Tax evasion reports false; letter to I&B sent: Dish TV

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There is plenty of headroom to grow in the direct-to-home (DTH) space, says RC Venkatesh, CEO of Dish TV . In an interview with CNBC-TV18, he says country wide growth in DTH is expected to remain strong for a couple more years. In the first quarter, Dish TV did a subscriber addition of 725,000, a growth of 14% YoY.

Regarding the company falling under the IT department’s tax evasion scanner, Venkatesh says the reports are unfounded. The license fee that Dish TV is paying is on the adjusted gross revenue as per the TDSAT order. They have also given a letter to the Ministry of Information & Broadcasting (I&B) with clarification regarding the same.

Below is a verbatim transcript of his interview with CNBC-TV18's Latha Venkatesh and Gautam Broker. For complete details watch the accompanying video.

Q: You are now getting to a larger subscriber base so will not that tell on subscriber growth? You have also increased the package price. What does this mean in terms of subscriber number addition for the remaining part of 2011?

A: There is plenty of headroom for DTH subscribers to grow as currently the total gross base of DTH subscribers in the country is only around 36 million versus a total cable and satellite household count of 120 million and a total TV household count 150 million against a backdrop of total household count of 236 million. There is still plenty of headroom for growth. We do expect the strong growth in DTH to continue for a few more years.

In Q1 we did 725,000 subscribers which was a growth of about 14% over the previous year where we did 644,000 subscribers. For the first two quarters of last year we did about 1.4 million subscribers. This year we expect to be close to that range give or take 50,000 subscribers. Overall, the momentum continues as far as subscriber addition is concerned.

As far as price increases are concerned, the price increases that we have taken are small incremental increases that we have taken consistently over time. We believe that’s the way to go to improve realisations rather than take any big jump in one shot which would tend to destabilise the overall price equation.

Q: Can you confirm that you will do 1.4 million subscribers additions this year as well?

A: That’s what we did last year and we reckon we should be close to that number this year too.

Q: What would be the average revenue per user you think? Will that be an improvement because of the price increases you have been able to take, if so how much?

A: Last quarter we did about 150, last fiscal we were at 142. We are looking at 160-165 in the exit quarter and that’s what we had guided earlier. So we hope to be able to get there.

Q: Recent media reports said that tax officials say your tax liabilities were about Rs 140 crore but you provided just about Rs 40 crore in FY11. What is Dish TV’s stand on that?

A: I would like to clear the air on that. The article was a fair misrepresentation of the fact. The fact of the matter is license fee which is the contract between the DTH service provider and the I&B is pegged at 10% of the gross revenue. There has been a ruling by the TDSAT as on May 28, 2010 which clarified that for the purpose of determination of gross revenue, certain items can be excluded and adjusted gross revenue can be calculated.

The kind of items that could be excluded or allowed by TDSAT to be deducted from the gross revenue are content costs for example, entertainment tax and other taxes paid for example, rentals that we collect in terms of hardware rentals. So there were setoffs available to us against the gross revenue. The license fee that we are paying is on the adjusted gross revenue as per the TDSAT order. The total adjusted gross revenue which is due for us to be paid for the last fiscal was about Rs 60 crore and we have paid that. We also have a letter from the I&B in which we have clarified that this is the sum of license fee that we have paid as per the TDSAT order.

As far as our books are concerned, we are not booking in our P&L only the Rs 60 crore but the full 10% of gross revenue and the differential is being provided in our balance sheet. We have Rs 293 crore of contingent liability in the balance sheet which is to account for this difference between what we are paying the department and what is the 10% which is the gross revenue. This matter has been challenged by the MIB in the Supreme Court and depending upon what the Supreme Court comes out with eventually if it goes in our favour we will write back this Rs 293 crore into our P&L.

In the event it goes against us we would have anyway provided for it and we would be paying it out so there will be no difference in the P&L account. For P&L purposes we are putting the full 10% gross revenue. Secondly, this issue of license fee has nothing to do with the income tax department.

A license fee is not a tax. A license fee is a fee between a person who is licensing the service and the person who is a licensee. If there is any dispute between them then that is between TDSAT and the Supreme Court. The income tax department has no locus standi as far as the license fee is concerned. There are many discrepancies that we have written to that newspaper to issue a corrigendum.

Q: There has been a bit of a slowdown across various industries. Are you confident of maintaining your guidance or do you think there is a slight downside which may not be anticipated now and could be seen in the next couple of quarters?

A: Certainly, what you say is correct. There has been a slowdown across a variety of industries and we are not completely immune to it. Compared to the buoyancy that we had in the overall market last year, we are certainly seeing some sluggishness especially in the last three-four months.

We are hopeful that the overall economy will come out of this patch and regain the momentum. If we have something like the Lehman situation developing out of Europe then a lot of bets will be off the table so it’s still a wait and watch at this point.

Q: Will you get into the black this quarter or next?

A: Very close, it could very well be this quarter. In the last quarter we were down to Rs 18 crore PAT loss. It’s going to be a crore here or there but we are very much on track in terms of getting to where we need to.
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