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TMCNet:  Telcos in tizzy after SC sets CAG on them [DNA : Daily News & Analysis (India)]

[April 19, 2014]

Telcos in tizzy after SC sets CAG on them [DNA : Daily News & Analysis (India)]

(DNA : Daily News & Analysis (India) Via Acquire Media NewsEdge) New Delhi: The Supreme Court order to let Comptroller and Auditor General of India (CAG) audit the account books of telecom firms has dealt a blow to India Inc.

If it is telecom firms today, it could be power producers, miners and oil explorers tomorrow, they fear.

In a major setback to the private telecom firms, the apex court on Thursday held that CAG can audit the account books of these firms, which share their revenue with the government.

Rajan Mathews, director general, Cellular Operators Association of India (COAI), said the industry is disappointed by the verdict.

"It has larger ramifications for the corporate India. Any company which has a relation with the government or has some type of financial arrangement with the government shall be subject to CAG audit," he told dna.

"It also affects the industry by virtue of fact that it increases our cost. One more layer of cost will be added to the company apart from a substantial amount of time which will be devoted for the audit," he said.

So far, telecom companies are subject to audit by the term cells of the Department of Telecom, the Telecom Regulatory Authority of India (Trai) and the Securities and Exchange Board of India (Sebi). Now, CAG will also audit these companies.


A bench comprising justices K S Radhakrishnan and Vikramajit Sen said the CAG can carry out the audit to examine whether the companies are giving proper share of their revenue to the government.

The court passed the order on a batch of petitions filed by telecom companies' associations, including the Association of Unified Telecom Service Providers of India (AUTSPI) and the Cellular Operators Association of India (COAI), challenging the January 6, 2014, Delhi High Court verdict that had given green signal for CAG audit of the firms' account.

Analysts and consultants too said this judgment is likely to add to the complexity of the operating environment of the telecom operators.

"The country is 4-5 years behind in technology in telecom and need about $100 billion to catch up with the world. This ruling would add to the perception that India is a difficult country to do business in and there is more government than warranted," said Hemant Joshi, Partner, Deloitte Haskins & Sells.

"It could then extend to mining, power, airline, banking, manufacturing, services companies and individuals, etc," he said.

The Supreme Court had on February 3, 2014 sought responses from the Centre and the CAG on the pleas of the associations.

The firms had challenged the High Court order which had said that it was the duty of CAG to audit telecom companies as a part of their revenue goes to the Consolidated Fund of India.

Earlier, the telecom firms had submitted before the Supreme Court that the High Court had erred in holding that CAG was empowered to conduct their revenue audits.

The firms had said that the high court had wrongly assumed that they share revenue with the government and contended that they only pay a licence fee, which was a percentage of their revenue. "What impact the judgment has on the industry will completely depend on how does the government implements it.

If the government does not implement it like a witch hunt then it should be good for the sector. Though the industry is not happy about coming under this umbrella, it is not such a big thing," Rohan Dhamija, partner, head of India and South Asia Analysys Mason told dna.

About the cost addition, Dhamija said it is minimal and should not be an issue for the companies at all.

"A more hand-holding is definitely not very positive for the industry, but there is some logic behind it. It is definitely not a deal breaker for the industry," he said.

Mahesh Uppal, director of ComFirst, a consulting agency, told dna, "Implementing the SC judgments is not going to be easy because the amount runs into billion of dollars and there are close to a dozen players in around 22 circles. So this will be a mammoth task and the CAG will have to find some way to deal with it effectively.

Talking about others sectors being affected by the decision, Uppal said, "Wherever this revenue sharing approach is used, we should expect similar problems. However, I do not see much of a negative impact but the cost of regulating has gone up unnecessarily. It is a bigger challenge for the government as it will increase its cost of regulating the telecom sector," he said. (With inputs from PTI) Credit:dna correspondent (c) 2014 @ 2014 DILIGENT MEDIA CORPORATION LTD. ALL RIGHTS RESERVED

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