The government has decided to carry out a special audit of the books of Reliance Communications and its subsidiaries over allegations that the mobile telephony giant diverted revenues earned from its mobile services to a subsidiary to bring down the total amount it had to pay to the government as licence fee and spectrum charge.
"Parakh & Co has been selected as auditor to carry out the special audit of Reliance Communications (standalone), Reliance Telecom and Reliance Communications Infrastructure for 2006-07 and 2007-08. The special auditor will verify whether there is any evasion of licence fees," minister of state for telecom and IT Jyotiraditya Scindia told the Rajya Sabha.
The Department of Telecommunications decided to conduct the special audit because analysts expressed concern over the way Reliance Communications reported different annual gross revenue numbers to the Telecom Regulatory Authority of India and the stock exchanges. It allegedly reported income from all non-voice telecom services under its internet licence.
The company, India's second-largest mobile phone services provider by subscribers, previously said it is in full compliance with all the required accounting disclosure and reporting norms.
It said the discrepancy was due to the company reporting consolidated revenue to the stock exchanges and only the revenue it earned from its wireless and wireline services to the regulatory authority.
"Our books are audited by BSR & Co, a member firm of KPMG International and Chaturvedi & Shah, a member firm of Nexia International. As these auditors had approved the company's calculations and accounts, there was no basis for any allegations relating to alleged discrepancies in the accounts," Reliance Communications said.
Scindia added that the auditor had been chosen from a list of companies provided by the Comptroller and Auditor General of India (CAG) and after obtaining details on their experience in the telecom business. To ensure transparency, the government has asked Parakh and Co. to give an undertaking that it has no relationship with Reliance Communications or any of its related group companies.
TRAI seeks tighter rules
Meanwhile, The Telecom Regulatory Authority of India has suggested that integrated telecom players, who offer a whole range of services, should be asked to submit the break-up of income from their various standalone subsidiaries in order to determine the revenue share payable to the government.
The regulator has proposed that the DoT carry out special audits of the operators' account books every three to five years. At present telecom operators are not required to submit the reconciliation statements of consolidated revenue of the group company with its standalone revenue of a particular segment.
Most of the telecom operators in the country are integrated companies offering various services such as cellular phone, fixed line telephone, broadband, internet and long distance telephony services.
"In such a situation, it is necessary that there should be a well-accepted system to ensure that the revenue generated from the use of common resources is properly reflected in the books of accounts and Government levies / dues paid correctly," TRAI said in a letter to the DoT.
Operators are required to pay between 6 and 10 per cent of their income to the government as licence fee. The percentage revenue share is lowest for services such as internet and long distance telephony compared to what a mobile operator in metro areas pays.
In a letter to the DoT, the telecom regulator said, "It has been noted that some of the leading integrated telecom service providers are not disclosing relevant financial information, which has direct bearing on the assessment of revenue of the particular segment.
"Currently, telecom companies are not required to submit the reconciliation statement of consolidated revenue of the company with its standalone revenue of a particular segment.
"It is felt that the finalising of reconciliation statement with break-up of standalone revenue of the operator with consolidated revenue of group companies in the sector may also be included."