Tata Teleservices (Maharashtra) Ltd Management Discussions.

Telecom Industry Developments

The Indian Telecom Industry

The COVID-19 pandemic has been a catalyst in propelling the use of technology. Areas that were hitherto considered the exclusive domain of physical infrastructure have now transitioned into the online world. COVID-19 has emphasised the importance and relevance of the Telecom Sector in India. In the last one year amidst various restrictions and challenges, organisations went through a sort of "Digital Jumpstart" wherein they migrated multiple activities/processes from physical mode to digital mode. Enterprises have started to accelerate their journey of digital transformation in the last one year. This trend is expected to continue over the next few years.

The market has seen a shift away from on-premises products to cloud based products/solutions, thereby causing decline in traditional voice services and accelerated adoption of conferencing, security, cloud IaaS and SaaS products.

The pandemic has highlighted importance of connectivity, with large enterprises seeking higher speeds and more data. The pandemic has caused dislocation amongst small and medium businesses (SMB). Going forward it is expected that the SMBs spending on ICT digital transformation solutions like cloud, digital collaboration, use of highspeed internet and security solutions will increase.

The pandemic has brought a huge shift in the way enterprise communication takes place. It has fueled the usage of video conferencing, on-net calls and greater adoption of IP based technologies for seamless business operations. This shift is expected to continue and would be a key driver for growth.

The sudden COVID-19 outbreak has hugely impacted the Indian UC market in a progressive way. Large and small enterprises have already started to migrate towards video conferencing and collaboration services for business continuity.

Indian Government continues its push to accelerate India on the Digital Transformation journey. While there are various initiatives undertaken by the Government over the years to digitise the economy, few of them are mentioned below.

• The Government of India has introduced Digital India program under which all the sectors such as healthcare, retail, etc. will be connected through internet.

• Government of India schemes such as BharatNet, Bharatmala, Startup India and Standup India, Make in India, Sagarmala, Industrial corridors, UDAN-RCS, dedicated freight corridors, and E-Kranti are interconnected with the Digital India initiative.

• The Department of Information Technology intends to set up over 1 million internet-enabled common service centres across India as per the National e-Governance Plan.

• The Government of Indias National Telecom Policy 2018 has envisaged attracting investments worth US$ 100 billion in the sector by 2022.

• Government also announced that it will connect every village in the country with Optical Fiber cable (OFC) in the next 3 years or so.

Various government initiatives have led to UPI Transactions scaling up to 2.73 Billion when compared to 1.25 Billion in March 2020. All the above government initiatives are likely to accelerate the pace of digitisation in India.

Key Regulatory Developments / Litigations

Issue of licences through Saral Sanchar Portal:

• In view of Government policy on doing ease of business and making the licencing process transparent, w.e.f. July 27, 2020 all licences to be issued by DoT & WPC will be through Saral Sanchar Portal only.

DoT HQ circular regarding monthly CAF audits:

• As per the circular if TERM Cell comes across any non-compliance which is repetitive in nature and where TSP has issues due to misinterpretation, technical issues, etc., and the TSP has the complete information and willing to take corrective action as customer appears to be genuine, in such cases audit needs to be stopped and TSP may be allowed to take corrective action and submit compliance.

• Penalty should not be levied in such cases.

Decentralisation of Power:

• DoT vide its letter dated July 20, 2020, has delegated the responsibility of signing of all types of Unified License to respective TERM Cell in a circle.

Aadhar based authentication as an alternate process:

• DoT vide letter dated September 29, 2020 has once again permitted the use of Aadhar based authentication as an alternate process for issuing mobile connection to individual customer along with outstation and bulk category.

New guidelines on OSP:

DoT has issued new guidelines for OSP on November 5, 2020. Salient features are as follows:

• No registration.

• The BPO industry engaged in data-related work is out of the ambit of OSP regulations.

• Requirements such as bank guarantees, static IPs, frequent reporting obligations, publication of network diagram, penal provision etc. have also been removed.

• Work from Home and Work from Anywhere made easy.

Modification in dialling pattern from fixed line to mobile

• DoT vide its letter dated November 20, 2020 has asked for modification in the dialling pattern from fixed line numbers to mobile numbers by prefixing "0" for calls originating from fixed line to mobile.

• The modified dialling pattern has been implemented in January 2021 by TTML.

Telecom services to Person with Disability (PwD):

• DoT has issued a circular on December 16, 2020 for provisioning of telecom services to Person with Disability (PwD).

• All TSPs need to provide priority customer services to all such PwD customers.

Cabinet approved setting up of Public Wi-Fi Networks by Public Data Office Aggregators to provide public Wi-Fi service through Public Data Offices without levy of any License Fee:

• Public Wi-Fi Access Network Interface will be known as PM-WANI.

• On March 21, 2021, DoT has issued instructions that all Public Data Office (PDO) will connect its wi-fi access points through network of licensed Service Providers.

• PDOs will have commercial agreement with TSPs/ISPs for internet connectivity.

Amendment to UASL/UL/NLD License for procurement of Telecom Equipment:

• DoT issued amendment to UASL/UL/ on March 10, 2021 and for NLD License on March 15, 2021 for procurement of Telecom Equipment.

- The government through Designated Authority will have right to impose conditions for procurement of Telecom Equipment.

- Designated Authority shall notify the equipment for which the security requirement related to Trusted Sources are required.

- With effect from June 15, 2021 the Licensees shall only connect Trusted Product in their network and also seek permission from Designated Authority for upgradation of existing Network utilizing the Telecommunication Equipment not designated as Trusted product.

• In compliance to the amendment to the License Agreement for procurement of Telecommunication Equipment from Trusted Source DoT through their letter dated March 30, 2021 has asked the operators to nominate one Nodal Officer for portal being developed by Designated Authority i.e., National Cyber Security Coordinator.

• Letter of Authorisation for nomination of Nodal Officer has been submitted on April 10, 2021.

TRAI Regulations

In the FY 2020-2021, Telecom Regulatory Authority of India ("TRAI") introduced Regulation/s and/or amendments thereto, covering :

- Telecom Consumers Protection (Eleventh Amendment) Regulations, 2020 dated September 30, 2020. This Regulation is about Measures to protect consumers from bill shocks while using International mobile roaming services.

- The Telecommunication Interconnection Usage Charges (Sixteenth Amendment) Regulations, 2020 dated April 17, 2020. This Regulation revised the regime of fixed International Termination Charges (ITC) of 0.30 (paise thirty only) per minute to a charge to be fixed by access service providers, within a range of not less than 0.35 (paise thirty five only) per minute and not more than 0.65 (paise sixty five only) per minute. This was effective May 1, 2020.

- Telecommunication Tariff (Sixty Fifth Amendment) Order, 2020 dated June 3, 2020. TTO 65 Amendment removes capping of 100 SMS per day per SIM as per the provisions of 54th Amendment.

TRAI Directions

In the FY 2020-2021, apart from directions in relation to specific service providers, TRAI provided directions and/or amendments, thereto covering:

- Direction regarding Implementation of the Telecom Commercial Communications Customer Preference Regulations (TCCCPR), 2018 dated June 19, 2020. This specifies the requirement for Headers and run awareness campaign in newspapers.

- Direction on tariff advertisements dated September 18, 2020.

As per Direction, TSPs shall prominently highlight the additional Terms and Conditions and shall provide a link to the specific terms and conditions for each tariff offerings, wherever required, while disseminating tariff related information, including on their website and mobile applications, immediately.

- Direction on tariff publications dated September 18, 2020.

As per the Directions, TSP needs to Publish. details of tariff offers with essential disclosures be made available to subscribers, at the Customer Care Centers, the Points of sale, retail outlets through prominent display in electronic form and/ or through printed display of details in legible font size.

- TRAI issued Direction regarding submission of Performance Monitoring Report to the Authority under the Telecom Commercial Communication Customer Preference Regulations, 2018 on February 15, 2021. As per this Direction the frequency of PMR Report has been changed from Monthly to Quarterly basis.

Major Litigation

• Dual Technology

The Cellular Operators Association of India ("COAI") challenged the DoT Press Release dated October 19, 2007 allowing the existing licensees to use dual technology i.e., CDMA operators were permitted to acquire and use GSM spectrum for providing GSM services and vice-versa ("Dual Tech Policy") before TDSAT, which upheld the Dual Tech Policy by order dated March 30, 2009. TTML GSM admin spectrum in 1800 MHz band was allocated under this Dual Tech Policy in 2008 and same has expired on September 29, 2017. COAI challenged the TDSAT order before the Supreme Court, praying that the Dual Tech Policy should be repealed and the GSM start-up spectrum should be cancelled. In case the policy is held to be invalid, there could be some financial liability for past period of about eight years during which this spectrum was held by the Company.

• Adjusted Gross Revenue ("AGR") Definition

Please see main Directors Report and Notes to Accounts for details.

• One Time Spectrum Charges ("OTSC")

- After the 2G judgment by the Supreme Court in February 2012, the DoT in December 2012 levied one-time spectrum charges ("OTSC") on administratively allocated CDMA spectrum. The Government decisions dated November 8, 2012; December 28, 2012 and March 15, 2013 under which the OTSC was charged, permitted the operators to surrender the CDMA spectrum beyond 2.5 MHz (CDMA) till April 2013 in case the operators did not want to pay OTSC.

The Company received a demand note from the DoT towards OTSC of 290 crores for retention of CDMA spectrum beyond 2.5 MHz (excess spectrum) with effect from January 1, 2013 till expiry of license. The Company filed a writ petition dated April 4, 2013 before the Mumbai High Court challenging the demand.

Subsequently, the Company retained 1.25 MHz (out of excess 2.5 MHz) in Mumbai and surrendered balance 1.25 MHz in August 2013 and surrendered excess spectrum in Maharashtra in November 2013 and has paid under protest OTSC of 120 crores in respect of spectrum retained in Mumbai. The surrender of the excess spectrum and the payment of OTSC by the Company is without prejudice to rights of the Company.

- Subsequently, the Mumbai High Court stayed the demand for OTSC on April 9, 2013. The matter is pending and will be listed in due course.

- Meanwhile, DoT filed in Honble Supreme Court ("SC") Transfer Petition seeking transfer of three Writ Petitions including that filed by Tata Teleservices (Maharashtra) Limited, pending before Mumbai High Court, on the grounds that there would be conflicting judgments/orders if the writ petitions are not transferred, which was dismissed by Supreme Court vide orders dated September 27, 2019.

• Mumbai Circle TERM Penalty

- TTML received demand notices dated February 22, 2011; April 30, 2014; December 7, 2015; January 14, 2016 and March 31, 2016 amounting to 117.72 crores from Mumbai Circle TERM Cell imposing penalties alleging non-compliance of subscriber verification norms. It was further averred in the demand note that failing the immediate payment of the penalty, the TERM Cell may invoke and encash the bank guarantees furnished by TTML to DoT. It is a license requirement to verify credentials of each acquired customer.

The penalty was challenged before the TDSAT and Delhi High Court ("HC"). Delhi HC, on March 23, 2018 directed DoT that if DoT intends to take any coercive action, it would approach the Delhi HC first. This was challenged in Delhi HC by way of Clarification Application in WP No. 3000 of 2018. Delhi HC while granting time for addressing the submissions on merits passed an interim order directing DoT to not withhold any process/ permission on account of non-payment of dues, which are subject matter of the petition. The matter shall be listed in due course. The interim order continues. The revised penalty amount (due to addition of interest), as communicated by DoT on December 20, 2019 is 236.90 crores.

- TTML received additional demand note(s) amounting to 30.74 crores from Mumbai and Maharashtra Circle TERM Cell. TTML filed a writ petition before the Mumbai High Court challenging the demand notes of 19.79 crores and was granted a stay. The balance demand of 10.95 crores has been represented to TERM Cell and response is awaited. If the matter is ruled against the Company, the Company may have to pay the penalty along with interest.

• MERC Order on applicability of commercial tariff on Mobile

Towers

- By way of Multiyear Tariff Order dated November 3, 2016 passed by the Maharashtra Electricity Regulatory Commission ("MERC"), the mobile towers were re-categorised and covered under the commercial tariff as against the industrial tariff applicable to the mobile towers under the previous tariff orders. The said Tariff Order dated November 3, 2016 was challenged by various telecom operators (including TTML) as well as IP1 companies before the Appellate Tribunal for Electricity ("APTEL"), Delhi by way of appeals under Section 111 of the Electricity Act and all appeals were clubbed and heard together.

Interim protection was granted by the APTEL in favour of the appellants including TTML, with a direction that subject to the outcome of the appeals filed by the telecom operators and IP1 companies before it, the appellants shall pay to the Maharashtra State Electricity Distribution Company Ltd. ("MSEDCL") the tariff in terms of industrial category including all outstanding and the current dues, without prejudice to the rights and contentions of all the parties and there shall be no coercive steps taken by MSEDCL.

- APTEL vide its Judgment dated February 12, 2020 in a batch of appeals, allowed all the appeals thereby holding that the mobile towers shall be categorised under the industrial tariff and not under commercial tariff. In other words, the said order of MERC is now reversed, and the industrial tariff is restored for mobile towers. A Civil Appeal has been filed in September 2020 by MSEDCL in the Supreme Court challenging the Order of APTEL dated February 12, 2020.

- The Chief Justice Bench of the Supreme Court after hearing the case briefly on October 12, 2020 ordered notice with an observation that the Telecom / Tower companies shall not recover any monies from MSEDCL which they have paid already under commercial tariff, at this stage. In the meanwhile. the industrial tariff shall continue to apply to all the telecom towers until further orders.

- Further hearing is pending in Supreme Court.

Note - In the meanwhile, TTML had moved its application for ITES certification last year under the current policy of the Govt. of Maharashtra and obtained the same in January/February 2021 for its important locations namely Turbhe office, Navi Mumbai (valid retrospectively from February 2020 to February 2023) and Al-aqmar office, Pune (valid from January 2021 to January 2024) and is in the process of pursuing such certification for its other locations. By this certification, TTML is entitled to draw power supplies under industrial tariff in these locations.

Risks and Concerns

This section discusses the various aspects of enterprise-wide risks management. It might be noted that the risk related information outlined here is not exhaustive and is for information purpose only.

The Company has formulated a well-defined and dynamic enterprise risk management ("ERM") program, which gets reviewed and updated periodically. The program is governed by a comprehensive risk management policy, which, amongst others, includes the risk management governance structure and the risk management process.

The Central Risk Office actively monitors the risk management process. Results of the risk management activities are periodically reviewed by the management and annually presented to the Audit Committee of the Board of Directors.

The risk management process enables proactive identification, recording, tracking of risks and monitoring of mitigation plans to respond to changes in business and regulatory environment. The risk management process is embedded in all facets of Companys work systems including the planning & review process, thereby reassuring all stakeholders, customers, investors, employees and partners of the Companys business sustainability.

Internal Control Systems and their Adequacy

An Audit Committee of the Board of Directors has been constituted as per the provisions of Section 177 of the Companies Act, 2013 (the "Act"}.

The internal audit for various functions/aspects is conducted by the independent firms, which conduct reviews and evaluation and present their reports to the Audit Committee and the management at regular intervals.

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

The ERM framework aims to realise the following benefits for the organization:

1. Enhance risk management;

2. Facilitate risk-based decision making;

3. Improve governance and accountability;

4. Enhance credibility with key stakeholders such as investors, employees, government, regulators, society etc.

5. Protect and enrich stakeholder value.

The Company is exposed to several risks. An effective and dynamic risk management process enables the Company to manage and mitigate the impact of these risks. The key risks facing the Company include:

Market and Competition Risks

Disruption may erode revenue and loss of customers. Further pricing pressure may be a threat to business sustainability.

The Company monitors the constantly evolving competition landscape to be able to offer greater value proposition to its customers..

Regulatory Risks

Uncertainty in micro-regulatory environment related to various pending disputes, any unfavorable outcome will lead to significant impact on the financials of the Company.

The Company continues to monitor the situation along with close engagement with agencies involved and would take appropriate action basis any further outcome.

Technological Risks

From a products/solutions perspective there has been a rapid evolution of technology and digital adoption during COVID pandemic thereby impacting traditional voice and data services.

Network: The Company requires to invest in new technology and innovation to match with changes in telecom space.

The Company continues to launch new products and invest in new technologies relevant for new scenario and customer need.

Financing Risks

Substantial debt clubbed with AGR payouts and other litigation matters puts significant risks on future financing requirements.

The Company has improved EBITDA and reduced external debt (including better debt profile} through cost optimisation, CMB demerger and infusion of funds from promoters.

Talent Retention Risks

Ability to attract new talent and retain key talent, maintain employee trust and morale.

The Company continues Employee Engagement through communication, recognition & growth opportunities.

Brand Risks

Ability to invest in Brand.

The Company continues to invest in activities for Brand Strengthening and saw a positive skew towards digital media. We created new digital properties like Digital Do Big Forum, Digital Do Big Conclaves and launched Do Big CXO Round Table. These properties have enabled the brand to digitally engage with prospective customers, existing customers and thought leaders.

Natural Disasters and Pandemics Risks

TTML is always under the threat of various natural disasters like floods, cyclones and landslides etc.

The recent COVID-19 global pandemic put to test TTMLs business continuity plan. Your Company managed to continue providing services to customers and played an instrumental role in the speed of recovery. The Company focus was to help all businesses, especially SMEs, recover more quickly during the economic crisis and to enable other stakeholders to become more resilient through improving digital skills and driving digital inclusion.

The Company transited towards a "new normal" and emerged as trusted partners of our customers and stakeholders.

1. Market and Competition Risks

Overall Market view for FY 21

The Enterprise Telecom Market has seen a decline in FY20-21, wherein the already declining Fixed Voice market was adversely affected by COVID-19 pandemic driven by decline in consumption of premise based fixed voice MOUs and shifting of MOUs to home. Data market growth slowed down largely attributed to decline in MPLS market due to shutdown of offices in the first two quarters and sudden decline in usage of office connectivity. Managed Services grew largely driven by increasing migration of workloads to cloud, demand for collaboration solutions driven by remote working environment and adoption of security solutions.

Impact of COVID

• The pandemic has highlighted importance of connectivity, with large enterprises seeking higher speeds and more data. The pandemic has caused significant impact amongst small and medium businesses (SMB). Going forward it is estimated that the SMBs spending on ICT digital transformation solutions like cloud, digital collaboration, use of high speed internet and security solutions will increase.

• The pandemic has brought a huge shift in the way enterprise communication takes place. It has only fueled the usage of video conferencing, on-net calls and greater adoption of IP based telecommunications technologies for seamless business operations. This shift is expected to continue and would be key drivers for growth.

• The sudden COVID-19 outbreak has hugely impacted the Indian UC (Unified Communications) market in a progressive way. Large and small enterprises have already started to migrate towards video conferencing and collaboration services for the business continuity.

Future Outlook

The overall Enterprise telecom market is expected to grow in the coming years after a market decline from FY20 to FY21 due to COVID-19 impact. As the enterprises are becoming highly resilient to tackle economic downturns, it is unlikely that COVID-19s impact will be long-term for telcos. Post-Covid, enterprises are accelerating their digital transformation with adoption of public/hybrid cloud and variety of digital solutions. This will drive surge in cloud, managed security, colocation and enterprise data services in the coming years.

With hybrid Work from Home (WFH") becoming new normal, IP based services, like SIP Trunking and VoIP are expected to boost up revenues in the declining fixed voice services market. ISDN is expected to experience continued decline in the revenues from the enterprise segment in the forecasted period.

The market adoption of SD-WAN in India is likely to gain traction in the future as use cases and viable solutions from service providers evolve.

The SMB segment is expected to grow in the coming years. Going forward, an increase in SMBs spending on ICT digital transformation solutions such as migration to cloud, usage of high speed internet, IoT solutions, digital collaboration and secure VPN services etc. is expected to drive revenues in this segment.

2. Competition Risks

Our competition has started augmenting their traditional fixed wireline portfolio with cloud-based solutions across communication, collaboration and security to participate in this growing revenue stream in the market. This has been largely driven through partnerships. Your Company has also launched multiple cloud based solutions like Smartflo Cloud Communication Suite, Comprehensive Security Portfolio and a slew of Collaboration & Cloud Storage solutions to strengthen its position in this market.

Some of our competitors continue aggressive pricing in certain segments of market like toll free services which has already been facing challenges from cheaper options of call back & chatbots. Some of our competitors continue to play aggressively on price in Enterprise Data & Voice segments. The risk of our competitors launching integrated voice, data and digital solutions at aggressive price points in the SMB segment continues. We are also seeing an emerging trend of integrated cloud and network services being provided by some of our competitors. We are constantly evolving our products/solutions to be able to offer greater value proposition to our customers.

3. Regulatory Risks

As is evident from the Major Litigation section hereinabove, telecom industry continues to face plethora of changes and ambiguities in the regulatory space.

After the Supreme Court gave its judgement on AGR definition which was one of the major litigations of the industry, TTML has filed application in Supreme Court seeking direction to DoT to rectify mistakes in calculation and allow permissible deductions.

The Company also obtained the approvals from the regulatory, licensing and other statutory agencies for the demerger of the Consumer Mobile Business in FY 2019-2020. DoT has issued on April 28, 2020 a show cause notice to the Company asking it to show cause why penalty of 100 crores be not levied for transferring consumer mobile undertaking on July 1, 2019 without getting DoT final approval which was received on February 6, 2020. DoT also filed a petition in NCLT Delhi praying for levy of penalty under Section 232(8) of Companies Act, 2013 against TTML on similar grounds.

TTML approached TDSAT, which has directed TTML to file reply which TTML did on June 9, 2020. Now, DoT to take decision on this and TTML can approach TDSAT after DOT decision. TTML continues to monitor the situation along with close engagement with agencies involved and would take appropriate action basis any further communication from the authorities. TTML also continues to represent its case in NCLT, where the case is in progress.

The Company also continues to tackle the litigation issues (mostly legacy wireless issues) including a) Telecom Policies and Licenses in areas of dual technology, b) allocation of access and microwave spectrum, c) EMF radiation, d) security guidelines, e) EKYC of existing subscriber base, f) Minimum Rollout obligation, g) decision to charge One Time Spectrum Charges (OTSC) within the contracted quantum of spectrum, h) penalties levied by TERM cell etc. and these issues are now pending before various courts. There are significant financial penalties under challenge and those carry significant regulatory risks, in case the court judgments are not favorable to the Company.

The Company has a legal and statutory compliance program in place to continuously scan and where possible monitor, the regulatory environment, identify the changes applicable to the Companys operations and undertake measures to comply with the regulatory requirements. Further, the Policy advocacy team continues to engage with external stakeholders including regulatory bodies to ensure a harmonious relationship with various regulatory agencies.

4. Technological Risks

a) Product Technology Risks

Overall summary of technological evolution in the Enterprise Telecom Space

There is a rapid evolution of technology in every aspect of Enterprise Networks and Services. Technologies such as Cloud, Software Defined Networks (SDN), Network Function Virtualisation (NFV), Artificial Intelligence (AI), 5G, IoT, Virtual & Augmented Reality are enabling "Digitisation" of various Enterprises and their businesses to enter into "Industry 4.0" revolution which is currently taking place.

Risk to traditional voice services

Within the Enterprise portfolio, Fixed line voice services continue to witness decline on account of a number of factors such as COVID-19 pandemic, increased market saturation, shift of focus towards cloud & conferencing solutions and disruption from newer breed of digital technologies. COVID-19 pandemic has presented itself as a huge challenge for fixed line services providers. 100% workforce has still not returned to offices and distributed workforce model is likely to continue in future.

As Hybrid WFH is becoming the new normal, certain alternatives to traditional voice are gaining further traction.

Emerging alternatives include:

i) I ncreasing adoption of IP Based services like SIP Trunking which is expected to one of the fastest growing segment within Voice.

ii) Growing trend in the market of a shift from on-premise voice services to cloud based communication solutions. From a demand side perspective, 75% of SMBs and 65% of Large Enterprise expect to have a cloud communication platform in next 1-2 years.

iii) UC (Unified Communications) is also emerging as an important substitute for overall voice needs of enterprises.

Risk to traditional data services

In the Enterprise Data Segment while the traditional services like ILL, MPLS are expected to grow in the coming years, there are a few emerging technologies like SD WAN gaining traction. Also, there is an imminent threat of 5G technologies opening up new use cases which could cannibalise traditional data services. While PAN India 4G penetration has helped the operators to overcome the last mile challenge up to an extent, the Quality of Service over wireless last mile has been the issue for enterprises (specially in their remote branches).

The Company is continuously focused on mitigating the product technology risks by way of strengthening the existing product portfolio like SIP where it continues to add new features on an ongoing basis and through launch of new products/solutions like Smartflo (our new launched Cloud Communication Suite), Security Portfolio, Ultra-Lola (our low-latency data product) and many more. We are also focused on strengthening our value-added suite of services to mitigate the margin pressure in certain segments. The Company continues to evaluate multiple partnerships to strengthen its product suite.

b) Network Technology Risk

Telecom technology continues to evolve in both, the fixed line and the mobility domains, primarily driven by consumer needs for improved functionalities, higher capacities, and newer applications. For telecom service providers, new technologies provide the opportunity to enhance revenues and reduce costs. Adoption of new technology and retirement of legacy Network elements is an ongoing process within the Company. Few examples in the past few years include the introduction of the IP Multimedia Services (IMS) platform, OTN (Optical Transport Network), and PTN (Packet Transport Network), which enable us to provide IP (Internet Protocol) based services to our customers. Further, legacy technology, such as traditional TDM Switches and transport equipment, is reviewed and replaced on a periodic basis. Such transformation not only enables introduction of next generation services, it enhances efficiencies and helps reduce operating costs to align with the projected growth in the Enterprise business.

The Company also has an extensive optical fibre network across the country and in the key metro cities. National, state and city authorities conduct infrastructure development such as bridges, flyovers, metro transportation networks, state & national highways, etc. which involve extensive realignment and digging of roads which are a potential threat to our network which may result in disruption of services/ down-time to our customers. The Company carries out proactive monitoring, maintenance and relocation of these underground assets to ensure optimal utilisation of resources.

DoT has issued an amendment to the license regarding certain conditions on procurement of equipment from Trusted Sources. The Company is reviewing the order and is working closely with various stakeholders including DoT on the same. If DoT mandates replacement of existing networks by equipment from Trusted Sources, it could involve significant fresh investment.

5. Financing Risks

The Companys EBITDA has improved, and debt had come down in in FY21 due to the demerger of the CMB business in FY20 as well as cost optimisation efforts. However, the Company continues to carry a substantial debt as of March 31, 2021, including funds borrowed for AGR payment. In addition, the Company may be required to invest significantly in capital expenditure of network infrastructure towards sustaining and growing the enterprise business. This may impose additional strain on the existing financial position of the Company.

The Company has experienced difficulties in its borrowing programs in the past and the current economic scenario on account of the COVID-19 pandemic might impact the Companys ability to refinance the debt and raise additional debt. Further, the terms of raising fresh capital may not be in line with past terms and conditions and/or may be subject to such covenants which may be challenging for the Company to adhere to thereby impacting the costs of not only incremental capital but also existing debt adversely.

In the previous years, fresh infusion of funds has been undertaken by the stake holders (Tata Teleservices Limited) to reduce bank borrowings, thereby providing comfort to the lenders on the support from the shareholders. With the above support, the Company has been able to refinance its debt in the past and believes that it should be able to continue to refinance the debt in the coming year as well. Further, a series of cost optimisation initiatives have been undertaken to reduce strain on fund requirements.

6. Talent Retention Risks

Given the background of volatile and uncertain times, key talent retention assumes a significant risk. To address this and to improve employee confidence, measures have been put in place to continuously engage with the employees by way of periodic communication of key developments, ongoing rewards and recognition initiatives, etc.

Further, the Company has been working to ensure workforce optimisation by providing various internal career movements. Employee engagement and connect will be the key areas of focus in the current COVID-19 situation.

7. Brand Risks

Activities done in the year gone by for Brand Strengthening

Brand investments continued during the year and saw a positive skew towards digital media. In line with the new working norms of work-from- home, the Company strengthen its digital footprints. To avoid any brand reach loss from lack of on-ground physical events and engagement, we created new digital properties like Digital Do Big Forum and Digital Do Big Conclaves. We also launched Do Big CXO Round Table to engage with CXOs from leading enterprises as part of our thought leadership forums. These formats reached out to Industry Leaders as well our existing and potential customers.

Outlook for future

We launched "Smartflo" our advanced and ultra-flexible cloud communication suite with an integrated brand campaign across digital media. We continue to invest in our brand and marketing assets and have lined up brand interventions in the coming period which will help our brand to create positive word-of-mouth, strengthen our brand recall and brand equity.

8. Natural Disasters and Pandemics

TTML is always under the threat of various natural disasters like floods, cyclones and landslides. In order to ensure continuity of operations and services to customers, TTML evaluates various such risks from people, process and technology perspectives and draws up mitigation plans. Weather data is regularly monitored to be prepared for natural calamities and work out business continuity plans.

The recent COVID-19 global pandemic put to test TTMLs business continuity plan. Your Company managed to continue providing services to customers and also catered to requests for upgrades and new connections. This was done keeping in mind the health and safety of our employees and customers. Continuity of operations was done with >95% of employees working from home thereby ensuring their health and safety. The market impact pertaining to COVID-19 has been covered under the section relating to market risks. The Company continues to work on various opportunities of cost optimisation which have emerged on account of the pandemic.

9. Cyber Security related Risk

The risks and threats of cybersecurity have multiplied manifold in the prevailing environment; due to the change in working habits and the resultant impact on the network and security architecture.

At TTL, steps have been taken to strengthen end user and mobile devices security and enhanced the proactive monitoring.

However, the residual risks remain due to proliferation in the exploits ranging from the OS kernel/Motherboard cache to zero day attacks on network devices and malware protection software.

Hence, a continuous improvement to retain the cybersecurity posture is strongly suggested.

Opportunities and Threats

Opportunities

Enterprises in India are gradually realizing the business value that can be generated through digital transformation and adoption of emerging technologies such as Cloud, Collaboration, Mobility, IoT, Analytics etc. that is generating the demand for enterprise data and managed services.

Enterprises in India are increasingly migrating their applications/ workloads to cloud, investing in strengthening their connectivity and other digital services as they look to simplify their business operations, enhance workforce productivity, achieve business excellence and digitally transform themselves. With increased contribution of WFH, explosion of devices and rapidly increasing data usage, OTT and IT companies are experiencing high requirement for high capacity, high speed networks for their backbone and datacenter connectivity.

The sudden COVID-19 outbreak has hugely impacted the Indian UC market in a progressive way. Large and small enterprises have already started to migrate towards video conferencing and collaboration services for the business continuity.

All of the above will be driving the demand for Enterprise Data and Managed Services.

Within segments we are likely to see an increase in SMBs spending on ICT digital transformation solutions such as migration to cloud, usage of high-speed internet, IoT solutions, digital collaboration and secure VPN services etc. and when it comes to Large Enterprises, Cloud services, Colocation and IoT based solution are likely to be the most sought-after solutions as they undergo digital transformation.

BFSI ("Banking and Financial Services Industry") and IT/ITeS (including hyper-scalers) verticals will continue to drive investments around scalable applications and customised end-to-end secured solutions such as cloud, data center and enterprise data services. These prime sectors along with Government vertical will continue to dominate the market and are expected to drive the revenue growth in the coming years. Apart from the above, Education, Retail (inc. eCommerce) are also emerging as high growth verticals.

Threats

Increasingly Enterprises are moving towards cloud-based solutions as businesses are going digital and are moving away from on-premise solutions. Traditional Voice Services would get impacted adversely on account of the shift of focus towards cloud & conferencing solutions and disruption from newer breed of digital technologies.

Telcos have also started offering unified, new age web-based work from home solutions like cloud virtual receptions etc., integrated with their traditional services. Most of the operators have also started entering the "Cloud Communication" domain.

There is an imminent threat of 5G on Enterprise Data services segment.

• In international markets where 5G is deployed, there are multiple use cases emerging on 5G namely enhanced broadband with AR/VR, immersive experiences, followed by massive IoT (smart grid, smart cities, smart factories); mission critical applications (remote control of infra, vehicles, medical procedures) and applications like smart grid etc.

• While there have been talks about 5G Fixed Wireless Access ("FWA"), the use cases of it being able to replace fiber are not yet prominent. One of the prominent research agencies has highlighted that at least 10 operators globally have launched FWA services for businesses. The overall impact of 5G FWA on businesses has been limited till date but could evolve over next few years.

• 5G will also allow MPLS Last Mile and Internet breakout post implementation. Currently only a small percentage of MPLS market is delivered on 4G Last Mile. We expect this to increase post 5G implementation.

• Given that the date of auction of 5G spectrum in India is not yet out, we anticipate that it may take 6-12 months for the auctions to happen. Post which operators will start the implementation. Launch on existing spectrum may face spectrum constraints. Hence, the Company estimates the risk of 5G on Enterprise Data Services to play out in the medium term.

In the Enterprise Data Segment, the prices are continuously declining across all major enterprise data services due increasing competitive intensity.

The Company is continuously looking at various product and technology options to mitigate the imminent threats and leverage the emerging opportunities.

Human Resources

Continue Employee Engagement through communication, recognition & growth opportunities

• Continued deployment of Reward and Recognition

• Consistent communication by leadership, on aspects impacting work-life.

• Continued focus on key HR programs such as Internal Job Postings, Appraisals, Learning & Development

Enable remote working for employees, through portals/accesses enablement via VPN.

The Company had a total of 372 employees on its rolls as on March 31, 2021.

Quality And Processes

Like other companies in the Tata Group, the Company follows the Tata Business Excellence Model ("TBEM") as its quality and process improvement framework. TBEM is a process maturity model that is adapted from the globally acclaimed Malcolm Baldrige Performance Excellence Framework of the National Institute of Standards and Technology, US Department of Commerce.

The TBEM framework is divided into six process and one business results categories. It also has a special category on Safety to ensure stakeholder safety and health. The six process categories include Leadership; Strategy; Customer; Measurements, Information & Knowledge Management; Workforce and Operations. The Business Results section includes Product, Customer, Workforce, Leadership and Financial results. In the model,

equal weightage is given to process and business outcomes thereby ensuring a virtuous cycle for overall improvement.

The TBEM reference manual comprises of 100 plus criteria questions which help companies follow a journey of process and data maturity and improve constantly. Process Maturity is evaluated using the Approach- Deployment-Learning-Integration perspectives, while the Business Results are assessed using Levels-Trends-Comparatives-Integration framework. This balanced and holistic approach helps the Company stay on a continuous improvement path and evaluate processes against business outcomes. The TBEM framework has helped Tata companies understand and serve customers better, mitigate risks and create long term multi-stakeholder value. The Company is on a renewed journey to create enhanced value for all stakeholders through this framework.

Using TBEM as a framework, the Company is working towards further enhancing its quality of service and products provided to all stakeholders, through a plethora of initiatives, including:

• Process Optimisation by using applicable best practices from LEAN and eTOM frameworks. The Company is improving its entire process repository with efficiency and stakeholder value creation as objectives.

• Best Practice sharing and adoption from other Tata Group companies through focused sessions conducted by functional experts. Q-Talk- a monthly talk delivered by leaders from other Tata Companies, focuses on topics like Customer Centricity, Innovation, Strategy Deployment, Brand Augmentation, etc. Additionally, there are focused knowledge sharing sessions conducted by Tata companies on various areas including Customer Service Operations, Service Assurance, Safety, Ethics, etc. This is supported through a governance framework which helps accelerated deployment of these best practices, as appropriate.

• Culture of Quality improvement using initiatives like Q-Tips - a weekly mailer on business cases across the world with a message on improvement; Q-Learn - short, modular training programs on modern Quality Management Systems and enhanced participation in Tata Group-level initiatives.

• Focused Improvement Projects across the organization on various areas of customer lifecycle management, service delivery, network augmentation, risk management, quality control, etc. to improve quality of service and experience.

The Company is on a renewed journey to create enhanced value for all stakeholders through this multi-pronged approach.

Key Financial Information & Operational Performance

Revenue from Telecommunications service

Service revenue for the year ended March 31, 2021 decreased to 1,024 crores as against 1,053 crores in the previous year. These numbers are not fully compatible since CMB business demerged w.e.f. July 1, 2019.

Other Income

Other income during the year stood at 31 crores (previous year 36 crores} which included income from rendering of services to the tune of 20 crores (previous year 25 crores}.

Operating Expenses

Operating expenses including provision for contingencies for the year were recorded at 555 crores as against 656 crores in the previous year. The major components of the total operating expenses are as follows:

Earnings Before Interest, Tax, Depreciation and Amortisation ("EBITDA")

The focus during the last few years for the Company has been on optimizing its operations and increasing the asset utilisations. The Companys EBITDA reported at 47% in current year compared to 40% in previous year.

Net Loss

The Companys loss before exceptional items was 1,217 crores as compared to last year level of 1,284 crores. The Company reported a net loss of 1,997 crores during the year, after providing LF/SUC 780 crores.

Balance Sheet

The Shareholders Funds was 18,491 crores (Negative} as at March 31, 2021 against 17,479 crores (Negative} as at March 31, 2020.

Total borrowing for the Company (including long term borrowing, short term borrowing, current maturities of long-term borrowing and longterm debt payable on demand, acceptance, payables under usance letter of credit, debt components of ICDs and deferred spectrum liability including interest} was 17,638 (excluding liability component of RPS) crores as compared to 16,701 crores in the previous year.

The Net Block (including tangible as well as intangible assets} as at March 31, 2021 decreased to 679 crores as compared to 680 crores in the previous year. The Company has assets under development and Capital Work in Progress of 29 crores and Right of use Assets of 151 crores.

Significant Changes in Key Financial Ratios

The key financial ratios are as under:

Particulars 2020-21 2019-20
Operating Profit Margin (%) 47% 40%
Net Profit Margin (%) & 2 (189%) (341%)
Return on Net Worth (%)3 NA NA
Debt Service Coverage Ratio (DSCR)@ 0.09 0.04
Interest Service Coverage Ratio (ISCR)@ 0.66 0.52
Debt Equity Ratio Note1 (0.95) (0.96)
Current Ratio2 * 0.07 0.07

EBIT4 / (Interest Expenses5 + Principal Repayments of Non-Current Borrowings due within 12 months from the balance sheet date)

$ EBIT / Interest Expenses5

* Excluding borrowings & interest accrued but not due and assets classified as held for sale & liabilities directly associated with assets classified as held for sale.

Note:

1 The aforesaid ratios are not comparable, as CMB business has been demerged with effect from July 1, 2019.

2 Provision for LF/SUC 780 Crores made during 2020-2021.

3 Due to negative Net worth this ratio is not computed.

4 EBIT represents Earnings before interest, tax and exceptional items.

5 Interest Expenses exclude interest on liability component of Compound Financial Instruments and interest on lease liabilities as per IND AS 116.

Outlook

The Company is projected to witness growth in the years to come on the basis of:

1. Wide Optical fiber network of ~132,000 kms. (TTSL+TTML).

2. Strong brand presence across customers in this business with deep customer relationships.

3. Wide range of customised solutions enabling to service as a "A One Stop Shop" for meeting needs of enterprise customers and enhancement of the Product portfolio, including Managed Services.

4. Robust Channel Partner Ecosystem.

5. Uniform, high quality customer experience.

6. Emerging new products portfolio.

With changing technology and increasing competition and conditions created by COVID-19 epidemic, sustaining the growth without substantial incremental investments may be challenging.

The Company may also explore opportunities to strategically restructure certain residual business lines/assets at an appropriate time.

The expectations and risks stated in this report are in the opinion of the management and may not necessarily fructify.