Price war pushes down revenues at Dialog; one-off costs cause LKR7.7 billion loss

14 Aug 2009

Sri Lanka’s largest cellco by subscribers, Dialog Telekom, has posted its results for the second quarter of 2009, showing that consolidated revenues fell by 4.6% year-on-year to LKR8.75 billion (USD76 million) due to tough price competition and a slow economy. The GSM operator, a subsidiary of Malaysia’s Axiata (formerly TM International), recorded a net loss of LKR7.67 billion in the three months to the end of June, compared to a quarterly net profit of LKR335 million a year before, as it said administrative costs in 2Q 2009 almost quadrupled to LKR9.1 billion from LKR2.3 billion a year ago, including a LKR6.0 billion one-off write-down of older network equipment. It was the company’s fourth straight quarterly loss, as it invests heavily in mobile, backbone, broadband internet and fixed-wireless infrastructure, and applies hefty discounts to mobile services to maintain its lead in the market. Dialog announced that on 12 August it launched services in Kilinochchi, Mullaitivu and four other towns in former war zones in Sri Lanka’s north, and plans to expand rapidly across other areas where fighting between government and rebel forces recently ceased. Dialog intends to roll out its 2G and 3G/3.5G mobile services, CDMA-based fixed line and WiMAX-based broadband services across the country’s Eastern and Northern provinces. Dialog’s core mobile revenues were LKR7.9 billion in April-June 2009, down from LKR8.3 billion a year earlier, although up from LKR7.7 billion quarter-on-quarter. The operator had 5.99 million cellular subscribers by mid-2009, up 25% from a year earlier and up 2% from the first quarter. Meanwhile, Dialog’s pay-TV service signed up around 136,000 subscribers by end-June, up 5% from the end of March.

Sri Lanka’s mobile price war has been fuelled by the arrival of Indian-owned Bharti Airtel which launched as the fifth operator at the beginning of this year, and announced last month it had signed up one million customers, attracted by offers such as free incoming calls. The GSM unit of incumbent fixed line operator, Mobitel, increased its subscriber base by 61% year-on-year to 2.99 million at end-June 2009, whilst Hong Kong-backed Hutchison Telecommunications Lanka appeared to be a victim of the price war, reporting that subscribers dropped to 536,000 by mid-2009 from 772,000 the previous quarter. Tigo Sri Lanka, owned by Luxembourg-based Millicom International Cellular (MIC), has not reported customer figures for 2Q as MIC is in the process of selling its Asian businesses; Tigo had 2.11 million subscribers as of end-March 2009.