Bharti Airtel Limited (532454) Earnings Call Transcript & Summary

Good afternoon, and thank you for joining us on this webinar to discuss Bharti Airtel's Q2 FY '21 results. Before I hand over to Gopal for his opening remarks, I quickly wanted to highlight that we will be conducting a question-and-answer session for all the participants on the call. Participants who wish to ask a question can send the question using a moderator chat option on their BlueJeans interface. With this, I would like to hand over to Gopal for his opening remarks. Over to you, Gopal.

Gopal, you are muted.

Okay. Can you hear me now?

Yes. We can hear you now.

Yes. I think it was -- I was muted from the back. Okay. So thank you, Komal. Good afternoon, ladies and gentlemen. Thank you for joining us today for this webinar to discuss our results for the second quarter ended 30th September 2020, which we announced yesterday. Present with me on this webinar today are Badal, Harjeet, Nakul and Komal. Last month marked the 25th year anniversary for Bharti Airtel. It has indeed been a very eventful journey from laying a strong foundation in telecom in the early years to rapid growth and now to the shift of us becoming a powerful digital services provider. This year, in particular, has been truly unprecedented. The outbreak of COVID earlier in the year changed everything. Yet, we continue to serve our customers and the nation brilliantly. I'm particularly proud of how our teams went above and beyond the call of duty to serve our customers. The real reason we were able to recover so quickly was because of our people and our investments in digital over the last few years. We were able to respond with agility, reorient many parts of our business model and focus on what matters, serving our customers. This is why our performance in the quarter was strong. We showed healthy growth across revenues, margins and customers. Our consolidated revenues grew sequentially by 7.7%, while the India business grew by 6.6% in a quarter that is normally weak because of seasonality. Growth was broad-based across the portfolio, though the star segment was mobility at a growth of 7.4%. With operating leverage also kicking in, we reported an overall EBITDA margin of 46%. Let me now turn to each of our business segments, and let me start with our Homes business. I believe that the broadband category is at a cusp in terms of growth. With COVID as the trigger point, we're seeing an increase in work from home, in online education and in streaming services. All of these need reliable high speed broadband. We are, therefore, doubling down on broadband through 4 approaches or 4 things. First is the rapid expansion of our own coverage. We added 1 million home passes in the cities during the quarter, that is in the cities we are present in. Second, the acceleration of our LCO partnership model. During the quarter, we expanded to 29 new cities. Third, bringing the full power of Airtel services as well as our partner services to deliver an integrated converged offer encompassing connectivity, entertainment and more. Our Airtel XStream bundle now combines the power of Airtel XStream fiber, unlimited data, the first of its kind Airtel XStream Android 4K TV box and access to an intuitive customer base, which is delivered seamlessly across screens. Finally, an adjustment in entry prices due to competitive reasons towards the end of the quarter. As a result, we saw growing momentum across the quarter while adding close to 130,000 net adds in this business. Our DTH business added 549,000 customers in the quarter. One of the reasons for acceleration has been the distribution synergy we were able to get through leveraging the larger mobility sales infrastructure. We are now doubling down on this capability. Let me now turn to Airtel Business, which as a segment grew by 2.3%. I believe this is one business that has incredible promise, and the growth of this business, as I've said before, is frankly limited by our own imagination. When we talk to our enterprise customers, we hear them asking us for 3 things. The first thing they ask us is to ensure that we raise the quality of our services, strengthen network resilience for them while helping them bring down their cost. To meet this ask, we added almost 7.6 terabits of capacity in our transport network. While this serves all our needs across homes, mobility and enterprise, we are one of the few players that can do this so efficiently. We also made investments in strengthening customer experience through the launch of the state-of-the-art workforce management solution, which is a platform that handles customer complaints, while moving hundreds of enterprise connectivity links to a highly resilient MPLS backbone. To help lower costs, we launched several solutions. Airtel Work@Home that meets all the B2B needs of employees working from home. Airtel BlueJeans, offers a reliable, secure way to have meetings wherever your employee or customer is. Airtel Office-In-a-Box is our effort to provide a single touch seamless and holistic service to help start-ups and companies seeking to enter India for the first time. We also launched Airtel Cloud by signing a multiyear strategic collaboration agreement with AWS, Amazon Web Services, to deliver a comprehensive set of cloud solutions to customers in India. This collaboration brings AWS, the world's leading cloud platform, together with Airtel's deep reach and proven expertise in handling network, data centers, security and cloud as an integrated solution. We also have a rapidly growing Nxtra, our data center business that allows customers to store their data in India. Each of these products lower cost for our customers, take away the hassle of dealing with multiple partners and meet the gold standards of security and reliability that matters to our customers. The second thing our customers ask us is to help them engage digitally with their customers so that they can serve them better or get more growth. Our launch of Airtel IQ earlier this week is the first step in meeting this need. Airtel IQ is a cloud-based omnichannel customer relationship management platform. This product helps our customers engage with their customers, with their customers in a safe, secure manner across multiple channels, be it voice, SMS or increasingly video. So whether it's a consumer ordering food through Swiggy, and then tracking her order by calling the delivery agent or a customer arranging for a blood sample collection from Lal PathLabs or indeed one of India's largest banks, enabling their advisers to speak to their customers from a remote location, the entire communication gets orchestrated over Airtel IQ in a seamless, secure and reliable manner all over the cloud. Many of India's biggest brands are already on Airtel IQ. We believe that with Airtel IQ, we're well positioned to become a major player in the $1 billion cloud communication market that is growing rapidly. You will see more and more innovation from us on Airtel IQ over the coming months. The third thing our customers ask us is to help them protect their data and information from the increased cybersecurity threats that everyone faces today. Airtel Secure does exactly that. Airtel Secure is a comprehensive suite of advanced cybersecurity solutions that has been built through the power of best-of-breed partnerships. Our partners here include global leaders in their respective domains, Cisco, Radware, VMware and Forcepoint. In addition, we have made a substantial investment in building a world-class security intelligence center which uses AI and machine learning to do real-time monitoring of security threats across all business applications. So our strategy in B2B is no different from the overall Airtel strategy. We will simply leverage our strengths to provide solutions to our customers either through building products ourselves or through world-class partnerships in order to meet the digital needs of our customers. Let me now turn to the star segment of the quarter, mobile. Our revenues grew by INR 955 crores, a sequential growth of 7.4%, which enabled us to expand our EBITDA margins by 2%. This performance was on the back of strong 4G net adds at 14.4 million. In fact, over the last 4 quarters, we've added 50 million 4G customers on our network. We also added 700,000 net adds in the postpaid segment, which was one of our strongest performances in recent times. Our customer net adds -- overall customer net adds was at 13.9 million, and our churn was at an all-time low of 1.7%. Most heartening was that ARPU also moved up from INR 157 to INR 162. We believe our strategy of being relentlessly focused on winning quality customers is paying off. Our brand is the most aspirational and trusted brand in the country. Our experience is decidedly the best in the country. In fact, we're consistently seen as the best network by independent global tests and have won several awards, best network for gaming, best network for video experience, lowest latency and fastest downloads. For every discerning customer in India, this truly matters. Experience for us is the cornerstone of our strategy. We, therefore, continue to invest in experience. Last quarter, we added 5,047 sites. With this, we are now at above 200,000 physical sites. We've also ramped up densification of our networks through solutions such as adding sectors, adding twin beams, refarming our spectrum, experimenting with features that enhance spectral efficiency and adding Massive MIMOs. Our voice over WiFi solution is now being used by around 13 million customers who've seen a significant improvement in their indoor coverage. We've invested in several tools in our state-of-the-art network operating center at Manesar, that's allowing us to diagnose and fix problems in a very granular and real-time manner. Our entire company is unified by a single purpose to deliver a superior experience. One of the important milestones we delivered was the launch of our high-speed 4G services in Andaman and Nicobar with the commissioning of a submarine optical cable fiber project. Today, our networks are increasingly future-ready. We are one of the leading players in the OpenRAN effort. In fact, during the quarter, we hosted the Global O-RAN Plugfest event, the first of its kind event in India, for demonstration of interoperability of open interfaces as defined by the O-RAN ALLIANCE. The quarter also saw first field deployments of the O-RAN-based outdoor small cell, which has been designed by our in-house R&D team and supported by several partners. Let me now turn to the digital capabilities we are building. These capabilities are allowing us to do 3 very powerful things. First, they allow us to acquire quality customers. Second, they allow us to drive greater share of wallet and reduce churn, both of which enhance lifetime value of the customer. Third, they allow us to eliminate waste. This is what digital means for us. And we believe this is now impacting our business materially and building what I would call a virtual flywheel. The first element of this flywheel is the impact on the core business. Today, 50% of our business is now online. More than 40% of our high-value customer acquisitions are now omnichannel, ordered online and delivered straight to the home. Every customer journey is being reimagined and delivered in an omnichannel way. And our falls are down by over 50% in the last year, saving us substantial cost. So this is the first element of the flywheel, which has impact on the core. The second element of this flywheel is the strengths that we've been able to extract and build out digitally. And we have referred to them earlier. We have 4 strengths. First is data. Today, in addition to our customer base of 294 million mobile customers, 20 million homes and 1 million offices, we already have 160 million monthly active users engaged on our digital assets. Wynk is the most popular music app at 59 million. Airtel Thanks is one of the most powerful digital assets with over 82 million monthly active users. The data provided by this scale is incredible and it allows us to make personalized recommendations. Second, payments, our Mitra app is now used by over 1 million retailers to collect cash and perform transactions across mobile, the bank and soon for DTH. Our Payments Bank is already a USD 2.5 billion monthly throughput and growing. This scale allows us to engage our customers and fulfill transactions end-to-end. Customers will soon be able to make payments online at our stores or simply add their service to the bill. This is a priceless capability. Therefore, whether it's our own services or aligned with partners to distribute their services, it is this payments capability that allows us to close the loop from engagement to purchase. Third, distribution. The access to our 294 million customers, 160 million digitally engaged customers, 20 million homes and 1 million offices is a scale that is unique. The fact that these customers are the best customers today makes it even more attractive. Finally, network, which allows us to identify the location, expose APIs and provide value-added services where relevant. Airtel IQ leverages this network strength, and therefore, it is precisely through this capability that Airtel IQ has been built by our software teams. The third element of this flywheel is partnerships. We have a model of partnerships that we have referred to before, which follows a powerful concept that is working for us, and it's quite simple, it's called T.E.A.M. T is for transparent commercials, which is what a partner likes. E is for ease of integration, and this is very important to a partner. A is for accelerated adoption and discovery of partner services on our platform. And M is for mutual growth. This concept has now been created into APIs in a model that allows for easy plug and play. You will see that much of these capabilities are now translating to differentiated products and services that solve real customer problems. Airtel IQ, Airtel Secure and Airtel BlueJeans have all been launched in the last few months. Our ad-tech platform is in beta testing. We're gradually beginning to scale our partnerships on selling financial services like insurance as well as content. Every one of these services are developed at almost no CapEx. They simply ride on the underlying strengths that we've built and are being delivered through the tremendous digital talent base of 1,500 people we now have in-house. Going forward, you will see us building this ever more powerfully. In sum, the last quarter has been eventful. Our strategy remains the same: win quality customers by giving them an exceptional experience, do this by building an aspirational brand and do it all in an efficient way. Finally, wrap everything we do through digital, omnichannel and with scale. As we do this, deliver meaningful services, both our own as well as partner services. Thank you. And with that, I hand it back to Komal.

Thank you, Gopal. The first question comes from Susmit Patodia. He wants to understand what is the precursor in terms of competitive outlay and economic environment for a tariff hike from here on?

I think the -- firstly, if I step back, we've always said that the ARPU that we have today in the industry is extremely low for the amount of allowances that we provide for the ARPU. At INR 160-odd, if you can get as much data as you need, unlimited calling and some content, that's really an extremely low level of pricing. So we do believe that ARPU, as we've said, must go to INR 200 and finally to INR 300. But it is a question really of not whether customers can afford to pay because many customers at the upper end of the spectrum can certainly afford to pay a lot more. But the question is the competitive dynamic and the competitive readiness to take a tariff increase. And I think -- I would hope that, that would happen at some point, but I'm not a soothsayer, so I can't tell you when it will happen. But I can tell you that at these levels of tariff, it's not a sustainable situation from a long-term as far as the industry is concerned. So somebody will have to lead it. We are already at a premium. In fact, we have signaled that we want tariffs to go up. We are, therefore, at a premium already, and we'll be happy to follow the same-day if tariffs were to go up further.

Thanks, Gopal. The next question is from Parag Gupta. Parag wants to know what kind of growth can we see in the Homes business from here on. And any goals on subscriber based revenue cities that we can provide?

In which business, Komal?

In the Homes business.

In the Homes business. Well, we don't give guidance, but I can kind of briefly tell you what we're trying to do on Homes. I think like I said, we have seen a surge in home broadband arising out of all the factors that I've already mentioned: work from home, the streaming -- growth in streaming, online education as also price correction or a price reduction in the broadband segment. This entire price reduction is not yet factored in, in the quarter because that happened towards September. So you will see that all flow through only in the next quarter. But what I can tell you is that we are seeing traction in broadband. The 129,000 customers that we added, September was a record month for -- that we've seen over several quarters. What are we doing right now? I think we're doing 2 things. One is that we are rapidly expanding in the cities that we are present in. So in this quarter, we rolled out 1 million home passes, which is amongst the highest that we've seen in any quarter. And secondly, we are also -- we have perfected the LCO model. This model was tested for almost 7, 8 months using 4 or 5 different approaches in 4 or 5 different cities. We've got it right, and now we're beginning to scale it. So we're already in 48 towns. We've rolled out 29 more towns this quarter, and we will continue to drive this rapidly to expand [Audio Gap] in home broadband.

Sure. Thanks, Gopal. The next set of questions is from Eric Liu. Eric wants to understand what is the reason for the sudden increase in net debt quarter-on-quarter? I'll request Harjeet to take that. And secondly, if there is any change in our CapEx guidance for the year or our CapEx run rate for the year? Harjeet, can I request you to take the question?

Yes, I can take the second question, and then I'll hand over to Harjeet. On the CapEx side, I think we don't give guidances. But you would see us -- if you take the first quarter, the CapEx was quite modest because of lockdowns and our inability to move equipment. The second quarter was increased primarily because we caught up with what we could do, plus we saw a massive surge in data as people worked from home. And I think that we will continue to see CapEx being deployed in order to deliver a really good experience. I think that really matters. We are expanding some of our coverage through physical sites as also bolstering capacity. What we've also said is that the peak levels of CapEx that we saw for Airtel are now behind us. So we are unlikely to see those levels of CapEx, but CapEx will continue to inform the experience we're able to deliver. Harjeet, you can take the net debt one.

Yes. No, thanks, Gopal. No, I think the net debt one is specifically linked to the AGR final judgment. And bulk of the -- in fact, the entire covenant increase is on account of final AGR numbers and the Supreme Court order. All of the AGR liability has been accounted for. Operationally, though, the business as per earlier expectations across Infratel, Africa and in India also continues to be free cash flow positive. Over the last 2 quarters, between these 3 segments, there is close to about INR 3,000 crores to INR 4,000 crores of free cash flow generation. So operationally continues to be positive. The AGR recognition of the final numbers is what you are seeing as a net debt movement.

Thanks, Harjeet. The next set of questions is from Kunal Vora. Kunal wants to know what is the impact of Jio's new postpaid plans? And do we see the need to counter the same? And secondly, the fact that this quarter, the feature phone customer base has been intact, so are we gaining 2G customers from the market or from competition?

So I think the postpaid business, I will not comment on competition, but I would tell you that as far as the postpaid business is concerned, we have seen strong traction in the quarter. We saw an addition of 700,000 net adds. This came from, I would say, 2 or 3 things. One is our omnichannel capability. Close to 40% of our high-value acquisitions are now omnichannel, which is being where people are ordering online and it's getting delivered straight to the home, and we have really perfected that model. The second thing that we have done is actually stepped up acquisition from some of our corporate customers with this -- on the strength of our experience that we are delivering. We're seeing traction there. And the third part is propositions, along with the execution in the -- at our stores, which are really something that we're very proud of in terms of the experience that we are broadly able to deliver through our customers who walk into those stores. As far as 2G is concerned, I think that our net adds that we saw -- the overall net adds that we saw on 4G as well as at an aggregate level comes through a combination of people coming into 2G, people getting upgraded directly from 2G to 4G, which is our organic upgrades, as well as porting from some of our competitors. So I think it's been an aggregate -- it's an aggregate story that plays out.

Thanks, Gopal. Harjeet, the next set of questions are for you. People want to understand what are the time lines and quantum of divestment of the Infratel stake, if any plans at all at the moment?

So, I think the merger is now formally approved, including the revisiting to the deal situation that had to happen between the counterparties, Vi Plc's lenders approval and subsequent to that, even the NCLT final approval has been received last week. We expect in the next maybe 10 to 20 days, depending upon how the final reconciliations need to happen for closing adjustments, the merger to be through. So immediately post that, I think this is where we need to evaluate the strategy for what could be the final independent tower coexistence model. In the shorter term, as you know, 37% will be owned by Airtel; 28-odd percent, subject to all of these trued-up foreclosing, will be owned by Vodafone Plc; and Vodafone India will be cashed out for their shareholding in the Indus business. So in any case, there is a sort of diversified control, senior independence in the way the equity structure will look like as the combination happens. From where the stock price is and/or factoring in what the realities of the markets are, each sponsor may have their own view on monetizing at which point in time. Thankfully, with the overall leverage situation for Airtel as a group, which included a lot of equity injections that had happened till last quarter and also some of the equity-like instruments that we had done, the leverage of global Airtel, including Africa, is sub-3 at about 2.9 turns. All of these segments are relevantly self-financing. So the leverage driven monetization trigger is not there. So I think it's more a business decision, more also staying true to what the true value of the asset is. And as that shapes up, we'll come back to you on what the time lines for any monetization activities are. Otherwise, the merged entity continues to serve each operator in the market.

Thanks, Harjeet. Gopal, the next set of questions is around 5G. What is our aspiration in the 5G landscape? And if you could provide some more clarity on the news around Bharti developing local 5G gear ecosystem via own R&D and U.S., Japanese partners?

I think that we believe that the 5G rollout in India is still a couple of years away for various reasons. #1 is that the ecosystem is still nascent. Device prices are still anywhere between $700 to $1,000. Applications are still being developed because what really 5G gives you is incredible speed and a much lower latency. And low latency applications are really industrial applications. And therefore, some of these applications are yet to be developed, the ecosystem is growing. Second reason is that 5G spectrum prices, as far as the reserve prices recommended by TRAI is concerned, are very high for us to be able to afford at these levels. And therefore, there is no business case at these levels of spectrum costs. What we have been doing over the last couple of years is that we have invested substantially in creating our own R&D team based in Bangalore. This team actually works with partners from around the world, software providers, hardware providers, chipset makers, companies that are based in the U.S. and some of the operators as well, Japanese operators, European operators as also hardware vendors, whether they're in Taiwan or in Japan and software companies. And the reason that we do this is really for us to be able to be a part of the O-RAN movement. I think O-RAN is truly game-changing for telecoms. Because in a way, what O-RAN does is it strips open the hardware and the software into 2 disaggregated layers. And through that process, you would be able to bring down overall cost of CapEx. The important thing in O-RAN is to have interoperable software between the existing 4G networks and 5G. There are some markets in Europe and the U.S., where through the X2 interface opening up on O-RAN, now it has become interoperable. We are examining this closely. As I mentioned in my speech, we are part of the O-RAN Board. We were the pioneer operators in India to actually run the Global O-RAN Plugfest. All of this is our effort to really try and understand this ecosystem, be part of it and shape it. As a part of our O-RAN effort, we have developed our own 4G small cells, indoor as well as outdoor and commercially deployed them. These are all small cells that we've developed in-house using software provided by Altiostar, using hardware provided by Sercomm in Taiwan and kind of configured it together to bring together a solution that is plug-and-play and that can actually operate in any network provided by any equipment provider. And I think this is the precursor to what we would like to do even on 5G. So we are studying this space closely. That does not mean that our traditional partners like Ericsson and Nokia and the others will not be important. All of them will be as important and we will work with every partner to really move towards O-RAN and open up the interfaces so that we are able to get -- able to actually have interoperable networks going forward. That's really what we're trying to do.

Thanks, Gopal. The next set of questions is around Airtel Business. Maybe Badal, I'll request you to take these questions. Could you provide some color on the Y-o-Y EBITDA margin expansion for Airtel Business? And do you think it is sustainable?

Yes. I would say that it's very important to look at the Airtel business on a sequential basis. If you look at the last 4 quarters, our EBITDA margins have been hovering around 37%, and it's been fairly consistent to my mind. If I were to look at Y-o-Y, one of the key challenges we see in the first -- initial first 2 quarters is on account of bad debt, which we have been able to manage substantially better in the current environment in the current year. So I would say that the current level of EBITDA margins and EBIT margins are fairly sustainable for Airtel Business.

Thanks, Badal. The next set of questions are from Vinay Agarwal, First State. Two things that he wants to ask. Firstly, Gopal, why can't we take the lead on tariff hikes? And secondly, what are the top 3 things that you're spending most time on at the moment?

I've already mentioned that we have already, in a way, taken the lead because we are at a premium. So if we see movement of other operators getting to levels that are equal to us, we'll, again, take a premium, and that will be a good way for us to take it up. So we would not want to do anything to jeopardize our intrinsic competitiveness. I think in the telecom space, you can have a premium, especially if you're delivering a better service and if you're an aspirational brand. But beyond a certain point, the premium will become unsustainable. And we think we've got a sweet spot, so we don't want to risk any slowdown in momentum by moving pricing at a time when it is uncompetitive. So we want to be competitive, but we would welcome a change in tariff, and we will follow immediately. What was the second part to the question, Komal?

Gopal, the question was, what are the top 3 things that you're spending your time most on?

Yes. Okay. No, I think the first thing that I'm spending time on is really spending a lot of time on our digital approach, particularly driving an integrated approach to thinking omnichannel and integrated approach to thinking One Home. One of the things that we have launched recently, for example, is a One Airtel plan, which brings all our services, mobility, postpaid, DTH and broadband, into a single build with a dedicated relationship manager in a much more convenient way. And we've just rolled this out across towns now. We're seeing some solid traction. The only reason we've been able to pull that off is because we're thinking about the journeys in a completely digital and omnichannel perspective. And I think these capabilities are very important to see where Airtel goes in terms of its digital ambitions to truly build many more digital services, which can deliver us meaningful revenues. So I think that's one area I'm spending a lot of time on. The second area I spend a lot of time on is on networks to really -- because that is the core of our experience. So when I say networks, I mean, I'm using that as a shorthand for customer experience. So networks as well as non-network experience in order to just get that right. It's not that we are perfect. We make a lot of errors. There are structural issues. It's a day in, day out job to really get our networks better. And the third part that I spend a lot of time on is on our people, really making sure that the capabilities are built, we're getting the right person in the right place, training them properly, making sure that they are supported, smoothening out the fracture lines that typically happen in any organization and making sure that these fracture lines are bridged. I do believe that as the leader of the team, one of my critical roles is to smoothen out the fracture lines and smoothen out the bridge so that we can move faster as a company to serve customers. So those are the 3 areas that I spend time on.

Thanks, Gopal. The next question -- set of questions are from Rajiv Sharma. Your net debt is 2.9x net debt to EBITDA. What are the plans to bring it down? Secondly, why are we not keen to have global tech player as an equity or a strategic partner? And lastly, thoughts on any 5G spectrum auctions?

Well, you want to take the other 2 first?

Yes, I'll take the other 2 first. So I think -- let me -- I've already talked about the 5G spectrum. So it is -- we do believe that the spectrum price that has been indicated by TRAI when it comes to the reserve price is highly unaffordable for us. And therefore, we would hope that these prices come down. And at this stage, with these prices, we will not be able to afford it. When it comes to a global tech player, let me kind of just pull back a little bit. Firstly, I want to underscore that for us, partnerships are crucial. We work with everybody. We work with all the leading OTT players and not just the leading OTT players. We worked with, like you've seen on Airtel Secure alliances with Cisco, Radware, VMware, Forcepoint, now these are companies who are outstanding companies in their own right. We're working with Verizon to actually pull together Airtel BlueJeans. We have a lot of partnerships with Google, we’ve worked with Amazon to actually do AWS. We are one of the biggest partners for Netflix on content. So partnerships is something that comes to us naturally, and we will work with everybody. The second question then is the role of capital from a partner. I think the role of capital is a different -- is an independent decision and delinked from the role of how we work with partners. So when we wanted to raise money, we did go out and actually come to many of you and raise $8 billion over a few weeks through a combination of a rights issue, a perpetual bond and a QIP. And so when you -- when we need capital, we know how to raise capital. But equally, we know how to work with partners, and we believe that it is a win-win for us to work with partners because the business that we are in is an ecosystem business. We have to work with partners. So that's really the way I would see. Harjeet, over to you.

Thanks, Gopal. I think the question on net debt to EBITDA is relevant. But there are 2, 3 underlying drivers which we have to see. If you see the overall net debt today, if we put together Africa as well, about 50% of the net debt is really a DoT deferred spectrum liability, which also includes the AGR liabilities that have come over after the judgment came out. So real external debt is 50% of 2.9. Of that 50%, another 20% is entirely the finance lease obligations. I'm not saying it's not debt. It is intrinsically built into your lease payouts for tower companies that are serving you. So between DoT and FLO 70%, 72%, 73% of our global debt sits. So external lenders' debt is about 28% to 30%, of which 20% is global bonds, long term, dollar, euro, India, in CDs and rupees. Clearly, there is a stability of existence, there is longer tenor ahead. Only about 8% to 10% thereby is balance bank debt, could be short-term across the various countries in Africa and of course, some bit in India. So that's part one. I think the leverage is #1, but the breakout of leverage does give you the comfort to be able to feel okay about how the split is, 50% DoT, 20% FLO, very broad thumb rule. Of the balance 30%, 20% is a bond debt and 10% is in bank debt. Second piece is net debt-to-EBITDA is a function of both net debt and EBITDA. I think if you go back 6 to 8 quarters, our EBITDA, specifically in mobile India, was going through a reasonable stress time. And since then, life has changed. So if you put together the combined EBITDA, which is close to INR 12,000 crores this quarter, it was about INR 6,300 crores, INR 6,500 crores about 12, 14 quarters ago. So that's the sort of spread up. And if the tenacity of that across the businesses, be it Africa, be it mobile India and be it nonmobile India continues, whatever the percentages you may impute, this will automatically come down, thereby. So with that in view, there is no specific requirement to have net debt specific initiatives, albeit you will have sometime or the other further proceeds coming in for Carlyle infusion. You will have some time or the other towerco monetizations. Africa as a unit does send us dividend. Infratel, after the merged-co will have more dividends coming out. So there is some auto deleveraging built in there, too.

Thanks, Harjeet. A related question, which many investors have asked us is around the conversations with rating agencies. If you could also update in the same way being around the conversations with S&P, Moody's and Fitch?

No. I think ratings have been stable. The fundamental operations risk, which historically had remained high and a strong regulatory overhang of what really is the outcome of the situations, and how is that dealt with, with the operating unit in terms of debt and equity mix, all of that is actually reasonably well taken care of. Of course, everyone demands a little more in terms of how the sustainability works, what could be the increase on tariffs, et cetera. But directionally, we just talked about the EBITDA increases. We talked about over the last 12 to 15 months is INR 60,000 crores to INR 65,000 crores worth of capital reorganization around equity, equity-likes and some bit of debt refinancing or perpetual. So that has actually helped. The stimuli at work are really the India sovereign rating, and there was one of the rating agencies actually looked at India's sovereign rating, changed the outlook, and that has changed something for us. But otherwise, at this stage, we feel we are working towards all of the parameters they have set to stay in the BBB- category. We should be sustainably sitting there. Africa, by the way, should, over time, if not now, in 3, 4, 6 quarters, should have their independent rating, and that would also mean independent financing track for themselves. So at this stage, fairly comfortable.

Thanks, Harjeet. Next set of questions are around subscriber addition. Gopal, perhaps you'll have to take these. So the questions are that was it a support from pent-up demand in smartphone availability or porting requests which have helped the 4G addition this quarter? And how do you think about focus on customer acquisitions and market share versus profitability? And in the same vein, what is the outlook for smartphone shipments and sales looking as far as next quarter is concerned?

Okay. I think that we saw a big slowdown in shipments in quarter 1. But I think in quarter 2, the shipments have come back. I think July and August were about 30-odd million shipments, and my own sense is that maybe September would have been another 14 million to 15 million shipments, so it could be 45 million to 48 million shipments -- smartphone shipments. And so what was an impact in quarter 1 was clearly something that caught up in quarter 2. I think that is one thing that we did see. If I look at our own performance, what I would say is that what is it that is actually driving our performance. I think the focus on really going after quality customers and giving them a great experience, I think is the cornerstone of what's helping us deliver what we are doing. Combat that with the fact that we have a really aspirational brand, and that we have a strong sales and marketing machine that can -- that uses data very powerfully to identify those customers who have propensity to switch, upgrade and then target them, I think, is really the entire -- many of things that we look at. During the period of the lockdown, I think the role of the network and the role of the experience that you deliver has become even more important than before. And I think in hindsight, that has played well for us because we are a business that has always focused on delivering a superior experience, a differentiated experience, a better experience on various dimensions. And I think that's come home to actually help us through the quarter. So that's the way that I see that.

As far as your current quarter is concerned, the subscriber addition numbers that we have seen, are they coming more from competition? Or are these new SIM additions in the market itself? And secondly, another question from Varun Ahuja is what will be the impact on our financials when interconnect goes to...

And what will be the impact on financials?

The interconnect charges go...

I see. Okay. No, I think it's been a combination of things. So I think our net adds is -- firstly, our overall revenue earning customers, net adds is obviously customers that have come from a combination of switch from competition as well as new customers coming on to the network. I think it's both. India has a fairly high penetration of mobility, as you know. And therefore, customers coming into mobility for the first time, I would imagine, are in the ballpark of 30 million to 40 million a year. So we have seen a combination of some customers who are new to the category, but also customers who have switched from other -- from our competitors. When it comes to -- the second question was on the subscription -- on the subscriber -- what was that, Komal, the second question?

The second question was on interconnect charges, Gopal, going to 0.

Interconnect charges. No, I think that -- I mean I think that this is now -- we're more or less at an -- on an equal footing on interconnect across different operators. So we are -- we welcome now the move to actually do away with interconnect. I don't think it's going to have any material impact at all.

Sure. Just switching gears a little bit, Gopal.

There was one question -- sorry, there was one question prior that was about how do we trade-off between acquisition and profitability? Just to make it clear, I personally think that there is really no trade-off. I think this is a business of scale. If you get more customers, if you deliver more revenues, you do end up actually having a better shape of the P&L and a more profitable business. So that is the nature of telecom, as you know, in every part of the world. The leading players, #1, #2, typically make more margins than the 3, 4 and 5 players in any market. Of course, India has only 3 players, 3 private players in a large market like India. And therefore, it's a very, very good industry structure. So I don't think there's a trade-off. Having said that, we would obviously not do anything to -- anything silly in terms of how we look at it because the business also must be seen longer term. What I have learned is that actually it's difficult to gain market share, it's much easier to lose market share. And once you lose market share, then you start losing scale. So I think market share becomes an important barometer to determine ultimate profitability. And while we keep a close eye on cost and stripping out waste, I think scale is as important.

Thanks, Gopal. Switching gears a little bit. Our next set of questions are on the nonmobile business. The question which is being asked is that the digital TV business has shown muted growth despite high CapEx. When do we expect the growth jump to come? Similarly, when do we expect the growth jump to come on the home broadband side?

I think that the DTH -- so let me talk about home broadband first. I think the good news on the home broadband front is that we've started adding customers. So at 129,000 net adds, clearly, this business is starting to see traction in terms of growth and penetration. And like I mentioned, September has been a strong month. And therefore, I think we should see this traction continue going forward given the growth in work from home, growth in online education and streaming as well as an adjustment downward of pricing. That said, I think the full impact of the price drop is not yet showing up in this quarter's results, and that will come through in the subsequent quarter. I think ARPUs is -- will be a little bit under pressure because of this pricing correction. But we are okay with that because at the end of the day, if we -- once you get more customers, I think that is the -- is really where the business needs to be focused. And I do believe that the time for home broadband has come in terms of driving penetration. On DTH, we've added a strong customer base of 549,000 net adds. It's not entirely showing up in revenue, and Badal can explain that in a minute. But again, we are pleased with the progress that we've made on DTH, adding more than 0.5 million customers. And primarily, that is because of the fact that we've been able to synergize our distribution systems between mobility and DTH. Mobility has a distribution system that's almost 20x the size of DTH. And in places like Bihar, UP, Rajasthan and many markets, we are getting a significant synergistic effort by actually finding the right model to synergize, but yet keeping enough focus on the DTH business.

Just to add on what Gopal said that we have added close to 550,000 customers in the current quarter, most of these acquisitions have come towards the later part of the quarter. And also, historically, July and August are softer months, typically in terms of recharges, in terms of customers being online. So we have seen a traction which has come, picked up in the month of September, and we feel that, that traction should continue, and it will go into the results in the forthcoming quarters.

Thanks, Badal. Gopal, 2 set of questions again. Firstly, has there been any further discussion with the regulator as far as flow price of data is concerned? And secondly, our thoughts on launching affordable low-cost smartphone?

I think that there's a new Chairman at TRAI. I mean he's just taken over. So I think we've just got to give him some time to settle and take a look at this. I think the industry has -- through COAI has asked for an intervention on floor price. Let's see where that goes. I don't want to comment about that beyond what COAI has already said. When it comes to a low-cost smartphone, I think we've seen the announcements of one of our competitors trying to develop a low-cost smartphone. We're studying the space. We believe that devices is -- the good news in India is that device distribution has remained separate from telecom distribution. And I think that's a good thing because the added cost of actually distributing devices to a telco network is very high. The second good news is that, by and large, over the last 20 years, Indian telecom has stayed away from device subsidies, by and large. And I think that, again, is a very, very good thing because if you see the P&Ls of some of the other telcos in other parts of the world, subsidy has been quite a pain for most of the industry. And now they're beginning to peel back from those subsidies because they're incurring costs to stay pretty much in the same place. The third thing I would say is that the current economics of the industry do not permit you to actually do any form of subsidy. That -- all of that said, I think we are watching this space carefully. We have a team looking at this. And we haven't quite decided what our approach is. But we're studying this very, very carefully to see what is really important for us is that we continue to get traction on converting 2G to 4G. That's a north star metric that's very important to us. And so we will look at it very carefully.

Thanks, Gopal. The next set of questions are from Rohit Chordia and a few others. Hypothetically, if a 5G spectrum auction were to happen next year and competition bids aggressively, will that make us change our stance and bid as well? And secondly, with data usage per customer showing signs of stabilizing, does the pressure on networks ease a bit? And what does this mean for LTE capacity CapEx?

What does it mean for?

4G capacity CapEx. 4G LTE capacity CapEx.

So I think, like I said, I think if there is a -- we are hearing from the department that there may be an auction early next year so in anywhere between January to March time frame. If in that auction, the reserve price of 5G is as high as it is, which is close to -- for 100 mega -- you need a lot of spectrum on 5G, you need at least 100 megahertz to run good 5G networks. Otherwise, you'll get -- if you have small slice of spectrum, the experience that you will get will be no different from 4G, and it doesn't make sense then to actually roll out 5G. For many reasons, including the devices being what they are, the ecosystem and applications being nascent and the fact that the spectrum prices where they are, we will not buy it at these prices because we won't be able to afford it. And so if -- I can't comment on what others will do. But from our perspective, it will not make sense. I think that when it comes to data usage, the growth in data traffic is a function of both increase in the average consumption per user as well as the number of users that come in. We do believe that we saw -- or we did see a significant surge in data payloads in quarter 1 as people work from home. The good news, of course, was that the pattern of the traffic changed somewhat because it was more steady traffic. And so the curve that we see actually flattened out. In telecom, the investment that you make is for the peak usage of the curve. So if it's a 24-hour day, the investment that is made is for the peak hour of that day because that's where the experience cracks. What we saw in the lockdown was that the curve flattened out. And as a consequence, we were able to sweat the assets much, much better because you had a more flatter curve. I think as lockdowns have eased, the data continues to be at the levels where they are, they came down a bit and then kind of started climbing a little bit and not as much as what we saw earlier but the curve has begun to kind of move away from that flatter curve to the old historic curve. And so there is a need for some capacity investments. We believe, however, that going forward, if the structure of pricing is what it is, then you will still see some people blow through their allowances and go all the way to the maximum that you give them. And that is what leads to more and more data consumption. But I would say that the impact of the increase in consumption on an average basis is going to be lower now from here onwards than what it was in the past.

Thanks, Gopal. The next set of questions are from GV Giri. How has the SG&A come off despite gross adds being 2x quarter-on-quarter? Secondly, do you see content being a major play or a major differentiator in mobile telecom in the next few years? And lastly, on the AGR matter, is it done and dusted? Or could there be a possibility of an appeal?

So on the SG&A, I think the reason the SG&A is looking lower is because -- simply of the way that we have -- we show bad debt or provision for bad debt on the B2B side, where a lot of the collections actually take place in quarter 2. And therefore, the underlying SG&A may not be as representative. So it was -- that's the primary reason. On the content side, I think that -- personally, I think that content can be a differentiator. But it can be a differentiator only if 1 player has the content. I still haven't seen compelling evidence to suggest that general entertainment content is a strong differentiator. I haven't seen compelling evidence of that. But I have seen, in some cases, topical events being a differentiator, for example, sports. So I think we will need to actually play this game carefully. One of the things that we've done with the deal with Disney is that we have bundled together Disney and Hotstar into our packs, but we priced it up accordingly as well. And actually, that's worked quite well for us through this quarter. On your last point on AGR, I think the Supreme Court has rendered its verdict. There are a couple of clarifications that we need to seek from DoT in terms of payment terms and things like that, which we are in the process of trying to understand and determine. But beyond that, I'm not going to be able to comment anymore because we are still awaiting that clarity.

Thanks, Gopal. Harjeet, the next set of questions are around our FPI, FDI approvals. If you could kindly update on the status of the 100% FDI approvals for Bharti Airtel? And when can these come into effect as far as MSCI and some of the other indices are concerned?

Right. So I think, look, the process is on. As you know, the company Airtel has its full approvals in place, but that also means that the subsidiaries below need to have their own approvals. And that, while we see nothing extraordinarily to worry about, but has a process attached to it, including for our DTH business, our other subsidiaries. So that's on including Airtel Payments Bank. We expect probably in the coming weeks and maybe 3, 4 months max, this should get completed, actively at it though.

Thanks, Harjeet. The next question, Gopal, is on the 2021 spectrum auctions. Is there a need to bid? And what would be the potential outlays for the auctions coming due?

I think we're still assessing it. We believe that there is some need for us to complete our footprint of spectrum in the sub-gigahertz' band, which has a lot of advantage in indoor areas as well as in deep rural areas. There are some of our 1,800 band spectrum that is expiring. We are going to look carefully at whether we need it or not. Because over time, the amount of spectrum that is being used for 2G is coming down every quarter. And then there's, of course, capacity spectrum on the 2,300 band, wherever we need it, we might look at it. But by and large, I would say, our spectrum in the mid-band is -- our spectrum holding in the mid-band is pretty strong. So it's the sub-gigahertz and maybe some modest amount of capacity spectrum that we would look to bolster.

Thanks, Gopal. In the interest of time, I'll take 1 last question. There is -- there are many questions that are coming through on Ghana and the reasons for our exiting Ghana without making any decent returns on our invested capital. Perhaps I can request Nakul to comment on this?

Sure. I can do that, Komal. As you all know that the Ghana operations have been in loss for the last many, many quarters. You would also note that we executed a merger with Tigo in 2017, which unfortunately did not help in turning around the business. In an effort to curtail the losses and post evaluation of all possible options, actually, the Board of the company decided to approve the conclusion of an arrangement with the Government of Ghana to transfer the business on a going-concern basis to them. And as of now, the parties are in advanced stages of discussion for the conclusion of this arrangement. And accordingly, what we've done is, we've taken a voluntary charge of about $25 million in the books in this quarter. We believe that this is a good news for the company because it will help us curtail our losses that we have already incurred in Ghana for the last many quarters. And Ghana, as you know, is a 50-50 JV between us and Millicom.

Thanks, Nakul. With this, I'd like to hand it back to Gopal for closing remarks.

Thank you, Komal. Thank you, everyone, for joining this webinar. As I said, we've had a satisfying quarter. Our strategy of focusing on quality customers and providing them an exceptional experience remains fundamental to our approach. At the same time, we are maniacal about morphing ourselves into a digital services provider by riding on our core strengths and building this virtual flywheel that I referred to. I see all this coming together to make Airtel more meaningful for customers than ever before. Thank you.

Thank you, everyone, for joining this webinar. A recording of this webinar will also be available on our website. Thank you.

Thank you.