The Committee of Secretaries set up to examine the telecom sector should ignore the petulance of incumbents.
Bharti Airtel, one of the incumbent telecom service provider (TSP) impacted by the 24 October 2019 Supreme Court order asking incumbents to pay up their adjusted gross revenue (AGR)-related dues, has decided to start complying with the provisions of the Companies Act, 2013 read with the Accounting Standards 37. It has created a provision of about Rs 29000 crore towards the shortfall in payments of licence fee (LF) and spectrum usage charges (SUC).
Similarly, Vodafone Idea, has created a provision of around Rs 45,000 crore towards shortfall in payments of LF and SUC. These provisions are required by law and long due.
In my earlier columns (read here and here), I had flagged the gross disregard of legal obligations under Accounting Standard 37 and provisions of Companies Act, 2013 by the incumbent telecom service providers in non-provisioning of LF & SUC dues in their books. That amounted to a diversion based on masking disclosures to shareholders and so on. The columns had highlighted the disregard and breach of these provisions by incumbent TSPs following the pronouncement of the judgment by the Supreme Court and therefore facts are not being repeated for sake of brevity.
Additionally, the apology offered by Vodafone CEO Nick Read to Prime Minister Narendra Modi, Telecom Minister Ravi Shankar Prasad and DoT officials did not appear to be coming from the left field. Anyway, why is Vodafone crying foul upon losing a case in the usual course of business? The telecom policy is not new, the applicable regulations are not new, the legal proceedings and disputes with the department of telecom (DoT) are not new, and the operations of the companies are not new.
Sans the dramatics, it is purely basis law of the land here. But of course, the speed of realization was no doubt startling. The avalanche launched by him earlier against the Supreme Court Judgment against the ‘industry’ and the Indian government for high taxes were clearly without basis. Indeed, the facts and conduct of incumbent TSPs over the years spoke otherwise as seen from the non-provisioning of LF & SUC dues in books, diversions based on masking disclosures to shareholders and the pretentions that all these losses are attributable to a “….Judgment against the Industry by the Supreme Court in India”.
In the case of Vodafone, its statements were a clear over-reach of law of the land and institutions such as the Government of India and the Supreme Court. A swift realisation prompted an immediate apology stated above. Is the apology accepted ?
Will Vodafone’s apology now wash away what Vodafone has risked for years i.e. to being accused of playing fraud upon the investors and shareholders for lack of transparency and for neither paying LF & SUC nor provisioning the actual liabilities in their books of accounts. And of course, judicial over-reach of the Supreme Court, by calling the judgment to be against the ‘industry’ and not the ‘defaulting TSPs’ needs more explanation.
The Committee of Secretaries should ignore the petulance of these incumbent TSPs. The provisioning against LF & SUC now being done by Airtel and Vodafone Idea isn’t a favour to DoT or for that matter to the Supreme Court. The actions of these TSPs is a wake-up call and only what is mandated under the law of the land.
Dr Kumar is the Founder & Managing Partner of Hammurabi & Solomon Partners. Views are personal.Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd which publishes Moneycontrol.Are you happy with your current monthly income? Do you know you can double it without working extra hours or asking for a raise? Rahul Shah, one of the India's leading expert on wealth building, has created a strategy which makes it possible... in just a short few years. You can know his secrets in his FREE video series airing between 12th to 17th December. You can reserve your free seat here.