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Business News/ Companies / RCom’s revenue under-reported by Rs1,500 cr, finds DoT panel
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RCom’s revenue under-reported by Rs1,500 cr, finds DoT panel

RCom’s revenue under-reported by Rs1,500 cr, finds DoT panel

In focus: An RCom outlet in Bangalore. The DoT committee wants the firm to account for all the revenue coming from its value added services. Hemant Mishra / MintPremium

In focus: An RCom outlet in Bangalore. The DoT committee wants the firm to account for all the revenue coming from its value added services. Hemant Mishra / Mint

New Delhi: The internal committee of the department of telecommunications (DoT) that is studying a special auditor’s report of Reliance Communications Ltd has come to the conclusion that the firm under-reported its revenue to the government by at least Rs1,500 crore, according to a senior DoT official who is part of the committee.

This comprises Rs800 crore of dealer and distributor margins and Rs700 crore for value added services (VAS), added this person who asked not to be identified.

In focus: An RCom outlet in Bangalore. The DoT committee wants the firm to account for all the revenue coming from its value added services. Hemant Mishra / Mint

“The committee has accepted most of the auditor’s findings except for three items. These include cases where the auditor added back revenue from the ISP (Internet service provider) licence and sale of data cards back into the AGR (adjusted gross revenue) as well as the auditor’s handling of earnings from foreign exchange."

If DoT decides to act on the committee’s finding it will also affect the other four telcos on which special audits were carried out because all of them exclude dealer and distributor margins from their calculation of adjusted gross revenue.

Telcos share revenue with the government as a payment for spectrum and being allowed to offer services, and a lower AGR calculation would mean lower payout to the state.

Parakh and Co., the firm that undertook the special audit of RCom said the company had under-reported revenues of Rs2,799.19 crore, causing losses of Rs315 crore to the government in terms of licence and spectrum fees.

Telcos will likely contest the inclusion of dealer and distributor margins.

A RCom spokesperson said that this, as well as the treatment of VAS and non-telecom revenue were already settled by TDSAT (the Telecom Dispute Settlement Apellate Authority) in its judgement dated 30, August 2007.

“Licence fee is payable on realized revenue. The distributors margin never realized by the operators hence it can’t be said as revenue of the operators and not liable for licence fee," the spokesperson added.

Still, DoT has been mulling the inclusion of distributor and dealer margins in its revenue calculations for some time and Mint had reported this in April.

The margins or commissions arise from the proportion of the cost of a recharge coupon or card the retailer selling it retains. Telcos typically sell their coupons or cards to retailers at a lower price, and indicate a higher retail price that can be charged from customers. This applies to prepaid mobile connections; around 98% of the 617 million mobile connections in India are prepaid (which means users pay in advance for airtime).

The DoT committee also wants RCom to account for all the revenue coming from its value added services, less the service tax. Again, this decision, if implemented would affect other telcos too.

“The standard industry practice is that the telco will deduct the revenue share to the government after deducting service tax and then will divide the remaining portion with the VAS provider," Kunal Bajaj, partner and director India with Analysys Mason (India) said.

The Reliance spokesperson said that the provision of VAS wasn’t a licensed activity and should not require payment of a fee.

He added that the company expected no “additional financial liability towards licence and spectrum fee".

A second DoT official who is part of the committee confirmed some of its decisions.

Early last year, DoT ordered a special audit of RCom’s accounts after two brokerages, Kotak Securities Ltd and UBS, published reports of discrepancies in the revenues of the telco that were reported to the stock exchanges and the Telecom Regulatory Authority of India (Trai).

Jaipur-based Parakh and Co. was appointed to carry out the audit, and it submitted its report in October 2009.

DoT also ordered audits of Bharti Airtel Ltd, Vodafone Essar Ltd, Idea Cellular Ltd and Tata Teleservices Ltd, after Trai suggested that this be done every three to five years to make sure that there was no under-payment of revenue to the government. These reports too have been submitted to the DoT and are under evaluation.

Mint learns that these reports highlight similar issues to the ones raised by Parakh and Co. However, it couldn’t independently confirm the specifics.

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Published: 30 Jun 2010, 11:36 PM IST
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