Airtel, Vodafone Must Disclose Workings Used To Arrive At Government Dues: Kotak Report
Bharti Airtel and Vodafone Idea Ltd., whose self-assessed dues to the government are less than half of what the Department of Telecommunications estimates, must disclose workings highlighting areas of difference as minority shareholders deserve to know, a report by Kotak Institutional Equities stated.
While Bharti Airtel has pegged its dues arising from a Supreme Court ruling that asked for non-telecom revenues to be included in calculating spectrum charges and licence fee at Rs 13,004 crore, the DoT puts the estimate at Rs 35,000 crore.
In case of Vodafone Idea Ltd., the DoT is seeking over Rs 53,000 crore, while the company estimates its dues are Rs 21,533 crore.
"While we appreciate the matter is still sub judice, once the legal chapter is over, Bharti and VIL could (and should) disclose their self-assessment workings highlighting the areas of difference versus the DoT math. Even as this isn't a statutorily mandated disclosure, we believe the minority shareholders deserve to know," Kotak Institutional Equities said in a March 9 report.
Stating that there is a case for better disclosures on the math from both the DoT as well as the operators, it said a detailed explanation of the calculations post the closure of the legal proceedings is a must. "It would go a long way in inspiring confidence among the minority investors."
Vodafone Idea Ltd. has so far paid Rs 3,500 crore out of its self-assessed liability of Rs 21,533 crore, while Bharti Airtel has paid Rs 13,004 crore to the government in two installments. It had also deposited an additional Rs 5,000 crore as an ad-hoc payment to cover any reconciliation differences.
Similarly, Tata Teleservices has paid Rs 2,197 crore in dues, and more recently an additional Rs 2,000 crore to cover reconciliation differences, while the DoT estimates the liabilities to be about Rs 14,000 crore.
"At some level, it is baffling that something as basic and critical as the base of revenues on which as much as 12-13 percent of sector revenues are paid as regulatory levies stayed a matter of dispute on principles and calculations more than two decades after NTP-1999 (the telecom policy that established revenue share as a mechanism) was introduced and implemented," Kotak said.
It hoped that for the sake of minority investors, the telecom policy hereon leaves little room for such material disputes, and even when such disputes arise, they are settled (in or outside courts) in a more time-bound and reasonable manner.
"Regulatory certainty, at the very least confidence in no regulatory shocks, is a must for healthy investor sentiments in any regulated sector," it noted.
Total adjusted gross revenuedues, including interest and penalty, as per the self-assessment exercise done by various telcos are 34.5 percent of the DoT assessed provisional dues for Bharti, 40.6 percent for VIL, and 16 percent for TTSL.
"We do not have sufficient details to be sure of why the divergence. We do believe, however, that operators would have been extra cautious in their math given the Supreme Court's tough stance on the matter," the report said.
Kotak said Bharti and Vodafone India Ltd. made higher provisions for the dues in their Q2 FY20 earnings as they many not have had enough time post the Supreme Court's October 24, 2019 order to complete their self-assessments and adopted a conservative stance.
"They extrapolated the DoT's then-latest demand and made conservative provisions. We note that the companies were providing for certain amounts in their books even though the case was in various courts for past many years and the telcos had been given a favorable verdict from the TDSAT earlier.
"However, there is a large difference in the amounts, which is surprising. We suspect the telcos stayed confident of winning the case and never verified the earlier demands of the DoT or went into its detailed assessment," it added.