Bharti Airtel Limited (532454) Earnings Call Transcript & Summary

Good afternoon, and thank you for joining us on this webinar to discuss Bharti Airtel's Fourth Quarter and Full Year FY '20 results. Present with me on this webinar today are Gopal, Badal, Harjeet, Nakul and [ Alipal ]. We will start this report now with a brief update from Gopal on the business, on the quarter and its performance, followed by a Q&A session. The instructions for asking the questions for the participants have been sent across with the e-mail. In a sense, you can use the raise your hand option on your Zoom device. With this, I would like to hand over to Gopal for his opening remarks. Thank you.

Thank you, Komal. Good afternoon, ladies and gentlemen. Thank you for joining us today for this webinar to discuss our results for the fourth quarter and full year ended 31st March 2020, which was announced last night. Present with me on the Zoom webinar today are Badal, Harjeet, Nakul and Komal. In the next few minutes, I want to talk about 3 things: first, our strategy and performance; second, the extraordinary impact of COVID and our response; finally, the scale of our digital platform. Let me start with our strategy and performance. We have a simple strategy, which we call our GPS: Focus on winning with quality customers; identify the micro markets in which these customers are; and win their hearts through an exceptional experience and an aspirational brand. As a consequence, drive down churn, raise ARPU and grow revenue market share. Keep doing this while continuously driving out waste in our business. We believe the strategy is now paying off, and this is reflected in another strong performance this quarter. At an overall level, we delivered revenues of INR 17,438 crores. This meant strong sequential growth of around 12%. Growth was broad-based across the entire portfolio. Our home broadband business grew at 3.2%. We saw strong net additions of 63,000 in the quarter. Our B2B business grew by 12% year-on-year. This is a business that has delivered exceptionally over the last 3 years, providing significant cushion to the challenges faced in mobile. Over the years, we've built very resilient relationships with our enterprise customers, and have built a reputation for ensuring that their data remains secure and safe. The DTH business added over 300,000 customers and grew sequentially by 1.3% on an underlying basis. The reported numbers here are not comparable since we made some accounting changes arising out of the new tariff order. The star segment of the quarter, however, was mobile. Revenue grew by 16% quarter-on-quarter, which is the strongest growth recorded in over a decade. This performance, we believe, reflects the strong execution of our strategy of winning with quality customers. In fact, the full impact of the tariff hike of December 2019 came through in its entirety with no down trading. This again reflects the resilient and quality customer base we have. Even more heartening, 4G customer additions saw continued momentum at 12.5 million. This number would have been even better if not for the sudden jolt of COVID that we were dealt with. The quarter also saw strong postpaid net additions, a testimony to the high-quality experience we deliver to our customers. As a result of all this, our ARPU increased by INR 19 in the quarter to INR 154. Most importantly, we ended the year with strong revenue market share growth. We believe that an ARPU INR 154 is inadequate to turn a reasonable return of capital as a company, and remain hopeful that ARPUs will get to INR 200 in the short term, and eventually, to INR 300, which is where it should be for a business like ours. Of course, even at this level of ARPU, we believe we will be very well placed to serve the lower-end customers, who may have the capacity to pay INR 100 or less. The performance for this quarter was made possible due to our obsession with delivering an exceptional experience to our customers. This was enabled by 3 factors: first, expansion of access. We added more than 4,500 sites during the quarter, and close to 30,000 mobile broadband base stations. The second factor is leverage of technology to improve experience. We deployed a range of technologies to improve experience: densification of our networks, massive MIMOs, shutdown of 3G networks in many more circles so as to refarm the spectrum to 4G, and the launch of Voice over Wi-Fi, which has dramatically improved indoor experience for over 5 million users. Thirdly, and perhaps most importantly, substantial capacity is being added to the core and transport infrastructure. This is normally a lumpy investment, and we believe that front-loading of this investment has been prescient as we were able to deliver an exceptional experience during COVID-19 despite seeing a massive surge in consumption. This is why the CapEx was much higher than the quarter and should moderate in the coming quarter. Our focus on experience has paid off consistently. We are grateful that Airtel has again been recognized by independent third-party global companies. We're delivering the best experience on download speed, on latency, on video experience and many others. Despite all this, we know we're not perfect. Many of our customers do face challenges, and we're obsessed about eliminating faults when they occur. The consequence of our performance has led to improvement in EBITDA margins. We delivered an incremental margin of around 60% of the revenues we added. Margins for our mobile segment expanded from 35.9% to 39.2%. Additionally, we've taken several measures to optimize our debt through various fundraising exercises over the last 1 year. This, along with strong execution, has led to an improvement in net debt to EBITDA, which stands at 2.88x versus 4.15x in the same period previous year. Let me now turn to the exceptional circumstances arising out of COVID-19. Clearly, this pandemic has been unprecedented in the fear it has generated as well as the millions of livelihoods have been destroyed. This is the time when we have had to do our bit to keep the nation connected. I'm proud of our teams who've gone beyond the call of duty, connecting thousands of homes and businesses, working from remote locations to keep the network coming, and risking themselves to keep our customers staying connected to their loved ones. It is now abundantly clear that telecom is truly an essential service and has been the backbone of the economy at this time. We are, therefore, hopeful that the government will implement the proposals of the TRAI and the intent of the New Telecom Policy to lower the burden of taxes and levies as soon as possible. As a business, we have looked at COVID through 3 simultaneous prisms: business continuity, recovery and retooling. First, let me talk about business continuity. We were ready even before the lockdown was announced. Safety of our people was a top priority, and we introduced a range of measures, including sanitation essentials, division of teams into 2 groups, so as to reduce load in our essential facilities. Everyone except our essential staff was mandated to work from home, with effect from March 19. Our essential staff were out in the field installing home broadband, expanding capacities for our B2B customers and keeping our mobile networks going. Our entire network operating center at Manesar, with 1,500 people today, had just 15 people on site, while everyone else manages all alarms for a complex network like us from home. We activated a range of alternate channels for recharge, including bank ATMs, chemists, pharmacy stores and grocers. We provided free services to over 80 million customers who are economically devastated. Most importantly, we drove digital adoption with a manic passion. Our teams introduced several innovations, all within a matter of days, from online acquisition to simplifying payment journeys, to launch of work-from-home solutions, to educating customers to recharge online, to having others do it from them. All of these features were launched. Today, over 60% of our entire business goes through digital channels. On the network, while traffic surged by 20%, we've been able to deal with it in a comfortable way and still deliver a solid experience. While all this was going on [Audio Gap] in a [ greater ] way. Today, we are ready with a granular plan across every district of India. As and when a district turns green and the lockdown is relaxed, our tool kits for recovery are ready. Finally, retooling. Crises, I believe, is always a danger as well as an opportunity. We've been taught several humbling lessons from this crisis. There are many parts of our business where we believe we have substantial waste, and it is this COVID crisis that has exposed it. We have discussed this at length as a leadership team, and we believe we need to put renewed vigor behind our war on base plan. Let me now turn to the last and final part of my opening address: the scale of our digital platform. Over the last 3 years, we have quietly built a very strong digital team of almost 1,200 people. This team is focused on solving real problems that we confront in the business. How do you acquire more quality customers? How do you retain them and create greater lifetime value? And how can you strip out waste from the business? I believe we have now scaled our capabilities substantially. We have over 150 million monthly active users across our digital assets: Airtel Thanks, Wynk and X Stream. We have over 1.1 million retailers transacting and making payments every day on our Mitra App. Our digital teams have been able to lower calls into our call center by 60% through automated fall detection and repair, coupled by intuitive customer journeys on the app and the IVR. With our platform, we've also been a partner of choice for several companies. In the B2C area we partner across content, across financial services and devices. We leverage our platform to drive growth for Zee, for Star, for Eros, for hoichoi, for Amazon, for Netflix, HDFC, AXA, Apollo and a wide number of start-ups. In the B2B area, we've leveraged our platform to drive new streams of revenue. We've built an exciting data center business that serves large Indian and global technology companies as a need for data explodes. We've also built strong partnerships in the work-from-home area, in cybersecurity services, in delivering managed networks, in IoT and in delivering cloud services. Our roster of partners here include large brands such as Cisco, Zoom, Symantec, Palo Alto Networks, Google, Microsoft, Amazon, in addition to many, many innovative start-ups. It is this digital capability that allowed us to be ready when COVID struck and pivot our business to drive dramatic growth in our digital channels. Over these years, we've realized that at its core, Airtel is a platform with 4 mission-critical strengths. The first is data. Our customers trust us with an incredible amount of data that is consolidated in one powerful and intelligent platform called Customer 360. The second strength is distribution. We have access to over 280 million mobile customers, over 18 million homes, 2,000 large corporates and over 1 million small businesses. The third strength we have is payments. We're one of the few businesses that has the ability to collect payments from customers, be it digitally or in the form of cash. Our retail app, Mitra, and our consumer app, Thanks, coupled with our Payments Bank, allows us to fulfill transactions and payments. Finally, our network and location-based understanding, which provides us incredible capability to deliver value to partners. All of these strengths are now being used for our own business and for our partners at a pace that is accelerating every day and allowing us to become more and more agile. It is [Audio Gap] to revenue streams. At the end, we believe that the future of our platform will be to have a foundation of a customer-focused telco that can allow us to deliver a range of services in partnerships with hundreds and thousands of companies to create value for the ecosystem. All of this, we believe, must be done with a passion for data privacy. To sum up, the industry has witnessed some repair, but more needs to be done on tariffs that are still unsustainably low. Our strategy of focusing on quality customers seems to have been reflected in our results. Our portfolio in India has been resilient. Africa continues to report a strong set of results. And our obsession on customer experience as a cornerstone will remain unchanged. At a time when the country is grappling with COVID, we have kept the country connected. This has been done due to the stellar work done by our teams. Equally, we are ready for recovery at a granular level. Finally, the substantial investments and capabilities we have built in digital will now allow us to create value in the ecosystem through our powerful platform. With this, I'd like to open up for Q&A.

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

Congratulations for a good set of numbers. I have 3 questions. Number one is on how things are actually progressing in the current quarter? Now clearly, Gopal, you did highlight in terms of what's happening. But can you throw some light in terms of how have been the net adds, CapEx deployment, churn and so on and so forth?

Sure. Sachin, thank you for your question. I think this quarter has been obviously strong. The 15th of March -- it's been a mixed bag for the last 45 to 50 days. I think we've seen several factors play out. One is that we've seen a rapid surge in the need for home broadband. I think that's the first thing that we've seen. Second thing that we've seen is a significant increase in the B2B side in terms of capacities that are required by many of the enterprises. We've seen growth of some of the new services, collaboration services, video conferencing and things like that as people have worked from home. We've seen on the mobile side, our 4G customer base has been more resilient than we would have otherwise thought. Equally, we've seen a collapse in new devices coming into India because the supply chains have broken down from China. And yet, we've seen a significant pressure at the lower end of the customer profile, which is the marginal customers, our disadvantaged customers who largely own feature phones, who had to struggle to actually recharge, which is where we've been activating alternate channels, some of whom have used these channels, but others have continued to remain challenged because of the economic implications on their lives. So I would say it's been a mixed bag. It's a very, very rapidly evolving situation. Every day is actually getting back to a little bit more normalcy. So I would -- while we don't give a guidance, I would say, I don't know whether what I'm saying gives you an overall perspective of what's happening, but that's the way we see it. Sachin, thank you for asking for CapEx. I think, like I said, quarter 4 was a significant surge in CapEx because of the advancement of some of the transport investment we made, coupled with investments in access. We see a moderation in this quarter, primarily because we've not been able to deploy networks, additional sites in the month of April. And in any case, we expect the overall CapEx for this year to be more moderated than it was for last year.

Got it. And my last question is actually on this -- any clarity you guys could give in terms of how we should look at ARPU going forward? And it comes from a point of view that, while the tariff hike, what we saw in December, has largely been done, there is a gradual mix shift which is already happening in terms of your 4G net adds are increasing. So is that something which will lead to a continued ARPU improvement, even if we don't see any round of tariff hikes for the next, let's say, 3 to 6 months?

Yes. I think that it's difficult to -- firstly, I think if you look at our trajectory over the last 9 to 12 months, you would have seen some increase in ARPU even without any tariff increases. And that is really coming out of the upgradation from 2G to 4G. So that is one of the drivers of ARPU. The second driver of ARPU is acceleration in our postpaid business. We believe this is a business where the price premiums between postpaid and prepaid have now narrowed to a more sensible level, and we expect the postpaid business to do better. Of course, COVID has kind of impacted all parts of the business in the short term because very few people are walking into our stores, but I would say that, that is beginning to change on a daily basis. So yes, there is still ARPU to be had with upgradation, but a large part of the tariff hike -- ARPU that came out of the tariff hike in December, I think you've seen through flow through a resilient customer quality that we have.

Our next question comes from Manish Adukia from Goldman Sachs Securities.

I hope you and your team are staying safe and healthy. A couple of questions, please. So first, if you can just help us understand for the March quarter, what role did the different moving parts play in terms of impact on ARPU? So specifically, I'm referring to, like you said, the tariff hike, which largely flowed through into the ARPU this quarter. You also had like strong customer additions in the December and the March quarter. And then any negative or positive impact on the wireless business you can call out because of COVID-19 and the lockdown last 10 to 15 days? How did that change the recharge pattern, especially at the mid- to lower-end of your customer base? And second, you again talked about your customers not seeing -- or you're not seeing any down trading as such because of the tariff hike you took in December, and you said that in the short term, you expect ARPUs to be closer to INR 200. What, in your view, will drive the ARPU from INR 154 that you reported to that INR 200? What needs to happen for that ARPUs to move up from INR 154 to INR 200?

Thank you, Manish. I think like I said, I think we saw in March quarter a significant impact on account of the tariff hike. We saw strong growth in our 4G net adds of 12.5 million. And like I said, if COVID-19 hadn't shut down our business in the last 2 weeks of March, this 12.5 million would have been even better, and the overall net additions for the company would have been even stronger. And remember, our definition of revenue-earning customer is revenue in the last 30 days. So it's a very stringent definition, and so when you don't have the capacity to reach out for 15 days, that obviously has a direct impact on revenue coming from customers. On COVID, I've already answered. The implication of your question was to do more with mobile, Manish. We've seen postpaid, by and large, intact. We've seen our 4G customer base, by and large, resilient. We've seen some impact on the bottom end, people who recharge once in 45 days or 50 days, recharges of INR 40, INR 50. Some of these customers have had a serious impact, which is why we give away free services to large numbers of customers as a benefit, and this is especially to our migrants. So we've seen some impact of that equally. We've seen some positive surprise on the broadband side, on the B2B side. So it's been a kind of a mixed bag. I want to underscore that every week is actually getting better because the jolt that we saw from the 15th of March has started getting better as customers have found new ways to actually recharge. We've also done a lot of work on our digital side to drive digital adoption, to drive education and to activate alternate channels. All of that has actually begun to pay off. I think in the -- from an ARPU perspective, while there will be some growth in ARPU on a secular basis because of the upgradation from 2G to 4G, I think I've always maintained that our tariffs are still unsustainably low. The industry is very keen to have TRAI intervene in pulling together a set of floor prices. I think all the responses have gone to TRAI. And right now, they haven't taken a decision right now given the circumstances around COVID. But I do believe that this needs to get corrected sooner rather than later. Badal?

Sorry, Manish. I thought, Gopal, maybe Manish is also checking more specifically on the last 10 days of March, assuming the lockdowns were not to take effect. Would that have meant anything on revenue or churn for us for the quarter?

Meaning like would it have been better or worse? What's the question?

Yes. In terms of last lockdown, had it added to any churn impact and/or revenue impact?

Yes. It definitely added to churn, Manish, this is what I said. I think that wasn't perhaps clear enough. Our definition of a revenue-earning customer is a person who earns or pay us something in the last 30 days, in the rolling 30 days. So if a customer in, for 15 days -- or sets of customers, large sets of customers have not recharged, then that will obviously show up as churn. So our churn of 2.6%, in a way, is overstated because of COVID.

Understood. That's very helpful. Just one last question for me. Would you be able to call out your ARPU as of end of March or exit March? Would it be materially different than the INR 154 that you reported? Can you give us a number as to what your exit number might be as of March?

We don't give that number, but I would say that it's in the same -- it's in the ballpark.

The next question comes from Kunal Vora of BNP Paribas Securities.

My first question is on fixed broadband. I just wanted to get your sense on how do you see this opportunity as more people work from home, study from home, and you also entered 18 new cities over the last year. But subscriber additions are still like mid-single digits. Do you see it as a business which can scale up at much higher levels? And how is the fixed broadband CapEx from home trending? That's question number one. I'll come to the next question once you answer.

So let me take the first part of the question. Maybe I can hand over to Badal for the second part of it. We are excited about the home broadband opportunity. I think India is an underserved market, and there's a very big opportunity to expand broadband on a structural basis. Having said that, I think what we've seen in the recent few weeks is a massive surge in latent demand on home broadband. We have -- relative to the business that, that business is. We added in quarter 4, almost 60,000, 65,000 net additions, which is one of the higher numbers that we've seen in many quarters. And even during the lockdown, there has been a lot of demand -- or actually getting home broadband going. We have an innovative model, which I talked about, I think, about 8 to 9 months ago that we were experimenting with, working with local cable operators to provide the last mile and using a digital model to access more cities and expand the scale of our broadband business. I think that has already rolled out into 13 cities now and is seeing some very good traction. So we believe there are 2 opportunities for broadband in terms of expansion. The first is in the top 10 cities. I think we need to expand a lot more, and there will be some step-up in CapEx directed at actually expanding our broadband in these large cities. The second part is that beyond the 10 cities or beyond the 50 cities as we get into smaller cities, for example, we've gone into Jammu. We've got into Dehradun. We've gone to Bareilly. We've got to Nashik. These are cities that we had not hitherto gone to. But the reason we've gone to these is that we have partnered with local cable operators, and we've created an Uber-like model, which is entirely digital, and the last mile is provided by this cable operators. We give them a share of revenue. And this is actually working quite well. We are unleashing the entrepreneurial energy of these cable operators in managing the last mile for us. And at the same time, we have the Airtel brand, the Airtel customer support, the Airtel billing systems, the Airtel technology, and of course, the purchase of routers and all of the other back end equipment coupled with the fact that we have fiber availability at the tower, for which backhaul is available. So I think we're using the best of both words to actually partner and expand. So that's really what I would say. I would request Badal to just touch on what the CapEx numbers are in broadband.

Kunal, we rolled out to over 450,000 home parcels in the last quarter. Our total CapEx for the last quarter was close to INR [ 200 ] crores. We have a strong pipeline of rollout, as Gopal alluded, where we have already identified where we want to expand, and this will be an area where we'll continue to invest going forward.

But just in terms of CapEx, the number used to be, whatever, 8,000, 10,000 per household. Is that number coming down? My question was really about affordability. Are you going to hit affordability, [ like per ] ratio?

Yes, Kunal. That has been one of the key drivers. When we say bottom base, our bottom base is just not about operating expenses. It's also about efficiency [Audio Gap] while it depends on which place and which city you are rolling out, our cost of rollout of home parcels have substantially reduced over the last 2.5, 3 years or so. And hence, we feel that and the cost structures, which we operate in, I think it's fairly affordable, and we can go aggressive and do an out-of-home brand ourselves.

Sure. That's very helpful. Second and last question. Just wanted to get a sense on the incremental margin. So this quarter, you had an incremental margin of about 60% on your incremental revenues. Is that a fair number to look at going forward? Or should that number be much higher? And maybe this quarter, you had an impact of higher network costs? And incrementally, we should be assuming let's say 70%, 75%?

Kunal, you're talking about the overall business, not home broadband.

Overall business. Overall business. India mobile business.

India mobile business. So on the India mobile business, we had a kind of a circa 60% flow through. This has investments coming in from rollouts which we have had. Very, very strong rollouts in the last 2 quarters also. But I think a range of 60% to 65% approximately circa 65% is a good number to work with.

The next question comes from Vivekanand Subbaraman of AMBIT Capital.

The B2B CapEx is substantially higher this year. Were there any meaningful fiber or undersea cable acquisitions? And can you outline your comments similar to what you outlined on the home broadband side?

So Vivekanand, you are looking at the current quarter rollout, and this is -- that is the question. Then as Gopal alluded, we spent significant amount invested ahead of time in terms of our core and transport network. Our core and transport network has been used by the B2B business and the mobile business, and that CapEx is now appearing in both mobile segment and the B2B segment. So that's the reason you see a surge in the current quarter CapEx numbers.

So the CapEx gets eliminated? Is it?

No, it doesn't get eliminated. It gets reported over 2 different segments based on the usage of those relevant segments. The capacity which we generate is being used by multiple segments, primarily mobile and B2B segment. Depending on what the usage percentages, we allocate the capital expenditure for assets which are used by these relevant segments and reported under those segments itself.

Okay. Second question and the last question is on the ARPU. So what would be the differential between the prepaid and postpaid ARPU for our customer base? And secondly, the 4G versus non-4G user base, what is the ARPU differential? And any thoughts on -- Gopal, I know in your opening comments, you mentioned that postpaid, you clearly see an opportunity to monetize more. So any thoughts on where that can go in respect to your prepaid ARPU?

Well, the -- I mean our plans are -- we have very few plans now, so you can do the math yourself. Your -- for feature phones, people who are not on bundles, our plans are -- there's a plan at INR 49 and a plan at about INR 69. So for a feature phone customer who doesn't need much of data and who doesn't have the capacity to pay for a bundle of INR 150, which is what it costs unlimited for calling, the ARPU is in the INR 50 kind of ballpark. 4G, most of these customers use a lot of data. Our entry price point is at INR 219, so the ARPUs are clearly ahead of INR 200 there. And then, of course, there's postpaid where our entry price plan is at INR 399, and then we have got plans at INR 499 and above. So you can do the math and see that clearly, postpaid is substantially higher than prepaid. One of the reasons I believe postpaid is a large opportunity, if you look at markets, for example, like Philippines, postpaid is almost 55% to 60% of the business there -- industry there. Or if you look at a market like Brazil, again, about 60%, 65% of the industry is postpaid. And there is no reason why India's postpaid is still really small, relatively speaking, with these countries. The only reason I can think of is that there has been a very high arbitrage in pricing between prepaid and postpaid. Before prepaid pricing crashed, and by the way, the postpaid pricing also did crash, but it crashed lesser than prepaid. Before prepaid pricing crash, postpaid was actually growing quite nicely, but it was the compression and prepaid pricing that led to overall slowdown in postpaid. And I think that's beginning to turn in the last 6 months with prepaid pricing having gone up.

Okay. Just one small follow-up there. Does the international roaming and other revenue related to travel have a meaningful contribution to postpaid?

To postpaid, a reasonable contribution. Reasonable contribution, yes.

Thank you, Vivekanand. The next question comes from Rajiv Sharma of SBICAP Securities.

Just I'm glad, Gopal, that you talked about your digital platform and the 1,200 employees. But it seems that it is more about efficiencies as in cost savings. But I wanted to know what are your plans about monetizing the digital platform. And also, you -- a couple of quarters back, you talked about this whole kirana posting but just wanted to know your updated thoughts there. And will you be -- given that with COVID, the valuations of all the start-ups have significantly come down, will you be, as a philosophy, open to looking at some of the start-ups to change your digital narrative and add additional revenue streams?

I think that -- I obviously didn't do a very good job in talking about what we're trying to do with our digital platforms because I would -- coming back to what I think are the 3 objectives behind the digital business. One, is it helping us getting more customers? Two, is it helping us get greater lifetime value and retain our customers for longer? And third, is it -- is to your point, does it help us drive out waste and actually create greater efficiencies? I think we are looking at all of 3 things. And one of the things at least I have learned in the last 2 years is digital has to be at the heart of the business and really support the core business while also building out new streams of revenue. The way we see our assets, Rajiv, is that we see those 4 assets I talked about, data, payments, distribution and network: about data, the fact that we have such a wide repository of data; payments, the fact that we can actually collect money from the customer whether it's through Airtel banks or the Mitra app, which is available in 1 million retailers; distribution, which is access to 280 million customers, 16 million homes, 2,000 corporates and over 0.5 million to 1 million small and medium enterprises; and network, which is really the core of our business which provides location-based services. So if I look at, for example, some of the things that we have started doing a lot of, we have built on this platform a strong set of digital assets. So we've built almost 150 million monthly active users, which is one of the very large digital platforms in India on our digital assets of Airtel banks, Wynk and XStream. From here on, I think there are 2, 3 things. If you take those underlying assets, one is you got to keep scaling the digital assets. And then we could look at what we are already beginning to look at revenue streams coming out of top-ups in advertising, as we call it. For example, we are one of the large sellers of life insurance policies for both Bharti AXA as well as HDFC. We are partnering on the cybersecurity side with a whole range of companies on B2B, actually creating a cybersecurity practice both on products as well as through a security operations center in Manesar. With Cisco, we're partnering to actually create routing solutions which can be bundling with our B2B business. So when you start looking at some of these things, we believe that we could actually create in the not-so-distant future -- I'm really talking about the next 12 months, a meaningful revenue stream using these assets at our core. And our model is quite simple. Our model is, we are not in the education business, we are not in the content business, but what we are is we are in the business of really understanding customers deeply and using those 4 strengths to partner with many, many companies in order to create revenue streams. We could actually help lenders lend to our customer base. And by the way, this is -- these are pilots that we're already working on. So these are the kind of strengths that we could actually bring, which is where we create those alternative revenue streams. So if you ask me the question, are we in the education business, the answer is no. But would we partner with people to provide educational services using our platform and actually make a margin off it? Absolutely, that's what you would look at. So it's that kind of strategy that we are driving. And the only way to do this is to have scale on your digital assets, scale on your platform, and the agility and capability to use all your digital talent to be able to partner very soon. One of the acronyms we have in our business is called TEAM. A team is the word -- it's 4 letters, T-E-A-M. And from our perspective, what it stands for is T is for transparent commercials. That's the thing that the partner values most. E is for easy integration onto your platform. Everything is through APIs. They're robust and standard APIs which we've built over the last 2 years. A is for accelerating the adoption of the digital service. If a partner partners with us, what they're looking for is scale. And if we are going to sell 3 life insurance policy for HDFC, no other company will partner with us, so how do you accelerate adoption, which is where your data strength comes in. And M is then for mutual growth. So TEAM is a digital stack that is actually built on top of these assets of ours in order to create meaningful revenues. The reason we've not talked too much about it is because it's still -- we've been in the process of building this out and it's only now that we are beginning to actually use this for our own business and begin to pilot this with many, many companies around the world. And if we can get this really going in a seamless way, then I think your question of what kind of revenue streams can come through, we can answer quite easily.

Gopal, just one final question, if I can chip in. The recent Jio-Facebook deal and a lot of other tech investors coming into Jio, it seems like Jio is being positioned as a tech platform. When you talk about your digital initiatives, it seems like you are a telco with partnerships. Do you think Bharti also wants to transition as a tech platform going forward?

No. I think our strategy, as I've articulated, is what it is. Obviously, technology is at the heart of this. So we leverage the power of technology. We've got a very large pool of digital talent, which we've hired from the best companies. They're working for us across product, engineering and data science. And really, technology is what will make this available. So if you ask me, are we a tech company? Yes. Are we a telco? Yes. Are we trying to marry the telco along with the technology that can actually solve problems for customers, solve problems for partners and create value for the ecosystem? That's what we're trying to do.

Thank you, Rajiv. Thank you, Gopal. The next question comes from [ Joe Hoss ] from [ Arms Capital ].

I was just wondering if you guys could give a quick update in terms of where you are in the AGR fine. Sorry if I've missed it somewhere, but where [indiscernible]...

Sorry, [ Joe ], you're...

Sorry, say again?

We can't hear you very clearly.

Oh, sorry. Can you hear me now? Is that any better?

Yes.

Just if you could give a quick update on -- in terms of the AGR fine and where you are with the process of the regulations and government. How much is still left to be paid, if any, and when this fine was?

Look, I think the question is on AGR.

Right.

What is it -- but I suspect the question is around what's the exposure, what have we provided for.

Right. [ Joe ], if you recall, we were -- DoT had agreed for us to do a self-assessment of our liabilities, and we had conducted that exhaustive exercise that scaled for 3 to 4 months and business that we had made payments to DoT of approximately INR 13,000 crores in the month of Feb and an additional INR 5,000 crores as an ad hoc and deposit advance amount line to DoT depending on what the reconciliation and the assessment -- reassessment will come out. We didn't want that to be on the negative side. We gave that so that if there was any difference, that could have been adjusted. Subsequently, the case was heard in Supreme Court, and the Supreme Court has currently stated that no reassessment or re-self-assessment will be allowed. The next hearing was supposed to happen early April, which has not yet happened, where apart from this, they were also to consider the DoT's proposal of extended payment terms over 20 years with 8% interest will also get heard. As of now, the matter is sub judice. There's no update per se versus what we have already done so. We have done our self-assessment in the month of October. We are still holding that. There's no change to that. We'll hold -- we'll wait for the judgment and we'll wait the Supreme Court, the final verdict to come out to kind of determine the next steps from our side.

That's great. A second question, if I may. Given the COVID-19 outbreak and I guess corporate responses to that, is there any news from you guys in this coming year?

[ Joe ], you'll have to repeat that question again. I would suggest that we all put our phones on mute so that we just...

Sure. Sorry, I don't know -- I'm not sure why I'm having trouble. But it was just a question regarding your dividend policy for the coming year. Has this changed, COVID events? Or do you still plan to stick with the previously stated policy?

I think what [ Joe ] is asking...

Yes. It's about the dividend policy and I can -- so [ Joe ], historically, there has not been a stated policy of sorts but a philosophy the group has followed. And at Airtel level, the philosophy was that while the leverage continues to be anywhere beyond comfortable levels, whatever dividends had come through from our subsidiary companies because of their cash flow accretions, we'll try and pass through. So at least for now, that continues even if it's a smaller percentage to the overall stock price. And it's a little too early on conjecturing how the COVID evolution happens, but I do think that the tower cos will continue to be cash-generative. There will be cash. Whether it's as much as little or even more depends upon the overall telecom tenancy outlook, but that will be cash positive and there will be dividend flows. So to that extent, the general expectation, unless COVID creates any negative surprises more than what we anticipate, we should be able to follow through.

And I can additionally add that the Board of Directors have actually recommended a dividend for the financial year of '19-'20 of INR 2 per equity share, which is subject to shareholders' approval.

Thank you, [ Joe ]. Thank you, Nakul and Harjeet. The next question comes from Parag Gupta of Morgan Stanley.

It looks like Parag has dropped. So we can move to the next question. Next question comes from Susmit Patodia.

I just wanted to understand the incremental EBITDA margin. The historical trend has been a little more than 65%. In fact, 65% has been the lower range, and your guidance was 60% to 65%. Are you being conservative? Or has something changed? If you could help that, please.

I think 65% is a reasonable rate which we work for. It can sway anywhere between 60% to 70%, Susmit. It also depends on various other factors in terms of where we are investing in, how much the investment is going in. For example, last quarter, we have invested close to 4,500 towers. Prior to that, we had invested close to 4,500 towers. So if there's a significant network investment comes in, the incremental EBITDA margin does get impacted in the short term. Also depends on other lines of expenses, for example, S&D. We acquired -- we had a very, very healthy 4G net add. We added close to 12 million customers. So there was incremental expenditure on S&D. So it's a combination of various factors which kind of flow in, but I would say a range of 65% is reasonable to work for. It could range anywhere between 60% to 70% depending on what kind of investments are going through in that particular quarter or the previous 1 or 2 quarters.

Right. And just a second question was -- Mr. Gopal alluded towards the first few days being quite tough at the feature phone segment. I wanted to know if the bad debts or collections could go up -- or collections could go down and then bad debts go up in this cycle? Are we seeing increased risk or it's manageable?

Yes. I can take that. I think there is -- there have been some challenges in our months for small and medium enterprises and our commercial segment in home broadband. Equally, there has been a robust -- I mean there's been resilience in the postpaid side. So I would say it's a marginally challenged connections. It was more seriously challenged in April. We were able to collect substantially better in the month of May. So I would say we'll wait and see, but it's not going to be very material is how I look at it.

Thank you. The next question comes from [ Tarun Agarwal ] of [ Old Bridge ].

[ Tarun ] is on mute.

[ Tarun ], you may need to unmute yourself.

Hello?

Yes, [ Tarun ]. You can go ahead now.

Yes, [ Tarun ]. Go ahead.

It's startling to see the mobile business performance this quarter, so hardy. Congratulations. I have 2 questions. The first is on the Airtel Mobile India business. So Mr. Vittal, how do you think -- you know you can make the platform more, say, personal stake from a customer's perspective. I mean strategically, how do you see this Airtel platform, say, 4 years from now, such that it becomes unnecessary enough for customers to stick to it for reasons in addition to basic telephony and data? That's one. And the second question is on Airtel Africa. What is the medium-term strategy for this business? And what will be the drivers from here on?

Nakul, maybe you can take the second part, between Nakul and you, Harjeet, whoever. So then I'll take the first after that.

Yes. Sure. Thanks, Gopal. Thanks for the question, [ Tarun ] [Audio Gap] state what we've actually said in the past, our objective is to grow consistently profitable business. As far as revenue growth is concerned, we wanted to be coming from the different aspects, whether it's voice, data or mobile money. We also want to grow it profitably. So the objective is to have EBITDA growth as well in the business to ensure that the leverage that we have on the business is constantly in the range of the 2 to 2.5, and you see the leverage that we have on the Africa business is actually on the levels of about 2.1, which is quite healthy. We also want that business to generate decent amount of cash flows. But at the same time, there are headwinds into the business with respect to currency deval that you see in some of our markets, which obviously is a risk that we continue to live with. So as far as the strategy is concerned, it is quite consistent from what we've reiterated in the past and we just continue to want to deliver on it. Obviously, the results are quite good. It is about 17.9% growth in constant currency year-on-year with a decent growth in EBITDA margins, which stand at about 41.1% -- 44.1%, and also an increase in the free cash flows. So that's how we see the Africa business.

I think you might also have -- sorry, just -- Gopal, just to complement. I think you might have also meant, Nakul, on how Airtel India sees Airtel Africa in terms of holding strategy. So [ Tarun ], you know we -- Airtel India holds 56% into Airtel Africa now after the IPO, and that continues to be the control block. And from our perspective, I think that holding is a holding which is strategic. It historically is a [ bountiful ] path from the acquisition times of 2010, and substantial amount of investment plus bandwidth has gone there. At this stage, even the market prices are not necessarily reflecting the true value. So you should expect Airtel to continue to drive the focus that Nakul was elaborating on for Airtel Africa and our holding strategy to continue to be the same. I think over time, they're increasingly getting more independent for sure, and that actually is a very positive benefit of the U.K. listing process that has happened. Management teams there are increasingly more independent. The brands are similar. Some of the sourcing strategies are synergized. But otherwise, the execution strategies are very local, independently managed. So over time, as it evolves, we could take -- probably provide further updates, but at this stage, that's a strategic holding asset.

[ Tarun ], to your first question, let me kind of give you a little bit of insight around what we've seen over the last couple of years. Today, on our -- we have a fledgling business which we invested in, which is our Payments Bank. We have over 35 million monthly active customers who provide us revenue. And most of these customers are also Airtel customers. What we see is a significant reduction in churn. When a customer of Airtel whose mobile number is also their bank account number and is using the bank to actually do other transactions, we see a very significant amount of churn. In much the same way, we've developed a platform which is called the One Airtel platform. This is essentially a tech layer which has been built in-house. In the normal course of things -- let me just step back. In the normal course of things, when you were -- when you're trying to converge all your businesses from broadband to mobility to television into one billing layer, this process for most telcos typically takes between 3 to 5 years. It's a very painful transformation, very painful process, and it's done by large tech companies with many SIs. And the only consequence of it is a lot of pain, a lot of operational issues, and it takes time for it to stabilize. Our teams have developed this in 6 to 8 months internally through APIs. So all our existing billing systems expose APIs to this thin layer on top. And what we have developed is that through this platform, we were able to bundle broadband, mobility and DTH into one seamless platform. We've piloted this in the last 6 months. We rolled it out last quarter. We've taken it to 11 cities, and we're going to scale this up this year. Why are we doing this? The moment we bundle these services together, again, what you see is a significant reduction in churn and you see a much higher increase in ARPU for the consolidated account, which is really a measure of lifetime value. So if you take those insights, the real question is through building a strong platform and building a whole string of partnerships. What you can now see is actually greater stickiness, greater lock-in of customers, lower churn for the telco, higher ARPU which is through new streams of revenue, and therefore, consequently, greater value. And remember, these partnerships come at very, very low CapEx. They are really a technology resource, digital resource. So it's a -- it's people cost more than anything else. And once you've got your digital assets at scale, then to be able to actually convert customers to get on to one or another service is much easier provided you understand who to offer what to. And this is where the data platform comes in, which allows us to actually recommend the right thing for a customer based on a lot of algorithm and a lot of data science that goes behind it. So that's really what the real value of this is.

Okay. If I could just butt in a last question. So all this partnership with the insurance companies or with the OTT players, whatever revenue that Airtel generates on account of allowing them to leverage our distribution network, these revenues are then reported in the mobile business or B2B business?

At this point...

Go ahead, Badal.

No, no. So [ Tarun ], this is -- these are -- as of now, it's very, very minuscule and they are not reported in the mobile business. Mobile business is pure customer revenue which we get from customers. Generally for these lines of business, we get commissions informed depending on what kind of partnership and what the nature is. It's only the commission which is going to get included depending on where we sit. Whether it's going to sit in mobile B2B or it's going forward, it could be in the Airtel digital company itself.

Thank you. In the interest of time, we'll only be taking one last question. The last question comes from Sanjesh Jain, ICICI Securities.

A question on the CapEx side particularly for the mobile business. Gopal, can you explain at what cycle of the CapEx we are from the coverage perspective, from the capacity perspective on the network side, core and transmission? And when are we going to see a more moderate level of CapEx for the company? Will it take another 2 or 3 years? And what will be the path for that?

I think, Sanjesh -- and I mentioned this in earlier calls. If you look at most of the top-tier telcos, you'll find that investments in core and transport are taking up a disproportionate amount of the CapEx when compared to just access. We have -- there is more that we need to do to expand our networks, put up more sites and expand our coverage particularly in rural areas and many of our challenger markets. That is something that we need to do. Second, we've invested substantially in our transport infrastructure, particularly in electronics, and that's why you saw the big jump in CapEx in quarter 4, which, as I said, proved to be prescient given what happened in COVID, where we saw almost a 25% to 30% surge in consumption. We are refarming almost all of our spectrum. So all our 3G spectrum is going to 4G. That gives us more capacity. It's at very marginal levels of CapEx, so that's another driver that goes in. And then of course, as -- if the data allowances in India continue to be as significant as they are, you are seeing some constraints in congestion and capacity in some of the key cities and you need some more sites, you need more capacity. So that's really what we're trying to do. The second component of CapEx is on the broadband side, where you're expanding home broadband. And the third part of the CapEx is around the B2B side, which is, again, largely in the transport side, where Badal, as he mentioned, we've put it in one place then kind of allocated across the board. But B2B has been another driver of our overall transport. And finally, there is fiber, which is real access to trenching and digging and getting out and connecting more and more base stations. And with the growth of more and more data and as we move towards 5G, you do need to connect more and more towers on fiber. Albeit microwave capacities are good, the technologies are moving very rapidly. We're able to get 1 Gbps speeds in some of the new technologies that are coming through. So I think those are some of the drivers of CapEx. I would say CapEx is a dynamic situation. As of now, our one guidance would be that we believe that CapEx will be moderated this year, which is the coming year, compared to what it was last year. We made that clear to many of you when we met you. Having said that, we're going to watch this space because at the end of the day, you have to look at where growth is coming from, how much we can grow and where the consumption is going so that we continue to deliver a brilliant experience. But our sense is our guidance would be that CapEx for the coming year would be lower than what we saw in the year that we just concluded.

Just one follow-up. How do you see your spectrum holding post refarming the 900 megahertz and 2100 megahertz from 4G capacity perspective? Do you feel that you are comfortably positioned on the spectrum given the kind of data allowances we have and the upside in terms of the transition, which is happening from 2G to 4 side -- 4G? Or do you see a need for more spectrum for the 4G services probably in the next 2 to 3 years' time frame or you're comfortable in terms of 4G spectrum holding which you have today?

I think by and large, we are comfortable with our spectrum holdings. We still have a lot of headroom to continue to use our spectrum. As you noticed, we refarmed about 25 megahertz of 3G spectrum. There is still more to be refarmed in the coming quarter. Having said that, we've also made it clear that we would love to have a sub-gigahertz footprint across the country. This is one gap that we have in our portfolio, particularly in our challenger markets in the West and in markets like Kerala, UP West and Haryana. These are the places where sub-gigahertz spectrum will give us much data propagation, deep indoor, and particularly in rural areas, rural [ and few ] sites, to actually go out and cover larger geographies and expand the access of the Airtel network. But beyond that, I would say our 4G spectrum holdings are pretty solid actually.

All right. I think with this, we come to the end of this webinar. Thank you, everyone, for joining us today. And a recording of this webinar will also be available on our website for your reference. Thank you once again for joining us this afternoon.

Thank you.

Thank you.