Tata Teleservices (Maharashtra) Ltd

The Management Discussion and Analysis is attached and forms part of this AnnualReport.

Annual General Meeting

The ensuing Sixteenth Annual General Meeting is scheduled to be held on Tuesday, August16, 2011 at 1500 hours at Kamalnarayan Bajaj Hall & Art Gallery, Bajaj Bhavan,Jamnalal Bajaj Marg, 226, Nariman Point, Mumbai 400 021.

Financial Year

The Company follows the April - March, financial year. The financial results for first,second (half yearly) and third quarters are generally published in July, October andJanuary respectively. Annual audited financial results are generally published inApril/May/June. The financial results are uploaded on the Company's website.

The same are also uploaded on the website of the Corporate Filing and DisseminationSystem viz. www.corpfiling.co.in and are available for public viewing effective from April1, 2010 as Securities and Exchange Board of India ("SEBI") has discontinuedElectronic Data Information Filing and Retrieval System ("EDIFAR") site w.e.f.April 1,2010.

Date of Book Closure

The share transfer books & the Members' register will be closed between Friday,August 5, 2011 to Tuesday, August 16, 2011 (both days inclusive) for the purposes of theSixteenth Annual General Meeting.

Listing on the Stock Exchanges and Stock Code

The Company's equity shares are listed on the following exchanges:

The Company has paid annual listing fees to both the stock exchanges within thestipulated time.

Market Price Data

The High & Low on closing price of the Company's shares during each month in thelast financial year, were as follows:

Performance of the Company's Share Price in comparison to BSE and NSE indices

The performance of TTML's Share Price vis-a-vis the broad based BSE and NSE indicesduring the financial year 2010-11 is as under:

Registrar and Share Transfer Agents

The Company has appointed TSR Darashaw Limited (formerly Tata Share Registry Limited)as its Registrar & Share Transfer Agents. Shareholders are advised to approach TSRDarashaw Limited ("TSR") on the following address for any shares & dematrelated queries and problems:

TSR Darashaw Limited

6-10, Haji Moosa Patrawala Industrial Estate.

20, Dr. E. Moses Road, Near Famous Studio.

Mahalaxmi, Mumbai 400011.

Tel.: 91 22 66568484

Fax: 91 22 66568496

E-mail: csg-unit@tsrdarashaw.com

Website: www.tsrdarashaw.com

Share Transfer System

All physical share transfers are handled by TSR. The transferee is required to furnishthe transfer deed duly completed in all respects together with the share certificates toTSR atthe above said address in order to enable TSR to process the transfer. As regardstransfers of dematerialized shares, the same can be effected through the demat accounts ofthe transferor/s and transferee/s maintained with recognized Depository Participants.

Distribution of Shareholding

The broad shareholding distribution of the Company as on March 31, 2011 with respect tocategories of investors was as follows:

* As on March 31, 2011, Tata Teleservices Limited (Promoter) has pledged theirshareholding equivalent to 26% (Shares pledged by Promoters of the Company as on March31,2010 was 49.7%) of the Company's total paid-up capital to secure the termloans/facilities availed by the Company.

The broad shareholding distribution of the Company as on March 31,2011 with respect tosize of holdings was as follows:

The Company had a total of 5,12,872 shareholders as on March 31,2011.

The quarterly shareholding patterns filed with the stock exchanges are also uploaded onthe website of the Company and the same are also uploaded on the website of the CorporateFiling and Dissemination System viz. www.corpfiling.co.in and are available for publicviewing effective from April 1, 2010 as SEBI has discontinued EDIFAR site w.e.f. April1,2010.

Dematerialization of Shares & Liquidity

As of March 31,2011, 99.83% of the total equity shares issued by the Company have beendematerialised. The equity shares of the Company are under compulsory dematerialized form.The equity shares of the Company are available for dematerialisation with both thedepositories in India i.e. National Securities Depository Limited ("NSDL") andCentral Depository Services (India) Limited ("CDSL").

Outstanding Employee Stock Options, GDRs, ADRs, etc.

The Company has not issued any GDRs/ADRs/Warrants. There are no outstanding ForeignCurrency Convertible Bonds ("FCCBs") and Employee Stock Options.

Where we offer service

The Company now offers GSM service in 898 Towns and CDMA services in 1,184 towns in theStates of Maharashtra and Goa through its telephone exchanges located at Turbhe (NaviMumbai), Nariman Point (Mumbai), Marol (Mumbai), Andheri (Mumbai), Pune, Nasik, Panjim,Nagpur, and Kolhapur.

Address for correspondence

Shareholders holding shares in physical mode are requested to direct all equity sharerelated correspondence /queries to TSR and only the non-share related correspondence andcomplaints regarding TSR should be addressed to the Compliance Officer at the registeredoffice of the Company. Shareholders holding shares in electronic mode (dematerialized)should address all shares-related correspondence to their respective DepositoryParticipants only.

Auditors' Certificate

The certificate dated April 26, 2011 issued by M/s. Deloitte Haskins & Sells,Statutory Auditors on compliance with the Corporate Governance requirements by the Companyis annexed to the Directors' Report.

Industry Structure and Developments

The Indian telecom services sector has witnessed tremendous subscriber growth,primarily driven by intense competition, entry of new operators and falling tariffs.Today, India has the second largest telecom network in the world after China. As ofApril'2011, there were more than 861 million telephone connections in the country of which827 million were wireless connections. Approximately 15-20 million mobile (SIM)connections are being added every month. The national mobile tele-density is around 72 perhundred. Mobile Number Portability ("MNP") was launched across the country onJanuary 20,2011.

Urban Teledensity is around 160% with presence of multiple SIMs while the ruralteledensity is around 35%.This highlights major growth potential in rural areas. Indiantelecom companies have been expanding their networks and are significantly increasingtheir geographical coverage in rural India. In India, there are various kinds of telecomservice licences, including access licences, i.e. basic/fixed service, cellular, UnifiedAccess (basic + cellular) service; carrier licences, i.e. national long distance andinternational long distance; licences for internet services; VSAT licences; and IP-1registration for passive infrastructure (towers, ducts, fibre). Unified Access ServiceLicence ("UASL") operators like the Company can provide, besides fixed &mobile services, internet, internet telephony and broadband services under their UASLlicence. Unrestricted competition is allowed in all the categories.

REGULATORY DEVELOPMENTS

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

• National Telecom Policy 2011: The Department of Telecommunications("DoT") has initiated the process to formulate a comprehensive National TelecomPolicy ("NTP") 2011. This will take into account the changes that have takenplace in the industry since NTP 1999. A Committee has been constituted with AdditionalSecretary (T) and Advisor (T) as the co-chairman and DDGs as Members. Two rounds of themeetings have already taken place since then and eight sub-groups have been constituted towork on specific areas. Hon'ble Minister of Communications Mr. Kapil Sibal has held roundtable conferences with stake-holders on broadband, Unified licence.

• National Frequency Allocation Plan 2011: The current policy document onspectrum viz. the National Frequency Allocation Plan- 2008 ("NFAP-2008") wasmade effective from April 1, 2009. The fast emergence of new wireless technologies andapplications necessitated the review of NFAP-2008. Accordingly, the review/ revision ofNFAP has been undertaken by DoT and draft NFAP 2011 has been published.

• Access Deficit Charges a levy paid by private telecom operators to BharatSanchar Nigam Limited ("BSNL") for meeting the cost of unprofitable operationsin rural areas, was abolished by The Telecom Regulatory Authority of India("TRAI") w.e.f. April 1, 2008. Telecom Disputes Settlement Appellate Tribunal("TDSAT") on petition by BSNL upheld TRAI action. Appeals have been filed byBSNL before Supreme Court against these orders of the TDSAT. Being statutory appeals thesehave been admitted by Supreme Court. However, no stay of TDSAT order has been granted.

• Audit by The Comptroller and Auditor General ("CAG"): TheAssociation of Unified Telecom Service Providers of India ("AUSPI") alongwithwith its members has filed a Petition before TDSAT challenging the letters dated March 16,2010 whereby DoT sought information from the Telecom Service Providers for audit by CAG.The Petition challenges the powers of CAG to audit the accounts of private companies andRules 5(b) of the TRAI Service Providers (Maintenance of Books of Accounts and otherDocuments) Rules 2002. The TDSAT has struck down the said appointment. A Petitionchallenging the aforesaid Rules is pending before the Delhi High Court.

• Public Interest Litigation ("PIL") in Supreme Court: Mr. PrashantBhushan, Advocate has filed a PIL before the Supreme Court of India challenging the Policyof'First Cum First Service' based upon the press release dated January 10, 2008 and allactions taken pursuant thereto including cancellation of licences and allocation ofspectrum as a result thereof. TRAI had recommended cancellation of some licences as thelicensees failed to meet in time the roll-out obligations embodied in the UAS licenses.Similar Petition has been filed by Dr. Subramanium Swami as well. In both the PILs thearguments had been concluded and judgement is reserved by the Supreme Court.

• Dual technology: DoT had issued on October 19, 2007, a press releasepermitting the use of alternate wireless technologies by UAS Licensees. UAS Licensees whowere using CDMA technology for wireless access are now permitted to use GSM technology andvice-versa. In August 2008, the Hon'ble Delhi High Court upheld the Government's decision.On March 31, 2009, TDSAT dismissed a petition filed by the Cellular Operators Associationof India ("COAI") and other GSM operators against the Government's decision toallow dual technology. TDSAT also directed DoT to immediately review the subscriber baseof BSNL and Mahanagar Telephone Nigam Limited ("MTNL") in all the circles andwithdraw the spectrum allocated beyond the criteria laid down by DoT. The Hon'ble SupremeCourt on appeals by BSNL and MTNL has for the time being, stayed such requirement tosurrender the spectrum. COAI has also filed appeal before the Supreme Court against theorder of TDSAT.

• Telecommunication Interconnection Usage Charges Regulation, 2003: The TRAIamended Telecommunication Interconnection Usage Charges Regulation, 2003 videTelecommunication Interconnection Usage Charges (Tenth Amendment) Regulations, 2009 whichbecame effective from April 1, 2009 reduced termination charges for all types of domesticcalls viz. fixed to fixed, fixed to mobile, mobile to fixed and mobile to mobile to 20paise per minute from 30 paise per minute, and increased termination charges for incominginternational calls to 40 paise per minute from 30 paise per minute. This change has beenchallenged by incumbent operators before the TDSAT. The Company, Tata Teleservices Limited("TTSL") and AUSPI have filed an appeal demanding a 'Bill & Keep'arrangement. Arguments in all these appeals have been concluded in March'2010. The TDSATvide its judgment dated September 29, 2010 had remanded the matter for fresh considerationby TRAI in a time bound manner after holding consultation with all the stakeholders. TRAIhas filed statutory appeal against the said judgement of TDSAT in Supreme Court, interalia challenging the powers TDSAT to interfere with the regulations framed by TRAI. Theappeal has been admitted and would come up for hearing in due course, however there is nostay in the interim.

• Telecom Commercial Communications Customer Preference Regulations, 2010: TRAIhas announced a new Unsolicited Commercial Communications ("UCC") Regulation inDecember, 2010. It has been amended 5 times and the final date of implementation is stillawaited from TRAI.

(a) Allocation of 3G Spectrum

The Company has succeeded in winning the bid for 3G spectrum in Maharashtra circle(excluding Mumbai but including Goa) with a bid value of Rs.1,257.82 Crores. The Companyreceived 3G Spectrum in September '2010 and was able to launch 3G services in November'2010, the first private operator to launch the same. DoT asked all 3G operators towithdraw certain 3G services for security reasons and subsequently allowed them on January14, 2011 with some requirements to be completed before end of June '2011.

(b) Guidelines for allocation of additional Spectrum

Based on TRAI recommendations (which discriminate between GSM and CDMA operators byallotting spectrum in a 2:1 ratio based on the unsubstantiated presumption that CDMAtechnology is significantly more spectrum efficient), DoT issued fresh spectrum allocationguidelines in January '2008, increasing substantially the subscriber number thresholds,making it more difficult for established service providers to acquire more spectrum andimprove their quality of service to subscribers. DoT had set up a committee on June16,2008 to review the spectrum allocation criteria. TDSAT, in a recent judgment, has heldthat the TRAI recommendations were made in a non-transparent manner and has advised DoT toissue fresh guidelines after getting the Second Spectrum Committee report. SecondCommittee submitted its report on May 13, 2009 recommending auction of 2G spectrum beyondinitial allotment of spectrum of 4.4 MHz. Report had been referred by DoT to TRAI. TRAIhas submitted its recommendation on Spectrum Management and Licencing Framework on May 11,2010. In its recommendation of May 11, 2010, TRAI has capped the spectrum allotment to GSMand CDMA. It has recommended that committed spectrum is 6.2 MHz for GSM and 5 MHz inrespect of CDMA. 'Prescribed limit' of spectrum i.e. the amount of spectrum that can beassigned by the Government would be 8 MHz/5 MHz (GSM/CDMA) in the whole of the countryexcept in the metro service areas of Delhi and Mumbai, where it would be 10 MHz/6.25 MHz.However, spectrum assigned beyond committed amount of 6.2/5 MHz (GSM/CDMA) will be paidfor at the 'Current Price'. TRAI has submitted on February 8, 2011, supplementaryrecommendations on Current Price for 1,800 MHz spectrum. TRAI has also recommended licencefees to be brought down to 6% over the next four years and has made recommendations forfacilitating Mergers & Acquisitions. DoT is yet to take decision on theserecommendations.

• Security Clearance Before Purchase of Equipment: DoT vide letter datedDecember 3, 2009 has amended the UASL agreement asking all the service providers to takesecurity clearance from DoT before placing purchase orders. Almost after a year, somerelaxations were announced and the operators are permitted to import equipment when theysubmit legal undertakings. Fresh guidelines have been announced by DoT on May 31,2011which include some relaxations.

• Re-verification of Mobile Subscribers: DoT vide their letter dated September30, 2009, has allowed all the operators to re-verify the subscribers from Octoberl, 2009till October 31, 2010 to avoid penalty. The date was further extended first till December31, 2010 and then on representation by Apex Committee on Telecom ("ACT"),finally till March 31,2011.

• Quality of Service (QoS):

> For customer complaints, service requests, Value Added Services (VAS) deactivationand service termination, toll free number 198 has been activated. This will be a commonnumber for all service providers for all products.

> Performance parameters of Network, Billing and Customer Care are required to bepublished on the website each quarter. An online Telecom Consumers Grievance MonitoringSystem is likely to be introduced.

• Efficient Utilisation of Numbering Resources: The availability of newnumbers is under severe pressure in view of the rapid growth of mobile connections. TheTRAI has initiated discussions to review the current method of allocation and soughtsuggestions for making more numbers available in the 10 digit format. They are alsoconsidering for the long term the feasibility of using 11 digit format. The possibility ofre-allocation of levels now allotted for fixed line numbers to mobile is high. DoT videtheir letter dated February 7, 2011 has changed the criterion for allocation of newnumbering levels which is discriminatory towards new entrants like the Company in GSMfield. Representations have been made by associations.

Opportunities and Threats

The Company offers CDMA and GSM telecom services in Mumbai and Maharashtra (comprisingMaharashtra and Goa states) telecom circles. The Company successfully launched GSMservices in August'2009, as a result of which it today has one of the most completeportfolios of telecom services in the country including landline, wireless (CDMA &GSM), voice, data and broadband services.

The Company won 3G Spectrum in Rest of Maharashtra (including Goa) Circle during the 3GSpectrum auctions held in April-May '2010. The Company believes that this region of over100 million people comprising of rapidly growing cities such as Pune, Nasik, Aurangabad,Vasai and Nagpur has high growth potential and would help Company in further strengtheningits market positioning.

In Mumbai, which in comparison has a significantly smaller population of around 20million people, the Company already has multiple telecommunication assets including itsEDGE enabled GSM platform, a substantial wireline broadband access infrastructure andextremely successful wireless broadband services offered on the CDMA platform through thePhoton* offerings, all of which the Company will continue to leverage effectively. It isalso exploring possibility of roaming arrangements with other operators for GSM 3Gservices. The year witnessed the launch of new Value Added Services ("VAS"),which are expected to bolster the Company's revenues significantly in the coming years.

• Spectrum: Tata Teleservices Limited (TTSL) and the Company filed inDecember'2007, a petition before TDSAT:

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

- querying the pricing of spectrum beyond the contracted amount and recommending, ifnecessary, withdrawal of excess spectrum allocated to GSM operators;

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

- seeking upfront allotment of the contracted 5+5 MHz spectrum to CDMA operators, aswas 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 enhancedsubstantially the subscriber number requirement for spectrum allocation eligibility inJanuary'2008. The TDSAT was waiting the recommendation of TRAI on the report of the Expertcommittee. TRAI has made its recommendations on May 11, 2010. These recommendationshowever do not deal with this issue. The Company's petition has been dismissed and thecompany has been advised to take up the matter of equal allocation of spectrum with DoT.An appeal has been filed before the Supreme Court against the order of TDSAT.

• WLL (M) Walky: The Supreme Court on May 30, 2008, had held thatADC ispayable on services provided under Walky phones for the period November 14, 2004 to August26, 2005. The matter of quantification of these claims were left to be done by TDSAT.Subsequently facing threat of disconnection and unreasonable demands of BSNL, TTSLATMLfiled petition before TDSAT. In the said Petition, TTSLATML inter alia sought informationfrom BSNL regarding its 26 lakhs WLL(M) phones and sharing of relevant data in order toraise counter claim. TDSAT vide its order dated April 15, 2010 erroneously held thatSupreme Court has finally decided the claims of BSNL. Consequently appeal has been filedbefore the Supreme Court against the said order of TDSAT.

• Computation of Licence Fee: TDSAT in its judgement of July'2006, had laiddown the principle that revenues accruing from non-licensed activities should not attractlicence fee and directed TRAI to prepare a list of items to be included and excluded fromAdjusted Gross Revenue ('AGR") which attracts licence fee.

The matter was decided in 2007 by TDSAT, which based on TRAI recommendations identifiedvarious items to be excluded from AGR. The order would be effective from the date offiling of petitions in TDSAT. DoT has filed an appeal in the Hon'ble Supreme Courtchallenging the whole order, while the Company and TTSL have filed an appeal seekingimplementation of the order from the first demand for the year 1999-00, raised by DoT inMay'2003. The appeals are expected to be listed for hearing shortly.

• Fulfillment of Roll-out Obligations; As a UAS Licensee, the Company wasrequired to complete certain rollout obligations within 1^st and 3^rdyears from the effective date of its license(s). The coverage had to be certified by theTelecommunication Engineering Center ("TEC"). Due to reasons not in the controlof 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 nonfulfillment ofthe stipulated rollout obligations at the end of the first year. The notices required theCompany to explain to DoT, why liquidated damages of Rs.14 Crores (i.e. Rs.7 Crores eachfor Mumbai and Maharashtra circle) should not be recovered from the Company for thealleged failure. The Company has replied to the notices. The Company has received legalopinion that the demands are invalid under law.

• Special Audit by DoT: DoT appointed a firm of chartered accountants asspecial auditor to conduct audit of licence fee payments during the FY 2006-07 and2007-08. The report of the special auditor has been submitted to DoT in last week of May'2010.

• Spectrum usage charges: TTSLATML filed an Petition before TDSAT challengingthe order dated February 25, 2010 issued by DoT increasing the spectrum usage charges from2% of AGR to 3%. Similar Petitions have been filed by other operators also. The Company'spetition was dismissed by TDSAT vide judgement dated September 1, 2010. Appeal has beenfiled before Supreme Court. The appeal has been admitted on February 14, 2011.

• Karnataka Letter of Intent of 1997: The erstwhile promoters of the Companyin 1997 had applied in the name of the Company for basic services licence in Karnatakacircle. A letter of Intent ("Lol") was issued by DoT to the Company. However,DoT did not take a decision till March' 1999 on certain pending issues/requests by theCompany and the Lol lapsed. DoT recovered in 1999 from Maharashtra licence payments a sumof Rs.50 Crores alleging failure on the part of the Company to sign licence for Karnataka.During the hearing, DoT lodged a counterclaim for loss of licence fee and claimed intereston it. TDSAT ordered refund of Rs.50 Crores and dismissed the counter-claim on the groundthat TDSAT had no jurisdiction. On appeal by DoT, Supreme Court held that TDSAT hadjurisdiction and remanded the case for rehearing to TDSAT. Currently, judgment of TDSAThas been reserved afterthe matter was re-heard.

Segment-wise or product-wise performance

The Company is in the business of providing a wide range of telephony products inMumbai Service Area and Maharashtra (including Goa) Service Area. Details of variousproducts and services are provided in the Directors' Report.

Outlook

The outlook for the Company appears bright on a long-term basis. It successfullylaunched GSM services under Tata DOCOMO brand in Mumbai and Maharashtra circles inAugust'2009. It has been successful in winning 3G spectrum for Maharashtra circle (whichincludes Goa). The Company has been making cash profits in last 21 quarters.

The Company successfully launched 3G wireless service under 'Tata DOCOMO' brand in 16Towns in Rest of Maharashtra Circle. The rollout by the Company is one of the fastest byany standards.

The Company will also benefit from its association with TTSL, which has licences toprovide telecom services in 20 circles across India. TTSL has also been permitted by DoTto use GSM Technology in 17 Circles and has been allocated GSM spectrum in 16 circles. Ithas also won 3G spectrum in 8 circles, primarily in the western belt of the country. Thenational teledensity is around 72% mark, but accounting for the considerable multi-Simmingphenomenon in the industry, the 'actual' tele-density is much lesser. Considering theteledensity of other comparable regions and countries in Asia, there is a significantmarket in India still waiting to be tapped and the Company will take all the necessaryinitiatives to become a major player in its chosen areas of operation. The Companyexpanded its network throughout the States of Maharashtra and Goa and the Company nowoffers GSM services in 898 Towns and CDMA services in 1,184 towns by the end of thefinancial year 2010-11.

The Company has been late entrant in CDMA and GSM 2G services, but it now has anopportunity to be on par with other operators as for providing 3G services. The Company'sPhoton* high speed internet services along with some other strategies will enable it tocompete in Mumbai, where it did not pursue bidding for 3G spectrum due to exorbitantlyhigh bid price.

Risks and Concerns

As is the case with any infrastructure project, the Company is exposed to a number ofrisks. The Company assesses the risks every year and presents them to the Audit Committeein line with Clause 49 of the Listing Agreement with stock exchanges. The key risksinclude:

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 continue its endeavor to takeadvantage of the new opportunities offered by regulatory changes. These include use ofalternate technology, new platforms and the proposed introduction of 3G services, whichcould allow the Company to provide all types of high speed communication and convergenceservices. The Company's telecommunications licenses, provide broad discretion to theGovernment to influence the conduct of the Company's businesses by giving it the right tomodify, at any time, the terms and conditions of the licenses and take over the entireservices, equipment and networks or terminate or suspend the licenses, if necessary orexpedient, in the public interest or in the interest of national security or in the eventof a national emergency, war or similar situation. The Company's licenses are for fixedperiods (i.e. upto September '2017) and are renewable for additional terms at thediscretion of the Government. There can be no assurance that any of the Company's licenseswill be renewed at all or renewed on the same or better terms.

The recent amendment to licenses requiring prior approval of Licensor before placingpurchase orders for imported 'active' equipment and software and current embargo onChinese vendors may adversely affect the Company in short term and may impose additionalcosts.

The Company may be required to obtain additional 2G spectrum in the future on paymentbasis which may impose additional financial burden on the Company. Delay in receipt ofcontracted spectrum of 6.2 MHz may create quality of service issues and may result incustomer dissatisfaction. To address this, the Company may be required to rollout morecellsites, thereby substantially increasing the operating expenditure.

Technological Risks

Changes in technology may render the Company's current technologies obsolete or requireit to make substantial capital investments for upgradation. The telecommunication industryhas seen rapid changes in technology. Although the Company strives to keep its technologyup to date in accordance with the latest international technological standards, thetechnology currently employed by it may become obsolete or subject to competition from newtechnologies in the future.

Financing Risks

The Company is a telecommunication service provider and requires significant funding onan ongoing basis for expanding telecom infrastructure including services to be offeredusing GSM technology. Approximately half of the project cost is funded by way of debt thatis subject to a number of terms and conditions including periodic review of the businessplan. Besides, the Company has also borrowed additional funds for making 3G spectrumpayment of Rs.1,257.58 Crores.

Interconnection Risks

No operator has been able to win pan-india 3G spectrum and hence roaming arrangementswill assume great importance. The Company and TTSL will also require roaming arrangementsin 13 circles where they have not been able to win 3G spectrum. Augmentation of capacitiesor creation of separate interconnection facilities for GSM services are some of thebusiness requirements which are dependent on cooperation of other operators.

Competition Risks

The Indian telecommunication industry has recently witnessed intense competition withthe entry of 4-5 new operators leading to further fall in tariffs. The tariffs are thelowest in the world. Competition also creates need for higher expenditure on marketing andadvertising.

Dependency on the Promoters

The Company has closely aligned and integrated its business operations and strategieswith those of TTSL and also shares certain infrastructure (e.g. billing platform,intelligent network platform etc.) and activities (e.g. procurement) with TTSL. TheCompany benefits from the goodwill associated with the Tata Indicom brand that Tata SonsLimited has permitted the Company to use for marketing its CDMA products and services andTata DOCOMO brand that Tata Sons Limited and NTT Docomo Inc. has permitted the Company touse for marketing its GSM products and services. The Company's central services sharingarrangements with TTSL allow it to jointly negotiate with equipment suppliers and serviceproviders and benefit from economies of scale. In addition, the Company offers roamingservices to its CDMA/GSM mobile subscribers, who can roam in the service areas where TTSLnetwork is operational and vice-versa. Although all the above positively impact theCompany's performance, if the Company is viewed as a stand alone enterprise, thisinter-dependency may be perceived to be an area of concern.

Internal Control Systems and their adequacy

An Audit Committee of the Board of Directors has been constituted as per the provisionsof Section 292A of the Companies Act, 1956 ("Act") and Corporate Governancerequirements specified by the stock exchanges. The internal audit for variousfunctions/aspects is conducted by independent firms/internal audit team, which conductsreviews and evaluation and present their reports to the Audit Committee and the managementat regular intervals. The Internal Auditors' Reports dealing with internal control systemsare considered by the Audit Committee and appropriate actions are taken, wherevernecessary.

Analysis of Financial Condition and Results of Operations

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

The Board of Directors believes that it has been objective and prudent in makingestimates and judgements relating to the financial statements and confirms that thesefinancial statements are a true and fair presentation of the Company's operations andprofits for the year.

Developments on Human Resources Front

The entry of new service providers has substantially increased competition in themarket. Increase in choices means more effort and higher decibel volumes in acquiring andretaining subscribers which in turn makes it imperative to retain valuable and skilledintellectual capital. The offer of higher monetary compensation by other operators andother service sectors like retail and media have also increased the challenges ofretention. The initiatives undertaken by the Company have been described in the Directors'Report. The Company and TTSL are working towards better operational and functionalintegration so as to take full advantage of operational synergies and to present a unifiedpan-India entity especially in reference to the common brands being used by each of thesetwo entities. Some senior employees of the Company have been deputed to TTSL to take upnational responsibility (TTSL and the Company), as such only a portion of cost of suchemployees is charged to the Company. The Company had 1,725 employees on its rolls as onMarch 31, 2011.

Key Financial Information & Operational Performance Revenues from Telecommunication Services

During the year, revenues from telecommunication services increased to Rs.2,248.74Crores (previous year Rs.2,069.10). This revenue growth was largely driven by the 30%increase in the number of subscribers to 168 lakhs at the end of March' 2011 (compared to130 lakhs subscriber as at the end of March' 2010). The revenue growth is based on thegrowth in subscriber base, amidst falling tariffs including the drop in terminationcharges. The tariffs of prepaid, postpaid and fixed line segments have been reduced tomatch reductions undertaken by competitors.

Other Income

Other income decreased to Rs.67.20 Crores (previous year Rs.208.71 Crores), whichincludes subsidies received from the Universal Service Obligation Fund towards provisionof Rural Household Direct Exchange Lines ("RDELs") in specified Short DistanceCharging Areas ("SDCAs") amounting to Rs.6.87 Crores (previous year Rs. 141.29Crores). As RDELs scheme has come to an end, there is no likelihood of the Companybenefitting from such subsidies any further.

Earnings Before Interest, Depreciation, Taxation and Amortisation ("EBIDTA")

During the year, EBIDTA increased by 112% from Rs.540.51 Crores to Rs.1,146.77 Croresprimarily due to profit on sale of long term investment of Rs.834.93 Crores and reductionon operating expenses offset partially by an increase in costs associated with expandednetwork rollout including launch of 3G services, provision for contingencies and reductionin USO Subsidy.

Cash Profit

During the year, Cash Profits increased from Rs.229.89 Crores to Rs.800.61 Croresprimarily due to profit on sale of long term investments offset partially by costsassociated with the expansion of network for GSM services, costs of launch of 3G servicesincluding interest costs.

Total depreciation for FY11 was Rs.750.70 Crores (including additional depreciation ofRs.184.81 Crores as a result of re-estimatation of the balance useful life of certainitems of plant and machinery considering up-gradation of equipment on account ofenhancement of technology and the consequent enhanced pace of planned replacement. Totaldepreciation net of additional depreciation for FY11 was Rs.565.89 Crores as compared toRs.520.89 Crores in FY10.

Finance Charges

The Finance Charges increased from Rs.317.62 Crores to Rs.346.16 Crores. This isprimarily on account of interest charge on 3G license fees in Q4 subsequent to launch of3G services in Rest of Maharashtra. The higher interest rates and additional borrowingswere offset by the cash inflow from the sale of investment in the tower subsidiary. TheCompany's Business Plan has been appraised by IDBI Bank Limited and the Company hasentered into a Common Terms Agreement with the lenders for long term loans for nine yearsaggregating Rs.3,427 Crores.

Net Profit

The Company reported net profit of Rs.49.90 Crores for the year (previous year net lossof Rs.298.01 Crores). The Company divested its entire stake in the tower subsidiary duringthe year (profit on sale Rs.834.93 Crores) and have made provision for contingenciestowards various telecom disputes for Rs.185.60 Crores and for accelerated depreciationbased on re-estimation of useful lives of certain equipment for Rs.184.81 Crores. TheCompany launched its full mobility services using CDMA technology in the second half of2003-04 and launched GSM services only in August'2009 and it is not uncommon for largegreen-field infrastructure telecom projects to incur losses during the initial few yearsof project implementation. The Company has also commenced 3G Services during the currentyear in Rest of Maharashtra Circle.

Fixed Assets

The Company continues to grow its network in Mumbai and other cities in Maharashtra andGoa. The year-end Gross Block increased by Rs.2,047.02 Crores (Net of deletions ofRs.10.55 Crores) to Rs.7,621.16 Crores (previous year Rs.5,574.14 Crores). The majorincrease in the Gross Block was on account of launch of 3G Services, building of GSMnetwork and expansion of the CDMA network by installation of switches, cell sites andbackbone amounting to Rs.799.75 Crores. The Gross Block also includes the cost of 3Glicense fee Rs.1,257.82 Crores.

The year-end Net Block has increased from Rs.3,503.82 Crores to Rs.4,802.83 Croresafter considering accelerated depreciation based on re-estimation of useful lives ofcertain equipment for Rs.184.81 Crores. The year-end Capital Work-in-Progress is atRs.153.05 Crores (previous year Rs.196.91 Crores).

Net Current Liabilities

The Current Liabilities increased from Rs.878 Crores to Rs.920 Crores primarily due toincrease in Capex Creditors from Rs.541 Crores to Rs.698 Crores offset by higher bankbalances.

Loan Funds

The total loan funds increased from Rs.3,609 Crores to Rs.4,653 Crores primarily onaccount of Rs.1,258 Crores 3G license fee payment financed through short term borrowings.During the year, the Company has tied up long term funding for Wireline, CDMA & GSMservices. In May' 2011, the Company has tied up for long term External CommercialBorrowings of USD 350 Million for refinancing of short terms loans availed for 3Gspectrumfeesandforcapex.