EXHIBIT 10.5

CONSULTATION PAPER NO. 2001/2



                      TELECOM REGULATORY AUTHORITY OF INDIA




                               CONSULTATION PAPER

                                       ON




                    "INTERNATIONAL LONG DISTANCE SERVICES"
                    --------------------------------------











                          3rd September 2001, New Delhi


<PAGE>


                                     PREFACE

1.    Following the announcement  under the New Telecom Policy (NTP) 1999 that
      international  Long  Distance  (ILD)  Service  would be opened  up,  the
      Government has more recently  announced that this Service will be opened
      up for private  participation  from 1st April,  2002. The Government has
      sought TRAI's  Recommendations  on the  modalities for opening up of the
      ILD  Service  with  specific  reference  to certain  key  issues.  These
      include terms and  conditions of the license,  number of players in this
      field,  selection  criteria,  license fee  structure  and other  license
      conditions.

2.    In our country,  liberalization of the telecommunications sector started
      in the early I 990s.  The opening up of Cellular  Mobile  Service sector
      was followed by private  participation in Basic Service and the National
      Long  Distance  Service  Sectors.  While the  liberalization  of the ILD
      Sector  raises  some  issues  similar to those  arising  in these  other
      cases,  it  also  raises  certain  policy  issues  specific  to the  ILD
      Service.  Until some years ago, most  countries  operated  International
      Services  through  Government  owned  monopolies  and used the surpluses
      from this as well as Domestic Long Distance  Services to subsidize Basic
      Services.  The situation has now changed in a large number of countries,
      following adoption by them of other  accommodating  policies,  including
      tariff  re-balancing  and more detailed  interconnection  regime.  As we
      proceed  to  liberalize  the ILD  sector in  India,  here too we need to
      consider  these  aspects  of the  matter.  In the area of  International
      Services,  some additional  policy  considerations  become very relevant
      due to aspects such as  call-back,  bypass and the fact that not all the
      revenues are generated domestically.

<PAGE>

3.    The TRAI has identified the following  issues as key determinants of the
      policy regime under which the ILD Service Sector will be liberalized:
      (a)   Type and nature of competition
      (b)   Selection criteria
      (c)   Types of services to be permitted
      (d)   Terms and Conditions of the license
      (e)   License Fee Structure
      (f)   Carrier selection, interconnection regime and other technical issues


4.    This paper gives  information on the existing global scenario  regarding
      the ILD Sector,  and provides a background for  considering  the various
      policy/operational  issues  relating to the ILD Sector.  Each Section of
      the paper ends with a list of questions  addressing  various issues that
      need to be  addressed by TRAI before the  recommendations  sought by the
      Government  are  provided.  The  objective  is to  solicit  the views of
      various stakeholders  including Service Providers,  Consumers,  Consumer
      Organizations or anybody else interested in the subject.


5.    Since  the  Recommendations  to  the  Government  are  to be  made  in a
      time-bound  manner,  we would like to have the comments and views on any
      or all issues  raised in this paper on or before 30TH  SEPTEMBER,  2001.
      For further clarifications,  Adviser (Fixed Network Division),  TRAI may
      be  contacted on telephone  number:  6166930.  The fax number is 6103294
      and e-mail is:  trai@del2.vsnl.net.in.  Submissions  in electronic  form
      would be appreciated.


                                                                          Sd/-


                                                                    M. S. Verma
                                                                       Chairman

<PAGE>
  New Delhi

  3rd September, 2001



                                LIST OF CONTENTS


SECTION                   TOPIC                             PAGE NUMBER


 1                INTRODUCTION                                    1


 2                GLOBAL SCENARIO                                 3


 3                TERMS AND CONDITIONS OF LICENSE                15


 4                LEVEL OF COMPETITION                           20


 5                SELECTION CRITERIA                             26


 6                STRUCTURE OF THE LICENSE FEES                  29


 7                TECHNICAL ASPECTS                              32



<PAGE>

                INTERNATIONAL LONG DISTANCE CARRIAGE SERVICES

                          1   INTRODUCTION

1.1    For opening up of the Telecom  Service  Sector,  policy makers  generally
consider the Local,  National  Long  Distance and  International  Long  Distance
Networks  segments  as  separate  entities.  The  sequence  in which these three
segments are opened up for private participation varies from country to country.
However,  a large number of countries have either  introduced or are considering
to introduce  competition in the International  Long Distance Service sector, as
it is  considered  to be one of  the  most  lucrative  segments  of the  Telecom
Network, where private sector participation can benefit the customer in terms of
price reduction and improvement of Quality of Service (QOS).

1.2    In our country, the liberalisation  process in the Telecom Service sector
started in early 1 990s.  Liberalisation in the Cellular Mobile preceded that in
Basic  Services,  and the National  Long Distance  Services  (NLD) sector is now
being  opened up. The  Government  has now decided to open up the  International
Long   Distance   Segment  of  the  Telecom   Service   sector  and  has  sought
Recommendations  of TRAI on the issue of ILD  License.  Annexure l contains  the
Government's reference to TRAI on this matter, which seeks recommendations on:


a)    Terms and conditions of the license

b)    Number of players in this field

c)    Selection criteria

d)    License fee structure


1.3     The   Government   has  already  made  the  policy   decision  that  the
International  telecom  sector will be opened up for private  participation.  In
this  context,  one of the  important  questions  to be  considered  will  be to
examine,  what kinds of services may be allowed to be provided by the ILDO.  For

<PAGE>

example,  should the ILD 1 License  provided under the  liberalised  environment
include in addition to Telephony  Services,  Lease Line Services and Multi-Media
Services  including  data  and  video  services.  Likewise,  there  is a need to
consider the Nature of Competition and Number of ILDO Operators,  Conditions for
Eligibility  and  Selection of  Operators,  License Fee  Structure and Technical
Aspects.


1.4     Chapter 2 gives  information  on the  Global  Scenario,  and  provides a
background  for  considering  the various  policy  matters raised in this paper.
Chapter 3  discusses  the issues  relating to Terms and  conditions  of License.
Chapter 4  addresses  the issue of Level and  Nature of  Competition,  e.g.  the
number of International Long Distance Service Providers.  Selection Criteria are
covered in Chapter 5, Chapter 6 discusses  the  Structure of License  Fees,  and
some technical  issues are raised in Chapter 7. Each Section contains at the end
a list of questions  which  address the various  policy  matters that need to be
considered for meking policy  recommendations  with respect to liberalisation of
the ILD sector in India.








                                       2
<PAGE>



                              2. GLOBAL SCENARIO


2.1    This Section  provides a background to a number of policy  considerations
that are relevant to liberalisation  of the International  Long Distance sector.
This background is provided in terms of the global scenario  pertaining to these
maters.  Before proceeding with these details, it would be useful to take a look
at the Network  statistics of the incumbent Indian  international  Long Distance
Operator, namely, VSNL, which are indicated in the Table 1 below:


<TABLE>
<CAPTION>

TABLE 1.    VSNL'S PAID MINUTES AND NETWORK STATISTICS, 1995-96 TO 1999-2000


  <S>     <C>                      <C>      <C>       <C>      <C>       <C>

  SI      Item                     95-96    96-97     97-98    98-99     99-2000
  No

  1.      Telephone   Paid         114.8    138.5     168.5    193.5     224.6
          Minutes(in Crores)

  2.      Transit Paid             0.670    0.524     0.745    0.905     0.427
          Minutes
          (in Crores)
          Number of Internet Users  4151    20042     90042    213045    366432

  4.      Number of                12873    14184     15431     17922     19722
          International
          Telephone Circuits

  5.      Number of                  245      402       603       661       659
          High Speed Data
          Circuits

  6.      Total International       4473     5285      6436      7176      7230
          Operator's (i.e.
          VSNL's Revenue (in
          Rs. Crores)

</TABLE>

      Source:  VSNL Annual Reports






                                       3
<PAGE>



BACKGROUND

2.2    Until recently most countries  operated  international  Services  through
Government owned monopolies and used the profits from Long Distance  Services to
subsidise Basic Servi~es i.e., Local rental and call charges.  In many countries
such as Japan (KDD), Australia (OTC), India (VSNL), Thailand (CAT), the monopoly
ILD Services  were  operated by an entity  different  from the National  Telecom
Operator. In a number of Commonwealth  countries,  a private company,  Cable and
Wireless,  operated the Services either under license or in partnership with the
Government.  In our neighbouring  countries,  such as Myanmar,  Sri Lanka and in
certain  African  countries  like Zimbabwe etc., the National PSTN Operator also
operated  the  International  Services.  In the 1990s,  when the telecom  reform
process gained  momentum,  some countries  permitted  competition by licensing a
second  Operator  to offer  International  Services;  e.g Satel Indo  (Indonesia
1994),  China Unicorn (China 2000).  In some countries,  the incumbent  National
PSTN Operator was allowed to enter the International market as a second operator
e.g., Telstra in. Australia; NTT Japan (1998). In some instances,  this was done
indirectly  by enlarging  the scope of the licenses of the existing  Cellular or
PSTN Operator to include ILD Operations like in Zimbabwe and Uganda.

2.3    During the 1990's,  particularly in the second half of the decade,  there
has  been  a  sharp  rise  in the  number  of  countries  that  have  introduced
competition  in the ILD sector,  and the policy  regime has allowed  much larger
number of operators,  including open competition.  This can be seen from Table 2
below.










                                       4
<PAGE>



TABLE 2.   COUNTRIES  WHICH HAVE ALLOWED  COMPETITION  IN THE ILD SECTOR,  1990
           TO 1998

<TABLE>
<CAPTION>

<S>                         <C>                       <C>
            1990                      1995                      1998

 Japan, New Zealand,        Japan, New Zealand,       Japan, New Zealand,
 UK, USA                    UK, USA                   UK, USA
                            Australia, Canada,        Australia, Canada,
                            Columbia, Chile,          Columbia, Chile,
                            Denmark, Finland,         Denmark, Finland,
                            Korea, Malaysia,          Korea, Malaysia,
                            Philippines, Sweden       Philippines, Sweden
                                                      Austria, Belgium,
                                                      Brunel, DPR Congo,
                                                      Dominican, Republic, El
                                                      Salvadore, France,
                                                      Germany, Ghana,
                                                      Guatemala, Hong Kong
                                                      (China), Indonesia,
                                                      Ireland, Israel, Italy,
                                                      Mexico, Netherland,
                                                      Norway, Peru, Russia,
                                                      Somalia, Spain,
                                                      Sweden, Switzerland,
                                                      Uganda, Ukraine

 SHARE OF ABOVE FOUR        SHARE OF ABOVE FOURTEEN   SHARE OF ABOVE THIRTY
 COUNTRIES IN ILD           COUNTRIES IN ILD          NINE COUNTRIES IN ILD
 ORIGINATING                originating               ORIGINATING TRAFFIC: 74%
 TRAFFIC: 35%               TRAFFIC: 46%

Source: ITU
</TABLE>


2.4    A number of salient  features  emerge when we consider the countries that
have opened their 1LD sector to competition.





                                       5
<PAGE>

  (A) COUNTRIES  THAT HAVE  INTRODUCED  COMPETITION  IN ILD INCLUDE BOTH THOSE
        WITH LARGE AS WELL AS SMALL SHARES IN GLOBAL INTERNATIONAL TRAFFIC

2.5    Table 3 below shows the top 20 ILD operators in terms of total traffic in
1998.  While most of the companies in this list are from countries  mentioned in
Table 2 above, we also have companies from China,  Saudi Arabia, and India, i.e.
countries  which do not figure in Table 2. The top 20  companies  account  for a
bulk of the global ILD  market,  and a  comparison  of Tables 2 and 3 shows that
there are  several  countries  in Table 2 which have  allowed  open  competition
without necessarily a large presence in world ILD sector.

2.6    Table 3 shows that the Indian ILD  operator,  VSNL, is also in the top 20
operators  of  international  traffic.  This is mainly  because of the  incoming
traffic,  which far outweighs the importance of outgoing traffic for VSNL. For a
comparison,  the top 20 ILD operators in terms of outgoing international traffic
are shown in Table 4 below.











                                       6
<PAGE>



 TABLE 3. TOP 20 INTERNATIONAL TELECOMMUNICATION OPERATORS RANKED BY 1998 TOTAL
   MINUTES (OUTGOING PLUS INCOMING) MINUTES OF INTERNATIONAL TELEPHONE TRAFFIC


<TABLE>
<CAPTION>

OPERATOR (COUNTRY)           INTERNATIONAL TELEPHONE TRAFFIC, MINUTES 1998         INTERNATIONAL
                                                                                   TELECOM REVENUE
<S>    <C>                 <C>      <C>        <C>     <C>      <C>        <C>     <C>       <C>
                           BOTH WAYS           OUTGOING         INCOMING           TOTAL     CHANGE
                                                                                   (US $M)   (97-98)
                           Total    Change     Total   Change   Total      Change
                           (m)      (97-98)    (m)     (97-98)  (m)        (97-98)

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

      SOURCE:  ITU FOR TABLES 3 AND 4

</TABLE>

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

<TABLE>
<CAPTION>
       OPERATOR (COUNTRY)                INTERNATIONAL OUTGOING       INTERNATIONAL
                                            TELEPHONE TRAFFIC        TELECOM REVENUE
<S>    <C>                     <C>        <C>          <C>      <C>       <C>        <C>
                               FISCAL     (MILLION)    %        (M US $)  %          AS % OF
                               YEAR                    CHANGE             CHANGE     TOTAL
                                                       1998-99            1998-88    TELECOM
                                                                                     REVENUE

1      AT&T (United States)    31 Dec     10,900.0       4.3%   4,921.0     -7.7%     7.9%
2      MCI WorldCom (United    31 Dec      8,306.0      15.4%   3,489.0     27.1%     8.6%
       States)
3      Deutsche Telekom        31 Dec      3,860.0     -18.1%   1,493.5    -53.1%     8.0%
       (Germany)
4      Sprint (United States)  31 Dec      3,640.0      24.8%     825.0    -10.5%     4.1%
5      France Telecom (France) 31 Dec      3,200.0      -5.9%   1,333.5    -24.7%     4.6%
6      BT (United Kingdom)     1  Apr      2,679.0      -3.9%   1,143.5    -10.9%     4.6%
7      Telecom Italia (Italy)  31 Dec      2,390.0       2.2%   1,359.2     -9.4%     4.7%
8      Tselefonica (Spain)     31 Dec      1,935.0      14.5%     836.4      7.8%     3.4%
</TABLE>
<PAGE>


<TABLE>

<S>    <C>                     <C>         <C>         <C>     <C>         <C>      <C>
9      China Telecom (China)   31 Dec      1,760.0       2.8%   1,703.5    -26.2%     6.2%
10     Hongkong Telecom        1  Apr      1,668.3      -0.8%   2,005.7    -17.9%    55.0%
       (Hongkong Sar)
11     KPN (Netherlands)       31 Dec      1,625.0       1.6%     756.5     -6.1%     7.8%
12     Swisscom (Switzerland)  31 Dec      1,440.0     -24.3%     875.3      2.5%    11.8%
13     Belgacom (Belgium)      31 Dec      1,288.0       1.3%     601.9    -11.5%    14.6%
14     PTA (Austria)           31 Dec      1,178.0       4.2%     386.7     -4.3%     9.8%
15     Teleglobe (Canada)      31 Dec      1,130.0      -1.3%     423.3    -32.8%        -
16     KDD (Japan)             1  Apr      1,096.2      -1.4%   1,458.8    -19.3%    27.8%
17     Telmex (Mexico)         31 Dec      1,063.1       3.9%   1,206.9     27.2%    12.0%
18     Etisalat (United Arab   31 Dec        963.3      10.1%     583.4     14.3%    34.6%
       Emirates)
19     STC (Saudi Arabia)      31 Dec        932.6      16.4%         -         -        -
20     Chungwa Telecom         30 Jun        897.5       8.7%   1,303.1     55.4%    21.2%
       (Taiwan-China)
       TOP 20                             51,952         2.7%  26,706.2    -10.3%

</TABLE>






                                       7
<PAGE>



      (B)   A POLICY OF OPEN COMPETITION  DOES NOT NECESSARILY  IMPLY A LARGE
            NUMBER OF OPERATORS

2.7    The  fact  that  the  policy  regime  allows  open  competition  does not
necessarily  imply  induction of a large number of ILD operators in this sector.
Table 5 below  shows that the number of ILD  operators  may be similar  for both
those  countries which have allowed open  competition  and others.  Hence, it is
noteworthy that the number of operators depends not only on the policy regarding
open competition but also on economic factors,  such as the market size, and the
terms and conditions of entry and operation.

TABLE 5.      NUMBER OF INTERNATIONAL LONG DISTANCE OPERATORS WITH
              SIGNIFICANT MARKET SHARE IN SOME COUNTRIES

COUNTRY              NO. OF
                     OPERATORS       NAME OF OPERATOR

Australia            2               Telstra, Optus

China                2               China Telecom; China Unicorn

Korea                3               Korea Telecom
                                     DACOM Corporation
                                     ONSE Telecom

Japan                3               Kokusai Denshin Denwa Co Ltd., (KDD)
                                     International Telecom Japan Inc (ITJ)
                                     International Digital Communications Sinc
                                     (IDC)

UK                   3               British Telecommunications plc, C&W Comm,
                                     Kingston Communication (Hull) plc

USA                  5               AT&T, MCI Worldcom, Sprint, WorldxChange,
                                     Pacific Gateway Exchange Inc.

Indonesia            2               PT Indosat; PT Satelindo

   Source:  APT H


2.8    Another  noteworthy  feature in this regard is that even if the number of
licensees may be large, the actual number of service  providers are not as many.
For  instance,  if we consider the  situation in the European  Union,  as on 1st
August 1999, there were 490 Operators authorised to offer International  Network
Services, but only 187 were actually offering these services (please see Table 6
below).





                                       8
<PAGE>


TABLE 6.     NETWORK  OPERATORS AND SERVICE  PROVIDERS WITH LICENSE FOR
             INTERNATIONAL LONG DISTANCE SERVICES IN EUROPEAN UNION AS ON 1ST
             AUGUST  1999 AND PROVIDING ONE OR MORE OF THE LICENSED SERVICES


Country        Network Operators and     Network Operators and Service Providers
               Service Providers         actually offering one or
               authorised to offer       more Licensed Services


Belgium                   25                        11
Denmark                    4
Germany                   10                         2
Greece                     1                         9
Spain                     14                         1
France                    15                         2
Ireland                   21                        15
Italy                      4                        11
Luxemburg                 15                         4
Netherland                82                         4
Austria                   33                        63
Portugal                  10                         0
Finland                   18                        16
Sweden                    59                         1
UK                        179                       41


Note:  In  European  countries,  there are two type of  Licenses  i.e.,  one for
facilities based operation and the second only for Service provision. The latter
are a kind of resellers  of call  minutes.  In some  countries,  Operators  have
common License for all Services.

2.9    Table 6 includes Network Operators who install,  manage and operate their
own  facilities  i.e.,  Transmission  and  Switching  Systems to provide  public
telephony/  Network  services.  Service  Providers are a kind of resellers,  who
purchase  Network capacity i.e., lease line or minutes of use and offer services
to their customers.  Operators engaged exclusively in activities like call-back,
calling card operators or billing and marketing of International traffic are not
included  in Table 6.  However,  in  certain  countries,  the  total  number  of




                                       9
<PAGE>



licensees  may be  over-estimated  as a common  license is provided to operators
which are allowed to provide a particular service but may plan to remain only in
a limited market segment and not provide all the services that the license gives
it the flexibility to offer.

(C) COMPETITION IS INTRODUCED THROUGH ILDOS AS WELL AS THROUGH RE-SELLERS


2.10    As  indicated  in Table 6, a number of  countries  have  also  permitted
Resellers  or  Service  Providers  in  the  market.   This  results  in  greater
competition  in  certain  regions  of the  country,  depending  on the number of
resellers  in that  region.  it  also  increases  the  number  of the  licensees
operating  in  the  country  to  provide  International  Telecom  Service,  thus
providing greater choice to the customers.

(D) TARIFFS HAVE GENERALLY DECLINED FOR INTERNATIONAL TRAFFIC, A TENDENCY
    THAT HAS GOT ENHANCED DUE TO GREATER COMPETITION


2.11    In general,  enhanced competition also implies reduction in tariffs. For
the International telephony sector, this decline has taken place also due to the
tariff re-balancing exercise that is underway in a large number of countries. In
the European  Union,  the average price of  International  Long  Distance  calls
between  year 1997 and 2000 has declined by 32% for  Residential  Users and 34 %
for  Business  users.  Within this period in India,  which has the same rate for
business and residential users, International call charges have declined by 32.8
to 34.7% depending upon the ILD category (geographical slab).

(E) GROWTH OF OUTGOING MINUTES OF INTERNATIONAL TRAFFIC DIFFERS ACROSS
    COUNTRIES, INCLUDING THOSE WITH OPEN COMPETITION


2.12    Though there is a general decline in International tariffs, the outgoing
International traffic has not necessarily increased for all countries, including
some with open competition.  This is because the outgoing  International traffic
depends also on the relative decline in tariffs in different countries, economic


                                       10
<PAGE>

prosperity of a country,  and the  possibility  of call-back due to arbitrage in
traffic.  Thus,  while in general  there has been an increase in outgoing  calls
from countries  which have  Iiberalised  in recent years,  this is not a uniform
picture across all such countries (please see Table 7 below).



TABLE 7.     OUTGOING MINUTES IN SELECTED COUNTRIES WHICH INTRODUCED
             COMPETITION BETWEEN 1995 AND 1998 (IN MILLION MINUTES)

  COUNTRY              1995                   1998                    1999

Austria                              901                1250                1178
Belgium                             1106                1460                1590
France                              2850                4043                4386
Germany                             5238                5900                7385
HK (China)                          1692                1880                2720
Indonesia                            206                 310                 251
Ireland                              407                 885                1015
Israel                               266                 661                 804
Italy                               1839                2285                2500
Mexico                               950                1316                1563
Netherlands                         1459                1805                2150
Norway                               437                 461                 567
Peru                                  63                  99                 111
Russia                               897                1038                1008
Spain                               1063                1803                1934
Switzerland                         1733                2034                2256


2.13   There  are a number of other policy issues which need to be considered in
the context of the  liberalisation  of the International  telecom sector.  These
include,  for  example,  duration of the  license,  types of "tele" and "bearer"
services  permitted for the ILD operator,  methods of issuing licenses (bidding,
beauty  parade,  any other),  whether  equal ease of access is  available to the
subscribers  the evolution of the market share of the incumbent after opening up
of the market. These are addressed below.

2.13.1 DURATION OF THE LICENSE

       The duration  of license for International Telecom Service may vary from
country to country.  For example,  New Zealand  provides  Licenses for unlimited


                                       11
<PAGE>

period.  Singapore provides licenses for 10 to 20 years depending upon status as
Reseller or Network Operator.  Malaysia provides Licenses fo Network facilities,
Network  Services and Content  Application  Services for 10 years duration.  For
application Services it is 5 years.

2.13.2 TYPES OF "TELE" AND  "BEARER"  SERVICES  THAT ARE ALLOWED FOR THE
       ILD OPERATOR

       Bearer services  are a  type of telecommunication  services that provides
the capability for the transmission of signals between user-network  interfaces.
Some of the examples of bearer service include service  provided include circuit
switched 3.1 KHz audio bearer service; ISDN user access with circuit switched 64
kbit/s  unrestricted and circuit switched 3.1 KHz audio bearer services;  and 64
kbit/s, 8KHz structured for speech.

       Teleservices  are  a  type of  telecommunication  services  that provides
complete capability,  including terminal equipment functions, for communications
between  users  according  to  established  protocols.  It  includes  telephone,
telefax, videotex and videotelephony services.

       In  conjunction  with bearer and   teleservices,  a set of  supplementary
services like Calling Line Identification, call forwarding, call waiting, advice
of charge etc. are also available.

       European  Union  and  many   other  countries   allow  various  types  of
teleservices and bearer services.

2.13.3 WHETHER EQUAL EASE OF ACCESS IS PROVIDED TO SUBSCRIBERS

       When multiple  operators  are part  of the market,  a level playing field
requires that the subscribers have equal ease of accessing any of the operators.
This may be through dynamic  call-by-call  selection or through  preselection of
the operators by the subscribers.  Experience has shown that often the incumbent



                                       12
<PAGE>


is  reluctant  to  introduce  Equal  Ease of  Access,  i.e.,  he does not favour
introduction of additional  digits required to be dialled for Carrier  Selection
as also Pre-selection.  However, in India this process is already progressing in
the National  Long Distance  Sector.  The issue will have to be tackled also for
the ILD sector.  The Figure below shows the percentage of population in European
Union  countries  which have  choice of  selecting  more than one  International
Carrier  i.e.   percentage  of  population  with  Equal  Ease  of  Selection  in
International Long Distance Services.


                                GRAPHICS OMITTED




                                       13
<PAGE>



2.13.4 THE EVOLUTION OF THE MARKET SHARE FOR THE INCUMBENT AFTER OPENING UP.


       By  definition,  the market share  of the  incumbent  will fall after the
market is opened up. But the extent of this  decline  can vary,  depending  on a
number  of  factors,  including  the  time  period  of  market  opening  and the
competitive  strategies used by the incumbent.  Such differences in market share
can be seen in the chart below which provides a view of the Incumbent Operator's
market share in international  Long Distance  Services in years 1997, 1998, 1999
and 2000  (projected) in various  countries of European  Union. In certain other
cases,  such as for Hong Kong,  Japan,  and the United  States,  the  decline in
incumbent's  market share has been larger than the general  picture shown in the
figure below.

                                GRAPHICS OMITTED



                                       14
<PAGE>


            3.    TERMS & CONDITIONS OF LICENSE


3.1    TYPE OF SERVICES AND TECHNOLOGIES

3.1.1  In   developing   countries,   including   India,   more   than   90%  of
International traffic is at present voice telephony. Volume of telecommunication
data traffic is,  however,  picking up fast.  Voice  Services  through  Internet
packet  Networks  are also likely to be offered in a big way in the near future,
particularly in the developed  countries.  One important policy issue is whether
to give  different  licenses  for Voice and data  services  or to allow  several
selected  tele and  bearer  services  under the  license of  International  Long
Distance  Operators.  Yet another  possibility is to adopt a technology  neutral
approach and grant the License for bearer  Services.  Since ILD is essentially a
Carriage  Service,  most of the  developed  countries  have  not  specified  any
teleservice,  as these Services are mainly derived from the Customer's  Premises
Equipment (CPE), which is provided by the Access Providers.

3.1.2  Limiting  licenses  to  a  specific type of bearer or tele  service,  may
lead to  sub-optimal  utilisation  of the costly  international  bandwidth if it
involves building separate international  backbones for different tele services,
such as voice,  data,  video etc. In a highly  competitive and rapidly  changing
technical  environment,  Operators  may find it  difficult  to  prepare  optimum
business and corporate  plans if they are restricted to a particular  service or
technology. Further, the Licensor and Regulator may find it difficult to monitor
violations  of the  license  conditions.  On the other  hand,  proliferation  of
technologies  can  lead to  difficulties  in  Interconnection  arrangements  and
maintenance  of QOS  standards,  as  some  of the  nascent  technologies  do not
guarantee Quality of Services for real time traffic generated by voice and video
services.  Unregulated service without any QOS guarantee on a particular segment
of the Network can lead to undesirable  commercial  practices,  and problems for
operators who provide end to end Services.



                                       15
<PAGE>

3.1.3  It  is worth careful  consideration  at this stage as to whether existing
license formats,  which specify Network architecture such as PSTN, PLMN and also
protocols  such as GSM,  CDMA etc,  should be adopted for ILD  Licenses as well.
Issues like fixation of tariffs for such Services, principles to be followed for
revenue sharing between Interconnecting  Operators etc. also require discussion.
While  Considerable  progress has been achieved in  addressing  these issues for
PSTN based circuit switching  techniques,  there is a need to develop principles
and concepts for packet switching (VOIP) technologies, when they are employed to
carry real time voice.

3.2    INTERCONNECTION AND NETWORK DEFINITION

3.2.1  International  experience  shows  that  in the ILD market,  both Facility
based  and  Non-Facility  based  Operators  have been  permitted  in a number of
countries.  The latter are called  Re-sellers  or Virtual  ILDOs.  Generally  in
developing countries where infrastructure availability is restricted, re-sellers
as ILDOs were not permitted in the first phase of opening up of the ILD market.

3.2.2  The   Interconnection   issues  depend  on  the  nature  of  the  Network
architecture  allowed for ILD Operators.  Three possible  options in this regard
are the following:

       A)    CONFIGURATION I

       The  scope   of  International  Long   Distance  Network  is  defined  as
consisting  of  International  Gateway  Switches,   International  Circuits  and
National  connectivity  to the nearest  gateway switch of the NLDOs, as shown in
the Figure "I" in Annexure II.

       B)    CONFIGURATION II

       The scope of International Long Distance Network is defined as consisting
of  International   Gateway  Switches,   International   Circuits  and  National
connectivity  to the Access  Providers  at the Telecom  Circles  through  leased


                                       16
<PAGE>


lines,  as shown in the Figure  "II" in Annexure  II. It would then  by-pass the
network of NLDOs. This may create some techno-legal problems.

       C)    CONFIGURATION III [EXISTING VSNL CONFIGURATION]

       VSNL,   the   incumbent   International   Long   Distance   Operator  has
International  Gateway  switches  at all  Metro  and some  other  stations  like
Jallandhar, Ernakulam, Kanpur and Gandhinagar (Ahmedabad). Generally all Level I
TAXs have direct Routes to more than one Gateway Switch of VSNL. This may appear
similar  to a  Interconnection  with an NLDO.  Many of the  Level  II TAXs  also
generally have direct routes to at least one Gateway switch based on traffic and
techno-economic considerations. This may appear similar to connectivity to BSOs.
At present VSNL switches do not have direct  connectivity to Cellular  Networks.
In this approach, we will have to permit installation of International  Switches
generally at Level I LDCAs i.e., roughly one in each State. This could result in
by-passing the NLDO's infrastructure giving rise to legal and regulatory issues.

3.2.3  The  present  Draft  License  Agreement for NLD Services does not provide
for  direct  connectivity  of ILDOs  with  Access  Providers.  NTP'99,  however,
mentions about such an option. The Draft License Agreement for new BSOs mentions
that for  International  Long Distance call, the BSO shall access  International
Long Distance Operator through National Long Distance Operator only.

3.2.4  If  the ILDOs are permitted  to set up multiple  gateways and  inter-link
them, there may not be much difference between the first  configurations  above.
It is also  noteworthy that any decision in this regard should be considered for
application to VSNL also.

3.2.5  Configuration "I"  above could  allow the ILDO to provide Services with a
minimum  investment i.e. with the establishment of a single gateway switch.  All


                                       17
<PAGE>


other facilities could be leased, and as traffic increases,  additional gateways
could be established. Number of Point of Interconnections at minimum level could
be  specified as one with each NLDO.  As such  Roll-out  could be immediate  and
there may not be a need for any mandatory Roll out obligations.

3.2.6  Under  configuration  "II"  above  the  ILDO  would  be  able  to pick up
traffic  directly from the Access  Providers,  by-passing the NLDO,  because the
ILDO would establish  Points of Presence (POP) in all territorial  Circles where
BSOs and CMSPs are  licensed.  The ILDO  could  have  various  options  i.e.  to
establish  POP by leasing  transmission  capacity  from the  NLDO/infrastructure
Providers,  or lease both switching and transmission  capacity from the NLDO, or
to  lease  switching   capacity  from  NLDO  and   transmission   capacity  from
Infrastructure   Providers,  or  establish  its  own  infrastructure.   In  this
configuration,  there  may be a need to have  Roll-out  obligations  along  with
associated  time periods so that  advantages of competition to telecom users are
not confined to pockets of high revenue generating Telecom Circles only.

3.2.7  Under configuration "III", the  number of Interconnections  with the NLDO
and Access Provider's Switches will depend upon traffic thresholds. For example,
if traffic from any Level II TAX station to ILDO justifies  direct  connectivity
with say a  minimum  of two  2Mb/s  streams,  the same  will be  required  to be
provided  by ILDO.  For all  Level I TAXs,  direct  Route  in any  case  will be
mandatory.  In this  configuration  too,  there  may be a need to have  Roll-out
obligations along with associated time periods.

3.3    TIME PERIOD OF LICENSE

3.3.1  Time  Frame for the License  Should  be such that it provides an adequate
time to achieve a reasonable  return of investment  and to plan for the disposal
of assets.  A short  license  period  raises the problem of the  disposal of the
Network at the end of the license period. The closure of the business may not


                                       18
<PAGE>


affect  users  substantially  if other  ILDOs take over  quickly.  However,  the
Networks  may not be easily  disposed  off as they are likely to become  rapidly
obsolescent because of technology change.

3.3.2  Basic and  National Long Distance  Services are  licensed for a period of
20 years, with a provision for extension of the license period. The issue arises
whether a similar time period should be provided for ILDOs also.

3.4    The discussion leads to following set of questions:

QUESTION  3A) WHAT  ARE THE TYPE OF TELE AND  BEARER  SERVICES  THAT  SHOULD  BE
PERMITTED AS PART OF ILD LICENSE  PROVIDED  UNDER THE  LIBERALISED  ENVIRONMENT?
CONSIDERING  THE FACT THAT TELE  SERVICES  ARE  BASICALLY  DERIVED  FROM  BEARER
SERVICES BY THE CUSTOMER'S  PREMISES EQUIPMENT (CPE), WHICH IS PROVIDED BY BSOS,
IS THERE A NEED FOR THE ILD  LICENSEE TO SPECIFY TELE  SERVICES?  WILL IT NOT BE
ADEQUATE, IF IT SPECIFIES CERTAIN BEARER SERVICES AND OTHERWISE ADOPTS A NEUTRAL
APPROACH IN SO FAR AS SPECIFIC TELE SERVICES ARE CONCERNED?

QUESTION 3B) VSNL HAS INTERNATIONAL GATEWAY SWITCHES AT A FEW METRO CITIES, SUCH
AS  MUMBAI,  DELHI,  CHENNAI,  CALCUTTA  ETC.  WILL IT BE THE  MOST  APPROPRIATE
ARCHITECTURE  WHEN  THERE  ARE  MULTIPLE  ILDOS?  SHOULD  WE  MANDATE  A SIMILAR
ARCHITECTURE FOR PRIVATE ILDO?

QUESTION 3C) THREE DEPLOYMENT  OPTIONS OF  INTERCONNECTIVITY,  VIZ A) WITH NLDOS
ONLY, B) DIRECTLY  WITH ACCESS  PROVIDERS,  AND C) THE EXISTING VSNL  DEPLOYMENT
PRACTICE,  HAVE BEEN DISCUSSED IN THE, CONSULTATION PAPER? WHICH OF THESE OR ANY
OTHER SHOULD BE THE PREFERRED OPTION AND WHY?

QUESTION 3D) SHOULD A SET OF ROLL OUT OBLIGATIONS BE IMPOSED ON ILDOS SIMILAR TO
THE PATTERN OF BASIC SERVICE AND NLD LICENSES  ALONG WITH  ASSOCIATED  PENALTIES
FOR NON-COMPLIANCE FOR ESTABLISHING SERVICES AND POPS?

QUESTION 3E) WHAT SHOULD BE THE LICENSE PERIOD FOR AN ILD LICENSE?


                                       19
<PAGE>


                            4. NATURE OF COMPETITION

4.1    Competition  in  a  market  depends on  the  number  of  players and  the
flexibility provided to these players to operate in the market. The determinants
of competition in ILD may be considered in terms of:

a)     Type  of  competition,  that  is  whether  only operators or carriers who
own  facilities  such as  switches  (POP) be allowed  to  compete or  switchless
Re-sellers of  International  bandwidth shall also be permitted to enter the ILD
market as is the practice in developed countries such as USA/Canada.

b)     Level  of  competition,  i.e.,  whether  we  permit  a  limited number of
players  in the first  phase and then open up  unlimited  competition  including
Re-sellers in the second phase.

c)     Time period for implementing the policy regime for competition.

4.2    TYPE OF COMPETITION (ILD OPERATORS CARRIERS OR RE-SELLERS):


4.2.1  Competition   can  be   introduced  either  through  Facilities-based  or
Non-Facilities  Operators.  Facilities based competition  involves  licensing of
Operators,  who operate their own facilities.  Non-Facilities based competition,
would entail  competition by Operators who do not operate their own  facilities,
but lease them from facilities based operators.

4.2.2  Three different entities may be considered in this context.

a)     International  Long  Distance  Operators  (ILDs),  who  build  their  own
Network to provide bearer or carriage  services to other operators such as NLDOs
and Access Providers.


                                       20
<PAGE>


b)     Switch  based  re-sellers,  who  lease  transmission  systems  from  both
International National Infrastructure providers.

c)     Switch-less  re-sellers who  purchase  bulk  minutes  from  International
Carriers and offer  Services to their  customers i.e. they do not have their own
transmission system or switching system.

4.2.3  ILDO  is  essentially a Carrier's  Carrier.  One policy issue to consider
is whether to make it mandatory for the ILDOs to establish switching  facilities
in the country.  For inland facilities,  ILDOs can either build their facilities
or lease them from Infrastructure Providers.

4.2.4  As far  as  International  links  are  Concerned,  the  minimum  facility
required by a facility  based ILDO can be an earth  station  and gateway  switch
connected to the National/International  Networks.  Non-Facility based Operators
can lease  switch as well as circuit  capacity  from others,  basically  selling
switched bearer service to other operators such as NLDOs/BSOs/CMSOs.

4.2.5  Availability   of  adequate   wholesale  capacity   with   the   existing
Infrastructure  Providers or  International  Backbone  Providers  are  essential
pre-requisites   for  the  introduction  of  Non-Facilities   based  competition
International trends show that Re-sellers are generally permitted in more mature
markets,  where  infrastructure  is well developed and tele-density is high. The
consultation process needs to address the option of whether to permit Re-sellers
as the ILD Sector gets opened up, and the appropriate timing of the same.

4.3    LEVEL OF COMPETITION

       The  level  of  competition  depends  on  the  number of  operators  in a
particular  market.  The  number  of  operators  may  be  pre-determined  by the
policy-maker in case of limited competition  (duopoly/ oligopoly) or left to the
market forces, in the case of unlimited competition.  The focus in this paper is
to determine the policy regime  regarding the level of competition,  because the



                                       21
<PAGE>


actual number of ILD operators in the market does not necessarily depend only on
what the policy permits.  This is evident from a comparison of the policy regime
and number of ILD operators in various  countries,  shown in Section two of this
paper.


4.3.1  LIMITED COMPETITION:

       We   define   Limited   competition   to   mean   fixing   the  number of
players.  This can lead to Duopoly or oligopoly as described below:


4.3.1.1  DUOPOLY:

       A duopoly market  structure means only two powerful  operators A number
of  countries   have  a  duopoly   market   structure  in  the  first  phase  of
liberalisation   of  the  ILD  market.   The  duopoly  market  structure  limits
competition  and  provides a profitable  market to the new entrant.  At the same
time,  by reducing the extent of  competitive  pressure,  the  incumbent  gets a
longer time to adjust to the changed  environment.  However,  the prices tend to
remain higher than under a situation of greater  competition  and this implies a
larger burden on the consumer.


4.3.1.2  OLIGOPOLY

       In an oligopolistic  market  structure,  normally three or four operators
with significant market power are present. The oligopoly market may arise either
due to the policy maker  specifying that only a limited number of operators will
be allowed in the market or because the market may itself give rise to a limited
number of operators,  under the entry and operating  conditions specified by the
policy maker.

       In the latter  situation i.e. where the policy maker does not specify a
limit on the number of operators,  the focus is not on determining the number of



                                       22
<PAGE>



operators  but on the entry and  operating  conditions.  These issues are raised
under the sub-section "Unlimited Competition".

       In  oligopoly/  multipoly,  the  operators  face greater competition than
duopoly and therefore have lower profit  opportunities.  The  relatively  higher
competition,  however,  reduces  prices faced by Consumers and provides  greater
incentives to operators for being innovative in terms of their service and price
packages.

4.3.2   UNLIMITED COMPETITION OR MULTIPOLY

4.3.2.1  In  Unlimited  competition,  market  forces  determine  the  number  of
players  which may lead to multipoly  i.e. a large number of players and none of
them enjoying a  significant  market power.  The key policy  considerations  for
unlimited  competition  include  specification of entry conditions,  performance
obligations and operational  restrictions.  Potential  Operators will assess the
attractiveness  of the options  vis-a-vis the  obligations  and barriers  before
entering the sector.

4.3.2.2  The main reason to specify the entry  conditions  is to  discourage
the entry of operators that are not capable and serious.  A disadvantage of such
conditions  is that entry costs  would add to the cost of service  Provisioning.
Also,  there is no methodology  for fixing the optimal level of entry  barriers,
which will  complement  and not Oppose market  forces.  The issue of eligibility
criteria is addressed in more detail in the next section.

4.3.2.3  The  full   competition   scenario   envisages  no entry  barriers  and
licenses are available on demand. In unlimited  competition,  competitive forces
could ensure cost-effective  methods of delivering Bearer Services,  and passing
on the benefits to customers.  Competitors could apply innovative  techniques to
capture market shares. However,  unrestricted entry may raise a number of issues
pertaining to the viability of Operations,  appropriate  interconnection  regime
and regulation of Service Quality and tariffs.


                                       23
<PAGE>

4.4      Time period for implementing the policy regime for competition


         There are two possible ways of introducing greater competition.  One is
to phase-in more and more competition in different stages over time.  Another is
to allow either  unlimited  competition or a limited  number of ILDOs,  say four
five in the initial phase of opening up the market. While several countries have
increased  competition  in stages,  a number have quickly opened up to unlimited
competition , as shown by the information in Section two of this paper.


4.5      In the  light  of  the  discussions  in  pre-para,  the  following
questions are brought our for public consultation:


QUESTION 4A) SHOULD IT BE MANDATORY FOR ILDOS TO ESTABLISH SWITCHING FACILITIES
IN THE COUNTRY? SHOULD WE GO IN FOR FACILITIES BASED COMPETITION ONLY?

QUESTION 4B) SHOULD NON-FACILITY BASED COMPETITION BE PERMITTED? IF YES, WHAT
SHOULD THE TERMS AND CONDITIONS FOR NON-FACILITY BASED OPERATORS OR RESELLERS?
SHOULD RESELLERS BE PERMITTED TO PURCHASE SWITCHED MINUTES OF CALL TIME NOT ONLY
FROM ILD OPERATORS (FACILITY BASED), BUT ALSO FROM NLDOS?

QUESTION:4C) SHOULD THERE BE LIMITED OR UNLIMITED COMPETITION? IN CASE OF
LIMITED COMPETITION POLICY, WHAT SHOULD BE THE MECHANISM TO RESTRICT ENTRIES AND
IS IT REASONABLY POSSIBLE TO ARRIVE AT THE OPTIMUM NUMBER OF OPERATORS IN THE
ILD SEGMENT?



                                       24
<PAGE>




QUESTION:4D)  IF UNLIMITED  COMPETITION IS INTRODUCED,  SHOULD THIS BE PHASED IN
OVER A SPECIFIED PERIOD OR BE INTRODUCED FROM THE BEGINNING ITSELF?

QUESTION: 4E) SHOULD THE OPTION OF INFRASTRUCTURE LEASING INCLUDE THE LEASING OF
SWITCHING CAPACITY FROM NLDOS?






                                       25
<PAGE>

                             5. SELECTION CRITERION


5.1      The   licenses  will  offer   International   Long  Distance   Services
exclusivity  to the ILDOs for a given time  period.  Selection  can be through a
bidding  process,  or  alternatively  by  prescribing  and  announcing  a set of
criteria for selection.  Such criteria may include provision of Entry Fee and/or
Technical and Roll-out requirements.

5.2   ELIGIBILITY CRITERIA:

5.2.1    Certain  eligibility  criteria may need to be specified to ensure
that  nonserious  entities do not enter the market.  These criteria may focus on
various  attributes  such as those specified for the Basic Services and National
Long Distance Operators.

5.2.2    One  criteria  to consider is whether to allow entry to only those with
a proven  track  record in the field of  Telecommunication  Services.  Similarly
sound financial  background is another  criteria worth  considering.  Under this
criteria, the promoter of a company may be required to have a combined net worth
above a particular  threshold.  Adequacy of  experience in the field may also be
considered  important  and  thus,  for  example,  it may be  required  that  the
applicant  or  at-least  one or some of the  constituents  of a group  or  joint
venture  having a  certain  percentage  of the  total  equity  in the  applicant
company, should have experience of telecom sector.

5.2.3    An  Entry Fee  may be considered for the purpose of keeping non-serious
players out. Entry Fees get determined by the policy  objectives , including the
competition  strategy  adopted for the market.  In case of limited  competition,
Entry  Fee may be  determined  through  bidding.  In  contrast,  in the  case of
unlimited  competition where licenses are available on demand, Entry Fees may be
pre-decided amounts, to be paid by all licensees.  Alternatively,  the Entry Fee
could have a linkage  to the  expected  revenues  from the  licensee's  areas of
operations, i.e. it may be fixed considering the market potential.



                                       26
<PAGE>

5.3   SELECTION CRITERIA:


5.3.1    The  technical  proposal  may  be  evaluated  on  the basis of  various
criteria such as ownership  parameters,  performance record,  sector experience,
transmission  facilities,  Points of Presence  and other  parameters  considered
relevant by the Licensor Regulator.

5.3.2    In  case  limited  competition  is  to  be  introduced  either  through
duopoly or oligopoly multipoly, a detailed evaluation process should be in place
to select and award the  stipulated  number of licenses.  Both the technical and
financial proposals will need to be evaluated. After evaluation of the Technical
proposals,   the  qualifiers  may  be  allowed  to  bid  in  accordance  with  a
pre-announced bidding methodology.

5.3.3    Another  issue requiring  some consideration is whether there should be
some disabilities  pre-emptions  from  Participating in the process of obtaining
the ILDO License.  For example,  should parties having  acquired the incumbent's
(VSNL)  equity in the course of its  disinvestments,  be allowed to bid for this
license.  The rationale in prescribing the disability would be to avoid conflict
of interest as well as concentration of market power.

5.4      In  the  light  of the  discussions  in  this  section,  the  following
questions come up for discussion

QUESTION:  5A) WHAT  SHOULD  BE THE  ELIGIBILITY  CRITERIA?  SHOULD  IT  INCLUDE
FINANCIAL PARAMETERS AND MINIMUM EXPERIENCE OF ILD OPERATIONS ELSEWHERE.  SHOULD
IT ALSO  INCLUDE  THE  COMBINED  NET  WORTH  OF  PROMOTERS  ABOVE  A  PARTICULAR
THRESHOLD,  A MINIMUM  PERCENTAGE  OF STAKE IN THE TOTAL  EQUITY,  A  STIPULATED
NUMBER OF YEARS OF EXPERIENCE IN TELECOM  SERVICE  SECTOR  PARTICULARLY  IN LONG
DISTANCE OPERATIONS, OR ANY OTHER CRITERIA?



                                       27
<PAGE>



QUESTION: 5B) IN CASE LIMITED COMPETITION IS PREFERRED,  SHOULD THE CRITERIA FOR
FINANCIAL SELECTION INCLUDE BOTH. ENTRY AND ANNUAL LICENSE FEES PAYMENTS?

QUESTION:  5C)  SHOULD AN ENTRY FEE BE  SPECIFIED  OR  SHOULD IT BE  SUBJECT  TO
BIDDING?  WHAT  SHOULD  BE THE  OPTIMUM  LEVEL OF THE  ENTRY FEE IF IT HAS TO BE
SPECIFIED?

QUESTION: 5D) SHOULD THE SELECTION CRITERIA INCLUDE TECHNICAL PARAMETERS? IF THE
ANSWER IS IN THE AFFIRMATIVE,  THEN WHAT PARAMETERS  SHOULD BE INCLUDED AND WHAT
WEIGHTAGE SHOULD BE GIVEN TO THE PARAMETERS TAKEN INTO ACCOUNT?

QUESTION: 5E) SHOULD THE PARTIES ACQUIRING VSNL EQUITY THROUGH THE DISINVESTMENT
PROCESS, BE PERMITTED TO OBTAIN LICENSES FOR NEW ILDOS?


                                       28
<PAGE>


6.    STRUCTURE OF THE LICENCE FEES

6.1   GENERAL CONSIDERATIONS

      A  License  Fee  having  one  or  more  of the following components may be
   prescribed:

i)    One Time Entry Fee

    a)  Operators to pay a Fixed Entry Fee to obtain a license.

    b)  Entry Fee may be linked to roll-out performance

ii)  An Annual License Fee

     An annual License Fee based on a percentage of Gross collected Revenue less
     'pass-through' revenue is payable

(iii) USO Levy

     USO  levy is  also  applied,  either  separately  or as part of the  annual
     License Fee.

     The details of these  components  may need to be  determined  by the policy
     maker.

6.2  FACTORS IMPORTANT FOR  CONSIDERATION OF THE LICENSE FEE STRUCTURE  RELATING
TO ILD LICENSES

6.2.1 Till full tariff re-balancing takes place, the International Services will
generally be the most remunerative part of the telecom business. The opportunity
for business  development  in the ILD sector is also  higher,  since a number of
advanced Services are often available with a matching clientele.



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However the business scenario is changing with an increase in competition in the
sector, and a decrease in tariff for International calls.

6.2.2  The  above  factors  are  relevant  in a  consideration  of the Entry Fee
and Revenue Share License Fee for ILDO.

6.3    ESTIMATING GROSS REVENUES FOR LICENSE FEE

6.3.1  A  definition  of  adjusted  gross  revenue for  determining  License Fee
has already been arrived at in the case of revenue  sharing  arrangements of NLD
operators.  This is the gross collected revenue of the Operator for all licensed
activities less the deductions on account of `pass through' revenue.

6.3.2  This  approach,  however,  is  inapplicable  in  the  case  of   incoming
International  calls,  because  these calls  emanate from the Operators in other
countries,  and calculating  the relevant  revenue from these calls may not be a
straight  forward  exercise.  Incoming  traffic to India is higher than outgoing
traffic.  The settlement  regime through  accounting rate mechanisms also do not
provide any  reliable  estimate of total  revenues.  Call back and Reverse  Call
revenues introduce additional complications. For example, it may be possible for
an ILDO in India to enter into a bi-lateral  settlement  agreement with a remote
International Operator and thus maximise the amount retained abroad and minimise
the payment to the Indian ILDO.

6.3.3  Based  on  the   above,  there  may  be  a  need to treat  outgoing  call
revenues  separately  from  incoming  call  revenues.  The  License Fee could be
applied  separately  for  these two type of  revenues.  For the  incoming  part,
traffic could, for example,  be measured and settlement  worked out on the basis
of the  standard  accounting  rates  arrived  at  between  VSNL  and  the  other
Operators,  or some other alternate formula. One such possibility is the payment
of a fixed license fee on each unit of incoming call minutes.


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6.4    QUESTIONS

       The following questions emerge from the foregoing discussions:

QUESTION 6A) WHAT FACTORS  SHOULD BE TAKEN INTO ACCOUNT  WHILE  DETERMINING  THE
LICENSE FEE FOR ILD OPERATIONS?

QUESTION 6B) HOW SHOULD  LICENSE FEE BE ESTIMATED?  FOR EXAMPLE,  SHOULD IT BE A
CERTAIN PERCENTAGE OF THE ILDO'S REVENUE?  WHETHER THIS PERCENTAGE SHOULD BE THE
SAME AS WAS FIXED FOR NLD SERVICES?

QUESTION 6C) HOW SHOULD THE REVENUE ON INCOMING CALLS BE DETERMINED AND INCLUDED
IN GROSS  REVENUE OF THE ILDO FOR THE  PURPOSE OF  ARRIVING  AT THE  LICENSE FEE
PAYABLE BY THE OPERATOR?



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                                  7. TECHNICAL

7.1      All Long Distance Carriers i.e., both National and  International,  are
examining the technical feasibility of deploying VOIP techniques based on packet
switching  instead of PSTN or circuit  switching  techniques  in their  Backbone
Network,  because of the  possibility  of sharing the same IP Backbone  for both
data and voice.  Although  this may be  effectively  implemented  in  developing
countries  after a longer period,  in developed  countries,  the data traffic is
about to overtake voice traffic.  The  possibility  of  transmitting  voice over
IP-based  Networks,  with the associated  opportunities,  such as voice and data
integration,  constitutes a milestone in the  convergence  of the  communication
sector. The key issue is that IP-based Networks,  are increasingly being used as
alternatives to the  circuit-switched  telephone  Networks and the likelihood of
ILDOs  deploying this  technology in their Network has to be taken into account.
We discuss the main issues after introducing certain relevant terms in use.


7.2    TERMS IN USE

7.2.1  Voice-over-IP (VOIP) refers to the transmission of voice, fax and related
Services over packet-switched IP-based Networks. VOIP is different from Internet
Telephony.  VOIP is a  technology,  whereas  Internet  telephony  is a  Service,
provided to the public on the  Internet.  VOIP and  Internet  telephony  are not
permitted in India at present.

7.2.2  The Public  Internet: (also  referred  to as the  Internet):  The global,
public,  IP-based meta-Network created by the interconnection of many public and
private IP-based Networks.

7.3    ISSUES RELATING TO VOIP

       Greater  volumes of IP  Telephony  now travel  over  managed,  private IP
Networks  as opposed  to the public  Internet.  It is  estimated  that the total
volume of Voice over Internet Protocol (VOIP) traffic carried over International
Networks in 2000 may have been around 4 billion minutes, or just over 3 per cent



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of the global total. This percentage is much lower for developing countries.  IP
based  Networks  are  designed  for non real time data  traffic and still do not
guarantee  QOS for  voice.  Due to its lower  Quality  of  Service,  it is not a
preferred mode when QOS is an important issue.

7.4    IMPACT OF VOIP ON THE PUBLIC TELECOMMUNICATION OPERATOR

7.4.1  If   telephony   via  internet  or  VOIP is allowed,  one major impact on
Public  Telecommunication  Operators  is  likely  to  be  loss  of  income  from
International calls, both direct (loss of collection charges) and indirect (loss
of  settlement  payments).  There  are,  however,  a growing  numbers  of public
Telecommunication  Operators  that have chosen to offer IP  Telephony  Services,
even though this may cannibalise their existing revenue streams. These Operators
include Telecom Egypt,  GamTel (Gambia),  Matav (Hungary),  Cesky Telecom (Czech
Republic) and CAT (Thailand).

7.4.2  Voice  over  IP (VOIP)  gateways  can  provide  not only Basic  telephony
and Fax  Services  but will also  enable  several  value-added  Services,  e.g.,
cal!centers,  integrated messaging,  least-cost routing etc. These will increase
marketing flexibilities and provide additional sources of revenue. However, VOIP
gateways  are largely  proprietary  products and they do not  inter-work  if one
operator has one product and the other a different product.

7.5    INTERCONNECTION  ISSUES

       Two issues relating to interconnection are likely to arise.

7.5.1  CARRIER SELECTION

7.5.1.1  The Telecom users could have the option of selecting  the ILDO of their
choice on the  pattern of NLDO option  recommended  by TRAI.  Options  available
could be  Dynamic  Carrier  Selection  (Dial  around)  in which the  Carrier  is


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<PAGE>


selected  through a dialling  procedure in which  '1OXY' is to be dialled  after
'00' and prior to  International  significant  number.  `XY' would represent the
selected carrier code. Pre-selection is another option in which the user informs
his Access Provider about his choice of the ILDO., and all ILD calls by the user
automatically get transferred to the chosen ILDO.

7.5.1.2  To  enable  the ILDO to  collect  traffic,  the user  should be able to
express a choice of the carrier.  Difficulties,  however,  arise in permitting a
simultaneous  choice of the ILDO and NLDO. These difficulties relate to existing
limitations  in storage  and  analysis of the  additional  digits  required  for
Carrier Selection. At present, it is difficult to provide for a selection of the
ILDO  and  the  choice  would  have  to  be  left  to  the  NLDO.  National  and
International  services  would be offered  as a package  by the  NLDOs.  Further
studies are being  conducted  on the  possibility  of  providing a  pre-selected
choice of the ILDO in  addition  to a choice of NLDO and should it be  possible,
additional  costs would be involved.  If a technical  solution  can be found,  a
decision as regards who will bear this cost and in what manner,  will have to be
taken.

7.5.2  BILLING

       Differential  rates and concessions are likely to be offered by the ILDO,
and this has been one reason for  giving  the  responsibility  of billing to the
ILDO itself.  However,  various  alternatives  are available for  collecting ILD
charges from customers,  e.g., collection may be through the NLDO or through the
Access provider.

7.6    Based on the discussions of the pre-para, the following questions  emerge
for public discussion:

QUESTION 7A) SHOULD ILD OPERATOR BE PERMITTED TO DEPLOY VOIP NETWORK  INSTEAD OF
PSTN FOR CARRIAGE OF INTERNATIONAL VOICE TRAFFIC?


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<PAGE>


QUESTION 7B) IN CASE THE ANSWER TO THE PREVIOUS  QUESTION IS IN THE AFFIRMATIVE,
THEN HOW TO REGULATE  THE  QUALITY OF SERVICE ON VOIP  LINKS?  SHOULD A DEGRADED
PERFORMANCE ON ILD LINK BE ACCEPTABLE WITH A REDUCED TARIFF?

QUESTION  7C) WHETHER  EXISTING  REGULATORY  FRAMEWORKS  WILL BE ADEQUATE FOR IP
BASED  NETWORKS?  WHAT QOS STANDARDS  SHOULD BE  APPLICABLE  UNTIL ITU STANDARDS
BECOME FULLY MATURE?

QUESTION 7D) WHETHER VOIP BASED NETWORKS NEED SPECIAL  CONSIDERATIONS  ON ISSUES
LIKE NUMBERING, ROUTING, ADDRESSING, INTER-OPERABILITY AND QOS?

QUESTION 7E) CAN ILD OPERATOR BE ALLOWED TO ENGINEER TWO NETWORKS,  ONE BASED ON
PSTN WITH QOS GUARANTEES  AND OTHER BASED ON VOIP WITH NO QOS GUARANTEE?  HOW TO
REGULATE QOS AND INTERCONNECTION IN SUCH A SCENARIO?

QUESTION 7F) SHOULD THERE BE CARRIER  SELECTION OF ILDO?  IF YES, WHAT SHOULD BE
THE MODALITY OF ILD ACCESS I.E. PRE-SELECTION OR DIAL AROUND OR BOTH?

QUESTION 7G) WHAT SHOUTD BE THE TECHNICAL  ARRANGEMENT AND  RESPONSIBILITIES FOR
BILLING FOR ILD CALLS? WHERE SHOULD THE CALL DATA RECORDS (CDR) BE GENERATED FOR
EXAMPLE, SHOULD THESE BE GENERATED BY ROUTERS IN ADDITION TO THE SWITCHES?



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                                   ANNEXURE I

                                               No. 10-19/2001-BS-l

                               Government of India
                           Ministry of Communications
                        Department of Telecommunications
                          Sanchar Bhawan, 20-Ashok Road
                               New Delhi 110 001.



To
The Secretary,
Telecom Regulatory Authority of India,
Jawahar Vyapar Bhawan, Janpath
New Delhi 110 001.                                    Date: 12.03.2001

Subject:  Recommendations of TRAI on the issue of license for International
          Long Distance Telephone Service - Regarding

     The Government has decided to open the International  Long Distance Service
sector  for  private  participation  from  April'  2002.  For this  purpose  the
Government has to decide the terms and conditions for issue of the license.

     In terms of Clause  11(1)(a)(ii) of the TRAI Act 1997, it is requested that
the recommendations of the TRAI may be given on the:

       b)   Terms and conditions of the license
       c)   Number of players in this field
       d)   Selection criteria
       e)   License fee structure

       The   recommendations   should  also  include   other  facts  of  license
conditions.

       It is further stated that the Government has already decided,  except for
Cellular services,  free and open competition in other services such as National
Long Distance service, Basic services, GMPCS etc.

       It would be  appreciated  if TRAI  can  give the  recommendations  at the
earliest so that new players can be inducted by 1st April 2002.

                                                             Yours faithfully,

                                                                           Sd/
                                                                 (P.K. Mittal)
                                                  Deputy Director General (BS)
                                                  Tele:   3710437/FAX: 3372061




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                                                                   ANNEXURE II



                           ALL ILD Calls through NLDO only





                                  GRAPHICS OMITTED





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       ALL ILD calls from APs directly to ILDO                  ANNEXURE II

           (Note: This is presently not permitted as per NLD and Basic
                           Service Licence conditions)




                                GRAPHICS OMITTED






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              Present arrangement with VSNL                   ANNEXURE II
              (BSNL presently is the NLD)                        (contd.)


                                GRAPHICS OMITTED



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