1. 1 REGULATORY UPDATE: INDIA Jane Wilson BAN Sharma Communications Offsite - Vancouver October 16, 2000

2. 2 OVERVIEW OF INDIAN TELECOM SECTOR  One of the fastest growing telecommunications systems in the world.  System size (total connections) growing at an average of more than 20% per year over the last 4 years and is expected to grow exponentially.  Telecom sector can be one of the prime movers of the economy; Government’s regulatory and policy initiatives so acknowledge.  Vajpayee himself has pushed the creation of policy, forcing the bureaucracy to play “catch up.”  Announcement about VSNL’s monopoly on international gateways.

3. 3 Basic Communications Data on India  No. of telephones in India: 20 mm (50 mm by 2005)  No. of telephones in larger cities Delhi, Mumbai, Chennai: 5.1 mm  No. of cable subscribers: 22 mm  Total installed fiber route miles by DoT (incumbent): 48,000 miles  Software exports: $4.5 b ($40 b by 2005)  Domestic long distance market Opened 8/2000:$4 billion revenue (‘98)  International long distance Currently 2002 is being market for voice: discussed

4. 4 The engine fueling the India Strategy Market Growth: India is a huge market in its infancy & initial stages of deregulation (Opens no later than 2004) No. SOLID LINE: If existing demand drivers apply DOTTED LINE: If demand drivers improve Primary Demand Drivers: PC Penetration, Communication Infrastructure

5. 5 Projected Demand 20002004 Data Center (sq ft.) 20 1,700 E-Commerce ($M) 105 2,300 Indian Sites (‘000) 3.1 21.5 Internet Users(million) 2.5 21.8

6. 6 STRATEGY To be the leading provider of broadband capacity and applications. INFRASTRUC- TURE SERVICES Bandwidth/Fiber Hosting/Collocation Software Middleware Software Development Technical Staffing SOFTWARE DERIVATIVE BUSINESSES National Fiber Backbone Datacenters Visum Soft EnronExchange.com B2B Marketplaces PHASE 1: Focus for 2000 Investments VBN’s, IP products Voice: DLDO Corporate Data Services

7. 7 Powertel Solutions -- Fiber Backbone  Department of Telecommunications owns all fiber in India. All service providers buy capacity from DoT at monopolist pricing and without any Service Level Agreement.  Approximately 8,500 mile network could capture 80% of voice and data traffic.  Will build backbone in four progressive states and lease or barter in another four states.  Construction term 16 months.

8. 8 MSEB Fiber Backbone  Valuable because of network reach and geography.  Could reduce cost of entry in other states: could trade fiber/capacity.  Negotiations for presale of capacity ongoing.  Project cost: $49mm+$22mm for RoW fee.  Enron Equity: 48%

9. 9 Broadband Services: Data Centers  There is no telco-grade data center in India.  Enron’s data centers will provide web-hosting, server co-location, server management and sale of bandwidth.  Up to 6 data centers in major metros; first two in Mumbai and Bangalore.  Exclusive arrangement with Mirror Image in India.  What drives the demand? Highest growth in internet users in Asia  growth of the e-commerce market  growth in demand for data center market.

10. 10 Visum Soft  Vision: become software development center for Enron worldwide operations and then for other major multinationals and provide software integration and implementation services for enterprise and B2B applications and platforms.  Technical staffing and consulting company.  Resources to meet IT-related staffing requirements for Enron worldwide.  Systems integration and implementation services for enterprise management systems.  Software development services.

11. 11 New Telecom Policy 1999  Interconnection. Fixed Service Providers (last mile) to directly interconnect with any other type of service provider including another FSP in their area to share infrastructure.  Internet telephony not allowed.  Restructuring of Department of Telecommunications (state company). To be corporatized by 2001.  Universal Service Obligation. Resources for providing rural coverage is the USO to be funded by a percentage of the revenue earned by all the operators under various licenses.

12. 12 History of TRAI  Industry structure prior to the liberalisation wave of the 90’s: state companies DoT, VSNL, MTNL.  The first liberalisation policies of 1992 - Bids invited for (a) Radio paging services in 27 cities, and (b) Cellular mobile services in the four metros.  Formation of TRAI by the Telecom Regulatory Authority of India Act, 1997 to provide effective regulatory framework and adequate safeguards for ensuring fair competition and protection of consumer interests.  Private basic service providers signed license and interconnect agreements with DoT.

13. 13 TRAI (cont’d)  TRAI’s initial controversial action involved rebalancing the tariffs (interconnection and usage charges).  DoT contested TRAI’s role as an adjudicator in the courts.  As a result, the TRAI (Amendment) Bill, 2000 was passed, whereby functions performed by the erstwhile TRAI were to be performed by two entities: TRAI and the Telecom Disputes Settlement and Appellate Tribunal (TDSAT).  TDSAT to  adjudicate any dispute between  a licensor and a licensee;  two or more service providers;  a service provider and a group of consumers;  hear and dispose of appeal against any direction, decision or order of the Authority under this Act.

14. 14 TRAI (cont’d)  Salient features of the Amendment:  the amendment separated TRAI into two entities: one to regulate and one to adjudicate.  the Telecom Dispute Settlement and Appellate Tribunal (TDSAT) has been established as the sector adjudicator.  the Central Government’s seeking the recommendations of the Authority on matters specified in the Act is mandatory.  the functions of the Authority now include fixing the terms and conditions of interconnection between service providers, setting standards for and ensuring quality of service, and making recommendations on efficient management of available spectrum.

15. 15 ISP Licensing  FDI 100% (but 49% if ISP sets up own international gateway using satellites and submarine cables).  No previous experience in IT or Telecom required.  Interconnection to upstream internet access providers (DOT, VSNL, etc.) mutually agreed.  Tariff to be decided by market forces. However, TRAI may review and fix a tariff at any time during the validity of the license.  15 year license, extendable for period of five years or more at a time.  License is non-exclusive.  License fee waived to 10/31/03. Thereafter, a nominal one rupee/annum.

16. 16 ISP Licensing -- Present Status  392 license agreements signed: 167 for Category C (City), 158 for category B (Territorial Circle and four metro telephone districts) and 67 for Category A (all India).  Over 80 companies have already commenced service.  1.5 mm subscriber base.  Growing > 100% per year.

17. 17 National Long Distance Policy  The government has opened the National Long Distance (NLD) service without any restriction on the number of operators. The guidelines for issuance of licenses for National Long Distance Operations (NLDO) have been issued.  The salient features are: –License for NLD service to be issued to an Indian registered company. –The applicant company can apply only for one NLDO license. –Total equity for foreign/Non Resident Indian (NRI)/Overseas Corporate Bodies (OCB)/International funding agencies limited to 49%.

18. 18 NLD Policy  Category I Infrastructure Provider (IP-I). Infrastructure Providers that provide assets such as dark fiber, right of way, duct space and towers on lease/rent out /sale basis to the licensees of telecom services on mutually agreed terms and conditions. Can sell/lease infrastructure to IP-II and other service categories. 100% foreign equity allowed. Enron is registered as an IP-I.  The salient features of an IP-I are:  No license required.  No restriction on the level of foreign equity.  No restriction on number of IPs.  No entry fee or license fee payable.  Category II Infrastructure Provider (IP-II). Infrastructure Providers that make available end-to-end bandwidth. Can sell/lease capacity to service providers. 49% foreign equity allowed. License required.  Resale of bandwidth not addressed.

19. 19 NLD Policy  License fee in the form of revenue share @ 10% plus prescribed contributions towards the Universal Service Obligation (USO) fund with a total cap of 15%.  No restriction on number of operators providing NLD service.  One time entry fee of Rs.1.0 billion (US$ 22 MM) and in addition 4 bank guarantees of Rs.1.0 billion (US$ 22 MM) each to be released on fulfillment of the network roll-out obligations.  License initially for a period of 20 years, extendable by 10 years.  NLD operator to carry inter circle long distance voice and data traffic. Intra circle traffic carriage only with mutual agreement with Fixed Service Provider.

20. 20 Information, Communication and Entertainment Bill (ICE)  ICE Bill appears to emanate from within the Ministry of Information and Broadcasting.  Pursuant to Prime Minister’s request, a Group under Chairmanship of Finance Minister formed to implement the Telecom Policy 1999.  Sub-Group then formed to prepare comprehensive statute to replace Indian Telegraph Act, 1885. Issued Report of the Sub- Group on Convergence.  Final Draft Report of the Sub-Group on Convergence comments on ICE Bill.

21. 21 ICE Bill (cont’d)  Bill creates two overlapping regulatory authorities with conflicting functions.  Communications Commission of India (9 members), and  Information, Communication & Entertainment Authority of India (11-15 members, 3-7 being part time), with two wings: Carriage Bureau (comprised of the former TRAI) and Content Bureau.  Duplication to maintain status quo (DoT and TRAI).  Potential re-creation the conflict between the TRAI and DOT (in fact, Bill anticipates such conflict).  Recommendation: create only one regulatory commission.

22. 22 ICE Bill (cont’d)  License Issues  Framework is not clear whether infrastructure (class license) can be used for multiple categories, i.e., convergence.  No provision for a transparent process (participation by interested persons) in licensing procedure.  Failure by the Commission to Act  Refusal to grant license. To encourage Commission to act, failure to act should grant action requested.  Conditions of Licenses: Bill seeks to resolve overlap of Commis- sion and Authority regarding conditions of licenses but succeeds in inserting unnecessarily complicated bureaucratic process instead.  No right of the licensee to cure a breach prior to revocation of the license.

23. 23 ICE Bill: Sub-Group’s Report on Convergence  Would provide for nondiscriminatory interconnection across various networks.  Would provide for fair, equitable and nondiscriminatory access to a network facility or network service and provide for revenue sharing arrangements.  Supports persuading industry to set its own standards to avoid heavy-handed regulation.  Contemplates only one regulatory commission of 7 members.  Discusses composite licenses.  Continuous interaction with all sectors of the industry and consumers.

24. 24 Information Technology Act 2000  Passed by Parliament on 5/17/00 and signed by President on 6/9/00.  Bill provides legal recognition for transactions carried out by means of electronic commerce.  Based on United Nations Model law on Electronic Commerce.  Legally recognizes electronic records and digital signatures.  Creates a Controller of Certifying Authorities.  May issue regulations under the Act.  Issue licenses for issuance Digital Signature Certificates.  Sets forth civil and criminal penalties for computer crimes.  Creates a Cyber Regulations Appellate Tribunal for appeal from Adjudicating Officers appointed by the Central or State Governments.

25. 25 Ministry of IT Draft Regulations  Detailed rules for implementation of the Act have been issued by the Ministry of Information Technology (Act authorizes Controller to issue regulations).  Employment details (pay grade, qualifications) of regulatory employees authorized by the Act.  Addresses:  Licensing of certifying authorities.  Obligations of certifying authorities.  Duties of subscribers.  Security Procedure and Guidelines.  Procedural rules for Cyber Regulations Appellate Tribunal.

26. 26 Conclusions  Regulatory developments occurring rapidly.  PMO’s involvement provides the main thrust of restructuring.  Comments will be filed on ICE Bill.  Power crisis could affect development of the sector.  Huge demand and sector growth provide lucrative opportunity for Enron.