To be systematically recognised as the Prime Minister supplier of nomadic communicating services in Sri Lanka, through embrace, and stand outing in the convergence of Mobile and Internet Technologies, and by committed attachment to Customer driven, Responsive and Flexible concern procedures, and through the bringing of quality service and taking border engineering unparalleled by any other, spurred by an sceptered set of dedicated persons who are driven by an uncontrollable desire to work as one towards a common end in the truest sense of squad spirit

Corporate Valuess

aˆ?

A Total Commitment to our Customers

aˆ?

A Dynamic & A ; Human Centered Leadership

aˆ?

A Commitment to task & amp ; Team work

aˆ?

A Uncompromising unity

aˆ?

A Professionalism and answerability

aˆ?

A Foremost concern for regard & A ; attention

1.0A A A A A A Introduction

A

A

This study conducts an economic analysis on the company Dialog GSM- a major nomadic telecommunication service supplier in Sri Lanka.

Dialog GSM launched in March 1995, at this clip the nomadic telecommunications market was a duo-poly with Celltel Pvt. Ltd and

Hutchinson pvt. Ltd. Today there are four service suppliers which include Mobitel, Celltel, Hutch and Dialog, all suppliers are utilizing the GSM engineering system which is cheaper and convenient than the parallel system.

This study examines the demand and the supply of nomadic telecommunications, the market construction the industry is runing in- and how the economic conditions in the economic system affects Dialog GSM.

A

A

2.0A A A A A A A A Demand and supply of nomadic telecommunication endorsers.

A

A

The nomadic phone use has drastically increased in the past few old ages and a consequence as nomadic phones and nomadic telecommunications service are complimentary goods, the demand for nomadic telecommunications service has excessively drastically increased. The nomadic phone use has increased by 54 % in 2003 and by the terminal of 2004 the endorser degree has increased to 2.2 million. ( Central Bank of Sri Lanka, one-year study, 2004, pg 49 ) .

With respects to the supply of nomadic telecommunications service, it could be said that there is an extra supply in the market as the waiter capacity

is non being to the full utilized.

A

A

A

A

2.1A A A A A A A A Demand Defined

A

Demand can be defined as the measure of goods or services that is consumed or potentially consumed at a peculiar point in clip. The demand for telecommunications is increasing every bit shown on the diagram below

Adopted by the cardinal bank of Sri Lanka- one-year study of 2004

A

A demand curve is downward inclining because there is a negative relationship between monetary value and measure. Harmonizing to the jurisprudence of demand when the monetary value is low the demand is high and when the monetary value is high the demand is low.

A monetary value

measure

A

2.2A A A A A A A A A Elasticity of demand.

A

The monetary value snap of demand shows the sensitiveness of demand to a alteration in monetary value. If a little alteration in monetary value creates a comparatively big alteration in the measure demanded so it is said to hold an elastic demand. If a large alteration in monetary value leads to comparatively little alteration in measure, so it is said to hold an inelastic demand.

Elasticity = % alteration in measure

% alteration in monetary value

A

A

2.2.1 Calculation of snap of demand for Dialog GSM

A

A

Q 1 = 300 P 1 = Rs. 4.00

Q 2 = 250 P 2 = Rs. 5.20

A

250 – 300

250 + 300/2

— — — — — — — — –

5.20 – 4.00

4.00 +5.20/2

A

= 0.64

A

As the reply is less than 1, it could be said that Dialog GSM has an inelastic demand. This means an addition in the call charges will make a comparatively little alteration in the measure demanded.

A

A

2.3A A A A A A A A Elasticity of supply

A

Elasticity of supply shows the sensitiveness of the measure supplied to a alteration in monetary value. In Dialog GSM the waiter capacity is yet under-utilized therefore there is an extra supply. However if demand continues to turn, Dialog GSM may hold to increase its waiter capacity within the following five old ages.

A

A

3.0A A A A A A A A Cost analysis of Dialog GSM

A

The initial capital involved in establishing Dialog GSM was really high, in economic footings it could be said that there is a high “ sunk cost ” involved.

However since Dialog GSM has been in concern for 10 old ages now the company has successfully recovered the initial investing.

A

3.1A A A A A A A A Total cost analysis

A

The entire cost is made up of two variables – the entire fixed cost and the entire variable cost. The entire fixed cost of duologue GSM involve the rent payments for many of the 56 subdivisions they have island broad, cost of the direction, cost for its machinery and ECT. The entire fixed cost for a twelvemonth of Dialog GSM sums to about 13.2 million. The entire variable cost of Dialog GSM involves the wages to the employees, the electricity and H2O charges, the communicating cost and ECT. The entire variable cost of Dialog GSM sums to about 18.5 million. Thus the entire cost of the company amounts to about 31.7 million per annum.

3.2A A A A A A A A Average cost analysis

The mean cost is the entire cost divided by the figure of units. The costing system differs from this expression because in one minute of the twenty-four hours many people are using the service. Thus the mean cost is calculated by spliting the entire cost by the proceedingss of the twenty-four hours. Therefore mean entire cost is:

31.7mn

365days

= Rs. 86,850 / twenty-four hours

= Rs. 61/ minute

A

Average variable cost is the variable cost divided by the units.

18.5mn / 365 yearss = Rs. 50,685/ twenty-four hours

=Rs. 36/minute

A

Average fixed cost is the fixed cost divided by the figure of units.

13.2mn / 365 yearss = Rs. 36,165/ twenty-four hours

= Rs. 25/minute

A

A

4.0A A A A A A A A Market construction the company operates in:

A

There are four chief market structures- perfect competition, monopolistic, oligopoly and monopoly market construction. Dialog GSM operates in a oligopolistic market construction. An oligopolistic market is one where a little figure of mutualist houses compete with each other. ( Anderton, ecomomics- 3rd edition. , pg 362 ) . In the nomadic telecommunications market in Sri Lanka there are merely four houses viing in the market- Dialog GSM which holds the largest market portion, Mobitel, Celltel and Hutch which launched late.

A

A

4.1 Features of the oligopoly market construction.

A

There are many features that distinguish the oligopoly market construction from other market constructions, the behaviour of houses in this market construction besides differs significantly from other market constructions.

A

4.1.1 Few Sellerss in the market.

A

As mentioned above there are merely four providers in the market and Dialog GSM holds the largest market portion of 53 % as shown in the diagram below.

A

A

The supply in the industry will be concentrated in the custodies of a few Sellerss. The nomadic telecommunications market in Sri Lanka have a three house concentration ratio of 96 % . This means that the tree largest houses in the market produce 96 % .

4.1.2A A A A Mutual mutuality of the houses.

A

One chief feature of an oligopolistic market construction is that the houses are mutualist. Each house is affected by its challengers actions, therefore if Dialog GSM decides to prosecute policies to increase gross revenues, so it will be at the disbursal of the rivals. The challengers may so react by taking action to increase their market portion, hence no houses can afford to disregard the actions of the rival houses. It is therefore impossible to foretell the deductions on a house due to a alteration in monetary value without sing the reactions of the challengers.

A

4.1.3A A A A Barriers to entry

A

The oligopoly market construction has high barriers to entry. Barriers to entry may include patent rights, Torahs and ordinances, high capital investing and ECT. The high sunk cost or the high initial capital investing is the major barrier to entry to the nomadic telecommunications market.

This is a important ground for houses in an oligopolistic market construction to gain ab-normal net incomes.

A

4.1.4A A A A Non-price competition

Firms in the oligopolistic market construction attempts to avoid monetary value competition as monetary value wars

may originate. Thus “ trade names ” are established, Dialog GSM is a trade name in the nomadic telecommunication market, which highlights a certain characteristic that create a competitory border for the company. Dialog GSM boasts about the island broad coverage they offer.

Non-price competition may be in the signifier of gross revenues publicities, gifts like holiday bundle Dialog GSM offered a few months back, or even better installations or lucidity would count. Dialog GSM besides sponsors many athleticss activities such as the rugger tourney. Innovation is another signifier of monetary value competition, Dialog GSM launched the first sinhala/tamil samarium capableness.

A

4.1.5A A A A A A A A A A A A A A A ‘L ‘ molded norm cost curves.

A

Economic surveies suggest that the mean cost curves of big houses runing in an oligopolistic market construction is ‘L ‘ shaped instead than ‘U ‘ shaped. This is because big houses face the same mean variable costwhether they increase or decrease end product. ( Anderton. , economics- 3rd edition. , pg.363 ) .

Kinked demand curve

As mentioned above the demand curve of a normal house is a downward sloping sound line. A house in the oligopolistic market has a kinked demand curve, this theory was founded by Paul Sweezy from the USA and R. Hall and C.Hitch in the UK. ( Andreton, .economics-third edition, .pg364. )

The theory suggest that a house in an oligopoly market, like Dialog GSM must do an premise of how one house ( Celltel/ Mobitel ) might respond to monetary value alterations in the market. The kinked demand curve theoretical account assumes that there will be an asymmetrical reaction to a alteration in monetary value.

Therefore if Dialog GSM increases its monetary value, Celltel / Mobitel will non respond. On the other manus if Dialog GSM reduces the monetary value, so Mobitel / Celltel will besides cut down its monetary value to forestall fring their market portion.

In the diagram shown below the net income maximising degree is where the MC ( fringy cost ) curve cuts the MR ( fringy gross ) . Therefore if the MC of the house lies anyplace between MC1 and MC2, the net income maximizing end product will be P1 and Q1. therefore monetary values will stay stable even with considerable alteration in cost. ( Sloman, .Economics-third edition, . Pg 208. ) . However the kinked demand curve theoretical account has two chief restrictions that must be noted.

Although it shows monetary value stableness, it may be due to other reasons- Dialog GSM may non desire to revise monetary values often because it is inconvenient to set up new monetary value list, new accounting policies, and it, may upset it clients. Another drawback is that the theoretical account does non explicate how the monetary values are being set in the first topographic point. This is a serious drawback for a house during periods of rising prices, where Dialog GSM like other houses in an oligopoly market will raise monetary values due to increase in cost and demand. The theoretical account suggest that the monetary value will be raised merely when the fringy cost additions above MC2 which is illustrated in the diagram below.

Competitive methods used by a house in an oligopolistic market.

There are four chief facets of competitory methods used by houses in the oligopolistic market. In order to be precise monetary value leading and monetary value favoritism will be analyzed closely and trusts and game theory will be explained in brief.

Price leading.

The largest or the most efficient house in the market will put a certain monetary value which all the leaders will follow. In the nomadic telecommunications market Dialog GSM acts as a monetary value leader and all other houses like Celltel, Mobitel and Hutch follows the leader. The leader will maximise gross where the fringy gross is equal to fringy cost and the this point will set up the monetary value.

Price favoritism.

Price favoritism is bear downing a different monetary value for the same good or service in different markets. Dialog GSM patterns monetary value favoritism by spliting the market into different sections based on the demands and the use of the clients. For examples one of Dialogs market sections is the concern community to which it provides different bundles with different monetary values. For case it has a company bundle where many connexions are given with free entrance and low out-going charges between the connexions given, another bundle is available for business communities with free entrance and subscription free IDD installations. The undermentioned diagram shows how unnatural net incomes can be earned by utilizing monetary value favoritism.

The high-lighted country shows the unnatural net incomes earned in each sections of the market.

5.3 Trusts.

Another manner in which an oligopolist can accomplish monopoly power

is by conspiring with other houses, this can happen particularly in

unregulated markets. Trusts are such collusions an illustration of a

powerful trust is the OPEC, nevertheless the houses in the Sri Lankan

nomadic telecommunications market do non demo marks of collusion.

5.4 Game theory.

The game theory is an analysis of reactions of one participant to reactions of another house. It can be defined as the survey of alternate schemes that oligopolist may take to follow, depending on their premises on their challengers behaviour.

Recommendations.

Dialog GSM should go on to be advanced as it gives the company a competitory border over other houses in the market.

As it has an inelastic demand, Dialog GSM can increase its monetary values to some extent nevertheless it should be careful non to alter monetary values often as it may free its market portion.

To accomplish maximal efficiency Dialog GSM can farther cut down it cost or exploit monetary value favoritism state of affairss in order to increase its unnatural net incomes.

If Dialog GSM is be aftering to put capital farther, it should be witting about its external environment as the Sri Lankan economic system is presently heading into a recession.

It is of import that Dialog GSM continue advertisement and practising assorted other methods of non-price competition.

A

A

A

A

A

A

A

A

A

A

A

A

A

A

A

A