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Why RCom finds itself in the dock

Last updated on: October 28, 2013 10:35 IST

Why RCom finds itself in the dock

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Sounak Mitra in New Delhi

Reliance Communications has come under the scrutiny of the Supreme Court after the Central Bureau of Investigation alleged the company had given fudged data on subscriber numbers to the Telecom Regulatory Authority of India and to the stock exchanges, to save on licence fees.

Then Telecom Minister A Raja had said in the Lok Sabha in 2009 that RCom and its other subsidiaries had also under-reported revenue to  Trai during 2006-07 and 2007-08, to avoid payment of licence fees.

The under-reporting was estimated at Rs 1,000-1,500 crore (Rs 10-15 billion), which could have caused Rs 250-crore (Rs 2.5-billion) loss to the government.

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Image: Anil Ambani, chairman of the Reliance Anil Dhirubhai Ambani Group, poses with his wife Tina Ambani for photographers before addressing the annual shareholders meeting in Mumbai August 27, 2013.
Photographs: Danish Siddiqui/Reuters

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Why RCom finds itself in the dock

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Telecom operators pay a percentage of their adjusted gross revenue as licence fee. So, a lower revenue attracts a lower licence fee.

In 2009, Trai had asked the department of telecommunications for special audits of financial accounts of five operators for 2006-08, saying these seemed to be under-reporting their revenue.

The government-appointed auditor alleged RCom had evaded licence fee and spectrum fee of about Rs 315 crore (Rs 3.15 billion) during that period.

Also, said the report, RCom had fudged about Rs 379 crore (Rs 3.79 billion) by selling expired prepaid cards to two of its own group companies, Macronet Pvt Ltd and Inference Systems Ltd.

It had also alleged that RCom could have under-reported revenue by Rs 2,915 crore (Rs 29.15 billion) in 2007-08.

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Image: A worker places a label on fibre optic cable.
Photographs: Beawiharta/Reuters

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Why RCom finds itself in the dock

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The audit report, given to DoT in 2009, held that RCom actually earned Rs 12,298 crore (Rs 122.98 billion) while it had reported its revenue at Rs 15,213 crore (Rs 152.13 billion) to its shareholders.

At the time of the taped conversation between Niira Radia and Ratan Tata, the special audit had been conducted only on Rcom.

Over the next six to eight months, DoT did similar special audits on all telecom companies, through independent agencies.

In January 2012, it issued notices to Bharti Airtel, Vodafone, RCom, Idea Cellular and Tata Teleservices for allegedly under-reporting revenues between 2006 to 2008.

DoT demanded about Rs 1,600 crore (Rs 16 billion) from five operators, of which Rs 551 crore (Rs 5.51 billion) was on Rcom (it was Rs 292 crore or Rs 2.92 billion on Bharti Airtel, Rs 254 crore or Rs 2.54 billion on Vodafone, Rs 113 crore or Rs 1.13 billion on Idea Cellular, Rs 273 crore or Rs 2.73 billion on Tata Teleservices and Rs 120 crore or Rs 1.2 billion on Tata Communications).

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Image: A man speaks on his mobile phone as he sits outside an electronics store in New Delhi.
Photographs: Mansi Thapliyal/Reuters

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Why RCom finds itself in the dock

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All the companies appealed, stating they followed the most diligent reporting standards. They got a court stay order.

RCom’s alleged involvement first came into the public domain after the recorded tapes of Radia were published by two magazines.

The Comptroller and Auditor General of India had, in 2010, also mentioned RCom’s link to the 2G spectrum scam in its report.

The Radia tapes and the CBI investigation into the tapes have now become the basis for the SC ordering a probe by CBI.

As a sequel, CBI filed a preliminary inquiry report last week.

Radia alleged RCom had fudged its subscriber base by 50 per cent to get additional spectrum (6.2 MHz from 4.4 MHz).

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Image: A fruit vendor speaks on his phone while sitting at his fruit stall at a wholesale market in Mumbai.
Photographs: Vivek Prakash/Reuters

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When spoken to, an Anil Dhirubhai Ambani Group spokesperson said: “We welcome the independent time-bound enquiries by the CBI, monitored by the Supreme Court, which will establish our bonafides and, once and for all, prove beyond doubt that we have been the unfortunate victims of a mischevious campaign of calumny and vilification conducted at the behest of our unscrupulous corporate rivals over the past five years.”

Adding: “The alleged loss of revenue to the exchequer by RCoM relates to industry issues involving all telecom operators.

“All operators have already been granted stay orders by the courts against action by the DoT.”

The fudging of data is not the only issue which the ADAG group is worried about.

The group is also fighting allegations of financing Swan Telecom, one of the companies allotted licenses by Raja and later cancelled by the Supreme Court.

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Image: A man is reflected on the glass door of a Nokia showroom in New Delhi.
Photographs: Mansi Thapliyal/Reuters

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RCom UNDER SCANNER

  • 2009: Trai asks DoT for special audits of financial accounts of five operators for 2006-08, observing they seemed to be under-reporting revenues to avoid payment of licence fee
  • 2009: DoT-appointed auditor says RCom was under-reporting
  • 2009: Niira Radia tape becomes public
  • 2010: CAG mentions RCom’s link in 2G spectrum scam, equity interest in Swan Telecom
  • 2011: CBI says role of Anil Ambani being probed
  • 2013: SC orders CBI probe based on Radia tapes; CBI registers an inquiry

Image: Artists dressed as the Hindu Lord Shiva read a message on a mobile phone as they prepare to participate in a religious procession ahead of the Mahashivratri festival in Jammu.
Photographs: Mukesh Gupta/Reuters

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