Financial Times

The booming telecoms sector
The action in the telecommunications sector, which in recent years has emerged as the fastest growing sector of the economy, is hotting up even further. Dialog Telekom, now the biggest listed stock, made a breathtaking trading debut that propelled the CSE’s all share price index into the stratosphere last week.

The week before, Distilleries Company of Sri Lanka announced the completion of its acquisition of Lanka Bell, extending the company’s reach into an entirely new field, and one that seems to have the most growth potential.

It is the red hot mobile phone industry that is driving growth in the whole telecom sector and its importance can only increase given the forecasts that mobile telephony could eventually surpass that of fixed lines with increasing bandwidths and speeds, and of course, the ease of use of mobile phones. According to the Central Bank, the reforms introduced since the 1980s has made Sri Lanka’s telecommunications sector one of the most liberal and fast growing sectors in the country. The figures are impressive. The competition is getting intense with the island now having 77 licensed telecom operators. They consist of three fixed access telephone operators, four mobile telephone operators, 32 external gateway operators, 29 data communication and Internet service providers, four paging operators, two payphone operators, two trunk radio operators and one leased circuit service operator.

Despite this growth, there is still significant pent-up demand for their services. In 2004, the telecommunications sector, in terms of subscriber network, expanded by 36 per cent, with the mobile telephone operators dominating the market with a share of 67 per cent. The use of cellular telephones increased a remarkable 59 per cent in 2004 over the previous year. In recent years it is the services sector that has generated the impetus to economic growth in Sri Lanka, and within this it is telecommunications that is one of the key forces driving growth. In 2004, the services sector grew by 7.6 per cent contributing 77 per cent to the economic growth.

Mobile phone companies are offering fantastic packages to entice customers. Their announcements follow each other in rapid succession in bettering or equalling offers from rivals. Ultimately, it is the customer who stands to benefit.

Telecom privatisation is perhaps the best example of how privatisation has helped the consumer, although the same cannot be said of some of the other reforms of former state-controlled enterprises and sectors where consumers have had to suffer.

The top corporates listed on the Colombo bourse have surprisingly not entered the fray – yet. JKH is seen by stock brokers as having missed the opportunity. All the listed conglomerates have said they are willing to consider acquisitions if appropriate opportunities do come up. Even Hayleys, seen as perhaps the most conservative of the corporate heavyweights, has questioned the rationale of sticking to organic growth and of not acquiring businesses that its top management has no expertise in. One such company that is not listed as a diversified conglomerate but has all the appearances of being one is Distilleries, owned by the influential tycoon Harry Jayawardena.

Given the rate of growth of the telecom sector and the super profits that companies like Dialog have been generating, it was only a matter of time before corporate heavyweights spread their tentacles into the industry to grab a chunk of the pie. And that pie can only get bigger, given the relatively low rates of penetration for both fixed and mobile phones in the island. The revival of the economy that came with the ceasefire and the anticipated post-tsunami reconstruction boom will only fuel that growth further.

Back to Business