Annual Report - Reliance Communication - 2008-2009

RELIANCE COMMUNICATIONS LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

Dear Shareowners,

Your Directors have pleasure in presenting the fifth Annual Report and the
audited accounts for the financial year ended 31st March, 2009.

Financial Results

The standalone performance of the Company for the financial year ended 31st
March, 2009 is summarised below:

Particulars Financial Year ended * Financial Year ended
31st March, 2009 31st March, 2008

(Rs. in crore) USS in (Rs. in crore) US$ in
million** million**

Total income 13,694.66 2,700.05 13,426.65 3,354.99

Gross profit before
depreciation,
amortisation and
exceptional items 3,288.75 648.41 4,463.92 1,115.42

Less:

a. Depreciation and
amortisation 1,933.51 381.21 1,843.66 460.68

b. Exceptional items
and other adjustments (3,459.83) (682.14) 16.17 4.04

Profit before tax 4,815.07 949.34 2,604.09 650.70

Less: Provision for:

Current tax - - 2.10 0.52

Fringe benefit tax 12.40 2.44 15.54 3.88

Profit after tax 4,802.67 946.90 2,586.45 646.29

Add: Balance brought
forward from previous
year 4,300.24 847.84 2,294.90 573.44

Profit available for
appropriation 9,102.91 1,794.74 4,881.35 1,219.73

Appropriations:

Proposed Dividend on
equity shares - - 154.80 38.68

Interim Dividend paid
on equity shares 165.12 32.56 - -

Dividend Tax 28.06 5.53 26.31 6.57

Transfer to General
Reserve 8,400.00 1,656.15 400.00 99.95

Transfer to Debenture
Redemption Reserve 6.98 1.38 - -

Balance carried to
Balance Sheet 502.75 99.12 4,300.24 1,074.52

* Figures of previous year have been regrouped and reclassified, wherever
required.

** Exchange Rate Rs. 50.72 = US$ 1 as on 31st March, 2009 (Rs.40.02= USS1
as on 31st March, 2008).

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Financial Performance

During the year under review, your Company has earned total income of
Rs.13,694.66 crore against Rs.13,426.65 crore in the previous year. The
Company earned net profit of Rs. 4,802.67 crore compared to Rs. 2,586.45
crore in the previous year.

Dividend

Your Directors at their meeting held on 31st July, 2009 had declared an
interim dividend of Re. 0.80 (16%) per equity share each of Rs. 5 for the
financial year ended 31st March, 2009 [Previous year Re.0.75 per equity
share (15%)] and paid to all eligible equity shareholders of the Company on
6th August, 2009. Your Directors have decided to treat the interim dividend
as final dividend.

The dividend pay out is in accordance with the Company's policy to pay
sustainable dividend linked to long term performance, keeping in view the
capital needs for the Company's growth plans and the intent to optimal
financing of such plans through internal accruals.

Management Discussion and Analysis

Management Discussion and Analysis Report for the year under review as
stipulated under Clause 49 of the listing agreement with the Stock
Exchanges in India is presented in a separate section forming part of the
Annual Report.

The Company has entered into various contracts in the areas of telecom and
value added service businesses. While benefits from such contracts will
accrue in the future years, their progress is periodically reviewed.

Directors' Report

Business Operations

The Company operates on a pan-India basis and offers the full value chain
of wireless, wireline, national long distance, international, voice, data,
video, Direct-To-Home (DTH) and internet based communications services
under various business units organised into three strategic customer-facing
business units; Wireless, Global and Broadband. These strategic business
units are supported by passive infrastructure connected to nationwide
backbone of Optic Fibre Network fully integrated network operation system
and by the largest retail distribution and customer services facilities.
The Company also owns through its subsidiaries, a global submarine cable
network infrastructure, managed services and managed Ethernet and
application delivery services.

During the year under review, the Company had launched GSM services in 14
service areas. The Company had received start-up spectrum to launch GSM
services from Department of Telecommunications (DoT) under its existing
Unified Access Service License (UASL) in 14 service areas. DoT had also
made necessary amendments to UASL of Reliance Telecom Limited (RTL), a
wholly owned subsidiary of the Company to enable RTL to offer CDMA services
in Assam and North East Service Area in addition to existing GSM services
and made allotment of start up spectrum to RTL for providing CDMA services
in Assam and North East.

During the year under review, Reliance Big TV Limited, a wholly owned
subsidiary of the Company launched fully Digital Home Entertainment Direct
To Home (DTH) Service on the most advanced MPEG 4 DTH Platform. Reliance
Big TV Limited currently has 1.7 million subscribers, about 12% of the DTH
market in India within a short span of launch.

Schemes of Arrangement

(a) Scheme of Arrangement with Reliance Infratel Limited

In terms of the Scheme of Arrangement between the Company and Reliance
Infratel Limited (RITL), a subsidiary of the Company and their respective
shareholders and creditors, the demerger of Optic Fiber Undertaking of the
Company in favour of RITL was sanctioned by the Hon'ble High Court of
Judicature at Bombay vide order dated 18th July, 2009. The detailed order
from the Hon'ble High Court of Judicature at Bombay is awaited. The
appointed date was 1st April, 2008.

(b) Scheme of Amalgamation with Reliance Gateway Net Limited

Reliance Gateway Net Limited (RGNL), a wholly owned subsidiary of the
Company amalgamated with the Company in terms of the Scheme of Amalgamation
sanctioned by the Hon'ble High Court of Judicature at Bombay vide order
dated 3rd July, 2009. RGNL stand amalgamated with the Company effective
from 13th July, 2009. The appointed date was 31st March, 2009.

Issue of Securities

During the year under review, the Company had issued 3,000, 11.20%, Secured
Redeemable Non-Convertible Debentures (NCDs) aggregating to Rs.3,000 crore
on Private Placement basis to Life Insurance Corporation of India. The NCDs
are redeemable at the end of the 10th year from the date of allotment. The
said NCDs are listed on the WDM Segment of the Bombay Stock Exchange
Limited and the National Stock Exchange of India Limited.

The funds raised have been deployed for ongoing projects and the general
corporate purposes of the Company and its subsidiaries.

Repurchase of Foreign Currency Convertible Bonds (FCCBs)

In terms of approval received from Reserve Bank of India, the Company had
repurchased 350 Zero Coupon FCCBs each of USS 1,00,000 aggregating
Rs.169.99 crore approx. (US S 35 Million) at a discount during the year
under review. In the current financial year, the Company has also
repurchased and cancelled 297 Zero Coupon FCCBs each of USS 1,00,000 at a
discount.

The outstanding FCCBs issued by the Company if converted into the Equity
Shares of the Company would result in increase to the paid up Equity Share
Capital of the Company by 8.91 crore Equity Shares each of Rs.5/-.

Subsidiary Companies

During the year under review, Reliance Vanco Group Limited and its

subsidiaries, Reliance WiMax World Limited and Gateway Net Trading Pte.
Limited became the subsidiaries of the Company.

FLAG Telecom France Network SAS, FLAG Telecom France Services EURL, FLAG
Telecom Korea Limited and FLAG Telecom Espana SA ceased to be subsidiaries
of the Company during the year.

In terms of the approval granted by the Central Government under Section
212(8) of the Companies Act, 1956, copies of the Balance Sheet, Profit and
Loss Account, Report of the Board of Directors and Auditors of the
subsidiaries have not been attached with the Balance Sheet of the Company
However, these documents will be made available upon request by any member
of the Company As directed by the Central Government, the financial data of
the subsidiaries have been furnished under 'Financial Information of
Subsidiary Companies', which forms part of the Annual Report. The annual
accounts of the Company including that of subsidiaries will be kept for
inspection by any member. Further, pursuant to Accounting Standard (AS-21)
prescribed under Companies (Accounting Standards) Rules, 2006, Consolidated
Financial Statements presented by the Company include financial information
of subsidiaries.

Employee Stock Option Scheme

The ESOS Compensation Committee of the Board of Directors of the Company on
16th January, 2009 had approved grant of 1,32,17,975 Options, exercisable
into equal number of fully paid up equity shares of the Company to the
eligible employees of the Company its subsidiaries and holding Company
based on specified criteria under 'Employees Stock Option Scheme' (ESOS)
and the ESOS Plan 2009. In order to be eligible under the ESOS Plan 2009,
employees were required to confirm the surrender of Options to which they
were entitled to under the Employees Stock Options Plan 2008 (Plan 2008).
Consequently, the aggregate number of Options under Plan 2008 and the Plan
2009 shall not exceed 1,32,17,975 Options.

Directors' Report

The particulars as required under Clause 12 of SEBI (Employee Stock Option
Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 are as follows:

Particulars E505 Plan 2008 E505 Plan 2009

a. Total grant authorised 1,75,00,000 Options 1,32,1 7,975 Options
by the ESOS Compensation
Committee

b. Total Options granted 1,49,91,185 Options 1,32,17,975 Options

c. Pricing formula decided Market Price or such Average price of the
by ESOS Compensation other price as weekly high and low
Committee Committee may determine. of the closing price
Different Exercise price of the equity share
may apply to different of the Company at
Plan(s). National Stock
Exchange of India
Limited during two
weeks preceeding the
date of Grant i.e;
16th January, 2009.

d. Options vested 16,07,320 Options Nil

e. Options exercised Nil Nil

f. Total number of equity Subject to Option(s) Subject to Option(s)
shares arising as a result exercised by the exercised by the
of exercise of Options employees, not exceeding employees, not exce-
1,49,91,185 Equity eding 1,32,17,975
Shares Equity Shares

g. Options lapsed/surrendered 1,33,83,865 Options 19,38,980 Options

h. Variation of terms of None None
Options

i. Money realised by N.A. N.A.
exercise of Options
during the year

j. Total number of Options 16,07,320 1,12,78,995
in force at the end of the
year

k. Employee wise details of
Options granted to:

i. Senior managerial Nil Shri Hasit Shukla,
personnel Company Secretary
and Manager
1,00,000 Options.

ii. Employee who receives Nil Nil
grant in any one year of
option amounting to 5% or
more of option granted
during the year

iii. Identified employees Nil Nil
who were granted options,
during any one year equal
to or exceeding 1% of the
issued capital (excluding
outstanding warrants and
conversions) of the company
at the time of grant

1. Diluted Earnings Per Rs. 22.28 Rs. 22.28
Share (EPS) pursuant to
issue of shares on exercise
of Options calculated in
accordance with Accounting
Standard (AS) 20

m. The difference between
employee compensation cost
using intrinsic value
method and fair value of
the Options and impact of
this difference on
Profits Rs. 6.64 crore Rs. 9.25 crore

EPS of the Company Rs. 21.21 Rs. 21.21

n. Weighted- average Nil Nil
exercise prices of Options
granted during the year
where exercise price is
less than market price.

o. Weighted- average fair Nil Nil
values of Options granted
during the year where
exercise price is less
than market price.

p. Significant assumptions base: Black Scholes base: Black Scholes
made in computation of fair model model
value

i. Risk-free interest rate, 7.27% p.a 5.00% p.a

ii. Expected life, 1 year 1 year

iii. Expected volatility, 37.58% 70.00%

iv. Expected dividends 0.1 386% 0.4301%
(yield), and

v. The price of the Rs. 541.15 per share Rs. 174 per share
underlying share in market
at the time of option grant.

The Company has received a certificate from the auditors of the Company
that the ESOS Plan 2009 has been implemented in accordance with the
Guidelines and as per the resolution passed by the members of the Company
authorising issuance of ESOS.

Fixed Deposits

The Company has not accepted any fixed deposit during the year under
review.

Directors

In terms of the provisions of the Companies Act, 1956, Shri S. P. Talwar,
Director of the Company retires by rotation and being eligible offers
himself for re-appointment at the ensuing Annual General Meeting.

A brief resume of the Director retiring by rotation at the ensuing Annual
General Meeting, nature of expertise in specific functional areas and names
of companies in which he holds directorship and/or membership/chairmanships
of Committees of the Board, as stipulated under Clause 49 of the listing
agreement with the Stock Exchanges in India, is given in the section on
Corporate Governance forming part of the Annual Report.

Directors' Responsibility Statement

Pursuant to the requirements under Section 217(2AA) of the Companies Act,
1956 with respect to Directors' Responsibility statement, it is hereby
confirmed that:

i. In the preparation of the accounts for financial year ended 31st March,
2009, the applicable Accounting Standards have been followed alongwith
proper explanation relating to material departures;

ii. The Directors had selected such accounting policies and applied them
consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company as at 31st March, 2009 and of the profit of the Company for that
Period;

iii. The Directors had taken proper and sufficient care for the maintenance
of adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities; and

iv. The Directors had prepared the accounts for financial year ended 31st
March, 2009 on a 'going concern' basis.

Group

Pursuant to intimation received from the Promoters, the names of the
Promoters and entities comprising 'group' as defined under the Monopolies
and Restrictive Trade Practices Act, 1969 are disclosed in the Annual
Report for the purpose of the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997.

Consolidated Financial Statements

The Audited Consolidated Financial Statements, based on the financial
statements received from subsidiaries, associates as approved by their
respective Board of Directors have been prepared in accordance with
Accounting Standard (AS-21 ) on Consolidated Financial Statements read with
Accounting Standard (AS-23) on Accounting for Investments in Associates,
notified under Section 211 (3C) of the Companies Act, 1956 read with
Companies (Accounting Standards) Rules, 2006, as applicable.

Auditors

M/s. Chaturvedi & Shah, Chartered Accountants and M/s. B.S.R & Co.,
Chartered Accountants, as Statutory Auditors of the Company, hold office
untilthe conclusion of the ensuing Annual General Meeting and are eligible
for re-appointment.

The Company has received letters from M/s. Chaturvedi & Shah, Chartered
Accountants and M/s. B S R & Co., Chartered Accountants, to the effect that
their appointment, if made, would be within the prescribed limits under
Section 224(1 B) of the Companies Act, 1 956, and that they are not
disqualified for such appointment within the meaning of Section 226 of the
Companies Act, 1956.

Particulars of Employees

In terms of the provisions of Section 217(2A) of the Companies Act, 1956
read with the Companies (Particulars of Employees) Rules, 1975, the names
and other particulars of employees are set out in the Annexure to the
Directors' Report. However, having regard to the provisions of Section
219(1)(b)(iv) of the Companies Act, 1956 the Annual Report excluding the
aforesaid information is being sent to all the members of the Company and
others entitled thereto. Any member interested in obtaining such
particulars may write to the Company Secretary at the Registered Office of
the Company.

Conservation of Energy, Technology Absorption and Foreign Exchange Earnings
and Outgo

Particulars required to be furnished underthe Companies (Disclosure of
Particulars in the Report of Board of Directors) Rules, 1988 are as under:

1. Part A and B pertaining to conservation of energy and technology
absorption are not applicable to the Company.

2. Total foreign exchange earnings and outgo for the financial year is as
follows:

a. Total Foreign Exchange earnings : Rs. 1,393.54 crore

b. Total Foreign Exchange outgo : Rs. 4,017.41 crore

c. Activities relating to exports; Initiatives taken to increase export;
development of new export markets for products and services; and export
plans:

The Company has taken various initiatives for development of export markets
for its international telecom services in the countries outside India to
increase its foreign exchange earnings.

Corporate Governance

The Company has adopted 'Reliance Anil Dhirubhai Ambani GroupCorporate
Governance Policies and Code of Conduct' which has set out the systems,
process and policies conforming to international standards. The report on
Corporate Governance as stipulated under clause 49 of the listing agreement
with the Stock Exchanges, forms part of the Annual Report.

A Certificate from the Auditors of the Company M/s. Chaturvedi & Shah,
Chartered Accountants and M/s. B.S.R & Co., Chartered Accountants,
conforming compliance with conditions of Corporate Governance as stipulated
underthe aforesaid Clause 49, is annexed to this Report.

Acknowledgements

Your Directors would like to express their sincere appreciation of the co-
operation and assistance received from shareholders, debenture holder,
bankers, regulatory bodies and other business constituents during the year
under review. Your Directors also wish to place on record their deep sense
of appreciation for the commitment displayed by all executives, officers
and staff, resulting in the successful performance of the Company during
the year.

For and on behalf of the Board of Directors

Place: Mumbai Anil D. Ambani
Date : 8th August, 2009 Chairman

MANAGEMENT DISCUSSION AND ANALYSIS

Forward looking statements

Statements in this Management Discussion and Analysis of Financial
Condition and Results of Operations of the Company describing the Company's
objectives, expectations or predictions may be forward looking within the
meaning of applicable securities laws and regulations. Forward looking
statements are based on certain assumptions and expectations of future
events.

The Company cannot guarantee that these assumptions and expectations are
accurate or will be realised. The Company assumes no responsibility to
publicly amend, modify or revise forwardlooking statements, on the basis of
any subsequent developments, information or events. Actual results may
differ materially from those expressed in the statement. Important factors
that could influence the Company's operations include interconnect usage
charges, determination of tariff and such other charges and levies by the
regulatory authority, changes in government regulations, tax laws, economic
developments within the country and such other factors.

The financial statements are prepared under historical cost convention, on
accrual basis of accounting, and in accordance with the provisions of the
Companies Act, 1956 (the Act) and comply with the Accounting Standards
notified under Section 21 1 (3C) of the Act read with Companies (Accounting
Standards) Rules, 2006. The management of Reliance Communications Limited
('Reliance Communications' or 'RCom' or 'the Company') has used estimates
and judgments relating to the financial statements on a prudent and

reasonable basis, in order that the financial statements reflect in a true
and fair manner, the state of affairs and profits for the year. The
following discussions on our financial condition and result of operations
should be read together with our audited consolidated financial statements
and the notes to these statements included in the Annual Report.

Unless otherwise specified or the context otherwise requires, all
references herein to 'we', 'us', 'our', 'the Company', 'Reliance', 'RCOM',
'RCOM Group' or 'Reliance Communications' are to Reliance Communications
Limited and its subsidiaries and associates.

Macro economics

The Indian economy entered the financial year 2008-09 on a buoyant note.
During the preceeding three years, India witnessed rapid economic growth
with the Gross Domestic Product (GDP) growing on an average of around 9
percent. However, the growth momentum was moderated in the year under
review because of the global economic turmoil. Like all emerging economies,
India too has been impacted by the crisis. As per the revised estimates for
the year 2008-09, the GDP for the year grew at 6.7 per cent as against 9.1
per cent in the previous year.

There were some comforting factors -well-functioning financial markets,
robust rural demand, lower headline inflation and comfortable foreign
exchange reserves - which buffered the economy from further adverse impact
of the crisis. The fiscal stimulus packages of the Government and the
monetary easing and regulatory action of the Reserve Bank have helped to
arrest the moderation in growth and keep financial markets functioning
normally.

Overall review

RCOM is India's foremost truly integrated and converged telecommunications
service provider. We operate across the full spectrum of wireless,
wireline, and long distance, voice, data, video and internet communication
services. We also have an extensive international presence through the
provision of long distance voice, data and Internet services and submarine
cable network infrastructure globally. With a customer base of over 85
million (including over 2.2 million overseas retail customers) RCOM ranks
among the Top 5 telecom companies in the world in terms of number of
customers in a single country. Our corporate customers includes 2,100
Indian and multinational corporations, and over 800 global, regional and
domestic carriers.

We are India's first and only telecom service provider offering nationwide
CDMA and GSM mobile services. RCOM has established a pan-India, integrated
(wireless and wireline) and convergent (voice, data and video) digital
networkthat is capable of supporting the full range of best-of-class
services spanning the entire communications value chain. It offers the
widest network reach, covering over 24,000 towns and 600,000 villages.

Our nationwide enhanced next generation EDGE GSM network has digital voice
clarity. Our mobile portal, R World, offers the widest range of mobile
content spanning entertainment, music, news, cricket, Bollywood, maps,
search, one-click set-up, access to email and social networking. In short,
it provides the communication features of a PC, at the price and
convenience of a handset.

RCOM owns and operates the world's largest next generation IP enabled
connectivity infrastructure, comprising over 277,000 route kilometers of
fibre optic cable systems in India, USA, Europe, Middle East and the Asia
Pacific region. In India, we provide long distance business services
including wholesale voice, bandwidth and infrastructure services. Globally,
we provide carrier's carrier voice, carrier's carrier bandwidth, enterprise
data and consumer voice services.

RCOM offers the most comprehensive portfolio of enterprise voice, data,
video, internet and IT infrastructure services which include national and
international private leased circuits, broadband internet access, audio and
video conferencing, MPLS-VPN, remote access VPN, Centrex, toll-free
services voice services for offices, voice VPN for corporate and managed
international data centre ('IDC') services offering unique, value added
products and services to large, medium and small enterprises for their
communications, networking, and IT infrastructure needs across the country.

RCOM launched nationwide Direct to Home satellite TV services under its
wholly owned subsidiary, Reliance Big TV Limited which uses state-of-the-
art MPEG 4 technology to deliver over 200 channels including 32 exclusive
movie channels to its subscribers. We will also deliver high definition
content and Dolby digitalvoice quality to our viewers on this platform to
create a highly personalised video experience.

Strategic Initiatives

Fastest ever, pan-India network roll out

The Company commenced commercial operations of its nationwide GSM service
on 30th December, 2008. GSM-based wireless mobile services were initially
launched in 1 1 ,000 Indian towns, which were later extended to cover
24,000 towns in phased manner. We launched GSM services in a record time of
1 1 months from the date of allotment of spectrum. This is the fastest
rollout ever of such size and scale and was achieved leveraging our
existing nationwide technology-agnostic common infrastructure.

India's largest telecom tower infrastructure deal till date

RCOM, in a significant move, entered into a long term passive
infrastructure sharing agreement with Etisalat DB Telecom. Etisalat is one
of the largest telecom operator in the Middle East. This strategic alliance
will encompass end-to-end tower and transmission infrastructure for
Etisalat DB Telecom's forthcoming roll-out of telecom services in 1 5
telecom circles in India. The deal is valued at about Rs. 10,000 crore for
passive infrastructure sharing over the next 10 years.

Created Joint Venture (JV) with global major Alcatel-Lucent for outsourced
network operations

RCOM, along with Alcatel Lucent, formed a joint venture company to provide
Managed Services to the GSM and CDMA networks of the Company and RTL, its
subsidiary covering 22 circles, 24,000 towns, 600,000 villages, and over 80
million customers. The joint venture company may provide similar Managed
Services to other telecom companies across the globe. The JV is one of the
largest multi-vendor Managed Services deals in the world and a first for
multi -technology managed services in India (both GSM & CDMA). The JV also
focuses on process improvements and business development opportunities in
India and globally.

Launch of India's fastest wireless broadband services

RCOM recently rolled out its fastest Wireless Internet service, 'Reliance
Netconnect Broadband Plus', with a downlink speed of up to 3.1 Mbps. This
makes Netconnect Broadband Plus best suited for video streaming, video
surveillance, rich media content and superior Internet browsing. Netconnect
Broadband Plus service is available in 35 major cities with seamless
handover to high speed 1x service covering 24,000 towns and 600,000
villages as well as all major road and rail routes across the country
covering 99% of India's Internet population.

Alliance with Kribhco to boost rural sales

RCOM, through its wholly owned subsidiary, Reliance Communications
Infrastructure Limited, formed a joint venture with Krishak Bharati
Cooperative Limited (Kribhco), a premier co-operative society with an
unparalleled marketing network in rural India. This will catalyze tele-
density growth and the provision of state-of-the-art products and services
to the rural market in India. Kribhco Reliance Kisan Limited, the JV
company, would create a first-of-its-kind distribution model covering 72
per cent of India's population through its network of over 25,000
cooperatives, 6,300 member co-operatives and 60 'Krishi Seva Kendras'
spread across the length and breadth of the country. The unique
distribution model would distribute a range of telecom and non-telecom
products and services with the objective of bridging the urban-rural
divide.

Focused acquisitions to boost global revenues

The acquisition of Vanco Group Limited in May 2008, has strengthened our
position in the global enterprise data market, adding over 220 MNCs to
Reliance Globalcom's customer base. The acquisition also gives us a
significant advantage through access to Vanco's relationship with over 700
global, regional and domestic carriers capable of offering services in 230
countries. Vanco's experienced sales and channel organization structure
will further enhance Reliance Globalcom's customer delivery capabilities in
important geographies like US, UK, France, Germany, Benelux, Singapore and
Australia.

In April 2008, we acquired controlling stake in Reliance WiMax World
Limited (formerly eWave World Limited), a UK headquartered company focused
on the rapidly developing market for wireless telephony services using the
WiMAX technology standard.

Business realignment to improve operations

We continuously look at new opportunities aimed at convergence and
strategic alignments. With this in mind, RCOM undertook further
restructuring within its group entities during the year under review. The
Optic Fibre Undertaking was demerged from Reliance Communications Limited
and vested with Reliance Infratel Limited, a subsidiary of the company. The
treasury division of Reliance Communications Infrastructure Limited was
demerged and vested with Reliance Telecom Limited, both wholly-owned
subsidiaries of RCOM.

Alliance to continue dominance in mobile applications

We have tied up with Flytxt, a leading technology provider, for the
implementation of an integrated carrier-class mobile marketing software
platform called Neon on the RCOM Network. Flytxt enables mobile operators
and service providers to unlock the huge potential of mobile as a customer
engagement channel.

We have tied up with SAS for better business intelligence and analytics and

AMDOCS for Customer Self Service systems.

We have tied up with Swanbaymtech, the U.K. based mobile video services
company, to launch advertising funded videos on Reliance Mobile platform.
Swanbaymtech will offer premium entertainment and sporting events content
to subscribers and keep them connected to the Network.

Creation of centralized ITeS and related shared services

As a strategic initiative, all the Information Technology enabled services
(ITeS) across RCOM Group were consolidated into the newly formed Reliance
Tech Services Private Limited (RTech), an ITeS arm of RCOM. All ITeS of
RCOM were outsourced to RTech for operational flexibility, scale and quick
time-to-market reach for products and services. RTech provides application
development and maintenance services, Business consulting, Telecom Network
Products and solutions, ERP Implementation and Development services,
Geographic Information services, Business Intelligence and Data Analytics,
Network and Internet Security services, Managed Network and Infrastructure
services, Unified Communication and Messaging services and nationwide IT
support services.

Launch of DTH Satellite TV services

RCOM through its wholly owned subsidiary Reliance Big TV Limited (Big TV),
launched its Direct to Home (DTH) Satellite TV services 'Reliance BIG TV'
on 19th August, 2008. BIG TV acquired 1 million subscribers within 90 days
of launch, the fastest ramp up ever achieved by any DTH operator in the
world. As on 31 st March, 2009, BIG TV has over 1 .5 mn customers. BIG
TVwould be tapping into the existing customer base of Reliance ADA Group
companies to rapidly gain market share. The subscribers can enjoy 200
channels including 32 movie channels, which is highest in the industry. The
product is available initially in 100,000 retail outlets across 6,500
towns.

Industry Structure and Regulatory Developments

Industry structure

Wireless

The total base of landline and wireless subscribers in India surged by a
whopping 43 per cent during the year ended 31st March, 2009 to reach 429.7
million, according to the Telecom Regulatory Authority of India (TRAI).
This growth was driven primarily by rural expansion and the availability of
cheaper devices.

During the last two years 10 operators got licences to launch operations in
various service areas. The 3G auction will throw up new challenges and open
up further opportunities. It will also intensify the focus on Value-added
Services and Data in the saturated urban markets.

The all-India blended ARPU per month figure has shown a declining trend,
reflecting the continuing pressure on margins on account of fierce
competition.

Internet & Broadband

Internet subscribers in India grew moderately to 13.5 million and broadband
subscribers to 6.2 million as on 31st March, 2009.

Telecom Infrastructure

The demand for the telecom infrastructure services is driven by the robust
growth of the mobile industry in 2G, migration to EDGE, 3G and a steady
subscriber usage trends. The need for telecom infrastructure is
necessitated by the focus on growth in the rural and new markets.

The number of players in the mobile industry is expected to increase
significantly i.e. from 6 - 7 players today to 1 1 - 1 2 players, with the
issue of over 1 20 licenses to the new operators. These new operators have
been allotted spectrum in about 18 to 20 circles and some of them have now
got joint venture tie-ups with the large global players thereby getting the
necessary impetus to roll out their services. The roll-out of mobile
services by these new players further increases the demand for telecom
infrastructure.

Regulatory developments

1. Dual technology petition quashed by TDSAT

TDSAT, on 31st March, 2009, dismissed the petition filed by the Cellular
Operators Association of India (COAI) challenging the Government of India's
decision allowing dual technology (CDMA and GSM) services to RCOM and other
CDMA operators and upheld the decision to offer dual technology spectrum to
companies like RCOM, Tata, Sistema etc. RCOM is providing unrestricted
mobile services on GSM and CDMA platform through out the country in
association with its subsidiary company RTL. TDSAT has also stated that GSM
operators have no vested right to get the radio frequency beyond 6.2 MHz.

2. IUC Regulation by TRAI

TRAI has amended the IUC (Interconnect and Usage Charges) regulation by an
amendment dated 9th March, 2009. The revised IUC rates have become
effective from 1st April, 2009. Termination charges have been revised to 20
paise per minute from 30 paise per minute earlier. However, termination
charges for international incoming calls to India have been raised to 40
paise per minute from the earlier value of 30 paise per minute. NLD
Carriage charges have been kept the same as earlier i.e. at a ceiling of 65
paise per minute. Carriage charges for calls with in LDCA (Long Distance
Charging Area) have been reduced from 20 to 15 paise per minute. The
transit charges have also been revised from less than 20 paise per minute
to less than 14 paise per minute.

3. Mobile Number Portability (MNP)

Based on the recommendations of Telecom Regulatory Authority of India
(TRAI) on MNP, dated 8th March, 2006,

the Department of Telecommunications (DoT) issued guidelines for MNP
implementation in the country on 1 st August, 2008 in a phased manner,
starting from 'Metros' and 'A' category service areas followed by 'B' and
'C' category service areas. Subsequently the DoT selected two companies as
MNP Service providers each serving in a designated zone in the country.

DoT on 6th May, 2009, issued amendment in the licenses of Unified Access
Service (UAS), Cellular Mobile Telephone Service (CMTS), National Long
Distance (NLD), International Long Distance (ILD) and basic service
licenses to facilitate timely implementation of mobile number portability
service in the licensed service area as per the regulations/orders made or
directions issued by TRAI under TRAI Act, 1997 or any instructions issued
by the licensor from time to time.

TRAI indications are that porting fee and porting regulation will be
finalised by August, 2009 end. Accordingly MNP will be delayed slightly.

4. QoS regulation for wireline and Cellular Mobile Telecom services

TRAI has issued revised QoS (Quality of Service) regulation for CMTS and
wirelineservices on 20th March, 2009. The existing benchmarks have been
tightened and some of the parameters like Service access delay have been
taken off. Some new parameters like - BTS accumulated Downtime, Worst
affected BTSs due to downtime, worst affected cells having more than 3 per
cent TCH drop -are the new parameters which have been added. The benchmark
for Call drop ratio has been reduced to 2 from 3 per cent earlier. The
revised regulation has come into effect from 1st July, 2009.

5. Penalty on Subscriber verification

DoT has revised the penalty in case of non verification of subscribers by
its circular dated 24th December, 2008. A slab based penalty system, which
came into effect from 1st April, 2009, has replaced the earlier flat fine
of Rs 1,000 per unverified subscriber.

6. Roll out obligation

DoT has amended the Unified Access Service License on 10th February, 2009,
with respect to the roll out norms. As per the amendment, the existing
norms on in building coverage have been removed and the service providers
have been given the advantage of the period lost in getting SACFA
clearance. With this amendment, the obligations of the company on account
of roll out has reduced drastically.

7. Auctioning of 3G and Broadband Wireless Access (BWA) spectrum

The auctioning of 3G and BWA spectrum which was originally planned in
January 2009 was postponed by DoT and is now scheduled before the end of FY
2009-10. DoT has referred issues related to the amount of spectrum to be
auctioned and its reserve price to the Group of Ministers. RCOM is the only
existing national operatorwhich has a 3G ready network nationwide, giving
it a head start in offering 3G services in the country.

8. Mobile Virtual Network Operator (MVNO)

In August 2008, TRAI issued recommendations in favour of the entry of
MVNOs. It also prescribed the definition, terms and conditions of MVNO
license, license fee, entry fee etc. The DoT, after taking into account the
industry's views on the recommendations, had referred some of the issues
back to TRAI on 27th February, 2009. After considering the suggestions/
changes suggested bythe DoT, TRAI has issued revised recommendations on
12th March, 2009. But DoT is yet to take a final decision in the matter.

9. 48th Telecom Tariff order by TRAI

TRAI had issued a consultation paper on 'Plethora of Tariff plans' in
February 2008. After consulting the industry, the Authority issued the 48th
Amendment to the Telecom Tariff Order. Under the new order, service
providers cannot charge an administration fee of more than Rs 2 on a top up
recharge. The maximum number of tariff plans in a circle has been capped at
25. The black out days i.e the days when no concessional voice rate/SMS
rate apply- cannot be more than 5 per calendar year. In case of a
promotional plan - the start date and end date of the plan has to be
indicated. For migration of prepaid to postpaid platform and vice versa- no
migration fee can be levied by the service provider.

10. Lock-in period of 3 years for promoter's equity

The DoT, vide its Circular dated 23rd July, 2009, inter alia provided for a
lock-in-period for sale of equity of a person whose share capital is 10
percent or more in the UAS licensee company on the effective date of UAS
licence and whose net-worth has been taken into consideration for
determining the eligibility for grant of UAS license, till completion of
three years from the effective date of the UAS licence or till fulfilment
of all the rollout obligations, whichever is earlier.

11. Merger guidelines for Intra service area

DoT issued revised guidelines for intra service area merger on 22nd April,
2008. These guidelines have replaced the earlier guidelines issued on 21 st
February, 2004. The threshold level for any merger to take place has been
revised to 40 per cent of revenue market share and subscriber market share.
For considering the number of subscribers, wireline and wireless
subscribers will be considered separately. The merged entity has to justify
the total amount of spectrum held by the merging entities with respectto
spectrum allotment guidelines which are based on subscriber based criteria.
A period of 3 months will be given to the merged entity to meet the
subscriber number shortfall if any, for justifying the total spectrum held
by it. Excess spectrum, if any, will have to be surrendered. Any permission
for merger shall be given only after completion of 3 years from the
effective date of license. The duration of license of merged entity in the
respective areas will be equal to the remaining duration of the license of
the two merging licenses, whichever is less on the date of the merger.

12. Internet telephony

TRAI had issued recommendations on Internet telephony on 18th August, 2008.
It recommended that ISPs with Internet telephony should be allowed to
interconnect with Public Switched Telephone network, through NLD operator
without payment of any additional entry fee. DoT had referred the
recommendations back to TRAI on account of level playing issue with respect
to Unified Access Service Licensees. However, TRAI has reaffirmed its
earlier recommendations on 31st March, 2009. DoT has to take a final
decision in this matter.

13. Acess Deficit Charge (ADC)

TRAI has completely phased out the ADC with effect from 1st October, 2008.

14. Provisioning of Internet Protocol Television Services (IPTV)

Ministry of Information & Broadcasting, on the basis of recommendation of
TRAI, issued Guideline on 8th September, 2008 inter alia providing for
provisioning of IPTV services by (a) Telecom Service Providers under
Unified Access Services License (UASL) and Cellular Mobile Telephony
Service (CMTS) License or (b) Internet Service Providers (ISP) with net
worth more than Rs.100 Crore and having permission from DoT to provide IPTV
or (c) Cable TV Operators registered under Cable Television Network
(Regulation) Act, 1995 (Cable Act). Ministry of Information & Broadcasting
also modified the guideline for down-linking of television channels to
enable broadcasters to provide their content to IPTV service providers.

Key Developments in the Company

Wireless business

GSM Launch

RCOM's GSM launch has been the fastest network roll-out covering over 1 1
,000 towns within 1 1 months, having received start-up GSM spectrum only in
January 2008. The Company commenced commercial operations of its nationwide
GSM service on 30th December, 2008 with a unique Customer Experience
Program (CEP) that resulted in a record addition of 5 million new
subscribers in January 2009, the highest ever monthly customer acquisition
in the history of telecom any where in the world. Perhaps the most
successful product launch of this scale.

Overall 11.3 million new subscribers were added in quarterjanuary to March
2009 and achieved 113% growth in quarter-on-quarter subscriber additions.

RCOM's GSM network now covers over 24,000 towns and 600,000 villages. The
fastest roll-out of this scale and size was achieved by leveraging the
existing nationwide sharable technology agnostic common infrastructure.

Reliance Netconnect - Netconnect Broadband Plus

During the year under review, we rolled out CDMA wireless broadband
service, Reliance Netconnect Broadband Plus, India's fastest Wireless
Internet service. Netconnect Broadband Plus has a downlink speed of upto
3.1 Mbps. This makes Netconnect Broadband+ best suited for video streaming,
video surveillance, rich media content & superior Internet browsing.

Netconnect Broadband+ service is available in 35 cities with seamless
handover to high speed 1x service covering 24,000 towns and 600,000
villages as well as all major road and rail routes across the country
covering 99% of India's Internet population. The company retails Netconnect
Broadband+ in 12,000 IT retail outlets across India as well as 2,300
exclusive Reliance Communication retail stores and nearly 240 Reliance
World outlets.

Netconnect Broadband Plus is targeting about 6 million Road Warriors who
need Internet access on the move with their laptop and about 8 million Home
PC users who access entertainment and educational content.

Handsets

New models were introduced both as bundled and open market 3rd party
handsets initiatives alongside the high-end models to give consumers
adequate choice. We introduced high-end handsets (some with touch screen)
to effectively tap into the upgrade and high end market.

We have also been aggressively forging partnerships with open market
handset vendors to ensure high visibility and reach. With the launch of our
GSM operations, we bundled our SIMs with other handset manufactures and
this contributed to increasing the number of customers who have come onto
our GSM network.

In September, 2008 we launched India's first prepaid service for BlackBerry
on the prepaid platform. This 'pay as you use' pricing model with cost-
effective options will give the consumer a flexibility and control over
expenses.

World Roaming: To offer worldwide Voice and Data Roaming for our Blackberry
and high-end customers, we tied up with leading operators across the world
for dual network roaming. Today, Reliance offers International Roaming in
242 countries and 535 networks, with full-fledged Data Roaming Services
across 182 countries and 380 networks.

Range of unlimited usage plans: We launched a range of unlimited usage
plans following the creation of additional network capacity during the
year. The first product - Unlimited local calls - was launched across Pre-
paid mobile, Post-paid mobile and Fixed Wireless Phones. After acquiring
over half a million customers in the unlimited product range, we have
launched our unlimited STD product. These products offer complete 'peace of
mind' for high volume individual users, Corporate and SME segment etc and
create a very strong Reliance Community of users.

Global Business

Reliance Globalcom's vendor and carrier agnostic, hybrid network
provisioning approach has been enthusiastically received across the world.
By offering a full portfolio of IP Multiprotocol Label Switching (MPLS),
Ethernet and Managed Services, all through a single point of management
utilizing best-in-breed partners across 230 countries and territories in
the world, our customers have not only reduced total cost of ownership of
their networks, but enhanced functionality.

Reliance Communications owns and operates the world's largest next
generation IP enabled connectivity infrastructure, comprising over 277,000
kilometers of fibre optic cable systems in India, USA, Europe, Middle East
and the Asia Pacific region.

Global data services

The Company continues to be a leading provider of international
connectivity and data services to telecom operators, content providers,
internet communities and enterprises around the globe.

Our International Data business is underpinned by our ownership of the
largest private submarine cable system in the world, directly connecting 60
countries from the East coast of United States, to Europe, the Middle East,
India, South and East Asia, through to Japan. The network seamlessly
interconnects with our over 190,000 kilometers fibre optic cables. We are
further expanding our global network with implementation of the Next
Generation Network (NGN) cable system. Construction of NGN Mediterranean
cable system between Egypt and France is underway. Upon completion of NGN
Med, we will be the only service provider with multi-terabit owned cable on
the busy traffic route between India, Middle East and Europe/US.

Our acquisition of Yipes Holdinqs Inc and Reliance Vanco Group Limited has
strengthened our position in the global enterprise data market. We are
leading provider of connectivity to world's top exchanges in the U.S. and
U.K. through our flagship Global Ethernet solution brand FinancialConnect!.
We are leading global Managed Network Services provider serving over 60,000
sites in over 160 countries. We continue to win new business from large
MNCs to rollout and manage complex MPLS VPN networks in stiff competition
with global competitors.

We have over 1,500 large enterprise customers globally.

National Lonq Distance

We offer NLD carriage and termination to other carriers and, on an inter-
segment basis, to other business units of Reliance Communications. With the
entry of new telecom operators, there is growing opportunity in bandwidth
and infrastructure sales. Leveraging the opportunity to monetize our
nation-wide NLD assets, we have forayed into bandwidth and
telecommunications infrastructure segment.

Voice

In Voice segment, we offer International Long Distance carriage and
termination to other carriers as well as, on an inter segment basis, to
other business units of Reliance Communications as part of the wholesale
product offering. We entered the long distance market in India in mid-2003
and are one of the largest carriers of international voice minutes with a
market share of 30% for International Long Distance wholesale inbound
traffic.

As part of our retail offering in voice, we ofFervirtual international
calling services to retail customers for calls to 200 international
destinations including India under the brand Reliance Global Call. Our
retail services are available to customers in several countries including
the United States, Canada, the United Kingdom, Australia, New Zealand, Hong
Kong and Malaysia. We have over 2 million customers for our Reliance Global
Call service. Usage of Reliance Global Call accounts for 40 per cent of
total retail market calls from the United States to India.

Enterprise Broadband

The number of our Internet subscribers increased by 0.28 million during the
year, with the broadband subscriber base reaching 1.40 million.

Network coverage: With the increased focus on directly connecting buildings
in the top 44 cities in India, our Broadband business now has almost 1
million buildings directly connected to our network, recording more than
18% growth in the network coverage during the year.

During the year, the Enterprise Broadband business augmented its building
connectivity program with the deployment of WiMax 802.16d based last mile
access technology. Our Broadband business currently serves top 10 cities in
the country using this wireless technology also.

Our robust nationwide network backbone is continiously controlled and
monitored at National Operating and Control Center (NOCC) located at
Mumbai. This NOCC facility is replicated at Hyderabad to guard against any
catastrophe as a redundancy measure.

Infrastructure

Our infrastructure subsidiary, Reliance Infratel Limited (RITL), signed a
long term contract with Etisalat DB Telecom ('EDB'), for passive
infrastructure and transmission connectivity for over 30,000 sites to be
taken in a phased manner over 18 months. This will get further enhanced
with EDB's expansion plans for coverage and capacity. RITL will also
explore other B2 B services of Bandwidth, Carriage, NLD and ILD and co-
location of field and core network. The EDB tenancy for passive services
and connectivity of sites is likely to enhance RCOM's revenues by about Rs
10,000 crore over the next 10 years. Additionally, RCOM will also be
signing contracts with other key operators.

* With this deal our total tenancy goes up to 2.2 tenants per tower.

* RITL now owns 190,000-Km optical fiber network, providing a more
economical and better quality linking for tenants compared to microwave.

* RCOM's current utilization of tower slot assets is 40-50 per cent and
this provides significant potential for 3rd party tenants. It complements
the existing passive infrastructure and provides an integrated solution to
tenants.

* As such, we offer our customers an extensive and diverse portfolio of
well-positioned assets and we believe that our wide and expanding portfolio
of tower sites positions us to be able to address the needs of national,
regional, local and emerging wireless service providers in India.

Home/DTH

We launched, India's fully Digital Home Entertainment Service on world's
most advanced MPEG4 Direct-To-Home (DTH) Platform. Reliance BIG TV DTH
offers over 200 channels including 32 exclusive cinema channels with
digital quality picture and sound. The feature-rich BIG TV DTH Service is
available at over 100,000 outlets across 6,500 towns, making it by far the
country's largest retail rollout of a Home Entertainment product and
service.

Tracing the ethos and philosophy of Reliance ADA Group, BIG TV DTH at
launch has a retail presence of 2-3 times more than any other DTH operator
and offers services in more than double the number of cities than any other
DTH operator.

Content and value added services

Our quest for enhancing content for ourvalue added chain provides an easy
access for our subscribers to the favorite content and applications - from
wherever they are and on whatever device they're using giving multiple
choices and delivering additional capabilities to the wireless devices.

We continue to pioneer new ways for providing content services and iconic
devices to our subscribers.

Recently we have tied up the following:

Exclusive mobile games based on world celebrities and Hollywood movies
focusing on the star's glamorous side on Reliance's CDMA and GSM networks
across WAP/Brew, Blackberry platforms;

Advertising funded videos on its Reliance Mobile platform;

Tie-up with 'Oxigen' India's first and single point recharge service. This
tie up will offer its customers the entire portfolio of Oxigen's easy
recharge option;

Alliance with BBC World Service to offer Live Audio service through
Reliance's R-World VAS platform. This is the first such international
offering to be launched by an Indian telecom company;

Opportunities and Challenges

Opportunities

Convergence: Our full fledged convergence model will hold a key to the
overall success of the value chains built across the businesses, a process
that is primarily driven by technology and demand. Convergence in Service,
Networkwill drive the Telecom value chains through capacity, coverage,
quality and Corporate Convergence will activate consolidations, mergers,
acquisitions, or collaborations among the operators.

Entry into GSM: During the year under review, Reliance reached a historic
landmark with launch of GSM services in 14 telecom circles in addition to
operating in existing 8 circles.

Dual Technoloqy: While offering dual technology CDMA and GSM services,
Reliance will also benefit from the massive network execution already
completed in CDMA. This will enable the Company to offer highly attractive
tariffs and products, leveraging the available capacity and provide
multiple choices to subscribers.

Passive Infrastructure: The expected technology rollouts in this year are
driven by 2G, 3G and WiMAX needs of the new and existing mobile operators
as well as for the ISP operators. This translate into the current demand of
over 300,000 slots to more than double to 700,000 slots in the next couple
of years for passive infrastructure as well as other telecom infrastructure
range of services. Our next generation infrastructure is favorably
positioned to capture this opportunity.

Unique Positions in India

* We currently have tower sites in each of India's 22 circles and 48,000
telecommunication towers as on 31st March, 2009.

* Current average age of our telecommunication towers is 2 years.

* All of our existing telecommunication towers have the capacities to host
multiple wireless service providers as tenants, which is unique capability
of our infrastructure sharing business model.

* Our multi-tenancy tower infrastructure has average capability to host 4
tenants on our towers. As on 31st March, 2009, we had the captive tenancy
of 1.6, which puts us in unique position in the industry to offer more
capacity/tenancy to the 3rd party operators (existing and new) in the B2B
space.

R World Content: Our Reliance Mobile World (R World) is a virtual one-stop-
shop for entertainment, communication, gaming and m-commerce. Thanks to the
wide range of applications, it has endeared itself to users from all walks
of life. Reliance Mobile World has over hundreds of useful applications and
over 200,000 content titles which include Mobile TV, videos, cricket
updates, music, ringtones, phonebook transfer and back-up service,
mcommerce services like Mobile Banking, bill payments, mobile email and
instant messenger, city and TV guides, booking gas cylinders, tracking
Speed Post, Airlines and Railway reservations, examination results and much
more.

R Tech: RTech is poised to provide end-to-end ITes and management
capabilities across the entire ICT value chain to the Group companies while
continuing to provide services to various RCOM Business Units. RTech also
offers fast track managed IT solutions for new telecom operators for market
entry. The unique and competitive edge of RTech is the unique project
management capabilities, ability to infuse enormous domain and operational
experience with technology and customer focus and operational transparency.

Association with Bollywood and Cricket thereby attracting youth:

The association with ICC and other Cricket tournaments, and also with
leading Bollywood events have made the Company and its brand much sought
after by the youth segment. This will enable the Company to increase its
business in this highly profitable and growing market segment.

Retail

The Company has one of the most extensive distribution and service networks
amongst all telecom players in India, consisting of nearly 2,300 Reliance

World and Reliance Mobile Stores throughout India equipped to sell wireless
handsets and service packages, customer service centers with multilingual
capabilities that have over 6,000 agents. In addition, nearly a million
retail outlets sell recharges (of which approximately 90 per cent are
electronic recharge enabled). The Company also has alliance with 14,000
ATMs for electronic recharge.

Our 24 x 7 arrangement for contact center facility provides full customer
care interface and redressal measures.

Challenges Entry of many new competitors

The year 2008 - 09 saw the entry of several new players in the mobile
industry. It is also possible that some of the players who have acquired
license recently and have tie-ups with leading international service
providers will enter the wireless market. These events will intensify
competition and may lead to pressure on tariff. The Company is uniquely
positioned to meet the situation with its superior and world class network
roll-out and expansion plans.

Entry of Mobile Virtual Network Operator (MVNO) / Brand franchisees

It is possible that the Government may progressively relax MVNO norms, and
more players may access to Indian markets through this route. These
operators may put pressure on tariffs.

Risks and concerns

1. Some of the licences are subject to regulatory compliance under the
Terms and conditions of licences grant over different part of World. The
rules and regulations, issued by the respective government and regulatory
authorities, having jurisdiction over the Company's operations and
licenses, schedules and obligations require it to meet specified
conditions, network build-out requirements. However, the Company does not
perceive any default on this account.

2. Mobile Number Portability (MNP) mandated by DoT expects to implement
number portability in a phased manner, starting with all the 'Metro' and
'A' category circles. This move is bound to be beneficial for congestion
free new networks as they can use aggressive pricing strategies to lure
existing subscribers.

3. Rapid technological changes may increase competition and render the
Company's technologies, products or services obsolete. We are at present
using the latest technology and do not foresee obsolescence at present.

4. The telecommunication services industry is capital intensive.

Capital Expenditure (CAPER) on adaptation to latest technology may put
pressures on deliverables. However, the Company is constantly assessing
such changes in the technologies and taking immediate action through timely
CAPER programs.

5. The Company may be adversely affected by changes in tariff structures
for services subjected to government and regulator mandated regulations
prevailing in the areas of services.

6. The Company faces significant and intense competition in its markets,
which could aggravate with entry of new licensees that may result in
decreases in current and potential customers, revenues and profitability.

7. We are subject to market risks primarily from changes in interest rates
and foreign currency exchange rates. In managing exposure to these
fluctuations, we may engage in various hedging transactions that have been
authorized according to documented internal policies and procedures.

Financial Performance - Overview

Results of operations

The Audited Consolidated Financial Results are given for the Financial year
ended on 31st March, 2009. This is the third reporting year of consolidated
operations of the Company;

Revenues and operating expenses

The Company on consolidated basis earned total revenues of Rs 22,948.46
crore (US$ 4,524.54 million) and the net profit after tax recorded by the
Company was Rs 6,044.93 crore (US$ 1,191.83 million). The Company incurred
total operating expenses of Rs 13,643.52 crore (US$ 2,689.97 million).

Operating profit before finance charges, depreciation and amortisation,
exceptional items and provision against fixed assets (EBITDA).

The Company earned EBITDA of Rs. 9,304.94 crore (US$ 1,834.57 million). The
EBITDA margin for the year under review is 40.55%.

Depreciation and amortisation

Total of such charges was Rs 3,607.70 crore (US$ 711.30 million).

Profit before tax

The profit before tax was Rs 6,196.72 crore (US$ 1,221.75 million). The
provision for taxes was a gain of Rs 51.79 crore (US$ 10.21 million). The
net profit after tax was Rs. 6,044.93 crore (US$ 1,191.83 million).

Balance sheet

As at 31st March, 2009, the Company had total assets of Rs 1 02,207 crore
(US$ 20,1 51 .22 million). Stakeholders equity was Rs 42,280.32 crore (US$
8,336.03 million), while net debt (excluding cash and cash equivalents) was
Rs. 22,578.25 crore (US$ 4,451 .55 million), giving a net debt to equity
ratio of 0.53 times.

Segment Wise Performance

1. Wireless Segment

Customer acquisition

During the year the Company added 26.88 million wireless customers (net
additions). The customer base grew by 58.70% during the year under review.
As at 31st March, 2009, the Company had 72.67 million wireless customers on
its network. During the year under review, the Company reached out
aqqressively to rural areas on the back of a major network expansion that
contributed to the Company's strong customer acquisition.

Revenues and profit

Revenues for the financial year ended 31st March, 2009 were Rs. 17,367.63
crore (US$ 3,424.22 million). EBITDA during the year was Rs. 6,673.95 crore
(US$ 1,315.84 million). Earning before Interest and Tax (EBIT) during the
year was Rs. 4,279.21 crore (US$ 843.69 million).

2. Global Segment

Minutes of use ILD and NLD operations

Operations in ILD and NLD maintained consistent traffic growth rates, in-
line with the growth of the overall market. ILD minutes of use annually
were around 7.6 billion. NLD minutes of use annuallywere around 32 billion.
The Company maintained its leadership position forILD inbound India traffic
with a market share of around 30%. During the year, Reliance Global Call
maintained over 2.2 million international customers. Reliance India Call
continued to be the largest retail service with over 40% market share in
the U.S.A. for India Calling.

Revenues and profit

Revenues for the financial year ended 31st March, 2009 were Rs. 6,790.94
crore (US$ 1,338.91 million). EBITDA during the year was Rs. 1,624.71 crore
(US$ 320.33 million). Earning before Interest and Tax (EBIT) during the
year was Rs. 855.66 crore (US$ 1 68.70 million).

3. Enterprise Broadband Segment

We maintained our position as premium integrated solutions provider for Top
Corporate in the Broadband segment. Our Enterprise Broadband business
maintained its leadership in Centrex, Virtual Private Network and
International Data Centre products.

The Company's Enterprise Broadband segment continued to maintain its growth
path and gained significantly during the year even in the midst of
aggressive competition in the data and voice segments, and especially in
the internet bandwidth segment, from many other telecom service providers.
Of a current portfolio of more than 41 products, our Enterprise Broadband
business has not only positioned larger number of products within the top
corporate but also increased its share of wallet.

New products launched during the year included Reverse ITFS, Managed WAN,
EWAN, Global MPLS, and Global Ethernet etc.

Broadband's innovative services assurance model of 'TechCheck' continued to
gain further impetus during the year 2008-09 in providing pro-active
feedback to its subscribers on the service levels provided by the Company.
Customers have rated Broadband Products and Services at a high customer
satisfaction and delight rating. The CSAT (Customer Satisfaction) Score
increased steadily, as Sample Customers were out called.

Broadband's Business IT Systems are ISO 27001:2005 Certified (an
Information Security Management System Standard).

Wireline

Our Optical Fiber Cable network of 1 90,000+ route-km supports seamless
last mile Broadband connectivity.

Our Broadband Access network is one of the largest networks in the world,
having approx. 33,000+ nodes currently and additional 1 7,000+ nodes will
be added in 2009-2010.

Customer Base

Customer acquisition kept momentum with the increase in network coverage
during the year. Net additions during the year grew by more than 34%.
During the year, the Company has acquired close to 354,000 customers taking
the total customer base to 1.4 million.

As the Company's Broadband business is currently serving mainly
enterprises, the revenue per line reflects the total portfolio of services
and solutions being delivered to its customers. Our revenue per line has
remained well above industry averages, on account of our mainly enterprise
customer base and our successful cross-sell of services to our customers.

Revenues and profit

Revenues for the financial year ended 31 st March, 2009 were Rs 2,524.27
crore (US$ 497.69 million). EBITDA during the year was Rs 1 ,1 57.51 crore
(US$ 228.22 million). Earning before Interest and Tax (EBIT) during the
year was Rs 81 5 crore (US$ 160.69 million).

Reliance Communications Infrastructure Limited (RCIL)

We provide Internet Data Centre (IDC) services (Reliance Data Centre) owned
by RCIL, a wholly owned subsidiary, from our IDCs located in Mumbai and
Bangalore. We currently have IDC capacity of 304,000 sq ft. We are market
leaders within the space having an estimated market share of close to 60%.

The Infrastructure facilities of RCIL are interlaced and integrated with
wireless network of the Company. With a view to gain synergy in the
business operations, the Balance portion of Network Fibre undertaking
together with construction machinery was transferred to the Company during
the year.

The Treasury division of RCIL was demerged and vested into Reliance Telecom
Limited in terms of Scheme of Arrangement between these companies vide
Order dated 19th June, 2009 approved by Hon'ble High Court, Bombay,
effective from 26th June, 2009.

Operations

Revenues and operating expenses

RCIL earned total revenues of Rs 4,096.03 crore (US$ 807.58 million) during
the year as compared to Rs 3,622.69 crore (US$ 905.22 million) forthe
previous year. RCIL incurred total operating expenses of Rs 3,41 6.1 6
crore (US$ 673.53 million) as compared to Rs 3,31 5.22 crore (US$ 828.39
million).

Net Profit

The net profit after tax recorded by RCIL was Rs 266.1 8 crore (US$ 52.48
million) as compared to profit of Rs 621.26 crore (US$ 1 55.24 million) in
the previous year.

Balance Sheet

Balance sheet as at 31st March, 2009, RCIL had total assets (net) of Rs
3,478.11 crore (US$ 685.75 million). Shareholders' fund was Rs 2,949.25
crore (US$ 581 .48 million).

Reliance Telecom Limited (RTL)

RTL is a wholly owned subsidiary of the Company. RTL operates in Madhya
Pradesh, West Benqal, Himachal Pradesh, Orissa, Bihar, Assam, Kolkata and
Northeast offering GSM services.

The Treasury division of RCIL was demerged and vested into RTL in terms of
Scheme of Arrangement between these companies vide Order dated 1 9th June,
2009 approved by Hon'ble High Court, Bombay, effective from 26th June,
2009.

Operations

During the year under review, RTL completed a major network expansion
increasing its coverage significantly in the eastern region. RTL
revolutionized the Lifetime proposition by pricing it at Rs 222, which was
a key driver in its acquisition strategy.

Revenues and operating expenses

RTL earned total revenues of Rs.2,050.83 crore (US$ 404.34 million) during
the year as compared to Rs. 1,361.95 crore (US$ 340.32 million) in the
previous year. The RTL incurred total operating expenses of Rs 1,507.67
crore (US$ 297.25 million) as compared to Rs 1,079.46 crore (US$ 269.73
million) in the previous year.

Net Loss

The net loss recorded by RTL was Rs 174.29 crore (US$ 34.36 million) as
compared to net profit after tax of Rs 46.82 crore (US$ 11.70 million) in
the previous year.

Balance Sheet

As at 31st March, 2009, RTL had total assets (net) of Rs 10,270.40 crore
(US$ 2,024.92 million). Shareholders' fund was Rs 280 crore (US$ 55.21
million).

Infrastructure

Reliance Infratel Limited (RITL)

RITL's business is to build, own and operate telecommunication towers,
optic fiber cable assets and related assets at designated sites and to
provide these passive telecommunication infrastructure assets on a shared
basis to wireless service providers and other communications service
providers under long-term contracts. These customers use the space on our
telecommunication towers to install their active communication-related
equipment to operate their wireless communications networks. The customers
can also use our optic f iber network to connect the sites to the core
network and the connectivity between circles.

We have successfully carried out a huge project of commissioning over
30,000 towers in the last year and a half to build a portfolio of 48,000
multi-tenancy towers. In the last six months, we have used the towers for
both our CDMA and GSM technology based services as a part of our strategy
to provide dual services on a pan India basis. We have commissioned these
towers with multi tenancy capabilities and they would have the capacity of
over 200,000 slots, the most extensive compared to any other telecom
infrastructure provider. We are capable of adding tenancy capability at
marginal cost on demand.

Revenues and operating expenses

RITL earned total revenues of Rs 4,934 crore (US$ 972.79 million) during
the year as compared to Rs 1,457.62 crore (US$ 364.22 million) forthe
previous year. The Company incurred total operating expenses of Rs.1,553.79
crore (US$ 306.35 million) as compared to Rs 782.06 crore (US$ 195.42
million) in the previous year.

Net Profit

The net profit after tax recorded by RITL was Rs 1,685.72 crore (US$ 332.36
million) as compared to Rs 320.58 crore (US$ 80.1 0 million) in the
previous year.

Balance Sheet

As at 31st March, 2009, RITL had total assets (net) of Rs 19,198.08 crore
(US$ 3,785.11 million). Shareholders' fund was Rs 4,036.79 crore (US$
795.90 million).

Outlook

Wireless Business

The tele density in rural India is less than 15% as on 31st March, 2009.
Opportunities galore in rural sectors for us to tap this potential. Rural
wireless subscriber base continued to register growth. In the quarter ended
March 2009, rural subscriber base increased to 109.71 million, registering
a growth of 17.7 percent over the previous Quarter. We have swiftly moved
towards rural capacity expansion and coverage to tap this potential,
leveraging our robust nationwide Network.

Indian telecom industry continues to maintain high growth trajectory.
Overall tele-density for the quarter ended March 2009 reached 36.9 per
cent. The subscriber base for wireless services has increased to 391.76
million as on 31st March, 2009.

The Telecom sector provides tremendous growth potential for us. The trend
in subscriber base growth and the projections using the past trend shows an
even bigger opportunity left behind for us to tap. The performance
indicator data as on quarter ending March, 2009 as released by annual
report published by TRAI are given below:

The penetration of mobile services in India continues to be one of the
lowest in the world. The overall tele-density in India stood at 36.9 per
cent at the end of March 2009, while the wireless penetration was at 33.7
per cent. This shows that there is tremendous potential for future growth,
especially considering that most international developed markets have close
to 100 per cent penetration and most comparable developing markets
currently have penetration levels of 60 per cent - 70 per cent.

We are the only nationwide operator in private sector to provide best of
the two Technoloqies that is CDMA and GSM. The industry structure for
telecom as released by TRAI for the quarter ended March, 2009 is shown
below:

CDMA 24.12%

GSM 75.88%

Source: TRAI Report

Tariffs in India are among the lowest in the world, with the main players
operating on low margins, constantly manoeuvring products, pricing pressure
to continue with the entry of new operators, however revenues are expected
to get boosted due to strong monthly additions in subscriber base and
increasing revenues from VAS.

Industry Trends

1. Sustained Hiqh Growth

India has been the fastest growing telecom market in the world in the past
year passing China in the total number of new subscriber additions. This
explosive growth phase is expected to last for a few years before growth
starts leveling off.

2. 3G and WiMax Roll-out

With 3G and WiMax (BWA) spectrum auctions on the horizon, there is a great
potential for the take-off of data access and broadband services.

3. Enabling Competition

Competition has received a great thrust with a host of procompetition
policies like the changes to the 2G spectrum allocation criteria and IUC
reduction. This has facilitated the entry of many new networks, both from
green field operators as well as from regional incumbents entering into new
service areas.

4. Infrastructure sharing

Greater potential for tower sharing/outsourcing model with the entry of new
telecom players into India.

Global Business

We are proud to be one among the top Global IP Network carrier companies,
in the private sector, having a portfolio of many Fortune 1 ,000
multinational corporations. We have richly invested in increasing Data
Center capacities, which provide unmatched data rich applications and
business solutions in real time.

We believe that our strategy to leverage our global terabit network
together with leadership in Enterprise solutions is delivering a compelling
value proposition to our global enterprise and carrier customers. Our
customers are endorsing ourstrategythrough repeat and new business wins.
Going forward, we expect continued growth in every segment of Reliance
Globalcom's business.

To specify a few initiatives:

1. Expand global terabit network to provide connectivity to emerging
economies including India, Middle East and China

Our Next Generation cable named Hawk in the Mediterranean between Middle
East and Europe is on track for completion. We will be only the only
private service with a multi-terabit capacity from India to Europe at
unmatched cost advantage to consortium-owned and other private systems.

2. Win lucrative enterprise markets in the US and Europe looking for
increased connectivity to emerging markets

We expect continued wins in the highly complex but extremely large and
lucrative enterprise space in the U.S. and Europe which is over Rs 1 60,000
crores market for VPN and Ethernet solutions business.

3. Expand and leverage existing leadership in NLD network to capture strong
demand for bandwidth and infrastructure

Our expansive network, almost twice as large as next largest private
operator, makes us the most preferred private NLD carriage provider in
India. There is strong demand for NLD bandwidth and infrastructure from
most operators and we are well positioned to cater to this demand.

4. Expand Global Voice offerings We have been actively scanning to identify
high-value addressable markets wherein we can launch products in Voice
segmentto take up leadership position. A major initiative in this direction
is our foray into the global Audio Conferencing market. We expect to
leverage our 1,500 enterprise customer base outside India and our global
voice leadership to grab a fair share of this business.

Enterprise Broadband and Internet Data Centers (IDC)

Corporate broadband services demand is related to increasing ITled
automation to improve productivity and operational excellence in all
sectors of business and economy, particularly in the services sectors like
Financial/Business Process Outsource/Knowledge Process Outsource services.
These are remarkable growth sectors with stringent requirements on high
Quality of Service and Service Level Agreements parameters. Our growth is
expected to be multifaceted in allthe three segments of the market: top
corporate, Small Medium Business (SMB) as well consumer broadband. All the
three are severely under served today.

Even in the SMB segment, the penetration levels are still relatively low
today and there is a large scope of opportunity for offering broadband
services. With the present low penetration of broadband in India, better
growth is expected in near future. Yet another area of growth is the
International Data Services like IPLC, Managed VPN services and IDC
services.

The expansion of residential broadband will primarily be dependent on
Network roll out and the expansion will be linear. With the present low
penetration of broadband in India, large growth is expected.

One of the Enterprise product One Office Duo (OOD) offers unmatched
benefits to the customers by giving them more convenience and higher
efficiencies in managingtheirvoice spend. The customers that till recently
were not keen to churn their voice connectivity due to the pains of number
change and other reasons are now more than keen to hear our COD pitch.
Through COD, customers are able to reduce their Voice Spend by up to 15%-
20%. Some of major customers in the Banking and White goods industry have
even gone on record describing the value that we have added through COD.
Though COD will continue to remain integral to Enterprise sales strategy,
similar USPs around other product offerings are also being developed.

With new IDCs coming up the leadership will not only be maintained but the
share of the IDC business will be substantially increased.This will also
help to up selling other products and thus increasing the share of wallet
of the Enterprise customers. The current economic conditions have forced
our customers to defer some of their data center requirements temporarily
but coming quarters are sure to see a uptrend in this business.

Telecom Infrastructure

We are leveraging our extensive capability to offer a wide range of
services as an integrated service provider across the whole infrastructure
value chain. Ouraim isto provide a fast track solution to our clients,
existing telecom operators as well as new companies for market entry and
for ongoing expansion as per their rollout requirement.

We are well-positioned vis-a-vis other infrastructure providers with better
quality tower infrastructure, carriage and transport infrastructure along
with the unified approach as an integrated service provider.

RITL has passive infrastructure network in all 22 telecom service areas
covering 24,000 towns and 600,000 villages, an effort that cannot be easily
replicated.

RITL is best positioned to attract tenants for:

High quality portfolio, capable of housing 4 tenants

With marginal Capex, tower tenant capacity of 4 can be enhanced up to 7
tenants.

Home/DTH Business

Reliance Big TV's DTH Services with advanced MPEG4 technology platform and
INTERACTIVE applications offer a world of exclusive portfolio with rich
features at the touch of a button on the remote.

iSTOCK is the latest in a bouquet of growing interactive applications under
its INTERACTIVE services which include sporting action iSPORTS, games
application iGAMES, daily astro feature iASTRO, recipe-rich iC00KING and
iNEWS with the latest news updates.

Years Ahead

The global financial & economic crisis which started in the second half of
fiscal year 2009 also affected India to some extent is largely behind us.
Our track record has demonstrated our ability to turn the adversity into
opportunities.

We are very well positioned to capitalise on growth opportunities in the
converged telecom market supported by our integrated telecom infrastructure
and strong focus on quality of services.

We build our strength and leadership, which is supported by:

* Upgradation and expansion of network, unleashing its power of state-of-
the-art, latest technology;

* Reaching out to tap rural markets;

* Our commitment to stay ahead of Customer requirements;

* International presence with owned submarine cable network and gateways;

* Introducing innovative products and services with unmatched multiple
choices across cutting edge technologies;

* Track record of strong Growth and fast track execution;

* Optimisation of resources;

* Enriched human resources and strong focus on building human capital;

Adequacy of internal control

The Company has built adequate systems of internal controls towards
achieving efficiency and effectiveness in operations, optimum utilisation
of resources, and effective monitoring thereof as well as compliance with
all applicable laws.

The internal control mechanism comprises a well-defined organisation
structure, documented policy guidelines, predetermined authority levels and
processes commensurate with the level of responsibility.

The Management Audit Team undertakes extensive checks and reviews through
external firms of chartered accountants, who provide independent and
professional observations. Audit Committee of the Board reviews major
internal audit reports and periodically reviews the adequacy of internal
controls.

Risk Management Framework

The Company has instituted self governed Risk Management framework
comprising of identification of potential risk areas, evaluation of
intensity, mitigation plans and procedures for the risk management and
policies formulated both at the enterprise and at the operating levels.

The framework seeks to facilitate building a common understanding of the
exposure to the various risks and uncertainties at an early stage, for
timely response and their effective mitigation. Audit Committee of the
Board reviews risk management framework periodically.

Human resource and employees relations

The year 2008-09 has been encouraging year for the employees. There have
been several people initiatives which have been introduced for enhancing
people productivity, morale and motivation.

The Organisation structure of the businesses was revisited for higher
customer delivery, efficiency, productivity and improved cost. This
facilitated the internal movement, development and growth for the
employees. Performing employees with higher management bandwidth were
considered for key management positions in the Organisation.

The Performance Management System was strengthened and fully automated;
with the introduction of Quarterly Appraisal System. This was also linked
with the Training and Development system and hence an integrated training
and development calendar was rolled out. This has facilitated in competency
and capability building with a large number of functional and behavioral
programs.

The existing HR Policies were revisited with a view to make more employees
friendly, transparent and objective and in line with the Industry
standards. These Policies and the other HR processes have been automated
for employee convenience and ease of administration.

In order to empower our Line Managers, HR Delegation Matrix around
recruitment, retention, etc. was rolled out for higher accountability as
well as speedier resolution of issues.

E People Solution-an employee portalwas launched for redressing employee
queries and grievances in a time bound manner with service level
agreements.

During the year Company was successfully able to meet the manpower
requirements emerging from our expanding business. The manpower as on 31st
March, 2009 was 37,150 across all business.

Information technology

The Company's continued focus on Information Technology (IT) is
demonstrated by our initiative to bring 'siloed' IT teams into a single
profit centre with more than 13,400 person-years of rich experience across
various domains. Almost 25% of our IT team has over ten years of
experience.

During the year, we achieved a remarkable improvement in the key
performance indicators measuring efficiency, responsiveness and innovation.
We delivered significant reduction in costs and unmatched business
flexibility and value through the use of common IT architecture and systems
across various lines of business.

Our IT systems and processes converge across CDMA and GSM technologies
providing a seamless customer experience. Everyday, we support more than
five million transactions of over 12,000 of our field and contact center
employees.

We have built on reusable and scalable components that can support over 100
million customers. Our delivery and operational processes are now certified
and bench-marked against global standards of CMMI Level 3 and ISO 20000, a
unique achievement for any telecom operator's insourced IT operations.

Reliance Technology Innovation Centre (RTIC), ourtechnologyarm, has
replicated Reliance Communications' network on a reduced scale. Using this
laboratory model, RTIC evaluates multiple vendor equipment, provides
development support to vendors and to our internal teams, audits our
systems to enable a smooth deployment of new equipment and certifies it
prior to its commercial deployment.

Going forward, our information technology initiatives will focus on:

Widespread implementation of 'green computing' principles to reduce energy
consumption, optimize existing systems and evaluate environmental
attributes of new IT equipment.

Enhancing all back office (HR, supply chain, finance) and business
continuity/risk management operations and processes.

Developing a business intelligence/analytics framework for profiling common
customers across our Group.

Our initiatives to use information technology for enabling and enhancing
business value have received extensive recognition, leading to several
accolades including Information Week's Global CIO 50 Award, Network
Computing EDGE Award, CIO 100 Award for the third year in a row, SAP ACE
Award for Customer Excellence in Telecom for the second consecutive year,
IDC Enterprise Innovation Award (APAC Region), PC Best IT Implementation
Award (finalist), NASSCOM IT User Award (finalist), CMAI's National Telecom
Awards, CIOL's Enterprise Connect Award, Polycom Intelligent Enterprise
Awards (finalist). We are also the sole representative of the Indian
telecom industry on the Boards of the Tele Management Forum and the Mobile
Marketing Association.

Corporate social responsibility

The Reliance ADA Group strives for sustainability and maintains the eco-
balance in the area of its operations. Taking forward this motto, in the
year gone by, we had implemented and initiated several programs to attain
this objective.

RCOM jointly with Reliance ADA Group initiated the following:

E-learning internet literacy programs across varying age groups and
communities, school children from underserved strata's of society from more
than 200 government schools across 40 cities and towns.

Awareness program on Voluntary Blood Donation campaign among RADAG
employees came together to contribute more than 11,000 units of blood in
the last one year.

Socially relevant text messages were sent to over 100 million customers
across the length and breadth of the country on issues covering 'Save the
girl child, Promoting voluntary blood donation, Women empowerment '.

Collaboration with One Laptop Per Child Foundation for creating an eco-
system, including leading edge technology and infrastructure, to help
children discover the joy of learning and bringing the benefits of
education to all.