Revenue share licence fee model questioned

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New Delhi: The discrepancy observed in the special auditing of books of Reliance Communications Ltd (RComm) has raised the larger issue of the revenue share licence fee structure followed in the country's telecom sector, feel analysts.

Initially, licences were granted on bids, where the entire amount was required to be paid upfront. But often, companies bid astronomically and later found they were unable to pay up. This led to demands for shifting to a revenue share licence fee, which was accepted by the government in 1999.

However, there is no single licence fee structure. While the revenue share licence fee for metro and A category circles like Delhi and Mumbai is 10% of the adjusted gross revenue of a company (AGR), it is 8% for B category and 6% for C-category circles. Further, national and international long-distance licence has a fee at 6%. Internet service providers who do not provide Internet telephony pay a token licence fee of Re 1.

"The problem is that an integrated telecom company has all UASL, ILD, NLD and ISP licences. So companies book growth where the licence fee payable is lower," said a telecom analyst.

In 2006, a DoT committee suggested to the finance minister to standardise the licence fee at 6%. The suggestion was rejected.

Earlier this year, when charges of misreporting came for RComm, which later made the government order a special audit of its books, similar charges were levelled against other mobile firms. Later, the government ordered a similar audit in the books of Bharti Airtel, Vodafone-Essar, Tata Teleservices and Idea Cellular.

Again, a DoT committee recommended a standard licence fee at 8.5%. The matter remains to be vetted by the Telecom Regulatory Authority of India and the finance ministry.

Broadly, Reliance Communications also booked revenues under different segments so it could pay lower licence fee. However, for purposes of valuations, it inflated the same in its filings with the stock exchanges.