Telco revenue sharing rules may be rewritten

Telco revenue sharing rules may be rewritten
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First Published: Tue, Apr 07 2009. 07 01 PM IST

Better regulation: A. Raja.  Pankaj Nangia / Bloomberg
Better regulation: A. Raja. Pankaj Nangia / Bloomberg
Updated: Wed, Apr 08 2009. 12 08 AM IST
New Delhi: The country’s telecom policymaking body is looking to change the way phone firms share revenues with the government in the wake of allegations that some of them are misreporting revenues.
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The companies share revenues as part of the payment for licences to offer services and airwaves, or spectrum, needed to do this. The telcos essentially pay between 6% and 10% of revenue as licence fees and a wider range of 2-10% as spectrum usage charges, besides a 5% levy on their revenues as contribution to a so-called universal service obligation fund.
The move by the department of telecommunications, or DoT, to replace this with a uniform rate comes in the light of recent charges that phone firms in the country may be misreporting revenue in an effort to lighten the revenue-sharing load on them.
For instance, Internet service providers pay a flat 6% of revenues compared with, say, mobile phone services that attract a levy of up to 10% of what are called adjusted gross revenues, or AGR, for the spectrum that they use.
AGR refers to gross revenues net of service tax and expenses relating to interconnecting phone networks that do not go to the company holding the licence.
Better regulation: A. Raja. Pankaj Nangia / Bloomberg
“One of the options that can be used to remove the arbitrage is the rationalizing of the revenue share by implementing a uniform percentage share on the AGR of the country’s telecom firms,” R. Ashok, member (finance) of the telecom commission, the top group at DoT, said, adding a decision had not yet been taken on the plan.
DoT last week ordered special audits of phone firms such as Bharti Airtel Ltd, Vodafone Essar Ltd, Idea Cellular Ltd and Tata Teleservices Ltd on recommendations of the Telecom Regulatory Authority of India (Trai). The regulator has suggested such audits every 3-5 years.
The department had earlier engaged the services of Jaipur-based Parakh and Co. to look into the books of Reliance Communications Ltd, or RCom, after it was found that there were significant differences in revenues the firm had reported to the country’s telecom regulator and stock exchanges. This was first pointed out in a research report by brokerage Kotak Securities Ltd.
In total, the government received about Rs12,000 crore in fiscal 2008, the latest year for which data is available, in such levies, according to a November statement by communications minister A. Raja.
One regulatory expert said the proposed move by DoT would remove the incentive for arbitrage but the opportunity left to misreport revenues remains.
“The moment you base (the fees) on revenues, there is an incentive to fudge numbers. The magnitude of revenues being generated by the telecom sector at present makes keeping track of the accuracy monumental,” said Mahesh Uppal, director at Com First (India) Pvt. Ltd.
Instead, Uppal suggested, a flat fee or fee band could be more effective. “If you are inefficient and not making much money, then you pay the floor price since you could be holding spectrum. If you are highly efficient, expanding networks and making profits, then you pay till you hit the cap. If the cap is high enough, but not astronomical, then the user, operator and the government can all benefit.”
Most European countries charge a nominal amount for a licence to operate services and let phone operators bid and pay market price for radio spectrum for its use, he added.
A top executive at a phone firm said he supported DoT efforts if the new plan made regulatory compliance easier for companies such as his and at the same time maintained revenues to the government.
“At present, all the telcos pay different weighted average fees for spectrum and licence. In this day and age, there needs to be some consistency in this payment,” this executive said, asking that neither he nor his firm be named. The proposed DoT plan “would remove the need for an audit which is a waste of time and resources”, he added.
Ahead of the Union Budget for fiscal 2009, in February 2008, business lobby Cellular Operators Association of India had requested for a flat revenue share set at 6% of AGR.
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First Published: Tue, Apr 07 2009. 07 01 PM IST