The recent announcement by the government that it was about to embark on the active phase of Maltacom's privatisation attracted renewed interest in the group, and at a good time, too, since the group has reported very healthy results.

Turnover was marginally up and cost of sales were marginally down but, since margins add up, the group's gross profit managed to advance by nearly Lm1 million. This, together with a Lm1.3 million reduction in administrative and distribution expenses, led to an increase in operating profit of 12 per cent, to Lm15.3 million. These are good results considering that Maltacom is a big group operating in a sluggish economy.

Once exceptional items are considered - and they included proceeds from the sale of the Vodafone shares - then operating profit increased by 52 per cent, to Lm21.8 million. After tax and other adjustments, earnings per share were 12c9 (2002: 9c5). According to Sonny Portelli, Maltacom's chairman, "these results were achieved despite unrelenting pressures throughout the year on revenues, primarily those from international traffic".

Maltacom's strengths are its existing network of lines which gives it an entry point into every household and business firm, its international agreements built over the years, and a healthy goodwill. Although a "government company" throughout its history, Maltacom is generally perceived to be a company which delivers and which improved substantially since its partial privatisation.

On the other side of the scale, its size, and its national role, to a certain extent, are a burden. It cannot easily increase prices. A company may decide, as a matter of strategy, to increase prices, even in the face of competition, and inevitably suffer a reduction in the number of customers, but giving the remaining well-paying customers a higher-quality service. Maltacom cannot opt for such a strategy. Its major shareholder is the government and government also appoints the regulator - independent-minded and fair though it may be - and the consumer is the voter.

This public character, and the fact that many similar telecommunication companies are so-called natural monopolies (i.e. monopolies due to the big size required to sustain the infrastructure) mean that Maltacom has to deal with its business problems differently from a normal commercial firm.

As a result, it has evolved a clever sort of amoebic strategy. If you squeeze one end of an amoeba, the other end expands. An amoeba can squeeze itself through various irregular spaces. It is jelly-like and can change shape as required.

There have been various instances of this and the strategy is delivering rather good results, all things considered.

With the introduction of mobile telephony, it set up Go Mobile. VOIP was met with both a call for tariff rebalancing and offering VOIP through subsidiaries (talk time). It has been very active in providing internet services and broadband facilities, negotiating long-term contacts with major users. Importantly, it has managed to actually reduce costs, thus delivering more of its revenue-flow as ultimate profit. These and similar actions/reactions, at different levels of the group, eventually show up in the financial statements.

If one looks at the group's consolidated revenue, for example, one can see that while one-third of present revenue did not exist a few years ago, traditional operations are suffering as revenue earners but doing well in terms of profitability. To a certain extent, Maltacom can be seen as using its size to protect its income against problems created by that same size.

Under firm management, keeping the group on an even keel, one can expect steady future growth, at long-term rates moderately above Malta's economic growth. The group can improve on general economic growth since, with focus, it may be the major route via which technological innovations in communication would be introduced in Malta, thus managing to retain a bigger share of the value added by such innovations than would normally be the case.

Privatisation may bring about a major adjustment to this strategy. Government would no longer be the major shareholder, and thus would not be held "responsible" for Maltacom's actions. Private investors are likely to be more profit focused. There might also be more technological input, perhaps in parallel sectors, not just telecommunications, but what this will be, and at what cost, remains to be seen.

Paul V. Azzopardi is managing director of Azzopardi Investment Management Limited (www.azzopardi.com) which is licensed by the MFSA to provide investment services, including stockbroking. This article is only meant to provide information, which the writer believes to be accurate at the time of writing, and is not intended to give investment advice and its contents should not be construed as such. The value of securities, and the currencies in which they are denominated, may go down as well as up. Readers are requested to seek professional financial advice tailored to their own personal circumstances.