Despite tariff hit, SLT posts Rs. 2.5 b 1H profit

Despite taking a hit from tariff reduction, Sri Lanka Telecom (SLT) during the first half of this year has made an after tax company profit of Rs. 2.5 billion.

The telecom giant made this profit, after reversing an estimated amount of Rs. 875 million from its revenue considering the tariff reduction, in relation to the settlement of the Supreme Court appeal regarding the tariff revision implemented in 2003.
However, the group profit has increased by 10% to Rs.2.54 billion, compared to Rs.2.3 billion profits in the 1st half of 2006 as Mobitel has turned around and International and Data oriented revenues have improved.

Commenting on the proposed tariff reduction SLT Chief Executive Officer Shoji Takahashi said: “There will be a short term impact on our revenue and profits from the tariff reduction. However we believe that in the competitive environment the reduced tariff will stimulate demand and this will help to mitigate the impact on revenue. The new time based tariff structure will give consumers a benefit, and thus encourage greater usage. SLT has confidence on its revenue growth despite the tariff reduction.”

Revenue
During the first six month the group has recorded total revenue of Rs. 20.7 billion. This is a 6% growth compared to the same period of the previous year.
Due to the provision made against the possible tariff reduction the domestic revenue has dropped by 3%. The CDMA new connections given during the 1st half 2007 has reduced when compared with the same period in the previous year and also the reduction in CDMA new connection charge has contributed for the revenue from CDMA new connections to decrease by 29%.

CDMA City link Operations
During the 1st half, 95,000 CDMA new connections have been given and the customer base reached to around 380,000. A more competitive CDMA new connection charge of Rs. 12,000/- (including VAT) was introduced in May 2007. This has resulted in an increase in demand for SLT City Link service. During the 2nd half, more connections will be given taking the advantage of reduced connection charge and the proposed tariff reduction.

Judgment given on the tariff revision implemented in 2003
An organisation styling itself “Consumers Association of Sri Lanka” initiated legal action in the Court of Appeal seeking a writ of Certiorari to quash the approval granted by the Minister of Telecommunications and the Telecommunication Regulatory Commission (TRC) of Sri Lanka for the tariff revision implemented by SLT in September 2003, in which the TRC, the Minister, the Secretary to the Treasury and SLT were cited as the respondents to the case.
The Court of Appeal by its judgment delivered in July 2005 granted the writ of Certiorari quashing the approval granted for the tariff revision by the Minister and the TRC. SLT filed its application seeking special leave to appeal to the Supreme Court, which was granted on 07 November 2005 and presently the case is pending in the Supreme Court.
The last hearing of the case was held on 09 July 2007 and as part of a negotiated settlement, the time based tariff reduction effective from 01.01.07 is being discussed. With the intervention of the court the parties have agreed to a reduction in domestic tariff. Pending the final court decision a provision is made in 2nd quarter financial statements for Rs. 875 million, against the possible credit to be given to the customers up to June 2007.

International Telecommunication Operators Levy
SLT continued to recognise the expense of International Telecommunication operators Levy (ITL), based on the international incoming traffic. International gateway operators are liable to pay US$ 0.38 for each international traffic minute, incoming through the gateway as ITL. 2/3 of this levy is claimable back, if the operator has invested in un-served and under served areas (as defined in law) for telecommunications developments.

SLT has paid to TRC 1/3 of the ITL liability effective from March 2003 as the company is entitled to claim back 2/3 of the levy, since investments are made for telecommunication developments in un-served and under served areas. Documentary evidence supporting the developments made by SLT in those areas are already submitted to TRC claiming the 2/3 rebate. Full value of ITL is charged to the profits. However, the estimated rebate of Rs. 4 billion as at 30 June 2007 has not been recognised in the income statements, since TRC determination of the rebate is yet awaited.

BOI approval
The Board of Investment of Sri – Lanka (BOI) has principally agreed to grant BOI approval under section 17 of BOI law, allowing SLT to import / purchase locally project related capital goods and telecommunications equipments on duty free basis.
However, the signing of the agreement in this regard has been delayed pending the promulgation of regulations by BOI for the granting of the concession to SLT.
Consequent to the duty concession capital expenditure of the company will be reduced in the future as most of the materials used by SLT are imported.

Broad Band and IP-TV Operations:
Recently SLT was awarded the license to operate IP-TV in Sri – Lanka. This service will be an additional feature to its broadband service. In May 2007 SLT introduced a usage based package for its ADSL customers. This package allows the customers to manage their bill economically. By the end of June 2007 ADSL customer base was close to 40,000.

Earnings per Share (EPS)
SLT has recorded an annualized group EPS of Rs.2.81. This is an increase of 10% compared to previous year.