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  Competitive State-of-the-Art Customer Focused
 

SLT’s Business Strategy has focused on meeting and beating the competition that has been created by deregulation and liberalisation.

Sri Lanka was the first country in the South Asian region to commence deregulating its telecommunications industry. It now has one of the most liberal regulatory environments in the region. In 2003 the country took another step towards liberalisation when 32 new gateway operators were licensed. Despite the entry of other operators SLT continues to retain its competitive and leading edge. Its financial performance over the past few years is testimony to this.

The Leading and Dominant Provider

SLT continues to lead the field in the telecommunications industry in this country. Approximately 88% of the 900,000 odd fixed line subscribers in this country were using SLT at the end of 2003. Since the Company wasprivatised in 1997 SLT has added around 500,000 new direct exchange lines (DELs).

Over the past six years we have invested Rs. 52.25 billion in infrastructure and network development. By completely acquiring Mobitel, we are now the only operator to offer integrated fixed and mobile services. Mobitel’s conversion to GSM now makes it competitive with other mobile operators. With the progressive introduction of value added services we anticipate that Mobitel will soon be able to set new standards for mobile telephony in this country.

The next step for SLT, would be to consolidate the Company's stable financial base by repaying loans,maintaining a good gearing ratio and a revenue assured tariff structure. At the end of the day, we need make SLT a gilt edged investment for our shareholders.

Generating New Sources of Revenue
The cornerstone of our strategy over the short to medium term will be to diversify and generate new sources of revenue. Our core business has previously been fixed voice telephony. However, the demands of competition generated by deregulation mean that we can no longer rely exclusively on this to generate our main revenue. We need to diversify the sources of revenue to maintain our competitive edge. Strategic investments have included investments in mobile telephony, nonvoice sector, micro links with a Indian operator and the Telecom City project. SLT is spreading its wings into the non-voice sector by providing IP based services such as SLT Broadband, IPVPN and Internet Data Centres through its fibre optic infrastructure. The Wireless Local Loop (WLL) technology is another area Company is looking at in terms of investments.

Realising the Revenue Potential of Mobile Telephony
The future expansion and development of Mobitel will be an important part of SLT strategy for the next phase. Over the next few years SLT will focus on transforming Mobitel into a state-of-the-art mobile operator and will actively seek to increase its customer base. According to Central Bank statistics there are close to 1.3 million mobile customers in the country. This compares with the slightly over 900,000 fixed line customers. SLT is aware that the mobile market exhibits huge potential, the surface of which has barely been scratched. We see ourselves as beginning to capture more of this market as we begin to integrate more features and products in the area of mobile telephony.

Becoming a Regional Player

Whilst maintaining a healthy and strong relationship with SLT’s longstanding Indian business partner Videsh Sanchar Nigam Limited (VSNL) SLT took a few strategic moves by forging close business relationships with three other major Indian operators in view of becoming a regional player.

In 2002 SLT signed an agreement with Bharti Telesonic of India, a leading mobile operator in India in a bid to strengthen traffic between the two countries. Interconnection will be provided through SEA-ME-WE III and Network i2i in Singapore.

We established links with a major Indian mobile telephone operator, Reliance Infocom. These links will be facilitated with interconnections via SEA-ME-WE III and Flag Cable.

In a bid to enhance our global connectivity we re-commissioned the microwave link between India and Sri Lanka in partnership with Bharat Sanchar Nigam Limited (BSNL).

BSNL is the seventh largest telecommunications company in the world and has a customer base of 43 million. The link will facilitate traffic between the two countries and make Sri Lanka a hub in South Asia for international traffic. As a result of the link SLT will be able to offer attractive rates for Indian telecommunications traffic generated by BSNL. In addition to better rates the link will provide better quality and bigger bandwidth.

Next generation terabit optical fibre submarine cable, SEA-ME-WE 4 project is on course and is expected to be commissioned in 2005, which would immensely enhance SLT’s potential and capabilities as a regional player.

Rightsizing and Enhancing Productivity
In 2003, a comprehensive VRS package introduced last year was part of SLT’s restructuring plans to improve productivity and create better efficiencies within the organisation. The scheme will help the Company to rightsize and to re-engineer its work force based on actual demand. Enhancing productivity and maintaining quality can strengthen employee relationships and provide a more prosperous future for both the Company and the country. The employees were educated of the scheme through a series of awareness programmes. 1,116 employees, which accounts for 13.5% of the staff, took advantage of this voluntary scheme. Outgoing employees obtained a package of between Rs. 150,000/- and Rs. 1, 100,000/- under this scheme.

The average age of the staff, which was 43 years before the VRS, has plummeted enabling SLT to keep the right blend of the age of its staff. The right blend and higher skill levels of staff are absolute necessities in an era where the Company is facing stiff competition from other providers.

 

International telecom industry standards recommend a high ratio of Direct Exchange Lines (DEL) per employee. As a result of the VRS, the DEL per employee ratio increased by 15%: moving to 115, from 38 in 1996.

The VRS package cost SLT Rs. 710 million. We hope to recover this sum in two years. Our Outside Plant Maintenance Centres (OPMCs) and other strategies such as outsourcing will help SLT bridge the gaps created by the VRS in the short term.

Next Generation Infrastructure

SLT will continue to invest to enhance its optical fibre capabilities in its transmission network which would provide the Company with a high level competitive edge. SLT’s transmission network is equipped with high capacity state of-the-art optical fibre technology including the 700 km Inter Province Optical Fibre Transmission Central Ring and the Colombo Ring. A 325 km Southern Ring will be implemented soon and subsequently the 564 km Northern Ring. A 583 km Eastern Ring too is in the pipeline.

Telecom City: One-Stop Shop, Better Connectivity, Fuller Bandwidth
Telecom City, launched in early 2004, is pioneering initiative that seeks to make the best use of communications and information technology. The primary function of Telecom City will be to provide a hub for state-of-the-art call centres. This it will do by providing better connectivity and enhanced bandwidth, to increase speed, reduce cost and boost efficiencies all round.

Telecom City will also support the Sri Lanka’s ICT initiatives by providing the necessary infrastructure, connectivity learning facilities and technology. The objective is to build an entire city dedicated to telecom and IT and the new technologies that both these provide. It will be a one stop shop for ICT and place Sri Lanka on the global map of connectivity and communications.

Telecom City will house a combination of IT and communicationbased entities such as call centres, data storage and back up services (disaster recovery), IT outsourcing services for research and training, and communication hubs. It will also provide an attractive location for vendors to set up sales and service centres.

Telecom City, to be developed on a 66 acre site, will be developed in three phases with the first phase focused on developing the infrastructure for state-of-the-art call centres. Sri Lanka’s human resource base, ‘unaccented’ English and learning capabilities make it a rich base for call centres.

The next two phases will encompass data storage, management services, communications hubs and vendor businesses supported by SLT’s technology infrastructure with its large capacity, bandwidth and security.

NTT continues to Add Value

Although the Management Agreement with NTT Communications Corporation of Japan ended in August 2002, NTT nominees continue to sit on the Board and provide strategic direction to the Company. Over the past seven years NTT has provided advice and expertise in a number of areas: network design, service platforms and information technology. It has also assisted in strengthening operating and financial reporting systems and controls.

Our partnership with NTT has converted the Company from lethargic state entity to a truly modern service provider, able to compete with the best in the world. From a top heavy and loosely focused organisation SLT has metamorphosed into customer driven, technologically innovative and lean entity. The partnership began in 1997 when NTT bought a 35% per stake in the Company. This was followed by a management agreement through which NTT agreed to provide management advice and training to SLT. The NTT’s stake was subsequently transferredto NTT Communications Corporation.

The proposed Lanka Bell Acquisition: Fixed Line Telephony at Lower Cost
In October 2003 SLT signed a due diligence agreement with Lanka Bell. The agreement will result in a comprehensive valuation of Lanka Bell as a prelude to a complete acquisition of the Company by SLT. As we have noted elsewhere in this report SLT is committed to providing fixed line telephones to Sri Lankans scattered all over the country, including in the most remote areas. However, the competition generated by deregulation means that we should be able to provide a cost effective connection.

Wireless technology such as that used by Lanka Bell is one option. It is to explore the use of wireless technology as a cost effective option that SLT proposes to acquire Lanka Bell and to ensure that it will continue to dominate the fixed line telephony market. Not only is wireless technology cost effective, it also permits speedy installation. We hope that both these features will give ensure that SLT retains its competitive edge.

   
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