Financial Times

Distilleries diversifies into telecom with Lanka Bell buy
The acquisition of Lanka Bell by Distilleries Company of Sri Lanka (DCSL) controlled by tycoon Harry Jayawardena is part of the strategy to diversify into rapidly growing areas of the economy.

DCSL announced that its subsidiary Milford Holdings Ltd. signed a Share Purchase Agreement with a consortium of shareholders who together own 76 percent of private fixed telecom operator Lanka Bell.

The stake belongs to Singapore's Trans Asia Telecom, and two other Singapore-based firms. Damien Fernando, finance manager of DCSL, said the company would extend the offer to other Lanka Bell shareholders as well and that it estimates the entire 100 percent stake would cost around $ 21 million.

"There's a lot of growth potential in telecommunications," Fernando said. "Our group is known for unrelated diversification - we've gone from industry to industry and proved that unrelated diversification works." Fernando said the acquisition of Lanka Bell allows the Distilleries group to move in to a newer, more modern sector of the economy, in contrast to the traditional banking, produce and shipping sectors.

"We see power generation and telecom as the modern growth sectors. This is an area where we see very big potential in Sri Lanka as the telephone penetration levels do not reflect the true picture of the market."

He pointed out that while many homes in Colombo sometimes have several phones in rural areas a phone is still a luxury. "With the introduction of CDMA technology to Sri Lanka by Lanka Bell, the commissioning and maintenance costs are likely to come down and make phones affordable for more people - so there's growth potential."

Lanka Bell last month signed a Rs. 4 billion equipment supply contract with China's Huawei Technologies Co., Ltd for the supply of CDMA wireless local loop telephone network system and fixed wireless terminals, in a venture to take telecommunications to rural Sri Lanka.

CDMA or code division multiple access is a cellular technology characterized by high capacity and small cell radius, employing spread-spectrum technology and a special coding scheme. Lanka Bell now has 52,000 subscribers and plans to go up to 300,000 lines in three years. Its competitors are Sri Lanka Telecom with some 750,000 lines and Suntel with over 110,000 lines.

Stock market fund managers said the entry of the Distilleries group into telecommunications could prove very profitable as it was one of the fastest growing areas of the economy. "Distilleries is now considered a group and this deal must be part of their strategy to diversify into telecommunications," a fund manager said.

"Telecoms is a growth sector and offers many opportunities with newer technologies. Sri Lanka is trying to become a hub for telecommunications."

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