MANAGEMENT DISCUSSION AND ANALYSIS

Macro-Economic Situation

The Indian economy achieved a GDP growth of 7.6% in 2015-16 against 7.2% achieved in 2014-15. The Macroeconomic stability has improved substantially with the continuance of fiscal prudence, lower inflation, lower current account deficit, and robust foreign exchange reserves. The year 2015-16 witnessed the Government doing a balancing act, i.e. meeting the requirements of higher untied devolution to states and union territories as per the recommendations of the Fourteenth Finance Commission and keeping fiscal prudence while also stepping up capital expenditure.

In light of the stable performance of the economy, buoyant tax revenues, increasing foreign direct investment flows and the Government's push for reforms in crucial areas including banking, infrastructure, power and taxation, the near term prospects for the economy look bright. Several multilateral institutions have projected strengthening of growth in India. However, several risks persist such as subdued global growth, the slowdown and rebalancing in China's economy, increased volatility in financial markets and gradual tightening of monetary policy in the United States.

The global economy is still struggling to gain momentum as many developed countries continue to grapple with legacies of the global financial crisis and emerging economies are less dynamic than in the past. But the global economy shows two positive trends. First, the structural shift from the developed world towards the emerging world continues. Second, the cyclical climb out of the prolonged recession is progressing. During the past year, the recovery in developed markets strengthened, although it was still uneven and patchy. While the US and UK improved over the brvious year, the rest of the Eurozone reported mixed signals. Over the longer term, globalization, demographic shifts and technology are expected to drive economic growth. Despite the recent slowdown in emerging markets and the improved outlook in developed ones, many emerging markets have younger populations and more favourable dependency ratios. These factors should contribute to a global economic rebalancing.

Indian Telecom Industry and Market

India's telecom sector and subscriber base have grown strongly and steadily over the past decade, on the back of rising fixed and mobile network coverage and competition-induced tariff declines. These factors have driven up demand, as has growing broadband Internet access, the quick sbrad of smart mobile devices and higher video traffic on consumer and business networks. The key factors which are likely to fuel future growth are a still-growing subscriber base, mobile applications and technologically advanced end-user devices that will drive exponential growth in Internet usage and substantial growth in data centre colocation services. However, traffic growth will remain counter-balanced by severe price erosion, especially for basic voice and connectivity services, further exacerbated by competition from next-generation service providers. In the business-to-business (B2B) space, data and video traffic are growing rapidly, due to increased adoption of information technology and network services to drive business productivity and innovation.

In 2015-16, our addressable Indian telecom market grew to Rs.48,1 75 crores, at a rate of year on year.

During FY16-21, the market is expected to grow at a compounded annual growth rate (CAGR) of 10%, on the back of a mid-teens growth forecast in the mobile services and managed services space. Growth in the Indian market is mainly driven by higher penetration of mobile services, growth in consumer broadband services and increased adoption of network services by Indian businesses. The Company leads the Indian market in several segments. In the financial year 2015-16, the Indian international long distance (ILD) voice market had nine major operators, an estimated total inbound market size of 96.3 billion minutes and outbound market size of 4.7 billion minutes. The Company's market share was 21% of the 'addressable' inbound traffic and 23% of the 'addressable' outbound traffic. India's estimated national long distance (NLD) voice market size was 398 billion minutes during the year and consisted of more than 10 major operators. The Company's estimated NLD addressable market size was 15 billion minutes, of which its market share was 21%.

Global Telecom Market

In 2015-16, the global communications services market stood at USD 1.47 trillion. Fixed services accounted for 35% of the total market while mobile services accounted for 65%. However, going forward the market is expected to grow at a CAGR of 0.9% to 1.54 trillion in 2020. During 2015-16, the Company's addressable market in voice services witnessed a slight decline because of declining call rates, while the data market showed healthy growth. We expect the Company's addressable market to continue to grow at an attractive pace, due to the growth of data and video services in both the consumer and business domains.

COMPANY STRATEGY AND DIRECTION

Business Strategy

We own and operate the world's largest wholly owned and most advanced subsea fibre cable network. Today, over 25% of the world's internet routes travel over our network, which includes the largest wholly-owned subsea cable network in the world. Our customers can access 99.7% of the global GDP using our network and services. We are the fifth largest global IP service provider, connecting 4 out of 5 global mobile subscribers. Our depth and breadth of reach in emerging markets has enabled our leadership in Indian enterprise data services and also in global international voice. With a leadership position in emerging markets, we leverage our advanced solutions capabilities and domain expertise across our global and pan-India network to deliver managed solutions to multi-national enterprises, service providers and Indian consumers. We are also the largest carrier of international wholesale voice - carrying 47.6 billion minutes of wholesale voice traffic annually.

Our vision is to deliver a new world of communications to advance the reach and leadership of our customers and partners. Our strategy is to build leading-edge IP-leveraged solutions, based on its advanced global infrastructure an our market leadership in India. We are able to provide differentiated choices of network and IT Infrastructure services to service providers, and large enterprise customers, in both established and emerging markets. In the coming years, we will continue with our strategy of providing managed services globally with a business-to-business (B2B) focus. We expect that the demand for our services will remain strong in spite of increased competition and brssure on pricing and margins. Therefore, we have a three-pronged strategy of driving revenue growth from new markets and investing in services and technology innovation, while continuing to improve the cost structure of the operations by sweating existing assets. To execute this vision, we focus on several strategic pillars, highlighted below:

- In core connectivity services, to focus on business model evolution, an introduction of new commercial paradigms, while optimising operating costs and driving efficient utilization of assets.

- To offer hybrid network and data centre solutions that leverage public and private infrastructure, to accommodate the changing enterprise IT landscape.

- To leverage the extensive existing network and customer relationships to selectively offer industry specific solutions, such as those already customized like we have started for the Media & Entertainment, Banking & Financial Services and Healthcare sectors.

- To leverage the adjacent capabilities and shareholder value creation role of other businesses in the portfolio such as the managed ATM business (in Tata Communications Payment Solutions Limited) and the carrier outsourcing business (in Tata Communications Transformation Services Limited).

In addition, we are progressively investing in innovation and R&D to enable the shift to:

- a software defined network;

- provide elastic demand across network and compute in a secure and self-service model;

- enable the mobile-first approach by our customers.

Differentiated Enterprise Offerings

We will further strengthen our market position by continuing to develop and introduce new products and services catering to the needs of corporate customers, such as unified communications, hosted contact centre, mobile broadband enablement, content delivery, infrastructure as a service (IaaS), and other managed products and services.

Expanding Global Reach through Partnerships

The Tata Communications Group looks to work with solution partners, network partners, resellers, system integrators and IZO partners. The partnership programme is designed to help both the parties meet their business goals while playing as an integral part of customer solution in delivering end-to-end services. Through Network-to-Network Interface (NNI) agreements, we partner with leading carriers to give our customers a scalable and reliable global coverage. Our unmatched depth and reach throughout India, coupled with partners' extended reach around the world, allow us to support customers who desire seamless coverage -both in emerging markets and in major cities throughout the world. IZO™ Cloud brings together leading cloud and data centre providers to give businesses access to a single ecosystem to connect, end-to-end, across network and cloud platforms. Backed by our Tier-1 network, IZO™ Cloud partners can join forces to provide a secure, interoperable, high performance environment that addresses the complications and challenges that companies face in managing global hybrid cloud deployments. The result is faster deployment timeframes, simpler network configurations and a better end-user experience.

Continuing Leadership in India

Currently, the Company has leading market shares in voice and data transmission in India. In the international long distance (ILD) voice business, the Company's market share is approximately 21%. In data services, the Company is a market leader with more than a quarter of the market share. Its leadership is well recognised in India: In FY 2016, the Company was recognised with six awards at the 2016 Frost & Sullivan India ICT Awards:

• Enterprise Telecom Service Provider for the Year-Large Enterprise Segment

• Enterprise Data Service Provider of the Year

• Enterprise Ethernet Provider of the year

• Third-party Data Centre Provider of the year

• Enterprise VoIP Provider of the year

• Hosted Contact Centre Provider of the year

We will continue to sustain and solidify our market leadership status in India while continuing to grow and acquire market share in other regions.

Emerging Market Leader

We have been growing our brsence in the international services segment, both in the carrier and enterprise segments. With a focus on cross-border connectivity and collaboration services, differentiated offerings to emerging markets and superior customer experience, we are growing our business outside India at a rate much faster than the market.

This has resulted in several accolades including being recognized in the Leadership Quadrant by Gartner in the Gartner Magic Quadrant for Global Network Service Providers - three years in a row.

Achieving Synergies with Other IT and Telecom Companies

Achieving synergies with other players in the IT and telecom sector enables the Company to access their existing customer bases and gives it the opportunity to share infrastructure costs. Accordingly, the Company continues to identify synergies and potential opportunities with other group companies. In particular, the Company has collaborated with Tata Consultancy Services (TCS), a leading IT services company, on several occasions to jointly provide TCS customers a broad range of end-to-end IT and telecom solutions. The Company has also leveraged synergies with Tata Teleservices Limited (TTSL) on network and field operations thereby avoiding overlapping requirements, achieving higher volumes and enabling savings. In addition, the Company has established and will expand its partnerships with several other Indian and global systems integrators (SI) and carrier partners, to deliver and sell services, by leveraging mutual capabilities.

SEGMENT WISE PERFORMANCE

Company Segmentation

Our business and revenues are well-diversified across business segments, customer profiles and geographies. Being a B2B (business-to-business) player, we serve two customer segments: service providers and enterprise customers. In the service provider segment, we provide an integrated set of services including wholesale voice, domestic and international data connectivity, Internet backbone connectivity (also known as IP transit), value-added roaming services for mobile operators and carrier-specific business process outsourcing services. In the enterprise segment, our main offering comprises of a combrhensive suite of connectivity, IT infrastructure and managed communication and collaboration solutions for businesses seeking voice, data and video connectivity between their distributed offices, within India or globally. These services are aimed at improving the operational efficiencies of business through the adoption of the latest networking and IT technologies, on a managed solutions basis. We also continue to build industry specific solutions, with a current focus on Banking & Financial Services and Media & Entertainment. We classify our operations into three main business segments - global voice solutions, global data & managed services and Neotel (its subsidiary in South Africa).

Global Voice Solutions

International Long Distance (ILD)

We are the world's largest carrier of international wholesale traffic, with the most advanced intelligent routing platform to provide quality voice services. It has over 300 direct routes suppliers with leading international voice telecommunication providers. The wholesale international voice business is a mature and increasingly commoditised one, and the Tata Communications Group's strategy is to grow its leadership position while optimizing traffic volumes and maximizing margins and cash flows.

During 2015-16, the Company handled approximately 43.2 billion minutes of international voice traffic globally, a decrease of 12% over the brvious year. During the year, traffic to and from India decreased to approximately 14.2 billion minutes, from approximately 1 7 billion minutes in 2014-15.

However, during the past year, we were able to increase the ratio of traffic coming from mobile operators and next-generation service providers, which is essential in the strategy of securing traffic directly from key retail service providers.

National Long Distance (NLD)

NLD traffic within India is growing, though the growth has slowed down. The Company holds a 21% market share of the addressable market in this business. The Company's NLD traffic has decreased from 4.5 billion minutes in 2014-15 to 3.1 billion minutes in 2015-16, as MNOs continue to expand / roll out their domestic network thus further shrinking the addressable market. Greater competition and regulatory initiatives have resulted in falling NLD tariffs over the years but tariffs appear to have now stabilized. The Company believes that while the addressable market may continue shrinking, this remains large enough to be an attractive opportunity to maximize our existing infrastructure and capabilities. By increasing our market share, reducing costs and increasing margins, we intend this business segment to remain profitable.

Global Data and Managed Services

Carrier Data

We are one of the world's leading wholesale providers of data, Internet protocol (IP) and mobile signaling services. We own and operate the world's only wholly-owned fibre optic sub-sea network ring around the globe, the Tata Communications' Global Network (TGN). We have investments in multiple consortium submarine cables, which complement the TGN network and enables us to provide seamless connectivity services across all the major business hubs around the globe.

The TGN consists of 7,00,000 kilometers of terrestrial and subsea network fibre and reaches countries rebrsenting ~98% of the world's GDP. We leverage this unparalleled network to provide high-speed bandwidth connectivity to other telecom operators, content providers and Internet Service Providers (ISPs) worldwide.

The Data Roaming Boost shall enable mobile network operators, mobile virtual network operators and service providers to deliver a significantly improved mobile internet experience for their customers. With data roaming, a mobile user's internet connection is traditionally routed via long distances and through multiple transit parties back to the home operator -resulting in speed and connectivity challenges. This in turn leads to a poor user experience and often results in service abandonment. With Data Roaming Boost, mobile network operators are able to avoid this multi-party hand-off and connect their customers to the Internet using our closest globally deployed points-of-brsence. This ensures a high-quality browsing experience for roamers, while giving service providers full control of their subscriber traffic. This same service can be used by mobile virtual network operators for both human communications and also used for Internet of Things (IoT) global mobile connectivity, which according to the GSMA intelligence reports will be 26 billion connected devices by 2020.

We have the world's largest mobile signaling inter-provider network and are supporting mobile network operators (MNOs) around the globe with one of the industry's widest reaching service offerings for mobile broadband enablement. We have an extensive portfolio of mobile services, including IPX+ connectivity, voice, messaging, roaming, value added services and 3G\LTE signaling. With the accelerated growth in mobile data which GSMA brdicts will grow 10 fold from 2014 to 2020, MNOs are looking for ways to generate increased revenue, reduce customer churn and ensure service continuity even as they migrate to 4G and we are mining this opportunity. Our managed mobile services simplify the interconnection of MNO communities, ensuring smoother end-to-end service delivery and management across networks, resulting in quality and efficiency gains. During the past year, we have introduced several innovations in these areas. Additionally, we are adapting and introducing new mobile services to serve not only mobile network operators, but also next generation providers and enterprises and this will drive further growth over the next few years, combating price erosion in our traditional signaling business. We have also introduced the Partner Portal which improves speed to market and scaling fast by selling via dedicated partner ecosystem.

Enterprise Data

The enterprise data business has a high potential and is growing fast. Over the past few years, we have ramped up our capabilities and offerings so that today, we are a leading player in this space globally, with an extensive suite of services. We offer a full range of customised and managed communication solutions tailored to the needs of enterprise customers. With our Global Network Services (GNS) portfolio, we serve several forms of connectivity needs of service providers and enterprise customers in India and globally. These are: Ethernet Platform, dedicated point to point connectivity (IPL or NPL); Internet (IP based) connectivity (IAS within India and IP Transit elsewhere); and multi-location connectivity through Global Virtual Private Networks (GVPN), IZO Internet WAN; or Hybrid WAN which combines both GVPN & IZO services. We continue to expand the reach of our services by directly entering select new markets, partnering with regional/local operators, and using indirect channels catering to small and medium enterprises. During the year. We worked on expanding our network brsence and increasing network capability into Tier 3 & Tier 4 towns in India to cater to emerging Enterprise business requirements. Launch of white-label SIP trunking solution empowers service providers to expand their voice services to customers. Infonetics forecasts that 62% of enterprises are expected to use SIP by 2017 for a portion of their voice connectivity requirements. Underpinned by our Global network with connectivity to over 240 countries and territories, Global white label SIP solution empowers service providers to meet the demand through faster time to market and a reliable, high quality user experience for their global customers. During the past year, we have introduced several new innovations and acquired a number of new clients.

During the year under review, we launched IZOTM Private Cloud service to bring CIOs unbrcedented control over their public and private clouds and entire data centre estate. The new service, unveiled at Cloud Expo Asia, is the latest addition to our game-changing IZO™ cloud enablement platform, and will empower enterprises to connect to the world's biggest clouds, and to build a truly hybrid, high-performance IT infrastructure, where different cloud, colocation and managed hosting environments work together as one.

Our focus to increase business and partnership with these top Cloud providers led to the organization of our NextGen Sales unit, which has a dedicated sales force to cater to the needs of these Cloud providers. Over the last year we partnered with them for our IZO™ platform, and closed a few strategic deals in the network and infra based solutions space. The NextGen sales segment has shown high revenue growth year-on-year.

Our IP Services rank among the top five global customer routes rebrsenting more than 25% of the overall Internet routes. Our IP network reach has extended into some new countries and locations, like Austria, Switzerland, Taiwan, and several cities in USA. We have been an aggressive early-mover in the Ethernet space. Earlier this year, we won two industry awards: the Metro Ethernet Forum (MEF) Best Ethernet Business Application and the APAC Ethernet Service Provider of the year. The low latency network further extend our global financial trading connectivity network supporting mission critical real-time trading applications. We have also strengthened our MPLS VPN portfolio by introducing flexible service variants, enhancements of network capability & reach. Launch of Usage based VPN service allows customers flexibility to scale up bandwidth and adopt 'pay as you use' billing for unseen peak loads across their global network. Our network reach is further enhanced with the help of an exbrss route connecting East Africa directly to the Middle East, a redesigned Middle-East network architecture for enhanced performance to customers with Intra-region connectivity requirements as well as new nodes in major cities of Africa, Middle East and Europe. Collaboration with SimbaNET opens up opportunities to provide a portfolio of technology and communication solutions for enterprises' growing ICT requirements in East Africa. The said collaboration shall provide companies in Kenya, Tanzania and Uganda with access to enterprise solutions such as global network connectivity, direct public cloud access, unified communications and managed security services.

Global managed services (GMS) provides collaboration and unified communication solutions to enterprises as well as service providers. Services offered by Tata Communications Group are: Calling services (Enterprise voice, ITFS, IPT), SIP trunking services, Conferencing services (voice, data, web, video), and Hosted Contact Centre services. These services enable service providers and enterprises to leverage our global network reach and unified communications portfolio without major up-front investment in building their own solution. The business customers benefit from a new way to transform their voice network with a potential 55% network cost saving. The conferencing services provide "virtual meetings" using simple desktop based and life­like telebrsence endpoints, which enable enhanced collaboration across global companies and markets, reducing travel and raising productivity. Further, growth of mobility makes Unified Communication and Collaboration (UCC) critical to the large businesses we serve who operate across multiple geographies and across multiple time zones. This is driving growth in video usage, which is driving our IP traffic and overall network usage. The Contact Centre services enable businesses and outsourced service providers to manage contact centre requirements worldwide, across multiple delivery centres, with consistent customer experience and the uptime, performance, scalability, and resiliency needed for business critical applications. We are now positioned in the Leaders' Quadrant in Gartner's Magic Quadrant for Global Network Service Providers. In just five years we have been recognised by Gartner in the Leadership category in both APAC and Global Magic Quadrant for Enterprise Network Services. This recognition by a leading global business analyst validates the implementation of our strategy on the two parameters of 'Completeness of Vision' as well as the 'Ability to Execute'.

We also offer customised network solutions and managed services to the media and entertainment industry. Media companies with global reach are actively pursuing next generation architectures that are IP/ cloud centric, providing efficient global work flows, distribution, flexible scaling, and readiness for alternative OTT services. Our strategy to create the world's richest, connected, open video ecosystem includes business-to-business video services, cloud based services and flexible, modular, managed services. As we continue to leverage our strength in emerging markets, we extended our Video Connect Network into Nigeria through a partnership with Main One Cable Company, Nigeria's brmier provider of broadband Internet services and into the Middle East region via our partnership with Etisalat. We have also partnered with major media service providers like Harmonics Inc. to provide end-to-end managed media services. In a testament to our capabilities, we successfully delivered rugby union matches covering 10,000 kilometers and several time zones between match location from where around 20 million viewers globally tuned in. Also, in May 2015, we were appointed by Formula One Management as a broadcast supplier to provide a fully diverse end to end fibre and satellite solution to broadcasters from across the globe at the 12 race locations. This partnership will enable broadcasters to have access to a provider with knowledge and experience in motor racing and the infrastructure capability to provide specific media management and movement services that go above and beyond the core technology. We continue to experience double digit growth within the sports entertainment markets and with content owner providing global distribution of their content.

ORGANIZATIONAL RESTRUCTURING

Global Structure

We have structured ourselves into global business units and global shared service functions, to operate optimally in our different customer segments and markets sbrad across the world. Several initiatives are being implemented within this structure to improve customer experience, define and create a common culture, tighten corporate identity and branding and implement the next-generation network architecture for converged services, and enhance operating efficiency in other respects.

SUSTAINABILITY AND RESPONSIBILITY

Environment Sustainability Initiatives

Our sustainability journey has evolved in recent years. We began by responding proactively to calls for environmental compliance and by reducing our operational footprint. Our three priorities in this regard are to reduce carbon footprint, reuse water and reduce its consumption, and manage hazardous solid waste. The Company has set up water treatment plants in India at Pune, Mumbai, Chennai and Delhi to recycle waste water to partially meet its water requirements. At Pune, an artificial lake was created to charge the ground water.

Additionally, 20-feet wells with horizontal bores are used for further harvesting. This has resulted in an abundant supply of water through ground water sources during the lean months. At Pune we plan to deploy Geothermal and Mist cooling technologies for air-conditioning system to further reduce water consumption. Organic waste converters (OWC) have been deployed at Pune and Ambattur to convert solid waste generated into manure.

Corporate Social Responsibility (CSR)

Tata Communications Group believes that the primary purpose of a business is to improve the quality of life of people and that a corporate entity exists to serve society from where it sources its customers and other stakeholders. Hence, it is important to address the needs and concerns of the society in a proactive manner.

We demonstrate our social responsibilities by assisting communities by actively implementing developmental projects in the thrust areas of Education, Employability, Entrebrneurship and Healthcare. The implementation of the CSR programs in the given focus areas is done through not for profits and other partners with relevant experience and credibility. Apart from the thrust areas, we also work on issues of water, personal hygiene and digital literacy. One of the flagship programs 'National Cancer Grid' was launched in 2016, in health care sector, in partnership with Tata Trusts.

Our projects are, strategy-driven, partnership-based, and business-integrated. While driving the projects, the thrust is on leveraging the infrastructure, resources and expertise to design and implement various programs and also actively promote volunteering by the employees.

In line with its corporate social responsibility and commitment towards the community as a whole, we are also committed towards inclusion of beneficiaries from socially disadvantaged communities and also aim to increase diversity base in the projects.

In pursuit of CSR programs, we synergize with the programs and initiatives of Tata Group by liasoning with Tata Sustainability Group (TSG) wherever possible and provide support for disaster rescue, relief and rehabilitation.

REGULATORY DEVELOPMENTS

The Government of India approved on 31 May 2012, a new Telecom Policy aiming to boost transparency and revive growth in the Indian telecom industry. The Company expects that the new telecom policy will help telecom operators serve their customers better. The regulatory scenario in other geographies across the world, where the Tata Communications Group operates through its subsidiaries, did not see any major policy changes impacting the business.

'National Telecom Machine to Machine (M2M) Roadmap' was released on May 12, 2015 by the Government of India. Anticipating the promising potential of M2M, the Department of Telecommunications has come up with this roadmap which will serve as a single reference document for all M2M stake holders in India. It is first of its kind initiative taken by any government in the world. This roadmap is aimed to provide guidance to all the stakeholders to nurture M2M Communications.

RISKS AND CONCERNS

Like all businesses, we are exposed to certain risks and concerns in the course of business:

Price Reductions

Reductions in prices for communications and managed services, both voice and data, in India and worldwide, have had and are expected to continue to have an adverse effect. It is likely that the prices for communications and managed services will generally continue to decrease as competition increases, as capacity is augmented, and as disruptive technologies are introduced. The recent economic downturn globally has led to a slowdown in customer uptake and put increasing downward brssure on prices as customers seek to reduce costs.

Key Customers - Service Providers

Business with other carriers and service providers rebrsents a large proportion of our total business. Several carriers that we do business with have in the recent past suffered from reduced profit margins and other significant financial brssures. Market restructuring through acquisitions and mergers or through carriers exiting the international wholesale business continues. This could lead to realignment among the various players in the industry. Some of these changes could negatively impact our business. Further, if any of the major carriers that Tata Communications Group does business with encounters sudden financial difficulties or files for bankruptcy, we may be unable to recover amounts due to it.

Key Customers - Enterprises for Managed Hosting & Security

Business with other enterprises rebrsents a large proportion of our managed hosting and security business. Most of the enterprise customers are facing challenges related to reduction in profit margins and hence reduction of data centre infrastructure and services budget. This leads to enterprise customers looking at newer technology or financial model (CAPEX or OPEX) to fulfill the requirement. Most of the large public Cloud Service Providers see this as an opportunity and are realigning to focus on enterprise customer. Some of these changes could negatively impact our business.

Technology Risk

Technology is continuously changing in the telecommunications industry, and service providers need to ensure that they are constantly bringing new services and technologies to market to compete effectively. We continuously introduce new communications services so that we can compete for new customers and can compete in new segments of the communications business. If we are not able to successfully complete the development and introduction of new services, including new managed services, in a timely manner, the business could be adversely affected. We rely on a combination of in-house development and third-party technology licensing and/or acquisition to bring the new communications services and technology to market. In either case, it is important that we are able to obtain any necessary third party intellectual property rights covering the new communications services on a cost effective basis. If another person holds the technology that is necessary for us to provide our services, under a patent or other intellectual property right, a license for the use of that technology may have to be negotiated. The negotiations may not arrive at a price that is acceptable. The existence of such patents or other intellectual property rights, or the inability to negotiate a license at an acceptable cost, for any such technology, could effectively hinder our ability to provide services and offer products using that particular technology. Since it is not cost effective to perform combrhensive patent searches for the technologies used by all our products and services, it is often not possible to determine what relevant patents are held by others until a third party levies a patent infringement claim against us. Furthermore, even if we are able to identify a relevant third party patent but we have developed strong bases for our product or service not infringing that patent, the patent owner may still sue us.

To the extent that we are subject to litigation or other claims regarding alleged use of third party intellectual property rights, this litigation could:

• Be time consuming and expensive;

• Divert attention and resources away from daily business;

• Impede or brvent delivery of products and services (through injunctive or other equitable relief); and

• Require payment of significant royalties, licensing fees and damages.

Some of the key technological risks can be classified under as below:

• Last Mile access: Related disruptions due to crowding on un-license band spectrum, roll out of 5G / LTE high bandwidth wireless, Sky technology e.g. Drones

• Terrestrial Long Haul access: High speed terabit wavelengths deployment, wireless access used for long hauls in replacement to terrestrial access.

• Switching (IP layer): With the advent of Software Defined Networks (SDN) it is being considered as the next wave of routing and switching for IP based networks, the traditional network architectures are exposed to be disrupted in the near future. We are also gearing up with adoption of SDWAN technology for our network.

• However, high speed core networking equipment and infrastructure in large carrier networks has advanced too far ahead in terms of semiconductor chipset scale, cost and conventional price/performance considerations. This core networking realm will continue to be dominated by large network OEMs.

• In the network edge, metro Ethernet access and aggregation layers, where the traffic volumes and services complexity can be virtualized without compromising on performance or security or costs, there will likely be a limited or residual risk of SDN based architecture and deployment.

• While SDN evolution is still at a nascent state due to lack of standardization, security concerns and exposures from a SDN design, architecture and overall framework perspective have to be thoroughly assessed and validated at a hardware, software, application and virtualization layer before such SDN implementations can go live. Security is one key and vital domain, which will act as a strong countering force in the pace of industry adoption, unless and until the security best practices and framework in a SDN environment gain enough maturity by way of standardization and broader acceptance.

SDWAN technology is evolving rapidly, mostly driven and led by the new age startup community from the Silicon Valley. This SDWAN has the potential and promise to harness the power of software based centralized network orchestration and control the network traffic efficiently and dynamically in real time. This highly automated and disruptive technology will likely pose a risk to traditional WAN network services. However, given the nascent state of SDWAN technology, it will likely consume 24- 36 months of time before the maturity cycle crosses over a tipping point in line with traditional OEM vendors.

• We have taken proactive counter measures to test, incubate and launch CI of IZOTM SD WAN services in this fiscal year.

• The other associated risk will also likely include potential acquisition of such SDWAN startup vendors by larger companies (carrier or OEMs).

In addition, we must be vigilant in protecting our own intellectual property rights through appropriate government filings and other actions under patent, copyright, trademark and trade secret laws in various jurisdictions worldwide. Any impediment in this process could harm the business.

Operating Risks

We must be able to continuously increase the traffic of voice, Internet, data, and video transmissions on our global network in order to realise the anticipated cash flow, operating efficiencies and cost benefits of this network, particularly since certain of the costs (such as repairs and maintenance) are fixed. Any one of several factors could adversely impact ongoing operations, including these:

• The technical infrastructure is vulnerable to damage, interruptions or failures that may result in reduced traffic and consequently reduced revenues and cause harm to our reputation because of failure in fulfilling commitments under significant contracts.

• Inability to hire and retain an adequate number of qualified personnel or to source the right equipment and technology.

• With the advent of SDN evolution, software based skillsets and competencies and DevOps model will be key catalysts, hence we have taken appropriate measures in incubating diverse skillsets cutting across multiple domains such as network, security, systems and software and working towards adoption of the DevOps model.

• Acquisitions have been key to our growth and successful integration of acquired businesses is important to realise the full value of investments made.

• Our operations are global and any terrorist activities or other acts of violence or war that impact business continuity, would adversely affect our results.

Lack of End-Customer Ownership

In the long distance voice business in India, the Company is a wholesale operator and does not have an access license. Although Calling card regulations have been issued by the Regulator recently providing the end consumer the choice to choose its Long Distance carrier, the Company continues to be dependent on access providers to route National Long Distance (NLD) and International Long Distance (ILD) calls of their customers through the Company's networks. This inherent nature of the business poses some risk. Several of these access operators in India have taken NLD and ILD licenses and started operations as competitors in the long distance and other markets, thus shrinking the addressable market.

Tata Teleservices Ltd. (in which the Company has an equity stake) and its subsidiary Tata Teleservices (Maharashtra) Ltd. (together referred to as TTL) hold access licenses in almost all the telecom circles in India. The Company and TTL have been working together to leverage each other's strengths. However, these efforts may not produce the desired results.

The international wholesale voice business also depends heavily on third parties who own organic traffic. To mitigate the risks of losing traffic, the Company is building traffic from Retail Service Providers such as Mobile Network Operators, Over The Top players, etc.

Regulatory Environment

Tata Communications Group has interests in a large number of countries worldwide and must comply with an extensive range of requirements that are meant to regulate and supervise the licensing, construction and operation of telecommunications networks and services. These requirements are likely to increase with further overseas expansion and with the expansion of our services portfolio, particularly with the expansion of voice services to enterprise customers. In particular, there are agencies which regulate and supervise the allocation of frequency spectrum and which monitor and enforce regulation and competition laws that apply to the telecommunications industry. Legal and regulatory decisions and changes in the regulatory environment in the jurisdictions in which we do business could have adverse effects. The tariffs charged by telecommunication service providers in India are subject to the regulations of the Telecommunications Regulatory Authority of India (TRAI). The Company periodically renegotiates interconnect agreements with various domestic mobile service operators and basic telecom service providers and settlement rates with international carriers, resulting in the revision of rates from time to time depending on market conditions. Such revisions could be adverse and have a material effect on our operations and financial condition.

Telecommunications regulators around the world -including in particular the FCC in the United States - have shown a keen interest in adopting regulations to codify "net neutrality" or "open Internet" principles. Culminating a hotly-contested proceeding, the FCC adopted new rules in March 2015 that (i) require transparency and robust disclosures by providers of fixed or mobile broadband Internet access services, and (ii) prohibit blocking or throttling of lawful Internet traffic as well as "paid prioritization" arrangements between Internet service providers and providers of online content or services. In addition, to bolster those bright-line rules, the FCC reclassified broadband Internet access as a common-carrier "telecommunications service," abandoning the "information service" classification it had maintained for many years. The FCC imposed common carrier duties on Internet service providers not only in their retail capacity, but also in connection with their interconnection and traffic-exchange arrangements with transit providers and CDNs. The FCC also imposed a general "Internet conduct" standard that bars "practices that unreasonably interfere with or unreasonably disadvantage the ability of consumers to reach the Internet content, services, and applications of their choosing or of edge providers to access consumers using the Internet." A broad array of Internet service providers have challenged the FCC's rules in court, and judicial proceedings are likely to continue into 2016.

While the U.S. regime exbrssly excludes services provided to enterprise customers and wholesale carrier customers, calls for further expansions of the recently adopted rules may implicate our services more directly. In addition, regulators in other countries are considering rules that may not exempt enterprise or wholesale services. We expect debates about net neutrality issues to remain active in many jurisdictions, and calls for increased regulation may expand into adjacent areas, including the potential regulation of transit and CDN services, over-the-top video services, and other aspects of the Internet ecosystem.

Most of the countries want the data to remain within their area of operations for sovereignty and regulatory requirements. This is a window of opportunity for us to expand to newer geographies. However, it comes with its own challenges related to certification to the local laws eg. MTCS certification for participating in Singapore government project; ISO2701 8 certification for personally identifiable information for the data hosting on cloud, etc.

We have data centres operating globally & specifically in Europe, currently the Data Protection Directive (95/46/ EC) obliges data controllers to implement appropriate technical and organizational measures to protect personal data. A new General Data Protection Regulation has been proposed and is currently being debated before the European Parliament. It includes new obligations, such as the obligation to appoint a data rebrsentative in the EU and to notify personal data breaches. We need to look at the compliance to these new EU directives for local investments & additional risks as a data controller operating in the EU region.

Funding

We have made, and will continue to need, capital investments in new telecommunications and managed services projects, which may stretch liquidity and create execution risks. Operations and profitability may be adversely affected if the funding required for the plans is relatively more expensive or delayed.

As of March 31, 2016, the outstanding principal amount of debt was approximately Rs.683.79 crores for the Company on a standalone basis and Rs.12,054.28 crores (excluding Neotel) on a consolidated basis. Considering the current capital expenditure requirements and debt maturing in near future, the Company may need to resort to refinancing its maturing debt as the possibility of raising equity funding is limited at this juncture. This may increase the debt servicing obligations. In the long run, unless we are able to raise equity funding, our ability to raise additional debt funding may be restricted. This, in turn, could adversely affect the capital expenditure program in the long run. If the rupee weakens against the dollar in the coming year, it will have an adverse effect on the cost of foreign currency indebtedness in India.

Changing Economic Conditions

Our operations and investments as well as rights to undersea cable capacity extending to other countries, exposes us to risks inherent in international operations. Downturns in the Indian, regional and global economies could have a material adverse effect on our business prospects.

Risks include:

• General economic, social and political conditions;

• The difficulty of enforcing agreements and collecting receivables through certain foreign legal systems;

• Foreign currency exchange rate fluctuations, which could adversely affect the results of operations and the value of international assets and investments, although we partially hedge our foreign exchange risk;

• Foreign earnings may be subject to withholding tax requirements or the imposition of tariffs, exchange controls or other restrictions;

• Difficulties in obtaining licenses or interconnection or other cooperation arrangements on acceptable terms.

Key Disputes and Litigation

Over the past fiscal years, we had made certain tax holiday and expense claims based on our understanding of the tax laws, as reinforced by legal brcedent and advice received from external tax counsel. In some cases, the Indian tax authorities have not accepted the claims and in a few instances have sought to levy penalties. The disallowances/penalties have been challenged under the applicable legal provisions. The appeals are at various stages of adjudication. Though no such appeal has been finally decided against us, in the unlikely event of all of the disputes culminating in judgments against us that could have adverse financial implications.

TDSAT

As reported earlier, in the year 2005, the Company along with several other service providers had challenged before Telecom Disputes Settlement & Appellate Tribunal (TDSAT), the definition of "gross revenue" and "adjusted gross revenue" (AGR) as interbrted by the Government's Department of Telecommunications (DoT) for levying license fees.

The final verdict was rendered by the TDSAT on 30 August 2007, broadly in line with several of the Company's contentions. However the industry and the Company were not satisfied on two issues, viz. (i) the date of applicability of the TDSAT verdict, which according to the Company should be the date from which the license fee based on a revenue sharing regime came into effect, and not the date of filing the petition in the TDSAT (May, 2005 in the case of the Company) as ordered by the TDSAT and (ii) deductibility of charges passed on to other service providers for leasing bandwidth, port charges, etc., which was disallowed by the TDSAT. The Company and also several other telecom operators have challenged the TDSAT's order of 30 August 2007 on the above two issues in the Subrme Court of India. The Company also filed a separate appeal in the Subrme Court delinking its case from other petitioners, the grounds of appeal being different from other players. The DoT has also filed an appeal in the Subrme Court against the judgment of the TDSAT. The Subrme Court in its judgment has set aside the TDSAT judgment dated 30 August 2007 in so far as the industry is concerned. Further, due to such delinking, both the appeals of both the Company and the DoT are pending before the Subrme Court.

The Company had also separately filed a petition in the TDSAT in the matter of applicability of penal provisions under the international and national long distance license agreements in respect of the charging of penalty and interest on penalty. The TDSAT, by its judgment of 11 February 2010, has allowed the petitions filed by the Company, striking down the clause imposing penalty. As a consequence, the Company became entitled to a refund of Rs.115.73 crores, the penalty realised by the DoT in January 2008 and interest thereon. After the filing of the execution petition in the TDSAT in January 2012, TDSAT had passed the order in May 2012 directing DOT to refund Rs.115.73 crores along with interest. Accordingly, the DoT has refunded to the Company an amount of Rs.226.23 crores (Rs.115.73 crores plus interest) in June 2012. However, DoT has challenged the TDSAT order of May, 2012 for refund of penalty and interest thereon, in Subrme Court, which is pending for hearing.

Regulatory Matters

The Company holds several telecom licenses in India. Though the Company always follows and observes the licensing terms and conditions, the licensor while conducting its periodical inspections at the customer brmises or otherwise, may come to a conclusion that certain breaches to license conditions have happened.

This may result in the issuance of notices to the customer and to the Company by the licensor and in the levy of penalties by the licensor. Although, the Company may challenge penalties, if any, levied by the licensor arising out of such notices, it cannot be said with certainty that the Company will be able to defend itself against all such notices.

International Operations

A large part of our consolidated revenues are generated through its operations in international markets. Integrating acquisitions and managing operations in diverse international locations is very critical to the success of our business plans.

Market Consolidation and New Entrants

Our revenues can be adversely impacted on account of market consolidation in some regions, where some regional carriers are acquired by large wholesale carriers, opening up of licensing in closed markets could mean that our customers lose control of international traffic out of their home country. Over The Top (OTT) players (also called Next Generation players) may exploit the Internet to deliver international voice services without using a carrier network. OTT players have started impacting revenue of traditional service providers (mobile network operators) in matured markets.

Changing Technologies in Mobile Global Roaming

The wireless mobile global roaming business provides roaming services for Global Systems for Mobile (GSM), Integrated Dispatch Enhanced Network (iDEN), Universal Mobile Telecommunications System (UMTS, 3G) and Enhanced Specialised Mobile Radio (ESMR) networks around the world. With increasing brssure on roaming margins, regulatory caps on inter-operator tariffs (IOTs) in some geographies and increased competition, strong price brssure may be expected in the international signaling transport and conversion businesses. Though this price erosion will be partially offset by the continued volume growth in emerging markets, a shift towards more sophisticated signaling and roaming outsourcing solutions targeted at Tier-1 mobile operators and groups will be necessary to sustain revenues and margins. We are also engaging in new segments and business associates like hub providers and Application-to-Person (A2P) service providers as both customers and channel partners to drive additional revenue growth. Our partnership with ANAM shall help mobile network operators globally to tackle loss caused by A2P SMS spam, fraud and grey route messaging traffic. Our Mobile Messaging Exchange brings together messaging originator communities and mobile network operators. The combination of Mobile Messaging Exchange and ANAM's SMS firewall protects mobile networks against grey routing and spam traffic, ensuring secure and reliable SMS delivery, and enabling mobile network operators to recoup revenues owed to them by unauthorized message senders.

The advent of next generation Long Term Evolution (LTE) standards also brsents new opportunities for signaling and roaming connectivity and interoperability. We have already embarked on network modernization to collaborate with early-adopters on LTE/DIAMETER signaling interconnectivity and service enablement.

New technologies such as Software Defined Networks (SDN) and VNO players introducing SDN based disruptive WAN methods using the overlay approach over any-transport-media in the near future shall have a significant impact on the existing traditional telecom players.

Developing, Testing and Introducing New Services

We continuously develop, test and introduce new services so that we can compete for new customers and in new segments of the communications business. Sometimes the introduction of new services requires the successful upgrade of technology or development of new technology, which may be dependent on the conclusion of contract negotiations with vendors and vendors meeting their obligations in a timely manner.

In addition, new service offerings may not be widely accepted by customers. If we are not able to successfully complete the development and introduction of new services, including new managed services that incorporates customer feedback in a timely manner, the business could be materially and adversely affected.

Technical Infrastructure

Our technical infrastructure is vulnerable to damage or interruptions caused by earthquakes, floods, storms, fires, power outages, war, riots, intentional misdeeds and other similar events. In particular, a major part of our international traffic is routed through undersea cable systems as well as through cable systems between different countries. These cables are prone to damage, including cable cuts. Any serious damage to major cables or simultaneous multiple cable failures could seriously disrupt traffic, which might lead to losses in revenue and adversely affect our reputation.

In addition, natural information technology system failures (hardware or software), human error or computer viruses may affect the quality of services and cause temporary interruptions. More rarely, software problems are hidden in vendors' equipment, undetectable through regular commissioning testing, but appear when specific traffic loading conditions are reached on the network which can severely impact several pieces of equipment simultaneously. These types of events could result in customer dissatisfaction and reduced traffic and revenues.

The infrastructure may also be vulnerable to cyber security risks, which may result in service interruptions, gaining of unauthorized access, loss, theft or corruption of data, and theft of intellectual property or sensitive information, any of which could disrupt or have a material adverse effect on our business. Such negative consequences could include remedial costs, increased cyber security costs, lost revenues, litigation, reputational damage and regulatory penalties.

Successful Integration of Acquired Businesses

We have made significant acquisitions and investments in recent years, and will continue to explore the possibility of future acquisitions and investments in accordance with business needs. The integration of acquired businesses involves a number of risks, including:

• demands on management related to the significant increase in size after the acquisition;

• the diversion of management's attention from the management of daily operations to the integration of operations;

• higher integration costs than anticipated;

• failure to achieve expected synergies and costs savings;

• regulatory restrictions imposing a constraint on optimal designs for integration of Operations Support Systems - Business Support Systems (OSSBSS Systems);

• difficulties in the assimilation of different cultures and practices, as well as in the assimilation and retention of geographically dispersed personnel and operations; and

• difficulties in the integration of departments, systems (including accounting systems) technologies, books and records and procedures, as well as in maintaining uniform standards, controls (including internal control over financial reporting), procedures and policies.

Fraud or Theft of Services

The industry in which we operate has incurred losses in the last several years due to frauds. Although we have implemented various measures in order to control losses

relating to fraudulent practices, we may not succeed in effectively controlling fraud when operating in the international or domestic Indian telecommunications markets.

Commitments under Significant Contracts

We have entered into a number of significant contracts with certain Global Voice Solutions (GVS) and Global Data and Managed Services (GDMS) customers. Failure to meet commitments under these contracts could result in financial losses and damage our reputation. The five largest customers collectively accounted for 9% of revenues in fiscal 2016 and if, due to any reason, we lose any major customer or they terminate their respective agreements, it could negatively impact revenues as well as profitability and generation of cash.

Intellectual Property and Proprietary Rights

If technology that is necessary to provide our services is held under patent by another person, a license would have to be negotiated for the use of that technology. We may not be able to negotiate such a license at a price that is acceptable. It may also be possible that the patent owner is a competitor who would rather keep a monopoly on the patented technology rather than licensing it. The existence of such patents, or our inability to negotiate a license for any such technology on acceptable terms, could force us to cease using the technology and offering products and services incorporating the technology.

To the extent that we are subject to litigation regarding alleged use of third party intellectual property rights, this litigation could:

• be time-consuming and expensive;

• divert attention and resources away from our daily business;

• impede or brvent delivery of our products and services; and

• require us to pay significant royalties, licensing fees and damages.

Parties making claims of infringement may be able to obtain injunctive or other equitable relief that could effectively block our ability to provide our services and could cause us to pay substantial damages for our alleged infringement and/or make payments to our customers for the indemnities we granted in association with our provided services. In the event of a successful claim of infringement, we may need to obtain one or more licenses from third parties, which may not be available at a reasonable cost, if at all. The defense of any lawsuit could result in time-consuming and expensive litigation, regardless of the merits of such claims, and could also result in damages, license fees, royalty payments and restrictions on our ability to provide our services, any of which could harm our business.

Emerging Markets

The development of business in emerging markets may be a critical factor in determining the future ability to sustain or increase the level of global revenues. Challenges that arise in relation to the development of the business in emerging markets include, but are not limited to, more volatile economic conditions, competition from companies that are already brsent in the market, the need to identify correctly and leverage appropriate opportunities for sales and marketing, poor protection of intellectual property, inadequate protection against crime (including counterfeiting, corruption and fraud), inadvertent breaches of local law/regulation and not being able to recruit sufficient personnel with appropriate skills and experience. The failure to exploit potential opportunities appropriately in emerging markets may have a materially adverse effect on the financial condition and results of operations.

Environmental Legislation

Our core values of environmental protection are integrated with our business strategy to add value to the business, manage risk and enhance our reputation. We are subject to laws and regulations concerning the environment, safety matters and regulation of product safety in the countries where it sells its products and/ or services or otherwise operate its business. These requirements include regulation of the handling, transportation, use and disposal of materials used in the business, including the discharge of pollutants into the environment. In the normal course of business, we are exposed to risks relating to (i) possible releases of hazardous substances (such as fuel from storage tanks or acid from battery accumulators) into the environment which could cause environmental or property damage or personal injuries, and which could require remediation of contaminated soil and groundwater and (ii) possible damage due to the removal of certain decommissioned submarine fiber optic cables which could require remediation and/or rectification. Under certain laws, we may be required to remediate contamination at third party sites, or at certain of our properties regardless of whether the contamination was caused by us, or by brvious occupants of the property.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

We have a robust internal control mechanism in place. We have implemented a SAP ERP (Enterprise Resource Planning) system. The financial authority at various management levels is clearly defined in the delegation of powers. Technical and financial operations are controlled by state-of-the-art technology and systems. The accounts of Tata Communications Group are subjected to internal and statutory audit.

We have well-established risk management policy and procedures bases which risks are identified and assessed across its business units and operations. This process takes into consideration well-defined risk management principles which are based on experience, known best practices and principles of good corporate governance.

These risk management efforts are focused on mitigating the potential adverse impact on our business from changes in the external and internal environment. Risk management and mitigation of key risks are considered as a vital exercise in order to achieve the corporate objectives and delivering long-term value to the stakeholders.

The Company's key risks are regularly discussed with the members of the Audit Committee, Risk Management Committee and the Board of Directors. Our risk management procedures are subject to a continual improvement process.

In order to manage risks, we have established an Enterprise Risk Management (ERM) process comprising the necessary organizational rules and procedures for identifying risks at an early stage, and is taking proactive steps to manage the risks inherent to any commercial activity. After identifying and assessing the risk under categories such as - strategic, financial, operational and compliance, we then define control measures aimed at reducing the likelihood of its occurrence and the potential impact.

The risk assessments performed under the ERM exercise are a key input for the annual internal audit program,and covers our various businesses and functions. In addition to internal audit we also continue to conduct a detailed review and testing of the key internal controls related to financial reporting. This approach provides adequate assurance to the management and the Audit Committee regarding the effectiveness of the internal control procedures defined and implemented by the management.

CAUTIONARY STATEMENT

Statements in the Directors' Report and Management Discussion and Analysis describing the Company's objectives, projections, estimates and expectations may

be 'forward-looking statements' within the meaning of applicable securities laws and regulations. Actual results could differ substantially or materially from those exbrssed or implied. Important factors that could make a difference to the Company's operations include economic conditions affecting demand/supply and price conditions, changes in government regulations, policies, tax laws and other incidental factors. Further, the Company retains the flexibility to respond to fast-changing market conditions and business imperatives.

Therefore, the Company may need to change any of the plans and projections that may have been outlined in this report, depending on market conditions.