Dialog Axiata’s 4G-LTE to have little impact on parent’s earnings

Dialog Axiata’s 4G-LTE to have little impact on parent’s earnings
Business & Markets 2013
Written by Kamarul Anwar & Sofia Faisal of theedgemalaysia.com
Monday, 08 April 2013 09:52


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KUALA LUMPUR: Dialog Axiata plc, targeting to become Sri Lanka’s first provider of 4G-LTE services, is not expected to make a major impact to parent Axiata Bhd’s income within the next few years.

In an email interview, the Axiata group said it does not expect a widespread subscription of its 4G-LTE service immediately. “But certainly in the medium term, as demand for data grows and the affordability of LTE handsets and devices improve.”

Axiata sees a positive trend among Sri Lankans who are becoming more “data-hungry” today.

“Dialog saw data growth of 50% in 2012, albeit on a small base. We hope our data services will show sustained traction,” said the telco giant.

Local telecommunications analysts said while winning the 10MHz spectrum of 4G-LTE is good for Dialog, it will not have a material impact on Axiata .

“In developing countries like Sri Lanka, [mobile Internet] data consumption is very small,” said a bank-backed analyst, a comment which an Axiata official agreed with.

Despite increasing appetite for Internet data and a dominating market share of 55%, Dialog still makes a smaller net profit compared with its sister companies, Celcom Axiata Bhd and XL Axiata Tbk.

In its 2012 financial year ended Dec 31 (FY12), XL made net profit of RM144.43 million on revenue of RM1.37 billion. Celcom, Axiata’s biggest earner, raked in net profit of RM1.87 billion on the back of RM7.69 billion in revenue for the same period.

While Dialog’s mobile 4G-LTE service may not become a cash cow in the short term, Axiata said deploying the latest mobile telephony TECHNOLOGY [] will not be a major financial issue.

“Dialog already has a modernised network which requires minimal capital expenditure to update for 4G services,” said the group.

Also, Dialog’s winning bid of 3.2 billion Sri Lanka rupees (RM77.11 million) for the 10MHz block on the 1.8GHz spectrum would not bring a huge dent to its coffers.

In a note, TA Securities said that as at the end of last year, Dialog had a cash pile of 8.65 billion Sri Lanka rupees. “Therefore, the company may comfortably fund this new spectrum asset via its balance sheet without the need to raise equity,” said TA Securities.

When asked if Dialog would be content with acquiring 10MHz of spectrum and whether it had plans to buy more, Axiata said: “As of now, Dialog can deploy 4G-LTE services on the acquired spectrum.”

TA said in its note the lower frequency band on the 1.8GHz spectrum allows for wider coverage compared to higher frequency bands, such as the 2.6GHz spectrum.

However, a note from Hong Leong Investment Bank said the offered 4G-LTE service would not be a significant advantage in terms of speed over its existing 3G/HSPA+ service.

“Hence, we doubt Dialog’s ability in commanding price premium [from its 4G-LTE service] over the existing 3G and expect no significant Arpu (average revenue per user) uplift at this juncture.”



This article first appeared in The Edge Financial Daily, on April 8, 2013.