Financial Times

Dialog going thro’ tough times but says this is cyclical


Dialog says it sympathises with shareholders who find the stock has fallen to Rs 7-8 per share whereas it was Rs 11-12 some months back, having reached a high of Rs 29 at one point.
Dialog Telekom PLC’s Group CEO, Dr Hans Wijayasuriya attributed many reasons for the share price fall including global dynamics, the local stockmarket inhibited by interest rates where fixed income securities are far more attractive to share investors.

“On the other hand if you look at the actual movement of the share, volumes are extremely thin. So what you see is that its not an intrinsic value of the share that you see in the market but a value propelled by very small parcels changing hands by retail investors who are moving to fixed income securities. That does not mean the intrinsic value of the share is any different to the business plan and the business projection of that reflected by the business projection,” the Dialog CEO, recently appointed to oversee Telekom Malaysia’s overseas operations in addition to his current Sri Lankan position, said in an interview.

Dialog is however going through difficult times with a sharp difference in profits now and last year but its CEO says this is a long-term industry in terms of investment, competition and upsides and downsides. “This is not a short term investment. In that sense strategic investors, institutional investors stick through – as they see this as a cycle and on the longer run the company will deliver the value it has promised to shareholders,” he added.

The company sees healthy growth in second half (of the current financial year) revenues but also notes that below the revenue line there is an inflationary impact on costs. “The company needs to maintain very large infrastructure. We operate over 1200 towers and therefore we are exposed to various forms of energy costs and inflationary.

There has been cost escalation here and also in terms of borrowings” he said adding that the company plans to bring down costs in general administration by 20 % though this won’t reduce network costs which is the biggest spender due to maintainance of large infrastructure.

The company is still building its new lines of business – broadband, ADSL and TV – and these would take 3-4 years to show results. The mobile business is delivering growth but increasing competition in addition to economic issues is impacting on the industry; nevertheless this is a short term problem.
He denied reports that Dialog has been cutting staff saying the company’s human resource is its key strength. Dialog has 1,500 staff out of a total strength of 3,800 serving customers and investments in service segment will continue. He says there are other areas where cuts can be made like general operations, registration and even, marketing. “Marketing is a good cost but at times like this we could be cautious. However all this prudence is short term, not long term.”

He says while there has been a progressive reduction in tariffs over the years, it has been a 100-200 % drop in the last two years (due to the economic crisis and spending power of consumers). Asked about new player Airtel’s entry around next month, Dr Wijayasuriya believes competition is always good for the consumer and the industry hasn’t seen a new player for more than decade. “In that sense it’s timely that there is a new competitor,” he said adding that the economies of scale issue (which would enable lower rates) is a benefit that all players have at present.

The Dialog CEO said all the multinationals operating here have ‘scale’ on a global level in terms of procurement (infrastructure), etc. But he pointed out price should be driven by efficiency and not cross subsidy from one market to another.

“Why this is important is because you need to return to the concept of the long terms benefit where the consumer is only benefited if competition is healthy and there is sufficient investment. That’s where cost + regulation have to be incorporated in regulation laws in the case of a utility,” he said calling for the need for pricing and anti-predatory laws.

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