Reliance Communications writes to Kapil Sibal

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4 Oct 2011
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Reliance Communications, India's second largest mobile phone company by customers, has sought that the government defer its plan to impose financial penalties on the company for alleged underreporting revenues in 2006-07 and '07-08 and refer the matter to sector regulator Trai.

"It is understood that the department of telecom (DoT) is the process of raising additional demands of license fee and spectrum charges as per the recommendations of the DoT committee, and it appears that our various explanations have not been taken into account while computing these additional demands," RCOM's group president AN Sethuraman said in a September 27 communication to the telecoms secretary R Chandrasekhar and communications minister Kapil Sibal.

The telecoms ministry had decided to raise additional demands on RCOM towards license fee and spectrum charges after its internal committee endorsed the findings of an earlier audit report that said the telco had had shown lower revenues than its actual in 2006-07 and '07-08. In 2009, Parakh & Co, a Jaipur-based auditor appointed by the telecom ministry to examine the accounts of Reliance Communications, had claimed that the company had failed to show revenues of Rs 2,799 crore, causing a loss of Rs 315 crore to the government because taxes were not paid. Telcos pay 6-10% of annual revenue as licence fee and 2-6% as spectrum usage charges so reporting a lower number brings down these payments. RCOM has repeatedly sought that the government reject the special audit on the grounds that the report was based 'uncorroborated facts and was also contrary to the all norms of audit and professional conduct'.

The auditor report, the correctness of which has been hotly contested by RCOM, has divided the allegedly missing revenue of Rs 2,799 core into more than a dozen categories.

For instance, the special audit had said that RCOM had showing some of its non-voice revenues under its subsidiary Reliance Communications Infrastructure Ltd (RCIL), to avoid paying license fee to the Government.

Sethuraman, in his communication reiterated that RCIL was a separate legal entity engaged in providing value added services and added that the company paid relevant charges to RCOM, which in turn paid the relevant license fee and spectrum charges.

He also said that the telecoms tribunal had reviewed the arrangement between RCIL and RCOM and found it in order. The company has sought that the issue relating to provision of value added services be referred to Trai as the regulator was already seized of the matter and it was currently undertaking a consultation process for formulating recommendations on this issue.

"Since the hearing in the Supreme Court on the aggregate gross revenue matter is already over, pending final judgment, DoT is requested not to raise any additional demands on special audit findings," Sethuraman added.

The special audit also alleged that cross booking of revenues between RCOM and RCIL - here the telco was charged with booking as wireless revenues Rs 379 crore from expired pre-paid cards by group companies.

The RCOM's group president, in a separate communication to the both Chandrasekhar and Sibal said revenues accruing from the data cards may be treated as revenues for RCIL only as these cards were used by the subsidiary company for data purposes only.

Sethuraman also demanded that the telecoms department honour observations from its internal committee and examine the company's billing system to establish its claim that the data cards cannot be used for voice services.

"Pending above, we sincerely submit that the demand note on account for additional license fee and spectrum fee due inclusion of revenue from expired data cards may kindly be withheld," his communication added.

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