TRAI Scraps 1 Pc Turnover Penalty Plan for False Accounting, Cost Reports; Fixes Fines with Caps for Telcos

Telecom regulator TRAI has dropped a proposal to impose disincentives of up to one% of turnover for inaccurate accounting separation or cost reporting by telcos, and instead stipulated a graded penalty framework with caps for such violations.

The information provided by accounting separation reports is required for regulatory purposes such as analysing costs, revenues, capital employed in major areas of an operator's business, measuring financial performance, and profitability of various products and services.

In its draft form, the regulator had mooted a penalty of up to one per cent of the service provider’s turnover for submission of false or misleading information, a proposal that the industry had decried as being excessively stringent and disproportionate.

On Tuesday, TRAI released amendments to provisions of two key regulations - Telecom Tariff Order and Accounting Separation.

On accounting separation, TRAI, outlining graded penalties based on slabs of annual turnover, said: "If the report furnished by the service provider under regulation 5 is false or if, in its report, the service provider deliberately omits any material fact knowing it to be material, the service provider shall be liable to pay financial disincentive..." Accordingly, the telecom regulator has stipulated a penalty of up to ₹25 lakh for minor violation in case of companies with turnover of up to ₹500 crore, and up to ₹50 lakh if the violation is major.

For companies whose turnover ranges between ₹500 crore and ₹5,000 crore, the financial disincentive for minor violation is up to ₹50 lakh and for major violation the amount may go up to ₹1 crore.

For companies with turnover exceeding ₹5,000 crore, TRAI has stipulated penalty of up to ₹1 crore and up to ₹5 crore for minor and major violations, respectively.

The service providers will be given a reasonable opportunity to represent against the contravention of the regulations, TRAI said.

The regulator added it may waive the financial disincentive, impose a lower amount of financial disincentive or classify as minor or major based on the merit in the reasons furnished by the service provider.

It is pertinent to mention here that the Accounting Separation Reports of telcos are significant from regulatory perspective in a multi-operator, multi service environment and is being used by TRAI for different regulatory exercises such as determining of Interconnection Usage Charges (IUC) for Voice and SMS, carriage charges, valuation of spectrum and fixing of roaming charges, domestic leased charges and International Private Leased Circuit Charges, besides inter-operator comparison of costs, revenue and investments.

For failure by telcos to comply with tariff reporting requirements, TRAI has stipulated a penalty of ₹10,000 for each day of delay (in the first seven days) and ₹20,000 for each subsequent day of delay, subject to a maximum of ₹5 lakh.

At present, telecom tariffs are under forbearance, which means that operators are free to fix the rates, although they do have to adhere to TRAI's post-facto reporting timeline of seven working days.