0000932440-01-500204.txt : 20011009 0000932440-01-500204.hdr.sgml : 20011009 ACCESSION NUMBER: 0000932440-01-500204 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20011002 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIDESH SANCHAR NIGAM LTD CENTRAL INDEX KEY: 0001116134 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 20-F SEC ACT: 1934 Act SEC FILE NUMBER: 001-15118 FILM NUMBER: 1750156 BUSINESS ADDRESS: STREET 1: VIDESH SANCHAR BHAVAN STREET 2: MAHATMA GANDHI ROAD CITY: MUMBAI INDIA STATE: K7 ZIP: 00000 MAIL ADDRESS: STREET 1: VIDESH SANCHAR BHAVAN STREET 2: MAHATMA GANDHI ROAD CITY: MUMBAI INDIA STATE: K7 20-F 1 form20f_660137v12.txt 2001 ANNUAL REPORT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 2001 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 20-F (Mark One) [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ________ Commission File Number 000-30772 VIDESH SANCHAR NIGAM LIMITED (Exact name of Registrant as specified in its charter) Not Applicable (Translation of Registrant's name into English) The Republic of India (Jurisdiction of incorporation or organization) Videsh Sanchar Bhavan Mahatma Gandhi Road Mumbai 400 001 India +91-22 262 4020 (Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered American Depositary Shares* New York Stock Exchange Equity Shares, par value New York Stock Exchange Rs.10 per share Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the last fiscal year covered by this Annual Report. 83,133,086 Equity Shares. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No | | Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 |_| Item 18 |X| * American Depositary Shares evidenced by American Depositary Receipts. Each American Depositary Share represents two Equity Shares. Not for trading, but only in connection with the listing of American Depositary Shares pursuant to the requirements of the New York Stock Exchange. TABLE OF CONTENTS Certain Defined Terms..........................................................2 Currency of Presentation.......................................................2 Exchange Rates .............................................................2 Cautionary Statement with Respect to Forward-Looking Statements ...............2 Part I.........................................................................3 Item 1. Identity of Directors, Senior Management and Advisers........3 Item 2. Offer Statistics and Expected Timetable......................3 Item 3. Key Information..............................................3 Item 4. Information on the Company..................................17 Item 5. Operating and Financial Review and Prospects................46 Item 6. Directors, Senior Management and Employees..................60 Item 7. Major Shareholders and Related Party Transactions...........65 Item 8. Financial Information:Consolidated Financial Information....66 Item 9. The Offer and Listing.......................................67 Item 10. Additional Information......................................71 Item 11. Quantitative and Qualitative Disclosures About Market Risks.93 Item 12. Description of Securities Other Than Equity Securities......93 Part II.......................................................................93 Item 13. Defaults, Dividend Arrearages and Delinquencies.............93 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.......................................93 Item 15. Reserved....................................................93 Item 16. Reserved....................................................93 Part III......................................................................93 Item 17. Financial Statements........................................93 Item 18. Financial Statements........................................93 Item 19. Exhibits....................................................94 Signatures....................................................................95 CERTAIN DEFINED TERMS Unless the context otherwise requires, references herein to "we," "us," "our," the "Company" and "VSNL" are to Videsh Sanchar Nigam Limited, a limited liability company organized under the laws of the Republic of India. References to "Equity Shares" or "Shares" are to the equity shares, par value Rupees 10 per share of the Company. References to the American Depositary Shares or "ADSs" are to American Depositary Shares, each representing two Shares. The ADSs are evidenced by American Depositary Receipts ("ADRs"). References to the "Department of Telecommunications" or "DOT" are to the Department of Telecommunications/Telecom Commission/Department of Telecom Operations and to the Department of Telecom Services of the Government of India, collectively. The Government of India is sometimes referred to herein as the "Government." Effective October 1, 2000, the operations of the Department of Telecom Services and Department of Telecom Operations have been transferred to Bharat Sanchar Nigam Limited, sometimes referred to herein as "BSNL", a company wholly owned by the Government. CURRENCY OF PRESENTATION In this annual report, references to "$" or "Dollars" or "US Dollars" are to the legal currency of the United States and references to "Rs" or "Rupees" or "Indian Rupees" are to the legal currency of India. The Company's financial statements included in this annual report are presented in Indian Rupees and are prepared in accordance with United States generally accepted accounting principles ("US GAAP"). For the convenience of the reader, this annual report contains translations of certain Indian Rupee amounts into US Dollars, which should not be construed as a representation that such Indian Rupee or US Dollar amounts referred to herein could have been, or could be, converted to US Dollars or Indian Rupees, as the case may be, at any particular rate, the rates stated, or at all. References to "Indian GAAP" are to Indian generally accepted accounting principles. References to a particular "fiscal" year are to the Company's fiscal year ended March 31 of such year. References to years not specified as being fiscal years are to calendar years. EXCHANGE RATES The noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate") was Rs.46.85 per $1.00 on March 30, 2001 for the conversion of Rupees into US Dollars. Unless otherwise specified herein, financial information has been converted into US Dollars at such Noon Buying Rate. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding. For more information regarding rates of exchange between Indian Rupees and US Dollars, see "Item 3. Key Information--Selected Financial Data--Exchange Rates." CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING STATEMENTS IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTION ENTITLED "ITEM 3. KEY INFORMATION-RISK FACTORS," "ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS" AND ELSEWHERE IN THIS ANNUAL REPORT. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT MANAGEMENT'S ANALYSIS ONLY AS OF THE DATE OF THIS ANNUAL REPORT. IN ADDITION, READERS SHOULD CAREFULLY REVIEW THE OTHER INFORMATION IN THIS ANNUAL REPORT AND IN THE COMPANY'S PERIODIC REPORTS AND OTHER DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ("SEC") FROM TIME TO TIME. 2 PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. ITEM 3. KEY INFORMATION SELECTED FINANCIAL DATA The following information should be read in conjunction with and is qualified in its entirety by reference to the audited financial statements of the Company, including the Notes thereto, also included in this annual report. The information should also be read in conjunction with "Item 5. Operating and Financial Review and Prospects", included elsewhere in this annual report. The financial statements comprising the balance sheets of the Company as of March 31, 2000 and March 31, 2001 and the related statements of income, cash flows and shareholders' equity for the years ended March 31, 1999, 2000 and 2001 have been audited by Deloitte Haskins & Sells, independent accountants, in accordance with US GAAP. The data derived from these financial statements, along with the Notes thereto, and included in this annual report, are prepared in Indian Rupees and presented in accordance with US GAAP. Financial statements for the year ended March 31, 2001, along with the Notes thereto, also have been translated into US Dollars for your convenience. Balance sheets for the Company as of March 31, 1997, 1998 and 1999 and the related statements of income, cash flows and shareholders' equity for the years ended March 31, 1997 and 1998 were prepared under International Accounting Standards. It is not practicable, without unreasonable effort or expense, to convert the data for these years from International Accounting Standards to US GAAP. The Company has no subsidiaries. 3

Years ended March 31, -------------------------------------------------- 1999 2000 2001 2001 ---------------- ---------------- ---------------- ---------------- millions of millions of Rupees(1) US$(1) -------------------------------------------------- ---------------- Income Statement Data(6) Total operating revenue 67,938 70,377 73,076 1,560 Total cost of revenue 49,296 50,333 50,172 1,071 Gross Margin 18,642 20,044 22,904 489 Total other operating costs 2,894 4,156 4,752 102 ------ ------ ------ ----- Operating profit 15,748 15,888 18,152 387 Total other income (expense), net (746) 3,443 7,021 150 ------- ------ ------ --- Income before income tax 15,002 19,331 25,173 537 Income tax expense (6,298) (6,156) (9,646) (206) Dividend tax (38) (84) (105) (2) --------- -------- ------- ----- Net income 8,666 13,091 15,422 329 ===== ====== ====== ==== Earnings per equity share - basic and diluted (2)&(5) Rs.30.41 Rs.45.93 Rs.54.11 US$1.15 Weighted average number of Equity Shares outstanding(3) 285 285 285 285 Earnings per ADS- basic and diluted (where each ADS represents two equity shares) Rs.60.82 Rs.91.86 Rs.108.22 US$2.30 Dividends per share Rs.4 Rs.8 Rs.8 US$0.17 Other Financial Data(6) Net cash provided by operating activities 6,679 7,947 23,121 493 Net cash used by investing activities(4) (6,601) (3,898) (41,416) (884) Dividends (380) (760) (760) (16) Net cash used by financing activities (1,916) (740) (806) (17) Balance Sheet Data(6) As at March 31 2000 2001 2001 -------- -------- ------ Total assets 83,211 100,425 2,144 Trade payables 13,535 11,309 242 Accrued expenses and other liabilities 6,365 10,731 229 ------ ------ ---- Total liabilities 19,900 22,040 471 Total shareholders' equity 63,311 78,385 1,673

------------------- Note (1) Except per share data. (2) Calculated on a weighted average basis giving retroactive effect to stock dividends issued during November 2000. (3) In millions. (4) Comprise purchases of property, plant and equipment, capital work in progress and expenditure on investments, including net investments in various satellite consortia. (5) On September 26, 2000, the shareholders of the Company approved a stock dividend of Equity Shares in the ratio of two Equity Shares for every one Equity Share held, which was distributed on November 24, 2000 to shareholders of record as of November 16, 2000. The Company has capitalized the legally required face value of the Equity Shares issued. (6) The above data should be read along with the Notes included with the financial statements. DIVIDENDS Although the amount varies, it is customary for public companies in India to pay cash dividends. Under Indian law, a corporation pays dividends upon a recommendation by the Board of Directors and approval by a majority of the shareholders, who have the right to decrease but not increase the amount of the dividend recommended by the Board of Directors. In addition, the Board of Directors is empowered to approve interim dividends. Under the Indian Companies Act, dividends may be paid out of profits of a company in the year in which the dividend is declared or out of the undistributed profits of previous fiscal years. In 1996, the Ministry of Finance adopted non-binding guidelines regarding the payment of dividends by "public sector undertakings" ("PSUs"), including the 4 Company. According to such guidelines, profit-making PSUs which are commercial enterprises should generally declare a minimum dividend each fiscal year of 20 percent of the higher of paid-up share capital as of year-end and profit after tax for such year. These guidelines have not been complied with by a substantial number of PSUs, including the Company. The Ministry of Finance has requested that PSUs that have not complied with the guidelines for the fiscal year ended March 31, 1996 declare an interim dividend for the year ending March 31, 1997, and 1998, which would be adjusted against the final dividend payable for such year. The Company has requested the Department of Telecommunications to inform the Ministry of Finance that the Company prefers to retain its earnings instead of paying substantial dividends in accordance with such request or the guidelines, since the former serves to enhance shareholder value in the Company. Owners of ADRs are entitled to receive dividends payable in respect of the Equity Shares represented by their ADSs. The Equity Shares represented by ADSs rank pari passu with existing Equity Shares of the Company in respect of dividends. Cash dividends in respect of the Equity Shares represented by the ADSs will be paid to the Company's depositary for the ADSs ("The Bank of New York" or "Depositary") in Rupees and except as otherwise described in the Deposit Agreement will be converted by the Depositary into US Dollars and distributed, net of Depositary fees and expenses, to the holders of such ADRs. With respect to Shares issued by the Company during a particular fiscal year, dividends declared and paid for such fiscal year generally will be prorated from the date of issuance to the end of such fiscal year. Holders of ADRs will only receive dividends prorated from the date of issuance of the underlying Equity Shares to the end of the fiscal year for which such dividends are declared and paid. The following table sets forth the annual dividends paid per Share for each of the fiscal years indicated. DIVIDEND PER SHARE FOR THE FISCAL ACTUAL DIVIDEND BASED ON INCREASE YEAR ENDED MARCH 31, PAID PER SHARE(1) IN SHARE CAPITAL(3) -------------------- ----------------- ------------------- INDIAN RUPEES US$(2) INDIAN RUPEES US$(2) ------------- ------ ------------- ------ 2001 50.00 1.04 50.00 1.04 2000 8.00 0.17 2.67 0.06 1999 8.00 0.18 2.67 0.06 1998 4.50 0.09 1.33 0.03 1997 3.50 0.10 1.16 0.33 ---------------- (1) Dividends are payable pro rata from the date of allotment. Based on the recommendation of the Board of Directors at a Shareholders meeting held on September 27, 2001, the shareholders approved a dividend of Rs.50 per share for fiscal year 2001, payable October 2001 to shareholders registered as shareholders of the Company on September 16, 2001. (2) The conversion of the dividends paid per Share from Indian Rupees to US Dollars is based on the Noon Buying Rate at each respective dividend payment date. For fiscal year 2001, the figure in the chart is based on the Noon Buying Rate for September 27, 2001. However, the actual dividends paid per share will be based on the Noon Buying Rate on the date of payment of the dividends. (3) On September 26, 2000, the shareholders of the Company approved the distribution of bonus shares to shareholders. Consequently, each shareholder received two shares for every share held by such shareholder. Accordingly the dividend per share information presented here has been computed retroactively to reflect the distribution of bonus shares and the consequent increase in the share capital of the Company. Although the Company has no current intention to discontinue dividend payments, there can be no assurance that any future dividends will be declared or paid or that the amount thereof will not be decreased. EXCHANGE RATES Fluctuations in the exchange rate between the Indian Rupee and the US Dollar will affect the US Dollar equivalent of the Indian Rupee price of the Company's Equity Shares on the Indian stock exchanges and, as a result, will likely affect the market price of the Company's ADSs, listed on the New York Stock Exchange, and vice versa. Such fluctuations will also affect the US Dollar conversion by Depositary of any cash dividends paid in Indian Rupees on the Company's Equity Shares represented by the ADSs. 5 The following table sets forth, for the fiscal years indicated, information concerning the number of Indian Rupees for which one US Dollar could be exchanged based on the average of the Noon Buying Rate in the City of New York on the last business day of each month during the period for cable transfers in Indian Rupees as certified for customs purchases by the Federal Reserve Bank of New York. The column titled "Average" in the table below is the average of the daily Noon Buying Rate on the last business day of each month during the year. FISCAL YEAR ENDED MARCH 31, PERIOD END AVERAGE HIGH LOW --------------------------- ---------- ------- ---- --- 1996 (From January 1, 1996) Rs.34.35 Rs.33.47 Rs.36.46 Rs.31.41 1997 35.88 35.70 35.95 35.00 1998 39.53 37.36 39.55 35.72 1999 42.50 42.27 42.83 39.75 2000 43.65 43.46 43.65 42.84 2001 46.85 45.88 46.90 43.70 The following table sets forth the high and low exchange rates for the previous six months and are based on the average of the noon buying rate in the City of New York on the last business day of each month during the period for cable transfers in Indian Rupees as certified for customs purposes by the Federal Reserve Bank of New York. MONTH HIGH LOW ----- ---- --- March 2001 Rs.46.85 Rs.46.53 April 2001 47.07 46.58 May 2001 47.06 46.83 June 2001 47.40 47.00 July 2001 47.21 47.11 August 2001 47.19 47.11 CAPITALIZATION AND INDEBTEDNESS Not applicable. REASONS FOR THE OFFER AND USE OF PROCEEDS Not applicable. RISK FACTORS In addition to the other information contained in this annual report, prospective investors should carefully consider the risks described below. Additional risks not currently known to the Company or that the Company now deems immaterial may also impair the Company's business operations. This annual report also contains forward-looking information that involves risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks the Company faces as described below and elsewhere in this annual report. THE NEW TELECOMMUNICATIONS POLICY AND OTHER REGULATORY CHANGES WITH RESPECT TO THE TELECOMMUNICATIONS INDUSTRY COULD HAVE THE EFFECT OF EXPOSING US TO INCREASED COMPETITION, THUS ADVERSELY AFFECTING OUR REVENUES AND MARKET SHARE AND THE PRICE OF OUR EQUITY SHARES AND ADSS. The New Telecom Policy 1999 (the "Policy") came into effect on April 1, 1999. 6 The Policy sets forth a new policy framework for telecommunications regulations in India. One of the stated goals of the Policy is to foster greater competition in the telecommunications industry and it addresses a broad range of matters, including cellular mobile services, fixed line service, domestic long distance, global mobile personal communications, the Department of Telecommunications restructuring, spectrum management, the role of the Telecom Regulatory Authority of India (the "TRAI") and Internet telephony. The Policy states, among other things, that the opening up of international telephony service to competition will be reviewed by the year 2004. The Department of Telecommunications retains the right to modify the terms and conditions of the Company's license (including its monopoly status) at any time if in its opinion it is necessary or expedient to do so in the interest of the general public or for the proper operation of the telecommunications sector. However, in September 2000, the Government announced the early termination of the Company's monopoly in international telephony services. Thus, instead of ending on March 31, 2004, the Company's monopoly is now scheduled to end on March 31, 2002. To offset the likely loss to the Company due to the early termination of its monopoly, the Government has announced the following compensation package: (1) Grant of a license to offer domestic long distance services with the following terms: (a) Government would pay to the Company a sum equal to the amount paid by the Company as entry fee and license fee for a period of 5 years commencing from April, 2001, net of taxes, and (b) Performance Bank Guarantee of Rs.4 billion for the prescribed roll out will be waived; (2) the Company will be granted a Category `A' Internet Service Provider ("ISP") license which will enable it to provide Internet access at locations across the country; and (3) The Government may also consider additional compensation if found to be necessary based on a detailed review when undertaken. In an Extraordinary General Meeting requisitioned by the Government of India, the shareholders passed a resolution accepting the above compensation package. Prior to such meeting, the Company had represented to the Government that the compensation package should be arrived at through an objective process. The Company had appointed external consultants for this purpose and had submitted their reports to the Government for due consideration. The Company has been granted a Category "A" ISP license to provide Internet access at locations across the country. However, the Company has not yet applied for the license to provide domestic long distance telephone services and there can be no assurance that the license will be granted. No payments have yet been made by the Government to the Company towards the entry fee and license fee as the Company has not yet paid such amounts towards domestic long distance services. In addition, the Government recently announced that private operators were to be permitted to provide domestic long distance service and basic service on all telecom circles in the very near future. The use of Internet telephony and voice messaging could cause a reduction in revenues realized by the Company. While Internet service providers are currently prohibited from providing Internet telephony, this prohibition may be removed in the near future especially in view of the fact that Internet service providers have recently been allowed to purchase capacity on long distance cable networks. Changes implemented as a result of these evolving regulations and policies, as well as increased competition from foreign operators that enter the Indian market, could have the effect of exposing the Company to increased competition and thus adversely affecting the Company's revenues and market share and the price of the Shares and ADSs. THE COMPANY'S BUSINESS MAY BE ADVERSELY AFFECTED BY ANY SLOWDOWN IN ECONOMIC GROWTH IN INDIA OR THE UNITED STATES. Since mid-1997, the economies of a number of Asian countries have experienced significant downturns. Most Asian economies currently are facing 7 contractions in real economic activity. For example, several countries recorded lower or negative Gross Domestic Product growth during the first six months of 2001. According to the Reserve Bank of India's annual report for 2000-01, India experienced an estimated real Gross Domestic Product growth of 5.2 percent during the year ended March 31, 2001, compared with 6.4 percent growth during the year ended March 31, 2000. The general slowdown in regional economies and in India has resulted in slower growth in the Company's traffic. Similarly, since approximately 39 percent of the Company's traffic is between India and the United States, any economic slowdown in economic activity in the United States, particularly in the information technology-related sector, could adversely affect the Company's business. A SUBSTANTIAL PORTION OF THE COMPANY'S ASSETS AND OPERATIONS ARE LOCATED IN INDIA AND THE OUTSTANDING SHARES ARE LISTED ON THE INDIAN STOCK EXCHANGES. ACCORDINGLY, THE COMPANY'S PERFORMANCE AND THE MARKET PRICE AND LIQUIDITY OF THE SHARES AND OF THE ADSS MAY BE AFFECTED BY CHANGES IN EXCHANGE RATES AND CONTROLS, INTEREST RATES, GOVERNMENT POLICY AND TAXATION AND OTHER POLITICAL, ECONOMIC OR SOCIAL DEVELOPMENTS IN OR AFFECTING INDIA. Since achieving independence in 1947, India has had a mixed economy with a large public sector and extensive regulation of the private sector. Indian central and state governments have in the past, among other things, imposed controls on prices of a broad range of goods and services, restricted the ability of private sector enterprises to expand capacity, increase production, reduce employment or enter new businesses and imposed controls on the allocation of raw materials and foreign exchange. During the past decade and especially since 1991, the Government has significantly relaxed restrictions on the private sector and introduced policies to liberalize the economy. Nevertheless, the role of the Indian central and state governments in the Indian economy as producers, consumers and regulators remains significant in ways which affect all Indian companies, including companies controlled by the Government, such as the Company. India held elections for a new Government in October 1999 and the Government changed for the fifth time since 1996. No party won a majority of the seats in the Lok Sabha (the lower house of Parliament) in the elections. The present Government is made up of a multiparty coalition led by the Bharatiya Janata Party ("BJP") with Mr. A. B. Vajpayee as Prime Minister. There can be no assurance that the BJP-led government, which is presently supported by political parties from outside the Government, will continue to receive such support. The budget and the policies for the fiscal year ending March 31, 2002 presented by the Government propose the continuation of policies designed to promote economic deregulation and liberalization. In May 1998 India tested five nuclear devices at Pokhran in the State of Rajasthan. In response to the nuclear tests, certain countries, including the United States, announced economic sanctions against India. The United States economic sanctions, among other things, prohibited US banks from extending any loan or providing any credit to the Government, other than for the purchase of food or humanitarian aid, and further prohibited the export from the United States to India (directly or indirectly) of specified goods and technology which are subject to the export licensing requirements of the US Commerce Department. These sanctions have now been lifted. No assurance can be given, however, that these sanctions would not be reactivated or that additional economic sanctions of this nature will not be imposed by the United States or any other country, or that such sanctions if reimposed, would not have a material adverse effect on the Company's business or the price of the Shares and the ADSs. Although the Company is not listed as a company to which the sanctions would apply, export prohibitions and controls may have an adverse effect on the ability of the Company to import (directly or indirectly) certain types of computer equipment and software from the United States. IF REGIONAL HOSTILITIES INCREASE, OUR BUSINESS COULD SUFFER AND THE PRICE OF THE EQUITY SHARES AND THE ADSS COULD GO DOWN. India has from time to time experienced unrest relating to religious and political differences within India's population. In addition, India has in the past been involved in hostilities with neighboring countries. There have been armed conflicts over parts of Kashmir involving the Indian army and infiltrators from Pakistan into Indian territory. India and Pakistan have been in a heightened state of hostilities with significant loss of life in troop conflicts. The hostilities have since substantially abated. The hostilities between India and Pakistan are particularly threatening because both India and Pakistan are nuclear powers. Although the hostilities did not have an adverse impact on the business of the Company, future events of this nature could affect the Indian economy and government policy and could have an adverse effect on the Company's operations. 8 FURTHER DEVELOPMENTS STEMMING FROM THE RECENT TERRORIST ATTACKS IN THE UNITED STATES COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS AND THE TRADING PRICE OF THE ADSS. The United States government has indicated that any military response to the recent terrorist attacks is likely to include military action in Afghanistan. Due in part to India's proximity to Afghanistan, the Company's business and the trading price of the ADSs could be adversely affected by military and other related activity in the region. WE DO NOT CONTROL EITHER THE DOMESTIC TELEPHONE NETWORK ON WHICH ALL CALLS CARRIED BY US EITHER ORIGINATE OR TERMINATE NOR DO WE CONTROL THE RATES CHARGED TO END USERS OF SUCH SERVICES. CONSEQUENTLY, WE CANNOT ENSURE THE QUALITY OF OR RATES FOR, THE DOMESTIC TELEPHONE NETWORK USED BY OUR CUSTOMERS. The Company's principal business is providing international telephone services to and from India. All calls carried by the Company either originate or terminate on India's domestic telephone network, which the Company does not own or control. Growth in demand for the Company's international services will depend, to a significant degree, on the development and maintenance of India's domestic telephone network. Demand for the Company's basic services also will depend on the rates charged to end users of such services, which rates are not controlled by the Company. See "Item 4. Information on the Company - Industry Overview" and "Government Regulation." THE NEW TARIFF REGIME COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION. The TRAI has authority, among other things, to set the tariffs charged by telecommunications service providers in India, including the Company. Effective May 1999, the TRAI implemented the Telecommunications Tariff Order 1999 (the "Tariff Order"), which is intended to take account of a shift to a more competitive environment through cost-based, transparent tariffs. The Tariff Order envisages reductions of up to 50 percent in peak international call tariffs, phased over three years ending March 31, 2002. In response to these changes, the Department of Telecommunications has issued its tariff orders effective from May 1999 pursuant to which international long distance tariffs have been reduced by approximately 27 percent and further tariff orders effective from October 1, 2000. The Tariff Order implements similar reductions for domestic long distance charges. In addition, the Tariff Order sets maximum tariffs for other services provided by the Company, including Internet services and leased lines. The Company's current revenue sharing arrangement with Bharat Sanchar Nigam Limited will remain in force until March 31, 2002. The arrangement beyond that date will have to be negotiated and finalized. As per the Policy (NTP-99), the revised tariff to become effective from April 2002 for international telephony is yet to be notified by TRAI. Effective April 2002, the international long distance sector is scheduled to be opened up for competition. However, TRAI has floated a consultation paper titled "International Long Distance Services" on September 3, 2001. Therefore, the Company anticipates that the policy will be announced only after the consultation process is completed. There can be no assurance that the new tariff regime or an unfavorable revision of the current revenue sharing arrangement would not have a material adverse effect on the Company's results of operations and financial condition. ANY UNFAVORABLE REVISIONS OF THE TERMS OF OUR REVENUE SHARING ARRANGEMENT WITH BHARAT SANCHAR NIGAM LIMITED COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION AND THEREFORE THE PRICE OF OUR SHARES AND ADSS COULD GO DOWN. Pursuant to the terms of a revenue sharing arrangement, the Company and Bharat Sanchar Nigam Limited share revenue received by the Company from foreign telecommunications administrations and carriers on incoming international calls terminating on India's domestic network and revenue received by Bharat Sanchar Nigam Limited from Indian domestic subscribers on outgoing international calls initiated on such network. Payments received by the Company from Bharat Sanchar Nigam Limited under such revenue sharing arrangement have historically accounted for a substantial portion of the Company's revenue. The current revenue sharing arrangement between the Company and Bharat Sanchar Nigam Limited covers the period from April 1, 1997 to March 31, 2002. The current arrangement resulted in average gross profit to the Company of Rs.9.39 per call minute in the fiscal year ended March 31, 2001. In the fiscal years ending March 31, 2000, 2001 and 2002, however, the Company has been and will continue to be required 9 under the current arrangement to absorb an increasing portion of any decline in the combined international traffic revenue per call minute of the Company and Bharat Sanchar Nigam Limited (net payments by the Company to foreign administrations and carriers and by the Company and Bharat Sanchar Nigam Limited to each other in respect of delivery of incoming and outgoing calls) compared to the fiscal year ending March 31, 1997. See "Item 4. Information on the Company - Traffic Revenue and Revenue Sharing Arrangement--Revenue Sharing Arrangement." The arrangement beyond that date will have to be negotiated and finalized. Effective April 2002, the international long distance sector is scheduled to be opened up for competition. There can be no assurance that an unfavorable revision of the terms of the revenue sharing arrangement or any subsequent arrangement agreed between the Company and Bharat Sanchar Nigam Limited upon expiration of the current arrangement will not be less favorable to the Company than the current arrangement and will not adversely affect the Company's results of operations and financial condition. WE ARE SUBJECT TO EXTENSIVE REGULATION AND SUPERVISION BY THE GOVERNMENT AND THIS COULD PREVENT US FROM OPERATING OUR BUSINESS OR ENTERING INTO TRANSACTIONS THAT ARE IN THE BEST INTERESTS OF OUR SHAREHOLDERS. The Company and its business are subject to extensive regulation and supervision by the Government of India and its departments, including the Department of Telecommunications and the TRAI. Major policy and management decisions by the Company require the approval of the Department of Telecommunications or the Telecom Commission under the Ministry of Communications of the Government of India. As noted above, the TRAI sets the tariffs for telecommunication services. In addition, so long as the Government's shareholding in the Company equals or exceeds 51 percent, the Company is deemed to be an Indian Government company and is subject to laws and regulations generally applicable to public sector enterprises in India. These laws and regulations concern personnel matters including appointment of key management personnel and the hiring, dismissal and compensation of employees, as well as budgeting and capital expenditures and the generation of funds through the issuance of securities. See "Item 4. Information on the Company - Government Regulations." Under current Government policy, disputes between Government enterprises (such as the Company) and Government departments must be referred to a Committee of Secretaries of the Government before any legal action may be commenced. The policy would apply, for example, to disputes between the Company and the Department of Telecommunications with respect to interpretation of the Company's license and its revenue sharing arrangement with Bharat Sanchar Nigam Limited. Although the Company may bring a claim in a court of law or to the Telecom Disputes Settlement and Appellate Tribunal (the "TDSAT"), which has been set up to adjudicate disputes, disposal of appeals and to protect the interest of telecommunication service providers and consumers. If the referral to such committee does not result in a resolution of the dispute, it is likely that any decision by the Company to bring such claim would require approval of its Board of Directors, which, as discussed below, is controlled by the Government of India acting through the Department of Telecommunications. The Company's Internet license provides that disputes relating to the terms of the Company's Internet license are required to be submitted for compulsory and binding arbitration before the Government's Director General of Telecommunications. The TRAI has primary responsibility for, among other things, facilitating competition and promoting efficiency, protecting the interests of consumers, regulating revenue sharing among service providers and ensuring compliance with license conditions and to set the rates at which domestic and international telecommunication services are provided in India. The TRAI also has the power to (1) call upon service providers to furnish information relating to their operations, (2) appoint persons to make official inquiries, (3) inspect the books of service providers and (4) issue directives to service providers to ensure their proper functioning. Failure to follow the TRAI directives may lead to the imposition of fines. Differences between government departments and/or public sector entities such as the Department of Telecommunications, Bharat Sanchar Nigam Limited, Mahanagar Telephone Nigam Limited and the Company, however, will continue to be referred initially to a Committee of Secretaries of the Government for mediation as discussed above, prior to referral to the Telecom Disputes Settlement and Appellate Tribunal . See "Item 4. Information on the Company - Government Regulations." REGULATORY CLARIFICATIONS AWAITED FROM THE DOT / TRAI MAY DELAY COMPLETION OF THE DISINVESTMENT PROCESS. The Government proposes to sell from its holding, shares equivalent to 25 percent of the outstanding equity of the Company to a strategic partner along with the right to management. The Government proposes to simultaneously disinvest 1.97 percent to the employees of the Company. On completion of the proposed disinvestment, certain procedures and regulations that are currently applicable to a Government company will no longer be applicable. Any delays by 10 DOT or TRAI in clarifying any aspect of the regulatory regime applicable to the Company could adversely affect the timing for completion of the proposed disinvestment by the Government. THE GOVERNMENT CONTROLS OUR LICENSE TO PROVIDE TELEPHONY SERVICES AND ANY MATERIAL MODIFICATIONS OF THE TERMS AND CONDITIONS OF THE LICENSE COULD DISRUPT OUR BUSINESS AND HAVE A MATERIAL ADVERSE EFFECT ON OUR PROSPECTS. The Company operates substantially all of the services it provides, including basic international telephony services to and from India, pursuant to the License from the DOT that has been extended until March 31, 2004. The DOT retains the right, however, to modify the terms and conditions of the Company's License at any time if in its opinion it is necessary or expedient to do so in the interest of the general public or for the proper operation of the telecommunication sector. A change in certain significant terms of the License, such as its duration, the range of services permitted or the scope of exclusivity, could have a material adverse effect on the Company's business and prospects. See "Item 4. Information on the Company - Government Regulations." THE GOVERNMENT CONTROLS THE COMPANY AND MAY HAVE INTERESTS THAT CONFLICT WITH THOSE OF THE COMPANY'S OTHER SHAREHOLDERS OR HOLDERS OF THE COMPANY'S ADSS, INCLUDING IN AREAS IN WHICH THE COMPANY MAY COMPETE WITH OTHER GOVERNMENT COMPANIES. As of the date hereof, approximately 52.97 percent of the outstanding Shares of the Company are held by the Government of India. Consequently, the Government, acting through DOT, controls the Company and has the power to approve the appointment of its directors and to determine the outcome of most actions requiring the approval of the Board of Directors or shareholders of the Company's business (including in areas in which the Company may compete with Bharat Sanchar Nigam Limited), transactions with Bharat Sanchar Nigam Limited or the assertion of claims against Bharat Sanchar Nigam Limited. In addition, under the Company's Articles of Association, the President of India, on behalf of the Government of India, may issue directives with respect to the conduct of the business and affairs of the Company, and certain matters with respect to the Company's business, including the appointment and remuneration of the Company's Chairman and Managing Director and the declaration of dividends, are reserved for the decision of the President of India. The Company may not take action in respect of any matter reserved for the President of India without his approval. See "Item 10. Additional Information." SIGNIFICANT GOVERNMENT DISINVESTMENT COULD RESULT IN A CHANGE IN THE WAY IN WHICH WE DO BUSINESS AND THE PRICE OF THE EQUITY SHARES AND THE ADSS COULD GO DOWN. The Government currently holds approximately 52.97 percent of the outstanding Shares of the Company and the Government, therefore, has the power to control the Company. However, the Government proposes to sell from its holding, shares equivalent to 25 percent of the outstanding equity of the Company to a strategic partner along with the right to management. The Government proposes to simultaneously divest 1.97 percent of the outstanding equity of the Company to its employees. It has been widely reported in the Indian press that the Government has decided to complete the disinvestment process by the end of fiscal year 2002. In the event that the Government divests, the way in which the Company does business could change and the price of the Shares and the ADSs could go down. There can be no assurance that the Company will not issue, or that the Government will not dispose of, additional Shares or related securities. IF THE DISINVESTMENT PROCESS IS COMPLETED, THE COMPANY MAY BE REQUIRED TO PAY ROYALTIES AND OTHER FEES WHICH AROSE IN PRIOR PERIODS. To date, the Company has not had to pay the Government certain royalties and other fees which arose in prior periods. There can be no assurance that the Company will not be required to make such payments in the future, particularly if the Company is no longer majority-controlled by the Government. 11 IF THE DISINVESTMENT PROCESS IS COMPLETED, THE COMPANY MAY BE ADVERSELY AFFECTED BY PROBLEMS ASSOCIATED WITH A CHANGE IN MANAGEMENT CONTROL OF THE COMPANY. The Government has stated that the disinvestment process is to include a change in control of management of the Company from the Government to the winning bidder. As is the case with other privatizations, the challenges of transferring control to the private sector may be magnified by different corporate cultures, different reporting systems and processes and different operating processes. In addition, the Company could be adversely affected by labor issues and compliance issues arising from the privatization process and the obligations assumed by the winning bidder. THE INDIAN TAX AUTHORITIES CLAIM THAT WE OWE CERTAIN TAX PAYMENTS. WE HAVE NOT MADE PROVISION IN OUR FINANCIAL STATEMENTS FOR SUCH CLAIMS AND IN THE EVENT THAT THE TAX AUTHORITIES PREVAIL ON THEIR CLAIMS THERE COULD BE A SIGNIFICANT NEGATIVE IMPACT ON OUR OPERATIONS. The Indian tax authorities have taken the position that the Company is not entitled to a tax deduction it took in the year ended March 31, 1995 for license fees paid by it to the DOT. The Indian tax authorities claim that the Company owes approximately Rs.2.8 billion, Rs.2.4 billion, Rs.2.5 billion, Rs.3.0 billion and Rs.2.6 billion in respect of taxes due (including interest, but excluding penalties) in connection with the license fees for the years ended March 31, 1994, 1995, 1996, 1997 and 1998, respectively. Tax refunds otherwise due to the Company for subsequent years, amounting to approximately Rs.6.46 billion, have been applied by the Indian income tax authorities to a portion of this disputed claim. In addition, the Company has paid the tax authorities Rs.3.6 billion with respect to this claim. However, the outstanding amount continues to accrue interest at a rate of two percent per month. The Company disputed this claim and lodged an appeal with the Commissioner of Income-tax (Appeals) - I, Mumbai for each of the relevant years. The Company subsequently appealed to the Income-tax Appellate Tribunal, Mumbai as the Commissioner of Income-tax (Appeals) - I. Mumbai denied the Company's claim with respect to the year ended March 31, 1995. The appeals with respect to the other years are still pending with the Commissioner of Income-tax (Appeals) - I, Mumbai. On September 14, 2000, the Income-tax Appellate Tribunal, Mumbai issued an order in the Company's favor and held that the license fee paid by the Company to the DOT is an allowable tax deductible expenditure under the Income Tax Act. Consequent to this order, the refund due to the Company was adjusted against the demand due for the subsequent years. In addition, the Company can request the Commissioner of Income-tax (Appeals) - I, Mumbai to expedite the orders for the other years. The Income Tax Department has the right to appeal the order of the Income Tax Appellate Tribunal in the High Court within a period of 120 days from the date of the order. The Company has so far not received any communications from the department/High Court on whether the department has disputed this claim of the Company in the High Court. If the Company loses that case, the tax authorities may make the Company liable for similar claims for subsequent years and this could result in an aggregate potential liability of approximately Rs.12.4 billion (US$264.8 million) including interest, but excluding penalties, thereon as of March 31, 2001 and additional amounts for the periods thereafter. The Company has been advised by independent Indian counsel that it believes that the Company has a strong case with respect to this claim. The Indian tax authorities have also taken the position that the Company is not entitled to a tax benefit claimed by it in the years ended March 31, 1996, 1997 and 1998 with respect to certain of its profits which the Company claims were generated by an enterprise engaged in infrastructure development. The Indian tax authorities claim that the Company owes approximately Rs.0.1 billion, Rs.0.3 billion and Rs.0.5 billion in respect of taxes due (including interest) in connection with such profits for the years ended March 31, 1996, 1997 and 1998, respectively. The Company disputes this claim and has lodged an appeal with the Commissioner of Income-tax (Appeals) - I, Mumbai. The outstanding amount of the claim continues to accrue interest at a rate of two percent per month. If the Company loses its case, the tax authorities may make similar claims for subsequent years, resulting in an aggregate potential liability of approximately Rs.5.7 billion (US$121.66 million) including interest, but excluding penalties thereon as of March 31, 2001 and additional amounts for periods thereafter. The Company believes that it has a reasonable basis for its claim and that its appeal will succeed. Furthermore, the Indian tax authorities have taken the position that the Company has not offered for tax certain reimbursements it received from the Government during the year ended March 31, 1994. The Indian tax authorities claim that the Company owes approximately Rs.1.1 billion in respect of taxes due in connection with such reimbursements for the year ended March 31, 1994. The 12 Company disputes this claim and has lodged an appeal with the Commissioner of Income Tax (Appeals) - I, Mumbai. The outstanding amount of the claim continues to accrue interest at the rate of two percent per month. If the Company loses its case, the Company's aggregate potential liability would be approximately Rs.2.7 billion (US$57.63million) including interest, but excluding penalties, thereon as of March 31, 2001. The Company believes that it has a reasonable basis for its claim and that its appeal will succeed. Consequently, the Company has not made provision for the potential liability arising from these claims. WE INTEND TO MAKE SUBSTANTIAL CAPITAL INVESTMENTS IN NEW TELECOMMUNICATIONS PROJECTS WHICH MAY BE SUBJECT TO EXECUTION RISK AND, IF NOT OFFSET BY ADDITIONAL REVENUE, WILL ADVERSELY AFFECT OUR OPERATING RESULTS. The Company intends to make substantial additional investments in new telecommunications projects, which require significant capital expenditures. See "Item 5. Operating and Financial Review and Prospects." Such projects entail engineering, construction and other normal commercial risks, and there can be no assurance that the projects currently contemplated by the Company will not encounter cost overruns or project delays, will be completed or will operate as planned. Furthermore, there can be no assurance that future financing for additional facilities, whether within India or elsewhere, would be available on attractive terms or at all. In addition, the Company's procedures for preparing budgets and appraising and monitoring capital expenditure projects are less precise than those used by comparable private sector companies. See "Item 5. Operating and Financial Review and Prospects - Financial and Management Accounting and Reporting Systems." Although approval in principle for certain of these projects has been received from the Department of Telecommunications, certain technical studies remain to be completed and actual terms have not yet been finalized. Most of the specific projects contemplated by the Company remain subject to further review and approval by the Board of Directors of the Company. In addition, some of such projects may not be possible without further approval by the Department of Telecommunications and other agencies of the Government and further liberalization of or other changes to the regulatory regime. There can be no assurance that such approvals will be issued or such regulatory changes will be made or that such projects will be implemented as currently planned. Furthermore, there can be no assurance that currently contemplated capital expenditures will be incurred as described herein or that if the projects are completed the capital investments made in such projects will be offset by additional revenue. DELAYS IN REACHING FINAL AGREEMENT WITH OTHER MAJOR CARRIERS REGARDING RATES COULD CAUSE A SIGNIFICANT INCREASE IN OUR WORKING CAPITAL WHICH IN TURN COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. A substantial portion of the Company's revenue consists of amounts received from foreign telecommunications administrations and carriers for connection to the Indian telecommunications network. As with most developing countries, the volume of incoming calls to India exceeds the volume of outgoing calls from India by a significant margin, which continues to increase, resulting in larger net settlement payments being made to the Company from foreign administrations and carriers. The amounts of the settlement payments required to be made are determined by the accounting rates under the Company's agreements with the foreign administrations and carriers, which are subject to periodic renegotiation. In recent years, international organizations such as the International Telecommunications Union and the OECD have expressed the need for revision of the international accounting rate system, and certain foreign telecommunications administrations and carriers have sought to reduce applicable accounting rates in bilateral negotiations with the Company. In August 1997, the United States Federal Communications Commission (the "FCC") issued an order (the "Order") establishing FCC Benchmarks that US carriers must comply with in establishing settlement rates for international calls with non-US telecommunications administrations and carriers. The Order requires, effective as of January 1, 1998, the accounting rate between US carriers and the Company to be reduced substantially over a four year transition period. See "Item 4. Information on the Company--Traffic Revenue and Revenue Sharing Arrangement--Payments to and from Foreign Administrations or Carriers." Any such reduction in the accounting rates in effect between the Company and US or other foreign administrations or carriers may reduce the amount of net settlement payments received by the Company. The Company believes that, under the current revenue sharing arrangement agreed between the Company and the DOT, any such reductions in net settlement payments received by the Company will result in substantially corresponding reductions in net payments made by the Company to Bharat Sanchar 13 Nigam Limited, although the Company has been required indirectly to absorb an increasing portion of such reductions after the fiscal year ending March 31, 1999. See "Item 4. Information on the Company--Traffic Revenue and Revenue Sharing Arrangement--Revenue Sharing Arrangement." The authority of the FCC to issue the Order and the Order itself have been upheld by a United States federal court of appeals. In upholding the Order, the United States federal court of appeals held that the Order was a valid exercise of the FCC's regulatory authority under the United States Communications Act and rejected the argument that the FCC's unilateral establishment of benchmark settlement rates constituted an unlawful assertion of extraterritorial jurisdiction over foreign carriers and foreign telecommunication services. However, the United States federal court of appeals also stated that the Order does not apply to foreign carriers, and only permits the FCC to contact responsible foreign government authorities to seek their support in lowering settlement rates. There can be no assurance that the FCC, acting pursuant to the Order, will not seek to force US carriers to agree to the benchmark rates, which are lower than the rates in effect between the Company and its correspondent US carriers. Substantial delays in reaching final agreement with US carriers or other major carriers regarding rates could cause a significant decrease in the Company's working capital (net of cash) which in turn could have a material adverse effect on the Company's financial condition and results of operations. There can be no assurance that such delays will not occur in the future. See "Item 5. Operating and Financial Review and Prospects." THE USE OF ILLEGAL CALL BACK SERVICES HAS THE EFFECT OF LOWERING OUR REVENUE. The relative levels of incoming call volume from different countries is affected by the practice of "refile" and by "call-back" services. Refile involves the re-routing of calls to India through a third country by carriers in the country of origination of such calls. Refile seeks to take advantage of a lower accounting rate applicable to calls between India and the third country compared to the rate between India and the country of origination. Due to such lower applicable accounting rate, refile has the effect of lowering the revenue of the Company with respect to an incoming call. Call-back services involve access to an international dial tone in a foreign country, usually in the United States, from which a caller in India can originate calls. These calls are billed in foreign exchange in the foreign country and are therefore treated as incoming calls. Call-back services were officially declared illegal by the Ministry of Communications in July 1995. Nevertheless, the volume of international calls made from India through call-back services has continued to grow and has contributed to the increase in recent years in the Company's ratio of incoming to outgoing calls. It is believed that refile and call-back have contributed in particular to the significant increase in recent years in incoming traffic from the United States. WEAKNESSES IN OUR FINANCIAL AND MANAGEMENT ACCOUNTING AND REPORTING SYSTEMS AND PROCEDURES COULD LEAD TO DIFFICULTIES IN OUR GENERATING TIMELY AND ACCURATE INFORMATION WHICH IS NECESSARY TO MANAGE AND CONTROL OUR BUSINESS EFFICIENTLY. The Company was established in 1986 by a transfer of all of the assets and employees of the Overseas Communications Service, a department of the Ministry of Communications of the Government of India, to the Company. The Company, which remained wholly owned by the Government until 1992, continues to be subject to various laws and Government policies in respect of public sector enterprises and to follow procedures appropriate for a public sector entity. See "Item 4. Information on the Company--Government Regulations--General." Consequently, the financial and management accounting and reporting systems of the Company are not as developed as those of certain comparable companies outside India. The Company believes that, due to weaknesses in its financial and management accounting and reporting systems and procedures, it has experienced in the past and continues to experience difficulties in generating timely and accurate information to manage and control its business efficiently. There can be no assurance that the Company will be able to remedy the deficiencies in its current systems and procedures. See "Item 5. Operating and Financial Review and Prospects--Financial and Management Accounting and Reporting Systems." YOU WILL NOT BE ABLE TO VOTE ON YOUR ADSS. Investors in ADSs will have no voting rights unlike holders of the Equity Shares who will have voting rights. It is contemplated that the Depositary will exercise its right to vote on the Equity Shares represented by the ADSs as directed by the Company's Board of Directors. If you wish, you may withdraw the Equity Shares underlying the ADSs and seek to vote the Equity Shares you obtain from the withdrawal. However, for foreign investors, this withdrawal process may be subject to delays. 14 THERE IS A LIMITED MARKET FOR THE ADSS. Even though we have listed the ADSs on the New York Stock Exchange, we cannot be sure that any trading market for the ADSs will be sustained. YOU ARE UNABLE TO WITHDRAW AND REDEPOSIT SHARES IN THE DEPOSITARY FACILITY. Because of certain Indian legal restrictions, the supply of ADSs may be limited. The only way to add to the supply of ADSs will be through a primary issuance because the depositary will not be permitted to accept deposits of outstanding Equity Shares and issue ADSs representing such shares. Therefore, an investor in ADSs who surrenders an ADS and withdraws Equity Shares will not be permitted to redeposit his Equity Shares in the depositary facility. In addition, an investor who has purchased Equity Shares on the Indian market will not be able to deposit them in the ADS program. The inability of investors to withdraw from and re-enter the depositary facility increases the risk that the market price of the ADSs will be below that of the Shares. On September 24, 2001, the last reported sale price of the Company's ADSs was US$7.55 per ADS on the New York Stock Exchange. The Shares are listed on the BSE and the other Indian stock exchanges. As settlement on such stock exchanges may be subject to delays in certain circumstances, a holder of Shares received upon surrender of ADSs may not be able to settle trades on such stock exchanges in a timely manner. In addition, a holder seeking to sell in India any Shares received upon surrender of ADSs will be required to obtain approval from the Reserve Bank of India for each such transaction. There can be no assurance that any such approval will be obtainable in a timely manner or at all. Due to possible delays in settlement or in obtaining requisite approvals, holders of Shares represented by ADSs may be prevented from realizing gains with respect to such Shares during periods of price increases or from limiting losses with respect to such Shares during periods of price declines. CONDITIONS IN THE INDIAN SECURITIES MARKET MAY AFFECT THE PRICE OR LIQUIDITY OF THE SHARES AND THE ADSS. The Indian securities markets are smaller in terms of trading volume and more volatile than the securities markets in the United States and certain European and other countries. The Indian stock exchanges have in the past experienced substantial fluctuations in the prices of listed securities. There is a lower level of regulation and monitoring of the Indian securities markets and the activities of investors, brokers and other participants than in securities markets in the United States and certain European and other countries. The Indian stock exchanges have experienced problems, including temporary exchange closures, disputes between listed companies and exchanges, broker defaults, settlement delays, custody problems and strikes by brokers. Such problems or similar problems, if they were to recur or continue, could affect the market price and liquidity of the securities of Indian companies, including the Shares and ADSs, in both domestic and international markets. In addition, the governing bodies of the Indian stock exchanges have from time to time imposed restrictions on trading in certain securities, limitations on price movements and margin requirements. Similar problems could occur in the future and, if they did, they could affect the market price and liquidity of the Shares and the ADSs. THERE MAY BE LESS COMPANY INFORMATION AVAILABLE IN INDIAN SECURITIES MARKETS THAN SECURITIES MARKETS IN DEVELOPED COUNTRIES. There is a difference between the level of regulation and monitoring of the Indian securities markets and the activities of investors, brokers and other participants and that of markets in the United States and other developed economies. The Securities and Exchange Board of India ("SEBI") received statutory powers in 1992 to improve disclosure and other regulatory standards for the Indian securities markets. SEBI has prescribed certain regulations and guidelines in relation to disclosure requirements, insider trading and other matters relevant to the Indian securities market. There may, however, be less publicly available information about Indian companies than is regularly made available by public companies in the United States and certain European and other countries. 15 YOU AND THE COMPANY MAY BE SUBJECT TO POTENTIAL LOSSES ARISING OUT OF EXCHANGE RATE RISK ON THE INDIAN RUPEE AND RISKS ASSOCIATED WITH THE CONVERSION OF RUPEE PROCEEDS INTO FOREIGN CURRENCY. Fluctuations in the exchange rate between the Rupee and the Dollar will affect, among other things, the Dollar equivalents of the price of the Shares in Rupees as quoted on the Indian stock exchanges and, as a result, may affect the market price of the ADSs. Such fluctuations will also affect the Dollar equivalent of any cash dividends in Rupees received on the Shares represented by the ADSs and the Dollar equivalent of the proceeds in Rupees of a sale of Shares in India. Fluctuations in the exchange rate between the Rupee and other currencies also affect the Rupee amount of foreign currency settlement payments received by the Company from, and paid by the Company to, foreign telecommunications administrations and therefore the revenue and operating costs of the Company. The Company may as a result be exposed to the risk of fluctuations in the exchange rate between the Rupee and foreign currencies, which has effectively increased the cost in Rupee terms of foreign exchange payments required to be made by the Company, including payments to foreign telecommunications administrations and payments for imported equipment and technology. YOUR ABILITY TO SELL IN INDIA ANY EQUITY SHARES WITHDRAWN FROM THE DEPOSITARY FACILITY MAY BE SUBJECT TO DELAYS IF SPECIFIC GOVERNMENT APPROVAL IS REQUIRED. Holders who seek to sell in India any Equity Shares received upon surrender of any ADS, and to convert the Rupee proceeds of such sale into foreign currency and remit such foreign currency outside of India, will require the approval of the Reserve Bank of India for each such transaction. Although such approvals are generally forthcoming, there can be no assurance that any such approval can be obtained in a timely manner or at all. YOU MAY NOT BE ABLE TO ENFORCE A JUDGMENT OF A FOREIGN COURT AGAINST THE COMPANY. The Company is a limited liability company organized under the laws of India. All of the directors and officers of the Company and certain other persons named herein are residents of India, and all or a significant portion of the assets of all of the directors and officers and a substantial portion of the assets of the Company are located in India. As a result, it may be difficult for investors to effect service of process upon the Company or such directors or officers outside India or to enforce against them judgments obtained from courts outside India, including judgments predicated on the civil liability provisions of the United States federal securities laws. The statutory basis for recognition and enforcement of foreign judgments in India is provided in Section 13 of the Indian Code of Civil Procedure 1908 (the "Code"), which provides that a foreign judgment shall be conclusive as to any matter thereby directly adjudicated upon except (1) where the judgment has not been pronounced by a court of competent jurisdiction, (2) where the judgment has not been given on the merits of the case, (3) where the judgment appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognize the law of India in cases where such law is applicable, (4) where the proceedings in which the judgment was obtained were opposed to natural justice, (5) where the judgment has been obtained by fraud and (6) where the judgment sustains a claim founded on a breach of any law in force in India. Section 44A of the Code provides that where a foreign judgement has been rendered by a court in any country or territory outside India which the Government of India has by notification declared to be a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by the relevant court in India. The United Kingdom, but not the United States, has been declared by the Government of India to be a reciprocating territory for the purposes of Section 44A. Accordingly, a judgement of a court in the United States may be enforced only by a suit upon the judgment, not by proceedings in execution. The suit must be brought in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability claim in India. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action is brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if it viewed the amount of damages awarded as excessive or inconsistent with Indian practice. A party seeking to enforce a foreign judgment in India is required to obtain approval under the Foreign Exchange Regulation Act of 1973 (now the Foreign Exchange Management Act, 1999) from the Reserve Bank of India to execute such a judgment or to repatriate any amount recovered. The date of passing of the judgment would be the date for fixing the rate of exchange at which the foreign currency amount should be converted to Rupees. 16 ITEM 4. INFORMATION ON THE COMPANY. HISTORY AND DEVELOPMENT OF THE COMPANY The Company, Videsh Sanchar Nigam Limited, was incorporated as a limited liability company under the laws of the Republic of India pursuant to the provisions of the Companies Act on March 19, 1986 and was, at that time, wholly-owned by the Government. On April 1, 1986, the Company assumed control and management of all of the assets and employees of the Overseas Communications Service, a department of the Ministry of Communications of the Government. In 1992 and 1999, as part of its general policy of gradually reducing its holdings in public sector enterprises, the Government divested a portion of the equity of the Company to certain funds, banks and financial institutions controlled by the Government and the general public. In 1997 and 1999, the Government also sold some of its equity holdings through the issuance of global depositary receipts. Currently, approximately 47 percent of the Shares of the Company is held by various institutions and other private shareholders. The divested shares were initially traded on The Stock Exchange, Mumbai (formerly the Bombay Stock Exchange, the "BSE") in December 1992. In January 2001, the Government announced its intention to sell from its holding, shares equivalent to 25 percent of the outstanding equity of the Company to a strategic partner along with the right to management. The Government proposes to simultaneously divest 1.97 percent of the outstanding equity of the Company to its employees. It has been widely reported in the Indian press that the Government has decided to complete the disinvestment process by the end of fiscal year 2002. The Company's Internet website address is HTTP://WWW.VSNL.COM. The information on the Company's website is not incorporated into this document. The Company's registered office is located at Mahatma Gandhi Road, Mumbai 400 001 India (+91-22-262-4020). The Company's process agent for the Company's ADR facility is State Bank of India, New York office, 460 Park Avenue, New York, New York 10022. The Company has no subsidiaries as of the date hereof. BUSINESS OVERVIEW The Company is the exclusive provider of public international telecommunication services in India, directly and indirectly linking the domestic telecommunications network to approximately 237 territories worldwide. The Company provides international telephone, telex and telegraph services and as of March 31, 2001 operated eight international switching and transmission facilities ("gateways") in Mumbai, Kolkata, Delhi, Chennai, Ernakulam, Gandhinagar, Jalandhar and Kanpur which route international traffic to and from the domestic telecommunications network using a combination of satellite and undersea cable links. The Company is the only entity authorized by the Government to provide basic international telephony services to and from India. The Department of Telecommunications retains the right, however, to modify the terms and conditions of the Company's license (including its monopoly status) at any time if in its opinion it is necessary or expedient to do so in the interest of the general public or for the proper operation of the telecommunication sector. In September 2000, the Government announced the early termination of the Company's monopoly in international telephony services. Thus, instead of ending on March 31, 2004, the Company's monopoly is now scheduled to end on March 31, 2002. To offset the likely loss to the Company due to the early termination of monopoly, the Government has announced the following compensation package: (1) Grant of a license to offer domestic long distance services with the following terms: (a) Government would pay to the Company a sum equal to the amount paid by Company as entry fee and license fee for a period of 5 years commencing from April 2001, net of taxes, and 17 (b) Performance Bank Guarantee of Rs.4 billion for the prescribed roll out will be waived; (2) The Company will be granted a Category `A' ISP license which will enable it to provide Internet access at locations across the country; and (3) The Government may also consider additional compensation if found to be necessary based on a detailed review when undertaken. On May 2, 2001, in an Extraordinary General Meeting requisitioned by the Government, the shareholders passed a resolution accepting the above compensation package. Prior to such meeting, the Company had represented to the Government that the compensation package should be arrived at through an objective process. The Company had appointed external consultants for this purpose and had submitted their reports to the Government for due consideration. The Company has been granted a Category "A" ISP license to provide Internet access at locations across the country. However, the Company has not yet applied for the license to provide domestic long distance telephony services and there can be no assurance that the licenwe will be granted under this compensation package. No payments have yet been made by the Government to the Company towards the entry fee and license fee as the Company has not yet paid such amounts towards domestic long distance services. The Company derives the bulk of its revenue from payments from foreign telecommunications administrations and private carriers for the delivery of international calls to India and from payments from Bharat Sanchar Nigam Limited for the delivery of international calls abroad. The Company and Bharat Sanchar Nigam Limited share revenue received by the Company from foreign telecommunications administrations and carriers on incoming international calls terminating on India's domestic network and revenue received by Bharat Sanchar Nigam Limited from Indian domestic subscribers on outgoing international calls initiated on such network, pursuant to the terms of a revenue sharing arrangement between the Company and Bharat Sanchar Nigam Limited covering the period from April 1, 1997 to March 31, 2002. With the formation of Bharat Sanchar Nigam Limited, the revenue sharing arrangement continues. See "--Traffic Revenue and Revenue Sharing Arrangement." In January, 1999 the DOT stated that no change to the current revenue sharing arrangements is presently contemplated. The Company's services have grown rapidly in recent years reflecting both the overall economic growth of India and the increasing emphasis placed by the Government on improving the domestic telecommunications network. The total volume of telephone traffic transmitted over the Company's network has risen from 1,148 million paid minutes for the year ended March 31, 1996 to 2,688 million paid minutes for the year ended March 31, 2001, a compound annual growth rate of approximately 17 percent. The total number of effective telephone circuits operated by the Company increased from 12,873 at March 31, 1996 to 20,495 circuits at March 31, 2001. In addition, the Company has made significant enhancements to the efficiency of its transmission and switching capabilities, particularly through investment in digital equipment. The Company believes that there remains significant unsatisfied demand for telecommunication services in India. As reported in The Hindu Business Line, as of September 2001 the penetration of telephone lines in India was approximately 3.7 lines per 100 inhabitants. This penetration is significantly below that in the Organization for Economic Cooperation and Development "OECD" member countries and many other developing countries. The Company expects that continued expansion of the domestic network, movement towards cost-based tariffs and private sector participation in local fixed line and mobile telecommunications will significantly increase the level of telephone line penetration and quality of service in India in the future, resulting in growth in demand for its international telecommunication services. The Company also provides a number of specialized value-added services such as international leased lines, Inmarsat satellite mobile telecommunications, Internet dial-up access in 12 cities, Internet leased lines access throughout India, transmission of standard business information ("electronic data interchange"), provision of connection to business information and applications ("managed data network services"), video conferencing, the transmission of television signals (both video and audio), transmission of data over public data network for customers ("packet switched data transmission"), E-mail services and television uplinking. Demand for the Company's specialized and value-added services, particularly international leased lines and Internet access, has grown significantly in the past few years. The total leased lines (64 KBP equivalent) capacity has grown from 298 as of March 31, 1996, to 4,898 as of March 31, 2001. The Company's subscriber base for Internet access has increased from 4,151 as of March 31, 1996 (the fiscal year in which the service was first offered by the Company) to 630,970 as of March 31, 2001. The Company believes that this growth is consistent with increasing demand for data services worldwide and in India. The Company expects continued growth in its specialized and value-added services so as to build and maintain a base of direct retail customers. 18 Seasonality does not materially affect the Company's business. BUSINESS STRATEGY The Company's objectives are to remain the dominant provider of international telecommunication services in India, to diversify its products and services by entering into related areas and offering specialized, value-added and Internet related services, and to take advantage of new technologies to support and enhance its position as a leading telecommunications and Internet service provider in India. To meet these objectives, the Company plans to continue developing its international telecommunication services in a manner that o meets the demand of users for such services, o optimizes the utilization of its facilities and, as a result, the revenue derived from such facilities and o positions the Company for significant participation in an increasingly liberalized Indian telecommunications industry. The Company intends to implement this strategy as follows: IMPROVING THE CAPACITY AND QUALITY OF ITS INTERNATIONAL TELECOMMUNICATION SERVICES AND FACILITIES. In addition to increasing the number of international circuits to meet increasing demand, the Company seeks to improve the efficient use of its international telecommunication services and capacity by increasing its capacity to connect digital circuits to a switch and by improving transmission capacity through the use of advanced technologies. For example, the Company continues to invest in undersea fiber optic cables and satellite transmission capacity to enhance its ability to handle efficiently increased voice and data traffic. The Company has embarked on a program for enhancing its connectivity to corporate customers and software exporters. See "--Property, Plants and Equipment--Description of Property." The Company is also seeking to upgrade its switching facilities through the installation of technologically superior switches which enable more efficient transmission of voice and broadband data traffic. See "Item 5. Operating and Financial Review and Prospects--Investment Program--Ninth Five Year Plan Projects--Expansion of Transmission Capacity" and "--Expansion of Number of Switches." LEVERAGING EXISTING INFRASTRUCTURE TO PROVIDE SPECIALIZED AND VALUE-ADDED SERVICES. The Company has introduced several international specialized and value-added services in recent years and seeks to increase the portion of its revenues derived from such services. These services typically involve the transmission of data rather than only voice traffic. To meet increasing demand, the Company is expanding and upgrading its infrastructure so as to be in a position to provide bandwidth for such services. The Company currently provides Internet dial-up access in 12 cities and Internet leased line access throughout India. The Company also provides other services including Inmarsat satellite mobile telecommunications, electronic data interchange, managed data network services, video conferencing, transmission of television signals, packet switched data transmission and E-mail services. See "--Services of the Company--Specialized and Value-Added Services." In addition, the Company is considering spinning off certain of its specialized and value-added services, such as the Internet access it is licensed to provide nationwide, E-mail, electronic data interchange and video conferencing services, into a proposed subsidiary, VSNL Seamless Services Private Limited. VSNL Seamless Services Private Limited is expected to develop and maintain a retail customer base to position the Company for continued growth of its specialized and value-added services. The Company is also pursuing opportunities to participate in consortia developing satellite-based telecommunication services. See "Item 5. Operating and Financial Review and Prospects--Investment Program--Ninth Five Year Plan Projects--Capital Contributions to Intelsat and Inmarsat and Acquisition of Indefeasible Rights of Use." ENHANCING INTERNET OPPORTUNITIES. The Company is the leading Internet service provider in India with market share of approximately 43 percent of the country's current Internet subscriber base, according to IT Space Research Telecom programs January 2001. The Company has taken the initiative in 19 developing the Internet market in India and will continue to strive to be the market leader in promoting and facilitating growth of the Internet in India. The Company believes that its strategy of focusing on market leadership in Internet access will position it to lead the development and introduction of higher-value Internet services for its consumers and corporate customers. POSITIONING FOR NEW INTERNATIONAL OPPORTUNITIES. The Company seeks to enter into joint ventures with domestic and foreign companies to develop telecommunications projects both inside and outside India. The Company, along with Telecommunication Consultants of India Limited ("TCIL"), Mahanagar Telephone Nijam Limited ("MTNL"), and Nepal Ventures Private Limited signed a memorandum of understanding for joining together to provide basic services in Nepal through the use of wireless local loop technology. The Company's participation in these ventures will be designed to permit the Company to utilize its existing expertise and to enable the Company to gain additional experience with potential strategic partners. For example, the Company has entered into bilateral arrangements with foreign telecommunications carriers for the provision of private data transmission services. See "Item 5. Operating and Financial Review and Prospects-Services of the Company--Specialized and Value-Added Services." POSITIONING FOR OPPORTUNITIES IN A LIBERALIZED ENVIRONMENT. As part of the multilateral agreement on basic telecommunication services agreed to by member governments of the World Trade Organization in February 1997, the Government of India agreed to review the possibility of allowing competition in the area of domestic long distance telephone services. The Government of India recently opened this area for competition . The Company aims to position itself to provide domestic long distance services through the continued upgrading of its transmission and switching capabilities. See "Item 5. Operating and Financial Review and Prospects--Investment Program--Ninth Five Year Plan Projects--Provision for Other Projects and Investments." SERVICES OF THE COMPANY The Company's primary business is the provision of public international switched telecommunication services (telephone, telex and telegraph). The Company also provides a variety of specialized and value-added services, such as international leased lines, Inmarsat satellite mobile telecommunications, Internet dial-up access in 12 cities, Internet leased line access throughout India, electronic data interchange, managed data network services, video conferencing, the transmission of television signals, packet switched data transmission and E-mail services. These types of services typically involve greater bandwidth use for the transmission of data rather than voice traffic. 20 The following table sets forth certain operating data with respect to the Company's international services as of the dates and for the periods indicated.

YEAR ENDED MARCH 31, -------------------------------------------- 1997 1998 1999 2000 2001 -------- -------- -------- -------- ------ BASIC SERVICES TELEPHONE(1) Incoming paid minutes(2) (millions)......... 1,000 1,257 1,499 1,773 2,161 Outgoing paid minutes (millions)............ 385 428 436 473 527 Total paid minutes (millions)............... 1,385 1,685 1,935 2,246 2,688 Change from previous period (%)............. 20.6 21.7 14.84 16.07 19.68 Ratio of incoming to outgoing............... 2.60x 2.94x 3.44x 3.75x 4.10x Effective circuits (as of period end)....... 14,184 15,431 17,922 19,722 20,495 Change from previous period end (%)......... 10.2 8.8 16.14 10.04 3.92 TELEX Paid minutes (millions)..................... 17 14 11 10 9 Change from previous period (%)............. (15.0) (17.6) (21.0) (10.58) (8.80) Effective circuits (as of period end)....... 1,081 1,012 787 682 658 Change from previous period end (%)......... (4.2) (6.4) 22.23 (13.34) (3.52) TELEGRAPH Paid words (millions)....................... 19 16 15 9 7 Change from previous period (%)............. (10.8) (15.79) (6.67) (40.00) (22.22) Effective circuits (as of period end)....... 35 35 34 25 24 Change from previous period end (%)......... (7.9) 0.0 (2.86) (26.47) (4) SPECIALIZED AND VALUE-ADDED SERVICES LEASED LINES (CAPACITY) Number of lines (as of period end).......... 564 913 1,098 1,654 4,913 Change from previous period (%)............. 40.65 61.88 20.26 50.64 197.04 PACKET SWITCHED DATA TRANSMISSION Segments (millions)(3)...................... 521 613 469 267 194 Change from previous period (%)............. (7.5) 17.7 (23.49) (43.07) (27.34) INTERNET ACCESS(4) Subscribers (as of period end)(in thousands) 28.04 90.04 213.05 366.43 630.97 Change from previous period (%)............. 575.5 221.1 136.61 72.00 72.19

(1) Telephone paid minutes comprise voice, facsimile and public switched telephone network (PSTN) data traffic sent through the telephone network. (2) Includes calls placed in India but billed in another country, such as operator-assisted collect and home-country direct calls. (3) One segment equals 64 characters, with each character representing eight bits of data. (4) Internet access services were first offered in August 1995. BASIC SERVICES The Company operates the necessary switching and transmission infrastructure to connect the Indian domestic telecommunications network with foreign networks and, in coordination with foreign telecommunications administrations and carriers, to ensure the smooth flow of international traffic between these networks. An outgoing international telephone call from India originates on one of the local Indian telephone exchanges operated by Bharat Sanchar Nigam Limited (formerly the Department of Telecommunications) or Mahanagar Telephone Nigam Limited, (in Mumbai and Delhi), or by private fixed line or cellular network operators, and is transferred to one of the Company's gateways through Mahanagar Telephone Nigam Limited's and Bharat Sanchar Nigam Limited's domestic networks. The call is then switched by the Company's system to the desired international destination via satellite, undersea cable or both based on a pre-determined routing plan developed by the Company in coordination with the foreign telecommunications administration or carrier. The foreign administration or carrier receiving the call through the international circuit is then responsible for final delivery of the call to the recipient. Similarly, when an international call is received at one of the Company's gateways, the call is switched from the gateway via the Indian domestic network to one of the local exchanges, from which it is transmitted to the recipient. See "-Industry Overview." This process is illustrated in the following chart: 21 [GRAPHIC OMITTED] INTERNATIONAL TELEPHONE SERVICES. The Company provides public basic international switched telephone services, including voice, facsimile and data transmission services. Approximately 92.40, 91.23 and 90.41 percent of the traffic revenue of the Company for the years ended March 31, 1999, 2000 and 2001 respectively was attributable to international telephone services. The volume of international telephone traffic to and from India, and the Company's revenues from such calls, have grown rapidly in recent years. These increases reflect the growth in the number of private and public telephone lines in India, an improvement in the quality of the domestic telephone network (which has resulted in a higher percentage of completed calls) and an increase in the quality and capacity of the Company's facilities. The Company offers International Direct Dialing and Home Country Direct Services and also provides operator assisted international calls. International Direct Dialing permits telephone subscribers to dial international calls directly without operator assistance. Rates for International Direct Dialing calls are lower than for operator-assisted calls and are charged based on the duration of the call. The availability and use of International Direct Dialing in India has increased steadily. As of January, 2001, International Direct Dialing was available from approximately 25,679 cities and towns within India to approximately 240 territories worldwide. For the year ended March 31, 2001, approximately 99 percent of international calls from India were made using International Direct Dialing. Home country direct services, which permit a caller to reach an operator in his home country directly and place a collect or charge call, was available to 32 countries as of March 31, 2001. These calls are treated as incoming calls, as they are billed in the country being called. Home country direct services permit a user to speak in his native language to an operator in his own country and facilitates payment for the call since it is billed to the user at home in his own currency. OTHER BASIC SERVICES. The Company provides international telex services, including automatic direct dial telex service, to approximately 237 territories worldwide and handles on average more than 20,000 international telex calls each day. This service is mainly used by the business community. Advanced telex services offered by the Company include forwarding facsimiles to telex mail boxes, telex to fax transmission (T-Fax) and transmission from telex to E-mail services. International telegram service is the oldest of the international telecommunication services provided by the Company. Each day the Company handles on average approximately 1,000 telegrams. The volume of telex and telegraph traffic has been declining significantly in recent years, consistent with global trends, as users switch to facsimile and other methods of data transmission. The Company expects this trend to continue, but without any adverse impact on the Company since such methods of data transmission generate limited revenue for the Company. 22 SPECIALIZED AND VALUE-ADDED SERVICES The Company provides a variety of specialized and value-added services, such as international leased lines, Inmarsat satellite mobile telecommunications, Internet dial-up access, Internet leased line access, electronic data interchange, managed data network services, video conferencing, the transmission of television signals and other value-added services which typically involve the transmission of data or video rather than voice traffic. By offering such value-added services, the Company believes it can benefit from the increasing migration of traffic to these modes and build a direct retail customer base from which it may more effectively compete in a liberalized environment. The Company expects aggregate demand for these services to continue to rise with the continued growth and increasing sophistication of the Indian economy and its increasing integration with the world economy. INTERNATIONAL LEASED LINES. The Company arranges dedicated point-to-point international leased lines for those customers who need reliable, 24-hour communications from a fixed point in India to a fixed point abroad. International leased lines, the speeds of which range from 50 bits per second ("bps") to 2 megabits per second ("mbps"), are provided through the Company's international gateways, earth stations and cable stations. The Company's earth stations/cable stations communicate with satellites and submarine cable systems respectively for data traffic. The demand for high speed leased lines (64 kbps and above) has increased significantly in recent years, with the number of such lines (64 kbps equivalent) increasing from 564 circuits as of March 31, 1996 to 4,913 as of March 31, 2001. In connection with providing high speed leased lines, the Company makes all arrangements, in coordination with Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited and foreign telecommunications administrations or carriers, for connecting the customer through Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited lines and one of the Company's international gateways to the foreign destination via satellite or undersea cable. As part of its international leased line services, the Company offers the Intermediate Data Rates Service and the Intelsat Business Service, which are dedicated satellite-based services that provide high speed, high quality data circuits on a point-to-point basis through earth stations strategically located near the customer's premises. These services utilized a total of 1,284 satellite circuits as of March 31, 2001 leased by subscribers such as software and other high technology companies in Bangalore, Hyderabad, Pune and other major cities in India. INMARSAT MOBILE SERVICES. The Company commenced offering satellite mobile telecommunication services via the Inmarsat A system (which carries telephone, telex, Duplex High Speed Data on a channel that carries 64 kbps of data, and facsimile traffic) through a land earth station located near Pune, which was commissioned in May 1992. This earth station currently handles on average approximately 1,800 call minutes of Inmarsat A traffic per day. In November 1993, the Company introduced Inmarsat C service, which permits transmission of messages via small portable terminals. In November 1995, the Company also introduced Inmarsat B services for voice and data transmissions and Inmarsat M services for voice transmissions, both in digital format. The Company's latest Inmarsat service, Inmarsat Mini M, was introduced in May 1997. The Company's land earth station located near Pune currently handles on average approximately 1,300, 270 and 5,600 holding time (in minutes) per day of Inmarsat B, M and Mini M traffic, respectively, and approximately 109.56 kilobits per day of Inmarsat C traffic. GATEWAY INTERNET ACCESS SERVICES. The Company commenced providing Internet access services in August 1995. The Company is the leading Internet service provider in India with market share of approximately 43 percent of the country's current Internet subscriber base, according to IT Space Research Telecom programs January 2001. Private Internet service providers were not permitted until November 1998 after which they were also permitted to provide such services with the liberalization of the Government's Internet policies. See "--Industry Overview--Recent Developments." Demand for the Company's Internet services has increased rapidly with the number of subscribers growing from about 200 as of September 30, 1995 to 630,970 as of March 31, 2001. The Company's main access nodes for the Internet are situated in 12 cities, including Mumbai, Pune, Kolkata, Delhi, Bangalore and Chennai. In addition, the Company provides connectivity to remote access nodes throughout India in conjunction with Bharat Sanchar Nigam Limited, each of which is connected to one of the Company's access nodes. A host computer to which subscribers have dial-up access is located at each access node. Access to these services is also available through the Company's packet switched data transmission services. In addition, the Company currently provides Internet backbone access services to approximately 90 private Internet service providers and leased line access to its corporate customers. The Company has also opened state-of-the-art data centers for co-location services in 6 cities. 23 MANAGED DATA NETWORK SERVICES. The Company introduced managed data network services in January 1997, and now offers such services through the global alliance networks of global partners - British Telecommunications, Cable & Wireless, EQUANT, Global One, IBM Global Services, and Tele Media International. The Company's managed data network services utilize global frame relay and X.25 access protocols and data transmission speeds of up to 64 kbps, providing managed private data communications services to corporate customers in India. GATEWAY ELECTRONIC DATA INTERCHANGE SERVICE. First offered by the Company in November 1993, this service acts as a clearinghouse between the computer systems of a subscriber and its trading partners for the electronic transmission and processing of trade documents, such as purchase orders, invoices and other inquiries. The service operates domestically between major metropolitan areas in India and offers connections to major international electronic data interchange networks. These services offer efficient data packaging and transfer through the use of higher bandwidths. The Company currently has approximately 35 corporate subscribers for these services. VIDEO CONFERENCING, TRANSMISSION OF TELEVISION SIGNALS AND OTHER SERVICES. The Company introduced a video conferencing service in 1993 (both domestic and international) through studios located at the Company's international gateways at Mumbai, Delhi, Kolkata and Chennai. The Company also provides international relay of television programs and news services via satellite on a contractual basis and leases satellite transponder capacity owned by the Company to television broadcast companies in India. The Company transmitted approximately 185,000 minutes of television traffic to and from India during the year ended March 31, 2001, including principally broadcasts of news, sports and entertainment events. News media services provided by the Company include sending and receiving radio photos to and from locations outside India and direct transmission of recorded and live programming abroad, including the transmission of newscasts by Indian national news agencies. TELEVISION UPLINKING. The Company started providing television uplinking facilities in October 1998. The Company provides uplinking facilities to, among others, SunTV (Tamil), Surya (Malayalam), Udaya TV (Kannada), Eenadu TV (Telugu), Gemini TV (Telugu) and Asianet (Malyalam). The Company's satellite broadcast operations on the INSAT-2E (APR) satellite are provided through its Standard-A earth station located in Chennai, and also through its earth stations located in Delhi and Ernakulam. GATEWAY PACKET SWITCHED SERVICE. The Company began operation of a packet switched data transmission service in 1988. Subscribers to the service may exchange data with users of other public packet switched data. Primary packet switching exchanges and access points are located at Mumbai, Kolkata and Delhi, which are connected with international networks and with each other by high speed (64 kbps) data lines. The primary exchanges are linked to packet switching access points of the Company located at six other sites within India and to approximately 45 additional such access points operated by Bharat Sanchar Nigam Limited via dedicated domestic long-distance lines. Subscribers may access this service via dial-up lines or dedicated lines to any of the access points at transmission speeds up to 9,600 bps or 64 kbps, respectively. This service is also linked to Indian domestic packet switched data networks and carries all international traffic generated by these networks. The Company currently has approximately 235 subscribers for this service and handled approximately 194.4 million segments of data in the year ended March 31, 2001, a decline of 27 percent over the period ended March 31, 2000. No growth in this service is anticipated as its advantages have eroded due to increased Internet access. GATEWAY ELECTRONIC MAIL SERVICE. The Company introduced GEMS.400, an international E-mail and fax forwarding service, in 1991, which was subsequently expanded to cover the domestic market. This E-mail service, permits subscribers to send E-mail both to other subscribers within India and to approximately 242 public E-mail systems in about 74 countries. This service had approximately 4,951 subscribers as of March 31, 2001. No growth in E-mail service is anticipated as its advantages have eroded due to increased Internet access. 24 TRAFFIC REVENUE AND REVENUE SHARING ARRANGEMENT The Company's principal source of revenue is traffic revenue from its public international telecommunication services (telephone and telex), which accounted for 92.40 percent, 91.23 percent and 90.41 percent of the Company's traffic revenues for the fiscal years ended March 31, 1999, March 31, 2000 and March 31, 2001, respectively. The Company's traffic revenue has two sources: foreign telecommunications carriers, and the Bharat Sanchar Nigam Limited. The Company does not receive any payments directly from the end users of its public international telecommunication services and has no control over the rates charged by the Bharat Sanchar Nigam Limited or foreign administrations or carriers for such calls. For the fiscal years ended March 31, 1999, March 31, 2000 and March 31, 2001, approximately 65 percent of the Company's traffic revenue was derived from payments by foreign administrations or carriers for incoming calls and approximately 26 percent of such traffic revenue was derived from amounts payable by the Bharat Sanchar Nigam Limited under a revenue sharing arrangement for calls originating in India. PAYMENTS TO AND FROM FOREIGN ADMINISTRATIONS OR CARRIERS Arrangements for the provision of international telecommunication services between two countries are normally established between two telecommunications administrations or recognized private operating carriers on a bilateral basis. The Company has operating arrangements with approximately 244 foreign telecommunications administrations or private carriers that govern the rates of payment by the Company to the foreign administrations or carriers for use of their facilities in connecting international calls billed in India, and by the foreign administrations or carriers to the Company for use of its facilities (and the local Indian networks) in connecting international calls billed abroad. Among other factors, the rates negotiated take into account the technical and operating costs for providing such telecommunication services and the volume of incoming and outgoing telecommunications traffic. Such operating arrangements are generally reviewed every year, and any resulting revision of accounting rates or change in settlement arrangements also is agreed upon through bilateral negotiations. The practice among carriers is for charges due in respect of the use of overseas networks to be recorded, collected and forwarded by the carrier from the country in which the call is billed. Based on the accounting rate negotiated with each foreign telecommunications administration or carrier, the Company makes payments to the administration or carrier for outgoing traffic billed in India and receives payments from such administration or carrier for incoming traffic billed outside India. Settlements between the Company and the major carriers, including US carriers, are made monthly. Settlements between the Company and other carriers are normally made quarterly. Settlements are made on a net basis at the applicable settlement rate, which represents each carrier's portion of the accounting rate. The accounting rates under the Company's agreements vary but are generally divided into equal settlement rates for incoming and outgoing calls from or to a particular country. The Company has in the recent past sought to rationalize its accounting rates by moving towards a system of three basic rates. The three basic rates cover the United States, countries of the South Asian Association for Regional Cooperation (SAARC) (comprising India, Pakistan, Sri Lanka, Bhutan, Bangladesh, the Maldives and Nepal), and Europe and the rest of the world. The three basic accounting rates are currently in effect for approximately 150 of the 244 foreign administrations and carriers with which the Company has operating arrangements. The settlement rates applicable to the Company currently range from approximately US$0.32 to US$2.47 per minute. Accounting rates are negotiated annually, and negotiations may in some cases take several months to conclude. During the negotiations, foreign administrations and carriers may reduce their payments to the Company to a level at or near the rates they expect to achieve. In other cases, new rates are applied retroactively from the date on which they are agreed, which in the case of a reduction in rates requires the Company to make a payment representing the difference between the prior rate and the newly negotiated accounting rate, calculated at the applicable settlement rate. The Company's largest correspondent carriers are those in the United States, the United Arab Emirates and the United Kingdom, which together represented approximately 58.29 percent, 61.35 percent and 64.47 percent of the Company's paid telephone minutes during the years ended March 31, 1999, March 31, 2000 and March 31, 2001 respectively. The Company believes that the level of traffic with a particular country is determined primarily by the level of international business between such country and India and the number of Indian expatriates living in such country. In addition, the relative levels of incoming call volume from different countries is affected by the practice of "refile." 25 Refile involves the re-routing of calls to India through a third country by carriers in the country of origination of such calls. Refile seeks to take advantage of a lower accounting rate applicable to calls between India and the third country compared to the rate between India and the country of origination. Due to such lower applicable accounting rate, refile has the effect of lowering the revenue of the Company with respect to an incoming call. Refile has contributed in particular to the significant increase in recent years in incoming traffic from the United States. The following table sets forth the number of paid minutes of international telephone calls for the Company for certain countries for the periods indicated.

YEARS ENDED MARCH 31, --------------------- 1999 2000 2001 ---- ---- ---- INCOMING OUTGOING DIFFERENCE INCOMING OUTGOING DIFFERENCE INCOMING OUTGOING DIFFERENCE -------- -------- ---------- ----------------- ---------- -------- -------- ---------- (MINUTES IN MILLIONS) United States................. 663 52 611 907 60 847 1,182 75 1,107 United Arab Emirates.......... 266 35 231 233 42 191 286 48 238 United Kingdom................ 76 36 40 94 42 52 94 48 46 Saudi Arabia.................. 122 91 31 127 91 36 173 90 83 Canada........................ 37 10 27 14 9 5 22 11 11 Singapore..................... 31 18 13 42 21 21 42 24 18 Germany....................... 23 13 10 14 14 0 40 14 26 Hong Kong..................... 6 8 (2) 5 8 (3) 15 11 4 Bahrain....................... 25 3 22 26 4 22 26 6 20 Oman.......................... 29 15 14 31 16 15 34 17 17 Others........................ 221 155 66 280 166 114 247 183 64 ----- --- ----- ----- --- ----- ----- --- ----- Total........... 1,499 436 1,063 1,773 473 1,300 2,161 527 1,634 ===== === ===== ===== === ===== ===== === =====

As is typical in developing countries, the volume of incoming calls to India has historically exceeded the volume of outgoing calls, and as a result the Company has received net settlement payments from foreign administrations and carriers. The Company expects this situation to continue. In 1994, various unlicensed private agencies in India commenced offering "call-back" services as a low-cost alternative for making international calls from India. A caller using this service is provided with access to an international dial tone in a foreign country, usually in the United States, from which the caller can originate calls. These calls are billed in foreign exchange in the foreign country and are therefore treated as incoming calls. Call-back services were officially declared illegal by the Ministry of Communications in July 1995. Nevertheless, the volume of international calls made from India through call-back services appears to have grown and has contributed to the increase in recent years in the Company's ratio of incoming to outgoing calls, particularly in the case of traffic between India and the United States. In recent years, international organizations such as the International Telecommunications Union and the OECD countries have expressed the need for revision of the international accounting rate system, and certain foreign telecommunications administrations and carriers have sought to reduce applicable accounting rates in bilateral negotiations with the Company. In August 1997, the FCC issued an order (the "Order") establishing FCC benchmarks that US carriers generally must comply with in establishing settlement rates for international calls with non-US telecommunications administrations and carriers. The Order became effective as of January 1, 1998. Pursuant to the Order, the FCC categorizes countries by level of economic development and establishes cost-based benchmark ranges and transition periods for each country category, whereby higher benchmark ranges and longer transition periods would apply to less developed countries. The FCC requires US carriers to negotiate settlement rates falling within the applicable benchmark range with each country during the transition period. As a result, the effective settlement rate between US carriers and the Company for calendar year 1998 of US$0.64 per minute, which already represented a 10.5 percent decrease of the settlement rate from the prior calendar year, needs to be reduced to no more than US$0.23 per minute by 2002. If such reduction is not agreed to in bilateral settlement rate negotiations, the FCC may require US carriers to make settlement payments to the Company at a rate no higher than such benchmark rate. 26 Item 3. Key Information The authority of the FCC to issue the Order and the Order itself has been upheld by a United States federal court of appeals. In upholding the Order, the United States federal court of appeals held that the Order was a valid exercise of the FCC's regulatory authority under the United States Communications Act and rejected the argument that the FCC's unilateral establishment of benchmark settlement rates constituted an unlawful assertion of extraterritorial jurisdiction over foreign carriers and foreign telecommunication services. However, the United States federal court of appeals also stated that the Order does not apply to foreign carriers and only permits the FCC to contact responsible foreign government authorities to seek their support in lowering settlement rates. There can be no assurance that the FCC, acting pursuant to the Order, will not seek to force US carriers to agree to the benchmark rates, which are lower than the rates in effect between the Company and its correspondent US carriers. See "Item 3. Key Information--Risk Factors--Payments to and from Foreign Telecommunications Administrations and Carriers." The Company was unable to conclude its annual negotiations with its four correspondent US carriers as to accounting rates for calendar year 1998 until early January 1999. The calendar year 1998 accounting rate with one of its four US carriers was approved by the FCC in late November 1998, and shortly thereafter the three remaining US carriers agreed to the same rate. The Company has concluded since then accounting rates agreements for fiscal 2000 with US carriers and other major foreign correspondent carriers and administrations with a gradual reduction of settlement rates. Moving towards FCC's benchmark settlement rate, the Company has also concluded settlement rate agreements of US$0.54 per minute, US$0.425 per minute and US$0.34 per minute for fiscal 2000, 2001 and 2002, respectively, with US carriers. REVENUE SHARING ARRANGEMENT The Company had a revenue sharing arrangement with the DOT for the fiscal period 1997-2002. Pursuant to the corporatization of the service provision functions of the DOT, to the newly formed company, Bharat Sanchar Nigam Limited, the revenue sharing agreements entered into by the DOT were transferred and assigned to Bharat Sanchar Nigam Limited with effective October 1, 2000. License fees shall continue to be paid to the DOT under the revenue sharing agreement. Although the Company provides international gateway access out of and into India, all calls must either initiate or terminate on or pass through Mahanagar Telephone Nigam Limited's and Bharat Sanchar Nigam Limited's domestic network. The Company and Bharat Sanchar Nigam Limited share revenues received by each entity from international calls pursuant to a revenue sharing arrangement between the two entities. Through the year ended March 31, 1997, the Company and Bharat Sanchar Nigam Limited shared revenues under a revenue sharing arrangement (the "previous revenue sharing arrangement") which was agreed to in February 1994, took effect retroactively beginning April 1, 1993 and remained effective until March 31, 1997. In February 1997, the Company and the DOT agreed to the current revenue sharing arrangement, which took effect on April 1, 1997 and is to remain in effect until March 31, 2002. PREVIOUS REVENUE SHARING ARRANGEMENT. Under the previous revenue sharing arrangement the Company paid the DOT a terminal charge of Rs.21.60 per minute for use of the DOT's domestic network on all incoming international calls. In turn, the DOT paid the Company a carrying charge of Rs.41.60 per minute for all outgoing international calls. The previous revenue sharing arrangement was intended to result in average gross earnings per call minute of Rs.10 for the Company, based on the following parameters and base values: an average settlement rate between the Company and foreign telecommunications administrations and carriers of US$1.00 per minute, a Rupee/Dollar exchange rate of Rs.31.60 per US$1.00 and a ratio of incoming to outgoing call minutes of 1.4x. The following chart illustrates payment flows under the previous revenue sharing arrangement assuming the base value for these parameters. 27 [GRAPHIC OMITTED] For the years ended March 31, 1999, March 31, 2000 and March 31, 2001, the Company's actual average gross earnings per telephone minute were Rs.10.63, Rs.9.43 and Rs.9.39 (US$0.20), respectively. Under the previous revenue sharing arrangement, the Company also paid to the DOT a license fee of Rs.3 million (US$0.07 million) for each one million paid minutes (or portion thereof) of the Company's total annual international traffic. In addition, the Company paid to the DOT a surcharge of 15 percent on charges for lines leased from the DOT as an additional charge for using Department of Telecommunication's domestic network. CURRENT REVENUE SHARING ARRANGEMENT. In February 1997, the Company and Bharat Sanchar Nigam Limited (formerly, the Department of Telecommunications) agreed to the current revenue sharing arrangement, which took effect on April 1, 1997 and is to remain in effect until March 31, 2002. Under the current revenue sharing arrangement, the Company pays to Bharat Sanchar Nigam Limited a charge per minute equal to the "weighted average incoming settlement rate" minus Rs.10 on all incoming international calls, and Bharat Sanchar Nigam Limited in turn pays to the Company a charge per minute equal to the "weighted average outgoing settlement rate" plus Rs.10 on all outgoing international calls, in each of the fiscal years covered by the arrangement. The "weighted average incoming settlement rate" and the "weighted average outgoing settlement rate" for a fiscal year is the average of the various settlement rates in effect as of the beginning of the fiscal year between the Company and foreign administrations and carriers (converted into Rupees at the exchange rates prevailing as of the beginning of the fiscal year), weighted to reflect the volume of total incoming traffic and total outgoing traffic, respectively, accounted for by each foreign administration or carrier during the immediately preceding fiscal year. The current arrangement is intended to result in average gross earnings to the Company of Rs.10 per call minute in each fiscal year (assuming that applicable settlement rates and exchange rates and the composition of incoming and outgoing traffic from and to particular destinations remain constant during the year). In the years ended March 31, 2000 and March 31, 2001 the Company's actual average gross profit per telephone minute were Rs.9.43 and Rs.9.39, respectively. Under the current revenue sharing arrangement, any increase or decrease in the combined international traffic revenue per call minute of the Company and Bharat Sanchar Nigam Limited (net of payments by the Company to foreign administrations and carriers and by the Company and Bharat Sanchar Nigam Limited to each other in respect of delivery of incoming and outgoing calls) for each fiscal year, compared to the fiscal year ended March 31, 1997, will be shared between the Company and Bharat Sanchar Nigam Limited according to the following percentages: 28 YEAR ENDING BHARAT SANCHAR MARCH 31 COMPANY'S SHARE NIGAM LIMITED'S SHARE ----------- --------------- --------------------- 1999 0% 100% 2000 15% 85% 2001 20% 80% 2002 25% 75% In computing the international traffic revenue of Bharat Sanchar Nigam Limited for purposes of calculating the combined international traffic revenue per call minute of the Company and Bharat Sanchar Nigam Limited, the tariff charged by Bharat Sanchar Nigam Limited to subscribers for outgoing international calls is assumed to remain constant at Rs.62.35 (US$1.33) per minute, which was the weighted average tariff rate for the year ended March 31, 1997. It is therefore intended that the Company's average gross profit per call minute under the current revenue sharing arrangement will not be affected directly by any decrease or increase in the actual tariffs charged by Bharat Sanchar Nigam Limited for outgoing international calls. The following chart illustrates payment flows under the revenue sharing arrangement. [GRAPHIC OMITTED] -------------- * Subject to review, as described below. The current revenue sharing arrangement is subject to review (with the objective of correcting the imbalance caused) in the event that the Rupee/Dollar exchange rate fluctuates by more than ten percent from the rate at the base year (January 4, 1997), or the Company's actual average gross earnings per call minute is less than Rs.9 or more than Rs.11, in any fiscal year covered by the arrangement. No such review has occurred since the current revenue sharing arrangement came into effect. Under the current revenue sharing arrangement, the Company is required to pay to Department of Telecommunications an annual license fee based on the number of its commissioned circuits, instead of on the volume of its international traffic. The license fee amounts to Rs.250,000 (US$5,336.18) per commissioned circuit, and the number of circuits is calculated as an average of the number of commissioned circuits at the beginning and end of the applicable fiscal year. For the years ended March 31, 2000 and March 31, 2001, the Company paid annual license fees of approximately Rs.4,712 million and Rs.5,022 million (US$107.19 million), respectively. 29 BREAKDOWN OF SALES AND REVENUES The following table breaks down the Company's revenue by type of service for each of the years in the three year period ended March 31, 2001.

YEAR ENDED MARCH 31, ------------------------------------------------------------------- 1999 2000 2001 2001 -------- -------- -------- ------- (IN MILLIONS) Revenues from incoming traffic Telephone Rs.43,834 Rs.45,161 Rs.46,674 US$996 Telex 186 128 112 2 Revenues from outgoing traffic Telephone 18,243 18,375 18,345 392 Telex 173 175 112 2 Leased circuits 2,499 2,986 3,140 67 Internet access services 1,733 2,095 2,980 64 Television relay 78 72 184 4 Telegraph 50 37 29 1 Other revenue 385 611 340 7 Total revenue 67,181 69,640 71,916 1,535 ====== ====== ====== =====

Since the Company only provides services in India there is no breakdown of the Company's revenues by geographical market. Trends and events affecting the Company's operating revenue are discussed under "Item 5. Operating and Financial Review and Prospects." INDUSTRY OVERVIEW THE INDIAN DOMESTIC TELECOMMUNICATIONS NETWORK The following table sets forth certain basic measures of the development of the Indian domestic telecommunications network as of the dates and for the periods indicated.

AS OF MARCH 31, 1997 1998 1999 2000 2001 -------- -------- -------- -------- ------ Telephones in service (thousands)............. 15,399 18,620 22,467 27,390 N/A Telephones per 100 inhabitants................ 1.61 1.91 2.29 2.74 N/A New lines installed (thousands)............... 2,564 3,259 3,791 4,917 7,652 Lines in service (thousands).................. 14,543 17,802 21,593 28,431 36,083 Lines in service per 100 inhabitants.......... 1.53 1.72 2.20 2.85 3.56 Long-distance route kilometers................ 179,955 219,781 288,271 340,451 416,831 Number of village public telephones........... 267,832 303,582 340,640 334,605 408,922 Local calls pulses (billions)................. 96.1 115.1 N/A 162.6 N/A Registered waiting list for telephones 2,894 2,706 1,983 3,680 2,916 (thousands)................................... Cellular subscribers (thousands).............. 369 882 1,073 1,793 3,577

---------------- Source: Department of Telecommunications. The Indian domestic telecommunications network has grown rapidly in recent years. As of March 31, 2001, the Indian telephone system comprised 36.08 million lines in service, having grown at a compound annual rate of 24 percent since 1994. In the fiscal year ended March 31, 2001, Bharat Sanchar Nigam Limited installed approximately 7.65 million new local lines and 7.15 million switching terminations, increases of 26.91 percent and 21.81 percent, respectively, over the levels as of March 31, 2000. All subscribers have access to international telecommunication services. Subscribers in approximately 25,679 cities and towns in India had direct dial access as of March 31, 2001. 30 Despite this growth, the registered waiting list for telephone lines has remained high. For example, in the fiscal year ended March 31, 2001, while approximately 7.65 million new lines were added, the registered waiting list for new lines decreased from 3.68 million to 2.916 million. Bharat Sanchar Nigam Limited and the Company believe that the registered waiting list understates actual demand because a potential subscriber must deposit at least Rs.3,000 (US$64 ) with Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited in order to be placed on the waiting list and, depending on the subscriber's location, may then have to wait up to three years before receiving a telephone line. Moreover, the penetration of India's domestic telephone network of 3.56 lines in service per 100 inhabitants as of March 31, 2001 remained significantly lower than in OECD countries and many other developing countries. The following table presents, for selected countries, lines in service as of December 31, 2000 (the latest date for which such information is currently available) and gross domestic product per capita for the year then ended.

LINES IN SERVICE PER 100 INHABITANTS AS OF 2000 GROSS DOMESTIC DECEMBER 31, 2000 PRODUCT PER CAPITA (IN DOLLARS) ----------------- ------------------------------- India(1).......................... 3.6 468 Pakistan.......................... 2.2 458 Indonesia......................... 3.1 763 China............................. 11.6 840 Philippines....................... 4.0 988 Thailand.......................... 9.6 2,260 Turkey............................ 27.8 2,849 Malaysia.......................... 23.5 3,970 Mexico............................ 12.5 4,966 South Korea....................... 47.0 9,890 United Kingdom.................... 56.7 33,750 United States..................... 67.3 34,102 Japan............................. 49.3 36,300

---------------- SOURCES: The Department of Telecommunications; International Telecommunications Union; International Monetary Fund; INTERNATIONAL FINANCIAL STATISTICS, DECEMBER 1998. (1) As of March 31, 2001, lines in service for India. The existing lines in service in India are concentrated in large urban areas. Of all lines in service, approximately 23.76 percent are in the four major metropolitan areas of Mumbai, Kolkata, Delhi and Chennai; in these and other major cities, the density of lines in service is considerably higher than in India as a whole. Cellular mobile service has experienced substantial growth since it was introduced in the end of 1995. By March 31, 2001, there were approximately 3.58 million cellular subscribers, representing a compound annual growth rate of 115 percent since March 31, 1996 when the number of cellular subscribers was approximately 77,000. The efficiency of the domestic telecommunications network, as reflected by the ratio of seizure attempts (calls) made on a telephone circuit that result in successful complete calls to the total number of seizure attempts, has been low in India principally because of restricted capacity on the network. However, improvements have recently been made in the quality of the domestic telecommunications network. Improving this ratio permits the Company's network to operate more efficiently as it results in a decrease in the number of circuits used by subscribers attempting to re-dial failed calls. In turn, this reduces the need to invest in additional facilities and infrastructure. As of March 31, 2001, the average answer to seizure ratio for incoming and outgoing international calls in all of India was 35.80 percent and 43.62 percent, respectively, compared to 27.63 percent and 43.99 percent as of March 31, 1995. However, the average such ratio for calls to and from India remains much lower than that for calls between two countries with well developed and high quality domestic telecommunications networks, which would be at least 60 percent to 65 percent. 31 CURRENT STRUCTURE The following chart illustrates the current operational structure of India's telecommunication services industry. [GRAPHIC OMITTED] HISTORY Until the mid-1980's, the telecommunications sector in India was a monopoly managed by the public sector, and virtually all telecommunication services, both domestic and international, were controlled by the Government of India through the Department of Posts and Telegraphs of the Ministry of Communications. The Indian Telegraph Act, 1885 established the Government's monopoly in the sector and, together with the Indian Wireless Telegraphy Act of 1933, provided the legal framework for the regulation of the telecommunications industry. Development of the telecommunications sector historically was seen as a relatively low priority and received limited budgetary support from the Government. As a result, the telecommunications infrastructure in India grew at a relatively slow rate. In the mid-1980s, faced with rapidly increasing demands for telecommunication services and equipment, the Government of India commenced a reorganization of the sector designed to facilitate the rapid introduction of new technology, to stimulate the growth of the telecommunications industry and to tap the resources of the private sector in facilitating such technological innovation and growth. The reorganization included the division of the department of Posts and Telegraphs into the Department of Telecommunications and the Department of Posts and the establishment of public sector entities for the manufacture of certain telecommunications equipment. As part of the reorganization, the Company was incorporated on March 19, 1986 as a wholly-owned Government company and on April 1, 1986 assumed control and management of international telecommunication services from the Overseas Communications Service, a department of the Ministry of Communications. Mahanagar Telephone Nigam Limited was established at the same time to operate local telephone and telex services in Mumbai and Delhi, two of the largest metropolitan areas in India. Bharat Sanchar Nigam Limited retained responsibility for providing all other telecommunication services throughout 32 India. The Department of Telecommunications also assumed regulatory authority over the Company, Mahanagar Telephone Nigam Limited and other public sector enterprises established through the reorganization and was given responsibility for acting on behalf of the Government of India as the sole shareholder of such entities. The Telecom Commission was established in 1986 as an executive body under the Ministry of Communications to make policy decisions and to accelerate the development of all aspects of the telecommunications sector and the implementation of new telecommunications policies. In 1991 and 1992, as part of its general policy of gradually reducing its mutual holdings in public sector enterprises, the Government divested a portion of the equity of the Company to certain funds, banks and financial institutions controlled by the Government, and approximately 47.03 percent of the Shares is currently held by such institutions and other private shareholders. The divested Shares were initially traded on the BSE in December 1992. LIBERALIZATION INITIATIVES BACKGROUND. In May 1994, the Government of India announced a National Telecommunications Policy (the "1994 Telecom Policy") which included as its objectives ensuring the availability of telephones on demand as soon as possible, providing basic telecommunication services at affordable prices and introducing value-added services to raise the range and quality of telecommunication services available in India to international levels. The 1994 Telecom Policy recognized that Government financial resources would be insufficient to meet these objectives. BASIC SERVICES. Accordingly, in September 1994, the Government of India announced Guidelines for Private Sector Entry into Basic Telecom Services, which provide for the grant of a license for the provision of local fixed line services to one new licensee (a "New Licensee") in each of the 21 telecommunications "circles" into which the country has been divided for such purposes. Within each circle, the New Licensee will compete with Bharat Sanchar Nigam Limited (or Mahanagar Telephone Nigam Limited, in the case of circles that include Delhi or Mumbai). Foreign ownership of each New Licensee is restricted under the guidelines to a maximum of 49 percent. The Government initially invited tenders for new licenses in January 1995, in response to which bids were submitted by numerous Indian companies in combination with major global telecommunications companies. Initially, licenses for six states of the Indian union were issued to successful bidders. Recently, another 20 licenses have been issued. As part of the bidding process, the bidders for the licenses were required to make certain commitments on the build-out of their respective networks by the end of each of the first three years after the issue of the licenses for which they were bidding. The license conditions require the New Licensees to meet these commitments. The 13 successful bidders referred to above have in the aggregate committed to provide over 3.9 million new lines by the end of the third year following the issue of their licenses. In addition, under the terms of the bid, if by the end of such third year telephone lines are not available on demand in its respective circle, the New Licensee will be required to expand the number of lines in its network by at least 15 percent per year until such time as telephone lines become available on demand. A separate license condition also requires New Licensees to allocate at least 10 percent of the lines installed in each calendar quarter as village public telephones until there is at least one such telephone in every village within its circle. The New Licensees will have access to the Company's international network only through Bharat Sanchar Nigam Limited. Under the tariff specified in the tender conditions, the New Licensees will pay an international access charge of Rs.0.70 per unit measured call at the point of interconnection to Bharat Sanchar Nigam Limited for all outgoing international traffic originating on their networks. No corresponding access charge will be payable by Bharat Sanchar Nigam Limited to the New Licensees for any incoming international traffic delivered on their networks. Only two of the New Licensees have commenced services. CELLULAR SERVICES. In December 1991, the Department of Telecommunications invited bids from Indian companies with no more than 49 percent foreign ownership for non-exclusive digital cellular mobile licenses in Mumbai, Delhi, Kolkata and Chennai. After protracted litigation arising from the selection process, the Department of Telecommunications finally settled upon two licensees for each of the four metropolitan areas. In January 1995, the Department of Telecommunications invited tenders from Indian companies with no more than 49 percent foreign ownership for non-exclusive licenses to provide digital cellular mobile services in 20 telecommunications circles, excluding those that include the four cities with existing licensees. Two licenses were to be awarded per circle. There are eight cellular licensees in Mumbai, Chennai, New Delhi and Kolkata and 14 cellular licensees in 18 state circles. Mahanagar 33 Telephone Nigam Limited has also announced plans to install wireless local loop telecommunications equipment and provide cellular mobile service using code division multiple access technology (CDMA) in Mumbai. Cellular licensees have access to the Company's international network only through Bharat Sanchar Nigam Limited. Numerous private sector cellular licensees other than the metro licenses of Mumbai, Delhi, Kolkata and Chennai have faced difficulties in attaining financial closure for their projects. Consequently, network completion has been significantly delayed, resulting in less than anticipated cellular traffic. The Government has recently agreed to extend the period of license of the non-metro licensees from 10 to 15 years. In February 1997, a multilateral agreement on basic telecommunication services was agreed to among member governments of the World Trade Organization. As part of this agreement, the Government of India has reaffirmed its commitment to further liberalize the Indian telecommunications sector through the licensing of new local fixed line and cellular service providers. The Government of India has also agreed to review the possibility of allowing competition in the area of domestic long-distance telephone services and international telephone services. INTERNATIONAL LONG DISTANCE SERVICES. On September 7, 2000, the Company received a letter from the Ministry of Communications, Department of Telecom Services stating that the Government has decided that the Company's monopoly on international long distance services shall terminate on March 31, 2002 rather than on March 31, 2004. This letter states that the Government proposes to compensate the Company for the early withdrawal of its monopoly status in the field of international telephony with the following package: (1) the Company will be granted a license to provide national long distance telephony services; (2) the Company shall be reimbursed by the Government for all license fees, entry fees and revenue sharing fees (net of taxes) that may be payable by the Company with respect to such license for a period of five years commencing on April 2001; (3) the Government will not insist upon a performance bank guarantee with respect to such license as long as the Company remains a public sector undertaking and (4) the Company will be granted a Category - A, Internet service provider license which will enable it to provide Internet services nationally. In addition, the Government recently announced that private operators were to be permitted to provide domestic long distance service and basic services in all telecom circles in the very near future. Effective April 2002, the international long distance sector is scheduled to be opened up for competition. However, TRAI has floated a consultation paper titled "International Long Distance Services" on September 3, 2001. The Company anticipates that the policy will therefore be announced only after the consultation process is completed. OTHER SERVICES: The Government allowed private sector participation in value-added services such as paging services in 1992. The Government has also announced the opening up of global mobile personal communications by satellite ("GMPCS") and has issued one provisional license. The issuance of licenses to other prospective GMPCS operators is currently under consideration. DEVELOPMENTS TRAI. In furtherance of the 1994 Telecom Policy, the Government of India in 1994 announced its intention to establish an independent regulatory authority to resolve disputes between service providers, to ensure technical compatibility and effective interconnection between service providers, to regulate tariffs and protect consumer interests, to facilitate competition and to promote efficiency in the operation of telecommunication services so as to facilitate the growth of such services in India. In January 1997, the President of India issued an ordinance providing for the establishment of the TRAI, an autonomous body with quasi-judicial powers to regulate telecommunication services in India. The TRAI was established and became functional in March 1997. See "--Government Regulations--Supervision". In September 1998, the TRAI initiated a series of nation-wide consultations as part of a process to, among other things, formulate telecommunications pricing policies and set tariffs for a wide variety of telecommunication services. See "--Government Regulations--Rates." One of TRAI's notifications envisages a reduction of approximately 50% in STD and ISD charges over the three year period ending March 31, 2002. In conformance with this notification Department of Telecommunications issued a tariff order for fiscal 2000 that reduces international long distance rates by approximately 27 percent and further tariff orders effective between October 1, 2000 and March 31, 2002 pursuant to which international long distance tariffs have been further reduced by 16 to 20 percent. The TRAI has also announced its intention to review a number of other policy and regulatory matters, including the quality standards for service provision generally. 34 INTERNET POLICY. In November 1998, the Government announced a new Internet policy, which aims to increase the usage of the Internet by allowing private ISPs to provide Internet access services in India. Under the policy, private ISPs will be allowed (1) foreign ownership not exceeding 49 percent, (2) a license fee moratorium for the first five years, and a token fee of Rs.1, (3) the autonomy to fix tariffs, (4) direct interconnectivity between any two separate ISPs, (5) to set up international gateways after obtaining the necessary security clearances and (vi) to offer "last mile" linkages within local areas by optical fiber cable communications after obtaining the necessary approvals. The policy has enabled the Company to add a new revenue stream by providing gateway connectivity and bandwidth provisioning to private Internet service providers. The Company has already invested in upgrading its existing infrastructure with a strong Internet backbone. As of March 31, 2001, there were approximately 441 licensed Internet service providers who were licensed to provide Internet services throughout India. NEW TELECOM POLICY. The New Telecom Policy came into effect on April 1, 1999. Under this policy, the subject of opening up international telephone services to competition will be reviewed by the year 2004. The policy also provides for direct inter-connectivity between telecom services providers. NEW TRAI. In January 2000, the Government amended the TRAI Act and established two independent authorities: the New TRAI and the Appellate Tribunal. See "--Government Regulations--Supervision." FUTURE DEVELOPMENT OF THE DOMESTIC NETWORK The Department of Telecommunications, in conjunction with the Company and other telecommunication service providers regulated by the Department of Telecommunications, has prepared a telecommunications investment program for India's Ninth Five Year Plan (the "Ninth Plan"), covering the period from April 1997 to March 2002. Total investment expected under the plan amounts to approximately Rs.832.5 billion (US$19.07 billion). The principal objectives of the Ninth Plan include the addition of approximately 23.5 million lines, with a view to (1) making telephone lines available on demand, (2) providing at least one long-distance public telephone in each of India's villages by the year 2002, (3) increasing the number of working telephones in villages where only one working telephone is available, to support increased rural economic activity, (4) providing at least one public telephone for every 500 individuals in urban areas and (5) providing at least one subscriber trunk dialing public telephone for every ten kilometers on national highways. The Department of Telecommunications has received commitments from prospective New Licensees with respect to targets for the build-out of new local fixed line networks. Other objectives of the Ninth Plan include the modernization and upgrading of the domestic telephone network, including the replacement of analog systems with digital systems and the introduction of fiber optic cables, and the expansion of existing (and the introduction of new) value-added services such as Internet access services, satellite mobile communication services and personal communications services. In this connection, the plan envisages the granting of additional licenses on a non-exclusive basis to private and public sector entities for the provision of certain value-added services in India, including cellular mobile telephone, radio paging, Internet access, E-mail and video conferencing services. A significant factor affecting Bharat Sanchar Nigam Limited's ability to meet its objectives has been the availability of sufficient financing. Historically, financing for the development of the Indian domestic telecommunications network has come from a combination of Bharat Sanchar Nigam Limited's internal resources (predominantly revenues from subscribers and payments from the Company and Mahanagar Telephone Nigam Limited), budgetary support from the central Government and market borrowings through Mahanagar Telephone Nigam Limited (the amount of which is limited by the central government). In recent years, however, the Government's contribution through budgetary support has declined steadily to the point that no support was extended for India's Eighth Five Year Plan (the "Eighth Plan," covering the period from April 1992 to March 1997). The Ministry of Finance has indicated that the telecommunications sector is expected to remain self-financing. Bharat Sanchar Nigam Limited has funded its expenditures in connection with Bharat Sanchar Nigam Limited's telecommunications investment program for the Eighth Plan and the Ninth Plan, and intends to continue to fund its expenditures under the Ninth Plan (including those in connection with the Ninth Plan), solely through internally generated resources, market borrowings and leasing arrangements, while placing increasing emphasis on private sector participation in funding the development of the domestic telecommunications network. 35 GOVERNMENT REGULATIONS GENERAL The business of the Company is subject to comprehensive regulation by the Ministry of Communications through the Telecom Commission and the Department of Telecommunications pursuant to the provisions of the Indian Telegraph Act of 1885 (the "Telegraph Act") and the terms of the license from the Department of Telecommunications under which the Company operates. While the Telegraph Act sets the legal framework for regulation of the telecommunications sector, much of the supervision and regulation of the Company is implemented more informally through the general administrative powers of the Department of Telecommunications, including those reserved to the Department of Telecommunications under the Company's license, and of other Government agencies. In October 1999 the Department of Telecommunications, which had performed the role of licensor and policy maker for the Ministry of Communications and operated as India's domestic long distance service provider and fixed-line service provider, except for the areas of Delhi and Mumbai, was bifurcated into two departments: (1) the Department of Telecommunications/Telecom Commission to perform the role of licensor and policy maker and control the Company's Equity Shares held by the Government and (2) the Department of Telecom Services to function as the service provider. With effect from October 1, 2000, the Department of Telecom Services was incorporated and renamed Bharat Sanchar Nigam Limited. The Government has also established an independent Information Technology Ministry to promote the Internet, e-commerce and knowledge-based industries. Licensing functions, however, continue to be with the Department of Telecommunications/Telecom Commission. The Communication Convergence Bill 2001 was placed in the Parliament in August 2001. If the Communication Convergence Bill 2001 is converted into an Act of the Parliament, the existing Acts, namely, The Indian Telegraph Act, 1885; The Indian Wireless Telegraphy Act, 1933; Telegraph Wire Unlawful Possession Act, 1950; Cable Television Networks (Regulation) Act 1995 and The Telecom Regulatory Authority of India Act, 1997 would stand repealed. The Communication Convergence Bill provides for the formation of an independent authority -The Communications Commission of India ("CCI")-to regulate the converging sectors of broadcasting, information and telecommunications. So long as the Government's shareholding in the Company equals or exceeds 51 percent, the Company is deemed to be an Indian Government company and is subject to laws and regulations generally applicable to public sector enterprises in India. These laws and regulations concern personnel matters, including appointment of key management personnel and the hiring, dismissal and compensation of employees, as well as budgeting and capital expenditures and the generation of funds through the issuance of securities. For example, all persons appointed to the Company's Board of Directors must first be recommended by the Public Enterprises Selection Board. Disputes between Government enterprises (such as the Company) and Government departments generally must be referred to a Committee of Secretaries of the Government for mediation before either party may bring a claim in a court of law or tribunal. See "Item 3. Key Information--Risk Factors--Regulation; Dispute Resolution." A single Government ministry or department is designated as the primary supervisor of each public sector enterprise: the Department of Telecommunications has been so designated for the Company. The Company's activities also are subject to scrutiny by India's Parliament, and the Department of Telecommunications must submit an annual report to Parliament regarding the Company's activities. The Government has granted "Navratna" status to selected public sector enterprises. Videsh Sanchar Nigam Limited is one of such selected "Navratna" public sector enterprises. "Navratna" status gives the Company, among other things, enhanced autonomy, a greater degree of administrative efficiency regarding capital expenditures and the ability to make joint venture investments (subject to certain limits). In addition, the Company has achieved an "Excellent" rating for the eighth successive year ending in 2001, based on certain targets agreed upon with the Government of India for the relevant fiscal year. 36 SUPERVISION Major policy and management decisions by the Company require consultation with, and/or approval of, Department of Telecommunications or the Telecom Commission. The Department of Telecommunications and the Telecom Commission approve the Company's Five Year Plans and the Company's annual budget, which must be prepared in accordance with the Indian Government's current Five Year Plan. Since the fiscal year ended March 31, 1992, the Company and the Department of Telecommunications have entered into a Memorandum of Understanding each year setting targets for the Company's performance during the upcoming year. The Department of Telecommunications, in addition to supervising the Company as its primary regulator, also acts as representative of the Company's majority shareholder, the Government. As a result, the Department of Telecommunications controls the Company and has the power to elect its Directors to determine the outcome of actions requiring approval of the Company's Board of Directors or shareholders. The Department of Telecommunications also has the authority to exercise the special powers granted to the President of India under the Company's Articles of Association. These include the right to appoint the Company's Chairman and Managing Director and to issue directives with respect to the Company's business. See "Item 10. Additional Information--Powers of the President of India." In March 1997, the Government first established the Telecom Regulatory Authority of India ("TRAI"), an independent regulatory authority under the provisions of the TRAI Act. The TRAI Act was amended in 2000. The amended Act established two independent authorities: the TRAI to regulate telecommunication services and the Telecom Disputes Settlement and Appellate Tribunal (the "TDSAT") to adjudicate disputes, disposal of appeals and to protect the interest of telecommunication service providers and consumers. The regulatory functions of the TRAI fall within two broad categories -- (1) recommendatory and (2) mandatory. The recommendatory functions may be exercised either suo moto or on request from the licensor on the following matters: (1) need and timing for introduction of new service providers; (2) terms and conditions of licences to service providers; (3) revocation of licences for non-compliance with the terms and conditions of the licence; (4) measures to facilitate competition and promote efficiency in the operation of telecommunication services; (5) technological improvements in the services provided by the service providers; (6) type of equipment to be used by the service providers; (7) measures for the development of telecommunication technology and any other matter related to the telecommunication industry in general; (8) efficient management of the available spectrum. The mandatory functions of TRAI include the following: (1) ensure compliance of terms and conditions of licenses; (2) fix the terms and conditions of inter-connectivity arrangements between service providers; (3) ensure technical compatibility and effective inter-connection between different service providers; (4) regulate revenue sharing arrangements among service providers; (5) lay down standards of quality of service to be provided by service providers and ensure the quality of service and conduct and periodically survey such service in order to protect the interest of the consumers; (6) lay down and ensure the time period for providing local and long distance circuits between different service providers; (7) maintain register of interconnect agreements and of all such other matters as may be provided in the regulations; (8) keep such register open for inspection; and (9) ensure effective compliance of universal service obligations. The TRAI also has the authority to levy fees and other charges at such rates and in respect of such services as may be determined by regulations and to perform such other functions including such administrative and financial functions as may be entrusted to it by the Government or as may be necessary to carry out the provisions of the TRAI Act. The recommendations of the TRAI with respect to the matters referred to above are not binding upon the Government. However, the Government must seek the recommendations of the TRAI in relation to the following matters: (1) need and timing for introduction of new service providers; and (2) terms and conditions of new licences given to a service provider. The TRAI is required to forward its recommendations with respect to these matters to the Government within a period of 60 days from the date on which such recommendations are sought or such extended time as may be mutually agreed to between the Government and the TRAI. 37 The TRAI has the authority to request the Government to furnish such information or documents as may be necessary for the purpose of making recommendations and the Government is obliged to furnish such information within seven days of such request from TRAI. In the event that the Government comes to a prima facie conclusion that the recommendations of TRAI with respect to these matters cannot be accepted or need modification, the Government is required to refer the recommendations back to the TRAI for its reconsideration and the TRAI may, within 15 days from the date of receipt of such reference, forward to the Government its recommendations after considering the reference made by the Government and the Government shall make its final decision after receipt of such recommendation from the TRAI. The TDSAT has jurisdiction to adjudicate any dispute between a licensor and a licensee, between two or more service providers, or between a service provider and a group of consumers. The TDSAT also has the jurisdiction to hear and dispose of appeals against any direction, decision or order of the TRAI. The Communication Convergence Bill 2001, introduced in the Parliament in August 2001, envisages the creation of the Communications Commission of India ("CCI") which would be an all-encompassing umbrella body to look into licensing, spectrum management, dispute resolution and determination of regulation codes, technical standards, tariffs, rates for licensed services as well as determine the conditions for fair, equitable and non-discriminatory access to network facility and service. It would also have the powers of a civil court under the Code of Civil Procedure, 1908. LICENSE Pursuant to the Telegraph Act, the provision of any telecommunication services in India requires a license from the Government, obtained through the Department of Telecommunications. The Company operates substantially all of the services it provides under a single license (the "License") initially granted by the Department of Telecommunications to the Company upon its establishment in 1986. The License identifies specific services that the Company is permitted to provide, which encompass all of the services currently provided by the Company, other than Internet services. The License initially granted to the Company was effective for a five-year period ended March 31, 1991. The term of the License was subsequently extended four times, first until March 31, 1993, then until March 31, 1994, then until March 31, 1999, and most recently, until March 31, 2004, each time with minor expansions to the scope of services which the Company was permitted to offer. In January 1999 the Company received a letter from the Department of Telecommunications stating that the Company is the only entity authorized by Government of India to provide basic international telephony services to and from India until 2004. However, in September 2000, the Government announced the early termination of the Company's monopoly in international telephony services. Thus, instead of ending on March 31, 2004, the Company's monopoly will now end on March 31, 2002. To offset the likely loss to the Company due to the early termination of monopoly, the Government has announced the following compensation package: (1) Grant of a license to offer Domestic Long Distance services with the following terms: (a) Government would pay to the Company a sum equal to the amount paid by the Company as entry fee and license fee for a period of 5 years commencing from April, 2001, net of taxes; and (b) Performance Bank Guarantee of Rs.4 billion for the prescribed roll out will be waived; (2) The Company will be granted a Category `A' ISP license which will enable it to provide Internet access at locations across the country; and (3) The Government may also consider additional compensation if found to be necessary based on a detailed review when undertaken. 38 On May 2, 2001, in an Extraordinary General Meeting the shareholders passed a resolution requisitioned by the Government, the majority shareholder, accepting the above compensation package. The Company has subsequently been granted a Category "A" ISP license to provide Internet access at locations across the country. However, the Company has not yet applied for the license to provide domestic long distance telephony services and there can be no assurance that the license will be granted under this compensation package. No payments have been made by the Government to the Company from April 2001 towards the entry fee and license fee since the Company has not yet paid such amounts towards domestic long distance services. The License requires the Company to share with the Department of Telecommunications revenues from international telecommunication services in the manner specified by the Department of Telecommunications from time to time. In February 1997, the Company and the Department of Telecommunications agreed to a revenue sharing arrangement, which covers the period from April 1, 1997 to March 31, 2002. The revenue sharing arrangement provides for the retention or receipt by the Company of a fixed amount per call minute, and provides the Company with a degree of protection from adverse changes in settlement rates and exchange rate fluctuations. Starting in the year ended March 31, 2000, decreases in combined international call revenue, if any, will be shared by the Company and Bharat Sanchar Nigam Limited with effect from October 1, 2000. Bharat Sanchar Nigam Limited has stated that no change to the revenue sharing arrangement is currently contemplated. See "--Traffic Revenue and Revenue Sharing Arrangement--Revenue Sharing Arrangement." The Department of Telecommunications retains the right to modify the terms and conditions of the License (including the Company's monopoly status) at any time if in its opinion it is necessary or expedient to do so in the interest of the general public or for the proper operation of the telecommunications sector. The Department of Telecommunications may also terminate the License before its scheduled expiration upon breach by the Company of any of its terms. In addition, the Department of Telecommunications retains certain rights under the License to receive telecommunication services on a priority or emergency basis. Under the Telegraph Act, the Government and state governments also have the right to take possession and/or control of the Company's facilities and business in cases of public emergency or in the interest of public safety. The Government also has the power to intercept communications carried by the Company, subject to certain constitutional safeguards. The Company began offering Internet access services in August 1995, and the Company operates 12 main Internet access nodes. The Company also provides Bharat Sanchar Nigam Limited with Internet connectivity at approximately 60 remote access nodes owned by Bharat Sanchar Nigam Limited (formerly the Department of Telecommunications), although the Company and Bharat Sanchar Nigam Limited have not yet finalized the terms and conditions under which they will share the related revenue. In November 1998, the Government opened the Internet service provider market to private competition, and the Department of Telecommunications instituted a mandatory license requirement for the provision of Internet services. The Company entered into a license agreement with the Department of Telecommunications on January 25, 1999 with effect from the same day, under which the Company was granted a license to provide Internet services in Delhi, Mumbai, Kolkata, Chennai, Bangalore and Pune on a non-exclusive basis. The Company has been granted a license from the Department of Telecommunications to provide Internet services on an All-India basis by a communication dated November 22, 2000. The terms of the Company's Internet license are generally consistent with the policy for licensing Internet service providers. The term of the license is 15 years. The license can be revoked by the Department of Telecommunications if the Company breaches the terms and conditions of the Internet license. The Department of Telecommunications retains the right to modify the terms and conditions of the Internet license at any time if in its opinion it is necessary or expedient to do so in the interest of the general public, or for the proper operation of the telecommunications sector or for security considerations. The Department of Telecommunications also retains the right to review the terms of the Internet license based on changes in national telecommunications policy. The Company is not allowed to assign or transfer its rights under the Internet license without the prior written consent of the Department of Telecommunications. Although under the terms of the Internet license the Company is free to fix the tariff charged to its subscribers, the TRAI could set a tariff for the provision of Internet access services generally. See "--Government Regulations--Rates." License fees are waived through October 31, 2003, and a nominal license fee of Rs.1 per annum is payable from November 1, 2003. 39 RATES The Company does not control the rates charged to end users of its international telecommunication services. The rates for such services are established and collected by the relevant foreign telecommunications administration or carrier for international calls originating (and billed) outside of India and by the Bharat Sanchar Nigam Limited for international calls originating (and billed) in India. The Company and the Department of Telecommunications share revenues received by each entity from international calls pursuant to a revenue sharing arrangement between the two entities, and the Company receives settlement payments with respect to international calls from, or makes such payments to, foreign telecommunications administrations and carriers based on applicable accounting rates. See "--Traffic Revenue and Revenue Sharing Arrangement." The License provides that the tariffs for all services offered by the Company are subject to the approval of the Department of Telecommunications. The Memorandum of Understanding signed by the Company and the Department of Telecommunications each year, however, has permitted the Company to establish the rates for its specialized services, such as leased lines. Inmarsat mobile services, Internet access services, electronic mail and facsimile forwarding services, services through which subscribers may exchange data with users of other data networks and video conferencing, subject to filing with TRAI. In June 1995, the then Department of Telecommunications introduced an off-peak discount of between 17 and 25 percent for international calls made between 11:00 p.m. and 6:00 a.m. In May 1999, the then Department of Telecommunications issued a tariff order pursuant to which international and domestic long distance tariffs have been reduced by approximately 30%. International telephone call rates are ranging from approximately Rs.24 to Rs.60 per minute. THE TARIFF ORDER 1999 Effective May 1, 1999, the TRAI implemented the telecommunication tariff Order 1999 ("TTO"), which reduced the tariffs that telecommunications service providers may charge with the intended effect of protecting consumers by aligning tariffs that the telecommunications providers may charge with the cost of the applicable service provided while ensuring the commercial viability of the various service providers so as to encourage the expansion of the Indian telecommunications industries. The tariff order reduced the maximum charge per pulse (or metered unit) from Rs.1.40 to Rs.1.20, increased monthly line rental rates for high use subscribers, decreased local call pulse durations (thereby effectively increasing the local call charges) and increased domestic and international call pulse durations (thereby effectively reducing long distance and international call charges). The tariff order allows providers the flexibility to set tariffs below the maximum levels. The tariff order also specifies further reductions in domestic and international long distance and internal call tariff and other tariff adjustments implemented in the year 2000-2001. Accordingly, TRAI for second phase of tariff re-balancing has notified reduced tariffs of 9 to 20 percent for international long distance calls effective from October 1, 2000 to March 31, 2002. Based on the TRAI order, Bharat Sanchar Nigam Limited has revised tariffs for long distance and international call charges effective from October 1, 2000. ORGANIZATIONAL STRUCTURE The Company has no subsidiaries as of the date of this annual report. 40 PROPERTY, PLANTS AND EQUIPMENT DESCRIPTION OF PROPERTY The following table sets forth the principal real properties owned or leased by the Company that were used in its operations as of March 31, 2001.

LOCATION FUNCTION AREA (ACRES) OWNED/LEASED -------- -------- ------------ ------------ MUMBAI Fort VSB Company's registered office 0.3 Owned Mumbai gateway Prabhadevi LVSB Undersea cable station 1.8 Owned Switching facilities Vashi Infotech Park 0.039 Leased Mahape Millenium Business Park 3.115 Leased NEW DELHI VSB Connaught Place Delhi gateway 1.0 Owned Greater Kailash Satellite earth station 127.4 Owned Chattarpur Satellite access node (under 126.0 Owned construction) Dasghara Repeater station 1.0 Leased Meerut Repeater station 1.0 Owned JALANDHAR JP Nagar Jalandhar gateway 0.5 Owned KOLKATA Halisahar Kolkata earth station 82.2 Owned Ultadanga Switching facilities 1.7 Owned SDF Salt Lake Switching facilities 1.7 Leased CHENNAI Adams Road Chennai gateway 2.0 Owned Korathur Earth station 37.08 Owned ERNAKULAM Shive Ernakulam gateway 1.5 Owned PUNE Dighi Pune gateway 774.5 Owned Arvi Satellite earth station 228.0 Owned BANGALORE Satellite earth station 0.4 Leased ITPL IT Park 0.104 Leased DEHRADUN Ahmed Satellite earth station 75.4 Owned Purkaji Repeater station 1.138 Owned Daurala Repeater station 1.784 Owned Muzaffarnagar Repeater station 1.5 Owned Roorkee Repeater station 1.5 Owned Mussoorie Repeater station 2.487 Owned KANPUR Kanpur gateway 2.0 Leased PATNA Earth Station 0.094 Leased

In addition to the above, the Company has staff quarters at the locations wherever it has its operations. None of the above described properties are subject to a major lien or encumbrance. Upon the establishment of the Company in 1986, all of the assets and properties of the Overseas Communications Service were transferred to it by an order of the Government of India which contemplated that details of the transfer would be set forth in a transfer deed. A formal transfer deed has not been executed. While the order of the Government was sufficient to transfer to the Company valid title to all of the non-real estate assets of the Overseas Communication Service, Indian law generally requires that transfers of real estate be evidenced by a formal deed of transfer and registered with a central land registry within a certain period after the transfer in order to protect the transferee against subsequent claims by third parties. Since the transfer of the real estate from the Overseas Communications Service to the Company has not been 41 executed or registered, the Company has been advised by its Indian counsel that, even if a transfer deed is registered, the Company's title to its real property may be subject to potential claims of third parties in respect of the period prior to the date of registration of the deed. The Company does not anticipate any such claims. Indian law requires payment of stamp duty (at rates which vary among states) on instruments which effect transfer of title to real estate. The formal transfer deed, if executed, may be subject to stamp duty at rates ranging from approximately three to 14 percent of the fair market value of the real estate transferred. Such stamp duty may be payable by the Company. As of March 31, 2001, the Company operated eight gateways at Mumbai, Kolkata, Delhi, Chennai, Ernakulam, Gandhinagar, Jalandhar and Kanpur which provide substantially all the connectivity for the Company's services to the international telecommunications network. The Company's international traffic is carried via international satellite links and or by undersea cables. The following table sets forth, as of March 31, 2001, the major facilities, links and circuits at each main gateway, at the three earth stations at Bangalore and at the earth station located near Pune.

NUMBER OF EFFECTIVE CIRCUITS GATEWAY FACILITIES LINK VOICE DATA ------- -------------------- ----------------------------------------- --------- ------ MUMBAI Vikram-1 Satellite Intelsat Atlantic Ocean Region ("AOR") 1,702 79 Earth Station Satellite (359(0))(1) Vikram-2 Satellite Intelsat Indian Ocean Region ("IOR") 1,957 55 Earth Station Satellite (60(0))(1) Vikram-4 Satellite Intelsat TOR Satellite (66(0))(1) 0 0 Earth Station Vikram-5 Satellite Intelsat IOR Satellite (64(0))(1) 208 8 Earth Station Jawahar Satellite Intelsat IOR Satellite (64(0))(1) 0 0 Earth Station Arvi Land Earth Immarsat IOR Satellite (64.5(0))(1) 120 0 Station India-U.A.E. Mumbai-Fujiarah (U.A.E.) 1,081 0 Undersea Cable System (Gulf Cable) SEA-ME-WE 2 Singapore, Indonesia, Sri Lanka, India, 4,099 461 Undersea Optical Djibouti, Saudi Arabia, Egypt, Turkey, Fibre Cable System Cyprus, Italy, Tunisia, Algeria and France Fibre Optic Link Japan, Korea, China, Hong King, 2,525 482 Around the Globe Thailand, Malaysia, India, U.A.E., Undersea Optical Egypt, Saudi Arabia, Italy, Spain and Fibre Cable System United Kingdom SMW-3 Undersea Japan, S. Korea, China, Taiwan, Hong 362 1,693 Optical Fibre Cable Kong, Philippines, Vietnam, Brunei, System Malaysia, Singapore, Thailand, Indonesia, Australia, Sri Lanka, India, Pakistan, UAE, Oman, Saudi Arabia, Egypt, Djibouti, Cyprus, Turkey, Greece, Italy, Portugal, France, UK, 0 107 Belgium, Germany Intelsat IOR Satellite (66(0))(1) 42 KOLKATA Kolkata Satellite Intersputnik Express IOR Satellite 8 0 Earth Station (80(0))(1) Bose-1 Satellite Intelsat IOR Satellite (64(0))(1) 822 64 Earth Station Bose-4 Satellite Intelsat IOR Satellite (62(0))(1) 120 0 Earth Station DELHI Ahmed Satellite Intelsat IOR Satellite (62(0))(1) 2,274 319 Earth Station Ahmed Satellite Intelsat IOR Satellite (57(0))(1) 0 0 Earth Station(2) Greater Kailash Intelsat IOR Satellite (64(0))(1) 232 57 Satellite Earth Station New Delhi Satellite Intelsat IOR Satellite (64(0))(1) 0 0 Earth Station Coaxial Cable System The Department of Telecommunications 30 0 CHENNAI Indian Ocean Chennai-Penang (Malaysia) 323 0 Commonwealth Undersea Cable ("IOCOM") Chennai Satellite Intelsat IOR Satellite (66(0))(1) 0 0 Earth Station(2) Thiruvalluvar Intelsat IOR Satellite (64(0))(1) 1,391 252 Satellite Earth Station 43 ERNAKULAM Ernakulam Satellite Intelsat IOR Satellite (60(0))(1) 793 0 Earth Station SMW-3 Undersea Japan, S. Korea, China, Taiwan, Hong 1,299 996 Optical Fibre Cable Kong, Philippines, Vietnam, Brunei, System Malaysia, Singapore, Thailand, Indonesia, Australia, Sri Lanka, India, Pakistan, UAE, Oman, Saudi Arabia, Egypt, Djibouti, Cyprus, Turkey, Greece, Italy, Portugal, France, UK, Belgium, Germany GANDHINAGAR Gandhinagar Intelsat IOR Satellite (64(0))(1) 210 0 Satellite Earth Station JALANDHAR Jalandhar Satellite Intelsat IOR Satellite (64(0))(1) 671 0 Earth Station BANGALORE Sona Towers Intelsat IOR Satellite (64(0))(1) 0 19 Satellite Earth Station Aeronautical Intelsat IOR Satellite (62(0))(1) 0 241 Development Agency Satellite Earth Station Information Intelsat IOR Satellite (64(0))(1) 0 79 Technology Park Ltd. Satellite Earth Station PUNE Information Intelsat AOR Satellite (359(0))(1) 0 4 Technology Park Ltd. Satellite Earth Station KANPUR Kanpur-1 Satellite Intelsat IOR Satellite (64(0))(1) 268 0 Earth Station TOTAL EFFECTIVE CIRCUITS 20,495 4,916 ====== =====

(1) The satellite degrees referred to in the table denote the degree at which the Company's earth station antenna point at the satellite and at which they transmit and receive communications. (2) Facilities used exclusively for television broadcasting services. CIRCUITS As of March 31, 2001, the Company operated 20,495 effective international voice circuits, of which 10,776 were satellite circuits and 9,719 were cable circuits. As of such date, the Company had digital connections with 244 of the foreign administrations and carriers with which it had direct links. The Company intends to establish digital connections with the remainder of the foreign administrations and carriers with which it has direct links when such administrations and carriers upgrade their facilities. From April 1, 2000 to March 31, 2001, the Company recorded an average of 437 international paid minutes per day per circuit, compared to an international norm of approximately 250 paid minutes per day per circuit. 44 The Company's policy is to maintain a sufficient number of international circuits so that no more than one percent of call attempts are blocked due to lack of an international circuit. The Company, through the acquisition of additional circuits, is also seeking to reduce the average number of international paid minutes carried per day per circuit from 437 to levels closer to the international norm. The Company meets periodically with most of its correspondent foreign telecommunications administrations and carriers, either bilaterally or through conferences organized by satellite or cable consortia, to project future demand for international circuits between India and other countries, to allocate capacity on existing telecommunications satellites and undersea cables and to plan for expanding capacity to meet future demand. SATELLITES. As of March 31, 2001, the company operated a total of 10,776 satellite voice circuits and 1,284 satellite data circuits through 14 earth stations at its eight gateways, two earthstations located at Bangalore and its earth station located in Pune. Satellite capacity is obtained from International Telecommunications Satellite Organization ("Intelsat") and International Mobile Satellite Organization ("Inmarsat"), two satellite consortia established by national telecommunications administrations for the purpose of owning and operating satellite communication systems. As of March 31, 2001, the Company had an interest of approximately 5.42 % in Intelsat. Telecommunications administrations and carriers from 145 countries have investment shares in Intelsat. Intelsat charges international telecommunications administrations and carriers for the use of their satellites in order to meet its operating expenses and amortization costs. Any surplus then remaining is distributed annually to consortium members based on their respective ownership share in Intelsat. Intelsat had been privatized with effect from July 18, 2001. The holding company is known as Intelsat Ltd., incorporated in Bermuda. After conversion, the Company holds 5.4 % (27,045,940 shares of par value US $ 1 each) in Intelsat. The Chairman and Managing Director of the Company is a member of the Board of Directors of Intelsat Ltd. During 1998-99, Intelsat as part of its restructuring process incorporated New Skies Satellite (NSS) as a corporation with limited liability under the laws of Netherlands and transferred certain assets and liabilities to NSS accounted for at historic book values. In return, NSS issued 10, 000,000 shares of common stock of Dutch Guilder 1 each to Intelsat. Intelsat distributed 9,000,000 shares of NSS in the year 1998-99 and 1,000,000 shares of NSS in 1999-2000 in proportion to the investment share of its members at the time of distribution. Consequently, the Company acquired 301,215 shares in 1998-99 and 43,000 shares in 1999-2000. NSS announced a 10: 1 stock split prior to its initial public offer (IPO) in October 2000 and redesignated its shares from Guilders to Euros. Thus, the Company's total holding in NSS as of March 31, 2001 stands at 3,442,150 ordinary shares of 0.05 Euros each. The market value per share as of March 30, 2001 was US $ 7.75 per share. The intergovernmental organization Inmarsat was privatized on April 15, 1999. The Company's shareholding in Inmarsat Ventures Plc, (formerly Inmarsat Holdings Limited) is in proportion to its investment share in privatization which is 2.02 %. UNDERSEA CABLES. As of March, 31, 2001, the Company operated a total of 9,719 effective voice circuits and 3,632 data circuits on undersea cables landing in India. The Company has ownership interests and access to capacity in undersea cables interconnecting the South Asia region, as well as those linking the region with Europe, North America and Asia/Pacific. The Company holds a 47.5 percent ownership interest in the analog IOCOM cable between Chennai, India and Penang, Malaysia and as of March 31, 2001 was operating approximately 323 of its total capacity of 480 circuits. The Company also holds a 50 percent ownership interest in an analogue undersea cable between Mumbai and Fujiarah, U.A.E., which has a total capacity of 1,380 circuits, of which 1,081 were being used as of March 31, 2001. The Company also holds an interest of approximately 10 percent in the South East Asia-Middle East-Western Europe 2 optical fiber cable, which lands in 13 countries between Singapore and France, including India. This cable, which became fully operational in June 1994, was operating 4,099 and 461 effective high speed circuits as of March 31, 2001. In addition to expanding significantly the number of international circuits available to the Company, this cable has also led to an improvement in the Company's international services, since fiber optic cables provide relatively higher quality transmission than satellites and enhance the Company's ability to offer high quality, high capacity digital data transmission services. 45 The Company entered into a Construction and Maintenance Agreement with other international telecommunications carriers for the construction of the South East Asia-Middle East-Western Europe 3 (SEA-ME-WE 3), a high capacity undersea optical fiber cable extending from Germany to Japan and Australia that lands in a total of 33 countries (including India, with landing points at Mumbai and Cochin). The Company made a provision of Rs.2.5 billion (US$53.36 million) investment in this cable in its revised Ninth Plan and the Company has acquired a 3.5 percent interest in the cable. This cable added a total of approximately 11,340 Voice Circuits to the Company's transmission capacity from Mumbai and Cochin out of which a total of 10,901 circuits were utilized as of March 31, 2001. This cable operated at a total of 362 effective Voice and 1,693 Data circuits from Mumbai as also 1299 effective Voice and 996 Data circuits respectively from Cochin as of March 2001. The Company has in addition purchased 4,650 circuits in the Fibre Optic Link Around the Globe (FLAG-Europe Asia) cable system, a high capacity fiber optic cable with 19 landings in 13 countries (including India) linking Asia and Europe. This cable system was commissioned in December 1997. As of March 31, 2001, 3,007 of the Company's purchased circuits on this cable system were in use. The Company also has ownership interests in various undersea cables that do not land in India, but which provide connections between various locations served by the Company. These cables include the Trans-Atlantic 12/13 Cable (connecting the United Kingdom, France and the United States), the Trans-Pacific Cable (connecting the United States, Canada and Japan), the Asia Pacific Cable (Segment S-J) (connecting Singapore and Japan) and the Columbus 2-America 1 Cable (connecting Italy and the United States). In addition to its direct ownership interests in such undersea cables, the Company has purchased indefeasible rights of use guaranteeing access to other undersea cables in the Atlantic and Pacific Oceans. SWITCHES As of March 31, 2001, the Company had the capacity to connect 37,271 international telephone, 2,386 telex and 198 telegraph circuits or channels to its switches. Substantially all of the Company's telephone capacity is digital, provided by 12 digital switches installed at the Company's eight gateways. Each gateway is linked to the other gateways via dedicated digital lines leased from Bharat Sanchar Nigam Limited, which permits multiple routing options for each call and provides the system with back-up capability in case of equipment failure or over-crowding at any gateway. The switches operated by the Company are supplied by Ericsson and NEC. With a view to obtaining secure and competitive supplies, the Company procures equipment from a wide range of sources, and the Company considers that in all major areas of procurement there are sufficient alternative suppliers to make it unlikely that interruption of supply from any one source would cause more than a temporary delay in the implementation of the Company's plans. OTHER FACILITIES In addition to the circuits and switches described above, the Company's infrastructure includes various facilities used primarily for its specialized and value-added services. As of March 31, 2001, the Company owned five high capacity underground fiber optic cables between Pune and Chennai, approximately 50 earth stations, six terrestrial radio communication wires connecting the Company's international switches with its earth stations and a variety of hardware used for the Company's six main Internet access nodes. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion of the results of operations and financial condition of the Company for the fiscal years ended March 31, 1999, 2000 and 2001 should be read in conjunction with the financial statements of the Company and the Notes thereto included elsewhere herein. The following discussion is based on the Company's audited financial statements for the fiscal years ended 1999, 2000 and 2001, which have been prepared by the Company in accordance with US GAAP. 46 OPERATING RESULTS The following table sets forth information regarding the Company's operating data for the fiscal years ended March 31, 1999, 2000 and 2001.

YEARS ENDED MARCH 31, --------------------------------------------------------------- 1999 2000 2001 -------------------- -------------------- --------------------- Paid telephone minutes (millions)............. Incoming...................................... 1,499 1,773 2,161 Outgoing...................................... 436 473 527 Total...................................... 1,935 2,246 2,688 Ratio (incoming/outgoing)..................... 3.44 3.75 4.10 Average revenue received from Bharat Sanchar Nigam Limited for outgoing telephone calls ... (Rs./minute)................................. 41.84 38.85 34.81 Average settlement rate received from foreign administrations for incoming telephone calls.. (Rs./minute).................................. 29.24 25.47 21.60 (US$/minute)(1)............................... 0.69 0.58 0.46

------------------ (1) Translated at the average of the Market Rates on the last day of each month during the period which was Rs.42.50, Rs.43.65 and Rs. 46.85 per US$ for the fiscal years ended March 31, 1999, 2000 and 2001 respectively. The following table sets forth information regarding the Company's operating revenue for the fiscal years ended March 31, 1999, 2000 and 2001.

YEARS ENDED MARCH 31, ------------------------------------------------------------------------ 1999 2000 2001 2001 ----- ---- ---- ---- (RS. IN MILLIONS) US$ in millions ------------------------------------------------- ----------------- OPERATING REVENUE Incoming telephone............. 43,834 45,161 46,674 996 Incoming telex................. 186 128 112 2 Outgoing telephone............. 18,243 18,375 18,345 392 Outgoing telex................. 173 175 112 2 Leased circuits................ 2,499 2,986 3,140 67 Internet access services....... 1,733 2,095 2,980 64 Other revenue.................. 513 720 553 12 ------ ------ ------ ----- Total traffic revenue.......... 67,181 69,640 71,916 1,535 ====== ====== ====== =====

REVENUE The principal components of the Company's revenue are (1) payments from foreign telecommunications administrations and carriers for incoming traffic (prior to deducting amounts payable by the Company for outgoing traffic), which are typically denominated in mostly Special Drawing Rights ("SDRs") or Dollars, and (2) payments from Bharat Sanchar Nigam Limited for outgoing traffic (prior to deducting amounts payable by the Company for incoming traffic), which are denominated in Rupees. The major factors influencing revenue include traffic volume and its composition in terms of incoming and outgoing calls and country of origination and destination, the revenue sharing arrangement with Bharat Sanchar Nigam Limited, accounting rates negotiated with foreign administrations and the Rupee/SDR and the Rupee/Dollar exchange rates. See "Item 4. Information on the Company--Traffic Revenue and Revenue Sharing Arrangement." 47 TELEPHONE REVENUE. Revenue from telephone traffic historically has constituted the most substantial component of the Company's revenue, accounting for 92.40, 91.23 percent and 90.41 percent of revenue for the fiscal years, 1999, 2000 and 2001, respectively. The decline in telephone traffic revenue as a percentage of total revenue is due primarily to the increasing revenue contribution from specialized and value-added services such as Internet access and international leased lines. Telephone revenue grew by 2.35 percent during fiscal 2000 and by 2.33 percent during fiscal 2001, reflecting increases in total call volumes (as measured in paid telephone minutes) of 16.07 percent and 19.68 percent, respectively. Incoming call revenue increased by 3.03 percent during fiscal 2000 and by 3.35 percent during fiscal 2001 primarily as a result of increases in incoming call volume of 18.28 percent and 21.88 percent, respectively, and the depreciation of the Rupee against the SDR and the Dollar which increased in Rupee terms the amount of foreign currency received from foreign administrations and carriers. This increase was in spite of reductions in accounting rates between the Company and foreign administrations and carriers in the same period. The average settlement rate received from foreign administrations and carriers in respect of incoming telephone traffic for fiscal 1999, 2000 and 2001 decreased in Dollar terms from US$0.69, to US$0.58 and to US$0.46 minute, respectively as a result of decreases in accounting rates applicable to the Company. Outgoing call revenue increased by 0.72 percent during fiscal 2000 due to an increase in outgoing call volume of 8.49 percent; Outgoing call revenue decreased by 0.16 percent in fiscal 2001 despite an increase in call volume of 11.42 percent (due primarily to decreases in the applicable accounting rates.) The increases in incoming call volume in fiscal 2000 and fiscal 2001 were attributable, among other things, to decreases in average tariff rates for international calls charged by foreign administrations and carriers, including those in the United States, which resulted in part from decreases in accounting rates. See "Item 4. Information on the Company--Traffic Revenue and Revenue Sharing Arrangement--Payments to and from Foreign Administrations or Carriers." Increases in incoming call volume are also attributable to the increasing volume of calls from India made through call-back and home country direct services, which calls are billed outside of India and are therefore treated as incoming calls. The increases in outgoing call volume in such periods were attributable principally to the expansion and upgrading of the domestic telephone network which resulted in improved access to the Company's international telephone services and to the reduction in tariffs for outgoing international calls. The ratio of incoming to outgoing calls increased steadily from 3.44 in fiscal 1999, to 3.75 in fiscal 2000 and to 4.10 in fiscal 2001. Such increases in the ratio of incoming to outgoing calls are due, among other things, to continuing decreases in average tariff for international calls charged by foreign administrations and carriers, including those in the United States, as a result of which it is cheaper to place a long-distance call to India from an international destination than to place an international long-distance call from India, and the effect of call-back and home country direct services. The Company is facing further declines in international accounting rates, particularly with US carriers. See "Item 4. Information on the Company --Traffic Revenue and Revenue Sharing Arrangements--Payments to and from Foreign Administrations or Carriers." Declines in tariff rates for telephone services offered by the Company, including an approximately 27 percent reduction in peak international call tariffs for fiscal 2000, have also been mandated by the TRAI. TRAI has also mandated a further 23 percent reduction in peak international call tariffs over the two fiscal years ended 2002. Accordingly, the TRAI has mandated a further reduction in tariffs of 16 to 20 percent for international long distance calls. Such reduced tariffs are between October 1, 2000 and March 31, 2002. See "Item 3. Key Information--Risk Factors--Tariff Reform." While further declines in tariff rates can be expected to increase traffic volume, there can be no assurance that lower tariff rates will not lead to unfavorable revisions to the revenue sharing arrangement with Bharat Sanchar Nigam Limited or otherwise adversely affect the Company's business and prospects. TELEX REVENUE. Total revenue from telex services decreased from Rs.359 million in fiscal 1999, to Rs.303 million in fiscal 2000 and to Rs.224 million (US$4.78 million) in fiscal 2001. Such decreases are attributable principally to a decline in telex traffic volume as customers switched from using telex services to other forms of communication such as facsimile, telephone and E-mail. Telex revenue accounted for 0.53 percent of total traffic revenues in fiscal 1999, 0.44 percent in fiscal 2000 and 0.31 percent in fiscal 2001. 48 LEASED CIRCUITS REVENUE. Revenue from leased circuits increased by 19.49 percent during fiscal 2000 and by 5.16 percent during fiscal 2001. Increase in revenue from leased circuits is lower as compared to the increase in the number of customers due to the drastic reduction in tariffs over the period. INTERNET ACCESS SERVICES REVENUE. Internet access services were first introduced by the Company in India in August 1995. Revenues from Internet services were Rs.1,733 million, Rs.2,095 million and Rs 2,980 million (US$64 million) during fiscal 1999, fiscal 2000 and fiscal 2001, respectively, an increase of 20.89 percent and 42.24 percent during fiscal 2000 and fiscal 2001, respectively. The Company's Internet subscribers, inclusive of customers connectd across the remote access nodes of Bharat Sanchar Nigham Limited, have grown from 213, 045 as of March 31,1999 to 366,432 as of March 31, 2000 and had reached 630,970 as of March 31,2001. Increase in Internet revenues is lower as compared to increase in customers due to the drastic reduction in tariffs over the period. The Company was initially the sole provider of Internet services in India. However, the Government announced a new Internet policy in November 1998 which allows the entry of private Internet service providers. As of March 31, 2001, there were approximately 400 licensed Internet service providers in India. See "Item 4. Information on the Company--Industry Overview--Recent Developments." In late 1998, the Department of Telecommunications instituted a mandatory license requirement for the provision of Internet services. The Company and the Department of Telecommunications entered into a license agreement on January 25, 1999, with effect on the same day, under which the Company was granted a license to provide Internet access service in six cities on a non-exclusive basis. OTHER REVENUE. Other traffic revenues include revenues from services such as the transmission of television signals, telegraph services, electronic mail and facsimile forwarding services, services through which subscribers may exchange data with users of other data networks, electronic data interchange, and video conferencing. Revenue from these sources accounted for 0.76 percent in fiscal 1999, 1.03 percent in fiscal 2000 and 0.77 percent in fiscal 2001. ACCOUNTING RATES. The Company has concluded its annual negotiations with its US correspondent carriers and with other major foreign correspondent carriers and administrations with respect to accounting rates applicable to fiscal 2001. The Company recorded revenues on its incoming calls and costs on its outgoing calls for the year ended March 31, 2001 at the accounting rates at which final settlement was reached. INCOME FROM SATELLITE CONSORTIA. This income accrues from investment in satellite consortia, which are on account of amounts paid to Intelsat for the use of its satellites, which are paid to the signatories in the form of compensation for the use of Capital. Such income decreased by 2.64 percent in fiscal 2000- and increased by 57.39 percent in fiscal 2001. The increase was on account of additional special distribution on account of the privatization of Intelsat. OPERATING COSTS The principal components of the Company's operating costs are network and transmission costs, other operating costs and the license fee paid to Department of Telecommunications. The following table sets forth certain information regarding the components of the Company's operating costs for the fiscal years ended March 31,1999, 2000 and 2001. 49

YEARS ENDED MARCH 31, ----------------------------------------------------- 1999 2000 2001 ----------------- ----------------- ----------------- Average revenue sharing rate paid to Bharat Sanchar Nigam Limited for incoming telephone calls ......... (Rs./minute)........................................ 18.28 16.46 12.53 Average settlement rate paid to foreign administrations for outgoing telephone calls........ (Rs./minute)........................................ 32.33 26.33 23.81 (US$/minute)(1)..................................... 0.76 0.60 0.51 Network and transmission costs (in millions)....................................... Transmission costs to Bharat Sanchar Nigam Limited(2) Rs.27,682 Rs.29,254 27,341 Transmission costs to foreign administrations(3).... 14,762 13,374 13,866 Other transmission costs............................ 2,695 2,993 3,943 ----- ----- ----- Total............................................... 45,139 45,621 45,150 Other operating costs including depreciation (in millions)........................................... 2,894 4,156 4,752 Government levy/license fee (in millions)....................................... 4,157 4,712 5,022 ----- ----- ----- Total operating costs (in millions)................. 52,190 54,489 54,924 ====== ====== ======

-------------- (1) Translated at the average of the market rates on the last day of each month during the period which was Rs.42.50, Rs.43.65 and Rs.46.85 per US$1.00 for the fiscal years ended March 31,1999, 2000 and 2001 respectively. (2) Out of such amounts, payments in respect of incoming telephone calls amounted to Rs.27,405 million, Rs.29,176 million and Rs.27,079 million for the fiscal years ended March 31, 1999, 2000 and 2001 respectively. (3) Of such amounts, payments in respect of outgoing telephone calls amounted to Rs.14,095 million, Rs.12,455 million and Rs.12,578 million for the fiscal years ended March 31, 1999, 2000 and 2001 respectively. NETWORK AND TRANSMISSION COSTS. Network and transmission costs include transmission costs to Bharat Sanchar Nigam Limited for incoming traffic and to foreign administrations and carriers for outgoing traffic (See "Item 4. Information on the Company--Traffic Revenue and Revenue Sharing Arrangement"), as well as the cost of leasing certain transmission facilities, including lines from Bharat Sanchar Nigam Limited and satellite circuits from Intelsat, Inmarsat and New Skies Satellites, NV. Transmission costs to Bharat Sanchar Nigam Limited for incoming traffic increased by 5.68 percent during fiscal 2000 while these costs have decreased by 6.54 percent during fiscal 2001, principally due to decrease in settlement rates being higher than the increase in volume. The average revenue sharing rate paid to Bharat Sanchar Nigam Limited per minute for incoming traffic decreased over this period. Transmission costs to foreign administrations and carriers for outgoing traffic decreased by 9.4 percent during fiscal 2000 due principally to decrease in settlement rates. Payments to foreign administrations and carriers for outgoing traffic increased by 3.68 percent in fiscal 2001 due to an increase in call volume being higher than the increase in settlement rates. The average settlement rate paid to foreign administrations and carriers decreased in US Dollar terms from US$0.76, to US$0.60 per minute and to US$0.51 per minute, and in Rupee terms from Rs.32.33, to Rs.26.33 and to Rs.23.81 per minute for the fiscal years ending March 31, 1999, 2000 and 2001 respectively. This decrease was primarily as a result of decreases in accounting rates applicable to the Company. The cost of leasing transmission facilities increased by 11.06 percent and 31.74 percent during fiscal 2000 and fiscal 2001 respectively. Such increases are attributable primarily to increases in both incoming and outgoing call volume, which necessitated leases of additional lines and satellite circuits. OTHER OPERATING COSTS. Other operating costs consist of staff costs, depreciation, energy costs and other costs, including for repairs, maintenance and marketing. During fiscal 2000 other operating costs increased by 43.61 percent and during fiscal 2001 other operating costs increased 14.34 percent due principally to greater expenditures relating to repairs and maintenance, spares and electricity charges and substantial increases in staff costs. 50 LICENSE FEE. For fiscal 1999, fiscal 2000 and fiscal 2001 under the current revenue sharing arrangement with the Department of Telecommunications, the Company paid to the Department of Telecommunications a license fee of Rs.0.25 million per circuit commissioned on average per annum. Under the current revenue sharing arrangement with the Department of Telecommunications, the amount of the license fee paid by the Company increased by 13.35 percent during fiscal 2000 and by 6.58 percent due fiscal 2001 due to the addition of commissioned circuits. OPERATING PROFIT The following table sets forth certain information regarding the Company's gross telephone and operating profits for the fiscal years ended March 31, 1999, 2000 and 2001.

YEARS ENDED MARCH 31, -------------------------------------------------- 1999 2000 2001 ---------------- ---------------- ---------------- Gross profit on telephone services (in millions)(1).... Rs.20,577 Rs.21,174 Rs.25,251 Gross profit per telephone minute...................... 10.63 9.43 9.39 Incoming(2).......................................... 9.92 12.54 8.99 Outgoing(2).......................................... 10.84 8.60 11.05 Operating profit (in millions)....................... 15,748 15,888 18,152

----------------- (1) Telephone revenue net of revenue sharing payments to Bharat Sanchar Nigam Limited for incoming telephone calls and settlement payments to foreign administrations and carriers for outgoing telephone calls after prior year adjustments. (2) The actual gross profit per telephone minute with respect to incoming calls from, and outgoing calls to, particular countries varies depending on the settlement rates negotiated with the telecommunications administrations or carriers of such countries. Gross profit on telephone services increased 2.90 percent and 19.25 percent in fiscal 2000 and fiscal 2001 respectively. These increases are due primarily to increases in total traffic volume of 16.07 percent and 19.68 percent, for the fiscal years ended March 31, 2000 and 2001 respectively. The increase in gross profit on telephone services in fiscal 2000 and 2001 was despite a 11.29 and 0.42 percent decrease in gross profit per telephone minute due to drastic reductions in settlement rates and changes in traffic patterns. Gross profit per telephone minute is the average of gross profit per telephone minute for incoming and outgoing traffic, weighted by the ratio of incoming to outgoing calls. Gross profit per telephone minute for incoming traffic increased by 26.41 percent during fiscal 2000 and decreased by 28.31 percent during fiscal 2001 the Company due to an increase in losses borne by the Company in connection with its revenue sharing arrangements with Bharat Sanchar Nigam Limited. In fiscal 1998 the current revenue sharing arrangement came into effect, and under the current revenue sharing arrangement, payments between the Company and Bharat Sanchar Nigam Limited over the course of the fiscal year are based on settlement rates and exchange rates prevailing at the beginning of the fiscal year. See "Item 4. Information on the Company--Traffic Revenue and Revenue Sharing Arrangement." During fiscal 2000 and fiscal year 2001, the fall in the depreciation of the Rupee against the SDR and the US Dollar exceeded the fall in the average incoming settlement rates. Consequently, the payments made by the Company in fiscal 1999 and fiscal 2000 were based on lower incoming settlement rates than the Company actually received from foreign administrations and carriers during the course of the year. Coupled with the larger fall in the value of the Rupee relative to incoming settlement rates the Company earned a gross profit per incoming telephone minute that was higher than the Rs.10 per minute provided under the revenue sharing agreement. Gross profit per telephone minute for outgoing traffic decreased by 20.66 percent during fiscal 2000 and increased by 28.49 percent in fiscal 2001. In fiscal 1999, fiscal 2000 and fiscal 2001, the Company was operating under the current revenue sharing arrangement under which the payments between the Company and Bharat Sanchar Nigam Limited are based on settlement rates and exchange rates prevailing at the beginning of the fiscal year. See "Item 4. Information on the Company-- Traffic Revenue and Revenue Sharing Arrangement." During fiscal 2000 and fiscal 2001, the depreciation of the Rupee against the SDR and the US 51 Dollar exceeded the fall in average outgoing settlement rates. Consequently, the payments received by the Company from Bharat Sanchar Nigam Limited in fiscal 1999, 2000 and fiscal 2001 were based on lower outgoing settlement rates than the Company actually paid to foreign administrations and carriers during the course of the year. Coupled with the lesser depreciation of the Rupee against the SDR and the US Dollar relative to the fall in average outgoing settlement rates, the Company earned a gross profit per outgoing telephone minute that was higher than the Rs.10 per minute provided under the revenue sharing arrangement. Operating profit increased by marginally 0.89 percent during fiscal 2000. Operating profit increased by 14.25 percent during fiscal 2001 due to primarily increase in gross profit on telephone services as well as revenues from leased circuits, Internet access services, offset by increases in rent of transmission facilities and other operating costs. INVESTMENT AND OTHER INCOME The following table sets forth certain information regarding the components of the Company's investment and other income for the fiscal years ended March 31, 1999, 2000 and 2001.

YEARS ENDED MARCH 31, ------------------------------------------------- 1999 2000 2001 ---------------- ---------------- --------------- (IN MILLIONS) Revenue from Intelsat................................. 507 737 1,160 Revenue from Inmarsat................................. 250 - - Profit / (loss) on sale of investments................ 10 86 (5) Forex gains........................................... 3,168 1,449 2,878 Other income.......................................... 1,523 1,968 4,148 ----- ----- ----- Total................................................. 5,458 4,240 8,181 ===== ===== =====

The principal components of investment and other income are net foreign exchange gains (comprised mainly of net gains arising from period-end retranslations of settlement payments owed by foreign administrations and carriers, as well as net gains realized upon receipt of such settlement payments, and net gains arising from the retranslation of period-end cash balances) and revenues from Intelsat and Inmarsat. In April 1999, Inmarsat was restructured as a corporate entity and the Company was allotted shares in lieu of its investment in Inmarsat. Consequently, any future revenues from this investment will be in the form of dividends. Investment and other income decreased during fiscal 2000 by 37.18 percent and in fiscal 2001, increased by 64.89 percent primarily due to an increase of compensation from Intelsat on account of special distribution and higher foreign exchange gains. NET INTEREST Net interest represents the net interest amount receivable or payable by the Company on its bank and other deposits and borrowings under its overdraft facilities. Net interest receivable increased during fiscal 2000 from Rs.1,387 million in fiscal 1999 to Rs.1,683 million and during fiscal 2001 to Rs.3,964 million (US$84.61 million) due to an improvement in the Company's cash position. INCOME BEFORE TAXATION Income before taxation increased by 28.86 percent from Rs.15,002 million in fiscal 1999 to Rs.19,331 million in fiscal 2000. Income before taxation increased by 30.22 percent in fiscal 2001 to Rs.25,173 million (US$537.31 million). 52 INCOME TAX EXPENSE The Company's effective tax rates (including dividend tax) were 42.23 percent, 32.28 percent and 38.32 percent for fiscal 1999, fiscal 2000 and fiscal 2001, respectively, compared to the statutory rate of 38.5, 39.2, 35 percent for all such fiscal years. Such effective rates were attributable to exchange gains treated as capital receipts for income tax provision, provision in dimunition in the value of investments not allowed for tax, etc.. The Indian tax authorities have taken the position that the Company is not entitled to a tax deduction it took in the year ended March 31, 1995 for license fees paid by it to the DOT. The Indian tax authorities claim that the Company owes approximately Rs.2.8 billion, Rs.2.4 billion, Rs.2.5 billion, Rs.3.0 billion and Rs.2.6 billion in respect of taxes due (including interest, but excluding penalties) in connection with the license fees for the years ended March 31, 1994, 1995, 1996, 1997 and 1998, respectively. Tax refunds otherwise due to the Company for subsequent years, amounting to approximately Rs.6.46 billion, have been applied by the Indian income tax authorities to a portion of this disputed claim. In addition, the Company has paid the tax authorities Rs.3.6 billion with respect to this claim. However, the outstanding amount continues to accrue interest at a rate of two percent per month. The Company disputed this claim and lodged an appeal with the Commissioner of Income-tax (Appeals) - I, Mumbai for each of the four relevant years. The Company subsequently appealed to the Income-tax Appellate Tribunal, Mumbai as the Commissioner of Income-tax (Appeals) - I. Mumbai denied the Company's claim with respect to the year ended March 31, 1995. The appeals with respect to the other years are still pending with the Commissioner of Income-tax (Appeals) - I, Mumbai. On September 14, 2000 the Income-tax Appellate Tribunal, Mumbai issued an order in the Company's favor and held that the license fee paid by the Company to the DOT is an allowable tax deductible expenditure under the Income Tax Act. Consequent to this order, the refund due to the Company is adjusted against the demand due for the subsequent years. In addition, the Company can request the Commissioner of Income-tax (Appeals) - I, Mumbai to expedite the orders for the other years. The Income Tax Department has the right to appeal the order of the Income Tax Appellate Tribunal in the High Court within a period of 120 days from the date of the order. The Company has so far not received any communications from the department/High Court on whether the department has disputed this claim of the Company in the High Court. If the Company loses that case, the tax authorities may make the Company liable for similar claims for subsequent years and this could result in an aggregate potential liability of approximately Rs.12.4 billion (US$264.8 million) including interest, but excluding penalties, thereon as of March 31, 2001 and additional amounts for the periods thereafter. The Company has been advised by independent Indian counsel that it believes that the Company has a strong case with respect to this claim. The Indian tax authorities have also taken the position that the Company is not entitled to a tax benefit claimed by it in the years ended March 31, 1996, 1997 and 1998 with respect to certain of its profits which the Company claims were generated by an enterprise engaged in infrastructure development. The Indian tax authorities claim that the Company owes approximately Rs.0.1 billion, Rs.0.3 billion and Rs.0.5 billion in respect of taxes due (including interest) in connection with such profits for the years ended March 31, 1996, 1997 and 1998, respectively. The Company disputes this claim and has lodged an appeal with the Commissioner of Income-tax (Appeals) - I, Mumbai. The outstanding amount of the claim continues to accrue interest at a rate of two percent per month. If the Company loses its case, the tax authorities may make similar claims for subsequent years, resulting in an aggregate potential liability of approximately Rs.5.7 billion (US$121.66 million) including interest, but excluding penalties, thereon as of March 31, 2001 and additional amounts for periods thereafter. The Company believes that it has a reasonable basis for its claim and that its appeal will succeed. Furthermore, the Indian tax authorities have taken the position that the Company has not offered for tax certain reimbursements it received from the Government during the year ended March 31, 1994. The Indian tax authorities claim that the Company owes approximately Rs.1.1 billion in respect of taxes due in connection with such reimbursements for the year ended March 31, 1994. The Company disputes this claim and has lodged an appeal with the Commissioner of Income Tax (Appeals) - I. Mumbai. The outstanding amount of the claim continues to accrue interest at the rate of two percent per month. If the Company loses its case, the Company's aggregate potential liability would be approximately Rs.2.7 billion (US$57.63 million) including interest, but excluding penalties, thereon as of March 31, 2001. The Company believes that it has a reasonable basis for its claim and that its appeal will succeed. 53 Consequently, the Company has not made provision for the potential liability arising from these claims. NET INCOME Net income increased by 51.06 percent in fiscal 2000 from Rs.8,666 million in fiscal 1999 to Rs.13,091 million in fiscal 2000. Net income increased by 17.81 percent in fiscal 2001 to Rs.15,422 million (US$329 million) from Rs.13,091 in fiscal 2000. LIQUIDITY AND CAPITAL RESOURCES The Company traditionally has met its working capital and capital expenditure requirements with cash flow generated from operations. In addition, the Company borrows funds under short term overdraft facilities from time to time in order to meet temporary working capital deficits. The Company has no long-term loans or other long-term borrowings. As of March 31, 2001, the Company's cash and bank balances were Rs.2,200 million (US$47 million), reflecting a decrease of Rs.18,646 million (US$398 million) since March 31, 2000. The Company's working capital (net of cash) has increased from Rs.41,752 million (US$891 million) as of March 31, 2000 to Rs.53,733 million as of March 31, 2001. This increase is primarily due to an increase in short term investments and other assets. OTHER INVESTMENTS ICO GLOBAL COMMUNICATIONS (HOLDINGS) LIMITED ICO, a company registered in Bermuda, was incorporated in January 1995 to provide Global Mobile Personal Communications Services. ICO was listed on NASDAQ in July 1998. The Company has invested a sum of US$150 million in ICO. As of March 31, 1999 the Company's investment in ICO stood at Rs.5,471 million. On August 27, 1999, ICO filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court in the district of Delaware. In May 2000, ICO emerged from bankruptcy protection with a plan to reduce the equity stake of the existing investors to 1%. The Company had, therefore, made a provision for a loss of 99 percent of its investment in ICO in its consolidated financial statements for the fiscal year ended March 31, 1999. The Company recognized a charge of Rs.5,416 million and Rs.54 million as permanent impairment in the fiscal years ended 1999 and 2000 respectively. Subsequent to March 31, 2000, the Company has been allotted 180,053 shares of New ICO, representing 0.65 percent of the total equity of New ICO. In addition, the Company has been allotted 975,398 warrants, each convertible into two Equity Shares of New ICO upon the payment of US$90 per warrant. Such warrants are exercisable until May 15, 2006. CAPITAL EXPENDITURES PROCESS OF THE COMPANY'S FIVE YEAR PLANS Indian government agencies and public sector companies, including the Company, implement capital expenditure programs through a series of five year plans. The Company's five year plans are typically subject to mid-term review, which have historically led to material changes in the Company's estimates of both the amount and the types of capital expenditures on specific projects. The materiality of these changes has also been compounded by the Company's weaknesses in preparing budgets and appraising and monitoring capital expenditure projects. In addition, the aggregate capital expenditures under any five year plan are often revised upward or downward as may be required by changes in the telecommunications market and the evolving needs of the Company. 54 EIGHTH FIVE YEAR PLAN PROJECTS The Company's Eighth Five Year Plan (the "Eighth Plan"), which covered the period from April 1992 to March 1997 (the period covered by the Department of Telecommunications' investment program for India's Eighth Five Year Plan), originally provided for total capital expenditures by the Company of approximately Rs.9 billion (US$192.10 million), primarily for facility and equipment investments within India to augment transmission (both satellite and cable) and connecting capacity and for securing rights to use additional circuits on the Intelsat and Inmarsat systems and on cables in the Atlantic and Pacific regions. Principally as a result of faster-than-projected growth in domestic demand for international telecommunication services, during the mid-term review of the Eighth Plan in 1995, the amount of estimated capital expenditures was revised upwards to a total of approximately Rs.14 billion (US$ 298.83 million) for the entire five year period. Upon completion of the Eighth Plan in March 1997, the Company had made actual capital expenditures of approximately Rs.15.4 billion (US$ 328.71 million). During the Eighth Plan, two new standard A Intelsat earth stations and the South East Asia-Middle East-Western Europe 2 cable were commissioned, numerous facilities were digitalized, connecting capacity of switches was increased from 7,000 to 30,000 lines, an earth station was established to provide Inmarsat mobile services, and additional value-added services were introduced, including Inmarsat related services, Internet access, electronic data interchange, video conferencing, managed data network services and high speed leased line circuits. NINTH FIVE YEAR PLAN PROJECTS The Company's Ninth Five Year Plan (the "Ninth Plan"), covering the period from April 1997 to March 2002 (the period covered by the Department of Telecommunications' investment program for India's Ninth Five Year Plan), was originally adopted by the Board of Directors of the Company (the "Board of Directors") in November 1996. The original Ninth Plan provided for total capital expenditures by the Company of approximately Rs.50.3 billion (US$1074 million). In preparation for the mid-term review of the Ninth Plan by the Board of Directors, the Ninth Plan was revised by management of the Company in January 1999 and proposed an increase in total capital expenditures from Rs.50.3 billion (US$1,074 million) to Rs.73.19 billion (US$1,562 million). The proposed increase primarily reflected increases resulting from the depreciation of the Rupee against the US Dollar and substantial changes to the scale and scope of certain individual projects caused by changes in the telecommunications industry, the evolving needs of the Company and imprecise estimations and inaccuracies in the information provided in the original Ninth Plan. See "--Financial and Management Accounting and Reporting Systems." The Ninth Plan was further revised by management and at the mid-term review of the Ninth Plan in September 2000 the Board of Directors approved the newly revised plan which provided for total capital expenditures of Rs.59.1 billion (US$1261 million). Such capital expenditures were primarily for additional facility and equipment investments within India to augment transmission (both satellite and cable) and connecting capacity of the switches, for securing rights to use additional circuits on the Intelsat and Inmarsat systems and for participating in various undersea cable projects in the Atlantic and Pacific regions and various satellite mobile telecommunications systems. These investments are planned in response to telecommunications network, including through the future participation of new licensees in domestic long distance fixed line and mobile telecommunication services. See "Item 4. Information on the Company--Industry Overview." In addition, these infrastructure investments are expected to provide the Company with a platform from which additional services may be launched. The Ninth Plan also contemplates significant capital expenditures in the areas of enhanced Internet access and other specialized and value-added services, such as satellite video uplinking and direct-to-home television systems, as well as maintenance, repair and replacement projects and various building and civil works at Company locations. The original Ninth Plan was approved in principle by the Department of Telecommunications. Certain projects envisioned by the revised Ninth Plan that exceed defined expenditure levels or the current scope of the Company's operations remain subject to further review and formal approval by the Department of Telecommunications and other Government entities pursuant to established rules and procedures of the Government. There can be no assurance that such approvals will be issued or that such projects will be implemented as currently planned. The total expenditures of approximately Rs.59.1 billion (US$1261 million) covered by the revised Ninth Plan were calculated using different exchange rates, in accordance with Indian GAAP. For all capital expenditures planned or provided for under the revised Ninth Plan during the three-year period ending March 31, 2002, calculations were made assuming that 61 percent of the cost will be denominated in currencies other than Rupees. 55 The following table sets forth the actual and planned capital expenditures of the Company under the revised Ninth Plan by type of investment for the periods indicated. The planned capital expenditures of the Company for the years ended March 31, 1997 through March 31, 2002 represent actual expenditures for the years ended March 31, 1997 through March 31, 2001, and management's estimates of projected expenditures for the year ended March 31, 2002. There can be no assurance that the Company's capital expenditure plan will be implemented as described below. See "Item 3. Key Information--Risk Factors--Significant Additional Capital Expenditures."

YEAR ENDED MARCH 31, TOTAL ----------------------------------------------------------- ----- 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- MILLIONS OF RUPEES Transmission..................... 1,062 3,513 1,464 2,527 5,127 13,693 Switching........................ 294 202 50 149 1,713 2,408 Specialized and value-added 323 662 659 3,832 4,310 9,786 services...................... Satellite mobile services........ 521 62 6 9 7 605 Restoration/replacement.......... 29 41 36 71 100 277 Technical and office equipment... 247 330 153 231 353 1,314 Buildings and civil works........ 180 163 582 1,083 779 2,787 Capital contributions to 786 671 922 2,998 4,707 10,084 Intelsat/Inmarsat and IRUs.... Other projects and investments... 1,135 1,972 442 8,816 5,786 18,151 ----- ----- ------ ------- ------- ------ Total....................... 4,577 7,616 4,314 19,716 22,882 59,105 ===== ===== ===== ====== ====== ======

The Company has funded the above capital expenditures to the extent incurred and intends to fund the remaining capital expenditures primarily from the remaining net proceeds of its offering of Global Depositary Receipts ("GDRs") in 1997 and cash flow from operations. The Company may consider other options for raising any additional funds that may be required, including through debt financing, additional equity financing and leasing arrangements, in the event that such funds are needed. The principal areas of investment contemplated by the revised Ninth Plan are as follows: EXPANSION OF TRANSMISSION CAPACITY. The Company intends to invest more on the expansion of the Company's existing transmission facilities than any other single category in the revised Ninth Plan. The Company has provisions for investing approximately Rs.5.7 billion (US$121.66 million) on additional capacity in undersea fiber optic cables, approximately Rs.3.6 billion (US$76.84 million) on additional satellite earth stations, antennas and other related equipment, and approximately Rs.825 billion (US$17,609.39 million) on new terrestrial radio communication links. The Company also plans on improving transmission efficiency by investing in new multiplex equipment and equipment that allows more trunk channels to be concentrated on a particular transmission channel. In addition, the Company plans to establish additional international gateways at Hyderabad by the end of 2001, each equipped with satellite earth stations and other facilities. The Company entered into a Construction and Maintenance Agreement with other international telecommunications carriers for the construction of the South East Asia-Middle East-Western Europe 3 cable system, a high capacity undersea optical fiber cable extending from Germany to Japan and Australia that lands in a total of 33 countries (including India with landing points at Mumbai and Cochin). The Company made a provision of Rs.2.5 billion (US$53.36 million) investment in this cable in its revised Ninth Plan and the Company has acquired a 3.5 percent interest in the cable. This cable will have added approximately 9000 circuits to the Company's transmission capacity. The cable became operational in March 2000. The Company has entered into a Construction and Maintenance Agreement with other international telecommunications carriers for the construction of a broadband high capacity, undersea, fiber optic cable system, about 28,000 kilometers long, which will connect Southeast Asia to South Africa, West Africa and the Mediterranean region. It will have many landing points including in Cape Town, Mauritius, Reunion, Cochin (India) and Penang (Malaysia). Presently, 56 connections to African countries from India are by means of satellite transmission or through longer alternative routes involving a number of transit points. This cable system provides the Company a direct link to Africa and indirect links to the Mediterranean region. The Company has made provision in the revised Ninth Plan for an investment of up to Rs.2.6 billion (US$55.50 million) in this cable system, which is scheduled to be ready for service by December 2001. The Company also plans to complete the construction of a new satellite earth station at Hyderabad, and equipment that allows more trunk channels to be concentrated on a particular transmission channel and other equipment and fiber optic systems at its existing transmission facilities. EXPANSION OF NUMBER OF SWITCHES. The Company plans to invest Rs.1.5 billion (US$32 million) for switches in order to establish an international information highway for broadband traffic at Mumbai, Delhi, Chennai, Bangalore and other cities. The Company believes that these switches will enable the Company to integrate and allocate bandwidth for voice, data and other broadband traffic through improving the bandwidth efficiency, and provide the Company with the ability to keep pace with convergence of voice, data and multimedia. Commencing in the year ending March 31, 2001, the revised Ninth Plan anticipates a need for digital switch expansion and other advanced switching equipment to be used in connection with the Company's facilities. In addition, the Company has completed the establishment of an additional international gateway exchange at Kanpur in March 2000 and has made a provision for the establishment of two additional VOIP international gateway exchanges at Bangalore and Hyderabad in the revised Ninth Plan. The Company has made a total provision of Rs.400 million (US$8.54 million) in the revised Ninth Plan for these three gateway exchanges. SPECIALIZED AND VALUE-ADDED SERVICES. The Company plans to invest Rs.60 million (US$1.28 million) for the installation of electronic data interchange facilities at Chennai, New Delhi and Kolkata, and to upgrade and augment its existing such facilities at Mumbai. The Company also intends to complete the construction of video conferencing facilities in all of its international gateways and has provided for up to Rs.107 million (US$2.28 million) for this purpose in the revised Ninth Plan. The Company has also made provisions for up to Rs.7.5 billion (US$160 million) throughout the balance of the revised Ninth Plan to augment its Internet gateways by installing additional main and remote access nodes, network management systems and more advanced routing switches. The Company is in discussions with potential global partners for the provision of new E-commerce and voice over Internet protocol in India. Accordingly, the Company has provided for up to Rs.500 million (US$10.67 million) to invest in systems equipment which may be required during the Ninth Plan period in connection with the formation of new global alliances and the expansion of managed data network services provided through current global alliances. Provisions have been made under the revised Ninth Plan for capital expenditures of up to Rs.1.1 billion (US$23.48 million) to be used in connection with investments in video uplinking facilities and direct-to-home satellite television systems. SATELLITE MOBILE SERVICES. The Company is one of the founding investors in ICO Global Communications (Holdings) Limited ("ICO"), which was formed in 1995 by a consortium of international telecommunications companies, governments and satellite and telephone equipment manufacturers to establish and operate a satellite-based mobile telecommunications system is designed to offer worldwide digital voice, data. facsimile and message services primarily through hand-held mobile terminals. The Company has made capital contributions to ICO of US$150 million until March 31, 2000 and owned an interest of approximately 6.50 percent in ICO's equity as of such date. In mid 1999, ICO filed for bankruptcy and emerged from bankruptcy protection in May 2000. The bailout package envisages the creation of New ICO Limited ("New ICO"), and the liquidation of ICO. The Company is entitled to a very small percentage of the share capital of New ICO and as such its investment in ICO is substantially reduced. Subsequent to March 31, 2000, the Company has been allotted 180,053 shares of New ICO, representing 0.65 percent of the total equity of New ICO. In addition, the Company has been allotted 975,398 warrants, each convertible to two Equity Shares of New ICO upon the payment of US$90 per warrant. Such warrants are exercisable until May 15, 2006. Prior to ICO's bankruptcy filing the Company signed a prelaunch agreement with ICO which specified that the Company was to be designated as the exclusive provider of satellite mobile services for ICO in India. As a result of the bankruptcy proceedings, this agreement is no longer in effect and will have to be renegotiated with New ICO at a later date. 57 The Company provided gateway services for Iridium India Telecom Limited; the Company provisionally licensed to provide Iridium GMPCS services in India. However, Iridium LLC, USA, the Company owning the constellation of 66 Iridium satellites, closed its services worldwide with effect from March 18, 2000 after the United States bankruptcy court for the Southern District of New York approved its wind down operations. Accordingly, Iridium India Telecom Limited was not able to perform its commercial services and gateway operations from the gateway at Pune and decided to close its commercial operations in a phased manner. Such operations ceased on April 1, 2000. In addition, the Company has also provided approximately Rs.8.0 billion (US$171.76 million) for possible future acquisitions of satellite capacity in the Indian Ocean region in collaboration with the Indian Space Research Organization. CAPITAL CONTRIBUTIONS TO INTELSAT AND INMARSAT AND ACQUISITION OF IRUs. The Company has made provisions for investments of Rs.2.00 billion (US$42.69 million) and Rs.220 million (US$4.69 million) in Intelsat and Inmarsat, respectively, in the revised Ninth Plan. The planned capital contributions to Intelsat and Inmarsat are expected to assist the Company in meeting its growing transmission needs by increasing its available satellite capacity. In addition to these investments, the Company plans additional investments of up to Rs.6.86 billion (US$146.42 million) in IRU's, representing cable capacity on systems in which there are no landing rights in India, throughout the balance of the Ninth Plan period. PROVISION FOR OTHER PROJECTS AND INVESTMENTS. If following the end of Bharat Sanchar Nigam Limited monopoly, the Company is licensed to provide domestic long distance services, the Company expects to invest approximately Rs.4.5 billion (US$96.05 million) in additional transmission and switching facilities. Other capital expenditures in the Ninth Plan include provisions for projects involving upgrading various internal management facilities, for Company management and new employees in amounts of up to Rs.100 million (US$2.13 million). The Company's revised Ninth Plan provides for total capital expenditures of approximately Rs.73.19 billion (US$1562.22 million) further revised to Rs.59.10 billion (US$1,261 million) during the five years ending March 31, 2002, of which Rs.36.22 billion (US$773.17 million) had been expended as of March 31, 2001. See "--Investment Program." The Company intends to fund the balance of these capital expenditures primarily from the remaining proceeds of the 1997 GDR issue, and from cash flow from operations. The Company may consider other options for raising and leasing arrangements, in the event such funds are needed. TENTH FIVE YEAR PLAN PROJECTS The Company's Tenth Five Year Plan (the "Tenth Plan"), covering the period from April 2002 to March 2007 is provisionally finalised and the total provisional outlay under the Tenth Plan is Rs.63.3156 billion (US$1.35 billion) which is further subject to approval by the Board of the Company and consequent approval by the Department of Telecommunications. While the Company has achieved significant development in the Ninth Five Year Plan period, the Company anticipates liberalization and opening of International Long Distance Service to competition during the Tenth Plan period. The Company hopes to achieve continuous growth and enhancement in existing telephony business and Internet dial up services while simultaneously doing backward integration by entering into the domestic long distance market. The Company also expects to introduce newer technologies like ATM and VoIP in its network. The Company also expects to equip its infrastructure to provide new value added services like Bandwidth on Demand, VPN services, Broadband Services and DTH services. 58 RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES The Company maintains a level of spending on research and development activity which enables it to keep abreast of the latest developments in the industry. The Company conducts its own internal research activity in order to achieve its strategic goals and to participate in current technological advancements. The Company plans to continue spending on internal research and development. The main focus of the Company's internal research and development activity is software development for communications applications and the development of telecommunications equipment for specific requirements of the Company. The research and development of the Company with respect to communications applications has focused, in recent years, on web based electronic data interchange, store and forward fax and graphic user interface terminal for Internet applications. In addition to conducting research in its own facilities the Company has recently started considering funding certain projects recommended by the Telecom Research and Development Council. The Company is a member of this council which is constituted by the Ministry of Communications of the Government of India. This council coordinates the research and development activities in the field of telecommunications and identifies various key areas of research. It also identifies various projects in these areas and aids in obtaining funding for such projects. In accordance with the accounting policy on research and development adopted by the Company in fiscal 2000 onwards, all costs incurred on research and development by the Company are charged to the income statement under the relevant line items. In addition, costs incurred with respect to the purchase of capital equipment for research and development are capitalized. The Company is unable to accurately state its annual research and development expenses from fiscal 2000. TREND INFORMATION The Company derives a major part of its revenues through telephony traffic originating from and terminating in the U.S. An economic slowdown or such other negative impact on the economy of the U.S may affect the revenue growth and operating results for fiscal 2002. The economic slowdown has affected the information technology sector and there is a likelihood that this sector may cut their spending. Such cutbacks are likely to affect the revenues of the Company as a part of its operations are related to this sector. For further information, please see "Item 3. Key Information--Risk Factors" referenced herein. The opening up of international telephony in India to private operators and the loss of monopoly of the Company would impact revenues of the Company. The Company, however, believes that the private operators may not be able to put up the infrastructure to cause major share erosions for at least a year after the monopoly loss. BUSINESS OUTLOOK FOR FISCAL 2002 Based on currently available information, the Company expects its business outlook for the fiscal year ending March 31, 2002 to be as follows: Gross revenue for the fiscal year ending March 31, 2002 is expected to be in the range of Rs.70490 million (US$1504 million) against which the Company has achieved over Rs.16422 million (US$350 million) for the first quarter ending June 2001. The above mentioned expectations and projections regarding our future performance are forward-looking statements. These expectations and projections are based on currently available economic and financial information along with our operating plans and are subject to future uncertainties that could cause actual results to differ materially from those that may be indicated by these statements. We do not undertake to update any forward-looking statement that may be made from time to time by or on our behalf. FINANCIAL AND MANAGEMENT ACCOUNTING AND REPORTING SYSTEMS The Company, which remained wholly owned by the Government until late 1992, continues to be subject to various laws and Government policies in respect of public sector enterprises and to follow procedures appropriate for a public sector entity. Consequently, the Company's financial and management accounting and reporting systems are not as developed as those of certain comparable companies outside India. In addition, the Company's procedures for preparing budgets and appraising and monitoring capital expenditure projects are less 59 precise than those used by comparable private sector companies. In order to address certain of these deficiencies, the Company continues to improve data input for its traffic accounts, has increased the number and quality of its financial and accounting personnel, and is in the process of installing new systems and procedures, including an integrated financial accounting and budgeting system. ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES DIRECTORS AND OFFICERS OF THE REGISTRANT The Company's Board of Directors has ultimate responsibility for the administration and management of the affairs of the Company, except for certain matters that are reserved by the Company's Articles of Association (the "Articles") for the approval of the President of India. The Company's Articles provide for a Board of not less than three and not more than twelve Directors. The President of India is empowered by Article 66A to appoint one-third of the total number of Directors sitting at any time as non-retiring directors and to designate the Chairman and Managing Director. The remaining directors of the Company are liable to retire by rotation, and one-third of such directors are elected by the shareholders each year at the company's Annual General Meeting. After the Company was declared by the Government in July 1997 as a "Navratna" company, the Board of Directors was reconstituted to comprise eleven members, including the Chairman and Managing Director, four other full-time directors, two directors nominated by the Department of Telecommunications and four other external directors. The Company must notify the Public Enterprises Selection Board, a Government Agency, of all vacancies in full-time director positions of the Company. The Public Enterprises Selection Board then recommends an appropriate person for the Company to appoint pursuant to the relevant provisions of the Indian Companies Act of 1956. The business address of each of the directors is the registered office of the Company. The current directors and their positions are as follows:

Current Term Name Age Position Expires In Director Since ------------------------------ ------- ---------------------------------- -------------------- ----------------- Shailendra Kumar Gupta....... 59 Chairman and Managing Director September 2002 September 1999 Rajneesh Gupta............... 53 Director (Network) November 2003 November 1998 R.S.P. Sinha ................ 50 Director (Finance) January 2004 January 1999 Sadhana Dikshit.............. 48 Government Nominee (Deputy (1) January 2001 Director General (LF), the Department of Telecommunications) P.V. Vaidyanathan............ 54 Government Nominee (Advisor (1) August 2001 (Technology) the Department of Telecommunications) Subodh Bhargava.............. 59 External Director (Advisor, December 2001(2) December 1998 Eicher Goodearth Limited) N.R. Narayana Murthy......... 55 External Director (Chairman and December 2001(2) December 1998 Chief Executive Officer, Infosys Technologies Limited) Ashok Wadhwa................. 41 External Director (Managing December 2001(2) December 1998 Partner, Ratan S. Mama & Co.) H.P. Wagle................... 66 External Director (Ex-Chairman, December 2001(2) December 1998 Telecom Commission and Secretary, the Department of Telecommunications)

60 --------------- (1) Government nominee directors are not appointed by the Government for a fixed term. They are eligible to retire by rotation. However, typically, nominee directors continue on the Board of the Company for so long as the nomination is not changed by the Government. (2) These are independent directors liable to retire by rotation. However, their appointment has been indicated by the Government to be nominated for a period of three years each. However, this three year nomination period will have to be implemented in accordance with the provisions of the Companies Act and other applicable regulations. OTHER PRINCIPAL OFFICERS The following individuals are the principal executive officers of the Company in addition to those officers who are members of the Board of Directors:

NAME AGE POSITION OFFICE HELD SINCE ------------------------ ------- ------------------------------------------------------ ------------------ Parminder Mathur..... 52 Chief Vigilance Officer May 1999 S.G. Ranade.......... 48 Company Secretary May 1987 Hardev Singh......... 57 Chief General Manager (Corporate January 1995 Affairs/Headquarters/Marketing) K.P. Tiwari.......... 51 Chief General Manager (Internet) January 1995 M.G.Wasnikar......... 58 Chief General Manager (Operations and Human Resources) January 1995 Arun Gupta........... 44 Chief General Manager (Finance and Accounts) May 1998 S.S. Bodh............ 41 Chief General Manager (Finance and Accounts) May 1998 G.C. Banik........... 57 Chief General Manager (Public Relations) April 2000 C. Sudershan Rao..... 57 Chief General Manager (Finance and Accounts) May 2000 Debajit Dutta........ 48 Chief General Manager (Vigilance) June, 2000

Apart from Ms. Parminder Mathur, of the Indian Administrative Service, all other principal executive officers of the Company are on the rolls of the Company as permanent employees. Set forth below is selected biographical information for certain of the Company's directors and officers: Mr. Shailendra Kumar Gupta (Chairman and Managing Director), has been a director of the Company since September 1999. Mr. Gupta has more than three decades of experience in the Indian domestic telecommunications industry and has held various government positions in the telecommunications field, including Chief General Manager (Telecom - Gujarat Circle) of the Department of Telecommunications, Principal General Manager (New Delhi) of Mahanagar Telephone Nigam Limited and General Manager, Telephones (Jaipur). Mr. Gupta holds a Bachelors degree in Electrical Engineering from Rourkee University and also won the National Award of Excellence for telecommunications in 1989. Mr. Rajneesh Gupta, Director (Network), has been a director of the Company since November 1998. Mr. Gupta has held various government positions in the telecommunications and education fields, including General Manager (Materials Management) and General Manager (south Delhi) of Mahanagar Telephone Nigam Limited, Chief General Manager (North East Task Force) of the Department of Telecommunications, and Director (Technical Education) of Department of Education of the Ministry of Human Resources Development. Mr. Gupta holds a Bachelors degree in Electrical Engineering and Science. 61 Mr. R.S.P. Sinha, Director (Finance), has been a director of the Company since January 1999. Prior to joining the Company, Mr. Sinha held positions of Director (Finance), Hindustan Organic Chemicals Limited, and Deputy General Manager (Finance), Tehri Hydro Development Corporation. Mr. Sinha is a fellow member of Institute of Cost and Works Accountants of India. Mr. Sinha holds a Bachelors degree in Electrical Engineering and a Masters degree in Business Management with a specialization in Finance, both from Patna University, a Bachelors degree in law from Magadh University and passed the exam of the Certified Associate of Indian Institute of Bankers. Ms. Parminder Mathur, Chief Vigilance Officer of the Company, has been on deputation from the Government of India to the Company since May 1999. She is a postgraduate in political science and holds a Masters degree in Business Administration from Leeds University, U.K. Prior to her taking over as Chief Vigilance Officer, she was the Chief Electoral Officer of Himachal Pradesh and also the Commissioner-cum-Secretary (Election) of Himachal Pradesh. Mr. S.G. Ranade, Company Secretary, has been with the Company since 1987. Prior to joining the Company, Mr. Ranade was Deputy Secretary of Maharashtra Elektrosmelt Limited, Bombay. Mr. Ranade has over 26 years of experience in his field. He is a fellow member of the institute of Company Secretaries of India. Mr. Ranade holds degrees in commerce and law from the University of Bombay. Mr. Hardev Singh, Chief General Manager (Corporate Affairs/Headquarters/Marketing), joined the Overseas Communications Service in 1964 and has been with the company since its establishment. Mr. Singh held positions in the area of satellite communications, troposscatter communications, submarine cables, technical planning and Inmarsat. Mr. Singh holds a Diploma from Punjab State Board of Technical Education and a Degree in Electrical Engineering from the Institute of Engineers, Kolkata. Mr. K.P. Tiwari, Chief General Manager (Internet/Operations) joined the Overseas Communications Services in 1976 and has been employed by the Company since its establishment. Prior to joining the Overseas Communications Services, Mr. Tiwari worked for the Indian Post and Telegraph Department for 4 years. Mr. K.P. Tiwari holds a Master of Science Degree in Electronics from Kanpur University. Mr. M.G. Wasnikar, Chief General Manager (Human Resources), joined the Overseas Communications Service in 1975 as Deputy Engineer-in-Charge (Class I Service) through the Union Public Service Commission and has been with the Company since its establishment. Mr. Wasnikar holds a Bachelors degree in Electronics Engineering from Vishweshwarayya Regional College of Engineering, Nagpur. Mr. Arun Gupta, Chief General Manager (Finance), joined the Company in his present capacity in 1998. Prior to joining the Company, Mr. Gupta worked in Finance for 18 years in various capacities at Sikkim Industrial Development & Investment Corporation Ltd., Pradeshiya Industrial & Investment Corporation of UP Ltd., and Risk Capital & Technology Finance Corporation Ltd. (a subsidiary of Industrial Finance Corporation of India Ltd.). He also officiated as Managing Director at RC&TFC. Mr. Gupta holds a Bachelor of Science degree from University of Delhi, a Master of Business Administration degree with a concentration on finance from A.M. University and a Bachelor of law degree from the University of Delhi. Mr. S.S. Bodh, Chief General Manager (Finance), joined the Company in his present capacity in 1998. Prior to joining the Company, Mr. Bodh worked for 13 years as Gazetted Class I officer (Indian Railways Accounts Service) in various areas of Finance and Accounting in Indian Railways. He also headed the Finance department of the Northern Region of the Container Corporation of India for more than two years. Mr. Bodh holds a Master of arts degree from Punjab University. Dr. G.C. Banik, Chief General Manager (Public Relations), joined the Company in 1987. Prior to joining the Company, Mr. Banik served in various media units of the Ministry of Information Service for twenty years. Dr. Banik holds a post graduate degree in Journalism, a Master of Business Administration degree and a degree of Doctor of Philosophy in Sociology, all from the University of Mumbai. Dr. Banik was the National President of the Association of Business Communicators of India and Chairman of the Public Relations Society of India. He has authored two books on Journalism and Public Relations. 62 Mr. C. Sudershan Rao, Chief General Manager (Finance), has been with the Company since 1989. He is a Fellow Member of the Institute of Chartered Accountants of India and an Associate Member of the Institute of Costs & Works Accounts of India. Mr. Rao also holds a post graduate diploma in Public Enterprise Management from Osmania University. Mr. Rao has over 20 years of experience in finance related functions and has worked at Siddhartha Oil Equipments Ltd., R.G. Foundry Forge Ltd., A.P. State Textile Dev. Corporation Ltd. and A.P. Construction Co. Ltd., and as a practising Chartered Accountant prior to joining the Company. Mr. Debajit Dutta, Chief General Manager (Vigilance) joined Videsh Sanchar Nigam Limited in 1992. Mr. Dutta was employed as the Deputy Director (Personnel & Administration)- Vigilance by Oil and Natural Gas Corporation Limited for a period of nine years prior to taking up his post with Videsh Sanchar Nigam Limited. He has served for two years as a gazetted police officer of the rank of Deputy Superintendent of Police. Mr. Dutta was a practicing lawyer specialising in labour matters and civil cases prior to his employment by the police department. Mr. Dutta holds a law degree and a post graduate diploma in Personnel Management and Industrial Relations. No director or officer of the Company has any family relationship with any other officer or director of the Company. There are no arrangements or understandings among any director or any officer and any other person regarding their election to their post with the Company. COMPENSATION OF DIRECTORS AND OFFICERS The directors, other than the full-time directors and the Government nominee Directors, of the Company received a sitting fee not exceeding Rs.2,000 (US$ 42.68) for attending every Board and a Committee meeting. In fiscal 2001, Rs.135,000 (US$2,882) were paid towards sitting fees. The Directors are also reimbursed for travel and out-of-pocket expenses in connection with their attendence at Board and Committee meetings. For the fiscal year ended March 31, 2001, the aggregate amount of compensation paid by the Company to all directors and principal officers of the Company was approximately Rs.10.27 million. No director or principal officer received remuneration from the Company (salary, bonus, housing allowance, perks and benefits,etc.) in excess of Rs.1.50 million for fiscal 2001. For the fiscal year ended March 31, 2001, the aggregate amount set aside or accrued by the Company to provide pension, retirement or similar benefits for principal officers and directors of the Company was approximately Rs.2.5 million. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES. There are no employee share option schemes or other similar schemes relating to the capital of the Company. BOARD COMMITTEES AUDIT COMMITTEE The committee has four members including one full time director and three non-official, part-time directors. The committee is chaired by non-official director Mr. Ashok Wadhwa, with Mr. Subodh Bhargava and Mr. H.P. Wagle non-official directors and Mr. S.K. Gupta, Chairman and Managing Director, as members. The broad scope of the committee is as follows: (1) To oversee the Company's financial reporting process and the disclosure of its financial information to ensure that the financial statements are correct, sufficient and credible; to recommend the appointment and removal of external auditors, fix audit fees and approve payment for any other services, as applicable; to review the annual financial statements with management before they are submitted to the board, focusing primarily on: changes in accounting policies and practices, major accounting entries based on exercise of judgement 63 by management, qualifications in the draft audit report, significant adjustments arising out of audit, the going concern assumption, compliance with stock exchange and legal requirements concerning financial statements, and any related party transactions, that is, company transactions of a material nature with promoters or the management, their subsidiaries or relatives, that may have a potential conflict with the interests of the Company; to review external and internal auditors and the adequacy of internal control systems with the management; to review the adequacy of the internal audit function, including the structure of the internal audit department, staffing, reporting structure coverage and the frequency of internal audits; to discuss any significant findings with the internal auditors and follow these up; to review and report to the Board of Directors on the findings of any internal investigations by the internal auditors concerning suspected frauds or irregularities or a failure of internal control systems; to discuss the nature and scope of the audit with external auditors before the audit commences, and to have post-audit discussions to ascertain any areas of concern; to review the company's financial and risk management policies; and to look into the reasons for any substantial defaults in payments to depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors. The Company does not have a remuneration committee. EMPLOYEES As of March 31, 2001, the Company had 2,991 employees, of whom 1,177 were executive employees (technical employees and other employees with the rank of officer or higher, including fulltime directors of the Company) and 1,814 were non-executive employees. As of March 31, 2000, and March 31, 1999, the Company had 3,014 employees and 2,975 employees, respectively. Upon its establishment in 1986, the Company assumed responsibility for all the 3,148 employees of the Overseas Communications Service (690 executives and 2,458 non-executives). Since then, the Company has gradually rationalized its work force, both reducing the total number of employees and increasing the proportion of employees who are engineers or otherwise highly skilled. The Company seeks to improve employee productivity through continuing education and training and by emphasizing the importance of quality of service and customer satisfaction. As a public sector enterprise, the Company abides by general Indian governmental personnel policies which, among other things, limit its ability to reduce employment levels and control the amount of salaries and other remuneration that the Company may pay to its employees. The Company believes that the average salary it pays to its employees is significantly lower than the average salary of employees at equivalent ranks in the private sector. All non-executive employees of the Company are members of local unions organized at each Company site, which are affiliated as the Federation of the Videsh Sanchar Nigam Limited Employees Unions (the "Federation"). The Federation is a Company-wide union and is not affiliated with any larger industry-wide or national union. Every five years the Company and the Federation negotiate and enter into a collective bargaining agreement, which governs the terms of employment of non-executive employees. The most recent agreement, executed in November 2000, is for the pay revisions effective from January 1, 1997. Most executive employees (other than directors) of the Company are members of a similarly organized Officers' Association, which acts as an informal consultative mechanism for conveying the officers' views regarding personnel policies to the Company's management. On August 1, 2001, the Company announced a Voluntary Retirement Scheme. The primary objective for the scheme is to optimize the mix of experience and overall skill level of the Company's employees. The scheme remains open from September 1, 2001 to October 31, 2001. Employees who are at least 50 years of age and have rendered a minimum of 10 years service to the Company are eligible to opt for voluntary retirement. Apart from normal retirement benefits, employees opting for voluntary retirement will be entitled to (1) a "one-time" payment of 60 days salary (including a basic and dearness allowance) for each completed year of service or (2) a payment of salary for the balance months of service left before retirement, whichever is less. As of June 30, 2001, the members of the Board of Directors and the executive officers of the Company as a group owned an aggregate of 6,600 shares, representing 0.002% of the Company's shares issued and outstanding at such date. 64 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS MAJOR SHAREHOLDERS As of the date hereof, approximately 52.97 percent of the outstanding Shares of the Company are held by the Government. Consequently, the Government, acting through the Department of Telecommunications, controls the Company and has the power to approve the appointment of its directors and to determine the outcome of most actions requiring approval of the Board of Directors or shareholders of the Company's business (including into areas in which the Company may compete with Bharat Sanchar Nigam Limited), transactions with Bharat Sanchar Nigam Limited or the assertion of claims against Bharat Sanchar Nigam Limited. In addition, under the Company's Articles of Association, the President of India, on behalf of the Government of India, may issue directives with respect to the conduct of the business and affairs of the Company, and certain matters with respect to the Company's business, including the appointment and remuneration of the Company's Chairman and Managing Director and the declaration of dividends are reserved for the decision of the President of India. The Company may not take action in respect of any matter reserved for the President without his approval. See "Item 10. Additional Information--Description of the Shares." The following table sets forth certain information regarding the beneficial ownership of the Equity Shares at June 30, 2001, including the beneficial ownership of Shares of each person or group known by the Company to own beneficially 5 percent or more of the outstanding Shares, as reported by such persons. NUMBER OF SHARES NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) PERCENTAGE ------------------------ --------------------- ---------- Government of India (2)....... 150,961,440 52.97 ------------------- (1) Number of shares and percentage ownership is based on 285,000,000 Equity Shares outstanding as of June 30, 2001, Beneficial ownership is determined in accordance with rules of the SEC and includes voting and investment power with respect to such shares. Shares subject to options that are currently exercisable or exercisable within 60 days of June 30, 2001 are deemed to be outstanding and to be beneficially owned by the person holding such options for the purpose of computing the percentage ownership of such person, but are not deemed to be outstanding and to be beneficially owned for the purpose of computing the percentage ownership of any other person. All information with respect to the beneficial ownership of any principal shareholder has been furnished by such shareholder and, unless otherwise indicated below, the Company believes that persons named in the table have sole voting and sole investment power with respect to all the shares shown as beneficially owned, subject to community property laws, where applicable. (2) The Shares owned by the Government are registered in the name of the President of India or his nominees in the register of shareholders of the Company. The Company's ADSs are listed on the New York Stock Exchange. Each ADS represents two Equity Shares. As of June 30,2001, approximately 81,599,086 Equity Shares (28.63% of the total Equity Shares outstanding as of such date) were held by the custodian, ICICI Limited (the "Custodian") for The Bank of New York, as depositary for the Company's ADSs. The Company is unable to estimate the percentage of ADSs or Equity Shares held in the United States or the number of record holders in the United States. Except as mentioned elsewhere in this annual report regarding the disinvestment process by the Government of India which would include a change in the control of management, there are no arrangements known to the Company which may at a subsequent date result in a change in control of the Company. RELATED PARTY TRANSACTIONS The Company's principal related parties consist of government departments, government owned or controlled companies and affiliates of the Company. The Company routinely enters into transactions with its related parties, such as providing telecommunication services, sharing costs and revenues and subletting premises. Transactions other than with the DoT are at arm's length in accordance with law. Transactions with the DoT are subject to the revenue sharing agreement discussed in Note 1d. The Company's significant related party balances and transactions with DoT are detailed in the Statement of Income and in Notes 5, 10, 14 and 15. Other related party transactions and balances are immaterial individually and in the aggregate. 65 The Company is controlled by the Government of India, which holds 52.97 percent of the total equity. The Company's principal related parties consist of government departments, government owned or controlled companies and affiliates of the Company. The Company is not aware of transactions between the Government and such other entities. The Company had a revenue sharing arrangement with the Department of Telecommunications for the fiscal period 1997-2002. Pursuant to the corporatisation of the service provision functions of the Department of Telecommunications, to the newly formed and wholly owned Government company, Bharat Sanchar Nigam Limited with effect from October 1, 2000 the revenue sharing agreement entered into by Department of Telecommunications was transferred and assigned to Bharat Sanchar Nigam Limited with effect from October 1, 2000. License fee shall continue to be paid to Department of Telecommunications under the revenue sharing agreement. The Company routinely enters into transactions with its related parties, such as providing telecommunication services, sharing costs and revenues and subletting premises. Transactions other than with the Department of Telecommunications are at arm's length in accordance with law. Telstra Vishesh Communications Limited is a joint venture between the Company, Telstra, Australia and Infrastructure Leasing & Financial Services Ltd. Currently, the Company holds Rs.92 million out of the total paid up capital of Rs.314 million. TVCL has invested in a hybrid VSAT project and has diversified into consultancy, facility management services and turnkey VSAT projects for large organizations.The Company had entered into agreements for purchase of VSAT equipments during the fiscal year ended 2001 amounting to Rs.10.20 million (US$0.22 million). The Company believes that the foregoing transactions were on terms no less favourable than could have been obtained from independent third parties. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS Not applicable. ITEM 8. FINANCIAL INFORMATION: CONSOLIDATED FINANCIAL INFORMATION CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION We have elected to provide financial statements pursuant to Item 18 of this Form 20-F. LEGAL PROCEEDINGS The Company is not currently a party to any material commercial legal proceedings. However, the Indian tax authorities have taken the position that the Company is not entitled to a tax deduction it took in the year ended March 31, 1995 for license fees paid by it to the DOT. The Indian tax authorities claim that the Company owes approximately Rs.2.8 billion, Rs.2.4 billion, Rs.2.5 billion, Rs.3.0 billion and Rs.2.6 billion in respect of taxes due (including interest, but excluding penalties) in connection with the license fees for the years ended March 31, 1994, 1995, 1996, 1997 and 1998 respectively. Tax refunds otherwise due to the Company for subsequent years, amounting to approximately Rs.6.46 billion, have been applied by the Indian tax authorities to a portion of this disputed claim. In addition, the Company has paid the tax authorities Rs.3.6 billion with respect to this claim. However, the outstanding amount continues to accrue interest at a rate of two percent per month. The Company disputed this claim and lodged an appeal with the Commissioner of Income-tax (Appeals) - I, Mumbai for each of the relevant years. The Company subsequently appealed to the Income-tax Appellate Tribunal, Mumbai as the Commissioner of Income-tax (Appeals) - I. Mumbai denied the Company's claim with respect to the year ended March 31, 1995. The appeals with respect to the other years are still pending with the Commissioner of Income-tax (Appeals) - I, Mumbai. On September 14, 2000 the Income-tax Appellate Tribunal, Mumbai issued an order in the Company's favor and held that the license fee paid by the Company to the DOT is an allowable tax deductible expenditure under the Income Tax Act. Consequent to this order, a refund due to the Company is adjusted against the demand due for the subsequent years. In addition, the Company can request the Commissioner of Income-tax (Appeals) - I, Mumbai to expedite the orders for the other years. The Income Tax Department has the right to appeal the order of the Income Tax Appellate Tribunal in the High Court within a period of 120 days from the date of the order. The Company has so far not received any communications from the department/High Court on whether the department has disputed this claim of the Company in the High Court. If the Company loses that case, the tax authorities may make the Company liable for similar claims for subsequent years and this could result in an aggregate potential liability of approximately Rs.12.4 billion (US$264.8 million) including interest, but excluding penalties, 66 thereon as of March 31, 2000 and additional amounts for the periods thereafter. The Company has been advised by independent Indian counsel that it believes that the Company has a strong case with respect to this claim. The Indian tax authorities have also taken the position that the Company is not entitled to a tax benefit claimed by it in the years ended March 31, 1996, 1997 and 1998 with respect to certain of its profits which the Company claims were generated by an enterprise engaged in infrastructure development. The Indian tax authorities claim that the Company owes approximately Rs.0.1 billion, Rs.0.3 billion and 0.5 billion in respect of taxes due (including interest) in connection with such profits for the years ended March 31, 1996, 1997 and 1998, respectively. The Company disputes this claim and has lodged an appeal with the Commissioner of Income-tax (Appeals) - I, Mumbai. The outstanding amount of the claim continues to accrue interest at a rate of two percent per month. If the Company loses its case, the tax authorities may make similar claims for subsequent years, resulting in an aggregate potential liability of approximately Rs.5.7 billion (US$121.66 million) including interest, but excluding penalties, thereon as of March 31, 2001 and additional amounts for periods thereafter. The Company believes that it has a reasonable basis for its claim and that its appeal will succeed. Furthermore, the Indian tax authorities have taken the position that the Company has not offered for tax certain reimbursements it received from the Government during the year ended March 31, 1994. The Indian tax authorities claim that the Company owes approximately Rs.1.1 billion in respect of taxes due in connection with such reimbursements for the year ended March 31, 1994. The Company disputes this claim and has lodged an appeal with the Commissioner of Income Tax (Appeals) - I, Mumbai. The outstanding amount of the claim continues to accrue interest at the rate of two percent per month. If the Company loses its case, the Company's aggregate potential liability would be approximately Rs.2.7 billion (US$57.63 million) including interest, but excluding penalties, thereon as of March 31, 2001. The Company believes that it has a reasonable basis for its claim and that its appeal will succeed. Consequently, the Company has not made provision for the potential liability arising from these claims. ITEM 9. THE OFFER AND LISTING TRADING MARKETS GENERAL The Company's Shares are traded on the stock exchanges of Mumbai, Kolkata, Delhi and Chennai and the National Stock Exchange of India Ltd. (collectively, the "Indian Stock Exchanges"). The Company's American Depositary Shares (ADSs) represented by American Depositary Receipts (ADRs) are listed on the New York Stock Exchange and on September 24, 2001, the last reported sale price was US$7.55 per ADS on the New York Stock Exchange. Each ADS represents two Shares. The ADSs were issued by The Bank of New York (the "Depositary"), pursuant to a Deposit Agreement. The number of outstanding Shares of the Company as of March 31, 2001 was 285,000,000. As of March 31, 2001, there were 68,271 record holders of the Shares listed and traded on the Indian Stock Exchanges. As of March 31, 2001, there were approximately 41,634,110 of the Company's ADRs (equivalent to 83,268,219 Shares). 67 PRICE HISTORY PRINCIPAL MARKET FOR THE COMPANY'S ADSs The table below set forth, for the periods indicated, the high and low sales prices on the New York Stock Exchange for the ADSs since August 2000, the original date of listing of the ADSs.

ADS PRICE ------------------------- HIGH LOW ---- --- IN US DOLLARS Yearly Period: Fiscal 2001 (beginning August 15, 2000)....... 18.75 9.50 Quarterly Periods: 2001 Quarterly Periods: First Quarter.............................. N/A N/A Second Quarter (beginning August 15, 18.75 10.25 2000)...................................... Third Quarter.............................. 15.50 9.50 Fourth Quarter............................. 17.88 11.77 2002 Quarterly Periods: First Quarter....................... 15.74 11.40 Second Quarter (up to August 31, 13.95 11.23 2001).................................. 2001 Monthly Periods: March...................................... 14.45 11.77 April ..................................... 13.75 11.40 May........................................ 15.74 12.85 June....................................... 15.00 13.35 July....................................... 13.95 11.23 August..................................... 12.20 11.36

---------------- On September 24,2001, the closing price of the Company's ADSs on the New York Stock Exchange was US$7.75. SOURCE: Bloomberg L.P. 68 The table below sets forth, for the periods indicated, the high, low and closing sales prices for the Shares on the BSE.

THE STOCK EXCHANGE, MUMBAI ------------------------------------------------------------------------------- PRICE PER PERIOD SHARE(1) ---------------------------------------------- ------------------------------ HIGH LOW -------- ------- Yearly Periods: 1997....................................... 1475 900 1998....................................... 1300 700 1999....................................... 970 660 2000....................................... 3250 565 2001....................................... 1938.6 198.35(2) Quarterly Periods: 2000 First Quarter.............................. 976.75 565 Second Quarter............................. 1149.9 890 Third Quarter.............................. 2110 1005 Fourth Quarter............................. 3250 1600 2001 First Quarter.............................. 1938.6 826.05 Second Quarter............................. 1240.05 675 Third Quarter.............................. 355.95(2) 198.35(2) Fourth Quarter............................. 415 280 2001 Monthly Periods: March...................................... 375 280 April...................................... 332 272 May........................................ 402 305.35 June....................................... 366 312 July....................................... 345 256.8 August..................................... 299 261.25

------------------- (1) On September 24, 2001, the closing price of a Share on the BSE was Rs. 197.25. (2) Post-Bonus price - A bonus of 2:1 was declared and became effective during November 2000. SOURCE: The Stock Exchange, Mumbai 69 The table below sets forth, for the periods indicated, the high, low and closing sales prices and the average daily trading volume for the Shares on the NSE.

NATIONAL STOCK EXCHANGE ---------------------------------------------------------------------------- PRICE PER PERIOD SHARE(1) ------------------------------------------------- ------------------------ HIGH LOW ------- ------ Yearly Periods: 1997....................................... 1450 855 1998....................................... 1300 715 1999....................................... 995 640 2000....................................... 3298 561 2001....................................... 1990 210(2) Quarterly Periods: 2000 First Quarter.............................. 1042.2 561 Second Quarter............................. 1132.4 898.8 Third Quarter.............................. 2087.9 1024 Fourth Quarter............................. 3298 1600 2001 First Quarter.............................. 1990 801 Second Quarter............................. 1248.9 673.05 Third Quarter.............................. 355.6(2) 210(2) Fourth Quarter............................. 414.5 279.5 2001 Monthly Periods: March...................................... 367.7 279.5 April...................................... 333 270 May........................................ 400 306 June....................................... 366.7 311.05 July....................................... 340.1 258.05 August..................................... 296 230

------------------- (1) On September 24, 2001, the closing price of a Share on the National Stock Exchange was Rs.196.05. (2) Post-Bonus price - A bonus of 2:1 was declared and became effective during November 2000. SOURCE: The National Stock Exchange The Company is not aware of trading having taken place at the stock exchanges in Kolkata, Delhi and Chennai. In August 1996, the Indian Parliament enacted the Depositaries Act, 1996 which provides a legal framework for the establishment of depositaries to record ownership details and effectuate transfers in book-entry form. In May 70 1996, Securities and Exchange Board of India ("SEBI") passed the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 which provides for the formation of such depositaries, the registration of participants as well as the rights and obligations of the depositories participants and the issuers. Every depositary is required to be registered with SEBI. The depositary system is expected eventually to improve significantly the operations of the Indian securities markets. Pursuant to the Depositories Act, the National Securities Depositary Limited was established by the Unit Trust of India, the Industrial Development Bank of India and the NSE in 1996 to provide electronic depositary facilities for trading in equity and debt securities. The National Securities Depositary Limited, which commenced operations in November 1996, was the first depositary in India. The BSE announced plans to establish another depositary, and has accordingly incorporated the Central Depository Services Limited, which commenced operations on July 15, 1999. The depository system has significantly improved the operations of India's securities market. Trading of securities in book-entry form commenced in December 1996 and is available for securities of more than 600 companies at January 2000. In order to encourage "dematerialization" of securities, SEBI has set up a working group on dematerialization of securities comprising Foreign Institutional Investors, custodians, stock exchanges, mutual funds and the National Securities Depositary Limited to review the progress of securities and trading in dematerialized form and to recommend scrips for compulsory dematerialized trading in a phased manner. Accordingly, commencing January 1998, SEBI has notified scrips of various companies for compulsory dematerialized trading by certain categories of investors such as foreign and other institutional investors and has also notified compulsory dematerialized trading in specified scrips for all retail investors. SEBI proposes to increase the number of scrips in which dematerialized trading is compulsory for all investors significantly in the near future. SEBI has also provided that the issue and allotment of shares in public, rights or offer for sale after a specified date (to be notified to SEBI) shall only be in dematerialized form and an investor shall be compulsorily required to open a depository account with a participant. However, even in case of scripts notified for compulsory dematerialized trading, investors, other than institutional investors, are permitted to trade in physical shares on transactions outside the stock exchange where there are no requirements of reporting such transactions to the stock exchange and transactions on the stock exchange involving lots less than 500 securities. Under the Takeover Code, upon the acquisition of more than 5 percent of the outstanding shares of a public Indian Company, a purchaser is required to notify the Company and all the stock exchanges on which the shares of the Company are listed. Upon the acquisition of 15 percent or more of such shares or a change in control of the Company, the purchaser is required to make an open offer to the other shareholders offering to purchase at least 20% of all the outstanding shares of the Company at a minimum offer price as determined pursuant to the rules of the Takeover Code. Upon conversion of ADSs into Equity Shares, an ADS holder will be subject to the Takeover Code. Open market purchases of securities of Indian companies in India by Foreign Direct Investors or investments by Non-Resident Indians, Overseas Corporate Bodies and Foreign Institutional Investors above the ownership levels set forth above require Government of India approval on a case-by-case basis. ITEM 10. ADDITIONAL INFORMATION SHARE CAPITAL Not applicable. MEMORANDUM AND ARTICLES OF ASSOCIATION Set forth below is information relating to the share capital of the Company, including certain provisions of its Articles and the Companies Act, 71 1956 (the "Companies Act"). The Company is registered under the Companies Act with the Registrar of Companies, Mumbai, India with Company No. 39266. The following description of the Company's Articles of Association and Memorandum of Association does purport to be complete and are qualified in their entirety by the Company's Articles of Association and Memorandum of Association that are included as exhibits to the Company's Annual Report on Form 20-F, filed with the United States Securities and Exchange Commission on October 13, 2000 and are incorporated herein by reference. GENERAL The Company's authorized share capital is Rs.3,000,000,000, divided into 300,000,000 Shares with a face value of Rs.10 each. At the date hereof, 285,000,000 Shares were issued and fully paid. SEBI has recently allowed Indian companies to split the par value of their Equity Shares into denominations lower than Rs.10 per share. All Share and per Share amounts appearing in the financial data presented elsewhere herein have been retroactively restated to reflect this bonus issue. The Shares are in registered form. The Shares are the only class of share capital of the Company currently in existence. There are no convertible debentures or warrants of the Company currently in existence. Under our Memorandum of Association, the main objects of the Company include: o Managing, controlling and maintaining the operations of the Overseas Communications Service of the Department of Telecommunication, Ministry of Communications, Government of India, with all its assets and liabilities including contractual rights and obligations on such terms and conditions as may be prescribed by the Government of India from time to time. o Planning, establishing, developing, providing, operating and maintaining all types of international telecommunication networks, systems and services including, Telephone, Telex, Message Relay, Data transmission, Facsimile, Television, Telematics, value Added Network Services, New Business Services, Audio and Video Services, Maritime and Aeronautical Communication Services and other international telecommunications services as are in use elsewhere or to be developed in future. o Planning, establishing, developing, providing, operating and maintaining telecommunications systems and networks within India as are found necessary for international telecommunications. o Providing and maintaining international leased telecommunication services. o Designing, developing, installing, maintaining and operating long distance domestic and international basic and value added telecommunications, global mobile telecommunications, electronic mail services, globally managed data networks, data telecom networks, video conferencing, international gateway networks and satellite networks in and outside India. DIRECTORS COMPENSATION. The fulltime directors are entitled to receive compensation for their service to the Company. The external directors are entitled to receive a fee for each meeting of the Board or a committee thereof 72 that they attend. The fee for attending any meeting may be determined by the Board from time to time but must be within the maximum limit prescribed under the Companies Act. Subject to any provisions of the Companies Act, directors may be entitled to additional remuneration, if the director is called upon to perform an extraordinary service in behalf of the Company. In addition, directors may be reimbursed for reasonable traveling and other related expenses in connection with attending any meetings of the Board or a committee thereof. BORROWING POWERS. Subject to the provisions of the Company Act, the Board may pass a resolution at a meeting of the Board from time to time to borrow and/or secure the payment of any sum or sums of money for the purposes of the Company. The Board has the power, in its discretion, to determine the terms and conditions of such borrowing, including issuing bonds, debentures or any mortgage, charge or other security on the undertaking of any property of the Company. QUALIFICATION; RETIREMENT. A director need not hold any of the Company's Shares to qualify as a director. There is no age limit requirement for a director's retirement. The President of India is empowered by Article 66A of the Companies Act to appoint one-third of the total number of Directors sitting at any time as non-retiring directors and to designate the Chairman and Managing Director. The remaining directors of the Company are liable to retire by rotation, and one-third of such directors are elected by the shareholders each year at the Company's Annual General Meeting. The directors to retire in every year shall be those who have been longest in office since their last election, but as between persons who became directors on the same day shall be determined by lot unless they otherwise agree between themselves. The retiring directors shall be eligible for re-election. DIVIDENDS The Company's shareholders, acting at the Annual General Meeting, may declare a dividend upon the recommendation of the Board of Directors. The amount of the dividend so declared may not exceed the amount recommended by the Board although a lesser amount may be declared. Dividends are distributed and paid within 30 days of the declaration by the shareholders. The Company's Board also is authorized under the Articles to declare and pay interim dividends to shareholders. It is customary in India to pay to holders of shares issued in any fiscal year a pro rata portion of the annual dividend for the portion of the year such shares were issued. Dividends are payable only in cash to registered holders on a record date fixed prior to the relevant General Meeting. Dividends may be paid only out of profits of the Company for the relevant year, after transfer to the reserves of the Company of a percentage of its profits for that year of not less then 2.5 percent if the dividend is in excess of 10 percent. The Companies Act further provides that, in the event of inadequacy or absence of profits in any year, a dividend may be declared for such year out of the Company's accumulated profits, subject to certain limitations. Under the Companies Act, the dividend amount is required to be maintained in a separate bank account within five days of declaration of such dividend. The Board of Directors of the Company had recommended a dividend of Rs.50 on every share of Rs.10 for the financial year ended March 31, 2001, and the same has been approved at the Annual General Meeting held on September 27, 2001. 73 The Company is subject to nonbinding Ministry of Finance guidelines regarding the payout of dividends by PSUs. See "Dividends." VOTING RIGHTS At any general meeting, voting is by show of hands (where each shareholder has one vote) unless a poll is demanded by at least ten percent of those entitled to vote on the resolution or those holding Shares with a paid-up value of at least Rs.50,000. Upon a poll, every shareholder entitled to vote and present in person or by proxy has one vote for every Share held by the shareholder. The Chairman has a deciding vote in the case of any tie. Any shareholder of the Company may appoint a proxy. The instrument appointing a proxy must be lodged with the Company at least 48 hours before the time of the meeting. A corporate shareholder may appoint an authorized representative who may vote in all respects as if a shareholder, both on a show of hands and upon a poll. Ordinary resolutions may be passed by simple majority of those present and voting at any General Meeting for which the required period of notice has been given. However, certain resolutions, such as alteration of the Articles, commencement of a new line of business, issuance of further Shares without preemptive rights and reduction of share capital, require that the votes cast in favor of the resolution (whether by show of hands or upon a poll) be not less than three times the number of votes, if any, cast against the resolution. BONUS SHARES In addition to permitting dividends to be paid out of current or retained earnings, the Companies Act permits the Company to distribute bonus Shares to shareholders. Upon any such distribution an amount equal to the face value of such bonus Shares is transferred from the general reserve or share premium account to share capital. Such bonus Shares must be distributed to shareholders in proportion to the number of Shares owned by them. PREEMPTIVE RIGHTS AND ISSUE OF ADDITIONAL SHARES Subject to the approval of the President of India, the Company may by ordinary resolution increase its share capital by the issue of new Shares or create a new class of shares. In addition, the rights attached to the shares of any class may be varied with the consent of shareholders holding not less than three-fourths of the issued shares of that class. The Companies Act gives shareholders the right to subscribe for new Shares in proportion to their existing shareholdings unless otherwise determined by special resolution to that effect adopted at an Annual General Meeting of shareholders. Under the Companies Act, in the event of an issuance of securities, subject to the limitations the Company must first offer such Shares to existing shareholders by notice specifying (1) the number of Shares offered and the date, within 30 days from the date of offer, by which the offer must be accepted and (2) the right, exercisable by the shareholder, to renounce the shares offered in favor of any other person. The Board is entitled to distribute the Shares in respect of which preemptive rights have not been exercised in the manner that it deems most beneficial to the Company in accordance with the Articles. GENERAL MEETING OF SHAREHOLDERS The Company is required to convene an Annual General Meeting of its shareholders within six months after the end of each fiscal year and may convene an Extraordinary General Meeting of shareholders when necessary or at the request of a shareholder or shareholders holding not less than ten percent of the paid-up capital of the Company on the date of the request. The Annual General Meeting of the shareholders is generally convened by the Company Secretary in accordance with a resolution of the Board. Written notice setting out the agenda of the meeting must be given at least 21 days (excluding the day of service) prior to the date of the General Meeting to the shareholders whose names are on the register at the record date. Those shareholders who are registered as shareholders on the date of the General Meeting are entitled to attend or vote at such meeting. The Annual General Meeting of shareholders must be held at the registered office of the Company or at such other place within the city in which the registered office is located; meetings other than the Annual General Meeting may be held at any other place if so determined by the Board. 74 The Articles provide that a quorum for a General Meeting is the presence of at least five shareholders, including a representative of the President of India. REGISTER OF SHAREHOLDERS; RECORD DATES; TRANSFER OF SHARES The Company's share transfer agent maintains a register of shareholders of the Company. For the purpose of determining Shares entitled to annual dividends the register is closed for a specified period prior to the Annual General Meeting. The Companies Act and the Company's listing agreement with the BSE (and the other Indian Stock Exchanges) permit the Company, pursuant to a resolution of the Board and upon at least 42 days' advance notice to the BSE (and such stock exchanges), to set the record date and upon seven days' public notice to close the register of shareholders for not more than 30 days at a time, and not more than 45 days in a year, in order for the Company to determine which shareholders are entitled to certain rights pertaining to the Shares. Trading of Shares may, however, continue while the register of shareholders is closed. Following introduction of the Depositories Act, 1996, and the repeal of Section 22A of the Securities Contracts (Regulation) Act, 1956, which enabled companies to refuse to register transfers of shares in certain circumstances, the shares of a company are freely transferable, subject only to the provisions of Section 111A of the Companies Act. Pursuant to Section 111A, if the transfer of shares is in contravention of any of the provisions of the Securities and Exchange Board of India Act, 1992, or the regulations issued thereunder or the Sick Industrial Companies (Special Provisions) Act, 1985, the Company Law Board (a statutory body which administers various laws affecting companies in India may, on application made by an investor, SEBI or certain other parties, direct the rectification of the register of records. The Company Law Board may, in its discretion, issue an interim order suspending the voting rights attached to the relevant shares, before making or completing its inquiry into the alleged contravention. Pending such inquiry, the rights of a holder to transfer the shares would not be restricted, although the voting rights attached to the shares may remain suspended if the Company Law Board so orders. Transfer of Shares of the Company is effected by an instrument of transfer in the form prescribed by the Government of India coupled with delivery of the share certificates. The transfer agent of the Company is M/s.Sharepro Services, located in Mumbai. The above procedure is not applicable where the Shares are dematerialized and transferred electronically. To encourage "dematerialization" of securities in India, SEBI has required certain types of securities of certain Indian companies to be traded and settled in book-entry form. The Shares of the Company have been designated as one of such securities. To effect transfer of Shares in book-entry form, the seller and purchaser must establish accounts with a depositary participant appointed by the National Securities Depository Limited, a depositary established pursuant to the Depositories Act, 1996, and the only functioning depositary in India to date. Charges for opening an account with an National Securities Depositary Limited participant, transaction charges for each trade and custodian charges for securities held in each account vary depending upon the business practice of each National Securities Depositary Limited participant. Upon delivery, the Shares purchased will be registered in the name of the National Securities Depositary Limited participant and held by such National Securities Depositary Limited participant for the account of the purchaser. So long as the Shares are traded through the book-entry system of National Securities Depositary Limited, ownership of beneficial interest in the Shares will be shown on, and transfer of such ownership will be effected only through, records maintained by National Securities Depositary Limited participants. The requirement for dematerialization of the Shares may apply to the ADR holders when the underlying Shares are withdrawn from the depositary facility upon surrender of the ADRs.In order to trade the underlying Shares in the Indian market, the withdrawing ADR holder will be required to hold such Shares in book-entry form and to comply with the National Securities Depositary Limited procedures described above. If dematerialization of any underlying Shares is requested by an ADR holder, the cost incurred by the Depositary therefor will be borne by the withdrawing ADR holder. Transfer of Shares in book-entry form is not subject to any Indian transfer tax. See "Taxation--Indian Taxation." 75 DISCLOSURE OF OWNERSHIP INTEREST Section 187C of the Companies Act generally requires beneficial owners of shares of Indian companies who are not holders of record to declare to the company details of the holder of record and holders of record to declare details of the beneficial owner. While it is unclear whether Section 187C applies to holders of ADRs of a company, investors who exchange ADRs for shares are subject to this Section. Failure to comply with Section 187C would not affect the obligation of a company to register a transfer of shares or to pay any dividends to the registered holder of any shares in respect of which such declaration has not been made, but any person who fails to make the required declaration may be liable for a fine of up to Rs.l,000 for each day such failure continues. Furthermore, any charge, promissory note or any other collateral agreement created, executed or entered into by the registered owner of any share in respect of which a declaration required under Section 187C has not been made is not enforceable by the beneficial owner or any person claiming through him. So long as the Government of India's shareholding in the Company equals or exceeds 51 percent, Section 187C will not apply to holders of the Company's equity securities, including holders of either the ADRs or the Shares. AUDIT AND ANNUAL REPORT At least 21 days before the Annual General Meeting of shareholders, the Company must circulate a detailed version of the Company's audited balance sheet and profit and loss account and the reports of the Board of Directors and the auditors thereon. The Company also is required under the Companies Act to make available upon request of any shareholder a complete balance sheet and profit and loss account of the Company in the case of circulation of abridged accounts. The Comptroller and Auditor General of India has the power to direct the manner in which the Company's accounts shall be audited by the auditors appointed by the Government of India and to conduct a supplementary or test audit of the Company's accounts by such auditors. The Comptroller and Auditor General of India also has the right to comment on or supplement the audit report to the Comptroller and Auditor General of India which must be placed before the Annual General Meeting of the Company at the same time and in the same manner as the audit report. Under the Companies Act, the Company must file with the Registrar of Companies the balance sheet and annual profit and loss account presented to the shareholders within 30 days of the conclusion of the Annual General Meeting and an annual return within 60 days of the conclusion of the meeting. POWERS OF THE PRESIDENT OF INDIA Under Article 66B of the Articles, the President of India is entitled to appoint the Company's Chairman and Managing Director, Article 69(i) requires the Chairman to reserve for decision of the President of India such proposals, decisions or matters which raise in the opinion of the Chairman any important issue and which are, on that account, fit to be reserved for the decision of the President of India. No decision on such important issue may be taken in the absence of the Chairman appointed by the President of India. Article 69(ii) lists the matters in respect of which prior approval of the President of India must be obtained, which include capital expenditures in excess of Rs.2 billion and the sale, lease or disposal of any land or building with an original book value in excess of Rs.1 million. Under Article 71, the Company may not take action in respect of any proposal or decision of the Board reserved for approval of the President until his approval is obtained. The President may modify such proposals or decisions. Article 70 grants the President of India the power to issue directives in regard to the conduct of business and affairs of the Company, which directives are binding on the Company's Board of Directors. ACQUISITION BY THE COMPANY OF ITS OWN SHARES Until recently, the Companies Act did not permit a company to acquire its own equity shares because of the resulting reduction in the company's capital. However, the Government amended the Indian Companies Act and consequently this reduction in capital is now permitted in certain circumstances. The reduction of capital requires compliance with specific buy-back guidelines specified in the Indian Companies (Amendment) Act, 1999, and by SEBI. ADR holders will not be eligible to participate in a buyback in case of tender offers, odd lots and open market purchases unless they surrender their ADSs and receive delivery of the underlying Shares. ADR holders should note that Shares withdrawn from the depositary facility may not be redeposited into such depositary facility. See "--Description of American Depositary Receipts--Deposit of Shares and Other Securities." 76 There can be no assurance that the underlying Shares offered by the ADR holders in any buyback of Shares by the Company will be accepted by the Company. The regulations relating to the buyback of securities have only been introduced recently and there is very limited experience in the interpretation of such regulations. ADR Holders are advised to consult their Indian legal advisers prior to participating in any buyback by the Company, including in relation to any tax issues relating to such buyback. Foreign Institutional Investors should note that in the event of a buyback by the Company, the prescribed threshold limit for shareholdings by Foreign Institutional Investors may be exceeded by default regardless of any participation or non-participation by them in the buyback. The treatment of the Foreign Institutional Investors threshold limits in the buyback context is uncertain, and Foreign Institutional Investors are advised to consult their Indian legal advisers in this regard. LIQUIDATION RIGHTS Subject to the rights of creditors, employees and of the holders of any other shares entitled by their terms to preferential repayment over the Shares, in the event of winding up of the Company, the holders of the Shares are entitled to be repaid the amounts of capital paid up or credited as paid up on such Shares. All surplus assets after payments due to the holders of any preference shares belong to the holders of the Shares in proportion to the amount paid up or credited as paid up on such Shares, respectively, at the commencement of the winding up. TAKEOVER CODE Disclosure and mandatory bid obligations under Indian law are governed by the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the "Takeover Code"), which prescribes certain thresholds or trigger points that give rise to these obligations. The Takeover Code is under constant review by SEBI and was recently amended. The most important features of the Takeover Code, as amended, are as follows: o Any acquirer (meaning a person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in a company, either by himself or with any person acting in concert) who acquires shares or voting rights that would entitle him to more than 5 percent of the shares or voting rights in a company is required to disclose the aggregate of his shareholding or voting rights to the company (which in turn is required to disclose the same to each of the stock exchanges on which the company's shares are listed) within four working days of (a) the receipt of allotment information or (b) the acquisition of shares or voting rights, as the case may be. o A person who holds more than 15 percent of the shares or voting rights in any company is required to make annual disclosure of his holdings to that company (which in turn is required to disclose the same to each of the stock exchanges on which the company's shares are listed). o Promoters or persons in control of a company are also required to make annual disclosure in respect of their holdings in the same manner. With respect to takeovers (other than bail-out takeovers) of listed companies, the Takeover Code, as amended, provides for mandatory bid and open offer requirements, summarised below: o An acquiror cannot acquire shares or voting rights which (taken together with existing shares or voting rights, if any, held by him or by persons acting in concert with him) would entitle such acquiror to exercise 15 percent or more of the voting rights in a company, unless such acquiror makes a public announcement offering to acquire an additional 20 percent of the shares of the company. o An acquiror who, together with persons acting in concert with him, holds between 15 percent and 75 percent cannot acquire additional shares or voting rights that would entitle him to exercise more than 5 percent of the voting rights in any period of twelve months unless such acquiror makes a public announcement offering to acquire an additional 20 percent of the shares of the company. 77 o Any further acquisition of shares or voting rights by an acquiror who holds 75 percent of the shares or voting rights in a company triggers the same public announcement requirements. o In addition, regardless of whether there has been any acquisition of shares or voting rights in a company, an acquiror acting in concert cannot directly or indirectly acquire control over a company (for example, by way of acquiring the right to appoint a majority of the directors or to control the management or the policy decisions of the company) unless such acquiror makes a public announcement offering to acquire a minimum of 20 percent of the shares of the company. The Takeover Code sets out the contents of the required public announcements as well as the minimum offer price. The Takeover Code, as amended, permits conditional offers as well as the acquisition and subsequent delisting of all shares of a company and provides specific guidelines for the gradual acquisition of shares or voting rights. Specific obligations of the acquiror and of the board of directors of the target company in the offer process have also been set out. Acquirors making a public offer will be required to deposit in an escrow account 25 percent of the total consideration (if the total consideration is Rs.1.0 billion (US$0.02 billion) or less) up to and including Rs.1 billion (US$0.02 billion) and 10 percent for the excess over Rs.1 billion, which amount will be forfeited in the event that the acquiror does not fulfill his obligations. In addition, the Takeover Code introduces the "chain principle" whereby the acquisition of a holding company will obligate the acquiror to make a public offer to the shareholders of each of the publicly listed companies acquired through the acquisition of the holding company. The general requirements to make such a public announcement do not, however, apply entirely to bail-out takeovers when a promoter (i.e., person or persons in control of the company, persons named in any offer document as promoters and certain specified corporate bodies and individuals) is taking over a financially weak company (but not a "sick industrial company") pursuant to a rehabilitation scheme approved by a public financial institution or a scheduled bank. A "financially weak company" is a company which has, at the end of the previous fiscal year, accumulated losses resulting in erosion of more than 50 percent (but less than 100 percent) of the total sum of its paid-up capital and free reserves at the end of the previous fiscal year. A "sick industrial company" is a company registered for more than five years which has, at the end of any fiscal year, accumulated losses equal to or exceeding its entire net worth. The Takeover Code does not apply to certain specified acquisitions including the acquisition of shares (1) by allotment in a public issue, (2) pursuant to an underwriting agreement, (3) by registered stockbrokers in the ordinary course of business on behalf of clients, (4) in unlisted companies, (5) pursuant to a scheme of reconstruction or amalgamation or (6) pursuant to a scheme under Section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985. In addition, the Takeover Code does not apply to shares represented by ADSs so long as such shares remain in the ADR depositary facility. The Company has entered into a listing agreement with each of the other Indian Stock Exchanges on which the Shares are listed. Clause 40A of the listing agreements provides that if an acquisition of a listed company's Equity Shares results in the acquirer and its associates holding 5 percent or more of the company's outstanding Equity Shares, the acquirer must report its holding to the relevant stock exchange(s). If an acquisition could result in the acquirer and its associates holding Equity Shares which carry 10 percent or more of the voting rights, then the acquirer must notify the relevant stock exchange(s). If such acquisition is deemed a takeover, the acquirer must, before acquiring such shares, offer (in accordance with Clause 40B of the listing agreements) on a uniform basis to all remaining shareholders of the company to acquire a minimum of a further 20 percent of the total shares of the company at a prescribed price. The acquisition of shares of a company listed on an Indian stock exchange beyond certain threshold amounts is subject to regulations governing takeovers of Indian companies. Clauses 40A and 40B and such regulations will not apply to Shares so long as they are represented by ADRs. 78 MATERIAL CONTRACTS Not applicable. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS RESTRICTION ON CONVERSION OF RUPEES There are restrictions on the conversion of Rupees into US Dollars. Before February 29, 1992, the Reserve Bank of India determined the official value of the Rupee in relation to a weighted basket of currencies of India's major trading partners. In the February 1992 budget, a new dual exchange rate mechanism was introduced by allowing conversion of 60% of the foreign exchange received on the trade or current account at a market-determined rate and the remaining 40% at the official rate. All importers were, however, required to buy foreign exchange at the market rate except for importers of certain specified priority imports. In March 1993, the exchange rate was unified and allowed to float and made convertible on the revenue account. In February 1994 and again in August 1994, the Reserve Bank of India announced relaxations in payment restrictions for a number of transactions. Since August 1994, the Government of India has substantially complied with its obligations owed to the International Monetary Fund, under which India is committed to refrain from using exchange restrictions on current international transactions as an instrument in managing the balance of payments. Effective July 1999, the process of current account convertibility was advanced by relaxing restrictions on foreign exchange for various purposes, such as foreign travel and medical treatment. RESTRICTIONS ON SALE OF THE EQUITY SHARES UNDERLYING THE COMPANY'S AMERICAN DEPOSITARY RECEIPTS AND FOR REPATRIATION OF SALE PROCEEDS American Depositary Receipts issued by Indian companies to non-residents have free transferability outside India. However, under Indian regulations and practice, the approval of the Reserve Bank of India is required for the sale of Shares underlying the ADRs by a non-resident of India to a resident of India as well as for renunciation of rights to a resident of India. Further, the Depositary cannot accept deposits of outstanding Equity Shares and issue American Depositary Receipts evidencing American Depositary Shares representing such Equity Shares. Therefore, an investor in the ADSs who surrenders ADSs and withdraws Shares is not permitted subsequently to deposit such Shares and obtain ADSs. Nor would a holder to whom such Shares are transferred be permitted to deposit such Shares. Investors who seek to sell in India any Equity Shares withdrawn from the depositary facility and to convert the Rupee proceeds from such sale into foreign currency and repatriate such foreign currency from India will, subject to the foregoing, have to obtain Reserve Bank of India approval for such transaction. GENERAL Shares of Indian companies represented by ADSs may be approved for issuance to foreign investors by the Government of India under the Issue of Foreign Currency Convertible Bonds and Equity Shares (through Depositary Receipt Mechanism) Scheme, 1993 (the "1993 Regulation"), as modified from time to time, promulgated by the Government. The 1993 Regulation is distinct from other policies or facilities, as described below, relating to investments in Indian companies by foreign investors. The issuance of ADSs pursuant to the 1993 Regulation also affords to holders of the ADSs the benefits of Section 115AC of the Indian Income Tax Act, 1961 for purposes of the application of Indian tax law. FOREIGN DIRECT INVESTMENT In July 1991, the Government raised the limit on foreign equity holdings in Indian companies from 40 percent to 51 percent in certain high priority industries. The Reserve Bank of India gives automatic approval for such foreign equity holdings. The Foreign Investment Promotion Board, currently under the Ministry of Industry, was thereafter formed to negotiate with large foreign companies wishing to make long-term investments in India. Foreign equity participation in excess of 51 percent in such high priority industries or in any other industries up to Rupees six billion is currently allowed only with the approval of the Foreign Investment Promotion Board. Proposals in excess of 79 Rupees six billion require the approval of the Cabinet committee on Foreign Investment. Proposals involving the public sector and other sensitive areas require the approval of Cabinet Committee on Economic Affairs. These facilities are designed for direct foreign investments by non-residents of India who do not qualify as Non-Resident Indians, Overseas Corporate Bodies or Foreign Institutional Investors (as each term is defined below) ("Foreign Direct Investors"). The Department of Industrial Policy and Promotion, a part of the Ministry of Industry, issued detailed guidelines in January 1997 for consideration of foreign direct investment proposals by the Foreign Investment Promotion Board (the "Guidelines"). Under the Guidelines, sector specific guidelines for foreign direct investment and the levels of permitted equity participation have been established. In January 1998, the Reserve Bank of India issued a notification that foreign ownership of up to 50 percent, 51 percent, 74 percent or 100 percent depending on the category of industry, would be allowed without prior permission of the Reserve Bank of India. The issues to be considered by the Foreign Investment Promotion Board, and the Foreign Investment Promotion Board's areas of priority in granting approvals are also set out in the Guidelines. The basic objective of the Guidelines is to improve the transparency and objectivity of the Foreign Investment Promotion Board's consideration of proposals. However, because the Guidelines are administrative guidelines and have not been codified as either law or regulations, they are not legally binding with respect to any recommendation made by the Foreign Investment Promotion Board or with respect to any decision taken by the Government of India in cases involving foreign direct investment. In May 1994, the Government announced that purchases by foreign investors of ADSs as evidenced by ADRs and foreign currency convertible bonds of Indian companies will be treated as direct foreign investment in the equity issued by Indian companies for such offerings. Therefore, offerings that involve the issuance of equity that results in Foreign Direct Investors holding more than the stipulated percentage of direct foreign investments (which depends on the category of industry) would require approval from the Foreign Investment Promotion Board. In addition, in connection with offerings of any such securities to foreign investors, approval of the Foreign Investment Promotion Board is required for Indian companies whether or not the stipulated percentage limit would be reached, if the proceeds therefrom are to be used for investment in non-high priority industries. With respect to the activities of the Company, Foreign Investment Promotion Board approval is required for any direct foreign investment in the Company which exceeds 51 percent of the total issued share capital of the Company. In July 1997, the Government issued guidelines to the effect that foreign investment in preferred shares will be considered as part of the share capital of a company and will be processed through the automatic Reserve Bank of India route or will require the approval of the Foreign Investment Promotion Board, as the case may be. Investments in preferred shares are included as foreign direct investment for the purposes of sectoral caps on foreign equity, if such preferred shares carry a conversion option. If the preferred shares are structured without a conversion option, they would fall outside the foreign direct investment limit but would be treated as debt and would be subject to special Government of India guidelines and approvals. INVESTMENT BY NON-RESIDENT INDIANS, PERSONS OF INDIAN ORIGIN AND OVERSEAS CORPORATE BODIES A variety of special facilities for making investments in India in shares of Indian companies are available to individuals of Indian nationality or origin residing outside India, persons of Indian origin and to overseas corporate bodies ("OCBs"), at least 60 percent owned by such persons. These facilities permit Non-Resident Indians, Persons of Indian Origin and OCBs to make portfolio investments in shares and other securities of Indian companies on a basis not generally available to other foreign investors. These facilities are different and distinct from investments by Foreign Direct Investors described above. INVESTMENT BY FOREIGN INSTITUTIONAL INVESTORS In September 1992, the Government issued guidelines which enable Foreign Institutional Investors, including institutions such as pension funds, investment trusts, asset management companies, nominee companies and incorporated/institutional portfolio managers, to invest in all the securities 80 traded on the primary and secondary markets in India. Under the guidelines, Foreign Institutional Investors are required to obtain an initial registration from SEBI and a general permission from the Reserve Bank of India to engage in transactions regulated under the Foreign Exchange Management Act of 1999. Foreign Institutional Investors must also comply with the provisions of the SEBI Foreign Institutional Investors Regulations, 1995. When it receives the initial registration, Foreign Institutional Investors also obtain general permission from the Reserve Bank of India to engage in transactions regulated under the Foreign Exchange Management Act of 1999. Together, the initial registration and the Reserve Bank of India's general permission enable registered Foreign Institutional Investors to buy (subject to the ownership restrictions discussed below) and sell freely securities issued by Indian companies, to realize capital gains on investments made through the initial amount invested in India, to subscribe or renounce rights offerings for shares, to appoint a domestic custodian for custody of investments held and to repatriate the capital, capital gains, dividends, and income received by way of interest and any compensation received towards sale or renunciation of rights offerings of shares. OWNERSHIP RESTRICTIONS SEBI and the Reserve Bank of India regulations restrict investments in Indian companies by Foreign Direct Investors. Under current SEBI regulations applicable to the Company, Foreign Direct Investors in aggregate may hold no more than 40 percent of the Company's Equity Shares, excluding the Equity Shares underlying the ADSs, and Non-Resident Indians and Overseas Corporate Bodies in aggregate may hold no more than 10 percent of the Company's Equity Shares, excluding the Equity Shares underlying the ADSs. Furthermore, SEBI regulations provide that no single Foreign Institutional Investor may hold more than 10 percent of the Company's total Equity Shares and no single Non-Resident Indian or OCB may hold more than 5 percent of the Company's total Equity Shares. Foreign Institutional Investors may only purchase securities of public Indian companies (other than ADSs) through a procedure known as a "preferential allotment of shares," which is subject to certain restrictions. These restrictions will not apply to Equity Shares issued as stock dividends or in connection with rights offerings applicable to the Equity Shares underlying ADSs. There is uncertainty under Indian law about the tax regime applicable to Foreign Institutional Investors which hold and trade ADSs. Foreign Institutional Investors are urged to consult with their Indian legal and tax advisers about the relationship between the Foreign Institutional Investors guidelines and the ADSs and any Equity Shares withdrawn upon surrender of ADSs. More detailed provisions relating to Foreign Institutional Investors investment have been introduced by the SEBI with the introduction of the SEBI Foreign Institutional Investors Regulations, 1995. These provisions relate to the registration of Foreign Institutional Investors, their general obligations and responsibilities, and certain investment conditions and restrictions. One such restriction is that the total investment in equity and equity-related instruments should not be less than 70 percent of the aggregate of all investments of the Foreign Institutional Investors in India. The SEBI has also permitted private placements of shares by listed companies with Foreign Institutional Investors, subject to the prior approval of the Reserve Bank of India under the Foreign Exchange Regulation Act of 1973. Such private placement must be at the average of the weekly highs and lows of the closing price over the preceding six months of the preceding two weeks, whichever is higher. VOTING RIGHTS Holders of the Company's ADSs will not be entitled to instruct the Depositary how to vote the Shares underlying the ADSs. Rather, each holder, by accepting an ADR, authorized and directed the Depositary to vote as set forth below. The Depositary will vote the deposited Shares as instructed by the Company's Board of Directors or give a proxy or power of attorney to vote the deposited Shares to a person designated by the Board of Directors. However, the Depositary will only do this upon the Company's legal counsel issuing an opinion to the Depositary stating it is legal for the Depositary to do so and that doing so will not expose the Depositary to legal liability. If the Company does not provide the legal opinion referred to above, the Depositary will not vote the deposited Shares or give a proxy or power of attorney to anyone else to vote the deposited Shares. 81 DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS AMERICAN DEPOSITARY RECEIPTS The Bank of New York, also referred to as the Depositary, will execute and deliver the ADRs. ADRs are American Depositary Receipts. Each ADR is a certificate evidencing a specific number of American Depositary Shares, also referred to as ADSs. Each ADS will represent two Shares (or a right to receive two Shares) deposited with ICICI Limited, as custodian for the Depositary in India. Each ADS will also represent any other securities, cash or other property which may be held by the Depositary under the deposit agreement. The Depositary's office at which the ADRs will be administered is located at 101 Barclay Street, New York, New York 10286. The custodian's office is located at ICICI Towers, Bandrakurla Complex, Bandra East, Mumbai 400 051, India. YOU MAY HOLD ADSS EITHER DIRECTLY (BY HAVING AN ADR REGISTERED IN YOUR NAME) OR INDIRECTLY THROUGH YOUR BROKER OR OTHER FINANCIAL INSTITUTION. IF YOU HOLD ADSS DIRECTLY, YOU ARE AN ADR HOLDER. THIS DESCRIPTION ASSUMES YOU HOLD YOUR ADSS DIRECTLY. IF YOU HOLD THE ADSS INDIRECTLY, YOU MUST RELY ON THE PROCEDURES OF YOUR BROKER OR OTHER FINANCIAL INSTITUTION TO ASSERT THE RIGHTS OF ADR HOLDERS DESCRIBED IN THIS SECTION. YOU SHOULD CONSULT WITH YOUR BROKER OR FINANCIAL INSTITUTION TO FIND OUT WHAT THOSE PROCEDURES ARE. AS AN ADR HOLDER, WE WILL NOT TREAT YOU AS ONE OF OUR SHAREHOLDERS AND YOU WILL NOT HAVE SHAREHOLDER RIGHTS. INDIAN LAW GOVERNS SHAREHOLDER RIGHTS. THE DEPOSITARY IS THE HOLDER OF THE SHARES UNDERLYING YOUR ADSS. AS A HOLDER OF ADRS, YOU HAVE ADR HOLDER RIGHTS. A DEPOSIT AGREEMENT AMONG US, THE DEPOSITARY AND YOU, AS AN ADR HOLDER SET OUT ADR HOLDER RIGHTS AS WELL AS THE RIGHTS AND OBLIGATIONS OF THE DEPOSITARY, AS DEPOSITARY. NEW YORK LAW GOVERNS THE DEPOSIT AGREEMENT AND THE ADRS. THE FOLLOWING IS A SUMMARY OF THE DEPOSIT AGREEMENT. BECAUSE IT IS A SUMMARY, IT DOES NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO YOU. FOR MORE COMPLETE INFORMATION, YOU SHOULD READ THE ENTIRE DEPOSIT AGREEMENT AND THE FORM OF ADR. COPIES OF THE DEPOSIT AGREEMENT INCLUDING THE FORM OF ADR ARE AVAILABLE FOR INSPECTION AT THE OFFICE OF THE DEPOSITARY AND AT THE OFFICE OF THE CUSTODIAN SET FORTH ABOVE. SHARE DIVIDENDS AND OTHER DISTRIBUTIONS HOW WILL YOU RECEIVE DIVIDENDS AND OTHER DISTRIBUTIONS ON THE SHARES? The Depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on Shares or other deposited securities, after deducting its fees and expenses. You will receive these distributions in proportion to the number of Shares your ADSs represent. o CASH. The Depositary will, as promptly as practicable, convert any cash dividend or other cash distribution we pay on the Shares into US dollars, if it can do so on a reasonable basis and can transfer the US dollars to the United States. If that is not possible or if any approval from any government or regulatory authority is needed and can not be obtained, the deposit agreement allows the Depositary to distribute the foreign currency only to those ADR holders to whom it is possible to do so. It will hold the foreign currency it cannot convert for the account of the ADR holders who have not been paid. It will not invest the foreign currency and it will not be liable for any interest. Before making a distribution the Depositary will deduct any withholding taxes that must be paid under Indian law. See "--Taxation". It will distribute only whole US dollars and cents and will round fractional cents to the nearest whole cent. IF THE EXCHANGE RATES FLUCTUATE DURING A TIME WHEN THE DEPOSITARY CANNOT CONVERT THE FOREIGN CURRENCY, YOU MAY LOSE SOME OR ALL OF THE VALUE OF THE DISTRIBUTION. o SHARES. The Depositary may, and will if we tell it to, distribute additional ADSs representing any Shares we distribute as a dividend or free distribution, if we furnish it promptly with 82 satisfactory evidence that it is legal to do so. The Depositary will only DISTRIBUTE whole ADSs. It will sell Shares which would require it to issue a fractional ADS and distribute the net proceeds in the same way as it does with cash. If the Depositary does not distribute additional ADS, the ADSs will also represent the new Shares. o RIGHTS TO RECEIVE ADDITIONAL SHARES. If we offer holders of our securities any rights to subscribe for additional shares or any other rights, the Depositary may make these rights available to you. The Depositary must first consult with us and we must furnish the Depositary with SATISFACTORY evidence that it is legal to do so. If we don't furnish this evidence, and the Depositary decides it is practical to sell the rights, the Depositary will sell the rights and distribute the proceeds in the same way as it does with cash. The Depositary may allow rights that are not distributed or sold to lapse. IN THAT CASE, YOU WILL RECEIVE NO VALUE FOR THEM. If the Depositary makes rights available to you, it will exercise the rights and purchase the Shares on your behalf upon your instruction. The Depositary will then deposit the Shares and deliver ADSs to you. It will only exercise rights if you pay it the exercise price and any other charges the rights require you to pay. US securities laws may restrict sales, transfers and cancellation of the ADSs represented by Shares purchased upon exercise of rights. For example, you may not be able to trade these ADSs freely in the United States. In this case, the Depositary may deliver the ADSs under a separate restricted deposit agreement which will contain the same provisions as the deposit agreement, except for changes needed to put the necessary restrictions in place. o OTHER DISTRIBUTIONS. The Depositary will send to you anything else we distribute on deposited securities by any means it thinks is legal, fair and practical. If it cannot make the distribution in that way, the Depositary has a choice, after consulting with us. It may decide to sell what we distributed and distribute the net proceeds, in the same way as it does with cash. Or, it may decide to hold what we distributed, in which case the ADSs will also represent the newly distributed property. The Depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADR holders. We have no obligation to register ADSs, Shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADRs, Shares, rights or anything else to ADR holders. THIS MEANS THAT YOU MAY NOT RECEIVE THE DISTRIBUTIONS WE MAKE ON OUR SHARES OR ANY VALUE FOR THEM IF IT IS ILLEGAL OR IMPRACTICAL FOR US TO MAKE THEM AVAILABLE TO YOU. DEPOSIT, WITHDRAWAL AND CANCELLATION HOW ARE ADSs ISSUED? Subject to Indian law, the Depositary will deliver ADSs if you or your broker deposit Shares or evidence of rights to receive Shares with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the Depositary will register the appropriate number of ADSs in the names you request and will deliver the ADRs at its office to the persons you request. Under current Indian laws and regulations, the Depositary cannot accept deposits of Shares other than from us (except for Shares issued as bonus shares or pursuant to rights offerings, and except for Shares withdrawn from our ADR facility which are immediately deposited under the deposit agreement) and deliver ADSs representing Shares. HOW DO ADS HOLDERS CANCEL AN ADR AND OBTAIN SHARES? You may turn in your ADRs at the Depositary's office. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the Depositary will deliver the deposited securities represented by your ADRs (1) to an account designated by you in the book-entry 83 system in India, if that is feasible, or (2) at the office of the custodian to you or to a person you designate, if feasible. Or, at your request, risk and expense, the Depositary will deliver the Deposited Securities at its office, if feasible . If you surrender ADRs and withdraw Shares, you will have to take the Shares in dematerialized book-entry form. You will be required to establish an account with a participant of the Indian book-entry system to hold or sell the shares in dematerialized book-entry form, and you may incur customary fees and expenses in doing so. In addition, the sale of withdrawn Shares by a non-resident of India may require approval from the Reserve Bank of India. For further details on the sale of underlying Shares, see "Item 10. Additional Information -- Register of Shareholders, Records Dates, Transfer of Shares". VOTING RIGHTS You will not be entitled to instruct the Depositary how to vote the Shares underlying your ADSs. Rather, by accepting an ADR, you will authorize and direct the Depositary to vote as set forth below. The Depositary will vote the deposited Shares as instructed by our Board of Directors or give a proxy or power of attorney to vote the deposited Shares to a person our Board of Directors designates. However, the Depositary will only do this if we arrange for our lawyers to give the Depositary an opinion saying it is legal for the Depositary to do so and that doing so will not expose the Depositary to legal liability. If we do not provide the legal opinion referred to above, the Depositary will not vote the deposited Shares or give a proxy or power of attorney to anyone else to vote the deposited Shares. FEES AND EXPENSES ADR HOLDERS MUST PAY: FOR: ---------------------------------------------------- ------------------------------------------------------------ $5.00 (or less) per 100 ADSs o Each issuance of an ADR , including as a result of a distribution of Shares or rights or other property o Each cancellation of an ADR for the purpose of withdrawal, including if the deposit agreement terminates $.02 (or less) per ADS (to the extent o Any cash distribution permitted by the rules of any stock exchange on which ADSs are listed for trading) A fee equivalent to the fee that would be o Distribution of securities distributed to holders of payable upon deposit of Shares for deposited securities which are distributed by the issuance of ADSs Depositary to ADR holders Registration or transfer fees o Transfer of shares on our share register to or from the name of the Depositary or its agent when you deposit or withdraw Shares Expenses of the Depositary o Conversion of foreign currency to US dollars Expenses of the Depositary o Cable, telex and facsimile transmission expenses (if expressly provided in the deposit agreement) Taxes and other governmental charges the o As necessary. Depositary or the custodian have to pay on any ADR or Share underlying an ADR, for example, stock transfer taxes, stamp duty or withholding taxes Any charges payable by the Depositary or its o As incurred. agents in connection with servicing the deposited securities. 84 INSPECTION OF TRANSFER BOOKS The Depositary will maintain at its office facilities for the execution and delivery, registration of transfer, combination or split-up of ADRs and a register for the registration of ADRs and the registration of the transfer of ADRs that at reasonable times will be open for inspection by you and us provided that such inspection shall not be for the purpose of communication with investors in the ADRs in the interest of a business or object other than our business or a matter related to the deposit agreement or the ADRs. PAYMENT OF TAXES The Depositary may deduct the amount of any taxes owed from any payments due to you. It may also sell deposited securities, by public or private sale, to pay any taxes owed. You will remain liable for any deficiency if the proceeds of the sale are not enough to pay the taxes. If the Depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to you any proceeds, or send to you any property, remaining after it has paid the taxes. RECLASSIFICATIONS, RECAPITALIZATIONS AND MERGERS IF WE: THEN: ------------------------------------------------ --------------------------------------------------------- o Change the nominal or par value of our The cash, Shares or other securities received by the shares Depositary will become deposited securities. Each ADS will automatically represent its equal share of the new deposited securities. o Reclassify, split up or consolidate any of the deposited securities The Depositary may, and will if we ask it to, o Distribute securities on the shares that distribute some or all of the cash, Shares or other are not distributed to you securities it received. It may also deliver new ADSs or ask you to surrender your outstanding o Recapitalize, reorganize, merge, liquidate, ADRs in exchange for new ADRs identifying the sell all or substantially all of our new deposited securities. assets, or take any similar action AMENDMENT AND TERMINATION HOW MAY THE DEPOSIT AGREEMENT BE AMENDED? We may agree with the Depositary to amend the deposit agreement and the ADRs without your consent for any reason. If the deposit amendment adds or increases fees or charges, except for taxes and other governmental charges or out-of-pocket expenses of the Depositary, or prejudices a substantial right of ADR holders, it will only become effective 30 days after the Depositary notifies you of the amendment. At the time an amendment becomes effective, you are considered, by continuing to hold your ADR, to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended. HOW MAY THE DEPOSIT AGREEMENT BE TERMINATED? The Depositary will terminate the deposit agreement if we ask it to do so. the Depositary may also terminate the deposit agreement if the Depositary has told us that it would like to resign and we have not appointed a new depositary bank within 90 days. In both cases, the Depositary must notify you at least 30 days before termination. After termination, the Depositary and its agents will do the following under the deposit agreement but nothing else: (1) advise you that the agreement is terminated, (2) collect dividends and other distributions on the deposited securities, (3) sell rights offered to shareholders and (4) deliver Shares and other deposited securities upon cancellation of ADRs. One year after termination, the Depositary may sell any remaining deposited securities by public or private sale. After that, the Depositary will hold the proceeds of the sale, as well as any other cash it is holding under the deposit agreement for the PRO RATA benefit of the ADR holders that have not surrendered their ADRs. It 85 will not invest the money and has no liability for interest. The Depositary's only obligations will be to account for the proceeds of the sale and other cash and to indemnify us. After termination our only obligations will be to indemnify the Depositary and to pay certain amounts to the Depositary. LIMITATIONS ON OBLIGATIONS AND LIABILITY LIMITS ON OUR OBLIGATIONS AND THE OBLIGATIONS OF THE DEPOSITARY; LIMITS ON LIABILITY TO HOLDERS OF ADRS The deposit agreement expressly limits our obligations and the obligations of the Depositary. It also limits our liability and the liability of the Depositary. We and the Depositary: o are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith; o are not liable if either of us is prevented or delayed by law or circumstances beyond our control from performing our obligations under the deposit agreement; o are not liable if either of us exercises discretion permitted under the deposit agreement; o have no obligation to become involved in a lawsuit or other proceeding related to the ADRs or the deposit agreement on your behalf or on behalf of any other person; and o may rely upon any documents we believe or it believes in good faith to be genuine and to have been signed or presented by the proper party, and may rely on advice or information from any person we believe or it believes, in good faith, to be competent to give such advice or information. In the deposit agreement, we agree to indemnify the Depositary for acting as depositary, except for losses caused by the Depositary's own negligence or bad faith, and the Depositary agrees to indemnify us for losses resulting from its negligence or bad faith. REQUIREMENTS FOR DEPOSITARY ACTIONS Before the Depositary will deliver or register a transfer of an ADR, make a distribution on an ADR, or permit withdrawal of Shares, the Depositary may require: o payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any Shares or other deposited securities; o satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and o compliance with such reasonable regulations it may establish, from time to time, consistent with the agreement, including presentation of transfer documents. o The Depositary may refuse to deliver ADRs, register transfers of ADRs or permit withdrawal of Shares when the transfer books of the Depositary or our transfer books are closed or at any time if the Depositary or we think it advisable to do so. YOUR RIGHT TO RECEIVE THE SHARES UNDERLYING YOUR ADRS You have the right to cancel your ADRs and withdraw the underlying Shares at any time except: o When temporary delays arise because: (1) the Depositary has closed its transfer books or we have closed our transfer books; (2) the transfer of Shares is blocked to permit voting at a shareholders' meeting; or (3) we are paying a dividend on our Shares. 86 o When you or other ADR holders seeking to withdraw Shares owe money to pay fees, taxes and similar charges. o When it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADRs or to the withdrawal of Shares or other deposited securities. This right of withdrawal may not be limited by any other provision of the deposit agreement. Foreign investors who withdraw Shares will be subject to Indian legal restrictions governing the ownership of Indian securities. For a discussion, see "--Restriction on Foreign Ownership of Indian Securities". PRE-RELEASE OF ADRS Unless we tell the Depositary to cease doing so, the Depositary may, but is not required to, deliver ADRs before deposit of the underlying Shares. This is called a pre-release of the ADR. The Depositary may also deliver Shares upon cancellation of pre-released ADRs (even if the ADRs are canceled before the pre-release transaction has been closed out). A pre-release is closed out as soon as the underlying Shares are delivered to the Depositary. the Depositary may receive ADRs instead of Shares to close out a pre-release. the Depositary may pre-release ADRs only under the following conditions: (1) before or at the time of the pre-release, the person to whom the pre-release is being made must represent to the Depositary in writing that it or its customer owns the Shares or ADRs to be deposited; (2) the pre-release must be fully collateralized with cash or other collateral that the Depositary considers appropriate; and (3) the Depositary must be able to close out the pre-release on not more than five (5) business days' notice. In addition, the Depositary will limit the number of ADSs that may be outstanding at any time as a result of pre-release, although the Depositary may disregard the limit from time to time, if it thinks it is appropriate to do so. TAXATION INDIAN TAXATION GENERAL. The following summary is based on the provisions of the Income Tax Act, 1961 (the "Indian Tax Act"), including the special tax regime contained in Section 115AC (the "Section 115AC Regime") and the 1993 Regulation. The Indian Tax Act is amended every year by the Finance Act of the relevant year. Some or all of the tax consequences of the Section 115 AC Regime may be amended or changed by future amendments of the Indian Tax Act. The summary set forth below is not intended to constitute a complete analysis of the individual tax consequences to non-resident holders under Indian law for the acquisition, ownership and sale of ADSs and Equity Shares by non-resident holders. Personal tax consequences of an investment may vary for investors in various circumstances and potential investors should therefore consult their own tax advisers on the tax consequences of such acquisition, ownership and sale, including specifically the tax consequences under the law of the jurisdiction of their residence and any tax treaty between India and their country of residence. RESIDENCE For purposes of the Indian Tax Act, an individual is considered to be a resident of India during any fiscal year if he or she: o is in India in that year for a period or periods amounting to 182 days or more; or o is in India in that year for 60 days or more and, in case of a citizen of India or a person of Indian origin, who, being outside India, comes on a visit to India, is in India for more than 182 days in each case within the four preceding years has been in India for a period or periods amounting to 365 days or more. A company is resident in India if it is registered in India or the control and management of its affairs is situated wholly in India. 87 TAXATION OF DISTRIBUTIONS Pursuant to the Finance Act, 1997, withholding tax on dividends paid to shareholders no longer applies. However, the Company is now required to pay a 10.2 percent tax on any amount declared, distributed or paid as dividends including present surcharge of 2 percent. Distributions to non-resident holders of additional ADSs or Equity Shares or rights to subscribe for Equity Shares ("Rights") granted with respect to ADSs or Equity Shares are not subject to Indian tax. TAXATION ON SURRENDER OF ADSs The acquisition by a non-resident holder of Shares upon surrender of ADSs does not constitute a taxable event for Indian income tax purposes. Such exchange will, however, give rise to stamp duty as described below under "Stamp Duty and Transfer Tax." TAXATION OF CAPITAL GAINS Any gain realized on the sale of ADSs or Equity Shares by a non-resident holder to another non-resident holder outside India is not subject to Indian capital gains tax. However, as Rights are not expressly covered by the Indian Income Tax Act, 1961, it is unclear, as to whether capital gain derived from the sale of Rights by a non-resident holder (not entitled to an exemption under a tax treaty) to another non-resident holder outside India will be subject to Indian capital gains tax. If such Rights are deemed by the Indian tax authorities to be situated within India, the gains realized on the sale of such Rights will be subject to customary Indian taxation as discussed below. Since the issuance of the ADSs has been approved by the Government of India under the Section 115AC Regime, Non-resident Holders of the ADSs will have the benefit of tax concessions available under the Section 115AC Regime. The Section 115AC Regime provides that if the Equity Shares are sold on an Indian Stock Exchange against payment in Indian rupees, they will no longer be eligible for such concessional tax treatment. However, the Section 115AC Regime is unclear, as to whether such tax treatment is available to a non-resident who acquires Equity Shares outside India from a non-resident holder of Equity Shares after receipt of the Equity Shares upon surrender of the ADSs. If concessional tax treatment is not available, gains realized on the sale of such Equity Shares will be subject to customary Indian taxations discussed below. Subject to any relief provided pursuant to an applicable tax treaty, any gain realized on the sale of Equity Shares to an Indian resident or inside India generally will be subject to Indian capital gains tax. For the purpose of computing capital gains tax, the cost of acquisition of Equity Shares received in exchange for ADSs will be determined on the basis of the prevailing price of the shares on any of the Indian stock exchanges on the date that the Depositary instructs the custodian to deliver Equity Shares in exchange for ADSs. A non-resident holder's holding period (for purpose of determining the applicable Indian capital gains tax rate) in respect of Equity Shares received in exchange for ADSs commences on the date of the notice of the redemption by the Depositary to the Custodian. The Indo-US Treaty does not provide an exemption from the imposition of Indian capital gains tax. Taxable gain realized on Equity Shares (calculated in the manner set forth in the prior paragraph) for more than 12 months (long-term gain) is subject to tax at the rate of 10 percent. Taxable gain realized on Equity Shares held for 12 months for less (short-term gain) is subject to tax at variable rates with a maximum rate of 48 percent. The actual rate of tax on short-term gain depends on a number of factors, including the legal status of the Non-resident and the type of income chargeable in India. STAMP DUTY AND TRANSFER TAX Upon issuance of the Equity Shares, the Company is required to pay a stamp duty of 0.1 percent per share of the issue price of the underlying Equity Shares. A transfer of ADSs is not subject to the Indian stamp duty. However, upon the acquisition of Equity Shares from the Depositary in exchange for ADSs, the holder will be liable for Indian stamp duty at the rate of 0.5 percent of the market value of the ADSs or Equity Shares exchanged. A sale of Equity Shares by a registered holder will also be subject to Indian stamp duty at the rate of 88 0.5 percent of the market value of the Equity Shares on the trade date, although customarily such tax is borne by the transferee. However, in case of Equity Shares held with the Depositary in electronic mode, there will not be any incidence of stamp duty. GIFT AND WEALTH TAX ADSs held by non-resident holders and the underlying Equity Shares held by the Depositary and the transfer of ADSs between non-resident holders and the Depositary will be exempt from Indian gift tax and Indian wealth tax. ESTATE DUTY Under current Indian law, there is no estate duty applicable to a non-resident holder of ADSs or Equity Shares. UNITED STATES FEDERAL TAXATION The following summary describes the material United States federal income tax consequences of ownership of Shares and ADSs as of the date hereof. The discussion set forth below is applicable to US Holders (as defined below). Except where noted, it deals only with Shares and ADSs held as capital assets and does not deal with special situations, such as those of dealers in securities or currencies, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, financial institutions, tax-exempt entities, life insurance companies, persons holding Shares or ADSs as part of a hedging, integrated, conversion or constructive sale transaction or a straddle, corporations that accumulate earnings to avoid US federal income tax, persons owning 10 percent or more of the voting stock of the Company, or persons whose "functional currency" is not the United States dollar. Furthermore, the discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified so as to result in United States federal income tax consequences different from those discussed below. In addition, this summary is based, in part, upon representations made by the Depositary to the Company and assumes that the Deposit Agreement, and all other related agreements, will be performed in accordance with their terms. PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF SHARES OR ADSS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION. As used herein, the term "US Holder" means a beneficial holder of a Share or ADS that is (1) a citizen or resident of the United States, (2) a corporation or partnership created or organized in or under the laws of the United States or any political subdivision thereof, (3) an estate the income of which is subject to United States federal income taxation regardless of its source or (4) a trust (X) which is subject to the supervision of a court within the United States and the control of one or more United States persons as described in section 7701(a)(30) of the Code or (Y) that has a valid election in effect under applicable US Treasury regulations to be treated as a United States person. OWNERSHIP OF ADSS In general, for United States federal income tax purposes, US holders of ADSs will be treated as the owners of the underlying Shares that are represented by such ADSs. Deposits or withdrawal of Shares by US Holders for ADSs will not be subject to United States federal income tax. TAXATION OF DIVIDENDS Dividends (other than certain dividends of Shares or rights to subscribe for Shares) paid to US Holders of Shares or ADSs will be treated as dividend income to such holders, to the extent paid out of current or accumulated earnings and profits, as determined under United States federal income tax principles. Such income will be includable in the gross income of a US Holder as ordinary income on the day received by the US Holder, in the case of Shares, or by the Depositary, in the case of ADSs. Such dividends will not be eligible for the dividends received deduction allowed to corporations under the Code. 89 The amount of any dividend paid in Indian Rupees will equal the United States dollar value of the Indian Rupees received calculated by reference to the exchange rate in effect on the date the dividend is received by the US Holder, in the case of Shares, or by the Depositary, in the case of ADSs, regardless of whether the Indian Rupees are converted into United States dollars. If the Indian Rupees received as a dividend are not converted into United States dollars on the date of receipt, a US Holder will have a basis in the Indian Rupees equal to their United States dollar value on the date of receipt. Any gain or loss realized on a subsequent conversion or other disposition of the Indian Rupees will be treated as ordinary income or loss. A US Holder will not be eligible for a foreign tax credit against its United States federal income tax liability for Indian taxes paid by the Company and deemed under Indian law to have been paid by the shareholders of the Company, unless it is a US Company holding at least 10 percent of the Indian Company paying the dividends. Dividends paid on the Shares or ADSs will be treated as income from sources outside the United States and will generally constitute "passive income" or, in the case of certain US Holders, "financial services income." To the extent that the amount of any distribution by the Company exceeds the Company's current and accumulated earnings and profits as determined under United States federal income tax principles for a taxable year, the distribution will first be treated as a tax-free return of capital, causing a reduction in the adjusted basis of the Shares or ADSs (thereby increasing the amount of gain, or decreasing the amount of loss, to be recognized by the US Holder on a subsequent disposition of the Shares or ADSs), and the balance in excess of adjusted basis will be taxed as capital gain recognized on a sale or exchange. Consequently, such distributions in excess of the Company's current and accumulated earnings and profits would not give rise to foreign source income. Distributions of Shares or rights to subscribe for Shares that are received as part of a pro rata distribution to all shareholders of the Company in certain circumstances should not be subject to United States federal income tax. The basis of the new Shares or rights so received will be determined by allocating the US Holder's basis in the old Shares between the old Shares and the new Shares or rights received, based on their relative fair market values on the date of distribution. However, the basis of the rights will be zero if (1) the fair market of the rights is less than 15 percent of the fair market value of the old Shares at the time of distribution or (2) the rights are not exercised and thus expire. PASSIVE FOREIGN INVESTMENT COMPANY Based on the composition of its income and valuation of its assets, including goodwill, the Company is not a passive foreign investment company ("PFIC") for fiscal year 2001 and does not expect to become one in the future, although there can be no assurance in this regard. In general, a company is considered a PFIC for any taxable year if either: o at least 75 percent of its gross income is passive income, or o at least 50 percent of the value of its assets is attributable to assets that produce or are held for the production of passive income. The 50 percent of value test is based on the average of the value of the Company's assets for each quarter during the taxable year. If the Company owns at least 25 percent, by value, of another company's stock, it will be treated, for purposes of the PFIC rules, as owning its proportionate share of the assets and receiving its proportionate share of the income of that company. In determining that the Company is not a PFIC, the Company is relying on its projected capital expenditure plans for the current year and for future years. In addition, the determination is based on a current valuation of the Company's assets, including goodwill. In calculating goodwill, the Company has valued its total assets based on the market value of its Shares or ADSs, which is subject to change. In addition, the Company has made a number of assumptions regarding the amount of this value allocable to goodwill. The Company believes its valuation approach is reasonable. However, it is possible that the Internal 90 Revenue Service ("IRS") will challenge the valuation of the Company's goodwill, which may also result in the Company being classified as a PFIC. In addition, the determination of whether the Company is a PFIC is made annually. Accordingly, it is possible that the Company may be a PFIC in the current or any future taxable year due to changes in the Company's asset or income composition or if the Company's projections are not accurate. Because the Company has valued its goodwill based on the anticipated market value of its Shares or ADSs immediately following the offering, a decrease in the price of the Company's Shares or ADSs may also result in its becoming a PFIC. If the Company were a PFIC for any taxable year during which a US Holder holds Shares or ADSs, unless such holder makes the mark-to-market election discussed below, such holder will be subject to special tax rules with respect to any "excess distribution" that such holder receives and any gain such holder realizes from a sale or other disposition (including a pledge) of the Shares or ADSs. These special tax rules generally will apply even if the Company ceases to be a PFIC in subsequent years. Distributions a US Holder receives in a taxable year that are greater than 125 percent of the average annual distributions such holder received during the shorter of the three preceding taxable years or such holder's holding period for the Shares or ADSs will be treated as excess distributions. Under these special tax rules: o the excess distribution or gain will be allocated ratably over such holder's holding period for the Shares or ADSs, o the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which the Company was a PFIC, will be treated as ordinary income, and o the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. If a US Holder holds Shares or ADSs in any year in which the Company is a PFIC, such holder will be required to file IRS Form 8621. As long as the Shares or ADSs are regularly traded on a national securities exchange, a US Holder can avoid the special PFIC rules discussed above by making an election to mark such holder's Shares or ADSs to market. It is intended that the ADSs will be listed on the New York Stock Exchange which is a national securities exchange for purposes of the mark-to-market election, although there can be no assurance that the ADSs will be "regularly traded", and it should be noted that only the ADSs and not the Shares will be traded on the New York Stock Exchange. The Shares will not be listed in the United States but will continue to be listed on the Indian Stock Exchanges. If a US Holder makes an effective mark-to-market election, such holder will include in income each year as ordinary income (rather than capital gain) the excess, if any, of the fair market value of such holder's PFIC Shares or ADSs at the end of the taxable year over the adjusted basis in the Shares or ADSs and will be permitted an ordinary loss in respect of the excess, if any, of the adjusted basis of such Shares or ADSs over their fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark to market election. A US Holder's basis in the Shares or ADSs will be adjusted to reflect any such income or loss amounts. Any gain or loss on the sale of the Shares or ADSs will be ordinary income or loss, except that such loss will be ordinary loss only to the extent of the previously included net mark to market gain. If a US Holder makes a mark-to-market election it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the Shares or ADSs are no longer regularly traded on a national securities exchange or the IRS consents to the revocation of the election. US Holders are urged to consult their own tax advisors about the availability of the mark-to-market election, and the desirability of making such an election under their particular circumstances. Alternatively, a US Holder of Shares or ADSs in a PFIC can sometimes avoid the rules described above by electing to treat the Company as a "qualified electing fund" under section 1295 of the Code. This option is not available to 91 US Holders of the Shares or ADSs because the Company does not intend to comply with the requirements necessary to permit such holders to make this election. Persons considering the purchase, ownership or disposition of Shares or ADSs should consult their own tax advisors concerning the United States federal income tax consequences of holding the Shares or ADSs if the Company were considered a PFIC in any taxable year. TAXATION OF CAPITAL GAINS For United States federal income tax purposes, a US Holder will recognize taxable gain or loss on the sale or exchange of a right, Share or ADS in an amount equal to the difference between the amount realized for the right, Share or ADS and the US Holder's tax basis in the right, Share or ADS. Such gain or loss will be capital gain or loss. Capital gains of individuals derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. Any gain or loss recognized by a US holder will generally be treated as United States source gain or loss. ESTATE TAXATION An individual shareholder who is a citizen or resident of the United States for United States federal estate tax purposes will have the value of the equity Shares or ADSs owned by such holder included in his or her gross estate for United States federal estate tax purposes. India does not impose an estate tax on a Non-Resident Holder who owns Shares or ADSs. See "--Indian Taxation-Estate Duty" above. INFORMATION REPORTING AND BACKUP WITHHOLDING In general, information reporting requirements will apply to dividends in respect of the Shares or ADSs or the proceeds received on the sale, exchange, or redemption of the Shares or ADSs paid within the United States (and in certain cases, outside of the United States) to US Holders other than certain exempt recipients (such as corporations), and a 30.5 percent backup withholding may apply to such amounts (30 percent for payments made after December 31, 2000) if the US Holder fails to provide an accurate taxpayer identification number to the Company or its payment agent or to report interest and dividends required to be shown on its federal income tax returns. The amount of any backup withholding from a payment to a US Holder will be allowed as a credit against the US Holder's United States federal income tax liability. DOCUMENTS ON DISPLAY This report and other information filed or to be filed by the Company can be inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission at: Judiciary Plaza 450 Fifth Avenue N.W. Room 1024 Washington, D.C. 20529 Northwestern Atrium Center 500 West Madison Street Suite 1400 Chicago, IL 60661-2511 Copies of these materials can also be obtained from the Public Reference Section of the SEC, 450th Street, N.W. , Washington, DC 20549, at prescribed rates. The public may obtain information on the operation of the SEC's Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are not required to use the EDGAR system. This annual report is our initial EDGAR filing and we intend to continue to make our future SEC filings available over the Internet. 92 Additionally, documents referred to in this Form 20-F may be inspected at our corporate offices which are located at Videsh Sanchar Bhavan, Mahatma Gandhi Road, Mumbai 400001, India. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company is exposed to market risk from changes in foreign currency exchange rates because certain of its costs are denominated in currencies (primarily SDRs and US Dollars) other than those in which it earns revenues (primarily the Rupee). Fluctuations in the exchange rate between the Rupee and other currencies affect the Rupee amount of foreign currency settlement payments received by the Company from, and paid by the Company to, foreign telecommunications administrations and therefore the revenues and operating costs of the Company. The Company may as a result be exposed to the risk of fluctuations in the exchange rate between the Rupee and foreign currencies, which has effectively increased the cost in Rupee terms of foreign exchange payments required to be made by it including payments to foreign telecommunications administrations and payments for imported equipment and technology. However, the Company does not use derivative instruments, such as foreign exchange forward contracts, foreign currency options, interest rate swaps and forward rate agreements, to manage these market risks, nor does it hold or issue derivative or other financial instruments for trading purposes. The Company does not have any loans denominated in foreign currencies. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable. PART II ITEM 13. DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES Not applicable. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Not applicable. ITEM 15. RESERVED ITEM 16. RESERVED PART III ITEM 17. FINANCIAL STATEMENTS The Company has elected to provide financial statements pursuant to Item 18 of Form 20-F. ITEM 18. FINANCIAL STATEMENTS The following financial statements comprising of balance sheets of the Company as of March 31, 2000 and March 31, 2001 and the related statements of income, cash flows and shareholders' equity for the years ended March 31, 1999, 2000 and 2001 have been audited by Deloitte Haskins & Sells, independent accountants, in accordance with US GAAP. The financial statement pages appear on pages F-1 through F-27. 93 ITEM 19. EXHIBITS EXHIBIT NUMBER DESCRIPTION ------- ---------------------------------------------------------------- 1.1* Certificate of Incorporation of Videsh Sanchar Nigam Limited, dated March 19, 1986 and as currently in effect. 1.2 Articles of Association of Videsh Sanchar Nigam Limited, dated September 26, 2000 and as currently in effect. 1.3 Memorandum of Association of Videsh Sanchar Nigam Limited, dated September 26, 2000 and as currently in effect. 1.4* Certificate for Commencement of Business, dated March 21, 1986 and as currently in effect. 1.5* Specimen Certificate for Equity Shares of Videsh Sanchar Nigam Limited. 2.1* Form of Deposit Agreement, among Videsh Sanchar Nigam Limited, The Bank of New York, as Depositary and owners and beneficial owners of American Depositary Receipts issued thereunder (including as an exhibit, the form of American Depositary Receipt). 2.2 Amendment No. 1 to Deposit Agreement, among Videsh Sanchar Nigam Limited, The Bank of New York, as Depositary and owners and beneficial owners of American Depositary Receipts, issued thereunder (including as an exhibit the form of American Depository Receipt). 4.1* License Agreement for the provision of Internet Service between the President of India and Videsh Sanchar Nigam Limited, dated January 25, 1999. 4.2+ Total Accounting Rate Arrangement between Videsh Sanchar Nigam Limited and Concert--USA. 4.3+ Total Accounting Rate Arrangement between Videsh Sanchar Nigam Limited and Concert (UK). 4.4+ Total Accounting Rate Arrangement letter between Videsh Sanchar Nigam Limited and UAE. 4.5 Memorandum of Understanding between Videsh Sanchar Nigam Limited and Ministry of Communications Department of Telecommunications for the year 2001-2002. 4.6 Memorandum of Settlement Over the Revision of Pay and Certain Allowances between Management of Videsh Sanchar Nigam Limited and Their Workmen, dated December 2, 2000. 4.7* Letter from the Department of Telecommunications with respect to the Revenue Sharing Arrangement between the Bharat Sanchar Nigam Limited and Videsh Sanchar Nigam Limited, dated April 22, 1997. 10.1 The Hindu Business Line, article titled "Teledensity Set to Exceed Target", dated September 15, 2001. 10.2 IT Space.com, article regarding analysis of VSNL, dated April 2001. 10.3* License granted under the Indian Telegraph Act, 1885 to Videsh Sanchar Nigam Limited, dated January 22, 1999 by the Department of Telecommunications. 10.4 Letter from the Ministry of Communications, Department of Telecommunications regarding termination of the monopoly granted to Videsh Sanchar Nigam Limited, dated July 9, 2000. 10.5 Telecom Regulatory Authority of India Consultation Paper No. 2001/2 on International Long Distance Services, dated September 3, 2001. + Registrant has requested confidential treatment pursuant to Rule 406 for a portion of the referenced exhibit and has separately filed such exhibit with the Commission. * Previously filed as an exhibit to the Company's Annual Statement on Form 20-F (Registration Statement No. 000-30772) filed with the Commission on October 13, 2000 and incorporated herein by reference. 94 SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. September 30, 2001 VIDESH SANCHAR NIGAM LIMITED By: /S/ S.K. GUPTA ---------------------------------------- Name: S.K. Gupta Title: Chairman & Managing Director By: /S/ R.S.P. SINHA ---------------------------------------- Name: R.S.P. Sinha Title: Director (Finance) 95 VIDESH SANCHAR NIGAM LIMITED INDEX TO FINANCIAL STATEMENTS FINANCIAL STATEMENTS OF VIDESH SANCHAR NIGAM LIMITED (PREPARED IN ACCORDANCE WITH US GAAP) PAGE Report of independent auditors.........................................F-2 Balance sheets as of March 31, 2000 and 2001...........................F-3 Statements of income for the years ended March 31, 1999, 2000 and 2001........................................F-4 Statements of shareholders' equity for the years ended March 31, 1999, 2000 and 2001............................F-5 Statements of cash flows for the years ended March 31, 1999, 2000 and 2001........................................F-6 Notes to financial statements..........................................F-7 F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors Videsh Sanchar Nigam Limited: We have audited the accompanying balance sheets of Videsh Sanchar Nigam Limited (the "Company") as of March 31, 2000 and 2001, and the related statements of income, cash flows and shareholders' equity for each of the three years in the period ended March 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Videsh Sanchar Nigam Limited as of March 31, 2000 and 2001, and the results of its operations and cash flows for each of the three years in the period ended March 31, 2001, in conformity with accounting principles generally accepted in the United States of America. As described in Note 2(a) to the financial statements, these financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which differ in certain material respects from accounting principles generally accepted in India, which form the basis of the Company's general purpose financial statements. /s/ Deloitte Haskins & Sells Mumbai, India September 24, 2001 F-2 VIDESH SANCHAR NIGAM LIMITED BALANCE SHEETS AS OF MARCH 31, 2000 AND 2001

AS OF MARCH 31, ---------------------------------------------- 2000 2001 2001 --------------- --------------- -------------- (IN MILLIONS, EXCEPT PAR VALUE AND NUMBER OF SHARES) ASSETS: Cash and cash equivalents Rs.20,846 Rs.2,200 US$47 Short term investments 8,778 46,050 983 Trade and other receivables, net of allowances of Rs.1,021 million and Rs.979 million (US$21 million), respectively 25,651 19,745 421 Investments 3,657 4,247 91 Property, plant and equipment 15,920 18,077 386 Capital work-in-progress 1,982 2,328 50 Other assets 6,377 7,778 166 --------------- --------------- -------------- TOTAL ASSETS Rs.83,211 Rs.100,425 US$2,144 =============== =============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY: LIABILITIES Trade payables Rs.13,535 Rs.11,309 US$242 Accrued expenses and other liabilities 6,365 10,731 229 --------------- --------------- -------------- TOTAL LIABILITIES 19,900 22,040 471 --------------- --------------- -------------- COMMITMENTS AND CONTINGENCIES (SEE NOTES 1B, 1C AND 20) - - - SHAREHOLDERS' EQUITY: Equity shares: par value - Rs. 10 each; authorized: 100,000,000 shares and 300,000,000 shares at March 31, 2000 and 2001, respectively; issued and outstanding: 95,000,000 shares and 285,000,000 shares at March 31, 2000 and 2001, respectively (See Note 13) 950 2,850 61 Additional paid in capital 14,481 14,481 309 Retained earnings 47,880 60,642 1,294 Accumulated comprehensive income - 412 9 --------------- --------------- -------------- TOTAL SHAREHOLDERS' EQUITY 63,311 78,385 1,673 --------------- --------------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY Rs.83,211 Rs.100,425 US$2,144 =============== =============== ==============

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-3 VIDESH SANCHAR NIGAM LIMITED STATEMENTS OF INCOME FOR EACH OF THE YEARS ENDED MARCH 31, 1999, 2000 AND 2001

YEARS ENDED MARCH 31, ----------------------------------------------------------- 1999 2000 2001 2001 ------------- -------------- --------------- -------------- (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS) OPERATING REVENUE: Traffic revenues Rs.67,181 Rs.69,640 Rs.71,916 US$1,535 Income from satellite consortia 757 737 1,160 25 ------------- -------------- --------------- -------------- TOTAL OPERATING REVENUE 67,938 70,377 73,076 1,560 ------------- -------------- --------------- -------------- COST OF REVENUE: Network and transmission costs 45,139 45,621 45,150 964 License fee paid to DoT 4,157 4,712 5,022 107 ------------- -------------- --------------- -------------- TOTAL COST OF REVENUE 49,296 50,333 50,172 1,071 ------------- -------------- --------------- -------------- GROSS MARGIN 18,642 20,044 22,904 489 ------------- -------------- --------------- -------------- OTHER OPERATING COSTS Depreciation and amortization 1,266 1,534 1,729 37 Other operating costs 1,628 2,622 3,023 65 ------------- -------------- --------------- -------------- TOTAL OTHER OPERATING COSTS 2,894 4,156 4,752 102 ------------- -------------- --------------- -------------- OPERATING PROFIT 15,748 15,888 18,152 387 ------------- -------------- --------------- -------------- OTHER INCOME (EXPENSE), NET: Non-operating income 3,314 1,821 3,058 65 Interest income 1,387 1,683 3,964 85 Interest cost (1) (7) (1) - Permanent impairment in the value of investment (5,416) (54) - - Share of loss of affiliate (30) - - - ------------- -------------- --------------- -------------- TOTAL OTHER INCOME (EXPENSE), NET (746) 3,443 7,021 150 ------------- -------------- --------------- -------------- INCOME BEFORE INCOME TAX 15,002 19,331 25,173 537 Income-tax expense (6,298) (6,156) (9,646) (206) Dividend tax (38) (84) (105) (2) ------------- -------------- --------------- -------------- NET INCOME Rs.8,666 Rs.13,091 Rs.15,422 US$329 ------------- -------------- --------------- -------------- PER SHARE INFORMATION: Earnings per equity share - basic and diluted Rs.30.41 Rs.45.93 Rs.54.11 US$1.15 Weighted average number of equity shares outstanding 285,000,000 285,000,000 285,000,000 285,000,000 Earnings per ADS - basic and diluted (where each ADS represents two equity shares) Rs.60.82 Rs.91.86 Rs.108.22 US$2.30

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-4 VIDESH SANCHAR NIGAM LIMITED STATEMENTS OF SHAREHOLDERS' EQUITY FOR EACH OF THE YEARS ENDED MARCH 31, 1999, 2000 AND 2001

NUMBER OF EQUITY ADDITIONAL ACCUMULATED TOTAL EQUITY SHARE PAID IN RETAINED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE SHARES (SEE CAPITAL CAPITAL EARNINGS INCOME EQUITY INCOME NOTE 13) ------------- ----------- ------------ ------------- -------------- ------------- -------------- (IN MILLIONS, EXCEPT NUMBER OF EQUITY SHARES) BALANCE AT APRIL 1, 1998 95,000,000 Rs.950 Rs.14,481 Rs.27,263 Rs.- Rs.42,694 Rs.- Net income 8,666 8,666 8,666 Dividends (380) (380) -------------- COMPREHENSIVE INCOME 8,666 ------------- ----------- ------------ ------------- -------------- ------------- -------------- BALANCE AT MARCH 31, 1999 95,000,000 950 14,481 35,549 - 50,980 Net income 13,091 13,091 13,091 Dividends (760) (760) -------------- COMPREHENSIVE INCOME 13,091 ------------- ----------- ------------ ------------- -------------- ------------- -------------- BALANCE AT MARCH 31, 2000 95,000,000 950 14,481 47,880 - 63,311 Issue of stock dividends 190,000,000 1,900 (1,900) - Net income 15,422 15,422 15,422 Dividends (760) (760) Unrealized gain on available for sale - 412 412 412 securities, net -------------- COMPREHENSIVE INCOME Rs.15,834 ============== COMPREHENSIVE INCOME US$338 ------------- ----------- ------------ ------------- -------------- ------------- ============== BALANCE AT MARCH 31, 2001 285,000,000 Rs.2,850 Rs.14,481 Rs.60,642 Rs.412 Rs.78,385 ============= =========== ============ ============= ============== ============= BALANCE AT MARCH 31, 2001 285,000,000 US$61 US$309 US$1,294 US$9 US$1,673 ============= =========== ============ ============= ============== =============

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-5 VIDESH SANCHAR NIGAM LIMITED STATEMENTS OF CASH FLOWS FOR EACH OF THE YEARS ENDED MARCH 31, 1999, 2000 AND 2001

YEARS ENDED MARCH 31, ------------------------------------------------------------- 1999 2000 2001 2001 --------------- --------------- ---------------- ------------ (IN MILLIONS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income Rs.8,666 Rs.13,091 Rs.15,422 US$329 ADJUSTMENT TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization 1,266 1,534 1,729 37 Share of loss of affiliates 30 - - - Permanent impairment in the value of investment 5,416 54 - - Allowance for impairment of property, plant and - 356 - - equipment (Profit)/loss on sale of fixed assets - (81) 5 - Deferred tax charge / (benefit) 404 (219) 1,759 38 Unrealized exchange loss (1,637) (1,009) (526) (11) Net change in: Trade and other receivables (3,521) (4,694) 5,977 127 Other assets (2,157) (2,742) (1,400) (30) Trade payables (1,752) 1,331 (2,225) (47) Accrued expenses and other liabilities (36) 326 2,380 50 --------------- --------------- ---------------- ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 6,679 7,947 23,121 493 --------------- --------------- ---------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (2,615) (956) (2,957) (63) Expenditure on capital work-in-progress (1,735) (2,665) (1,281) (27) (Increase)/decrease in investments (2,308) (871) 92 2 (Increase)/decrease in short-term investments, net 57 494 (37,272) (796) Sale of property, plant and equipment - 100 2 - --------------- --------------- ---------------- ------------ NET CASH USED BY INVESTING ACTIVITIES (6,601) (3,898) (41,416) (884) --------------- --------------- ---------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid (380) (760) (760) (16) Bank overdraft (1,536) 20 (46) (1) --------------- --------------- ---------------- ------------ NET CASH USED BY FINANCING ACTIVITIES (1,916) (740) (806) (17) --------------- --------------- ---------------- ------------ Unrealized exchange gain on cash and cash equivalents 1,560 879 455 10 --------------- --------------- ---------------- ------------ NET CHANGE IN CASH FLOWS (278) 4,188 (18,646) (398) Cash and cash equivalents, beginning of year Rs.16,936 Rs.16,658 Rs.20,846 US$445 --------------- --------------- ---------------- ------------ CASH AND CASH EQUIVALENTS, END OF YEAR Rs.16,658 Rs.20,846 Rs.2,200 US$47 =============== =============== ================ ============ SUPPLEMENTARY CASH FLOW INFORMATION: Interest paid Rs. 1 Rs.7 Rs.1 US$- Income taxes paid Rs.(7,564) Rs. (9,316) Rs.(9,597) US$(205)

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS F-6 VIDESH SANCHAR NIGAM LIMITED NOTES TO FINANCIAL STATEMENTS 1. BACKGROUND A. THE COMPANY Videsh Sanchar Nigam Limited ("VSNL" or the "Company") is incorporated in India as a limited liability company under the Indian Companies Act, 1956, with its registered office at Videsh Sanchar Bhavan, M.G.Road, Mumbai 400001, India. The Company is listed on major stock exchanges in India and on the New York Stock Exchange. The Government of India currently holds approximately 52.97% of the Company's equity share capital. The Company is the exclusive provider of international telecommunications services in India, directly and indirectly linking the domestic Indian telecommunications network to 237 territories worldwide. VSNL operates from its corporate office at Mumbai and through its branches at Mumbai, Pune, Arvi, Gandhinagar, New Delhi, Dehradun, Jalandhar, Kanpur, Kolkata, Chennai, Bangalore, Ernakulam and Hyderabad. VSNL offers basic and specialized services. Basic services include telephony, telex and telegraph. Specialized services include gateway packet data transmission, electronic data interchange, e-mail, Internet, international maritime satellite mobile services, leased channels, transmission of signals for international television broadcasts and video conferencing. B. MONOPOLY STATUS In September 2000, the Government of India (the "Government") announced its intention to allow private players to provide international telephone services from April 1, 2002, thus terminating VSNL's monopoly two years ahead of schedule. The Government plans to compensate the Company for this early termination with the following package: 1. A license to operate domestic long distance ("DLD") service. 2. Re-imbursement by the Government for all license fees, entry fees and revenue sharing fees, net of taxes, that the Company may have to pay with respect to the DLD license, for five years with effect from April 2001. 3. Exemption from the performance bank guarantee of Rs.4 billion with respect to the DLD license. 4. A category 'A' Internet Service Provider ("ISP") license, which will allow the Company to expand internet access services to the entire country. 5. The Government may also consider additional compensation, if necessary, after a detailed review is undertaken. The Company has accepted the Government's decision to terminate the Company's monopoly before the year 2004. The shareholders of the Company have approved the compensation package at the meeting held in May 2001. F-7 C. DISINVESTMENT The Government currently holds a majority stake of 52.97% in the Company's equity. The Government has announced its decision to divest a 25% stake to a strategic partner, along with the right to management and simultaneously disinvest 1.97% to the Company's employees. If the Government achieves successful divestment, certain procedures that are currently mandatory for public sector companies will no longer be applicable to the company. The disinvestment process commenced in January 2001. There can be no assurance that a strategic buyer will be found or that negotiations will result in a sale. D. REVENUE SHARING ARRANGEMENT The Company operates its business pursuant to a license from Department of Telecommunications ("DoT"), Government of India. In pursuance of the New Telecom Policy 1999, the Government decided to corporatise the service provision functions of the DoT. Accordingly, the Government transferred the business of providing telecom services in the country to the newly formed company, Bharat Sanchar Nigam Limited ("BSNL") with effect from October 1, 2000. Further, the existing contracts, agreements and MoU's including the revenue sharing agreement entered into by DoT for the supply of services were transferred and assigned to BSNL with effect from October 1, 2000. The license is periodically renewed by the DoT subject to certain conditions and is currently valid up to March 31, 2004. Under the current arrangements, although the Company provides international gateway access out of and into India, all calls must either initiate or terminate on or pass through the DoT's network. The Company derives substantially all its revenue from payments from foreign telecommunication administrations and private carriers for the delivery of international calls to India and from payments from DoT for the delivery of international calls abroad. Consequently, the Company and DoT share revenues received by each entity from international calls pursuant to a revenue sharing arrangement between them. The arrangement is effective from April 1, 1997 and is valid until March 31, 2002. Under the revenue sharing arrangement, the Company pays to DoT, a charge per minute equal to the weighted average incoming settlement rate, minus Rs. 10.00 on all incoming international calls and DoT pays to the Company, a charge per minute equal to the weighted average outgoing settlement rate plus Rs.10.00 on all outgoing international calls. The weighted average incoming settlement rate and weighted average outgoing settlement rate for any financial year is the average of the various settlement rates in effect as of the beginning of the financial year between the Company and the foreign administrations and carriers (converted to Indian rupees at the exchange rate prevailing as of the beginning of the financial year), weighted to reflect the volume of total incoming traffic and the outgoing traffic respectively, of the immediately preceding financial year. The above arrangement was intended to result in an average gross profit to VSNL of approximately Rs.10.00 per call minute for each of the financial years ended March 31, 1998 and March 31, 1999. This was based on the assumption that applicable settlement rates, exchange rates and the composition of the incoming and outgoing traffic from and to particular destinations remain constant during the year. Any fluctuation in these variables, either to the benefit or detriment of VSNL, was borne by VSNL. F-8 With effect from April 1, 1999, the revenue sharing arrangement provides for a comparison of the combined international traffic revenue per call minute of the Company and DoT (net of payments by the Company to foreign administrations and carriers and by the Company and DoT to each other in respect of incoming and outgoing calls) for each fiscal year, compared to the corresponding amount in the base fiscal year ended March 31, 1997. Increases or decreases are shared between the Company and DoT according to the following percentages: INCREASE/DECREASE YEARS ENDED MARCH 31 COMPANY'S SHARE DOT'S SHARE -------------------- --------------- ----------------- 2000 15% 85% 2001 20% 80% 2002 25% 75% In computing the international traffic revenue of DoT for purposes of calculating the combined international traffic revenue per call minute of the Company and DoT, the tariff charged by DoT to subscribers for outgoing international calls is assumed to remain constant at Rs.62.35 per minute, which was the weighted average tariff rate for the year ended March 31, 1997. It is therefore intended that the Company's average gross profit per call minute under the current revenue sharing arrangement will not be affected directly by any decrease or increase in the actual tariffs charged by DoT from its subscribers for outgoing international calls. The current revenue sharing arrangement is subject to review in the event that the exchange rate fluctuates more than 10 per cent from the rate at the beginning of the year or the Company's actual average gross earnings per call minute is less than Rs.9.00 or more than Rs.11.00 in any financial year covered by the arrangement. The objective of the review would be to renegotiate terms that correct the imbalance. For the years ended March 31, 1999, 2000 and 2001 the gross profit per call minute was Rs.10.63, Rs.9.43 and Rs.9.39, respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. BASIS OF PRESENTATION AND CONSOLIDATION The Company does not have any subsidiaries. Entities where the Company controls between 20% to 50% of the voting stock of the investee company are considered affiliates and are accounted for using the equity method. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). US GAAP differs in certain material respects from accounting principles generally accepted in India and the requirements of India's Companies Act, 1956, which form the basis of the statutory general purpose financial statements of the Company in India. Principal differences insofar as they relate to the Company include valuation of investments, accounting for property, plant and equipment and depreciation thereon, deferred income taxes, retirement benefits, investment in affiliates and the presentation and format of the financial statements and related notes. B. USE OF ESTIMATES The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent F-9 liabilities at the date of these financial statements and the reported amounts of revenues and expenses for the years presented. Actual results could differ from these estimates. Material estimates included in these financial statements that are susceptible to change include traffic revenue, allowances for trade and other receivables and valuation of unlisted investments. C. CASH AND CASH EQUIVALENTS The Company considers all highly liquid financial instruments, which are readily convertible into cash and have original maturities of three months or less on the date of purchase, to be cash equivalents. The carrying value of cash equivalents approximates fair value. D. TRADE AND OTHER RECEIVABLES Trade and other receivables are stated at their expected realizable values, net of provisions for bad and doubtful amounts. Amounts payable to, and receivable from, the same administration and the DoT are shown on a net basis, where a legal right of set-off exists. These payables and receivables are intended to be settled on a net basis. E. INVESTMENTS The Company accounts for its investments in securities of telecommunication satellite companies for which readily determinable fair values are available in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. SFAS No.115 requires that investments that are not classified as held to maturity or trading are classified as available for sale and recorded at fair value. Unrealized gains and losses on such securities, net of applicable taxes, are reported in other comprehensive income, a separate component of shareholders' equity. Investments in telecommunication satellite corporations which are not freely transferable and for which fair values are not readily obtainable are accounted for in accordance with APB OPINION NO. 18, THE EQUITY METHOD OF ACCOUNTING FOR INVESTMENTS IN COMMON STOCK. These investments are reflected at cost less permanent impairment, if any. Declines in the value of investments that are other than temporary are reflected in earnings as realized losses, based on management's best estimate of the value of the investment. F. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost, net of accumulated depreciation. All costs relating to the acquisition and installation of property, plant and equipment are capitalized. F-10 Depreciation is charged on property, plant and equipment on a straight-line basis from the time they are available for use, so as to make an economic allocation of the cost at which the assets are acquired less their estimated residual values, over their remaining estimated economic lives. Depreciation on freehold land is not provided. The estimated useful lives of various assets are shown below: YEARS ------ Buildings 61 Plant and machinery: Earth stations 12 Cables 10-25 Exchanges 12 Other network equipment 8 Office equipment 20 Computers 6 Furniture, fittings and vehicles 10-15 Land acquired on lease is amortized over the period of the lease. Assets gifted by unrelated parties have been accounted for in accordance with SFAS No. 116, ACCOUNTING FOR CONTRIBUTIONS RECEIVED AND CONTRIBUTIONS MADE at fair value and recognized as revenue and an asset in the period received. Such assets are depreciated over their remaining useful economic lives. Property, plant and equipment includes intangible assets in the nature of indefeasible rights of use for international telecommunication circuits in submarine cables, which the Company acquires from time to time. These rights extend over specific time periods. The amounts paid according to the terms of these transactions are recorded as additions to property, plant and equipment, respectively, and amortized over the contracted period of use. G. IMPAIRMENT OF LONG LIVED ASSETS The Company evaluates the carrying value of its property and equipment whenever events or circumstances indicate the carrying value of assets may exceed their recoverable amounts. An impairment loss is recognized when the estimated future cash flows (undiscounted and without interest) expected to result from the use of an asset are less than the carrying amount of the asset. Measurement of an impairment loss is based on fair value of the asset computed using discounted cash flows as if the asset is expected to be held and used. Measurement of an impairment loss for an asset held for sale would be based on fair market value less estimated costs to sell. H. OPERATING LEASES Costs in respect of operating leases are expensed on a straight-line basis over the lease term. I. RETIREMENT BENEFITS GRATUITY In accordance with Indian law, the Company provides for gratuity, a defined benefit retirement plan covering all employees. The plan provides for lump sum payments to vested employees at retirement, death while in F-11 employment or on termination of employment in an amount equivalent to 15 days salary payable for each completed year of service or part thereof in excess of six months subject to a maximum of Rs.350,000. Vesting occurs upon completion of five years of service. The Company makes annual contributions to a fund administered by trustees, based on an external actuarial valuation carried out annually. The Company accounts for its liability for future gratuity benefits in accordance with SFAS No. 87, EMPLOYERS' ACCOUNTING FOR PENSIONS. LEAVE ENCASHMENT Leave encashment benefits comprise of encashment of vacation entitlement carried forward by employees. These balances are encashable during the tenure of employment, on the employee leaving the Company or on retirement. The Company makes a provision towards leave encashment liability based on the total unavailed leave credited to each employee's account and his respective salary as at the end of each reporting date. PROVIDENT FUND In addition to the above benefits, all employees receive benefits from a provident fund, a defined contribution plan. The employee and employer each make monthly contributions to the plan equal to 12% of the employee's salary (basic and dearness allowance). The contributions are made to the provident fund trust established by the Company. The Company is obligated to make good any shortfall in the statutorily assured rate of return on the assets of the trust, which was 11% and 9.5% as of March 31, 2000 and 2001, respectively. Currently, the Company has no further obligation under the provident fund beyond its contribution, which is expensed when incurred. J. REVENUE RECOGNITION Revenues for long distance telephone services are recognized at the end of each month based upon minutes of incoming or outgoing traffic completed in such month. Revenues from leased circuits are recognized based upon contracted fee schedules. Revenues from Internet services are recognized based on usage by subscribers. The majority of revenues are derived from payments by the DoT for completing outgoing calls made from India and from payments by foreign administrations for incoming calls that originate outside India. Income from the Company's investments in International Telecommunications Satellite Organisation ("Intelsat"), which represent the surplus earned by Intelsat during the year, is accrued on the basis of the statements received and is included as part of non-operating income. The charges paid to Intelsat for the use of satellites is included in network and transmission costs. K. OPERATING COSTS The principal components of the Company's operating costs are network and transmission costs, license fees paid to the DoT and other operating costs. Network and transmission costs include payments to DoT for incoming traffic and to foreign administrations and carriers for outgoing traffic, as well as the cost of leasing transmission facilities, including lines from DoT and satellite circuits from Intelsat and International Mobile F-12 Satellite Organisation ("Inmarsat"). As discussed in note 1(b), the Company must pay a proportion of the amounts received from the DoT to transit and destination foreign administrations. Similarly, a proportion of the payments from the foreign administrations is paid to DoT for completing calls within India. Under the current revenue sharing agreement with DoT, the Company pays to DoT a license fee of Rs.0.25 million per annum on average circuits commissioned. Other operating costs include general and administrative expenses other than network and transmission costs and license fees. L. FOREIGN CURRENCY TRANSACTIONS The Company's functional currency is the Indian rupee. Foreign currency transactions are recorded at the exchange rate prevailing on the date of the transaction. Foreign currency denominated monetary assets and liabilities are converted into Indian rupees using exchange rates prevailing on the balance sheet dates. Gains and losses arising on conversion of foreign currency denominated monetary assets and liabilities and on settlement of foreign currency transactions are included in the determination of net income. M. INCOME TAX Income tax comprises the current tax provision and the net change in the deferred tax asset or liability in the year. Temporary differences are identified and the provision is made using the asset and liability method for all such differences. Deferred tax benefits are recognized on assets to the extent that it is more likely than not that future taxable profits will be available against which the asset can be utilized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be received or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the income statement in the period of enactment of the change. N. DIVIDENDS Any dividends declared by the Company are based on the profit available for distribution as reported in the statutory financial statements of the Company prepared in accordance with Indian GAAP. Accordingly, in certain years, the net income reported in these financial statements may not be fully distributable. As of March 31, 2000 and 2001, the amounts available for distribution are Rs.1,002 million and Rs.16,147 million, respectively. Dividends for the years ended March 31, 1999, 2000 and 2001 were Rs.8, Rs.8 and Rs.50 per equity share, respectively. The Company paid dividends of Rs.380 million, Rs.760 million and Rs.760 million during the years ended March 31, 1999, 2000 and 2001, respectively. O. EARNINGS PER SHARE The Company reports basic and diluted earnings per equity share in accordance with SFAS No. 123, EARNINGS PER SHARE. Basic earnings per equity share has been computed by dividing net income by the weighted average number of equity shares outstanding for the period. For the purposes of earnings per share, stock dividends declared by the Company have been given retroactive effect for all the years presented. F-13 P. COMPREHENSIVE INCOME The Company reports comprehensive income in accordance with SFAS No.130, REPORTING COMPREHENSIVE INCOME. Accounting principles generally require that recognized revenues, expenses, gains and losses be included in net income. Unrealized gains and losses on available for sale securities along with net income are components of comprehensive income. Q. SEGMENT INFORMATION The Company identifies basic telephony, Internet and leased line services as its operating segments. Segment-wise information has been provided in Note 22. R. NEW ACCOUNTING PRONOUNCEMENTS SFAS NO. 141 In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, BUSINESS COMBINATIONS. The provisions of this Statement apply to all business combinations initiated after June 30, 2001. This Statement also applies to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001 or later. This Statement addresses financial accounting and reporting for business combinations and supersedes APB Opinion No. 16, BUSINESS COMBINATIONS, and SFAS No. 38, ACCOUNTING FOR PREACQUISITION CONTINGENCIES OF PURCHASED ENTERPRISES. All business combinations in the scope of this Statement are to be accounted for using the purchase method only. This Statement is not applicable as the Company has not initiated any business combinations. SFAS NO. 142 In June 2001, the FASB issued SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. The provisions of this Statement are required to be applied starting with fiscal years beginning after December 15, 2001. This Statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, INTANGIBLE ASSETS. It addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The Statement states that goodwill and intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. Intangible assets that have finite useful lives will continue to be amortized over their useful lives, but without the constraint of an arbitrary ceiling. The Company does not have goodwill and intangible assets with indefinite useful lives. Intangible assets that have finite useful lives are already being amortized over their useful lives. Hence, the Company's current amortization policy complies with SFAS No. 142. SFAS NO. 143 In June 2001, the FASB issued SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. This Statement addresses financial accounting and reporting for obligations F-14 associated with the retirement of tangible long-lived assets and the associated asset retirement costs and applies to all entities. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. The Company does not have material asset retirement obligations. S. CONVENIENCE TRANSLATION The accompanying financial statements have been expressed in Indian rupees ("Rs."), the Company's functional currency. For the convenience of the reader, the financial statements as at and for the year ended March 31, 2001 have been translated into US dollars at US$1.00 = Rs.46.85 based on the noon buying rate for cable transfers on March 30, 2001 as certified for customs purposes by the Federal Reserve Bank of New York. Such convenience translation should not be construed as a representation that the Indian rupee amounts referred to in these financial statements have been, or could be converted into US dollars at this or at any other rate of exchange, or at all. 3. CASH AND CASH EQUIVALENTS Cash and cash equivalents include the following: AS OF MARCH 31, ------------------------------------------------ 2000 2001 2001 ---------------- -------------- -------------- (IN MILLIONS) Cash in hand Rs.1 Rs.15 US$- Bank balances: Current accounts 19,449 485 10 Time deposits 1,396 1,700 37 ---------------- -------------- -------------- TOTAL Rs.20,846 Rs.2,200 US$47 ================ ============== ============== Time deposits are interest-bearing deposits with original maturities ranging from 15 days to 90 days. Interest rates on such time deposits during the year ended March 31, 2001, ranged from approximately 6.10% to 6.98% on foreign currency deposits and 7.00% to 11.25% on Indian rupee deposits. 4. SHORT-TERM INVESTMENTS Short-term investments include the following: AS OF MARCH 31, -------------- -------------- ------------- 2000 2001 2001 -------------- -------------- ------------- (IN MILLIONS) Restricted cash balances Rs.6,658 Rs.7,730 US$165 Time deposits with maturity exceeding 90 days 2,120 38,320 818 -------------- -------------- ------------- TOTAL Rs.8,778 Rs.46,050 US$983 ============== ============== ============= Restricted cash balances comprise of time deposits, the use of which is restricted to the import of capital equipment. F-15 5. TRADE AND OTHER RECEIVABLES Trade and other receivables include the following:

AS OF MARCH 31, ------------------------------------------------------- 2000 2001 2001 ------------------ ---------------- ------------- (IN MILLIONS) Trade accounts receivables: Amount due from foreign administrations Rs.24,564 Rs.17,347 US$370 Domestic trade debtors 527 792 17 Interest receivable on bank deposits 134 1,231 26 Other sundry deposits 49 56 1 Other receivables 377 319 7 ------------------ ---------------- ------------- TOTAL Rs.25,651 Rs.19,745 US$421 ================== ================ =============

Trade accounts receivables are net of an allowance for doubtful debts of Rs.1,021 million and Rs.979 million for the years ended March 31, 2000 and 2001, respectively. Amounts due from DoT for traffic settlement are netted against amounts due to DoT for traffic settlement and are reported in trade payables. The Company has legal right of setoff. 6. INVESTMENTS The portfolio of investments as of March 31, 2000 and 2001 is as follows:

AS OF MARCH 31, 2000 AS OF MARCH 31, 2001 ------------ ------------ --------------- --------------- ----------------- -------------- GROSS GROSS AMORTIZED UNREALIZED CARRYING AMORTIZED UNREALIZED CARRYING COST GAINS VALUE COST GAINS VALUE ------------ ------------ --------------- --------------- ----------------- -------------- (IN MILLIONS) Investment carried at fair value: Satellite companies Rs.- Rs.- Rs.- Rs.562 Rs.681 Rs.1,243 ============ ============ =============== ================= Investment carried at cost: Satellite companies 9,127 8,474 Less: Permanent impairment (5,470) (5,470) --------------- -------------- TOTAL Rs.3,657 Rs.4,247 =============== ============== TOTAL US$91 ==============

INTELSAT Intelsat is an Inter Government Organisation ("IGO") formed in 1964 that owns and operates satellite communication systems. It offers Internet, broadcast, telephony and corporate network solutions to customers in over 200 countries through its network of 20 geostationary satellites. It currently has 10 new next-generation satellites under construction. F-16 The Company's ownership share in this organization is adjusted quarterly to conform to the respective percentage of total use of the system or another percentage based on the terms of the agreement. Accordingly, on the basis of share re-determinations, as of March 1999, 2000 and 2001, the Company's investment was at 4.3%, 5.2% and 5.4%, respectively, of the total shareholding of Intelsat. Net capital contributions are billed by Intelsat to the Company from time to time in proportion to the ownership share determined. The total of such net capital contributions are disclosed as investments in communication satellites under investments. In November 2000, Intelsat's member nations formally decided to privatise it to increase flexibility. NEW SKIES SATELLITE NV ("NSS") During 1998-99, Intelsat as part of its restructuring process incorporated NSS as a corporation with limited liability under the laws of Netherlands and transferred certain assets and liabilities to NSS accounted for at historic book values. In return, NSS issued 10,000,000 shares of common stock of Dutch Guilder 1 to Intelsat. Intelsat distributed 9,000,000 shares of NSS in the year 1998-99, and 1,000,000 shares of NSS in 1999-2000 in proportion to the investment shares of its members at the time of distribution. Consequently, the Company acquired 301,215 shares in 1998-99 and 43,000 shares in 1999-2000, shares which were recorded as a reduction in the investment in Intelsat and a new investment in NSS at face values. NSS announced a 10:1 stock split prior to its initial public offering ("IPO") in October 2000 and redesignated its shares from Guilders to Euros. Thus, the Company's total holding in NSS as of March 31, 2001 stands at 3,442,150 ordinary shares of 0.05 Euros each. The market value per share as of March 30, 2001 was US$7.75 per share. INTERNATIONAL MOBILE SATELLITE ORGANISATION ("INMARSAT") Inmarsat was an intergovernmental organization with membership from 88 countries providing satellite mobile communications in air, on land and at sea. Inmarsat was converted into a national law company incorporated in the United Kingdom effective April 15, 1999. The Company's investment in the holding company, Inmarsat Ventures Plc is 202,219 shares representing 2.0% of the paid up capital. Further, there had been a 10:1 stock split in March 2001. Consequently, the Company now holds 2,022,190 shares of 10 pence each in Inmarsat Ventures Plc. ICO GLOBAL COMMUNICATIONS HOLDINGS LTD. ("ICO") ICO, a company registered in Bermuda, was incorporated in January 1995 to provide global mobile personal communication services. ICO was listed on the NASDAQ in July 1998. The Company has invested a sum of Rs.5,471 million (US$150 million) in ICO. ICO filed a voluntary petition for re-organization under Chapter 11 of the United States Bankruptcy Code on August 27, 1999 in the United States Bankruptcy Court in the district of Delaware as the additional financial resources required to complete the system and begin commercial operations could not be raised as per schedule. F-17 In May 2000, the court confirmed the plans of re-organization of ICO, which became effective on May 17, 2000. By virtue of the re-organization, the Company received 180,053 shares of class A common stock of US$ 0.01, amounting to Rs.0.06 million and 975,398 warrants, with an option to purchase shares of class A common stock exercisable in New ICO by May 15, 2006. The Company recognized a charge of Rs.5,416 million and Rs.54 million as permanent impairments in the years ended March 31, 1999 and 2000, respectively. TELSTRA VISHESH COMMUNICATIONS LIMITED ("TVCL") TVCL is a joint venture between the Company, Telstra-Australia and Infrastructure Leasing & Financial Services Ltd. , with an investment equity in the ratio of 40:40:20. Currently, the Company holds Rs.92 million out of the total paid up capital of Rs.314 million. TVCL has invested in a hybrid VSAT project and has diversified into consulting, facility management services and turnkey VSAT projects for large organizations. The shares of TVCL are recorded at face value and consequently the Company has applied the provision for diminution in value of investments and written off these investments to their current face value in the previous year. 7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment by asset category is as follows:

AS OF MARCH 31, ---------------------------------------------------------- 2000 2001 2001 ----------------- --------------- ----------------- (IN MILLIONS) Land Rs.143 Rs.754 US$16 Buildings 1,780 2,062 44 Plant and machinery 20,658 23,349 499 Computers 431 574 12 Motor vehicles 14 16 - Furniture and fixtures 339 366 8 ----------------- --------------- ----------------- Property, plant and equipment, at cost 23,365 27,121 579 Less: Accumulated depreciation (7,445) (9,044) (193) ----------------- --------------- ----------------- PROPERTY, PLANT AND EQUIPMENT, NET Rs.15,920 Rs.18,077 US$386 ================= =============== =================

Depreciation expense for the years ended March 31, 1999, 2000 and 2001 was Rs.1,266 million, Rs.1,534 million and Rs.1,729 million, respectively. During the year 1998-99 the Company had spent Rs.496 million towards gateway equipment for Iridium India Telecom Limited ("IITL"), Pune, which was capitalized and was being depreciated. IITL stopped operational activities in April 2000 and since then these assets have not been used by IITL. An allowance for impairment has been made of Rs.356 million in the year ended March 31, 2000 to reflect their estimated realizable value. Property, plant and equipment includes assets held for disposal of Rs.1 million as of March 31, 2000 and 2001, respectively, which represents their estimated realizable value. Property, plant and equipment include Rs.851 million and Rs.1,672 million for indefeasible rights of use as of March 31, 2000 and 2001, respectively. F-18 8. CAPITAL WORK-IN-PROGRESS Capital work-in-progress includes the following: AS OF MARCH 31, -------------------------------------------- 2000 2001 2001 ---------- ------------ ----------- (IN MILLIONS) Buildings Rs.313 Rs.382 US$8 Plant & Machinery 1,173 1,912 41 Other assets 496 34 1 ---------- ------------ --------- TOTAL Rs.1,982 Rs.2,328 US$50 ========== ============ ========= 9. OTHER ASSETS Other assets includes the following: AS OF MARCH 31, ------------------------------------------------ 2000 2001 2001 ------------ ------------- -------------- (IN MILLIONS) Advance tax (net) Rs.5,858 Rs.7,463 US$160 Advance paid for capital goods 348 63 1 Prepaid expenses 140 235 5 Inventories 31 17 - ------------ ------------- ------------- ------------ ------------- ------------- TOTAL Rs.6,377 Rs.7,778 US$166 ============ ============= ============= 10. TRADE PAYABLES Trade payables include the following:

AS OF MARCH 31, ------------------------------------------------------------- 2000 2001 2001 -------------------- --------------- ----------------- (IN MILLIONS) Accounts payable-trade: Amounts due to foreign administrations Rs.1,151 Rs.2,585 US$56 Amounts due to DoT net of amounts due from DoT for traffic settlement 12,384 8,724 186 -------------------- --------------- ----------------- TOTAL Rs.13,535 Rs.11,309 US$242 ==================== =============== =================

F-19 11. ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities include the following:

AS OF MARCH 31, ------------------------------------------------------- 2000 2001 2001 ---------------- ---------------- ---------------- (IN MILLIONS) Bank overdraft Rs.46 Rs.- US$- Unearned income 1,605 2,235 48 Deferred taxation 1,155 3,183 68 Other payables and accrued expenses 3,559 5,313 113 ---------------- ---------------- ---------------- TOTAL Rs.6,365 Rs.10,731 US$229 ================ ================ ================

Bank overdraft of Rs. 46 million and Rs.Nil million as of March 31, 2000 and 2001, respectively, represent book overdrafts. 12. INCOME TAXES The income tax expense comprises the following:

YEARS ENDED MARCH 31, ------------------------------------------------------------------- 1999 2000 2001 2001 -------------- --------------- -------------- ------------ (IN MILLIONS) Current income tax expense Rs.5,894 Rs.6,375 Rs.7,887 US$168 Deferred income tax expense (benefit) 404 (219) 1,759 38 -------------- --------------- -------------- ------------ INCOME TAX EXPENSE Rs.6,298 Rs.6,156 Rs.9,646 US$206 ============== =============== ============== ============

The following is the reconciliation of estimated income taxes at the Indian statutory income tax rate to income tax expense as reported:

YEARS ENDED MARCH 31, --------------------------------------------------------------------- 1999 2000 2001 2001 -------------- ---------------- ---------------- ----------- (IN MILLIONS) Net income before taxes Rs.15,002 Rs.19,331 Rs.25,173 US$537 Effective statutory income tax rate 35.00% 38.50% 39.55% 39.55% Expected income tax expense 5,251 7,442 9,956 212 Adjustments to reconcile expected income tax to actual tax expense: Permanent differences: Income exempt under tax holiday (708) (899) (1,209) (26) Provision for diminution in value of investment not allowed for tax 1,896 21 153 3 Exchange gain on GDR deposits treated as capital receipt for income tax purposes (248) (94) (60) (1) Other, net 107 (451) 775 17 Effect of change in statutory tax rate - 137 31 1 -------------- ---------------- ---------------- ----------- INCOME TAX EXPENSE Rs.6,298 Rs.6,156 Rs.9,646 US$206 ============== ================ ================ ===========

F-20 The tax effects of significant temporary differences are as follows:

AS OF MARCH 31, ----------------------------------------------------- 2000 2001 2001 ---------------- ---------------- ------------- TAX EFFECT OF: (IN MILLIONS) DEDUCTIBLE TEMPORARY DIFFERENCES: Allowances for trade receivables Rs.482 Rs.387 US$8 Other 511 - - ---------------- ---------------- ------------- DEFERRED TAX ASSET Rs.993 Rs.387 US$8 ---------------- ---------------- ------------- TAXABLE TEMPORARY DIFFERENCES: Property, plant and equipment Rs.2,148 Rs.3,204 US$68 Investment income deferred for tax - 269 6 Other - 97 2 ---------------- ---------------- ------------- DEFERRED TAX LIABILITY Rs.2,148 Rs.3,570 US$76 ---------------- ---------------- ------------- NET DEFERRED TAX LIABILITY Rs.1,155 Rs.3,183 US$68 ================ ================ =============

13. SHAREHOLDERS' EQUITY On September 26, 2000, the shareholders of the Company approved a stock dividend of equity shares in the ratio of two equity shares for every one equity share held, which was distributed on November 24, 2000 to shareholders on record as of November 16, 2001. In accordance with ARB No. 43, the Company has capitalized the legally required face value of the equity shares issued. During the year ended March 31, 2001, the authorized share capital of the Company was increased from 100 million equity shares of Rs.10 each aggregating Rs.1,000 million to 300 million equity shares of Rs.10 each aggregating Rs.3,000 million. F-21 14. REVENUES Revenues comprise the following:

YEARS ENDED MARCH 31, ----------------------------------------------------------------- 1999 2000 2001 2001 -------------- ------------- -------------- ------------ (IN MILLIONS) Revenues from foreign Administrations for incoming traffic: Telephone Rs.43,834 Rs.45,161 Rs.46,674 US$996 Telex 186 128 112 2 Revenues from DoT for outgoing traffic: Telephone 18,243 18,375 18,345 392 Telex 173 175 112 2 Leased circuits 2,499 2,986 3,140 67 Telegraph, television and others 2,246 2,815 3,533 76 -------------- ------------- -------------- ------------ TOTAL Rs.67,181 Rs.69,640 Rs.71,916 US$1,535 ============== ============= ============== ============

15. NETWORK AND TRANSMISSION COSTS Network and transmission costs comprise the following:

YEARS ENDED MARCH 31, ---------------------------------------------------------------------- 1999 2000 2001 2001 -------------- ---------------- --------------- ------------ (IN MILLIONS) Payment for traffic costs to: DoT Rs.27,682 Rs.29,254 Rs.27,341 US$584 Foreign administrations 14,762 13,374 13,866 296 Rent of land lines 915 579 1,037 22 Other transmission facilities 1,780 2,414 2,906 62 -------------- ---------------- --------------- ------------ TOTAL Rs.45,139 Rs.45,621 Rs.45,150 US$964 ============== ================ =============== ============

F-22 16. OTHER OPERATING COSTS Other operating costs comprise the following:

YEARS ENDED MARCH 31, ----------------------------------------------------------------- 1999 2000 2001 2001 ------------- ------------- ------------- ------------ (IN MILLIONS) Staff costs: Salaries and wages Rs. 680 Rs. 866 Rs.1,400 US$30 Social security contributions 86 90 132 3 Energy costs 175 235 271 6 Advertising 102 113 116 2 Repairs, maintenance, marketing and other costs 585 1,318 1,104 24 ------------- ------------- ------------- ------------ TOTAL Rs.1,628 Rs.2,622 Rs.3,023 US$65 ============= ============= ============= ============

17. NON-OPERATING INCOME Non-operating income comprises the following:

YEARS ENDED MARCH 31, ----------------------------------------------------------------- 1999 2000 2001 2001 ------------- ------------- ------------- ------------ (IN MILLIONS) Foreign exchange gains, net Rs.3,168 Rs.1,449 Rs.2,878 US$61 Profit (Loss) on sale of fixed assets 10 86 (5) - Miscellaneous income 136 286 185 4 ------------- ------------- ------------- ------------ TOTAL Rs.3,314 Rs.1,821 Rs.3,058 US$65 ============= ============= ============= ============

F-23 18. RETIREMENT BENEFITS GRATUITY The following table sets out the funded status of the gratuity plan and the amounts recognized in the Company's financial statements as of March 31, 2000 and 2001.

AS OF MARCH 31, -------------------------------------------- 2000 2001 2001 -------------- ------------ ----------- (IN MILLIONS) CHANGE IN BENEFIT OBLIGATION: Projected benefit obligation, beginning of the year Rs.151 Rs.153 US$4 Service cost 8 8 - Interest cost 16 16 - Actuarial loss/(gain) (21) 65 1 Benefits paid (1) (10) - -------------- ------------ ----------- PROJECTED BENEFIT OBLIGATION, END OF THE YEAR 153 232 5 -------------- ------------ ----------- CHANGE IN PLAN ASSETS: Fair value of plan assets, beginning of the year 56 95 2 Actual return on plan assets 7 10 - Employer contributions 33 32 1 Benefits paid (1) (10) - -------------- ------------ ----------- FAIR VALUE OF PLAN ASSETS, END OF THE YEAR 95 127 3 -------------- ------------ ----------- Excess of obligation over plan assets (58) (105) (2) Unrecognized actuarial loss 2 68 1 Unrecognized transitional obligation 18 13 - -------------- ------------ ----------- ACCRUED BENEFIT Rs.(38) Rs.(24) US$(1) ============== ============ ===========

Net gratuity cost for the years ended March 31, 1999, 2000 and 2001 comprises the following components:

YEARS ENDED MARCH 31, ---------------------------------------------------------------- 1999 2000 2001 2001 -------------- ------------- -------------- ----------- (IN MILLIONS) Service cost Rs.7 Rs. 8 Rs. 8 US$- Interest cost 11 16 16 - Amortization of unrecognized transitional obligation 5 5 5 - Actual investment return (4) (7) (10) - -------------- ------------- -------------- ----------- NET GRATUITY COST Rs.19 Rs.22 Rs.19 US$- ============== ============= ============== ===========

F-24 The assumptions used in accounting for the gratuity plan for the years ended March 31, 1999, 2000 and 2001 are set out below:

YEARS ENDED MARCH 31, ----------------------------------- 1999 2000 2001 --------- --------- --------- (%) Discount rate 10.5 10.5 10.5 Rate of increase in compensation levels of covered employees 6 6 6 Rate of return on plan assets 9.5 9.5 9.5

LEAVE ENCASHMENT The Company provided Rs.11 million, Rs.26 million and Rs.28 million for leave encashment for the years ended March 31, 1999, 2000 and 2001, respectively. PROVIDENT FUND The Company contributed Rs.36 million, Rs.45 million and Rs.75 million to the provident fund for the years ended March 31, 1999, 2000 and 2001, respectively. 19. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts for cash, cash equivalents, short-term investments, accounts receivable and accounts payable approximate their fair values due to the short maturity of these instruments. 20. COMMITMENTS AND CONTINGENCIES Commitments and contingencies are as follows: CAPITAL COMMITMENTS Capital commitments represent expenditure, principally relating to the construction of new buildings, submarine cables and expansion of transmission equipment, which had been committed under contractual arrangements and unpaid amounts on investments, with the majority of payments due within a one year period. The amount of these commitments totalled Rs.2,887 million as of March 31, 2001. CONTINGENCIES INCOME TAX MATTERS For the assessment years 1988-89, 1994-95 and 1996-97 to 1998-99, the income tax authorities have raised demands aggregating Rs.14,728 million, including interest of Rs. 6,343 million on the disallowance of license fee F-25 paid by the Company to DoT and other claims against which amounts aggregating to Rs.10,625 million have been paid or adjusted. The claim for license fee for assessment year 1995-96 has been allowed by the Income Tax Appellate Tribunal. The Company has been advised by counsel that the demands are not likely to be sustained and hence no provision is considered necessary. OTHER CONTINGENCIES The Company is involved in lawsuits, claims, investigations and proceedings, which arise in the normal course of business. There are no such matters pending that the Company expects to be material in relation to the business. 21. RELATED PARTY TRANSACTIONS The Company's principal related parties consist of government departments, government owned or controlled companies and affiliates of the Company. The Company routinely enters into transactions with its related parties, such as providing telecommunication services, sharing costs and revenues and subletting premises. Transactions other than with the DoT are at arm's length in accordance with law. Transactions with the DoT are subject to the revenue sharing agreement discussed in Note 1d. The Company's significant related party balances and transactions with DoT are detailed in the Statement of Income and in Notes 5, 10, 14 and 15. Other related party transactions and balances are immaterial individually and in the aggregate. 22. SEGMENT INFORMATION The Company has three operating segments, comprising telephony, Internet and leased line services. Operating segments other than the telephony segment do not meet the quantitative thresholds specified by SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, and do not qualify as reportable segments. Information about these segments has been aggregated and reported in the "All other" category. The Company's chief operating decision maker utilizes revenue information in assessing performance and making overall operating decisions and resource allocation. Communication services are provided utilizing the Company's assets, which generally do not make a distinction between the types of services. As a result, the Company cannot, and does not, allocate expenses relating to assets or asset costs by segment. F-26 Summarized segment information for the years ended March 31, 1999, 2000 and 2001 is as follows:

YEARS ENDED MARCH 31, (IN MILLIONS) ----------------------------------------------------------------------------------------- 1999 2000 2001 ---------------------------- -------------------------- --------------------------- BASIC BASIC BASIC TELEPHONY ALL OTHER TELEPHONY ALL OTHER TELEPHONY ALL OTHER ------------ --------------- ----------- -------------- ------------ -------------- Traffic revenue Rs.62,077 Rs.5,104 Rs.63,535 Rs.6,105 Rs.65,019 Rs.6,897 Income from satellite consortia - 757 - 737 - 1,160 ------------ --------------- ----------- -------------- ------------ -------------- OPERATING REVENUE 62,077 5,861 63,535 6,842 65,019 8,057 Network and transmission costs 42,976 2,163 43,004 2,617 41,861 3,289 License fee 4,157 - 4,712 - 5,022 - ------------ --------------- ----------- -------------- ------------ -------------- SEGMENT OPERATING PROFIT 14,944 3,698 15,819 4,225 18,136 4,768 ============ =============== =========== ============== ============ ============== TOTAL SEGMENT OPERATING PROFIT 18,642 20,044 22,904 Less: Unallocable operating 2,894 4,156 4,752 costs ------------ ----------- ----------- OPERATING PROFIT, AS REPORTED Rs.15,748 Rs.15,888 Rs.18,152 ============ =========== ===========

Unallocable operating costs include staff cost, energy cost, depreciation and other general administrative overheads, which are not allocable segment-wise. Revenues from major customers are as follows:

YEARS ENDED MARCH 31, ----------------------------------------------------------------------------- 1999 2000 2001 2001 -------------- ----------------- --------------- ----------------- (IN MILLIONS) DoT Rs.18,416 Rs.18,550 Rs.18,346 US$392 USA-MCI 7,749 11,071 10,916 233 USA-ATT 7,572 5,157 9,639 206 UAE 6,921 6,589 7,222 153 UK-BTI 4,501 4,276 2,213 47 Saudi Arabia 4,179 3,179 4,185 89 US Sprint 1,216 1,794 1,384 30 UK MCL 1,119 928 717 15 Singapore 1,067 1,719 1,384 30 Canada 1,232 1,199 702 15 -------------- ----------------- --------------- ----------------- TOTAL Rs.53,972 Rs.54,462 Rs.56,708 US$1,210 ============== ================= =============== =================

Concentrations of credit risk exist when changes in economic, industry or geographic factors similarly affect groups of counter parties whose aggregate credit exposure is material in relation to the Company's total credit exposure. F-27 The balances due from major customers are as follows: YEARS ENDING MARCH 31, ------------------------------------------------------- CUSTOMER NAME 2000 2001 2001 ---------------- ---------------- ---------------- (IN MILLIONS) USA-MCI Rs.7,308 Rs.4,066 US$87 USA-ATT 1,616 2,585 55 UAE 4,197 2,419 51 UK-BTI 3,689 1,717 37 Saudi Arabia 1,534 2,057 44 Singapore 1,118 49 1 ---------------- ---------------- --------------- ---------------- ---------------- --------------- TOTAL Rs.19,462 Rs.12,893 US$275 ================ ================ =============== All revenues earned by the Company are from its operations in India. Substantially all of the Company's fixed assets are located in India. 23. SUBSEQUENT EVENTS REVIEW A. CONVERSION OF INTELSAT INTO A PRIVATE COMPANY Intelsat, the world's largest commercial satellite communications organisation, was privatised on July 18, 2001. The holding company is known as Intelsat Ltd., incorporated in Bermuda. After conversion, the Company holds 5.4% (27,045,940 shares of par value US$1 each) in Intelsat. The Company is represented on the Board of Directors of Intelsat Ltd. B. PROPOSED VOLUNTARY RETIREMENT SCHEME ("VRS") On August 1, 2001, the Company announced a VRS with the primary objective of improving the average mix of its employees as also to improve the overall skill level. The scheme remains open from September 1, 2001 to September 30, 2001. Employees who are at least 50 years of age and have rendered a minimum of 10 years service in the Company are eligible to opt for voluntary retirement. Apart from normal retirement benefits, employees opting for voluntary retirement will be entitled to an ex-gratia payment of 60 days salary (basic and dearness allowance) for each completed year of service or payment of salary for the remaining period of service left before retirement, whichever is lower. As the scheme has not closed as of September 24, 2001, the Company is unable to accurately predict the cost of the scheme. F-28 EX-1 3 ex1-2_662285.txt EX-1.2 (THE COMPANIES ACT, 1956) COMPANY LIMITED BY SHARES ARTICLES OF ASSOCIATION OF VIDESH SANCHAR NIGAM LIMITED Interpretation Clause. Article 1 - In the interpretation of the Memorandum of Association and these Articles, the following expressions shall have the following meanings, unless repugnant to the subject or context. The Act/or the said Act. (a) "The Act" or "the said Act" means "The Companies Act, 1956", for the time being in force. These Articles. (b) "These Articles" means these Articles of Association as originally framed or as from time to time altered by Special Resolution. 1[Beneficial Owner (bb) "Beneficial Owner" means the beneficial owner as defined in clause (a) of sub-section (1) of Section 2 of the Depositories Act, 1996.] The Company. (c) "The Company" means VIDESH SANCHAR NIGAM. LIMITED. The Directors. (d) "The Directors" means the Directors for the time being of the Company and includes persons occupying the position of Directors by whatever name called. 2[Depositories Act, 1996 (dd) "Depositories Act, 1996" includes any statutory modification or re-enactment thereof' and Depository (ddd) "Depository" means a Depository as defined under clause (e) of sub-section (1) of Section 2 of the Depositories Act, 1996.] The Board or Board of Directors. (e) "The Board," or the "Board of Directors" means a meeting of the Directors duly called and constituted or as the case may be, the Directors assembled at a Board, or the requisite number of Directors entitled to pass a circular resolution in accordance with the Act. The Chairman. (f) "The Chairman" means the Chairman of the Board of Directors for the time being of the Company. The Managing Director. (g) "The Managing Director" includes one or more persons appointed as such or any of such persons or Directors for the time being of the Company who may for the time being be the Managing Director of the Company. The Office. (h) "The Office" means the Registered Office for the time being of the Company. The President. (i) "The President" means the President of India. Capital. (j) "Capital" means the Share Capital for the time being raised or authorised to be raised for the purpose of the Company. Register. (k) "Register" means the Register of Members of the Company required to be kept pursuant to the Act. The Registrar. (l) "The Registrar" means the Registrar of Companies, of the State where the registered office of the Company is situated. Dividend. (m) "Dividend" includes bonus shares. Month. (n) "Month" means a calendar month. Seal. (o) "Seal" means the Common Seal for the time being of the Company. Proxy. (p) "Proxy" includes Attorney duly constituted under a Power-of-Attorney. In writing. (q) "In writing" and "written" shall include printing, lithography and other modes of representing o reproducing words in a visible form. Plural Number. (r) Words importing the singular number also include the plural number and vice versa. Persons. (s) Words importing persons include corporations and firms as well as individuals. Gender. (t) Words importing masculine gender shall also include the feminine gender. Government. (u) "Government" means the "Central Government". Expression in the Act to (v) Subject as aforesaid, any words or expressions defined in the bear same meaning in Act, shall, except where the subject or context forbids, bear the Articles. same meaning in these Articles. Marginal Notes. (w) The marginal notes hereto shall not affect the construction of the Articles. Table "A" not to apply. Article 2 - The regulations contained in Table "A" in the first Schedule to the Act shall not apply to the Company. Company to be Article 3 - The regulations for the management of the Company governed by these and for the observance of the members thereof and their Articles. representatives shall, subject to any exercise of the statutory powers of the Company in reference to the repeal or alternation of or addition to its regulations by special resolution as prescribed or permitted by - the Act, be such as are contained in these Articles. Company's shares not Article 4 - No part of the funds of the Company shall be employed to be purchased. directly or indirectly in the purchase of or in loans upon the security of the Company's shares. CAPITAL AND SHARES 3[Share Capital. Article 5 - Authorised share capital of the Company shall be Rs.300,00,00,000 (Rupees Three hundred crores only) divided into 30,00,00,000 (thirty crores) equity shares of Rs. 10/- (Rupees ten only) each.] Power to increase Article 6- Subject to the approval of the President, the Board may share capital. from time to time, with the sanction of the Company in a general meeting, increase the share capital by such sum to be divided into shares of such amounts as the resolution shall prescribe. Commission. Article 7 - The Company may, at any time; pay commission to any person for subscribing or agreeing to subscribe (whether absolutely or conditionally) for any shares, debentures, or debenture stock of the Company or procuring or agreeing to procure subscription (whether absolute or conditional) for any shares, debentures or debenture stock of the Company but so that if the commission in respect of shares shall be paid or payable out of capital the statutory conditions and requirements shall be observed and complied with and the amount or rate of commission shall not exceed 5% on the price of shares and 2 1/2% on the price of debentures or debenture stock, in each case subscribed or to be subscribed. The commission may be paid or satisfied in cash or in shares, debentures or debenture stock of the Company. On what condition new Article 8- Subject to such directions as may be issued by the shares may be issued. President in this behalf, new shares shall be issued upon such terms and conditions and with such rights and privileges annexed thereto, as the general meeting resolving upon the creation thereof shall direct and if no direction be given as the Board shall determine. How far new shares to rank Article 9 - Except so far as otherwise provided by the conditions with existing shares. of issue, or by these Articles, any capital raised by the creation of new shares shall be considered part of the original capital and shall be subject to the provisions herein contained with reference to the payment of calls and installments, transfer and transmission, lien, voting, surrender and otherwise. Reduction of capital. Article 10- Subject to the provisions of Section 100 to 104 of the Act and to such directions as may be issued by the President in this behalf, the Company may, from time to time, by special resolution reduce its capital by paying off capital or canceling capital which has been lost or is unrepresented by available assets, or is superfluous by reducing the liability on the shares or otherwise as may be expedient, and capital may be paid off upon the footing that it may be called up again or otherwise; and the Board may, subject to the provisions of the Act, accept surrender of shares. 4[[Sub-division and Article 11 - Subject to the approval of the President, the Company consolidation of shares. in general meeting may, from time to time, sub-divide other powers conferred by Section 94 of the Act and shall file with the Registrar such notice of exercise of any such powers as may be required by the Act. Provided however that the provision relating to progressive numbering shall] not apply to the shares of the Company which have been dematerialised.] Power to modify. Article 12 - If at any time, the capital of the Company by reason of the issue of preference shares or otherwise, is divided into different classes of shares, all or any of the rights attached to the shares of each class may, subject to the provisions of Section 106 and 107 of the Act be varied with the consent in writing of the holders of at least three-fourth of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of'issued shares of that class and all the provisions hereinafter contained as to general meeting shall, muratLg mutandis, apply to every such meeting. 5[Allotment of shares. Article 13- Subject to the provisions of these Articles, the shares shall be under the control of the Board of Directors who may allot or dispose of the same, or any of them, to such persons. upon such terms and conditions, at such times, and upon such consideration as the Board may think fit. Provided that option or right to call of shares shall not be given to any person or persons without the sanction of the company in General Meeting.] Instalments of shares Article 14 - If by the conditions of allotment of any share, the to be duty paid. whole or part of the amount or issue price thereof shall be payable by instalments, every such instalment shall, when due, be paid to the Company by the person who, for the time being, shall be the registered holder of the shares or by his executor or administrator. Liability of joint-holders Article 15 - The Joint Holders of a share shall be severally as well of shares. as jointly liable for the payment of all instalments and calls due in respect of such share. How shares may Article 16 - Shares may be registered in the name of any person, be registered. company or other body corporate, Not more than four persons shall be registered as joint-holders of any share. 6[ [Share Certificates. Article 17A - Subject to the provisions of Articles 17B and 17C every person whose name is entered as a member in the register shall, without payment, be entitled to a certificate or more certificates in marketable lot under the common seal of the company specifying the share or shares held by him and the amount paid thereon. Provided that, in respect of a share or shares held jointly by several persons, the Company shall not be bound to issue more than one certificate and delivery of a certificate for a share to one of several joint holders shall be sufficient delivery to all. 17B. Save as herein otherwise provided, the Company shall be entitled to treat the person whose name appears on the Register of Members as holder of any share or whose name appears as the beneficial owner of shares iii the records of the Depository as the absolute owner thereof and accordingly shall not (except as ordered by S Court of competent jurisdiction or as by law required) be bound to r.ecose any benami trust or equity or equitable, contingent or othsr claim or interest in such share on the part of any other person whe,ther or not it, shaLl have express or implied notice thereof, 1 7C:. Notwithstanding anything contained herein, the Company shal1 be entitled to dematerialise pursuant to the provisions of the Der05jojs Act, 1996 its shares debentures and other Securities for 5Ubcnptjon in a dematerialised form. The Company shall further be entitled to maintain a Register of Members with the details of Mebers holding shares both iii material and dematerialised form in any media as permitted by law including any form of electronic meqia Issue of new share Artieje 18 - If a share certificate is worn out, defaced, lost, or certificate(s) in place of - destroyed it may be renewed in accordance with the Share worn out, defaced, Certificate Rules under the Act on payment of fee not exceeding lost or destroyed. Ruj one and on such terms, if any, as to evidence and. indemnity and the payment of out-of-pocket expenses incurred by the Company in investigating evidence as the Board may think fit. CALL ON SHARES Board of Directors to M'tjcie 19- (1) The Board of Directors, may from time to time, make calls, by a resolution passed at a meeting of the Board (and not by a resciution by circulation) make such call as it thinks fit upon the members in respect of moneys unpaid on the shares held by them reslectively by giving not less than 15 days notice for payment and each member shall pay the amount of every call so made on him to the persons and at the times and places appointed by the Board of D1rtors. A call may be made payable by instalments. The Board ma), at their discretion, extend the time for payment of such calls. Calls to carry interest. (2) If any membr fails to pay any call due from him on the day appointed for payment thereof or any such extension thereof as aforesaid, he shall be liable to pay interest on the same from the day appointed for the payment thereof to the time of actual payment, at such rate as shall from time to time be fixed by the Board of Dirtors but nothing in this Article shall render it compulsory for the Board of Directors to demand or recover any interest from any such member. Sums payable on allotment Articie 20 - (1) Any sum which by the terms of issue of a share or at fixed date to be becbmes payable on allotment or at any fixed date, whether on paid on due dates. account of the nominal value of the share or by way of premium, shall for the purposes of these regulations be deemed to be a call duly made and payable on the date on which by the terms of issue such sum becomes payable. Voluntary advances of (2) (a) The Board may, if it thinks fit, receive from any member uncalled share capital. willing to advance the same, all or any part of' the moneys uncalled and unpaid upon any shares held by him. 7tlnterest payable on (2) (b) Upon all or any of the moneys so advanced may, until the calls in advance. same would, but for such advance, become presently payable, pay interest at such rate not exceeding, unless the Company in general meeting shall otherwise direct, six percent per annum a may be agreed upon between the Board and the member paying the sum in advance and the Board of Directors may, at any time, repay the amount so advanced upon giving to such members three months notice in writing. Moneys paid in advance of calls shall not in respect thereof confer a right to dividend or to participate in the profits of the Company.) Calls to date from Article 21 - A call shall be deemed to have been made at the time resolution, when the resolution authorising such call was passed at a meeting of the Board of Directors. Forfeiture of shares. Article 22 - (1) If a member fails to pay any call or instalment of a call, on the day appointed for payment thereof, the Board may, at any time thereafter during such time as any part of the call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid together with any interest which may have accrued. (2) The notice aforesaid shall: (a) name a further day (not being earlier than the expiry of fourteen days from the date of service of the notice) on or before which the payment required by the notice is to be made; and, (b) state that, in the event of non-payment on or before the day so named, the shares in respect of which the call was made will be liable to be forfeited. (3) If the requirement of any such notice as aforesaid ate not complied with, any share in respect of which the notice has been given may, at any time thereafter before the payment required by the notice has been made, be forfeited by a resolution of the Board to that effect. - (4) A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the Board thinks fit. (5) At any time before a sale or disposal as aforesaid, the Board may cancel the forfeiture on such terms as it thinks fit. Liability to pay money Article 23 - (I) A person whose shares have been forfeited shall owing at the time of cease to be a member in respect of the forfeited shares, but shall, forfeiture notwithstanding the forfeiture, remain liable to pay to the Company all moneys which at the date of forfeiture, were presently payable by him to the Company in respect of the shares. (2) The liability of such persons shall cease if and when the Company shall have received payment in full of all such moneys in respect of the shares. Declaration of forfeiture. Article 24- (1) A duly verified declaration in writing that the declarant is a Director, the Manager or the Secretary, of the Company, and that a share in the Company has been duly forfeited on a date stated in the declaration, shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share. (2) The Company may receive the consideration, if any, given for the share on any sale or disposal thereof and may execute a transfer of the share in favour of the person to whom the share is sold or disposed of. (3) The transferee shall thereupon be registered as the holder of the share. (4) The transferee shall not be bound to see to the application of the purchase money, if any, nor shall his title to the share, be affected by any irregularity or invalidity in the proceedings in reference to or disposal of the share. Provisions regarding Article 25 - The provisions of these Articles as to forfeiture shall forfeiture to apply in the apply in the case of non-payment of any sum which by terms of case of non-payment of issue of a share, becomes payable at a fixed time, whether on sums payable at a fixed account of the nominal value of the shares or by way of premium, time, as if the same had been payable by virtue of a call duly made and noticed. 0[Company's lien on Article 26- The Company shall have a first and paramount lien upon every share not being fully paid up, registered in the name of shares each member (whether solely or jointly with others), and upon the proceeds of sale thereof for moneys called or payable at a fixed time in respect of such shares whether the time for the payment thereof shall have actually arrived or not and no equitable interest in any share shall be created except upon the footing and condition that this Article is to have full effect. Such lien shall extend to alt dividends and bonuses from time to time declared in respect of such shares. Unless otherwise agreed, the registration of a transfer of a share shall operate as a waiver of the Company's lien, if any, on such shares.] Enforcement of lien on Article 27 - The Company may sell, in such manner as the Board sale of shares. thinks fit, any shares on which the Company has lien, but no sale shall be made unless a sum in respect of which the lien exists is presently payable or until the expiration of fourteen days after a notice in writing stating and demanding payment of such part of amount in respect of which lien exists as is presently payable, has been given to the registered holder for the time being of the share, or the person entitled thereto by reason of his death or insolvency. Application of Article 28 - The proceeds of the sale shall be received by the proceeds of sales. Company and shall be applied in payment of such part of the amount in respect of which lien exists as is presently payable and the residue shall (subject to a like lien for sums not presently payable as existed upon the shares prior to the sale) be paid to the persons entitled to the shares at the date of the sale. The purchaser shall be registered as the holder of the share and he shall not be bound to see to the application - of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale. Transfer and Article 29 - Subject to the provisions of Article 3, the right of transmission of shares. members to transfer their shares shall be restricted as follows: 9f(a) A share may be transferred by a member or other person entitled to transfer to a person approved by the Board.] (b) Subject to the Act and subject as aforesaid, the Board may, in their absolute and uncontrolled discretion, refuse to register any proposed transfer of shares. 10[(c) If the Board refuse to register transfer of any shares, the Board shall, within one month of the date on which the instrument of transfer is delivered to the Company send to the transferee and the transferor notice of the refusal. provided that registration of a transfer shall not be refused on the ground of the transferor being either alone or jointly with any other person or persons indebted to the company on any account whatsoever except a lien on the shares (d) Subject to the provisions of the Act and save as herein otherwise provided, the Board shall be entitled to treat the person whose name appears on the register of members as the holder of any share as the absolute owner thereof and accordingly shall not (except as ordered by court of competent jurisdiction or as. by law required) be bound to recognise any benami, trust or equity or equitable contingent or other claim to or interest in such share on the part of any person whether or not it shal.t have express or implied notice thereof. tt[Transrnission by e) In the case of transfer of shares or other marketable securities operation of law. where the company has not issued any certificates and where such shares or securities are being held in an electronic and fungible form the provisions of the Depositories Act, 1996 shall apply. Execution of transfer. Article 30 - The instrument of transfer of any share in the Company shall be executed both by the transferor and transferee and the transferor shall be deemed to remain holder of the share until the name of the transferee is entered in the register of members in respect thereof. Register of transfers. Article 31 - The Company shall keep a book, to be called the "Register of Transfers" and therein shall be fairly and distinctly entered particulars of every transfer or transmission of any share. Instrument of transfer to be Article 32 - Every instrument of transfer shall be delivered to the left at office and evidence Company at the office for registration accompanied by any of titled to be given, certificate of the shares to be transferred and such evidence as the Company may require to prove the title of the transferor, or his right to transfer the share& All instruments of transfer shall be retained by the Company, but any instrument of transfer which the Board may decline to register shall on demand, be returned to. the person depositing the same. 12[Forrn of transfer. Article 33 - The instrument of transfer shall be in writing and all the provisions of Section lOS of the Companies Act and of any statutory modification thereof for the time being shall be duly complied with in respect of all transfers of shares and registration thereof.] Closing of Registers of Article 34 - The Register of Members or the Register of Debenture members and Debenture -holders may be closed fot any period or periods not exceeding 45 holders. (forty five) days in each year but not exceeding 30 (thirty) days at any one time after giving not less than 7 (seven) days previous notice by advertisement in some newspaper circulating in the district in which the registered office of the Company is situated. Article 35 deleted vide Special Resolution passed by the Shareholders at 6th AGM held on 29-09-1992. Board's right to Article 36 - The Board shall have the right to refuse to register a refuse registration. person entitled by transmission to any shares or his nominee, as if he were the transferee named in an ordinary transfer presented for registration. How far new shares to rank Article 37- Except so far as otherwise provided by the conditions with share in original of issue, or by these Articles, any capita] raised by the creation of capital. new shares shall be considered part of the original capital and shall be subject to the provisions herein contained with reference to the payment of calls and instalments, transfer and transmission, lien, voting, surrender and otherwise. `[New Shares to be Article 38 -The new shares shall be offered to the persons who at offered to Members. the date of the offer are holders of the equity shares of the company, fri proporti,n as nearly as circumstances admit, to the capital paid up on those shares at that date and such offer shall be made by notice specifying the number of shares to which the member is entitled and limiting a time within which the offer, if not accepted, will be deemed to be declined, and after the expiration of such time or in receipt of an intimation from the member to whom such notice is given that he declines to accept the shares bffered, the Board may dispose of the same in such maimer as they think most beneficial to the Company.] 72 A,ncndejf Wde Special Resolution passed by the shareholders at 6" ACM be/il on 29 Sepseni 6cr 1992. 13 Amended vide Special Resolittion passed by rite s/tare!' alders ate1 ACM Iteid on 29 September 1992. BORRO" pOWERS ArtiCle 39- (1) Subject to the provisions of Sections 292 and 293 (1) Power 0forroWing. (d) of the Act, the Board may by means of a resolution. passed at a - meeting of the Board. from time to time, borrow artdior secure the urns of money for the purposes of the payment of any sum or s Company. Conditions on which (2) The Board may secure thw repayment of such moneys in such money may be borrowed, manner and upon such terms and conditions in all respects as they think fit and in particular by the issue of bonds, perpetual or redeemable debentures, or debenture - stock or any mortgage, charge or other security on the undertaking of the whole or any part of the property of the Company (both present and future) including its uncalled capital for the time being. How debentures etc. shall (3) Debentures, bonds etc. of the Company shall be transferred or be transfefred. transmitted in accordance with the procedure prescribed for shares in Section 108 of the Companies Act and the prevailing mies made thereunder by Central Government from time to time, unless different provisions are made specifically in the terms of issue governing such debentures, bonds etc. Securities may be assignable Article 40- Debentures, debenture stock, bonds or other securities free from equities. may be made assignable free from any equities between the Company and the person to whom the same may be issued. `4[Issue at discount etc. or Article 41 - Subject to Sections 79 and 117 of the Act, any with special privileges. - debentures, debenture stock, bonds or other securities may be issued at a discount, premium or otherwise, and with any special privileges to redemption, surrender, drawings, allotment of shares, appointment of Directors and otherwise. Debentures, Debenture-Stock, Bonds or other securities with the right to allotment of or conversion into shares shall be issued only with the consent of the company in General Meeting.] Inviting/accepting deposits. Article 42 - Subject to the provisions of Sections 58A and 58 B, 292 and 293 of the Companies Act and the rules made thereunder from time to time, the Board of Directors may. from time to time, invite and/or accept deposits from members of the public and/or employees of the Company/or otherwise at such interest rates as may be decided Amended Wde Special Resohietiwi passed by the shareholders at 6m AGM held on 29 September 1992. by the Board. Board may also pay commission to any person for subscribing or agreeing to subscribe or procure or gi to procure these deposits. GENERAL MEETINGS Notice of General Meeting. Article 43 - (1) A general meeting of the Company ay be called by giving not. less than twenty one days notice in wnt&g (2) A general meeting may be called after giving shc" notice than that specified in clause (1) of this Article if consent is accorded thereto: (i) in the case of an annual general meeig, by all the members entitled to vote thereat, and (ii) in the case of any other meeting subject t the provisions of Section 171 of the Act, by members 0f the Company holding not less than ninety five percent of such part of the paid-up share capital of the Company as iw a right to vote at meeting. Business of meeting. Article 44- The ordinary business of an annual geneial meeting shall be to receive and consider the profit and loss accottht, the balance sheet, and the report of the Board of Directors and pf the Auditors, and to declare dividends. All other business ra5act at such meeting and all business transacted at a extra ordin&Y meeting shall be deemed special. Quorum. Article 45- (1) No business shall be transacted at any genl meeting unless a quorum of wembers is present at the time when the meeting proceeds to business. (2) Save as herein otherwise provided, five member present, one of whom will be a representative of the President, in person shall be quorum for a general meeting of the Company General Meetings. Article 46 - The first annual general meeting of the Company shall be held within eighteen months of its incorporation thereafter, the annual general meeting shall be held within six ionths after the expiry of each financial year, except in the case wher'o for any special reason time for holding any annual general meeting (not being the first annual general meeting) is extended by the Registrar under Section 166 of the Act, no greater interval than fifteen months shall be allowed to elapse between the date of one annual general meeting and that of the next. Every annual general meeting shall be held during business hours on a day other than a public holiday either at the registered office of the company or at some other place as the Central Government may direct, and the notice calling the meeting shall speci& it as the annual general meeting. All other meetings of the Company shall be called "Extraordinary General Meeting". When Extra-ordinary Article 47 - The Board may, whenever they think fit and shall, on meeting to be called, the requisition of the holders of not less than ont tenth of the paid-up- capital of the Company upon which all calls or other sums then due have been paid, as at the date carry the right of voting in regard to that matter forthwith proceed to convene an extraordinary meeting of the Company, and in the case of such requisition, the following provisions shall have effect (1) The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the office and may consist of several documents, in like-form each signed by one or more requisitionists. (2) If the Board of Directors of the Company do not proceed within twenty one days from the date of the requisition being so deposited to cause meeting to be called on a day not later than 45 days from the date of deposit of the requisition, the requisitionists or a majority of them in value may themselves convene the meeting, but any meeting so convened shall be held within three months from the date of the deposits of the requisition. (3) Any meeting convened under this Article by the requisitionists shall be convened in the same manner as nearly as possible as that in which meetings are to be convened by the Board. If, after a requisition has been received, it is not possible for a sufficient number of Directors to meet in time so as to form a quorum, any Director may convene an extraordinary general meeting in the same maimer as early as possible as that in which meetings may be convened by the Board. Omission to give notice. Article 48 - The accidental omission to give any such notice or the non-receipt of any such notice by any member shall not invalidate the proceedings at any meeting. Chairman of Article 49- The Chairman of the Board shall be entitled to take General Meeting. the Chair at every general meeting or if there be no such Chairman, or if at any meeting he shall not be present within fifteen minutes after the time appointed for holding such meeting or is unwilling to act as Chairman, the members presentshatl choose another Director as Chairman, and, if no Director shall be present, or if all the Directors present decline to take the chair then, the members present shall choose one of their number to be the Chairman. When, if quorum not Article 50 - If within half art hour from the time appointed for the present, meetings to be meeting a quorum is not present, the meeting if convened upon dissolved and when . such requisition as aforesaid, shall be dissolved; but in any other to be adjourned, case it shall stand adjourned tothe same day in the next week at the same time and place, and if at such adjourned meeting a quorum is not present then those members who are present shall be a quorum and may transact the business for which the meeting was called. Right of President to Article 51 - (1) The President, so long as he is a shareholder of the appoint any person as Company, may, from time to time, appoint one or more persons his representative. (who need not be a member or members of the Company) to represent him at all or any meeting of the Company. (2) Any one of the persons appointed under sub clause (1) of this Article shall be deemed to be a member of the Company and shall be entitled to vote and be present in person and exextise the same rights and powers (including the right to vote by proxy) as the President could exercise as a member of the Company. (3). The President may, from time to time, cancel any appointment made under sub clause (I) of this Article and make fresh appointment. (4) The production at the meeting of an order of the President evidenced as provided in the Constitution, shall be accepted by the Company as sufficient evidence of any such appointment or cancellation as aforesaid. Adjournment of meeting. Article 52 - (1) The Chairman may, with the consent of any meeting at which a quorum is present and shall, if so directed by the meeting, adjourn the meeting from time to time and place to place. Business at adjourned (2) No business shall be transacted at any adjourned meeting other meeting. than the business left unfinished at the meeting from which the adjournment took place. Notice of adjourned meeting. (3) When a meeting is adjourned for 30 days or more, notice of the adjourned meeting shall be given as was given in th case of an original meeting. (4) Save as aforesaid, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting. How questions to be Article 53 - (1) Every question submitted to a meeting shall be decided at meetings. decided in the first instance by a show of hands and in the case of an equality of votes the Chairman shall, both on a show of hands and at a poll (if any), have a casting vote in addition to the vote or votes to which he may be entitled as a member. Evidence of a resolution (2) At any general meeting a resolution put to vote of the meeting where poll not demanded. shall be decided on a show of hands, unless a poll is, before or on the declaration of the result of the show of hands, deinanded by a member present in person or proxy or by duly authorised representative, and unless a poll is so demanded, a declaration by the Chairman that a resolution has, on a show of hands, been carried or carried unanimously or by a particular majority or lost, and an entry to that effect in the book of proceedings of the Company, shall be conclusive evidence of the fact, without proof of the number or proportion of the vote recotded in favour of or against that resoLution. Poll how to be taken. (3) If a poll is duly demanded, it shall be taken in such manner and at such time and place as the Chairman of the meeting directs and either at once or after an intenral or adjournment or otherwise, and the result of the poll shall be deemed to be the resolutiOn of the meeting at which the poll was demanded. The demand of a poll may be withdrawn. Poll when to be taken (4) Subject to the provisions of Section 180 of the Act, any poll at the meeting. duly demanded on the election of a Chairman of a meeting or on any question of adjournment shall be taken at the meeting and without adjournment. Business may proceed (5) The demand of a poll shall not prevent the continuance of a notwithstanding meeting for the transaction of any business other than the question demand of poll. on which a poll has been demanded. Chairman's decision (6) The Chairman of any meeting shall be the sole judge of the conclusive, validity of every vote tendered at such meeting. The Chairman present at the taking of a poll shall be the sole judge of the validity of every vote tendered at such poll. Objection to vote. (7) No objection shall be raised as to the qualification of any voter except at the meeting or adjourned meeting at which the vote objected to is given or tendered and every vote not disallowed at such meeting shall be valid for all other purposes. Chairman to judge validity. (8) Any such objection made in due time shall be referred to the Chairman of the meeting whose decision shall be fmal and conclusive. Vote of Members. Article 54- Upon a show of hands every member present in person or by proxy, or by duly authorised representative shall have one vote and upon a poll every such member shall have One vote for every share held by him. Votes in respect of deceased Article 55 - Any person entitled under the transmission clause to and bankrupt members. any shares may vote at any general meeting in respect thereof in the same maimer as if he were the registered holder of such shares provided that seventy-two hours at least before the time of holding the meeting or adjourned meeting as the case may be at which he proposes to vote, he shall satis& the Board of Directors of his right to such shares, unless the Board of Directors shall have previously admitted his right to such shares of his right to vote at such meeting in respect thereof. Joint holders. Article 56- Where there are joint registered holders of any share, any one of such persons may vote at any meeting, either personally or by proxy, in respect of such shares as if he were solely entitled thereto, arid if more than one of such joint holders be present at any meeting personally or by proxy, that one of the said persons present whose name stands first on the register in respect of such share shall alone be entitled to vote in respect thereof. Several executors or administrators of a deceased member in whose name any share stands shatl.for the purposes of this clause be deemed joint holders thereof. Votes in respect of shares of Article 57 - A member of unsound mind or in respect of whom an members of unsound mind, order has been made by an Court having jurisdiction in lunacy, may vote whether on a show of hands or on poll, by his committee or other legal guardian, and any such committee or guardian may on a poll, vote by proxy. No member to vote unless Article 53 - No member shall be entitled to vote at any general calls are paid- up. meeting unless all calls or other sums presently payable by him in respect of shares in the Company have been paid. Instrument appointing proxy Article 59 - A member entitled to attend and vote at a meeting to be in writing. may appoint another person (whether a member or not) as his proxy to attend a meeting and vote on show of hands or on a poll. No member shall appoint more than one proxy to attend on the same occasion. The instrument appointing a proxy shall be in writing and be signed by the appointer or his attorney duly authorised in writing or if the appointer is a body corporate, be under its seal or be signed - by an officer or an attorney duly authorised by it. Form of Proxy. Article 60 - An instrument appointing a proxy shaH he in either of the forms in Schedule IX to the Act or a form as near thereto as circumstances admit. Instrument appointing proxy Article 61 - The instrument appointing a proxy and the power of to be deposited in office, attorney or other authority (if any) under which it is signed, or a notarially certified copy of that power or authority, shall be deposited at the registered office of the Company not less than 48 (forty-eight) hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote, or in the case of a poll not less than 24 (twenty four) hours before the time appointed for taking of the poll and in default the instrument of proxy shall not be treated as valid. When vote by proxy valid Article 62 - A vote given in accordance with the terms of an though authority revoked, instrument of proxy shall be valid notwithstanding the previous death or insanity of the principaI, or the revocation of the proxy or of the authority under which the proxy was executed or the transfer of the shares in respect of which the proxy is given provided that no intimation in writing of such death, insanity, revocation or transfer or transmission shall have been received at the office of the Company before the commencement of the meeting or adjourned meeting at which the proxy is used. No member entitled to vote Adicle 63 - No member shall be entitled to be present, or to vote etc. while call due to the on any question either personally or by proxy at any general company. meeting or upon a poll, or be reckoned in a quorum whilst any call or other sum shall be due and payable to the Company in respect of any of the share of such members, BOARD OF DIRECTORS Board of Directors. Article 64 - The business of the Company shall be managed by the Board of Directors. `5tNumnber of Directors. Article 65 - Until otherwise determined by a General Meeting of the Amended tilde Special Resolution passed by the shareholders at LOM lie/do,, JO Marc/p /993, Company and subject to the provisions of Section 252 of the Act, the number of Directors shall not be less than three and more than twelve. The Directors are not required to hold any qualification shares. President of India's powers Article 66 A - The President of India shall be entitled by a notice to appoint Director, in writing, addressed to the Company by an order made and executed in the name of the President of India and authenticated as provided by the Constitution of India, to appoint such number of' persons as Directors as shall, together with the Managing Director and other Directors including whoie-time Directors, not exceed one-third of the total number of Directors for the time being on the Board of the Company (including vacancies, if any) and to remove such person or persons from office and on a vacancy being caused in such office from any cause whatsoever, whether by resignation, retirement, death, removal or otherwise, of any such person or persons so appointed, to appoint another or others to fill such vacancy. An appointment or removal of a Director under this Article shall become effective $ forthwith upon receipt by the Company of the aforesaid order. The Directors so appointed by the President of india shall not be liable to retire at any General Meeting of the Company. Right of the President of Article 66 B - Subject to provisions of Article 66 A above, the India to appoint President of India shall be entitled by a notice in writing addressed ChairmanlManagtho to the Company to appoint any Director as the Chairman of the Director, etc. Board or Chairman and Managing Director, Managing Director, or whole-time Director(s) of the Company and prescribe their remuneration subject to the provisions relating to remuneration contained in the Act and to remove such person from office and on a vacancy being caused in such office, whether by resignation, retirement, death, removal or otherwise, of any such person so appointed, to appoint another/others to fill such vacancy. An appointment or removal of a Director under this Article shall become effective forthwith upon receipt by the Company of the notice in writing aforesaid. Appointment of alternate Article 66 C - The Board may appoint an alternate Director Director recommended for such appointment by a Director other than whole-time Director (hereinafter called the Original Director) in whose place he is being appointed during his absence for a period of not less than three months from the State in which the mcctings of the Board aro ordinarily held. Provided that in the case of an Original Director who is appointed by the President of india under the provisions of Article 66 A, the Board may appoint an alternate Director recommended for such appointment by the President of India. An alternate Director appointed under this Article shall not hold office for a period longer than that permissible to the Original Director in whose place he has been appointed and shall vacate office if and when the original Director returns to that State. If the term of office of the Original Director is determined before he so returns to that State, any - provision(s) in the Act or in this Articles for the automatic appointment shall apply to the Original Director and not to the alternate Director, Directors' power to Article 66 D - Subject to the provisions of Section 260 of the Act, appoint additional Director, the Board shall have power at any time and from time to time, appoint any other qualified person(s) to be an Additional Director(s), but so that the total number of Directors shall not at any time exceed the maximum fixed under Article 65. Any such additional Director (s) shall hold office only upto the date of the next Annual General - Meeting $ Directors power to fill Article 66 E casual vacancies. (a) If the office of any Director appointed by the Company in General Meeting is vacated before his term of offlee willexpire in the normal course, the resulting casual vacancy may, in default of and subject to these Articles, be filled by the Board of Directors at a $ meeting of the Board. (b) Any person so appointcd shall hold office only upto the date upto which the Director in whose place he is appointed would have held office, if it had not been vacated as aforesaid but shall be eligible for the re-appointment at such Meeting subject to the provisions of the Act. Retirement by rotation Article 66 F(i) - At every Annual General Meeting of the Qf Directors and ascertaining Company, one-third of such of the Directors for the time being, as of Directors retiring by are liable to retire by rotation or if their number is not three or a rctation and filling multiple of three, the number nearest to one-third shall retire from up of vacancies. office. The non-retiring Directors, if any, shall not be subject to retirement under this clause and shall not be taken into account in determining the rotation of retirement or the number of Directors to o retire. Subject to provisions of the Act, the Directors to retire by rotation under this Article at every Annual General Meeting shall be o those who have been longest in office since their last appointment, but as between persons who become Directors on the same day, those who are to retire, shall, in default of and subject to any agreement among themselves, be determined by lot, Eligibility for re-election. Article 66 F (ii) - A retiring Director shall be eligible for r1election. Company to appoint successors. Article 66 F (iii) - Subject to Section 258 of the Act, the Company at the General Meeting at which a Director retires in the manner aforesaid may fill up the vacated office by electing a person thereto. Special position of Article 66 G - The Managing Director shall not, while he Managing Director. continues to hold that office be subject to retirement by rotation in accordance with Article 66 F (I). If he otherwise, ceases to hold the $ office of Director he shall ipso facto and immediately cease to be a Managing Director. Not:ice of candidature for Article 66 H office of Director except in certain cases. (a) A person other than a retiring Director shall be eligible for appointment to the office of Director at any General Meeting, if he or some member intending to propose him has, not less than fourteen days before the Meeting, left at the Registered Office, a notice in writing under his hand, signif'ing his candidature for the office of Director or the intention of such Member to propose him as a candidate for that office, as the case may be, alongwith a deposit of five hundred rupees or such sum as may for the time being be prescribed by the Act, which shall be refUnded to such person or, as the case may be, to such member, if the person succeeds in getting elected as a Director. $ (b) The Company shall inform its members of the candidature of a person for the office of a Director or the intention of a member to propose such person as a candidate for that office, by serving individual notices on the members not less than seven days before the Meeting; Provided that it shall not be necessary for the Company to serve individual notices upon the members as aforesaid, if the Company advertises such candidature or intention, not less than seven days before the Meeting, in atleast two newspapers circulating in the place where the Registered Office of the Company is located, of which one is published in English and the other in the regional language of that o place. (c) Every person (other than a Director retiring by rotation or otherwise or a person who has left at the office of the Company, a notice under Section 257 of the Act, signifying his candidature for the office of Director) proposed as a candidate for the office of a Director shall sign and file with the Company his consent in wilting to act as a Director, if appointed. FLUng of consent to Article 66 I - A person other than act as Director. $ (a) A Director re-appointed after retirement by rotation or immediately On the expiry of his term of office; or (b) An additional or alternate Director, or a person filling a casual vacancy in the office of a Director under Section 262 of the Act, appointed as an additional or alternate Director, immediately on the expiry of his term of office; shall not act as a Director of the Company, unless he has, within thirty days of his appointment, signed and filed with the Registrar his consent in writing to act as such Director. Remuneration of Directors. Article 65 J $ (a) The fee payable to a Director for attending a meeting of the Board or Committee thereof shall be decided by the Board of Directors from time to time within the maximum limit of such fee that may be prescribed under the proviso to Section 310 of the Companies Act, 1956. (b) Subject to the Provisions of the Act, any Director if called upon to perform extra services or special exertions or efforts (which expression shall include work done by a Director as a member of any committee formed by the Directors), the board may arrange with such $ Director for such special remuneration, for such extra services or special exertions or efforts, either by a fixed sum or otherwise, as may o be determined by the Board and such remuneration may be either in addition to or in substitution of his remuneration above provided. Travelling expenses Article 66 K - The Board of Directors may allow and pay to any incurred by Director. Director, who is not a resident of the place where the meetings of the Board or Committees thereof or General Meeting of the Company are held and who shall come to such place for the purpose of attending a meeting or for attending its business at the request of the Company, such sum as the Board may consider fair compensation for travelling, hotel and other incidental expenses, in addition to his fee, if any, for attending such meeting as above specified, and if any Director be called upon to go or reside out of the ordinary place of his residence on the Company's business, he shall be entitled to be reimbursed all travelling and other expenses incurred in connection with the business of the Company. Directors may act Article 66 L - The continuing Director(s) may act notwithstanding nocwifnstanding vacancy, any vacancy in their body, but, if and so long as their number is reduced below the quorum fixed by these Articles for a meeting of the Board, the continuing Director(s) may act for the purpose of increasing the number of Directors to that fixed for the quongn, or for summoning a General Meeting, but for no other purpose.] General powers of the Article 67 - Subject to the provisions of the Act and the directives company vested in the or instnirnents if any, the President may issue from time to time, Board of Directors. the business of the Company shall be managed by the Directors who may pay all expenses incurred in setting up and registering the Company and who may exercise all such powers and all such acts and things as the Company is authorised to exercise and do. Provided that the Directors shall not exercise any power or do any act or thing which is directed or required whether by the Act or any other act or by the Memorandum or Articles of the Company or otherwise, to be exercised or done by the Company in general meeting. Provided further that in exercising any such power or doing any such act or thing, the directors shall be subject to the provisions contained in that behalf in the Act or any other act, or in the Memorandum or Articles of the Company, or in any regulatio made by the Company in general meeting. No regulation made by the Company in general meeting shall invalidate any prior act of the Directors which would have been valid if that regulation had not been made. Delegation of Powers. Article 68 - (1) Subject to the provisions of the Act, the Board may, from time to time, delegate such of its powers as it may think fit to the Chairman, Chairman..cum..Managjng Director and/or Managing Director(s), subject to such terms, conditions and restrictions as it $ may deem necessary to impose and may, from time to tim; revoke, amend or vary all or any of the powers so delegated. (2) The Chairman, the Chairman-cum..Manaoing Director and/or Managing Director(s) may sub-delegate any of the powers delegated $ to him by the Board to any officer or other employees of the Company, subject to condition that every such sub-delegation of his powers will be reported to the Board. Powers of Chairman Article 69 - (i) The Chairman shal! reserve for decision of the President any proposals or decisions of the Board of Directors or any matter brought before the Board which raises in the opinion of the Chairman, any important iSSue and which is, on that account, fit to be reserved for the decision of the President and rio decision on such an important issue shall be taken in the absence of the Chairman appointed by the President. [Matters requiring prior (ii) Notwithstanding any of the provisions contained in the other approval of President. Articles, prior approval of the President shall be obtained in respect of; (a) Appointment, which term will include initial appointment, extension in service and re-employment of personnel who have attained the age of 58 years on a pay (including pension and pensionary equivalent of retirement benefits) exceeding Rs.5,700 (Rupees Five Thousand and Seven Hundred only) per mensem. (14 Appointment of any foreign national to any post in the Company. (c) Winding up of the Company. (d) Sale, lease or disposal of any land and/or building having an original book value of Rs.Ten Iakhs and above. (e) Establishing fmaiicial joint ventures and wholly owned subsidiaries in India or abroad only except n the cases where the equity investment of the Company satisfies the following criteria: (I) Rs.200 crores in any one project (ii) 5 per cent of the net worth of the company in any one project (iii) 15 percent of the net worth of the company in all joint ventures/subsidiaries put together. (0 Company's five year and Annual Plans for Development and Capital Budgets. $ (g) Revenue Budget of the Company in case there is an element of deficit which is proposed to be met by obtaining hinds from Central $ Government. (h) Withdrawal of an existing service. (i) Fixation, modification, increase or reduction in tariff for telecommunications services provided by the Company to the user.J Power of President to Article 70 - Notwithstanding anything contained in all these I 6 Ssthsanued vide Special Resoluriou passed by tire shareholders at 1 1" A GM held on 27 September 1997. issue directives.Articles but subject to the provisions of the Act, the President may, from time to timne, issue such directives or instructions as may be considered necessary in regard to the conduct of business and affairs of the Company and in like manner may vary and annul any such directive or instruction. The Board of Directors shall give immediate effect to the directives or instructions so issued. In particular, the President will have the powers; $ (i) to give directives to the Company as to the exercise and performance of its functions in matters involving national security or substantial public interest (ii) to call for such returns, accounts and other information with $ respect to the property and activities of the company as may be required from time to time. $ (iii) to provide wholly or partly owned cornpany(ies) or subsidiary(ies) including participations in their share capital irrespective of the sources from which the operations of such companies are to be financed. (iv) to determine in consultation with the Board annual, short and long-term financial and economic objectives of the company. Provided that all directives issued by the President shall,be in writing addressed to Chairman. The Board shall, except where the President considers that the interest of national security requires otherwise, incorporate the contents of directives issued by the President in the -annual report of the company and also indicate $its impact on the financial position of the company. $ (v) To take decisions regarding entering into partnership and/or regarding arrangements for sharing profits. Matters reserved for Article 71 -No action shall be taken by the company in respect of President's approval- any proposal or decision of the Board reserved for the approval of the President until his approval to the same has been obtained. The President shall have the power to modify such proposals or decision of the Board. $ Specific Powers of the Article 72 - Without prejudice to the general powers conferred by Board of Directors. Article 67 and the other powers conferred by these Articles, but subject to the provisions of Sections 293, 293-A, and 294 of the Act, the Board of Directors shall have the following powers, that is to say power; To acquire property. (I) to purchase, take on lease or otherwise acquire for the company property, rights or privileges which the company is authorised to acquire at such price, and generally on such terms and conditions as they think fit. $ Works of a capital nature. (2) to authorise without reference to the Central Government, the $ undertaking of works of a capital nature within the limits stated in Article 69 (ii) (c) above. To pay for property, (3) to pay for any property, rights or privileges acquired by, or debentures etc. services rendered to the company either wholly or partially in cash or in shares, bonds, debentures or other securities of the company, and any such shares may be issued either as fully paid-np or with such amount credited as paid-np thereon as may be agreed upon and any such bond, debentures or other securities may be either specifically charged upon all or any part of the property of the company and its uncalled capital or not so charged. To secure contracts (4) to secure the fulfillment of any contracts or engagements by mortgage. entered into by the company by mortgage or charge of all or any of the property of the company and its uncalled capital for the time o being or in such other manner as they may think fit. To appoint officers etc. (5) to create posts of, to appoint persons and at their discretion, remove or suspend general managers, managers, secretaries, officers, clerks, agents and servants for permanent, temporary or special services, as they may, from time to time, think fit, and to determine their powers and duties and fix their salaries or emoluments and require security in such instances and to such amounts as they think fit. To appoint trustees. (6) to appoint any person or persons (whether incorporated or not), to accept and hold in trust for the company, any property belonging to the company or in which it is interested or for any other purposes, and to execute and do all such deeds and things as may be requisite in relation to any such trust and to provide for the remuneration of such trustee or trustees. To bring and defend action. (7) to institute, conduct, defend compound or abandon, any legal proceedings by or against the company or its officers or otherwise concerning the affairs of the company and also to cotnpound and allow time for payment or satisfaction of any claims or demands by or against the company. To refer to arbitration. (8) to refer any claims or demands by or against the company to arbitration and observe and perform the awards. To give receipt. (9) to make ahd give receipts, release, and other discharges for money o payable to the company, and for the claims and demands of company. To autborise acceptance etc. (10) to determine the person(s) who shall be entitled to sign on the company's behalf, bills, notes, receipts, acceptances, endorsements, cheques, releases, contracts and documents. To appoint attorney. (11) From time to time to provide for the management of the affairs of the company outside the areas which in the context includes the townships and sites of operations of the company in such manner as they think fit, and in particular to appoint any person to be the attorney or agent of the company with such powers (including power to sub-delegate) and upon such terms as may be thought fit. To invest moneys. (12) To invest in Reserve Bank/State Bank of India/any nationalised bank or in such securities as may be approved by the President and deal with any of the moneys of the company upon such investments o -$ authorised by the Memorandum of Association of the company (not being shares in this company) and in such manner as they think fit and from time to time to vary or realise such investments. To give security by (13) To execute in the name and on behalf of the company in way of indemnity, favour of any Director or other persons who may incur or be about to incur any personal liability for the benefit of the company such o mortgage of the company's property (present and future) as they think fit and any such mortgage may contain a power of sale and such other powers, covenants and provisions as shall be agreed upon. To give percentage. (14) Subject to the approval of the President, to give to arty person - employed by the company a commission on the profits of any particular business transaction or a share in the general profits of the company, and such commission or share of profit shall be treated as o part of the working expenses of the company. To make bye-laws. (15) From time to time make, vary and repeal bye-laws for the regulation of the business of the company, its officers and servants. To give bonus, (16) To give, award, or allow any bonus, pension, gratuity or compensation to any employee of the company or his widow, children or dependants, that may appear to the Board of Directors just or proper, whether such employee, his widow, children or dependants have or have not a legal claim upon the company. To create Provident Fund. (17) Before declaring any dividend to set aside such portion of the profits of the company as they may think fit, to form a fund to provide for such pensions, gratuities or compensation or tO create any provident or benefit fund in such manner as the Board of Directors may deem fit. To estblish Managing (18) From time to time and at any time to establish any Managing Committee. Committee for managing any of the affairs of the company in any o specified locality in India, or out of India, and to appoint any person(s) to be member(s) of such Managing Committee and to fix their remuneration and from time to time and at any time to delegate to any person(s) so appointed any of the powers, authorities and discretion for the time being vested in the Board of' Directors other than the power to make call; and to authorise the members for the time being of any such Managing Committee or any of them to fill up any vacancies therein and to act notwithstanding vacancies, and any such appointment or delegation may be made in such terms, and subject to such conditions as the Board of Directors may think fit and the Board of Directors may at any time remove any person so appointed and may annul or vary any such delegation. To make contracts. (19) To enter into all such negotiations and contracts and rescind and vary all such contracts, execute and do all such acts, deeds and things in the name and On behalf of the company as they may consider expedient for or in relation to any of the matters aforesaid or otherwise for the purposes of the company; and To establish institution, (20) To establish, maintain, support and subscribe to any society, etc. charitable, benevolent, public or general useful objects or any institution, society, or club or nind which may be for the benefit of the company or its employees or may be connected with any town or place where the company carries on its business or any object in which the company may be interested. To borrow or raise or (21) Subject to the approval of the President to borrow or raise or secure the payment of secure the payment of money in such manner as the company shall money subject to the think fit and in particular by executing mortgages and the issue of approval of the President. debentures, or debenture-stock, perpetual or otherwise, charged upon all or any of the companys property (both present and future) including its uncalled capital and to purchase, redeem, or pay off any such securities. To fix terms and conditions (22) To fix tenns and conditions for providing, maintaining and for providing, maintaining operating services provided to the customers. & operating services. SeaL Article 73 - The seal of the company shall not be affixed to any instrument except by the authority of a resolution of the Board of Directors and except in the presence of at least one Director or such other person as thc Board may appoint for the purpose; and the said - Director or the person aforesaid shall sign every instrument to which the seal of the company is so affixed in his presence. PROCEEDiNGS OF THE BOARD Meeting of the Board. Article 74 - A meeting of the Board of Directors shall be held for the despatch of the business of the company at least once in every three months and at least four such meetings shall be held in every year. Director may Article `75 - A Director may at any time convene a meeting of the summon meeting. Board Directors. Questions arising at any meeting shall be decided by majority of votes. The Chairman shall have a second or casting vote in the case of an equality of votes. Notice of meetings. Article 76- (1) Notice of every meeting of the Board of Directors of the Company shall be given in writing to every Director for the time being in India and at his usual address in India to every other o Director. (2) Every officer of the company, whose duty is to give notice as aforesaid and who fails to do so shall be punishable with fine which may extend to one hundred rupees. Quorum for meetings. Article 77 - The quorum for a meeting of the Board of Directors of the Company shall be one-third of its total strength (total strength as determined by the Act and any fraction in that one-third being rounded off as one) or2 Directors, whichever is higher. Chairman of Article 78 - The President may nominate a Director as Chairman Board's meeting- of the Directors' meetings and determine the period for which he is to hold office. If no such Chairman is nominated, or if at any meeting the Chairman is not present within 15 minutes after the time fQr o holding the same, the Directors present may choose one of their number to be the Chairman of the meeting. Power of Quorum. Article 79 - A meeting of the Board of Directors for the time being at which a quorum is present shall be competent to exercise all or any of the authorities, powers,and discretion by or under the Articles of company for the time being vested in or exercisable by the Board of Directors generally. Delegation of powers Article 80- The Board may, subject to the restrictions laid down to comrriittees. in Section 292 of the Act, delegate any ofthcir powers to Committees consisting of such number of their body as they think fit, and may, o from tftnc to time, revoke such delegation. Any Committee so formed, shall in the exercise of the power so delegated, conform to any regulation that may, from time to time, be imposed upon it by the Board of Directors. The proceedings of such a Cormnittee shall be placed before the Board of Directors at its next iriceting. Chairman of meeting Article 81 - A Committee of irectors may elect a Chairman of of committee. their meetings, if no such Chairman is elected or if at any meeting the Chairman is not present within 15 minutes after the time appointed for holding the same, the members present may choose one of their number to be Chairman of the meeting. When acts of Directors or Article 82 - All acts done by any meeting of the Board of Committee valid Directors, or of a Committee of Directors, or by any person acting notwithstanding as a Director shall notwithstanding that it be afterwards disdovered defective appointment, that there was some defect in the appointment of such Directors or persons acting as aforesaid or that they or any of them were or was disqualified, be as valid as if every such person had been duly appointed and was qualified to be Director. Provided that nothing in o this Article shall be deemed to give validity to acts done by a Director after his appointment has been shown to the company to be invalid or to have terminated. Resolution without Board Article 83 - Subject to the provisions of Section 292 of the Act, Meeting valid, resolutions of the Board can be passed by circulation and they shall be as valid and effectual as if they have been passed at a meeting of the Board of Directors duly called and constituted. No resolution shall, however, be deemed to have been duly passed by the Board or by a Committee thereof by circulation unless the resolution has been circulated in draft, together with the necessary papers, if any, to all the Directors, or to all the members of the Committee then in India (not being less in number than the quorum fixed for a meeting of the Board or Committee as the case may be), and to all other Directors or members at their usual address in India, and has been approved by such of the Directors as are then in India or by a majority of such of them, as are entitled to vote on the resolution. RESERVES AND DIViDENDS. Reserve Fund. Article 84 - Subject to Section 205 of the Act, the Board may, before recommending any dividend, set apart out of the profits of' the company such sums as they think proper as a reserve fund to meet contingencies or for equalising dividends, or for special dividends, or o for repairing, improving and maintaining any of the property of the company, and for amortisation of capital and for such other purposes as the Board of Directors shall, in their absolute discretion, think conducive to the interest of the company, and may invest the several sums so set aside upon such investments, (other than shares of the company) as they may think fit from time to time to deal with and vary such investments and dispose of all or any part thereof for the benefit of the company, and may divide the reserve funds into such special funds, as they think fit and employ the reserve funds or any part thereof in the business of the company and that without being bound to keep the same separate from the other assets, Net Profits. Article 85 - The declaration of the Directors as to the amount of net profit of the company shall be conclusive. Dividend, Article 86 - The profits of the company available for payment of dividend subject to any special rights relating thereto, created or authorised to be created by these presents and subject to the provisions of these presents as to the reserve fund and amortisation of capital, shall, with the approval of the President, be divisible among the members in proportion to the amount of capital paid up by them respectively, provided always that (subject as aforesaid) any capital paid up on a share during the period in respect of which a dividend is declared shall only entitle the holder of such share to an apportioned amount of such dividend as from the date of payment. Interim dividend. Article 87 - The Board may, from time to time, pay to the members o o o such interim dividends as in their judgement the position of the company justifies. Capital paid up in advance Article 88 - Where capital is paid up on any shares in advance of calls upon the footing that the same shall carry interest, such capital shall not, whilst carrying interest, confcr a right to participate in profits. ])cclaration of dividends. Article 89 - The company, in general meeting, may declare a dividend to be paid to the members according to their rights and interests in the profits but no dividend shall exceed the amount recommended by the Board of Directors. Dividends out of profits only ArticLe 90 - No dividend shall be declared or paid by the company and not to carry interest, for any financial year except out of profits of the company for that year arrived at after providing for the depreciation in accordance with the provisions of sub-section(2) of Section 205 of the Act or out of prpfits of the company for any previous financial year Or years arrived ax after providing for the depreciation in accordance with those provisions and remaining undistributed or out of both or out of moneys provided by the Government for the payment of dividend in pursuance of a guarantee given by the Government. No dividend shall - carry interest against the company. `7[Debts may be deducted. Article 91 - The Board may retain any dividends in respect of shares on which the company has a lien and may apply the same in or towards satisfaction of' the debts, liabilities or engagements in respect of which the lien exists. No unclaimed dividend shall be forfeited by the Board unless the claim thereto becomes barred by law and the company shall comply with all the provisions of Section 205-A of the Act in respect of unclaimed or unpaid dividend.) Dividends to the Article 92 - Any one of several persons who are registered as the joint holders. joint holders of any share, may give effectual receipts for all dividends and payments on account of dividends in respect of such shares. Dividends-are to be Article 93 - Subject to the provisions of Section 205 of the Act, paid in cash. no dividend shall be payable except in cash. Payment by post. Article 94- Unless otherwise directed, any dividends may be paid by cheque or warrant sent through the post to the registered address of the member or person entitled or in the case ofjoint holders, to the registered address of that one whose name stands first in the register in respect of the joint holding; and every cheque or warrant so sent shall be made payable to the order of the person to whom it is sent. Notice of dividends. Article 95 - Notice of the declaration of any dividend, whether interim or otherwise, shall be given to the holders of registered shares in the manner hereinafter provided. ACCOUNTS. Accounts to be kept. Article 96 - The company shall cause to be kept proper books of accounts with respect to : - (a) alt sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place; (b) all sales and purchases made by the company; `7Anxended vide Special Resolution passed by the shore/widen at t ACM held on 29 September 1992. (c) the assets and liabilities of the company. Inspection of Article 97- The books of account shall be kept at the Registered Accounts Books, Office of the Company or such other place in India as the Board of Directors shall think fit and shall be open to inspection by the - Directors during business hours. Inspection by members. Article 98 - Thc Board of Directors shstll, from time to time, determine whether and to what extent and at what time and places and under what conditions or regulations the accounts and books of' the company or any of them shall be open to inspection of members (not being Directors) and no member (not being a Director) shall have any right of inspecting any account or.book or document of the company except as conferred by law or authorised by the Board of Directors or by the company in general meeting. Annual accounts and Article 99 - Subject to Section 210 (3) of the Act, at the First Annual balance sheets, General Meeting and subsequently at every Annual General Meeting, the Board shall lay before the company, a Balance Sheet arid Profit and Loss Account in the case of the first account since the incorporation of the company, and in any other case since the preceding account made upto a date not earlier than the date of the meeting by more than six months or where an extension of time has been granted for holding the meeting by more than six months and the extension so granted. Annual report of the Article 100 - The Board shall make out and attach to every balance Board of Directors, sheet a report with respect to the state of the company's affairs, the amount, if any, which they recommended should be paid by way of dividend and the amount, if any, which they propose to carry to the Reserv Fund, General Reserve or Reserve Account shown specifically on the balance sheet or to a Reserve Fund, General Reserve or Reserve Account to be shown specifically in a subsequent balance sheet. The report shall be signed by the Chairman of the Board of Directors on behalf of the Directors, authorised in that behalf by the Board, and when he is not so authorised, shall be signed by such number of Directors as are required to sign the balance sheet and the profit arid loss account by virtue of sub-sections (1) and (2) of Section 215 of the Act. Content of profit and Article 101 - Forms of Balance Shccc and Profit and Loss account loss account, shall be in accordance with the provisions of Section 211 of the Act. The Profit and Loss Account shall in addition to the matters referred to in Section 211 of the Act show, arranged under the most convenient heads, the amount of gross income, distinguishing the several sources from which it has been derived and the amount of gross expenditure distinguishing the expenses of the establishment, salaries and other like matters. Every item of expenditure fairly chargeablc against the year's income shall be brought into account so that just balance of profit and loss may be laid before the meeting, and in cases where any item of expenditure which may in fairness be distributed over several years has been incurred in any one year, the whole amount of such ilein shall be stated, with addition of the reason why only a portion of such expenditure is charged against the income of the year. Balance sheet and profit Article 102 - The company shall send a copy of such Balance and loss account to be Sheet and Profit and Loss Account together with a copy of the sent to members, ., Auditor's Report to the registered address of every member of the company and to every holder of debenture/bonds issued by the company in the manner in which notices are to be given hereunder at least twenty-one days before the meeting at which it is to be laid before the members of the company and shall deposit a copy at the Registered Office of the company for inspection of the members of the company during a period of atleast twenty-one days before that meeting. Directors to comply with Article 103 - The Board shall, in all respects, comply with the Sections 209 to 222 of provisions of Sections 209 to 222 of the Act, or any statutory the Act. modification thereof for the time being in force as may be applicable to the company. AUDIT Accounts to be Article 104 Once at least in every financial year the accounts of audited annually, the company shall be examined and the correctness of the Profit and Loss account and Balance Sheet ascertained by one or more auditors. Appointment of auditors. Article 105 - The auditor/auditors of the company shall be appointed or reappointed by the Central government on the advice of the Comptroller and Auditor-General of India and hisltheir remuneration, rights and duties shall be regulated by Sections 224 to 233 of the Act Powers of the Comptroller Article 106- The Comptroller and Auditor General of India shall and Auditor General. have power - (a) to direct the maimer in which the company's accounts shall be audited by the auditor/auditors appointed in pursuance of Article 105 hereof and to give such auditorlauditors instructions in regard to any matter relating to the performance of his/their functions as such. (b) to conduct a supplementary or test audit of the company's accounts by such person or persons as he may authorise in this behalf, and for the purposes of such audit, to have access, at all reasonable times, to all accounts, account books, vouchers, documents and other - papers of the company and to require information or additional information to be furnished to any person or persons so authorised, on such mattcrs, by such person or persons and in such form as the Comptroller and Auditor General may, by general or special order, direct. Comments upon or Article 107 -The auditor/auditors aforesaid shall submit a copy of supplement to audit report his/their audit report to the Comptroller and Auditor General of by the Comptroller & India who shall have the right to comment upon or supplement the Auditor General to be audit report in such manner as he may think fit. Any such comment placed before the annual upon or supplement to the audit report shall be placed before the meeting. Annual General Meeting of the company at the same time and in the same manner as the audit report. A.uditofs right to Article 108 - The auditors of the company shall be entitled to attend meeting. receive notice of and to attend any genei'al meeting of the company at which any accounts which have been examined or reported on by them are to be laid down before the company and may make any statement or explanation they desire with respect to the accounts. When accounts to be Article 109 - Every account of the company when audited and deemed finally settled. approved by a General Meeting shall be conclusive, except as regards any error discovered therein within three months next after the approval thereof. Whenever any such error is discovered within the period, the account shall forthwith be corrected and thenceforth shall be conclusive. NOTICE How notices to be Article 110- A notice may be given by the company to any served on members. member either personally or by sending it by post to him to his registered address; if he has no registered address, to the address, if any, supplied by him to the company for the giving of notice to him. Notifying registered ArticLe 111 - A holder of registered shares who has no registered place of address. place of address, may, from time to time, notify in writing to the company his address, which shall be deemed his registered place of address within the meaning of the last preceding Article. Notice to joint holders. Article 112 - A notice may be given by the company to the joint holders of share by giving the notice to joint holder named first in the register of the share. How notice to be given to Article 113 - A notice may be given by the company to the person deceased or bankrupt entitled to share in consequence of the death or insolvency of a member. member by sending it through the post in a prepaid letter addressed to them by name, or by the title ot' reprcsentative of the deceased, or assignee of the insolvent or by any like description, at the address (if any) supplied for the purpose by the persons claiming to be so entitled or (until such an adclr'ess has been so supplied) by giving notice in any manner in which the same might have been given if the death or insolvency had not occurred. To whom notice of general Article 114- Notice of every general meeting shall be given in meeting to be given, the same manner hereinbefore authorised to (a) every member of the company except those members who, having no registered address, have not supplied to the company an address for giving of notice to them, and also to (b) every person entitled to a share in consequence of the death or insolvency of a member who, but for his death or insolvency, would be entitled to receive notice of the meeting, provided the company has been given due notice. Transferees bound by Article 115 - Every person who by operation of the law, transfer prior notice, or other means whatsoever, shall become entitled to any share, shall be bound by every notice in respect of such share, which previous to his name and address and title to the share being notified to and registered by the company, shall be duly given t0 the person from whom he derives his title to such share. How notice to be signed. Article 116 - The signature to any notice to be given by the company may be written or printed. How time to be counted. Article 117 - Where a given number of days' notke or notices extending over any other period is required to be given, the day of service shall, unless it is otherwise provided, be counted in such number or other period. WTNDLNG UP. Distribution of assets Article 118 - If the company shall be wound up and the assets on winding up. available for distribution among the members as such shall be insufficient to repay the whole of the paid up capital, such assets shall be distributed so that, as early as may be, the losses shall be borne by the members in proportion to the capital paid up or which ought to have been paid up at the commencement of the winding up, on the shares held by them respectively. And if in a winding up, the assets available for distribution among the members shall be more than sufficient to repay the whole of the capital paid up, the excess shall be distribi2ted amongst the members in proportion to the capital paid up, or which ought to have been paid up on the shares held by them respectively. But this clause is to be without prejudice to the rights of thc holders of share issued upon special terms and conditions. SECRECy Secrecy clause. Article 119 - Every Director, Secretary, Trustee for the company, its members, Ot debenture-holders, member of a committee, officer, servant, agent, accounta,, or other person employed in or about the business of the company shall, if so required by the Board before entering upon his duties, sign a declaration pledging l4mself to observe strict secrecy respecting all transactions of the company with its customers and the state of accounts with individuaLs and in matters relating thereto and shall by such declaration pledge himself not to reveal any of the matters which may come to his knowledge in the discharge of his duties except when required so to do by the Board or by any general meeting or by a court of law and except so far as may be necessary in order to comply with any of the provisions contained in these Articles. Restriction on entry Article 120 - No shareholder or other person (not being a Director) upon property. shall be entitled to enter upon the property of the company or to inspect or examine the premises or properties of the company without the permission of the Board or to require discovery of or any information respecting any detail of the trading of the Company or any matter which is or may be in the nature of a trade secret, mystery of trade, or secret process or of any matter whatsoever which may relate to the conduct of business of the company and which in the opinion of the Board it will be inexpedient in the interest of the company tocoimnunicate The President shall, however, be exempt from the provisions of this Article notwithstanding anything mentioned hereinbefore INDEMNYFy AND RESPONSrBmJTY Directors' and others' Article 121 - (i) Subject to the Provisions of Seetion 201 (i) of the, rLghts to indemnity. Compaities Act, every Director, Manager, Auditor, Secretary or other officer or employee of the company shall be indemnified by the company against, and it shall be the duty of the threctors out of the flinds of the company to pay all costs, losses and expenses (including travelling expenses) which any such Director, Manager, Officer or employee may incur or become liable to by reason of any contract entered into or act or deed done by him or them as such Director, Manager, Officer or servant or in any other way in the discharge of his duties and the arnowit for which such indemnity is provided shall immediately attach as a lien on the property of the company and have priority as between the members over all other claims. (ii) Subject a aforesaid every Director, Manager or Officer of the company shall be indemnified `against any liability incurred by him or them in defending any proceedings whether civil or criminaj in which judgement is given in his or their favour or in which he is or they are acquitted or in connection with any application under Section 633 of the Act in which relief is given to him or them by the Court. IndividuaLresponsjbi]iw Article 122 - No Director or other officer of the company shall be of Directors. liable for the acts, receipts, neglects or defaults of any other Director or officer of the company or for joining in any receipt or other act for conforrifity or for any loss or expenses happening to the company through the insWflciency or deficiency of title to any property acquired by the order of the Board of Directors for or on behalf of the company, or for the insufficiency or deficiency of any security in or upon which any of the moneys of the company shall be invested or for any loss or damage arising from the bankruptcy, insolvency or tortious act of any persons with whom any moneys, securities or effects shall be deposited or for any loss occasioned by any error or judgement or oversight on his part or for any other loss, damage or misfortune whatever, which shall happen in the execution of the duties of his office or in relation thereto unless the same happens through his own negligence, default, misfeasance breach of duty, or breach of trust. o CAPITALISATION 1[Power to capitalise. Article 123 - (1) Any General Meeting may upon the recommendation of the Directors, resolve that arty moneys, investments or other assets forming part of the undivided profits of the Company standing to the credit of any of the Company's Reserve Accounts or to the credit of 18 Added Wde Special Resolution passed by the sharefrojder at 0 A GM held on 6 December 199/. Profit and Loss Account or any Capital Redemption Reserve Account or in the hands of the Company and available for dividend or representing premiums received on the issue of shares standing to the credit of the Share Premium Account be capitalised arid distributed amongst such of the members as would be entitled to receive the same if distributed by way of dividend and in the same proportion on the footing that they become entitled thereto as capital and that all or any part of such capitalised funds shalt not be paid in cash but shall be applied subject to the provisions contained in clause (2) hereof on behalf of such member either in or towards - (a) paying up any amounts for the time being remaining unpaid on any share held by such members respectively; or o (b) paying up in full the unissued shares or debentures of the company to be allotted and distributed credited as fully paid up to and amongst such members in the proportions aforesaid; or (c) partly in the way specified in sub-clause (a) and partly in that specified in sub-clause (b); and that such distribution or payment shall be accepted by such members in full satisfaction otheir interest in the capitalised sum. (2) (a)Any moneys, investments or other assets representing premium received on the issue of shares and standing to the credit of Shares Premium Account; (b)if the Company shall have redeemed any. Redeemable Preference Shares, all or any part of any Capital Redemption Fund arising from the redemption of such shares; may by resolution of the Company be applied only in paying up in full or in part any new share or any shares then remaining unissued to be issued to such member of the Company as the General Meeting may resolve upto an amount equal to the nominal amount of the shares so issued. (3) Any General Meeting may resolve that any surplus moneys arising from the realisation of any capital assets of the Company or any investments representing the same or any other undistributed profits of the company not subject to charge for income tax be distributed among the members on the footing that they receive the same as capital. (4) Wbether sucIi resolution under this Article shall have been passed, the Board shall (a) make all appropriations and applications of the undivided prbfit resolved to be capitalised thereby and all allotments and issue of fully paid shares or debentures, if any, and (b) generally do all acts and things required to givo cffcct thereto. (5) The Board shall have full power (a) to make such provisions by the issue of fractional certificate or by payment in cash or otherwise as it thinks fit, for the case of shares or debentures becoming distributable in fractions and that fraction of less value than RcA may be disregarded and also; (b) to authorise, any person to enter on behalf of all the members entitled thereto, into an agreement with the Company o providing for the allotment to them respectively credited as fully paid up, of any further shares or debentures to which they may be entitled upon such capitalisation, or (as the case may require) for the payment of the Company on their behalf by the application thereto of their respective proportions of the profits resolved to be capitalised, or the amounts or any part of the amounts remaining unpaid on their existing shares and may vest any such cash or specific assets in trustees upon - the trust for the person entitled to the dividend or capitalised fund as may seem expedient to the Board. (6) Any agreement made under such authority shall be effective and binding on all such members.]

Name Address, Signature No. of Name, Signature, Description and or Shares Address, Occupation SubscribersEquity Description & Occupation of witness 1. Fresidcnt of India Through Secretary, 00 DaIjit Singh, Dcvendra Department . of Sd/- Kurnar Sangal (S/b. Shri Telecommunications, S/a. Shri Hardhian Jogendar Singh Jam) Secretary. Sanchar Rhavan, Dy. Director New Delhi. General, Telecommunications. OCS, VSB, New Delhi. 2. Shree Shankar Sharan, S/a. Additional Sd/- II) -DO - Late Shri Secretary, Dept. Shambhu Sharan of Telecommunications, Sanchar Bhavan, 20, Ashoka Road, New Dcliii. 3. V. Devarajan, Sb. Late Additional 5db- 10 - DO Shri N. Secretary and Venkataramanan Financial Adviser, Dept. of . Telecommunications, Sanchar Bhavan, New Delhi. 4. K.C. Katiyar, Sb. Director General, 5db- 1 V.D. ICulkarni. Shajanlal Katiyar Overseas Sb. DO. Communications Kulkarni, Service, Bombay. Director (Admn) 005, VSB, M.G. Road, Bombay - 400 001. 5. A.W. Furtado, 5/0. Late AdCII. Director Sd!- I Daljit Shri ItT. General, 5/0. Shri Furtado Overseas Jogendar Singh, Communications Dy. Director Service, YSS, General, 0(3, Bombay. VSB, New Delhi. . 6. J.K. Chhabra., S/s. Shri Director, Dept. of 5db- - DO - D.N. Chhabra Telecommunications, 1 San char Shavan, 20, Ashoka . Road, New Delhi, . 1. S.D. Raheja, Sb. Late Shri Dy. Financial 5db- 1 DO S.R. Adviser, Dept. Raheja of - Telecommunications, - Sanchar Ohavan, 20, Ashoka Road, New Delhi. 3. R.R. Anand, Sb. Late Shri Under Secretary, 5db- I - DO - Gopal Das Dept. of Anand Telecommunications, Sanchar Bhavan, 20, Ashoka Road, New Delhi. 9. K.?. Radhakrishnan Kidave, Under Secretary, Sd!- I - DO - Sb. Shri Dept. of "KQ Kidan . Te+ecommunications, Sanchar Bhavan, . New Delhi. 126 ONE HUNDRED TWENTY SIX

Dated this 12TH DAY OF MARCH, 1936. Place - Bombay. -------- 1 -2INSERTED VIDE SPECIAL RESOLUTION PASSED BY THE SHAREHOLDERS AT 12TH AGM HELD ON 21 SEPTEMBER 1998. 3 - AMENDED VIDE SPECIAL RESOLUTION PASSED BY THE SHAREHOLDERS AT 14TH AGM HELD ON 26 SEPTEMBER 2000. 4 - AMENDED VIDE SPECIAL RESOLUTION PASSED BY THE SHAREHOLDERS AT 14TH AGM HELD ON 21 SEPTEMBER 1998. 5 - AMENDED VIDE SPECIAL RESOLUTION PASSED BY THE SHAREHOLDERS AT 6TH AGM HELD ON 29 SEPTEMBER 1992. 6 - AMENDED VIDE SPECIAL RESOLUTION PASSED BY THE SHAREHOLDERS AT 14TH AGM HELD ON 21 SEPTEMBER 1998 EX-1 4 ex1-3.txt EX-1.3 (THE COMPANIES ACT, 1956) COMPANY LIMITED BY SHARES MEMORANDUM OF ASSOCIATION OF VIDESH SANCHAR NIGAM LIMITED I. The name of the Company is VIDESH SANCHAR NIGAM LIMITED. II The registered office of the Company will be situated in the State of Maharashtra. III Objects for which the Company is established are: A. THE MAIN OBJECTS OF THE COMPANY TO SE PURSUED BY THE COMPANY ON ITS INCORPORATION ARE: 1. Pursuant to an agreement to be entered into to take over the entire management, control, operations and maintenance of the Overseas Communications Service (OCS) of the Department of Telecommunications, Ministry of Communications, Government of India, with all its assets and liabilities including contractual rights and obligations on such terms and conditions as may be prescribed by the Government of India from time to time. 2. To plan, establish, develop, provide, operate and maintain all types of international telecommunication net-works, systems and services including Telephone, Telex, Message Relay, Data transmission, Facsimile, Television, Telematics, Value Added Network Sex-vices, New Business Services, Audio and Video Services, Maritime and Aeronautical Communication Services and other international telecommunications services as are in use elsewhere or to be developed in future. 3. To plan, establish, develop, provide, operate and maintain telecommunications systems and networks within India as are found necessary for international telecommunications. 4. To provide and maintain international leased telecommunication services. 15. To design, develop, install, maintain, operate long distance domestic and international basic and value added telecommunications, global mobile telecommunications, electronic mail services, globally managed data networks, data telecom networks, video conferencing, international gateway networks, satellite networks in and outside India by way of Joint Venture partnerships which should be in conformity with overall licensing conditions defined from time to time by Government of India. 6. To raise necessary financial resources for its development needs for telecommunication services/facilities. B. THE OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN OBJECTS ARE AS FOLLOWS: 7. To collect and settle revenue, rental, leased charges and other charges payable to the Company by persons, companies, agencies and administrations for the services provided and to utilise the same for furtherance of activities of the Company. 1 Inserted as per Special Resolution passed at the 13th ACM held on 30.09.1999 and subsequent clauses 5-57 renumbered as 6-58. 8. To work in consultation with and on behalf of the Ministry of Communications in matters of: (a) Introduction of new services. (b) To enter into agreement with International Telecommunications Satellite Organisation (INTELSAT), International Maritime Satellite Organisation (INMARSAT), Commonwealth Telecommunications Organisations (CTO) as successors to the Overseas Communications Service and with any other telecommunication organisations. (c) To enter into bilateral/multilateral ownership agreements with foreign administrations, communications entities and service agencies for telecommunications. 9. To obtain specific prior approval of the Ministry of Communications in the following cases: (a) Withdrawal of any existing telecommunication service. (b) Fixation, modification, increase or decrease of tariff for telecommunication services provided to the user. (c) Fixation of Terminal Charges to be paid to the Telecom Department for international services. 10. To participate in seminars, expositions and exhibitions and attend meetings of the technical, planning, financial, maintenance, management and administrative committees of international organisations, like International Telecommunication Union, INTELSAT, INMARSAT, CTO, Asia Pacific Telecommunity, Indian Ocean Commonwealth Cable, and India-UAE Cable. 11. To acquire from any person, firm or body corporate whether in India and/or outside India in the public or private sector, technical information, know-how, process engineering, manufacturing and operating data, plans, layouts and blue prints useful for design, erection, construction, commissioning, operation and maintenance of plant and equipment required for any of the business of the Company and to acquire any grant or licence and other rights and benefits in the foregoing matters and things. 12. To buy in India or outside India any plants, equipments and auxiliaries which can be advantageously utilised by the Company to attain its objects and carry on operations or business of any nature which the Company from time to time may deem fit or expedient to carry on in connection with its business at any time being conducted. 13. To build, construct, maintain, enlarge, pull down, remove or replace, dispose off, improve or develop and work, manage, and control any buildings, offices, godowns, warehouses, shops, machinery and plant and telephone exchanges, telex exchanges, message relay systems, microwave stations, repeater stations, telecommunications lines, cables, towers, or any other equipment, plant and machinery connected with design, development, construction, maintenance and operation of telecommunications services and conveniences, which may seem calculated directly or indirectly to advance the interests of the Company and to subsidise, contribute to or otherwise assist or take part in doing arty of these things, and/or to join with any other person and/or company and/or with any Governmental authority in doing any of these things. 14. To establish/construct and maintain or windup branch offices and/or new offices in and outside India as may be necessary to protect and promote the interests of the Company. 15. To carry on the business of manufacture of the equipment required for telecommunication systems, networks and services. 16. To purchase or sell, take or give on lease or licence or in exchange, hire or otherwise acquire or dispose any immovable and/or movable property and any rights or privileges which the Company may think necessary or convenient for the purposes of its business or may enhance the value of any other property of the Company and in particular, any land (freehold, leasehold, or other tenure) buildings, easements, machinery, plant and stock-in-trade and on any such lands to erect and to lend/advance money for the erection of buildings, factories, sheds, godowns or other structures for the works, for purposes of the Company and also for the residence and amenity of its employees, staff and other workmen and erect and instal machinery and plant and other equipment deemed necessary or convenient or profitable for the purposes of the Company. 17. To engage in research, development, study and experiments relating to all the aspects of telecommunications, to collect, prepare and distribute information and statistics relating to any of the aspects pertaining to telecommunications working in India or outside India and to promote or propose such methods, studies and measures as may be considered desirable by or beneficial to the interests of the Company. 18. To receive or pay remuneration, assist and finance in India and/or Outside India any industrial undertaking, project or enterprise, whether owned or run by Government, Statutory Body, private company, firm or individual with capital credit or resources for execution of its work and business by or to the Company. 19. To design, establish, provide, maintain and perform engineering, technical and consultancy services for any administration, person, firm or body corporate, for development of telecommunications projects of all types/descriptions in India and outside India including but not limited to surveys of all types, feasibility reports, detailed project reports, techno-economic investigations, supply of basic engineering and detailed design and making drawings, layouts and blue prints for construction of telecommunication facilities, preparation of tender documents, tender evaluation, purchase assistance, construction, supervision, project management, acceptance testing, commissioning, maintenance, training of personnel and such other services. 20. To receive engineering, technical and management consultancy services for telecommunications but not limited to engineering, commercial, and operational management of telecommunications systems, market research and personnel management. 21. (a) To pay for any rights, facilities and property acquired by the Company and to remunerate any person, company, administration, or body whether by cash payment or by allotment of share, debentures or other securities of the Company credited a. paid up in full or in part or otherwise. (b) To receive payment for any rights, facilities and property provided by the Company and to receive remuneration from any person, company, administration or body either by cash payment, allotment of share, debentures or other securities. 22. Subject to the provisions of the Companies Act, 1956 and directives of Reserve Bank of India, to borrow or raise money or to receive money on deposit or loan including public deposit at interest otherwise in such manner as the Company may think fit and in particular by the issue of the debentures or debenture stock or bonds, perpetual or otherwise, ad which may or may not be convertible into shares, in this or any other company, and to secure the repayment of any such money borrowed, raised or received, or owing by mortgage, pledge, charge or lien upon all or any of the property, assets, or revenue of the Company (both present and future) including its uncalled capital and to give the lenders or creditors the power of sale and other powers as may seem expedient to purchase, redeem or pay off any such securities and also by a similar mortgage, charge of lien to secure and guarantee the performance of the company or any person, firm or company or any obligation undertaken by the Company of any other person, firm or company as the case may be. 23. To issue or guarantee the issue of or the payment of interest on debentures or other security or obligations of any company or association and to pay or provide for brokerage, commission and underwriting in respect of such issue. 24. Subject to the provisions of the Companies Act, 1956 and directives of the Reserve Bank of India, to receive money on deposits for interest or otherwise and to lend or advance money with or without security to such companies, firms or persons and Government departments and on such terms and conditions as may seem expedient and in particular to customers, suppliers and others having dealings with this Company and to guarantee the performance of contracts or obligations by any such persons, companies and firms, provided that the company shall not carry on the business of Banking as defined by the Banking Regulations Act, 1949. 25. To invest and deal with the moneys of the Company not immediately required in manner as may be thought fit and as determined by the Board of Directors of the Company from time to time, 26. To enter into any contracts or arrangements for the more efficient conduct of the business of the Company or any part thereof and to sublet any contracts from time to time. 27. (i) To negotiate and/or enter into agreements and contracts with individuals, companies, corporations, bodies corporate and/or such other organisations in India and abroad including governments and governmental or semi-governmental bodies of other sovereign states, for obtaining or providing know-how or technical and/or financial collaboration or any other such assistance for carrying out any business or transactions which the Company is authorised to carry on and also for the purpose of activating research and development and to acquire or provide, exploit, use necessary formulae inventions, utility models and patent rights for furthering the objects of the Company, subject to Joint Venture guidelines issued by Government as amended from time to time. (ii) Subject to Section 391, 394, and 394A of the Companies Act, 9S6, to amalgamate or take over or merge with Or reconstruct the business of the Company with any other person, organisation, firm, company, body corporate whether incorporated or not and whether registered in India or otherwise, or enter into partnership or into any other arrangement for sharing of profits, union of interest, co-operation, joint venture, reciprocal concession. or co-operation or for limiting competition or otherwise, with any person, persons or company or body corporate or other organisations carrying on or engaged in or about to carry on, or engage in or being authorized to carry on or to bifurcate one or more units of the Company in one or more companies for the interest of the Company and to give or accept by way of consideration for any of the acts or things aforesaid or property acquired, any shares, debentures, debenture-stock or other debt instruments or securities including futures, options, derivatives that may be agreed upon, and to hold and retain, sell, mortgage, pledge, encumber and deal with any shares, debentures, debenture-stock or securities, options, futures, derivatives, instruments so received or offered. Provided that the merger and acquisition to arrived at may not in any way effect the majority interest of the 2 Amended as per Special Resolution passed at the 13" ACM held on 30.09.1999. Government of India unless otherwise approved. Provided further that Government of India approves and the scope of the business will be those which the Company is authorised to carry on. 28. To distribute or otherwise as may be resolved, any property or assets of the company or any proceeds of sale or disposal of any property or assets of the company in case of winding up of the company, including the shares, debentures or other securities or any other securities of any other company formed to take over the whole or any part of the assets or liability of the company so that no distribution amounting to a reduction of capital may be made except with the sanction of (if any) for the time being required by law and subject to the provisions of the Companies Act in the event of winding up. 29. To vest any immovable or movable property, rights or interests acquired by or belonging to the company in any person or company on behalf of or for the benefit of the company and with or without any declared trust in favour of the company. 330. To carry on the business which the Company is authorised to carry on by means or through the agency of any subsidiary company or other associate or affiliate companies or other business organisation in India or abroad and to enter into any arrangement with any such company for taking the profits and bearing the losses of any business so carried on or for financing any such company or business organisation or guaranteeing its liabilities or obligations or to make any other arrangements which may seem desirable with reference to any other business so carried on by the Company with a power at any time to close any such business either temporary or permanently and or to appoint Directors or Managers or 3 Amended as per Special Resolution passed at the 13b ACM held on 30.09.1999. administrators of any such company or business organisations. 31. To generally do and perform all the above acts and such other things as may be deemed incidental or conducive to the attainment of the above objects or of any of them. 32. To buy, sell and deal in minerals, plant, machinery, implements, conveniences, provisions and things capable of being used in connection with the business of the company. 33. To purchase, create, generate, or otherwise acquire, use, sell or otherwise dispose of, electric current and electric, steam and water power of every kind and description, and to sell, supply or otherwise dispose of, light, heat and power of every kind and description. 34. To acquire and take over all or any part of the business, goodwill, property and other assets, and to assume or undertake the whole or any part of the liabilities and obligations of any person, form, association or corporate body or Government department carrying on a business which the company is or may become authorised to carry on, and to pay for the same in cash, shares, stocks, debentures or bonds of the company, or otherwise and to hold, manage, operate, conduct, and dispose of in any manner, the whole or any part of any such acquisitions and to exercise all the powers necessary or convenient in and about the conduct and management thereof 35. To merge, amalgamate or consolidate with any corporate body heretofore or hereafter create in such manner as may be permitted by law. 36. To cause the company to be registered or recognised in any part of the world. 37. To make, draw, accept, endorse, discount, execute and issue cheques, promissory notes, hundies, bills of exchange, bills of ladings, warrants, debentures, and other negotiable or transferable instruments/securities. 38. To do all or any of the above things and all such other things as are incidental or may be thought conducive to the attainment of the above objects or any of them and as principals, agents, contractors trustees or otherwise and either along or in conjunction with others. 39- To carry out or to have carried out experiment ad research in laboratory, pilot plant and on industrial scale, and to incur expenses necessary therefor with a -view to improve on the present method and process of working the several business activities which the company is authorized to carry on. 40. To apply for purchase, or otherwise acquire, and protect and renew in any part of the world any patents, patent rights, bravet d'inventions, trade marks, designs, licences, concessions and the like, conferring any exclusive or non-exclusive or limited rights, their use, or any secret or other information as to any invention which may seem capable of being used for any of the purposes of the company or the acquisition of which may seem calculated directly or indirectly to benefit the company, and to use, exercise, develop or grant licences in respect of, or otherwise turn to account the property, rights or information so acquired, and to expend money in experimenting upon, testing or improving any such patents, inventions or rights and without prejudice to the generality of the above, any contracts, or in relation to the supply and sale of any materials, articles or things for or in relation to the construction, execution, carrying out, improvement, management, administration or control of any works and conveniences required for the purpose of carrying out any of the aforesaid business and to undertake, execute, carry out, dispose of or otherwise turn to account such contracts. 41. To sell, dispose of or transfer any building, industrial undertaking, projects or factory to any company or association or concern carrying on similar business on such terms and conditions as may be determined by the company. 42 To acquire from any Government (Central, State, Local or Foreign) or public body, persons, authority, or from any private individual any concessions, grants, decrees, rights, powers and privileges whatsoever which may seem to the company directly or indirectly conducive to any of its objects or capable of being carried on in connection with its business and to work, develop, carry out, exercise and turn to account the same and to oppose any proceedings or applications which may seem calculated directly or indirectly, to prejudice the company's interests. 43. To provide against payment of charges or fees as may be prescribed from time to time, residential and/or resting accommodation, medical and welfare facilities for the employees of the company and in connection therewith to afford to such persons, facilities and conveniences for transport, washing, bathing, cooking, reading, Writing and for the purchase, sale and consumption of provisions, both liquid and solid and for the safe custody of goods. 44. To exchange, sell, convey, assign or let on lease or grant licence for the whole or any part of the company's immovable properties and to accept as consideration or in lieu thereof other land or cash or Government securities, or securities guaranteed by Government or shares in joint stock companies or partly the one and partly the other or such other property Or securities as may be determined by the company and to take back or re-acquire any property so disposed of by rep purchasing or obtaining a licence or lease on such price or prices and on such terms and conditions as may be agreed upon. 45. To employ foreign or other technicians, experts, advisers, or consultants, or to lend the services or the employees of the company on a contract basis for the furtherance of company's objectives aforesaid. 46. (a) To train and pay for the training in India or abroad of any of the company's employees under such terms and conditions as may be prescribed from time to time, and to establish, maintain and operate training institutions for its employees. (b) To provide attachment or training facilities to Indian or foreign nationals on the terms and conditions agreed upon. 47. To improve, manage, develop, grant rights or privileges in respect of, or otherwise deal with, all or any part of the property and rights of the company. 48. To promote and form and to be interested in and take hold and dispose of shares in other companies having objects in whole or in part similar to those of the company and to transfer to any such company any property of this company, and to take or otherwise acquire, hold and dispose of shares, debentures and other securities in or of any such company and to subsidise or otherwise assist any such company. 49. To pay out of the funds of the company all costs, charges and expenses which the company may lawfully incur with respect to the promotion, formation and registration of the company or which the company shall consider to be preliminary including therein the cost of advertising, printing and stationery, expenses attendant upon the formation of agencies, branches and local boards. 50. To establish and maintain or procure the establishment and maintenance of any contributory provident funds, contributory or non-contributory pension or superannuation funds for the benefit of, and give or procure the giving of donations, gratuities, pension, bonus, annuities or other allowances or emoluments to any persons who are or were at any time in the employment and/or service of the company, or of any company which is a subsidiary of the company or is allied to or associated with the company or with any such subsidiary company or who are or were at any time the Directors or officers or staff of the company or of any such other company as aforesaid, and the employees or ex-employees of the company or Government department formerly engaged in any business acquired by the company and THE WIVES, WIDOWS, families and dependants of any such persons, and also establish and subsidise and subscribe to arty charitable or public object, institutions, society, associations, clubs or funds and by providing or subscribing or contributing toward places of instruction and recreation, hospitals and dispensaries, medical and other attendance and by building or contributing to the building of houses, dwellings, calculated to the benefit of or to advance the interests and well being of the company or of any such other company or department as aforesaid or its employees and to make payment to or towards the insurance of any such person as aforesaid and to any of the matters aforesaid either alone or in conjunction with any such other company as aforesaid. 51. To create any depreciation fund, reserve fund, sinking fund or any other special fund, whether for depreciation or for repairing, improving, extending or maintaining any of the property of the company or for any other purpose conducive to the interest of the company. 52. To adopt such means of making known the business of the company or in which the company is interested as may seem expedient and in particular by advertising in the press, circulars, publication of books and periodicals, audio arid audiovisual media, exhibitions and by granting prizes, rewards and concessions. 53. To enter into, make and perform contracts and arrangements of every kind and description for any lawful purpose with any person, firm, association, corporate body, municipality, body politic, territory, province, state, Government or colony or dependency thereof, without limit as to amount, and to obtain from any Government or authority any rights, privileges, contracts and concessions which the company may deem desirable to obtain, and to carry out, exercise or comply with any such arrangements, rights, privileges, contracts and concessions. 54. To subscribe or guarantee money for any national, charitable, benevolent, public, general or useful object or for any exhibition, or for any purpose which may be considered likely directly or indirectly to further the objects of the company or the interest of its members. 55. To layout and prepare any land for any kind of athletics, sports and for the playing of such sports or kind of amusement or entertainment and to construct the stands and buildings and conveniences for use in connection therewith. 56. To act as agents and as trustees for any person or company and to undertake and perform sub-contracts and to do all or any of the above things in any part of the world and as principals, agents, contractors, trustees or otherwise and by or through agents, sub-contractors, trustees or otherwise and either alone or jointly with others in connection with the business of the company. C. OTHER OBJECTS. 57. To purchase or otherwise acquire and to hold, own, invest, trade and deal in, mortgage, pledge, assign, sell, transfer Or otherwise dispose of goods, equipment, machinery, wares, merchandise and personal property of every class and description and to transport the same in any manner. 58. To carry on the business of a store keeper in all its branches and in particular, to buy, sell and deal in goods, stores, consumable articles, chattels and effects of all kinds, both wholesale. and retail. IV. The liability of the members is limited. 4V. The authorised Share Capital of the Company is Rs.300,00,00,000/- (Rupees Three Hundred Crore) divided into 30,00,00,000 (Thirty Crore) Equity Shares of Rs.l0/- (Rupees Ten) each with the rights, privileges and conditions attaching thereto as may be provided by the Articles of Association of the Company for the time being. 4 Amended vide Ordinary Resolution passed by the shareholders at 14th AGM held on 26 September 2000. We, the several persons whose names and addresses are subscribed, are desirous of being formed into a company in pursuance of this Memorandum of Association and we respectively agree to take the number of shares in the capital of the company set opposite our respective names.

Name Address, Signature No. of Shares Name, Signature, Description and of Equity Address Occupation Subscribers Description & Occupation of witness 1. President of Secretary, Sd/- 100 Daljit Singh,S/u. India Through Department of Shri Jogenclar Devendra Kumar Telecommunications, Singh.Dy. Sangsl (Sb. Sanchar Shavan, Director Shri Hardhian New Delhi. General,OCS, VSB, Singh Jain) New Delhi. Secretary, Telecommunications. 2. Shree Shankar Additional Sd/- 10 -DO- Sharan, S/o. Secretary, Dept. Late Shri of Shambhu Sharan Telecommunications, Sanchar Bhavan, 20, Ashoka road, New Delhi 3 V. Devarajan, Additional Sd/- 10 -DO- S/o, Late Shri Secretary and N. Financial Venkataramanan Adviser, Dept. of Telecommunications, Sanchar Bhavan, New Delhi 4 K.C. Katiyar, Director General, Sd/- 1 V.D. Kulkarni, S/o Bhajanlal Overseas S/o D.G. Katiyar Communications Kulkarni, Service, Bombay Director (Admn OCS, VSB, M.G. Road, Bombay - 400 001 5. A.W. Furtado, Addl. Director Sd/- 1 Daljit Singh, S/o. Late Shri General, Overseas S/o, Shri R.T. Furtado Communications Jogendar Singh, Service, VSB Dy. Director Bombay General, OCS, VSB, New Delhi. 6 J.K Chhabra, Director, Dept. Sd/- 1 -DO- S/o Shri D.N. of Chhabra Telecommunications, Sanchar Bhavan, 20, Ashoka Road, New Delhi 7 S.D. Raheja, Dy. Financial Sd/- 1 -DO- S/o. Late Shri Adviser, Dept. of S.R. Raheja Telecommunications, Sanchar Bhavan, 20, Ashoka Road, New Delhi 8 R.R. Anand, Under Secretary, Sd/- 1 -DO- S/o. Late Shri Dept. of Gopal Das Anand Telecommunications, Sanchar Bhavan, 20, Ashoka Road, New Delhi 9 K.P. Under Secretary, Sd/- 1 -DO- Radhakrisnan Dept. of Kidave, S/o Telecommunications, Shri K.G. Kidave Sanchar Bhavan, New Delhi -------------- 126 ONE HUNDRED TWENTY SIX EQUITY

Dated this 12th Day of March, 1986 Place - Bombay EX-4 5 ex4-2_661847v2.txt EX-4.2 CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED BASED ON A REQUEST FOR CONFIDENTIAL TREATMENT OMITTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION EXHIBIT 4.2 04/01/01 Memorandum of Agreement International Telecommunications Services between Videsh Sanchar Nigam Ltd. And CONCERT GLOBAL NETWORK SERVICES LIMITED Accounting Rate and Division of Revenue This memorandum dated April 1, 2001 represents an agreement between Videsh Sanchar Nigam Ltd. (VSNL) and Concert Global Network Services Limited ("Concert") to apply the following Total Accounting Rate for Telephone Service between VSNL in India and Concert in the United States, which includes Alaska, Hawaii, Puerto Rico and the US Virgin Islands. EFFECTIVE DATE ACCOUNTING RATE CARRIER CONCERT --------------- ---------------- ---------------- ---------------- April 1, 2001- March 31, 2002 $[text redacted] $[text redacted] $[text redacted] The accounting rate shall be applied to each conversation minute of use and shall be shared equally. Minutes of traffic upon which settlements are paid will be measured using accumulated seconds. The concurrence below evidences the intent of the regional representative of Concert to present this agreement for approval by Concert's duly authorized representative. This agreement shall become binding only upon execution by the duly authorized representatives of Concert and VSNL, and, where applicable, upon submission and/or acceptance of the agreement by regulatory authorities. Concurred on behalf of Concert: Approved on behalf VSNL /S/ JOY DALLEY /S/ S.S. BODH ----------------------------------- ----------------------------------- Name: Joy Dalley Name: S. S. Bodh Title: Regional Route Management Title: General Manager Date: APRIL 1, 2001 Date: 19/4/2001 -------------------------- -------------------------- Approved on behalf of Concert: /S/ MICHAEL KARL FOR --------------------------------------- Name: Thomas Luciano Title: Vice President, Traffic and Route Management-ICS Date: 1 JUNE 2001 ------------------------------------------------- EX-4 6 ex4-3_662036v2.txt EX-4.3 CERTAIN PORTIONS OF THIS EXHIBITS HAVE BEEN OMITTED BASED ON A REQUEST FOR CONFIDENTIAL TREATMENT OMITTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSI EXHIBIT 4.3 MEMORANDUM OF AGREEMENT BETWEEN VIDESH SANCHAR NIGAM LIMITED (VSNI/INDIA) AND CONCERT GLOBAL NETWORK SERVICES LIMITED (CONCERT/U.K.) 1. This memorandum between VSNL and CONCERT (U.K.) represents an agreement by VSNL and CONCERT to apply the following accounting rates and settlement methods as specified below in paragraph 2 for settlement of International Telephone service between India and the United Kingdom. 2. Total Accounting rates and the settlement of international telephone service are agreed for the period beyond April 1, 2001 as follows: 2.1 Period of Applications Accounting Rates on Sender pays transit basis 1.4.2001 TO 31.3.2002 SDR.[text redacted] per Sender Pays Transit 2.2 Accounting/Settlement period Monthly basis 3. The application period's accounting rates shall be applied to each conversation minute of international switched service (subscriber-dialed, operator-handled). 4. This agreement supersedes all prior agreements on the subject as indicated above between VSNL and CONCERT (U.K.). This agreement shall become binding upon execution by the duly authorized representative of CONCERT (U.K.) and VSNL and where applicable upon submission and/or acceptance of the agreement by regulatory authorities. The concurrences below evidences the intent to present this agreement for the approval by CONCERT's (U.K.'s) duly authorized representative. Concurred to on behalf of CONCERT (U.K.) /S/ASHOK SAPRA ---------------------------------------- Name: ASHOK SAPRA Title: President Date: Place: New Delhi, India Approved on behalf of VSNL Approved on behalf of CONCERT (U.K.) /S/ S.S. BODH /S/ MICHAEL KOCH FOR -------------------------------------- ---------------------------------------- Name: S.S. BODH Name: Thomas Luciano Title Chief General Manager (F&A) Title: V.P. - Global Wholesale Date: 17 June 2001 Date: 2 July 2001 Place: Mumbai, India Place: Hamilton, Bermuda EX-4 7 ex4-4_662040v2.txt EX-4.4 CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED BASED ON A REQUEST FOR CONFIDENTIAL TREATMENT OMITTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION EXHIBIT 4.4 EMIRATES TELECOMMUNICATIONS CORPORATION [ETISALAT] HEAD OFFICE - ABU DHABI P.O. Box 3838 Abu Dhabi United Arab Emirates INTERNATIONAL BUSINESS RELATIONS Telex (893) 23555 IBRETC Fax: +971 26336700 Telephone: +971 2208458 TELEFAX MESSAGE FROM: MOHAMED [Illegible] M.S. AL SHARHAN TO: VSNL India ATTN: S.S. Bodh, Chief General Manager Finance FAX NO.: +91 22 269 052/262 5616/269 6052 TO: Teleglobe Canada, Abu Dhabi Office ATTN: Radwan Moussalli, President, Regional Director FAX NO.: +02 6272 624 TO: TELEGLOBE CANADA, Montreal ATTN: Monique Bellerose, Switched Transit Marketing FAX NO.: +91 514 868 7041/7275/7919/7234/7451/7729/7111/7033 OUR REF: MHB/TAR/T101/India/T [Illegible] 1143 Date: 3rd June, 2000 SUBJECT: TELEPHONE SERVICE BETWEEN UAE/INDIA VIA CANADA Further to our agreement to reduce the TAR between UAE and India to SDR [text redacted] applying Sender Pays transit for all overflow routes. Please note that since the termination share of the destination administration is fixed at SDR [text redacted], we have also updated our records for the subject service applying the fixed terminal share of SDR [text redacted] w.e.f. 1-Jun.-2000. Direct accounting to apply. Both administrations are kindly requested to update their records and acknowledge. Best regards, /s/ Mohamed [Illegible] M.S. Al Sharhan EX-4 8 exhibit4-6.txt EX-4.6 MEMORANDUM OF UNDERSTANDING BETWEEN VIDESH SANCHAR NIGAM LIMITED AND MINISTRY OF COMMUNICATIONS DEPARTMENT OF TELECOMMUNICATIONS FOR THE YEAR 2001-2002 PREAMBLE Whereas the Government will provide necessary and required support and assistance, VSNL will be accountable for results and achievement of its targets. This MOU is intended to support VSNL and make the organisation accountable in achieving its long-term objectives as well as short-term plans by optimal utilisation of its resources and enhancement in the level of operational efficiency, productivity and other parameters of corporate performance. This MOU has the following Sections: SECTION I MISSION, BROAD GOALS & OBJECTIVES SECTION II COMMITMENTS OF VSNL FOR THE YEAR 2001-02 SECTION III DELEGATION OF POWERS SECTION IV ASSISTANCE FROM THE GOVERNMENT SECTION V FREQUENCY OF MONITORING AND INFORMATION FLOW * * * * * SECTION - I MISSION TO CREATE A GLOBAL AND SEAMLESS NETWORK OF INFORMATION SUPER HIGHWAYS; TO CONNECT PEOPLE AND COMPUTERS COST EFFECTIVELY AND EFFICIENTLY; ANYTIME, ANYWHERE. BROAD GOALS AND OBJECTIVES (1) To plan and provide full range of telecommunications services including Value Added Services like Business Network, High Speed Leased Line Services etc., from VSNL Gateways in India to all parts of the world to users at sea, on land and in air. (2) To develop sound marketing strategy with cost effective solutions. (3) To seek, promote and foster excellence amongst the work force, improve productivity, update human and machine capabilities. (4) To continuously enhance quality of service and to continue to improve shareholder value. (5) To actively seek expansion of company's operations through joint ventures also for entering new areas such as International Value Added Services, Regional hubbing of traffic and to position India as a major regional telecommunications operator in order to achieve the Gross Margin as projected. (6) To achieve and maintain high degree of customer confidence by continuous upgradation of technology, service performance and prompt attention to customers. SECTION - II COMMITMENTS OF VSNL FOR THE YEAR 2001-02 In fulfillment of its commitments under MOU, VSNL undertakes to achieve performance targets as under:-

---------------------------------- -------------- --------- ------------------------------------------------------ ----------------- CRITERIA VALUE CRITERIA UNITS WEIGHT * ** BE (PSE) ---------------------------------- -------------- --------- ------------------------------------------------------ ---------------- ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------------- 1 2 3 4 5 ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ----------------- ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ HIGH LOW 2000-01 2000-02 ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ ------------------------------------------------------------------------------------------------------------------------------------ I PHYSICAL ------------------------------------------------------------------------------------------------------------------------------------ ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ (1) Telephone Mrts. Million 9% 2994.30 2851.71 2709.12 2573.67 2444.98 2480 2851.71 ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ (2) Leased Voice/Data Circuits Nos. 3% @4066.00 3800 3610 3430 3258 900 3800 (including high speed circuits, 64 K and equivalent) ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ ------------------ --------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ (3) Internet Bandwidth Mbps 5% @1578.25 1475 1401 1330 1264 - - ------------------ --------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ ------------------ --------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ Subscriber Nos. 2% @784738 733400 696730 661894 628799 476000 733400 ------------------ --------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ (4) Paid minutes per employee Minutes 3% 3207 3055 2902 2757 2619 2664 3055 per day ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ (5) Project implementation # Refer Annex 3 8% 1 2 3 4 5 - - ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ ------------------------------------------------------------------------------------------------------------------------------------ II FINANCIAL: ## ------------------------------------------------------------------------------------------------------------------------------------ ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ (6) Cross Margin (Profit before Rs. Million 26% 24130.75 22512.44 20894.12 19356.73 17896.20 23927 22512.44 Interest, Tax and Depreciation) ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ (7) Net Profit after tax)/Capital Percentage 26% 17.38 16.24 15.09 14.00 12.96 23.55 16.24 employed x 100 ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ (8) Sundry Debtors (traffic) to Percentage 4% 35 40 43 46 49 - - Cross revenue ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ Profit after tax Rs. million 15059.02 14063.75 13068.49 12122.99 11224.77 16062.70 14063.75 ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ ---------------------------------- -------------- --------- ------------------------------------------------------ ---------- ------ Capital employed Rs. million 86622.78 68218 86622.78 (at the end of the year) ---------------------------------- -------------- --------- ------------------------------------------------------ ---------- ------ ------------------------------------------------------------------------------------------------------------------------------------ III QUANTATIVE:- ------------------------------------------------------------------------------------------------------------------------------------ ------------ ---------- ---------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ Metro 1% 53.75 51.25 48.69 46.25 43.93 - - (9) ASR (a) Percentage Incoming ------------ ---------- ---------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ ------------ ---------- ---------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ Rest of 1% 33.6 32 30.4 28.9 27.45 - - India ------------ ---------- ---------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ ------------ --------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ (b) Outgoing 2% 54.07 51.5 48.9 46.48 44.16 - - ------------ --------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ (10) Network availability Percentage 2% 99.0 98.7 98.4 98.1 97.8 - - ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ (11) Consumer satisfaction Percentage 5% 1 2 3 4 5 - - ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ (12) Timely submission of draft Date 1% Before Before Before Before Before - - MOU Dec. 24, Dec. 27, Dec. 29, Dec. 31, Dec. 31, for 2002-03 2001 2001 2001 2001 2001 ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ (13) Timely submission Composite Date 1% Before Before Before Before Before - - ______ for MoU 2001-02 on the April May 2, May 4, May 6, May 8, basis of 30, 2001 2001 2001 2001 provisional data 2001 ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------ (14 Timely signing of MoU for Date 1% Before April 1, April 6, , April 11, Beyond - - 2001-02 April 1, 2001 2001 2001 April 11, 2001 2001 ---------------------------------- -------------- --------- --------- --------- ----------- ----------- ---------- ---------- ------

NOTES. Effect on Declining Settlement Rates and illegal flow of telephony traffic through Data circuits has not been taken into account. Normal variations/escalations in inputs have been taken into account while working out MoU targets. ** Notes on weightage for different parameters are in Annexure 1. * Explanatory notes on the above criteria and the criteria values are in Annexure 2. # For details of projects refer Annexure 3. ## Foreign Exchange Earnings out of traffic revenue (gross) as per BE 2001-02 is estimated to be Rs. 42.611.63 million equal to US$926.34 million. Foreign Exchange Cost out of traffic cost (gross) as per BE 2001-02 is estimated to be Rs.13424.3 million equal to US $291.83 million (at an exchange parity rate of US $1 = Rs.46). Net foreign exchange earnings works out to Rs.29,187.38 million equivalent to US $ 634.51 million. @ For these performance criteria Level 1 values are 107% of Level 2 values as discussed in ATF meeting held on 20 February 2001. Data on the above performance indicators for last 5 years is given in Artnexure 4. ASSUMPTIONS: a) The financial parameters are agreed to be kept at the same level as BE figures, with specific assumption that during the year collection rates for international telephony shall be reduced as proposed in the discussion paper issued by TRAI. If that does not happen, level two figures for financial parameters shall stand reduced proportionately to be on par with the figure of telephone paid minutes of 285l.7lmillion at level 2 with 5% variation at other levels b) In order to achieve the projected level of Financial Parameters, and for the purpose of maximising the asset utilisation, the Company shall be allowed equal opportunity to participate in joint ventures to provide basic long distance and value added services. SECTION - III DELEGATION OF POWERS All the powers to be delegated to MOU signing companies as well as to `Navaratna' companies as per the notifications issued by the Government from time to time shall accrue to VSNL. SECTION - IV ASSISTANCE FROM THE GOVERNMENT 1. Department of Telecom will provide all possible assistance to VSNL within the overall policy framework of the Government. 2. The existing revenue sharing formula between VSNL and BSNL will be valid up to 31.03.2002 as already agreed. 3. Facilities will be provided as may be necessary, to enable VSNL to provide International Calling Card services and associated value added services. SECTION - V FREQUENCY OF MONITORING AND INFORMATION FLOW Performance of VSNL will be evaluated by its achievements against the targets given in this MOU. The quarterly report on the achievements against the above targets would be sent by VSNL to DPE/DOT within 30 days of the close of the quarter. VSNL will indicate reasons for shortfall, if any, in achieving the targets in these reports. S.K. GUPTA SHYAMAL GHOSH Chairman & Managing Director Secretary, Department of Telecom & Videsh Sanchar Nigam Limited Chairman, Telecom Commission Mumbai. New Delhi. Dated : 28 March, 2001 Place : New Delhi ANNEXURE - 1 NOTE ON WEIGHTAGE GIVEN FOR DIFFERENT PARAMETERS. ------------------------------------------------ 1. VSNL's overseas telecommunications functions provide telephony, telex, telegraphy and other services to Indian customers. However, the telephony service dominates in the overall business in terms of volume of revenue earned to the extent of about 90% of the total revenue. Weightage given to this is 9%. Leased voice/data service which is now gaining importance is given weightage of 3%. 2. Parameter for Internet is split in two parts, viz. internet bandwidth and number of Internet customers, with 5% and 2% weightage respectively. 3. The improvement in productivity of employees is reflected under the criteria 4. Weightage given is 3% as per discussions at ATF 4. In line with the guidelines issued by the Government, parameters of gross margin and Net profit to capital employed ratio have been included. However, weightage given to these parameters are 26% for criteria 6 and 26% for criteria 7 as per the discussions in ATF. 5. VSNL being a service oriented organisation, the quality of service provided is reflected under criteria Nos. 9 and 10 which show, up and running hours of the network and adequacy of network facilities to satisfy customer demands. 6. Customer satisfaction (criteria 11) is a prime parameter for any service organisation like VSNL. Customer satisfaction is evaluated through an assessment by art independent organisation. 7. Criteria 12, 13 & 14 regarding timely submission of MOU etc. have been added as per DPE's requirement with total weightage of 3%. ANNEXURE - 2 EXPLANATORY NOTES ON CRITERIA AND CRITERIA VALUES 1. TELEPHONE PAID MINUTES 2851.71 million telephone paid minutes has been taken at level 2, presuming 15% growth over 2000-01 level 2 figure of 2480 telephone paid minutes of telephone traffic. 5% variation is presumed for each level from 1 to 5. 2. LEASED VOICE/DATA CIRCUITS The number of Voice/data circuits (including high speed circuits, 64k and equivalent) at the end of the year 2001-02 is expected to be 3800 circuits and is shown at level 2. A variation of 7% is shown for Level I and 5% progressively at other levels as per discussions in ATF held on 20 February 2001. 3. INTERNET SUBSCRIBERS (a) A number of 733,400 is taken to be the number of Internet subscribers as of 31 March, 2002 as level 2 figure, variation of 5% is taken for the other levels. Variation of 7% is taken on Level I and 5%. for all other levels as per discussions in ATF held on 20 February 2001. (b) As discussed in ATF last year, Bandwidth parameter is continued. Bandwidth of 1475 is taken at level 2. Variation of 7% is taken on Level I and 5% for all other levels as per discussions in ATF held on 20 February 2001. 4. PAID MINUTES PER EMPLOYEE PER DAY The term "paid minutes" is defined as the sum of a) Total telephone paid Minutes; b) Total telex paid Minutes (for each level from high to low in million paid minutes 7.4, 7.05, 6.70, 6.36 and 6.04); c) Total GPSS connect time (for each level from high to low in million paid minutes 3.15, 3.0, 2.85, 2.70 and 2.57) 300 days are reckoned in a year. The volume of paid minutes at each level is divided by estimated number of employees i.e. 3123 (Average of estimated number of employees as on 31.3.2001 - 3075 and estimated number of employees as on 31.3.2002 -- 3170. Resulting figures of per employee per day are shown at respective levels. 5. PROJECT IMPLEMENTATION Important projects whose implementation has got direct bearing on the performance of the Company are identified (Annexure 3). As directed by DPE afler ATF meeting, month of completion at levels 1 to 5 are indicated. If the date of completion of a particular project stage falls between months mentioned at any two levels, score will be calculated based on the month mentioned against the nearest level, total score culminating in to a consolidated score between 1 to 5. Each project will carry equal weightage. 6. GROSS MARGIN Gross margin is taken as the excess of Traffic Revenue, Revenue from Intelsat/Inmarsat and other income over direct expenses. It is profit before interest, tax and depreciation. BE 2001-02 figure of Rs.22512.44 million appears at level 2 with due variation at other levels. 7. NET PROFIT TO CAPITAL EMPLOYED Net profit is profit after tax. The capital employed of Rs.86622.78 million is estimated as at end of the year and is worked out as fixed assets including capital work in progress plus investment in Intelsat and Inmarsat and net current assets. The commercial investments and return on the same have been excluded. Indicated figure is ratio of profit after tax to capital employed. 8. SUNDRY DEBTORS (TRAFFIC) TO GROSS REVENUE IN PERCENTAGE ------------------------------------------------------- In international telecommunication business, as per CCITT arrangements, the traffic figures in paid minutes/paid words for different services are exchanged between different administrations on a monthly basis. After reaching an agreement on the quantum of the traffic volume for each service, the accounts are settled by applying the agreed Total Accounting Rate (TAR) between India and corresponding foreign administrations on a quarterly basis. Thus, theoretically, only nine months of traffic data would be exchanged before the close of the year. However, the acceptance of the traffic figures and effecting of the payment will take further time, say about another 3 months. Thus, theoretically; collection of a maximum of only 50% of yearly net revenue could be achieved in a year from foreign administrations. The quantum of settlement relates not only between VSNL and foreign administrations but also between VSNL and DTS, for the account towards domestic portion of the traffic. As the percentages of sundry traffic debtors is worked out to gross revenue and after assuming that revenue from DTS has been realised/adjusted, around 40% of Gross revenue will remain outstanding in a year. This figure, which is a BE figure, has been shown at level 2 with due variation at other levels. 9. CALL COMPLETION PERFORMANCE - ASR (INCOMING & OUTGOING) ------------------------------------------------------ The parameter indicates call clearance in both inward and outward direction of international exchanges. The Answer to Seizure Ratio (ASR) of calls through the exchanges in both the directions are calculated based on sample day readings taken once in a month in both directions from/to the top ten countries. The annual ASR in percentage in both directions is calculated based on the average of samples of twelve months separately for incoming and outgoing traffic. 10. NETWORK AVAILABILITY Network performance is judged as availability of trunks excluding outages due to DTS link failures at the international Gateway Exchanges to put through telephone calls to foreign destinations. The availability figures based on the level achievable corresponding to down time of 5 Hours, 7 Hours, 9 Hours, 11 Hours and 13 hours in a month are indicated respectively at levels 1, 2, 3, 4 and 5. The parameter will be evaluated by judging the performance at all the four gateway exchanges for the top ten countries. 11. CUSTOMER SATISFACTION Customer satisfaction will be evaluated through an assessment to be carried out by an independent agency of national standing. 12 to Criteria for timely submission of MOU, Performance evaluation for MOU, and 14 timely signing of MOU have been added as required by DPE. ANNEXURE -3 PROJECTS WHOSE PROGRESS OF IMPLEMENTATION DURING THE YEAR 2001-02 WOULD BE VITAL FOR VSNL PERFORMANCE. -----------------------------------

---------------------------------------------------------------------------------------------------------------------------------- No Name of the Project Level 1 Level 2 Level 3 Level 4 Level 5 ---------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------- 1. Establishment of ATM Gateway Nodes - Commencement ugust 2001 ctober 2001 anuary 2002 March 2002 May 2002 of installation at two locations ---------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------- 2. Standard B Earth Station at Hyderabad Gateway - Commissioning Sept. 2001 Nov. 2001 Feb. 2002 April 2002 June 2002 ---------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------- 3. Standard F3 Earth Station at Patna - Commissioning June 2001 Sept. 2001 Dec. 2001 March 2002 May 2002 ---------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------- 4. SAFE Cable Project - Commissioning Dec. 2001 March 2002 June 2002 August 2002 Oct. 2002 ---------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------- 5. Standard E3 Earth Station at Greater Kailash, N.Delhi Feb. 2002 March 2002 April 2002 May 2002 June 2002 - Award of Contract ---------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------- 6. Gandhinagar Gateway Earth Station - Land acquisition for Gateway May 2001 July 2001 Sept. 2001 Nov. 2001 Dec. 2001 Earth Station -------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- 7. INMS -Award of Contract Dec. 2001 Feb. 2002 April 2002 June 2002 July 2002 ---------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------- 8. VoIP -Award of Contract Oct. 2001 Dec. 2001 Feb. 2002 April 2002 May 2002 ---------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------- 9. F3 Earth Station Hub at Gurgaon -Commencement of installation Dec. 2001 Feb. 2002 June 2002 August 2002 Oct. 2002 ---------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------- 10. Launch of Internet Services in non-metro Gateways Dec. 2001 March 2002 June 2002 Sept. 2002 Dec. 2002 ----------------------------------------------------------------------------------------------------------------------------------

ANNEXURE - 4

PERFORMANCE INDICATORS PAST TRENDS ---------------------------------------------------------------------------------------------------------------------------- PHYSICAL UNITS 94-95 95-96 96-97 97-98 98-99 1999-2000 ---------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- TELEPHONE MINUTES 942 1147.56 138493 1684.51 1935.01 2245.83 MILLION ---------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- LEASED VOICE DATA CIRCUIT NUMBERS 233 299 446 638 661 659 ---------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- INTERNET BANDWIDTH MBPS - 4.408 15.640 27.640 79.152 167 ---------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- INTERNET CUSTOMERS - 5160 29116 87000 213045 366432 ---------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- PAID MINUTE/PER MINUTES 1166 1403 1652 19.85 2231 2518.46 EMPLOYEE PER DAY ---------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- REVENUE RUPEES 36068.095 44730.71 52853.05 S 64361.33 71735.68 72305.08 S MILLION ---------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- PROJECT IMPLEMENTATION % 63.33 102.85 90 1..81 2.16 4 ---------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- CAPITAL EMPLOYED RUPEES 11697.24 14293.03 20371.72 28317.56 39949.10 52149 MILLION ---------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- GROSS MARGIN (PROFIT RS. MILLION 5347.21 7717.91 9097.97 14951.33 19942.86 20852 BEFORE INTEREST, TAX AND DEPRECIATION) ---------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- NET PROFIT/CAPITAL % 25.55 24.78 34.18 33.17 16.11## 28.60 EMPLOYED . ---------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- TOTAL O/S TO GROSS REVENUE % 29.45 30 28.95 28.5 29.76 36.88 ---------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- INCO Metro 30.48 47.17 48.56 50.47 52.43 54.48 MING % ----------- --------------------------------------------------------------- ------------ ----------- --------------------------------------------------------------- Rest of 26.71 31.56 31.86 32.16 33.49 India ---------------------------------- ---------------------------------------------------------------------------- ---------------------------------- ---------------------------------------------------------------------------- ASR OUTGOING 51.22 53.41 52.78 53.03 53.27 51.42 ---------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- NET F.H. .EARNTNIGS R.S. MILLION 9016.2 15311.79 18939 23977.65 47376.23 48171.18 ----------------------------------------------------------------------------------------------------------------------------

@ Capital employed figure excludes an amount of Rs.11.909.88 million representing monies raised by way of Euro equity issue for the reason that these funds were raised only on 27 Mach 1997. ## On account of the unforeseen development of writing down investment in ICO by Rs. 5127 million the net profit which otherwise would have been Rs. 13530 million is taken as Rs. 8403 million only. But fur ICO investment write down, the ROCE would have been 25.95%. EX-4 9 ex4-7.txt EX-4.7 MEMORANDUM OF SETTLEMENT OVER THE REVISION OF PAY AND CERTAIN ALLOWANCES DATED 2nd DECEMBER, 2000 BETWEEN MANAGEMENT OF VIDESH SANCHAR NIGAM LIMITED AND THEIR WORKMEN REPRESENTED BY THE FEDERATION OF VIDESH SANCHAR NIGAM EMPLOYEES' UNION, MUMBAI Under Section 12(3) read with Section 18(3) of the Industrial Disputes Act, 1947 and Under Section 20(p) and 18(1) of the Act. PART-A SHORT RECITAL The last revision of the sale of pay of VSNL non-executives was made effective from 1.1.1992 for a period of five years and after the expiry of five years the next pay revision fell due from 1.1.1997. The Federation of VSN Employees' Unions had submitted a Charter of .Demands (COD) on 20.10.1997 requesting VSNL Management for the revision of pay and allowance and other related benefits to the non-executives effective from 1.1.1997. Federation subsequently vide its letter No.FED/F-4/99/2000/96 dated 21st September 1999 requested for deferment of negotiation on wage revision until finalisation of pay revision in respect of executives. 1.2 DPE vide its OM No. 2 (11)/96-DPE (WC) dated 14.1.1999 conveyed the decision of the Govt. in connection with the next round of wage negotiations which fell due from 1.1.1997 with the workers (non-executives) of Central PSEs to be commenced by the Management of the Enterprises with the Trade Unions/Associations, subject to certain conditions like revision should be within the approved parameters and to ensure that also such negotiated wages would not come in conflict with the wage revision of executives. 1.3 Pursuant to Govt. of India Office Memorandum NO.2(1l)/96-DPE(WC)-GL XXVII dated 26th July; 2000 notifying that unionized employees governed by IDA pattern, would have option to opt for either: (1) a 10 year periodicity on wage revision with 100% neutralization of DA as set out in the guidelines ~5d on 14.1.99, OR (2) a five year periodicity on the basis of graded neutralization as did exist previously i.e. from 1.1.92 to 31.12.96. Federation indicated its preference for 10 year periodicity. 1.4 The issues arising out of the COD have been negotiated with the Employees' Federation initially on 19th & 20th October 2000 & from 8th to 10th November 2000 & finally from 23 November to 1st December 2000. After exhaustive process of negotiation the Memorandum of Settlement was arrived on 2nd Dec. 2000. 1.5 In the context of fast changing technologies, competitive environment and tremendous growth potential in the field of Te1ecommunications around the globe, both Employees' Federation and the Management commit themselves to work together for attaining the objectives and increase productivity and profitability. 1.6 It is also realized that re-training, re-deployment and re-adjustment of manpower, changes in the work culture with commitment to productivity would have to be achieved in the context of changing requirements of the Company. Towards this end, employees and the representatives assure full co-operation to the Management for implementing charges as may be required periodically. PART-B TERMS OF SETTLEMENT This settlement will be applicable to all the categories of non.executives who were on the rolls of VSNL as on l.l.1997or have subsequently joined the Company. This settlement shall be effective from 1st January 1997 till 31.12.2006 (ten years) and will continue to be operative till next settlement is signed. WAGE STRUCTURE 2.1 Scale of-pay The following shall be the pay scales applicable to the non-executives of the company from 1st January 1997: -------------------------------------------------------------------------------- Pre-Revised Scales Revised Pay Scales w.e.f. 1.1.1997 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Level Scale of Pay Span Scale of Pay Span (grade) (years) (years) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NE-1 2300-40-2620-50-3220 20 4825 - 125 - 6700 15 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NE-2 2375-50-2775-60-3495 20 5100 - 140 - 7200 15 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NE-3 2475-60-2955-70-3795 20 5450 - 175 - 8075 15 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NE-4 2600-70-3160-80-4120 20 6000 - 200 - 9000 15 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NE-5 2780-80-3420-90-4500 20 6700 - 225 - 10075 15 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NE-6 2985-90-3705-100-4905 20 7150 - 240 - 10750 15 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NE-7 3210-100-4010-110-5330 20 7700 - 250 - 11450 15 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NE-8 3450-110-4330-120-5770 20 8400 - 265 - 12375 15 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NE-9 3700-120-4660-130-6220 20 8590 - 300 - 13990 18 -------------------------------------------------------------------------------- 2.2. Dearness Allowance 100 percent Dearness Allowance (DA) neutralization shall be adopted for all the Non-Executives w.e.f. 1.1.1997. On 1.1.1997 at 1708 AICPI the IDA in the revised scale of pay would be nil. The change in DA shall be paid as notified by DPE from time to time. 2.3. Fitment Method Fitment in the revised scales shall be made applicable as per DPE Guidelines as per following method. a) Basic Pay in the Pre Revised pay scales as on 31.12.1996 Plus b) Corresponding Dearness Allowances at AICPI at 1708 (Base 1960--100) as on 1.1.1997 Plus c) FDA component as on 1.1.97. Plus d) Fitment amount up to 20% of (a) above. The new basic will be determined by placing the aggregate amount arrived by adding (a) to (d) in the revised scale of pay. Where the aggregate amount (a to d) thus arrived does not fit into the stage in the revised scale of pay, the new basic pay will be determined by fixing the aggregate amount at the next higher stage in the revised scale of pay. 2.4. Bunching Increments One increment in the revised scale will be granted for every three increments drawn in the pre revised scale held as on 31.12:1996, as bunching increment. The amount so arrived will be added to the pay arrived as in para 2.3 above. 2.5. Special Increments One special increment in the revised scale shall be granted to the Non Executives who were on-the rolls of the Company as on 31.12.1996. In addition to this, employees who were in the grade of NE-9 as on 31.12.1996 shall be granted two additional increments in the revised scales. These increments shall be payable from 1.1.1997. 2.6 Stagnation increments 15Non-executives who reach the maximum of the revised scale of .pay (stagnation) would be granted up to a maximum of three stagnation increments. 2.7 Fixed Dearness Allowance The payment of Fixed Dearness Allowance (FDA) shall be discontinued in the revised pay scale with effect from l.l.l997. 2.8 City Compensatory Allowance - City Compensatory Allowance shall be paid with effect from 19th November 1999 as per the classification notified by the government from time to time & quantum as per DPE notification. 2.9 House Rent Allowance House Rent Allowance shall be paid with effect from 19th November 1999 as per the classification notified by the government from time to- time & quantum as per DPE notification. 2.10 PERKS & ALLOWANCES - - - It has been agreed to negotiate perks & allowances separately, for which the process will be initiated as-early as possible. For implementation of this pay revision, perks & allowances and other entitlements linked to the basic pay will remain unchanged until revised. PART-C It has been further agreed by and between the parties as follows:- 1. Improvement of overall efficiency. i) Federation and its members must strive for improving overall services and productivity. ii) Federation will cooperate with the Management in matters relating to restructuring of various wings/sections within the organisation. iii) Federation will cooperate with the Management in ensuring industrial peace by discussing disputes, if any with the Management for arriving at mutually acceptable settlement iv) Federation agrees that its member employees would accept diversified jobs in order to ensure higher productivity in Internet Services, Marketing, Customer Relations etc. v) Federation agrees that its member employees would cooperate in the matter of bringing out improvement in all areas of working like office automation, etc. vi) Due to rapid change in technology, the employees are expected to keep themselves updated in their respective area of working and Management will be providing necessary training, assistance, etc. for the same. vii) Federation must realise the bottom line in providing efficient services both for domestic and international norms to remain competitive. viii) Keeping in view the competitiveness of. telecom sector in which VSNL is operating, Federation and its members agree to- strengthen the hands of the Management by rendering all possible cooperation to remain competitive. 2. Management also appeals.the Federation of Employees Unions and Regional Unions themselves to lead the employees to work together with the Management in attaining the following goals emphasized in our targeted plan for the coming years: i) Efficient handling of the various telecommunications services provided by VSNL. ii) Services to the customers to their better satisfaction. iii) Improvement in productivity and reduction in operational costs. iv) Improving quality in all operations. v) Necessary improvement in working conditions. vi) Continuously adopt better working practices. vii) Punctuality/reduction of unauthorized absenteeism. viii) Effective utilization of all available resources. ix) Improvement in housekeeping. - 3. Employees' Federation and unions acknowledge that redeployment and retraining consistent with skills, dignity and earning of employees is necessary in the context of modernization and changing advanced technology in our organization. 4. Employees' Federation and unions agree that discipline at all levels is essential for smooth and efficient functioning of the organization and will ensure compliance by all its members. 5. Employees' Federation assure to work shoulder to shoulder with the Management towards attaining the customer satisfaction because of the changed scenario in the telecommunications field. 6. Management expect the characteristics of the workmen with respect to degree of skill, punctuality, adaptability, willingness to accept innovation, attitudinal changes etc. for higher work responsibility. 7. GENERAL 1) No individual or collective representation of whatsoever nature arising out of this settlement shall be entertained by the Management. 2) There will be no change in the dates of drawal of annual increment. 3) Increment/promotion falling after -1.l.1997 will be granted in the revised pay scales. 4) Anomalies, if any, arising out of this revision should be referred to HQ for resolution within the administrative rules and guidelines. 8. The above agreement will be applicable subject to the approval of the VSNL Board. SIGNED AT VSNL, VSB, MUMBAI ON 2~ DAY OF DECEMBER 2000. PARTIES TO THE SETTLEMENT On behalf of Workmen (Non Executives) On behalf of VSNL Management represented by Federation of VSN Employees' Unions 1 S.M.Pimpale, President 2 Syed Altaf Hussain, V.President Amitabh Kumar, Director (0) 3 S.D. Shukla, Secretary General 4 G.E. Gosavi, Jt. Secy General - 5 M.B.More, Treasurer 6 J.C. Parashar, Liaison Officer M.G. Wasnikar, CGM (0) 7 M.M.Solanki, ASG Gioup D 8 K. Balan, Advisor_ - - 9 P.Y. Patil, President, Mumbai 10 TS.-Shivkumar, Gen. Secy, Mumbai - Arun Gupta, CGM (F) 11 A.B.Gamre, ASG, Mumbai 12 P.V. Mohite, Councillor 13 J.S.Dhaliwal, President, New Delhi 14 Pyrelal Bhatt, Gen. Secy, N~' Delhi G.R. Shaikh, SGM (HR) 15 S.K. Sharma, ASG, New Delhi 16 R.Vasu, President Chennai 17 Joshep Manoharan, G. Secy. Chennai 18 V. Srinivasan, Councillor, Chennai V. Natarajan, SGM (FIR) 19 A.K~Mitra, President, Calcutta 20 R. Gangopadhyay, Gen.Secy, Calcutta 20 P:R. Gaikwad, President, Pune 22 S.G.Sinnarkar, Gen. Secy. Pune K.S.B.Nair, DGM(HR) 23 R.S. Inamke, President, Arvi 24 N.T.Sarwade, Gen Secy. Arvi 25 A.D.Bhosle, ASG, Arvi 26 C.P.Kala, Gen. Secy, Dehradun 27 Dinesh Sharma, ASG, Debradun OFFICE ORDER Sub: Revision of Pay and certain A1lowances of Non-executives of VSNL w.e.f. 1.1.1997 - Implementation of. 1. The last revision of the scale of pay of VSNL non-executives was made effective from 1.1.1992 for a period of five years and after the expiry five years the next pay revision fell due from 1.1.1997. The Federation of VSN Employees' Unions had submitted-a Charter of Demands requesting VSNL Management for the revision of pay & allowances and other related benefits to the non-executives effective from 1.1.1997. Subsequently, the issues arising out of the COD was negotiated with the Employees' Federation by the Management on several occasions. After prolonged negotiation, Settlement has been arrived at between the Management and- the Employees' Federation of VSNL on 2.12.2000 over the issue of revision of pay scales effective from 1.1.1997 as well as certain other relatedallowances. 2. Particulars of the revised pay structure of non-executives w.e.f. 1.1.1997 and the guidelines for implementation, etc. are enclosed herewith at Annex l. In the enclosed annexure sequence of events for fixation in the revised scale is clearly set out and all concerned are advised to comply with the same diligently. In the guidelines, precautions have been taken to ensure that no ambiguity prevails while-fixing the pay in the revised scales. A format has been prepared by HQ office which is enclosed at Annex II.. It is expected that uniformity is maintained in utilising same. 3. It is not open for the Regions/Centres to draw their own inferences and conclusions in interpreting the fixation and other related benefits. A back reference has to be made to the HQ office with specific terms of reference so that the matter could be examined and suitable instructions be given as early as possible. 4. The Interim Ad-hoc advances paid on two occasions to the eligible non-executives in terms of Office Orders No. HQ-A/01-10/97-PE.1 dated 24.4.1998 & 23.l0.2000 and also the monthly Interim Relief paid w.e.f. 1.10.1998 in terms of Office Orders No. HQ-A/01 - 10.98-PE.1 dated 15.10.1998 & 6.10.1999, shall be adjusted in full against the payment-of arrears arising out of the pay revision to be made as per this order. In cases where there is no scope for adjustment. it should be adjusted suitably. 5. No individual or collective representation arising out of the fixation sahll be entertained by the HQ office and the Regions/Centres are requested to dispose of the same in light of the instructions issued herewith. Anomalies, it any, arising out of the fixation on revision, shall be considered for resolution as a one time measure after the process of auditing is completed. 6. It should be noted that implementation of the revised pay scales is subject to Board's approval and pending Boards approval, it is necessary to obtain individual undertaking in the prescribed format (format enclosed.Annex-III) from each non-executive to the effect that in the event of any modification to the pay scales by the VSNL. Board, the excess amount drawn, if any, shall be refunded by him/her. 7. Heads of Regions/Centres are advised to take necessary steps to complete the implementation of pay revision in the shortest time possible in order to draw salary payable for the month of December 2000 and onwards in the revised scales to the non-executives. Arrears arising out of this pay revision under these orders may be disbursed by the Centres/Units expeditiously. 8. Subsequent to implementation of revised pay scales by the Regions/Centres, HQ will constitute an audit committee for carrying out inspection for ensuring that the pay scales implementation like fixation, etc. has been done strictly in accordance with the guidelines issued with this order. 9. All issues arising out of the provisions contained in this order/guidelines which may require interpretation/clarification are to be referred to HR Wing of HQ for-decision. for VIDESH SANCHAR NIGAM -LIMITED 1 (G.R. Shaikh) SENIOR GENERAL MANAGER (HR) Encl: Annex.I, II, III, IV & V Copy for information & necessary action: 1. CGM(ER)/Calcutta 2. CGM(NR)/New Delhi 3. CGM(WR)/Mumbai 4. SGM(SR)/Chennai 5. SGM(EK)/Ernakulam 6. SGM(H'D/Hyderabad 7. SGM(AU)/Arvi 8. SGM( BG)/Bangalore 9. GM(DU)/Dehradun 10. GM(J'D)/Jullandhar 11. DGM(PC)/Pune 12. DGM(KP)/Kanpur 13. DGM(GN)/Gandhingar 14. DGM(C&B)/HQ/LVSB I5. SM (ID )/Indore 16. CMD's Office/Dir.(NW)/Dir.(D)/Dir.(Fin.)/Dir.(O)/C.V.O./CS/CGM(Planning)/ CGM(lnternet)/CGM(O/HR)/CGM (Mktg.)/CGM (F&A)-B/CGM (PR)/CGM (F&A)-S. 17. CGM(VIG)/SGM(HR)-S/SGM(Estate)/SGM(Coml.)/SGM(TP)-A/SGM (HR)- N/SGM (HR)-D/SGM (TA)/ SGM (NW)-CSS/GM (TO) - B/ GM (TO) - R / GM (NW)/ GM (RD)/ GM (TP)/GM (Systems )-AKS/ GM (Systems) BC/ GM (Comm.) HQ Office. - - 18. TP Wing/TO Wing/ Traffic Wing/ R&D Wing/ Estate/ Coml./ SWP/ EDP/ Satcom/ Markg. Section of HQ Office. 19.- Per-II/ Advance/ Admn. / Legal/Recruitment/ Training/ Logistic/ Welfare/ CR Section of VSNL, HQ Office, Mumbai. 20. Cash & Bill/ Budget/ Finance/ Public Relations Sections/ CPF Trust. 21. SC/ST CeII. 22. The Secretary General, Federation of VSNL Employees' Unions, Mumbai. 23. The Secretary General, Federation of Telecom Officers' Associations, Mumbai 24. The Secretary General, Federation of VSNL. Officers' Associations, Mumbai. 25. Hindi Section for the needful. 26. Copy to Notice Board/Guard File. ***** ANNEX-1 GUIDELINES FOR REVISION OF PAY AND CERTAIN ALLOWANCES OF NON~EXECUTIVES OF VSNL WITH EFFECT FROM 1st of .JANUARY 1997: I. REVISED SCALES OF PAY 1.1 The following shall be the pay scales applicable to the non-executives of the company from 1ST January 1997: -------------------------------------------------------------------------------- Pre-Revised Scales Revised Pay Scales w.e.f. 1.1.1997 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Level Scale of Pay Span Scale of Pay Span (grade) (years) (years) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NE-1 2300-40-2620-50-3220 20 4825 - 125 - 6700 15 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NE-2 2375-50-2775-60-3495 20 5100 - 140 - 7200 15 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NE-3 2475-60-2955-70-3795 20 5450 - 175 - 8075 15 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NE-4 2600-70-3160-80-4120 20 6000 - 200 - 9000 15 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NE-5 2780-80-3420-90-4500 20 6700 - 225 - 10075 15 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NE-6 2985-90-3705-100-4905 20 7150 - 240 - 10750 15 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NE-7 3210-100-4010-110-5330 20 7700 - 250 - 11450 15 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NE-8 3450-110-4330-120-5770 20 8400 - 265 - 12375 15 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NE-9 3700-120-4660-130-6220 20 8590 - 300 - 13990 18 -------------------------------------------------------------------------------- 2. DURATION 2.1 The revised Pay Sca1es will be effective for a period of 10 (Ten) years from 1st January l997. DEARNESS ALLOWANCE The Industrial Dearness Allowance (IDA) at All India Consumer Price Index (AICPI) 1708 admissible to Non-Executives in the revised Scales of Pay as on 1st January I997 will be "Nil" as the applicable amount of IDA as on 1st January 1997 in the 1992 Salary Structure has been merged in the revised Basic Pay. The first installment of DA in the 1997 Salary Structure would become due from 1st April 1997. The DA payable from 1st April 1997 would be as per the new DA Scheme. The details of the Scheme are as follows: (i) All India Consumer Price Index (AICPI) Number for Industrial Workers (general) based on 1960 = 100 would continue to be used for grant of compensation to non-executives of VSNL against price rise. (ii) DA would be paid for the increase in AICPI above quarterly index average of 1708 to which the revised Scales of Pay (1997) are related. (iii) DA installments would continue to be revised 4 times a Calendar year, i.e., w.e.f. 1st January, 1st April, 1st July and 1st October. (iv) The quaterly average of AICPI would continue to be computed in the following manner: Quarterly Average Payable from September, October and November of previous year 1st January December of the previous year and January and February of the current year 1st April March, April and May of the current year 1st July June, July and August of the current year 1st October (v) The percentage increase in the quarterly average of AICPI for the period ending February, May, August and November over AICPI 1708 would be as notified by DPE. (vi) The rate of compensation to Non-executives over the Basic Pay at AICPI 1708 will be in whole numbers. Fractions, if any, will be carried forward to the next quarters. (vii) Calculating the quantum of DA payable on this basis, fraction of 50 paise and above will be rounded off to the next higher rupee and fraction below 50 paise will be ignored. (viii) The percentage DA neutralisation to all Non-executives in the 1997 Salary Structure will be 100%. 3.2 The revised rates of DA payable to Non-executives during the period from 1st April 1997 to 31st December 2000, would be as follows: -------------------------------------------------------------------------------- DA payable for Quarter Quarterly average Rate of DA payable (% of commencing from AICPI applicable Basic Pay) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 35433 1726 1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 35436 1737 1.7 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 35439 1762 3.2 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 35795 1794 5 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 35798 1870 9.5 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 35801 1893 10.8 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 35804 2010 17.7 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 36160 2122 24.2 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 36163 2077 21.6 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 36166 2051 20.1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 36169 2087 22.2 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 01.01.2000 2143 25.5 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 01.04/2000 2123 24.3 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 01.07.2000 2156 26.2 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 01.10.2000 2186 28 -------------------------------------------------------------------------------- 3.3 Rate of DA payable during each Quarter commencing from 1st January, 2001 would be notified by the HQ Office from time to time. 3.4 Dearness Allowance already paid from January 1997 to November 2001, based on the 1992 salary structure would be fully adjusted against the arrears payable under this order. 4. FIXATION OF PAY IN THE REVISED SCALES OF PAY -------------------------------------------- 4.1 The pay of Non-Executives who were on the rolls of the Company on 31st December l996 and continue to be in the service of the Company as on the date of issue of this Order will be brought on to the revised Scales in the following manner: (a) Basic Pay in the existing Scale of Pay (1992) as on 31st December 1996 Plus (b) Corresponding Dearness Allowance at AICPI of 1708 (base 1960) = 100 as on 1.1.1997. Plus (c) Fitment amount up to 20% of (a) above i.e. 20% at Basic Pay drawn as on 31st December 1996) Plus (d) FDA component as on 31.12.1996 The total or(a) / (b) / (c) + (d) would be the :aggregate amount. 4.2 The new basic pay will be determined by placing the aggregate amount arrived by adding (a) to (d) in the revised scale of pay: - Where the aggregate amount (a) to (d) thus arrived does not fit into the stage in the revised scale of pay,. the new basic pay will be determined by fixing the aggregate amount at the next higher stage in the revised scale of pay. 4.3 BUNCHING INCREMENT 4 3 1 One increment in the revised scale will be granted for every three increments drawn in the pre-revised 1992 scale of pay and this amount will be added to the pay arrived at as in para 4.2 above. 4 SPECIAL INCREMENT 4.4.1 One special increment in the revised scale shall be granted to Non-executives who were on the rolls of the Company, as on 31.12.1996-. In addition to this, non-executives who were in-the grade on NE-9 as on 31.12.1996 shall be granted two additional increments in the revised scales. These increments shall be payable from 1.1.1997. 4.5 - STAGNATION INCREMENT 4.5.1 Non_executives who reach the maximum of the revised scale of pay (stagnation) would be granted upto, a maximum of three stagnation increments. 4.6 FIXED DEARNESS ALLOWANCE (FDA) ------------------------------ 4.6.1 The payment of Fixed Dearness Allowance (FDA) shall be discontinued in the revised pay scale with effect from 1.1.1997. 4.7 APPOINTMENT ON OR AFTER AFTER 1.1.1997 -------------------------------------- 4.7. 1 Non-executives appointed on or after 1st January 1997, at the minimum of the 1992 scales will be deemed to have been directly appointed in the revised scales of pay effective from 1.1.1997 and no fitment benefit will be admissible to them. Pay of Non-executives whowere appointed at the minimum of the pre-revised scales of pay will be fixed at the minimum of the corresponding revised scales of pay w.e.f. the date of appointment. 4.7.2 Non.executives appointed on or after 1" January 1997 and who have been granted advance increments, if any, on appointment in the pre-revised scales, their pay.in the revised scale will provisionally be fixed at the minimum of the corresponding revised scale of pay. 4.7.3 In cases where pay fixation had been done in the pre-revised scale (1992) taking into account pay & allowances last drawn in the previous Organization (1992 scale), pay protection would be granted in the revised scale (1997) on the basis of last pay drawn in the previous Organization, provided the scales of pay in the previous Organization have also been revised and a revised Last pay Certificate is produced. In the absence of such a revision in the previous Organisation, the pay shall be fixed at the minimum of the concerned revised scale of pay. 4.7.4 Pay fixation in respect of Non-executives, if any. who have, been appointed in the Cornpany between 1st January 1996 and 31st December 1996 - from the Central Government, State Government, Public Sector Undertakings following the CDA pattern etc. will be dealt with separately, keeping in~view the revision of pay scales effected in the Government w.e.f.' 1st January'.l996. Such Non-executives will not be eligible for fixation benefits as envisaged in paras 4:1 to 4.4 above. Pay in the revised scales in such cases will provisionally be fixed at the minimum of the corresponding revised scale of pay. 4.7.5 In respect of Non-executives (including cases of immediate absorption, re-employed pensioners, ex-servicemen, etc.) who have been appointed/re-employed in the Company on or after 1st January 1997 from the Central Government, State Government, Public Sector Undertakings following the CDA pattern etc., their pay will be re-fixed in the revised scale, as per the extant rules applicable in such cases. 4.7.6 Cases of Non-executives, if'any, falling under the above categories at paras 4.7.2 to - 4.7.5 above should be referred to the HR Wing of HQ. with necessary details, for final fixatiori of pay. HOUSE RENT / LICENCE FEE RECOVERY Separate Orders will be issued in this regard in due course of time. Till -then. recovery of House Rent / Licence Fee from those employees who are provided with Company Quarters/leased accommodation would continue to be effected as at present. CITY COMPENSATORY ALLOWANCES (CCA) City Compensatory Allowances (CCA) would be computed and paid based on- the reclassified list of cities as notified by the Government of India for the purposes of payment of CCA to Government employees, which is as under: ---------------------------------------------------------------- Basic Pay per A-I - A B-i B-2 month Population> Population>Population> Population SD-Iakhs 20 10 lakhs and > - laklis -~ 20 lakhs 5 lakhs and and < < 50 10 Iakhs lakhs - ---------------------------------------------------------------- ---------------------------------------------------------------- Below Rs.4000 90 65 - 45 [ 25 ---------------------------------------------------------------- ---------------------------------------------------------------- Rs,4000-5250 1 125 - 95 65 ., 35 J - ---------------------------------------------------------------- ---------------------------------------------------------------- - 200 - 150 - - [00 - 65 Rs.5251-6499 - ---------------------------------------------------------------- ---------------------------------------------------------------- Rs.650() & 300 -. 240 iS)) I l2() - above ---------------------------------------------------------------- The revised classified list otciies as nocilied b~ the Urn erottient otlndiu t~r the purpose otdra~va1 otC,\ is appended hereto (Annex-Vt. Fur the purposeI classiIicatjoz-~ of cities for pa~-mcnt of CCA. the classification as notified h~ the ~ ~ t. 1India from time S. 9. to time shall he t~ilowed, - - - FAMILY PLANNINc INCREMENT - - - Non-executives who have been drawing the special incrememit in the Ibrm atPersomial Pa~(PP) for undergoing Family Planning / Scerilisatioti C )peration prior to I Januamv 1997 would be allowed to draw the PP equivalent to the )o~~est rate oineremnemu in the revised scale corresponding to the pre-rcvised pay scale against .~ hich the individual had earned the PP. w.e.tl I" January 1997. Employees who ~ hose spouse ha. e ttnder~otte the sterilisacion operation on or afier I January 1997 would be a! to.. ed the )I based on the incremenc rate in the revised scale ofpav. as per the extant rules. Ihe special increment would riot be reckoned as basic pay for computing t)earnes~ Allowance and any other consequential benefits. - - -, - - - J~QYIDENTFUND/VSNL E~lPLQYEE SELF CONTRIBUTORY PENSION - SCHEME - - - - - Consequent upon revision of- pay scales and DA. emplovers as \velI as employees -contribution to the Provident Fund will be recalculated and recovered at the applicabLe -rate viz. ~ tO percent ott the revised-basic pay and-DA .v.e.f. I~ Jaiiuarv 1997 to 21st September, 1997 and @ 12 percent effective from 22nd September. 1997 onwards. Emplove&s contribution, towards the VSNL Emee Self Contributory PensIon - -Scheine shall be recalculated and recovered at the applicable rate. - 10. - - PAYMENtOF A-R~EARS - - - - - - -- - - - - - - - 10.1 - Payment qf~ears arising out of revision of pay scales from I ~Januar~: 1997 d~war~_ - - to Non-executives who were on the rolls of the Compartv on I January 1997 and who -have joined thereafter. .vill comprise of amounts arising out of the following: - 1. Revised Basic Pay. - 2. Revised DA~ - - - .3. - Increments. - 4.- HRA & CCA at revised rates w.e.f l9t~Nember 1999. wherever applicable. - - 5.~- Fixation of Pay on promotion. - 6. Family Planning Increment. 7. Earned Leave encashrnent. 3. Terminal benefits of- Provident Fund & Gratuity. 9. EX-gratia/PLJ ~1 / Provisional payment may he made to non-execuu\ es ha. e moved ott transfer aller 1 January 1997. along with others. hasec~ on the available data.. ftan~ int~irmatiofl liLe attendance. date of promotion. date of increment etc.. is requited in res)~eCt of ~u~h nonexecutives. these can be obtained trom otlice .heretrotu the nomm~e\eeutt es .aS transferred - - 10.3 Non_exectxtiCS who have ceased to be in the services ol the Louipai1~ ~dter l~ January 1997 due to superaflflUati0t~. termination of service on account of cunimnued ill-health. resignation with permission and death (payment to the nominee in ease oldeath) .ill be --eligible for arrears in terms of this order on a pro-rata basis. .here er due. Payment oarrears to such non~exeCUties / nominees is to he effected omiI~ at~er receipt ofzt .rittefl request from the non_executi\c I nominee concerned. .t().4 \Vith regard to Non_executieS. transferred from one Station Office to another atier V January 1997. payt~lcnt of arrears is to be made (by the trunsferec office) only. after obtainin~ necessary details. if any. from the transferors uttice. - io.s Recoveries like Notice pay. if any. to be efte~ted from ex.eniployecs is ma he recalculated and recovered. Similarly, wherever amounts are due and payable h~ ex-employces. the same will -be recovered fron~tl~e arrears payable. - - - 10.6 Benefits of revised Basic Pay and Allowances in terms of this order and consequent payment of arrears shall not be applicable to Non-executives who ceased to be in the services of the Company on the,toUowiflg grounds on. or after l~January 1997: 1. Dismissal; - - 2. - Absconding: 3. Resigned and left where disciplinary actiOn against him/her riaci already been - - initiated and-was in progress: -- - -. 4. Resigned and left ~ithdut d~ notice add where bond liability had not been - discharged at the time of leavi~ig the Company: 5. In cases where the alleged misconductagaiflst the employee is prejudicial to the interest of VSNL and an et:lquiry is contemplated or is in progress. 11. RE~QV~IES OF 1NcO~iEJrAWc- - - - Recoveries towards Income Tax. Professional Tax. etc.. are to be effected as per Rules. Finance Wing may take up the matter of extending relief under Section 8~ of the Income Tax Act~ with the concerned Income Tax Authorities. 12. INTERL\1 RELIEF / ONE T1~1E ADIIOC AI)VANCE The Interim Ad-hoc advances paid on two occasions to the eli~ible 110F1-CNCCULiVCS in ~crms olOtlice Orders No.!-IQA/Ol-10197-1E.l dated 24.4.1~)9~ & 23. li).201)() and also the monthly Interim Relief paid w.e.f. 1.10.1998 in ternis oiOliic~ Ord~rs No.1-IQA/0 I -1 0/98PE. 1 dated 15.10.1998 & 6. 10.1999. shall be adjusted in lull. a~ainsL the payment of arrears arising out of the pay revision to be made as per this order. In cases where there is no scope for adjustment. it should be adjusted suitably by appropriate instalments from their salary. 13. PAY RELATEI) MATTERS 13.1 Merely because otrevision of Basic Pay / Scales of Pay. there will not he any upward revision in the enUtlement to various Allowances / Benefits (other than those mentioned in the ~rder~, related to Basic Pay. Such allowances / b~netits will continue io be paid based on the pre-revised basic pay I scale of pay (I 99~ scales). 13.2 All other allowances (not related to basic pay and not revised as mentioned above), benefits, perquisites and performance related incentives will continue to be paid at the, existing rates / quantum. 13.3 Revision of other allowances / benefitsi perquisites / performance related payments, etc. will be considered separately and de~isions taken will be intimated in due course of time. 14. INTERPRETATIONS I CLARIFICATIONS All issues arising out of~the provisions contained in [his ~derwhich thay require -interptetation klarification are t6 be referred to the HR Wing I. Finance Wing of Headquarters for decision. EX-10 10 ex10-1.txt EX-10 The HINDU BUSINESS LINE Saturday, September 15, 2001 Teledensity set to exceed target Our Bureau KOLKATA, Sept. 14 The country is set to achieve a higher teledensity of 17.5 per 100 by 2010 against a target of 15 set by the Government, according to Mr Tapan Sikdar, Union Minister of State for Communications. At present, India has a teledensity of 3.7 per 100 which is expected to go up to seven per 100 by 2005. Mr Sikdar told members of the Bengal National Chamber of Commerce and Industry (BNCCI) here that the basic telecom network in India was growing at 22 per cent per annum while cellular and Internet services were growing at over 100 per cent annually. The Indian telecom network has emerged as the 8th largest in the world, up from 14th barely two years ago. According to him, the focus now was on providing an appropriate telecom infrastructure that would facilitate "proliferation of information techonology". The idea was to benefit from convergence and bridge the digital divide across the country. He, however, cautioned that this would not be possible if labour productivity in the telecom sector did not improve. In this context, he cited a McKinsey report which stated that labour productivity in the Indian telecom sector was 25 per cent of that in the US. "Such a scenario emerging in the age of convergence is alarming. We must improve productivity. To survive as a nation we need it." The Minister felt that emerging technologies would facilitate applications such as tele-education and tele-medicine which would benefit the rural population immensely. In the context of developments in the postal system, Mr Sikdar said the Department of Posts was regularly taking revenue-generating initiatives aimed at bridging the deficit between revenue and expenditure. He expressed the hope that this would be achieved within the next five years. EX-10 11 ex10-2_662249.txt EX-2 IT SPACE.COM FRIDAY, SEPTEMBER 7 NEWS YOU ARE HERE: HOME -- NEWS -- RESEARCH CENTER -- ANALYSIS ---- ---- --------------- BROWSE CATEGORIES TRENDS ANALYSIS OUTLOOK PERSPECTIVE CONFERENCES NEWSMAKERS ANALYSIS RESEARCH CENTRE WILL SIFY OVERTAKE VSNL? Did you know... Satyam Infoway seems to be inching towards leadership in the dial-up access segment of the Techreckoner ISP market, largely due to the first mover advantage among private ISPs and also because of Suggest Research its presence as a service provider in various Internet businesses. ItspaceResearch estimates Partner Programmes that at the end of Q3 FYOO, Sify has been able to capture a market share of 33 percent, as Resources against a share of 44 percent of VSNL in the Indian Internet access market. WE ATTRIBUTE SATYAM'S RISE TO THE TOP SLOT AMONG PRIVATE ISPS TO THE FOLLOWING REASONS: 1. Satyam has been the forerunner in associating with alternate channels including PC OEMs, IT channels and traditional retail. 2. Satyam's presence as a leading portal and a high brand recall has helped the company garner critical consumer mind share. 3. Satyam is offering services in almost all major cities in the country, and hence has been able to tap the mobile users of Internet services. 4. Satyam has also sponsored a chain of Internet parlours across the country. 5. Satyam's presence in offering other services such as B2B consultancy, VPNs and corporate accounts have helped to improve its market share. 6. Sify has constantly grown by almost 200 percent from June 2000 to January 2001, Sify, which had about two lakh subscribers by June 2000, has expanded to the existing subscriber base of four lakh. (Table 1) ISP SUBSCRIBER BASE IN GROWTH RATE IN LAKH PERCENT VSNL 5.2 84 Sify 4.0 100 Mantra 1.3 260 Others* 1.5 100 Table 1: Growth Rate of leading ISPs in India Source: ITspaceResearch Telecom Programs January 2001 ISPS CURRENT RATES (100 HRS) VSNL 750 Sify 900 Dishnet 750 BPL Net 650 (80 hrs) Mantra online 499 (75-150 hrs) -------------------------------------- Table 2: Current rates of Internet access Source: ITspaceResearch Telecom Programs January 2001 ITSPACERESEARCH FORECAST: o Sify looks like to be the only ISP with a potential to beat VSNL, by the end of 2002, if it continues at the same pace. The large cash reserves of the company can help Sify to sustain itself in this business. o Other private ISPs also would enjoy the maximum in the year 2001 by having a greater hold in the market with interesting packages like the Post-paid and Pre-paid schemes. Such a concept has been already initiated by the ISP NOW, which sells its CD at Rs. 199 and after the activation, bills the customer on a monthly cycle. These schemes are aimed at preventing the subscribers from switching to another service provider. o Most of the ISPs would also come out with free Internet access during night hours like VSNL.. o For attracting more subscribers, other interesting packages are expected to be offered by different ISPs like BSES Telecom, which is about to announce broadband services through its Powersurfer CD, where subscribers will be eligible to get discounts. GLOSSARY: o POTS - Plain Old Telephone Systems. o Other ISPs in Table 1 include Dishnet, NOW, BSES, Telecom, BPL Net etc. APRIL 2001 (C)ITSPACE.COM ITSRCOMPAPR01AO45 ABOUT US / ADVERTISE WITH US / CONTRIBUTE AN ARTICLE / LETTERS TO THE EDITOR / FEEDBACK / RECOMMEND THIS SITE / TO THE MICROLAND This site is best experienced with Internet Explorer 4.0 and above, at default browser settings 800x600 pixels GROUP(C)2001 Itspace.com. All (r)Rights Reserved EX-10 12 ex10-4_662235.txt EX-10.4 Government of India Ministry of Communications Department of Telecom Services Sanchar Bhawan, New Delhi - 11001 No. 37-21/2000-OC Dated 7/9/2000 To The Chairman & Managing Director Videsh Sanchar Nigam Limited Lokmanya Videsh Sanchar Bhawan Kashinath Dhuru Marg, Opposite Kirti College, Prabhadevi, Mumbai - 400 028 Sub: - Preponing of demonopolisation of Videsh Sanchar Nigam Ltd. Sir, I am directed to inform you that Govt. had decided that the monopoly granted to Videsh Sanchar Nigam Ltd. in the matter of International Voice Traffic shall terminate on 31/3/2002. This may be treated as an advance notice as required under the provisions of para 5 of licence granted to VSNL vide DoT No. 220-5/98-PHC dt. 22/1/99. 2.0 In lieu of likely losses on account of preponement of demonopolisation, the following compensatory package has been proposed: (i) VSNL would be granted licence to run national long distance services. (ii) VSNL would be liable to pay the licence fee, both by way of entry fee and revenue share for operating national long distance services and would be on the same footing like other private sector operators but the Government would pay a sum equivalent to entry fee and annual revenue share as licence fee, net of taxes for a period of 5 years with effect from April 2001. In addition, Government will not insist upon performance bank guarantee of Rs. 400 crores so long VSNL retains PSU character. (iii) VSNL would be granted Category - A ISP license. VSNL may place this compensation package in lieu of preponement of demonopolisation before the shareholders in a general body meeting to be convened at the earliest and obtain its approval to enable further action in the matter. Yours faithfully, 18/7/2000 (V. Sampath Kamar) Director (SU) Tel: 3310217 EX-10 13 ex10-5_662246.txt EX-10.5 CONSULTATION PAPER CONSULTATION PAPER NO. 2001/2 TELECOM REGULATORY AUTHORITY OF INDIA CONSULTATION PAPER ON "INTERNATIONAL LONG DISTANCE SERVICES" ------------------------------------- 3rd September 2001, New Delhi PREFACE 1. Following the announcement under the New Telecom Policy (NTP) 1999 that international Long Distance (ILD) Service would be opened up, the Government has more recently announced that this Service will be opened up for private participation from 1st April, 2002. The Government has sought TRAI's Recommendations on the modalities for opening up of the ILD Service with specific reference to certain key issues. These include terms and conditions of the license, number of players in this field, selection criteria, license fee structure and other license conditions. 2. In our country, liberalization of the telecommunications sector started in the early I 990s. The opening up of Cellular Mobile Service sector was followed by private participation in Basic Service and the National Long Distance Service Sectors. While the liberalization of the ILD Sector raises some issues similar to those arising in these other cases, it also raises certain policy issues specific to the ILD Service. Until some years ago, most countries operated International Services through Government owned monopolies and used the surpluses from this as well as Domestic Long Distance Services to subsidize Basic Services. The situation has now changed in a large number of countries, following adoption by them of other accommodating policies, including tariff re-balancing and more detailed interconnection regime. As we proceed to liberalize the ILD sector in India, here too we need to consider these aspects of the matter. In the area of International Services, some additional policy considerations become very relevant due to aspects such as call-back, bypass and the fact that not all the revenues are generated domestically. 3. The TRAI has identified the following issues as key determinants of the policy regime under which the ILD Service Sector will be liberalized: (a) Type and nature of competition (b) Selection criteria (c) Types of services to be permitted (d) Terms and Conditions of the license (e) License Fee Structure (f) Carrier selection, interconnection regime and other technical issues 4. This paper gives information on the existing global scenario regarding the ILD Sector, and provides a background for considering the various policy/operational issues relating to the ILD Sector. Each Section of the paper ends with a list of questions addressing various issues that need to be addressed by TRAI before the recommendations sought by the Government are provided. The objective is to solicit the views of various stakeholders including Service Providers, Consumers, Consumer Organizations or anybody else interested in the subject. 5. Since the Recommendations t~ the Government are to be made in a time-bound manner, we would like to have the comments and views on any or all issues raised in this paper on or before 30TH SEPTEMBER, 2001. ---------------------- For further clarifications, Adviser (Fixed Network Division), TRAI may be contacted on telephone number: 6166930. The fax number is 6103294 ------- ------- and e-mail is: TRAI@DEL2.VSNL.NET.IN. Submissions in electronic form ---------------------- would be appreciated. Sd/- M. S. Verma Chairman New Delhi 3rd September, 2001 LIST OF CONTENTS SECTION TOPIC PAGE NUMBER 1 INTRODUCTION 1 2 GLOBAL SCENARIO 3 3 TERMS AND CONDITIONS OF LICENSE 15 4 LEVEL OF COMPETITION 20 5 SELECTION CRITERIA 26 6 STRUCTURE OF THE LICENSE FEES 29 7 TECHNICAL ASPECTS 32 INTERNATIONAL LONG DISTANCE CARRIAGE SERVICES 1 INTRODUCTION 1.1 For opening up of the Telecom Service Sector, policy makers generally consider the Local, National Long Distance and International Long Distance Networks segments as separate entities. The sequence in which these three segments are opened up for private participation varies from country to country. However, a large number of countries have either introduced or are considering to introduce competition in the International Long Distance Service sector, as it is considered to be one of the most lucrative segments of the Telecom Network, where private sector participation can benefit the customer in terms of price reduction and improvement of Quality of Service (QOS). 1.2 In our country, the liberalisation process in the Telecom Service sector started in early 1 990s. Liberalisation in the Cellular Mobile preceded that in Basic Services, and the National Long Distance Services (NLD) sector is now being opened up. The Government has now decided to open up the International Long Distance Segment of the Telecom Service sector and has sought Recommendations of TRAI on the issue of ILD License. Annexure l contains the Government's reference to TRAI on this matter, which seeks recommendations on: a) Terms and conditions of the license b) Number of players in this field c) Selection criteria d) License fee structure 1.3 The Government has already made the policy decision that the International telecom sector will be opened up for private participation. In this context, one of the important questions to be considered will be to examine, what kinds of services may be allowed to be provided by the ILDO. For example, should the ILD License provided under the liberalised environment include in addition to Telephony Services, Lease Line Services and Multi-Media Services including data and video services. Likewise, there is a need to consider the Nature of Competition and Number of ILDO Operators, Conditions for Eligibility and Selection of Operators, License Fee Structure and Technical Aspects. 1.4 Chapter 2 gives information on the Global Scenario, and provides a background for considering the various policy matters raised in this paper. Chapter 3 discusses the issues relating to Terms and conditions of License. Chapter 4 addresses the issue of Level and Nature of Competition, e.g. the number of International Long Distance Service Providers. Selection Criteria are covered in Chapter 5, Chapter 6 discusses the Structure of License Fees, and some technical issues are raised in Chapter 7. Each Section contains at the end a list of questions which address the various policy matters that need to be considered for meking policy recommendations with respect to liberalisation of the ILD sector in India. 2. GLOBAL SCENARIO 2.1 This Section provides a background to a number of policy considerations that are relevant to liberalisation of the International Long Distance sector. This background is provided in terms of the global scenario pertaining to these maters. Before proceeding with these details, it would be useful to take a look at the Network statistics of the incumbent Indian international Long Distance Operator, namely, VSNL, which are indicated in the Table 1 below: TABLE 1. VSNL'S PAID MINUTES AND NETWORK STATISTICS, 1995-96 TO 1999-2000 ------------------------------------------------------------------------------ SI Item 95-96 96-97 97-98 98-99 99-2000 No 1. Telephone Paid 114.8 138.5 168.5 193.5 224.6 Minutes(in Crores) 2. Transit Paid 0.670 0.524 0.745 0.905 0.427 Minutes (in Crores) Number of Internet. 4151 20042 90042 213045 366432 Users 4. Number of 12873 14184 15431 17922 19722 International Telephone Circuits 5. Number of 245 402 603 661 659 High Speed Data Circuits 6. Total International 4473 5285 6436 7176 7230 Operator's (i.e. VSNL's Revenue (in Rs. Crores) ------------------------------------------------------------------------------ Source: VSNL Annual Reports BACKGROUND 2.2 Until recently most countries operated international Services through Government owned monopolies and used the profits from Long Distance Services to subsidise Basic Servi~es i.e., Local rental and call charges. In many countries such as Japan (KDD), Australia (OTC), India (VSNL), Thailand (CAT), the monopoly ILD Services were operated by an entityo different from the National Telecom Operator. In a number of Commonwealth countries, a private company, Cable and Wireless, operated the Services either under license or in partnership with the Government. In our neighbouring countries, such as Myanmar, Sri Lanka and in certain African countries like Zimbabwe etc., the National PSTN Operator also operated the International Services. In the 1990s, when the telecom reform process gained momentum, some countries permitted competition by licensing a second Operator to offer International Services; e.g Satel Indo (Indonesia 1994), China Unicorn (China 2000). In some countries, the incumbent National PSTN Operator was allowed to enter the International market as a second operator e.g., Telstra in. Australia; NTT Japan (1998). In some instances, this was done indirectly by enlarging the scope of the licenses of the existing Cellular or PSTN Operator to include ILD Operations like in Zimbabwe and Uganda. 2.3 During the 1990's, particularly in the second half of the decade, there has been a sharp rise in the number of countries that have introduced competition in the ILD sector, and the policy regime has allowed much larger number of operators, including open competition. This can be seen from Table 2 below. TABLE 2. COUNTRIES WHICH HAVE ALLOWED COMPETITION IN THE ILD SECTOR, 1990 TO 1998 1990 1995 1998 Japan, New Zealand, Japan, New Zealand, Japan, New Zealand, UK, USA UK, USA UK, USA Australia, Canada, Australia, Canada, Columbia, Chile, Columbia, Chile, Denmark, Finland, Denmark, Finland, Korea, Malaysia, Korea, Malaysia, Philippines, Sweden Philippines, Sweden Austria, Belgium, Brunel, DPR Congo, Dominican, Republic, El Salvadore, France, Germany, Ghana, Guatemala, Hong Kong (China), Indonesia, Ireland, Israel, Italy, Mexico, Netherland, Norway, Peru, Russia, Somalia, Spain, Sweden, Switzerland, Uganda, Ukraine Share of above four Share of above fourteen Share of above thirty countries in ILD countries in ILD nine countries in ILD originating traffic: 35% originating traffic: 46 % originating traffic: 74% Source: ITU 2.4 A number of salient features emerge when we consider the countries that have opened their 1LD sector to competition. (A)COUNTRIES THAT HAVE INTRODUCED COMPETITION IN ILD INCLUDE BOTH THOSE WITH LARGE AS WELL AS SMALL SHARES IN GLOBAL INTERNATIONAL TRAFFIC 2.5 Table 3 below shows the top 20 ILD operators in terms of total traffic in 1998. While most of the companies in this list are from countries mentioned in Table 2 above, we also have companies from China, Saudi Arabia, and India, i.e. countries which do not figure in Table 2. The top 20 companies account for a bulk of the global ILD market, and a comparison of Tables 2 and 3 shows that there are several countries in Table 2 which have allowed open competition without necessarily a large presence in world ILD sector. 2.6 Table 3 shows that the Indian ILD operator, VSNL, is also in the top 20 operators of international traffic. This is mainly because of the incoming traffic, which far outweighs the importance of outgoing traffic for VSNL. For a comparison, the top 20 ILD operators in terms of outgoing international traffic are shown in Table 4 below. TABLE 3. TOP 20 INTERNATIONAL TELECOMMUNICATION OPERATORS RANKED BY 1998 TOTAL MINUTES (OUTGOING PLUS INCOMING) MINUTES OF INTERNATIONAL TELEPHONE TRAFFIC

Operator (Country) International telephone traffic, minutes 1998 International telecom revenue Both ways Outgoing Incoming Total Change Total Change Total Change Total Change (US $ (97-98) (m) (97-98) (m) (97-98) (m) (97-98) m) 1 AT&T (United 15,113 4.0% 10,452 1.2% 4,661 11.0% 7,533 -9.8% States) 2 Deutsche Telekom 10,747 3.0% 4,711 -2.1% 6,036 7.4% 3,357 -16.4% (Germany) 3 MCI WorldCom 10,257 2.0% 7,195 -1.6% 3,062 11.6% 4,243 -10.5% (United States) 4 France Telecom 7,300 9.0% 3,400 9.7% 3,900 8.3% 1,859 -17.3% (France) 5 BT (United Kingdom) 6,350 10.2% 2,710 4.5% 3,640 14.9% 924 -14.2% 6 Telecom Italia 5,289 9.5% 2,339 5.9% 2,950 12.6% 1,438 0.6% (Italy) 7 Sprint (United 4,795 6.4% 2,916 4.4% 1,879 9.8%18,202 1.1% States) 8 DGT (China) 4,212 4.5% 1,712 4.9% 2,500 4.2% 2,200 3.0% 9 Hongkong Telecom 3,818 3.8% 1,718 -2.1% 2,100 8.2% 1,995 -17.7% (Hongkong Sar) 10 Tselefonica (Spain) 3,704 16.1% 1,803 15.1% 1,901 17.0% 813 -3.9% 11 Swisscom 3,680 - 1,901 -2.9% 1,779 3.3% 1,379 2.2% (Switzerland) 12 KPN (Netherlands) 3,443 6.0% 1,606 4.6% 1,837 7.3% 847 -23.6% 13 Telmex (Mexico) 3,286 -12.8% 880 -12.8% 2,406 -12.8% 879 -24.3% 14 C&W Com. (United 2,670 36.2% 971 27.3% 1,699 41.8% 0 36.0% Kingdom) 15 Belgacom (Belgium) 2,621 0.0% 1,271 -5.1% 1,350 5.3% 548 22.2% 16 PTA (Austria) 2,270 16.2% 1,130 13.5% 1,140 19.0% 424 2.0% 17 Singapore Telecom 2,251 25.6% 1,161 23.2% 1,090 28.2% 1,267 7.3% (Singapore) 18 KDD (Japan) 2,200 3.3% 1,105 0.2% 1,095 6.6% 1,903 -5.0% 19 Teleglobe (Canada) 1,905 3.1% 1,145 3.0% 760 3.2% 631 -18.3% 20 VSNL (India) 1,679 21.2% 422 9.6% 1,257 25.7% 1,600 11.8% Top Twenty 99,062 6.0% 51,252 2.7% 47,810 9.7%35,660 -7.3% Source: ITU for Tables 3 and 4

TABLE 4. TOP 20 INTERNATIONAL TELECOMMUNICATION OPERATORS RANKED BY 1999 ------------------------------------------------------------------------- MINUTES OF INTERNATIONAL OUTGOING TRAFFIC -----------------------------------------

Operator (Country) International International telecom Outgoing Telephone Revenue Traffic Fiscal (Million) % % As % of Year Change Change total 1998-99 (M US $) 1998-88 telecom revenue 1 AT&T (United States) 31 Dec 10,900.0 4.3% 4,921.0 -7.7 7.9% 2 MCI WorldCom (United 31 Dec 8,306.0 15.4% 3,489.0 27.1 8.6% States) 3 Deutsche Telekom 31 Dec 3,860.0 -18.1% 1,493.5 -53.1 8.0% (Germany) 4 Sprint (United States) 31 Dec 3,640.0 24.8% 825.0 -10.5 4.1% 5 France Telecom (France) 31 Dec 3,200.0 -5.9% 1,333.5 -24.7 4.6% 6 BT (United Kingdom) 1 Apr 2,679.0 -3.9% 1,143.5 -10.9 4.6% 7 Telecom Italia (Italy) 31 Dec 2,390.0 2.2% 1,359.2 -9.4 4.7% 8 Tselefonica (Spain) 31 Dec 1,935.0 14.5% 836.4 7.8 3.4% 9 China Telecom (China) 31 Dec 1,760.0 2.8% 1,703.5 -26.2 6.2% 10 Hongkong Telecom 1 Apr 1,668.3 -0.8% 2,005.7 -17.9 55.0% (Hongkong Sar) 11 KPN (Netherlands) 31 Dec 1,625.0 1.6% 756.5 -6.1 7.8% 12 Swisscom (Switzerland) 31 Dec 1,440.0 -24.3% 875.3 2.5 11.8% 13 Belgacom (Belgium) 31 Dec 1,288.0 1.3% 601.9 -11.5 14.6% 14 PTA (Austria) 31 Dec 1,178.0 4.2% 386.7 -4.3 9.8% 15 Teleglobe (Canada) 31 Dec 1,130.0 -1.3% 423.3 -32.8 - 16 KDD (Japan) 1 Apr 1,096.2 -1.4% 1,458.8 -19.3 27.8% 17 Telmex (Mexico) 31 Dec 1,063.1 3.9% 1,206.9 27.2 12.0% 18 Etisalat (United Arab 31 Dec 963.3 10.1% 583.4 14.3 34.6% Emirates) 19 STC (Saudi Arabia) 31 Dec 932.6 16.4% - - - 20 Chungwa Telecom 30 Jun 897.5 8.7% 1,303.1 55.4 21.2% (Taiwan-China) TOP 20 51,952 2.7% 26,706.2 -10.3

(B) A POLICY OF OPEN COMPETITION DOES NOT NECESSARILY IMPLY A LARGE ------------------------------------------------------------------------ NUMBER OF OPERATORS ------------------- 2.7 The fact that the policy regime allows open competition does not necessarily imply induction of a large number of ILD operators in this sector. Table 5 below shows that the number of ILD operators may be similar for both those countries which have allowed open competition and others. Hence, it is noteworthy that the number of operators depends not only on the policy regarding open competition but also on economic factors, such as the market size, and the terms and conditions of entry and operation. TABLE 5. NUMBER OF INTERNATIONAL LONG DISTANCE OPERATORS WITH SIGNIFICANT MARKET SHARE IN SOME COUNTRIES COUNTRY NO. OF OPERATORS NAME OF OPERATOR Australia 2 Telstra, Optus China 2 China Telecom; China Unicorn Korea 3 Korea Telecom DACOM Corporation ONSE Telecom Japan 3 Kokusai Denshin Denwa Co Ltd., (KDD) International Telecom Japan Inc (ITJ) International Digital Communications Sinc (IDC) UK 3 British Telecommunications plc, C&W Comm, Kingston Communication (Hull) plc USA 5 AT&T, MCI Worldcom, Sprint, WorldxChange, Pacific Gateway Exchange Inc. Indonesia 2 PT Indosat; PT Satelindo Source: APT H 2.8 Another noteworthy feature in this regard is that even if the number of licensees may be large, the actual number of service providers are not as many. For instance, if we consider the situation in the European Union, as on 1st August 1999, there were 490 Operators authorised to offer International Network Services, but only 187 were actually offering these services (please see Table 6 below). TABLE 6. NETWORK OPERATORS AND SERVICE PROVIDERS WITH LICENSE FOR INTERNATIONAL LONG DISTANCE SERVICES IN EUROPEAN UNION AS ON 1ST AUGUST 1999 AND PROVIDING ONE OR MORE OF THE LICENSED SERVICES Country Network Operators and NetworkOperators and Service Providers Service Providers actually offering one or authorised to offer more Licensed Services Belgium 25 11 Denmark 4 Germany 10 2 Greece 1 9 Spain 14 1 France 15 2 Ireland 21 15 Italy 4 11 Luxemburg 15 4 Netherland 82 4 Austria 33 63 Portugal 10 0 Finland 18 16 Sweden 59 1 UK 179 41 Note: In European countries, there are two type of Licenses i.e., one for facilities based operation and the second only for Service provision. The latter are a kind of resellers of call minutes. In some countries, Operators have common License for all Services. 2.9 Table 6 includes Network Operators who install, manage and operate their own facilities i.e., Transmission and Switching Systems to provide public telephony/ Network services. Service Providers are a kind of resellers, who purchase Network capacity i.e., lease line or minutes of use and offer services to their customers. Operators engaged exclusively in activities like call-back, calling card operators or billing and marketing of International traffic are not included in Table 6. However, in certain countries, the total number of licensees may be over-estimated as a common license is provided to operators which are allowed to provide a particular service but may plan to remain only in a limited market segment and not provide all the services that the license gives it the flexibility to offer. (C)COMPETITION IS INTRODUCED THROUGH ILDOS AS WELL AS THROUGH RE-SELLERS ----------------------------------------------------------------------- 2.10 As indicated in Table 6, a number of countries have also permitted Resellers or Service Providers in the market. This results in greater competition in certain regions of the country, depending on the number of resellers in that region. it also increases the number of the licensees operating in the country to provide International Telecom Service, thus providing greater~ choice to the customers. (D)TARIFFS HAVE GENERALLY DECLINED FOR INTERNATIONAL TRAFFIC, A TENDENCY ------------------------------------------------------------------------ THAT HAS GOT ENHANCED DUE TO GREATER COMPETITION ------------------------------------ ----------- 2.11 In general, enhanced competition also implies reduction in tariffs. For the International telephony sector, this decline has taken place also due to the tariff re-balancing exercise that is underway in a large number of countries. In the European Union, the average price of International Long Distance calls between year 1997 and 2000 has declined by 32% for Residential Users and 34 % for Business users. Within this period in India, which has the same rate for business and residential users, International call charges have declined by 32.8 to 34.7% depending upon the ILD category (geographical slab). (E) GROWTH OF OUTGOING MINUTES OF INTERNATIONAL TRAFFIC DIFFERS ACROSS -------------- ------------------- ------------------------------------- COUNTRIES, INCLUDING THOSE WITH OPEN COMPETITION ------------------------------------------------ 2.12 Though there is a general decline in International tariffs, the outgoing International traffic has not necessarily increased for all countries, including some with open competition. This is because the outgoing International traffic depends also on the relative decline in tariffs in different countries, economic prosperity of a country, and the possibility of call-back due to arbitrage in traffic. Thus, while in general there has been an increase in outgoing calls from countries which have Iiberalised in recent years, this is not a uniform picture across all such countries (please see Table 7 below). TABLE 7. OUTGOING MINUTES IN SELECTED COUNTRIES WHICH INTRODUCED -------------------------------------------------------------------- COMPETITION BETWEEN 1995 AND 1998 (IN MILLION MINUTES) ----------------------------------------------------- COUNTRY 1995 1998 1999 Austria 901 1250 1178 Belgium 1106 1460 1590 France 2850 4043 4386 Germany 5238 5900 7385 HK (China) 1692 1880 2720 Indonesia 206 310 251 Ireland 407 885 1015 Israel 266 661 804 Italy 1839 2285 2500 Mexico 950 1316 1563 Netherlands 1459 1805 2150 Norway 437 461 567 Peru 63 99 111 Russia 897 1038 1008 Spain 1063 1803 1934 Switzerland 1733 2034 2256 2.13 There are a number of other policy issues which need to be considered in the context of the Iiberalisatjon of the International telecom sector. These include, for example, duration of the license, types of "tele" and "bearer" services permitted for the ILD operator, methods of issuing licenses (bidding, beauty parade, any other), whether equal ease of access is available to the subscribers the evolution of the market share of the incumbent after opening up of the market. These are addressed below. 2.13.1 DURATION OF THE LICENSE The duration of license for International Telecom Service may vary from country to country. For example, New Zealand provides Licenses for unlimited period. Singapore provides licenses for 10 to 20 years depending upon status as Reseller or Network Operator. Malaysia provides Licenses fo Network facilities, Network Services and Content Application Services for 10 years duration. For application Services it is 5 years. 2.13.2 TYPES OF "TELE" AND "BEARER" SERVICES THAT ARE ALLOWED FOR THE ------------------------------------------------------------------ ILD OPERATOR ------------ Bearer services are a type of telecommunication services that provides the capability for the transmission of signals between user-network interfaces. Some of the examples of bearer service include service provided include circuit switched 3.1 KHz audio bearer service; ISDN user access with circuit switched 64 kbit/s unrestricted and circuit switched 3.1 KHz audio bearer services; and 64 kbit/s, 8KHz structured for speech. Teleservices are a type of telecommunication services that provides complete capability, including terminal equipment functions, for communications between users according to established protocols. It includes telephone, telefax, videotex and videotelephony services. In conjunction with bearer and teleservices, a set of supplementary services like Calling Line Identification, call forwarding, call waiting, advice of charge etc. are also available. European Union and many other countries allow various types of teleservices and bearer services. 2.13.3 WHETHER EQUAL EASE OF ACCESS IS PROVIDED TO SUBSCRIBERS --------------------- --------------------------------- When multiple operators are part of the market, a level playing field requires that the subscribers have equal ease of accessing any of the operators. This may be through dynamic call-by-call selection or through preselection of the operators by the subscribers. Experience has shown that often the incumbent is reluctant to introduce Equal Ease of Access, i.e., he does not favour introduction of additional digits required to be dialled for Carrier Selection as also Pre-selection. However, in India this process is already progressing in the National Long Distance Sector. The issue will have to be tackled also for the ILD sector. The Figure below shows the percentage of population in European Union countries which have choice of selecting more than one International Carrier i.e. percentage of population with Equal Ease of Selection in International Long Distance Services. GRAPHICS OMITTED 2.13.4 THE EVOLUTION OF THE MARKET SHARE FOR THE INCUMBENT AFTER OPENING ------------------------------------------------------------------ UP. -- By definition, the market share of the incumbent will fall after the market is opened up. But the extent of this decline can vary, depending on a number of factors, including the time period of market opening and the competitive strategies used by the incumbent. Such differences in market share can be seen in the chart below which provides a view of the Incumbent Operator's market share in international Long Distance Services in years 1997, 1998, 1999 and 2000 (projected) in various countries of European Union. In certain other cases, such as for Hong Kong, Japan, and the United States, the decline in incumbent's market share has been larger than the general picture shown in the figure below. GRAPHICS OMITTED 3. TERMS & CONDITIONS OF LICENSE 3.1 Type of Services and Technologies 3.1.1 In developing countries, including India, more than 90% of international traffic is at present voice telephony. Volume of telecommunication data traffic is, however, picking up fast. Voice Services through Internet! packet Networks are also likely to be offered in a big way in the near future, particularly in the developed countries. One important policy issue is whether to give different licenses for Voice and data services or to allow several selected tele and bearer services under the license of International Long Distance Operators. Yet another possibility is to adopt a technology neutral approach and grant the License for bearer Services. Since ILD is essentially a Carriage Service, most of the developed countries have not specified any teleservice, as these Services are mainly derived from the Customer's Premises Equipment (CPE), which is provided by the Access Providers. 3.1.2 Limiting licenses to a specific type of bearer or tele service, may lead to sub-optimal utilisation of the costly international bandwidth if it involves building separate international backbones for different tele services, such as voice, data, video etc. In a highly competitive and rapidly changing technical environment, Operators may find it difficult to prepare optimum business and corporate plans if they are restricted to a particular service or technology. Further, the Licensor and Regulator may find it difficult to monitor violations of the license conditions. On the other hand, proliferation of technologies can lead to difficulties in Interconnection arrangements and maintenance of QOS standards, as some of the nascent technologies do not guarantee Quality of Services for real time traffic generated by voice and video services. Unregulated service without any QOS guarantee on a particular segment of the Network can lead to undesirable commercial practices, and problems for operators who provide end to end Services. 3.1.3 It is worth careful consideration at this stage as to whether existing license formats, which specify Network architecture such as PSTN, PLMN and also protocols such as GSM, CDMA etc, should be adopted for ILD Licenses as well. Issues like fixation of tariffs for such Services, principles to be followed for revenue sharing between Interconnecting Operators etc. also require discussion. While Considerable progress has been achieved in addressing these issues for PSTN based circuit Switching techniques, there is a need to develop principles and concepts for packet switching (VOIP) technologies, when they are employed to carry real time voice. 3.2 Interconnection and Network Definition 3.2.1 International experience shows that in the ILD market, both Facility based and Non-Facility based Operators have been permitted in a number of countries. The latter are called Re-sellers or Virtual ILDOs. Generally in developing countries where infrastructure availability is restricted, re-sellers as ILDOs were not permitted in the first phase of opening up of the ILD market. 3.2.2 The Interconnection issues depend on the nature of the Network architecture allowed for ILD Operators. Three possible options in this regard are the following: a) Configuration I The scope of International Long Distance Network is defined as consisting of International Gateway Switches, International Circuits and National connectivity to the nearest gateway switch of the NLDOs, as shown in the Figure "I" in Annexure II. b) Configuration II The scope of International Long Distance Network is defined as consisting of International Gateway Switches International Circuits and National connectivity to the Access Providers at the Telecom Circles through leased lines, as shown in the Figure "II" in Annexure II. It would. then by-pass the network of NLDOs. This may create some techno-legal problems. c) Configuration iii [Existing VSNL configuration] VSNL, the incumbent International Long Distance Operator has International Gateway switches at all Metro and some other stations like Jallandhar, Ernakulam, Kanpur and Gandhinagar (Ahmedabad). Generally all Level I TAXs have direct Routes to more than one Gateway Switch of VSNL. This may appear similar to a Interconnection with an NLDO. Many of the Level II TAXs also generally have direct routes to at least one Gateway switch based on traffic and techno-economic considerations This may appear similar to connectivity to BSOs. At present VSNL switches do not have direct connectivity to Cellular Networks. In this approach, we will have to permit installation of International Switches generally at Level I LDCAs i.e., roughly one in each State. This could result in by-passing the NLDO's infrastructure giving rise to legal and regulatory issues. 3.2.3 The present Draft License Agreement for NLD Services does not provide for direct connectivity of ILDOs with Access Providers. NTP'99, however, mentions about such an option. The Draft License Agreement for new BSOs mentions that for International Long Distance call, the BSO shall access International Long Distance Operator through National Long Distance Operator only. 3.2.4 If the lLDQs are permitted to set up multiple gateways and inter-link them, there may not be much difference between the first configurations above. It is also noteworthy that any decision in this regard should be considered for application to VSNL also. 3.2.5 Configuration "I" above could allow the ILDO to provide Services with a minimum investment i.e. with the establishment of a single gateway switch. All other facilities could be leased, and as traffic increases, additional gateways could be established. Number of Point of Interconnections at minimum level could be specified as one with each NLDO. As such Roll-out could be immediate and there may not be a need for any mandatory Roll out obligations. 3.2.6 Under configuration "II" above the ILDO would be able to pick up traffic directly from the Access Providers, by-passing the NLDO, because the ILDO would establish Points of Presence (POP) in all territorial Circles where BSOs and CMSPs are licensed. The ILDO could have various options i.e. to establish POP by leasing transmission capacity from the NLDO/infrastructure Providers, or lease both switching and transmission capacity from the NLDO, or to lease switching capacity from NLDO and transmission capacity from Infrastructure Providers, or establish its own infrastructure In this configuration, there may be a need to have Roll-out obligations along with associated time periods so that advantages of competition to telecom users are not confined to pockets of high revenue generating Telecom Circles only. 3.2.7 Under configuration "III", the number of Interconnections with the NLDO and Access Provider's Switches will depend upon traffic thresholds. For example, if traffic from any Level II TAX station to ILDO justifies direct connectivity with say a minimum of two 2Mb/s streams, the same will be required to be provided by ILDO. For all Level I TAXs, direct Route in any case will be mandatory In this configuration too, there may be a need to have Roll-out obligations along with associated time periods. 3.3 Time Period of License 3.3.1 Time Frame for the License Should be such that it provides an adequate time to achieve a reasonable return of investment and to plan for the disposal of assets. A short license period raises the problem of the disposal of the Network at the end of the license period. The closure of the business may not affect users substantially if other ILDOs take over quickly. However, `the Networks may not be easily disposed off as they are likely to become rapidly obsolescent because of technology change. 3.3.2 Basic and National Long Distance Services are licensed for a period of 20 years, with a provision for extension of the license period. The issue arises whether a similar time period should be provided for ILDOs also. 3.4 The discussion leads to following set of questions: Question 3a) What are the type of tele and bearer Services `that should be permitted as part of ILD License provided under the liberalised environment? Considering the fact that tele services are basically derived from bearer services by the Customer's Premises Equipment (CPE), which is provided by BSOs, is there a need for the ILD licensee to specify tele services? Will it not be adequate, if it specifies certain bearer services and otherwise adopts a neutral approach in so far as specific tele services are concerned? Question 3b) VSNL has International gateway switches at a few metro cities, such as Mumbai, Delhi, Chennai, Calcutta etc. Will it be the most appropriate architecture when there are multiple ILDOs? Should we mandate a similar architecture for private ILDO? Question 3c) Three deployment options of interconnectivity, viz a) with NLDOs only, b) directly with Access Providers, and C) the existing VSNL deployment practice, have been discussed in the, Consultation Paper? Which of these or any other should be the preferred option and why? Question 3d) Should a set of roll out obligations be imposed on ILDOs similar to the pattern of Basic Service and NLD licenses along with associated penalties for non-compliance for establishing Services and POPs? Question 3e) What should be the license period for an ILD License? 4. Nature of Competition 4.1 Competition in a market depends on the number of players and the flexibility provided to these players to operate in the market. The determinants of competition in ILD may be considered in terms of: a) Type of competition, that is whether only operators or carriers who own facilities such as switches (POP) be allowed to compete or switchless Re-sellers of International bandwidth shall also be permitted to enter the ILD market as' is the practice in developed countries such as USN Canada. b) Level of competition, i.e., whether we permit a limited number of players in the first phase and then open up unlimited competition including Re-sellers in the second phase. c) Time period for implementing the policy regime for competition. 4.2 Type of Competition (ILD Operators! Carriers or Re-sellers): 4.2.1 Competition can be introduced either through Facilities-based or Non-Facilities Operators. Facilities based competition involves licensing of Operators, who operate their own facilities. Non-Facilities based competition, would entail competition by Operators who do not operate their own facilities, but lease them from facilities based operators. 4.2.2 Three different entities may be considered in this context. a) International Long Distance Operators (ILDs), who build their own Network to provide bearer or carriage services to other operators such as NLDOs and Access Providers. b) Switch based re-sellers, who lease transmission systems from both International! National Infrastructure providers. c) Switch-less re-sellers who purchase bulk minutes from International Carriers and offer Services to their customers i.e. they do not have their own transmission system or switching system. 4.2.3 ILDO is essentially a Carrier's Carrier. One policy issue to consider is whether to make it mandatory for the ILDOs to establish switching facilities in the country. For inland facilities, ILDOs can either build their facilities or lease them from Infrastructure Providers. 4.2.4 As far as International links are Concerned, the minimum facility required by a facility based ILDO can be an earth station and gateway switch connected to the National/International Networks. Non-Facility based Operators can lease switch as well as circuit capacity from others, basically selling switched bearer service to other operators such as NLDOs/BSOs/CMSOs. 4.2.5 Availability of adequate wholesale capacity with the existing Infrastructure Providers or International Backbone Providers are essential pre-requisites for the introduction of Non-Facilities based competition International trends show that Re-sellers are generally permitted in more mature markets, where infrastructure is well developed and tele-density is high. The consultation process needs to address the option of whether to permit Re-sellers as the ILD Sector gets opened up, and the appropriate timing of the same. 4.3 Level of Competition The level of competition depends on the number of operators in a particular market. The number of operators may be pre-determined by the policy-maker in case of limited competition (duopoly/ oligopoly) or left to the market forces, in the case of unlimited competition. The focus in this paper is to determine the policy regime regarding the level of competition, because the actual number of ILD operators in the market does not necessarily depend only on what the policy permits. This is evident from a comparison of the policy regime and number of ILD operators in various countries, shown in Section two of this paper. 4.3.1 Limited Competition: We define Limited competition to mean fixing the number of players. This can lead to Duopoly or oligopoly as described below: 4.3.1.1 Duopoly: A duopoly market structure means only two powerful operators A number of countries have a duopoly market structure in the first phase of liberalisation of the ILD market. The duopoly market structure limits competition and provides a profitable market to the new entrant. At the same time, by reducing the extent of competitive pressure, the incumbent gets a longer time to adjust to the changed environment. However, the prices tend to remain higher than under a situation of greater competition and this implies a larger burden on the consumer 4.3.1.2 Oligopoly In an oligopolistjc market structure normally three or four operators with significant market power are present. The oligopoly market may arise either due to the policy maker specifying that only a limited number of operators will be allowed in the market or because the market may itself give rise to a limited number of operators under the entry and operating conditions specified by the policy maker. In the latter situation i.e. where the policy maker does not specify a limit on the number of operators, the focus is not on determining the number of operators but on the entry and operating conditions. These issues are raised under the sub-section "Unlimited Competition". In oligopoly/ multipoly, the operators face greater competition than duopoly and therefore have lower profit opportunities. The relatively higher competition, however, reduces prices faced by Consumers and provides greater incentives to operators for being innovative in terms of their service and price packages. 4.3.2 Unlimited Competition or Multipoly 4.3.2.1 In Unlimited competition market forces determine the number of players which may lead to multipoly i.e. a large number of players and none of them enjoying a significant market power. The key policy considerations for unlimited competition include specification of entry conditions, performance obligations and operational restrictions. Potential Operators will assess. the attractiveness of the options vis-a-vis the obligations and barriers before entering the sector. 4.3.2.2 The main reason to specify the entry conditions is to discourage the entry of operators that are not capable and serious. A disadvantage of such conditions is that entry costs would add to the cost of service Provisioning. Also, there is no methodology for fixing the optimal level of entry barriers, which will complement and not Oppose market forces. The issue of eligibility criteria is addressed in more detail in the next section. 4.3.2.3 The full competition scenario envisages no entry barriers and licenses are available on demand. In unlimited competition, competitive forces could ensure cost-effective methods of delivering Bearer Services, and passing on the benefits to customers Competitors could apply innovative techniques to capture market shares. However, unrestricted entry may raise a number of issues Pertaining to the viability of Operations, appropriate interconnection regime and regulation of Service Quality and tariffs. 4.4 Time period for implementing the policy regime for competition There are two possible ways of introducing greater competition. One isto phase-in more and more competition in different stages over time. Another is to allow either unlimited competition or a limited number of ILDOs, say four! five in the initial phase of opening up the market. While several countries have increased competition in stages, a number have quickly opened up to unlimited competition , as shown by the information in Section two of this paper. 4.5 In the light of the discussions in pre-para, the following questions are brought our for public Consultation: Question 4a) Should it be mandatory for ILDOs to establish switching facilities in the country? Should we go in for facilities based competition only? Question 4b) Should non-facility based competition be permitted? If yes, what should the terms and conditions for non-facility based Operators or Resellers? Should Resellers be permitted to purchase switched minutes of call time not only from ILD Operators (facility based), but also from NLDOs? Question: 4c) Should there be limited or unlimited competition? In case of limited competition policy, what should be the mechanism to restrict entries and is it reasonably possible to arrive at the optimum number of operators in the ILD segment? Question: 4d) If unlimited competition is introduced Should this be phased..jn over a specified period or be introduced from the beginning itself? Question 4e) Should the option of infrastructure leasing include the leasing of Switching capacity from NLDOS? 5. SELECTION CRITERION 5.1 The licenses will offer International Long Distance Services exclusivity to the ILDOs for a given time period. Selection can be through a bidding process, or alternatively by prescribing and announcing a set of criteria for selection. Such criteria may include provision of Entry Fee and or Technical and Roll-out requirements. 5.2 Eligibility Criteria: 5.2.1 Certain eligibility criteria may need to be specified to ensure that nonserious entities do not enter the market. These criteria may focus on various attributes such as those specified for the Basic Services and National Long Distance Operators. 5.2.2 One criteria to consider is whether to allow entry to only those with a' proven track record in the field of Telecommunication Services. Similarly sound financial background is another criteria worth considering. Under this criteria, the promoter of a company may be required to have a combined net worth above a particular threshold. Adequacy of experience in the field may also be considered important and thus, for example, it may be required that the applicant or at-least one or some of the constituents of a group or joint venture having a certain percentage of the total equity in the applicant company, should have experience of telecom sector. 5.2.3 An Entry Fee may be considered for the purpose of keeping non-serious players out. Entry Fees get determined by the policy objectives , including the competition strategy adopted for the market. In case of limited competition, Entry Fee may be determined through bidding. in contrast, in the case `of unlimited competition where licenses are available on demand, Entry Fees may be pre-decided amounts, to be paid by all licensees. Alternatively, the Entry Fee could have a linkage to the expected revenues from the licensee's areas of operations, i.e. it may be fixed considering the market potential. 5.3 Selection Criteria: 5.3.1 The technical proposal may be evaluated on the basis of various criteria such as Ownership parameters, performance record, sector experience, transmission facilities, Points of Presence and other parameters considered relevant by the Licensor! Regulator. 5.3.2 In case limited competition is to be introduced either through duopoly or oligopoly! multipoly, a detailed evaluation process should be in place to select and award the Stipulated number of licenses Both the technical and financial proposals will need to be evaluated After evaluation of the Technical proposals, the qualifiers may be allowed to bid in accordance with a pre-announced bidding methodology. 5.3.3 Another issue requiring some consideration is whether there Should be some disabilities! pre-emptions from Participating in the process of obtaining the ILDO License For example, should parties having acquired the incumbent's (VSNL) equity in the course of its disinvestments, be allowed to: bid for this license. The rationale in Prescribing the disability would be to avoid conflict of interest as well as concentration of market power. 5.4 In the light of the discussions in this section, the following questions come up for discussion Question: 5a) What Should be the eligibility criteria? Should it include Financial parameters and minimum experience of ILD operations elsewhere. Should it also include the combined net worth of promoters above a particular threshold, a minimum Percentage of stake in the total equity, a Stipulated number of years of experience in Telecom Service Sector particularly in Long Distance Operations, or any other criteria? Question : 5b) In case limited competition is preferred, Should the criteria for financial selection include both. Entry and Annual License Fees payments? Question: 5c) Should an Entry Fee be specified or should it be subject to bidding? What should be the optimum level of the Entry Fee if it has to be specified? Question: 5d) Should the selection criteria include technical parameters? If the answer is in the affirmative, then what parameters should be included and what weightage should be given to the parameters taken into account? Question: 5e) Should the parties acquiring VSNL equity. through the disinvestment process, be permitted to obtain licenses for new ILDOs? 6. STRUCTURE OF THE LICENCE FEES 6.1 General Considerations A License Fee having one or more of the following components may be prescribed: i) One Time Entry Fee a) Operators to pay a Fixed Entry Fee to obtain a license. b) Entry Fee may be linked to roll-out performance ii) An Annual License Fee An annual License Fee based on a percentage of Gross collected Revenue less `Pass-through' revenue is payable iii) USO Levy USO levy is also applied, either. separately or as part of the annual License Fee. The details of these components MAY need to be determined by the policy maker. 6.2 Factors important for consideration of the License Fee Structure relating to ILD licenses 6.2.1 Till full tariff re-balancing takes place, the International Services will generally be the most remunerative part of the telecom business. The Opportunity for business development in the ILD sector is also higher, since a number of advanced Services are often available with a matching clientele. However the business scenario is changing with an increase in competition in the sector, and a decrease in tariff for International calls. 6.2.2 The above factors are relevant in a consideration of the Entry Fee and Revenue Share License Fee for ILDO. 6.3 Estimating Gross Revenues for License Fee 6.3.1 A definition of adjusted gross revenue for determining License Fee has already been arrived at in the case of revenue sharing arrangements of NLD operators. This is the gross collected revenue of the Operator for all licensed activities less the deductions on account of `pass through' revenue. 6.3.2 This approach, however, is inapplicable in the case of incoming International calls, because these calls emanate from the Operators in other countries, and calculating the relevant revenue from these calls may not be a straight forward exercise. Incoming traffic to India is higher than outgoing traffic. The settlement regime through accounting rate mechanisms also do not provide any reliable estimate of total revenues. Call back and Reverse Call revenues introduce additional complications. For example, it may be Possible for an ILDO in India to enter into a bi-lateral settlement agreement with a remote International Operator and thus maximise the amount retained abroad and minimise the payment to the Indian ILDO. 6.3.3 Based on the above, there may be a need to treat outgoing call revenues separately from incoming call revenues . The License Fee could be applied separately for these two type of revenues, For the incoming part, traffic could, for example, be measured and settlement worked out on the basis of the standard accounting rates arrived at between VSNL and the other Operators, or some other alternate formula. One such Possibility is the payment of a fixed license fee on each unit of incoming call minutes. 6.4 Questions The following questions emerge from the foregoing discussions: Question 6a) What factors should be taken into account while determining the License Fee for ILD operations? Question 6b) How should License Fee be estimated? For example, should it be a certain percentage of the ILDO's revenue? Whether this percentage should be the same as was fixed for NLD Services? Question 6c) How should the revenue on incoming calls be determined and included in gross revenue of the ILDO for the purpose of arriving at the license fee payable by the operator? 7. TECHNICAL 7.1 All Long Distance Carriers i.e., both National and International, are examining the technical feasibility of deploying VOIP techniques based on packet switching instead of PSTN or circuit switching techniques in their Backbone Network, because of the possibility of sharing the same IP Backbone for both data and voice. Although this may be effectively implemented in developing countries after a longer period, in developed countries, the data traffic is about to overtake voice traffic. The possibility of transmitting voice over IP-based Networks, with the associated opportunities, such as voice and data integration, constitutes a milestone in the convergence of the communication sector. The key issue is that IP-based Networks, are increasingly being used as alternatives to the circuit-switched telephone Networks and the likelihood of ILDOs deploying this technology in their Network has to be taken into account. We discuss the main issues after introducing certain relevant terms in use. 7.2 Terms In Use 7.2.1 Voice-over-IP (VOIP) refers to the transmission of voice, fax and related Services over packet-switched IP-based Networks. VOIP is different from Internet Telephony. VOIP is a technology, whereas Internet telephony is a Service, provided to the public on the Internet. VOIP and Internet telephony are not permitted in India at present. 7.2.2 The Public Internet: (also referred to as the Internet): The global, public, IP-based meta-Network created by the interconnection of many public and private IP-based Networks. 7.3 Issues Relating to VOIP Greater volumes of IP Telephony now travel over managed, private IP Networks as opposed to the public Internet. It is estimated that the total volume of Voice over Internet Protocol (VOIP) traffic carried over International Networks in 2000 may have been around 4 billion minutes, or just over 3 per cent of the global total. This percentage is much lower for developing countries. IP based Networks are designed for non real time data traffic and still do not guarantee QOS for voice. Due to its lower Quality of Service, it is not a preferred mode when QOS is an important issue. 7.4 Impact of VOIP on the Public Telecommunication Operator 7.4.1 If telephony via internet or VOIP is allowed, one major impact on Public Telecommunication Operators is likely to be loss of income from International calls, both direct (loss of collection charges) and indirect (loss of settlement payments). There are, however, a growing numbers of public Telecommunication Operators that have chosen to offer IP Telephony Services, even though this may cannibalise their existing revenue streams. These Operators include Telecom Egypt, GamTel (Gambia), Matav (Hungary), Cesky Telecom (Czech Republic) and CAT (Thailand). 7.4.2 Voice over IP (VOIP) gateways can provide not only Basic telephony and Fax Services but will also enable several value-added Services, e.g., cal!centers, integrated messaging, least-cost routing etc. These will increase marketing flexibilities and provide additional sources of revenue. However, VOIP gateways are largely proprietary products and they do not inter-work if one operator has one product and the other a different product. 7.5 Interconnection issues Two issues relating to interconnection are likely to arise. 7.5.1 Carrier Selection 7.5.1.1 The Telecom users could have the option of selecting the ILDO of their choice on the pattern of NLDO option recommended by TRAI. Options available could be Dynamic Carrier Selection (Dial around) in which the Carrier is selected through a dialling procedure in which `1OXY' is to be dialled after `00' and prior to International significant number. `XY' would represent the selected carrier code. Pre-selection is another option in which the user informs his Access Provider about his choice of the ILDO., and all ILD calls by the user automatically get transferred to the chosen ILDO. 7.5.1.2 To enable the ILDO to collect traffic, the user should be able to express a choice of the carrier. Difficulties, however, arise in permitting a simultaneous choice of the ILDO and NLDO. These difficulties relate to existing limitations in storage and analysis of the additional digits required for Carrier Selection. At present, it is difficult to provide for a selection of the ILDO and the choice would have to be left to the NLDO. National and International services would be offered as a package by the NLDOs. Further studies are being conducted on the possibility of providing a pre-selected choice of the ILDO in addition to a choice of NLDO and should it be possible, additional costs would be involved. If a technical solution can be found, a decision as regards who will bear this cost and in what manner, will have to be taken. 7.5.2 Billing Differential rates and concessions are likely to be offered by the ILDO, and this has been one reason for giving the responsibility of billing to the ILDO itself. However, various alternatives are available for collecting ILD charges from customers, e.g., collection may be through the NLDO or through the Access provider. 7.6 Based on the discussions of the pre-para, the following questions emerge for public discussion: Question 7a) Should ILD Operator be permitted to deploy VOIP network instead of PSTN for carriage of International voice traffic? Question 7b) In case the answer to the previous question is in the affirmative, then how to regulate the Quality of Service on VOIP links? Should a degraded performance on ILD link be acceptable with a reduced tariff? Question 7c) Whether existing Regulatory frameworks will be adequate for IP based Networks? What QOS standards should be applicable until ITU standards become fully mature? Question 7d) Whether VOIP based Networks need special considerations on issues like Numbering, Routing, addressing, inter-operability and QOS? Question 7e) Can ILD operator be allowed to engineer two networks, one based on PSTN with QOS guarantees and other based on VOIP with no QOS guarantee? How to regulate QOS and Interconnection in such a scenario? Question 7f) Should there be Carrier Selection of ILDO? If yes, what should be the modality of ILD access i.e. pre-selection or dial around or both? Question 7g) What shoutd be the technical arrangement and responsibilities for Billing for ILD calls? Where should the call data records (CDR) be generated for example, should these be generated by Routers in addition to the Switches? ANNEXURE I No. 10-19/2001-BS-l Government of India Ministry of Communications Department of Telecommunications Sanchar Bhawan, 20-Ashok Road New Delhi 110 001. To The Secretary, Telecom Regulatory Authority of India, Jawahar Vyapar Bhawan, Janpath New Delhi 110 001. Date: 12.03.2001 Subject: Recommendations of TRAI on the issue of license for International Long Distance Telephone Service - Regarding The Government has decided to open the International Long Distance Service ~ector for private participation from April' 2002. . For this purpose the Government has to decide the terms and conditions for issue of the license. In terms of Clause 11(1)(a)(ii) of the TRAI Act 1997, it is requested that the recommendations of the TRAI may be given on the: b) Terms and conditions of the license c) Number of players in this field d) Selection criteria e) License fee structure The recommendations should also include other facts of license conditions. It is further stated that the Government has already decided, except for Cellular services, free and open competition in other services such as National Long Distance service, Basic services, GMPCS etc. It would be appreciated if TRAI can give the recommendations at the earliest so that new players can be inducted by 1st April 2002. Yours faithfully, Sd/ (P.K. Mittal) Deputy Director General (BS) Tele: 3710437/FAX: 3372061 ANNEXURE II ALL ILD Calls through NLDO only GRAPHICS OMITTED ALL ILD calls from APs directly to ILDO ANNEXURE II (Note: This is presently not permitted as per NLD and Basic Service Licence conditions) GRAPHICS OMITTED Present arrangement with VSNL ANNEXURE II (BSNL presently is the NLD) (contd.) GRAPHICS OMITTED