TELECOM INDUSTRY DEVELOPMENTS
Indian Telecom Industry
The last 2 years have been unprecedented in terms of human experience, businesses continuity and technology proliferation. COVID-19 first wave in India disrupted business activity in a big way and the second wave had a devastating human toll. Before life could normalise third wave was upon us. Life and economy went through multiple cycles of Start-Stop-Start. During the COVID-19 lockdowns, the telecom industry in India played a significant role in enabling life and business activity. The importance of having a strong telecom network during the lockdowns has also been acknowledged by the Government in its guidelines issued during the pandemic. Under the Digital India campaign, the Government is continuously focusing on catalysing adoption of digital through various initiatives. This would accelerate the adoption of new technologies and digital connectivity infrastructure, on which all disruptive technologies would run. Some of the key digital initiatives being undertaken by the Government (as listed in the Union Budget document) include:
• Digital banking: Government continues to encourage digital banking, digital payments and fintech innovations to make benefits of digital reach every nook and corner of the country. To mark 75 years of our independence, the Government has proposed to set up 75 Digital Banking Units (DBUs) in 75 districts of the country by Scheduled Commercial Banks.
• Digital payments: Government announced continuation of the financial support for digital payment ecosystem in 2022-23. This will encourage further adoption of digital payments.
• Digital Rupee: Government has proposed to introduce Digital rupee using blockchain & other technologies, which is likely to give a big boost to the digital economy.
• Digital University: Government proposes to establish digital university to provide access to world-class quality education to students across the country at their doorstep.
• 5G Technology: 5G spectrum auctions to be conducted in 2022. Scheme for design-led manufacturing for 5G will be part of production-linked scheme.
• Digital Health Ecosystem: Government plans to roll out ‘Ayushman Bharat Digital Mission’ an open platform which will consist of digital registries of health providers and health facilities, unique health identity, consent framework, and universal access to health facilities.
• Broadband and mobile services in rural areas: To enable affordable broadband and mobile services proliferation in rural and remote areas, government will allocate 5 percent of annual collections under the universal service obligation fund.
• Data Centres and Energy Storage Systems: To be given infrastructure status. This will facilitate credit availability for digital infrastructure and clean energy storage.
Government announced major reforms in Telecom Sector on September 15, 2021. The details are provided in subsequent section on Key Regulatory Developments. All the above Government initiatives are likely to accelerate the pace of digitisation in India. As an offshoot of various digital initiatives, UPI transactions value has grown 92% in one year and is at INR 8.29 Tn.
Enterprises have also realised the importance of digital transformation to ensure business continuity and operational excellence. In the year gone by, driven by demand for high-capacity network services and higher internet bandwidth requirements, the enterprise data market saw a growth. This was primarily driven by large enterprises (‘LE’) across verticals like IT/ITES, BFSI and OTT players.
Small & Medium Enterprises (‘SME’) segment have suffered the most during COVID-19. Therefore, their spend on ICT services went down in FY21. However, with market opening up, the network spends from SME segment is expected to gradually increase going forward.
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 and SaaS products by both LE and SME segments.
Overall Market View
The overall enterprise telecom market is on gradual recovery mode in FY22 after suffering a decline in FY21 due to the impact of COVID-19. The recovery is driven largely by the growth in Managed services, Enterprise Data and Unified Collaboration & Conferencing (UC) segments. The decline in the traditional voice market aggravated post pandemic as enterprises adopted a hybrid work culture. This is expected to continue in the coming year as well.
The pandemic has highlighted the importance of digital transformation among enterprises to ensure business continuity and operational excellence. To tap immense opportunities, operators are investing in holistic capabilities to provide end-to-end ICT solutions leveraging the newer technologies e.g., IoT, SDN/NFV, Multi/Hybrid Cloud, SIP Trunking, etc. to strengthen their market position.
SME segment had suffered the most during the COVID_19 pandemic. Therefore, their ICT spend went down in FY21. Even with market opening up segment recovery has been slow. Traditional voice market is declining in SME segment as well. Cloud services, Co-location and UC services are leading the recovery followed by data services. Digitisation, flexibility and security are the top trends among enterprises both in LE and SME segments.
Market has started showing signs of recovery post COVID. Enterprises are looking for secure and flexible communication and connectivity solutions at optimised costs. The market is evolving at a faster pace. The coming quarters are exciting as well as challenging. As per industry market research following trends are expected to play out:
• SIP Trunking will witness robust growth on account of flexibility and security advantage over plain vanilla voice products.
• Saturated toll-free market would see enterprises moving towards the modern cloud-based call management systems which provide toll-free numbers with additional features like CRM integration, call tracking, call masking, call routing, sticky agent, etc.
• The enterprise data services market is expected to grow at a steady rate driven by increasing demand for high bandwidth data connectivity services due to surge in data and cloud consumption.
• The market outlook for SD-WAN in India is very optimistic in the coming years with high adoption rate expected in LE segment followed by low to moderate adoption by SMEs.
• Adoption of Hybrid IT infrastructure and multi-cloud would fuel upgradation of enterprise network infrastructure.
• Increase in ICT spends by SMEs: With their digital transformation objectives and learning from COVID-19, SMEs will increase their investment in data connectivity as well as Cloud & SaaS services to fulfil their business goals such as digital sales, improved business performance, operational efficiency etc.
KEY REGULATORY DEVELOPMENTS/LITIGATIONS
Launch of the ‘Trusted Telecom Portal’ for implementation of the National Security Directive on Telecommunication Sector:
• The Government launched the Trusted Telecom Portal www.trustedtelecom.gov.in on June 15, 2021, signalling the coming into effect of the National Security Directive on Telecommunication Sector (‘NSDTS’).
• Consequently, with effect from June 15, 2021, the Telecom Service Providers (‘TSPs’) are mandatorily required to connect in their networks only those new devices which are designated as ‘Trusted Products’ from ‘Trusted Sources’.
• The portal was developed and implemented by DoT.
• TTL Nodal Officer has obtained the required credentials for access to the portal.
Revised OSP guidelines issued on June 23, 2021:
• No distinction between domestic & international OSP.
• No registration and no BGs.
• Carriage of voice traffic over any Wide Area Network technology like MPLS VPN/NPLC or SD-WAN over NPLC/ MPLS VPN.
• Interconnectivity between same company or group of companies or any other company.
• Interconnection of RA to OSP centre/resources over any technology including broadband over wireline/wireless.
• OSP guidelines applicable only to voice-based business.
• Remote Agent of OSP can now connect directly to the Centralized EPABX/ EPABX of the OSP/ EPBX of the customer using any technology including Broadband over wireline/ wireless.
• Work from Home and Work from anywhere made easy.
• EPABX of the OSP can be located anywhere in the world.
• OSP apart from utilising EPABX services of Telecom can also locate their EPABX at third party data centre in India.
• Detailed guidelines are liberal in nature and is in line with ease of doing business.
Amendment to UASL/UL with respect to infrastructure sharing dated April 6, 2021:
• Licensee may enter into mutual commercial for roaming facilities (within same LSA’s & other LSA’s with other operators) with other CMTS/UASL/UL with Access Service Authorisation, with Category ‘A’, ‘B’ and ‘C’ Internet Service Authorisation for providing Internet Service only.
• Sharing of Active infrastructure amongst service providers based on the mutual agreements entered amongst them is permitted. Active infrastructure sharing will be limited to Wi-Fi equipment such as Wi-Fi router, Access Point etc. Sharing of backhaul is also permitted.
Compliance to maintaining of IPDR/SYS Logs/CDR/EDR by ISP licensee:
• DoT issued a letter on April 13, 2021, reiterating the need to ensure that all Licensee must maintain all commercial records/CDRs/IPDRs/Sys Logs/EDRs.
• The data of subscribers must be maintained for at least one year.
• The data must be preserved within boundaries of India.
• All such records need to be maintained in the format prescribed.
Government approves major Reforms in Telecom Sector on September 15, 2021: The salient feature of the reform affecting the Company are as follows:
• AGR definition: non-telecom revenue will be excluded from the definition of AGR prospective w.e.f., October 1, 2021.
• Reduction in BG requirements (80%) against License Fee (‘LF’) and other similar Levies. One BG will be enough for all LSA.
• Delayed payments of License Fee (LF)/Spectrum Usage Charge (‘SUC’) will attract interest rate of SBI’s MCLR plus 2% instead of MCLR plus 4%; interest compounded annually instead of monthly; penalty and interest on penalty removed.
• To encourage investment, 100% Foreign Direct Investment (‘FDI’) under automatic route permitted in Telecom Sector. All safeguards will apply.
• Moratorium/Deferment of up to four years in annual payments of dues arising out of the AGR judgement, with however, protecting the Net Present Value (‘NPV’) of the due amounts.
• Self-KYC (App based) permitted.
• Paper Customer Acquisition Forms (‘CAF’) will be replaced by digital storage of data.
DoT on September 23, 2021, amended UL License Agreement on provision of Cellular Backhaul Connectivity:
• Backhaul connectivity using VSAT to the Access service providers for establishing wi-fi hot spot.
• A Licensee having license/authorisations for both commercial VSAT CUG Service and NLD Service is permitted to share VSAT Hub for the purpose of providing authorised services.
• The Licensee may share its own active and passive infrastructure for providing other services authorised to it under other telecom license issued by Licensor.
Amendment to UL/UASL License Agreement for Adjusted Gross Revenue:
• Now there will be Gross Revenue (‘GR’), Applicable Gross Revenue (‘ApGR’) and Adjusted Gross Revenue (‘AGR’).
• No Change in the Definition of Gross Revenue
• ApGR will be GR reduced by the following:
• Revenue from operations other than telecom activities/ operations
• Revenue from activities under a license/permission issued by Ministry of I & B.
• Receipt from USO Fund
• List of Other incomes to be excluded from GR to arrive at ApGR
• Income from Dividend
• Income from Interest
• Capital Gains on account of profit of sale of fixed assets and securities
• Gain from Forex rate fluctuations
• Income from property rent
• Insurance claims
• Bad Debts recovered
• Excess provisions written back
• AGR will be ApGR minus the following:
• PSTN (Access) Charges paid to other operators
• Roaming Charges paid to other operators
• GST paid to Government.
Moratorium on AGR Dues and Conversion of Interest into Equity:
• One time opportunity to opt for deferment of AGR dues for 4 years.
• Interest as stipulated will be applied so that NPV of payable amount is protected.
• Balance revised amounts of instalments to be paid by March 31, 2031.
• One time opportunity to exercise the option for equity conversion of interest dues upfront.
• Pay the interest in cash along with deferred amount or by way of equity.
• Option for conversion of the interest amount into equity shall apply only to those instalments which are covered under moratorium.
• May opt for moratorium without opting for conversion of the interest into equity. In that case interest will be payable along with the AGR dues on the due dates as per the terms in the moratorium.
• Option for moratorium to be conveyed by October 29, 2021.
• Option for converting the interest amount to equity shall be exercised by January 11, 2022.
Rationalisation of Bank Guarantee:
• For UL – PBG reduced from _ 220 Crores to _ 44 Crores and FBG from _ 44 Crores _ 8.8 Crores. Subsequently, FBG shall be equivalent to 20% of the estimated sum payable of LF for two quarters.
• For UASL - PBG of the current licensee will be revised to 20% of the current total amount held by the licensor and FBG shall be equivalent to 20% of the estimated sum payable of LF for two quarters.
Customer acquisition through digital process:
• Storage of paper CAFs has been discontinued. No warehouse audit of paper CAFs.
• The existing paper CAFs to be colour scanned and digitally signed and stored.
• Scanned copies for disconnected/migrated customer to be kept for 3 years from the date of disconnection/migration.
• Paper CAFs can be destroyed after digitisation except those prohibited by LEAs.
• In case of non-legible existing CAFs, reverification of customer can be done.
Amendment to UL /UASL/ ULVNO License Agreement for change in time period of storage of Call Data Records (CDR)/ Exchange Detail Record (EDR)/ IP Detail Record (IPDR):
• The archival of CDR/EDR/IPDR records has been increased from one to two years for scrutiny of the Licensor for security reasons and may be destroyed thereafter unless directed otherwise by Licensor.
Amendment to UASL/UL/UL (VNO)/NLD License Agreement for change in FDI increasing it up to 100% under automatic route.
DoT vide letter dated October 11, 2021, has dispensed with paper CAF with digitally signed scanned copies. The process for digitisation of paper CAF along with associated documents have been also shared. DoT on October 11, 2021, amended Spectrum sharing guideline where they have removed the additional SUC charge of 0.5%.
In the FY 2021-2022, apart from directions in relation to specific service providers, TRAI provided directions and/or amendments, thereto covering:
• TRAI issued Direction to TSP for ensuring compliance with TRAI’s Regulations/Directions/Advisories/Orders in respect to tariff offering dated September 2, 2021 - Through this Direction, TRAI has mandated TSP to ensure that tariffs filed with TRAI are offered through channel partners/ distributors/retailers party etc. and the responsibility of ensuring compliance of TRAI issued Regulations/Directions shall remain with the TSP in all respect.
• The crux of the same is that the aforesaid ‘at least one plan with one month validity’ relates to TRAI Regulation, namely Telecom Tariff Order, wherein further amendments have been introduced on 27/01/2022 and 31/03/2022. However, the aforesaid Amendments of Telecom Tariff Order are not applicable on TTL, since these are for mobile prepaid tariffs.
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 Hon’ble 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 tari_ 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 risk 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 Company’s work systems including the planning & review process, thereby reassuring all stakeholders, customers, investors, employees and partners of the Company’s 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 Auditor’s 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 organisation:
• Enhance risk management
• Facilitate risk-based decision making
• Improve governance and accountability
• Enhance credibility with key stakeholders such as investors, employees, government, regulators, society etc.
• 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:
1. Competition Risks
Our competition continues to invest in product, network, and technology. The emerging areas of focus in the industry spans digital solutions, strengthening network footprint, newer technologies like 5G, Low Earth Orbit Satellite, AI and Blockchain technologies.
In our journey to being the country’s leading digital solutions provider, we continue to strengthen our product and solutions portfolio. This year we launched value-added connectivity products like Smart Internet Leased Line - Internet leased line bundled with cloud-based security and DIY interface; EZ Cloud Connect - Bundled connectivity across offices, data centres and cloud port and SD-WAN iFLX - Intelligent, secure, and flexible network management solution. We are in the process of building a comprehensive ecosystem to catalyse digital adoption by leveraging strategic partnerships.
The risk of intense competition and aggressive pricing continues in exceedingly commoditised market of plain vanilla voice and data products. We will continue to focus on evolving our products/solutions to be able to offer greater value proposition to our customers.
2. 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 however, 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. TTML approached TDSAT, which has directed TTML to file reply with DoT for show cause notice which TTML did on June 9, 2020. DoT is yet to take a decision on this and if aggrieved,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. DoT also filed a petition in NCLT Delhi praying for levy of penalty under Section 232(8) of Companies Act, 2013 on TTML on similar grounds which petition was dismissed in May 2022.
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 favourable 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 Company’s 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.
3. 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
The decline in the traditional voice market aggravated post pandemic as enterprises adopted a hybrid work culture. This is expected to continue in the coming year as well. In the era of mobility, flexibility, remote working and digitisation, ISDN services with their hardware-based nature continue to witness declining demand. Hybrid work culture is likely to continue in future and will in turn fuel IP based services along with collaboration & conferencing services in all industry verticals and segments. Alternatives gaining foothold:
i. In fixed line voice market, SIP trunking has continued to see strong adoption.
ii. UC solutions now have evolved from a mere on-premise dominated solutions or applications to a much advanced, feature rich, cloud-based apps. In industries like education, retail and healthcare, the frequency of usage of advanced UC solutions like the Integrated UC solutions has shot up.
We continue to increase the width of our offerings across SIP Trunking, cloud-based communication as well as UC to mitigate this risk.
Risk to traditional data services
Commodification of traditional data services in a highly competitive market has put pressure on margins. At the same time, hybrid work culture and relatively weak financial stability of SMEs has subdued market demand for bandwidth upgradation and MPLS links. Data services will grow in SME segment in future but at slow pace. We continue to focus on strengthening our value-added connectivity portfolio to mitigate this risk.
b. Network Technology Risk
Our Legacy hybrid network poses a risk. It is being mitigated by progressive transformation from Mobile to Enterprise, through Redesign, Site optimisation, Surrender of IRU routes, POI and others since 2019. Plan for the Network equipment units that are End of Life and Support (EOL & EOS) is already underway. GIS upgrade is also in progress and will be completed in FY23. IMS scoping is being done and will also be implemented in FY23. 5G spectrum auction is planned by Govt in FY23; certain use cases of 5G like FWA (Fixed Wireless Access), private networks being served through mmWave spectrum etc. might pose a risk to some parts of the existing revenues and future growth. The impact of 5G FWA as substitute is not well established and the few use cases seen are largely for broadband and for underserved areas. The Company is continuously focused on taking measures to mitigate these risks.
The Company also has an extensive optical fibre network acrossthecountryandinthekeymetrocities.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.
4. Financing Risks
The Company have been undertaking series of cost optimization initiatives and built a robust system of planning and monitoring of cash flow on daily, weekly and monthly basis. However, the Company continues to carry a substantial debt as of March 31, 2022, 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.
Debts requiring refinance in FY22 have been completed. The Company continuous engagement with all lenders on periodic basis and plan to continue refinancing the future repayments. The Company has opted for 4-year moratorium offered by Government related to AGR and total amount due including accumulated interest at the end of moratorium will be payable in 6 annual instalments starting Mar’26. However, the Company carry risks of its ability to 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.
5. 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 continue to be the key areas of focus.
6. Brand Risks
Brand is one of the most valuable intangible assets for any organisation and it is a key differentiator in the marketplace. Our brand Tata Tele Business Services (TTBS) has evolved over the years, in line with the ever-changing internal and external environment.
During the year, we undertook an exercise of refreshing our brand logo and our website with an objective of communicating our strategic shift to newer digital offerings to our customers, reflecting our renewed purpose and to reinvigorate the brand making it more vibrant. The refreshed brand identity personifies TTBS purpose of accelerating the adoption of digital technologies by businesses aspiring to Do Big.
Outlook for future
We continue invest in our brand and marketing assets and have lined up brand interventions in the coming period which will help create positive word-of-mouth, strengthen our brand recall and brand equity.
7. 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 TTML’s 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.
8. Cyber Security Risks
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.
We have taken steps 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 cyber security posture is being adopted.
OPPORTUNITIES AND THREATS
Pandemic and accompanying lockdowns in last two years have accelerated the move of enterprises to the digital ecosystem. They are realising the business value that can be generated through digital transformation and adoption of emerging technologies such as Cloud, Collaboration, Analytics etc. Enterprises 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 Work from
Anywhere (WFA), explosion of devices and rapidly increasing data usage, OTT and IT companies are experiencing increased requirement for high capacity, high speed networks for their backbone and datacentre connectivity. All of the above will be driving the demand for Enterprise Data, Cloud & SaaS Solutions.
Within segments we are likely to see an increase in SMB’s spending on ICT digital transformation solutions such as migration to cloud, usage of high-speed internet, unified digital collaboration and secure VPN services etc. 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 centre and enterprise data services. Apart from the above, Education, Retail (inc. eCommerce) are also emerging as high growth verticals.
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 & unified collaboration solutions and disruption from newer digital technologies. Telcos have also started offering unified, new age web-based work from home solutions like cloud telephony, virtual receptions etc., integrated with their traditional services. Launch of 5G could be a potential threat for Enterprise Data services segment.
• In international markets where 5G is deployed, there are 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 fibre are not yet prominent. Globally, the overall impact of 5G FWA on businesses has been limited till date but could evolve over next few years.
• 5G spectrum auction is planned by Govt in FY23. Post which operators will start the implementation. The Company estimates that the risk of 5G on enterprise data services could play out in the medium term. h In the Enterprise Data segment, due to commodification and intense competition the prices are continuously declining across all major enterprise data services. h Disruption in market by an existing operator entering SME segment with predative pricing and bundled offers may put pressure on margins and increase churn.
We have expanded our product portfolio beyond traditional telecom products to offer value added connectivity, Cloud
& SaaS products which will help increase stickiness of our customers. The Company is continuously looking at various product and technology options to mitigate the imminent threats and leverage the emerging opportunities.
Building Blocks for Cultural & Digital Transformation
Cultural Transformation Journey
• Purpose, Vision & Values creation and cascade completed.
• Key programs being driven include alignment to core values, recognition, learning and performance management.
HR Digital Transformation Journey
• R&R online program management implemented
• Multiple digitisation projects underway across integrating HR systems, leave & attendance, employee engagement and lifecycle management.
We continued our engagement and wellbeing interventions while employees were working remotely. The Company had a total of 367 employees on its rolls as on March 31, 2022.
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 Optimization 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 Engagement, Innovation, Strategy Deployment, Brand Augmentation, Design Thinking, etc. Additionally, there are focused knowledge sharing sessions conducted by Tata companies on various areas including Key Account Management, Customer Experience, Safety, Ethics, Human Resource 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. We have initiated Know Your Organization (KYO) Series where in the Functional Head will share the knowledge and best practices in that function for common understanding and improvement.
• Focused Continuous Improvement Projects across the organization on various areas of customer lifecycle management, service design & 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. The Company participated in the CII – Customer Obsession Award Assessment, The CII - Assessment is based on the requirements of the CII IQ Excellence Framework for Managing Customer Experience and Scoring guidelines. TTL received Active Customer Engagement Award 2020-21. TTML has analyzed the feedback from the assessment and prioritized actions for deployment.
KEY FINANCIAL INFORMATION & OPERATIONAL PERFORMANCE
Revenue from Telecommunications service
Telecommunication Service revenue for the year ended March 31, 2022 increased to _ 1,079 Crores as against _ 1,024 Crores in the previous year.
Other income during the year stood at _ 26 Crores (previous year _ 31 Crores) which included income from rendering of services to the tune of _ 15 Crores (previous year _ 20 Crores).
Operating expenses for the year were recorded at _ 626 Crores as against _ 555 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 utilizations. The Company’s EBITDA reported at 43% in current year compared to 47% in previous year.
The Company’s loss before exceptional items was _ 1,215 Crores as compared to last year level of _ 1,217 Crores. There are no exceptional items in the current year and the Company reported a net loss of _ 1,215 Crores during the year, as compared to last year level of _ 1,997 Crores.
The Shareholders’ Funds was _ 18,832 Crores (Negative) as on March 31, 2022, against _ 18,491 Crores (Negative) as on March 31, 2021.
Total borrowing for the Company (including long term borrowing, short term borrowing, current maturities of long-term borrowing, debt components of ICDs and deferred spectrum liability including interest) was _ 17,770 (excluding liability component of RPS) Crores as compared to _ 17,665 Crores in the previous year.
The Net Block (including tangible as well as intangible assets) as on March 31, 2022 decreased to _ 678 Crores as compared to _ 679 Crores in the previous year. The Company has assets under development and Capital Work in Progress of _ 28 Crores and Right of use Assets of _ 102 Crores.
Significant Changes in Key Financial Ratios
The key financial ratios are as under:
|Operating Profit Margin (%)||28%||31%|
|Net Profit Margin (%)1||(111%)||(191%)|
|Return on Net Worth (%)2||NA||NA|
|Debt Service Coverage Ratio|
|Interest Service Coverage Ratio|
|Debt Equity Ratio||(1.05)||(1.05)|
Operating Profit Margin: Earning from Operation divided by Revenue from Operations (Earning from operations = EBITDA net of Dep and Other Income) Net Profit Margin: PAT divided by Revenue from operations. Debt Service Coverage Ratio: EBITDA divided by total debt and interest payable in a year (debt includes principal repayment of loans and interest on term loans and interest on deferred payment liability and license fees) Interest Service Coverage Ratio: EBITDA Divided by Interest expense (interest expense includes interest on term loans and interest on deferred payment liability and license fees) Debt Equity Ratio: Total Debts divided by Total Equity. (Total debt includes current borrowings, non-current borrowings and interest accrued but not due) Current Ratio: Current Assets divided by current liabilities (Current Liabilities net of short-term borrowings) Note:
1. Provision for LF/SUC _ 780 Crores made during 2020-2021.
2. Due to negative Networth, this ratio is not computed.
3. Interest Expenses exclude notional interest and other finance charges.
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 customized solutions meeting current needs of enterprise customers and continuous enhancement of our product offering to cater to emerging needs of our customers.
4. Robust Channel Partner Ecosystem.
5. Uniform, high quality customer experience.
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.