mmtc Management discussions

<dhhead>MANAGEMENT DISCUSSIONS & ANALYSIS REPORT </dhhead>

(ENTERPRISE RISK ASSESSMENT AND ITS MANAGEMENT & MINIMIZATION POLICY )

FOR THE F.Y. 2021-22.

Introduction:

MTNL was incorporated as Public Sector Undertaking in the year 1986 with an Authorized share capital of Rs 10,000 crore to serve the cities of Delhi including NCR and Mumbai including Thane District in India. Its objective is to provide world class telecommunication services to its customers at affordable tariffs. MTNL got Navratana Status in 1997. It is listed in NSE, BSE and OTCQX, New Y or K. Following major risks are faced by MTNL in the current competitive telecom scenario and its Management & Minimization Policy for the F.Y. 2021-22 are mentioned below: -

1. Market / Competition Risk:

The market of MTNL is limited to Mumbai and Delhi. Private TSPs operating on a Pan India basis are competing with MTNL for basic as well as cellular services. The Private TSPs have latest state of the art telecommunications infrastructure through which they are offering low- cost 4G mobile, fixed Wireline telephony as well as FTTH services. Telecom tariffs in India have declined significantly in recent years due to cut throat competition in the market, adversely affecting revenues of the industry. MTNL operations being limited to cities of Mumbai and Delhi restrict its ability to take advantage of growth in Group B cities and compete with other TSPs with a Pan-India presence.

Telecom is a rapidly evolving technology driven industry and need for constant up-gradation of the network. The existing network of MTNL has become obsolete. The heavy debt burden and the recurring losses during past 10 years have resulted in a financial crunch, making MTNL unable to invest in the modernization, up-gradation and expansion of its network. The subscriber base of MTNL has steeply declined during last few years due to lack of enough investment by MTNL in latest technology / network expansion & up gradation, severe competition in the sector with entrance of few big players and strategic consolidation in the telecom sector. Various technology up-gradation works are deferred / pending in MTNL for the want of adequate funds.

MTNL is facing tough competition in Fixed Line and Broadband service segment. With the popularization of 4G services , today customer is able to get an internet experience of 2-20 Mbps (10 Mbps on an average) speed on 4G along with unlimited Call & SMS at a very competitive tariff (<1/4th of Land Line Tariff) with added benefit of mobility. This has resulted into churn of MTNLs landline as well as Broadband customers to 4G Services of competitors. The market share of MTNL landline, over the years, has decreased from 55.27 % in 2016-17 to 38 % in 2021-22.MTNL is offering Broadband Internet at 2-8 Mbps Speed, predominantly on ADSL2+ technology on Copper Wire. Though FTTH Services are also being offered with speed up to 1Gbp, but the subscribers added are not able to negate the effect of disconnections in landline and broadband segment.

In wireless segment MTNL is providing only 2G/3G service with limited coverage and capacity this resulted in huge churn of wireless subscribers with negligible demand from only low value

customers. Increased competition in wireless services continues to keep downward pressure on prices and require capital investment to upgrade and expand network and launch 4G Services.

Mitigation plan

There is an urgent need to upgrade MTNL present network to improve QoS, Subscriber base, Revenue requiring major CAPEX infusion in the network. Therefore, MTNL has requested DoT to provide a CAPEX support to be invested in next 3 years in the network and operational synergy with BSNL has to continue by MTNL. In addition it is planned to introduce 4-G services at the earliest through BSNL for Delhi and Mumbai also. In that direction the operation of mobile services of MTNL was handed over to BSNL w.e.f. 1-4-2021.

2. POLICY AND REGULATION RISK AND REGULATORY COMPLIANCE:

The licence of cellular mobile service expired on 05-04-2019. However, additional Authorization for Access service was granted on 28.07.2021 under existing Unified License ISP-Category "A". In this license, the date of authorization was given retrospectively w.e.f. 06.04.2019. However, Frequency authorization for the spectrum in 900 MHz bands is pending.

MTNL has requested to DOT for administrative allocation of 6.2 MHz spectrum in 900 MHz band each in Delhi and Mumbai in cash neutral manner, by capital infusion with the financial support of the Government. MTNL has also requested to WPC wing DOT for revalidation /reassignment of Microwave resources (Microwave Access Carriers) and Frequency authorization for the spectrum in 900 MHz band linked to the CMTS license, Co-terminus with the Unified License regime. The response from DOT is awaited.

Further, in a modification to a previous decision, Group Of Ministers (GoM) constituted in the matter of "Revival of BSNL and MTNL" has decided to allot spectrum through equity infusion by Government of India, for providing 4G service to BSNL for Delhi and Mumbai (MTNL Areas) in place of MTNL. Now the 4G services in Delhi and Mumbai area will be launched by BSNL. In addition MTNL Delhi and MTNL Mumbai Mobile services operation have already been handed over to BSNL w.e.f. 01.04.2021 and 01.09.2021 respectively as per instructions from the DOT

As per the present Govt. policy MTNL may be required to pay around Rs.1718 Cr for one time spectrum charges for the spectrum held beyond 4.4 MHz w.e.f. 01.07.2008 till expiry of CMTS license i.e. 05-04-2019 or 10-01-2021 as the case may be. Presently, the issue of payment of one time spectrum charges is under litigation and the payment liability will be subject to the final outcome of the case filed in Supreme Court by Union of India against the judgment of TDSAT in favour of other telecom operators. The issue to withdraw the case in Supreme court is being deliberated by Govt. and ultimate outcome may result into out flows of cash with retrospective effect prior to 2013 or prospectively from the year 2013. In any case either Rs.1718 crs or Rs 455 crs will have to be paid by MTNL and it is definitely going to cause financial burden and the risks attendant with such huge out flows.

MTNL has adjusted the SUC and License fee amounting Rs.821.98 Cr from the excess amount paid by MTNL on account of pensionary benefits in respect of combined service pension optees

based on the cabinet decision of Govt. of India on 09.01.14. However the DoT is challenging the adjustment. The matter was also placed before the Board of MTNL in 301^stmeeting of the Board at item no.14/301 on 09.10.2014 and the board while noting the adjustment is as per Cabinet decision also desired that management has to follow up with the Government for implementation of Cabinet decision. MTNL has taken up the issue with DoT and DoT has sought details of adjustment of the deductions made by MTNL from excess pension payouts.

Telecom regulator TRAI has already reduced ceiling tariffs on termination charges and also on roaming charges in the past year also have significant impact on the revenues. The combined annual effect of all these regulations mentioned above including those on port charges and abrogation of incoming call termination charges is clearly seen on the revenue of MTNL and such impacts due to regulations of TRAI have been a constant risk on the rate of return of CAPEX.

There have been additional cost implications for complying with the provisions of the Companies Act 2013, SEBIs Listing Obligation & disclosure requirement-2015 (LODR), IND AS & ICFR. Further, implementation of GST w. e. f. 01-07-2017 also added additional cost for MTNL. The need to revamp the existing IT, Billing & Accounting software in compliance to GST requirement will add up further to the cost. The risk of imposing heavy penalties under GST and SEBI regulations as well as risk of debarring from the exchanges for non-compliance or delay in compliance with reference equity and debt listing requirements also needs to be taken care of by proper training to the work force of MTNL to gear up fully for compliance requirements. Besides mandatory E-invoicing of all B-2-B customer bills through GST portal initially from 1-4-2020 and thereafter postponed due to COVID-19 to 1-10-2020 will further add the customization costs of all billing modules as the same had to be implemented w.e.f. 1-1-2021 Besides from the same date implementation of QR code on B2C bills also has become mandatory and due to representations of industry, without penalty the same is postponed to 1-7-2021 and in case the QR coding with ability to customers to pay on line by scanning the QR code is not updated in all its billing systems MTNL will have to pay the penalty for it. Having various standalone billing systems without integration and also many of them are managed by different units with different vendors support, the risk of non integrated system causing issues in billing, payment with QR code and accounting of the same will continue to loom large on MTNL.

Under our Articles of Association, the President of India, on behalf of the Indian government, may also issue directives with respect to the conduct of our business and affairs, and certain matters with respect to our business, including the appointment and remuneration of our Chairman-and- Managing Director and the declaration of dividends. None of our shareholders, management or board of directors may take action in respect of any matter reserved for the President of India without his approval. Government formalities, including requirements that many of our purchases be made through a competitive bidding process, sometimes cause delays in our equipment and product procurement; these delays can place us at a disadvantage vis-a-vis the private sector competitors and also erode operational competitiveness resulting in to erosion of clientele strength for want of service standards on the same footing of private operators.

Mitigation plan

Except 2-G related financial liability issue and non allowing of adjustment of excess pension pay outs against LF &SUC done by MTNL ,these are all general issues and such issues and risks are always associated with the operations of telecom business in a regulated environment and government controlled processes and are to be pursued for compliance of regulatory issues and resolution of matters through sustained interaction with administrative ministry.

The risk of huge cash outflows due to rejection of adjustment of Rs 821.98 crs done by MTNL against the LF &SUC payable by it for the period from last quarter of 2013-14 to 2016-17 and the 2-G related liability on final decision of Sc, which become applicable to MTNL as well , the stress on MTNL fiscal position will get compounded with present debt related excruciating stress need to be brought out in time to Administrative ministry seeking support in any form,including equity infusion to avoid the risk of becoming not a going concern.

3. TECHNOLOGY RISK/QUALITY OF SERVICE:

MTNL has not been able to pay its regular dues to infra-providers, where MTNL is running its mobile (2G/3G) sites. Due to this the infra-providers have restricted MTNL access to these sites leading to shutting off approximately one-third sites in Delhi and thereby severely hampering the MTNLs network.

In addition, although MTNL is meeting most of TRAI QoS parameters, however the network needs immediate up-gradation / expansion. The Capex investment was almost insignificant during the last 5 years owing to the financial constraints being faced by the company. Investment of approx. Rs. 3000 Cr is required over next 2-3 years for network up-gradation and expansion. However, being a debt trapped company; MTNL ability to raise funds to meet the Capex as well as Opex requirement is very limited.

Following immediate technological upgradation / Expansion for improvement of services and better QoS are required:

(i) Rollout of 4G Services: MTNL has been providing 2G/3G services in the service areas of Delhi and Mumbai while other competitors have launched 4G services. Therefore, it was planned to launch 4G services in Delhi and Mumbai with 4000 sites in Delhi and 3000 in Mumbai. As a part of the Revival package, the Govt. had agreed for administrative allotment of spectrum for 4G service through capital infusion in a cash neutral manner to MTNL. However, since due to financial reasons the merger of MTNL with BSNL or MTNL being made a subsidiary of BSNL was deferred, the GoM in the meeting held on 21.12.20 approved the allocation of spectrum for providing 4G services, through equity infusion by GOI, to BSNL for Delhi & Mumbai in place of MTNL by modifying its earlier decision. Now the 4G services in Delhi and Mumbai area will be launched by BSNL.

(ii) Migration of TDM Technology to IMS/NGN Core: The NT switch technologies presently running in MTNL are also very old (more than 20 years and has crossed their shelf life).

Number and nature of faults are getting critical day by day. There is an urgent need to migrate them to IMS/ NGN core . But due to lack of availability of funds MTNL had to postpone the TDM technology up-gradation. Recently, when the vendor declared End of support for one of the switch technology. There is every possibility of the remaining switches running End of Support in near future, therefore as an alternative arrangement for running MTNLs wireline services it was decided to migrate MTNL landline subscribers on BSNL IMS core through diversion of spare LMGs from BSNL. MTNL had already successfully conducted the testing of voice and data with BSNL NGN (0.5K LMG) in Delhi network. About 11000 voice ports LMG equipment has been diverted to MTNL Mumbai from BSNL which are under installation

(iii) Migration of FTTH VoIP subscribers on BSNL network: Due to Non-availability of support for C-DOT IMS Core installed at MTNL it has been decided to shift the MTNL FTTH voice subscribers on BSNL hardware of MAX-NG being supported by C-DOT. The migration has started in Delhi unit. In MTNL Mumbai also testing has been successfully completed and actual migration to start shortly.

(iv) Deployment of GPON FTTH and taking fiber to the HUB / near to the subscriber:

MTNL has made an ambitious plan to upgrade its copper based ADSL internet subscriber to GPON FTTH to give experience of 100 Mbps to 1000 Mbps and improve QoS. A tender dated 22.01.2021 was floated for Procurement of GPON based FTTH equipment in Delhi & Mumbai wherein there was provision for 494 Nos. of GPON OLT & 21746 Nos. of GPON ONT. An Advance Purchase Order (APO) in this regard has already been awarded. In addition, to cater the requirement of OLTs of MTNL and its partners there shall be a need to augment the OFC network by laying 1050 KM OF Cable in each city. The procurement will be undertaken in phased manner depending upon the availability of funds for the same.

(v) FTTH Revenue share Policy: In the post VRS scenario challenges were observed in the O&M of the MTNL own FTTH connections due to lack of field staff. Accordingly policy was amended to allow partners for maintenance of MTNL owned FTTH connections at 10% revenue share and one time provisioning charges of Rs 1500.

MTNL had worked out, finalized and made operational the policy to engage partners on revenue share basis to extend its FTTx services. The Policy has been significantly liberalized by relaxing entry level barriers and removing clauses regarding turnover eligibility criteria, rollout obligations and Performance Bank Guarantee. Significant upward revision to the tune of 45% has also been carried out for the Revenue share of the partner.

(vi) Upgradation of the MPLS Network: The Core routers of Delhi and Mumbai are EOL (End of Life) since Dec 2017 and are working without any support. The MPLS network is the backbone of the entire network. Hence, it is critical to the functioning of the entire network. To cater the growing network requirements MTNL is planning the replacement / up-gradation of the entire MPLS network along with the security solution to meet the generic requirement (as pr TEC-GR). The MTNL MPLS expansion plan includes 6 Core routers 72 Edge routers and 150 L-3 Switches. The tender has already been floated and

bids are awaited. In addition, this requirement has also been intimated to BSNL to be procured as part of their tender.

(vii) Customer Interface/FRS: In MTNL customer is being informed at the time of issue of CAF about the various plans through pamphlet/brochures. However there is a need to further strengthen customer interface/ FRS system for proper and prompt handling of customer complaint.

Mitigation plan

As regards the roll out of 4-G services, deployment of GPON FTTH and migration of TDM Technology to IMS / NGN Core, Migration of FTTH VoIP subscribers on BSNL network and Upgradation of the MPLS Network the ongoing operational synergy with BSNL has to continue by MTNL and the constant and involved monitoring at MTNL middle management level is a sine qua non to bolster the operational synergy so that better and upgraded services can be rendered to MTNL subscribers. ERM committee may review and monitor the same.

4. OPERATIONAL RISK:

a) Utilization of Assets:

MTNLs assets located in prime locations of Delhi and Mumbai were transferred by an order of the government of India (the Government) and a deed of sale was executed by the Government in its favor representing an irrevocable transfer. A formal transfer deed for real estate property of the DOT, transferred by the Government to MTNL has been executed but has not been registered with the appropriate municipal authorities. Indian law also requires payment of stamp duty (at rates which vary among states) on instruments, which effect transfer of title to real estate or in respect of leases of real estate assets. Therefore MTNL could be liable for stamp duty, if any, upon registration (other than with respect to the DOT properties acquired from the Government as of April 1st, 1986). Although MTNL has valid possession to all of its properties, but these need to be registered and stamped to acquire marketable titles to real properties in its possession for which stamp duty has to be paid. Hence MTNL cannot monetize or sell these properties without payment of stamp duties and registering the properties in its name. In case of merger/demerger acquisition amalgamation, the proper valuation and transfer of assets will be a serious concern in this situation.

The process for better utilization of its assets, such as buildings in Delhi and Mumbai, to generate additional revenue MTNL has already started entering in to a memorandum of understanding (MoU) with BSNL to share the infrastructure and network of each other, in a bid to offer better services to their consumers. Further the building in Delhi & Mumbai is also given on rental for generation of additional revenues. These can be further used for advertisement, brand building and earn good revenue.

Govt. has also approved the monetization of assets so as to raise resources for retiring debt, servicing of bonds, network up gradation, expansion and meeting the operational fund requirements.

Mitigation plan

Asset and Tower & Fiber monetization including valuation of assets has to be expedited by MTNL as per existing guidelines on this subject in consultation with Administrative Ministry wherever required.

b) Utilization of manpower resources:

MTNL carried huge legacy staff strength inherited from DoT till 31-01-2020 and able to reduce the staff cost on account of VRS offered to 14387 employees with ex-gratia funded through the budgetary support of Govt. of India. The staff cost has come down to Rs 640 Cr p.a. from Rs 2400 cr. which may give leverage to MTNL to invest in CAPEX etc as well as reducing its need for debt financing.

c) Banking Regulations:

 

Due to strict RBI restrictions and PCA guidelines, it become very difficult to get further funding from the bank and chances of default in making statutory as well as other payments has also increased. The issue of complying with guidelines of RBI to banks to grant loans only if the companies (Large borrowers) issue NCDs at least to the extent of 25 -50% of such incremental debts, could also affect the cash funding arrangements, during the transitory period of revival process, post cabinet decision implementation and may engender the risk of cash crunch to meet even statutory obligations.

Mitigation plan

The required ways and means to improve cash flows are to be planned and the thrust has to be on improvement of services and revenues thereby. The innovative and lesser debt servicing cost methods are also to be explored including securitization of assets for cash credits.

d) Litigation:

Various litigations, involving MTNL are ongoing in respect of issues arising out of business operations. The same may incur financial risk to the organization contingent upon the outcome of such litigation. Effective measures are in place to mitigate the risks to the minimum.

Mitigation plan

Constant review of risks of litigation has to be kept in place and any unforeseen risks arising need to be brought to the notice of ERM committee immediately along with possible plan of action to remediate the same.

e) AGR issues:

Deptt. ofTelecommunications has raised demands againstAGR dues. Many of the deductions claimed by MTNL have not been allowed by DOT for want of additional documents viz. TDS certificates from auditors and auditor counter signatures on bank statements etc. MTNL has been making all out efforts to produce the records sought as and when the letters are received from DoT. Also, the issue of LF/SUC adjustments against the excess amount paid

by MTNL as pensionary benefits of combined service optees based on Cabinet decision has been raised with DoT. Subsequently, in a case filed by other operators, Honble SC of India has delivered judgements and directed them to pay the demands raised by DoT with penalty and interest and to follow the AGR conditions scrupulously. MTNL is not a party to the litigation and also has been consistently following AGR conditions.

Mitigation plan

The AGR issue is already under review of administrative ministry for an appropriate resolution.

f) Financial/Liquidity/Debts Management Risk:

Vide exposure of loans from bank and financial institution there is always possible risk of liquidity crunch in near future as follows:

i) CAPEX: Huge amount is required for further expansion/modernization to keep abreast with the technological changes in the near future for which the company has to depend upon the GOVT support .In the absence of such support the stagnation sets in and network gets obsolete running the risk of exodus of existing subscribers in pursuit of systems with latest and innovative telecom solutions.

ii) Debt: To meet fund requirement for OPEX, CAPEX and spectrum company has borrowed Rs. 26619 crores from banks & Financial institutions and bond holders up to 31-03-2022 excluding DOT liability, and servicing interest towards bank & FII itself which is presently around 134% of total revenues including other income is a big threat and the spiraling interest costs due to restitution of old debts with new debts gradually could lead to a serious debt trap effecting the capability of the Company either to raise further loans or to service the debts and interest costs leading to a defaulting scenario, without the revival plans, particularly the monetization of assets to liquidate outstanding debts, taking shape on war footing.

iii) Debt servicing/interest servicing coverage ratio of the company as on 31-032022 is on negative trend on year on year basis. Similarly, debt equity ratio is also negative as on 31-03-2022. However, the Govt approval of debt servicing through assets monetization will improve the said ratio in future provided the monetization process which is not going as planned in revival plan due to COVID conditions gear up in the near future.

iv) Apart from the above, the bonds issued in the year 2013 to the tune of Rs 1005 crores are attaining maturity of 10 years by March 2023 and the same requires to be met in the year 2022-23 through monetization of assets as per the revival plan and in the year 2023- 24 the next series of bonds will attain maturity by Nov 2023 to the tune of Rs. 1975 crs. Both series bonds were issued against sovereign guarantee and therefore meeting the demand on maturity will be a very essential management prerogative and therefore needs to be on constant monitoring

from now onwards to avoid the risk of invocation of Sovereign guarantee on account of delay in monetization of assets.

Mitigation plan

The above issues are required to be monitored with administrative ministry, which has already mooted a cabinet note for remediation and revival of MTNL and any untoward situation of default or any other such risk may have to be brought in advance by concerned wings of units and Corporate office without allowing the issues escalate into irretrievable position and ERM committee needs to be apprised in time with suggestive remedial plans by these wings.

5. ONGOING CONCERN RISK:

Net worth of MTNL is negative as on 31/03/2022 to the tune of Rs. -18,656.45 Cr and debts service as well as interest service coverage ratio is also negative. Further due to high exposure of loans from banks and financial institutions and heavy repayment schedule of loans as well as interest payment to Banks & Financial Institutions, MTNL is facing liquidity crunch which will be a great threat to MTNL to keep it as an ongoing concern in near future but for the revival plans fructifying in time.

The asset monetization and the monetization of Optical fiber and Towers as per the approval of Cabinet on 23-10-2019 would have yielded results in the financial year 202021 but unfortunately due to the Covid-19 pandemic effect in year 20-21 the progress on these aspects has not been achieved. Asset monetization through DIPAM may also not likely to give any financial relief to MTNL immediately. Accordingly, the projections made for the redemption of huge debts outstanding may not happen in the immediate future in view of all round down slide of revenues of MTNL as well as the market conditions for sale or monetization of assets. Therefore, the risk of effects of COVID -19 in the year 202021 loom large on the prospects of MTNL becoming debt free and consequently the risk of debt going up cannot be discounted. However, with the combined effect of reduction of staff cost by al- most to the tune of Rs 1700 crs per annum and the grant of Sovereign guarantee for Rs 6500 crs by Govt. ofIndia to MTNL as per Cabinet approval dated 23-102019 in the year 2020- 21 and raising of bonds for the restructuring of existing debts and also to refinancing for working capital purposes as well as CAPEX infusion definitely made the company to run as a going concern despite huge debt costs in the year 20-21 also. However, the same remains a risk posing proposition unless the monetization plans and also the revenue mopping up pro-grammes and investment in CAPEX are implemented in the years to come.

The expectation of monetization of assets as per cabinet approval in the year 2019-20 did not turn out in practicality and the issue is ultimately being guided by DIPAM and with the guidance and monitoring of DIPAM, by the end of year 21-22, MTNL may be able to monetize some of these assets and may continue to be a going concern in future as well.

MTNL has a joint venture in Nepal M/s UTL Nepal, which is incurring continuous losses and to rest the MTNL share of losses in UTL Nepal, the management has exercised the exit option from the of UTL Nepal as per clause no 12.19 of amended agreement on 15.12.2014 through which the JV partners with the exception of NVPL had the option to exit the JV at par.

The Ministry of Foreign Affairs, Govt. of Nepal vide letter dated 26.11.2019 has informed to the Embassy of India, Kathmandu (Nepal) that the authorities concerned of theGovt. of Nepal would be able to grant approval for repatriation of the capital invested by Indian Shareholders of UTL namely MTNL, TCIL and TCL, once the outstanding tax amount (tar- iff, royalties, fees, charges, etc.) of NRs 85,83,86,044.00 to be paid by UTL to the authorities concerned of the Govt. of Nepal including Nepal Telecommunication Authority, is completely settled. The issue is still pending and the same poses a risk for providing for the loss of investment if the Nepal govt. does not accept the repatriation of the capital investment.

Mitigation plan

The administrative ministry has already been invoking all possible measures to support the organization /company and already mooted a plan of action through a cabinet note and on the outcome of the same MTNL management and units have to implement the same with alacrity and promptitude to make the company not only continue as a going concern but also improve its revenues and services.

ERM Committee may also review the position and apprise Board of Directors in time to avoid precipitation of such issues and also for successful implementation of approved revival plans.

6. INTERNAL CONTROL FAILURES AND INTEGRITY OF FINANCIAL INFORMATION RISK:

Informations are required at each level/department for policy and decision making. Lack of effective internal control and management information system can put an organization in the risk of making ineffective policy and decision. Revenue assurance being also part of Internal control system should also be strengthened for avoiding any possibility of leakage of revenue. The System tools used for Internal control and Revenue Assurance should also be controlled through review system for their appropriateness and adequacy. The new Companies Act 2013 made it mandatory for audit of internal controls on financial reporting from 2015-16 onwards which also adds up to Compliance risks.

Effective internal control enables the organization to furnish reliable financial reporting and substantially complies with the laws and regulations that apply to it. However, the extent to which the organization achieves operational and strategic objectives depends on external environmental factors, such as competition, regulations, government procedures and controls or technological innovation. These factors are outside the scope of internal control and therefore, effective internal control provides only timely information or feedback on progress towards the achievement of operational and strategic objectives, but cannot guarantee their achievement.

Mitigation plan

The mechanism of Internal controls on financial reporting needs to be reviewed by MTNL on the lines of COSO adopted principles and a frame work for identifying all internal and external risks including the risks specifically faced by MTNL or anticipated by it on account of the impending developments if any, identified, in particular, in operational, financial, sectoral, sustainability areas has to be determined and proposed by technical , financial and human resources and enterprise Directors of MTNL and the frame work may be reviewed by ERM Committee through the Company Secretary or convenor of ERM committee. This will help in formulating comprehensive and detailed risk management policy for the company.

7. INFORMATION TECHNOLOGY & SYSTEMS SECURITY RISK:

i) IT General Controls - Controls related to: a) Security, to ensure access to systems and data is restricted to authorized personnel, such as usage of passwords and review of access logs; and b) Change management, to ensure program code is properly controlled, such as separation of production and test environments, system and user testing of changes prior to acceptance, and controls over migration of code into production. Information Technologies are vital to MTNL operations. They are tools that improve the quality and efficiency of work. They are the repositories for critical and proprietary corporate information. Improper access to or the destruction of these resources will have serious consequences for the company. Therefore for the purpose of according full security to IT applications the IT policy document has been finalized by MTNL IT team in order to-

• Ensure that IT resources are appropriately protected from destruction, alteration or unauthorized access and that.

• All used hardware & software used for these applications are appropriately protected from intrusion, destruction, alteration or unauthorized access.

ii) IT application controls - Controls over information processing enforced by IT applications, such as edit checks to validate data entry, accounting for transactions in numerical sequences, and comparing file totals with control accounts. IT related resources such as Operational, Billing and Customer Care Systems are prone to hacking, spoofing and other cyber crimes.

iii) CBCRM System - CBCRM system is quite critical from revenue perspective as a number of revenue activities are being done through it e.g. Voice IUC settlement, mobile rating, invoice generation etc. The project/its equipments are running since 2006 and almost outlived its life. The major challenges are non-availability of source code, lack of support of various licenses due to prohibitive cost etc. Such constraints pose challenges in implementation/feasibility of development as per the dynamic market conditions. BEL, the project implementer has already pulled out of the project in July’2014. Post, pullout, limited support has been finalized with various vendors through tender from June 2016 onwards on as-is-where basis. MTNL cannot utilize the system indefinitely and the new billing tender/ new billing system to be made operational at the earliest possible. BSNL is implementing CDR P3 tender for fixed services including MTNL requirement which will be upgraded later to mobile services also.

iv) Obsolete Hardware infrastructure - Many of the hardware for providing core services and providing supportive/workflow processes have become obsolete and need to be replaced due to EOSL and non-availability of spares e.g. the hardware for CSMS, ISP set up, BB, FTTH, CBCRM etc. Due to the financial crunch, MTNL is replacing some hardware only when it becomes critical and cannot be used anyway.

v) Call Centre - A number of call centers are working in Delhi and Mumbai for services such as Landline, Broadband and Mobile. Most of the set up were procured along with the main equipment and are now obsolete. Non availability of support on these equipments in recent past (e.g. mobile call centre at CBCRM Mumbai) leads to direct impact on the customer satisfaction & churn.

vi) Network Security & Audit - Govt. of India has been focusing on strengthening the security of critical information infrastructure (CII) and many of the IT systems of MTNL have been declared as CII’s. DOT vide its direction has mandated all ISP’s to get their system audited once in a year. The latest Network Audit has been carried out by M/s AKS IT Services Pvt. Limited, a Cert-In Authorized agency, to conduct such audits, in 2021-2022. The findings of the audit report have already been shared with DoT. Before it, MTNL Network Audit was done by third party i.e. M/s PWC had been done in 2016.

To safeguard against above risks, effective IT security policy is to be followed in all Data Centres. Also, proper back up arrangements as well as disaster recovery mechanism are to be put in place.

MTNL is in the process of finalizing its new IT Security Policy and till the time, the existing common IT policy is being followed for all Line of Business (LoBs) & network effective since 01.01.2016. The IT policy take cognizance of guidelines of Govt. of India as well as various standard developing organizations viz. ISO, ITU etc and their revision from time to time and in a manner consistent with the business and work flow requirements of the company.

vii) Analytics Engine - MTNL needs to move towards data led positioning and to install a customer analytics engine. Analytics will enable differential billing and Customer profiling basis on the history of usage of customer thereby helping MTNL in identification of target audience. With this Cluster assessment can also be implemented to identify potential high revenue clusters. MTNL needs to invest in real-time predictive analysis and tailoring products to customer. Customer analytics features can help to provide customer specific plans. MTNL does not have an integrated ERP system. Different software packages used by the company are interfaced through software links or manual intervention leaving gaps between them. However MTNL is having many standalone packages with interfaces. The risk of not having a ERP type of system is inherent.

Mitigation plan

1. At organizational level the best practices to be followed for cyber security as circulated by Dot vide letter no: 19-78/2019-SA dated 8-7-2020 may be got implemented by MTNL through sustained efforts and IT dept at CO level may spearhead the process and programme.

2. IT System security audit of all applications and all associated ancillary IT systems including WFMS, FRS , Convergent billing and other billing systems may be planned for all such systems, applications and also for networks and may be got done. In case of engagement of any audit firm empanelled with CERT -in it has to be ensured that as per advisory of CERT-in circulated by DOT vide letter no. 19-78/2019-SA dated 21-11-2019 engagement of such agencies of non Indian origin is to be made only after obtaining NOC of MHA. In case of any other firm empaneled elsewhere is to be engaged also the relevant instructions of Govt. of India need to be kept in mind to avoid any security issue. It may also be ensured that while engaging any audit firm for IT security purposes, data collected by such firms may not be allowed to be taken outside MTNL premises to the extent possible.

3. All the customer data stored in IT systems managed by MTNL or outsourced by it needs to be governed by standard data management policies and data be fully protected by various security arrangements done at various levels and IT systems be protected by very strong security frame work governed by three tier security structure which is fully secured and system of firewalls and IP based access to CDR system offers added security. This is all the more required in MTNL as MTNL is catering to various sensitive IT systems for Govt. of India at highest level.

4. In all the agreements/contracts, Data Security/Confidentiality/Non-Disclosure related clauses be included to safe guard MTNL.

5. Wherever for business requirements use of partners is resorted to their use of multiple network elements from various vendors increases, particularly in FTTH access network, the network infrastructure gets exposed to various DDOS and malware attacks and results in compromise in quality of service delivered which could impact the availability of critical systems. As such review of cyber security or other threats has to conducted on pre and during engagement of such partners.

8. DISASTER MANAGEMENT AND BUSINESS CONTINUITY RISK:

Lack of proper disaster management could become a threat to the business.. To safeguard against this risk, effective disaster management policy should to framed keeping in view the anticipated risk of data as well as other information loss. Hence proper back up arrangements as well as disaster recovery mechanism are to be put in place.

Mitigation plan

Disaster Management Plan is available both in Delhi and Mumbai. MTNL follows the Standard Operating Procedure (SOP) as outlined by DoT for counteracting the Disaster:

In order to ensure continuity of telecom services at technical level, sufficient redundancy is being maintained to prevent total network failure due to a single point of failure at the following level:

1. Card level: N+1 or 1+1 redundancy is maintained on most of the Core / Control equipment

2. Equipment level: In MTNL the exchanges and the equipment are spread across the two cities. Transmission links between main Network Elements and switching equipment are being maintained mostly through distinct geographical paths.

3. Geographical level: The main elements of the network are maintained in duplicate at Delhi and Mumbai.

4. In addition to this sufficient number of spares and equipment are also maintained for emergency usage

Other measures adopted in case of disaster are as follows:

a) Nodal officers and alternate nodal officers at field level have been nominated for coordination related to disaster management.

b) MTNL also have a Quick response team at the field level for immediate provisioning of emergency communication and restoration of telecom services in disaster affected areas.

c) Multilevel connectivity for power and transmission is active both in Delhi & Mumbai.

d) For power battery backup exists and diesel generator sets are installed in all telecom buildings which are made operational during the power crisis.

e) Implementation of enhanced Multi level Precedence and Preemption (eMLPP) based Priority call routing is available in MTNL PSTN and is being activated as and when required.

f) MTNL also own Cell on Wheel (CoW) along with all necessary infrastructure and equipment which can be deployed by shifting on desired location to establish communication.

g) Level 112 i.e. Single access number for emergency services has been implemented.

h) Testing of Broadcast messages has already been successfully completed in MTNL Delhi 3G network with C-DoT.

Other measures to be adopted in case of disaster are as follows:

1. Not keeping or concentrating all critical equipments at one point or place

2. The development, documentation, and implementation of a scheduleto regularly test

the backups in accordance with best practices for the data holding system categorization and data classification for IT Data holding systems in order to restore by Rapid Disaster Management teams

3. Documentation of and adherence to best practices for backup of all necessary data held at various data and technical centers including applicable archival, compliance, preservation of data as per legal or regulatory or IT Security requirements

4. Logical and physical security considerations for archived and backed up data including management of such data of one geographical area at other area and vice versa for restoring all such data quickly in case of any disaster.

9. GREATER TRANSPARENCY AND ENTITY LEVEL ETHICAL & GOVERNANCE RISK:

Policy to be framed to monitor the ethical level of all the concerned, so that the any decision should be taken consciously with full care and applying due diligence. To ensure this proper vigilance mechanism and whistler policy is already in place.

10. APPOINTMENT OF CHIEF RISK CONTROL OFFICER IN MTNL

It is also recommended that a Chief Risk Control Officer may be got engaged by Board for over all internal, external IT security and all other technical, financial and system related threat perception and management as well as IT and other cyber security control and audit related management etc. and also to assist the ERM committee.

 

11. SIGNIFICANT CHANGES (I.E. CHANGE OF 25% OR MORE AS COMPARED TO THE IMMEDIATELY PREVIOUSFINANCIAL YEAR) IN KEY FINANCIAL RATIOS/ RETURN ON NET WORTH:

The Company incurred losses for the first time in 2009-10 and has been continuously in red (except in 2013-14 wherein booked profit of Rs7825 crore was there) since then because of mounting debt for payment of 3G & BWA Spectrum. The Net worth of the company has already eroded and almost all the ratios are in red (negative). However reduction in salary cost due to VRS being a part of revival package of GOI in FY 2019-20, The EBITA (Operating profit margin) become positive from the Q-4 of FY 2019-20. The following are the key financial ratios as on 31.03.2022 and also compared to previous year i.e. F Y 2020-21:

S. No. Particulars	Year Ended
	31.03.2022 Audited	31.03.2021 Audited
a Debt Service Coverage Ratio (in times) [EBITDA / (Finance Cost + Lease Liabilities Payments+ Principal Repayment of Long Term Debt)]	0.08	0.17
b Interest Service Coverage Ratio (in times) [EBITDA / Finance Cost]	0.14	0.25
c Outstanding Redeemable Preference shares (quantity and value) (in Rs Crs)	-	-
d Capital Redemption Reserve (in Rs Crs)	-	-
e Debenture Redemption Reserve (in Rs Crs)	-	45.27
f Net Worth (in Rs Crs) (As per Section 2 (57) of Companies Act 2013)	-18,656.45	-16,039.88
g Net Profit After Tax (in Rs Crs)	-2,602.59	-2,461.79
h Earnings Per Share (in Rs) [Not Annualised]	-41.31	-39.08
i Current Ratio (in times) [Current Assets /Current Liabilties]	0.42	0.58
j Debt-Equity Ratio (in times) [(Long Term Borrowings including Current Maturities + Short Term Borrowings)/Total Equity]	-1.43	-1.58
k Long Term Debt to Working Capital (in times) Long Term Debt excluding lease liability + Current Maturities of Long Term Debt Working Capital excluding current maturities of Long Term Borrowings	-4.12	-6.81
l Bad Debts to Account Receivable Ratio (in times) [Bad Debts/Average Trade Receivables]	0.01	0.00
m Current Liability Ratio (in times) [Current Liabilities/ Total Liabilities]	0.44	0.36
n Total Debts to Total Assets (in times) [(Long Term Borrowings + Short Term Borrowings + Lease Liabilities)/ Total Assets]	2.18	1.92
o Debtors Turnover Ratio - Annualised (in times) [Revenue from Operations/Average Trade Receivables]	1.50	1.88
P ** Paid up Debt Capital/Outstanding Debt (in Rs. Crs)	19,661.18	19,674.68
q Operating Margin (%) [(EBIT - Other Income)/ Revenue from Operations]	-101.93%	-64.40%
r Net profit Margin (%) [Profit after Tax / Revenue from Operations]	-243.30%	-188.84%
s EBITDA	296	525