Tulip Telecom Ltd

Industry Structure & Developments (Telecom Sector – Enterprise Data Services)

The Indian enterprise segment has been growing at a healthy rate driven by two factors.Indian business is increasingly adopting IT and networking technology to improveproductivity and create competitive advantage. Secondly, since Indian business is growingglobally and international and Indian companies are expanding their foot prints beyondtheir existing presence, there is an associated need for greater connectivity to andwithin the country. Banking and financial services, information technology and businessprocess outsourcing/call centres are some examples of high-growth sectors in the country.A majority of these are intended for tapping the growing enterprise market for both voiceand data connectivity. The enterprise market is primarily being led by the demand forconnectivity from the IT, ITeS, government and financial service segments. Telecom isbeing used as a strategic tool in Indian industry.

Today, a secure, reliable and efficient telecommunications network is a must-have forany company. With cost containment and overall network management being the keywords inthe BPO and ITeS businesses today, a robust telecom infrastructure forms the backbone ofseamless operations. Future growth is expected from the retail segment where a boom isexpected in the coming years on account of large national and international players poisedto enter organised retailing.

Bandwidth, both domestic and international, is a key input to knowledge-basedindustries. Of particular importance is the crucial role of bandwidth in IT and ITeSindustries like BPO, call centers, software exports, etc. Globally, 35 to 50% revenues areobtained from non-voice services, while India derives only 18% revenues fromnon-voice/data services. This underscores the huge revenue potential of data serviceswaiting to be tapped. We believe that in the current decade, data will transform theIndian telecom industry the way voice did in the previous decade.

India has emerged as one of the fastest growing economies in the world today with agrowth rate of about 8.6% in 2011-12. Within that, the Telecom sector have shown signs ofresilience and contributed significantly to the country's economy. The telecom industry,in fact, has gained recognition as one of the most lucrative markets globally given thehuge potential that rural markets have on offer which is expected to drive future growthof the telecom and data companies. Further, the government's initiatives for increasingconnectivity in rural areas are also likely to provide an impetus to the growth in thetelecom sector.

According to Frost and Sullivan, the Enterprise Data connectivity market is currentlyestimated to be Rs 62 billion of the Indian telecom market which is expected to rise toRs. 121 billion by 2016.

Tulip Telecom is India’s leading Enterprise Communications Service provider withinnovative IP-based infrastructural solutions. The Company’s data connectivitynetwork spans over 2,000 locations in India and partnership with global telecom playersenables its network to reach every part of the world. With roll-out of fibre optic and therecent acquisition of a Data Center facility in Bengaluru, the Company has expanded itsaddressable market.

Third Party Data Centers: Market Overview

• The third party data centre market in India is estimated to be US$ 671 MM in2012, growing @ CAGR of 36.5% in the same period. The increasing adaption of third partydata centres by enterprises is on account of:

• Escalating real estate, power and cooling costs making captive building /expansion of data centres unaffordable

• A greater number of organizations wanting to focus on their core business areasand relying on third party expertise to manage their data centre operations effectively

• Cost benefits, inability to scale up captive operations, IT skill shortage andincrease outsourcing of end-to-end IT infrastructure management by large organizations tosystems integrators are other reasons for growth in third party data centres

• Utilization of third party data centres for back ups and testing environments isanother important growth driver for the sector

• The growth in market, coupled with lack of additional capacities is expected toincrease capacity addition by third parties @ CAGR of 33% between 2010 to 2014

Tulip: Set to dominate the data centre market in India

• The third party data centre market is currently dominated by large andestablished telecom players like Reliance Communications and Tata Communications and pureplay data centre services providers like Sify and Netmagic. Tulip Telecom has changed thepecking order of the data centre market by commissioning Asia's largest and world's thirdlargest data centre data centre at Bangalore in Feb'12

• With an annual revenue potential of over INR 10 bin from this data centre, Tulipis set to emerge as the largest player in the space in India by 2015

• With its size, economies of scale and NOC with a seating capacity of 1500, Tulipis set to emerge as India's first to offer a 'data centre within a data centre' facility ,apart from co-location and hosting business. The data centre would also form the bedrockof the company's managed services offering

• IBM is Tulip's design partner and Schnabel has been its consultancy partner tooversee its design, build and certification. Built to Tier IV and Tier III standards, thedata centre has 99.995% uptime and has already tied up marquee clients such as HP, IBM andNTT as its anchor tenants and has a current sales funnel of 500,000 square feet in raisedarea against a capacity of 400,000 square feet

Business overview

With over two decades of practical experience in providing IT solutions, Tulip Telecomhas emerged as one of India’s largest Enterprise Data Service providers with an aimto fully engage with its clients by providing an extensive range of products and servicesofferings through its meshed infrastructure from wireless and optic fibre. Complementingconnectivity services are Network Integration and Managed Services segments which enablethe Company to service its customer’s entire data requirement thus becoming a‘one stop shop’ for clients’ complete IT requirement. This has not onlyfacilitated the Company to generate multiple revenue streams, but has also facilitated incustomer stickiness, accountability and control.

Tulip Telecom Snapshot

Tulip Telecom has carved a niche position for itself in the Enterprise DataConnectivity segment and over a short span has garnered a market share of 12.9%.

A) Data Connectivity Solutions

Tulip Telecom over a short span has created one of India’s largest last mileconnectivity across India through its fibre and wireless network thus providing highquality end-to-end data connectivity solutions for customers. The entire network of TulipTelecom is connected over high-speed fibre backbone and offers multiple access technologyoperations enabling faster and easier connectivity with minimum lead time.

Enterprise Data Connectivity is the key focus area for Tulip given the immensepotential this segment has to offer. With sustained growth of over 8% in the Indianeconomy, Tulip expects the demand for Data Connectivity to increase at a rapid pace led byexpansion of enterprises across sectors, growth in in small and medium enterprises, andvarious initiatives undertaken by the Central and State governments to extend connectivityacross rural India. Besides, with declining bandwidth prices, more corporates are expectedto increase their bandwidth requirement while connecting their counterparts spread acrosstier II & tier III towns. Tulip provides intra-city data connectivity specifically tocorporate clients through the Company’s wireless and fibre network infrastructure.During the year, the Company strengthened its network to meet the most demanding scenarioto ensure uptimes in the range of 99.9%. The contribution from the connectivity segmentduring the year stood at 68%

Enterprise Data Connectivity – Fibre

Tulip Telecom, within three years of entry into fibre segment, has been able to createone of the largest last mile networks in India through a combination of owned and leasedfibre optic. This has not only enabled the Company to increase revenue stream for theCompany, it has also lowered the cost per connect substantially thereby increasingearnings from this business.

During the year, Tulip Telecom through a meshed and redundant infrastructure expandedits fibre network to over 300 cities thereby enabling higher uptimes. This entire roll outwas primarily based on customer orders received well in advance before the actual roll outof fibre started. This strategy has enabled relatively limited capex with higher payback.Tulip Telecom is now one of the largest last mile fibre connectivity provider in thecountry, which is a combination of own deployment, leased as well as swapped fibre frommultiple operators. The plan of the Company is to further strengthen presence in these 300cities while prudently explore opportunities to increase presence in newer citiesdepending on the customer demand.

Additionally, during the year, Tulip Telecom entered into a network to networkinterconnection and joint marketing arrangement with Hutchison Global Communication tojointly provide IP VPN and Virtual Private LAN Services to Indian customers with globalfootprint. This arrangement gives access to 100,000 kms of HCGs fibre network spreadacross 190 countries. The Company has been able to leverage this arrangement in the firstyear of launch by winning orders for International Data and Voice Connectivity fromreputed large organizations.

Tulip Telecom witnessed robust demand for high bandwidth fibre connectivity throughcombination of new clients and having an extensive engagement with the existing wirelesscustomers. The Company’s strategy in this segment is on having an expanded engagementwith existing client through multiple offerings which in turn would translate tosignificant contribution from fiber by the end of FY2012.

Enterprise Data Connectivity – Wireless

Having built the largest last mile wireless network in the country spanning across2,000 locations globaly, Tulip telecom enjoys a unique distinction for itself in thewireless segment. During the year, the Company further strengthened its leadershipposition in the MPLS VPN segment by garnering a market share of 30.6% as per Frost &Sullivan. Higher uptimes as a result of Company’s meshed and redundant infrastructurehas enabled Tulip Telecom to acquire clients from almost every industry vertical likebanking, insurance, services, logistic, telecom, etc. The client base now stands at over2,200 customers which include more than 90% of the Economic Times 500 companies in India.

During the year, Tulip Telecom accelerated its growth by winning project worth Rs 87.23crore for hosting data centre space from the Unique Identification Authority of India(UIDAI) for its Unique ID project ‘Adhaar’. Tulip Telecom will host UIDAIservers from ‘Tulip Data City’ based out of Bangalore. The duration of thisproject is for 3 years and is extendable further. Through this partnership, Tulip willprovide premium data center space to UIDAI to host IT infrastructure that will power theWorld’s largest database.

The Company believes that there are ample opportunities which will provide significantimpetus to the wireless data connectivity business going forward. The Company, with itswidespread reach and network base, is confident of its ability to service the variousinitiatives undertaken by the state and central government to extend connectivity to ruralIndia for financial inclusion and National e-Governance Programs apart from theaccelerated power development and reforms program (APDRP) and bandwidth provisioning toSWAN projects.

Overall, Tulip Telecom believes that it is ideally positioned to cater the requirementsof Financial Inclusion, large Government programs similar to UIDAI, National RuralEmployment Guarantee Act (NREGA), National Identity Card, etc with its expertise inproviding data connectivity over a wireless network combined with an existing largewireless infrastructure located in over 1,700 cities.IT infrastructure has been growing ata rapid pace. However, the complexities related to networking and maintenance has outpacedthis growth. This has resulted in a need to have a single owner for deploying andmaintaining the new networking solutions. Tulip Managed Services model is designed toprovide complete IT Infrastructure Management solution to its customers thus helping themin the process to focus on core operations and exit the non-core areas. The need for an ITinfrastructure is to provide be fast, innovative and efficient business processes.

Tulip Telecom offers a complete Managed Services solution to organizations. TheCompany’s Managed Service model is designed to provide complete IT infrastructuremanagement solutions to its customers, helping them in their IT processes and enablingthem to keep their business focus on core operations. The Company has a deep understandingof mission critical environments which can be leveraged for providing a differentiatedsuite of service offerings including co-location, and data center build solution, poweredwith high degree of reliability, stability and scalability. Tulip Telecom’simmaculate servicing ability is driven by best-in-class practices, state-of-the-arttechnology, skilled professionals, ability to deliver on-site customized solutions forfacility and infrastructure need of the customers thus ensuring smooth and efficientrunning of the customer’s IT infrastructure.

During the year, Tulip Telecom won various orders under the Managed Service segmentviz. order for implementation of core banking solutions, branch outsourcing and IP VideoSurveillance and Managed VC.

Tulip Telecom also caters to server hosting, security, network device hosting, back-upand storage requirement of its customers via its owned or long leased tier III+ certifiedData Centers in Mumbai, Navi Mumbai, New Delhi & Bengaluru with potential capacity of1000000 sq. ft.. The Company enjoys an edge of being the only provider to have terminationfrom all telcos. Tulip Telecom has had a successful journey from its existing four DataCenters and has been successful in getting premium clients like AT&T, Orange, AdityaBirla Group, Oracle Private Services, etc.

During the year, Tulip Telecom acquired India’s largest and world’s thirdlargest single site Data Center facility in Whitefield, Bengaluru through a wholly ownedsubsidiary ‘Tulip Data Center Services Private Limited’ with a potentialcapacity of 900,000 sq. ft. The cumulative capex for this Data Center would be Rs. 900crore spread over there years. This Data Center would be a ‘LEED’ or equivalentcertified ‘Green Data Center’ and can house up to 16,000 racks and would meet upto Tier IV, the highest standard requirements of the customer. Tulip Telecom has appointedIBM as the design consulting services provider and also to build the Phase I and SCHNABELDC Consultants India, a subsidiary of SCHNABEL AG Germany, as a peer review consultant forthis project. The power supplied for this facility would be up to 100 MW and thismulti-tier design of the facility allows expanding existing and new market. The DataCenter subsidiary would be operationally and legally separated from Tulip Telecom and eachfunction of this subsidiary will be handled on an arms-length basis and supervised througha well-structured board of directors.

Extension of product and service offerings has now enabled Tulip Telecom to become asingle point of contact for customers complete IT and data solutions thereby providing animpetus to performance going forward.

C) Network Integration

Network Integration is Tulip Telecom’s legacy business. The Company is equipped todesign, deploy, operate, manage and maintain the entire network for its customers. Inaddition, supplementary services such as identifying and providing equipment’s fortheir network and integrating & implementing are also offered. The services such asremote management through network operation centers are also delivered to create a singlewindow for countrywide support. Many companies and state governments are undertakinginitiatives to streamline activities across locations with a view to reduce cost andeffectively utilize resources.

During the year, Tulip Telecom was awarded the order to develop infrastructure for thePunjab Panchayati Raj Phase I. The order for phase I order is expected to go a long way interms of the Company’s aspiration. The Company expects this order to be followed byPhase II which will be largely focused on bandwidth.

The concentration of the Company in this segment is limited to orders that arecomplemented with bandwidth provisioning.

D) Data Center:

Today’s organizations are persistently looking for a robust and secureinfrastructure yet scalable enough to meet their growing demands. With increasingcriticality of IT services and decreasing IT budgets, Data Center collocation seems to bethe solution for meeting the above mentioned challenges.

In order to keep up with the evolving needs of our clients, Tulip has designed thehosting architecture for delivering standardized services efficiently andcost-effectively.

With Tulip’s Datacenter Services, companies can take advantage of monitoringcapabilities and expertise in infrastructure management. Tulip is committed to provide thehighest levels of performance, reliability and stability of its Hosting services. As onemeasure of our ongoing commitment to excellent customer service, Tulip provides ServiceLevel Agreements (SLA's) covering our Managed services and the ability for customers todetermine adherence to these SLAs.

Salient features of the Bangalore Data City:

• Third Largest Data Center in World with 9,00,000 Sft of Built-up Space

• Design confirming toTier-3 specifications as perTIA-942 standards

• Utility power from 66 KV substation Feeding 40 MVA power with 100% Back up

• Carrier Neutral facility with multiple ISPs

• Contiguous Isolated Rack Space of 10,000 Sft per Module

• HighEnergyEfficiency-PUE~1.9

• 80,000 Sft of Customer Office Space

• Man-out Building Automation System

Tulip Data City, Bangalore – Snap shot

The new eco-friendly Data Center has state- of-the-art infrastructure and can house upto 12,000 racks, backed by up to 100 MW Power supply. This facility will further be ableto host over 1500 technical and managerial workforces. The civil structure of thisfacility is ready and the Company plans to make phased investments in power equipment,HVAC, Fire detection and extinguishing systems, physical and data security systems,network equipment, WAN, LAN and storage, systems and software for data center operationsdepending on the demand.

The Bengaluru Data Center will serve the hosting, co-location, storage and connectivityneeds of large enterprises and small and medium businesses in the region, while alsoserving as a disaster recovery facility for enterprises that are present in other keybusiness centers across India or nearby countries. The data center will be a carrierneutral facility.

Location advantage

Situated at an altitude of 920 metres above sea level, Bengaluru has been classified asa part of the seismic zone II. Bengaluru is the principal administrative, cultural,commercial and industrial centre of the state of Karnataka. Bengaluru has seen a majortechnology boom. It is now home to more than 250 high-tech companies. Consequently, nowBangalore is called the 'Silicon Valley' of India.

Design & Building

The TDC is a 900,000 sq ft structure (third largest in the world) built on a sprawling4 acre land near Whitefield, situated about 20 km from the city center.

This state-of-the-art data center is planned to be ISO 20000-1 & 27001 certifiedand will be designed as per Seismic Zone 4 specifications with raised floors, precisionair-conditioning with accurate temperature and humidity control systems with separatecooling zones. The completed facility will aim to offer the widest range of physicalsecurity features, including state-of-the-art smoke detection and fire suppressionsystems, motion sensors, and 24x7 secured access with biometric & proximity cardreaders, as well as video camera surveillance and security breach alarms.

The building is a 7 level structure including 2 base floors that house the utilitiesand office area. The ground floor houses a 66KVA sub station in the designated space onthe front of the building. A dual feed of 11KVA each powers the electrical requirement ofthe data center facility on redundant paths. The ground floor also houses the fuel tankand 96MW DG sets (4MW x 24) that can power the entire facility in case utility powerservice is disrupted. Additionally the electrical panels are also located at this level.

The first floor houses the seating facility for over 1500 which includes -TDC officespace, the Meet Me Rooms for telcos, the NOC and the SOC facilities. The second floorleads to an Atrium and Executive briefing center where kiosks and video wall allowcustomers to engage in an interactive session to understand in detail about our services.At the second level are located 4 towers of 5 floors (plates) each hosting data center of20,000 sq ft. The service area is designed to have a floor load bearing capacity of 1250kg per sq meter. The walls of the data center facility are constructed using specialblocks of concrete which provide adequate reinforcement to the structure and betterthermal insulation than traditional brick walls.

Chiller units are located at the roof of each of the four towers and provide thenecessary cooling to all the plates. Power, cooling and network facilities are allprovided on redundant paths to each of the towers.

Each plate has three server halls totalling a raised floor area of about 13,000 sq ftthat can host 550 racks approximately. N+N UPS with Static Transfer Switch are provisionedfor each plate depending upon the load density requirement for each plate. Additionallyeach server hall has Precision Air Handling Units (PAHU) in separate enclosures located atthe service corridor (tech alley). The average power rating per rack is 9kw, the serverhalls are maintained at a temperature of about 220C + 10C and Relative Humidity of 50%+5%. The cooling system will have air side economizers

Green Data Center

TDC is a repository for the storage, management, and dissemination of data in which themechanical, lighting, electrical and computer systems are designed for maximum energyefficiency and minimum environmental impact. The TDC has been designed in a scalablemanner, with a view to meeting the data center’s requirements in the present as wellas future. We also intend to have a LEED certification (verifies the effectiveness ofgreen steps taken by organizations for green data centers) for our facility once the buildphase is completed. The construction and operation of TDC includes advanced technologiesand strategies.

Outlook

Tulip Telecom is at the beginning of a new phase given the various initiativesundertaken by the Company to offer a seamless IT solution to its customers. With thrust onfibre and managed services segments, Tulip Telecom is gradually shifting its focus as ahigh margin managed services and data infrastructure Company.

The Company maintains its vision of garnering a 20% market share in the Enterprise DataService segment within the next two years which would be led by:

• Growth in high bandwidth order input from well entrenched fibre network

• Increasing usage of existing wireless infrastructure for various governmentprojects viz. APDRP, Financial Inclusion, UID, National E-governance etc. with a view toreduce cost per connect thus increasing margins

• Meet the rising customer requirements for Co-location, Managed Hosting &Data Storage and a suite of other complementary services including Managed SecurityServices and storage requirements of customers across the globe

License conditions and regulatory risks

The company’s business is highly regulated and subject to conditions, restrictionsand obligations under the Internet Service Provider License Agreement executed with theDepartment of Telecommunications under the Ministry of Communications and InformationTechnology, GOI. The legal and regulatory framework under which the company operates isstill evolving.

Competition from existing private operators and potential new entrants, includingGovernment controlled enterprises

No significant entry barriers are present in the area that the company operates in dueto easing of telecom policies over the years. New entrants may enter the IP/VPN sector,which would increase competition. The telecom policy now offers a level playing field forall operators and no operator has any significant advantage vis--vis the company inIP/VPN connectivity.

However, there is no assurance that in future the Government policy will not favourGovernment-controlled enterprises, which can adversely impact private players.

External risks such from fire, riots, vandalism, terrorism and other law and orderproblems may impact our business.

RISKS & CONCERNS

The company leases the inter-city networks from other service providers and the qualityand availability may not be uniform. The company provides inter-city connectivity for itswireless-based IP/VPN business through lease arrangements rather than through capitalinvestment in connectivity assets. The company’s ability to offer high qualitytelecommunications service depends, to a large extent, on the quality of the networksmaintained by other operators, and their continued availability, neither of which is underits control. In the event of any adverse movement of lease rentals, the company may haveto incur additional expenditure to maintain its network.

Limited availability of frequency spectrum

Network capacity plays an important role in the growth and development of thecompany’s wireless based IP/VPN business. A wireless network’s capacity islimited by the amount of frequency spectrum available for this use. At present, thecompany has sufficient frequency spectrum to support its services.

NTERNAL CONTROL SYSTEMS

The company has in place an adequate accounting and administrative internal controlsystem in order to ensure that all transactions are authorised, recorded and reportedcorrectly, and that all assets are protected against perils of unauthorised use ordisposition.

The company has a well-defined organisation structure with clear functional authoritylimits for approval of all transactions. The company has a strong reporting system, whichevaluates and forewarns the management on issues related to compliance. The performance ofthe company is regularly reviewed by the Audit Committee as well as the Board of Directorsto ensure that it is in keeping with the overall corporate policy and in line with pre-setobjectives.

The company updates its internal control systems from time to time, enabling it tomonitor employee adherence to internal procedures and external regulatory guidelines.

REGULATORY FRAMEWORK

Key Industrial Regulation & Policies

The Telecommunications Regulatory Authority of India ("TRAI"), an autonomousbody with quasi judicial powers to regulate the telecommunications services, wasestablished in early 1997. The Telecom Regulatory Authority Act, 1997, governing theestablishment and role of TRAI, was amended in 2000, pursuant to which TRAI’s powersto adjudicate disputes were vested in the Telecom Disputes Settlement Appellate Tribunal("TDSAT").

The regulatory functions of TRAI fall under two categories:

• Recommendatory Functions: The principal recommendatory functions includeintroduction of new service providers, terms and conditions of licenses to be awarded,measures to facilitate competition & promote efficiency and efficient management ofavailable spectrum.

• Regulatory Functions: The regulatory & supervisory functions include fixing& regulation of tariffs, fixing the terms & conditions of inter-connectionarrangements between operators, ensuring technical compatibility between operators forinter-connection, ensuring compliance with licensing conditions, setting standards for& ensuring quality of services and laying measures for protecting the interest of theconsumers.

Regulatory Bodies:-

• Department of Telecommunications (DOT)

• Telecom Regulatory Authority of India (TRAI)

• Telecom Disputes SettlementAppellateTribunal (TDSAT)

• Wireless Planning Cell (WPC)

Licenses:-

• Internet Service Provider (ISP)

• Virtual Private Network (VPN)

• National Long Distance (NLD)

From time to time, TRAI issues regulations, orders, directives, etc. in performance ofits regulatory functions. All customer tariffs and inter-connection agreements with otheroperators are required to be approved by TRAI. TRAI periodically monitors the performanceof the company and other operators against Quality of Service parameters and LicenseConditions. TDSAT has been granted powers to adjudicate any dispute between the licensor(the GOI) and a licensee service provider, between service providers, and betweenoperators and a group of consumers. TDSAT also has the jurisdiction over appeals againstany regulation, direction or order of TRAI. The orders of TDSAT can be challenged in theSupreme Court of India.