Gsm Players Seek Clarity On Non-voice Revenues !

[Honest 836]

GSM players seek clarity on non-voice revenues

Moneycontrol

GSM-based mobile operators have approached the Government seeking permission to separate their non-voice revenues and club it under an Internet Service Provider’s licence.

The move is aimed at taking benefit of the differential revenue share for various types of telecom licences. While mobile operators at present pay between 6 per cent and 10 per cent of their annual revenues as licence fee, companies operating under an ISP licence do not pay anything to the Government. Since cellular operators also have an ISP licence, they will get a huge benefit if DoT allows them to segregate the revenue from data services.

The Cellular Operators’ Association of India, in a letter to the Department of Telecom, has pointed that some of the CDMA mobile players were already showing their non-voice revenues under ISP licence.

“We now understand that it might be permissible to separate the non-voice revenues and categorise and report them under an associate company whether it be an ISP or any other. We believe that this is being done by one of the larger CDMA service providers. We request clarification from the Department at the earliest so that we can advise our members to act suitably to safeguard their competitive position in the market,” the COAI said in its letter to DoT.

Main reason

GSM operators referred to a report from UBS Investment Research according to which Reliance Communications reported revenues of Rs 3,160 crore to the telecom regulator in June 2008 but showed revenues of Rs 4,118 crore in its financial statements.

“The main reason for the discrepancy between RCom reported revenues and the TRAI reported revenues is that RCom reports all its non-voice revenues through one of its subsidiaries that has an ISP status. The revenue categories that are included in this are related to R-World, Content, Net Connect, Wireless terminals, rural direct exchange lines, SMS etc,” said the UBS report.

RCom officials said the company was complying with all the rules. They said that services such as R-World are based on a Web portal and, therefore, they were justified in showing the earnings as revenue from ISP licence.

Operators are increasingly using the differential revenue share to save on the licence fee. Integrated telecom players such as Bharti Airtel have found a smart way to save at least Rs 1,000 crore a year. While long distance telephony operators are required to pay only 6 per cent of the annual revenues mobile operators have to pay total levy of 12 per cent (including spectrum charges). Bharti is saving on the net outgo to the Government by loading higher revenue to its long distance licence.

[Honest 836]

TRAI mulls licence fee on tower infra companies

Business Line l 16 Oct l New Delhi

TRAI’s proposal could result in double taxation as the revenue earned by the tower companies has been accounted for in the revenue share paid by the mobile operators leasing out capacity.

Mobile operators such as Bharti Airtel and Reliance Communications that have hived off their tower infrastructure into separate companies may soon have to pay additional licence fee on the revenues they earn from the tower business.

The Telecom Regulatory Authority of India is considering imposing revenue share on the tower companies on the grounds that the Government may be losing out on income.

Telecom companies are required to pay between 6 and 10 per cent of their annual revenues earned from providing services as licence fee to the Government. By hiving off the tower infrastructure into separate companies, these operators do not have to pay any fee to the Government from the revenues earned from leasing out capacity.

Bharti Airtel, for example, earned nearly Rs 1,000 crore from its tower infrastructure Bharti Infratel during the first quarter of this year. The company does not pay any revenue share on this to the Government.

However, industry observers say that TRAI’s proposal could result in double taxation as the revenue earned by the tower companies has been accounted for in the revenue share paid by the mobile operators that lease out capacity. They say that the operators who take capacity from the infrastructure companies are already paying revenue share from the income earned from their subscribers, which in turn is a factor of the cost incurred by the operator, including hiring tower infrastructure.

However, the telecom regulator is considering bringing the tower business under separate licensing to distinguish it from the mobile services licence. Almost all the major telecom operators have demerged their tower arms in a bid to unlock value.

Apart from the telecom services companies, there are a number of independent tower companies including American Tower Co, GTL Infrastructure, Quippo Telecom Infrastructure.

These companies may also be asked to pay licence fee. This will come as another blow to the stand-alone telecom companies who are already reeling under the rising cost of steel. Rising input costs are forcing tower companies to increase their rental price, which in turn is driving up the operational cost of telecom service providers.

[Honest 836]

DoT issues notice to RCOM

Economic Times l 13 Nov 2008 l New Delhi

NEW DELHI: The department of telecommunications (DoT) is learnt to have sought an explanation from Reliance Communications (RCOM) on the telco’s alleged move to show its non-voice revenues as those incurred from its Internet services operations. The DoT is also learnt to have told RCOM to offer proof within 15 days that its non-voice revenues are not being passed of as Internet service revenues. A copy of this DoT communication is available with ET.

The issue is as follows: An Internet service provider (ISP) does not need to share any revenue with the government. But those offering Net telephony share 6% of aggregate revenue as liccence fee. On the other hand, mobile companies pay 6-10% of their aggregate revenues as licence fee, depending on the circle of operation. On top of this, they are also charged an additional 2-6% of their revenues towards spectrum charges.

A recent UBS Investment Research report had pointed out that RCOM had submitted one set of revenue figures in its financial statements and a different set to sector regulator Trai. Following the UBS report, GSM operators, through their industry body—The Cellular Operators Association of India (COAI)—had approached the DoT seeking its members too be allowed to pass off non-voice revenues from mobile services side to that of their ISP licenses. COAI was of the view that this would allow its members to save on the levies they pay to the government.

When contacted on this issue, the Reliance Communications spokesperson said : “The accounts, audited by internationally recognised auditors, are in full compliance with the prescribed framework”. Explaining the classification, the spokesperson said RCOM was the country’s largest integrated telecommunications service provider, offering a suite of diverse services using world’s leading technologies.

“The company offers the country’s most popular web-based value added services on the mobile platform with over ten million unique users. RCOM is also the largest wireless ISP in the country with over one million Internet data card customers and many million mobile customers accessing the Internet from their fully-digital mobile handsets,” the company statement added.

The spokesperson however did not answer specific queries on whether the company had received this letter from DoT, its take on the UBS report and if the DoT has asked RCOM to reply within 15 days.

“Based on the report of UBS securities Asia Ltd, it has been brought to our notice that the non-voice revenues of UAS licence are bring booked under ISP licence and therefore the concerned company - RCOM - avoided payment of licence fee.

The non-voice revenues got from a service being provided under UASL are not eligible for booking under ISP licence of another company and therefore are to be included as part of the revenues computed for payment of licence fee, spectrum charges and other statutory duties,” the DoT’s communication to RCOM added.

[HetalDP 947]

I know so many SMS Expenses in my bills was under Internet Option, i think RWorld SMS Revenue is also under Internet Option.

Good step from DOT

[Honest 836]

^^^

Yes my dear Hetal, in Reliance Bills all SMS are billed under DATA USAGE.

Regards.

[Honest 836]

Reliance Comm revenue reporting comes under Central vigilance scanner

Business Line l 1 Dec l New Delhi

ALLEGED IRREGULARITY.

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DoT officials said that the CVC order was procedural in nature since an MP had lodged a complaint and an investigation was already under way in this regard.

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The Central Vigilance Commission has asked the Department of Telecom to investigate alleged irregular revenue reporting by Reliance Communications.

The Cellular Operators Association of India had earlier pointed out to the Government that Reliance Communications was showing its income from non-voice services under the Internet licence even though the facility was being provided through the cellular network.

The CVC has asked the DoT to submit a report within 12 weeks. Its action is based on a letter written by a Member of Parliament alleging irregularities in the way the DoT had handled the issue. “In exercise of powers conferred on the CVC- the Commission hereby directs that an investigation be conducted on the charges/irregularities pointed out in the enclosed complaint (the letter written by the MP). The report of this investigation should be submitted to the Commission within 12 weeks of receipt of this order,” said the letter from the CVC to DoT.

Senior DoT officials said that the CVC order was procedural in nature since an MP had lodged a complaint and an investigation was already under way in this regard.

While operators do not pay any revenue share for income earned from Internet services, they have to pay between 6 and 10 per cent of their annual revenue to the Government from mobile services. In addition, mobile firms also have to pay up to 4 per cent of the income as spectrum charges.

COAI had pointed out that an operator could make huge profits by showing income from data services under the ISP licence. According to the estimates made by the MP, who filed a complaint with the CVC, Reliance may have benefited up to Rs 352 crore by separating non-voice revenues. The same MP had earlier shot off several letters against Reliance-Anil Dhirubhai Ambani’s various businesses including Reliance Power and Reliance Energy.

The COAI’s observation was in turn based on a report by financial services firm UBS, which said that Reliance Communications reported revenues of Rs 3,160 crore to the telecom regulator in June 2008 but showed revenues of Rs 4,118 crore in its financial statements. “The main reason for the discrepancy between RCom reported revenues and the TRAI reported revenue is that RCom reports all its non-voice revenues through one of its subsidiary that has an ISP status,” said the UBS report.

In an earlier response to similar query, Reliance Communications had stated that its accounts have been duly audited and certified by internationally recognised auditors and are in full compliance with the prescribed reporting framework. The company had stated that it has a substantial customer base of over one million Internet services subscribers under its ISP licence.

Additionally, the company has a subscriber base of over 3 million in rural areas under the USO Scheme of the government whose revenues have certain exemption under the policy guidelines.

[Honest 836]

CVC orders probe against DoT staff

Economic Times l 3 Dec l Mumbai

The Central Vigilance Commission (CVC), an anti-corruption organisation of the government, has ordered an investigation against officials of the department of telecom (DoT), who have allegedly been involved in a case pertaining to under-reporting of revenues by Reliance Communications (RCOM). The CDMA operator has allegedly evaded payment of Rs 352 crore of revenue share on Rs 3,520 crore by “adopting unfair means”.

Comptroller and Auditor General of India (CAG), who audits all receipts and expenditure of the government, states and other government bodies, is also learnt to be looking into the matter. In a letter written to the DoT on November 17, CVC ordered the investigation into charges of “corruption and irregularities” against some DoT officials.

“In exercise of powers conferred on the CVC - the Commission hereby directs that an investigation be conducted on the charges/irregularities pointed out in the enclosed complaint. The report of this investigation should be submitted to the Commission within 12 weeks of receipt of this order,” CVC director Ranvir Singh said in the letter, a copy of which is with ET.

An email sent to RCOM in this regard on Monday remained unanswered. A member of Rajya Sabha had approached the CVC with complaint against the company, saying that RCOM is “involved in swindling government running into several crores of rupees.” Earlier, GSM association COAI had also raised the issue.

The complaint by the Rajya Sabha member claims that RCOM has paid revenue share on the “manipulated gross revenue” of Rs 15,812 crore stated to be earned between June 2007 and June 2008 as per the documents filed by RCOM with telecom regulator Trai.

However, in their website, RCOM has shown revenue earned as Rs 18,332 crore, “leading to non-payment of revenue share on Rs 3,520 crore.”

This CVC order comes within days after the DoT had sent a letter to RCOM, seeking explanation on the telco’s alleged move to show its non-voice revenues as those incurred from its Internet services operations.

ET reported this development in its November 13 edition and had first reported about alleged understatement of revenues on July 24.

[Honest 836]

Regulator gives DoT data on RCom

Business Line l 8 Dec l New Delhi

The Telecom Regulatory Authority of India has given the Department of Telecom, a set of data and records relating to revenue reporting by Reliance Communications (RCom).

The regulator, while submitting the report, has told DoT that more analysis needs to be done before a conclusion is arrived at in this regard.

The Chief Vigilance Commission had earlier asked DoT to investigate whether revenue reporting by the company was according to rules or not.

The Cellular Operators Association of India had earlier pointed out to the Government that RCom was showing its income from non-voice services under the Internet licence, even though the facility was being provided through the cellular network. While the GSM camp did not complain against the company, they wanted to know from DoT whether they could also do the same and save on paying higher revenue share to the Government.

RCom has maintained that its accounts have been duly audited and certified by internationally recognised auditors and are in full compliance with the prescribed reporting framework. The company had stated that it has a substantial customer base of over one million Internet services subscribers under its ISP licence. Additionally, the company has a subscriber base of over 3 million in rural areas under the USO (Universal Service Obligation) scheme of the Government whose revenues have certain exemption under the policy guidelines

While operators do not have to pay any revenue share for income earned from Internet services, they have to pay between 6 and 10 per cent of their annual revenue to the Government from mobile services.

[Honest 836]

RCOM diverting mobile revenues, says TRAI

Economic Times l 13 Dec l New Delhi

The Telecom Regulatory Authority of India (Trai) has endorsed an accusation that top CDMA telecom operator Reliance Communication (RCOM) has been passing its mobile revenues as income from subsidiaries. The regulator was told to examine the issue by the Department of Telecom (DoT), after a a recent report by Kotak Institutional Equities suggested that RCOM could be passing its mobile revenues as those incurred from internet services operations so as to escape the 6-10% licence fee and 2-6 spectrum charges that telcos pay.

In its 22-page submission to DoT, Trai its analysis “indicates that Reliance is involved in cross booking of wireless revenue in its subsidiary”. It accused RCOM of providing incorrect replies to some of its queries and said the telco’s answers were “highly unprofessional and misleading”.

However, RCOM has denied this. “Our response was complete and to the point against the query raised by Trai. It is incorrect analysis of Trai to state that our response is not correct or we have attempted to divert the issue,” the company said in a statement.

Asked for its reactions, RCOM said in a statement: “Revenues reported to Trai include revenues of RCOM-standalone and RTL only, while wireless revenues published for shareholders not only include wireless revenues from the company-standalone and RTL but also include revenues accruing from other activities including treasury activity, sale of internet services, India Calling cards, etc which are handled by other subsidiary companies of RCOM (both Indian & foreign subsidiaries), which are part of consolidated results.

It seems that Trai has not taken cognizance of different entities, their activities, nature of income and the licenses each of the entities hold. If Trai would have asked for details or further clarification, they would not have arrived at wrong analysis and conclusion of cross booking of wireless revenue in its subsidiary.”

Trai had told DoT that RCOM’s responses to the issue of cross revenue and expenditure in its other telecom subsidiaries were “without any justification and documentary evidence”. It said the company’s submission was not correct and that the company had attempted to divert the issues raised in the Kotak report.

The Kotak report had pointed out that RCOM had submitted completely different numbers for the January-March 2008 quarter to the Trai and the Bombay Stock Exchange (BSE). An Internet service provider (ISP) does not need to share any revenue with the government, while mobile companies pay 6-10% of their aggregate revenues as licence fee and they also pay additional 2-6% of their revenues towards spectrum charges.

[Honest 836]

DoT all set to bring RCOM book under CAG scanner

Economic Times l 15 Dec l New Delhi

The department of telecom (DoT) is set to ask the Comptroller and Auditor General of India (CAG) to appoint a special auditor to examine the books of Reliance Communications (RCOM) over allegations that the telco in FY08 diverted revenue earned from its mobile services to a subsidiary in an attempt to bring down the total amount it had to pay to the government as licence fee and spectrum charge.

These two payouts are calculated as a percentage of the total revenue earned by a telecom company and if a company reports less revenue, its outgo decreases proportionately. RCOM has vigorously denied any wrongdoing on its part.

In an internal DoT note, telecom secretary Siddharth Behura wrote, “A number of complaints have been received on the aggregate gross revenue reported by Reliance. Trai has also provided their preliminary findings on it. In these conditions, we may invoke clause 22.6 of the licence agreement to conduct a special audit.

The CAG will be approached to appoint a special auditor”. Mr Behura was replying to the DoT’s licensing finance wing, which had sought a CAG audit into RCOM’s books. His reply also adds that the audit could be extended to examine the books of Reliance’s Internet subsidiary.

Last month, DoT had asked Trai to examine the issue after a report by Kotak Institutional Equities said that there were major differences between the revenue reports that RCOM had submitted to the stock exchanges and the regulator. In its 22-page submission to DoT, Trai said its analysis “indicates that Reliance is involved in cross booking of wireless revenue in its subsidiary”.

Following the Trai report, the licensing finance wing of the DoT had recommended that the government invoke a special clause under which it can conduct an audit of the telco’s books. This wing of the DoT had also suggested that the ‘special audit’ may be conducted by ‘auditors nominated by the CAG’.

Under India’s telecom policy, all telecom companies have to pay to the government 6%-10% of their annual revenues to the government as licence fee and another 2%-6% of their annual revenues as spectrum charge.

Both these components are not applicable to ISPs. Therefore, it is being alleged that by ‘cross booking’ its revenue to the ISP subsidiary RCOM is trying to bring down its licence fee and spectrum charge.

Last week, in a written reply to ET, Reliance Communications had slammed the Trai report and said that the regulator’s analysis was flawed.

“It seems that Trai has not taken cognisance of different entities, their activities, nature of income and the licenses each of the entities hold. If Trai would have asked for details or further clarification, they would not have arrived at wrong analysis and conclusion of cross booking of Wireless revenue in its subsidiary,” the company said.

RCOM also said that there it was not involved in cross booking of wireless revenue while adding that the company had paid all the necessary the necessary license and spectrum fee as applicable.