How transparent are telecommunications companies?

How transparent are telecommunications companies?

Every day, more than 10 billion mobile phone and internet users worldwide entrust a huge amount of sensitive and personal information to their service providers.

Telecommunications companies – an industry with a total market value of approximately US$2 trillion – know a lot about their customers. But what can citizens and other stakeholders find out about these companies and why should they care about how transparent the companies are and what measures they undertake to prevent corruption?

Transparency and accountability matters to prevent cases like in China in 2013 when then China Mobile Communications Vice President Lu Xiangdong received a life sentence for taking US$4.10 million in bribes.

In the first-ever assessment of the global telecoms company’s transparency in corporate reporting, Transparency International and Transparency International Hungary looked at the websites of 35 major industry players to find out how transparent they are in three areas that are crucial for fighting corruption: disclosure of anti-corruption programmes, organisational transparency and disclosure of key financial information by country of operation.

The report shows that overall the disclosure practices of telecoms companies have not kept pace with the double-digit growth rates of the industry over the last years:

Stronger anti-corruption programmes from top to bottom

The telecommunications sector is particularly vulnerable to corruption because it is a highly regulated and complex industry that often operates in countries with weak institutions. Some prominent corruption cases of major industry players such as Alcatel-Lucent, TeliaSonera, and Magyar Tekekom illustrate the risks.

To ensure compliance with laws and to manage the broader risks of corruption and poor performance against ethical standards, telecommunications companies must adopt strong and clear policies and management systems to curb bribery and corruption.”

– József Péter Martin, Executive Director, Transparency International Hungary

While most of the assessed companies have anti-corruption programmes in place, our report shows that only 15 out of the 35 companies have mechanisms for regular monitoring. An anti-corruption programme that is not adequately and regularly monitored cannot be effective in practice.

The “tone from the top”, i.e. the public support for anti-corruption measures by top management and the board, is a key component of every anti-corruption programme and indispensable for holding corporates to account.

From Deutsche Telekom’s Code of Conduct, p.12:

“…, we refrain from engaging in any and all forms of corruption or even actions that could potentially be construed as such.”

The leadership of 29 of the 35 companies demonstrate this kind of support. However, only half of the assessed companies make it clear that the anti-corruption policy or the code of ethics applies to their board of directors and just six companies say they train their board of directors on their anti-corruption programmes.

What hides behind complex and opaque structures?

Large multinational telecommunication companies have complex structures and operate as networks of interconnected entities incorporated in diverse countries – some of which are often secrecy jurisdictions or tax havens. Company structures can be made deliberately opaque to hide the proceeds of corruption or conflicts of interest.

The more complex the organisational structure, the easier it is to hide illicit gains.

With this in mind, it is worrisome that most of the companies (27), especially those from Japan and the US, do not disclose information on their “primary” or non-material holdings. The holdings that remain un-disclosed are often located in developing countries and secrecy jurisdictions – which are exactly the ones that companies should disclose.

By contrast, companies in countries where legislation requires the disclosure of all subsidiaries, such as Germany and India for example, perform better. With an average of 42 per cent, European companies perform significantly better than companies from the Americas (19 per cent).

Knowing which companies operate in a country and to which larger structures they belong is not enough. These companies generate local revenues and profits and contribute to the public budget through taxes, community contributions and the like. In order to hold governments and companies to account, companies need to report key financial data on a country-by-country basis.

This dimension is by far the weakest of all three dimensions assessed in this report. For example, only four companies reveal information on their tax payments in each of the countries in which they operate. But there is some hope for further improvement: with an average score of 22 per cent telecommunications companies do much better than the average 6 per cent the world’s largest companies achieved in our 2014 report based on the same methodology.

Citizens and other stakeholders have the right to know which companies operate on their territory, are bidding for government licences or contracts, and have applied for or obtained favourable tax treatment. New EU laws are set to require all companies to report on their key financial data in all countries they operate in.

But companies should not wait for regulators to act and voluntarily disclose this information which is certainly available to them. Examples such as Deutsche Telekom, which achieves a score of 81 per cent on organisational transparency and 84 per cent on country-by-country reporting, show that these disclosure practices are also possible for a highly complex industry such as the telecoms sector and do not lead to a competitive disadvantage.

Explore the findings

Access the data behind the report.

The XLS charts below show how companies scored according to corruption-relevant indicators. For each criterion, companies received one point for a measure in place or data disclosed and 0.5 for partial disclosure. They scored zero when the information was not available or a click away from the parent company website.

Chart 1: What are telecoms companies doing to fight corruption?
Based on guidelines for companies preparing anti-corruption measures, section one scores companies for reporting on anti-corruption programmes, including measures such as facilitation payments and political contributions.

Chart 2: What do companies reveal about their sub-entities?
Complex corporate structures can hide tax evasion and bribes. This table looks at how much of their operations companies reveal: who are their subsidiaries, where they operate and where they are based for tax purposes.

Chart 3: How transparent are companies operating in your country?
The disclosure of key information such as profits, revenues and payments to governments by the 35 companies is evaluated across the foreign countries where they operate.

Here companies are rated for disclosure. This information shows citizens the contributions companies make to their communities, and allows them to monitor how the government manages the money that comes from these companies. Explore the findings in our detailed country-by-country file.

For any press enquiries please contact press@transparency.org

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