DoT to fine 6 telcos for understating revenue

The telecoms department plans to impose penalties totaling Rs 1,594 crore on five mobile phone companies for allegedly understating revenues and hence paying lower revenue share during 2006-07 and 2007-08.

The department has estimated that Reliance Communications will have to pay penalties to the tune of Rs 551 crore while for Bharti Airtel, it will be Rs 292 crore. The penalty for Vodafone works to Rs 254 crore.

Idea Celluar must pay about Rs 113 crore, Tata Teleservices at Rs 273 crore and Tata Communications at about Rs 120 crore, officials in the telecoms ministry aware of the developments told ET.

The telecoms department has studied the special audit reports of these companies and concluded that were discrepancies in the revenues reported by these telcos, these officials added.

In 2009, the government had ordered external audits on the books of all leading private cellphone companies to make sure that they had correctly reported and shared revenue with it.

Since telecom companies pay 6-10% of their annual revenue as licence fee and 2-6% as spectrum usage charges, reporting lower revenue brings down the component they have to share with the government.

It is learnt that the telecoms ministry (DoT) will issue showcause notices to these companies after getting the go ahead from communications minister Kapil Sibal.

The minister is likely to give his consent on January 13 when he meets telecoms secretary R Chandrasekhar to study the showcause notices that have been prepared, the officials quoted above added.

“Assessment has been made of the liabilities they (telcos) will have to pay based on our examination of the audit reports and the revenues of operators. After an internal review, whatever action is necessary will follow,” telecoms secretary R Chandrasekhar told ET, when asked about the department’s plans to slap penalties.

The DoT has also got the go ahead from the law ministry. It had sent the draft showcause notices to the law ministry, which in turn has said it has no objections to it, while also adding that its vetting was not required.

Jaipur-based Parakh & Co audited RCOM’s books and was the first to submit its report. Contractor, Nayak & Kishnadwala were the auditors for Bharti Airtel, Chhajed & Doshi for Idea Cellular and SK Mehta and Company looked at the books of Vodafone.

All operators declined to comment to detailed queries sent by ET, but many of them pointed out they had issued statement earlier stating that the special audits had established that their books were in order.

An executive with one of these companies told ET that Kapil Sibal had assured the industry that ‘penalties, if any, would only be imposed after allowing operators to make detailed presentations with their counter arguments’.

Reliance Communications had in the past sent several communications to the DoT asking it to reject the special audit on it by Parakh & Co and alleged the report ‘was issued for malafide purpose, based on uncorroborated facts and done without any discussions with it (RCOM)’. The telco had also told the DoT that ‘the entire report was drafted for the purpose of sensationalising irrelevant matters’.

In March 2010, after Chhajed & Doshi had submitted its 115-page report on Idea Cellular, its then managing director Sanjeev Aga had said that ‘special audit had reported no discrepancy’. “Indeed it could not have. There are tabulations of some amounts, presumably from data collation as required by DoT. Such heads of accounts were treated in line with a) mandated accounting standards b) strictly as per TDSAT rulings and also c) the view of the special auditor is not to the contrary,” Aga had added.

Similarly, Vodafone Essar CEO Marten Pieters said in the same month that ‘the special audit had rightly observed that its revenue accounting practices were in line with the accounting standards’ while adding that there was ‘no instance of any diversion of revenues to non-licence fee categories’.

The Vodafone CEO had also pointed out that of the 20 terms of reference under the scope of audit, the special auditors have tabulated additional licence fee impact on a few items. “We have already accounted for these items clearly based on established accounting standards, prevalent industry practices and relevant (telecom tribunal) TDSAT rulings. We are confident there is no additional fee liability for the period under audit,” he had added.

In June 2010, Tata Teleservies had issued a statement stating that the government appointed auditors had found nothing wrong in the company’s accounts.

“We are delighted with the special auditors’ validation that all payments and dues, including license fees and spectrum charges have been paid by TTSL, as per the license conditions and the applicable ruling of the telecom tribunal TDSAT. The findings of the audit are testimony to professional management and high standards of professional integrity followed by the company, both in terms of conducting business and our accounting and internal audit processes,” the company statement had added.

Post the audit report, Bharti Airtel had said that it appeared to give the DoT of claiming Rs 98 crore, which is the likely licence fee impact on distributor margin, from the company as additional licence fee and spectrum charges. Bharti had also categorical that it will not need to make any additional payment.

“The findings of the special auditors appointed by the Department of Telecommunications have validated this belief of our company and has reconfirmed that all payments of licence fee and spectrum charges are as per the licence conditions as well as applicable rulings of the Hon’ble TDSAT. The audit has been conducted in a fair and transparent manner,” its then CEO and joint MD Manoj Kohli had said.

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