Financial/operational shortcomings in SLT justify privatisation

The argument SLT should not be privatised, as it is profitable has become no longer valid with the State-owned telco suffering a loss of Rs. 3.92 billion for the financial year 2023. Many observers have pointed out that SLT is not performing to its true potential while it has again become inefficient as a result of returning to the Government’s operational control from the management of renowned Japanese telecom giant Nippon Telegraph & Telephone Corporation (NTT).

The performance of almost every State-owned commercial enterprise is below par. The Secretary to the Treasury owns 50.3% of the shares of SLT, which enables the Government to call the shots within the organisation. The enterprises, in which the Government owns a majority stake, endure various kinds of impediments, preventing them from functioning as true commercial establishments. Chief among them is the undue political influence stemming from the appointment of close relatives/friends of the ruling politicians to key decision-making positions, which SLT has been exposed to under successive Governments. During Sirisena’s presidency, his brother was made its Chairman while a nephew of Mahinda Rajapaksa served as an influential Director prior to 2015.

Despite the company incurring a loss for the previous financial year, its trade unions last December initiated industrial action, demanding a bonus. This would have been unthinkable in a private sector organisation and once again validates the notion oft-repeated by this column that SOEs only serve the interest of their rent-seeking employees at the peril of customers as well as the general public. It is reported that there are 21 trade unions within the telecom operator, causing serious obstacles to the effective functioning of the organisation. 

Although the market-leading mobile network serves almost 17.5 million subscribers with about 3,500 employees, SLT has around 8,000 employees to serve roughly 8.5 million subscribers through its mobile network – Mobitel. Alarmingly, the media revealed that Mobitel’s subscriber base declined by almost 1 million from June 2022 to June 2023, reflecting a grave indictment on the firm’s operations.

It could be gauged that a considerable number of employees had been recruited to the telecom operator subsequent to the exit of NTT, possibly as a vote-buying measure. The staff cadres in most SOEs are way above its actual requirement, creating adverse effects in terms of profitability and efficiency. When compared with its close competitor Dialog, SLT lags behind its rival with respect to profitability and management efficiency. According to a commentary published by Advocata Institute in late 2022, in terms of group results, Dialog’s Return-on Equity (ROE) in 2021 was 19.4% while the State firm’s corresponding figure was 12.9%. As per the said findings, even from 2018 to 2020, the Malaysian-owned company has achieved a superior ROE compared to the State telecom provider.

A number of protests were held by trade unions attached to SLT in the recent past against the planned move to divest the majority Government stake in the firm. SLT’s operational flaws demonstrate that SOEs cannot be reformed through half-hearted measures like listing in the stock exchange or granting management control for a specified time period. The two pre-qualified bidders to acquire the telecom firm are Jio Platforms Ltd. of India and Gortune International Investment Holdings, a Chinese venture capital firm. Out of the two, the Indian firm, which is a subsidiary of Reliance Industries in addition to being the holding company of the most populous nation’s largest mobile network operator, is more likely to succeed in gaining the majority stake.

The entry of a dynamic, private ownership may be resisted by the telecom operator’s low-level workers, who may be averse to a strong performance-driven working regime. Nevertheless, a change in the status-quo would be favoured by the telco’s aspirant, executive-grade employees who secured their employment based on merit. The divestment of the Government’s majority stake in SLT would serve the best interest of the economy, while benefitting the customers and hardworking employees of SLT.