Annual Report - TTML - 2008-2009

TATA TELESERVICES (MAHARASHTRA) LIMITED

ANNUAL REPORT 2008-2009

DIRECTORS' REPORT

Dear Members,

The Directors have pleasure in presenting the 14th Annual Report together
with the audited financial statements of the Company for the year ended
March 31, 2009 and other accompanying reports, notes and certificates.

Financial Results

The financial results of the Company's operations during the year are given
below:

(Rs. in crores)

Particulars 2008-09 2007-08

Telecom Revenue 1,941.68 1,707.19

Other Income 112.28 82.41

Total Income 2,053.96 1,789.60

Expenditure 1,460.78 1,304.05

Earnings Before Interest,
Depreciation, Tax and Amortisation 593.18 485.55
(EBIDTA)

Finance & Treasury Charges (Net) 304.78 171.01

Depreciation 446.79 439.35

Loss before tax 158.39 124.81

Extraordinary item - -

Loss before tax 158.39 124.81

Fringe Benefit tax 1.21 0.93

Loss after tax 159.60 125.74

The total revenue grew by 14.77% to Rs. 2,053.96 crores. The subscriber
base grew by 48% to cross 74 lakhs (in March 2009), mainly through the
increased additions to the Prepaid Mobile subscriber base. A significant
portion of this increase took place in semi-urban and rural Maharashtra,
where income levels were lower than the urban centres; this, accompanied by
competitive pressures which pulled tariffs down, resulted in lower Average
Revenue per User (ARPU) compared to the previous year. Cost optimization
efforts, however, ensured a lower rate of increase of 12.02% in operating
expenses, compared with 14.77% increase in revenues.The Company reported a
positive EBIDTA of Rs.593.18 crores, representing a significant improvement
over the previous year's EBI DTA of Rs. 485.55 crores.

During the year, the Company consolidated its position in the market by
increasing its share of new additions in the wireless market
(i.e.fixedwirelessand mobile).

India today has the second largest telecom network in the world after
China. As of May 2009, there were more than 452 million telephone
connections in the country. Approximately 10-15 million mobile connections
are being added every month. The national mobile tele-density is about 39
per hundred, while it is 75 per hundred in cities like Mumbai and about 13
per hundred in rural areas. Telephone connections are expected to touch the
500 million mark by the year 2010. Major growth will come from rural and
semi-urban areas.


Products and Services

The Company holds two Unified Access (basic + cellular) Service Licences
(UASL), one for Mumbai Metro and the other for the Rest of Maharashtra and
Goa.The current subscriber base of more than 75 lakhs consists of CDMA
wireless subscribers and wireline subscribers.The Companywill launch its
GSM services in the nextfew months. Cost efficiencies will be achieved in
the GSM roll-out by synergizing with the infrastructure already created
forthe CDMA deployment.

During the year, the Company focused on increasing its retail presence to
penetrate the market better with its various products and services. The
wireless/mobile subscriber base increased from 46.80 lakhs to 69.58 lakhs.
This growth was fueled by the increase in network coverage, accompanied by
the introduction of new handsets at attractive prices, and the introduction
of innovaive tariffs.

The Company continued to focus on value added service offerings. The
Company is a Category A (National) ISP Licensee and offers a broad range of
Internet-related product offerings including Digital Subscriber Lines
(DSL), leased lines and dialup internet access. The Company, along with
Tata Teleservices Limited (TTSL), has a national footprint for its popular
Tata Indicom conference call service, with 15 Points of Presence across the
country for providing local access to conference bridges.

New Customer Offerings

During the year, the Company introduced several attractive product and
service propositions that addressed specific customer needs, including:

* Photon+ express wireless broadband service, offering speeds upto 3.1
Mbps, 20 times faster than other wireless technology.

* Power Launcher ultra high speed broadband data products, offered over
Ethernet, leveraging the highly reliable Tata Indicom wireline network in
Mumbai to deliver to retail customers forthe firsttime speeds of upto 100
Mbps.

* Banking activities on mobile using SMS like checking balance, mini
statement, request for cheque books and checks on loan and Credit Card
accounts, transfer of funds and payment of bills, and information on Mutual
Fund policies.

* BIack Berry (R) - 8830 offering the convenience of being constantly
accessible on mail while undertaking parallel activities such as talking on
the phone and surfing the internet, scheduling and coordinating
appointments in the middle of meetings, and updating business databases.
Key features of the BIackBerry. 8830 include Seamless International
Roaming, Email, Voice calls, Wireless Internet, Organizer, SMS, and Instant
Messaging.

Recognition of Customer Service and Network quality

The Company has been rated as the No. 1 wireless telecom service provider
in terms of overall customer satisfaction across the Mumbai and Maharashtra
Circles in independent studies commissioned byTelecom Regulatory Authority
of India (TRAI). The Company's network has also been rated in successive
TRAI reports as the only congestion free network across Maharashtra and
Mumbai.

Network Rollout

During the year, the Company rolled out CDMA wireless services in 583 new
towns in Maharashtra and Goa.The Company covered more than 95% of
development blocks and is eligible to get the concession on license fees
for extensive rollout as per the DoT notification. It now offers services
in 1,148 towns. The Company's subscribers are therefore able to enjoy
uninterrupted services while traveling byroad and rail along major travel
routes in Maharashtra and Goa.

Digital Mumbai (TM)

The Company has laid over 1500 kms of buried fibre across Mumbai and
already connects over 20,000 buildings with broadband services.The
Companywould continue to make investmentsto strengthen its Digital Mumbai
offerings and would increase voice and data penetration in already wired
buildings, besides enhancing the customer value proposition with
initiatives like combo offers of voice and broadband, partnerships with
content providers, and brand promotion through a Digital MumbaiTM portal.

Quality and Processes

The Company has undertaken ISO 9001:2000 certification to demonstrate its
capabilityto consistently provide services that enhance customer
satisfaction through effective deployment of a quality management system.
The Company became the first basic telecommunication provider to get the
coveted ISO 9001:2000 certification in August 2002. In the recent
Certification Audit conducted by TUV India in November 2008, the Company
was awarded a Certificate of Continuation for ISO 9001:2000 with Nil' Non-
Conformance.

The Company is also taking active part in theTata Business Excellence Model
(TBEM) process, with knowledge sharing and appropriate support being
extended byTata Quality Management Services (TOMS), a division of Tata Sons
Limited.

Human Resources

The Company attaches utmost importance to its human resources which are
very critical for a service organization like the Company. Entry of 4-5 new
service providers has provided increased choice to customers, leading to
additional time and efforts to acquire and retain customers, thereby
creating increasing pressures to retain valuable, trained human resources.
Increased job opportunities in telecom, media, retail and other fields have
made retention of good employees very challenging. The Company has been
striving towards institutionalizing a performance oriented culture and also
creating 'Ideal Place to work'.

It provides extensive training and works for employee development and
retention through various initiatives. Regular communication channels are
maintained with the employees through Open Door Policy, Town Halls,
Departmental meets and other initiatives, some of which are managed by the
employees themselves through voluntary participation. The HR systems e.g.
recruitment, performance management system, rewards and recognition, have
been aligned with the business objectives of the Company.

Regulatory Developments and Important Litigation

a) There have been many regulatory changes, prominent among which have been

i. Termination of Access Deficit Charge (ADC) which was payable by all
operators to Bharat Sanchar Nigam Limited (BSNL).

ii. Termination charges payable to terminating operators have been reduced
to 20 paise from 30 paise per minute which will bring down income as well
as expenditure.

iii. The Department of Telecommunications (DoT) has taken steps to
implement Mobile Number Portability (MN P) in Metros by September 2009. It
has divided the country into 2 zones and has signed licence agreements with
two clearing/porting agencies.

iv. The Hon'ble Delhi High Court and the Telecom Dispute Settlement
Appellate Tribunal (TDSAT) upheld the validity of DoT's decision to allow
use of dual technology and allocation of dual technology spectrum.

b) The Company has also been a party to some important litigation like
Fixed Wireless ADC demands of BSNL of 2004-05, the DoT's attempt to lodge a
counter-claim on the Company for not signing in 1997 the licence agreement
for basic services in the Karnataka circle, the penalty imposed by the DoT
forthe launch of innovative Push to Talk services, and industry litigation
on exclusion of revenues unrelated to licensed activities for determining
licence fee liability.

Information on the regulatory developments and important litigation has
been provided in the report on Management Discussion & Analysis of
Financial Condition and Results of Operations which forms part of this
Annual Report. There has been no appreciable progress in these cases since
the last Annual Report.

Subsidiary

The Company had acquired a Wholly Owned Subsidiary i.e. 21st Century Infra
Tele Limited (CITL) with effect from July 1, 2008. A statement pursuant to
Section 212 of the Companies Act, 1956, in respect of CITL and its
financial statements for the financial year 2007-08 and 2008-09 together
with the Report of the Directors and Auditors thereon, are attached to the
accounts of the Company.

Dividend & Appropriations

In view of losses, the Directors regret their inability to recommend any
dividend for the year under consideration. No appropriations are proposed
to be made for the year under consideration.

Directors

Mr. Ratan N. Tata relinquished the office of Director and Chairman of the
Company and Mr. Arunkumar R. Gandhi also relinquished the office of
Directorof the Companywith effectfrom March 23, 2009. The Board records its
sincere appreciation of the valuable services rendered bythem.

Mr. Kishor A. Chaukar was appointed as an Additional Director and Chairman
of the Company and Mr. Amal Ganguli was appointed as an Additional Director
(Independent Director) with effect from March 24, 2009. Mr. D.T Joseph was
appointed as an Additional Director (Independent Director) with effect from
May 8, 2009. Mr. Koichi Takahara was appointed as an Additional Director
w.e.f. July 1, 2009. Accordingly, resolutions seeking the approval of the
Members for the appointment of Mr. Chaukar, Mr. Ganguli, Mr. Joseph and Mr.
Takahara as Directors of the Company and re-appointment of Mr. Ramachandran
and Prof. Jhunjhunwalawho retire by rotation and offer themselves for re-
election have been incorporated in the Notice of the forthcoming Annual
General Meeting along with brief details about them. The Board recommends
these appointments in the interests of the Company.

Internal Auditors

The Board has re-appointed M/s. Axis Risk Consulting Services Private
Limited as the Internal Auditors, effective April 1, 2009.

Statutory Auditors

M/s Deloitte Haskins & Sells, Chartered Accountants, the present statutory
auditors retire at this meeting and are eligible for re-
appointment.TheAudit Committee and the Board recommend their re-
appointment.

Statutory Disclosures

Directors' Responsibility Statement

Pursuant to the provisions of Section 217(2AA) of the Companies Act, 1956
(Act), the Directors, based on the representations received from the
operating management, confirm that:

1. In the preparation of the annual accounts, the applicable accounting
standards have been followed and there are no material departures;

2. They have, in the selection of the accounting policies, consulted the
Statutory Auditors, and have applied them consistently and made judgements
and estimates that are reasonable and prudent so as to give a true and fair
view of the state of affairs of the Company at the end of the financial
year and of the loss of the Company for the period;

3. They have taken proper and sufficient care, to the best of their
knowledge and ability, for the maintenance of adequate accounting records
in accordance with the provisions of the Act, for safeguarding the assets
of the Company and for preventing and detecting fraud and other
irregularities;

4. They have prepared the annual accounts on a going concern basis.

* Auditors' Observations

Attention is invited to the following paragraphs in the Annexure to the
Auditors' Report wherein they have observed as follows:

xi) In our opinion, and according to the information and explanations given
to us, the accumulated losses of the Company, at the end of the financial
year are more than fifty percent of its net worth. The Company has not
incurred cash losses during thefinancial year under auditand in the
immediately preceding financial year.

xvi) According to information and explanations given to us and on overall
examination of the balance sheet of the Company, funds raised on short term
basis have, prima facie, been used for long term investment to the extent
of Rs.1,909.70 crores.

Directors Comments on Auditors' Observations:

* With regard to the Auditors' observation in paragraph (xi) in the
Annexure to the Auditors' Report, while the accumulated losses of the
Company at the close of the year have exceeded its paid up capital and
reserves, this, is not uncommon for telecommunication service providers in
their initial years of commercial operations, due to high operation costs
of heavy infrastructure and high and continuing capital requirement for
building the network. The Company is consistently making cash profits, and
has been able to grow its subscriber base and network.The Company is in
advanced stages of financial closure for proposed GSM and other Network
Roll out and would be able to meet its further funding requirements.The
Company in the previous year had also paid Rs.392.66 crores as license fees
for providing services using GSM technology under the existing licenses and
expects to roll-out the related services during the next financial year.
Based on the foregoing considerations, the Company is confident of it's
ability to continue in business as a going concern and the accounts have
accordingly been prepared on this basis.

* With regard to the Auditors' observation in paragraph (xvi) in the
Annexure to the Auditors' Report, while the Company had availed of
shortterm bridge loans for its expansion plan, the Company has had its
Business Plan appraised by IDBI Bank Limited and is in the advanced stages
of financial closure and the short term loans would be replaced by long
term loans.

Fixed Deposits

The Company has not accepted any deposits within the meaning of Section 58A
of the Act, and the rules made thereunder.

Balance Sheet Abstract and Company's General Business Profile

Information pursuant to Department of Company Affairs' notification dated
May 15, 1995, relating to the Balance Sheet Abstract and General Business
Profile of the Company is given in the Annual Reportfor information of the
shareholders.

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

The disclosures as required under the Companies (Disclosure of Particulars
in the Report of the Board of Directors) Rules, 1988 are given below:

(i) Energy Conservation: Electricity is used for the working of the
Company's telephone exchanges and other network infrastructure equipment.
The Company regularly reviews power consumption patterns across its network
and implements requisite improvements/changes in the network or processes
in order to optimize power consumption and thereby achieve cost savings.

(ii) Technology Absorption: The Company has not imported any technology.
The Company has not yet established separate R & D facilities.

(iii) Foreign Exchange Earnings and Outgo:

(Rs. crores)

Particulars 2008-09 2007-08

Earnings NIL NIL

Outgo 22.99 21.88

Capital Goods 364.39 197.88

Particulars of Employees and Stock Options

The particulars of employees as required under Section 217(2A) of the Act,
read with the Companies (Particulars of Employees) Rules, 1975 forms part
of this report. However, in pursuance of Section 219(1)(b)(iv) of the Act,
this report is being sent to the shareholders of the Company excluding the
aforesaid information. Any Member interested in obtaining a copy of such
information may write to the Company Secretary atthe registered office of
the Company.

The Company had issued stock options during the period 1999-2001. The
information as required to be disclosed in the Annual Report pursuant to
the Securities & Exchange Board of India (Employees' Stock Option Schemes
and Employees' Stock Purchase Scheme) Guidelines, 1999 is annexed to this
Directors' Report asAnnexure I and forms part of this report.

A certificate from M/s Deloitte Haskins & Sells (DHS), Statutory Auditors,
with regard to the implementation of the Company's Employees' Stock Option
Plan, would be open for inspection in the ensuing Annual General Meeting.

Corporate Governance

A report on Corporate Governance appears after this report. A certificate
from DHS with regard to compliance with the corporate governance code by
the Company is annexed hereto as Annexure II and forms part of this report.

The Company has fully complied with all mandatory requirements prescribed
under Clause 49 of the listing agreements with the Bombay Stock Exchange
Limited (BSE) and the National Stock Exchange of India Limited (NSE).The
Company has also implemented some of the non-mandatory provisions.

Acknowledgements

The Directors wish to place on record their sincere appreciation of the
assistance and support extended by the employees, customers, financial
institutions, banks, vendors, Government and others associated with the
activities of the Company.

For and on behalf of the Board of Directors

Place: Mumbai, Kishor A. Chaukar
Date : July2, 2009 Chairman

ANNEXURE - I

PARTICULARS PURSUANTTOTHE SECURITIES & EXCHANGE BOARD OF INDIA (EMPLOYEES'
STOCK OPTION SCHEMES AND EMPLOYEES' STOCK PURCHASE SCHEME) GUIDELINES, 1999

Options granted:

(i) Cumulative (cum.) : 37,33,550

(ii) During the year 2008-09 : Nil

Pricing formula : Not Applicable

Options vested (cum.) : 25,13,630

Options exercised (cum.) : 24,54,855

Options lapsed (cum.) : 12,70,745

Total number of shares arising as a
result of exercise of options (cum.) : 24,54,855

Variation of terms of options : Not varied

Money realised by exercise of
options (cum.) (Rs.) : 2,45,48,550

Total number of options in force : 7,950

Options granted to senior managerial
personnel during year 2008-2009: : NIL

Any other employees to whom 5% or more
of the total options have been granted
during the year : None

Identified employees to whom options
have been granted equal to 1% or more
of the issued capital (excluding
outstanding warrants & conversions)
of the Company at the time of grant : None

Diluted Earning Per Share (EPS) pursuant
to issue of shares on exercise of option
calculated in accordance with International
Accounting Standard (IAS 33)

- with extra ordinary item (Rs.) : (0.70)

- without extra ordinary item (Rs.) : (0.70)

Number of employees to whom options have been granted :

(i) Cumulative' till March 31, 2009 : 349

(ii) During FY 2008-09 : Nil

Also includes employees who have since left the employment of the Company.

MANAGEMENT DISCUSSION AND ANALYSIS

INDUSTRY STRUCTURE AND DEVELOPMENTS

The Indian Telecom Services Sector has witnessed tremendous growth in the
recent past, primarily driven by intense competition, entry of new
operators, falling tariffs, and reforms in the regulatory set-up.

India today has the second largest telecom network in the world after
China. As of May 2009, there were more than 452 million telephone
connections in the country of which 415 million were mobile connections.
Approximately 10-12 million mobile connections are being added every month.
The tele-density which was less than 1 per hundred in 1984 is today over 38
per hundred (including rural tele-density of 13%). Telephone connections
are to be expected to touch the 500 million mark by the year 2010.

The growth rate in rural areas though not matching with urban areas is
significant. Despite a steady fall in the Average Revenue Per User (ARPU)
with ever declining tariffs (Indian telecommunication tariffs are the
lowest in the world), Indian telecom companies have been expanding their
network and increasing their coverage of areas in rural India.

In India, there are various kinds of telecom service licences, including
access licences i.e. basic/fixed service, cellular, Unified Access (basic +
cellular) service; carrier licences i.e. national long distance and
international long distance; licences for internet services; VSAT licences;
and IP-1 registration for passive infrastructure (towers, ducts, fibre).
Unified Access Service Licence (UASL) operators like the Company apart from
fixed & mobile services can also provide internet, internet telephonyand
broadband services undertheir UASL licence. Unrestricted competition is
allowed in all the categories.

Regulatory Developments

Details of major developments on the regulatory front are as under:

* Access Deficit Charges

The Telecom Regulatory Authority of India (TRAI) had abolished Access
Deficit Charges (ADC), a levy paid by private telecom operators to Bharat
Sanchar Nigam Limited (BSNL) for meeting the cost of unprofitable
operations in rural areas with effectfrom April 1, 2008.The ADC component
on the international incoming calls was fixed at a reduced rate of Rs. 0.50
per minute for the period from April 1, 2008 to September 30, 2008 after
which this component of ADC was also eliminated. Now all domestic and
international calls are free from the incidence of ADC.

BSNL challenged this ADC amendment before the Telecom Disputes Settlement
and Appellate Tribunal (TDSAT) for the financial years 2006-07, 2007-08 and
2008-09. The TDSAT has dismissed all the appeals.

* Telecommunication Interconnection Usage Charges Regulation, 2003

The TRAI amended Telecommunication Interconnection Usage Charges
Regulation, 2003 vide Telecommunication Interconnection Usage Charges
(Tenth Amendment) Regulations, 2009 which effective April 1, 2009 reduced
termination charge for all types of domestic calls viz fixed to fixed,
fixed to mobile, mobile to fixed and mobile to mobile to 20 paise per
minute from 30 paise per minute, and increased termination charge for
incoming international calls to 40 paise per minute from 30 paise per
minute.This change has been challenged by many operators before theTDSAT

* Mobile Number Portability

Mobile Number Portability (MNP) is a service that allows end-users of
telecommunication services to retain their current mobile telephone number
when the subscriber switches from one operator to another. The Department
of Telecommunications (DoT), in November 2007, accepted TRAI's
recommendations of March 2006, on Mobile Number Portability.

DoT has divided the country into two MNP Service Zones and has signed
licence agreements with two companies to set-up and operate M NP. According
to DoT, M N P is expected to be launched in major cities by September 2009.

* Use of AlternateTechnology

DoT had issued on October 19, 2007, a press release permitting the use of
alternate wireless technologies by UAS Licensees. UAS Licensees who were
using CDMA Technology for wireless access are now permitted to use GSM
technology and vice-versa. In August 2008, Hon'ble Delhi High Court upheld
the Government decision. On March 31, 2009,TDSAT dismissed a petition filed
by Cellular Operators Association of India and other GSM Operators against
the Government's decision to allow dual technology. TDSAT also directed the
DoT to immediately review the subscriber Base of BSNL & Mahanagar Telephone
Nigam Limited (HTNL) in all the circles and withdraw the spectrum that is
beyond the criteria laid down by the DoT. The Hon'ble Supreme Court has
stayed such requirement to surrender the spectrum.

* Spectrum

(a) Allocation of 3G Spectrum

DoT on December 12, 2008 released an Information Memorandum which interalia
provides information on bidding by way of e-auction for 2.1 GHz Third
Generation (3G) Spectrum which is used by GSM operators for 3G Services
like HSPA/WCDMA.The Memorandum also offers for bidding BWA spectrum for
WiMax. 3G spectrum auction was postponed twice by DoT. No time-line for
conducting the process has been finalised.

(b) Guidelines for allocation of additional Spectrum

Based on TRAI recommendations (which discriminate between GSM and CDMA
operators by allotting spectrum in a 2:1 ratio based on unsubstantiated
presumption that CDMA technology is significantly more spectrum efficient),
DoT issued fresh spectrum allocation guidelines in January 2008, increasing
substantially the subscriber number thresholds, making it more difficultfor
established service providers to acquire more spectrum and improve their
quality of service to subscribers. DoT has set up a committee to review
allocation criteria. TDSAT in a recent judgment has held that TRAI
recommendations were done in a non-transparent manner and has advised DoT
to issue fresh guidelines after getting the committee report.

OPPORTUNITIES ANDTHREATS

The rapid pace of technological development in the telecom hardware and
software sectors has made it possible for the Companyto provide a variety
of services to its subscribers in a spectrum-efficient and cost-efficient
manner.

The year witnessed the introduction of some value added services, which are
expected to deliver a growing part of the Company's revenues in the years
ahead.The Company proposes to launch exciting new services and features on
its network in the near future, as a part of its endeavour to achieve
Customer Delight. While the Company would aggressively focus on data cards,
fixed wireless and mobile telecom services, itwill also refocus its
attention on wireline services.

The year witnessed the launch of new Value Added Services (VAS) under Brand
Tata Indicom. Revenues from VAS are expected to bolster the Company's
revenues significantly in the coming years.The Company will also realign
its focus on the wireline services along with the focus on the wireless
offerings.

Information on important litigation concerning the Company is as under:

* Spectrum

The Company and TataTeleservices Limited (TTSL) filed in December 2007, a
petition beforeTDSAT:

- Challenging allocation of spectrum beyond the contracted amount to GSM
operators;

- Querying the pricing of spectrum beyond the contracted amount and
recommending, if necessary, withdrawal of excess spectrum allocated to GSM
operators;

- Seeking release of the 3rd and 4th CDMA carriers (within the contracted
amount of 5+5 MHz) against its pending applications;

- Seeking upfront allotment of the contracted 5+5 MHz spectrum to CDMA
operators, as was done in the case of GSM operators; and

- Demanding technology neutrality.

DoT assured TDSAT that spectrum would be allocated against the pending
applications. However, without allocating spectrum against pending
applications, DoT enhanced substantially the subscriber number requirement
in January 2008. The petition is likely to be heard soon.

* Push to Talk

The Company, after holding discussions with TRAI, launched in November
2004, the innovative Push-To-Talk (PTT) service on a non-chargeable basis.
PTT enables subscribers to form groups and instantly connect with multiple
persons across the country who require short bursts of information, thus
increasing productivity and efficiency while simultaneously reducing costs.
Commencing January 2005, DoT and TRAI sought some information, which was
furnished, after which they directed the Company in February 2005, to
discontinue the service which was done. DoT thereafter levied a penalty of
Rs. 50 crores on the Company in February 2006, for alleged violation of ISP
license conditions; this was challenged bythe Company at the TDSAT, and
pending hearing, the demand has been stayed.

* Computation of Licence Fee

TDSAT in its judgement of July 2006, had laid down the principle that
revenues accruing from non-licensed activities should not attract licence
fee and directed TRAI to prepare a list of items to be included and
excluded from Adjusted Gross Revenue (AGR) which attracts licence fee.

The matter was decided in 2007 by TDSAT, which based on TRAI
recommendations identified various items to be excluded from AGR.The order
would be effective from the date of filing of petitions in TDSAT DoT has
filed an appeal in the Hon'ble Supreme Court challenging the whole order
while the Company and TTSL have filed an appeal seeking implementation of
the order from the first demand for the year 1999-00, raised by DoT in May
2003.

* Fulfillment of Roll-out Obligations

As a UAS Licensee, the Company was required to complete certain rollout
obligations within 1 and 3 years from the effective date of its license(s).
The coverage had to be certified by the Telecommunication Engineering
Center (TEC). Due to reasons not in the control of any of the UASL
operators, the first year norms could not be met by any of them.

Despite various representations from the industry and the Company, DoT on
June 4, 2007, issued show cause notices to the Company and other operators
alleging non-fulfillment of the stipulated rollout obligations at the end
of the first year.The notices required the Company to explain to DoT, why
liquidated damages of Rs. 14 crores (i.e. Rs. 7 crores each for Mumbai and
Maharashtra circle) should not be recovered from the Company for the
alleged failure. The Company has replied to the notices.The Company has
received legal opinion that the demands are invalid under law.

SEGMENT WISE OR PRODUCT WISE PERFORMANCE

The Company is in the business of providing the entire range of telephony
products in Mumbai Service Area and Maharashtra (including Goa) Service
Area.

The Company expanded its network throughout the States of Maharashtra and
Goa by covering 1,148 towns by the end of thefinancial yea r2008-09.
Details of various products and services are provided in the Directors'
Report.

OUTLOOK

The outlook for the Company appears bright on a long-term basis. The
Company will also benefit from its association with TTSL, which has
licences to provide telecom services in 20 circles across India.TTSL also
has been permitted bythe DoTto use GSM Technology in 17 Circles, and has
got allocation of GSM spectrum in 16 circles.The national teledensity is
around the 37% mark, and considering the teledensity of other regions and
countries in Asia, there is a vast market in our country waiting to be
tapped and the Company will take all the necessary initiatives to become a
major player in its chosen areas of operation.The Company has expanded its
coverage to 1,148 towns as at March 31, 2009.

RISKS AND CONCERNS

As is the case with any infrastructure project, the Company is exposed to a
number of risks. Key risks include:

Regulatory Risks

The Indian telecommunications industry is subject to extensive Government
regulation, especially as regards allocation of spectrum and introduction
of new services. However, the industry is being liberalised and the Company
would endeavour to take advantage of the new opportunities afforded by
regulatory changes, such as use of cross over technology, new platforms and
the proposed introduction of 3G services, which could allow the Company to
provide all types of high speed communication and convergence services.

The Company's telecommunications licenses, provide broad discretion to the
Government to influence the conduct of the Company's businesses by giving
it the right to modify, at any time, the terms and conditions of the
licenses and take over the entire services, equipment and networks or
terminate or suspend the licenses, if necessary or expedient, in the public
interest or in the interest of national security or in the event of a
national emergency, war or similar situation.

The Company's licenses are for fixed periods and are renewable for
additional terms at the discretion of the Government. There can be no
assurance that any of the Company's licenses will be renewed at all or
renewed on the same or betterterms.

Technological Risks

Changes in technology may render the Company's current technologies
obsolete or require it to make substantial capital investments for
upgradation. The telecommunications industry has seen rapid changes in
technology. Although the Company strives to keep its technology up to date
in accordance with the latest international technological standards, the
technology currently employed by it may become obsolete or subject to
competition from new technologies in the future.

Financing Risks

The Company is a telecommunication service provider and requires
significant funding on an ongoing basis for setting up and expanding
telecom infrastructure including services to be offered using GSM
technology. Besides, the Company will also bid for 3G license. Half of the
project cost is funded byway of debt that is subject to a number of terms
and conditions including periodic review of the business plan.
Implementation of project would be materially affected if the company does
not achieve financial closu re for project cost in a timely manner.

Interconnection Risks

For calls which originate or terminate outside the Company's network, its
ability to provide telecommunications services is dependent on access to
and the development, quality and maintenance of the competitors' networks,
and their willingness to co-operate with the Company in interconnection
arrangements. If for any reason these interconnection arrangements are
disrupted, or if grant of Point of Interconnections (Pots) or their
augmentation are delayed, one or more of the Company's services may be
delayed, interrupted orstopped leading to customer complaints,
dissatisfaction and churn.

Competition Risks

The Indian telecommunications industry has recently witnessed intense
competition with the entry of 4-5 new operators leading to further fall in
tariffs. The operations of the Company are restricted to two telecom
circles and thus it has some operational disadvantages vis-a-vis national
operators. To match the competitors, the Company has to provide subsidy on
handsets sold by its distributors to prospective customers.

Dependency on Tata Teleservices Limited

The Company has closely aligned and integrated its business operations and
strategies with those of TTSL and also shares certain infrastructure (e.g.
billing platform, intelligent network platform etc.) and activities (e.g.
procurement) with TTSL. The Company benefits from the goodwill associated
with the Tata Indicom brand that Tata Sons Limited has permitted the
Company to use for marketing its products and services.The Company's
Central Services sharing arrangements with TTSL allow it to jointly
negotiate with equipment suppliers and service providers and benefit from
economies of scale. In addition, the Company offers roaming services to its
CDMA mobile subscribers, who can roam in the Service Areas where the TTSL
network is operational and vice versa. Although all the above positively
impact the Company's performance, if the Company is viewed as a stand alone
enterprise, this inter-dependency may be perceived to be an area of
concern.

INTERNAL CONTROL SYSTEMS AN DTHEIR ADEQUACY

An Audit Committee of the Board of Directors has been constituted as per
the provisions of Section 292A of the Companies Act, 1956 and Corporate
Governance requirements specified bythe stock exchanges.

The internal audit function is looked after by an independent firm, which
conducts reviews and evaluation and presents its reports to the Audit
Committee and the management at regular intervals.

The Internal Auditors' Reports dealing with internal control systems are
considered by the Audit Committee and appropriate actions are taken,
wherever necessary.

ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The financial statements have been prepared in accordance with the
requirements of the Companies Act, 1956, the Indian Generally Accepted
Accounting Principles (Indian GAAP) and the Accounting Standards as
prescribed by the Institute of Chartered Accountants of India.

The Board of Directors believes that it has been objective and prudent in
making estimates and judgements relating to the financial statements and
confirms that these financial statements are a true and fair presentation
of the Company's operations and loss fortheyear.

DEVELOPMENTS ON HUMAN RESOURCES FRONT

The entry of new service providers has substantially increased competition
in the market. Increase in choices mean more effort and higher decibel
volumes in acquiring and retaining subscribers which in turn makes it
imperative to retain valuable and skilled intellectual capital. The offer
of higher monetary compensation by other operators and other service
sectors like retail and media have also increased the challenges of
retention. The initiatives undertaken by the Company have been described in
the Directors' Report.The Company had 1,726 employees on its rolls as on
March 31, 2009.

KEY FINANCIAL INFORMATION & OPERATIONAL PERFORMANCE

Revenues from Telecommunication Services

During the year, revenues from telecommunication services increased to
Rs.1,941.68 crores (previous year Rs. 1,707.19 crores).This revenue growth
was largely driven by the 48% increase in the number of subscribers to 74
lakhs at the end of March 2009 (compared to 50.79 lakhs subscriber lines as
at the end of March 2008).The revenue growth is based on the growth in
subscriber base, amidst falling tariffs. The tariffs of prepaid, postpaid
and fixed line segments have been reduced to match reductions undertaken by
competitors.

Otherlncome

Other income increased to Rs. 112.28 crores (previous year Rs. 82.41
crores), which includes subsidies received from the Universal Service
Obligation Fund towards provision of Rural Household Direct Exchange lines
(RDELs) in specified Short Distance Charging Areas (SDCAs) amounting to
Rs.92.94 crores (previous year Rs.56.81 crores).

Earnings Before Interest, Taxation, Depreciation, andAmortisation (EBITDA)

During the year, EBIDTA increased by 22% from Rs.485.55 crores to Rs.593.18
crores primarily due to increase in revenues by 15% and increase in
subscribers by 48%.

Expenses

The major expenses as a percentage of total cost is as follows:

Net Loss

The Company's net loss increased to Rs. 159.60 crores for the year
(previous year Rs. 125.74 crores). The Company launched its full mobility
services only in second half of 2003-04, and it is not uncommon for large
greenfield infrastructure telecom projects to incur losses during the
initial few years of project implementation.

Fixed Assets

The Company continues to grow its network in Mumbai and other cities in
Maharashtra and Goa. The year-end Gross Block increased by Rs.27.92 crores
(Net of Passive Infra Hive Off - Rs.355.18 crores, Network Interface Unit
(NIU) decapitalisation - Rs. 368.58 crores, AS-11 transitional adjustment -
Rs. 19.87 crores and other deletions - Rs. 3.91 crores) to Rs. 4,552.63
crores (previous year Rs.4,524.71 crores).The major increase in the Gross
Block was on account of expansion of the CDMA network by installation of
switches, cell sites and backbone amounting to Rs. 752.37 crores. The Gross
Block also includes the cost of GSM license fee (Rs. 392.66 crores). During
the previous year, TDMA assets were retired and removed from Gross Block
(Rs. 596.94 crores) and held for sale at the estimated realizable value of
Rs. 2.30 crores, of which during the currentyear, the Company has written
off assets aggregating to Rs.1.20 crores being not realizable.

The year-end Net Block has increased from Rs.2,861.13 crores to Rs.2,899.08
crores.Year-end Capital Work-in-Progress is at Rs.218.07 crores (previous
year Rs.125 crores).