Bharti Airtel Ltd (BHARTIARTL) Q4 FY23 Earnings Concall Transcript

Bharti Airtel Ltd (NSE: BHARTIARTL) Q4 FY23 earnings concall dated May. 17, 2023

Corporate Participants:

Gopal Vittal — Managing Director

Soumen Ray — Chief Financial Officer

Analysts:

Kunal Vora — BNP Paribas — Analyst

Piyush Choudhary — HSBC — Analyst

Sanjesh Jain — ICICI Securities — Analyst

Vivekanand Subbaraman — Ambit Capital — Analyst

Aliasgar Shakir — Motilal Oswal — Analyst

Gaurav Rateria — Morgan Stanley — Analyst

Presentation:

Operator

Good afternoon, ladies and gentlemen. I am Vaidehi, the moderator for this webinar. Welcome to the Bharti Airtel Ltd Fourth Quarter Ended March 31st, 2023 Earnings Webinar. Present with us today is the senior leadership team of Bharti Airtel Ltd. 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.

Gopal Vittal — Managing Director

Thank you very much. Welcome to the earnings call for Airtel. With me on this call are Soumen, Harjeet and Naval. This quarter’s earnings call will be really focused on a stop take of 2023, the full year 2023. In addition, I will underscore yet again why we are still well positioned for the future. Let me start with a quick update on our business and let me do that with ESG. During the year, we received multiple accolades, the Golden Peacock Global Award, the ICSI National Award for Excellence in Corporate Governance and CRISIL, GVC Level 1 rating, which is the highest rating on governance, also received — we received a rating upgrade from MSCI and CDP. Finally, we received the ESG Excellence Award at the inaugural edition of the Dun & Bradstreet ESG Leadership Summit 2023.

We take great pride in our governance, the diversity of our Board and the quality of transparency of disclosures. Equally, the environmental impact of our business operations has now been embedded deeply into the business. And I do believe while the road ahead is a long one, I want to give you a few examples of some work that has happened in the quarter. We started construction of our 25 MW data center. This is the first in Calcutta, which will operate fully on green energy. A large part of our rural site expansion now has solar energy access. Airtel 5G plus network as you know is also finer on the environment because of it’s special power reduction solution.

We’ve also joined the WEF Initiative Alliance of CEO Climate leaders earlier. This alliance is aim to serve as a high-level platform for business leaders to support concrete plans and ideas to step-up India’s climate action and green transition efforts.

Let me turn to our performance and let me do that with a quick round-up on the full-year 2023 results. I want start by underscoring the simplicity of our strategy. Our focus is to drive quality customers, give them a great experience, we want to be digital at the core and use this digital capabilities to build new streams of revenue and do this while we’re stripping out waste.

We’ve delivered strong revenues and operating margins across the portfolio during the year and the overall free cash flow, which is EBITDA minus capex as we look at it is about INR23,000 crores for the India business in full-year 2023. This was despite heightened capex, rural expansion and really no meaningful tariff hikes. Our net debt now is at 3.4, this is at the India level, it’s at a comfortable level in India and overall of course the consolidated level is at 2.8.

Our performance is really based on solid execution. We’ve delivered a strong growth in postpaid for the year, we’ve delivered strong growth on 4G net-adds and we’ve seen sustained growth in both homes and B2B. This been a historic movement on the netbook, we added almost 37,500 sites in a year, 37,492 to be precise and about 33,650 kilometers of fiber. One of the interesting things that we’re doing is to leverage FTTH which is fiber-to-the-home to wide up our towers and this has been a huge game-changer for us in terms of wiring up our towers on a very, very smart and efficient basis.

In fact, our smart investments in obsession of the experience resulted in us staying out of the expensive 700 megahertz band because we bolstered our mid band holdings over a four-year period. It was a bold decision to go with NSA, which is non-standalone architecture on 5G, this is already giving us better coverage, lower capex, lower carbon footprint and better experience.

At the same time, standalone architecture which is SA is also ready for enterprise. We’ve already had it ready in our environment and today on 5G here in about 3,500 cities and towns of the 7,000 that we have in India. We are adding almost 35, 40 cities every single day and we believe we will conclude our own coverage this year and some of the key rural buckets as well.

Let me turn to a quick update on our performance for the quarter. We’ve delivered a consistent and competitive performance despite two lesser days in the quarter. Our consolidated revenues grew by just under 1%, 0.6 to be precise sequentially to over INR36,000 crores. Our EBITDA margins were at 52.2%. We’ve seen continued efforts on War on Waste, in fact one of the most interesting deliveries that we’re very proud of is our network opex for India went up just by 7.5% in full year 2023, despite serious cost headwinds in terms of energy, as well as rollouts.

In the mobility business, we added 7.4 million 4G net-adds. We added a strong — we had strong momentum on postpaid with net additions of 663,000. Our reported ARPU came at INR193, but do remember that this quarter had two lesser days. So on a normalized basis, if I don’t take in two days, but take one days basis on a normalized basis, we are already at INR195. This was led by smartphone upgrades, data monetization efforts and a modest flow-through from the increased tariff on the entry plan where we took pricing up from INR99 to INR155.

On the broadband business, we had a strong end to the year with 4 lakh net-adds, the full-year impact is at 1.6 million. Today, we are present in just under 1200 cities up from 847. But we’re now hitting the tail-end of the cities because we are seeing bulk of the growth coming from the key cities, the top 200, 300 cities. In the DTH business, we lost 39,000 customers in the quarter, but this was largely due to seasonality. Cricket as you know has an impact on DTH and if you strip out the Cricket viewers out-of-the customer base which we do now in a very scientific basis, this results in the core business looking strong or looking better let me put it that way.

We do expect this to play out in the coming quarter in fact April and May have been strong in terms of net additions. And I do want to say that our strategy of convergence which is bringing the aggregation of all video content, linear content along with broadband is working and we believe we are now outperforming the DTH industry by a margin.

On the Airtel business, revenue in the quarter was flat sequentially, but we did let go of some low-margin deals and therefore I do want to say that the underlying business remained strong. This was reflected in the margin expansion of 1.3% in quarter four and for the year as a whole, we’ve delivered just under 16% revenue growth, the highest in the last decade. Our connectivity market share has moved up by 220 basis-points and is now at 34%.

Our IoT market share is now close to 53% and new businesses such as cloud, IoT are now growing at well over 50%. Let me turn to the digital businesses, our Payments Bank saw strong momentum. Our monthly transacting users were up by 14.5% sequentially to just under 55 million. The deposit growth is growing at 58%. Annualized revenues are now at INR1,516 crores, 18% up over the last quarter, actually more like 19% up over the last quarter.

Digital businesses now are at well over INR1,100 crores.

Let me now turn to the future of Airtel and let me talk about the five critical areas that I would say make us really well-positioned. The first is our portfolio. This is now growing in strength. Africa is now at 31% of the overall portfolio and continues to do well. India wireless is at 54%, where we still have significant upsides on smartphone upgrades and a reset on tariff. The homes and enterprise business constitute the balance at 25%. And here there is a momentum that we’re seeing led by structural changes in the market with growth coming at the top-end.

Growth of broadband and convergence, as well as increased digitalization of businesses are the tailwinds in the homes and enterprise space. All of the split was strengths and therefore investments are now being stepped-up in line with where the growth is to drive this portfolio make it even more resilient. The second reason I would say we are well-positioned is a brutal focus on quality customers. And today what I want to do is to take a geographical cut on these quality customers.

The first lens or the first cut that we look at geographically is rural. I mentioned last quarter that, that we have an opportunity to expand into 60,000 odd high-potential villages to win a greater 4G share of net additions. This expansion is in-line with our plan and early results have been encouraging. As a result, we are now at a lifetime high in terms of revenue market-share at just under 39%, 38.7% on a comparable basis, I say comparable because our reporting reflects segmental performance on behalf of mobile, broadband, DTH and B2B.

The second lens of this geographical cut is the top 150 cities. These cities account for almost 40% of the overall telecom market in India and they’re growing rapidly. Specifically, 80% of the market for postpaid, broadband, converged homes and in fact on B2B small at 95% is concentrated in these 150 cities. Our focus is to win these cities bringing the full power of the Airtel network, our channels and all power using digital tools. Let me explain this in a little more detail, let me start with postpaid.

As I said 18% of the market is in 150 cities. 5G is the pivot around which postpaid performance can truly [Technical Issues]. Today almost 32 of the 335 million users we have already have a 5G handset, but for postpaid users this number is as high as 33%, so while for the aggregate it’s a little under 10%, for postpaid this is 33%. The structure of families in these top cities is also changing, they are more and more nuclear families and this is the reason for our 599 plan launch in postpaid which locks a nuclear family, let’s say a husband and wife into one plan.

Homes, again 75% of the market for broadband is in the top 150 cities. We have a renewed focus on fast rollout. We’re rolling out almost 1.6 million home passes every single quarter. And as I mentioned, convergence is the route around which we are entering the home. Broadband, plus linear content and Xstream where we are aggregating over 20 of the 35 odd OTT apps are all provided in the form of one plan.

Another area is channels. All high-value channels are predominantly focused on these 150 cities. Our own stores, our installation teams, our digital marketing focus and the 30 million existing high value homes who use one or more of the services that we offer are already in these cities. Our channels are now therefore fully-integrated on an omnichannel basis. 30% of our high-value acquisitions are now starting online and are integrated omnichannel. Every one of our people across our own employees as well as our partners, 60,000 of them are integrated on Airtel book.

As a result, we see massive synergies in the delivery of Sims, installation of broadband, installation of DTH. The store which is our own store is the fulcrum around which all of this revolves and this is one of the reasons why we are expanding our low-cost, single seater stores across the key cities in the neighborhood catchments to reach the customer directly.

And lastly, let me talk about B2B. As I said 95% of the B2B market is in the top 150 cities and within this the top 500 accounts, the top 500 businesses are growing disproportionately. Account management brilliance is what we want to drive in these accounts. For every account, we’re mapping the key decision-makers, understanding their needs and the problems they are trying to solve across a range of areas and then bringing a full suite of solutions to bear. We’ve seen early successes.

50 of our top accounts grew by 300% versus 25% growth seen in the overall top five 500 account segment.

The third area that we are that I want to talk about is an obsession with customer experience and this is another reason why I would say that we are well-positioned. We have renewed our focus on improving experience. The whole company is focused only on one metric and we call this interactions, so we want to drive down interactions. Every interaction we believe is an underlying fault or a lack of understanding where we have not been able to ensure with our customers and these interactions go across all our channels whether it’s call centers, it’s stores, it’s the web, it’s the app or some social media.

To solve this what we’re now doing is building four critical platforms buy, bill, pay and serve. So buy is about customers buying anything, bill is really all about billing, so any anytime a bill that is down whether it’s a bill or to bill, pay is about paying from any channel through any mode whatsoever and serve is both self serve as well as assisted care. Each of these platforms is exposed to a common channel layer which is integrated omni tariff and underlying all of this is a foundational layer which is our data layer which is all about our unified customer master.

The fourth reason I would say we are well-positioned is really all about building our digital businesses which leverage our platform. As I mentioned before, we see Airtel in three parts. The bottom layer is at digital infrastructure, which includes our data infrastructure. The layer on top is our digital experience, which I’ve just spoken about. And the layer on top which allows us to actually build these services on top of these underlying platforms is really the digital services.

Our digital services now span CPaaS, Airtel IQ, cloud, SD wan and ads. Our ads business is now being pivoted to put dramatic finance dramatic focus on Airtel fiber plans. We have partnered with Axis Bank and NBFC such as DIY Finance through deep API integrations on the Airtel Thanks app to natively offer loans and credit cards to our customers. By leveraging an industry-first, proprietary, machine-learning and AI led model combined with an end-to-end digital experience, Airtel Finance is offering instant loan disbursals, flexible EMI options and a native post purchase experience on Airtel Thanks.

Our co-branded credit card with Axis Bank comes with various offers in telecom, utility, various offline and online payments. Within the few months of launch, this part of our business has served more than 2.8 lakh customers. We’ve already hit about INR1200 crores of annualized lending run-rate and INR2.4 lakhs of annualized credit card assurances run rate. As you can see the power of this platform enables us to participate across the value chain by leveraging core strengths.

Finally, the fifth reason that I want to underscore on why we are well-positioned is War on Waste. We’ve relaunched our War on Waste program to bring renewed energy united, four big areas we’re looking at. First is network costs. We have started relocating high cost sites, about 66,500 sites have been identified for specific actions around energy, rental, as well as re-engineering the site. This is seeing good traction, which is why network opex have been well-controlled despite massive rollouts. Second area is sales costs where we are taking actions to lower the [Technical Issues] on inefficient channels that either have a high-cost per gross addition or high early churn. Massive data science is being deployed to identify the early churn right down to a single outlet and a retailer level.

The third area is on capex, we stopped all capacity investments into 4G since we announced seeing traffic offload of up to 30% in a site where 5G has been launched. Finally, we are seeing a war on failure and interactions which should also lower-cost. So to sum-up, I think we I would say we’ve had a satisfactory performance as we close the year with share gains across our businesses. We’re building a future-proof Airtel thus bringing renewed focus on execution around a simple and cohesive strategy. We are financially in a stronger place and operating cash flows are expected to more than meet capex needs, while reducing leverage as well. Yet our concern on return on capital employed remains at 8.5%, this is way too low and we hope some sense will prevail in the industry to move our tariff sooner rather than later.

With that, let me hand over for questions.

Questions and Answers:

Operator

Thank you very much, sir. [Operator Instructions] The first question comes from Mr. Kunal Vora. Mr. Vora, you may please unmute your side, introduce yourself and ask your question now.

Kunal Vora — BNP Paribas — Analyst

Yeah, thanks for the opportunity. This is Kunal from BNP Paribas. So my first question is on postpaid, on postpaid front you have seen acceleration in customer additions, is this being led by 5G? And can you talk about how the postpaid ARPU is trending versus prepaid? And have you seen any increased aggression by any of the peers?

Gopal Vittal — Managing Director

So yes, as I mentioned earlier, we are using 5G as a pivot to accelerate postpaid. We’ve also launched our 599 plan, targeted specifically at nuclear families, that’s also seeing some good traction. As far as ARPU is concerned, you know that the [Technical Issues] of postpaid as a significant premium over prepaid and so clearly the ARPU is much stronger than what you would see on prepaid.

Kunal Vora — BNP Paribas — Analyst

Gopal, my question was on the change the delta if I look at like last six months, one year, how is the postpaid ARPU trending versus prepaid, is it like similar trend or postpaid is declining or any of them?

Gopal Vittal — Managing Director

No, it’s broadly around the same.

Kunal Vora — BNP Paribas — Analyst

Okay, okay. And my second question, I just wanted to get some sense on how we are looking at AI, you’ve seen big rapid progress since the launch of ChatGPT in the last few months. How do you see AI impacting your business and are you seeing any cost rationalization, customer experience upgrades, revenue growth opportunity, whatever, any thoughts on how AI will impact your business in the longer term?

Gopal Vittal — Managing Director

Yeah, that’s a great question, I think we have a full team now assessing the impact of these on our business. Yes, you’re right, there are opportunities around experience, there are opportunities in go-to-market, there are opportunities in procurement, there are opportunities in analytics. There are also opportunities in prediction of upgrades of where devices which devices will move up, so across our businesses there are opportunities. There are also attended related risks around cyber security and things like that. So all of that is being studied.

There are some experiments that they have begun and in small areas and I think really meaningful to report back, but we are really we’re looking at this very closely and we are we have deep working on how we can bring in some of these technologies and do our courses.

Kunal Vora — BNP Paribas — Analyst

Thanks. And just one last question if you can share with quarter capex for FY 2024 and 2025?

Gopal Vittal — Managing Director

So I think the quarter’s capex is INR9,000 crores is a little elevated, but if you take the full year’s capex is about INR28,500 for the full-year. As I mentioned before, if you take a three-year view, we will be broadly in that same ballpark of what we normally do and we have reason to believe that the full-year capex for 2023, 2024 will be in the same ballpark as what we had in the current year, within in a broad ballpark.

Kunal Vora — BNP Paribas — Analyst

Understood. Sir, in FY 2025, would you expect a reduction in capex considering that rural expansion will be behind 5G or will expansion will be behind and rural 5G might not really be happening. So would like would it be fair to expect that in FY 2025 there’ll be a decline in capex?

Gopal Vittal — Managing Director

Yeah, I would imagine that our 4G rollout will more or less be completed, I think there’ll be a few places, very small rollouts in a few circles, but broadly that will be updated. We are not investing anything more in 4G capacities as I mentioned. Transport investments will continue as we wide our towers. We are also investing in some of our other businesses, businesses like data centers, homes will continue to see strong investments and so on. Wireless capex on 5G will certainly come down relative to what we would have seen in this year because we would have completed the urban coverage more or less during the course of this year and we will start hitting some of the sort of villages as well, top villages. How far that will then go in 2024, 2025 is something that we will assess.

This is a modular business, as you know, wireless is modularly string set of radios on a tower based on where the traffic is, where devices are coming up. So we’re going to be tracking that closely. I think one of the things that we’ve seen on devices is that shipments are slowing down [Technical Issues] as well, this is happening all over the world because I think device the placement cycles are extending and that also entry-level smartphone prices have moved up. So to that extent, if that trend continues that will also give you some relief on the amount of capex that will be needed in rural areas as we get into 2024 and 2025.

Kunal Vora — BNP Paribas — Analyst

Understood, thanks, Gopal. That’s it for me.

Operator

The next question comes from Mr. Piyush Choudhary, Mr. Choudhary you may please unmute your side, introduce yourself and ask your question now.

Piyush Choudhary — HSBC — Analyst

Yeah, hi, good afternoon, thanks for the opportunity. This is Piyush from HSBC. Two questions. On the 5G subscriber could you, could you share some color on how the behavior is against a 4G subscriber like data usage, use of applications now since we are in the second quarter. And can I just confirm how much customers in postpaid were on 5G, I missed that number?

Gopal Vittal — Managing Director

So the second question on the second one, about 30 odd percent, 32% of our postpaid users already have a 5G handset. On 5G, I think that today what’s happening is that 5G on a existing plan is being given away free, so it’s unlimited data on a 5G device. Not everybody is has opted for it because you do need to get out of the thanks app, Airtel thanks app to take it for the period of which your recharge or if cycle exists, so not everybody has taken it, but where people have taken it, obviously, they’re using a lot more. I think the broader point, Piyush, is that, this is one of the first time that I think the telecom industry is moving well-ahead of the rest of the ecosystem. If you look at the telecom industry, what is 5G?

5G is not just a radio ecology anymore, in my view, 5G is a supercomputer, it’s a supercomputer that’s connected to the cloud because it is able to dramatically change things in terms of not just speeds, which we are delivering, you see 400, 500 mbps speeds, it also gives you significantly lower latency because the compute will now move towards the edge and it allows you to have 100 X number of devices in a given square kilometer of area relative to 4G. So it is a supercomputer. Now if on a supercomputer you are — the applications that you need on a supercomputer very different from your regular applications. The applications today that most people use are the same applications messaging, video, browsing. So if you’re getting a supercomputer using this to basically for Microsoft Excel or word, then you’re not using the supercomputer in its entirety. In this way I feel that the rest of the ecosystem needs to catch-up with the telecom industry.

The rest of the ecosystem across devices, across applications, content, all of that needs to change and we hope that over the next coming years, this ecosystem will flourish because remember 4G, industries have been built on 4G networks, ride sharing was built on it, food delivery was built on it, e-commerce was built on it, payments has been built on it. So this is a spy around which more application need to come, but the telecom industry is right now with at of the rest of the ecosystem.

Piyush Choudhary — HSBC — Analyst

Thanks, Gopal. Second question is on home broadband, ARPU is coming off, it is down 6% year-on year. Is it due to price competition or mix change of lower ARPU sub as you are expanding in new cities and then what’s the outlook of home broadband ARPU?

Gopal Vittal — Managing Director

So I think when you look at the rollout that you see, many of this many of the customers who are coming in beyond the top 100 cities are coming on slightly lower in trends and that is really due some dilution in ARPU, though I mean I’m quite relaxed about dilution in ARPU that we are seeing, because this is profitable business, number-one. Number two is, revenue is growing strongly and the margins are strong given the cost of doing business in these cities has been done on the basis of a really innovative model which is a partnership with local cable operators, where the capex requirements is much lower than what we would have in the top 100 cities. So all-in all, I think we’ve got the right business model for accelerated growth in home broadband.

Piyush Choudhary — HSBC — Analyst

Got it, thanks a lot.

Operator

The next question comes from Sanjesh Jain. Mr. Jain, you may please unmute your side, introduce yourself and ask your question now.

Sanjesh Jain — ICICI Securities — Analyst

Hi, Gopal. Good afternoon. Sanjesh Jain from ICICI Securities. I got couple of questions. First on the 5G subscriber, it’s a very short period, but what is the average usage for a 5G versus a 4G customer. And have we seen any early signs that these 5G customer upgrading hands to the higher plan where the data allowances are more, I know we have an unlimited plan, but still any signs dip in [Indecipherable] any kind of usage once we move them from unlimited to limited and that can benefit ARPU say in FY 2024, 2025?

Gopal Vittal — Managing Director

You had second question, Sanjesh, this is only one?

Sanjesh Jain — ICICI Securities — Analyst

I got few more, but yeah.

Gopal Vittal — Managing Director

Okay, so I’ll take this one and then you can ask your other question. What we are seeing is a growth in usage. So if you leave the unlimited, obviously there is big growth usage and that is not necessarily monetized, but [Technical Issues]. But we are seeing for those who don’t take the 5G. They don’t sort of go and claim the unlimited on the app, we are seeing a growth in we are firstly seeing lower churn and we’re also seeing a growth in consumption. And that growth is a direct impact on some revenue, because what happens is, we have this concept of data breaches, which essentially means that on a given day on a daily plan construct, the number today is that customer breaches their allowance for the day. And we have a lot of data science and a lot of contextual triggers to buy impulse data packs on-the-go in a very easy way. That revenue stream of data monetization is beginning to see some growth and, yes, the effort to upgrade them to higher data plan obviously continues along with that, because for those who breach on a regular basis, let’s say eight, 10 a times month, clearly they benefit by moving to a higher plan which then gives you the annuity shareholder value.

So both those moves we are seeing, at this point there’s a small because remember the handsets that are 5G enabled on our network are only about 10%, 11%, so to that extent as this grows, there should be some impact on ARPU.

Sanjesh Jain — ICICI Securities — Analyst

Fair enough. But on the unlimited pack, can you just share the data what is the using per subscriber there I know it is not sustainable, but still a ballpark number would really help.

Gopal Vittal — Managing Director

I think it’s early days maybe next quarter we’ll give you a better color on it, it’s doing significant right now because the adoption rates are very low. And I suspect they will continue to remain low, they are not going to be anywhere upwards of maybe 15%, 20%, today they are in the low-single digits. And so therefore this really doesn’t have a material impact, but don’t forget that the capacities are there on the 5G given 100 megahertz tranche spectrum that we have along with the efficiency that the is like massive. So I’m not worried about this having an impact on capex for the next five years. The challenge only is that I believe at some stage, we need to price in this because the tariffs that are operating, the amounts of allowances that we are giving you know whether look at rate per GB or the ARPUs that we have in India amongst the lowest, they are the lowest in the world and they are the lowest compared to even markets like Pakistan or Sudan or some in Africa, let alone markets like Indonesia and Thailand and all that where and in many parts or many states is getting towards those income levels.

So it really does need to move up.

Sanjesh Jain — ICICI Securities — Analyst

Fair enough. Second, on the enterprise side, I can see the capex has gone up which indicates that we are now started investing in the data center, we have told that we will grow by 4 times. How should we see this revenue coming, are we pre-book this to the hyperscalers, so as soon as the capex is completed, we will be booking revenue. With this, what does it mean to our enterprise revenue growth?

Gopal Vittal — Managing Director

So I think that this quarter’s capex is elevated on the enterprise business fundamentally because for some specific deals that have happened. This is a combination of some cables, cable investments and so it’s a lumpy investment, cable investments in some bandwidth that needed to be bought to support our network, but these are lumpy investments so [Indecipherable] in subsequent quarters. This has not had any meaningful impact on our data center and the growth, incremental growth is not on account of data centers, data center investment continues, the broader answer to your question is that as soon as the data centers are built-out, we’ve already typically when you’re building for hyperscalers we build-in advance, so we built it to suit. So to that extent, we’ve got the commitment already and soon as the study which typically it takes maybe 12 to 18 months to complete. The moment it’s done, it’s handed over, the revenues begin and then those are aggregators.

But if you are building smaller data centers, then you need to fill that out, that takes about maybe six months because you get smaller domestically, so the margins are also — where the returns are better, they come in and actually fill out the data center.

Sanjesh Jain — ICICI Securities — Analyst

Got it, got it. My next question is on the 5G opex and the network on the 5G. Are we charging the entire 5G opex or it is capitalized considering that there should a commercial launch. And Jio shared that they have lifted close to 16,000 sites, where are we in comparison to Jio in terms of number of sites presence on the 5G?

Gopal Vittal — Managing Director

So as of now, this the project is still underway, so as of now it’s capitalized, so the project is — because the rollout is just about be done and we hope that this will start peeling off in the coming quarters as we start sort of lighting up more-and-more 5G and meet the essential criteria around which we peel that off.

As far as your second question was sorry, Sanjesh, I missed that.

Sanjesh Jain — ICICI Securities — Analyst

Jio mentioned that they have lit 60,000 [Speech Overlap].

Gopal Vittal — Managing Director

So I think one thing that I do want to underscore Sanjesh, gives that we are lost in a maniacal rush to compete on the number of sites, the technology we are using is different and is fundamentally different from NSA from SA, it gives us more coverage. In fact, I have mentioned to you I think about three quarters ago that from my house in Gurgaon to the office, we have about actually 23 sites in that stretch and I was surprised early on to find that six sites that we had put, six sites that we had put was giving almost seamless coverage on 5G from what was needed on 4G.

So, NSA gives you better coverage, I think that’s a reality and that’s because mid band is doing the up lake in the 3.5 towards much further on the downlink, I’ve explained that in some detail a few quarters ago, so we are not chasing number of sites. What we are instead chasing is coverage where we needed. And that we are absolutely we are already there in three and half a thousand cities, so to that extent we are not going to be anything this advantage whatsoever on coverage.

Sanjesh Jain — ICICI Securities — Analyst

Got it, I’m squeezing one last data point question. The G&A cost in India they grew by 36% in FY 2023, significantly a sharp jump. Can you help us understand, what’s leading to such a sharp jump in SG&A cost and how should we factor this coming?

Gopal Vittal — Managing Director

Maybe Soumen Ray, you can answer this question.

Soumen Ray — Chief Financial Officer

Yeah, Gopal. So Sanjesh I think the SG&A cost is primarily driven by the competitive intensity to acquire customers in the market. We have always held that this is the fruit to us money being spent and we will keep on chilling, but to remain competitive in the market we need to have terms which are rightful. You would see there is some softening of that in Q4 because we have taken some [Technical Issues] we are trying to find out places where we can optimize. But in the center of the play, the competition is very strict and we need to match what the other players in the industry are throwing in terms of acquiring customers and hence you see that the increase.

Gopal Vittal — Managing Director

I just want to supplement what Soumen says, I really think beyond a point like SG&A, the cost, the commissions and all that are being given by the industry at large unfortunately you have to match it, because otherwise you tend those is not very high level of early tenured customer churn and that’s what shows up in the overall churn numbers. So if you split the churn in two, first four months churn and subsequent churn, our subsequent four month churn, after four months, the churn is very low. It’s the first four months that’s high and I hope better sense we really have in fact started making some more to lower some channel commission on SG&A on our own and we are tracking the impact of that over the last 45 days. We hope that this will sustain, but we do hope that better sense prevails.

Operator

The next question is from Vivekanand Subbaraman. Mr. Subbaraman, you may please unmute your site, introduce yourself and ask your question now.

Vivekanand Subbaraman — Ambit Capital — Analyst

Hi. This is Vivekanand Subbaraman from Ambit. So my two questions, the first one is on millimeter-wave spectrum. Gopal, could you please tell us the plans of utilizing this spectrum. Is it going to be used for enterprises or FWA. Also related to this, could you just give us an update on the FWA. You said that you are looking at it, what is the update on the [Speech Overlap] viability of this, that’s one. Secondly, in BPP, noted your opening remarks on you’re giving up certain low-margin business, but growth seems to have come off here. So how should we think about fiscal 2024 and 2025 revenue growth with respect to B2B revenues. I understand that there is some lumpiness with respect to data center also. Thank you.

Gopal Vittal — Managing Director

Yeah, I think there somebody talking in the other side, so maybe you can just mute your. So I think on the millimeter-wave spectrum, this is a refresh spectrum, it’s a large tranche, it has helped us save was spectrum usage charges as well with — so to that extent it’s paid back for itself that spectrum. But the fact is that it is still early days. We’ve got 5G networks, these are currently empty, we’re rolling this out. So I think that there is no plan right now to use the millimeter-wave. I think we’re doing some trials to check what the propagation characteristics and so on, but those are more for on a long-term basis of when, if and when we need it. So at this point there is no plan whatsoever.

On the fixed wireless access, the cost of the CPs are still very-high and I’ve mentioned this before. If you look at the cost per home passed on fiber, we are cost per connected home pass given our utilization, the cost per connected home pass typically is in the ballpark of 100 to $120 for us, $120 per connected home pass. In the LCO side it’s even lower. And if you look at the CPE, which is equivalent to a cost of connected home pass because for every connected home you will be the CPE. In any case in your router which is the same as what we would do in broadband, the cost of the CPE is more like $170 to $180. So it’s much higher than the cost of connected home pass and remember fiber gives you consistent experience. So you’re going to get the same experience every day, whether it’s a dedicated pipe into your home.

In the case of fixed wireless access, you may get a very good experience from the network but in five, seven years like we are seeing in the case of T-Mobile in the US, we’re already beginning to see challenges on-network experience through fixed wireless access. So it’s at best a technology that can be used to go where fiber is not able to go and then follow that up with fiber. That said, we are we have a team looking at this, we are working on it because as scale mounts, you may see some reduction in fixed wireless access.

CPE costs right now that doesn’t seem to be only [Indecipherable]. On B2B I would not worry about the growth seeming to come off this quarter as I said it was, it was some lumpy business that we actually chose to walk out off for the right reasons, the underlying growth trajectory seems to be strong and the funnels that we’re seeing in the order books, which should translate into revenue for this coming quarter, we already know we finished April and we are into May look strong, so I would not read too much into this transform.

Vivekanand Subbaraman — Ambit Capital — Analyst

That’s helpful. Just one small follow-up with respect to FWA. So since you are thinking about your DTH business from a converged lens perspective which is linear TV plus non-linear, putting the same launch. Is there a possibility of you bundling the FWA with perhaps the high-value DTH homes that you’re currently offering and potentially some innovation on the box side here. Thank you.

Gopal Vittal — Managing Director

Yeah, that can be done because that box set, that box was on Wi-Fi, so to that extent that can that obviously be done.

Vivekanand Subbaraman — Ambit Capital — Analyst

Okay. Any thoughts on whether this is viable for the higher-value customers, I mean, I understand that the reliability is not great, so..

Gopal Vittal — Managing Director

It’s the reliability is also the economics.

Vivekanand Subbaraman — Ambit Capital — Analyst

Okay, got it. Thanks.

Operator

The next question comes from Paresh Jainth. Mr. Jainth, you may please unmute your side, introduce yourself and ask your question now. Mr. Jainth, you may please unmute your side, introduce yourself and ask your question now. The next question is from Gaurav Rateria. Mr. Rateria, you may please unmute your side and ask your question now. Mr. Rateria, you may please unmute your side, introduce yourself and ask your question now.

Gopal Vittal — Managing Director

Radhesh, would you try and take another question? The SaaS maybe there is…

Operator

Sure. The next question is from Aliasgar Shakir, Mr. Shakir, you may please unmute your side, introduce yourself and ask your question now.

Aliasgar Shakir — Motilal Oswal — Analyst

Yeah, hi, thanks for the opportunity. This is Aliasgar from Motilal Oswal. Well, I have just one question on the 5G capex trends. So I hear your thoughts in terms of, you know, the point that we have for the first time telecom operators are ahead of in terms of 5G investments. I just want to understand in terms of typical trends of how a new technology rollout happen with initially focus on coverage then densification and then moving back to your from probably [Indecipherable] refarming, how this trends will follow, do you think unlike 4G this will be a very long prolonged 5G rollout or it will be probably between three to five years and based on these factors how the trends of capex will follow, do you think things could probably make you pre-pond some of your capex or how are you how are you thinking about this?

Gopal Vittal — Managing Director

So, Aliasgar I think let me sort of just say this through a couple of things. Number one is that while disproportionately shipments that are happening in India smartphone lead, there are still almost 25%, 25% to 30% of shipments that are coming in future phones. So when the world is moving to 5G there are still customers out there who are buying 2G phone because they simply can’t afford it. And India as you know a desperate society right, so that people who are very rich, high end homes, there is a big middle which the smartphones and then there is also bottom which is needs to think about every rupee they spend.

The second trend that you’re seeing is the device replacement cycle that started extending. And if you’re carrying a phone remember we have 10% odd 5G devices in our base. The total shipments that are coming in about 30% of new phones are already 5G enabled 35% or so because these phones are over 50, above over 20,000 all are 100% are 5G enabled, about 50,000 smaller and below that it’s even smaller. So as people upgrade, if the device replacement cycle in itself extending, then the movement to 5G will be also more limited. So that’s the second thing.

The third thing to look at it is the structure of the network. Any network has 20% of sites which have very-high utilization, the next 20% slightly lower and the bottom 20% is almost is very, very low. So if your utilization of your sites of the 275,000 site let’s say 70,000, 80,000 sites are very, very in terms of utilization. The existing spectrum that you have, the existing technologies that there are, are already delivering fabulous experience. I mean, they are giving you 20, 30 mbps and likely top for the applications that you use these devices, three to four mbps is more than adequate.

So I think this is going to be initial heavy rollout like we have seen or like we are seeing in FY 2022, 2023, there will probably be continued rollout in 2023 sorry 2024, 2025, so 2023, 2024 heavy rollout, 2024, 2025 continued rollout and then some moderation and over a period of time as all of these device start shipping, is moving up to 5G, you will start seeing operators beginning to refarm spectrum. We have plenty of mid band spectrum, we have 2300 spectrum, all of that can slowly be refarmed towards 5G and once you got the mid band spectrum really refarmed 5G, maybe one or two cities may move faster than other cities, Delhi could moves faster, Mumbai could move faster, these cities will move to SA first, that’s the way that you have to think about it, but I do not have any reason to believe that the elevated levels of capex that you’re seeing in the short-term will continue forever in the medium-term, it can’t be like that.

Aliasgar Shakir — Motilal Oswal — Analyst

Understood, this is very, very helpful. Just one question on the digital avenue that we are targeting. I see no about a decade back when telcos were dumped by, today we have so much more to offer to the customer. How big you think this can become over a Five-Year period, can this really become a reasonable contributor to your revenue?

Gopal Vittal — Managing Director

How big it will be, I don’t know. I think the core business because we are in an annuity business. We still have a lot of headroom for growth, particularly in homes even on wireless with tariffs having to go up etc is still high. B2B has a lot of headroom for growth as I’ve already mentioned, not just on connectivity, but also on the digital services and adjacencies around connectivity things like cloud, cyber security, IoT, data centers that we spoke about CPaaS etc. And these digital business if you include all of these as digital business, I think it could be quite new.

But I think it will never be in the same sort of ballpark as what you have on the large mothership. But the good news is, all of this is very capital efficient because it sits on an existing infrastructure like I talk, I think right so the underlying data infrastructure that we’ve built over the last five years and that makes it incredibly efficient.

Let me give an example of the lending part, which we spoke about earlier. I said that we are doing about 100 crores of lending and we started this literally a couple of months ago. By the way, it’s only 15 people who are working on it, because these 15 people are really building the machine-learning and AI led algorithms which are credit profiling and individual customer and we have 16 million users on our network who are pre-credit approved, who are ready to be offered a loan. That power of our data infrastructure I think very few companies will have very few industries and that’s the advantage that we bring and it costs nothing because the infrastructure is already there, it’s just how intelligent we are looking at what that means and how you can use it.

Aliasgar Shakir — Motilal Oswal — Analyst

Got it. I think this will probably also more use to create a sticky customer-base?

Gopal Vittal — Managing Director

Absolutely, without a doubt because we also add other value, Aliasgar besides of course a native journey on the app where you can lend, you’ve got the credit model. We’re also able to remind for collection and use our outreach to actually collect the money on behalf of the bank. So to that extent that’s another powerful value-added service that we can offer and that’s what gives us a margin on the disburse without carrying any of the balance sheet risks of actually the book of the lender.

Aliasgar Shakir — Motilal Oswal — Analyst

Right. Got it. This is very helpful. Thank you so much.

Operator

The next question is from Gaurav Rateria, Mr. Rateria, you may please unmute your side, introduce yourself and ask your question now.

Gaurav Rateria — Morgan Stanley — Analyst

Hi, this is Gaurav Rateria from Morgan Stanley. Couple of questions from my side. First, Gopal, what’s your view on the pricing differential between consumer was on the higher-end of the data consumption bucket versus lower-end. You think it’s an appropriately price right now and can this change when 5G becomes more ubiquitous? Second question is on the capital allocation, what would be the right capital structure post which the free-cash flow will be used to return a bulk of it will be used to return to the shareholders? And lastly, any reiteration of what is strategic versus non-strategic from a core asset perspective, which you can look to monetize overtime. And where does interest fit in, in the scheme of things? Thank you.

Gopal Vittal — Managing Director

I think that the structure of pricing and I’ve spoken about this earlier, I feel in India is unfortunately broken because you have a one-size fits-all pricing approach. It’s not the way that any industry works, any consumer industry. You will typically you have people who are able to pay more, get a lot more for the upgrade people who pay less get a lot less. In our case, our plan starts at INR240 or INR250 gives you 1.5 gigabytes of data a day, plus unlimited calling, plus 100 text messages. There is very little reason for them to actually buy a higher plan unless they are unique users at the margin who are actually going through their allowance is using a lot more.

So to that extent I think it’s not the right price architecture, which we need in a market like India and you look at other markets, forget about even Western Europe which also operate like this, but look at even markets like Indonesia, Thailand or Philippines, I mean all of them have these kind of price structures. So I believe you have INR100 you get very little, INR200 you get more and let’s say for INR1,000 you get a huge amount. Now that would actually maximize the ARPU. But the other alternative to raising ARPU is that everybody pays a little more, that’s really what’s been happening in the Indian context, so I think the price architecture is a little bit wonky.

I think our on our capital allocation, I think we are very clear that we will continue to invest in the business for competitive growth. And then we would like to leverage down delever our balance sheet and then the time will come, we will be able to return money to shareholders. I think at this point in time, we want to get our debt down to even more comfortable level. It’s not that we are comfortable, but it just gives you a lot more headroom for maneuver to do things that the business needs to do sustained growth.

On the strategic versus non-strategic assets, I would say all our businesses whether it’s B2B, homes, mobility and you can see the way I accelerated it rural 150 cities, all our businesses coming together, channels coming together, it’s one relationship, it’s one business is riding an existing infrastructure, so all of this is score. The infrastructure business is never core to us, so to that extent when I talk about infrastructure not fiber, I’m talking about data centers, towers which is why we got Carlyle into data centers, that’s why we set-up a joint-venture with Vodafone-Idea on Indus Towers. But the fact is that tower business is our heart beat. So we cannot afford to have that in any way face volatility. So if it means that in the short-term to prevent volatility because one player could have challenges, if we have to creep up and actually take control, we will.

But it is not — if the tower business is stable, there is no intention for us to actually put any capital in take a stake in fact, I would do the [Indecipherable] actually maybe you will dilute our stakes, but that is I would say a theoretical question because at this point in time we just need to have Indus be a strong tower company, that’s really how we look at.

Gaurav Rateria — Morgan Stanley — Analyst

Thank you.

Operator

With this, I would now like to hand over the proceedings to Mr. Gopal Vittal for his closing remarks.

Gopal Vittal — Managing Director

I want to thank you again for very engaging discussion. I think we’ve had rounds of questions around all areas. I think we’ve had as I said a satisfactory end to the year in a comparative performance, consistent performance and a profitable performance. We hope to continue with this into the coming year as well. Thank you.

Operator

[Operator Closing Remarks]