Company: Dialog Axiata PLC

Brief Introduction

Dialog Axiata PLC is one of Sri Lanka's largest telecommunications service providers, and the country's largest
mobile network operator with 14.275 million subscribers which amounts to 44% of the Sri Lankan mobile market.
Dialog is a subsidiary of Axiata Group Berhad which owns 83.32% controlling stake of the company while the rest
is held by the public.
Dialog was Listed on the Colombo Stock Exchange in 2005 June As of February 2017 Dialog Axiata holds LKR 86.3
billion (US$573 million) in market capitalization and the 5th largest listed company in Sri Lanka by Market
Capitalization. In 2015 "Dialog" brand name was valued at LKR 28.6 billion (US$204 million) and as the 3rd most
valuable brand in the country by business magazine LMD in its annual study. In 2014 the company received the
highest "Platinum" rating in the country's Corporate Accountability Index for the 4th consecutive year.
Dialog operates on 2.5G, 3G, 3.5G and 4G LTE communications networks, and became the first operator to launch
commercial 3G and HSPA+ operations in South Asia when it rollout the network on 16 August 2006. In April 2013
Dialog Axiata launched its mobile 4G LTE services using 10Mhz of spectrum in 1800Mhz band becoming the first
operator to launch commercial FD-LTE network in South Asia, initially delivering peak data rates of 50 Mbit/s.
In addition to its core business of mobile telephony, the company operates a number of services including Dialog
TV, a Direct To Home Satellite TV service and Dialog Global which provides international telecommunication
services. Dialog Broadband offers fixed-line and broadband internet services, whilst Dialog Tele-Infrastructure is the
company’s national telco infrastructure arm.
Dialog was the first mobile operator to cover the Jaffna peninsula in Northern Sri Lanka within 90 days of
the ceasefire agreement in 2002 and again in 2009 was the first mobile operator to extend its GSM network to the
areas in the North and East Province where the war was fought, and presently has 80% market share in the region.
Dialog Axiata is an investor under the aegis of the Board of Investment of Sri Lanka and has invested over US $1.96
billion towards the development of telecommunications infrastructure, thus becoming the single largest contributor
to Sri Lankan foreign direct investment (FDI) to date. Dialog Axiata Group has cumulatively invested USD
2.5Bn as at 31st December 2018, delivering on its commitment to invest in technology to support
communities and society, and build a digitally inclusive Sri Lanka.” (Dialog, 2018)
Corporate Information

The Company Dialog Axiata PLC

Legal Form of the A private limited liability company incorporated on 27 August 1993
Company and subsequently converted to a public limited liability company on 26
May 2005.

Company PQ 38
Registration No.

Place of Colombo, Sri Lanka

Incorporation

Stock Exchange Ordinary shares of the Company listed on the Colombo Stock
Listing Exchange of Sri Lanka

Registered Office 475, Union Place,

Colombo 02.
Sri Lanka.
Tel: +94 77 7678700
Market Structure

Dialog Axiata PLC belongs to the oligopoly market structure. The Oligopoly market has the
following characteristics;

1. Interdependence:
The foremost characteristic of oligopoly is interdependence of the various firms in the decision
making.

This fact is recognized by all the firms in an oligopolistic industry. If a small number of sizeable firms
constitute an industry and one of these firms starts advertising campaign on a big scale or designs a
new model of the product which immediately captures the market, it will surely provoke countermoves
on the part of rival firms in the industry.

2. Advertising:
Under oligopoly a major policy change on the part of a firm is likely to have immediate effects on
other firms in the industry. Therefore, the rival firms remain all the time vigilant about the moves of
the firm which takes initiative and makes policy changes. Thus, advertising is a powerful instrument
in the hands of an oligopolist. A firm under oligopoly can start an aggressive advertising campaign
with the intention of capturing a large part of the market. Other firms in the industry will obviously
resist its defensive advertising.

Under perfect competition advertising is unnecessary while a monopolist may find some advertising
to be profitable when his product is new or when there exist many potential consumers who have never
tried his product earlier. But according to Prof. Baumol, “under oligopoly, advertising can become a
life-and-death matter where a firm which fails to keep up with the advertising budget of its competitors
may find its customers drifting off to rival products.”

3. Group Behavior:
In oligopoly, the most relevant aspect is the behavior of the group. There can be two firms in the group,
or three or five or even fifteen, but not a few hundred. Whatever the number, it is quite small so that
each firm knows that its actions will have some effect on other firms in the group. In contrast, under
perfect competition there are many firms each attempting to maximize its profits.

4. Competition:
This leads to another feature of the oligopolistic market, the presence of competition. Since under
oligopoly, there are a few sellers, a move by one seller immediately affects the rivals. So each seller is
always on the alert and keeps a close watch over the moves of its rivals in order to have a counter-
move. This is true competition, “True competition consists of the life of constant struggle, rival against
rival, whom one can only find under oligopoly.”
5. Barriers to Entry of Firms:
As there is keen competition in an oligopolistic industry, there are no barriers to entry into or exit from
it. However, in the long run, there are some types of barriers to entry which tend to restrain new firms
from entering the industry.

These may be:

(a) Economics of scale enjoyed by a few large firms;

(b) Control over essential and specialized inputs;

(c) High capital requirements due to plant costs, advertising costs, etc.

(d) Exclusive patents; and licenses; and

(e) The existence of unused capacity which makes the industry unattractive.

When entry is restricted or blocked by such natural and artificial barriers the oligopolistic industry can
earn long-run supernormal profits.

6. Lack of Uniformity:
Another feature of oligopoly market is the lack of uniformity in the size of firms. Firms differ
considerably in size. Some may be small, others very large. Such a situation is asymmetrical. This is
very common in the American economy. A symmetrical situation with firms of a uniform size is rare.

7. Existence of Price Rigidity:

In oligopoly situation, each firm must stick to its price. If any firm tries to reduce its price, the rival
firms will retaliate by a higher reduction in their prices. This will lead to a situation of price war which
benefits none. On the other hand, if any firm increases its price with a view to increase its profits; the
other rival firms will not follow the same. Hence, no firm would like to reduce the price or to increase
the price. The price rigidity will take place.

8. No Unique Pattern of Pricing Behavior:

The rivalry arising from interdependence among the oligopolists leads to two conflicting motives. Each
wants to remain independent and to get the maximum possible profit. Towards this end, they act and
react on the price-output movements of one another which are a continuous element of uncertainty.

On the other hand, again motivated by profit maximization each seller wishes to cooperate with his
rivals to reduce or eliminate the element of uncertainty. All rivals enter into tacit or formal agreement
about price-output changes.
It leads to a sort of monopoly within oligopoly. They may even recognize one seller as a leader at
whose initiative all the other sellers raise or lower the price. In this case, the individual seller’s demand
curve is a part of the industry demand curve, having the elasticity of the latter. Given these conflicting
attitudes, it is not possible to predict any unique pattern of pricing behavior in oligopoly markets.

9. Indeterminateness of Demand Curve:

In market structures other than oligopolistic, demand curve faced by a firm is determinate. The
interdependence of the oligopolists, however, makes it impossible to draw a demand curve for such
sellers except for the situations where the form of interdependence is well defined. In real business
operations, the demand curve remains indeterminate. Under oligopoly a firm can expect at least three
different reactions of the other sellers when it lowers its prices. (Economics Help, 2019)

Source: Economics Help, 2019

Analysis of the Company

The financial year 2018 was fraught with many challenges stemming from multiple fronts, including intense
competition, enforcement of regulatory changes and unfavorable macro environment conditions, which had a
negative impact on the telecommunications industry. Despite the multifaceted challenges, the Dialog Group
continued to consolidate its market leadership position as Sri Lanka’s premier connectivity provider while
delivering strong financial performance across all key performance indicators. Continuing its strong
performance trajectory, the Group delivered a consolidated revenue of Rs. 109.2Bn for FY 2018, a growth of
16% Year-on-Year (“YoY”), on the back of strong performance across all key business segments. (Dialog,
2018)