VODAFONE Essar, the country’s second-largest GSM telco, has been cleared of any wrongdoing by the government-appointed special auditors. Auditor SK Mehta and Co in their 140-page report said there were no discrepancies in the books of Vodafone Essar as the telco’s accounting were in line with international standards, but added that the company may have to pay an additional Rs 188 crore as liabilities to the government. But, a ruling by the telecom tribunal in 2007 states that licence and spectrum fee is payable only on actual realised revenues and not on notional revenues. It erases these liabilities to zero, the audit added.

The government has appealed the Supreme Court to quash the telecom tribunal’s ruling.

“The special audit has rightly observed that our revenue accounting practices are in line with the accounting standards. There was no instance of any diversion of revenues to non-licence fee categories,” Marten Pieters, CEO, Vodafone Essar, said.

Mr Pieters also pointed out that of the 20 terms of reference under the scope of audit, the special auditors have tabulated additional licence fee impact on a few items. “We have already accounted for these items clearly based on established accounting standards, prevalent industry practices and relevant (telecom tribunal) TDSAT rulings. We are confident that there is no additional fee liability for the period under audit,” he said.

In April 2009, the government ordered a special audit of the account books of top private cellphone companies, including Reliance Communications (RCOM), Bharti Airtel, Vodafone Essar, Tata Teleservices and Idea Cellular, to make sure that they have correctly reported and shared revenue with it. The audits aimed to establish whether there were any discrepancies in the revenues reported by these companies. Since telecom companies pay 6-10% of their annual revenue as licence fee and 2-6% as spectrum usage charges, reporting lower revenues    brings down the component    they have to share with the government.

The first audit report submitted in October 2009 was conducted on RCOM.

In its report, auditor SK Mehta said Vodafone’s liabilities include Rs 120 crore as licence fee and Rs 68 crore as spectrum charges totalling to Rs 188 crore. Providing further breakup, the auditor said Vodafone saved Rs 93 crore in spectrum charges and licence fee on ‘discounts to distributors’ and Rs 32 crore by not paying levies on reimbursements on cellsite expenses. Further, Vodafone also saved Rs 21 crore by not paying levies on imputed interest on interest-free loans and Rs 9 crore on forex earning, the report said.

Vodafone Essar has pointed out that all these were notional revenues and the TDSAT ruling mandated that companies pay licence fee and spectrum charges only on realised revenues. For instance, when prepaid coupons are sold for a price of Rs 50 and the net realisation is Rs 45 (though the coupon is valued at Rs 50), the discount of Rs 5 given to the distributors is not required to be taken into account while computing the licence fee, an executive with the telco said. Foreign currency gain on ECBs, extraordinary income on debenture write back and interest on interest-free loans given are also not considered as revenues from telecom services as per the tribunal’s ruling, the executive added.

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