Govt. answers Dialog-Airtel merger call disconnecting SLT-Mobitel

Monday, 29 January 2024 01:29 -     - {{hitsCtrl.values.hits}}

President Ranil Wickremesinghe

Reyaz Mihular

  • President summons SLT Non-Executive Chairman Reyaz Mihular and CEO; requests withdrawal of case involving TRCSL against proposed merger between first and third mobile telecom players
  • Mihular informs he cannot and up to the Board and withdrawal against future interests of SLT-Mobitel and submits resignation thereafter
  • On President’s directive, Secretary Saman Ekanayake sends to Treasury Secretary six names as new Govt. nominees on SLT Board with immediate effect
  • Good governance activists cry foul
  • SLT-Mobitel insiders say partly state controlled teleco not against Dialog-Airtel merger but demand Airtel must surrender spectrum allocation to TRC and latter reallocating same amongst all existing operators according to law
  • Presidential interference could undermine global investor interest on sale of Govt.’s 50.23% stake in SLT
  • Company yet to disclose latest developments to CSE

State controlled Sri Lanka Telecom-Mobitel has suffered a fresh blow with its Board up for reconstitution after the latter’s refusal to withdraw the case against proposed merger between industry leader Dialog Axiata and Airtel.

Mid-last year, Mobitel initiated legal action against Telecommunication Regulatory Commission (TRC) and Dialog, Airtel among others stating that proposed merger and action to combine spectrum allocations and/or permit the combination of spectrum of Dialog and Airtel without surrendering the spectrum enabling TRC to reallocate it among the existing operators according to law.

Mobitel is of the view that failure by TRC would be illegal, wrongful, unlawful, arbitrary, unreasonable and capricious etc. 

The litigation was viewed as controversial as state control telco was challenging the regulator thereby the Government. However, Mobitel is of the view that it has a strong case and action was in the larger interest of the industry, shareholders and customers.

With SLT-Mobitel not budging and thereby delaying the Dialog-Airtel merger, a visibly annoyed President Ranil Wickremesinghe on 24 January summoned the SLT’s Non-Executive Chairman Reyaz Mihular and CEO Janaka R. Abeysinghe and requested for the withdrawal of the legal action. 

However, Mihular, the top professional from the private sector and appointed as Chairman in July last year, had said he can’t decide but it was a Board decision on the future interest of the company and based on good counsel and will convey President’s request formally to the Board. Same meeting it was implied by the officials that if needed SLT Board can be reconstituted to which Mihular had said as major shareholder it was the prerogative of the Government.

Soon after the meeting, Mihular tendered his resignation. Concurrently or prior to it or afterwards, Secretary to the President Saman Ekanayake wrote to the Treasury Secretary with a list of names to be appointed as Directors of SLT. They are K.D.D.D. Arandara (Chairman), Dr. K.A.S. Keeragala, Dinesh Vidanapathirana, Prof. K.M. Liyanage, Dr. D.M.I.S. Dassanayake and Mr.Chathura Mohottigedara.

Good governance analysts expressed shock over the Presidential request to withdraw litigation irrespective of Treasury holding controlling interest. They also questioned whether due process was followed in reconstituting the SLT Board when the latter has a separate Board-level Nominations Committee. The Colombo Stock Exchange hasn’t been notified about the latest development by the company or whether existing local directors have resigned to pave the way for newcomers. 

Existing local directors are former Chairman Rohan Fernando, Lalith Seneviratne, Mohan Weerakoon PC, Ranjith Rubasinghe, and K.A. Vimalenthirarajah (Treasury representative). Global Telecommunications Holdings NV/Malaysia’s Maxis holds 45% stake and has four nominees on the SLT Board.

Telecom industry analysts and engineers concerns

Merging entities Dialog and Airtel altogether have 215 MHz total spectrum ownership which amounts to 52% of spectrum allocated in the mobile industry, whereas Mobitel has only 105 MHz amounting to 26%. Dialog and Airtel also have a combined revenue share of 67%.

Telecom industry analysts said the spectrum determines the product superiority which directly determines the competitiveness in the market. They argued that proposed merger will grant Dialog an overnight subscriber growth, and due to the amalgamation of the technology, effective utilisation of assets of the two entities, subsequent to the merger, Dialog will be able to provide predatory pricing in the market, thereby, resulting in a situation of driving the other operators out of market. This will put an end to the market competitiveness, and the end result would seriously affect the general public driving the market prices to an exorbitant level. Further, in time to come service quality will deteriorate due to lack of competitive products.

SLT’s Telecommunication Engineers Union (TEU) has alleged the unethical behaviour of Dialog complimented by the lack of fair play of TRCSL is one of the main hindrances to the progression of Sri Lanka’s Telecommunication industry and this has severely affected the economic growth of the country. 

TEU strongly believes TRCSL should carry out its responsibilities as the true regulator to make sure; any supplier dominance will be avoided so that a single supplier would not restrain and marginalise other operators creating a monopoly by Dialog. If this merger happens, TEU flagged off the dominant spectrum, customer and revenue share of the merged entity and in a three mobile operator market, this would be clearly discriminatingly disadvantageous to other two: Mobitel and Hutch. TEU also stressed that resources in the industry will be shared effectively so that the communication cost will be minimised to boost the Sri Lankan economy.

TEU expects the TRCSL would understand its responsibilities to effectively balance these two factors, so that cost of communication will be favourable for the economic growth of the country.

TEU is of the view that without going for any settlement to the litigation matter regarding the merger of Dialog and Airtel, the Government and TRC must first ensure that the Radio Access Network (RAN) sharing be approved and other disadvantageous agreements during the settlement of litigation in 2020 should be studied and corrective measures should be taken to compliment the progression of the industry.

Possible impact on SLT sale 

Industry analysts opined that the latest fiasco would dampen global investor confidence. The Request for Qualification for the controlling stake of SLT has received three responses – India’s Jio, China’s Gortune International Investment Holding Ltd., c/o Capital Alliance Ltd. and Portugal based Pettigo Comercio International LDA., c/o NDB Investment Bank Ltd.

Interest by Jio on SLT has been welcomed though the fact that only three responses to RfQ has been termed disappointing. Entry of Jio also coincides with some allegations that the Sri Lankan Government was under pressure from India to request for withdrawal of Mobitel litigation against the merger between its Airtel and Dialog Axiata. Recently, Malaysia’s Axiata exited Nepal following thorough evaluation of the business environment and its own operations.

For SLT-Mobitel, winning the litigation is critical for its future survival. The SLT Group’s financial performance in Q3 was significantly impacted by a steep decline in profitability of its subsidiary, Mobitel. Group EBITDA decreased by 13.7% compared to the corresponding quarter the previous year, primarily due to decrease in Mobitel EBITDA. The drop in revenue and increase in opex, have led Mobitel EBITDA to decrease during Q3. Accordingly, Group operating profit also dropped by 81% during the quarter. Group PAT decreased by 208% mainly due to operating loss in Mobitel and increase in finance cost of SLT PLC.