India’s Department of Telecom (DoT) plans to issue notices to five leading mobile operators for allegedly misreporting of revenue in order to pay lower license fees to the government. The notices, which will be sent to Bharti Airtel, Reliance Communications, Idea Cellular, Tata Teleservices and Vodafone Essar, “will ask operators to pay license fees based on the revenue calculated by the Comptroller and Auditor General of India (CAG),” the Wall Street Journal reported.
The entire issue can be traced back to January 2009, when Telecom Regulatory Authority of India (TRAI) had asked the DoT to conduct a special audit of the accounts of Reliance Communications for under-reporting of revenues. The DoT, in April 2009, ordered similar audit for Bharti Airtel, Idea Cellular, Tata Teleservices, and Vodafone Essar. The companies came under the scanner after allegations that they were not paying the government’s share of revenue by showing the revenue earned under other categories. It was noticed that the reported revenues of some operators were higher in segments that carried low license fees than in other segments where such fees were high.
“TRAI had asked DoT to examine if Bharti Airtel was passing off mobile revenues as those earned through long-distance services (carrying STD and ISD calls). Long distance service providers pay 6% of their annual revenues to the government and mobile service providers pay up to 14% of their annual revenues depending on the area of operation,” an Economic and Political Weekly Research Foundation report stated. TRAI fears that companies providing both services may be shifting a higher revenue component to their long-distance entities to reduce the amount they have to pay to the government, the report further stated.
The audit was also aimed at ascertaining whether the government incurred any loss by way of license fees in the case of telecom operators selling bundled handsets along with their services, a newspaper report quoted DoT officials as saying.
In December 2009, former Telecom Minister A Raja informed the Parliament that “there was an under reporting of revenues by $200 million to $300 million by the telecom firms, to avoid payment of license fees, and the government may have lost about $50 million due to this.”
According to a newspaper report then, Raja further stated that the Department of Telecommunications (DoT) had appointed special auditors to look into the financial accounts of five leading telecom companies for allegedly under-reporting revenues to the telecom regulator TRAI during 2006-07 and 2007-08 to avoid payment of license fees.
The special audit was conducted by the following auditors:
- Auditors Nayak and Kishnadwala – Bharti Airtel
- Auditors Chhajed & Doshi – Idea Cellular
- Auditors SK Mehta and Company – Vodafone Essar
- Auditors Parakh & Co – RCOM
- Auditors SK Mittal & Company – Tata Teleservices
But then the government ordered a second audit in March 2010 and directed these companies to submit their accounting details of three years (from 2006-07) to CAG.
All the telecom operators have denied any wrongdoing, and are questioning the government’s move to get their accounts audited by CAG. The operators even appealed in the High Court and the Supreme Court of India without much success.
But in February this year, the Telecom Disputes Settlement & Appellate Tribunal (TDSAT) had set aside the DoT directive that asked these companies to submit their accounts for CAG audit, terming it arbitrary. The tribunal, however, said that DoT can get a special audit done for the year 2008-09 after citing adequate reasons.
The latest decision to issue notices comes after CAG’s audit report on the revenue accounting practices of these companies.
One of the companies, Reliance Communications, has already written to Telecom Secretary R Chandrasekhar and Minister of Communications and IT Kapil Sibal on September 27, 2011, asking them to defer the plan to impose financial penalties on the company for alleged under-reporting of revenues in 2006-07 and 2007-08. The letter has also requested that the matter be referred to TRAI.
Earlier, in March this year, a newspaper report quoting a source in DoT, had reported that the Telecom Ministry is likely to demand over $223 million form these five telecom companies for under reporting revenues.
