INTRODUCTION

Mahanagar Telephone Nigam Limited (MTNL) was set up in 1st April of the year 1986 by the Government of India to upgrade the quality of telecom services, expand the telecom network, introduce new services and to raise revenue for telecom development needs of India's key metros, Delhi (the political capital) and Mumbai (the business capital of India). The company has also been in the forefront of technology induction by converting 100% of its telephone exchange network into the state-of-the-art digital mode. MTNL as a company, over last nineteen years, grew rapidly by modernising the network, incorporating the State-of-the-art technologies and a customer friendly approach. The Company providing various types of telecommunication services including Telephone, telex, wireless, data communication, telematic and other like forms of communication (Internet). First digital exchange world technology brought to India by the company during the year 1986. In the year of 1987, Largle Scale came to existence, introduction of push button telephone made dialling easier. Phone Plus services was offered by the company in the year 1988, it gives multiplied benefits to telephone users. During the year 1992, the company introduced Voice Mail Service. MTNL had introduced the Integrated Services Digital Network (ISDN) services in the period of 1996. In the year 1997, the Wireless in Local loop was introduced. In addition to phone plus facilities like dynamic locking, call waiting/call transfer, hot lines etc were extended to the customers. Apart from this IVRS (Interactive Voice Response System) like local assistance changed number information, and fault booking system ensuring round the clock service, a CD-ROM version of the telephone directory and an on-line directory enquiry through PC was introduced during the year 1997. To facilitate the clientele, MTNL launched the country's first toll-free service in Delhi in the period of 1998. During the year 1999, MTNL brought in the most widely using service called Internet (Network of Networks), the extreme level of information exchange. Millennium Telecom Limited, a wholly owned subsidiary of MTNL was formed in 17th February of the year 2000 to do practically any type of Telecom Business with a focus on value added services, which was started its operation in Himachal Pradesh in association with HPSEDC from 25th Feb 2002 itself. During the year 2001, the company launched GSM Cellular Mobile service under the brand name Dolphin and in the same year MTNL also launched Wireless in Local Loop (WLL) Mobile services under the brand name Garuda. MTNL has formed a Joint Venture company in Nepal by the name of United Telecom Ltd. (UTL) in collaboration with Telecom Consultants India Limited (TCIL), Videsh Sanchar Nigam Limited (VSNL) and NVPL (Nepal Ventures Pvt. Ltd., a Nepalese Company). The Company is operational since 10th October 2001 for providing WLL based basic services in Nepal. CLI based Internet express service was added with the service line of the company in the period of 2001. The Company made tied up with Billjunction.com in the year of 2001 to provide online bill presenting and payment facility to its customers. The Company launched pre-paid GSM Mobile services under the brand name Trump during the year 2002, and in the same year MTNL's Email on PSTN lines were introduced under the brand name mtnlmail. MTNL had set up a new software venture called ComSoft for developing communications software in the year 2002, as a part of its strategy to offer value-added communications software in e-commerce, e-governance and intelligent networking. The Company brought in to market, the CDMA 1x 2000 Technology under the brand name Garuda 1-x in the year of 2003. During the same period MTNL introduced pilot project of ADSL based Broadband services and also launched the Virtual Phone services. Mahanagar Telephone Mauritius Ltd. bagged second operator license in Mauritius. The company has joined the hands with Nokia, Samsung for WLL handsets in the year 2003. MTNL has set up its 100% subsidiary as Mahanagar Telephone Mauritius Limited. (MTML) in Mauritius, for providing basic, mobile and international long distance services as 2nd operator in Mauritius. Necessary licenses have been obtained in January 2004. MTML has already started its ILD & CDMA based basic services in Mauritius. In Mauritius against the switching capacity of 50K, 8K telephone connections are working. The Company established Wi-Fi &

digital certification services in the identical year. MTNL bagged the award for excellence in cost reduction in the year 2004. State of the art training centre of the company 'CETTM' was commissioned in the year of 2004. The Company introduced the broadband services under the brand name of 'TRI BAND' during the year 2005. The Company made partnership with Red Hat through its CETTM centre in the same year of 2005. MTNL-STPI IT Services Ltd is a 50:50 Joint Venture between Software Technology Parks of India (STPI) and the company. The JV formed in 2006 combines the STPI's rich experience as an ISP and MTNL's track record of being India's leading telecom operating company to offer niche portal services to the Indian community. The Company has restructured Millennium Telecom Ltd (MTL) as a Joint Venture company of MTNL and BSNL with 51% and 49% equity participation respectively. MTNL (Mumbai) has joined hands with Contakt Tech Solutions India in the year 2008 for Express alert, a new value added service for the subscribers. Public sector telecom service provider MTNL on June 18th of the year 2008 received the much-awaited International Long Distance (ILD) Licence from the Department of Telecom (DOT), a development that could signal further lowering of ISD rates as the PSU is gearing up to carrying its own traffic in the near future. To remain market leader in providing world class Telecom and IT related services at affordable prices, the company partaking its all efforts in the same business area and MTNL wants to become a global player, also find a place in the `Fortune 500' companies.

GROWTH AND ACHIVEMENT

MTNL as a company, over the last twenty six years, grew rapidly by modernizing the network through induction of State-of-the-art technologies and adopting a customer friendly approach. 1986 1.No of exchanges 2.Equipped capacity (Millions) 3.Subscriber base (Millions) i) Basic Wireline & CDMA Fixed (Millions) ii) CDMA-Mobile (Millions) iii) GSM Cellular (Millions) 4.Internet Dial-up(Millions) 5.Broadband (Millions) 6.Public Call Offices (Local and Long Distance) (Millions) 7.No of stations on Long Distance Network 8.No of countries connected overseas on ISD 9.Digitalization of exchange network 114 0.88 0.75 0.75 .01 264 11 Nil 2012 595 12.48 9.29 3.45 0.13 5.5 .89 1.04 0.21 39,303 243 100%

MTNL is proud to be associated with the Common Wealth Games (CWG)-2010 as its Official Telecom Partner to set up a world class communication infrastructure to meet out the broadcast and telecom requirement of the event. Its a matter of great prestige for MTNL to associate with a global sporting event of this magnitude and significance and to showcase the world, India s capability to setup best possible all round infrastructure.

NETWORK OF MTNL

Network Structure In more than two decades of its operations, MTNL is growing rapidly by modernizing the network, incorporating the State-of-the-art technologies and a customer friendly approach. there has been all-round development & growth and improved operational efficiency. Presently, MTNL is providing a host of telecom services that include fixed telephone service, GSM (including 3G services) & CDMA based Mobile service, Internet, Broadband, ISDN and Leased Line services., MTNL has been in the forefront of offering state of the art technology based telecommunications services to its customers at most affordable prices. MTNL has been the first to launch some of the latest telecom technologies in the country like ADSL2+ & VDSL2 in broadband, IPTV on MPEG4 technology, VOIP and 3G Mobile service. STATUS OF MTNL NETWORK (As on 31.03.2012) DELHI 358 6 2 2771995 3025000 550000 6346995 1563034 26833 2457678 294084 2751762 107364 4448993 27.71% 20249 172 20421 786192

NAME OF THE ITEMS Number of Exchanges Wireline Exchanges GSM MSCs CDMA MSCs N/w Switching Capacity Fixed Line GSM (Trump + Dolphin) CDMA Total Switching Capacity Subscribes base Landlines FWT Trump Dolphin GSM (Trump + Dolphin) CDMA (M) Total DELs Teledensity * Internet customers (Dial Up) -Pre paid Internet customers (Dial Up) -Post paid Total Internet customers (Dial Up) Broadband capacity

MUMBAI 218 6 5 2570947 3025000 542230 6138177 1894695 81334 2516125 317195 2833320 31785 4841134 26.31% 274 878770 879044 845908

TOTAL 576 12 7 5342942 6050000 1092230 12485172 3457729 108167 4973803 611279 5585082 139149 9290127 20523 878942 899465 1632100

Broadband customers IPTV customers VOIP customers Pay Phones Sanchar Haats/ CSCs 3G Subs All existing GSM subs are 3G enabled BTS (GSM) as on 04.05.2012

476127 13308 2193 60972 88 2751762 1100 (2G) 762 (3G)

564064 4149 1847 97998 89 2833320 1010 (2G) 724 (3G)

1040191 17457 4040 158970 177 5585082 2110 (2G) 1486(3G)

AUDITOR REPORT

Mahanagar Telephone Nigam Limited. New Delhi 1. We have audited the attached Balance Sheet of Mahanagar Telephone Nigam Limited as at March 31, 2012, the Statement of Profit and Loss and the Cash Flow Statement of the Company for the year ended on that date, annexed thereto, in which, the accounts of 3 units namely Delhi unit, Mumbai unit and Mobile Service Unit (Delhi & Mumbai both) are incorporated, which have been audited by us. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We conducted our audit in accordance with the Auditing Standards generally accepted in India. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. As required by the Companies (Auditor's Report) Order 2003, as amended by the Companies (Auditor's Report) Order, 2004 (together the 'Order'), issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, and on the basis of such checks as we considered appropriate and according to the information and explanation given to us, we give in the Annexure, a statement on the matters specified in paragraphs 4 and 5 of the said Order, to the extent applicable to the company. 4. Further to our comments in the Annexure referred to in paragraph 3 above and subject to: a) Point No.6 (a) to Note No. 40 regarding deduction under section 80IA of the Income Tax Act claimed by the company of which 75% has already been allowed upto Tribunal level and the company has preferred an appeal for the remaining 25% with the High Court. The company is maintaining a provision for income tax amounting to Rs. 4003.31 millions for the years 1997-98 to 1999-2000 on this account whereas the similar claims for subsequent years involving a tax liability of Rs. 3948.46 Millions have been shown as Contingent Liability. In view of the pending disputes with the Income Tax Departments at the High Court level, we are unable to comment on the adequacy or requirement of the provision or contingency held in this regard. b) Point No. 6 (b) to Note No. regarding accounting of appeal effect of Rs. 1015.43 millions including accrued Interest of Rs. 412.04 millions (Rs. 101.86 Millions for the year) as recoverable is subject to adjustment as per the final orders to be passed by the Income Tax Department. Besides, the balances appearing in Advance Tax, Provisions for Income Tax and Interest on income Tax Refund are subject to reconciliation with the figures of the Income Tax Department. c) Points No.11 & 14 to Note No.40 regarding the amounts recoverable from BSNL/DOT are subject to reconciliation and confirmation and in view of various pending disputes regarding each other's claims we are unable to comment on the impact of the same on the profitability of the company. d) Point No. 1(k) of Note 40 regarding disclosure of contingent liability of Rs. 1403.63 Million instead of actual provision on account of License Fee to the DOT which is being worked out on accrual basis as against the terms of License Agreements according to which the expenditures/ deductions from the Gross revenue are allowed on actual payment basis. e) The company has allocated the establishment overheads as per Note 25 and Administrative overheads as per Note 28.The company's policy in this regard needs to be made more scientific and the same should avoid capitalizing the loss due to idle time of labour and machines. f) Point No.32 of Note No. 40 regarding no impairment adjustment required to the carrying value of the fixed assets as at 31 March 2012. In our view, due to recurring losses incurred by the Company and uncertainty in the achievement of projections made by the Company, we are unable to comment on the provisions, if any, required in

respect of impairment of carrying value of the fixed assets (including capital work in progress), other than land, and its consequential impact, if any, on the loss for the year, accumulated balance in the Profit and Loss Account and the carrying value of the fixed assets as at 31 March 2012. g) Point No.27 (ii) of Note No.40 regarding the provision for employees benefits which have been made on the basis of actuarial valuation. The issue being technical, we are unable to comment on the adequacy or otherwise of these provisions. h) Point No. 28 of Note No. 40 regarding Non provision of actuarial liability on account of medical expenses for retired employees and continuing employees as the Insurance policy has been taken by the company and yearly premium is only charged. i) Insurance claim for the fire loss in Data Center in July, 2009 amounting to Rs. 40 Millions has been considered as good despite of the same being still pending with the Insurance Company. j) Accounting Policy No.2 (iv) regarding valuation of scrapped/ decommissioned assets which are not being revalued every year. k) Accounting Policy No. 1 (ii)(b) regarding exclusion of dues from operators for making provision for Doubtful debts and non provision of disputed cases which are outstanding for less than three years in Basic and less than six months in wireless services. l) Point No. 22 of Note No. 40 regarding non valuation of vacant land and Guest Houses/ Inspection quarters at fair market value as at the year end for the purpose of wealth tax provisions. m) Point No.18 of Note No.40 regarding non confirmation and reconciliation of amounts receivable and payable from various parties. n) Point No.14(b) regarding balance in subscriber's deposits account of Rs. 6588.81 Million, unlinked receipts from subscribers Rs. 412.60 Million are subject to reconciliation. Balance of sundry debtors as per Ageing Summary is short by Rs. 94.70 Million with comparison to balance is general ledger though the same has been fully provided for (Refer Note No. 14(c)). The reconciliation of metered and billed calls in various units and leased, operational and billed circuits is in process. The final impact of above on the accounts is presently not ascertainable and the same may have an impact on the Profitability of the company. o) The matching of Billings for roaming receivables/payable with the actual traffic intimated by the MACH is not being made and the amounts received are allocated on estimated basis. The impact thereof, on profitability, if any, is unascertainable. p) The system of issuance of completion certificates by engineering department needs to be strengthened. The impact due to the delay in issuance of completion certificate on Fixed Assets and Depreciation is not ascertainable. q) Point No.23 of Note No. 40 regarding provision for ADCC recoverable from Project Development Company amount.

PROFIT AND LOSS

Profit & Loss account of Mahanagar Telephone Nigam Mar '12 12 mths Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income 3,373.25 0.00 3,373.25 251.16 0.00 3,624.41 3,675.51 0.00 3,675.51 232.31 0.00 3,907.82

------------------- in Rs. Cr. ------------------Mar '11 12 mths Mar '10 12 mths Mar '0 12 mths Mar '08 12 mths

3,657.75 0.00 3,657.75 1,234.55 0.00 4,892.30

4,457.02 0.00 4,457.02 552.71 0.00 5,009.73

4,724.77 0.00 4,724.77 403.12 0.00 5,127.89

Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses Mar '08 0.00 213.53 3,711.56 124.37 0.00 1,174.35 0.00 5,223.81 Mar '12 12 mths Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs) 1,850.56 1,599.40 949.16 2,548.56 1,496.22 0.00 4,044.78 -65.02 4,109.80 0.00 4,109.78 5,223.81 0.00 0.00 0.00 6,300.00 -65.23 0.00 40.27 0.00 205.48 3,258.55 116.87 678.86 603.71 -38.41 4,825.06 Mar '11 12 mths -1,149.55 -917.24 494.56 -1,411.80 1,410.15 0.00 -2,821.95 26.58 -2,795.37 0.19 -2,801.92 4,825.06 0.00 0.00 0.00 6,300.00 -44.47 0.00 105.50 0.00 219.44 4,869.48 102.56 757.89 680.59 -36.61 6,593.35 Mar '10 12 mths -2,935.60 -1,701.05 11.03 -1,712.08 1,759.49 0.00 -3,471.57 509.58 -2,961.99 -355.11 -3,063.79 6,593.35 0.00 0.00 0.00 6,300.00 -48.63 0.00 149.97 0.00 183.06 2,064.89 100.02 862.19 906.08 -30.95 4,085.29 Mar '09 12 mths 371.73 924.44 10.96 913.48 698.85 0.00 214.63 94.40 309.03 95.46 168.33 4,085.27 0.00 63.00 10.71 6,300.00 2.67 10.00 191.42 0.00 188.34 1,580.95 93.62 951.86 1,005.55 -21.01 3,799.31

12mths 925.46 1,328.58 12.09 1,316.49 704.06 0.00 612.43 212.12 824.55 224.83 406.82 3,799.31 0.00 252.00 42.83 6,300.00 6.46 40.00 189.23