DoT preparing another Rs 1,100 crore bill for telcos

New Delhi: Why should selling off a guest house or a car be included in calculating gross adjusted revenue for any telecom business?It should not, right?

But the Department of Telecom (DoT) wants to include all expenditure incurred by telcos under adjusted gross revenue (AGR), even if was made for non-telecom purposes, with only four exceptions. These are access charges paid to other telcos, roaming services on other networks, service tax and sales tax. AGR is adjusted for revenue that does not accrue directly to the operators, such as service tax and interconnection charges. Calculating AGR is important because it is on AGR that telcos’ spectrum fees are charged.

Thanks to this interpretation of what AGR should mean, DoT has found top telecom companies “underreporting” revenues and is now seeking Rs 1,100 crore as damages.

[caption id=“attachment_360615” align=“alignleft” width=“380” caption=“Notices are being sent to Reliance Communication and Bharti Airtel in a day or two whereas those to Voadfone, Tata Telecom and Idea will follow shortly for under-reporting revenues in 2006-07 and 2007-08. AFP”] [/caption]

Notices are being sent to Reliance Communication and Bharti Airtel in a day or two whereas those to Voadfone, Tata Telecom and Idea will follow shortly for under-reporting revenues in 2006-07 and 2007-08. The notices call for payments for licence fees and spectrum usage charges as well as interest and this could be up to January 2012.

A DoT official explained to Firstpost that they do have some sympathy for the telcos’ viewpoint. “Licence fee calculation for each telco is based on AGR and it is the calculation of AGR which is under dispute. Telcos are right in saying non-telecom items should not be included in the AGR but the Universal Access Service Licence (UASL) conditions specifically exempt only four items from AGR calculation. So we are bound to treat everything else as a violation and levy penalties. Our special audit has found telcos liable to pay Rs 1,100 crore all together”.

UASL (basic and mobile) telephony has a licence fee of 6-10 per cent of AGR depnding on which circles they operate in, whereas NLD (national long-distance), ILD (international long-distance), ISP (Internet service providers) and Internet Protocol-based services pay six percent.

In 2009, DoT ordered special audits of the books of the five telcos as the revenue-sharing arrangement was based on a self-assessment method. The audits were recommended by the Telecom Regulatory Authority of India (Trai) after the government received a number of complaints that the telcos were fudging their books so as to pay a lower revenue share. After representations and hearing the views of all telcos, the department has now decided to go ahead with penalties.

The DoT official quoted earlier said that the department was aware that the telcos were not entirely wrong in their pleas but its hands were tied, given the strong anti-establishment sentiment prevailing in the country today. “No one wants to be accused of corruption….and its not so easy to change licence conditions”. A story in Mint in January this year had quoted a presentation by DoT to say that its special audit showed that the telcos did not include income from investments that they considered were not part of the telecom business. The DoT has argued that the licence agreement clearly states that revenue share applied to all the revenue of the companies and that the other revenue would not exist without the telecom business."

The same story also mentioned that the Supreme Court had, in October last year, set aside a Telecom Disputes Settlement and Appellate Tribunal’s judgment supporting the telcos’ stand. DoT’s presentation says the telcos did not include income from asset sales and foreign exchange gains. It also says the five mobile companies combined had to add to their overall sales Rs 538 crore as income from infrastructure sharing, Rs 1,701 crore from expenses towards margins and commissions given to distributors and agents, and Rs. 585.82 crore as roaming income.

The same issue cropped up with Tulip Telecom earlier this year, when DoT asked it to pay up Rs 400 crore. Tulip contested this amount on grounds that the DoT had included its income from manufacturing business while calculating the licence fee payable. But DoT stuck to its guns and Tulip had to cough up this amount.