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OnMobile Stops Related Party Txns For Content; What Happened & The Way Forward

With their conference call scheduled later today, OnMobile Global has issued a detailed “Recently Asked Questions” update, looking to preemptively answer questions which might otherwise have come up on the concall. The concall will be at 4pm today, and we’ll report live from it (except for the parts where we are asking the questions, if allowed). Here’s an  overview (you can read the entire document here):

What happened, and what the review found

– The company came across three transactions that had been initiated under the advice of Arvind Rao which “did not have adequate business justification”. One of these transactions was with an entity related to Rao.”
– A review by Amarchand Mangaldas and KPMG did not establish any evidence of commission of any embezzlement or other offences by Rao or other employees of the Company.
– “(i) the terms upon which these transactions were proposed to be undertaken were not in accordance with market/industry practice and (ii) the manner in which these transactions were approved was in breach of the internal control mechanisms and work flow processes established by the Company.”
All the transactions that were reviewed as part of this special review have been cancelled and contracts for these transactions have been terminated. No payments were made for contracts executed with the entity related to the ex-CEO.
– “There was no financial loss to the Company and the bank balances of the company are intact. There is no need to restate the financial statements.”

On Arvind Rao’s Stake

– Rao’s shareholding in OnMobile is below 5% as of August 3rd 2012, and he remains an OnMobile shareholder.

On OnMobile’s relationship with Arvind Rao’s ventures, including Riff Mobile and Mobile Traffik

– The Board did not receive or consider any proposal to acquire any entities owned by Arvind Rao
– Entities owned by Arvind Rao were operating out of their own premises for the last few years, but their staff “were using OnMobile facilities on an as-needed basis. We have ceased doing business with these companies now and these employees are not using our facilities any more.”
– Mobile Traffik and Riff Mobile have been supplying OnMobile with unbranded content since the year 2008, in pursuance with applicable law. “These transactions have also been adequately reported in the financial statements of OnMobile”
– OnMobile’s board has taken a decision to prohibit and unwind all related-party transactions for procurement of content and other material contracts. Fresh proposals for any other related party transaction now require specific Board approval.
– The Board is also currently in the process of reviewing vendor selection management processes and exploring means of further strengthening the internal controls.

On Government Action

“The Company has received a notice from the Registrar of Companies (ROC), Karnataka under Section 234 of the Companies Act, seeking a response to the irregularities reported by sections of the media in addition to certain other routine clarifications based on their examination of the previous financial statements. We are cooperating with the ROC and will provide all required information.”

On Stake Sale Rumors

Argo Global, the largest shareholder of the company, has denied appointing an advisor to plan a stake sale. H. H. Haight, CEO of Argo Global Capital has confirmed that Argo has no plans of exiting the company. Argo Global through OnMobile Systems Inc (OMSI) and Mouli Raman (Co-Founder and MD) together hold about 40% of the company’s shares.


– In India, there’s an overall softness in the market – due to policy issues, falling revenues per user and tapering mobile growth. Lack of sufficient new high-impact product launches to maintain the sustained growth and lack of an open VAS ecosystem
– In other Emerging markets, there are regulatory challenges in some, and tax related complexities in others.
– In advanced markets: Challenge to the Telecom industry from the OTT players, resulting in commoditization

On LatAm
“Operating Margins for Latin America (after UFF amortization) over next 3 years are expected to be in the range of other emerging markets because
– we provide these services on an exclusive basis
our revenue shares are locked-in
– RBT is in growth mode in many markets and we have more services to be launched.
– we do not need to increase the manpower proportionate to our revenue growth, going forward
– we have been working on an optimal Onsite-Offshore model to optimize costs

The tax rates do remain a concern but it will get addressed over a period of time

The Way Forward

– From a people perspective, the company says that its key focus will be on retaining and attracting top talent, which s expected, given the stream of reports and bad news, and rumors of a stake sale. “We are focusing on retaining and acquiring top talent, including some of the highperformers who were earlier associated with the company. ”
– From a product perspective, the company says it will focus its energy “on fewer products, so we can be the leader on a sustained basis.” They will focus on launching new products in the market, and focus on “execution excellence”.

– Services: in entertainment, utility and livelihood services. Interestingly, the focus is on helping operators compete or co-opt with Over-The-Top (OTT) players. “In advanced markets, the increase in user-generated data is being fueled by the use of smartphones and tablets, high speed networks (Wifi/4G) and mobile internet. The operators are banking on the growth of rich, multimedia communications with connected apps and services to compete with OTT players.”

Note that while Mouli Raman is the interim MD, the search for a new CEO for OnMobile continues. (If you have any leads, tip us off )

OnMobile Updates: Argo Capital; On Tanzania Operations; Arvind Rao Sells Shares
Updated: OnMobile Revenue Up 35.7%, Profit Down 25.5% YoY For Q1-FY13; Charts

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