FE Editorial: Phony business

Thu, Oct 15 02:24 PM

Since the Reliance split was formalised in June 2005, shareholders have had cause to celebrate—value creation following the demerger hasn't been bad news for their coffers. The media has also gained plenty of drama from the unrelenting finger-pointing indulged in by the two siblings. The latest chapter in this drama, however, shows the limits of such spats creating value. Anil Ambani, for the nth time, is crying wolf. With RComm, India's second-largest mobile operator, accused of wrongdoing by a special audit commissioned by DoT, he is shouting foul play on the part of "corporate rivals". The facts exposed by the audit are simple enough: RComm inflated its 2006-07 and 2007-08 wireless revenues to shareholders and under-reported them to Trai. It sought to simultaneously hike valuation for one audience (stockholders) and reduce licence fee payment to another (government). The word going around is that the RComm case has opened a can of worms in the telecom sector. As this newspaper has reported, DoT has commissioned similar audits of Bharti Airtel, Vodafone-Essar, Idea Cellular and Tata Teleservices. No excuses can be made and none can be accepted for creative accounting, but the key point that needs highlighting here is whether current government policy incentivises "bad" behaviour. As one of our contributors on the Reflect page makes clear, it does.

The revenue-share fee for a unified access service licence is 6-10%, depending on the circle, the long-distance licence fee is 6%, while there is no licence fee on a non-Internet telephony licence. To even out such variations—again, as reported by this newspaper—a DoT committee recently recommended a flat licence fee of 8.5% for all services, which needs delinking of spectrum from licences. To understand the significance of this recommendation, flashback to 2003 when a unified access licence was mooted for providing fixed line and mobile telephony services, as opposed to separate licences earlier. It was all the way back then that the government promised to introduce a truly unified licence, which would be technology-agnostic and allow operators to offer services ranging from long distance to Internet telephony. This, of course, hasn't come to pass yet. Worse, we have had controversial spectacles like a flawed first-come-first-served 2G spectrum allocation that saw licences being issued in 2008 at prices fixed in 2001. Real estate developers Swan and Unitech reaped a bonanza of rewards, and offloaded their wins at whopping prices and at mega speed. Who suffered? The national exchequer. What the latest RComm imbroglio suggests is that the lesson hasn't yet been learnt. Multiple levies and opacity remain the order of the day. Business has a responsibility to stay clean. The government has a responsibility to make clean rules.

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