Telecommunications

The Company

Dialog Axiata (Dialog), a subsidiary of Axiata Group was incorporated in 1993 and subsequently converted to a public limited liability company in 2005, listing its ordinary shares on the Colombo Stock Exchange (CSE). Dialog Axiata currently holds the market leadership position in Sri Lanka’s mobile telecoms sector, which contributes to over 85% of its revenue, along with a market presence in the fixed telecoms and digital television operations through its fully-owned subsidiaries Dialog Broadband Networks (DBN) and Dialog Television (DTV). It is one of the largest listed companies on the CSE both in terms of market capitalisation, which amounts to LKR 92bn ($662.4m), and foreign direct investment (FDI), which currently totals $1.96bn.

Dialog’s mobile telecoms business operates on a 2.5G, 3G, 3.5G and 4G communications network that supports the latest in multimedia and mobile internet. It is also the first service provider in South Asia to launch mobile 4G FD LTE services. With a customer base of over 10.1m, Dialog provides mobile coverage through over 2600 base stations, while customers are also linked to over 200 global destinations via international roaming, including 3G services.

In 2014 Dialog’s mobile telecoms operations recorded an earnings before interest, taxes, depreciation and amortisation (EBITDA) margin of 32% year-on-year (y-o-y) growth, on the back of the SBU’s revenue growth and cost management initiatives. The segment recorded an 11% compound annual growth rate (CAGR) in revenues from 2011-14, while operating profits grew by 7% over the same period.

DBN, which contributes to about 8% of Dialog’s revenue, serves residential and enterprise customers with voice, broadband, leased lines and customised telecoms services. It was the first telecoms operator in Sri Lanka to launch 4G LTE high- speed broadband services. DBN also provides radio and optical-fibre-based transmission infrastructure facilities. DBN recorded an EBITDA margin of 25% y-o-y for 2014, mainly driven by the segment’s revenue growth, which recorded a CAGR of 45% from 2011-14.

DTV operates a direct-to-home digital satellite TV service. With a viewer base in Sri Lanka exceeding 300,000 households, DTV has secured its position as market leader in the country’s pay TV sector, contributing to 7% of Axiata Group’s revenue. DTV supports a range of international and local content in both standard definition and high definition formats. For 2014 DTV was able to achieve an EBITDA margin of 18% on the back of strong subscriber growth of 36% y-o-y. The segmental revenue CAGR from 2011-14 was 26%, while the operating profit CAGR was as high as 120%. As of the end of the second quarter of 2015, the group exhibited a low gearing, recording a net-debt-to-EBITDA ratio of 0.71 and positive free cash flow of LKR1.88bn ($13.5m).

Development Strategy

In line with its mission, Dialog aims to adhere to its planned strategic investments going forward, supporting future growth. The company’s investments are mainly directed towards securing a leading position in Sri Lanka’s high-speed broadband services segment. Accordingly, the investments are focused on mobile and fixed telecoms sectors, including the build out of 3G and 4G LTE networks, the expansion of a high-speed fibre-optic network on a nationwide basis, and the establishment of robust international optical fibre connectivity to the global internet via the Bay of Bengal Gateway (BBG) submarine cable project. The BBG project will enhance high-speed broadband operations through the provision of a channel to the global internet, with capacity and speed matching the growing demand for broadband services. Dialog’s investment in the project will produce the single-largest infusion of international bandwidth to Sri Lanka, linking it to high-capacity internet hubs in Singapore and India and to submarine cable pipes to Europe and the US.