Fitch says number portability unlikely to have material impact on Dialog’s subscriber base

• Says smaller providers cannot provide same coverage and quality without significant investment
• Cautions voice and data consumption may weaken, if operating conditions worsen amid faster inflation and falling incomes
• Says Dialog may also look at foreign-currency lines to fund capex if sourcing foreign currency locally becomes challenging

Fitch Ratings yesterday said number portability, which is expected to be introduced in 2022, is unlikely to have a material impact on Dialog Axiata PLC, the market leader across mobile, pay-TV and home broadband segments in the country. 

“We do not expect number portability in mobile and fixed-line services, expected to be introduced in 2022, to have a material impact on Dialog’s subscriber base as smaller operators cannot provide the same coverage and quality without significant investment,” Fitch Ratings said affirming Dialog Axiata’s rating at ‘AAA(lka)’, with a Stable outlook. 

“We believe Dialog will continue to gain revenue market share from smaller telcos, given its better execution and mobile network,” it added. 
Number portability facility will enable customers to retain their telephone numbers while changing from one service provider to another. The Telecommunications Regulatory Commission of Sri Lanka (TRCSL) in October last year said it had received legal approval to implement number portability. 

Meanwhile, Fitch expects Dialog’s 2022 revenue to rise by about 11-12 percent on continued demand for data and strong subscriber growth in pay-TV and home broadband. Dialog’s revenue rose 18 percent in 2021, despite a sluggish economy, due to strong subscriber growth across all platforms and improving average revenue per user. 
However, the rating agency said voice and data consumption may weaken if operating conditions worsen amid faster inflation and falling incomes. It also said Dialog may find it hard to pass on a recently introduced 2.5 percent social security tax or other cost increases without affecting volume.

Meanwhile, Fitch expects Dialog’s 2022 cash capex/revenue to be around 25 percent (2021: 24 percent, including spillover capex from 2020), spent mainly on 4G capacity, coverage expansion and fibre roll-out to address the increasing demand for data and broadband connectivity. 

“However, we expect Dialog’s cash flow from operations to adequately cover the substantial capex planned and its dividend payout, likely to be 50 percent to 60 percent of net income. We expect this to lead to a free cash flow (FCF) margin of around 2 percent to 3 percent in the next few years,” the rating agency said.
However, Fitch warned that Dialog’s ability to meet its capex plans in a timely manner could be at risk, if the country’s external finances weaken further, increasing import restrictions. 

“Dialog is able to mitigate this risk with the help of its foreign-currency inflows and deposits and its ability to source its requirements with the support of its parent. The company may also look at foreign-currency lines to fund capex, if sourcing foreign currency locally becomes challenging,” the rating agency said.