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Sunday, March 18, 2018
Airtel, Idea move telecom tribunal against predatory pricing order

Airtel, Idea move telecom tribunal against predatory pricing orderBharti AirtelBSE -1.58 % and Idea CellularBSE -1.08 % have challenged the telecom regulator’s recent tariff order on predatory pricing in the telecom tribunal, setting the stage for another legal battle between India's older carriers and the sectoral watchdog who have been at loggerheads for more than a year now. India's first and third ranked telcos have argued that the February 16 order was unconstitutional as it prevented them from retaining customers and conducting business, people familiar with the matter told ET. They added that the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) will hear the pleas this week with Bharti Airtel’s plea likely to be heard on Monday.

An Idea Cellular spokesperson confirmed the legal step, but did not share details, while Bharti Airtel did not comment to an ET query seeking confirmation. The battle lines are now drawn starkly, with the Telecom Regulatory Authority of India (Trai) on one side and incumbent telcos on the other. India’s top three operators – Bharti Airtel, Vodafone India and Idea Cellular – contended the rules favoured new entrant Reliance Jio at their expense, allegations that Trai and Jio termed baseless. The regulator has, in fact, said the companies were free to move court to challenge the order.

On February 16, Trai issued a tariff order that mandated a new formula last month to identify predatory pricing and changed the definition of significant market player (SMP), giving pricing flexibility only to operators with less than 30% of the market’s subscribers or revenue. Earlier, the SMP parameters included volume of traffic, including data, and switching capacity, which have been dropped in the amended regulation.

Trai added that predatory pricing will be determined on a carrier’s average variable cost and that telcos cannot offer pricing packages to individual subscribers to retain them without offering all customers the same tariff plan. Due to change in definition of predatory pricing and in SMP, incumbents said they were straitjacketed to respond to below cost tariffs from competition without flouting the new rules.

Jio has 13-14% share of revenue and users, while Airtel and the Vodafone-Idea Cellular combine would each have over 30% revenue market share. Therefore, the new rules on predatory pricing favoured Reliance Jio Infocomm, Vodafone Group CEO Vittorio Colao said last week, adding that the order should be challenged in court. Vodafone’s India arm is close to completing its merger with Idea Cellular.

It's not yet clear if Vodafone has filed a legal challenge as well. The company didn't respond to an emailed query seeking comment. Bharti Airtel chairman Sunil Mittal said the regulator’s order did not leave any path save legal challenge for incumbents, as the order violated the right for entities like itself to do business which was enshrined in the Constitution, under Article 14.

“If you are my customer and I need to hold you back, then I must have the right to do so with whatever tools I have,” Mittal said.

However, Trai chairman RS Sharma said the companies would be within their rights to take a legal recourse to challenge its regulation in court, and called it the “appropriate forum” to do so.

“India is a free country and every individual, entity or company has the right to go to court and we have no issues, reservations or objections if the Cellular Operators Association of India (COAI) challenges our regulation in court since that is the appropriate forum to do so, and we welcome it.” (Source: Economic Times)
No question of apologising to RJio, says COAI

No question of apologising to RJio, says COAI‘Differences are with TRAI, not with an individual firm’ BARCELONA, FEBRUARY 25
S Ronendra Singh The fight between Reliance Jio Infocomm and the Cellular Operators’ Association of India (COAI) has travelled beyond the shores. On the eve of the Mobile World Congress here, COAI insisted it will not apologise to the Mukesh Ambani-owned telecom company. Speaking to BusinessLine here, Rajan S Mathews, Director General, COAI, said: “I will not apologise. There is no question of apologising to Reliance Jio, as there is no worthy reason to do so. The COAI’s differences are with the Telecom Regulatory of Authority of India’s (TRAI) order, not with any specific operator.”

Both the parties have been trading charges for the past week, with RJio sending a letter to COAI, asking Mathews to apologise for his comment in a press release.

Monopoly charges
Mathews had said TRAI’s latest order on tariff plans are focused around ‘one particular operator with deep pockets’ and monopolistic designs at the expense of other operators. Although COAI did not name RJio, it was clearly pointing to the company’s plans and offers aimed at wooing customers.

RJio wrote to COAI and its senior members, asking Mathews to apologise publicly within 48 hours, saying the press release had made “defamatory statements against RJio”. The letter was sent on February 22 and and it now well beyond 48 hours.
When asked about not responding yet to the letter, Mathews said: “We believe the industry is going through a tough time, and it is important to raise issues and point our serious reservations about the TRAI order in the interest of the industry. We are still examining Jio’s letter and are in discussions with our legal counsel and our members to take a call on whether a response is warranted.
“Our differences are with the orders of the regulator and not with any specific operator. Our intention is not to aggrieve any particular operator.”

He further said “individual operators” are free to vigorously pursue the interests of their enterprises under the framework of the laws of the land. “However, the regulator’s (TRAI) role is to ensure the competing claims of companies are appropriately handled in the interest of the entire industry. This is the mandate of the TRAI Act, which specifically tasks it with ensuring the orderly growth of the industry,” he said.

“We’d also like to put on record that all our other member operators are unanimous in their support of our position, with absolutely no exceptions. Our endeavour is to work towards actualising the Prime Minister’s vision of a fully connected and empowered Digital India,” he added. (The Hindu BusinessLine)

Debt-laden Aircel to file for Bankruptcy at NCLT

Debt-laden Aircel to file for Bankruptcy at NCLTTelecom company Aircel will shortly file for bankruptcy at the National Company Law Tribunal (NCLT) and its board has been dissolved ahead of the move, said two people aware of the matter. That will mark the demise of the last small mobile phone company, leaving just four main non-state ones —soon to be three after a merger.

Malaysian parent company Maxis, run by businessman Ananda Krishnan, had earlier proposed a cash infusion to support the debt-laden company but has pulled the plug, said one of the people. The company has been in negotiations with lenders since September but has failed to hammer out a recast of its Rs 15,500 crore debt.

“There is no cash to run the business and no visibility to free any more up,” said another person, adding that the company is likely to stop paying salaries by the end of the week.

Aircel declined to comment.
State Bank of India, which heads the group of lenders, didn’t respond to queries.Bankers were Confident of Recovering Money. The decision was precipitated by the Reserve Bank of India scrapping all debt revamp schemes in favour of the Insolvency and Bankruptcy Code and seeking to hasten resolution, one of the people said. Having not made payments since September, banks can no longer restructure Aircel without provisioning for its debt. They are currently in the process of nominating members to a new board and an insolvency professional to run the process. The application to NCLT is expe.

The company generates monthly revenue of about Rs 400 crore, of which Rs 100 crore is accounted for by termination charges to other operators and Rs 280 crore is for vendors and network uptime, said a person familiar with the numbers. The rest is for licence fees, taxes, and interest payments. Idea Cellular recently snapped interconnect services with Aircel with dues of Rs 60 crore for three months.

Aircel had recently stopped services in six circles to focus on its better performing ones. It will be the fourth company to stop services after Reliance Jio Infocomm launched services in September 2016, undercutting tariffs and nearly halving revenue realisations for the industry. Norway-based Telenor is transferring its assets to Bharti AirtelBSE -2.07 % for almost no charge. Bharti Airtel is also taking over the wireless business of Tata Teleservices. The wireless assets of Reliance Communications are being acquired by Jio.

Bankers had been confident about recovering money from Aircel because of the support from its Malaysian parent, as were vendors. A recent document submitted by bankers in court showed that Maxis had issued letters of comfort to bankers that it would meet any cash shortfall up to Rs 500 crore and pay licence fees for circles to the tune of another Rs 500 crore should it be needed.

“That limit has long since been met,” said one of the two people.

Those hit will be 5,000 employees, vendors and partners, including tower operators GTL Infra, Bharti Infratel, Indus Towers and ATC. Aircel currently leases more than 40,000 towers across all the companies. Some of them are already locked in legal battles with Aircel to recover dues. Network management vendors include Ericsson, Nokia and ZTE, which are negotiating recovery of dues from September onward, said one of the two people.

Indus Towers, Bharti Infratel, Ericsson and Nokia declined to comment. The others didn’t respond to queries. Aircel also uses outsourced technology and call centre services that have been unpaid since September. It is unsure how the NCLT will prioritise these payments, the person said.

In July 2016, before the launch of Jio, 79% of Aircel’s subscribers were active on the network and the company -had a quarterly operating profit of Rs 120 crore. However, Aircel bled during the six months that Jio offered free services starting September 2016. It has also been losing customers. Aircel had nearly 85 million users at the end of December, having lost more than 2.5 million users in one month. “We have brought our prices to less than half, but it is still a hard sell in the face of free service,” a key regional executive had told ET in early 2017.

By July 2017, after Jio first started charging for its services, Aircel’s operating profit had dropped to Rs 5 crore. By December 2017, Aircel’s active customers fell to 57% at nearly half the average revenue per person and a quarterly operating loss of Rs 120 crore.

The company had initiated talks for a merger with Reliance Communciations, an operator that was also languishing in same circumstances. However, delays in approvals and a Supreme Court order preventing a sale of Aircel’s spectrum frustrated the merger. When it was called off, Aircel went to its lenders for a restructuring. (Source: Economic Times)

Telecom firm, agent, vendor booked in missing techie case

Telecom firm, agent, vendor booked in missing techie caseAlmost two months after software engineer Kumar Ajitabh, 29, went missing, the Whitefield police have filed a cheating case against a telecom company, one of its agents, and a vendor from Kolar, who issued a SIM card to the prime suspect allegedly using documents of someone else. The agent and the vendor have been arrested.

The police said the suspect, who remains unknown, was issued a Reliance Jio SIM card based on documents of a beedi worker from Kolar.

Following this, the police have filed cases against the company, the agent, Shivu, and the vendor Anand.
Ajitabh, who worked for a British telecom company, left his Whitefield apartment on December 18, 2017 to sell his car. He wanted to sell the car to fund his education at a premier management institution in Kolkata. He was reportedly on his way to meet the prospective buyer who had got in touch with him through an online buying and selling platform for old and used goods. His roommates, who realised he was missing, began to search for him the next day. After they failed to find him, they filed a missing complaint with the police on December 20.

HC direction

The police intensified their search and formed four special teams to track down Ajitabh following a direction from the High Court of Karnataka. The special team of the Whitefield police, who were trying to track down the suspect based on mobile phone call detail records and the details furnished to get the SIM card, landed at the house of the beedi worker, Shabana, 45, at Rahmath Nagar in Kolar.
She told the police she had submitted her Aaadhar details to get a free Jio SIM card, which she discarded a few days later as it had become defunct. The police suspect her documents were used to give a SIM to the prime suspect, who used it to contact Ajitabh. Based on Shabana’s statement, the police registered the case on Saturday.

‘Only a number’
“The prime suspect is still a number. We booked a case against the company as well because they should exercise caution while issuing SIM cards,” said an officer.

A Reliance Jio statement said, “We exercise full diligence and comply with all the applicable regulations for issuing SIMs. We will extend full support as may be required by the investigation authorities.” (Source: The Hindu)

RCom seeks withdrawal of TRAI directive on subscriber refund

RCom seeks withdrawal of TRAI directive on subscriber refundReliance Communications has opposed the telecom regulator’s directive asking the company to refund unspent balance of mobile subscribers, in the wake of discontinuation of its voice services.
The Telecom Regulatory Authority of India (TRAI) is, however, of the view that the demand on customer refunds is fully justified as it pertains to premature closure of services by an operator, and therefore, cannot not be equated with general network port outs cases.

A senior TRAI official told PTI that since it is the case of a service provider closing services the “customers must get their unspent balance”. “The situation is not similar to general port out by a consumer, where consumer chooses the timing of porting out from one network to another network. Here, a service provider has closed services and therefore protection of consumer interest is a must” added the official who did not wish to be named. Reliance Communications (RCom) declined to respond to an email query on the issue.

‘Withdraw direction’

Sources familiar with the development said that the service provider has shot off a letter to TRAI arguing against the regulator’s January 19 directive on refunds. In the letter, RCom has cited the Mobile Number Portability Regulations 2009 to highlight that the existing rules mention that the balance amount of talktime at the time of porting “shall lapse”, the source pointed out.

“We regret to say that we are unaware of the exact regulation under which a provision exists for refund of balance amount of talk time on a mobile number being ported out for any reason whatsoever...we request authority to withdraw the direction,” the source said quoting from RCom’s written representation to TRAI.

Meanwhile, RCom is preparing another follow up letter to TRAI where it has further argued that there is no precedence of customer refunds being sought in several other cases of operators closing down services in the Indian telecom market.

On January 19, the TRAI had directed Reliance Communications (RCom) and Reliance Telecom (RTL) to refund the unused balance of their prepaid customers and security deposits of their post-paid subscribers and report compliance in the coming weeks.

The direction for refund is “pursuant to closure of 2G/GSM, CDMA services and discontinuation of voice services in all the licensed services areas by Reliance Communications Limited (RCL) and Reliance Telecom Limited”.

The move comes at a time when RCom has announced plans to sell its spectrum, towers, optical fibre network and other wireless assets to Reliance Jio, the telecom firm of elder brother Mukesh Ambani-led Reliance Industries. The industry estimates the blockbuster deal to be valued at Rs 24,000- 25,000 crore. (The Hindu BusinessLine)

Income Tax department asks Flipkart to reclassify discounts as capital expenditure

Income Tax department asks Flipkart to reclassify discounts as capital expenditureFlipkart has lost an appeal against the income-tax department over the reclassification of marketing expenditure and discounts as capital expenditure, which involves substantial tax liabilities. It could impact the way startups are taxed in the country, experts said.

The ruling was made in December but isn't publicly known. The issue involves money spent by ecommerce companies on marketing through deep discounts. Flipkart along with Amazon and some of the other big ecommerce companies have been classifying this as marketing expenses and deducting it from revenue, leading to them posting losses and therefore not being liable to tax.

The tax department, however, contends that this is not a cost but a capital expenditure, which means it should not be deducted from revenue.

The Bengaluru I-T office had asked Amazon and Flipkart to reclassify marketing expenditure as capital expenditure. Both approached the Commissioner of Income Tax (Appeals), Bengaluru, in August last year. In December, the CIT (Appeals) hearing Flipkart's case ruled in favour of I-T department and said the company must reclassify its discounts and marketing expenses as capex. Capital expenditure, according to the I-T department, has to be spread over four to 10 years.

Liable to Pay 30% Tax
If that happens, companies such as Flipkart and Amazon that incur substantial marketing costs could be deemed as being profitable and therefore liable to pay 30% tax. Flipkart didn't respond to an email sent on Thursday. A senior executive at the company, however, confirmed the development and added it's looking to challenge the order at the Income Tax Appellate Tribunal (ITAT) in the next few days.

ET was the first to report on September 2 last year how Amazon and Flipkart were facing heat from the tax department over the matter.

"Capital expenditure versus revenue expense is an old issue for the tax department. The issue is if the discounts or marketing spends are revenue expenditure, then that would come under P&L of a company and would be deducted from the total revenues in a year," said Maulik Doshi, partner, transfer pricing and transaction advisory, SKP Consulting. "On the other hand, if it's considered capital expenditure, that will go as assets in the balance sheet and the effect will be spread over years and only a percentage of the cost (amortisation/depreciation) can be deducted from the revenue."

For instance, a company incurs Rs 100 crore in marketing costs. If classified as revenue expenditure, this will be deducted in one financial year. If classified as capital expenditure and amortisation of 10% is applied over 10 years, then only Rs 10 crore will be deducted in a financial year. In the second scenario, the company will end up making a profit and have to pay 30% annually.

Experts said the revenue department's stand will hit startups and ecommerce companies and that it appears to dictate how entrepreneurs must conduct their businesses. "The tax department is obviously picking on the companies' oft-repeated claim that the discounts are aimed at accruing market share for future profitability, but it's highly unlikely that such reasoning will stand scrutiny in courts," said Abraham C Mathews, a Supreme Court advocate. "Supreme Court rulings have held that even if the benefit is of enduring nature, it can be classified as revenue expense."

The income tax department is taking the stand that discounts and large marketing costs are a part of the brand-building exercise. "These discounts along with huge marketing and advertising expenses are creating market intangibles for the company," said an official close to the development. "This means these are not costs but capital for the company."

The tax department is yet to specify the exact amount the companies may be liable for. (Source: Economic Times)

Department of Telecom holding talks with telcos to trim litigation

Department of Telecom holding talks with telcos to trim litigationThe department of telecommunications (DoT) is holding talks with operators to find ways to reduce litigation, especially on legacy issues such as penalties, as part of the new telecom policy in what could bring huge relief to both the parties. Senior officials and industry executives said the industry and the government have a mutual interest in reducing litigation, which has been a major irritant in the sector's growth as it slows decision-making and wastes time and money. Topping the agenda is the resolution of issues that are no longer relevant, they said. The electromagnetic field radiation issue was solved to some extent when in September 2012 the government reduced the emission levels for mobile towers to one-tenth of the earlier standard. The government had fined telecom companies Rs 10.8 crore for violating radiation limits as of July 2016.

The industry has moved to using Aadhaar-based verification for signing on new customers, which has put to rest issues arising from irregularities around user acquisition.

DoT has set up a dozen working groups to discuss broad contours of the new telecom policy (NTP), in the works for most of the past year, with the aim of formally putting it in place by March-end.

"When the government went to revenue share, there were negotiations of clearing up all earlier issues, previous litigations and starting on a new slate. In context of NTP 2018, the industry would like to get a clear guidance on a clean-up of all litigation that has either become useless or dated because of other rules and see if we can get a more conducive environment," said an executive who asked not to be identified because discussions were preliminary.

Both parties (industry and government) have interest, so it comes out of mutual interest," the person added.

Another senior executive said the move that was being considered among other proposals would reduce litigation expenses and help the industry, which is facing financial distress — the same way it did in 1999 when the revenue-share model was adopted amid a financial crisis at that time.

On some old generational litigations which have no real value today, "I wouldn't be surprised if the government were to concede its position or settle with telcos," said Ashish Bhan, a partner at law firm Trilegal. "Something like this can be evolved in the new telecom policy with the view to have lesser litigation and it would be a welcome step."

Discussions are on to settle cases related to legacy issues such as penalties levied by the local departments of the vigilance wing of DoT, violation of customer acquisition form rules and exceeding electromagnetic field radiation limits, said officials. (Source: Economic Times)

Infosys’ settlement move with SEBI fine: Mohandas Pai

Infosys’ settlement move with SEBI fine: Mohandas PaiThe Infosys’ move to settle with Securities and Exchange Board of India (SEBI) the alleged disclosure lapses involving a severance pact is “perfectly fine”, the company’s former chief financial officer, T V Mohandas Pai, said today. He disagreed with the whistleblower who has reportedly asked the market regulator SEBI to prosecute the IT giant’s management and the Board. “Settlement is a normal process. Anybody can file for settlement consent decree from SEBI. There are very clear norms. SEBI can do it; it’s SEBI’s prerogative,” Pai said. On the whistleblower asking SEBI to prosecute the management as well as the board, he said, “That should be ignored. Consent order is fine. SEBI knows what to do best; leave it to SEBI.”

The chairman of Aarin Capital and also Manipal Global Education Services stressed that consent decrees are a very normal part of any capital market. “It happens all the time in the US. It happens in all capital markets because some things are difficult to prove; companies don’t want to go through ordeal of a regulatory action,” he said.

“In capital markets all over the world, companies (do) file for consent so they get over any regulatory action where there is no fraud, misrepresentation or criminality,” he said. “So, there is no criminality and deliberateness. It’s perfectly fine for the company to file consent,” Pai said, adding that the matter in Infosys’ case relates to lack of adequate and proper disclosure.

The whistleblower has argued that a settlement was similar to “backdoor agreement”, and if Infosys is allowed to do so, then “no whistleblower in future will take the pain to expose any malpractices in the corporate sector”.

The Bengaluru-headquartered company last week filed the application with SEBI to settle the issues around severance agreement with ex-CFO Rajiv Bansal. The settlement applications for violation of disclosure norms typically involve payment of a financial penalty to avoid punishment in case allegations are proved right at a later stage. (Source: The Hindu BusinessLine)

Supreme Court dismisses ED plea against Satyam’s successor firm Tech Mahindra

Supreme Court dismisses ED plea against Satyam’s successor firm Tech MahindraThe Supreme Court has dismissed an appeal filed by Enforcement Directorate against a 2014 Hyderabad High Court judgement quashing money laundering charges against SatyamBSE 0.00 %'s successor company Tech MahindraBSE -0.01 %. Enforcement Directorate (ED) had challenged the High Court judgement of December 22, 2014, in Tech Mahindra's favour, arguing that the new company — which took over Satyam Computer Services Ltd in 2009 under the intervention of Company Law Board (CLB) — could not escape responsibility for the acts of omission and commission of the erstwhile company.

A three-judge bench led by Chief Justice of India Dipak Misra dismissed the plea without examining the legal issue of whether a successor company can be fastened with criminal liability of an earlier corporate entity.

Satyam had floundered after its chairman B Ramalinga Raju confessed publically to cooking up its books to make the company look more attractive.

CLB then came up with a proposal to infuse fresh funds into the ailing company and a new board of directors had taken over the company, which was then christened Tech Mahindra. The amalgamation was vetted by the High Court.

CBI had later taken over the case and filed cases of criminal conspiracy, forgery, cheating and impersonation etc. Money laundering charges were added later under sections 70 (3) and (4) of the Prevention of Money Laundering Act, 2009.

ED treated Rs8 22 crore infused into Satyam by its previous board of directors as proceeds of crime.

Tech Mahindra challenged it in the High Court and sought quashing of the charges on the ground that the charges pre-dated 2009 when a new board of directors took over.

Any such charges, against the successor company, were just unnecessary harassment, it argued.

If anything, the successor company was a victim of crime, Tech Mahindra claimed. Moreover, the new board had no knowledge of the previous dealings of the earlier board of directors, a necessary requisite of the crime of money laundering.

ED on the other hand claimed that the law would treat all those directly or indirectly involved in the company as part to the crime.

The company cannot claim lack of knowledge, it said. Tech Mahindra as the successor company cannot escape its predecessor company's liabilities, it said. Huge unaccounted for money was brought in into the former company, ED had alleged.

ED was represented by senior advocate AK Panda while Tech Mahindra was represented by senior advocates Harish Salve and KK Vishwanathan. They were assisted by lawyer Mahesh Agrawal. The SC bench included Justices AM Khanwilkar and DY Chandrachud besides the CJI. (Source: Economic Times)

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