Commission ‘Errors’ Cost Telenor $35mn

Norwegian telecoms group Telenor has warned investors that Q2 profits were hit by the discovery of NOK299mn (USD35mn) in ‘erroneous omissions’ from the money set aside for commission payments by Grameenphone in Bangladesh. This is equivalent to a 2.6 percent fall in EBITDA for the whole group. Telenor owns 55.8 percent of Grameenphone, and declined to provide further explanation of the losses when questioned by Reuters.

As typical of big telcos, Telenor’s Q2 report remained bullish about Grameenphone, despite the error.

In the second quarter, Grameenphone made a provision of NOK 0.3 billion related to commission payments… Adjusted for the provision, EBITDA increased by 14% and the EBITDA margin was 62%. The strong performance was driven by the continued revenue growth and a healthy underlying opex development.

Grameenphone is clearly growing at a good pace, with more subscribers being added continuously and reported revenues up at double-digit rates. However, this does not justify a blasé attitude to costs like these. How can USD35mn of expenditure go unaccounted for, then be found later on?

Telenor’s management team are rightly calculating that investors will not ask questions about this seeming slip-up, so long as the general direction of their business is upward. However, investors should be more wary of telcos that underreport their costs. Even a relatively small blip in the figures may be a sign of serious integrity issues, as has been proven by several major accounting scandals. The only reason investors do not ditch telcos that misplace $35mn is because they expect their competitors to be just as lax with their controls.

Eric Priezkalns
Eric Priezkalns
Eric is the Editor of Commsrisk. Look here for more about the history of Commsrisk and the role played by Eric.

Eric is also the Chief Executive of the Risk & Assurance Group (RAG), a global association of professionals working in risk management and business assurance for communications providers.

Previously Eric was Director of Risk Management for Qatar Telecom and he has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and other telcos. He was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.