Indus Towers Ltd

NSE:INDUSTOWER

Earnings Call Transcript 2019-Q1

[Operator]

Good afternoon, ladies and gentlemen. I am Kamaldeep, the moderator for this conference. Welcome to the Bharti Infratel Limited First Quarter ended June 30, 2018, Earnings Call. [Operator Instructions] Present with us on the call today is the senior leadership team of Bharti Infratel Limited. Before I hand over the call, I must remind you that the overview and discussion today may include certain forward-looking statements that must be viewed in conjunction with the risks that we face. I now hand over the call to our first speaker of the day, Mr. Akhil Gupta. Thank you, and over to you Mr. Gupta.

[Akhil Kumar Gupta, Executive Chairman]

Thank you. Thanks for joining us on this earning call for Bharti Infratel for the first quarter ended 30th June. Before I talk about the quarter and the industry situation, let me share a very quick update on the merger process with Indus Towers. To date the key of arrangement has already achieved approvals from the Competition Commission of India and the Bombay Stock Exchange. These are the 2 major permissions, which are needed for us to go through NCLT, which is a formal process for merger. We would be filing a petition before NCLT very shortly, and that process will now start.I would say overall, the progress has been very well and I'm happy with the speed that with these approvals have come. And I feel that we are in line with our expected closure before the end of this year, that's the 31 March, '19. We'll, of course, keep you updated on the progress on these by way of formal announcements as well as on our earning calls.You are all aware of that massive consolidation is currently underway in the telecom services industry, following the heightened competitive intensity from Jio. For instance, Vodafone and Idea are in the last legs of their merger, while Airtel is in the process of integrating its acquisitions made over the last year, mainly: Telenor, Tata and DoCoMo. And since, obviously, with different network elements coming, spectrums coming, the network planning based on the new sites added to an existing running network, more spectrum coming in is a very complex and complicated time-consuming exercise.As anticipated, these companies did put the new co-locations on hold for the time being and focused of adding 4G to an existing sites, in the meantime. As a result, the new co-location for the quarter continuing to be soft, as reflected in the detailed operational highlights in the quarterly report. However, we firmly believe that this is only a temporary phase, since there are only 3 big players left, that is Airtel, Vodafone Idea combined, and Jio. And only 1 public sector player, it is absolutely imperative, that the role out of the networks soon, so not to leave a huge competitive advantage to the others.In June quarter, we reported churn in co-location of INR 5,657, which represents, the last of the small operators are exiting the telecom industry. As a consequence, on 30 June, the consolidated targets stood at INR 91,759 on a consolidated basis, it's co-locations at over INR 200,000 are declining 8.1% year-on-year, with a co-location factor of 2.19 at closing. I may point out that while we record the churn on the sheet of exit notice itself, in practice billing on some of those sites has not discontinued immediately. As of 30 June, on a consolidated basis, there were 6,672 such co-locations on which billing was continued.On many occasions, I have spoken of the robustness of the business model from this Tower Industry, I'm very pleased to find out that this robustness is clearly visible, which is despite these major churns in the last few quarters and the temporary slowdown of co-locations, resolve in overall performance is at the corresponding period of last year, is only marginal. For instance, again, the co-location fall of 8.1%, EBITDA reduced only by 3.5%, PAT reduced by 3.9%, while the EBIT and very importantly, operating free cash flow were same as last year, just under INR 1,000 crores for the quarter. We continue to have a large free cash flow and our return on capital employed and shareholders' equity remains intact.Some of the highlights of the quarter. The revenues for the quarter are at INR 3,673 crores. EBITDA at INR 1,520 crores, are representing a margin of 41.4%. EBIT at INR 981 crores, net profit INR 617 crores and operating free cash flow at INR 992 crores for the quarter. The ROC pretax and ROE post tax remains strong at approximately 34% and 15% respectively. To conclude, with this Voda-Idea merger, we would expect some more cancellation in co-locations in the next few quarters. However, we continue to believe, that with the 4G loading phase, nearing its end, the next round of densification demand in the country to drive further co-locations, both in Tata and Indus in the near term. And as India poised to launch 5G simultaneously with the rest of the world, we believe that the long-term potential for our and others' infrastructure currently remains strong. Especially, as you all know, within 5 years spectrum, within 3.5 year old span, which has significantly low propagation.Thank you all. The management will now take your questions.

[Operator]

[Operator Instructions] The first question comes from Mr. Sachin Salgaonkar from Bank of America, Mumbai.

[Sachin Shrikant Salgaonkar, Director]

I have 2 questions. First question is on some of the comments, what Akhil made, which is, this quarter we saw the impact from last of the small operators. So Akhil, does that mean the impact from Tata is behind us or we may see some impact, as in how Bharti and Tata close their merger? So that's question 1. Question 2, and clearly -- but that's a good thing to see there, as you know while co-locations decline the impact on EBITDA is not there. But I also remember the math which you guys had shared before, which has 2x tendency, roughly 65% margin, 3x tendency, 75% margin. Basically, when that tendency falls, it doesn't impact on margin. And my question is more on the lines of Idea and Vodafone cancelation impact. I remember in the last call, you guys mentioned, it's a INR 20,000, INR 25,000 cancellation tendency impact. Is that fair to assume on that number, roughly a 4 to 5 percentage point impact on EBITDA margin could be seen?

[Devender Singh Rawat, MD, CEO & Additional Director]

Sachin, this is DS Rawat, this side. First one, from a number reporting standpoint, the Tata impact has been taken completely on the numbers. However, Akhil did mentioned that there are still some revenue paying co-locations, which are in service. So numbers that we report on co-locations are based with notices received. And all the Tata numbers have been included as notice received. However, the termination dates have not come in yet. We continue to recognize revenue that is getting paid against the lease as rental. So the number that Akhil mentioned in the call was close to INR 6,000. And those are the numbers forming the revenue still coming in. Your question on Voda-Idea merger and the bond itself. Yes, the bond is that the higher we move up on currency ratios, EBITDA tends to improve. And the reverse is also true. But we did mention that there are 3 corrections on the reverse [ jet ] that we get as an advantage. First one, of course, being that we expect if 2 entities merge, a larger amount of electronic equipment is lost, which is moving. Number 2, when the third operator moves out on the side, the incumbents 1 and 2, their rental moves up, like the way it slides when the third tenant comes in, the reverse happens there too. So those are some of the adjustments that happen to compensate for the revenue loss that happens. So there will be an EBITDA impact. But is that in line with exactly the number of tendencies in terms of percentage. That might not be entirely true. On exact number of EBITDA impact, still we do not have exact site-vise details for an operator, it is not possible to comment on that. And secondly, these -- as we've seen in the past our [indiscernible] fairly larger time, and particularly, Voda-Idea merger, which is the merger of 2 large entities. One needs to create capacity, before you can start to free up electronic equipment and redeploy. We are yet to see exact deployment plans from our customers. And once you have that, hopefully, we'll be able to get more clarity. The numbers that you said, where the number that have been given on a consolidated basis, INR 20,000 to INR 25,000 on a consolidated level.

[Akhil Kumar Gupta, Executive Chairman]

Just one thing Sachin, you mentioned about the EBITDA margins, going up to 65% odd with 2 or 3 co-locations, it's 41.4%, which you see is not applicable to that, this is including the energy charts. Therefore, that 65% is only on revenue -- on the service revenue.

[Sachin Shrikant Salgaonkar, Director]

Correct. So yes, I actually meant on ex-energy basis. And you know -- one small follow-up is, Akhil you also mentioned that major permissions have already been gotten. I remember, when the transaction was announced, management expectation was roughly 12 months, may be at time frame, when all the approvals could be received. But at looks of it, could we see the decision coming a little earlier than those 12 -- guided 12 months?

[Akhil Kumar Gupta, Executive Chairman]

I don't know and see as this seems to be very overwhelmed. So I'm not too sure how long it will take there. But yes, now the matter is before NCLT. But I think on a realistic basis, my feeling is, it could still take 6, 7 months, so that's why I said, maybe before March, I'm very optimistic it should happen.

[Operator]

The next question comes from Mr. Manish Adukia from Goldman Sachs, Mumbai.

[Manish Adukia, Equity Analyst]

I have 2 questions. My first question is, you mentioned that currently the co-location rollouts have been soft as often as our loading new equipment on the existing towers and we are probably reaching a phase, where that phase is coming towards an end. If you can give us some sense, as to when do you start to see pickup in gross tendency additions, would it be our view on FY '19 phenomenon or would it be an FY '20 phenomenon? And a related question to that is, Jio has indicated few times in the past that their preference remains to build own towers. So in your numbers, are you still seeing any incremental pick up from Jio? Or is all the new gross entity going at Bharti Airtel?

[Akhil Kumar Gupta, Executive Chairman]

So Manish to the first question that you've said, the softness in operator is trying to do 4G rollout on existing sites. We still continue to see heightened cabinet expansions, particularly for 4G in -- across the network. Even today, if you look at the reported numbers, there is still some headroom and we believe, it's the matter of couple of quarters before 100% of the sites of incumbent's operators should be 4G enabled. And that is when technically the deployment of new bill sites, not that, that is not having to leave it as a soft phase to maybe continue to have co-locations coming in from leading operators and also from Jio, to your point. We do see those rollouts happening. It is just that, with Voda-Idea merger on the corner too. It at a pace, which is lower than what it was in the past. And we believe, 100% of existing sites are enabled for 4G. From there on, all additional capacity bill will have to come in with building of new sites, which will be a full grown co-location or a new site to be built out. You're second question about Jio. Yes, Jio continues to build sites on their own. We continue to see a little bit of increase on numbers that are coming out. As I mentioned in the previous call too, they were between 2 phases and we started to rollout co-locations for Jio, both in Indus and Airtel Bharti.

[Manish Adukia, Equity Analyst]

Sure. So as far as Jio is concerned, just a quick follow-up on that. I mean, they have mentioned that for them it works out to be cheaper over a longer term, if they build their own towers, then in fact, as you already mentioned that the sharing operator must work well for the operator. So in your view, with Jio building aggressively, its own tower, could that put pressure on your rentals going forward to, maybe get Jio on board or retain operators on your towers or are you not seeing any pressure on your rentals at all?

[Akhil Kumar Gupta, Executive Chairman]

Well, you know we have a standard MSA, which applies to every operator. Every operator comes on the same terms and the same MSA. So we are not seeing anything different for anybody -- any particular operator. And to this point, that their own towers are cheaper rate. We know, we do get orders from them, so there must be some benefit with us, that they give us orders.

[Operator]

The next question comes from Mr. Rajiv Sharma from HSBC, Mumbai.

[Rajiv Sharma, Director]

Just 1 question, which is about post this consolidation phase. Just trying to understand the medium-term growth prospects. So Akhil, you pointed about 3.5 gigahertz spectrum and the quality of the spectrum being bad. But in that case, over the next 1 year or with the current deployments, the operator should be done with that coverage. And mostly, incremental demand will be about densification, which could be met by small cells or coincides, which Jio is already doing. And these are single tendency products. So how do you see the medium-term growth prospects in this context? I'm not saying that there will be no demand for macro towers, but they may not find any viability from a business case perspective of Telco. So how should one look at this whole thing?

[Akhil Kumar Gupta, Executive Chairman]

So one thing is very certain, that going forward, as more 4G happens, there will be more co-locations on the traditional towers also, both RTTs and GBTs. And then 5G comes in, there may be micro sites or even [indiscernible] single tenant sites. We have designs that we should be able to accommodate 2 tenants or 2 operators. So it's not that everybody will make their own micro site. They call it 4G or whatever, they will be shared. DS anything more to it?

[Devender Singh Rawat, MD, CEO & Additional Director]

So just to add to that, the concept of sharing -- reducing cost for 2 operators. Even obvious concept, if you're trying to look at a base scenario of even having [indiscernible], we're presuming that the small cells will come in, in the area 5-foot falls or in areas and buildings, where there is high amount of traffic and demand or the metro-city. There is a cost of infrastructure that is leasing of land and of the building rooftop rights itself is fairly expensive. If it is shared between 2 operators, obviously, the cost for each operator comes down significantly. So there are benefits of sharing, coupled with the benefits of sharing energy and in some cases, if you could share transmission too, it would definitely make a viable proposition. Your point of saying operators have their own small cell sites. That has been the case in the past because the difference between the leading operator and others was so huge that they would justify building small cells dedicated to themselves and was a strategic advantage. We believe going forward these, like any other infrastructure, could give benefits of sharing, given the huge amount of numbers that are needed. 5G, PAN India, people could look at anywhere millions of sites coming up over the next 5 to 10 years. Having those sites where the [indiscernible] fiber connection, and if each operator was to build that on his own and pay rentals, that will be significant amount of money. And if it's shared, clearly you know the benefits could be there for all the 3 parties to win.

[Rajiv Sharma, Director]

Thanks for the response. Just trying to follow this up with one more question is, that -- the primary purpose for the tower companies was to fund CapEx for operators. But now with these small cells that per unit CapEx will decline. And let me ask the question in a different way. Will you be fine doing a service kind of contract for Telcos in terms of deploying their small cells, assuming their single tendency and work on a 10%, kind of, gross margin and is that the way forward?

[Akhil Kumar Gupta, Executive Chairman]

So Rajeev, let me answer that, first of all the purpose of forming this company was never to off-load the CapEx alone. The purpose was to share the infrastructure, which would give massive savings to the operators, in both CapEx and OpEx. And be their financial resources, man power resources, mind share to focus on item which they do best. And leave this part for our company. On the other end, from our company's point of view, this was all charity. And it took us CapEx, we make sure that they have solid returns, which you're seeing for the last 7, 8 years continuously. So first of all, the premises, that this was done to off-load CapEx is wrong. As far as the smaller sites are concerned. Surely, on a per site basis, the CapEx will be lower. But in terms of numbers of sites required, as DS mentioned, it will be many, many, many times over. So for the overall CapEx outlet, the situation remains the same. So we are very confident that we would be in a position to share, even the small sites, amongst the operators.

[Operator]

The next question comes from Mr. Kunal Vora from BNP Paribas, Mumbai.

[Kunal Vora, Analyst]

There are 2 questions. First is, I wanted to understand the expansion CapEx better. So if I look at the total amount of INR 368 crore and if I do a math of, say, about INR 25 lac per tower and to do an outlet per tendency, that number comes to about INR 100 crores. So like where does the balance INR 270 crores gets strength? And what was return on investment, which you get on that? You can explain that and we can -- then I'll go to the next question.

[Devender Singh Rawat, MD, CEO & Additional Director]

Kunal, if you look at our expansion -- when you're saying the total expansion, the CapEx is a composition of 1 million site, then tenant fees, electrification, replacement and, let's say, the further loading expansions. So while you are computing one component, which is pertaining to, let's say, the number of [ task ] even which should be at INR 25 lacs. Then there is tendency to which it lack on rather marginal weight of maybe somewhere around INR 2 lacs to INR 3 lacs. And then, you have one other placement CapEx, which still continues in the range of approximately around INR 65,000 per [ hour ], kind of, a no. The balance is -- the mix of 1 [indiscernible] initiative, which the company's in [indiscernible] as we were writing that in the past and that's also given in the margins too. There is still a payback happening in around 3 to 4 years of that, kind of, a CapEx, which then [indiscernible] more and more cost around that. And balance is, actually a mix of a part minor CapEx going on loadings unless, there is a language which keeps happening in anticipation of the orders, which should vary depending upon whatever is the order book we are having. So the balance sheet, if see and if you look at the trend on a quarter-on-quarter basis, that it is still falling in the same line of, let's say, stream line happening for which we are [indiscernible] this quarter.

[Kunal Vora, Analyst]

So just to repeat this. My question was that I understand the maintenance CapEx, which is, say, INR 150 crores that's done. INR 100 crores on Towers and tenants, that's also okay. But the rest amount is still very sizable, it's almost INR 270 crores. So I just wanted to understand the ROI on that. Like, so if excluding -- we are not really seeing much of a benefit of that because that average rental is not really moved up meaningfully. If it's early initiative, the energy initiative will still like maintain that margin could not be very high from [ energy ]. So wanted to understand like almost 50% of the CapEx, where it's going? And why is the ROI not visible on that?

[Devender Singh Rawat, MD, CEO & Additional Director]

So Kunal, there will be [indiscernible]. You can have a healthy margin happening in the range of 6% to 7% and going up to a 10% every year. That's nothing, but that margin trend income all energy initiatives taken during the year. As far as, if you look at -- and then I am saying a substantial chunk of this is also the capital working towards all the future buying, which we would have done to take care of you next quarter needs.

[Akhil Kumar Gupta, Executive Chairman]

The fact is that when you see it, it's significant fall in co-locations but there's lesser fall in EBITDA. That's clearly being made up by those revenues coming from preloading and so on, albeit some CapEx is to be incurred and, therefore, the return on that CapEx is very much difficult.

[Kunal Vora, Analyst]

Sure, sure, sure. Okay. Point taken, sir. Second question, sir, on exit penalties. Can you share your thoughts on how that will appear in the numbers for fiscal '19. Will it be like a one-time or it will like -- any discussions you had on alternatives, let's say, for Idea-Vodafone or [an operator model]? I think some of it [ can be ] the solution? Would you be open to it instead of exit penalties?

[Akhil Kumar Gupta, Executive Chairman]

I think, Kunal, it's a little premature because ideally, we would want to see that the exit penalties which we receive should be amortized over the period -- some period rather than one time. But this is an accounting standard issue, which we are trying to work on with the auditors. And hopefully, by next quarter, we should be very clear on this.

[Kunal Vora, Analyst]

Sure, sure. And then, last question, sir, on your costs excluding energy. I think you have a very good cost control there. So I wanted to understand, with some initiatives that you've taken to rationalize that cost, make it lower, ex energy, the cost is actually down year-on-year. Going forward, should we be looking at an inflationary cost increase or will it be lower?

[Devender Singh Rawat, MD, CEO & Additional Director]

Well, that's kind of more of a complicated information, if you will, we don't want to share. Obviously, as a company, we are committed and we look at the cost optimization measures at all points in time, I mean, you're driving against [indiscernible]. But beyond that, I think I won't be able to share.

[Operator]

The next question comes from Mr. Viral Shah from Crédit Suisse Mumbai.

[Sunil Tirumalai, Vice President]

Congratulations on the good numbers. This is Sunil from Crédit Suisse. My questions have been answered.

[Operator]

The next question comes from Mr. Pranav Kshatriya from Edelweiss, Mumbai.

[Pranav Kshatriya, Research Analyst]

My first question is, can you share some detail on how is the rent revenue on a quarter-on-quarter basis on a per tenant basis? Because if I adjust for the tenancy cancellation, it seems that there is an increase of around 2% in this quarter on a Q-on-Q basis. Is that correct? Or how should we look at it? That's my first question.

[Devender Singh Rawat, MD, CEO & Additional Director]

So Pranav, when you look at that increase, the increase is finally happening, and that's more of a technical stuff. But when we reported in the last quarter the Airtel numbers, we are in Airtel [ project-wise ]. The revenue wasn't recognized. And since we gave a 2-point average, we had -- Airtel follows a [indiscernible] denominator while computing that. And because of that anomaly, it goes to 1.5% plus kind of increase in revenue per tenant. Actually, it's pertaining to last quarter. Adjusted for that it should be somewhere around 1 percentage [indiscernible] current quarter we are increasing [indiscernible] compared to last quarter.

[Pranav Kshatriya, Research Analyst]

Second question is, we have seen close to 30,000 tenancy cancellation over the last 2 years and a little more. Any cancellation revenue you can quantify, which has been coming and which have been booked so far?

[Devender Singh Rawat, MD, CEO & Additional Director]

Exit revenues, Pranav, we don't have any exit revenue which has been recognized.

[Akhil Kumar Gupta, Executive Chairman]

Pranav, just to give you kind of a sense, some of the initial exit that we had recorded on terms of numbers, they're the ones where either the operator has completely shut down or has kind of closed down operations there. And either they are an [ mTLD ] or in some other shape and form. We've been in courts with some of these people at different stages of recovery of exit penalty. And as I mentioned earlier to a question, we recognize the revenue only when we actually receive the money. So we haven't had the recovery. So far, we do have a few favorable court orders, where the court said to all of these companies to set aside the amount of money toward exit strategy. Next, the recent exits that are happening because of merger with a larger entity, those we are just getting into discussion with as we speak.

[Pranav Kshatriya, Research Analyst]

Okay. My last question is on, again, on the CapEx. So the CapEx is seen like a black box for us. It's very difficult to quantify how it is moving ahead. If you can give some breakdown of how the CapEx has been in terms of just the site CapEx, loading CapEx, et cetera, it would be helpful. And second, now the reason is -- if I look at the CapEx productivity, which you report in the last 4 -- 5 quarters, it has gone down from 31.4% to 28-odd percent. So I mean, you did mention that the CapEx is optimally utilized and the return ratios on that are intact, but that doesn't seem to be the case. Can you answer that?

[Devender Singh Rawat, MD, CEO & Additional Director]

It actually is because these essentially are co-location exits. Naturally, your asset remains the same and that's the beauty of this model. But since we are setting out the same asset, effective the moment it isn't reversed, some productivity will fall. All these CapEx breakup, I think, these allow us to just discuss it internally to see whether we can get some of the sensitivities out of [indiscernible] but we will come back to you on this.

[Operator]

[Operator Instructions] The next question comes from Mr. Sanjay Chawla from JM Financial, Mumbai.

[Sanjay Chawla, Research Director]

My question is on CapEx. You've given a very good point as to what the CapEx is like for tower tenancies, energy also. What is the CapEx that you incurred -- incremental CapEx that you incurred for providing a loading to a customer? And how will it change anything? Can it significantly increase over the last 1 year or so?

[Devender Singh Rawat, MD, CEO & Additional Director]

So Sanjay, one, the CapEx, it's a minor CapEx, because also the equipment are on the site. Once you build up a site, most of the stuff is there. And then, when the loading comes, there is a marginal CapEx, which we incur. It normally ranges somewhere around INR 60,000 to INR 70,000 per loading. And [indiscernible] which we have already told you. We have talked about the kind of returns we get. So because it's different sites, depending upon the equipment load, the CapEx coming in, and the equipment are changing. We also implemented electrical power update, which needs to happen. But that's the normal range for this CapEx.

[Sanjay Chawla, Research Director]

I remembered a few years ago -- 2, 3 years ago, this number used to be close to 1.5 lakhs per loading. So that would imply this number has significantly fallen, but that doesn't seem to be, especially in the CapEx trend.

[Devender Singh Rawat, MD, CEO & Additional Director]

I think when we talked about it, between our full-blown tenancy coming in and unloading coming in, that's the difference out here. So that number of 1.5 lakhs still continues to be around the tenancy, and I'm only talking about the incremental loading here, which is just the current expansion, which needs a much lower CapEx for upgrade.

[Akhil Kumar Gupta, Executive Chairman]

I think, it's important Sanjay, the CapEx is for a new towers, and what you were talking about was loading. For our co-locations, typically, it would be in the range of 1 lakh and 1.5 lakhs or something like that. But loading will be a little lower.

[Operator]

The last question comes from Mr. Sachin Salgaonkar from Bank of America Mumbai.

[Sachin Shrikant Salgaonkar, Director]

Can you help quantify how much are the gross additions for consolidated basis this quarter?

[Devender Singh Rawat, MD, CEO & Additional Director]

[ 8 38 ].

[Akhil Kumar Gupta, Executive Chairman]

[ 8 38 ], Sachin.

[Sachin Shrikant Salgaonkar, Director]

Okay. Got it. And second, I wanted a little bit more clarity on exit penalty. One school of thought was, perhaps the operators may not give you full exit penalties, but in return end up giving you business for a period of time, which I always thought that perhaps that was already the case. But how do you look at the exit penalties? I mean, any update on penalties from some of the operators who exited earlier, like the likes of RCom and others?

[Akhil Kumar Gupta, Executive Chairman]

Sachin, [indiscernible] I just mentioned on the previous question that given that operators which have kind of shut shop or who have not paid penalty in the past are operators with whom we are in different stages of legal recourses of recovery. Pankaj was very clear in terms of these recoveries to happen on the operator. And this is also now backed by some of our initial orders that have come in, which having there subsequent courts too and has been upheld, was to settle the amount of money aside to pay towards these penalties. So we continue to work on them. The recent exits that have happened, and that what I was mentioning, are the exits -- particularly the ones in the last 1 and 2 quarters that we've seen. The current -- last one, towards merger with the larger operator. And some of them continued to be revenue-based too. So while technically, they exit, most of those time, you're seeing revenues come to them because operators are planning to switch off and shift the traffic to the other location. There we are in discussion with operators to see how this exit money will be recovered. While [indiscernible] there is an understanding that [indiscernible] exit amounts are applicable. The rest, about what options are there on the table and what are the ones that we are choosing, there was an earlier question which said, if you could amortize this money over a longer period. We are in a business where recurring revenues are the means of [indiscernible] for revenue there. If there are also to that nature, we are happy to discuss and conclude with the operators to see that a business proposition, particularly the ones operators that are now going to stay after this post the merger scenario.

[Operator]

We have one question from Mr. G.V. Giri from India Infoline, Mumbai.

[G. V. Giri, Head of Research]

This is about various large operators extending rural coverage. The times gone by, my perception is that usually, a tower company could depend on more than one operator. And therefore, it was frequently feasible to take the order from the first operator and who might venture out into a new location and took the tower in. And reasonably, expect the second operator to follow over time. But now some differences are cropping up between the 3 large operators in terms of how they might extend themselves and their balance sheets in extending rural coverage. And it may not be any more possible it seems to me, for anyone to depend on 2 operators always being there in one location. So is that notably a reasonable way to think? Would it change the way you accept orders from an operator to roll out a site in a rural area or an area where there isn't one in the first place? And can we be, I mean, overconfident that 2 operators will come and to charge the first operator rental only? Or will you have to up the rental, do you have maximum contraction to cover you for the first tenant [indiscernible]? Or are there reasonable ways to roll out lower-cost towers [indiscernible]?

[Devender Singh Rawat, MD, CEO & Additional Director]

So Giri, to answer that question about the site, we normally build towers only for the leading operators. That was our strategy in the past and now those are the only surviving operators that you see there. We are happy to build towers. If a leading operator sees a business opportunity given the heightened competition that the market is going on, we believe it's only a matter of time before the subsequent ones come in. To answer the second question, saying are there provisions in the contract to build a site exclusively for an operator, there are. There are provisions in the contract where we can build a site for a single tenant with decent returns for us to have there and learn that as an operation. While it's slightly more expensive to do that, operators have not chosen very many of those sites. So we don't think that would be...

[Akhil Kumar Gupta, Executive Chairman]

That is an option with the operator. You could say that I want it in a strategic site, which I don't want you to share with anybody. Then we do recover what we would from 2 tenants. Lastly, nobody goes for that.

[Devender Singh Rawat, MD, CEO & Additional Director]

There are very rare circumstances where people wanted a site in a particular place for connectivity and other reasons as well. They would ask us to build those sites to connect in a rural location. Lastly, there are international-based sites that operators are building in some of the rural area, where clearly there is no viability of business and that would have been the expanding part of that. There we are happy to even roll out for the operators and maintain that given our scale and strength and our presence there, it kind of increases our share too towards the partners. So we showed our willingness to roll out and also to maintain some of these sites which are coming in under the international basket, going very deep in rural -- in geography that we are acceptably present there. So we believe that the sum total of these 3 should be able to cover. And most of the growth that is happening on data will primarily mean building more sites in existing areas where there is high density of people living. And that is where you will need a far higher number of sites. And we look at all these things in a portfolio basis. So far, it's been very positive for us [indiscernible] products these results. And that's why the impact that you see of exits is significantly lower in the case of Infratel compared to some of our competition.

[G. V. Giri, Head of Research]

If you were to take that single tenant example, you shouldn't really have a problem in building a site which costs less than your usual ground-based towers in the rural, which are built for multiple tenancies, right?

[Devender Singh Rawat, MD, CEO & Additional Director]

Yes.

[Operator]

The next question comes from Mr. Anirudh Gangahar from Nomura Securities, Mumbai.

[Anirudh Gangahar, Research Analyst]

Two questions, actually. The first is on your MSAs, whereby some your tenancies are locked in at the beginning of the new financial year. Is it possible to give us some color out of the total 200,000-odd tenancy that you have now, how many of them are now still in a freeze and how many are now going to be having this escalation? That's the question one. And second is, any color that you can provide in terms of competitive intensity from American Tower or [indiscernible] over the last quarter or so? Has there been any change that you're seeing on the ground? Those are my 2 questions.

[Akhil Kumar Gupta, Executive Chairman]

On the first one, it's slightly more tricky for us to give out this information, but our sense is the number of co-locations that we would have added during the previous year would indicate how many would come out of the freeze too. The freeze was given to extend the contracts till 2023 for the benefit of everyone. And they're gradually getting unfrozen. Specific number, because these are operators, specific are given out so far. So it continues to come into unfreeze, and I think by 2023 everything comes out of the freeze. The entire thing comes out of the freeze by 2023. But if you go backwards, if you have the number of tenancy that we provided, [indiscernible] as you move backwards, that would lead us then to how many are going to get unfreeze too. On competition intensity, we have seen big changes there on ground. We've said in the past that we have the cheapest. There are operators who are wanting to take market share, try to price themselves 4%, 5%, 7% lower than us to gain market share in some of these areas. And we also said that tower capacity is not funded in capacity. Where we have a tower, we still continue to gain our business. From an operator standpoint, yes, they continue to look at opportunities to reduce costs, and our focus is to see that we bring in significant savings on energy and pass on those as benefits to the operator, thereby, being competitive, plus the higher [ currency ] ratio that we enjoy also gives us an advantage over our competition because anyone who comes to us is more likely to come as a third or a fourth brand instead of being a first or second with my competitor, where monthly the rental benefits, the ground rent, threshold is also shared. That reduces the cost further. And energy in some cases can be very significant. That is shared, and thereby, overall total cost of ownership, we believe, is significantly better for operators to stay with Infratel over our competition.

[Anirudh Gangahar, Research Analyst]

All right. And may I slip in other question. Is there any material conclusion on any of your -- particularly the Bhopal Smart City project? Because it was a little bit behind. But are we going to get something meaningful by the end of this year on the numbers and the business model?

[Devender Singh Rawat, MD, CEO & Additional Director]

Well, not significant in terms of revenues, I might say they are. But we're expecting that we think they're only put up for acceptance with the authorities. In a quarter's time, I think the acceptance should be with us and we should be starting to get some revenues on it. But [indiscernible] so those are small deployments in [ 1 to B ] including the [indiscernible] cape of Indus and Indian Sea. There are small amount of revenues that are starting to have few case with them. But these are very prime [indiscernible]. On a yearly basis it will move the needle significantly. These are more solutions to showcase our capability on fiber, on small cells. Some of the questions that came in on how we could create an integrated power solution to share the site and thereby give advantage. The sharing is not just between operators but also with amongst the authorities so that there is [indiscernible] and a great quality network which can support IoT applications and 5G for the tomorrow period. And these then, we would like to scale them up even without a Smart City contract, for instance, in the case of fiber and small cells in areas of high footfall.

[Operator]

We have a follow-up question from Mr. Sanjay Chawla from JM Financial, Mumbai.

[Sanjay Chawla, Research Director]

Just a question on the Smart City. I mean, do the rights to -- right of way and right to build out street poles, multipurpose smart utility poles. Does it come bundled even in the case of Smart City projects? And have you started building any such sort of street furniture?

[Akhil Kumar Gupta, Executive Chairman]

Sorry. I didn't get the exact question of what you mean by the word bundling there. If you're referring to exclusive right of way, in some cases some rights are exclusive. Some rights, which are not in the [ statement, certainly ], towers are not exclusive in this case too. If you can clarify what you mean by bundle, I certainly can try and answer that question then.

[Sanjay Chawla, Research Director]

Yes. In the sense, this right of way you're getting now to build smart multipurpose street utility poles. Have you started building any such infrastructure in the areas where you won the project?

[Devender Singh Rawat, MD, CEO & Additional Director]

Yes. And that's what I mentioned to earlier question, saying that getting accepted by the state authority, we have laid fiber in the city of Bhopal and we are also building smart street furniture there. We've also demonstrated and showcased the solutions to the authorities. Once they have signed off the acceptance is when we will able to monetize that. Now that said, hopefully, this quarter end, we should have that acceptance and we should be able to showcase that to investors and to our customers in a meaningful way.

[Sanjay Chawla, Research Director]

What is the potential for shareability of that sort of infrastructure from 4G, 5G point of view and then start doing pilot from that? Are you getting interest from telcos?

[Devender Singh Rawat, MD, CEO & Additional Director]

To answer your question in simple terms, is yes, capacity, how much it can handle, it has the capability of having up to 9 small cells if you want to. It could handle one macro base station, but typically for a 12-meter pole, it's not advisable to deploy macro base stations in some of these areas. On 5G, we have yet to see the hardware. Mostly, it will be dependent on the type of hardware and the [indiscernible] that have to be deployed. Those are the 2 limiting things. Otherwise, the great electricity, and I don't think they're being supported by the government, so we should be able to technically support more than one operator in all these sites.

[Operator]

At this moment, there are no further questions from participants. I would now hand over the call proceedings to Mr. DS Rawat for final remarks.

[Devender Singh Rawat, MD, CEO & Additional Director]

Thank you very much. As Akhil cited, there's a huge consolidation underway in the telecom industry in India, following the heightened competition intensity. We've had our limited share of churn too in this quarter, a number of 5,657 co-location churn. We have taken all the churn on account of smaller operators, and that leaves only the impact of Vodafone-Idea merger yet to come. Despite the churn and muted tenancy addition, we closed the quarter with consolidated revenue of INR 3,674 crores and EBITDA of INR 1,521 crores. Going ahead, we believe all leading operators will try to capitalize on the ever-growing data opportunity. We will now focus on both increasing macro coverage and improving capacity through densification, leading to strong demand of telecom infrastructure. We are fully prepared to capitalize on these emerging opportunities by playing a key role in building and sharing larger telecom infrastructure with our customers on a non-discriminatory basis. Before we close, we would like to take this opportunity to thank our CFO, Mr. Pankaj Miglani, for his valuable contribution to Infratel's growth over the last 7 years, during which period we surpassed many milestones, including the IPO. Pankaj Miglani takes on a larger business role in Airtel. We also welcome S. Balasubramanian, who takes on the CFO role which takes effect on August 10, 2018. We wish both of them the very best in their new roles. On behalf of the entire Bharti Infratel team, I thank you all for your continued support. Thank you very much.

[Operator]

Ladies and gentlemen, this concludes the conference call. You may now disconnect your lines. Thank you for connecting to audio conference service from Airtel, and have a pleasant evening.