Vodafone Idea Ltd
NSE:IDEA
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Good afternoon, ladies and gentlemen. This is Margaret, the moderator for your conference call. Welcome to the Vodafone Idea Limited conference. [Operator Instructions] Please note that this conference is being recorded.
We have with us today Mr. Ravinder Takkar, MD and CEO of Vodafone Idea Limited; and Mr. Akshaya Moondra, CFO of Vodafone Idea Limited along other key members of the senior management on this call. I want to thank the management team on behalf of all the participants for taking valuable time to be with us.
Given that the senior management is on this conference call, participants are requested to focus on the key strategic and important questions to make sure that we make good use of the senior management's time. I must remind you that the discussions on today's call may include certain forward-looking statements and must be viewed, therefore, in conjunction with the risks that the company faces.
With this, I now hand the conference call over to Mr. Ravinder Takkar. Thank you, and over to you, sir.
Thank you, Margaret. A warm welcome to all participants to this earnings call. Yesterday, our Board of Directors adopted the audited results for the quarter as well as full financial year ending March 31, 2022. All the results related documents are available on the website, and I hope you had a chance to go through the same. As usual, I will start with a briefing on all our strategic initiatives and highlights for the quarter. Post this, I will hand over to Akshaya to share details on the company's financial performance.
The first priority area for us remains focused network investments. We continue to follow a focused approach to investments biased towards our 17 priority circles, which contribute over 98% of our revenue. This helps us in utilizing our CapEx effectively while ensuring that we continue to offer superior customer experience in these areas. We are focused on reforming our 2G and 3G spectrum to 4G, which has added incremental 4G sites with minimal CapEx needed for software upgrades.
We have closed around 32,000 3G sites during the year while adding around 35,000 4G FDD plus TDD sites. Resultantly, our broadband site is moderately higher year-over-year at 455,246 versus 452,650 last quarter. The reforming of 3G spectrum to 4G on majority of sites in various circles have substantially enhanced the GIGAnet 4G capacity, which is now over 2.9x compared to September 2018, just after the merger. During the year, we have also invested in upgrading our core and transmission network. Over the last several quarters, our network investments have been impacted on account of cash flow constraints in spite of which we have managed to offer superior customer experience as reflected in our consistent top ranking in several lead tables across data and voice. We have the highest rated voice quality in the country as per TRAI's MyCall app data for 15 out of the 17 months between November 2020 and March 2022.
Our focus on leveraging new technologies and partnerships for a better tomorrow for Vi users has led us to showcase a wide range of 5G use cases during our 5G trials in Pune and Gandhinagar to make our enterprise and citizens smarter. During our 5G trials, we have displayed many industry-first use cases like network slicing, Voice over New Radio as well as several use cases related to enterprise and B2C.
Moving on to market initiatives. Effective November 25, 2021, we increased the prepaid tariff across all price points, including unlimited plans as well as combo vouchers by 20% to 25%. All these initiatives have been ARPU accretive, the benefits of which have flown in this quarter as well as the last quarter.
In comparison with pre-hike Q2 ARPU of INR 109, and adjusted for difference in days in the quarter, Q4 ARPUs are up by 16%, reflecting the impact of the tariff hike. We also continue to focus on increasing 4G UL penetration to help improve ARPU through various incentives and handset financing tie-ups. We are running several campaigns in select locations to incentivize our 2G handset customers upgrading to 4G devices, including cashback on monthly recharges.
Now on to business services. This will always remain an area of strength for us owing to us having a long-standing relationship with our enterprise customers as well as our relationship with Vodafone Group. In line with our stated strategy, we are progressing ahead in our stated strategy of transformation from telco to techco. Our planned expansion of services beyond connectivity has seen good traction. We are working with partners and customers to build private LTE solutions to drive Industry 4.0. On our industry-first integrated IoT, we have seen numerous deployments of our smart mobility, smart infrastructure solutions across FMCG, manufacturing and automotive sectors. Our integrated IoT solutions are powering EV ecosystems across the value chain of tracking, battery monitoring and charging infrastructure management.
The solutions have demonstrated ROI for our customers in their digital journey. We are working on our cloud strategy through a combination of our own assets and strategic partnerships in order to accelerate digital transformation for enterprises. Our long-standing relationship with our customers continues to be our differentiator. We have been recognized by several CIOs in the country, global technology analysts and research firms for our IoT, cloud mobility and business communication solutions.
The next strategic initiative is driving partnerships and digital revenue streams. We are aggressively executing our digital strategy through partnerships with the objective of becoming a true integrated digital service provider. In line with our focus to offer the best of entertainment services to our customers, we recently launched music service for Vi app for our entire base. The service has been launched in partnership with Hungama Music. With this integration, Vi users can now listen to music on Vi app free for 6 months for both Android and iOS users.
At Vi, we continue to strengthen this partnership portfolio. We partnered with Nazara Technologies, a premium gaming and investment firm to launch first gaming service under Vi Games available from Vi app by all Vi users. This service is available in 2 categories, platinum and gold games, which offer incremental monetization opportunities.
Last but not least, our next offering to Vi users is our newly launched service Vi jobs and Education on the Vi application in partnership with Apna that offers free priority access to the Vi customers to India's largest job listings. This service will be available to all Vi customers at no additional costs. Further, Vi jobs and Education and partnership with leading English platform -- English learning platform Enguru offers 14 days of free trials with unlimited interactive live classes conducted by experts. For our users, we have some discounted pricing post the free trials, which they will continue to have free access to some of the interactive, gamified, industry-specific self-learning modules.
Another major initiative, Vi jobs and Education in partnership with Pariksha offers the aspirants of central or state government jobs 1 month free subscription to Pariksha pass making the process of applying to government jobs convenient for Vi users. This also includes unlimited mock tests across 150-plus exams. At the end of the free period, users can continue at a nominal subscription fee.
On the back of all the digital initiatives, just in the period of the last 3 months, we have witnessed considerable growth in our monthly average users on our digital app, and we believe further acceleration is in pipeline in the coming quarters. Our focus on our platform capabilities to build a digital ecosystem with our partners for a differentiated experience will help drive customer stickiness as well as provide incremental monetization opportunities.
Moving on to other highlights for the quarter. We registered the third quarter of sequential growth with revenues for the quarter growing 5.4% quarter-on-quarter, which now stands at INR 102.4 billion, aided by the tariff hikes effective 25th November 2021. On an equal day basis, this quarter has witnessed growth of 7.7% quarter-on-quarter, highest since merger. Even on a year-on-year basis, this is a first quarter with positive growth, with the revenues up by 6.6% year-on-year. The subscriber base declined to 243.8 million versus 247.2 million in Q3 FY '22 because of the tariff interventions, especially on the entry-level plans, where we have seen the [indiscernible].
However, the 4G base continues to grow and with 1 million additional customers added in Q4, 4G base now stands at 118.1 million. ARPU improved to INR 124, up 7.5% quarter-on-quarter versus INR 115 in quarter 3 FY '22. On an equal day basis, ARPU is up 16% versus quarter 2 FY '22. While data volumes were broadly flat for the quarter, daily data volumes were up 2.1% quarter-on-quarter in spite of the price increase. We continue to see increase in data usage per 4G customer, which now stands at approximately 13.9 GB per month versus 12.9 GB per month a year ago. The overall data volume in Q4 FY '22 thus witnessed a healthy year-on-year growth of 7.9%.
A quick update on some of the major developments in the industry. Following the TRAI consultation on 5G pricing, all operators had requested the pricing of 5G spectrum to be reduced by 90% to 95%. And operators had given lenient -- operators will be given the lenient payment terms like no upfront payment, longer moratorium period and lower interest rates. This will ensure the operators have sufficient capital to make necessary 5G investments and further the cause of Digital India vision. TRAI has incorporated several of those operators requests and the 5G spectrum prices have come down by approximately 36%.
TRAI also recommends the spectrum payment to be spread over the life of spectrum versus 50% upfront payment as in the previous auctions, another step to help operators manage their cash flows more efficiently. We continue to engage with TRAI and DoT on some of these matters and expect finalization of auction details to happen in the next few weeks.
Let me talk about the subsequent developments related to the reform package. The comprehensive reform package announced by the government in September 2021 for the Indian telecom sector addresses several structural, procedural and liquidity issues. We have always opted for deferment of spectrum and AGR dues as well as conversion of interest arising from such a deferment into equity to improve our liquidity position. The effective date for calculations of the net present value of the interest we converted into equity is January 10, 2022. The net present value of the interest liability on moratorium period amounting to INR 161.3 billion towards AGR deals and deferred spectrum liabilities has been confirmed with the DoT.
With this, we expect the conversion process to conclude in the coming weeks. Further, in line with the announced reform package on March 29, 2022, the DoT issued directions to return the financial bank guarantees related to past spectrum auction. Till date, bank guarantees amounting to INR 160 billion have been returned including reduction in BGs required by LF and SUC payments.
On fundraising. Both the promoters jointly agreed to make a fresh preferential equity infusion of INR 45 billion. The shares were issued to promoters at the price of INR 13.30 per equity share, which is at a premium compared to the floor price as per the SEBI regulation. Vodafone Group contributed INR 33.75 billion, and Aditya Birla Group contributed to INR 11.25 billion. The proceeds from this raise were used for working capital requirements, servicing and repayment of existing debt and general corporate purposes including CapEx. The combined shareholding of promoters after this preferential issue is 74.99%. Post conversion of interest into equity, the government shareholding is expected to be approximately 33%, while the promoters will continue to hold approximately 50% on a combined basis.
This firm infusion reflects the promoters' continued commitment to BIL and their belief in the long-term prospects of the company. Further, the Board has approved an additional fund raise of INR -- up to INR 100 billion through equity or equity-linked instruments and/or other permissible modes in one or more tranches. We believe the government reform package and related developments, return on bulk of the bank guarantees till date, the industry-wide tariff hikes and the recent promotion -- promoter infusion are significant positive catalysts for the company. All these developments are being perceived positively by investors and vendor community, aiding our ongoing discussions on further fund raise. We will make subsequent disclosures on the fund raise as appropriate.
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 Ravinder mentioned, average daily revenue for the quarter improved by 7.7% compared to last quarter aided by tariff interventions effective November 2021. Adjusted for Ind AS 116 impact, EBITDA was INR 21.2 billion for the quarter. This was higher by INR 3.2 billion compared to Q3 EBITDA of INR 16.5 billion, post adjusting for one-off of INR 1.5 billion in network and IT costs. The improvement in EBITDA is on account of higher revenue, which is partially offset by higher subscriber acquisition costs due to higher gross additions during the quarter. It is also important to note that over the last 3 quarters, as we have seen sequential revenue growth, we have also witnessed strong EBITDA growth with the operating leverage playing out.
CapEx spend was INR 12.1 billion in this quarter. With this, FY '22 CapEx stands at INR 44.9 billion versus INR 41.5 billion in FY '21. As most of you are aware, we have successfully completed the preferential equity raise of INR 45 billion from the promoters. The Board and shareholders have also approved an additional fund raise of up to INR 100 billion through equity or equity-linked instruments in one or more tranches. We are in discussion with banks and investors for further debt and equity funding for investments.
The gross debt as of March 31, 2022, was INR 1,978.8 billion, comprising of deferred spectrum payment obligations of INR 1,138.6 billion, AGR liability of INR 659.5 billion that are due to the government. The debt from banks and financial institutions declined to INR 180.7 billion from INR 230.8 billion in last quarter with significant bond repayments in this quarter. The cash and cash equivalents were at INR 14.6 billion. As a result, net debt at the end of the quarter stood at INR 1,964.2 billion.
As covered by Ravinder in his opening remarks, we have confirmed to the DoT on the net present value of INR 161.3 billion towards the interest liability on moratorium period related to AGR dues and deferred spectrum liabilities. Post conversion of interest into equity, the debt will go down by this amount. The accounting treatment of this will be done once we issue the shares to the government. Post the conversion of INR 161.3 billion, the government shareholding in the company will be around 33% and the promoters holding will be around 50%.
With this, I hand over the call back to Margaret and open the floor for questions.
[Operator Instructions] The first question is from the line of Kunal Vora from BNP Paribas.
Congrats on consistent revenue growth in the last 3 quarters. First question is on tariffs. Is the tariff hike benefit largely in the revenue now? Or can we expect more in the coming quarter? And also, now that your annualized EBITDA even after tariff hike is around INR 8,000 crores, I mean like while it's a good number compared to where it was, it's still low considering the high debt. How do you expect to increase this further? Would you be dependent on tariff hike?
Thank you, Kunal. Unless there were more questions. Let me see if I can answer the 2 that you asked. So on the tariff hike and I would say that largely in the last 2 quarters, the price increase has flowed through into the results that we have seen. So we saw revenue growth in Q3. And we, of course, saw revenue growth in Q4 as well. And I would say most of that has already flown in. If there is any flow through, it is really on long validity plans, but frankly, is -- I would say most of it has already gone through.
Then your question about the annual EBITDA. Of course, we have seen improvement as was mentioned by Akshaya as well. We see further improvement of EBITDA taking place through several fronts, one, which is, as we talked about, the fact that we expect more unlimited 4G adoption, which has continued to grow. And as, of course, the mix of customers changes more and more from 3G to 4G unlimited, we expect, obviously, revenue and EBITDA to grow as a result of that. The second increase, of course, would take place also as a result of some of the initiatives that we are doing around the digital area. And as I said, we are starting to see good traction in those spaces. And hopefully, that eventually will lead to further revenue increases and of course, resulting in ARPU increases that will take place accordingly.
And then last, which part that you talked about, of course, is dependent on tariff hikes. We certainly believe that the industry needs more tariff hikes. We are just coming out of this one and this one is just getting settled in, but my hope is that we will see, as an industry, more tariff hikes. And we've always stated that we would like to see the ARPU at least in the short term go up to INR 200 and then further increase up to INR 250 in range in the longer term, INR 250 or higher in the longer term. So that is really the way in which we expect EBITDA and ARPU to grow, Kunal.
On the first point, which you mentioned on unlimited 4G. So if I look at the 4G additions, I think this year was about 4 million lower compared to 8 million in FY '21 and about 25 million in FY '20. So it's been slowing down. So has the 4G opportunity largely played out? Or you see further growth coming in from the upgrades? I mean, like there will be some growth, but is bulk of the growth behind now?
No, I don't think that the bulk of growth is behind us. We have a significantly large 2G base today. As you could see from the -- our 4G base, there is a significant amount of 2G base as smartphone penetration increases, as our 4G coverage increases as well, we expect that over time that this customer base -- large part of this customer base eventually will migrate over to 4G. And as a result, we see that certainly as an opportunity.
I think we have seen that migration playing out already. And as we said, the pace of increase maybe a little bit slower, but frankly, coming out of the pandemic and as far as our coverage is improving and the quality of the network is improving, we have seen now, again, 3 quarters of continued 4G subscriber growth that has taken place. So we believe that there is a significant opportunity still from our base to continue to drive further 4G and UL penetration.
Sure. And like you did mention cost savings as a way to increase the EBITDA. I mean like you are in active discussions for tower contract renegotiation. What are your expectations from that? And when do you expect to close that?
So I think I would just answer that briefly, and then I'll let Akshaya answer the more detailed question. But as you know that when we had announced the merger, we had given -- taken a fairly large target of over INR 8,000 crores of cost reduction over a 4-year period. We delivered already those cost reductions in about a 2-year period. Then additionally, we had taken on a second project for further cost reduction of approximately INR 4,000 crores, which was again delivered in the last -- actually, we took it over an 18-month period, which was delivered -- final numbers were all delivered in the end of last quarter, in which those were delivered.
We believe our cost structure now is very, very competitive compared to our industry peers as well as overall for the size of the network and the quality of the customer base and other programs that we are running. So while we always continue to look at opportunities for cost reduction, as we always should, we believe that materially, most of the cost structures have reached the right place where they should be.
Of course, on tower contracts and so on, those are opportunities that do come up. And as tower renewals and rentals come up, renewals come up, there are further opportunities that we continue to pursue as well. So cost structure is not -- cost optimization is not ever finalized. It is a continuing and ongoing process. But I would say the big projects which we had undertaken at the time of the merger and then 2 years after the merger to deliver big savings have all been completed and we find our cost structures in a very, very competitive position. Akshaya, if you want to add anything more, particularly in regards to the negotiations.
No. So I think the tower negotiations are ongoing, and we hope to conclude those soon. But I think beyond this, we will not be able to mention anything because these are ongoing discussions.
The next question is from the line of Vivekanand Subbaraman from AMBIT.
I have 2 questions. So the first one is, Ravinder, what is your view on the tariff outlook in the near term, considering the cost pressures that customers are facing due to all around inflation? We have seen that in the November, December tariff hike, there was no adverse impact on demand basis, your results and the results of one of your large competitors. But how should we think about a tariff hike, say, to take the ARPU up from the current INR 124 levels to the INR 200 levels that you are aspiring for in the near term? That's question one.
Second one is for Akshaya. In the notes, there is a mention of INR 81.6 billion of money due in FY '23 to lenders and another INR 68 billion long-term maturity of debt categorized as current liabilities due to breach of covenants. So what is the likely repayment schedule for fiscal '22? And since the DoT guarantees were returned on 29th March, is this having any bearing on your ability to negotiate lines of credits with bank?
Thank you, Vivek. Let me take the first one and then, of course, Akshaya will answer the second question.
So on the tariff outlook, as you mentioned, the price increases were very well taken, as you have seen in the results announcements that everybody is doing. We believe all of that tariff increase was absorbed and that has resulted in ARPU increases and revenue increases appropriately. Now as we look forward for further tariff increases, which I think is your question, first of all, I think we have to look at the fact that if we consider, let's say, a short-term ARPU target of INR 200 and we look at the share of wallet from a telecom services perspective compared to what we would generally call as the value that these services provide overall in the quality of, I guess, daily lives of the customers, it is very much an essential services and provides very good experience the amount of data bundles and the volumes are big and are quite large.
So I think generally speaking, from an inflation perspective as well as from a need and a desire and a share of wallet, telecom continues to be a very, very small piece of the overall consumer spend. And we believe that this, again, should not create too much of an opportunity for us to continue to further increase tariffs down the road in the future. Of course, it takes time to do these things. But certainly, I don't think that this will become the impediment to say that at some point, that in the next 1 or 2 tariff increases that the prices will become too high in terms of affordability of the customers.
Even, I would say that if you look at, in this price increase that has taken place for us, the amount of, let's say, churn or the reduction in customers is significantly small. It's not a very large number. And as we noticed that it is mostly related to lower-end customers and SIM consolidation that takes place in the market rather than people moving out of the category -- of this particular category. So we don't see that as a challenge. I think there will be SIM consolidation that will take place. But frankly, there is a long way to go, and the share of wallet is so small that we don't see that as to be a challenge in the short term.
Okay. So on the question that you asked relating to the debt servicing. So basically, we have about INR 81.6 billion of debt servicing in the next 12 months, out of which a large chunk is going to be repaid out of cash margins, which will get released or which have largely gotten released on return of bank guarantees. That would leave about INR 60 billion of debt to be serviced, which will largely be serviced out of our internal generation. As regards the INR 68 billion, which is appearing into current because of breach of covenants, these breach of covenants have been there for a while and this is more a technical accounting manner of presentation. There is no likelihood to our mind of this being repaid over the next 12 months.
Lastly, to the point that, yes, the bank guarantees return was an important factor in terms of our discussion with the banks. And after the bank guarantees have been returned, our discussions, which had started post the reforms package with our lenders, they have progressed and we are now looking at getting the bank facilities tied up post the return of bank guarantees.
Okay. I just have a couple of follow-up questions. One is with respect to the affordability and tariff hike outlook. So Ravinder, is it fair to assume that the journey that the industry had embarked on in the last 3 years to correct tariffs, will that continue? And do you think that the churn being very low and the acceptance of -- no consumer is leaving the category. It's of the SIM consolidation. Will this mean that the tariff hikes can -- the pace of tariff hikes can accelerate versus what we saw in the last 3 years? Or do you not foresee any change in that?
I think, Vivek, obviously, this is an industry topic. So it's very difficult for me to say how exactly because it is, of course, dependent on multiple variables. But if I was to be in my perspective, I think the pace can go faster, for sure. I think there is an opportunity to do it. And I think for the value that's provided to the customers, I think this is certainly not something that this will create a challenge from an affordability perspective for the customers as is concerned. I mean, we are providing great value even at the lowest end of the pyramid for great connectivity that's provided.
So I think these are all, what you said, possibilities. But of course, as things which are industry type of things, sometimes they take a little bit longer, sometimes they move at a slightly slower pace. But from my perspective, all of these can actually move faster and certainly can be accelerated. And I don't see any impediments to these activities for tariff hikes and the industry repair from not happening. I see that absolutely the right direction that we are moving in.
Follow-up. Akshaya, the INR 81.6 billion debt servicing that is due in the next 12 months, you said that out of this, we will be looking to repay INR 60 billion from the cash flow generated internally? Did I get that correct?
Sorry. Sorry, I was on mute. So you are broadly right. I mean, generally, the way to look at it is that there is an overall funding requirement, which we have in our business plan. This [ 10- ] to 5- or 2-year mark that the debt will be primarily repaid out of our internal accruals. Also, generally, the other way to look at it is that there's a total need of funds. There is a total source of funds. And these are, in most cases, fungible, but that's the way to look at it if we were to earmark anything as to what would be the source of this repayment.
The next question is from the line of Sanjesh Jain from ICICI Securities.
I have a few questions from my side...
Sorry to interrupt you, Mr. Jain, we cannot hear you very clearly.
Now is it good?
Yes, now it is.
A few questions from my side. First, on the tariff, sorry for sticking on it again, on the affordability side, if we go back to pre-Jio times, the starting tariff used to be a recharge of INR 5. Now the starting recharge is INR 99. Though on an overall basis, we are at a significant discount. But on the affordability beyond a level, I think there is a significant increase in the prices. Do you think the ability to take the prices in the 2G segment versus 4G segment, there is a significant disconnect that a significant portion of tariff hike from here should -- will come from 4G side and we see a limited headroom from here to increase the 2G side. Can you help us understand this?
Sure, Sanjesh. Let me try to do that. Yes, you are right that at the -- at sometimes earlier on several years ago, the situation was such that you had even a very, very small recharge amounts that people could do for their -- for a certain amount of usage that they could do. I think you have to be clear that while there was a capability to recharge on a very small amount that did not necessarily mean that their spend was limited to that. It could be that people were recharging on a daily basis, on an every 2-day basis and so on.
So in the end, the monthly spend was not necessarily just limited to that. So I think from an affordability perspective versus the size of the ticket, I would say that, that is certainly not the case. People may spend a smaller ticket item, but they were doing so many different recharges that actually the amount that they were spending was larger.
So in this case actually from a processing and from actually what the benefits that the customer get the total number of minutes and obviously now data as well that they get significantly larger with a single recharge that could be done as opposed to the multiple recharges. Also at that time, we talked about pre-Jio times, if you look at the industry ARPU, it was -- as I mentioned before, it was over INR 200 was the ARPU at that time. And that was, of course, inflation adjusted and time value money adjusted and so on. If you -- if you take that as real money now, that could be much, much higher than more than almost INR 350 to INR 400.
So from that perspective, actually, the affordability of the sector has become much, much more compared to those early days. And so I think the opportunity to actually go back up and raise tariffs is certainly not decreased. In fact, I think that opportunity absolutely exists.
Lastly, I would say on the other part that you have to see that we are seeing that as we have moved these prices from earlier to -- about 2.5 years ago, we didn't charge anything to just keep incoming going, then we moved up to INR 20-some, then INR 49, INR 79, now INR 99. Actually, we don't see people moving out of the category, as I mentioned before. We see people potentially doing SIM consolidation.
And I think in your example that you talked about it, it's very possible that the person who was recharging INR 5 a day was spending some other amount of recharges on another SIM at the same time, and they probably had 4, 5, 6 different SIMs that they were using all at the same time. So obviously, that consolidation has also resulted in the number of SIMs in the market going down, but not necessarily the number of users and the overall spend actually doesn't necessarily mean that the person is actually spending more now compared to before. They may actually be spending less, which, again, comes back to the point that I think there's an opportunity for us to do this without affecting the wallets of the customers to a point where they feel that this has -- category has become too expensive.
And Ravinder, if I may add. Actually, Sanjesh, to some extent what you are saying is right that in the earlier regime, we had a fairly wide range of ARPUs, which has contracted because of the pricing structure we have. Going forward, probably, you will see that there will be lesser price increase as a percentage at the lower end and probably the price increase for higher usage just basically following the principle that if you use more, you pay more.
And ultimately, that is generally the rule in most businesses. And we will gradually move, I think, into that direction, whereby the distribution of price increase maybe not exactly a given percentage on all price points.
Fair enough. Fair enough. My second question is on the premiumization which Ravinder mentioned earlier on 2G to 4G. And if I look at last few quarters, that premiumization has significantly decelerated. And the digital services, really, we haven't seen for other operators to those services and materially adding to the revenue. In absence of these 2 premiumizations, we are now heavily dependent on tariff hike and this tariff hike has to come on a more regular basis. Is that a fair understanding or this is just a transitionary phase? And do you think the industry is phasing out for a much better monetization of digital resources?
I think you're right, Sanjesh, that, first of all, the movement from 2G to 4G, as I had mentioned earlier, we certainly see that as an opportunity. And I would not necessarily say that, that opportunity stepped out and there is very low opportunity here. As I said, we see a significant opportunity. A large part of our base today is on 2G. It's a loyal base of customers that use it. As 4G penetration increases, as handset penetration increases, these people will move to 4G. Data will come to them and we certainly continue to see that as an opportunity. So I do not think that, that opportunity is small or should be underplayed. I think that is a significant opportunity, which we have and we will continue to exploit that and hopefully push that agenda forward.
Then with regards to digital services, digital services is very much, of course, a longer play. But the strategy that we have chosen, which is distinctly different than maybe some of the other players in the industry. Our strategy is very much partnership-driven. Our strategy is about partnerships. Our strategy is about deep integration with key partners that we work with.
And that, I think, strategy of working with partners where we are curating experiences, we are providing specialized services to our customer base and in a way allow for usage of those services to be done in a very specific manner, I believe provides us with the best opportunity for monetization compared to maybe some of the other elements where you have to build end-to-end services, maybe you have to have the start-up ecosystem to mature and so on. We are not doing any of those types of things.
We are more going with the who are the lead players, who are the right players to partners. We don't compete with them. There is a true partnership opportunity. And we believe that this will drive a very, very nice way in which the ecosystem of our customers and our strengths can be coupled with the partners that we do to drive actual adoption of these digital services. Yes, they do take time to develop. But as I said, we have seen significant engagement increases and certainly some level of monetization starting to happen. And I believe that this will only accelerate as we go forward.
I understand. Two questions on the plot side and the CapEx side. Plot side, how much we are believing that the renegotiation on MSA side with the Tower Co., which is our largest core could help us in the coming year in terms of cost reduction from renegotiation? How much -- what should be the fair assumption here? That's one.
Number two, on the CapEx side, in absence of fund raising, is it fair to assume that we will be investing close to INR 10 billion per annum? And out of this, how much are we investing in the maintenance CapEx? One thing I wanted to understand is considering that there is a restriction on the CapEx and cash flow side, what's the situation on maintenance CapEx as of today?
So Ravinder, if you want me to take that?
Please.
I think on the tower, Sanjesh, we already mentioned these are ongoing discussions, so I will not be able to give you any indication at this point of time. As far as CapEx is concerned, I think we've had this limitation for some time. And in the last 2 years, we have incurred annual CapEx in the region of INR 40-plus billion per annum. So I would say that is there. And of course, we are now -- as Ravinder explained, we are actively in the stages of closing our funding discussion. So definitely, this figure will increase from the figures that we have seen in the last 2 years.
In terms of saying what is maintenance CapEx, it is very difficult to identify in the telecom environment because you replace an old technology with a new technology whether you call it maintenance CapEx or you call it whatever because most of the time here, you do not replace an old equipment because -- with the new equipment because of end of life. Most of the time it is replacing with a new technology. So really speaking, it is very difficult to identify what is maintenance CapEx separately. All that I can see is whatever we've seen in Indian telecoms at least everything is kind of replacement rather than -- I mean everything is kind of replacing based on technology. There are equipments which you depreciate them over 9 years, but they are continuing to be used because the equipment continues to work. So really speaking, no replacement CapEx.
And especially in the context of our network, we also had some surplus equipment coming out on account of merger and consolidation. So really speaking, we have sufficient spares available as far as that part is concerned.
Fair enough. Just one last question, sorry for sticking to it. On the 4G and 5G considering that the 5G auction is around the corner, can there be a situation for VIL to leapfrog from no 2G to directly 5G in some of the locations? Is that a possibility? Or do you think the transition requires us to [indiscernible].
So Sanjesh, I think 5G, in my view, is an add-on layer to 4G. It is not -- obviously, there is an SA opportunity that exists, which is stand-alone 5G opportunity. Technology is not even quite ready yet. The standards are still being finalized. You're starting to see some very, very early rollouts of that across the globe. But frankly, I think that technology is still a little bit far away. And probably given the spectrum -- mid-band spectrum, probably from a coverage perspective and so on, it probably is not the right deployment that will take place today. So we believe it is more a 4G layering on, on top of 4G.
Now when you specifically say for us, whether the rollout will take place where we'll skip 4G and go straight to 5G, actually, now the technology, the latest, let's say, radio technology that's coming through all the radios, 2G, 3G, 4G, 5G are all integrated into single equipment. So from an equipment and a CapEx perspective, you can deploy the equipment in such a manner that actually it covers all bands and provides all technologies rather than saying that we will have to deploy separate new 5G equipment and a new 4G equipment separate from each other. You can consolidate and put a single unit. So in a place where we don't have, let's say, 4G coverage, if we were to deploy 4G and 5G, we would use to it together rather than saying that we skip 4G. So there's no separate equipment that you buy first for 4G and then you buy a separate equipment for 5G. You consolidate and put a single radio, which will cover 4G and 5G as long as you have the right spectrum bands for it.
The next question is from the line of Pranav Kshatriya from Edelweiss.
I got a couple of questions. Firstly, if I look at on the engagement side, the voice volumes are down on a sequential basis. Data volumes are sort of flat. If I adjust for number of days also, it's up only 2%. So clearly, Vodafone Idea is losing out on the volume market share. So do you ascribe this entirely to the network capacity? Or is it more to do with the -- I mean, the infrastructure availability at opportune time. So how do you see this? And what will it take to address it?
My second question is regarding the network cost. This quarter, there was a dip in the network cost. And I think if I look at Ind AS 116 adjustment was slightly higher for network cost. So what exactly is happening and why this is so? That I wanted to understand.
Okay. So Pranav, I'll take the first one, then I'll leave for Akshaya to answer the second one. I think first of all, let me talk about the engagement part and maybe I'll take a minute to answer that in a more a holistic manner. I think somehow there is this feeling that there is lack of engagement from the customer side.
So let me address that first of all. So we see at the MOUs per subscriber. Actually, while the overall number of minutes may have slightly declined, the MOUs per sub that we start to -- that we have within our network is actually, in some ways, quite strong, and we have also seen actually in reality a slight growth in that space rather than a decline, as I mentioned. Because the important thing is to not just look at the total mines, you have to look at MOUs per sub, which is the right metric to look at. If I look at the growth that we are starting to see over a period of time and the change that we've seen, you will see actually we are no different on a per subscriber basis. We are not necessarily very different from where the industry and the trend that they have seen in the industry. So I think that's the first part.
The second part is on the data side, which you talked about, we are approximately now at 14 GBs per subscriber per month of the data consumption that is taking place. Now this, of course, on a DRR basis is growth of 2.1% compared to last quarter. And on a year-on-year basis, it's an approximately 8% increase that's taking place. Now a customer that is engaged at 14 GBs per month, which is probably the largest -- one of the largest amount that would take place across the world looking at any mobile subscribers, I would not refer to them as somehow not engaged customers. They are absolutely engaged.
Now if they are not abusing the network that means they are not necessarily just guzzling data, I think that is a good thing because we don't want network abusers of capacity within our network. So we find that our customer base at 14 GB is a very, very engaged customer base. And then when we start adding on other things like the digital monthly active users, which I talked about, the numbers are going up, the fact that our -- if you look on the social media, and we don't necessarily always talk about it, but the social media and the engagement that we have on the social media level from our consumers and generally, overall, I would say that we have a very engaged customer base.
If we talk about enterprise customers and the engagement that we have, again, we find a very, very large and a very important set of customers that are well engaged. And then, of course, it is reflected in crowdsourcing type of third-party apps that are giving us leading numbers and best networks on voice as well as on data, those types of awards, I would say that this somehow feeling that we are losing out on the engagement to the customers is absolutely an incorrect perception, and it is not the right way to represent the numbers.
I think it needs to be looked at in that regard, and I've been very comfortable and confident that our customers are very well engaged, and they continue to be engaged going forward. And we don't see that to be very different. In some cases, actually, we see that to be more positive compared to some of the other industry trends.
Akshaya, over to you on the second topic.
Yes, Pranav, also to your point of capacity, I think capacity where we have coverage, this is not the limitation. Otherwise, there was no way we would have the best download speeds if capacity was the limitation. So definitely, capacity and quality of network is definitely not a concern.
On your question on the network cost, actually, the lease accounting kind of the post 116 figures kind of partly are -- in network costs partly are in depreciation and financing costs. So I will try and explain it to you based on the pre-Indi AS 116 figures where we have seen a decline of about INR 211 crores quarter-on-quarter. Out of that, we have already given a disclosure that INR 150 crores is a one-off. That leaves about INR 61 crores. And this INR 61 crores reduction is primarily on account of reduction in energy cost, which is on account of 2 reasons. One is we saw 2 days less working and that directly converts to a lesser energy cost for the quarter. And secondly, while the diesel price has currently increased, but if you look at from Q3 to Q4, the diesel price has actually declined on an average. And that has also resulted in an overall lesser energy cost. So the real cost reduction quarter-on-quarter on a pre-116 basis is about INR 61 crores.
Follow-up on that. If I look at the MOUs are around 610 minutes, the competition is roughly 850, 900 thereabout. Even on the data usage per customer is around 14 GB, the competition is closer to 19 gigs. So clearly, if I look at the comps, it is much lower than what your competitors are doing.
I agree with you. Sorry, just actually one thing. So I agree with you on the absolute numbers, but that's not the point. The point that you're saying I think you're [ leeching ] that to believe that, that means lack of engagement. And I think that is the part that I was trying to question to say is that, that is absolutely not the case. It's not an issue of engagement with the customers. The point is that if you have a situation in which somebody -- you have a set of customers who are maybe using -- maybe they need 20 GB of data, maybe they don't, I don't know what that looks like. I can't comment on what other people do. But we find that we have a very engaged set of customers, and the metrics are going in the right direction and that engagement is quite high. So that's what I was trying to refer to. It's not necessarily always just purely about the fact that we have a number which is different than others, that this certainly means that we have a lack of engagement. I think that was the point that I was trying to make sure that you will understand. The stats are, of course, available to you.
Okay...
Akshaya, go ahead.
Yes. I mean I was just kind of clarifying somewhat on the figures. And as Ravinder explained that our absolute figures may be lower and I mean, that applies to our ARPU or data usage per sub or minutes usage per se because that is a reflection of the difference in the overall subscriber mix. What we were basically trying to emphasize is that if you look at the data usage per sub per day trend, it is generally from Q1 of this financial year it has been kind of flattish for everyone. So it's not that our trend is different from the others. As far as the voice is concerned, while our reported for Q4 is 610 minutes, if you do it on an adjusted for the number of days, it is 623, which is a marginal growth on the previous quarter. And this growth of minutes of usage per sub per day is coming after a decline of several quarters, which is the trend we have seen.
So what I think we are trying to explain is that actually the level of engagement with whatever positive developments have happened is showing an improvement on the voice side compared to the trends that we have seen before. And also, data side, we are more or less in line with the industry trend.
Sure. Akshaya, one last question, if I may. On 5G, how should we see the company strategy panning out? Considering there is a fair bit of spectrum available, would you want to wait for a year or so before you start investing in 5G because the ecosystem is still not ready and possibly the cost may come down in that period. So what does company think about 5G from a timing perspective?
Pranav, maybe I can answer that question first, and then Akshaya can add to that part. I think the 5G, as you know, the TRAI has -- team has come out with a set of recommendations that they've given to the DoT. The DoT, of course, is looking at those recommendations. I think our understanding is that they have gone back with some clarifications and applications, which are in the process. And we will hopefully see a finalization of those in the coming weeks. I understand that there is internal approvals including cabinet approvals and so on that need to take place before an auction happens. On some of those elements that we were working with the TRAI, there have been significant improvement, especially on like upfront payments and so on.
There has been some reduction in pricing that has taken place, which I think has been helpful, although we had asked for more, and we will continue to ask for more of price reduction with the DoT. And I think all players in the entire industry is very much behind that path. Also, they have made other changes in regards to the spectrum caps, which used to be earlier on the overall holding of the spectrum. Those are now in -- for these auctions have come down to within bands, which I think is quite important. And that, I think, is critical because it allows for a very -- what I would call a fair distribution of spectrum to take place between the players as opposed to a particular player holding a lot of spectrum, for example.
So I think all of those guidelines are going in the right direction. What our strategy would be and how we would deal with the auction itself, of course, is one, a bit dependent on what the finalization of policies and the NIA and the details that come out once those have been finalized. And of course, as you can imagine, this is not something that we will be able to discuss in these type of context today or before the auctions and so on. But generally, I would say that the TRAI has done -- has looked at this topic very carefully, and the DoT continues to be engaged with us on some of the other recommendations that we are asking for, and we hope to get even more and more improved terms than what TRAI and DoT are recommending at this point.
No, nothing to add from myself.
The next question is from the line of Piyush Choudhary from HSBC.
Some of my questions have been answered. Just 2 which are interlinked. If there is more financial flexibility, what would be the desired level of annual CapEx by the company? And in that scenario, which would be your kind of focus circles where you deploy the capital? I mean applying 80-20 rule, which will be a focus circles for deploying that incremental CapEx.
So Piyush, I think we've always said that we have 17 circles, which are our priority circles, where 98% of our revenue comes through any CapEx that we deploy will always be given a priority to those circles, and we have continued to demonstrate that in the last almost 3.5 years of our merger -- a little bit more than 3.5 years of our merger. So of course, to answer your question, if we had more CapEx, then of course, the priority would always be to those 17 circles. The amounts are a bit hard to say because financial flexibility is a very relative term and the amounts would be -- it's very hard to answer that part. But certainly, where we would spend the money and where the CapEx would be going to it would be in those priority 17 circles.
And Ravinder, if I may add that, I think in terms of our priority, as you know, that we have a certain gap between the 2G coverage and 4G coverage, and so our immediate -- and wherever we have 4G coverage already, we have good capacity. So our priority in terms of CapEx investment would be to cover the currently uncovered 2G where we don't have 4G coverage and which will basically help our objective of then migrating our 2G subscribers to 4G networks and to unlimited plans thereof.
Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to Mr. Ravinder Takkar for closing comments.
Thank you, Margaret. As you have seen, we have reported 3 quarters of sequential growth and 4G subscribers are gradually growing despite all the tariff interventions. We remain focused on providing superior data and voice experience and are building a differentiated digital experience, adding several digital offerings over the past few months. This will further help improve momentum in 4G subscribers. We successfully completed first tranche of fundraising in the form of preferential equity contribution of INR 45 billion from our promoters. We also continue to actively engage with lenders and investors for further fundraising. All these initiatives, coupled with significant liquidity provided by the government reform package and the recent tariff hikes, will enable VIL to make network investments and compete effectively to improve its competitive position. Thank you all for joining this call. Have a good rest of the day. Thank you.
Thank you. On behalf of Vodafone Idea Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.