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Edited Transcript of BHARTIARTL.NSE earnings conference call or presentation 30-Oct-19 9:00am GMT

Q2 2020 Bharti Airtel Ltd Earnings Call

New Delhi Nov 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Bharti Airtel Ltd earnings conference call or presentation Wednesday, October 30, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Badal Bagri

Bharti Airtel Limited - CFO

* Gopal Vittal

Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director

* Jaideep Paul

* Nakul Sehgal

Bharti Airtel Limited - Corporate CFO

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Conference Call Participants

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* Aliasgar Shakir

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Bharat Shettigar

Standard Chartered PLC, Research Division - Head of Asia Ex-China Corporate Credit Research

* Kunal Vora

BNP Paribas, Research Division - Analyst

* Manish Adukia

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Pranav Kshatriya

Edelweiss Securities Ltd., Research Division - Research Analyst

* Rajiv Sharma

SBICAP Securities Ltd., Research Division - Co-Head of Institutional Research

* Rohit Chordia

Kotak Securities (Institutional Equities) - Executive Director

* Sanjay Chawla

JM Financial Institutional Securities Limited, Research Division - Research Director

* Sanjesh Jain

ICICI Securities Limited, Research Division - Research Analyst

* Sharon Chen

* Varun Ahuja

JP Morgan Chase & Co, Research Division - Analyst

* Vivekanand Subbaraman

AMBIT Capital Private Limited, Research Division - Media Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. I'm Ajita, the moderator for this conference. Welcome to the Bharti Airtel Limited Second Quarter ended September 30, 2019 Earnings Call. (Operator Instructions) Present with us on the call today is senior leadership team of Bharti Airtel Limited.

Before I hand over the call, 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.

I now hand over the call to our first speaker of the day Mr. Badal Bagri. Thank you, and over to you, Mr. Bagri.

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Badal Bagri, Bharti Airtel Limited - CFO [2]

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Good afternoon, ladies and gentlemen. Thank you for joining us today for this call to discuss operational highlights for the second quarter and the half year ended 30th September 2019, which we announced yesterday.

Present with me on the call to today are Gopal, Ajay, Nakul and Komal. This is a slightly unusual call as our financials are not amenable. As you are aware, the Board of Directors of Bharti Airtel Limited, upon the recommendation of management, have decided to defer the adoption of second quarter and half year results until 14th of November 2019 on account of needing more clarity and trying to assess the full impact of the AGR matter following the recent judgment of the Honorable Supreme Court. However, in line with our consistent policy of timely disclosures and maintaining the highest standards of corporate governance, the company has filed with the stock exchange a limited set of operating data for the second quarter and half year ended September 2019, which was reviewed by the Board. These operational highlights provide the underlying drivers at work for each of our India segments as individuals, reflecting the trends at an operation level. Equally, we wanted to go ahead with this call to answer any questions that you may have on the business.

Given the fact that the financial disclosures are yet to be made public, the call today will be focused only on the operating results and the underlying drivers. As you can appreciate the above, we will be unable to answer any questions, which pertain to financial information and which has not yet been disclosed in our filings.

Before I go on to discuss the operating environment in detail, I would like to take a few moments to discuss the AGR management itself. Clearly, as mentioned in our press statement, we are disappointed by the recent order of the Supreme Court. The issue of the scope of AGR decision has been through several rounds of litigation with several judgments, which had been in favor of the Office of (inaudible). Both decisions have come at such time when the sector is facing severe financial stress, and will further inhibit the viability of the sector as a whole when the officers have invested thousands of dollars in developing the telecom sector and providing world-class service to our customers.

We understand that the Department of Telecom appreciates the challenges faced by the industry and has formed a high-level committee of secretaries to review the situation and financial state of the sector as per media articles. The sector as a whole, including ourselves, needs to negotiate the amounts involved with the department and also expects eventually to be an acceptable outcome. It is indeed in the best interest of all parties to formulate a constructive mechanism to ensure that large levies including this one has had can be resolved in a fair manner.

We are also evaluating the judgment in detail and its overall implications and accordingly dismissed (inaudible) comment on it, much of many questions on this matter as of now.

Moving on to business and performance. Let's talk about our underlying business. The broader industry having now consolidated to 3 large players, continues to see some stability consolidating on the sequential growth trend that we've witnessed in the past quarters. The mobile revenues sustained their growth trajectory this quarter as well by growing 1.1 percentage points. What is also noteworthy is that this growth is despite the shutdown in Jammu and Kashmir, otherwise, the ceiling would have been higher.

I must also add in sharing the good news that Tata customers were also always roaming on our network, the revenue growth that we have reported is the underlying organic growth of the quarter. This is truly a sweep for the second quarter, which you are well aware tends to be seasonably weak in the context of the mobility business in India. This, in fact, is the positive development in this quarter to change after nearly 6 years.

Overall, this growth has been led by our focus on quality customers, prudent tariff tweaks, including some information on the mini and macro side and upgrading on account of Airtel Thanks. Our product offerings continue to remain for consumer, transparent and nondiscriminatory to any network and we take pride in putting our customers' needs and convenience at the heart of our offerings.

Starting 1st of July 2019, we have consolidated the consumer mobile business of Tata Teleservices Maharashtra Limited and Tata Teleservices Limited. We have been able to seamlessly integrate the network and consumers have also been able to hold on to the revenue.

Our overall success of this number was also impacted due to shutdown of mobile places in Jammu and Kashmir during this quarter. We are hopeful that with the ban now lifted, these customers will again be active on the network.

Our 4G base continues to grow, and we added around 8 million customers during the quarter. With this, we now have over 100 million customers on 4G. Our focus on quality customers is also evident from the best-in-class operational parameters. Our ARPU is now at INR 128, including Tata, which had much lower ARPUs of service. On a like-to-like basis, the ARPU was flat quarter-on-quarter after being INR 129. The network continues to witness strong engagement of the current subscribers as the monthly average data usage from the customer base is, again, the industry-leading at 12.8 GB per month.

On the network front, we added more than 2,900 sites during the quarter and more than 18,000 broadband -- mobile broadband base stations. We also further added capacities across the network through additional sectorization and Massive MIMOs. In line with our strategy of refarming 900-megawatt band for 4G, we completed the refarming across all of the 10 circles, which contributed 900 megahertz band, adding to incrementally high capacities for 4G and 3G. Further, we completed 3G shutdown in Punjab and Haryana this quarter after shutting down Kolkata in the last quarter.

Our efforts toward network experience have shown results, as the road continues after the launch. Airtel has been rated as the network with the fastest download speed experience and also in terms of video experience on the network. As we recently concluded Indian Mobile Congress, we've demonstrated live 5G in 3.5 gigawatts and millions of (inaudible) smartphones, Wi-Fi, fixed in those cities. We also demonstrated industry vertical use cases for manufacturing, mining, media, smart city user, private 4G, 5G networks and digital (inaudible).

Talking briefly about other businesses. Digital TV services business continues to grow on the back of customer additions and increasing upgrades to premium plans. This quarter, we added over 180,000 customers. ARPU improved by size from 157 to 162. The total base now stands a little over 16.2 million as at the end of September 2019.

We also announced the launch of our converged digital entertainment today, Airtel Xstream. This is part of Airtel's vision of getting a world-class digital entertainment inception. This offers a full availability of a wide area of unmatched content on one platform even across [C3] while also creating a future platform for connected homes. It caters to needs of new generation of consumers who are looking for seamless and converged entertainment across multiple screens, at home and on the go. Our product has taken off to a very strong start and we're hopeful of streaming it up even more.

Airtel business reported a 3.8% sequential growth in revenue. The business continues to grow, led by the demand for connectivity, data center and solutions across the spectrum. Home broadband revenue stream is a little softer, however, we continue to invest in the business and roll out home passes at an accelerated pace. Equally, we have certified our pricing costs to provide more benefits and value to consumers. Also, in the current quarter has shown a slight dip pursuant to certain one-offs items in the previous quarter. However, we should take the coming trends to be a reasonable representation of the joint business.

Moving on quickly to other noteworthy areas, regulatory matters. The clear target of consultation paper on review of interconnection usage charges, which is in line with what we had said back in 2017 when we had reduced the charges. We support this review, and we believe that we have seen the indication of credit traffic, along with large risk of feature phones in the device ecosystem, coupled with large investments made on networks, means that the cost in carrier quality approach of the current [IC]. And we have submitted the comments on the consultation paper and have firmly recommended that applicable date for 0 termination charge regime be moved by at least 3 years.

Moving on to M&A. As previously mentioned, the merger of Airtel with Consumer Mobile business of Tata has become effective from July 1, 2019. Consequently, all customer's assets, spectrum and agreed liabilities of these businesses stand merged with Airtel effective July 1. The scheme of arrangement between Airtel and Teleservices for the transfer of optical fibre cable business has become effective August 1, 2019.

Lastly, as some of you would be aware, the Board of (inaudible) has approved the extension of the last update for the proposed merger with [Indus] by a period of 60 days. The matter is pending requisite approvals, and we await the finality of the same to be able to comment any further on this matter.

To sum up, the telecom industry in India continues to witness huge expansion in data and voice, along with price recovery. Our nonmobile businesses continue to expand at a heavy clip and Africa remains on its profitable growth journey. Overall business-wise, our execution remains strong. We are hopeful that the government will take a balanced approach on the AGR matter to ensure the long-term viability of the sector.

With this, we open up for questions now.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Mr. Manish Adukia from Goldman Sachs Mumbai.

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Manish Adukia, Goldman Sachs Group Inc., Research Division - Equity Analyst [2]

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First question, just on the competitive environment in the industry. I mean your overall customer base seems to have stabilized in this quarter, but are you still seeing some churn from Jio Phone because they seem to have amassed more than 70 million customers as of now? And what is your estimate of your incremental share in smartphone ads every month? My second question is on Jio, which recently announced new tariff plans, which seem to be priced higher versus the earlier plans. That should give you room to raise tariffs on your own network and how are you thinking about this? And just lastly, while I appreciated your opening comments on the AGR issue, can I just ask what kind of outcome are you hoping from the government of India? Because the Supreme Court has only given 3 months as we understand to work it out?

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [3]

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So Manish, this is Gopal. I think on the competitive environment at the bottom end of the market, we have been impacted with the advent of Jio Phone, where there has been some movement away from our feature phones -- feature phone customers to Jio Phone. And recently also, you would have seen that there was a significant price drop on that particular phone, that has continued to put some pressure on feature phones. But as we have said, our focus is really to upgrade to smartphones, and that's really where the entire business execution is currently focused on. On the new tariff plan, we've always maintained that tariffs are unsustainable and are low and must go up, so we welcome any movement to actually increase tariffs. We have historically been at a premium to our competition in terms of pricing. The only thing that we would like to do is to not look at temporary price movements led out of regulatory changes or regulatory issues, but really look at more sustained pricing increases. The current move, as we understand it, is a pricing -- is a tariff, only meant for unlimited calling based on regulation, and if the regulation were to repeal, then that tariff would go way. Therefore, we have not made any decision to respond accordingly.

On the product question, I think Badal has already mentioned that we've seen media articles that the government has settled the matter and a group forming secretary has already been formed. So we will await to hear the outcome of this since there's no point in getting ahead of ourselves and speculating as to what could or could not happen.

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Manish Adukia, Goldman Sachs Group Inc., Research Division - Equity Analyst [4]

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Just a couple of quick follow-up questions. On the lower end of your customer based feature phones, would it be safe to say that probably 1/3 of your revenues on the wireless business would still be coming from the lower end of the feature phones? That's #1. And second, again, on the AGR issues. I mean while I agree that it would probably be too early to comment on what the outcome would be. But again, because the timeline is pretty short from what the Supreme Court has indicated, from an Airtel standpoint and from a liquidity standpoint, how are you thinking about the next 2 or 3 months irrespective of what the, let's say the committee decides?

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [5]

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On the feature phones, it depends on circles. So there are circles, which still account for maybe 50% of our revenues and there's other circles which account for 20% of our revenues. So it's kind of a mixed bag. On the second point, like I said, I think before knowing the full outcome of what the requirement is and what the -- what any release may be forthcoming from the government, I think it would be premature for us to talk about liquidity and funding requirements. I think, let's say, it was several times is how I would put it.

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Operator [6]

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

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Pranav Kshatriya, Edelweiss Securities Ltd., Research Division - Research Analyst [7]

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I just wanted to allude to your opening remarks, you said that because Tata subscribers were already on the network, and there is minimal impact. Just want to ask whether there is any impact on the subscriber base or what we are seeing? If yes, what is the amount? And I also would like to note that your churn is coming down meaningfully. Do you think that this low level of churn is sustainable and how are you seeing that?

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [8]

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We -- like Badal mentioned, I think the revenue that was reported last quarter already included the Tata component because there were roaming arrangements that we had with Tata. And as far as customers are concerned, we were able to acquire about 6 million to 7 million customers, about 6.5 million customers from Tata. At the same time, we lost a number of customers running into almost 2.5 million to 3 million in Jammu and Kashmir. This hopefully is not a permanent loss because of the way we define our revenue earning customer as a revenue line in the preceding 30 days. So this will come back the moment prepaid services are switched on. So that's really what's happening in the course of the quarter. And one of the reasons why the ARPU has slipped by INR 1 is that the Tata customer comes with a substantially lower ARPU.

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Pranav Kshatriya, Edelweiss Securities Ltd., Research Division - Research Analyst [9]

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Okay. I mean -- so that seems that the subscriber base are more or less flat, I mean, various subscriber reason remains for Airtel standalone phone.

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [10]

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Organically yes, you're right, during the quarter. Having said that, I think, to your last point on your question on churn, I think we are really focused very heavily on churn. So we have a budget and levers that we've identified to radically drive down churn. There's also a substantial amount of SIM consolidation that's happened in the market with more or less equal size players. And the combination of both will mean that these churn trends that you're seeing of a reduction from last quarter and this quarter is a sustainable trend. We're pleased with the fact that the churn has actually come down. And we will continue to work towards bringing it down further.

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Operator [11]

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Your next question comes from Mr. Sanjay Chawla from JM Financial, Mumbai.

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Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [12]

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My first question is in regard to the AGR definition, I mean, do you see any issue in terms of the AGR definition in respect of the license fee application, because now that has also been paid on revenues net on content cost, do you anticipate any issue there potentially? That is first question. And secondly, you are trying to introduce these all-in-one packs, so this is effectively a tariff although the implementation of it can be (inaudible) regulatory. So can you just talk a little bit about the potential tariff [context] for yourself now that you have introduced these all-in-one packs?

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Unidentified Company Representative, [13]

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On the DTH piece, the matter is in court, it obviously will be very difficult for us to comment on it. However, we do not see any risk as well as DTH is concerned from a definition perspective.

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Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [14]

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Is there any pressure -- have the DoT approached you to put pressure on content cost as well?

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Unidentified Company Representative, [15]

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No, we haven't, Sanjay. Nothing as of now.

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [16]

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Sanjay, on the price part, I've already talked about it. I think the way the pricing has been done by one of our competitors is to charge for unlimited calling. That is both available on a per minute basis and also on a bundled basis. So for different plans, there are different amounts of minutes that have been bundled in. And with a promise to customers that should the regulation change, this will unwind. And therefore, we don't see this as a tariff increase, we see it as passing on the regulatory -- the current regulatory charge to customers, which is, in effect, a bilateral charge between operators. And so we are not doing anything about it. We await the consultation of the TRAI paper, and then we will take appropriate action.

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Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [17]

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So Gopal, do you also see the fact that your tariffs have been opinion as mentioned, as some potential or capitalizing on this potential opportunity?

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [18]

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No, that has nothing to do with it. I mean, historically we've been at a premium, and the reason that we've been at a premium is simply that our strategy is to really bring with quality customers. We believe that we are well on course to executing on that strategy as reflected in all the programs that we're running, whether it's Airtel Thanks, sustained increase in ARPU that we've seen over the last 3 quarters, if the move is to shed some of the bottom end customers by having a minimum charge. So all of those are consistent with it, and we will continue to do what it takes to drive that strategy.

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Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [19]

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Okay. And if I could just squeeze in one question on the ARPU sort of stability that we've seen in the second quarter. What exactly has driven the ARPU stability in spite of the fact that the seasonality was started to announce this year -- the quarter?

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [20]

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I think there are 3 things I would say. One is the upgrading from quarterly packs to bundles. I think that's one. And as people move to 4G, they come at an improved ARPU. The second is Airtel Thanks, as more and more customers come onto the platform, we see an increase in ARPU because we have digital hooks to actually upgrade them. And the third is some tweaks that we have done on the minimum recharge plans with the incoming being extended for 7 days rather than 14 days after the expiry of a recharge.

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Operator [21]

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

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Kunal Vora, BNP Paribas, Research Division - Analyst [22]

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First one, (inaudible) where you are not looking to respond to this immediately. Do you see a potential for slightly better market share or higher share of gross additions in the short-term than the time of your reversal, sir? That's one. Second one, data volumes have been pretty strong, almost steady over last 2 years and the usage also has been very healthy. How is the network utilization now? And at what point do you see a need for additional spectrum?

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [23]

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I think on the first question, I think it's early to say because that's really what we are, quarter 3 -- our quarter 3 results will reflect what happens there. So I'll not comment on that right now. On the second part of it, our utilization has historically been around 60%, as we mentioned. But what we started doing, as Badal talked about is shutting down our 3G networks. So across Punjab, Haryana, we've already done it. And by March 2020, I mentioned in the last quarter as well, that we will progressively shut down our 3G networks and pretty much migrate almost all of our 3G spectrum to 4G. So that will give us a substantial headroom to continue to grow data. The other part that we are doing is actually densifying our networks. So on existing base stations and existing towers, we're putting in a fourth sector or a fifth sector, and in some cases, Massive MIMOs, slipping beams and so on and so forth. So all of that also helps us densify networks. So I would say there's still sufficient headroom for us to continue to grow our data usage without the need for any spectrum.

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Kunal Vora, BNP Paribas, Research Division - Analyst [24]

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Sure. That's very helpful. Just one last question. On the broadband business, in the kind of pricing taken in ARPUs, did you take any pricing intervention, having lower prices ahead of Jio launch? And are you seeing any impact of Jio Broadband launch in any of the market?

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [25]

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I think Badal explained I think we had some one-off in the prior quarter, not the quarter to the prior quarter on ARPU, which showed a slight increase. What we're seeing right now is the underlying ARPU. Our pricing has been dramatically simplified. We've moved to 4 to 5 pricing plans. And one thing that I can confirm is that through these pricing plans, the acquisition ARPU that we're getting, which historically tends to be much lower than the existing ARPU has now seen a good uptick. So that bodes well for the business. And finally, from a competitive standpoint, every competitor -- there's different competitors in this market and different markets with very different types of price plans. We haven't seen any significant increase in competitive intensity compared to prior quarters as far as this quarter is concerned. So the business continues to grow at a very modest rate in terms of customer adds, and we would like to actually press on that going forward.

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Operator [26]

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

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Rajiv Sharma, SBICAP Securities Ltd., Research Division - Co-Head of Institutional Research [27]

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Just a couple of questions from my side. So with this AGR rolling, how did it impact the license fee, payouts and the spectrum, such as bills in these quarters to come? So on a like-to-like basis, what could be the potential increase? Second is, I understand that you don't want to speculate on what the outcome of the committee will be, but what inputs you've got from your legal exploratory team in terms of what is it that government could do? And what is your wish list which you are -- which market is talking to the government and the secretaries?

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Unidentified Company Representative, [28]

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Rajiv, on the -- in fact, while we didn't give a comment on it, but incremental impact on our existing financials would be marginal. This is whatever accounting approaching the general recurring and the committees do, which we have established. So it's not a substantial implication incrementally going forward. Until then, there is one-off non-telecom income, which comes slightly, which would already be an exception. What the expectations are, I think we have been fairly clear. We have made fair representations in various forums and (inaudible). So the expectations are all there in front of the government. We have to now instead of -- I would suggest you wait to hear from the government what actions possibly can be considered by them.

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Rajiv Sharma, SBICAP Securities Ltd., Research Division - Co-Head of Institutional Research [29]

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So I'm trying to understand how these penalties and the taxes and interest on penalties are the major burden rather than the base amount. And given that this litigation has been long time, 14, 15 years, can you help us or give a sense as to what are these going to be like when completed? And is there room or headroom for DoT or the regulators to be more lenient there?

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Unidentified Company Representative, [30]

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Rajiv, the penalties and the interest are being completed from the financial year from which the assessments are being done. So if there's a demand for year 2006 and '07, the interest rate completed since then, penalties is needed as of that date and interest of penalties come in at this particular point of time. Is there room for consideration out here? We definitely feel that substantial consideration to this matter has been under litigation for so many years. Several bodies have interpreted the same definition in very different ways. There have been judgments, which have been in favor of the service providers. So definitely, there is a room for consideration, a fair amount of consideration on all of the investments.

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Rajiv Sharma, SBICAP Securities Ltd., Research Division - Co-Head of Institutional Research [31]

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And will DoT take a call on this or it will be the apex court which takes the call on that amount?

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Unidentified Company Representative, [32]

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Now it's very difficult to say who's going to take a final call but DoT definitely is going to compute the amount. Whether a consideration can be done for those amounts of the penalties, very difficult to say who's going to take the final decision on that.

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Rajiv Sharma, SBICAP Securities Ltd., Research Division - Co-Head of Institutional Research [33]

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And lastly, 35% market share Gopal, can you throw color as to when we are targeting this and how you want to go about it?

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [34]

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Sorry, what is that? What is that target that you're referring to? I'm not aware of this.

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Rajiv Sharma, SBICAP Securities Ltd., Research Division - Co-Head of Institutional Research [35]

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So on the box where you had mentioned that you're looking at 35% revenue market share.

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [36]

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I've not mentioned any such thing.

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Rajiv Sharma, SBICAP Securities Ltd., Research Division - Co-Head of Institutional Research [37]

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Okay. So, how do you see revenue market share panning out for yourself for the next 4 to 5 quarters?

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [38]

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I think our focus, as we mentioned, is our strategy is quite clear. Market share, we believe, is a strong barometer of performance. But really, the more important thing is what are the underlying drivers to gain market share. I think over the last couple of years, we've held well, we've grown market share. But for us, the underlying drivers are more important, and that is really a function of 2 pivotal strategies. One is our obsession around quality customers and really winning with quality customers, reducing our churn and making sure that we drive a whole bunch of service and services to create steady demand. And the second, to deliver a really strong network experience of which, I think we've made substantial investments, we broadened spectrum, moved to 4G, shutting down 3G networks. And of course, continue to make the investments that are required in a smart way. OpenSignal recently showed that we have the best performance in terms of video experience as well as speed. So all of those are moving in the right direction, and that I think is important for us to actually drive the objective of growth in market share.

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Operator [39]

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The next question comes from Mr. Sanjesh Jain from ICICI Securities Mumbai.

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Sanjesh Jain, ICICI Securities Limited, Research Division - Research Analyst [40]

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I've had just one question on this Tata Tele revenue. I was trying to reconcile the numbers which Tata Tele has disclosed in a previous AGR report, where if I had to calculate the AGR penalty, it comes to INR 3.3 billion. And we haven't seen anything as to what we are now disclosing in this quarter, but I just wanted to understand on that?

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Unidentified Company Representative, [41]

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Sanjesh, we can take this question offline. Now broadly this Tata Tele will have enterprise business and other businesses, which have not come to Airtel. So that -- the numbers would not be like to like competitors, that AGR is a submission of all circles, and there will be revenue across all circles that may not be comparable, but we can take this question offline.

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Operator [42]

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The next question comes from Mr. Varun Ahuja from JPMorgan, Hong Kong.

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Varun Ahuja, JP Morgan Chase & Co, Research Division - Analyst [43]

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Firstly, I want to ask the long-term date extension for the tower merger, could you just explain whether it's more to get the regulatory approvals or whether there's scope for more discussions with Idea Vodafone? That's my first question.

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Nakul Sehgal, Bharti Airtel Limited - Corporate CFO [44]

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Yes, do you want to ask your second question as well, and we can take them both.

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Varun Ahuja, JP Morgan Chase & Co, Research Division - Analyst [45]

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Yes, sure. Sure. And then the second one is, I think you said that one of your bonds, if you could guide whether the existing bank loans have any covenants that come into play, obviously, subject to the release?

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Nakul Sehgal, Bharti Airtel Limited - Corporate CFO [46]

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Varun, I'll take the first one. This is Nakul. As Bharti Infratel has also disclosed to the stock exchange, the Board of Directors in the meeting on 24th of October 2019 has accepted the company of directors recommendation to extend the deadline by 60 days, and on the basis of agreed on closing adjustments and other conditions precedent for closing. And based on the net debt as of 30th of September, as was mentioned, such agreed adjustments is expected as the dilution of equity stakes held by the current shareholders of Infratel should be lower than the account of different number of shares that should be issued against the interest shares. Such completion of the merger is contingent upon various approvals, which we alluded to in the past, and also of certain other conditions precedent. However, it can be no assurance that this can be completed within this time. So this is what we would like to say on this as well.

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Varun Ahuja, JP Morgan Chase & Co, Research Division - Analyst [47]

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Can I ask you, sorry, just on this?

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [48]

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Sorry, carry on, Varun.

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Varun Ahuja, JP Morgan Chase & Co, Research Division - Analyst [49]

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Yes, sorry. I mean on this, can I ask you that whether the share price has moved a lot? And we are all reading the media reports. Is there any way that -- I mean, from your perspective, it seems like it's all mathematical formula that has been agreed to. But let's say if the other parties for one reason or the other don't agree to it, is there any kind of penalty that they would be imposed if they decide to actually walk away from this?

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [50]

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One of the schemes which we have detailed, the scheme of the merger filed with NCLT has all the provisions there. It will be inappropriate to comment outside the scheme. Specifically, all such transactions have a settlement risk but it's unlikely that given the recent discussions, both parties have had on extending the long stop and associated whatever closing adjustments we had to do, is unlikely it should cause any change. But I would say all of that is in the part of the NCLT team. We hope to get the approvals and then take this forward in the coming future weeks.

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Varun Ahuja, JP Morgan Chase & Co, Research Division - Analyst [51]

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Got it. Second question is regarding to the covenants?

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [52]

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Yes, we, again detail -- ratings related covenants are not there in any meaningful way across the debt facilities and bonds that we have. But for a small portion, stock portion of a bond, which is outstanding in Airtel Africa, which Airtel Africa is carrying substantial cash results. But that also is the best covenants, not a breach. Having said that, I think, in general, the covenants will also be with the relationship bank market and the loan market will be accessed away from the bonds, bonds are all investment-grade package. Carrier leverage based covenants. So really from the perspective of where we are, including the potential and evolving implication of Asia, we will need to assess all of these as we go along. Today, from a ratings perspective, we do not expect a high level of sensitivity, but clearly [for the] tariff, costs to access the [indiscernible], all of that is impacted. And that's why some of the evolving implications of the judgment that we are having an adverse basis merely to our shareholders.

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Operator [53]

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The next question comes from Mr. (inaudible) from Kotak Securities.

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Rohit Chordia, Kotak Securities (Institutional Equities) - Executive Director [54]

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This is Rohit. Gopal, just had one quick question on (inaudible). It's not on the facts of the AGR outcome, assuming the ruling stands out, there is no relief that is forthcoming. Does this impact your investment plans in any case, what are the CapEx you're looking to do on the et cetera, would do you have to have a relook at that? That's one. And second one is in fact, the dividend has not been certain. Would you have to restructure a little bit to ensure that there is no license fee and penalty and given that? So if you could just comment on some of the aspects, given the work in progress.

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Unidentified Company Representative, [55]

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Well, I think, on this matter, and Gopal also earlier mentioned, we have to be respectful of the situation, it's Honorable Supreme Court on one side. We have to be respectful also of the government senior tittle officials committee that is being formed to kind of release this. It is probably not right for us to keep commenting on what we expect or what can happen. I think it is difficult. It's an awkward situation for us, I hope you appreciate. On a broader theme, but what you're seeing is clearly been the impacts of such unprecedented situation come on any industry, and these are more or less industry level impact, if we exclude (inaudible). I think in that situation, the industry reassesses what is happening. And to that extent, the more or less adjustments being done at an industry level, it's not a meaningful competitive dynamic change. Then you have to say, which one is weaker, which one is stronger and how does that play out. So we don't want to comment about how things are in the industry. But that is an element of plan, which we have to do once the uncertainty of how this is evolving in our understanding.

So allow us to sort of live with it for the moment and understand how this is evolving, and maybe then we can catch back as more clarity comes from this.

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Rohit Chordia, Kotak Securities (Institutional Equities) - Executive Director [56]

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Sure. I hope to get an answer in January, maybe or maybe on the -- anyway more of bookkeeping question, if you could help us with some numbers on how many smartphones are there in the network where you're perhaps in the second SIM? The number, yes.

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [57]

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No. So first of all, A, we do not disclose this number. And, B, it's also very difficult, and it has to be a very indirect form in which you'll able to assess where we are potentially a second SIM. I can tell you that that number is not (inaudible). Whatever assessment we have done. It's not great.

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Operator [58]

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Your next question comes from Mr. Vivekanand Subbaraman from AMBIT Capital, Mumbai.

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Vivekanand Subbaraman, AMBIT Capital Private Limited, Research Division - Media Analyst [59]

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I have a couple of questions. On the ARPU side, you mentioned that like-for-like, things are flat. And you underline -- you outline the underlying drivers of ARPU change. Could you also discuss the ARPU trends on the postpaid side, and how you see the competitive activity shaping there? Second question is on whether you are also considering shutting down of 2G sites in places where your mostly traffic is significant? And while answering this question, it would be great if you can comment on the proportion of voice traffic that is now on VoLTE and how quickly it is changing?

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [60]

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On the postpaid side, I think our ARPUs, after a substantial amount of downtrading that we've seen, we've seen for about 7, 8 quarters. For the last couple of quarters, we've been kind of holding steady. Our pricing on postpaid is at a substantial premium over prepaid and, despite that, we continue to add customers and our churn is quite comfortable. With 2G, there is no plan to shut down. Because even in circles like Delhi, there is a substantial amount of 2G revenues that are still around on 2G networks coming only from 2G phones. Secondly, there is a leakage of VoLTE and 4G devices on VoLTE because there are 2, 3 things. One is the 4G device, having a VoLTE configuration, which is something that the device manufacturers need to do. All the new devices coming in for the last 12 months have had this configuration. The devices that are older, don't have it. The second is that VoLTE then needs to be switched on the device from customers versus switched off. And the third part is then to provision those customers. All of which leads to some leakage and there needs to be some kind of fallback and this is the reason there's a small slug of spectrum on 2G, which actually takes that leakage.

The reason we were able to shut off our 3G networks was the revenue from just 3G devices was very, very insignificant in the low single digits. And therefore, we took the call to shut that off. 2G will still have some run rate for the next few years.

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Vivekanand Subbaraman, AMBIT Capital Private Limited, Research Division - Media Analyst [61]

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Thanks for the detailed explanation. One small follow-up on the postpaid side. You mentioned that the customer addition remains healthy. And you also are finding your annual report greatly adds 3 things about Airtel Thanks. Is this program more successful on the postpaid side in -- resulting in upgrading or is it indifferent -- are the customers indifferent in upgrading in postpaid versus prepaid?

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [62]

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I think the impact of upgrading on Thanks, Airtel Thanks is more on the prepaid segment, less in the postpaid segment because one, suppose a customer opts for a postpaid plan, they don't make shifts every now and then, the switch from one plan to another happens after a lot of deliberation, and that's when they make the switch. A lot more on the prepaid side.

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Operator [63]

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The next question comes from Ms. Sharon Chen from MetLife, Hong Kong.

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Sharon Chen, [64]

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Just a couple of questions. The first one is in terms of your liquidity. Can you tell me how much cash and undrawn bank facilities you have available? And are these bank facilities committed? The second is in terms of the company's legal options. At this stage, is the plan essentially to accept the court judgment or petition for review in the cards?

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [65]

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On your first question, I think rating committees are also getting set up. They are assessing how, based on the information they have, on how the situation is. I can tell you referencing this particular AGR situation, you had a rating category, you have the liquidity assessment and those assessments end. I think the issue clearly intends to be even of any large payout coming out of the recent judgments. And for that, as I mentioned earlier on one of the comments, since Honorable Supreme Court has given a judgment, and we also understand that the committee of senior government officials is looking at what needs to be done towards telecom sector. I think it'll be appropriate only to comment what that even, and thereby, means, both in terms of access to and thereby on our overall ratings and liquidity situation. When we come to that, we have a fair amount of existing flow of liquidity as well as capital license. The event is what needs to be watched for.

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Sharon Chen, [66]

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Sorry, can you just give me the numbers of, excluding the events, how much cash and undrawn bank facilities you have available?

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [67]

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I think the fair assessment of the cash is sitting in the June 2019 results of ours across Africa and India, it would be about both including our tower companies, it could be over $2 billion, maybe $2.3 billion, $2.4 billion. The tower company is free cash flow positive, as you very well know. Airtel Africa, in their earnings call, annually, they have generated free cash flow for the quarter, that continues. And India is just about free cash flow neutral, depending on how the quarter goes for the CapEx. So in general, that is the cash situation. Access to bank lines, bond markets, et cetera, is a income credit appetite based issue. If you see our overall debt that June 2019 results show, you will see significant debt has been a part of the DoT spectrum liability. And other portion of Airtel's financial lease obligation in pure market debt is about $7 million, $7.2 billion as of June. Of that, as you very well know, of that $7.2 billion is (inaudible). So there is bank related appetite. But having said that, business as usual. And this particular event being slightly unusual, we should be assessing this particular ring fence here.

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Sharon Chen, [68]

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Okay. So do you have any committed undrawn bank facilities available right now?

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [69]

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I can't comment. I think this is something, which is part of our financials, otherwise, we'll be slightly out of the ordinary to comment on that. All I'm saying is business as usual has strong continuity available. The event that needs to be assessed and looked at for what that impact is.

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Sharon Chen, [70]

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Okay. And in terms of my second question?

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Unidentified Company Representative, [71]

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On the legal action, all options are being evaluated. It's going to be premature for us to comment on our course of action on the call. But suffice to say, the company will do what is required, what is being stretched from a legal course of action on this matter.

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Operator [72]

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The next question comes from Mr. Bharat Shettigar from Standard Chartered Bank, Hong Kong.

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Bharat Shettigar, Standard Chartered PLC, Research Division - Head of Asia Ex-China Corporate Credit Research [73]

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First question is with respect to the asset refinancing. I think given that Africa has listed now, there was some thoughts or some plants that eventually they could get refinanced without a current guarantee. So any thoughts on where we stand with that issue? That is #1. Second is probably something that's more simplistic on the AGR issue. In terms of the Supreme Court judgment, what is the exact amount the Supreme Court has asked you to pay in the next 90 days? And the reason I ask is slightly consistent because it also includes the spectrum user charges. So can you confirm the exact number?

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Jaideep Paul, [74]

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Yes. This is Jaideep. I'll take the first one and request Badal to take the second one. On the first one, Africa refinancing, I think most appropriate for our listed Africa Board and Management to comment. But I'm picking up from what their comments have been in this quarter and sort of relaying it back, the intent to refinance the current guaranteed outstandings in Airtel Africa continues to be there. Airtel Africa by itself as a credit is getting evaluated for its own rating category and/or independent credit access from the bank market. That includes credit access in the operating company, and also have the holding company in London and Netherlands. Clearly, all of that process is in place. And over the course of next few weeks or months that refinancing exercise could to be extended as necessary and right to do, will be done. At the same time, because of the fact that overseas current measures that India had credit rating, it has economic benefits from the other side. So the Airtel Africa Board, its management are deciding what is the best strategy, intent continues to be refinancing all of these guaranteed bonds out over the course of the next few weeks and months.

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Badal Bagri, Bharti Airtel Limited - CFO [75]

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Bharat, on the second question on AGR, as you would be aware that the judgment is a principle based output, which has been received from Supreme Court. It is deciding on the principles of existing cost, which hasn't been quantified a number in the judgment. The number has to come from DoT and we need to get a sense of what, then understand those numbers better. And that is actually one of the reasons why we have such time for publishing our financial results.

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Operator [76]

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The next question comes from Mr. Aliasgar Shakir from Motilal Oswal, Mumbai.

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Aliasgar Shakir, Motilal Oswal Securities Limited, Research Division - Research Analyst [77]

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I just had one question relating to this or the acquisitions of Tata Tele. Does the license fee -- I mean, obligation of license fee for the M&A agreement is clear that the obligation (inaudible)?

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Badal Bagri, Bharti Airtel Limited - CFO [78]

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The obligation of Tata Tele merger turning on was not (inaudible) absolutely exclusive agreement with that.

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Operator [79]

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The last question comes from Ms. (inaudible) from Goldman Sachs Bangalore.

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Unidentified Analyst, [80]

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I understand the figure issues, your thought priority, but wanted to understand if there's any plan to continue deleveraging, I mean, proportionality in the senior bonds?

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Gopal Vittal, Bharti Airtel Limited - MD, CEO of India & South Asia and Executive Director [81]

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I think this answer impact has to be looked away from the specific event, which you mentioned. I think that event does change the entire plan and the strategy, to the extent it has impact. And that is why we are in the wait and watch mode to see how that impacts. But if you, for a moment, isolate that event, all our stated intent basically free cash flow generation on a global basis. This is our intended and publicly stated asset monetization opportunities. The intent is to create a more conservative leverage that what existed on June 2019. But having said this, the fact that this new event has come in, I think this will need to be updated into how that strategy now plays out. And to that extent, I can't comment how the evolution movement from where we are. But excluding that, the intent of using asset monetizations and other opportunities will continue.

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Operator [82]

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At this moment, I would like to hand over the call proceedings to Mr. Badal Bagri for the final remarks.

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Badal Bagri, Bharti Airtel Limited - CFO [83]

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Thank you all for joining the call, and look forward to engaging with all of you during the course of this period and talking to you next quarter.

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Operator [84]

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