Auditor says Anil's RCom inflated revenues

Anil Ambani-led Reliance Communications Ltd (RCom), the country's second-largest mobile operator, inflated its 2007-08 wireless revenues by Rs 2,915 crore to shareholders to hike its valuation, while simultaneously under-reporting the figures to telecom regulator Trai, a special audit commissioned by the Department of Telecom has found.

As a result, RCom made an "under-payment of licence fee" of Rs 315.9 crore in 2006-07 and 2007-08, notes the audit report. The reason given by RCom to explain the discrepancy between the wireless revenue reported to shareholders and that disclosed to Trai "is not correct or complete", the audit by Parakh and Company states. For its part, RCom has denied any wrongdoing and described the contents of the audit report as the handiwork of "corporate rivals". DoT officials confirmed receipt of the report, but said they are yet to examine it.

RCom could get away with just a fine if found guilty, but the more severe implication could be on its shares. Under Sebi's issue of capital and disclosure requirements that replaced earlier softer guidelines, such accounting differences might be considered material.

RCom's shares closed 0.62 per cent lower at Rs 247.80 on the Bombay Stock Exchange on Monday, though analysts said investors had already factored in the matter. K R Choksey Securities managing director Deven Choksey said, "I think this is basically because of two different sets of reporting standards. This issue might not have any major negative impact on the stock." The report claims that RCom kept its licence fees and spectrum charges "largely unchanged" for the past three quarters at a time when every other operator showed meaningful increases. In September 2007, it disclosed a net decline of gross revenue to Trai of 7.4 per cent, but reported a 10.4 per cent increase in its consolidated financial statement to shareholders.

Since telecom firms pay licence and spectrum charges to the government as a share of adjusted gross revenue, or AGR, the lower figures reported to Trai meant lower charges. The fee is paid at different rates. For instance, the licence fee for a unified access service licence is 6-10 per cent, depending on the circle. Similarly, the long-distance licence fee is 6 per cent, while there is no licence fee on a non-Internet telephony licence. To even out such variations, a DoT committee recently recommended a flat licence fee of 8.5 per cent for all services.