LIRNEasia » profit

Profits and investment

Rohan Samarajiva — Fri, 11 Feb 2011 08:27:10 +0000

In most countries in the early stages of liberalization, I get asked about the profits operators make and how they should be monitored. I tend to say that the priority should be on monitoring investments (not committed, but actually made) and that it’s not a bad idea for the regulator to have some knowledge about profits. The reason I give priority to investment is because that is what drives performance. If investment declines, the regulator can expect problems. Profits are relevant for two reasons: first, if they are below the norm (more on this below), investments will most likely be affected negatively. If they are well above the norm, it is an indicator that the market is short of competition.

This above/below the norm assessment is a tough one for the regulator to do on a regular basis. One should not draw conclusions directly from the raw number. While the LKR 1.275 billion profit made by Dialog Axiata does seem like a large amount of money, it must be first seen in relation to the size of its capitalization (Dialog was a one point the largest in the Colombo Stock Exchange), and then in relation to the returns on investment in similar companies. The former is quite simple; but the latter requires a bit of specialized knowledge, not normally available with regulatory agencies and government ministries.

Anyway, the profit picture seems okay on the surface, because Sri Lanka’s largest mobile operator is investing again.

Sri Lanka’s Dialog Axiata, the islands largest mobile operator said it will invest 150 million US dollars in expansion bringing the total foreign direct investments by the firm to 1.2 billion US dollars.

Dialog Axiata chief Hans Wijayasuriya said the new investments in part will to go strengthen its broadband and fiber optics network coverage.

“We will focus a lot of it in broadband, mobile broadband as well as fiber optics,” Wijayasuriya said.

“We want to make our products available seamlessly across the country.”

The firm started in 1994 and now has 7 million subscribers in a market which had over 15 million subscribers.

Sri Lanka telecom FDI: Is this the high point?

Rohan Samarajiva — Tue, 26 Aug 2008 13:51:26 +0000

Meeting the traget of a billion dollars of FDI in 2008 seems to rest on foreign investment continuing at a high rate in telecom. After all, in the first half of the year, telecom brought in USD 291 million, out of a total of USD 425. However, the increasing hostility to the sector driven by the JHU plus the decline in people’s buying power pulled down profits last quarter. The largest mobile operator, Dialog, stated that its capital expenditures for the coming year will be cut by about 25 percent at an investment briefing recently.

One cannot draw conclusions from one quarter, but do not be surprised if the first half of 2008 turns out to be the high point of investment in the sector.

Poor economy and taxes begin to bite in Sri Lanka

Rohan Samarajiva — Wed, 20 Aug 2008 11:10:37 +0000

Hutch, a pure BOP play that was making very good profits, has reported declining profits and revenue growth. One quarter does not a trend make. But seen together with Dialog’s bad results for the last quarter, it suggests things are not looking good for the telecom sector which is taking multiple hits with tripled spectrum charges, revenue-raising taxes in the name of the environment and all sorts of additional costs imposed in the name of national security.

If the government keeps taking JHU advice, they are likely to make the economy slow to a crawl.