Reliance Communications came under the scanner of the Indian Department of Telecommunication (DoT) in January this year for alleged manipulation of its accounts and evasion of its licence fees to the tune of Rs. 3.16 billion. The DoT appointed a special audit taskforce to review its financials for the fiscals 2006-07 and 2007-08, and check compliance with licence fee payments. There were also complaints by analysts that the company’s reporting of annual gross revenue numbers were different at the stock exchanges and to the Indian Telecom Regulatory body TRAI. The auditing firm – the Jaipur-based Parekh & Co – recently completed its report which RCOM has decried vehemently.
In a statement to the BSE, the company calls the report “incorrect, hopelessly biased, one-sided and prejudiced”; it also accuses the auditing committee of a “conspiracy with corporate rivals to malign RCOM ‘s image and reputation.” On the backdrop of executives of the Indian telecom ministry facing corruption charges over the 2G spectrum distribution process, this paints quite a poor picture of the Indian telecom scene.
Licence Fee Evasion: Rs. 3.16B
According to RCOM, of the Rs. 3.16 billion licence fee the company evaded, over half of it – Rs. 1.6 billion, is false as the Telecom Dispute Settlement and Appellate Tribunal (TDSAT) and the Custom Excise & Service Tax Appellate Tribunal (CESTAT) have already settled cases related to these in RCOMs favour, such as the Rs. 90 crore towards licence fees on discounts allowed, and Rs. 70 crore towards licence fees on income such as unrealised foreign exchange, and interests and dividends earned by the company before it became a licensee. In any case, RCOM says these are “industry issues and impact all telecom operators, some in even larger quantum”.
What about the rest – Rs. 1.56 billion? The telco only notes that it anticipates no additional financial liability towards spectrum or licence fee.RCOM has confidently stated that its accounts are in order and were verified by the Securities & Exchange Board of India (SEBI) in May 2009.
Inflating Revenues: Rs. 29.15B
The audit report, the company points out, has not recorded anywhere any findings on the alleged inflation of revenue to the tune of Rs. 29.15 billion that various media had reported on, on October 12, 2009. According to DNA, the audit report alleges that RCOM had inflated its wireless revenues by 23% to Rs 15,213 crore in the 2007-08 fiscal to shareholders, and then under-reported its revenues to TRAI, thereby evading licence fees and spectrum charges worth Rs 224.79 crore.
RCOM opines that the media reports were baseless, unsupported and contrary to the facts and that its accounts are in full conformity with companies Act 1956.
Observations by Parakh & Co on the differences between the revenues reported in the company’s financial statements and those reported to Telecom Regulatory Authority of India (TRAI) refer to reconciliations prepared and filed by the company itself with DoT and TRAI, the telco claims.
The two government bodies are also auditing four other leading telcos: Tata Teleservices, Bharti Airtel, Vodafone Essar and Idea Cellular. When TRAI had ordered new telcos, who reported sudden and massive growths, to reveal their financial structure, it was able to cover the loophole that allowed companies to sell stakes for high margins. An amendment clause now requires a three year lock in period before the company can sell more than a 10% stake, thus preventing profiteering to a large extent. With more such audits and exercises to increase transparency, ambiguities that plague the ecosystem can be fixed.