India - Fuqua School of Business



Gordon Summers was sitting at his desk thumbing through the information he had just received describing a new telecommunications company in Rajasthan, India that was seeking an investment partner. On a first read, it looked good. The company was a member of the Shyam group, which had been in the telecom business since the 70’s and seemed to have a respectable reputation. His company, International Telecom Investments Ltd. (ITL), had been looking for a good investment opportunity in Asia and this could be the one, he thought. The documents projected expansion and profit, though there were a few points that would require closer scrutiny before the pitch could be made to senior management. ‘What are the risks involved in this project?’ he wondered. He knew that India was a developing country and as such there would be some inherent risks, however many of these risks could be mitigated….

…The Phone rang “hello”; “hello” the voice on the other end of the line replied, “ did you get the information?” “I have it right here. I was just going over it now.” Gordon Replied. “I’ll plan on presenting it next Tuesday. I let you know what they think.” “Alright” the other man replied, “if you have questions, just ask.” “ I’ll do that, “ Gordon said, “talk to you later.” There would be some long days ahead if he was going to get this done by Tuesday.

Shyam Telelink Limited

Shyam Telelink Limited (hereinafter referred to as ‘Telelink’ or as ‘STL’) is the basic service (land lines) licensee for the state of Rajasthan in India. STL is part of the Shyam Group of companies (Exhibit 1 for a list of group companies). The Group commenced operations in 1975, manufacturing rural telecom equipment for Department of Telecommunications (DoT) and gradually expanded its operations to the manufacture of transmission systems, radio telephone systems, CorDect Wireless in Local Loop, multiplexers, SCADA and VSAT Transreceivers. Towards the late 90s, the Group also emerged as a credible service provider in several segments of the communications industry and it forays into cellular, basic, internet, VSAT and GMPCS make it one of the few Indian players who operate across the entire spectrum of the telecommunications sector.

Telelink signed the basic services license with the Government of India on March 4, 1998, and under the Telecom Policy of the Government of India, enjoys the license for a period of 20 years, i.e., till March 31, 2018. Subsequent to this period, the license can be renewed for further periods of 10 years at a time.

A brief descriptive on the liberalization of the telecom sector in India is provided in Exhibit 2.

Telelink will initially be the only competitor to the state-owned incumbent operator, the Department of Telecom Services (‘DTS’) and proposes a phased network rollout plan to cover the most dense and lucrative geographical markets before moving into relatively smaller and dispersed markets. It proposes to cover 58 cities and towns in Rajasthan over the license period, these areas currently constitute around two third of the total DTS’s Direct Exchange Lines (‘DEL’) and over 90% of its revenues in Rajasthan.

Telelink is also scheduled to build over 4,000 km optic fiber cable based transmission network over the license period with around 3,200 kms being planned during the first three years of operations. The excess bandwidth on the transmission network would position the company to generate additional revenues through leasing of fiber/bandwidth to cellular, internet, cable television, and long distance service providers.

India

India is the seventh largest and the second most populous country in the world (Exhibit 3). One of the world's oldest and most diverse civilizations, India was subject to foreign rule from the early 1800s until the demise of the British Raj in 1947. But the subsequent partition of the sub-continent sowed the seeds for future conflict with three wars between India and Pakistan since 1947. Communal, caste and regional tensions continue to haunt Indian politics, sometimes threatening its long-standing democratic and secular ethos.

In the late 1980s and 1990s, India began to open up to the outside world. A series of ambitious economic reforms aimed at deregulating the country and stimulating foreign investment has moved India firmly into the front ranks of the rapidly growing Asiain Pacific region. India's process of economic reform is firmly rooted in a political consensus that spans her diverse political parties, having been promoted by each of the last three different political parties in power.

However, improving the living standards of the poor remains one of India's most pressing challenges. With a per capita gross national product (GNP) of US$440 in 1999, India continues to have the highest concentration of poverty of any country. According to World Bank figures, India currently has some 433 million people living on less than US$1 a day. Despite being the world's largest democracy, corruption permeates India's political system and society, so that the majority of Indians have no effective voice. As with so many countries - both rich and poor -wealth and power are increasingly concentrated in the hands of the elites and middle classes, at the expense of the millions living below the poverty line. India has massive potential to be one of the most influential nations in the world given its industrial, cultural, scientific and natural resources but it has a great deal to overcome if this is to be the case.

The State of Rajasthan

Rajasthan is the second largest state in India (Exhibit 4) with 10.6% of its geographical area and close to 5.3% of the population. It is situated in the northwestern region of India and shares its boundary with Pakistan in the west. The state has an area of 342,239 sq. km. at least a third of which is covered by desert.

While based on an assessment of overall state-wide statistics, Rajasthan does not compare favourably with other Indian states, the state, however, boasts a strong economic corridor in its eastern portion. The State Domestic Product (SDP) recorded a nominal Compounded Annual Growth Rate (CAGR) of ~12.5% during the period 1995-98 (Quick Estimates compiled by Govt. of Rajasthan) vis-à-vis an all India growth of ~14.9%. In real terms, Rajasthan’s economy grew by a CAGR of 5.2% in comparison to the national average of 6.9%. The CAGR of per capita income in Rajasthan (at current prices) during the period 1996 - 1998, at 11.5% compared favourably with the all India CAGR of ~11.9% during the same period.

The state is rich in mineral resources and India’s entire output of lead, zinc, emeralds and garnets are produced here. Rajasthan exports a variety of goods including handicrafts, carpets, ready-made garments, printed fabrics, leather goods, chemicals, marble, granite and gems & jewellery. Tourism is a major revenue earner for Rajasthan and the total spending by tourists in the state is estimated to be more than $ 350 million per annum.

The State of Rajasthan is characterized by its positive investment climate. Efforts by the State Government to attract investments into Rajasthan have yielded favorable response over the past few years. Some noted multinational corporations like Ericsson, Ford, Coke and Corning have recently established presences in Rajasthan and the State presently ranks 13th among Indian states in terms of quantum foreign direct investments attracted. The state’s proximity to the Indian capital, New Delhi and the moves to shift manufacturing activities out of the capital also make Rajasthan one of the preferred industrial destinations for business groups operating from of the capital.

Telecommunication Industry in India

India’s telecommunication industry is primarily managed by two state owned agencies, the Department of Telecommunication ('DoT') and Mahanagar Telephone Nigam Limited ('MTNL'). The DoT and MTNL operate one of the largest telecom networks in Asia comprising of an equipped capacity of 27.2 million lines and 22.6 million installed access lines as at September 30, 1999. The DoT and MTNL telecom network have been growing at a brisk pace. The growth over the last decade is presented in the charts below.

The increases in telephone lines have been accompanied by equally rapid growth in metered calls and revenues. DoT and MTNL together generated revenues in excess of Rs 154 billion in 1997-98, a growth of 285% over the revenue in 1990-91 representing a CAGR of 21%.

| |1990-91 |1991-92 |1992-93 |1993-94 |1994-95 |1995-96 |1996-97 |1997-98 |

|Revenue (Rs million) |40,132 |44.474 |49,666 |61,989 |82,052 |102,064 |125,178 |154,800 |

The Economic Research Unit (‘ERU’), a government of India organization has projected demand for basic telephony services in all telecom circles in India until the year 2005. Telelink management has compared the ERU demand projections with the actual demand registered by DoT for the period 1994-95 to 1998-99. The actual demand registered by DoT is higher than the ERU projections for each of the years, with the gap growing gradually from approximately 13% in 1994-95 to 21% in 1998-99.

While the telecom network has been steadily expanded, and the number of lines installed annually by DoT and MTNL has increased year-on-year, it continues to be insufficient for the country’s needs. With an abysmally low penetration of 2.2 telephones per 100 persons (1999 data), India compares unfavourably (Exhibit 5) with even other developing countries like Brazil (14.87%) and China (8.5%). The large population and size of the economy place a large demand for telecom services in India.

The waiting lists of subscribers maintained by DoT and MTNL are one indication of the potential demand. In spite of more than doubling the telecom capacity in the last 5 years, the waiting list have not diminished.

| |1991 |1992 |1993 |1994 |1995 |1996 |1997 |

| |-92 |-93 |-94 |-95 |-96 |-97 |-98 |

|Waiting List |100 |147 |138 |168 |138 |150 |5.2% |

|Expressed Demand |255 |541 |632 |776 |894 |1057 |19.5% |

Despite an aggressive roll-out by the DoT over the past 4-5 years, the waiting list has largely kept pace with the growth in working connections on a year-on-year basis reflecting strong underlying demand for basic telephony services

In the last decade there has been an impressive growth in the key industries in Rajasthan. These industries being primarily export oriented incur substantial expenditure on telecommunications facilities. During the year ended March 31, 1999[1] the key industries accounted for approximately 25% of the total revenues of DoT in Jaipur (the capital of the State of Rajasthan). Furthermore in the recent past due to the initiatives of the state government Rajasthan has emerged as an attractive investment destination. The recent growth in industrial activity in the state and the importance of telecommunication facilities to these industries presents an excellent opportunity for providing tailor-made telecommunications solutions to these industries.

The Project

Telelink plans to set up a network on the convergence[2] platform in Rajasthan and provide traditional voice telephony services; enhanced telephony services[3] and internet access. Since the incumbent service provider in the Rajasthan circle is currently operating under a voice oriented network, Telelink is in a unique position to obtain the first mover advantage by operating under the convergence platform.

In addition to these retail customer services, Telelink is also focusing on providing a host of services including tailor-made telecommunications solutions to the key industries and government departments. The police and local governments have expressed interest in using the system to establish networks of their own for communications and ‘e-governance’. Indeed, the project has attracted the attention of The Rajasthan Investment and Industrial Development Corporation (RIICO). Telelink has signed a memorandum of understanding with RIICO to extend its network to all RIICO industrial areas so as to provide each one with state of the art communications resources.

Telelink is also poised to gain significantly from the fact that its group company, Hexacom India Ltd, is the premier cellular service provider in Rajasthan. Even though both companies would compete for a share of the voice traffic, the objective would be to grow overall usage through effective service provision. Significant synergies are anticipated by means of not only sharing infrastructure, but also bundling of services and market development to jointly grow the market and capture a large market share.

In terms of implementation, Telelink has classified 12 cities in Rajasthan as "A" cities and the rest of the cities have been classified as "B" cities; this is based upon their economic profile and the current revenues of DTS. Telelink’s plan is to cover 12 cities in the first two years of operation (10 A and 2 B). Together these cities account for more than 66% of target subscribers and approximately 45% of the aggregate subscriber base in Rajasthan. By the end of five years of operation the coverage would be expanded to all the 12 A cities and 10 B cities.

Telelink bases its subscriber projections off of the ERU projections and adds an additional 20% due to their continuous under estimation of the actual demand mentioned previously herein. Given these market growth assumptions management has assumed that it will achieve the following overall market shares based on both churn from the incumbent, and incremental market growth.

|Category |2001 |2002 |2003 |2004 |2005 |

|Medium |10% |18% |25% |32% |35% |

|High |10% |18% |25% |32% |35% |

|Low |2% |5% |9% |11% |14% |

The Transaction

Based on Telelink's estimates, the project has a peak funding requirement of Rs 7,929 million. This amount is proposed to be financed as follows:

| |Rs million |

|Equity |3,524 |

|Debt |4,405 |

Debt

Telelink has received an in-principle approval from the Infrastructure Leasing & Financing Services (IL&FS) for underwriting a Rupee debt up to the amount mentioned above.

Equity

As on March 31, 2000, the Shyam Group had invested Rs.1,643 million in Telelink. Telelink now proposed to raise additional equity of Rs.1,881 million. This amount was sought to be raised from new financial investors through the issue of additional equity shares. The equity shares offered would equal to 9.46% of the post-transaction equity capital of the Company (see included excel worksheet CF), at an implicit pre-money valuation of Rs. 18 billion (approximately US$ 400 million).

Valuation

The valuation is based on management’s projections of the future cash flows (Exhibit 7), as well as on a terminal value calculation based on market comparable methodology. Specifically, the revenue multiple used for the terminal value calculation was 9 (Exhibit 6 for a list of comparable companies)

The Opportunity

Convergence

While convergence is a challenge, it is also an opportunity for new-age telecom companies. Data applications, particularly those containing images, video and sound, require more capacity than the traditional dedicated pipe could offer in the traditional analog format. High bandwidth is required to provide the needed capacity to surf the Web at fast speeds, complete transactions over the net and allow for new technologies such as video conferencing and video on demand. While the incumbent operator, with its networks based on old technologies, would require significant time and investment in network upgradation, new networks such as the one being deployed by Telelink, which have been specifically designed keeping in view the emerging technologies and market needs, would be in a better position to rapidly capture the growing market.

1 First mover advantage

The Company would be the first and only fully integrated service provider in the state of Rajasthan. Management intends to utilize this head start for developing customer relationships and establishing an efficient marketing and distribution network before further competition develops in the state.

2 Strategic Location

The key telecom markets in Rajasthan are located strategically on the Mumbai - Delhi route (the two biggest cities in India). The shortest distance between Mumbai and Delhi is approximately 1,900 km of which approximately 1,000 km passes through Rajasthan. The existing DTS 565 Mbps OFC route from New Delhi to Bombay passes through Jaipur, Ajmer, Chittorgarh and Udaipur. The proposed opening up of the domestic long distance market and the increased demand for data transfer capability provides the Telelink project with substantial leverage in the near future.

3 Promoter Strengths

Telelink has been sponsored by the Shyam Group of companies. The Group has been operating in Rajasthan for over 15 years and has established extensive business relationships as well as a strong brand presence in the state.

In addition to Telelink’s ability to market a complete range of communications solutions, the Company’s long-standing presence in the Rajasthan market, and relationships with key businesses and Government organizations in the state place the Company well to lead in the provision of electronic commerce platforms in the state.

4 Project Implementation

Telelink’s network has been designed by Lucent to provide state-of-the-art telecommunication services in Rajasthan. The network design provides extensive benefits, including savings on capital and operating costs, single point-of-contact for all network requirements, ease of network and system integration as well as a largely future proof network.

The Project is currently at an advanced stage of development and the following implementation steps have been completed:

( Wireline and wireless equipment supply contract has been finalized with Lucent;

( Wireline and wireless switch with five BTS sites have been installed and commissioned at Jaipur and TEC of the Jaipur system has been completed;

( 30 km of OFC has been laid in Jaipur for intra-city access network and planning of access nodes for Jaipur has been completed;

( Clearance from Wireless Planning Cell (‘WPC’) has been received for CDMA equipment in the frequency band of 800 mhz for 8 locations and application has been submitted for the CorDECT sites; and

( Rights of way for the Jaipur-Jodhpur backbone route have been received and 200 km of OFC laying work has been completed.

Conclusion

This isn’t the only Asian telecommunications project that is available for investment. The goal of ITL is to ferret out the best one through a process of evaluation. Would Telelink be the right one?

. . . . It was 9:00 PM Monday night and Mr. Summers was going over the last particulars of the Telelink project before his meeting tomorrow. His support staff had run the data through the necessary models and the final analysis was being made. His presentation was just about ready. But already, there was talk of a new investment opportunity in India in a company called Hughes Telecom. This new possibility was located in the most affluent state in India and could be a better opportunity, unfortunately there was no time to explore this possibility… today was for Shyam Telelink.

Meanwhile on the other side of the planet in India the staff of Telelink were going about their business, putting in new fiber optic lines only a few in the senior management knew that today could be the day when their future would become secure. They knew that they had all the advantages they needed to be successful and wondered whether the Americans would see that too. The management would not know the results until well after the next day. To them it seemed like time was going more slowly. All they wanted was to know that their plans for development of their state of the art telecommunications system in Rajasthan would go forward as planned. If things did not work out then the search would continue there was a world of investors out there, but that would take more time and time was money.

Exhibit 1

|Company |Area of Operation |

|Shyam Telecom Ltd |Manufacture of Telecom Equipment |

|Shyam Antenna Electronics Ltd |Manufacture of Antennae & CATV Equipment |

|Hexacom India Limited |Cellular Service provider in Rajasthan |

|Shyam Telelink Ltd. |Basic Service provider in Rajasthan |

|Essel Shyam Comm. Ltd |All India VSAT Service provider |

|Shyam ACeS India (P) Ltd |GMPCS Service provider in India |

Exhibit 2

Telecom Liberalization in India

Background

Faced with rapidly increasing demand for telecom services and equipment, and in recognition of the poor state of existing infrastructure, the Government of India (‘GOI’) began to reorganise the telecom industry in the mid 1980s. The Indian Telegraph Act of 1885 was revised in 1985 and the Department of Posts and Telegraph, which had been responsible for the regulation and operation of India’s telecommunications network, was divided into the Department of Telecommunications (“DoT”) and the Department of Posts. The DoT’s main function was to plan, engineer and operate telecom services throughout India, as well as manage frequency allocation and co-ordination with international agencies.

As part of the reorganisation, Mahanagar Telephone Nigam Limited (MTNL) was incorporated in 1986, to take over the existing telecommunications networks in the metropolitan areas of Delhi and Mumbai. DoT continued to provide long distance services (both inter-circle[4] and intra-circle) and local services in areas other than Mumbai and Delhi. Simultaneously Videsh Sanchar Nigam Limited (VSNL) was incorporated to provide international telecom services. GOI owns the controlling equity stake in both MTNL and VSNL.

Telecom Liberalisation – First Phase

With the initiation of the Indian Government’s programme for economic liberalisation in 1991, and with a view to expand and improve telecom infrastructure through private sector participation, the Indian Government permitted foreign companies holding 51% equity stake in joint ventures to manufacture telecom equipment in India. Then, in 1992 the unbundling of the telecom services sector began with certain following Value Added Services (like email, voice mail, data services, etc) being opened to private competition:

In May 1994, GOI announced a National Telecom Policy (“NTP94”), with the following overall goals:

• Supply telephone lines on demand by 1997;

• Cover all villages by 1997;

• Provide one public call office for every 500 persons in urban areas by 1997; and

• Introduce all value-added services in India preferably by 1996.

NTP94 recognised that the GOI would be unable to fund the investments required to meet these goals on its own and that private investment would be required to bridge the resource gap.

Accordingly, basic services were opened to private sector participation as a part of NTP94. The DoT released a tender for the private sector to bid for provisions of basic services in 21 circles in January 1995. The circles were divided into three categories (A, B, and C) depending on potential revenues. It was envisaged that one private company would be licensed to compete with DoT/MTNL in the provision of fixed services in each of the circles. The private sector was allowed to provide local and intra-circle long-distance services, with international and inter-circle long distance services continuing as a Government monopoly.

In 1995, the Government of India enacted a CATV Networks Act, 1995 to regulate the unorganised cable television industry. However, this legislation, which requiring a registration of the cable operators, has failed in regulating their networks or ensuring quality of service. After significant delays, an independent regulatory body, the Telecom Regulatory Authority of India (TRAI) was established in March 1997.

Despite the NTP’94, and the Government’s initiatives in liberalising the telecom sector, privatisation did not proceeded smoothly. To illustrate, basic services licences were issued for only 6 of the 21 circles and of these, only 3 operators have commenced operations. Some of the key reasons attributed to the slow take-off in private sector investments are:

• Political instability and lack of political consensus on economic Liberalization , leading to a slowdown of the reform process;

• Perceived conflict of interest between the DoT’s role as policy maker and service provider;

• Lack of clarity in the role of the TRAI and frequent disputes between DoT and TRAI;

• Strict license conditions, leading to difficulty in projects achieving financial closure; and

• In some cases, economically unjustifiable licence fee bids by the private licensees.

Telecom Liberalization – Second Phase

Recognising the role of Information Technology and Internet Services in the country’s development, the Government announced a policy for entry of private Internet Service Providers (“ISP”) in November, 1998. For this purpose, ISPs have been categorised into three types, i.e., Category 'A' (All India), Category 'B' (Territorial Circle & four Metro Telephone Districts of Delhi, Mumbai, Calcutta and Chennai) and Category 'C' (City).

Additionally, in order to overcome the problems being faced by the telecom industry, and to capture the benefits of technology convergence in building an efficient telecom infrastructure, the Indian Government announced a New Telecom Policy 1999 (“NTP’99”) in March 1999, with the following objectives:

• Provide affordable and effective communication facilities to all citizens;

• Achieve a balance between universal service and high level services;

• Encourage development of telecom facilities in remote, hilly and tribal areas;

• Create a modern and efficient telecommunications infrastructure, which takes cognisance of convergence between information technology, media, telecom and consumer electronics thereby propelling India into becoming an IT superpower;

• Convert Public Call Offices, wherever justified, into Public Tele-info Centres;

• In a time-bound manner, transform the telecom sector to a greater competitive environment providing equal opportunities and level playing field to all players;

• Strengthen Research and Development efforts in the country and provide an impetus to build world-class manufacturing capabilities;

• Achieve efficiency and transparency in spectrum management;

• Protect defence and security interests of the country; and

• Enable Indian telecom companies to become truly global players.

1 Key aspects of NTP’99

• The policy envisages a rapid growth in telecom sector for achieving the target of a tele-density of 7 by the year 2005 and 15 by the year 2010;

• The policy marks a significant shift from fixed license fee regime to a license fee based on revenue sharing mechanism. As per the policy, licensed telecom service providers shall be required to pay a one-time entry fee and percentage of revenue share, which shall be recommended by the TRAI;

• Licenses for basic, cellular, radio paging and radio trunking services shall be issued for an initial period of 20 years, extendible by 10 years;

• The policy permits sharing of infrastructure by all types of telecom services providers - cellular, basic, cable operators, etc;

• Licenses for basic services shall be granted on non-exclusive basis. Additionally, in cellular services, DTS will be the third operator for cellular services. Depending upon the availability of spectrum more operators may be inducted on the recommendation of TRAI;

• Cable operators will be permitted to provide last-mile linkages and switched services within their service areas of operation. However, they shall also be permitted to provide two-way communication including voice, data and information services subject to obtaining a basic services license;

• Cellular and basic service providers and cable operators will be permitted direct inter-connectivity with licensed service providers (of the same service as well as other services) within the same area of operation;

• Cellular and basic services providers will be allowed to provide long distance services within their respective service areas;

• National long distance services, beyond service area of the private service providers are proposed to be opened for competition in the year 2000, based on the recommendations of the TRAI on the terms and conditions for private participation; and

• Opening up of international long distance telephony services shall be reviewed by year 2004.

NTP’99 also recognised the concerns with respect to the DoT’s role as a policy maker and a service provider. A new Department of Telecom Services (DTS) has been carved out from the DoT for the provision of telecom services, and this is proposed to be corporatised by 2001.

NTP’99 also reiterated the Government’s commitment to a strong and independent regulatory body and sought to clarify the role of the TRAI. Subsequently, the Government has promulgated an ordinance strengthening the role of TRAI. With this ordinance, the Government also proposes to simultaneously establishing an Appellate Tribunal with powers to adjudicate disputes between licensees and the licensor, between service providers, including DTS, between service providers and consumers and to hear and dispose of appeals against any direction, decision or order of the TRAI.

It is now be mandatory for the Government to seek the TRAI’s recommendations in matters relating to the need and timing of entry of new service providers, and the license terms and conditions. The Government would, however, continue to have the final say in these matters.

2 Migration to NTP99

The current licenses for provision of basic services were issued under NTP 94. With the announcement of NTP 99, the following key changes have occurred in the license conditions:

• A six month extension on payment of licence fees from the second year onwards; and

• Migration from fixed license fee payments to revenue sharing from August 1, 1999 at 15% of revenues (net of access charges and service taxes) as an interim payment till TRAI fixes the final revenue share.

Additionally, TRAI has released an interim Interconnect Order, which is based on the earlier licence conditions. This Order will serve as a transition document till TRAI issues its final Order on Interconnect.

The Indian Government has proposed to replace the existing legislation governing cable television networks in the country with a more comprehensive Broadcast Act, wherein an autonomous body called the Broadcast Authority of India would look after private broadcasting in the country and licenses would be issued in the following categories:

• Terrestrial radio broadcasting;

• Terrestrial TV broadcasting;

• Satellite TV broadcasting;

• Satellite radio broadcasting;

• Direct to Home broadcasting;

• Local delivery services including CATV and MMDS; and

• Any other category as notified by government.

It is envisaged that two operators would be granted licenses for local delivery service for each telecom circle, while all existing registered operators with less than 5,000 connections would be allowed to continue operations.

While the draft Broadcast Bill aims at regulating the business, certain issues like the investment of current CATV operators, duplication of infrastructure of broadband services, cross media holding, stealing of signals remain to be answered. Similarly, the telecom sector continues to be governed by some old legislation, i.e., The Indian Telegraph Act, 1885 and the Indian Wireless Act, 1933, which tend to be restrictive in terms of Liberalization of the sector.

To enable convergence in the sector, GOI has formed a Group of Telecom, which is looking into the various problems facing the industry. Within this, a sub-group is examining the existing legislative framework, and is soon expected to recommend new laws to improve the legislative structure of the industry.

With the return to power of the National Democratic Alliance Government in October 1999, the pace of economic reforms has increased. The Government realises the importance of the importance of the telecommunications sector in the new economy, and the need for its rapid development to support the country’s dreams of becoming an information technology superpower. The recent emphasis in the Union Budget for 2000 on spurring growth in this sector is a further indication of the Government’s commitment to the sector.

The Government’s recent moves on improving the conditions in the Indian telecom industry, including the NTP’99, have generally been welcomed by the private sector and are viewed as being a step in the right direction. This has vastly improved the investment climate in India’s telecom sector.

Exhibit 3

Exhibit 4

Exhibit 5

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Exhibit 6

The table below outlines the revenue multiples for key multi-service CLECS in the US, based on their market capitalization as on May 19, 2000:

(US$ Million)

|Company | MC | Debt | Cash | EV | Sales | EBITDA | EV/Sales | EV/EBITDA |

| Teligient Inc. |1,593 |809 |440 |1,961 |31 |413) |63 |NA |

| Allegiance Telecom |6,078 |514 |502 |6,090 |99 |(131) |61 |NA |

| Level 3 Comm. Inc |25,824 |3,989 |1,219 |28,594 |515 |(513) |56 |NA |

| NEXTLINK Communications |7,702 |3,733 |1,882 |9,554 |274 |(214) |35 |NA |

| Time Warner Telecom Inc. |5,434 |404 |91 |5,747 |269 |38 |21 |152 |

| Adelphia Business Solutions |2,205 |845 |2 |3,048 |155 |(47) |20 |NA |

| Focal Communications Corp. |1,509 |245 |188 |1,565 |127 |23 |12 |67 |

| McLeod USA Inc. |9,201 |1,245 |327 |10,119 |909 |59 |11 |171 |

| Powertel Inc |1,940 |1,254 |371 |2,823 |283 |(57) |10 |NA |

| Western Wireless Corp |3,779 |1,450 |43 |5,186 |567 |242 |9 |21 |

| Electric Lightware Inc |912 |625 |21 |1,515 |187 |(52) |8 |NA |

| CFW Communications Co. |529 |38 |0 |566 |74 |26 |8 |22 |

| ITC DeltaCom |1,117 |516 |248 |1,384 |245 |29 |6 |47 |

| Price Comm. Corp |716 |700 |194 |1,222 |252 |130 |5 |9 |

| Commonwealth Telephone Ent |1,035 |188 |21 |1,202 |261 |95 |5 |13 |

| Intermedia Communications |1,736 |2,406 |241 |3,901 |906 |24 |4 |161 |

| US LEC Corp. |636 |72 |15 |693 |175 |53 |4 |13 |

| e.spire Communications |220 |749 |63 |907 |244 |(96) |4 |NA |

| GST Telecom |36 |1,169 |43 |1,161 |322 |(26) |4 |NA |

| Hickory Tech Corp |192 |111 |3 |301 |97 |33 |3 |9 |

| | | | | | | | | |

| Weighted average |84,329 | | |99,914 |6,068 | |16 |42 |

| Simple average | | | | | | |24 |62 |

| Simple average excluding highest and lowest | | | |18 |56 |

| Median | | | | | | |9 |22 |

Exhibit 7

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[1] Indian Fiscal year ends on March 31st of each year.

[2] Meaning a network that takes advantage of the converging markets of the internet, telecommunications, and entertainment.

[3] Phone plus, voice mail, ISDN lines, leased lines, virtual private networks, centrex, etc

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