My name is Vaidehi Sharma, and I'm the moderator for this webinar. Welcome to the Bharti Airtel Limited and Bharti Hexacom Limited Third Quarter ended December 31, 2024 Earnings Webinar.
Present with us today is the senior leadership team of Bharti Airtel and Bharti Hexacom Limited. I must remind you that the overview and discussions today may include certain forward-looking statements that must be viewed in conjunction with the risks that we face. Post the management opening remarks, we will open up for an interactive Q&A session. [Operator Instructions]
With this, I would now like to hand over to Mr. Gopal Vittal for his opening remarks.
Thank you, Vaidehi. A very warm welcome to all of you. And with me on the call, I've got Shashwat, Soumen, Harjeet, Naval and Akhil Garg.
Let me start with one key development. We are planning to transfer about 16,100 telecom towers, approximately 12,700 from Bharti Airtel and about 3,400 from Bharti Hexacom to Indus Towers. Our belief is that this business is managed by -- best managed by Indus, since they know how to do this better than us. It will not only free up management bandwidth within Airtel, it will also create greater efficiency, scale and ultimately, long-term value at Indus.
Now let me give you an update of the quarter and the progress against our strategy. Let me start with ESG. There are three primary areas where we make an impact. Connectivity is the first and most important one. Our network investments are able to connect the most remote parts of India, which make a profound impact on the lives of people. Over the last 2 years, we've expanded our network to cover over 80,000 -- 89,000 villages, actually, through the deployment of almost 43,000 sites.
Our second area of focus is in lowering our carbon footprint and simultaneously lowering cost. There are two things we've done. Firstly, solarization is now adding pace. We did over 3,300 sites in the quarter and over 28,000 sites in the last six quarters.
Second, we brought in AI at the heart of our network. As a result, we are able to turn off layers of radio technology based on real-time traffic patterns, which reduce our carbon footprint and also lower our energy bill. Finally, the Airtel Foundation makes a big impact socially through our focus on education. The foundation through its various initiatives in 31,000 schools has impacted over 3 million children and 2 lakh-plus teachers.
Let me now turn to a few highlights on our performance. We delivered another consistent quarter. Consolidated revenues came in at about INR 45,130 crores. India revenue growth, excluding Indus, was strong, with 4.8% sequentially to over INR 33,000 crores. EBITDA margins came in at 56.2%, an improvement of 1.4%. Effective Q3, Indus Towers is now consolidated into our financials.
This quarter, we made an improvement to our disclosures. We are now reporting EBITDAaL, which is EBITDA after lease obligations. We believe this is a true reflection of our underlying margin and leverage. As a management team, this is the metric we track so as to drive the right behavior about the underlying health of the business.
EBITDAaL for the quarter stood at INR 16,306 crores with a margin of 49.3%. We delivered strong operating free cash flow. This is really EBITDAaL minus CapEx of INR 9,440 crores. CapEx for the quarter was INR 6,860 crores. We rolled out 5,214 network sites and over 13,950 route kilometers of fiber in the quarter. Fiber deployment remains a key area of focus. We rolled out more than 100,000 kilometers of fiber in the last 24 months. We continue to direct CapEx to future-proof our business around three areas: Transport Investments, Homes and B2B.
Our focus on financial prudence is clearly visible in our balance sheet improvement every quarter. During the quarter, we prepaid DoT spectrum dues pertaining to 2016. With this prepayment, we've cleared all the dues prior to 2021 auctions. In fact, in the last six quarters, we prepaid over INR 35,500 crores of high-cost spectrum dues. India net debt in relation to EBITDAaL now stands at 1.8 compared to 2.5 a year ago. Our efforts to build a solid balance sheet is testament to the recent credit rating upgrade by Moody's.
A quick update on each of our segments. In the Mobile segment, we added 4.9 million customers during the quarter and 6.5 billion smartphone customers. Postpaid net adds remained healthy at 0.6 million. This was somewhat impacted by tariff repair.
ARPU came in at INR 245 compared to INR 233 last quarter another quarter of industry-leading growth. ARPU drivers on an underlying basis remain intact. These are basically feature phone to smartphone upgrades, prepaid to postpaid upgrades, data monetization and growth of international roaming. 5G coverage expansion continues as planned. We ended the quarter with a 5G base of 120 million. 5G shipments continue to grow, now contributing over 80% of overall smartphone shipments. And we continue to get our fair share from growing 5G handset adoption.
In the Broadband segment, we added nearly 674,000 customers and stepped up our momentum in this business. We've expanded our FWA coverage and are now live in over 2,000 cities. It is clear that FWA is increasing our addressable market for WiFi services. We maintained an accelerated pace of fiber home-pass addition of 1.9 million per quarter. We're also strengthening our content partnerships to build more value on Xstream with more than 22 OTT apps on a single platform. To strengthen our content offering, we also added Zee5 during the quarter. I must say that the WiFi and the broadband business is seeing momentum month-after-month and even January has begun better or has ended better than the previous month.
In DTH, we added 29,000 customers in the quarter. Our focus on simplified pricing structure, strong content offering and convergence has led to consistent share gains. Airtel Business, we delivered a revenue of just under INR 5,650 crores. This is a growth of 8.7% over the same period last year. I will comment in greater detail on Airtel Business in a moment.
Digital businesses, we continue to focus on scaling our digital portfolio with CPaaS, Financial Services, IoT, Cybersecurity and Cloud. Our IoT business is seeing strong growth with new order bills. Cybersecurity and Cloud services are beginning to see some step up, and I will talk a little bit more on Cloud later.
Airtel Finance has served over 1 million customers till date across various financial products with over INR 4,600 crores of total disbursements and a current AUM of INR 2,500 crores.
On the Payments Bank, the monthly transacting users stood at 87 million. Annualized revenue run rate now is about INR 2,800 crores, growing at 50% year-on-year. Deposits remained robust at over INR 3,300 crores, going up by 42% year-on-year.
Let me now comment on each of our areas of focus. Firstly, we are committed to building our diversified and resilient portfolio. Both India and Africa are now consistently delivering strong underlying performance. Our portfolio is further diversified with the Indus consolidation. Africa accounts for 23% of revenues. India mobile, 56%. India non-mobile, 14%, and Indus at 7%. Africa is performing well with constant currency growth of 5.6% sequentially. We're also sustaining investments to retool our portfolio in order to grow beyond wireless.
Second area of focus is winning quality customers. And let me now provide some texture on each of our businesses, homes, mobility and B2B. Broadband penetration in the country remains low, but is growing rapidly driven by fast-paced adoption of home connectivity and changing content consumption preference of customers. As I've mentioned earlier, we believe the current market can double from over 45 million to anywhere between 80 million to 90 million homes over the medium term. While we have stepped up our performance, we believe there is significant room to increase our competitiveness.
We have three areas of focus. First, increasing the addressable market by stepping up rollout of fiber home-passes and FWA. Over the last two quarters, our FWA availability has increased meaningfully across key pincodes and we're now live in over 2,000 cities. Our accelerated fiber home-pass expansion continues with 1.9 million quarterly addition with total home-pass at 35 million.
The second area is really to constantly improve the value that we deliver. Here, we are focused on a combination of convergence by improving the content slate we offer. We recently signed on Zee5 and Glance on Digital TV. Xstream now has over 22 apps, OTT apps as a part of its platform.
We've also commenced the testing of IPTV. We believe that when this is launched, it will dramatically improve the ease of onboarding for our customers.
The third area of focus is to really fire up all our channels. We currently sell broadband largely through our stores and online channels. We are now using our digital capabilities to bring in the power of our entire mass retail channel and plan to open up around 100,000 points of presence. In addition, our 30,000 strong fleet of home delivery engineers will also be activated. With these three areas ramping up, we expect to see continued momentum of homes, leading to strong competitive growth.
Let me now turn to Mobile. On postpaid, our focus continues to be on the 80 million potential customers who we believe can upgrade to postpaid. Use of digital tools, along with simple customer journeys across channels, is powering our family offerings to further accelerate this. Rural markets account for over 65% of industry growth. Over the last 2 years, we've made substantial investments in seizing this opportunity. This has delivered results and going forward, we expect to fill gaps in a couple of circles while we continue to sweat the sites deployed till date to give us gains into this year.
Let me now turn to B2B. There are three key areas we're addressing: portfolio, go-to-market and customer experience. Let me comment briefly on the portfolio. There are three parts to our portfolio. There's data centers, there's global and there's domestic. Our data center business is growing steadily. Within the global segment, we have two parts: commodity voice and messaging, as well as monetization of cable investments. On the latter, which is cable investments, as you know, there was a slowdown to the extent of interest from OTT players, but we are beginning to see some change in this in the current quarter in terms of the order book. By the way, this is a very profitable part of the portfolio and so is now seeing signs of growth, which bodes well into the coming year.
The second segment within Global is wholesale commodity voice and messaging. A very significant part of this is very low margin business. And in fact, what it does is it clutters management focus. It has a lot of people running around trying to strike deals and the margins we make here are insignificant. We have made a decision to exit this low-margin business, which will have an impact on the top line in the coming quarters. It will take about 6 months to have this -- for this to play out. But let me underscore that the exit in this business will have really no impact on EBITDA, because this is a very negligible margin business.
Within the domestic segment, we are seeing strong growth on Digital as well as sustained growth in Connectivity. In fact, these digital adjacencies comprising of Cloud, security, IoT and CPaaS account for almost 90% of incremental industry growth. We're now stepping up our investments as well as our go-to-market muscle to drive faster growth here. We will be launching a comprehensive cloud solution in the next few months. At an aggregate level, given the growth of digital, I believe we need to move at a much faster pace, and we'll do what it takes. This is one of the main reasons we have decided to shed the low-margin portfolio of commodity voice and messaging.
You will recall that a few years back, we did the same in our mobile business by shedding 49 million customers who were using our network only for incoming calls. This changed the experience for our existing customers. It's de-clogged our networks and more importantly, it galvanized the organization internally on how we chose to win with quality customers. We believe this will do the same in our B2B portfolio.
The second area of focus is the need to build muscle in our account management teams to shape this agenda. We're doing a combination of things here. We're injecting capabilities into the team in the form of fresh talent. We're training all our existing people. We're injecting state-of-the-art tools backed by AI to help our front line. And finally, we are setting up virtual teams to raise the bar on lessons learned at an industry vertical on key wins and losses.
The final area of focus is customer experience. We're now making investments in upgrading existing network infrastructure to flapless networks for lower latency and higher reliability, for critical customers who depend on it. We're also extending our B2C platform capabilities to improve our delivery and process.
The third pillar of our strategy is the obsession to deliver a brilliant customer experience. On the network, we extensively use data science and deploy digital tools to structurally resolve issues. Our in-house developed and operated AI/ML tool, which is the Airtel self-optimizing network, gives us a granular view down to a device level. This has helped us deliver the best experience. We continue to win all the crowd-sourced awards and network experience. The icing on the cake is that, this also helps us lower power costs on the fly, which I spoke about.
The fourth pillar of our strategy is to build and leverage our digital capabilities. Our industry-first anti-spam tool has brought significant relief. We've been able to alert 252 million unique customers and effectively combat the spam menace. Powered by our AI-driven network, this identifies over 1 million unique spammers, making more than 130 million calls a day. That's roughly 1 trillion records that is processed on a daily basis. Additionally, our solution also detects over 7 million spam SMSs every day.
We're now making a further pivot within the company to explore how we can move AI from experiments to make AI native at the core of the operation. Our strategy on building new digital revenue streams is anchored on our core strengths and capabilities, and that's why our services portfolio include Airtel Finance, IQ, IoT, Cloud, Security and SD-WAN.
Let me just give you a few comments on Airtel Finance. We're lending to a very tiny fraction of our base and are now focused on a few areas, three areas. One is to expand the addressable user base. And the second is to enable the offer across all our channels, digital and physical.
And finally, to increase supply. To increase supply, we have partnered with Bajaj Finance, to create one of India's largest digital platforms for financial services. The partnership combines Airtel's digital platforms and omnichannel capabilities with Bajaj Finance portfolio of 27 product lines and strong underwriting strengths.
Airtel will initially offer Bajaj Finance's retail financial products on its Airtel Thanks app and later through our nationwide network of stores. The combined strength of this partnership will allow us to deepen the penetration of financial products and services.
The fifth and last pillar of our strategy is more on waste. This is now ingrained in our ways of working, with the rigor to drive efficiency over the last few years, we have eliminated about $2 billion of wasteful expenditure. At the same time, there is still significant headroom to strip out waste further in several areas: network, sales and even marketing.
To sum up, overall, we delivered another quarter of competitive growth. Mobile saw some residual flow-through of tariff increase. The postpaid segment presents a significant opportunity, and we are well positioned to capitalize its strong growth potential. In Homes, FWA expansion, continued fiber home rollouts and convergence will sustain our growth momentum. B2B retooling is on course to accelerate the momentum going ahead. Our disciplined CapEx spending, financial prudence and sustained deleveraging reflects in our balance sheet. We believe that our CapEx for the current year will be lower than FY '24, and this will continue to unwind in FY '26.
Our focused investment approach to building digital capabilities is now paying off. Finally, I want to underscore that ARPU in India continues to be the lowest globally. Tariff repair is needed some more for the industry to be financially stable and deliver reasonable returns on a sustained basis.
With that, let me hand back to Vaidehi.
Hi. Good afternoon, everyone. Welcome to the Bharti Hexacom Q3 FY '25 Earnings Call. I'll start with a brief on the proposed passive infrastructure transaction, and we'll then move on to the financial performance.
We are planning to transfer approximately about 3,400 telecom towers to Indus. We believe that this transaction will lead to better operational and financial efficiency. From an operational point of view, not only will it free up management bandwidth, but also leads to better expansion of returns. Lastly, we believe that Indus will be able to run these task more efficiently and create long-term value.
Moving on to financial performance. We delivered a revenue of INR 2,251 crores growing sequentially by 7.3%. Smartphone customer additions was at 4.5 lakh compared to 1.43 lakh in the last quarter, of course, being impacted by the tariff repair. Net customer additions saw a rebound of 4.94 lakhs, which is -- churn has improved to 1.9% compared to 3.2% in the last quarter.
The company delivered another quarter of industry-leading ARPU growth of 5.7% to reach INR 241. EBITDA stood at INR 1,194 crores with an EBITDA margin of 53%, improving by almost 300 bps. EBITDAaL, which is the new terminology that we have introduced and the right one to monitor the organization's performance, for the quarter was INR 1,042 crores with a margin of 46.3%. Net income for the quarter stood at INR 261 crores, and cash generation for the quarter was robust with operating free cash flow with an EBITDAaL minus CapEx of about INR 758 crores. Net debt-to-EBITDAaL improved to 1.03.
With that, I hand you over to Vaidehi to open the floor for questions.
[Operator Instructions] With this, the first comes from Mr. Manish Adukia.
This is Manish Adukia from Goldman Sachs. My first question is on the CapEx, which for the India business is now tracking about 20% lower on a 9-month basis versus the previous year. Now going forward, which parts of your business do you expect continue to see elevated CapEx? You talked about the retooling of the Airtel Business, would that warrant any meaningful CapEx investments in terms of your expansion into cloud, et cetera? And which other parts of the business where you may see reduction in CapEx? And related to that, I mean, for the wireless business, in particular, you now are close to like 1 million base station on the mobile broadband side. Is there like a theoretical upper limit beyond which you don't really need to expand that? That's my first question, please.
Gopal, you might be on mute.
Sorry, sorry about that, Manish. Manish, I think we have seen a reduction in CapEx. We've also guided that we would be seeing a moderation in CapEx. Having said that, don't just look at the 9 months, I think, we are still not finished the year. So while CapEx will be lower than what we spent last year, I would not want you to extrapolate exactly what has happened in the last 9 months. The components of CapEx, if you look at it, constitute for us, radio, which has been a substantial part of our CapEx. This one has decelerated very, very significantly, and we expect it to continue to decelerate next year with the ceasing of the big rollouts that we saw. We're not putting any investments in 4G capacity. All we're doing is a few more 5G radios as we expand and see more devices coming in.
The places where CapEx continues to be deployed. One of the big components is transport. I think for us, developing a solid backbone is crucial, because this will be required for all our capacities, whether it's the broadband, B2B or the mobile business. The core network tends to be a small component of the CapEx. And then, there are other places where we deploy capital. One is Homes, which is getting its due share. And in fact, we are keen to spend more. It's only constrained by the capacity of our -- is constrained by our ability to do and roll out more and more home passes. So that continues.
B2B continues to get CapEx at the same levels as what it has been getting. And that's pretty much about it. So -- and data centers continues to spend at the same level as what it was getting. So I would say at a headline, you should see moderation of CapEx even into FY '26. And the -- with the revenue growth that we're seeing, the CapEx as a percentage of revenues will continue to trend downwards and soon be at the levels of global peers. So that's really how I would see the CapEx situation.
Quite helpful. Just a couple of follow-on questions there. One, when you look at the free cash flow profile of the business, which continues to improve quite substantially, probably north of $3 billion of free cash flow last 12 months in the India business, ex of the prepayments. Now with most of the high-cost spectrum debt repayment done except maybe the fiscal '25 spectrum of 8.65%, which is again like less than $1 billion. What are the areas where, again, the free cash flow may get channelized in terms of whether those are, I don't know, M&A opportunities or returns to shareholders? Or you still have other debt that you think you may need to re-prioritize?
And a second follow-on question on your comments around investments on home broadband. Again, versus, let's say, the other, let's say, peer Jio, your home broadband adds, while they are still very strong, remain meaningfully below what they are reporting. Is there any fundamental reason as to why your numbers should not, let's say, catch up or converge with what your competition is doing in terms of home broadband and FWA rollout?
Yes. I think, great question, Manish. Thank you. Opportunities for free cash flow, I think, will be some amount of deleveraging, which will continue, as you also pointed out. There will be a step-up of dividend for sure and that is a second area of free cash flow. And the third will be selective and very prudent in any investments we make. We have -- we are looking at investments into adjacencies in B2B in some of these digital areas. Obviously, these will be bolt-on acquisitions. We haven't yet -- we haven't got anything to report. And if there's some substantial value asset that is around, we'll keep looking at it, there's nothing really that is on the annual, but we'll be very prudent like we always have been.
The home broadband business, I would say, is -- the way I would look at it, Manish, is that, I would say keep looking at every quarter progress that we're making. In fact, we look at it on every day, are we making progress. So certainly, every month, we are making progress. I already spoke about January being better than December and February having begun better than January. We are as dissatisfied about the fact that we are not competitively where we should be on home broadband. But suffice it to say that every month, we are getting better than where we are. And I will just step back and explain to you why we've been behind on this.
I think, the first -- there are three drivers of Home Broadband. One is supply. On supply, we are matched. There's no issue on supply, whether it's home passes and it's the towns that we rolled out FWA. The second is on delivery of value. Again, we are very competitive in the marketplace on a combination of both the price we offer as well as the content that we bundled with it. And the third is the access, which is the access to leads, access to customers using all our channels. Here, I think our focus has been on largely the direct-to-customer channel, which is the place that we've got all our growth and also the digital channels.
I think one of the things that we've done, and we've done experiments in four or five circles, we have fired up the mass retail channel. And in these circles, which were serious underperformance, circles like Northeast, circles like Orissa, we have seen substantial gains so much so that we are now neck-to-neck.
So I would say that we are now rolling this out all over the country. So it gives me great confidence that I think we're on the right trajectory. But at the same time, makes us all very restless that we're not still where we need to be in terms of competitive performance. So that's really what we are focused on.
I just have -- will sneak one last quick follow-on question. I mean, you spent a disproportionate amount of time or at least a reasonable amount of time of your opening remarks talking about Airtel Finance. And given you have a lot of free cash flow in the business, is any kind of inorganic expansion in that segment likely at all? Or is this likely to be an organic build-out for you, the Airtel Finance business in particular? That was my last question.
I think, it's a bit early to answer that. I mean, it's not that we are close to any option. We have a lot of strengths in the quality of the intelligence and the data infrastructure that we have. We have enormous strength in the distribution that we bring, the muscle that we have, through the relationships that we have with customers and the fact that we are omnichannel and have a digital orchestration layer to be omnichannel. So we are not close to it. But at the same time, if you ask me, is there something on the anvil just now? No.
The next question comes from Mr. Piyush Choudhary.
This is Piyush from HSBC. Two questions. Firstly, in Mobile segment, barring tariff hikes that you talked about, how much of ARPU improvement is probable using subscriber mix improvement and other organic levers which you have talked about? And if I may ask the second question also. Can you tell us like what is the network coverage in FWA using 5G SA and what's the rollout plan over there? And in FWA, what is the ARPU mix, ARPU of such subscribers and average data usage of such subscribers?
So on the Mobile, your question on tariff was -- sorry, your question was how much of ARPU will come outside of that. That was your question, I suspect, Piyush. The answer to that question, I think, is to look at the trajectory that we have seen in the past. The -- whenever we've seen ARPU growth without any tariff increase, you can do the -- you can trend it and see what it is. I see no reason for that to change, because the underlying drivers, which I mentioned earlier, remain intact, whether it's feature phones to smartphones, prepaid to postpaid, international roaming or data monetization.
On network coverage of SA on fixed wireless access, firstly, it's a mid to say that SA gives you more coverage than NSA on fixed wireless access. So that is just not true. I think, what SA does is, as the NSA network, as the networks of 5G start to congest which is very far from where we are today, but as it starts to congest you could have some challenges on the uplink speeds. And that is where SA comes in, where the uplink speeds can be better. But today, with an empty network, we have not reached that point. So as we speak, we have already tested fully the SA solution for FWA. We have proven it. And given the FD network, we're not seeing any uplink differentiation.
Secondly, we are fully ready to launch FWA. Like, if it can be done tomorrow morning, we can do it tomorrow morning, if we want to. And so we will do it at the point if we need to. That's really how we approach it. This is not about technology. For the sake of technology, it's to really deliver true outcomes, whether it's in terms of experience or cost. So I think that's the way that we approach it. So, we are fully ready. There are many thousand customers who are already being tested on this for the last 3 to 4 months, and we know we can flick it on. By the way, our core network is fully ready on a converged basis. So all the enablers are there, it is just about now flicking it on, because it's software and for software, there's a small fee that you need to pay.
So -- sorry, just to clarify, so you're saying your FWA customers are also on NSA primarily at the moment? And you can flip it on the SA network whenever you want, basically based on the capacity front?
Yes.
Okay, okay. And any color on the usage behavior, like what is the data consumption of FWA customer?
Yes. We don't see much difference right now in the way we are selling it. We also want to keep the selling motions quite simple. So the selling motion is quite simple. It's WiFi everywhere. We offer clients from 40 Mbps up to 100 Mbps. We don't offer anything more than 100 bps in FWA. But the customer doesn't know that it's FWA or fiber. The customer just sees it as WiFi. We -- our sales system just sees it as WiFi. Depending on where we have fiber, we prioritize fiber in our installation and where we were FWA, we installed FWA. So that's the way we look at it. The consumption, therefore, because the plans are similar, the usage is similar than very similar to fixed broadband.
Okay. And may I know like what's the fixed broadband usage per month?
No. We don't report it out, but I mean, we can off-line, Piyush, we can give you. I don't have any problem. Here, it's not available.
The next question comes from Sachin Salgaonkar.
This is Sachin from Bank of America. Congrats on a good set of numbers. My first question, Gopal, is on the incremental EBITDA margin, what we ended up seeing on cellular business. it's pretty high at 90%. Two questions out here. Is there something in the quarter, which specifically led to the margin moving out there? Or this is a new normal going ahead?
Soumen, I don't know, if you can answer this question, but I can just tell you that this business is a fixed cost business. So when tariff goes up, that flows through directly to the EBITDA margin. Is this the expected margin on an incremental basis when there's no tariff repair? No, absolutely not. It will be still in line with improved leverage, because that will be our -- our effort going to continuously get operating leverage. But when you get a tariff jump up, just like if you have a tariff reduction, you'll see the flow through immediately on to the bottom line. It's exactly the same when -- because of the fixed cost nature of the business. Soumen, do you have any more color to add on this?
No, that was the point, Gopal.
Okay. Second question, again, I wanted to understand your approach towards FWA and anything, any color you could give from a margin perspective. The way you said it is customer sees it as WiFi and I presume your fiber deployment is more into urban areas. So directionally, this is, as an FWA offered more in non-urban areas or is it offered across the board in urban and non-urban areas?
So currently, Sachin, we are offering it wherever we don't have fiber. But I can tell you, I mean, where I think you're going with the question, it's an important point. If you have a high-rise building, which is over four storeys high, then it makes a lot of sense to have fiber there, because it will be much -- the payback periods that you get, the payback for the investments that you put on fiber will be very, very -- much better than what it will be on FWA.
But on the other hand, if you have -- and the reason for that is because you're putting a CPE in every home. If you have a multiport CPE, the cost of that FWA unit economics will drop. So if it's a multiport -- if it's a single port, a CPE, then the economics will work better than fiber in a high-rise area. But the moment you start going out into flatbed geographies, for two reasons.
One is that you don't have as much congestion in there on the 5G networks or you will not -- not that you don't have, you are unlikely to have in the future as much congestion. The economics of FWA tend to be quite competitive to fiber, because fiber then needs to pull a longer amount of last mile to connect that home. That said, we also have an LCO model beyond the 100 cities, as you are aware, which economically works really well for us. So we are quite relaxed right now of where the demand is coming from. I think for us, at a high level, roll out fiber everywhere as far as possible, especially in places which have four floors and above.
And even otherwise try and roll out as much as fiber focus on sweating that fiber within 3 months, 6 months, 9 months. And wherever fiber is not there, get that customer on FWA, because it's a land grab phase as far as broadband is concerned.
When you say the economics are very similar to that of fiber, is it fair then to say the EBITDA margins of the FWA business is similar to that of home services?
Yes, will be in that same ballpark.
Got it. And can I double check on this, where are the users of FWA and CapEx of FWA are being counted into? Is it a part of Home services?
Soumen?
Yes. Yes, it is a part of Homes.
Okay. So the incremental CapEx, what we are seeing an increase in Home is largely an FWA led investment, right, along with the fiber investment?
No, a large part would also be our routers. We put CapEx even on the routers. Soumen, Go ahead.
No, yes. As Gopal said, its routers, we are not slowing down our fiber rollout. So that CapEx continues. On top of that, we have FWA rollout, which is why you are seeing a bit of elevation in the CapEx in the Home segment.
Got it. And the last question...
Just -- let me just qualify that. This is not the radios of F5G. This is only the connection that we provide on FWA in the home, which is what sits in the Home services CapEx.
And my last question is a follow-up on your free cash flow. You did mention focus on deleveraging, stepping up dividend selecting prudent M&A, any general thoughts on data center as an investment, given what we are seeing on AI? Should that pick up going ahead as well?
No, we are looking at it closely. And if we have something that is meaningful, we'll certainly get in there. I think, we are watching that space. We have mentioned that the GPU as a service, we have currently decided to park that, because things are changing very fast in that space, the cost of the quality of the chips and the efficiency of the chips. Also, the money that you make on GPU as a service. A lot of it is dependent on sophisticated work around how you manage those workloads. So we've done multiple workshops to really understand the space well. And we've decided that we will not be a fast follower in GPU as a service, we'll be a -- I'm sorry, we'll not be an early mover in the GPU as a service.
But AI data centers, we are -- the data center business continues to remain a focus for us. We are trying to see how we can expand it. And so, while conversations are all, there's nothing to report right now.
The next question comes from Mr. Sanjesh Jain.
I'm Sanjesh from ICICI Securities. Gopal, first question on the 5G customers. How has been your observation on the 5G customer. We have now taken them to at least 2 GB per day plan. Can you help us understand, are they using much more than that? Are the new customer coming in upgrading more than 2 GB per day? That was earlier anticipation and expectation that, that is how the 5G will get monetized. Is that getting proved on the ground today?
Yes, the answer to that is yes. I think, this is one of the primary drivers data monetization, and we talk about, there are two parts of it. One is higher-end plans, which offer 5G as part of unlimited data. And the second is lower in plants where the data allowance runs out and contextually you're able to sell an additional pack for those few hours where the allowances are out. So both those are in play. We have seen this as one of the drivers for upgradation onto the 2 GB plus data packs.
And then, this is the want of 2 GB is what they are upgrading or just because 5G is not available below that, hence, they are pushed to buy more 2 GB plus plan?
No, no, no. It's, 2G with the unlimited data is a drop.
It is a drop. Okay. But we have not seen material increase in the customers beyond 2 GB plan in the 5G as well. Will that be a fair assumption?
There's no reason for them to take anything more than that, because it's 2 GB plus unlimited data.
2 GB plus unlimited data. But once we align it with the 4G, can that be one of the lever for us to grow the ARPU?
Of course. I mean, because then you will have more data monetization.
Got it. Got it. That's clear. Gopal, second, on the CapEx side, now that we are touching close to 350,000 sites, will it be fair to assume that from here on, we will again go back to that earlier growth rate of adding another 7,000, 8,000 annually. Will that be the rate which we will normalize? For this year, we guided 25,000 towers to be added.
I think, it will come down meaningfully, Sanjesh, I think, on the rollout, because by and large, our rollout is complete with the exception of a few places like Gujrat, MP and all that, where we've not yet gone as deep. The fact is that there is a lot of headroom there, but it's going to be substantially lower than last year.
Got it. One last question from my end. Will the FWA drive a faster rollout of the fiber or strengthening the backhaul, because the data consumption per site will go up materially with FWA catching up. Will that push us to add more backhaul capacity faster than what we earlier thought?
Sanjesh, we have a transport blueprint and that, you see the challenge with fiber is that, you can't roll in. You can't turn it on and off every month. It's got long gestation, because you have to plan it to get it right of way, then you have to trench it, then you have to sort of put it there. Then you have to repair the places where you have trenched it. So this is a long duration period, takes 6 months, 7 months to really get something going. And so about 2 years back, we created a 5-year transport blueprint. And all we are doing is trying to accelerate that blueprint. I mean, for the last 2 years, the only effort has been to say, do more, do more, do more, so that the blueprint is actually met.
We are not yet in line with exactly where the blueprint is, but every month in the last 8 quarters, every quarter we have made progress, and we are now more or less caught up with where we need to be. So we will continue to do that.
Because the difference between our fiber on the ground today to the #1 player or the peer is almost 2x. So on the fiber side, probably we may need to do more? Will that be a right assumption?
No, we are doing as much as we can. So I mean, just let me say that. There are three types of solutions we look at. One is a fiber nodes. Second is FTTH, which is basically 1 GBPS type of fiber, which is like home fiber, but that also makes the tower GBPS ready. And the third is e-band spectrum using the microwave backhaul. So all three are being used -- looked at. E-band is a temporary reprieve, in case there's an event where a particular site would we feel needs fiber before the fiber is actually coming. So we can then put an E-band there. But the moment fiber comes, we take that E-band and put it somewhere else. So I think, it's a moving thing. I mean, suffice it to say, as far as backbone and transport is concerned, there is no reason for us to be uncompetitive. But there's a blueprint on fiber is what I was explaining.
The next question comes from Mr. Vivekanand Subbaraman.
I'm Vivekanand from AMBIT. My first question is on the enterprise revenue and EBITDA trajectory. Now Gopal, I appreciate your point on the commodity voice business taking up a lot of bandwidth. But isn't this decision also likely to impact your Airtel IQ, CPaaS business? That's one observation that came to my mind. Please clarify on this.
And secondly, you alluded to, no EBITDA impact on account of such a decision, but that does not seem to be playing out in your numbers at least for the first 9 months of fiscal '25. That's question one on the enterprise side. I have one more. Do you want to address this before I move to the next one?
Yes. So, a simple answer. I think, there's no impact on CPaaS and IQ. And the second thing is that you don't see this reflected in the numbers yet. This will -- this has only trigger -- being triggered in the month of February.
Okay. So then, what's the key reason for the B2B EBITDA decline in the first 9 months?
I think, the primary reason for the EBITDA decline is a -- maybe Soumen, you can answer this. It's the hardware sales that had -- there's a one-off there. So just take this up?
Yes, yes. So the reduction that you sell is because, we have moved to selling convert solutions where there is connectivity, there is services and there is also hardware bundled into it. For example, let's take security. When we do a security deal, there is security services as well as security license. So unlike connectivity, which is entirely our product, some of these products has resell component built into it. So that is why you see some dilution in EBITDA margin over these last 9 months. You have to understand that connectivity is, of course, growing, but these kind of products are growing much faster, and hence, their weightage will keep increasing. So to that extent, there will be an impact.
Okay. Understood.
I must also tell you, Vivekanand, that if you take the commodity businesses out, which have negligible margins, obviously, EBITDA margin will go up, right? But the question is the growth side of the portfolio, which is adjacencies have a lower margin than connectivity. So I think, if you look at a long-term basis, the question that we will have to address ourselves is, can we grow this business faster and can you grow absolute EBITDA? I would not be so -- because it's not a CapEx -- these adjacencies don't heavy CapEx. They're very light on CapEx.
Got it. So the next question is on the digital revenue streams that you have and also your recent partnership on Airtel Finance. So your competitor, Jio, they spoke about their non-connectivity digital revenue annualizing INR 150 billion, almost half of yours. So just wanted to understand, is competition so elevated? Or what's the challenge? I mean, you are not able to grow at perhaps the same pace as they are showcasing. They say 60% growth. So what's really working for them, which is perhaps not firing for you? And other related question is on the finance side, where if you could elaborate on the Bajaj Finance partnership on how you monetize through this, that would be great?
I think, the performance of our competitors, that question is best directed at them rather than us. I thin,k, we report what we are doing, which is -- we think that there's a big opportunity for us to scale our Digital services. The reason that we are -- we spend so much time on actually getting the model of Airtel Finance right, is only for this. Some of the partnerships that we've had is with smaller NBFCs. With Bajaj, this is a really stick scale partnership. And the idea here is to create value together. Obviously, we bring a lot to the table where there are almost 200 million customers who are probably never taken a Bajaj product or Bajaj doesn't have much information on.
They get access to that user base. They get access to all our channels, to our distribution. And we're putting in the full might of the Airtel system to really ensure that this works for this partnership. On the other hand, what we get out of it is the deep underwriting expertise of Bajaj, their AI capabilities, their understanding of this whole business and their insights around it. And this has the sponsorship of their senior team. And therefore, collectively, we are both committed to making this work. So I think, that's the way that we see this partnership. Obviously, it should create value for both entities and give us -- give more and more people access to credit.
Fair enough. Just one follow-up on this partnership. Will it get accounted for -- the revenue streams get accounted for in Airtel Payments Bank or in the enterprise side?
Not in Airtel Payments Bank, because Payments Bank is not allowed to do this by its license. So by the way, Airtel Payments Bank is the second part of our financial services portfolio, but it sits in a separate entity. And that also has done very well. We're averaging about $46 billion of GMV. That's growing handsomely. We have 87 million monthly transacting users. We have an enormous amount that still headroom to grow. So that's a business that now is actually getting its momentum on its own, and we will continue to focus there. Of course, as you know, the margins there are very thin, which is why you need to scale to actually drive that value there. But this will not sit there. This sits as part of the XLFI unit will get consolidated into -- gets consolidated, wherever it gets consolidated. So you can...
It gets consolidated as a part of Bharti Airtel.
The next question comes from Mr. Aditya Suresh.
This is Aditya Suresh from Macquarie. Gopal, firstly, congratulations on a strong execution on a really clearly articulated strategy. So you've kind of addressed quite a few of the issues. I had two questions.
First on postpaid, you mentioned this as a kind of significant opportunity. And I wanted to understand a bit more about the comment in itself. So is that a comment more from the dimension of the count of the opportunity number of subscribers or it being on the pricing structure? I guess, the reference here is that, a look back in time, postpaid has been, let's say, 4x, 5x higher than the prepaid tariffs are at. Today, we are much, much lower than this, right? So just your thoughts on this opportunity.
So I think, when I was commenting on the opportunity, our user base is a small fraction of the overall 80 million base that is -- that potentially is creditworthy based on the data models that we have. So the ability to actually convert more and more on to postpaid, I think, is really what I was commenting on. There's no reason why we shouldn't get upwards of 50 million over the next few years on postpaid, which because there's an 80 million base that is ready to actually get on to postpaid. That said, I think, your observation is also right, which is the overall compression of the price table has meant that postpaid pricing is now not very different from prepaid.
Of course, it's at a premium to ex-premium, but it used to be much higher. And if the price architecture changes in India, where prepaid starts moving up like the way it is in Indonesia, which goes from 100 to 200 to 400, then clearly, there's a headroom for growing postpaid pricing, because a lot of value gets delivered through postpaid in the form of bucket allowances, rollovers or data content being bundled and so on and so forth.
And, with Indus House now being consolidating the accounts, are you able to articulate any updated priorities here for that specific entity, that entity or the passive infrastructure kind of business, which rolls up under part...
Aditya, I'm not able to hear you. Maybe Vaidehi, we can get to the next one.
The next question comes from Varatharajan Sivasankaran.
Vaidehi?
Gopal, we are able to hear, Vaidehi. Are you able to hear?
Can you hear me, Gopal?
No. I just checked, Gopal. I think, his audio output is missing. Gopal, we are able to hear you well.
I can't hear you. Yes, Harjeet, I can hear you now.
Is it okay now?
Yes, now, it's okay.
Gopal, the question comes from Varatharajan Sivasankaran. He's online and ready to ask you a question.
Yes, please go ahead, Varath.
Mr. Sivasankaran, you may please unmute side, introduce yourself and ask your question now. [Operator Instructions] But before that, Gopal, I would like to pass over to you for your closing remarks.
Thank you very much. I think -- thank you for all your questions. As usual, they were very perceptive, and thank you for all of that.
And I hand over back to Vaidehi for follow-up on the next con call. So, see you soon in the next quarter.
Thank you very much, Gopal. With this, I would now like to hand over to Mr. Soumen Ray for his opening remarks on the Bharti Hexacom performance.
[Operator Instructions] With that, the first question comes from Mr. Sanjesh Jain. [Operator Instructions] The next question comes from Mr. Vivekanand Subbaraman.
I'm Vivekanand from Ambit. My first question, Soumen, is that, now that the transfer of 3,400 towers will happen to Indus Towers, that's almost 13% of your tower footprint. So how will that change your P&L from a cost structure standpoint? That's question one. I'll ask my next question after this.
Well, if you look at net income level, there won't be much of a difference because, of course, we will be receiving some consideration, which has an opportunity cost. So at a net income level, we don't expect much of a difference between what it is now and what it will be later. But of course, once the deal is consummated, we will know, but should not be very material to the overall P&L.
Okay. No, I was more concerned about how we should model the reported EBITDA margin, I mean from a modeling standpoint, as an analyst, I have to ask you this question.
Of course, from an EBITDA point of view, there will be some dilution in the EBITDA, consequent to the incremental IP fees, you see, the energy will remain the same. There is no difference. It is -- the O&M will remain the same. There will be some IP fees, because there will be some return which will be taken by Indus on the investment. To that extent, EBITDA will get very marginally diluted. But that will be very small. And what I'm trying to say is whatever is there as an impact, will get unwound, because this money will help us in either investing or paring down our debt spectrum or otherwise. So at our net income level, we would not be materially different from what we are today.
Okay. Got it. Unlike your parent, which has almost 2x net debt ex leases to EBITDAaL, in your case, it is only 1x. And with the cash inflow from this transaction, you will be looking at only debt of very negligible amounts. So how do we think about the capital structure now here on and the use of cash for Bharti Hexacom?
So I think, there will be, of course, there is an angle of dividend payout. We must also remember that this FWA rollout will create a need for CapEx in Hexacom, because this FWA CPE is significantly more expensive than the broadband CPE. So there will be some need of additional investments. But well, yes, the net debt-to-EBITDAaL looks very promising at just above 1x. And as you rightly say, that if we use -- if we get this money, it will further come down. Dividend payout will -- is something which should certainly be looked at with a positive angle.
Okay. Is there any CapEx guidance that you would like to provide in light of the FWA scale-up that you're planning? Should it significantly accelerate for you in the next fiscal or the coming...
Directionally, same could be marginal increase. It all depends on FWA rollout. As you know that in terms of a footprint of the radio CapEx we have done, and hence, there could be some increase in the -- because of the FWA CapEx, but directionally not very different.
[Operator Instructions] With this, the next question comes from Mr. Piyush Choudhary.
This is Piyush from HSBC. On Home Broadband segment, could you tell us what's the FTH home-pass coverage for Hexacom and FWA kind of coverage at this moment? And what could be the TAM in the geographies where Hexacom is at the moment? Like the midterm, like, Mr. Vittal mentioned, Mr. Gopal Vittal mentioned that 45 million can go to 90 million for pan-India. Like how do we break it down to the region in which Hexacom is there?
So in terms of addressable market, I would say this would be about 3 million to 4 million. We are present in close to about 200 cities in Hexacom.
200 cities for FWA?
Total. Between FWA and fiber.
And FTH home-pass.
That I'll have to get back to you. I don't have that ready.
About 2 million home passes we have currently in the [indiscernible] account.
The next question comes from Mr. Mohit Motwani.
The next question comes from Mr. Vivekanand Subbaraman.
This is Vivekanand again from AMBIT Capital. I just have one follow-up. Could you help us understand the exceptional charge of INR 1.4 billion that was taken during the current quarter? And what is the way forward here in terms of this charge? Is there any legal discourse that you have to perhaps get some relief here?
Well, see, as any other organization, there is a periodic review of the carrying value of various assets and liabilities. So in that review, it was felt that there is a provision which has to be taken. There was also some reversals on account of the recent court judgment on passive infrastructure. It's a combination of this. There is no cash payout or anything of that sort. Time to time when you review, basis that, there's a provision which has been taken towards regulatory deals. And as far as trend is concerned, absolutely not. By nature, it's an extraordinary item. So there is absolutely no trend of this. It's a onetime picture.
Okay. Soumen, if you could give some color on what this pertains to. Was it any new development during the current quarter? Or is this part of some contingent liability that you have decided to provide for during the current quarter?
Yes, you will see a corresponding reduction in the contingent liability.
Thank you, everyone. Now I'd like Soumen to give his closing remarks for Bharti Hexacom.
Thanks a lot for joining in for the call. We look forward to connecting with you in May after our Q4 results. Thank you.
Thank you, Soumen. Thank you, everyone, for joining today. Recording of this webinar will be available on our company website. Thank you once again, and have a great day ahead.
