updated as of AUGUST, 2012 Dialog Telekom PLC COMPANY BACKGROUND Dialog Telekom PLC is Sri Lanka’s leading mobile telecommunications company is 83% owned by Axiata Group Berhad, the leading tele- service provider with approximately 6.3 million subscribers and a communications company in Malaysia, and 17% owned by indepen- market share of around 49% in 2009. dent shareholders. It is listed on the Colombo Stock Exchange. In 1993, Dialog was awarded a 20-year license to provide cellular telecommunications services by the government of Sri Lanka. The DIALOG’S INCLUSIVE BUSINESS MODEL In its expansion plans, Dialog has undertaken South Asia’s first “qua- To facilitate business training and access to financing for the retailers in its druple play” strategy, offering mobile telephony, fixed wireless tele- network, Dialog has worked with IFC on a capacity-building project called phony, broadband internet, and satellite-based pay television services. Dialog Viyapara Diriya (DVD) that leverages a local language version of Quadruple play is an important element in reaching underserved remote IFC’s SME Toolkit. So far 1,835 retailers have participated in the program. populations with wireless services, as it helps lower costs by leveraging Through this project, Dialog and IFC provide these retailers with training synergies across all four product offerings. on business skills such as business planning and tax compliance. These Another important element in reaching underserved populations is sessions improve retailers’ ability not only to manage and sell Dialog Dialog’s distribution network. Dialog has 32 primary distributors that products but also to operate their primary businesses—grocery stores, work exclusively for the company servicing and supervising indepen- communications kiosks, and other enterprises—a facility that has helped dent retailers. Close to 40,000 retailers spread throughout all provinces Dialog draw and maintain loyal retailers even while the Sri Lankan mobile of Sri Lanka currently stock Dialog products. These include phone cards sector has become increasingly competitive. This strong distribution and SMS-based reloads in which a user purchases airtime electronically network has provided a backbone for the company’s efforts to expand through a retailer. These retailers keep margins of 5–7% on the Dialog further into rural markets and connect lower-income consumers. products they sell. In addition to business skills training, the DVD project aims to build loyalty The typical Dialog retailer owns or operates a primary business and sells and grow retailers’ business by facilitating access to financing. For internal Dialog airtime as an additional source of income. Approximately 60% purposes, Dialog categorizes its retailers into three categories: Category of these retailers run small grocery stores and 40% run shops that sell a A are super-grade dealers with monthly sales of Dialog products greater range of communications products and services such as telephones and than $500; Category B are average-size groceries that sell between $250 Internet access. On average, these shops are open 13 hours per day and and $500 each month; and Category C are microenterprises that sell less have 1.8 employees: 95% are sole proprietorships, 50% have been oper- than $250 each month. The DVD training helps retailers graduate into ating for fewer than five years, and 15% are not formally registered, and higher categories.While the company does not provide or facilitate credit 81% of them have not had any formal business training. for retailers, this system is laying the foundation by tracking and grading retailer performance over time, showing the company—and prospective- Because these are independent retailers without exclusive arrangements ly banks—which ones are likely to be good credit risks. with Dialog, the company must compete with other mobile network operators for shelf space for its products. In part this is done by offer- Dialog is now coordinating with IFC to train a total of 5,000 retailers ing competitive margins on the Dialog products they sell. However, the by the end of 2010, including retailers in the post-conflict northern and company has also found that helping to facilitate business training and eastern regions of the country. access to financing helps to build a loyal retail network—the key to pro- moting its brand and expanding its business. 16 Inclusive Business Models — Guide to the Inclusive Business Models in IFC’s Portfolio CASE STUDY Dialog Telekom PLC DRIVERS FOR DIALOG’S INCLUSIVE BUSINESS MODEL •• Growth and brand awareness, including in lower-income, more remote regions •• To maintain market share and competitiveness as the Sri Lankan mobile market expands •• As part of achieving these objectives, to build a loyal, high-quality retail network In 2007, Dialog’s primary business area of program of expansion with the provision of mobile telephony was growing at 27%, a rela- coverage and affordable service options as key tively low level when compared to the rest of drivers. By 2009, penetration reached 66% and Asia. In addition, growth was concentrated in the market was growing at an annual rate of wealthier urban regions of the country. Dialog 40%. With the corresponding entry of new identified the need to connect the uncon- players into the market, Dialog identified the nected—to extend the benefits of connectivity need for a strong and loyal distribution and and communication to underserved rural seg- retail network offering economies of scale. ments—and thus embarked on an aggressive IFC’S ROLE AND VALUE-ADD As the Sri Lankan mobile market grew, Dialog needed large-scale, long-term financing to expand RESULTS OF DIALOG’S INCLUSIVE BUSINESS MODEL and remain competitive as well as technical assis- •• 6.3 million subscribers, an increase of 3 million since 2007 tance to strengthen its retail network. •• 32% compound annual growth rate In this context, IFC provided $50 million in long- •• 49% market share term debt financing (which the company prepaid in •• $16.3 million in sales income for retailers selling airtime in 2009, approximately $408 early 2009) and $15 million in equity to finance the per retailer company’s overall expansion and quadruple play •• 1,835 retailers trained strategy. IFC’s involvement also reassured other Since its expansion in 2007, Dialog has ac- Dialog’s inclusive business model is not only lenders and helped Dialog mobilize additional fi- quired more than 3 million new subscribers expanding access to telecommunications but nancing. This was important given that Dialog’s at a compound annual growth rate of 32%, also expanding economic opportunity for the expansion efforts are amongst the largest-ever in reaching a 50% market share. Leveraging its micro- and small-scale retailers that sell its Sri Lanka and involve communication and media quadruple play strategy to reduce prices, Dialog products. During 2006, Dialog’s retailers earned business models that are new to local lenders. has remained the leader in the competitive Sri $16.3 million selling airtime. This translates IFC has also been involved in providing technical Lankan telecommunications market and has to an average income of $408 per retailer. assistance to strengthen Dialog’s retail network been able to expand its reach into previously Capacity-building efforts, which have reached through the DVD project, delivering SME Toolkit- underserved groups, tapping into significant 1,835 retailers so far, are expected to help them based training to improve their skills and business unmet demand. Increased telecommunications increase their incomes even further. performance. A project of IFC, the SME Toolkit penetration is typically associated with GDP offers free business management information and growth and poverty reduction. It is estimated, training for SMEs on accounting and finance, busi- for instance, that a 10% increase in mobile ness planning, human resources, marketing and phone density leads to a 0.6% increase in per sales, operations, and information technology. capita GDP.1 In collaboration with Dialog, IFC has been able to tailor SME Toolkit materials to the Sri Lankan context. IFC’s Investment: $50 million in long-term debt financing and $15 million in equity 1 Waverman, Leonard, Meloria Meschi, and Melvyn Fuss. 2005. “The Impact of Telecoms on Economic Growth in Developing Countries.” Vodafone Policy Services. Inclusive Business Models — Guide to the Inclusive Business Models in IFC’s Portfolio 17