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CHAIRPERSON’S MESSAGE |
Dear Shareholders,
In the face of negatives like escalating costs and an inclement economic scenario, Sri Lanka Telecom kept to speed… new initiatives… new investments… it was not the time to look back. This is possible when you have right strategies… great capacities… astute leadership... formidable technologies…in such diversity lies our strength and resilience.
You have in your hands the Annual Report and Audited Accounts of your Company, Sri Lanka Telecom, for the
year 2008.
Through this message I would like to share with you the strategic direction that drives Sri Lanka Telecom’s enterprise within the context of local and global industry trends and environments, whilst also touching briefly upon the key developments and achievements of the year.
The year 2008 was a challenging one.
It was a year in which failures in leading financial markets of the world heralded imminent world economic recession.
Sri Lanka, with its imports-dependant economy, was already grappling with high international oil and commodity prices that prevailed in early 2008. Soaring price levels, high interest rates and lending restrictions also contributed to a generally difficult year for business.
Thus, your Company operated within a climate of turmoil, with high inflation rates, rising costs and a reducing tariff regime all creating pressure on our income and profitability. We had to resort to bold measures to withstand adversities and remain sustainable. If the economic challenges were not taxing enough, there were other challenges the sector had to endure in the form of increased spectrum fees, increases in mobile subscriber levy, regulation on mobile subscriber re-registration amongst others.
Challenge also arose from the very nature of the industry we are in. Fast paced and super-dynamic evolution and development continues to change the face of communications across the world. We are now further along the road than ever before, towards an era of com-media - a realm where technology and infrastructure now provide a single platform for all communications, data and entertainment needs. Challenge arises in keeping abreast of change; often pre-empting change. External factors such as local and global economies also exert challenge to enterprise.
Also, we had to manage the affairs of the Company without the services of a Chief Executive Officer and in this context, the positive results achieved, which I will discuss later in this message, stand as eloquent testimony to the commitment and loyal, unstinted support of the Board of Directors, all the chief officers and employees at all levels which was rendered to me as Chairperson to chart a profitable course during the year in review.
If we were to capture in one phrase, the attributes of your Company in pursuing success within such an environment, it would read, 'Strength and Resilience in Diversity'. Your Company counts over a century of service to the Nation, in the telecommunications sphere. Such longevity has built our enterprise into one of Sri Lanka’s largest business entities. It is Sri Lanka’s strongest player in the communications arena. Sagacity in administration and planning has also equipped Sri Lanka Telecom with a resilience and diversity not born of technology and products alone - ours is an enterprise embracing great diversity in terms of skill and professionalism, all of which have enabled us to truly convert challenge into opportunity.
Let me now lend some perspective to the achievements and progress of Sri Lanka Telecom, in respect of the year in review.
ECONOMIC AND INDUSTRY ENVIRONMENT
Sri Lanka’s economy grew by 6.6% during the first half of 2008. The Services sector, within which communications is a sub-sector, recorded a marginal deceleration from the previous financial year 6.7% during the first half of 2008 as against 6.8% in 2007 during the same period. However, the telecommunications sector maintained its high growth momentum, with overall growth rates in terms of subscribers standing at 42% for Fixed Access telephones, 39.6% for Cellular telephones and 48.7% for Internet and E-mail services during the first six months of 2008. Inflation stood at 25% over the same period.
The 'cumulative thrust' of all operators and service providers active in the market enabled them to achieve a market penetration of 51%. Of this total, Fixed Line penetration reached 13%, whilst Mobile penetration reached 38%.
From a developing country perspective, Fixed Line penetration is at an average of 16% and thus it can be seen that Sri Lanka is below this average. The global voice market also indicates high mobile growth, low fixed line growth and high voice traffic growth, whilst in the international voice market the traditional technology known as TDM (Time Division Multiplexing) is becoming dominant over the newer technology VoIP (Voice over Internet Protocol), with an approximate growth rate of 10%.
What is becoming increasingly apparent is that Broadband services are truly the future of communications across the globe. Trends show services such as IPTV growing at an extremely healthy rate worldwide.
STRATEGIES THAT ARE DRIVING OUR BUSINESS
Over the past decade, your Company tread strategically planned paths that kept it at the cutting edge of the industry. Thus we moved seamlessly across several phases -
from initial investment, to building required corporate management skills, strengthening structure, building image and becoming a technology leader espousing diversification. In 2008, the year under review, we focussed on fulfilling the role of a Global IP Solutions provider.
We see the way unfolding before us, over the coming years, where emphasis will shift from networks to markets. Customer centricity is key in the unfolding process where the developing market scenario displays all the signs of significant growth in the mobile and data domains, whilst the fixed line voice market will be stagnant.
Our fully owned subsidiary Mobitel carries strategy forward in terms of developing mobile telephony across the country. In growing its product/technology and service portfolios very significantly over the years, Mobitel is a key contributor to the holistic communications solution Sri Lanka Telecom is able to offer the market.
It is envisaged that Broadband services will dominate and play a highly significant role in delivering to the customer a ‘one time’ solution to a variety of needs spanning Voice, Data and Entertainment - all delivered on a single, triple play platform. Today, Sri Lanka Telecom is geared to enhance this further to a ‘quad play’ platform which will add Mobile Telephony to the existing triple play suite of products and services.
In its optimised deployment, broadband introduces far reaching ‘lifestyle changing’ opportunities to customers to enjoy multiple services from a single source. The day is here when one can enjoy Entertainment via the Internet, Telephony, including Mobile Telephony and use the same source to access e-mail, surf the web and use other computer applications. One can see a blurring of boundaries between home and office, which is also an indication of what future work and home lifestyles could become.
In the years ahead, Sri Lanka Telecom will seek to maintain its share of the voice market, lead the data market and grow the exciting new entertainment market.
In terms of strategic focus across the Sri Lanka Telecom Group, we have five key areas demarcated . They are – the strengthening and development of our Global Business sector, enhancing the Broadband product in the market, continuing to pursue Diversification, working towards a position of pre-eminence as Sri Lanka’s premier ICT Solutions Provider and further developing Customer Centricity across all areas of business.
Whilst Sri Lanka Telecom the Company is very much on track in this regard, these are strategic areas that will be pursued by the Group.
TAKING STRATEGIES FORWARD
In terms of Global Business, Sri Lanka Telecom is establishing a growing presence beyond Sri Lanka. A Point of Presence in Hong Kong is already established. More are planned for the future.. We are partners in several undersea cable projects such as SEA-ME-WE 3, SEA-ME-WE 4, Bharat-Lanka and Dhiraagu-Lanka, which allow us to fulfil the role of a Global IP Solutions provider.
In respect of these undersea cable projects, Sri Lanka Telecom has adopted a cautious approach when pursuing options available. The coming years will see the Company becoming more pro-active in pursuing strategically beneficial alliances with reputed third parties, thus better utilising the full potential these cable projects can yield.
Sri Lanka Telecom enjoys a dominant presence in the Broadband segment. However, as more service providers enter the market we envisage some erosion of market share to take place in the years ahead.
As the incumbent with an extensive and exclusive copper line network, it was natural that we launched our broadband services on this. Thereafter, we expanded our broadband offering with higher speeds over our fibre optic network. However, as acceleration of the pace of rolling out our broadband services to reach the hinterland of the country became our priority, we introduced broadband over the wireless technology known as WiMAX. We did so by acquiring the Company Sky Network (Pvt) Limited which is today a subsidiary of Sri Lanka Telecom becoming fully operational in the current year.
A key strategic objective for accomplishment within the next three years will be a complete transfer of services to our Next Generation Network (NGN). This is the future as regards the evolution of Sri Lanka Telecom’s core network. Instead of the current separate terminals, one requires to access Fixed Telephony, Mobile Telephony and Personal Computer/Personal Digital Cellular applications, NGN will enable a single source access to all these plus Entertainment such as TV.
With the launch of IPTV services this year, Sri Lanka Telecom has provided the market with a strong icon for its efforts at Diversification. Prospects look favourable.
IPTV is a huge step the industry has been able to take, underpinned by state-of-the-art networks and broadband technology, where the world of communications has converged with that of media, allowing communication and entertainment products on one platform. It has seen a quantum leap in customer freedom of choice, enabling Television services to be bundled with Internet, web access and Voice over Internet services. The possibilities such a product offers are limitless.
The potential of IPTV is such that Sri Lanka Telecom in the year under review, incorporated a fully owned subsidiary company, SLT VisionCom (Pvt) Limited, to exclusively manage the product.
Other subsidiary companies of SLT also play a significant role in moving our strategies forward.
SLT Manpower Solutions (Pvt) Limited was incorporated in the year under review and when fully operational, will handle total manpower requirements of Sri Lanka Telecom in the future whilst also expanding its offering into the external market.
The Directory publishing operation that was handled by our Directory Service Division was later developed and upgraded to a fully-fledged independent subsidiary entitled SLT Publications (Pvt) Limited This new entity will in addition to directory publishing, focus on a broader market segment by providing information, printing and publishing services.
Sri Lanka Telecom (Services) Limited is SLT’s pioneer subsidiary company which today specialises in providing ‘customer premises solutions’, including cabling, products/service packages such as ADSL, Internet, Voice and Data, Wireless LAN and ICT consultancy services.
Your Company is the leader in the provision of Data and
ICT Solutions.
The global renaissance that ICT has brought about has radically transcended parochial boundaries that had limited access to information, learning and business opportunities, to traditional methods. Today, the customer needs only to be connected to the worldwide web and an unimaginable world of learning and opportunity unfolds. This is particularly heartening for Sri Lanka Telecom as a Company to be privy to, as we are in the vanguard of the ICT revolution in Sri Lanka.
Our commitment to providing platforms for e-learning, e-commerce, e-government and e-health sees Sri Lanka Telecom supporting initiatives of the Government such as SchoolNet, LGN (Lanka Government Network), Nenasala Knowledge Centres as well as LEARN and NODES, two University oriented e-learning programmes.
Customer Centricity is a core facet of Sri Lanka Telecom. In reality, this is more a core personality trait of Sri Lanka Telecom today than a stratagem. We just listen more; and serve better.
Customer centricity is a key driver in our pursuit of new technologies, expanding networks and our growing portfolio of products.
Our strategic focus is evolving as we progress into the future - the shift in emphasis from networks to markets, which I have already mentioned, is in itself customer inspired.
Significant reorganisation was initiated throughout the Company, where people and other resources were better aligned to meet the new strategic direction of the organisation. The results of this will be seen in the
ensuing years.
2008 – BRIEFLY
Elsewhere in this report, you will find a more detailed analysis and review of your Company’s performance in 2008. I would however, like to touch upon some aspects of note.
It is pertinent to dwell briefly, on some of the issues that made the path of your Company a rocky one, during 2008.
With our erstwhile partner NTT expressing intent to sell their holdings in Sri Lanka Telecom, a protracted litigation ran its course over much of the year, which hampered this process of divestiture. This in turn, hampered the functioning of the Board of Directors, whilst NTT were also unable to contribute fully in the Company’s interests, over this period.
The impact of a ruling in another protracted court case concerning revision of our tariffs, to which I alluded in my message last year, impacted our business in the year under review. In the case referred to, the Company sought the setting aside of a judgement by the Court of Appeal, which had granted the annulment of an approval we had received from the Telecommunications Regulatory Commission for our tariffs implemented in September 2003.
The retrospective payback to customers, although welcomed by Sri Lanka Telecom as beneficial for Company and customer, impacted our bottom line fairly significantly.
I am happy to report that another issue on which we have been seeking resolution for some time now, has reached conclusion. I refer to the refund of International Telecommunications Levy (ITL) due to SLT. The Telecommunications Regulatory Commission (TRC) has acknowledged that, under the regulatory provisions governing this issue, Sri Lanka Telecom has provided
87,301 PSTN connections in un-served and under-served areas specified by TRC during the period 3 March 2003 to
31 December 2005 and has also acknowledged its agreement to set off Rs. 2,182,525,000/- in lieu of two-thirds of the relevant Telecommunications Development Charge (TDC), which was payable to the TRC by your Company. Accordingly, the Company transferred this amount to its income statement from the ITL payable account.
As regards rising costs, your Company embarked on its latest Voluntary Retirement Scheme which brought with it financial implications, which served to increase our HR costs.
Operations and Maintenance costs also rose consequent to the launch of an island-wide mobile maintenance service to all CDMA customers, which on the positive side, considerably increased service standards and lowered complaint rates.
This challenging environment did not dampen our spirited performance this year. Sri Lanka Telecom’s financial performance indicators remain robust. Group revenue grew by 9% to reach Rs. 47 billion. We were able to maintain a healthy Profit Before Tax of Rs. 9,560 million whilst Profits After Tax also grew by 31% to reach Rs. 7,367 million. Operating costs increased by 21%.
However, challenge also yields opportunity.
2008 had its high points for your Company. It was a year when we did not back down. We went ahead with significant investment in new initiatives such as IPTV and WiMAX the latter being ready for launch in 2009.
These are exciting new developments that hold great promise for the future well-being of your Company. In fact, they are expected to bear fruit in the coming year.
Our subsidiary Mobitel also enjoyed a year of great success. Whilst their key indicators reflect this success and are explained in greater detail within the chapter ‘Group Review’, it is pertinent to note that Mobitel’s operations contribute 23% to the overall revenue and 16% to overall profits of the Sri Lanka Telecom Group.
With more areas in the North and East of Sri Lanka emerging from and being secured from conflict, there is a need for developing the communication footprint in these areas. The market is lucrative but we will still be challenged to mount the service we desire, given the ground realities in those areas.
We continue to be a major contributor to the development of telecom infrastructure in the country and since privatisation in 1997 to date Sri Lanka Telecom has contributed Rs. 116.26 billion in this cause.
Your Company retains with pride its AAA (lka) domestic credit rating as reaffirmed by Fitch for the 4th consecutive year and its B+ international credit rating by S&P.
Subsequent to the sale by NTT Communications Corporation of Japan of their shares in Sri Lanka Telecom to M/s.Global Telecommunications Holdings N.V., M/s. GTH have a 44.98% shareholding in the Company.
I thank the Board of Directors and the Management too
for their unstinted efforts and co-operation in guiding
Sri Lanka Telecom to another year of good performance.
In an important post-balance sheet development, the Company appointed Mr. Greg Young as its new Chief Executive Officer. On behalf of you all, I would like to welcome Mr. Young to the Company and extend good wishes to him for a successful tenure with us in which we may look forward to his contribution in taking Sri Lanka Telecom to new heights.
The years ahead hold challenge and opportunity in equal measure and the Company looks forward eagerly to reap reward together with you.
May I, on behalf of Sri Lanka Telecom thank all our Stakeholders - we value your friendship and support over all these years - we look forward to nurturing and cherishing these relationships for many more years to come.
Leisha De Silva Chandrasena
Chairperson
17 February 2009 |
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