provide relief to the telecom sector, including, but not limited to, request for not to pass for AGR liability payment and grant favors, no levies, spectrum usage charges on nonlicensed revenue income, reduction of license fee and FCC rates, use of GST credits for payments of government levies and to allow payments to be made in installments after some moratorium. Also, to grant a moratorium of 2 years for the payment of spectrum views beyond April 1, 2020 up to March 31, 2022. While this has created further stress and negative sentiment in an already challenged telecom industry, we believe the government is aware of the tremendous stress that the operators are facing. The government has recently set up a committee of secretaries to evaluate the telecom operators' plea and suggest measures to mitigate the financial stress. We believe that committee has met several times already and is progressing at pace to make recommendations. We are hopeful to hear the recommendations of this committee in the coming days. All is not negative on the regulatory front as TRAI has taken several measures recently to help the sector. Recently, TRAI has passed a regulation fixing the call alert ringer to 30 seconds, in response to one of the operators' effort to distort the traffic patterns by having a shorter ringer duration, leading to generation of higher missed calls and thus higher incoming calls on their network. Separately, TRAI has initiated IAC consultation papers within both domestic and international interconnect charges. Any positive development in this regard will help the operators and will be a positive step in correction of providing the healing telcos. To conclude, while this quarter was impacted by seasonality and down trading, the month-on-month performances of September and October are encouraging with strong momentum on 4G and UL additions and thus improving in-daily revenues. Integration is progressing well, enhancing capacity and coverage leading to better speeds and overall customer experience. As we continue to integrate our major markets, we believe the 4G trend will further improve, improving our revenue, profitability, and our overall competitive position in the market. With that, I hand over to Akshaya who will share the financial highlights for the quarter.
Thanks, Ravinder. A very good afternoon to participants from India and a good morning or evening as applicable to overseas participants. As mentioned by Ravinder, this quarter, which is a seasonally weak quarter, was further impacted by series of floods in many of our major markets. This coupled with continuing ARPU downgrading resulted in revenue decline of 3.8%. The revenue for the quarter stood at INR 108.4 billion as against INR 112.7 billion in Q1 FY '19 -- '20. Adjusted for Ind AS 116 impact, EBITDA was INR 10.5 billion compared to INR 12.5 billion in Q1, a quarter-on-quarter decline of INR 1.9 billion, primarily on account of lower revenue of INR 4.3 billion, which was partially offset by continued cost synergy realization. There were one-off credits of INR 2 billion during the quarter, mainly related to network cost. Our overall operating costs, excluding license fee and spectrum usage charges and roaming and excess charges, have reduced by INR 15.8 billion after adjusting for inflation-driven cost increases and incremental network rollout, as compared to Q1 FY '19 pro forma operating costs. This translates into annualized cost saving of INR 63 billion, which represents around 75% of our stated synergy target of INR 84 billion. The depreciation and amortization and financing cost net for the quarter are INR 63.1 billion and INR 33.5 billion, respectively. This includes the effects of Ind AS 116 of INR 15.9 billion and INR 6.3 billion, respectively. If the impact of Ind AS 116 was to be excluded for each of the quarters when compared, there's no significant change on quarter-on-quarter basis. Let's turn to the recent judgment on AGR by Honorable Supreme Court. We have accounted for an estimated liability of INR 276.1 billion related to license fee and INR 165.4 billion related to spectrum usage charges, up to September 30, 2019, including the interest penalty and interest thereon of INR 330.1 billion. This estimate is based on demand received from DOT which has been adjusted for certain computational errors and an estimation for the period for which demand have not been retrieved. Whilst the company has provided for spectrum usage charges, considering that no spectrum is used for generating non-telecom income, the company is evaluating the levy of spectrum usage charges on such income. After considering existing provisions of INR 17.5 billion against this liability and reversal of liabilities of INR 83.5 billion towards Vodafone Group, which was recognized at the time of merger for potential payments to Vodafone Group, plus potential payments by Vodafone Group to the company under the settlement mechanism, capped at INR 83.7 billion under the implementation increment, a charge of INR 256.8 billion has been recognized and is a part of exceptional items during the quarter. Additionally, as we are in the process of reforming our previous spectrum for offering 4G services along with our network integration alignment exercise, we have provided for accelerated depreciation of INR 40.3 billion on the relevant 3G network assets. In line with our above changes, we have reassessed the recoverability of deferred tax assets, stop further recognition and we recognize the deferred tax assets amounting to INR 139.4 billion, recorded up to June 30, 2019. The CapEx guidance for the year has been revised to INR 150 billion from INR 170 billion, primarily on account of savings resulting from better negotiated prices, the segregation of components while ordering and reassessment of planned 4G footprint in certain nonpriority areas. Furthermore, lower-than-expected capacity requirement during the year has also resulted in CapEx [ deferred ] to FY '21. Thus the Q2 FY '20 CapEx was at INR 21.4 billion. Net debt stands at INR 1,019.1 billion as against INR 992.6 billion in June '19. The cash and cash equivalents balance as of September '19 is INR 153.9 billion. With this, I hand over the call back to Janice and open the floor for questions.
[Operator Instructions] We take the first question from the line of Manish Adukia from Goldman Sachs.
Manish Adukia from Goldman Sachs. A couple of questions please. Firstly, I understand that you've reached out to the government of India for some relief measures which you highlighted in the opening remarks. But that's because of payment types -- I mean as a big size, how are you thinking about the funding requirement in the interim? And how should we think about let's say in the event that the relief measures don't come in the next few weeks, how should we think about how you will address the capital requirement? And second, I think last month, one of your largest competitors announced they made some changes to tariff. How are you thinking about your own outlook on tariffs? Because that is something which potentially result in meaningful increase in your own cash flow. So what are your sense on how we should think about tariffs overall?
Thank you, Manish. Let me first address some part of both of your questions and then I will ask Akshaya to talk a little bit more about the specific details around funding. So in regards to the government engagement, maybe I'll start off from a little bit from the beginning to say that we have engaged, in some ways, actually very positively with the government as we are engagements had started even before this AGR case where we were discussing with them stress in the telecom sector. Now in our engagement, and we have done engagements all the way from several ministries many, many cabinet secretaries, as well as ministry secretaries, as well as various parts of the government. And I have to say that the response from the government, first of all, has been very, very consistent. Everybody has said the same thing. And what they have all said is that they want this sector to be a healthy sector. It is a very strategic sector. It is too important for the country. It is too important for the digital India vision. So clearly, this is something that is very important to the government. Secondly, that they have said to us that they want to see 3 private players and 1 public player in this sector. Again, they have emphasized that consistently. The other thing that they continue to also recognize is that there is stress in this sector which of course has further been increased because of this AGR ruling, and some of it has caused -- or large part of it has been caused due to predatory pricing that has continued in this market. So that's been consistent in the government response. Now in terms of what actions that they have taken. As you are already aware, they have set up a committee of secretaries led by the cabinet secretary himself, I believe. This committee has met several times. We understand that they are close to making some recommendations, obviously, these are rumors, but we understand that they are getting very close and they had met several times. So we are looking forward to hearing that. Our discussions with them, as I mentioned earlier, have been that we would like to see spectrum moratorium for a period of time, reduction in license fees, also helping us in the areas of GST blockage as well as a few other things which reduce levies on the sector. At the same time, obviously, on the AGR case, we would like to see the interest, the penalties, the interest on penalties and those type of things, we'd be given relief from that, as well as on the principal amount after adjusted for errors and so on. If we can have some type of payment plan which spreads it over a large period of time, a number of years that will be very, very helpful. We believe that the government is taking these requests very, very seriously. We believe that they are working on it swiftly. I also believe that they are looking at a comprehensive solution for the industry which will restore the health of the industry rather than just once in a few small requests here and there, which I hope to hear from them -- or we hope to hear something from them very, very soon. So that's on the government part. Let me address your second question and then maybe Akshaya can add anything more in regards to specific funding. You had mentioned about Jio have made some pricing moves. I think I would characterize those as pricing moves. It's not very clear that they have actually increased prices substantially. Because clearly, many of their plans, they have started to charge for off-net calling but then they add additional value to the bundles or reduce validity. So in some ways, they give something or take away something and there's -- many of these are conditional based on several regulatory criteria and so on. So I think this part is still moving and these changes continue to be made over the last few weeks. Now one thing to remember is even with these changes, we are still at a premium to them. Obviously, that varies price band by price band. But for most price bands, we continue to be at a premium to them. But having said that, we continue to monitor the situation and see what happens. Also, certainly based on our discussions with the government and then looks like some media reports potentially this morning, looks like the regulator may also be starting a review of floor pricing and I think that would certainly be an important benefit that we think that could help in the industry. Akshaya, anything to add on the funding?
No, so I think at this point of time that this is all that we had to say and we will await the decision on the cost of government on this matter.
Just one quick follow-up question. One of the relief measures that you talked about was offsetting of speed GST credit for payment to government. Can you just remind us what will be the actual amount of GST credit that is receivable from the Government of India?
So at this point in time, our GST amount which is roughly INR 7,000 crores.
We take the next question from the line of Kunal Vora from BNP Paribas.
First question is you mentioned that the government technologies priority pricing. What's your solution to this, like low tariffs, considering there are several variables and any tariff plan, how can this be implemented? That's one. Second is on the BIL, excluding the deferred payment liability which is around INR 28,000 crores, is there a risk that you might need to prepay some part of it, considering covenant breaches? Also is there some pressure in getting when the financing especially as promoters do not seem to be willing to include additional liquidity?
Kunal, let me take the first question and I'll ask Akshaya to talk about your second question. Actually, I mean I don't really want to speculate on how low tariffs or floor pricing can be implemented. What we do know is that of course, this is the indeferred view of the regulator and the government and it can be implemented, which is currently in forbearance. Also at the same time, you know that it has been done in certain other countries in the region. So it's not out of possibility. But I don't really want to speculate on what exactly they would implement or how they will implement that. Akshaya?
So Kunal, on your question of the debt other than the DOT debt, yes, today I think the banks because of the covenant breaches have a right to accelerate the payment. From time to time, some banks have requested us so that we can prepay them any amount and I think we have declined that. And we continue to remain engaged with all our financial creditors but there is no acceleration of payment that has happened. In terms of vendor financing, we have a strong vendor partner and they are already supporting us through the vendor finance route.
Sure. Just one last question. Can you explain the INR 83 billion amount of this approximately INR 80 billion-plus which you mentioned which might be receivable from Vodafone Group on the continued liability front? What form it will be in? And what exactly the amount is?
Okay. So let me just -- I understand it's not so easy to understand. The first payment that I think at the time of merger, there were some what I may call as contingent assets or largely tax refunds, which are receivable for us by Vodafone and the increment for the governmental tax refund are received, as they would be paid by BIL to Vodafone Group. That amount after some minor changes over the period that's currently standing at about INR 83.5 billion. That is the liability which was standing to the credit of Vodafone Group. Also, as of part of again the implementation agreement, there is an understanding that if there are any crystallization of premerger contingent liabilities, then there is a settlement mechanism agreed between Vodafone Group and BIL. Now as a part of that agreement, also the payment by Vodafone Group to BIL is capped at 84 -- INR 83.7 billion. So on one level, the liability of INR 83.5 billion to Vodafone Group which was created at the time of merger, has been written back because the cap on receivable has been applied. And secondly a new receivable has been created from Vodafone Group in case this payment was to be made to the government. And hence, in all, there is a credit of about INR 167 billion against the liability which is totally about INR 420 billion net of the provisions already existing. I hope that answers your question.
Not completely, but I'll take it offline.
We take the next question from the line of Pranav Kshatriya from Edelweiss.
A couple of questions. The provision work has been computed. It is said that the penalty existing for certain computational correction. Can you quantify what are the computational correction adjustments? Second thing is what is the rate of interest used for computing the interest on the area of liabilities? And how much difference would it make if that comes down to let's say the IP allotted?
Okay. So in terms of the computational errors, let me put it this way, that over a number of years, the audit has been conducted or assessment has been done by DOT. Now the most major correction is like this that there was this discussion about whether pass-through or interconnect charges should be deducted on accrual basis or cash basis. All our filings in terms of annual returns have been based on accrual. Now whenever these assessments have been carried out, whatever was not paid during a year has been disallowed. The consequence of this is that over a number of years, there are lots of disallowances of amount which was claimed as accrued but not paid during the year. However, the corresponding correction in the subsequent year assessment of what was accrued last year but paid this year has not been done. So I would say this is the largest correction which is there. There are some other items also but I think this is the main amount which is resulting in the correction. In terms of your question on interest rate, roughly, I remember, in the initial years, it was close to about 18% and the weight is calculated, it has compounded annually. I believe in the more recent years, there was some change in the license conditions so in the ballpark of about 12.5%, again, compounded annually. While I cannot give you a figure for what would happen if the interest rate were to reduce or not compounded like this. But it will be significant for sure.
Our next question is from the line of Sachin Salgaonkar from Bank of America.
I have 3 questions. First question to Ravinder. Ravinder, since you have taken over, I would like to understand any change in strategy, what you sort of looked and implemented? Second question is we now see your other equity becoming negative. So any more debt covenants getting triggered on the back of it? And if you could share what are your debt covenants that could be helpful. And third question is Akshaya, I remember you mentioning last time that your CapEx guidance has a bit of a downside risk. Any clarity on that will be helpful.
Okay, Sachin. Thank you very much. So I think overall, to say that there is really no significant change in strategy. What I'll probably do is tell you a little bit more about where our focus has become a little bit more tighter and narrower. So clearly, we are toward the tail end of our integration. So I think it's very, very important and we have continued to accelerate and continued to move up to date and now we are targeting that by March '20 integration, most of the circles will be done and I think we are working very hard to get that down there. I think that is certainly one of the more important and top strategic priorities for us. Of course, along with that automatically comes synergies, the delivery of synergies and operational efficiencies, building of more capacity and coverage and all the other things that I talked about in my opening statement. Within other operational areas, we have really started to focus quite strongly on 4G unlimited customer area as well as ARPU growth. As I did mention in my opening remarks, we are starting to see good traction of that. Certainly in the circles that we have completed our integration and in circles where we are as we go district by district and within our stronger circles, we start to see better traction there. And I think that has been very, very positive. Again, September was quite good towards coming out from Q2 and then October has turned out to be even better which is -- that has continued. So I think we are starting to see traction there and our focus is very much in that area. And then similarly, we're also very focused on churn reduction, which is obviously will drive better numbers on one side. And then I think the other priorities, which are clearly now have taken much more front seat is our engagement with the government and we'll need from each sector, I mean that has turned out to be a very, very important element and we continue to do that. I think there is significant opportunities to reduce this predatory pricing position that we have been in for several years and I think of course that has a huge impact not only just on us but obviously on the overall industry. And then as we continue to work on asset monetization, and this merger closure and several other things. So I would say, these are pretty much our operational and strategic priorities. And as you would imagine, not a huge change from where we were earlier. Sorry, go ahead.
So just a small follow-up. I think the one number which we are looking is your overall revenue growth and the overall absolute revenue. And since the integration has started it has not inched up. So are we at a point where this number bottoms out or has already bottomed out and going forward we will see the revenue inching up?
So as I mentioned, we are starting to see some green shoots. Again, exit for September was positive. October has also trended in the same place. So I think we are going in the right direction. And may be a bit too early to say whether it has bottomed out. But I am more hopeful that that trend has started. Now I think, what is important, Sachin, to remember is that we started integration in what we would call our weaker markets. And while there are -- we learned a lot from integration and we are applying those to our bigger circles. Clearly, there, the impact takes a longer time because we were weaker in those circles to start off with and to build perception and to improve customer experience as well as get traction takes longer time. We are now starting to see better traction in that. In fact, we are seeing better performance on 4G area for example in our already integrated circles. And I think that is a very positive sign. And as we integrate our stronger circles which is what I talked about, the 8 circles where we are strong, both bands are strong for the most part, we have good market share and good presence and we start to see districts. We are already starting to see positive impact there. So I think we have all the right signs for a positive trend. Obviously, we will see where we go from there. So it's hard to tell exactly if that has bottomed. But we are seeing positive trends.
Sachin, to answer your other 2 questions, I think as far as the covenant reach is concerned, while the reduction of network does create impact on debt equity but as we have mentioned in our financial statements from March, that we have had a breach of covenants in trend and basically, we have worked waivers from some lenders. Other lenders are saying that we would want to keep a watch and it is not one to grant us favor straight away. So that situation does not change very much as far as from a breach perspective is concerned. Secondly, in terms of CapEx guidance, as I already mentioned in my opening remarks, and as also has been alluded in my -- in our press release, that our CapEx guidance does kind of revise from INR 170 billion to INR 130 billion for this financial year.
Okay. And this is assuming, taking into account integration as is or any thoughts in terms of -- so what has changed with the amount reduction from INR 170 billion to INR 130 billion? What has changed from our overall spending perspective?
So Sachin, 3 things. One, which is we have negotiated better pricing which has given us benefit, which we did not know about at the time when we came up with this guidance. This benefit has come from lower pricing and the fact that we have actually done de-aggregation of components which ends up giving you better pricing. The second part that we are starting to see is that capacity predictions that we had for the year, our demand is coming out to be slightly lower so in some ways we move this CapEx to the next year because obviously we don't need it. Although if demands go up, we can obviously add capacity this year. But we see that this will be more lower to next year. And the third part is that we provided them some additional focus to make sure that our CapEx is growing in our high priority and core areas in the districts which are very important and then we have de-prioritized some of the, let's say, very weaker areas where we didn't expect good returns and that also has reduced some of the CapEx.
All right. And number of guarantees for towers that you don't see that will change, right? Or number of towers you're leasing on from the tower companies?
No. Generally speaking, that is flat. Yes.
Also there is no change in that strategy. Changes only in terms of creating new capacity for coverage in some cases.
Our next question is from the line of Sanjay Chawla from JM Financial.
My first question is on the customer losses which are still happening. We saw almost 9 million reduction in the customer base last quarter. So what exactly is driving that and when do we see customer base stabilizing? And also if you could share your thoughts on what really will be the impact of geophone phone price cuts that happened in early October in the context of customer net adds and the customer losses? That is the first question. Second question is are you still looking at 178,000 sites by the end of this fiscal now or are we looking at a higher number? A related question is your mobile broadband BTS unique coverage on unique sites that is not growing scale? When do we see a pickup in this metric? And how soon do we get closer to the like 185,000 sites that you have in terms of MBB unique sites?
Okay, Sanjay, let me try to answer your first question around the customer losses or churn. As I mentioned in my opening speech, we are seeing consistent decline in churn. And quarter-on-quarter, we saw the decline from 3.7% to 3.5%. And this is the lowest churn that we have seen. I can tell you, just also separately, that September has been the exit quarter -- exit month, has been -- has seen the lowest all-time churn as well. So we are seeing really month-on-month improvement that is taking place as well. Now if I then take out that number and then see where exactly is this churn happening, the good news is that the churn on the 4G side or 4G customer base is actually significantly lower than non-4G. So on 3G side, the churn tends to be higher where 4G is significant, which is of course is high-value customer base and there, we are actually doing well. And as you see the numbers, recognition are positive and improving. So the churn happens mostly on the 2G and we also see that it's happening mostly on the low end sub. These, when we introduced the minimum pricing, clearly, many of the customers churned out at that time which was the number that we have shown earlier. But generally, there are people who still tend to be in that category, which would either still are staying some time, they decide to churn or they are using this as a second SIM and at times you see an activity on those SIMs and sometimes they come back. So this is sort of where that is. I think we believe that as we complete the integration and as I mentioned in integrated circles we are seeing better results. As we integrate our circles and especially our strength markets, we would see churn coming down even further. We see better strength in 4G and we would see that 2G base will also start to stabilize. Some of the other things that we've done on product side, the INR 45 product that we talked about, that has already started to show traction. So we think by the end of the financial year, March 2020, we will have to -- we will come to a point where we will have stabilized base. Also our gross is going up which is also helpful in getting our churn -- our overall net additions in a more stabilized form.
Has this geophone price reduction caused an uptick in the churn since October?
I mean I think it's a little bit too early to talk about that. We certainly did see that there was quite a bit of poor activity there. But I don't think there was any -- there's no particular thing that we can say. Our October results, as I told you earlier, we were quite happy with.
Sanjay, on your question of number of sites, yes, we are still targeting to achieve roughly 178,000 to 180,000 sites that we had guided at the time of merger. The only thing is that some of these sites need to not exist because sometimes it's cheaper to continue paying rental instead of exiting, because the exit penalty is quite high. So some of those cases may be there. But otherwise in terms of the number of sites required by us, that range remains true.In terms of the broadband sites as disclosed in our quarterly report, we are currently at about 158,000, which is about 170,000 -- we're 20,000 short of 178,000. This gap will be significantly bridged by March '20. But as we said that we did decide that we will not provide 4G coverage in some of our nonpriority areas. So it may not go up to 178,000, but the large part of this gap will be covered.
Do we expect some improvement in unique sites from this quarter onwards at least? There's not even at 2 quarters left. We haven't seen any uptake in the last 3 or 4 quarters.
No, no. So it has gone up from let's say it was in 157,000 to 158,000 in previous quarters. It has gone up by about 3,000 in the last 2 quarters. It's not static. But there, probably we will see a faster increase in this number of sites in the 2 coming quarters.
Akshaya, if I could just squeeze in a couple of quick questions. What was the EBITDA you generated from domestic net interconnect revenues in this quarter? And also, there are some gaps, I think the gap in the total AGR liability that you mentioned of INR 42 billion and what you charge INR 257 billion and also the INR 167 billion that you explained, the 2 parts, INR 17 billion, INR 18 billion gap. What exactly is explaining that?
The gap as I said in the beginning, maybe you missed that is INR 17 billion is the provisions which are already made by us earlier.
Okay, so that -- that's already provided.
Yes, that's already provided for. In terms of the EBITDA impact of interconnect, that is in the ballpark of about INR 300 crores for the quarter.
All the very best on the government regulatory measures in the future.
The next question is from the line of Sanjesh Jain from ICICI Securities.
2 questions. One on the mobile broadband addition. Though we are seeing 4G addition, but it is not driving your mobile broadband generation. I think it's very critical because until you're not left with drive mobile broadband addition, it will not drive the revenue because subscriber moving from 3G to 4G, really doesn't add too much value in terms of ARPU. So have you seen constrained changing wherein the 4G addition is leading to a meaningful addition in mobile broadband?
Yes, Sanjesh, we do see an increase. Of course, the best thing for us to do also is to move 3G customers to 4G because these are our customers today and they go up. I think in regards to you saying that there is no ARPU improvement there, I don't think that's necessarily true as well because as they move up, they end up being on higher data bands because they consume more data so they end up being on higher data bundles which is also in some ways leads to ARPU. But certainly, we are adding customers not only new customers from the market, we are adding customers -- we are moving customers from 3G plans over to 4G plans as they move up and many times, that leads to more data and ARPU upgrades. And then of course we also continue to move 2G customers as they acquire 4G handsets. So this number is still positive but we are, let's say, recruiting customers from all 3 of those categories that I talked about earlier.
So have you seen this gap in September and October month which you mentioned?
I mean in terms of more? Yes, we are seeing, as I mentioned earlier, we have had very good numbers in September and October. And certainly, that has improved. And then we also as I said, moved from UL based which is nonvoice -- nondata base UL base into 4G, and that also tends to improve markers as well. But yes, we are seeing an improvement in that area.
Okay. The second one is on the outgoing tariffs as being charged by Jio. Have you seen any benefit on that front in terms of either some of the 3G who are going to 4G or buying a new 4G handset over the year? The portion of a moving consumer have reduced by -- or are you -- and you tend to bring in some of our last customer but who continue to use as our plan on minimum recharge, any of those behavior? Because it looks like Jio is changing tariff and it is making again all in 1 bundle to bring the convenience. So I guess they will have seen something at least by just charging another voucher.
Yes, I think, Sanjesh, it's a bit too early to comment because, I mean, we have made very recently these changes. So I don't want to start speculating. I think what is clear of course is that to be honest, that strategy is a bit confusing and I imagine if it is confusing for me, it's confusing for customers as well because you don't know which call is on-net, which call is off-net and all those types of things. So I think this is obviously a challenge, I imagine for them as they consider and then they made other moves and they still try to bundle everything together back in the way they used to earlier. But then they put limits and then they have some other data packages or reduced validity and so on. But I think -- so I believe this will have an impact. But I think it's too early to say what that impact is going to be. What I can tell you is that the trends on MMP portals have certainly reduced although MMP portals is a small part of the overall activity I think it's been indicated, which means that customers who are putting out potentially through geo for us, certainly that has come down. So I think in some ways it is an indication but probably a bit early to say.
And Sanjesh, I feel that actually we have seen the overall trend in the net bought-outs under MMP improving over the last 2 quarters and I think in September and October, there has been further improvement.
Okay, just completing these both questions together, Not only a reason for both these question has been -- how sustainable is this month-on-month growth? Or it is an effect of some competitive intensity coming down? Or do you see this month-on-month revenue growth which we have talked in the month of September and October sustaining for the rest of the year?
I mean, look, I don't want to start predicting because this is a Q2 call. In that sense and I'm not going to give guidance for the future. We have sort of already given you an indication and we believe the work that we are doing and then not talking about competitors and their intensity, the work that we're doing in integrating markets, the focus of that we have on 4G and unlimited base as well as improvement in customer experience and net growth we believe is what is driving our 4G base and is driving our unlimited base to grow. And that to me is the right way to try to get, to grow revenue eventually. The other part is that I think it has been talked about earlier, I know on the call, that this is an investment cycle gain. Our competitors invested earlier and they were getting benefit of that earlier than us. Our investments as we integrate circles are coming to fruition now and we will hopefully enjoy the benefits of that investment as they continue to come live and our customers get to enjoy a better experience and capacity in those markets.
We take the next question from the line of Varun Ahuja from Crédit Suisse.
I've got a few questions. First, on the liabilities from the AGR, just a little bit of clarity. So this INR 440 billion liability that you have recognized, is this based on your assessment or is this from a DOD that you received at absolute amount? Because it seems like a lot of the article suggesting that they've asked you to pay on a self-assessment basis and the other media article quoting the DOT internal estimate is around INR 540 billion something. So any clarity on that front? Is that the final amount or there will be some adjustment on the lower side or on the higher side? Irrespective of whatever waiver we get from the government or Supreme Court. So that's number 1. Number 2, is -- what role government has in this AGR issues? Clearly, there are a lot of chatters or talks in the market that it's -- it has come from Supreme Court so there is very little leeway that the government can have. So in your opinion and your -- in your legal discussion that you had, how much role government can play and how much it has to come through Supreme Court review petition or on that hearing, so that's number 2. Number 3, also there have been some discussions that you may look to exit some of the service area in order to improve your financial health. So how much - how do you see it revving there in terms of how you see weaker service area do you see that a critical part of a strategic level panning your presence? Obviously, the telcos over the last few years have kind of painstakingly increased their presence to become a pang in the affluence. How do you see going around reducing service areas? So that's number 3. Number 4, looks like there are a lot of feature phones in your site. Bharti is clearly taking a position where they want to focus on the higher end side, they are trying to get the customer move from feature phone to the smartphones. How do you see this segment as a whole? Because with Jio getting aggressive with their feature phone segment you seem to be getting impacted most. Where do you want to position yourself more on the -- have that been the feature phone side or more on the premium side? That will be all for me.
Okay, Varun. Thank you very much. Why don't I answer the 3 questions and then we will hand it over to Akshaya to talk about the liability and the AGR mod and the calculations of that. So you talked about where do we see the role of the government and because it's the Supreme Court judgment. First of all, let me talk about what we believe are our legal remedies so that's the first thing, which is obviously we have a review petition that I mentioned earlier, we are working on and we'll be filing fairly soon. We also have something called a cumulative petition which can be filed to close to [indiscernible] branch which is that -- could potentially be different. It is different than the branch that we will -- that had DOH on judgment. So I think these are our legal remedies and of course we are looking at those very closely. But then in regards to the government, our belief is that providing relief from this judgment is very much in the hands of the government. They have the ability to do it because they are the vendors of this case. And as a vendor of this case, you can decide to choose how to proceed on that. So I don't see any conflict in government being able to make a decision and that they would like to do. And certainly, given the stress on the sector and the criticality of the sector, it gives probably additional ability to the government to act in the interest of overall, let's say, economy and consumer interest and so on. So I think we can -- we don't see any problem there from our perspective in terms of government being able to act. Then you talked about exiting some of these service areas. No such intentions there. So there's not much to talk about. We are planning to be a player and we continue. The only thing that I would say is that our investments are of course very, very collective -- meaning most of our CapEx goes into our high priority quarterly circles. This is where we are super competitive and we will always want to remain competitive whereas the additional investments in those areas where we have -- where we're weaker go only in limited areas and places that we want to compete in. So I think that part will continue but no discussions about exiting those service areas. Then your fourth question was around focus on the high end. I thought I was fairly clear in my early part so all to say that our focus is very much on 4G and unlimited. This is where we are seeing strength. This is where we are investing all our CapEx in. This is where our intention is going and this is where we are starting to see green shoots. So I think this is the right place to be. Jio's attempt to be on the 2G geophone side frankly is not something that we will play on as we have no say in the low end feature phone category.
Varun, on your question on liabilities. So fundamentally, as I again mentioned in my opening remarks that where ever the demands of DOT were received by us. We have used that demand as a basis and made fundamentally 1 correction which is the cash versus accrual basis. Now there are many other things which need to be reviewed and seen. And we would appreciate that these are demands pertaining to 22 separate circles. So each one has a separate demand in the context of Vodafone Idea, they were 2 separate entities earlier so these are separate demands for each of those 2 entities. And then it is over a period of 13, 14 years. So to come to a more accurate basis, it will take some time. But fundamentally, we have taken DOT demands what for very obvious corrections we have kind of reduced from there, I believe that is room to kind of make some more corrections. Also for the period where the demand was not received, there we have estimated the demand assets so that will be more realistic but that is the last 2 or 3 years depending on circle and entity.
Ladies and gentlemen, due to time constraints, we'd take that as our last question. I would now like to hand the conference over to Mr. Ravinder Takkar for closing comments. Over to you.
Well, first of all, I wanted to thank all of you for taking the time to join this conference. Certainly, as you, as I had mentioned in my opening speeches as well, while there is clearly operationally we start to see some positive trends in our operational results, we have a lot of work to do and we continue to do it a very fast way around integration and we are accelerating integration further to complete by March 2020. And we hope to continue our focus on 4G and unlimited subscribers. Our engagement with the government continues to be quite positive and strong and we believe that there will be some action taken by the government and we hope to hear that in the coming weeks and days. And then overall, I think we are driving our agenda and our strategy in the right direction and we hope to continue to do that and look forward to talking to each one of you when we announce our Q3 results. Thank you very much.
Thank you very much. On behalf of Vodafone Idea Limited, we conclude today's conference. Thank you all for joining. You may disconnect your lines now.