Transcript Earnings Call q4 Fy07

8/8/2019 Transcript Earnings Call q4 Fy07

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Bharti Airtel Limited Fourth Quarter And Full Year Ended March 31, 2007

Earnings Conference Call Transcript

Event: Bharti Airtel Limited Fourth Quarter And Full Year EndedMarch 31, 2007 Earnings Conference Call

Event Date/Time: April 27, 2007/1430 Hrs to 1600 Hrs (IST)

Republished with permissi on. No part of this publi cation may be reproduced or transmitted in any form or by any meanswithout the prior written consent of Bharti Airtel Limited.

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CORPORATE PARTICIPANTS

Sonal KapasiHead, Investor Relations - Bharti Airtel

Sunil Bharti MittalChairman and Managing Director - Bharti Airtel

Akhil GuptaGroup Lead Director - Telecom - Bharti Airtel

Sanjay KapoorPresident - Mobile Services

Manoj KohliCEO - Bharti Airtel

Atul BindalPresident - Broadband & Telephone Services - BhartiAirtel

Sarvjit DhillonChief Financial Officer - Bharti Airtel

CONFERENCE CALL PARTICIPANTS

Mark ShuperMorgan Stanley - Hong Kong

Tien DoeGIC - Singapore

Srinivas RaoDeutsche Bank - India

Sundeep BihaniLehman Brothers - Hong Kong

Anand RamachandranCitigroup - Hong Kong

Henry CobbeNevsky - UK

Rajiv SharmaHSBC - Hong Kong

Reena VermaMerrill Lynch - India

Suresh MahadevanUBS - Hong Kong

Jatin MandaliaAnand Rathi Securities - Mumbai

Harit Shah

Angel Broking - Mumbai

Sanjay ChawlaJ. P. Morgan - Mumbai

Shubham MajumdarMacquarie Securities- Mumbai

Rahul SinghCitigroup- Mumbai

Vinay JaisingJM Morgan Stanley - Mumbai

Priya RohiraEnam Securities Mumbai

PRESENTATION

Shikha Moderator

Good afternoon ladies and gentlemen. I am Shikha,the moderator for this conference. Welcome to theBharti Airtel Limited Fourth Quarter and full year endedMarch 31, 2007 Earnings Call. For the duration of thepresentation, all participants lines will be in the listen-only mode. After the presentation, the question andanswer session will be conducted for internationalparticipants connected to Airtel International Centre.After that, a similar question and answer session will beconducted for the participants in India. Now, I handover to Ms. Sonal Kapasi, Head - Investor Relations, to

initiate the proceedings. Thank you and over to youMs. Kapasi.

Sonal Kapasi Head, Investor Relations BhartiAirtel

Thank you Shikha. A very warm welcome to all theparticipants who have dialled into the earnings call forthe fourth quarter and full year ended March 31, 2007results. I hope all of you must be in receipt of theresults. The same is available on our web sitewww.bhartiairtel.in. Present with me on the call todayare members of the senior management, and from nowonwards in our earnings call we will also have thepresidents of the three business segments. We

propose to commence this call with the openingremarks by Mr. Sunil Bharti Mittal and Mr. Akhil Guptaafter which the floor will be opened for Q&A. Before Ihand over the call to Mr. Sunil Bharti Mittal, I mustremind you that the overview and discussions todaymay include certain forward-looking statements thatmust be viewed in the conjunction with the risks that weface. I now hand over the call to Mr. Sunil Mittal.Thank You.

Sunil Bharti Mittal Chairman and ManagingDirector Bharti Airtel

Thank you Sonal. Let me add my own warm welcometo all the participants on this call. I am delighted toreport that the year gone by has been a phenomenal

year for the telecom industry. There has been rapidgrowth in all segments, mobile telephony, broadbandtelephony, long distance. Not only the customer basethat has crossed the 200 million mark with mobilecrossing 160 million, but there has been a very sharpupsurge in the traffic on all the segments of telephonythat we provide clearly suggesting that India is nowlapping up telecom as a medium for development oftheir businesses and for their personal use. For the firsttime, India added more phones on a per-month basisthan China and this has been now continuing forseveral months. India has emerged as the third largest


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telecom player in the world after China and the US.Given the speed at which Indian telecom is developing,India should be positioned just after China at thenumber 2 position in the not-too-distant future.

2007 also saw some significant progressive regulatorydevelopments such as the announcement on

recommendations on 3G and wireless broadband,extension of USO for mobile services, which hasactually been a spectacular success, announcement ofrevised ADC regime which was due for 2007-2008, andmore importantly respecting the sunset clause for theentire ADC to finish by the end of this financial year.We support these and would like to reiterate ourcommitment to work alongside the government inincreasing the teledensity rapidly across the nationincluding the rural areas.

Before I talk about Bharti Airtel, I would like to add thatwith the overall teledensity of over 18%, the country isstill one of the lowest penetrated markets in the world.This clearly indicates a huge potential that still awaits tobe tapped and I am pleased that Bharti Airtel, whichhas taken a leadership position is well positioned topartake a significant portion of this huge upside thatawaits the telecom industry. More importantly, it will bepertinent to mention that the tariffs have come to a pointwhere they are becoming truly affordable and more andmore lower segment of the society are now joining themobile telephony network.

On Bharti Airtel let me touch upon certain keydevelopments. I will leave Akhil to give you a detailedfinancial report. 2007 was clearly a spectacular year forBharti Airtel. We witnessed an accelerated growth ofbusiness of all our segments, and more importantly sawa massive consolidation of market share in our favour inthis year. This is the first time when we saw asignificant market gain, which moved us fromapproximately 20.4% to just under 23%. This is the

sharpest market gain we have had in several yearsnow. In fact we have increased our lead against allcompetitors in the marketplace and this increase insome cases has been very sharp. The companysmobile coverage has now increased to nearly 4,700census towns and over 200,000 noncensus towns andvillages. During the year we added close to 900 newtowns and over 1.2 lakh noncensus towns and villagesincreasing our population coverage from 42% to 59%.

In terms of financial performance, the headline figureswill clearly suggest that we have witnessed a verystrong and robust growth with revenues at Rs. 185billion, EBIDTA at Rs.74.5 billion and net income atRs.42.6 billion. Profitability in terms of EBIDTA marginsimproved from 37.3% in financial year 2006 to 40.2% infinancial year 2007. The margins are clearly

comparable in spite of the worlds lowest tariffs becauseof our innovative business model and severe costcontrols. The last quarter was also one of continuinggrowth with benefits of larger footprint clearly visible.As we look ahead, we expect to grow and accelerateacross the telecom industry, mobility in particular. Inthis regard we welcome the announcement made in theunion budget in relation to the longstanding demand ofthe industry to rationalize license fee and variety oftariffs that still plague this industry. We were delightedto hear in the budget, the finance ministeracknowledging this problem and he has requested the

telecom ministry to comeback with recommendations torationalize the levies that are currently plaguing thetelecom industry. We are very hopeful that there will bea uniform, single license fee levy on the telecomindustry in the near future. In mobility, the company isplanning to add around 30,000 new base stations in thefinancial year 2008 taking our population cover to over

70%. At the same time, we expect passive and activeinfrastructure sharing to take off in a big way. We arealso going to increase our focus on broadband. We arealready present in 94 major towns and we will deepenour presence in these towns to provide greater speed,better experience to customers in enjoying and usingbroadband services. We intend and hope to launchAirtel Call Home service which has already beenlaunched in the US, and in several other countriesincluding UK, Canada, Singapore and Hong Kongamong others during this financial year. We areprogressing ahead with our launch of DTH services andwe are hoping to launch the same in the financial yearas well. We also expect to launch our commercialoperations in Sri Lanka, a license which has beenrecently awarded within this financial year as well.

In the quarter gone by Bharti Enterprise, the groupsflagship company and Bharti Airtel completed its re-organization. As we strengthen and build BhartiEnterprises as a truly diversified conglomerate of thefuture, it is important to strengthen the existing businessand responsibilities at Bharti Airtel. The objective is toensure greater operational empowerment and enableeffective management of growth. The changes willfurther empower the team at Bharti Airtel and the AirtelManagement Board to take forward Bhartisentrepreneurial ethos with an enhanced professionalculture, and drive the company towards a strongermarket share.

Just to recap some important changes that have beenmade, Manoj Kohli has been appointed as the Chief

Executive Officer, Sarvijit Dhillon as the Chief FinanceOfficer and Director - Strategy, Sanjay Kapoor as thePresident of Mobile Services, Atul Bindal as Presidentof Broadband and Telephony Services, and DavidNishball as President of Enterprise Services. All ofthese gentlemen are today on the call with me and I amdelighted that this new team Airtel is present here todayto answer any of the queries that may come up afterAkhils presentation. I am sure that the team with thesupport of the senior members and with the overallguidance and framework of Bharti Enterprises will beable to take our company to the next level.

I am also pleased to report that the company continuesto be recognized for the efforts that it is making in thetelecom industry and again was awarded recently theBest Emerging Market Carrier Award at the Telecom

Asia 2007. As Bharti Airtel moves ahead the underlyingemphasis is on customer satisfaction, innovativeproducts and more importantly superior employeesatisfaction, which, to our mind, will lead us to superiormarket share. Akhil will now walk you through thefinancials for the year and quarter in detail.

Akhil Gupta - Group Lead Director Telecom

Thank you Sunil. My own welcome to all of you whohave taken time to dial in. I hope you have all received


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the quarterly report and have had a chance to gothrough it. First of all, let me reiterate Sunils point thatthe year gone by has been a landmark year for Indiantelecom. Bharti Airtels own story mirrors thistremendous growth story of Indian telecom, and thatmakes the year gone by a period of rapid growth andinvestment for the company, which has seen it

consolidating its leadership position at a very rapidpace.

Before I take you through the results, let me share threesignificant developments, which have happened duringthe quarter. Firstly, in line with the emerginginternational best practice the board of directors of thecompany have adopted a rotation policy for statutoryand internal auditors limiting the maximum tenure forfive years and also specifying that within that a rotationof audit partner every three years would be mandatory.Accordingly, they have recommended the appointmentof S.R. Batliboi & Associates, which is a member fromErnst & Young Global as statutory auditors at theconclusion of the forthcoming Annual General Meeting,which is to be held on July 2, 2007, and Ernst & Youngas the auditors for US GAAP for the financial yearending on March 31, 2008. The board has alsoproposed to appoint Price Waterhouse who has beenthe statutory auditors since inception. They have donea tremendous job in scaling up and helping us scale upthe operations over these years as internal auditorsafter their tenure as statutory auditors of the companyconcludes.

The second development is relating to DTH. Owing toa regulatory cap of 20% foreign direct investment,Bharti Airtel has been forced to reduce its shareholdingin Bharti Telemedia Limited, which is our DTH venturecompany to 40%. A Bharti group company will hold thebalance shareholding of 60%; however, Bharti Airtel willhave a call option on this stake, which would beexercisable when permitted by law and this call option

will be on actual investment plus a reasonable carryingcost to the Bharti group company. The Bharti groupCompany will have a corresponding put option on Airtel.

Thirdly Bharti Airtel has also agreed to acquire thebalance 49% in Bharti Aquanet. Bharti Aquanet is thecompany, which owns and operates the landing stationat Chennai. This 49% stake was owned by SingTel andthe cost of the acquisition would be about Rs. 154million. The balance 51% is already held by Airtel,which means that post this acquisition, Bharti Aquanetwill become a 100% subsidiary and it is proposed that itwill be merged into Bharti Airtel thereafter.

Moving on to the operational highlights of the results,first of all, let me remind that we present full auditedaccounts both under IGAAP and US GAAP on a

quarterly basis. This quarter we are pleased to presentthe full audited accounts under both GAAPs for the yearended March 31, 2007 as well. We recorded anexceptional performance in the quarter and the full yearwhereby our total customer base increased to 39 millionwith mobile increasing to 37.1 million customers. Thisyear we covered significant ground in terms of ourreach. We added over 18,000 new sites increasing themobile population coverage from 42% to 59% and inline with our expanding network reach our mobiledistribution network now comprises of over 500,000distribution outlets.

I am also delighted with the development in all otherbusiness segments. For instance in Broadband &Telephony, we added a little over 500,000 customers inthe past year and increased our DSL penetration toalmost 32% from about 23% a year ago. In carrier, theminutes increased by 114% during the year and we

also added about 7,500 kilometres of optic fibre takingthe total deployment to over 40,000 km. As Sunilmentioned, we have also launched the Airtel Call Homeservice cards across the United States of Americaconnecting 2.5 million NRIs. In the Enterprise Servicesthat is the corporate segment, we added a little over400 new key accounts.

Moving on to the annual operational performance onthe mobile side in terms of market leadership, ourmarket share strengthened from 20.4% to 22.9%, anincrease of 2.5% in this period. We added a little over18 million customers on our network during this yearand our total minutes on the network nearly doubled,which were about 50 billion minutes in the last quarter.The last quarter was a great quarter in terms of our netadds, we added 5.2 million customers on our mobilenetwork and 135,000 on the B&T network.

Let me briefly now talk about the financial performancehighlights of this quarter and the year. This was, asSunil said, an extremely satisfying quarter as well as afull year. The consolidated revenues for the quarterand for the full year stood at Rs. 54 billion and Rs. 185billion respectively. These represented a growth of58% over the corresponding prior year period on aquarterly basis and 59% on a year-to-year basis. Theconsolidated EBIDTA for the quarter was Rs. 22.4billion and Rs. 75 billion for the full year representing anincrease of 75% and 72% respectively. The EBIDTAmargin for the quarter ended March 31, 2007 was at41.5% up from 37.5% a year back, a phenomenalincrease of about 4% during the full year.

The cash profits from operations for the quarter were atalmost Rs. 22 billion and for the full year were at Rs. 73billion. This represented an increase of 82% and 79%over corresponding period of last year respectively.The net profit for the quarter was at Rs. 13.5 billionwhile for the full year it was Rs. 42.6 billion. For the firsttime we have crossed the $1 billion on the net profits forthe year. These represented a strong growth of 98%for the quarter and 89% on a year-to-year basis. Theearning per share for the last quarter was Rs. 7.14 andfor the full year was at Rs. 22.5 per share.

Our total capital expenditure during the quarter wasapproximately $365 million and for the full year justunder $2 billion, which is broadly in line with theguidance given previously.

The mobile segment contributed 76% overall revenue,71% to EBIDTA and 80% to capex for the year.

On some of the financial ratios the return on equity forthe year moved from 29.5% in the previous year to37.4% while the return on capital employed improvedfrom 21.3% last year to 28.2% this year.

On the balance sheet front, the company had a net debtof just Rs. 42.3 billion, just about $1 billion as on March31, 2007. During the quarter the net debt to EBIDTA


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was at just 0.57 times as compared to 0.95 times a yearback. The debt to equity ratio was 0.31 as compared to0.45 a year back and the interest coverage was at 28times vis--vis 20 times a year back.

In the end I would like to summarize that this has beena very satisfying year and quarter. We are very

pleased that the growth, which we have seen during thefull year, is in fact at a higher trajectory in the lastquarter. We are very excited about this growthmomentum in the industry and the fact that we are inevery which way well positioned to capture this growth.We are hopeful and confident that we will increase ourleadership position further in the years to come. Thankyou very much. I would like to now hand over the floorback to the moderator for the question and answersession.

Shikha Moderator

Thank you very much sir. I now hand over theproceedings to Diana at Airtel International, centre toconduct the question and answer session for theinternational participants. After this we will have aquestion and answer session for the participants inIndia. Over to you Diana.

Diana Moderator

Thank you Shikha. At this time, internationalparticipants may press 01 if they would like to ask aquestion. On pressing 01 participants will get achance to present their question on a first-in-line basis.The first question, we have Mr. Mark Shuper of MorganStanley. Over to you Mr. Shuper.

Mark Shuper Morgan Stanley Hong Kong

Good afternoon and congratulations. I hope you do nothave the echo at your end that I do on mine. I really

just have a few questions please. First thing oninternational, in fact. The first thing is you are makingan initial foray into Sri Lanka. If you can discuss otherelements of your international investment strategy, howyou expect them to proceed in terms of time, ini termsof capital employed? Then separately, if you candiscuss your latest conversations with Vodafone withregard to their status as a shareholder of the companygoing forward, particularly in light some of theuncertainties surrounding their other transaction inIndia. Thank you very much.

Sunil Bharti Mittal Chairman and ManagingDirector Bharti Airtel

We are delighted that we have succeeded in picking upa license in Sri Lanka. We are conscious that we aregoing in there as the fifth operator, but given themassive scale benefit that we have in buying equipmentand having the back-end offices in IT and network, webelieve that we can extend our affordable proposition affordable yet profitable proposition to Sri Lanka aswell. In fact Sri Lanka is keenly awaiting the entry ofAirtel. The good move is that Airtel is a very well known

brand name in Sri Lanka because of very popular influxof TV channels there which go from India and carry theAirtel brand. So we are very positive that even thoughwe are coming from behind, given that there is only onecompany which has a large market share of 60% andthe other four are very small, we should be able tomake a deep impact. The work has started in terms of

hiring of offices, staff and location of towers. We arequite confident that given the pace that we are movingon that this financial year we will be launchingourselves successfully.

On to other international opportunities, we have beenlooking at opportunities around India. We looked atBhutan. We have looked at some other markets. Wehave looked at the Middle East. Recently we wereparticipating in one of the consortiums in Saudi. Weare quite careful in where we want to go, where we canadd value and we have been very clear that we are notsubjecting, at least for the moment, ourselves to somesignificant acquisition until and unless somethingcomes up, which meets with all our criteria that we haveinternally set for ourselves. I would say we will look foropportunities, but there is nothing hot on the anvil at themoment.

As far as Vodafone is concerned, Vodafone is awaitingits approval from FIPB. There is a meeting today at theministry. We are all hopeful that they will get theirgreen light. The arrangement that we have withVodafone is that they will sell us 5.61% direct stake thatthey hold in Bharti Airtel. This has been agreed to andin the event that they go and get their approval, this iswhat will happen. The balance 4.39% stake that theyhold in the grandparent company continues to be heldby them with no rights or powers and that is just afinancial stake that they will hold until the time theywould like to hold it in their books.

As far as a scenario where no approval from the

government of India comes, I guess currently Vodafoneis on a hold mode and they are standing out, notattending any meetings, participating in any affairs ofthe company. I do not envisage such a scenario. Ifthat were to happen we will have to re-evaluate thesituation and as far as legal rights are concerned,should Vodafone not go through with Hutchinson, ofcourse they will have their 10% ownership in Airtel andcontinue to be a partner.

Mark Shuper Morgan Stanley Hong Kong

Thank you.

Diana Moderator

Thank you Mr. Shuper. Next question we have Mr.Tien Doe from GIC.

Tien Doe GIC Singapore

Hi, good evening. Thank you very much for the call.Just two questions. The first is on you churn rates,those are down on prepaid and post-paid quarter-on-quarter. Is there anything that you are doing in the last


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quarter that you were not doing in the previous quartersor there any special initiatives that have led to the quiteattractive decline at least on prepaid.

The second question is just on the future margin trend,future average revenue per minute trends. Averagerevenue per minute continues to come down but your

margins continue to go up which is pretty good newsand bad news for you competitors. Where does it allstart to level out do you think?

Sanjay Kapoor President Mobile Services

Hi this is Sanjay Kapoor. On churn first let me say thatthe churn has been a concerted effort over the last 12to 15 months. There are dedicated teams that arefocusing on the entire grace period management forprepaid and the whole activity begins from there andthen there is a complete back-end team, which brings invalue propositions to existing customers to make surethat they do not churn out after the grace period. Sothis has been a great effort that has yielded the result.Also to some extent the lifetime value plans have addedbecause the customer sticks on longer, but our churnboth with lifetime value and without lifetime value hasbeen coming down. So I think it is nothing, but afocused and very concerted effort on the prepaid andpost-paid churn that has brought it down. We believethere is still opportunity.

On the average revenue question of yours, we havealways believed that the average revenue percustomer, the way we are designed is bound to godown as penetration happens in rural India. Obviously,as we add on a marginal customer that is bound tohappen, but we have always said that at Bharti webelieve in our three-line graph philosophy where theopex productivity, the capex productivity and therevenues need to be moving in the right direction and

as long as that happens we are not worried about theoverall revenues. They actually are insignificant to uscomparatively.

Tien Doe GIC Singapore

Do you think your mobile margins will break 40% anytime soon?


Well, for now we are happy with the mobile marginsthat we have. We believe there is enough competitionin the marketplace and the prices are always under

pressure because of the competition, but on the otherside we work very hard on our economies of scale andwe hope we will be able to balance that pressure. Webelieve we should be in a position to sustain the sort ofmargins that we have. We will not see any greatsurprises.Tien Doe GIC Singapore

Thank you very much.

Diana - Moderator

Thank you, sir. Participants to ask the question pleasepress the 01. The next question from Mr. Srinivasfrom Deutsche Bank. Over to you sir.

Srinivas Deutsche Bank - India

This is Srinivas from Deutsche Bank. There are twoquestions here. One on your employee cost, whichseems to have come down on a quarterly basis despitea 12% increase in employees on a quarter-on-quarterbasis. Could you throw some light on that?

Second I wanted to check this revenue growth. Is itpossible that the revenue seems to be more from theurban areas, which is probably said to be moreprofitable? I also see that your capex run rates for thequarter is slightly lower than in the last three quarters.Could you throw some light on that?


Well the employee cost on a per person basis wouldhave come down a little bit as some of the people thatwe had on the front line, which we have actually got intothe company because we felt the quality of the servicebeing offered by some of the outsource partners wasnot good enough, but obviously the people at the lowerlevels and therefore with the addition of those numberssome employee cost on a per person basis would havecome down. On revenue growth, the growth isabsolutely in line with our expectations and we areactually very pleased that despite the fact that we didtake a hit on the roaming revenue massive reduction inthis quarter, something between 50 crores to 60 croresand also the fact that in this quarter two days are lessbecause of February. I think the revenue growth has

been very satisfactory. Please also remember thatabout close to 300,000 customers due to theverification process were at least temporarilydisconnected. I do not know how many of them willcome back. Our past experience shows a lot of themdo come back, but in this period some of the revenueimpact also came from that. But overall, I think therevenue growth has been extremely bullish and we arevery satisfied with that.

On the capex front, the last quarter I think theemphasis, which the teams have laid, has been more interms of a very focused deployment rather than justgathering more and more equipment at your end, andthat is where you would have seen that our deploymenthas been very nice. The capital productivity has gone

up and we have been able to focus our efforts intodeploying this at the right time, reducing the work inprogress with us, but there is no slowdown in the capexrates that I can confirm to you.

Srinivas Deutsche Bank- India

Thank you.



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Thanks.

Diana - Moderator

Thank you, sir. Next on line Mr. Sundip Bihani of

Lehman Brothers. Over to you sir.

Sundip Bihani - Lehman Brothers Hong Kong

Good afternoon and thank you for the conference call. Ihave just three questions. First of all on ARPU, whichhas declined 5%, how much in fact is the roaming ratecuts, which were implemented on February 15?Secondly, despite the market share gains you seem tohave recently launched Happy Recharge with noprocessing fee, so what is the strategy behind thesetariff cuts despite the very impressive market sharegains you have made during the year? The third is anyupdate on tower sharing, what percentage of towershave you increased over Q4, in terms of sharing and

any plans to spin off the tower asset into a separatecompany and list it? Thank you very much.


On ARPUs and impact of roaming, we have faced animpact about 60 crores on overall revenues, thereforehaving some significant impact on ARPU for the lastquarter. In terms of Happy Recharge, HappyRecharge is a positioning that we have taken in themarketplace to basically provide a better value to thecustomer. There is a large amount of processing feethat gets charged and then the customer is charged alower tariff comparatively. One of our competitors inthe market had made that proposition more

pronounced. We took a better platform we thought byremoving that and giving more value to the customerson high value recharge coupons of Rs. 399 and Rs.499. This will create more stickiness amongst ourcustomers and will further help us to bring down thechurn, which significantly impacts the overall results.

From the Rs. 249 voucher perspective, we think it willenable us to allure and attract youth segment,customers who probably either want to churn from anexisting operator or want to enter the category. Webelieve it is a two-pronged strategy and the initialresults seem fairly encouraging, but we will wait andwatch to see how it produces. We do not believe itbrings down the overall ERs at all. In fact it, if at all,has some off side on the ARPU.

On tower sharing it is not a new phenomenon to us.We have been sharing towers for some years now andwe were the first ones in the industry to open up ourtowers to the rest of the competitors. Today about,anywhere, between 25% to 27% of our passiveinfrastructure, which includes towers, are shared withother competitors. We are absolutely open on that andwill continue this phenomenon as we progress.


Sundip, I must also add that the step we have taken interms of de-merging the tower business into BhartiInfotel is primarily with two purposes actually. One issharing, we believe, is important for this industry for allthe operators. Not only for us for all the operators, forthe environment, for non-duplication of resources, and

second driving cost benefit. So I think tower sharingand infrastructure sharing is something that Bharti hasalways been a champion of and we are proactivelytaking lead in this.

Sundip Bihani - Lehman Brothers Hong Kong


Diana Moderator

Thank you Mr. Sundip. The next question comes fromMr. Anand Ramachandran of Citigroup.

Anand Ramachandran - Citigroup Hong Kong

Hi, thank you. Good evening. Thank you so much forthe call and congratulations on the numbers. I had, Iguess, a couple of questions.

Firstly, we are receiving some numbers in the press oncapex, $3 $3.5 billion for next year, I am wondering ifyou could confirm or correct that and also tell me whatthe rough proportion of spending will be, and could Ialso check whether there is some provision in this forany 3G spectrum costs that might arise during thisyear?

Second question is, I guess, a little more numbers

related, on the margins. I do note that the margins ofthe enterprise service and the long distance servicebusiness for this particular quarter have bouncedaround, up and down. I am just wondering whetherthere is any specific issue we should be cognizant ofthere. Thank you.

Manoj Kohli CEO Bharti Airtel

Okay, this is Manoj Kohli. Let me start with the capex.This year the capex was $2.1 billion at the end of theyear. For the next year, we are planning to invest $3.3to $3.5 billion. 70% of this investment will be for themobile network where we are trying to invest in 30,000new sites. Of course, we will share as much as muchas possible. The balance 30% has broadband about

20,000 to 25,000 km of fibre optic. It also includes DTHas well as the Sri Lanka rollout. However, it does notinclude any 3G-related capex. Is that fine with you.


Absolutely. Sir could you just follow up quickly on thatsir. I mean you will be at 70% country coverage by theend of this year, and given, I guess, your vastunderstanding of the sector, do you think you can


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spend more in Financial Year 2009, is there potential tospend more in Financial Year 2009?


No I believe we have at least two-three years to go till

we really reach a reasonable level of coverage, whichsatisfies us. So I think this intensity of coverage shouldcontinue.


In terms of capex, do you think these are numbers thatcan continue because there is so much growthpotential?


I cannot talk about the capex because the capex unitrates are coming down quite dramatically and I will not

say anything about the capex, but intensity of newcoverage should keep on moving for the next two tothree years.


Okay, sir, and the margins?


Okay, on the enterprise? Are you talking of theenterprise margins or carrier margins?


Both. I mean both of them have moved quitesignificantly, one up, the other down on the quarter, if Iam not mistaken.


We believe that this business is B to B is unlike theother two B to C businesses where we should not lookat a quarter because, discrete quarter may have someextra project expenses where the revenues are notgarnered in that quarter, and it is prudent to look at fourquarters together and then see how over a period offour quarters, the revenues have grown, the margins

have grown. You look at four quarters, last fourquarters of enterprise, both carrier and corporate, Ithink our margins have been stable at 40% plus and Ithink that is important for us. We are quite comfortablewith these margins. In some quarters of course, thereis extra expenditure of a large project where therevenues do not come in that quarter. Revenues comein the next quarter and hence the margin goes up, sothere is a bit of an up and down because of the natureof the business. Also if you recall our ICS business,which is the calling card business, it is going through agestation period. This also has had a bit of an impact in

this quarter but now this business has picked up verywell in the US, and I am sure it will give us a lot ofcustomers in the NRI market.


Thank you sir. Thank you very much.

Diana Moderator

Next we have Mr. Henry Cobbe of Nevsky UK. Over toyou, sir.

Henry Cobbe - Nevsky - UK

Hi. Thanks so much for the call. This is Henry Cobbefrom Nevsky Capital. Just three questions. First on theeffective tax rate what the outlook is for the coming yearor two? Secondly just confirm what the total number ofbase stations was as of March 2007. Lastly just looking

at the long distance volumes, there is substantial pickupin revenues, I think revenue has increased about Rs. 10billion, and were there any reclassifications there orwas all that just driven by traffic growth?

Akhil Gupta - Group Lead Director Telecom Bharti Airtel

The effective tax rate is now at around 14% to 15%.Sarvjit, can you fill us in with some details on theeffective tax rate?

Sarvjit Dhillon CFO Bharti Airtel

As you know the current tax rate is somewhere around just under 12%. We expect the whole will be at 12%-13% and we had some small amount of credit in thecurrent quarter. Going forward, we do expect it to beabout 12% to 14%?


On long distance?


Okay, can you just repeat the question, please?


Just looking at the long distance revenues and thecarrier revenues, carrier revenue has increased bysome Rs. 10 billion year-on-year and that is a bigacceleration from last year, so wanted to know whetherthere was any reclassification or was this all beingdriven by traffic?


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There is no reclassification here. It has all been drivenby traffic. Of course, the realization in the long distancearea has been under pressure but we see trafficgrowing at a very healthy clip. We really feel that the

revenues and traffic have been growing well.


Next year do you expect to continue adding about Rs.10 billion of revenue?


I cannot give you guidance on this, but we are trying todo our best.


And on base stations at the end of the year?


Base stations in our case are about 39000 something.It is in our report. You can see that on March 31, 2007,and we are trying to add another 30,000. So, we couldhave somewhere close to 70000 base stations onMarch 31, 2008.


Okay thank you very much indeed.

Diana Moderator

Thank you, sir. The next question is from Mr. RajivSharma, HSBC.

Rajiv Sharma HSBC Hong Kong

Good evening, and congratulations on a good set ofnumbers. My first question is regarding therecommendations by TRAI on backhaul sharing. Howmuch impact do you see in your future capex plans to

be benefited by such a recommendation if DoT acceptsthem, and second is what is the stand on section 80I onyour tower business? Would you get the benefits of 80Ifor your tower business or not? Third is how much yourcapex contracts have benefited because of the rupeeappreciation?


Well, in terms of the backbone sharing, well we are thefront-runners in that. Therefore, we are going toexpand our network there. We intend to do at least20,000 to 25,000 km during the year. On the passive

infrastructure, again we are going to put up about30,000 new towers during this year. So we wouldshare these of course, with other operators, but it is notgoing to be impacting our capex. The $3.3 to $3.5billion guidance on capex includes these kind ofoutlays. 80I benefit is not available to the towercompany as per the Income Tax Act. So that is notthere. The impact of rupee appreciation, the third point,well that has not been too significant one in this lastquarter, because the major movement on the rupee hasactually happened post April 1

st. On March 31, the rate

was at 43.59. There has not been too significant aneffect of that in this quarter, but let us see how it goes inthe current quarter.


Just a follow-up on this. Assuming that the rupeestabilizes at this level, do you see any impact on yourcapex plans, a positive impact?


Sorry, could you repeat that, please?


Assuming that the rupee stabilizes at these levels, one

component of the capex, which is the electronic capex,which is dollar denominated?


Absolutely. I think if you see that we have twoelements, one is the capex, where still a significantportion is based on imports. The second is also ourloans, so there has been a positive impact with therupee appreciates


Thank you.

Diana - Moderator

Thank you, sir. Next on line we have Ms. Reena fromMerrill Lynch.


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Reena - Merrill Lynch IndiaHello. Thank you for this call and congratulations onyour numbers. I have a few questions. On your DTHbusiness, is there a rationale for having 40% outsidethe company? On your fixed line and long distancebusinesses, can you please help us understand how we

should look at margins on a long-term basis? Equallyon your mobile business, for a long time we have beenfactoring in 40% as a long term cap on margins, shouldthat change? Finally from an industry perspective isthere a view on spectrum availability and its allocationto various operators, has the regulator sought youropinion on whether spectrum should be given on aqueue basis or do you think people will get it based ontheir existing size of operation?


Well let me ask Atul Bindal the president of the fixedside to answer the question related to the margins on

the fixed and long distance then I could take up the restof these.

Reena - Merrill Lynch - India

Thank you.

Atul Bindal President - Broadband and TelephonyServices - Bharti Airtel

Hello this is Atul Bindal here. On the fixed line side, wehave a very clear focus, which is basically working inthe 94 top towns of the country and serving the twosegments of homes and small and mid size businesses.

The key strategic underpinning there is broadband first.That is where we have been leading in building voiceand then data and other ARPU on top of that. Over thelast four quarters we believe that is one of the primaryreasons we have been able to sustain both our ARPUsin that business as compared to let us say four quartersago as well as also show a margin improvementquarter-on-quarter where we have been able to getabout 5% to 6% points of margin gain and we believethis is also the strategy and the building block for thefuture. Akhil would you like to carry on from there.


Reena on the DTH business, there is a regulatory

provision, which says that in DTH business you cannothave the foreign direct investment, which is distinctfrom the FII investment of more than 20%. Nowrecently what was clarified was that this includes directand indirect component and considering that Airtelwould have about 40% plus as the direct foreign directinvestment, we had no choice but to restrict Airtelsshareholding in the DTH venture at 40% as against the100% which was contemplated earlier and announced.The balance 60% however, will be held by a pureIndian Bharti group company with very cleararrangement that Bharti Airtel is as I have announced in

my address, going to have all option on this as andwhen this is allowed. Bharti Airtel will have a call optionon the 60% on actual investment plus a veryreasonable carry. So this is where the DTHs businessside is.

On the mobile business, well quite clearly I think as

Sanjay said in one of his earlier answers to a question,we have definitely these two opposing forces. Thenature of our business allows economies of scale andtherefore an improvement in margin, but then thecompetitive activity is so intense that is the pressuregoing on the other side. I believe around 40% or so is adecent margin to work on on the basis that we arestructured today, but tomorrow some capex hasreplaced our opex of course this percentage couldcome down, but on an as-is there-is basis I think 40%looks pretty decent.

On spectrum availability, I think the government has afairly clear policy that the existing operators have to begiven more spectrum based on their requirements and Ithink that would be followed. We have already been, allof us have been, filing our claims for more spectrumand we believe that is something the government isgetting more spectrum, and that is how it would goforward. So that is our belief on the spectrum.

Diana - Moderator

Ms. Reena would that be all?

Reena - Merrill Lynch India

I have two follow-up questions.


Go ahead Rina.

Reena - Merrill Lynch - India

One is on the fixed line business, we recently sawsome statement from the minister with regard to norentals on landline phones, do you think that mightapply across the board to all operators, or do you see arisk of that happening in terms of governmentintervention? From the wireless perspective, should wenow assume that the net additions will be completelyreflective of the ongoing business with no moresubscriber re-verification hit in the numbers?

Atul Bindal President - Broadband and TelephonyServices - Bharti Airtel

This is Atul Bindal again from Broadband & Telephonybusiness. For us basically if you were to look at thestatements made yesterday, it is a welcome statement.Any move, which takes us towards a more affordablemarket addressal would certainly be good; however, ithas to be predicated upon certain cost advantages, has


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to be sustainable in the long run. Number one that hasto come either in terms of sharing of last mileinfrastructure, and secondly in our businessincreasingly the move is towards bundling where youessentially bundle voice, media and data andbroadband offering and therefore you could actuallybundle it in such a way that the voice part ought to be

free and the base of the plan could actually offer youbroadband minutes or long distance pulses etc. So it isa question of how you package and bundle voice andbroadband proposition in order to sell to the customer.

Akhil Gupta - Group Lead Director Telecom -Bharti Airtel

Reena as regards the wireless business on verification,now that it is an ongoing exercise therefore any ofthose backlogs on account of non-verification obviouslywould not occur. So this is now going to be businessas usual.

Reena - Merrill Lynch


Diana - Moderator

Thank you, Maam. The next question is from Mr.Suresh Mahadevan of UBS, Hong Kong.

Suresh Mahadevan UBS Hong Kong

Good afternoon, thank you for the call and congrats ona good set of numbers. I have three questions. One iswhat do you think about the 3G Spectrum. Now it is

probably clear that it is going to be auctioned. Do yousee any risks of overbidding like we saw in 2000s, inEurope, etc., what is your view on that? Secondquestion is on the spectrum situation. Just wanted tounderstand how bad really it is, because I do not thinkany spectrum has been released yet, which are someof the circles or cities where you might be facing thoseconstraints?. When do you expect additional spectrumto be released by the defence? An update on thatwould be helpful. Finally a question more on themargin side, I am just seeing the mobile margins haveimproved this quarter and long distance has comedown. I just wanted to clarify where the roaming ratecuts have affected your long distance portion. Justwanted to hear your thoughts on that.


Let me take up the one on the 3G Spectrum and thequestion about the auction. I think on 3G first of all letus be clear about a few things, which I think is thecommon objective of everybody.1. Indian consumer needs to get the benefit ofimproved technology, which is 3G.

2. I think they need it on an affordable basis and that issomething, which the revolution in India on telecom isbased on.3. The existing operator must get the priority and mustbe ensured a way into 3G.

I think these should be taken as important factors. Now

beyond these there are modalities as to how is it to bedone and the industry is in talks with the governmentand in a dialogue to find out how can all theseobjectives can be met. Therefore whether is going tobe an auction, whether it is going to be a fixed pricing, itis something, you are right as per the recent statementlooks like it might be going towards an auction, but wewelcome that. Whatever the government decides onthat keeping these in mind, but we obviously afterhaving seen the effect of these auctions in the westernworld, naturally I do not think anybody is looking atthose kind of prices or so on. But these being industryissues I think are best dealt at the industry level and itwould perhaps be wrong for individual players to delvedeep into these with individual comments. So we wouldrefrain from getting into more details on this becausethe industry is already in talk with the government andwe have no doubt that like in earlier cases whatever isbest for the consumer, whatever is best for the industryand the nation, an amicable and a nice solution will befound.


Thanks Akhil. That is a clear insight.


You had a last question on margins, Suresh?


Margins and also on I think the spectrum situation?


Spectrum, I will ask Sanjay Kapoor to answer that andalso if you could repeat the question on margins.


Margins, basically I was wondering that since theroaming rate cuts happened this quarter sometime inthe middle, I would have expected EBITDA margin togo down, but maybe the hit is coming in to your longdistance margins depending on how you recognizerevenue. So I just wanted to hear?


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Sanjay Kapoor - President - Mobile Services - BhartiAirtel

Let us answer the spectrum question first. Obviouslythe spectrum availability on 900 MHz is not there. It isfully utilized. What is available is 1800 MHz and thereare about 75 spots available, out of which we believe

that certain agencies that are not utilizing spectrum toits fullest will relinquish about 20 MHz from there andhopefully some decision around that will be taken withinthe next two to three months. So that is the hope goingforward and we believe existing operators will get someportion out of that.


Are you seeing any spectrum shortage in particularcircles and how severe it is because the industry isadding 6 to 7 million subs every month and thespectrum is just limited right?


Yes, absolutely. If you look at the penetration rates insome of the metros, which include Delhi, Mumbai,Bangalore, and the top 10 to 12 cities, the penetrationshave already crossed 60% mark and in some of thoseplaces obviously additional spectrum is very worthyboth from a cost perspective and quality perspective.


Thank you.


On the margin front Suresh most of the hits of theroaming are in the mobile segment itself. Of course tosome extent based on the general reductions the longdistance rates would have also come down so thatwould have made up some margins, but the margin hiton that is in the mobile segments. I think very clearlywhat we have been doing in terms of our expansionand our scale in the last couple of years has nowstarted paying off, and that is how you saw the marginexpansion despite some hit on the roaming side.


Thank you Akhil. Thank you.

Diana - Moderator

Thank you, sir. At this moment I would like to handover the proceedings back to Shikha.

Shikha - Moderator

Thank you very much Diana. We will now begin thequestion and answer interactive session for theparticipants in India who are connected through audioconference service from Airtel. Participants who wishto ask questions may please press * 1 on their

touchtone enabled telephone keypad. On pressing *1 participants will get a chance to present theirquestions on a first-in line basis. To ask a questionplease press * 1 now. The first question comes fromMr. Jatin Mandalia from Anand Rathi Securities,Mumbai. Mr. Mandalia you may ask your question now.

Jatin Mandalia Anand Rathi Securities - Mumbai

Good afternoon and congratulations to themanagement for an excellent set of numbers. Just acouple of questions. There has been a quarter-over-quarter decline in the revenue growth rate in thebroadband and enterprise segment. Can you givesome colour and the scenario going forward? Second

question is regarding the government plans of providingthe broadband services by 2009 free what would be theimpact on Bharti Broadband segment?


Could you please repeat the first question again?


Yes, there has been a quarter-over-quarter decline inthe revenue growth rate in the broadband andenterprise segment. Can you give some colour on that

and the scenario going forward?

Atul Bindal - President - Broadband & TelephoneServices - Bharti Airtel

Let me take the first question first. This is Atul Bindal.As I said earlier, our strategy is essentially pivotedaround a clear focus in the 94 towns for the twosegments of homes and small and mid sizedbusinesses, leading with broadband first and buildingvoice and other media ARPU usages on top of that andthird is to run a very tight and efficient scalablebusiness model. This is clearly what has been payingdividends with both ARPU as well as operatingefficiency in terms of margins moving up quarter-on-quarter. The little bit of revenue sagging of growth rate

that you have seen is on account of certainreclassifications, which we had to do and that basicallyis the reason but otherwise revenue has been growingat a satisfactory rate.

Moving on to the second one we would welcome anymove towards making broadband more affordable andthe ministers statement is welcome. Obviously wewould look forward to engaging with the governmentbecause certainly a key enabler there is going to be theUSO funds and how could that actually bring the cost


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down in terms of making the rule out economicallyviable and long-term sustainable over the long run.2. At some stage hopefully there would be a local loopand bundling which would allow private operators likeourselves to actually go on to share the cost platform.


Thanks.

Shikha - Moderator

Thank you, sir. The next question comes from Mr. HaritShah from Angel Broking Securities, Mumbai. Mr.Shah you may ask your question now.

Harit Shah Angel Broking - Mumbai

Good afternoon and congratulations on an extremelygood set of numbers to the management. Basically I

just wanted to get an idea, here, in the month of Marchwe saw Bharti Airtel losing around a little bit to BSNL forthe first time I think in quite a few months Bharti was notthe company that had the maximum number of users inthat particular month. So do you see this as sometrend or would you read anything into this particularstatistic going forward?


Our reaction to that is probably same as yours overhere where we have seen a blip suddenly. If you lookat BSNLs number on a regular basis this is a big blipthat has suddenly happened and I am afraid that we are

not in a position to explain that to you. The only thingwe can say is that if you look at our market share duringthe month of March, that gain has not happened at outcost.


Right. My next question, can you give some idea of theamount that was saved due to the cut in ports chargespayable during the quarter?


This is really a marginal saving. We do not have thefigures as of now.


But it is nothing really material.


I just wanted to get an idea what is Bharti Airtels takeon the IPTV market. Have you any specific plans onthat going forward, in IPTV and DTH what do you feel isthe kind of potential that can materialize over the nextmaybe three to five years? Thank you.


We believe that has we target homes and commercialsegment media would be certainly a key dimension andkey revenue driver for us. IPTV is actually a veryunique product, which unlike certain other far moremature products and services in the telecom sector isnot supported by a completely standardized ecosystemof partners and technology and that is the situationaround the world. We have been conducting trialssuccessfully for IPTV for some time now in parts ofNCR. We are continuing to work on those. Ourobjective clearly is to ensure a commercial launch,

which would deliver world-class customer experience,which is worthy of a brand like Airtel and we believethat later this year we shall be launching commerciallyin the NCR region and next year we would take thismodel and extend it to at least a couple of othermarkets, the larger market. In the long run we believethat IPTV is something, which would be uniquelypositioned to serve the class segment, and the masssegment is something, which could be addressed byour DTH strategy.


Thanks a lot and best of luck for the future.


Thank you.

Shikha - Moderator

Thank you, sir. The next question comes from Mr.Sanjay Chawla from J. P. Morgan, Mumbai. Mr.Chawla you may ask your question now.

Sanjay Chawla J. P. Morgan - Mumbai

Good afternoon, thank you for the call. I have three orfour questions.1. If you can provide the capex figure for fiscal 2008excluding DTH and Sri Lanka and IPTV.2. Coming back to the employee cost, the absoluteemployee costs have declined 9% quarter-on-quarter.If you could just provide some colour on that?3. With regard to your tower de-merger and hive off,would you be transferring all the towers to the towercompany or would there be any selective transfer oftowers?


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4. Your depreciation seems to have grown only 2%sequentially quarter-on-quarter. Is there a particularreason for that? Thank you.


Well let me take up the two on the capex and thetowers and ask Sarvjit to talk about the employee costand the depreciation. On capex we would not be ableto give you the figures excluding DTH and Sri Lankabecause we would not like to give an idea of how muchdo we plan to spend on those two new ventures forcompetitive reasons, but all I can say that obviously outof 3.3 to 3.5 the predominant portion is in India onprojects excluding DTH and Sri Lanka.

As far as the towers are concerned we intend totransfer all the towers under Airtel and not on aselective basis. Sarvjit....

Sarvjit Dhillon - Chief Financial Officer BhartiAirtel

As far as the employee costs are concerned for thethird quarter, we have stratified contractors from otherline items, which is why you see that change. I thinkmore than that you should just look at the three-linegraph so you will see the opex part has improved from33% to 32% on an ongoing basis. Secondly as far asdepreciation is concerned, we have closed somecontracts; as far as the long term contracts withvendors are concerned, there has been a little bit of adepreciation gain this quarter.


With regard to depreciation, Sarvjit, is there also anyimpact of some kind of asset runoff from the old assetsfully depreciated?


No, not at all.




All right. Thank you.

Shikha - Moderator

Thank you, sir. The next question comes from Mr.Shubham Majumdar from Macquarie Securities,

Mumbai. Mr. Majumdar you may ask your questionnow.

Shubham Majumdar - Macquarie Securities-Mumbai

Hello everyone. Thanks for taking my question. I waswondering the roaming tariff cut, which took effect fromFebruary 15, has probably shown off in the ARPU andaverage revenue per minute numbers; however, themobility EBITDA margins are obviously at an all timehigh, up 150 basis points quarter-on-quarter. I wouldhave thought roaming being highly profitable, is theresomething that we are missing in terms of a disconnectbetween ARPU, ARPM and mobility EBITDA marginsor is there a possibility for some kind of compression onmobility EBITDA margins going forward, once you havea full quarter of roaming tariff being reflected in thenumbers?

Sanjay Kapoor - President - Mobile Services

Bharti Airtel

Well, what you have seen is the adjustment of domesticroaming tariffs for one and a half months. That is whatis reflected in the last quarter and like I said earlier ithas an impact of about 60 crores. But we have oftenseen that the elasticity begins to play after any suchtariff decline and the impact of elasticity is probably notfully reflected, if at all, in the next quarter we should seesome of the minutes coming back.


Sure. So there is no particular risk to mobility EBITDA

margins going forward from this big cut in roamingrates?

Sanjay Kapoor - President - Mobile Services Bharti Airtel

It is more or less settled.


My other question was the average revenue per line inyour fixed line and broadband business was down 7%quarter-onquarter to Rs. 1112, the lowest we haveseen in the last four quarters. There was a nice trendbuilding up in that business as ARPL going up and thathas got the snub. Is there a trend there or can youthrow some light here on the ARPL which is whyrevenues are also a little below your expectations?


Hello, this is Atul Bindal again. Yes there is a trendexcept that I think we should watch for the trend over at


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least three to four quarters. Ours is once again abusiness, which has got actually a very good mix of B-to-B customers as well as consumer and retailcustomers. If you were to actually see the ARPUmovement over the last five quarters, you wouldactually see that compared with March same time lastyear, there is actually an ARPU accretion and

compared to that quarter-over-quarter there has been apositive movement just barring the last quarter whereonce again, as I said earlier, there was areclassification. The second thing, which once again

just to reinforce the point, the operating efficiency of thebusiness is really where the focus has been, where theEBITDA margins have moved up by as much as 5.5%to 6% points over the same period, while actuallysustaining the ARPU, and we believe this is a stablephase of the business.


Is there a reasonable sort of possibility that ARPU will

probably come back at least to earlier levels?


Our strategy going forward is clearly that we would liketo offer flat bundled tariffs to customers, which wouldallow us to go after as high a share of wallet with thataffluent household, with small and medium sizedbusinesses and commercial customers. We believethat this would actually allow us to leverage the longdistance services capability that we have internally, thevoice and broadband capability and what is more for acertain section of small and mid sized businesses, thiswould be the arm of the business, which would bedelivering One Airtel services, which would include

mobility and wireless as well. So that should actuallyallow us to really assure us and stabilize the ARPU.


So there is no sort of lasting list to ARPL in thisbusiness from the change in mix in the customersegment as we expand into newer customer segmentsand newer cities?


Absolutely not and that is why we are consolidating ourpresence in the 94 towns first and going deeper ratherthan wider.


Mr. Shubham I must also add that contrary to themobile business we have also always maintained thatin this business because of the high capital cost per line

ARPU is important. Because unless we have a decentARPU in this business, capital productivity is very lowtherefore you see that our strategy here is not a massstrategy like in the case of mobile, and therefore it is nota business where we are trying to get each and everycustomer at whatever revenues and therefore theARPU in this will be steady.


Perfect. The third one, Akhil, was the DoT and more soI guess the media has been making statements thatrandom sampling reveals significant non-compliance ofaddress or identity verification across operators and Rs.1000 penalty to be charged for each unverifiedcustomer live on the network post March 31, the mediadid talk about a 90% compliance rate for Bhartisnetworks. Is that correct and what is the official take onthis?

Sanjay Kapoor - President - Mobile Services Bharti Airtel

Well this is Sanjay Kapoor. I want to show you thatwhat we reported to the government on March 31, wasin compliance with the policy that the government hadput in place. After that, there is some audit that hasbeen done and some reports that have come out in thenewspaper, but what is the premise and reason behindthat how 90% has been calculated we have not got intoit. We are pretty clear that we know how we went aboutit and unless and until we understand the details I donot think we should be commenting on it. From ourpoint of view 100% compliance has been done as perthe process issued by the government.


Perfect. Lastly what is the time line for DTHcommercial launch and if it is going to be a launch is itgoing to be a national launch or selective launch incertain markets followed by a national launch?


All I can say at this point is that we intend to launch theDTH by sometime in the end of the year or early nextyear. Where and when, I think we would not want todiscuss that even while the plans are being finalized

now. That has a lot of competitive intensity in that.


Do you mean the fiscal year, Akhil?


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Yes, I mean the fiscal year. Either by the end of thisyear or maybe early next fiscal year.


Lastly, on the capex number for the next year, one canlook at it in a positive manner or a negative mannerdepending on what sort of perspective one has, but areyou just trying to create a significant anticipation ofincrease in competitive intensity where you want tosignificantly increase the volume of minutes to take themarket to a higher model as new competitors likeVodafone or Idea getting pan-national and so on and soforth happen?


The first and foremost, let me say, you are right. Youcould look at it positively or negatively, but the reasonwould be different. Normally speaking, more capexshould be very, very positive in a market where thewhole duty of this market is the growth, but you couldsee it negatively if the capital productivity ratio startsfalling drastically. We believe that our capitalproductivity will be intact and perhaps improve, andtherefore the capex, which we intend to have is onlypositive because what we have trying to capture isgrowth, and that is what we believe our business is.So, we are doing what we should be doing. It hasnothing to do with the competitive intensity; this hasalways been there. We believe we are into a businesswhere everybody must try and get maximum benefit ofthe growth opportunity being offered. Our experience

of going deeper into the country has been fantastic andI think we are going to build on that and therefore thiscapex plan is merely to acknowledge the massivegrowth potential which this country is representing, andwe are saluting that rather than doing it as a reaction orpreempting any other move.


Let me also supplement that. Our plans have nothingto do with our competition, and I think our experience inthe last year or so with going into smaller towns andvillages has been very gratifying, the traffic trends havebeen very positive, usage has been good, so wethought it will be a good idea to really take an

aggressive stance on more town and village coverage.


So you are talking about sustained increase in yourcapital productivity ratio going forward as a result of thislast capex?


Well, we will not mind a little bit of debt, but nothingalarming because obviously from time to time as wepump in more capex, there could be some periodicalminor debts, which is fine. This capital productivity

cannot be measured on a pure quarter-to-quarter basis,but on an overall basis absolutely we expect capitalproductivity to increase over long term.


What, to your mind, would be the targeted populationcoverage on the back of 12 months or 15 months fromnow once you put in this sort of capex, this 59%number should look like what Akhil?


Looks like something around 70% plus.


Thank you all very much. Thanks.

Shikha Moderator

Thank you, sir. The next question comes from Mr.Rahul Singh from Citigroup, Mumbai. Mr. Singh, youmay ask your question now.

Rahul Singh Citigroup- Mumbai

Hi, good afternoon everyone. My question is again onthe capex front. Just wanted to know, I presume thatmost of these 30,000 cell sites or base stations wouldbe obviously on sharable towers. So does it mean thaton a like-to-like basis assuming that next year yoursharing levels would obviously improve if one were toadjust for it, then actually your capex intensity or rathercapex activity is actually going up much more than justwhat the $2billion to $3.5 billion shift would suggest.The second related question is, we have discussed inthe past how physically challenging it is to set up even20,000 towers per year, so what is your take on thetask of having to set up 30,000 towers per year which isa 50% increase in what you did last year and also onceagain just to get it verified again whether all of thesetowers which would be set up for these 30,000 basestations would be sharable?


Well as you know, we have demerged the tower sideinto a new company called Bharti Infotel, a 100%subsidiary of Airtel whose principal job is to share and


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therefore it can be safely assumed that practically all ofthese new towers will be certainly sharable. Out ofthese 30,000-odd towers, some of them could be onsome other operator towers but that could be minor. Toanswer your question in a simple manner, yes, all thesetowers would be sharable. The other part you wantedwas on physical rollout. Well I think we are well geared

for that. In the last month we have already done morethan 2500 towers and therefore I could say, whilecertainly it is very challenging, very challenging indeed,but I think it is doable. We are pretty well equipped forthat.

Rahul Singh Citigroup- Mumbai

Just my first part of the question that adjusted forobviously higher infrastructure sharing, which you willdo in fiscal 2008, can we assume that actually thecapex activity is going up much more than what theshared capex numbers would suggest, becauseobviously if you were not sharing at all or if you aresharing as in the past, then this $3.3 to $3.5 billion

dollars would actually have been higher.


Yes, you are quite right. I think to some extent this istrue. As we share more towers, naturally the capex is alittle lower on the per tower basis, but what you mustnotice this year is we are having a massive thrust onthe optic fibre side as well. We will be putting up20,000 to 25,000 km of optic fibre across the country.,The intensity, you are right, on all fronts is going to behigh.

Rahul Singh from Citigroup

This 30,000 number is the cell site number, not thetower number?


It is towers. These are towers.

Rahul Singh from Citigroup

These are towers, I mean, because if you are sharingthen your number of towers would obviously be lowerthan


These are the technical is taking BTS site basestation site.


In some places, there will be a tower, some placesthere could be a pole, but these are BTS towers.

Rahul Singh Citigroup - Mumbai

Okay, thank you.

Shikha Moderator

Thank you, sir. The next question comes from Mr.Vinay Jaising from JM Morgan Stanley, Mumbai. Mr.Singh, you may ask your question now.

Vinay Jaising JM Morgan Stanley Mumbai

Thank you, sir. I think I am going to ask you again thesame questions, which my previous colleagues have

asked, capex. As you rightly said, it can be a concernor it can be pleasing. Even if you see your last twoyears results, you net adds have doubled, your capexhas increased. Sitting in 2007, and moving to the nextyear and increasing capex by 50% moving from $3.3 to$3.5 billion which largely has a lot of mobile network, Iam seeing that the three-line graph will more or less beas productive as it was earlier. I do not know whether Iam missing something or are we talking about 2.5million plus net adds per month. Where are we missingsomething to see that kind of a growth to give you sucha productivity coming ahead? That is my first question.The second question is on the margins of the enterprisebusiness. I know you did suggest look at the lastcouple of quarters of margins to kind of smoothen it. Isa 40% number likely there for the long term? Ditto

question for the long distance business. Could you giveus some guidance on how smooth can we expectmargins in the long distance business? Is a 30% to32% margin there good or should we look higher?


On the capex front, well certainly on the mobile sidewhile the bulk of the capex does go into mobile, we dobelieve that on a longer-term period, the capitalproductivity would be maintained if not improved. Youare right. There could be a little bit of dips on a quarter-to-quarter basis depending on how quickly we are ableto deploy it, but yes, on a long term basis, we believethis is sustainable.


Akhil, the reason I am asking this is last year we spokeabout 50% population going to 60% which we haveachieved 59 now, and now 59 is going to 70. So thepopulation coverage is virtually just the same.


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You are quite right. I do not think this is purelydependent on how much extra population alone youhave covered. The fact remains that as you intensifyand increase your capacities and, you know, quite a

significant portion of the new base stations will go forcapacity expansion. No, it is a myth that onlycustomers are coming from new places. I mean thereare customers coming from existing areas where wehave already set up the network, and the proof of that,Vinay, is the fact that the minutes of use per customer,as you have noted, keep going up. In this quarter, ithas gone up by 9 minutes or so to 475, which is a proofthat the existing customers use it more. So, we believeit is a maintainable situation and that is what we wouldwork for, but some of the capex as you noted, is alsogoing significant portions for B&T, for national longdistance, for the international one, and some of theprofitability improvements will also be coming from thatside. On the margin front, I think 40% on the mobileside or near about that does look, at this point in time,something, which could be sustainable. On longdistance, because there is a much higher element ofexcess charge in that by way of settlement C or otherlevies, I think it could be safe to say that 30%-32% doeslook like on the gross revenues, a decent kind of amargin.


One last question, if I may ask. Any kind of indicationson where you are looking at in terms of net adds for theyear as a whole for Bharti for the month, whatever wayyou look at it?


Bharti Airtel

Well, I wish I could give you that, but that somebody asintelligent as you will immediately turn into a properguidance, Vinay. I would not be able to do that.


Thank you, sir.

Shikha Moderator

Thank you, sir. The next question comes from Ms.Priya Rohira from Enam Securities, Mumbai. Ms.

Rohira, you may ask your question now.

Priya Rohira - Enam Securities Mumbai

Hi, this is Priya Rohira from Enam. Congratulations ona good set of numbers. My first question relates to theimplications on the IPLC retail proposition, which TRAIhas been looking forward to for your business. Secondquestion relates to, if we observe the traffic minutes foryour broadband and telephony segment, has it been

muted in terms of 5% growth QOQ or 20% YOYbecause of the reclassification?


Manoj, would you be


Can you repeat the first question?


In terms of the resale in the IPLC segment which TRAIhas been proposing.


We welcome these steps because if somebody wantsto be a reseller, absolutely, why not, because in anyevent, on our IPLC front and the data bandwidth front,we have regular customers in other carriers. In fact, wehave carriers as a separate business where we not onlycarry the minutes for our competitors; we also givebandwidth to our competitors on the enterprise side. Sowe welcome these steps. These things should bestreamlined rather than anybody coming through theback door, I think proper licenses for re-sellers issomething which we welcome.


Looking more from the increase in the competition

angle point of view


It is already there. It is already there, it is not that thereseller licenses will create that competition. It isalready there.


Right. Okay, my second question was on this readingon the traffic minutes that you have in the broadbandand telephony segment, which in the last quarter, it hasgrown 5% sequentially and 20% YOY whereas if I look

similarly for the December quarter, the YOY increasewas 26%. Is it more to do with reclassification or if youcould explain more on why the minutes have increasedbut YOY growth has been muted.

Atul Bindal President Broadband & TelephoneServices Bharti Airtel

This is Atul Bindal again. No there is no reclassificationhere. The minute growth that you have seen is a pureminute growth and we actually believe that this is


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indeed the stable growth rate, which we would beseeing going forward. Our plan is as follows. This isthe growth rate that you have seen largely coming fromcustomers who have been on just a single place, so tosay, which is just solo voice or broadband and we havetaken our broadband penetration up from 23 to 31-32%,but we believe that there is still a hell of a lot of

opportunity, which is there in the market. So it isessentially a two-pronged strategy as we go forward.One is that we intend continuing to interrogate our voicecustomers to cross-sell broadband into them and viceversa and we believe that that is going to be one sourceof gain for minutes and therefore ARPU. Secondly, goon to triple play as we go forward and start getting intomedia and that is the other way to get to a larger shareof wallet as far as homes and commercial segments areconcerned. On the B-to-B side, which is a small andmid sized businesses, again the objective here is to gofrom the products to solutions mode and throughalliances as well as a model, which would seek toconvert capex to opex. For our customers, we believethat we would be able to sustain this minutes of usegrowth and much more.


My last question relates to on the long distance sidewhere you mentioned that you would plan to increasecoverage by 20,000 to 25,000 km. Given the currentstate at around 40,500-odd km, what percentage of thelong distance originating calls would be covering withthis coverage now?

Atul Bindal President Broadband & TelephoneServices Bharti Airtel

Today I think, if I am not mistaken, we cover somethingabout around 80% or slightly lower than that, and with

these we will be able to expand it much more, muchhigher than that. Our intention is this point in timecarries all our traffic and this year our aim is that if weare able to roll out the way we want to at least 95% plusof our own traffic is something, which we want to carry.But that is a huge difference because it is not only ourown traffic, we would also be in a position to carry thetraffic of the other operators and that is why this is acrucial strategic movement, which we are having thisyear.


Thanks very much, and wish you all the best.

Atul Bindal President Broadband

Documents

Transcript Earnings Call q4 Fy07