Privatisation of Tea Research

There has been a suggestion that the Tea Research Institute (TRI), which con tinues to be run as a government organisation, should be privatised. There are many reasons why this suggestion should be taken seriously and implemented soon.

Firstly, unlike in the recent past, the bulk of tea production is in the hands of the private sector. It is therefore important that the TRI responds to the needs of the plantations which may be different from those perceived by persons who are not directly affected by the TRI's performance.

Secondly, it is well-known that today's TRI is only a shadow of what it was in the 1950s and 1960s. At that time, the TRI in Sri Lanka was the foremost Tea Research Institute in the world.

It was in the forefront of developing high yielding varieties of tea, tackling problems of pest control and producing some of the best research findings in the field. It was the breakthroughs in research at the TRI which enabled the country's yields to improve sharply with the introduction of vegetatively propagated varieties in the 1950s and 1960s.

Today it cannot claim such a position of pre-eminence. Many of the best researchers have left the TRI to work in research institutes of our competing countries. They have no doubt contributed to the enormous strides East African countries and even Indonesia have made.

One of the key reasons for this is the bureaucratisation of the TRI and the inability of the state organisation to give the kind of remuneration which would have retained the best researchers.

Government regulations and public service procedures for promotion give no incentives to the best research personnel and it is little wonder that they have moved on to greener pastures. In time, the TRI has been unable to recruit and retain research personnel of excellence.

Privatisation of the TRI implies not only that the research would be demand-driven and adequately funded, but also that the management of the TRI would be such as to provide the kind of incentives which would enable the recruitment and retention of research personnel.

A private organisation would have the flexibility to reward the best researchers and provide an environment which would be conducive to achievement. The retention of research staff also requires that a number of ancillary benefits should be provided so as to ensure that the research staff living in the isolated but attractive natural environment would be able to educate their children as well as have adequate social facilities. This was so in the early years of the TRI.

This does not mean that the Institute should not have representation on its Board from public institutions. There is a good case for ex-officio representation of some of the public bodies involved in the country's agriculture.

A representative from the Department of Agriculture as well as representatives from Universities may indeed strengthen the Board's capability. They may add useful insights from the point of view of proper scientific and national considerations.

There is another important consideration which should not be forgotten when such a privatisation takes place. It must be remembered that the bulk of Sri Lanka's tea is now produced by smallholders.

Their requirements are different, both due to the size and management practices, as well as the ecological conditions in which they cultivate most of their tea.

In the past, the TRI has looked after their needs through several sub-stations in the Uva, Sabaragamuwa and the South. It is vitally important that the privatisation of the TRI should be such as to give adequate importance to research which would be important and significant for increasing yields from the smallholders.

There are indeed no good reasons for the government to keep a hold on the TRI and control it in a bureaucratic manner. It must restructure the Institute for private management.

We hope the government would make a move to privatise the TRI so as to ensure that the TRl's research would result in high productivity of our tea lands. Already the Institute has been run down and the country cannot afford further delays which would weaken the capacity of the Institute. It must regain its position as a centre of excellence in the near future.

Point of view

Privatisation: consumer always gains

By Deshamanya C.R. de Silva

When I read so much uninformed criticism of privatisation I feel compelled to make some comment on it.

The first thing that everybody should realise is that regardless of who loses by privatisation, one group always gains. And that is the consumer. Consumers, who constitute the majority in any country, must gain from the increased competition and change of management that every properly implemented privatisation ensures.

I say 'properly implemented' because there could be a privatisation where all that happens is that a public sector monopoly is converted into a private sector monopoly, I shall touch on this later.

Meanwhile, it cannot be denied that in the vast majority of privatisations, consumers must benefit from lower prices and/or better products and services. A case in point is the palpable improvement in telecommunication services in Sri Lanka after the industry was de-regulated: which is another type of privatisation.

It is competition with the private sector that has galvanised Sri Lanka Telecom into action. It is the consumer that is benefiting from it. The complaints from the public sector monopoly of unfair competition are to be expected, and should be ignored by the public; while they are looked into by the Regulator.

The Regulator of such a one-time monopoly must be an independent, strong, competent individual who can withstand pressure from the institution that has lost the power it once had.

What the consumer must realise is that every privatisation will be opposed by three different interested parties. The first are those politicians who wielded influence over the state owned enterprise (SOE) that is to be privatised.

The second are the managers of the SOE.

These two groups fear a loss of power and influence which, in these unfortunate days when corruption was very much a reality, can also mean a loss of income. Managers tend to oppose privatisation because in addition to loss of power they fear the added pressure that they may have to face under private sector management where they could expect greater concern with the bottom line.

Of course both these groups tend to oppose privatisation covertly because it would be unwise to be seen to openly oppose government policy.

The third group that usually opposes privatisation, and does so quite openly, is the trade unions concerned. They perceive a threat to the easy lives (as far as hard work is concerned) that they have grown accustomed to under lackadaisical public sector management.

In institutions such as Telecom they may even perceive a drop in the type of income they were used to earning by the simple expedient of putting a line out of order and then restoring it when the irate customer complains about it.

Such restorations are always rewarded by 'santhosams' given (usually gladly) by the grateful customer. In any event traditionally unions have opposed privatisation. My advice to government is to ignore this opposition because for every employee who opposes privatisation there will be a hundred thousand consumers who benefit from it.

Therefore if votes are the things that matter, privatisation must necessarily be a political success.

The point I have made is that while there may be a lot of opposition to privatisation from those who perceive it as a threat, consumers who constitute the vast majority of the population should wholeheartedly support it.

It is for this reason that, as far back as April 1995, I strongly recommended to the President, at a gathering of businessmen brought about by the World Bank in Paris, that she should ignore the opposition from the trade union of Telecom and de-regulate the industry thereby introducing competition. She did so, and the people of this country have benefited and are grateful.

When I read the allegations about the privatisation of AirLanka, I cannot help reflecting that regardless of how it was done, passengers are bound to benefit from it. I was constrained to write a letter to the newspapers some years ago recommending strongly that AirLanka should be privatised because it was being run largely as a source of perquisites for politicos and VIP cronies.

Routes were determined to suit powerful interests, and innocent would-be passengers with confirmed reservations were bumped off aircraft to accommodate VlPs. As long as the privatised airline is managed without interference from politicos, customers of the airline are bound to benefit.

So, while leaving it to the proper authorities to determine whether there has been any chicanery in the privatisation of AirLanka, let us all (at least those who need to fly) heave a sigh of relief that it has been achieved.

Which brings me to another recommendation I have always made. A privatised SOE will not be able to function at peak efficiency unless the majority of the Board and the Chairman himself are private sector men with a proven track record.

The problem with public sector chairmen is that the vast majority, while they are usually clever, capable individuals in their own right, are not used to making decisions under conditions of uncertainty - which of course are the conditions that always prevail.

'Their entire training and experience inclines them to being averse to making mistakes, which while damaging to reputations and careers in the public sector, are accepted as unavoidable in decision-making in the private sector.

Decisiveness is not a quality one usually finds in the public sector. It is the very essence of success in the private sector.

A contrary view on the Third " T"

By Amal Sanderatne

Sri Lanka is famous for it's three T's : Terror, Tourism and Tea. But our three T's are not just about fame but to our long-suffering investors critical to understanding the gyrations of our equity market. In our market the investor starts dreaming of his returns long before the risks are counted or lives in fear of risk blinded to potential return.

Today the risks of the first two "T"s are well understood. The market has discounted the risk of terror for a long time. This is often reflected in the subdued immediate reactions of market prices to bomb blasts. The very steep discounts to book value that most tourism sector stocks trade at reflects the impact of Terrorism on the second " T ".

Now with an emerging awareness of the risk of commodity price fluctuations to the plantations sector it appears that the risk of the third T is finally being assimilated. It is a hard awakening to reality to those that may have forgotten that with returns there is always risk.

Sharp falls in tea prices in the last few months has been reflected in a sell off of the plantation stocks that previously outperformed the rest of the market. The privatisation of the plantations sector in the Sri Lanka had created an entirely new sector to the local equity market providing potential for direct investor exposure to agriculture.

However due to the cost structures involved in this sector and fluctuations of commodity prices, the volatility of earnings of the sector is also potentially much greater than that other sectors. With much of the investment in plantations being from listed conglomerates and debt financing being proved by listed financial institutions the volatility of earnings of non plantation companies is also likely to increase.

Given the holding structure of the plantations much of the extraordinary growth in profitability of listed companies in the period January to March 1998 was a consequence of a spectacular rise in plantation profits due to exceptional tea prices. These profits impacted on not just the plantations but also their holding companies.

For example the profits of Lankem consolidate those of its subsidiary Kotagala. Lankem is itself a subsidiary of EB Creasy which is a subsidiary of Colombo Fort Land and an associate company of Central Finance. Thus in this case the profits earned from one plantation flow through to the earnings of four other listed corporates.

Another plantation, Kelani Valley Plantations is held by Dipped Products which itself is an associate company of Richard Pieris and Hayleys. Richard Pieris itself is now an associate of Asia Capital. Even corporates, which would not normally called diversified conglomerates, have exposure to the plantations through recent investments made in the sector.

For example investment in Horana plantations by Lanka Walltiles is consolidated in the accounts of both Lanka Walltiles and its parent company Lanka Ceramics. These were companies that were previously exposed to just the ceramics tile sector. Furthermore in the case of holding companies it is not just their share of earnings, which is reflected in their books, but also the revenue from the lucrative management fees they receive.

Apart from these holding structures, which have allowed for the repeated consolidation of one set of earnings there was a boost to financial sector profitability through the listing and the stock price appreciation of the listed plantation companies.

In particular the National Development Bank and the Merchant Bank of Sri Lanka had a boost to their equity portfolios following appreciation in values of shares which had devolved to them at par following the failure of the initial plantation IPO's. Financing of the plantations sector has been a significant part of new credit given out by the banking industry.

Brokerage on the privatisation and active trading in plantation shares following their IPO's, was a factor in propping up revenues of stock brokering companies some whose parents are listed on the stock exchange. With increased prices and turnover levels broker profitability has been boosted with the earnings of three prominent brokers been consolidated in the accounts of Vanik, John Keells, and Asia Capital.

A recent research report on the local equity market by ABN AMRO Sri Lanka research which recommended a buy on the Plantations sector provided a sensitivity analysis for the various plantations, which illustrates this potential earnings volatility. For instance their 1998 net profit forecast for Watawala plantations of 269.2 million rupees is based on a 4% increase in yield and a 135 rupees per kilogram net sales average on Tea Sales.

However if the actual realised Net Sales average drops by 12 rupees or 8.88% expected profits would fall of 36.4%to 171.1 million rupees. In the case of Kelani Valley plantation a profit forecast of 274.5 million has been based on a 5% growth in yields with a 145 net sales average. However a 13.8% drop in tea Prices reduces the forecast profit by 51%. On the upside if realised tea prices rose 6.9% from the 145 assumed to 155 the forecasted profit would rise 25%.

Prices in the first three months of the year especially of high and medium grown teas reached record levels with the high grown average reaching 155.64 per kilogram compared to 98.18 in the corresponding period of last year. In the second quarter it fell to 131.38 rupees. The July monthly average has fallen to 104.91.

Low grown teas however have held steady with an average of 145 in the first quarter and second quarters increasing to 148 in July. Most listed plantations companies are exposed primarily to the high and medium grown sectors as the low grown sector is dominated by small holders. The rubber market has also weakened further in the period with East Asian producers benefiting from their nations currency devaluation.

The July ABN AMRO research on the sector said that the fall in tea prices to be a seasonal occurrence with increased quantities produced in the high cropping seasons of May, June and July being generally of lower quality thus resulting in the easing off of tea prices. Their expectation was that past trends should reassert itself this year leading to a rebound in high grown tea prices and therefore were bullish on the plantations sector.

However the economic crisis and devaluation in Russia a critical market for our low grown teas have caused a renewed source of concern regarding our markets. The penetration of Sri Lankan teas to the Russian market was partially based on the extension of high level of credit given by the exporter. The trade in Russia is dependent on the unorganised sector, which are not controlled by normal business rules and practisces acceptable in the modern world.

These factors serve to heighten the potential volatility of the tea market. Another recent development with consequences for the sector is the hike from 1% to 8% in the excise duty on branded teas. As branded teas account for over 40% of the Indian market this proposal has the potential of reducing the expected growth in internal Indian demand for tea and increasing their exported quanta.

Meanwhile the wage increase granted to plantation workers has substantially pushed up the cost of production. . For instance Mr Sunil Mendis, Chairman of Kelani Valley plantations in his statement to shareholders quantified the impact of the settlement at a hundred million rupees.

CTC Tea imports hit industry here?

Local CTC Tea manufacturers who claim to be hard hit by imported products flooding the market have called for urgent restrictions on such imports in order to save the industry.

As a result of a surge in cheap imported CTC teas over the last three months, CTC tea manufacturers who constitute seven percent of the country's tea industry have been severely hit, with many forced to shut down, said CTC Tea Manufacturers, Association Chairman, Ratna Gamage.

CTC teas, which entail the Cut-Tear-Curl process resulting in smaller tea particles than orthodox teas, are used for instant tea products such as tea bags which have a large export market.

CTC teas amounting to 2.4 m Kgs were imported into the country from January - July this year while a total of 4.8 million kgs were imported last year.

According to Mr. Gamage, ten companies have had to temporarily shut down while many others have suffered serious losses.

He claimed that Crystal Leaf (Pvt) Ltd of which he is Chairman had suffered losses amounting to Rs. 2 million in June and Rs. 8 million in July.

Another company Harrington, had suffered a loss of Rs. 4 million in June and Rs. 5 million in July.

He alleged that CTC teas are being presently imported into the country at extremely low prices from Kenya, India, Indonesia, Malawi, Rwanda, Tanzania, Vietnam and China by companies such as Unilever Ceylon and Akbar Brothers.

He clamied that a leading multinational tea producer had imported as much as 50, 000 kgs of CTC tea last month at a cost of Rs. 80 per kilo.

He attributed the drop in prices to a glut of CTC teas in the world market.

For instance, he noted that there existed a surplus of 40 million kgs of Kenyan CTC tea out of which a sizeable quantity is being imported into Sri Lanka at a low price. As a result, the average price of local CTC teas has dropped drastically from Rs. 186 to Rs. 107 within the short period of two months from June to July.

Mr. Gamage said that the current local requirement for exports was 20 million kgs per annum and that the local CTC industry could well meet the need if called upon to do so. He suggests that in order to overcome the crisis, the Sri Lanka Tea Board, as the governing body of the local tea industry, should take prompt action to ban the importation of CTC tea, at least for a period of three months to bail them out of economic bankruptcy.

According to Tea Board Chairman, Clifford Ratwatte, the import of Kenyan CTC teas and Darjeeling teas had been permitted ever since the late 1980s.

He said that such imports have been permitted to exporters for blending purposes so as to reduce their overall production costs.

People's Bank to set up 2000 Smart Cash terminals

By Amanthi Jayasuriya

People's Bank is to set up around 2000 terminals by the year end at all leading supermarkets and Sathosa outlets throughout the country for the recently launched Smart Cash card.

The bank says over 5000 terminals will be installed in 1999,for this new money product.

The bank has already implemented Smart Cash access points/ Merchant and Smart Cash reloading stations islandwide.

Initially 500 stations will be installed throughout the country, while users will be able to enjoy the benefits of over 5000 merchants/ retail outlets for Smart cash.

The Smart Card in essence is a tiny integrated circuit or microprocessor embedded in a credit card sized piece of plastic equipped with the Smart Card technology that permits both the storing and processing of a vast amount of information as well as the ability to provide solutions to multiple applications.

E-money allows "off line " authorization facilities and demand minimal infrastructure facilities to operate.

" This innovative Smart Cash product will help the bank to improve its current levels of service, be a boon to those operating in hazardous and security tight areas, whilst greatly reducing on the considerable amount of money that is currently being spent on the actual printing of currency notes" Chairman, People's Bank, Dr. Gamini Fernando, said at the launch last week.

Organisations can pay their employees wages from their offices simply through a small terminal without the risk of transporting large amounts of cash from the bank to their offices, similarly employees will be able to collect their wages into a more safe electronic account that can reside in their purse or handbag, he added.

Even though the project is implemented on a phased basis culminating in an islandwide coverage over a period of six months, infrastructure to use Smart Cash will be set and completed within a short period.

"Smart Cash users will have the benefits of reloading electronic money straight from their accounts by calling over at any of the reloading stations instantly", said President Veri Fone Inc ,South East Asia, Giri Khatod.

Veri Fone Inc, a world leader in Electronic Commerce Solutions and Products will be providing the technology for the Smart Cash programme.

"The card reduces the usage , circulation and transportation of currency thereby reducing risks, costs and hassle of handling cash.

Convenience, Flexibility, Settlement of utility payments from any terminal, tamper proof and no unauthorised usage are amongst many features of the card," said CEO Veri Fone Inc, Sri Lanka, Nayan Dehigama.

Merchants have the benefit to access large customer bases across different categories while serving both Debit card and Credit card users through Smart Cash.

Wijayasuriya's philosophy of prudent management

By Priyantha Gamage

Milestones

Full name:  Shridhir Sariputta Hans Wijayasuriya
Date of Birth :  2nd April, 1968
Education:  S. Thomas' College Mount Lavinia
Academic Qualifications:
Degree of Doctor of Philosophy (Ph.D) by the faculty of Electrical and Electronic Engineering, University of Bristol, U.K in 1994.
Bachelors Degree in Electronic Engineering B.A. (Hons) Cantab Class II Div I, (MA Cantab-1994) from University of Cambridge, UK in 1989
Currently pursuing MBA studies by distance learning at University of Warwick.
Working Experience :
1989-91- Information Systems Representative, IBMSri Lanka
1993-94- Teaching Assistant, University of Bristol
1994 onwards- Joined MTN Networks as Deputy Technical Director
Promoted to General Manager Engineering in 1996.
Appointed CEO of the company in September 1997.
Positions of Responsibility:
o  Vice Chairman,  
GSM Asia- Pacific Group
o  Hall tutor at Goldney Hall, University of Bristol, U.K.
o  Teaching Assistant Dept. Of Electrical & Electronic Engineering, University of Bristol
o  Member of Panel of Referees Electronics Letters, International publication of the Institute of Electri cal Engineers of U.K.
o  Member, Advisory-Committee, Telecommunications Regulatory Commission of Sri Lanka.
oMember, Sri Lanka Delegation, SAARC Regional Telecommunication Ministers conference 1998.

Q. Dr. Wijayasuriya, what exactly attracted you to the Telecommunication (Engineering) field? Were your parents into that or what?

A. No, not at all. My father is an accountant by profession. So, definitely nothing to do with them. I think Telecommunications always interested me. I was always interested in Math's and therefore, the choice of Engineering.

Even during my stay at IBM, I felt more attracted to telecommunications than to the computer field. So I made a change.

But the experience I got there as a Marketer has helped me to switch from Engineering Management to General Management.

Q. With the entrance of Cell phones and also loop-less telephones there was almost a revolution in the local Telecommunications Industry with the country ranking somewhere in No.1 or 2 in the entire Asian-region with regard to the growth in the area. And I think all this happened all of a sudden. I mean everything could be traced back to two years so what do you think about this phenomenal growth?

A. You are correct. The liberalisation played a major role here. When a country opens its doors its service industries thrive. At the beginning there was a great influx of investments and influx of multi-nationals coming-in.

But what is of concern is whether projects are evaluated, whether statistics that are collected or the impressions given etc. are fully representative of business in this country. That is the concern.

Now we have witnessed growth in Indonesia, Thailand etc. You can see what happened to those countries. So, I am a bit skeptical. Not that I am trying to take anything away from the growth, but I think the national measure also has to be employed by individual companies - not to get carried away and not to ride on the wave of success but to critically evaluate whether their success is real.

Whether you are getting a return on investment in real terms. Because, I am not generalising but if you were to do a survey on telecom companies, and if they are asked the question'are you getting adequate returns on investments', the answer is probably not as rosy as you would expect.

These individual companies go on investing upto a point and then they start cutting back. Investments anyway in Sri Lanka are smaller compared to what these companies have made in other countries.

You know, I am not trying to take anything away from the growth.

You said that there's a phenomenal growth and I am just being the devils advocate and giving the other side.

It's true that there's a phenomenal growth and we are enjoying the highest growth.

But you have to be prudent.

Q. You mean the individual companies?

A. Yes, individual companies. Well, after all nobody can turn around and blame politicians. Because we are not children. Investors are not children. We make independent decisions.

Q. Could you explain how your own company has exercised this 'prudency'?

A. Our company, GSM Dialog's management philosophy during the last 2-3 years was of prudently taking strictly financial decisions. At the end of the day that is what would determine whether you succeed or not or whether you survive. And we work very closely with our bottom-lines.

So, as far the telecommunication industry in Sri Lanka is concerned, the liberalisation by this government was a big thing. Because there are opportunities. The Regulatory Commission is now far more empowered with very wide horizons.

It's like a jigsaw, I mean the cellular operators, wire-less local loop, SLT and infrastructure providers form a matrix of service providers who if put together in the correct degree can beat the economy as a whole. For instance, duplication of investment should be avoided. More co-ordination has to go into that. For example, in Sri Lanka we don't have a good Official Fibre Network.

Because of that there are many services which cannot be provided. For instance cable TV. If there was such a network the local call- charges will be reduced to almost zero like in Singapore. Because there will be so much of extra-capacity.

And then there are other services. Then Duct -routes simply to do ducting on routes. For example, if there was a comprehensive ductroute in Colombo then not only Telecom but power, cable TV and all of them could have shared this level of infrastructure. Now what happens is Telecom digs the roads one day and then the CEB will the next day. You know, this is where planning of infrastructure development is important. I would much rather lease these facilities from somebody else than building them on my own as a cellular organisation.

So the industry at the moment is very vertically integrated. Every Cellular-operator has to build his own tower and then install his cellular equipment. If you look at our fixed asset base almost 30%- 40%- is non-cellular items.

Nothing to do with what we are in to. No GSM equipment. It's either building towers, or buildings, equipment, electricity generation these are not our goals.

I am just trying to point-out the difference between a developed telecom industry and one such as ours.

The number will grow but you must also grow fundamentally. Industry also must get more sophisticated in the way it operates. If you operate in the same inefficient manner and grow some day you'll realise that your growth is not real.

Q.You just mentioned that to see whether a company is successful you must ask the question as to whether you are making a sufficient return on your investment. If - I were to ask the same question from you, as a company what would be your answer?

A. We are performing very well. We are only three years old. So there were certain problems at the beginning. But now we are okay. So I'd say we are on target. Actually we are ahead of target.

And I would put that down to prudent policy. So much so that our investors have gone investing. Even last year they put in US $ 10 million. You know they have the continued commitment to invest.

That shows that as a company we are on target. But definitely there is a lot of growth and we have taken a major share off the industry.

The policies of the government are very supportive where telecommunication is concerned. Because competition has been encouraged and everybody benefits through that.

And the more lines that are issued the number of calls circulating keeps going-up. And that brings out revenues to all of us. So this closed philosophy that was used earlier would never have worked. We are on the right path.

All I am saying is that a little caution, may be a little guidance from authorities on how prudent - certain investments are, would be very helpful. That's all I am saying. Just a word of caution on growth. And no way am I saying that growth is bad.

Q. You said that the success of Dialog GSM could be put down to prudent management philosophy. Could you elaborate ?

A. I think if we go back to our beginnings there were a lot of mistakes in the beginning by us, the company. Market expectations far exceeded what we could deliver.

Market requirements were not fully understood when the company was launched. But the important thing is that the company corrected itself very quickly. And in the case of a infrastructure company it's not easy to change course. It's like a big ship.

That shows the strength of our management and the strength of the parent company also. Very early to detect, change course, re-invest and push the company forward. That worked perfectly. I mean in 1997 we had 450% growth.

When I say prudent management philosophy, I must say it's prudent financial management. We have been working within our Budgets and not wasting. You'd have noticed that during the first two years our presence in the media was fairly low. Even now - it is lower than that of our competitors.

According to our plan that's what we want to do and that's what we have achieved without wasting. Our idea is to channel it back to benefit the subscribers. We don't think twice about new services to our products, even not so profitable ones.

Last year we went to Tangalle, Embilipitiya , Hambantota and Kataragama - A few days ago we launched our web-site where in Sri Lanka for the first time customers pay their Telecom bills on the Internet.

And your - calls for yesterday you can see on the Internet today. So these are not profit geared services. They are services to the customers. Maybe they give us a competitive advantage. But more so we do it to add value. Because at Dialog 'Customer comes first'.

So by being prudent two people benefit, the customers as well as the network. Our investor is what we call a genuine investor."It's a big player in the region. And being a telecommunication company itself its intentions here are genuinely to have a strong telecommunication network in Sri Lanka.

Q. Who's your Investor?

A. Telekom Malaysia.

It's 100% owned by Telekom Malaysia. They have eleven (11) other subsidiaries also.

Q. How is it doing?

A. Very well. It's one of the main players in the Malaysian Stock Exchange. It is I would say, the biggest in South-East Asia, capitalisation wise. It's a strong corporate to belong to.

Q. You mean to say Telekom Malaysia is the biggest Cellular-operator or..?

A. No. Land-lines. It's like the Sri Lanka Telecom. It's Telekom, Malaysia.

Q. Is it bigger than NTT?

A. Not as big as NTT. In South-East Asia it's the biggest. It's bigger than Singapore Telecom.

Q. What's it's investment in Sri Lanka like?

A. Currently it's about US $ 43 million.

Q. Do you have any plans to invest more?

A. Yes. We are planning to be very aggressive to continue investing. We match demand. We are hoping to bring the latest in services whether or not it's profitable. Because we have our co-service, the voice then we'll add on all the extra services to satisfy customers.

I am sure our customers prefer to use a new service rather than see our advertisement everyday in posters and banners. That's my thinking. The word of mouth tends to reward more than by way of advertisements.

Q. Are you at liberty to disclose your Advertising budget?

A. No

Q. Can you tell me a bit more about your company, its growth, market positioning etc.?

A. MTN Networks (Pvt) Ltd. was incorporated in 1993 as a BOI venture. It operates the only digital cellular network in Sri Lanka. Dialog commenced commercial operations in April 1995. In the first year we had less than 1200 subscribers. Like I said the beginnings were shaky.

Year 1996, the second year was the consolidation year where we took a few steps back in re-engineering just to maintain our subtle presence in the market. Zini Deman came in May 1996 and he actually was responsible for the revival of Dialog.

Because of him my task is easier.

He turned Dialog- around. So between May 1996 and middle of 1997 it was a very slow climb. We added only about 5000-6000 subscribers.

But the company's positioning took a 180 degree turn positively between the latter part of 97 and now we have developed from 7000-8000 subscribers to 30,000.

So our market share is between 23% and 24% now among the Cellular-operators. We have overtaken Call link We are now No.3 in the market but fast catching-up. Our aim is to be No.1 by the year 2000.

Q. Don't you think the number of Telecom operators including Cellular, land and loopless is too many, for a country as small as Sri Lanka?

A. Yes. This is coming back to what I mentioned earlier. We are still in that honeymoon stage of the industry where investors continue to invest despite below the average returns.

That's the honeymoon period. So the consumer doesn't feel the impact of the liberalisation. Then there will come a time when suddenly one investor saying 'enough is enough' and starts cutting back. Then what happens is that the consumer starves. The first sign would be the consumers starving because there will always be a gap because they start reducing the quality of their service since they are not getting enough money back.

It's obvious I mean if you invest in a project and then when you find that you are not getting enough you keep-away.

When companies themselves are not making enough money that starts getting passed down to the consumer by way of bad service. We hope we don't come to that stage.

So this concept of too many operators is very relative and it has to be defined according to whether the companies themselves are profitable or according to time.

Take Malaysia as an example where there were 8 Cellular operators. Now there are only 5. There were several and some merged. That's market re-structuring. It will collapse to around 4 eventually. But in the meantime what happens is a lot of money is wasted and the subscribers suffer.

Five years ago if you asked is there enough room in Malaysia you'd have said 'yes'. Because there was so much demand.

But when you say 'room' demand is not the only factor. It's profitability in operation. In Sri Lanka there's enough demand.

Q. I don't know whether this is true or not. But some say that Sri Lanka is the only country where incoming calls are charged. Is that true?

A. It's not the only country. Even in America incoming calls are charged. That comes from a charging principle for example, in Europe incoming calls are free. But when you take a call from a fixed telephone to a mobile it's charged at a premium rate. And a part of that premium is passed back to the operator to pay for his incoming calls.

So it's just that the other person pays. It's called the 'Calling party premium'.

And Cellular-operators in Sri Lanka are lobbying for this scheme whereby the caller will pay a premium to contact a cellular whereas a cellular user pays only for his outgoing-calls. That's how it works.

Q. But that has not been implemented yet?

A. Not yet.

Q. What's causing the delay?

A. Well, there are a lot of larger issues involved. Because now there are so many associations and so many players. Earlier it was a simple arrangement between Sri Lanka Telecom and the Cellular-operators.

Now wireless loop operator is the third factor in the play. But I am optimistic that things will be better soon.

Q. How ahead is Dialog service-wise above other operators?

A. Dialog commenced operations with a 20 base station network, with coverage in the Greater Colombo area and a pilot service in Kandy city. Its coverage has since been stretched to leading cities such as Nuwara-Eliya, Ratnapura, Kurunegala, Matara and more recently to Tangalle, Hambantota, Kataragama and Embilipitiya. Puttalam is expected to be added to the network within the next few weeks.

With subscriber growth fuelling the requirement for further expansion of capacity, coverage and state of the art GSM Services, Telecom Malaysia invested a further US $10 million in 1997 and pledged an additional US $ 5.5 million for expansion activities in 1998.

MTN moved its operations to its new Headquarters in March 1998 becoming the first cellular operator to set up operations in its own premises. The new premises provide a greatly enhanced customer service facility including state of the art complaint handling and resolution mechanisms.

MTN Networks through its pioneering venture has made several state of the art mobile telecommunication services available to Sri Lankans. Mobile data and fax services supporting 9, 600 bps were pioneered during 1997, allowing mobile subscribers to surf the Internet, access e-mail services and other data applications while on the move.

Calling Line Identification and other advanced supplementary services were added to the network during 97. Yet another milestone was reached in August 97 with the introduction of the Automatic International - Roaming- the first network in South-Asia to offer the service. Today MTN offers Automatic International Roaming to over 30 countries with roaming partnerships established with 53 operators.

With the continuous expansion and upgrading of the network, the GSM short-messaging will be introduced shortly, allowing bi-directional messaging.

The upgrade of the Dialog Web site to include a fully comprehensive web front end to the customer service function and the pioneering service of allowing subscribers to view billing information, send short messages and access network information on the Internet are first of many web based services provided by Dialog.

Q. Anything specific you want to add, Dr. Wijayasuriya?

A. Yes. Dialog has been able to achieve these heights through the dedication of its 200 member staff. I would not have reached anything on my own if not for their hard work and support.

I have only brought together the energies. They stuck with the company through thick and thin.

More Business * Enough tiles to pave road from Fort to Wadduwa * Metropolitan marks 40 and wants to go public * Industrial relations forum * Seminar on Managing Employees for better results * Give your employees a life * Ceylinco pays up Rs. 110m claim * LG's PN system refrigerators * Hemas brings health and help to forlorn village * SLIC chief for convention *

Business contents page