RCom under-reported revenues, says Trai audit

Costs govt Rs 315 crore in wireless and spectrum fees.

A special auditor appointed by the Department of Telecommunications (DoT) has said the Anil Dhirubhai Ambani Group (ADAG)-promoted Reliance Communications (RCom) under-reported gross wireless revenues to the Telecom Regulatory Authority of India(Trai) for the financial years 2006-7 and 2007-8.

The auditor has estimated that RCom has under-reported revenues of Rs 2,799.19 crore for these two years, costing the government Rs 315.9 crore in terms of  licence and spectrum fees that are charged as a percentage of revenue. The licence fee varies from 6 to 10 per cent of revenues depending on the circle, and spectrum charges between 2 and 6 per cent.

DoT had appointed Parakh and Co as special auditors a few months ago, after the Cellular Operators Association of India (COAI), the association of GSM-technology mobile service providers, accused RCom, a predominantly CDMA technology provider that recently entered GSM services, of under-reporting its wireless revenues.

The auditors were mandated to examine the gap between wireless revenues the company reported to Trai and the numbers in its consolidated financial statement  filed with the stock exchange. 

As the controversy grew, DoT decided to scrutinise all incumbents to ensure they were not under-reporting their wireless incomes and decided to appoint auditors to look into the books of Bharti Airtel, Tata Teleservices and Vodafone-Essar, among others. The auditors have to finalise their reports for these companies.

Asked about the findings, an RCom spokesperson said  the special auditor had neither discussed the report with the company nor provided it a copy. “The auditors' alleged comments are biased and appear instigated by corporate rivals. The premature leakage of a confidential report to media reflects the special auditors’ prejudice/bias,” the spokesperson said.

The auditors say  consolidated  wireless revenues accounted for in RCom's books for 2007-8 was Rs 12,298 crore. The number filed with the stock exchange, however, was Rs 15,213 crore — a difference of Rs 2,915 crore. 

Analysts say the report would also lower the company’s projections for average revenue per user (ARPU), a significant measure of a telecom company’s performance

The report has also listed the various ways the deviation occurred. This included booking as wireless revenues Rs 379 crore from expired pre-paid cards by group companies and income from sharing the dealer network with Reliance Communications Infrastructure Ltd (RCIL), an RCom subsidiary.

The report added that RCom also booked one-time and other income of Rs 1,352 crore under wireless income.

RCom and RCIL also booked income of Rs 617 crore from the sale of debt at a discount to other companies, transactions the auditors said were financial in nature and could not be construed as wireless revenue.

The spokersperson added that the company has not received any letter from DoT on the special audit and that revenues for the two years concerned were correctly reported in RCom's audited accounts.

The revenues were correctly booked from securitisation of bad debts received from RIL in 2005.

Also, revenues were correctly booked from sale of pre-paid cards in line with industry practice. “The alleged comments of the special auditor do not reflect any under-reporting of revenue share/licence fees. RCom is in full compliance of licence terms and conditions,” he added.