Vodafone Idea Ltd
NSE:IDEA
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Good afternoon, ladies and gentlemen. This is Margarette, 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 hand the conference call over to Mr. Himanshu Kapania. Thank you, and over to you, sir.
Thank you, Margarette. On behalf of Idea, I welcome all participants to this earnings call. Today, our Board of Directors adopted the unaudited results for the third quarter October to December of the financial year 2017-'18. Press release on Idea's third quarter results along with the company's quarterly reports have been uploaded on our website, and I assume you had a chance to go through the same.My opening remarks will cover the key long-term structural changes in the mobile sector and how Idea Cellular is gaining itself to operate in the new paradigm, while Mr. Akshaya Moondra, the company's CFO, will provide details on Idea's financial performance during the third quarter.First, quarter impacted by a reduction in interconnection usage charge. Effective 1st October 2017, TRAI amended the domestic interconnection usage charge settlement regulation, reducing the mobile termination charge from INR 0.14 to INR 0.06 per minute, aggravating the financial stress of the industry.The regulation imposed 57% sharp decline in IUC settlement rates, negatively impacted Idea's revenue and EBITDA for this quarter by INR 8,200 million and INR 2,300 million, respectively, when restating quarter 3 FY '18 revenue at the rate of INR 0.14 MTC.Further, effective 1st February 2018, international mobile termination settlement charges are also revised from INR 0.53 to INR 0.30 per minute. We estimate this IUC settlement rate cut will negatively impact Idea's quarter 4 FY '18 revenue by nearly INR 650 million and EBITDA by INR 400 million in the 2 months' period at constant traffic levels.Both the domestic and international MTC downward revisions remain a body blow to all operators and reduces investable funds for the critical Digital India program. Additionally, the international IUC rate drop only benefits the foreign operators with no commensurate benefit to Indian consumers but with significant foreign exchange and revenue loss to the Indian exchequer. We are perplexed by the recent TRAI's decision on international IUC rate reduction.Second, with proliferation of unlimited voice bundled with data plan, India is moving towards a strong vehicle high-volume, low-rate mobile market. Since the introduction of unlimited free voice bundled with data price plans from April 2017, the consumption habits of the Indian mobility users have undergone a seismic shift. As Indian consumers graduate to a higher-priced bundled plan, the mobile service consumption tends a shifting from snacking to buffet, with marked higher per subscriber usage.Based on internal estimates, India has now nearly 290 million subscriber base as on quarter 3 FY '18 and who have chosen one of the top 4 telecom operators bundled plans offering. Just in 9 months, nearly 25% of Indian mobile users have migrated to unlimited bundled voice and data plans. With increasing popularity of the plans among Indian mobile users, we estimate within next 2 years, the penetration could rise to as high as 50%.The high consumption of such unlimited plans has significantly increased the overall mobile voice and data usage. The adoption of these plans have led to explosion in voice volumes with Idea's sequential quarterly voice minute growth at the rate of 10.8% in quarter 3 FY '18 versus 1.7% in quarter 2 FY '18, highest in the last 30 quarters.The mobile data volume also witnessed robust sequential growth of 30.2% on back of sequential quarterly growth of 73.5% in quarter 2 FY '18 and 99.1% growth in quarter 1 FY '18, as Idea's Pan India data network carried 571 billion megabytes of data volume this quarter, a whopping 5.3x of mobile data volumes compared to 1 year back in quarter 3 FY '17.However, such unlimited plans continue to grow mobile voice and data realization as the voice realization rate, including the impact of reduction in IUC rate, sharply declined by 24% to INR 0.168 per minute, the mobile data realization rate also fell to world's lowest tariff at the rate of INR 0.02 per megabyte, a sharp decline of 27% versus INR 0.027 paisa per megabyte in quarter 2 FY '18.As the initial adopters of these plans were family from Idea's high ARPU base, the increasing adoption during the early phase has led to ARPU decline. We are confident that subsequent takers of unlimited plans from existing Idea consumer base will be value accretive as casual and multi-SIM consumers will begin to commit larger spends to the company on these bundled plans.Third, rapid mobile industry consolidation is leading to SIM consolidation. Significant financial pressure over last 18 months has post subscale operators who exit or combine with other operators. This is leading to faster-than-expected mobile industry consolidation with market shifting from crowded 9 to 10 operators market to a more efficient 3 to 4 operators industry leading to encouraging long-term prospects from the surviving operators.The announced closure of Rcom prepaid services from December 2017, planned merger of Tata Teleservices and Telenor with Bharti and Aircel closing services in 6 circles has led to first phase of market consolidation. Thus, after reporting positive net additions of 16.7 million in quarter 1 FY '18, the telecom industry registered 24.4 million subscriber decline between July to November 2017 on back of loss of 62 million customers by smaller and existing operators.As of 31st December 2017, Idea's overall subscriber VLR has crossed the coveted 200 million milestone and stands at 203 million. Resultantly, Idea improved its subscribers VLR market share to 19.8% in November 2017.Unlimited plans are further paving the way for second phase of SIM consolidation, as consumers who earlier used to split the usage on multiple SIMs are now committing all the usage to single SIM after opting for a fixed-period unlimited plan.Wi-fi usage is shifting to single SIM. Customers are not relinquishing their other SIM due to multiple reasons, including wide distribution of their other mobile number, the SIM being linked to bank accounts or just to avail various promotions and discounts available in future via other SIM. This is leading to a phenomena where subscribers' VLR numbers are still healthy, but revenue-generating subscribers are falling.Having realized this emerging new trend, Idea is totally focused its attention from VLR-led subscriber growth to revenue-generating subscriber growth. Our new internal norm for revenue-generating subscribers is to drive Idea's sales, service and marketing teams focused towards at least INR 25 ARPU-generating customer. To achieve this, the required focus on revenue-generating subscribers, Idea's current strategy is: a, build a company-wide culture of selling unlimited voice and bundled data plans.B, launch of attractive postpaid Nirvana plans to choose against prepaid unlimited plans with feature-rich postpaid portfolio, including data rollover up to 50 gigabytes, free Idea phone security; cumulative family member discount, premium services, customized family tunes, et cetera. Besides unlimited voice bundled with mobile data.C, targeting low and fewer incoming customers who are currently in the non-unlimited category with aim to upgrade to INR 25 to INR 150 ARPU level through a series of tariff and product interventions.Fourth, India is evolving as the world's largest minutes market. Increasing production of unlimited plans is driving huge consumption in voice minutes. As per TRAI quarter 2 FY '18 report, industry voice volumes reached 16.8 billion minutes a day, a staggering growth of 36% year-on-year. India is now clearly the world's largest consumer of mobile voice minutes.Idea's usage per subscriber has increased by nearly 32% year-on-year in quarter 3 FY '18 and now stands at 509 minutes per month. Further migration of subscribers to the unlimited voice plan will continue to drive usage per subscriber, leading to continued growth in industry voice traffic. The company is moving fast to roll out its own Voice over LT services to the 58 million strong 4G handset owners and remains on course to introduce Idea's VoLTE services from March 2018 onwards in the main markets. We expect to offer VoLTE services across all Idea's 4G towns in calendar year 2018 itself.Fifth, new subscriber growth after SIM consolidation. While existing customers consolidate their multiple SIMs, nearly 300 million to 400 million Indians, who are currently do not use any mobile services, are at an inflection point to enter the voice category, primarily on 2G network aided by falling outgoing consumer tariffs and availability of 2G feature phones for as low as INR 300 to INR 500 per handset. Idea and Vodafone India combined will have the deepest 2G network presence, covering an expanse of over 1.1 billion Indians across 500,000 towns and villages and is best positioned to be the biggest beneficiary of this impending growth.Sixth, wireless broadband subscriber growth have just begun. As per TRAI quarter 2 FY '18 report, India has 306 million mobile broadband users as on 30th September 2017, an impressive addition of 133 million wireless broadband users over last 1 year. As mobile broadband data coverage becomes ubiquitous and 4G services become increasingly affordable for the markets due to steep decline in tariffs from INR 150 a year back to current levels of INR 20 to INR 25 per gigabyte, the country is poised to affiliate and add nearly 500 million wireless broadband users in the next 3 to 4 years.Idea mobile broadband subscriber addition of 5.2 million this quarter has been highest since wireless broadband subscriber customer addition as company's broadband data user base reached 34.8 million out of the 42.6 million data users.Seventh, India is among the highest per cap consumption society on data as well. Seeds of digital revolution, which will permanently transform India into a digital society, has been sown. Data consumption per subscriber has witnessed a meteoric rise largely on back of unlimited bundled plans. Industry data traffic as per TRAI quarter 2 FY '18 report has witnessed a massive explosion as volumes grew by more than 7.5x in less than 1 year.For Idea, the introduction of unlimited bundled competitively priced data plan has led to: a, a sharp rise in Idea's data subscriber usage per month from 700 megabytes to nearly 4.8 gigabytes in 1 year, far higher than the global average; b, in comparison, the mobile broadband data usage by Idea's broadband subscribers has risen to 5.7 gigabytes per month against a meager 971 megabytes usage a year ago in quarter 3 FY '17.Eighth, increasing adoption of 4G smartphones. Proportion of 4G smartphones being shipped to India on an annual basis has risen to 50% of the total phones in calendar year 2017 from 12% in calendar year 2015. As 4G shipments dried, Idea continued to gain its fair share in 4G device upgrades as the company added 38 million 4G smartphones on its network over past 1 year. With usage consolidating to 1 SIM in the unlimited bundle plan Virar, a marketplace battle has now shifted for first SIM slot for the 4G services. Idea has nearly 58 million 4G devices on its network, which provides it a significant revenue opportunity and encourage our customers to move Idea's SIM to the first slot.To achieve this, Idea is working closely in partnership with 4G device manufacturers and its ecosystem. A, it has tied up by offering additional data through e-commerce companies such as Amazon and Flipkart for their new 4G handset models launched from OPPO, Vivo and its own brand, et cetera.B, INR 1,500 cash back offer on range of entry-level 4G smartphones from Karbonn, Vimeo priced at less than INR 5,000, provided customers fee and continuously use Idea's network over 2 to 3 years.Ninth, broadband investments to support exploding data demand. Over the period of last 2 years, Idea has aggressively expanded its wireless broadband infrastructure and added 96,020 broadband 3G/4G sites. Idea has multiplied its mobile broadband sites by 3x in last 2 years and the overall wireless broadband sites now stands at 143,565, much higher than its 2G sites. This quarter, also the company integrated nearly 10,000 broadband sites, including TDD capacity sites on 2,300 megahertz spectrum band in leadership markets.As 4G consumption adoption rates continues to rise, supported by affordable smartphones and world's lowest voice and wireless broadband tariffs, almost all of Idea's incremental network capital investment is allocated towards 4G expansion, including fiber and capacity.The merged Idea and Vodafone India together is capable in future of multiplying existing Idea capacity by 8x to 10x. Presently, both companies technical teams are planning the future-proof architecture needed to execute existing 4G coverage and capacity post-merger.Idea's board has decided to revise this year's CapEx investment guidance upwards from INR 6,000 crores to INR 7,000 crores for execution is 31st March 2018.Also, to remind, post completion of Idea Vodafone India merger, the combined entity will hold amongst the largest spectrum block of 1,850 megahertz with 1,429 megahertz spectrum earmarked for mobile broadband services capable of supporting over 163 high-speed Internet broadband carriers.During the pendency phase of merger, Idea and Vodafone India have entered into an active infrastructure-sharing arrangement to avoid duplication of network expense by both operators and thereby optimize our CapEx. Besides, active infrastructure sharing in high mobile broadband demand markets, both companies have entered into 4G ICR arrangements and expanded the scope of existing 2G ICR arrangements to offer services across 12,500 new towns and neighboring villages where 1 of the 2 operators previously did not have presence.Tenth, Idea is transforming from pure-play mobile operator into integrated digital services provider. The update on Idea's digital services option include: a, 14 million infotainment apps installed till date with 2 million-plus minutes of daily video viewing; b, News and Magazine Services app launched in November 2017. Idea is also making serious efforts to increase consumer recharge and postpaid bill payment on its 27 million-plus Idea's self-service app and interactive website. Nearly 15% of Idea's revenue is now being managed through the digital channel.To encourage more customers to shift to digital sales channel and break current retail habit, Idea offers up to 100% cashback on unlimited plan, recharge is above INR 357. In January 2018, the company has also introduced Magic Cashback digital offering with benefits of up to INR 3,300, including cashback vouchers over 8 subsequent recharges, wallet-specific cashback and shopping coupons on e-commerce sites for customers recharging through digital channel with INR 9 -- INR 398 and above value.Eleventh, idea is in the process of raising up to INR 67.5 billion equity to strengthen combined entity's balance sheet. On 4th January 2018, the Board of Directors approved issuance of 326.6 million equity shares at a price of INR 99.5 per share on preferential basis to the promoter group equities for a total consideration of INR 32.5 billion. Idea's board has also constituted a committee of board members to evaluate potential routes for raising additional equity capital of up to INR 35 billion, including, among others, through further preferential issue, qualified institution placement (QIP) or rights issue, et cetera. The proposed capital raising of up to INR 67.5 billion will reduce Idea's net debt, and as a result, Vodafone's net debt contribution to the merged entity will also be lower by the same amount. This, along with recent sale of standalone tower business of Idea and Vodafone India for INR 78.5 billion and potential monetization of Idea's 11.15% stake in Indus towers, will augment the long-term capital resources of the combined entity.Twelfth, preparing for merger within the regulatory framework. Idea and Vodafone India have jointly set up a combined integration steering committee, which acts as a central decision-making body for integration. As a part of integration process, 17 different work teams across various functions have been mobilized for review of existing practices and processes and decide subsequent steps for integration. These work teams responsible to generate: a, day 0, discretionary and nondiscretionary items; b, recommendation on interim and end state; and c, preclose actions required to achieve the same. The company is happy to share that Idea and Vodafone India's merger is progressing at a fast -- at a pace faster than our original estimates as we enter into final stages of the regulatory approval.Thirteenth and final, short-term strategy of Idea to operate in the new paradigm. Presently, company is focusing on 5 key strategies for revenue and profitability revival. Number one, early completion of merger and expedite integration activities and focus on fast forwarding schedule OpEx and CapEx synergies. Number two, shift company's consumer growth focus to revenue-generating subscribers, delivering minimum INR 25 ARPU instead of VLR-led subscriber growth only. Number three, convert higher percentage of existing Idea customers to unlimited bundle plans and feature-rich postpaid Nirvana plan; Number four, target aggressive cost reduction program across all of OpEx line items; and number five, transform Idea to an integrated digital service provider.Idea remains focused on execution of all these market-facing programs and strategies.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 good morning or evening, as applicable to overseas participants.During the quarter, we saw continued and increased migration of subscribers to unlimited products, resulting in significant increase in data and voice traffic. The sharp reduction in interconnect charges, which became effective from October 1, impacted Idea's revenue and EBITDA for this quarter by approximately INR 8.2 billion and INR 2.3 billion, respectively. As the result, revenue for the quarter declined by 12.8% to INR 65.1 billion, out of which approximately 11% decline is on account of reduction in interconnect rate. The balance 1.8% revenue decline is largely on account of ARPU dilution resulting from migration to unlimited plans.Similarly, EBITDA for the quarter declined by 18.5% to INR 12.2 billion compared to INR 15 billion in Q2 FY '18, out of this decline of approximately 15.3% is on account of reduced interconnect rate and balance 3.2% on account of revenue decline. The EBITDA margin for the quarter stands at 18.8% against 20.1% in Q2 FY '18.The depreciation and amortization charge and interest and financing costs net stood at INR 21.4 billion and INR 11.5 billion, respectively.During the quarter, 2 megahertz of 1,800 brand spectrum in Maharashtra and 10 megahertz of 2,300 band spectrum each in Maharashtra and Kerala have been deployed. This has resulted in higher spectrum amortization of INR 150 million and higher interest charge of INR 250 million in this quarter. The standalone PAT loss was INR 13.5 billion in Q3 FY '18 compared to a PAT loss of INR 11.8 billion in Q2 FY '18.As regards to the sale of ICISL stake, the assets and liability values of ICISL are currently shown as separate line items as assets or liabilities held for sale, respectively, on either side of the consolidated balance sheet. The net asset block of ICISL stance frozen effective the date of this stake sale agreement that is November 13, 2017. In effect, the depreciation and amortization of ICISL assets beyond the date of agreement does not get aggregated, while drawing up the consolidated financials. Such amount for this quarter is INR 177 million. The gain from the ICISL stake sale will be reflected when the transaction has finally consummated.Net debt at the end of Q3 FY '18 stands at INR 557.8 billion against INR 540.5 billion in Q2 FY '18. The proposed capital raising of up to INR 67.5 billion will reduce Idea's net debt. With this, I hand over the call back to Margaret and open the call for questions.
[Operator Instructions] The first question is from the line of Sachin Salgaonkar from Bank of America.
I have 3 questions. First, if you guys would give a bit on clarity on the sense of down trading of -- is this largely behind us? And how should we look at it? Any broad direction about number of users using bundle packs would be helpful. Second question, Akshaya, we did see across the board cost line item reductions. Wanted to understand how sustainable is this. And is there anyone else, please let us know. And third question is on your CapEx guidance. Can you help us understand where the spending is coming? I understand it's 4G, but is it predominantly on fiber or more equipment being rolled out? And I presume it is all premerger. So post merger, how should we look at the overall CapEx spend?
Thank you, Sachin. You are absolutely right. From the time unlimited bundle plans have been the order of the day, especially for Idea, which has started to match market plans, our high ARPU customers have tended to downgrade themselves and their ARPU has declined from the earlier higher levels to the present levels. And as of our estimate, we did get to a calculation at the end of the quarter, we have found that most of our high ARPU customers have already downgraded. And the current round of customers that we are now getting are customers who're upgrading their usage, either they were casual customer and/or most likely they were multi-SIM users who have now started to consolidate their revenue to one subscriber -- to one operator and in this case, were choosing Idea at once. As regards total volume -- or total number of users, we have approximately 20% of our overall base, which have chosen unlimited plans. If this is okay, I will hand over.
Yes, this is clear.
So Sachin, on the cost side, I think we are focused on cost optimization also and there is one one-off in this quarter, which is under network expenses, which is an amount of approximately INR 1.1 billion, which represents a reversal of old provision. Other than that, there is no one-off in this quarter.
Okay. And Akshaya, you see this self-sustaining going forward, height of current OpEx levels?
Yes. Except for the one-off, which I just mentioned.
As regards CapEx guidance, it's a combination -- you're right, the complete INR 1,000 crore incremental expenditure which is going to happen in quarter 4 is planned on 4G. It's a combination of 3 things: Enhancing our overall capacity for the company; second is additional radios. The radios are focused to be installed in most of our leadership markets and a small amount of fiber. I have to keep reminding you, we have already given updates on progress as far as the ICR arrangement both on 4G as well as the 2G ICR with Vodafone. And third, on Active Infrastructure sharing, there is a great deal of work which is happening on fiber sharing and a lot of capacity of a very significant order of fiber sharing has already progressed. Some of it was executed in the last quarter, but a large portion of the same is going to be executed in this quarter. So if we are to look at combined fiber offer and if I were to not eliminate the overlapping fiber, we have over 3,25,000 to 3,40,000 kilometers of fiber without eliminating the overlapping fiber and a large amount of capacity is there. But just installing end equipment, we are able to now upgrade a large quantum of capacity. That's it. Is it clear?
Yes, sir. And the post merger, how should we look at that?
Post merger, currently, we are a listed company. We give CapEx guidance. So we have INR 7,000 crores. Though there is no official figure, but Vodafone expenditure is of a similar order. So the current level of trends that we had, we would be -- we expect to maintain that level at a minimum. But along with that, there is a significant portion of CapEx synergy, and the exact quantum will be shared post the merger, but it is a very large component of CapEx synergy or -- and that comes out of overlapping equipment, which is going to be used and very small component of reinstalling of equipment will be there. So if we have to read our CapEx guidance, it is not only about the total expenditure, but also a large component of capital equipment, which is overlapping by nature, which will be reused will have to be accounted on the CapEx. Akshaya, you want to add anything to that?
No.
And sir, sorry, just as a small follow-up on that. Today, we saw 1.5 GB packs being launched by a couple of your competitors. If directionally that is the way market is moving up and given the fact that in the next few years, a lot more data consumers will be coming, so not only it's more consumers who are coming, but consumption per usage is also increasing. Then from that perspective, do you see upside as to your -- generally, we have guidance of maintaining this. I understand the CapEx synergies as well as the spectrum enhancement if it's coming out of it. But are there any general upside risk? Or if you could quantify the kind of amount which is needed to overhaul over a period of next few years to basically ensure that the network is capable of handling a lot of load?
So there are 3 or 4 parts. You have to see the answer to this question in individual parts. Part number one is, as we speak, both the companies have deployed anywhere between 400 to 500 megahertz of spectrum for broadband. Once it is a consolidated company, it is going to deploy, out of the 1,850 megahertz of spectrum, 1,429 megahertz of spectrum. And the last portion of TDD spectrum has yet not been deployed, which is going to get deployed. So that is one big benefit that is going to happen. But if we leave the topic of TDD where definitely CapEx is required, but there is an overlapping spectrum, which currently we use for GSM, and we are expecting to be able to pull out a significant number of carriers, which has -- table of the same has been shared in our investor presentation at the time of merger announcement, which will increase the FDD carriers especially on 1,800 and 2,100. This is the part one of the answer. The second part is to remember as besides the worry about CapEx for building a mobile data business, there is a -- the construct of our subscriber base is very different from the construct of the new entrant subscriber base. This subscriber base is 100% 4G subscriber. Our subscriber base has a component of 2G, 3G and 4G. Over a period of time, a lot of these subscribers will migrate to 4G, but all of them are not going to migrate to 4G and will continue to be able to use 2G and 3G. So as I mentioned, I have 20% of my subscriber base, which has moved to bundle plan, but that is not equal to all of them as 4G subscribers. A large portion of them are currently on the 2G and 3G platforms and are happy to remain on them and use the benefit of unlimited plans, predominantly voice consumers. So to be able to assume that every unlimited plan customer is a heavy data user, I think is a mistake from the fact that it is -- most of them are not 4G. But even though, the -- and the third point, even though Idea has approximately 25% -- or 26% of their consumers, which have 4G handsets, but our current user base of -- on the 4G platform is much lower, and our current user base is on the 2G, 3G platform. So this is the third part of the answer. The fourth part is, we have a lot of synergies that is available for a very small component of CapEx. We are going to be able to unify the 2 fiber networks that exist across all towns, and the unification of these fiber networks in one go is going to allow us to be able to move from a level of 150,000 kilometers to a level of at least 250,000 to 275,000 kilometers and give us a huge capacity from the backhaul crisis. So our CapEx requirement is predominantly on -- for the radio front, and a significant portion of fiber benefits will accrue from this merger. So these are some of the factors that are important, but we will continuously review the total requirement of -- having said that, there is merit that there is a huge demand for data that is coming in, but how much is the final number of demand for data comes in should be the allocation of CapEx. We're not a believer of spending CapEx much ahead of time and waiting for volume to come.
[Operator Instructions] We'll move to our next question, which is from the line of Manish Adukia from Goldman Sachs.
My first question is just on the pricing environment. Now Himanshu, you mentioned that a lot of your high ARPU customers have already down traded and you're seeing some current round of consumers upgrading usage. But how do you see that changing with the recent volatility in pricing that we have seen in the last 2 or 3 weeks? Do you think that now there would be further down trading of ARPU in the industry? And what is your strategy for it? Will you continue to match the new operator in terms of pricing? And how do you see that going forward? Second, if you can just comment on your balance sheet. I think net debt-to-EBITDA is now close to 8x and while you have announced some deleveraging initiative, tower sale and capital infusion, by when does the management expect ideal balance sheet to get to more comfortable levels of, let's say, 3 or 4x? And if you can provide some road map to that, that will be great.
Thank you, Manish. I'll try to answer the volatility in the pricing and I would ask Akshaya to give to -- give details on the balance sheet. Yes, you are referring to some of the events which has happened over the last 2 to 3 weeks. As regards movement of unlimited plans in the past, which was steadily the prices are improving to what has happened over the last 2 to 3 weeks. So first and foremost, if you notice, it is a battle between the new entrant and the leader and both -- as far as Idea is concerned, we have stated this earlier and we're going to reinstate at this point of time that we are not a price warrior in the marketplace. So our focus remains long term rather than over worry about the short term. Our assessment, first and foremost, as far as long term is concerned, the long-term trends of telecom remains extremely positive and it is a minor aberration, which, in a short period of time, should correct itself. This is our estimate that it is only a matter of time, these prices will go back to earlier levels and we'll return back to growth levels and prices to recover back, primarily because the current unlimited price plans that we announced are far below cost levels. Now the second part, we have to remember that if you look at -- as alluded in my speech, if you look at, India has approximately 800 million handset users. Out of this 800 million handset users, anywhere between 225 million to 250 million of the handset users are on 4G, and 65% to 70% of the users are with a new entrant, and they're using new entrant network. So all downward revision is predominantly going to hit their revenues. Idea has 2 or 3 options to operate till we pass through this volatile period, which is something that we have done in the past. First and foremost, if you have to believe -- in the past, we used to run a differentiated strategy between offering for 4G versus offering for 2G, 3G, because 2G, 3G customers are predominantly looking for better value on the voice networks, and we will continue to evaluate whether this will be our strategy as that has not yet been concluded, but this is one of the options that exist to us. The second, we have to remember that it is not only about -- we are also making very strong attempts that we signal out clearly in the marketplace that we do not want to participate in the current level of price drop. And any possibility of raising prices, we will give out signal in the marketplace so that how many can return back to the market. So we are going to continuously signal in the marketplace that we are not there to be able to continuously bring prices down, and we will prefer that we have a far stabler environment and reason for that is the industry needs to continuously invest. There is a very large volume demand for both voice. There is very large volume demand for data services, and it is important that the investment in digital continues. For Idea, the focus remains its merger. It will continue to be able to put all its attention on the integration. It continuously wants to be able to carry out all necessary work to be able to expand both its coverage and capacity and do not want to be a price warrior. So we will maintain reasonable distance. If we have to look at the ARPU levels we are getting for unlimited plans versus ARPU levels that have been announced by unlimited plans by new entrants, as per our internal study, we find that our ARPU levels are anywhere between INR 50 to INR 75 higher than the ARPU levels that the current new entrant is offering. So clearly, we have maintained in the past much higher price level and we will continue to signal the same, and we are very hopeful that the volatility that has happened over the last 3 weeks is -- will, over a period of time, harmonize and both the leader and the new entrant will settle and market will go back to its final growth momentum. So it is -- market has to correct itself, and we are very confident that it is only a matter of time this will happen.
Manish, you are right that net debt-to-EBITDA ratio is at a fairly high level, however only 2 points I would want to make there. That one is this high level of leverage is primarily arising out of decline in EBITDA and not so much because of increase in debt. And in such a situation, there is not very much that you can do. So the recovery of the leverage ratio would largely happen by way of recovery of EBITDA as the market repairs. For the current point of time, we are focused that the business should be adequately funded to make all the investments that it needs to make and to service its debt obligations. And that is why we have taken all the steps to make sure that we have adequate funding available for the foreseeable future.
Right. Himanshu, I just had a quick follow-up on your comment. When you say that you're confident that the market will repair itself and it's only a short-term aberration, what gives you that confidence? In your view, what will be the key driving factor for the new entrant and Bharti to stop the price war and raise prices? So what do you think will be the key catalyst for that -- or for them to actually stop the price war and raise prices?
Whenever the price drop -- given the fact that we spent over 2 decades in the industry, whenever the price drop happens and the rate falls, the market doesn't recover, and revenue decline will be very steep for both the company and for what means, because the current prices that is -- even the current prices that is being offered is getting in very good demand from the consumers side. So this -- the consumer demand is itself very, very robust. That is Part one. Part two, the battle is for 4G. And 4G, if you look at 2017 calendar year, shipments was to an order of 125 million. Approximately 10 million to 11 million handset are coming in. There's no doubt there is an announcement of incremental handsets that are going to be brought in on the feature phone. But the consumption of handset is at a level of 10 million to 11 million overall handsets. So there is only a particular pace at which the growth will happen. The universe on 4G currently remains much smaller, and the price drop only hurts both these companies without commensurate gains, because it's a battle -- it's not that the 4G handsets are lying anywhere else. There was earlier a battle to be able to -- in the consolidation phase, SIM consolidation, when the smaller or subscale operators were exiting and their subscribers to be acquired by making aggressive offers. So because there is not sufficient customers on the 4G front, this battle is not going to give you commensurate gain for the price drop. So the volumes are not going to get rid of growth, I think it will only be depletion of revenues. So that is the reason why I'm very hopeful. In fact, to a fair degree, I'm confident that it is a passing phase. We have to be patient enough to let this phase pass through and we will be back to recovery.
[Operator Instructions] We'll move to our next question, which is from the line of Kunal Vora from BNP Paribas.
Sir, sorry, but we'll continue the discussion which was -- which we just did on pricing. How much premium compared to Jio are you comfortable with? Like -- it looks like Jio has cut prices because both Bharti and Idea have got very close to their pricing. While you do not want to be a price warrior, you seem to be having little choice. And if you don't respond, the market share will keep eroding. You already has a 65%, 70% market share in 4G. So what will be your 4G market share aspiration? That's question number one. So if you can answer that, I'll go to the next question.
So Kunal, if you -- last quarter, Idea has added over 16 million customers on unlimited bundles. And our key strategy has been INR 179 plan. What is a INR 179 plan? It is an unlimited voice and has a very limited data. It has 1 GB of data. So if you look at volume growth of voice, if you look at volume growth for data, it will be very evident that we are focusing on customers who are good voice users and also need data. We are not focusing on customers, which are the younger audience, who are deeply into data business. So with this, this had a reasonable success. We'll continue to be able to focus most of our energy on unlimited voice with limited data volume and -- which is where customers from 2G, 3G as well as 4G who don't have time to be able to spend all the while to be on Internet will continue to choose networks like us, because they will -- our pricing will remain competitive, while there will be a second battle for the customers who are very heavy users of data and incremental volumes that we're getting is not getting you extra ARPU or not going to get. So our strong belief is that there is a segment of customers which are heavy users of data and can consume as much volume as they can, but there is also a much larger mass of customers who need their data services for half an hour or 1 hour of need per day and are -- and they are mid- to low-end data requirement and we will be able to satisfy that requirement really, really well. As far as price is concerned, it's very difficult to be able to cut down to a specific number that you're wanting us to do. We want to be competitive, but we don't want to be price warrior. We are not -- we will make every attempt to indicate that -- which will allow the new entrant to go back on its old prices. That we will make every attempt to make market indications and offer him opportunity to go back to data business.
Sure. Himanshu, second question...
But this is within the framework of law, I will have to put that in a -- so we do not want to bring our prices down that -- from that perspective.
Understood. Second question, you mentioned that you want to focus on customers who are paying more than INR 25. So what proportion of your customers are paying less than that? And are they mostly dual SIM customers that they are paying someone else and that's why they are not paying? Or these are really low-end users?
We have the numbers, but we don't share that information in the public space. So we are -- there are both types of customers. There are customers who are happy to use purely incoming, but a larger proportion of these customers are definitely dual SIMs. They have chosen somebody else unlimited plan, but they continue to also have the second SIM because that SIM is linked to their bank account number or Aadhaar number or they continue to look for other offers. So there are combination of both those subscribers. There will also -- the third category of subscribers who can afford an x amount of money. So there is a significant price differential that currently exist for customers who chooses an unlimited plan versus a customer who does not choose a unlimited plan. So the customers who don't choose a unlimited plan, so we want to bridge the gap for customers who choose unlimited plan versus customers who don't choose unlimited plan. So there are consumers whose usage is only 200 minutes and does not require unlimited plan. But there the realization is very significantly higher, and we will want to make him comfortable to be able to stay on our network, use the 200 to 400 minutes of that and get ARPU improvement. So those are the customers that we are targeting, which is the mid- to low-end customers. And we have seen whenever we do a specific product introduction, whenever we do tariff intervention and all of them don't need to be done at unlimited levels. There's a significant number of them that would come back.
Understood. And one last question, if I can. The network costs have gone down sharply, like even if I adjust for the one-off, it's down by -- like about 10% year-on-year. What's driving this decline? Because you have -- like we haven't seen any meaningful decline in 2G sites; 4G sites, you're adding in large numbers, so loading should be increasing. So can you also give any cause for the increase over the last 1 year? So what's driving the sharp decline in network cost?
So there is not a single large item which is determining these costs, let's say, the energy costs have improved on a per site basis, of course with expansion there is some increase on increased numbers. But you'll see from March onwards, our 2G sites have also come down marginally, so that is helping. There is a lot of work being done on the maintenance cost of equipment and that is being optimized. I think there are some renegotiations which are also happening with the different vendors who are providing services. So it's an all round effort. There is no single item which will stand out. By the way, I think efficacy actually network and IT cost and there's a significant improvement, which is also happening on the IT cost.
Understood. In the interest there is no change, right? There is a...
No.
The next question is from the line of Srinivas Rao from Deutsche Bank.
I have 2 questions. Can you throw the light on this VLR versus RGS subs, again, if someone asked, but it would be helpful. What exactly are they trying to do there? If you can help. That's number one. Secondly, on your cashback, how is the accounting for cashback? Do you think the impact -- probable impact in the current ARPU? Or do you take it as and when the cashback will be, so to say, taken by the customer? And finally, one question on the subscribers who have 4G devices but are not your broadband subscribers. That number is based on your own disclosure, probably about 6 million to 7 million. I mean, what are these, and are these simply looking at 2G, 3G on your platform? Or they probably have a data plan from someone else? Any feedback on that? And how do you intend to bring them to Idea-full would be helpful.
So Srinivas, let's go -- it's better to check. What I was trying to tell you between VLR and revenue-generating subscribers, in the past, VLR was a right KPI measure for revenue growth. What has changed over the last 2 quarters that's just getting a customer on VLR may not be sufficient because you may be adding a customer on VLR is on a multi-SIM handheld device, and you can become predominantly incoming user or he has chosen to use that SIM card for getting all his approvals and regulatory and not using it as a main device. So what we have -- after we studied, one of the reasons for fall of ARPU is of the increased number of customers who are doing casual usage or usage only incoming. In the past, even incoming customers was fine, because they were rebuilding earlier INR 0.20 usage and subsequently INR 0.14 usage. Now the IC contributions has also gone down. So we have started a company-wide program, including our sales, marketing and service teams to identify customers who are predominantly casual users, incoming users, who continue to be around VLR but do not generate sufficient revenues. And with these programs, we're seeing a reasonable amount of success. And very large quantum of these subscribers we could recover back in the quarter 3, and we're running almost toward on these customers to make sure -- to understand why they're not using our network and try to bring them and to add. And it is not so much about 4G, more about the Voice side of the business. If you're okay with this answer, then I'll move to the second part.
Yes, sir. This is understood.
So as far as cashback offer is concerned, the offer is very straightforward. The customer who buys the presumed, our previous plan at INR 357 and above recharge. He is now entitled to cashback. These are vouchers that are available on our web and our pack. And when he does the subsequent recharge with a particular value about which he has to recharge and he does subsequent recharge, the credits will also cashback for around INR 8 -- it's currently INR 50 into INR 8 that was the offer that was available. And that INR 50 will get credited and then accounted for. And we have seen only a small percentage of these customers are availing of the cashback. And we wait to see, because we just had one quarter, and in the past how many of them consumed all the 8 recharge. But our calculation shows that it's a good retention tool.
Understood. And one of the gap between 4G devices and 4G subs?
Yes. So as we mentioned that we have added about 38 million 4G handset users, we have over 58 million 4G handset users. And on our overall broadband, we have 105 million overall broadband device users and we have about close to 36 million to 37 million customers who use our 4G services. But a large portion of these device owners also use our Voice services. We are making significant attempts to make the non-user of data services to use our network, and the unlimited plan is definitely one of the strategies, and that has been a reasonable success in the last quarter. We added 5.2 million customers in the last quarter, or incorporate them. The second, obviously, our coverage currently is about 600 million population that we broadly cover where our broadband services are available. The effort is on as early as possible to expand this coverage. This merger is going to help us to be able to reach to Pan India, to 1 billion population, so the coverage expansion is an extremely important strategy. Also secondly, our unlimited remains our strategy. But we are not going to become a discount warrior to be able to -- or to make sure that a non-user gets in the usage. So we use our persuasive power, we'll use our continuous communication to the customer to do that and we'll try to get him on the digital channels. So those are the efforts that is currently on.
Understood.
On your question that the accounting of the cashback is that all that we have on the recharge.
So what the -- sorry sir, can the impact...
The impact over the 8 months, which is the period of -- I mean whenever there is a cashback which is utilized, it is utilized doing the recharge or whatever will be the duration of the recharge, it will be amortized over the same period. So there is a matching of revenue and cost impact.
Okay. So essentially in the quarter in which that someone takes a recharge, the ARPU for that quarter will fall, am I correct? The ARPU for the subscriber for that quarter?
More or less, the answer is yes...
Yes. Okay. In terms of detail, maybe we can take this offline, but generally, it's in the market that's [indiscernible].
The next question is from the line of Sanjay Chawla from JM Financial.
My first question is, Himanshu, on this whole consolidation, which is happening right now, so we have seen Rcom exiting in November, December and operations shutting down, et cetera. So how much of the subscriber or revenue benefit for you is reflecting in the third quarter numbers? And how much more -- one should expect how much more is coming up in 4Q, for example? And also, should we build in any meaningful like revenue flow from Telenor and Tata Tele customers also whenever their merger that's completed with Bharti? That is the first question.
So Sanjay, we had good growth in quarter 3. It's a combination, as we mentioned in our press release, the combination of customers we're gaining from MNP as well as business usually with better quarter. Quarter 2, we had larger proportion of rural customers. And our grand quarter 3, with the festival season coming back, where we get gains from that. So it's a combination of both of these. Beyond that, we won't be able to share or give any specific number.
Should we expect more benefit in the fourth quarter? Or do you think much of the benefit as far as outcome and Airtel is already there?
I keep reminding that there is a consolidation in the industry. There is also 400 million customers who are currently non-mobile users will enter the category. The combination of both is happening and we're very hopeful that the way we had good subscriber addition in quarter 3, the same will continue in quarter 4, but we'll wait to see.
Okay. And the second question is on this whole battle being primarily on the smartphones side being about occupying the primary slot. So what is your sense in terms of the share of Idea 4G SIM cards that have gone into the primary slot? On an incremental basis, how this thing is looking like, let's say, in the third quarter?
We don't have that specific number. We are monitoring it, but we don't have the number and we don't disclose that. It's a very specific number.
Could you talk in that case about the penetration of 4G in terms of attachment rate in all 4G and the device space, 4G device space? Because, I on an overall basis you have reported roughly 33% of your devices -- the customers sort of having those devices are also broadband subscribers. And this percentage has gone up in the last 2 quarters compared to first quarter, let's say. So how has this trend been there with regard to 4G alone?
So let me -- first and foremost, a very large growth is happening on 4G, is a part one. I have to keep reminding that Idea Cellular has been consistently expanding its 4G coverage. We've added over 35,000 -- or 33,000 to 35,000 fresh radios during the last 9 months that allow us to enter newer markets, and the benefit of that continues to come to us. And the prices have become very attractive. So the expansion of coverage and the attractive prices has helped a lot of our existing customers who are predominately using Voice product, they'll now start using mobile broadband. And 4G is the item for growth.
Okay. If I could just squeeze in one more question now. I mean, you have obviously some anticipation of data traffic growth, which is happening now. So in the context of this anticipated traffic growth, let's say in FY '19, how critical do you think would be the deployment of TDD 2500 within FY '19? Or do you think this could be -- or given the merger related other benefits with regard TDD 2500 can wait probably till FY '20. What is your sense?
No, we will launch significant number of TDD radios in FY '18, in quarter 4 as well as next financial year. These are our...
TDD 2300 is already being launched, but TDD 2500?
TDD 2500, launches have already started to happen, and we're getting a good traction.
The next question is from the line Gaurav Malhotra from Citigroup.
Most of my questions have been answered, just wanted to get a clarification. As you mentioned that you stopped taking the depreciation of the towers, which are going to be sold, what about the revenue which will be coming from them? Or any rental which you would have to pay for these towers? Is that being taken in or kept out? Or on the -- above EBITDA, it's business as usual?
So let's [indiscernible] the simple answer to your question, which is EBITDA business as usual. And in any case, if there was any financing cost, it would also be charged. So the only differences in the books of Idea is that there is 0 change in accounting. As far as the consolidation is concerned, it is only -- since the assets are held for sale, it is not depreciated any further and this is only in the consolidated accounts. Other than that, there is no change at all.
Okay. And just on the pricing, I know we have discussed quite a bit of that. And Akshaya, you did mention about the fact that most of the competition is happening on the 4G front. But given that now there are price plans at INR 98 unlimited Voice with some data and the fact that the 4G smartphone prices have also started to come down. Is it there a risk that, that could sort of accelerate the 4G adoption at the bottom end and sort of the 2G subscribers, which are currently sort of protected from competitive intensity, do you also get exposed to that?
I think it's very premature. We'll wait to see how that trends come out. These plans have just been announced, and we'll wait to see the big moment that where there are -- we have to keep reminding ourselves that India has about 300 million users -- 300 million users for mobile broadband, and we have at least additional 500 device owners who don't use at all any broadband services. So we'll wait to see how many of these customers were to migrate to data and how fast. But having said that, we are very much going to participate in the growth of 3G services through, so our long-term program, and that is why focus of the company is to expedite merger, expedite integration of 2 entities so that it can become unified 1 entity, expedite 2 networks to become 1 unified network and to expedite refarming of spectrum so that we can utilize the overall spectrum to be able to build larger capacity. The whole coverage expansion for 4G, capacity expansion for 4G with the merger remains the paramount focus of Idea and Vodafone India, and a significant progress have been made, and it is much faster than what we've already anticipated. So while there may be a short-term trench over the next month or 2, which we have very little to comment about. But long-term, the company remains focused to expand its 4G coverage. Yes, there is a new operator who's got the first-mover advantage, both in coverage and capacity, but we intend to be able to cover both the coverage gap as well as the capacity gap in as short a period as possible.
We'll take the next question from the line of [ Aishwarya Agarwal ] from Reliance Mutual Fund.
Sir, I just wanted to understand this -- we understand from the Jio industry that they will be very aggressive going forward in terms of Jio Phone penetration into the market? And the next phase of that will be tariffs are declining and whatever tariff they're offering right now, which is INR 153. There should be a meaningful curtain in that tariff also. So especially, I see that the existing 2G users are likely to switch from this featured phone to the Jio Phone. So how you perceive that scenario? And how we be able to -- I mean, what are the things which will work for us?
So let's go in a systematic manner. There is definitely the smartphone prices are falling, and the term that we use is the 4G feature phone. The old version of 4G feature phone did not get a significant response. But what we are seeing on Android operating system that 4G handset prices, which were earlier in the range of INR 5,000 to INR 7,000, there's a series of handsets now being launched in the INR 3,000 to INR 5,000 price package. We are continuously in discussion with the handset manufacturers and we are seeing a number of handsets in the pipeline which are going to come in the INR 2,000 to INR 4,000 price package. So we are quite confident that while a new entrant we believe will use its own handset, the overall industry will bring in lower-priced 4G handsets, which is not positive only for 1 operator, it is positive on an overall basis for the industry, because the industry is focused to make sure that more and more of the existing Indians were to migrate handsets from the pure voice users to the balanced user of both Voice and data. So to help the industry, handset industry to continue to bring these low-priced handsets, we are entering into a series of cashback deals. We already have tie-ups to handset manufacturers and we are in a discussion with multiple other handset manufacturers. And currently we're offering INR 1,500 -- INR 1,500, INR 2,000 cashback if a customer were to stay back on a network for a 2- to 3-year time period. So from a pricing perspective, while I had mentioned in the previous call that we will not be the discount warrior, but our pricing will be very competitive both at consumer recharges as well as support to the handset suppliers. And this will proliferate much more handsets in the system, and we'll definitely encourage that proliferation.
Sure. This was very helpful. And in relation to that, let's say, they are also able to offer the handsets at a cheaper rate. So INR 1,500 is a price with the cashback. And for any user to switch from existing handset to the new handset, it's a -- they have to upfront the INR 1,500. Now making the deal more sweet and keep the prices say, INR 1,000 or leveling that and subsidizing that. So those kind of things, I mean, how you will be able to overcome that rate? I mean, there is a focus on acquiring the market share, so it's a huge market there with the 2G and they are not able to penetrate it at all. So...
Yes. Don't worry. What we've seen in the past 2017, feature phone, still continue to a lot, 125 million feature phone has happened. The cost of material of a 2G feature phone remains very low in the range of INR 50 to INR 75 only. So that's very, very low cost of feature phone. The prices of our feature phone will be a little bit in the INR 500 to INR 750 price range. We also are introducing -- we're going to support the 2G feature phone market as much we can do as an operator.
We'll take the last question from the line of [ Shivam Saxena ] from ICICI Bank.
Just one question. Interest cost have declined for this quarter. Any reason specific?
See, the major benefit is coming from -- there's an FX difference, which is about, again, INR 1.1 billion in delta between previous quarter and this quarter. And it is offset by other increases, which are largely -- there was one credit of income tax refund which came with interest which is not there in this quarter. There is some increase on account of higher debt during the quarter, higher interest rate. So the benefit is on account of FX and the increase in cost on account of having high debt, and there being a credit last quarter, which is not there in this quarter.
Okay. And one more question. On the international terminal charges, I missed the first line of you. What would be the impact on the revenue and the EBITDA in international terminal charges?
We said, over the period from 1st February to 31st of March, the impact will be on revenue, which is INR 650 million. And on EBITDA, it's INR 400 million.
Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Himanshu Kapania for closing comments.
Thank you so much. As you know that we're going through a little volatile time. But -- and this phase will also pass. But Idea remains a long-term player and our focus primarily is to do all actions which will help the company to build strong network and continue to build its plan, and our focus is to capture maximum growth. India has significant opportunities on mobile sector, and consumers are having a bonanza, and Indian mobile sector are going to see a significant market recovery. We want to capture this growth, and with -- while this is helping a merger, will continue to be -- will continue to support us to tap maximum opportunities. Thank you so much for all your questions, and see you in the next quarter.
Thank you. On behalf of Idea Cellular Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.