Telecom and IT have driven growth in Sri Lanka, even during the war years with latest estimates of the broadband Internet market seeing it expanding to 4.3 million users in the next four year from around 330,000 now, according to a research study.
According to the report on the Sri Lankan telecom industry by US-based Proactiveinvestors, a financial news and analysis provider, the broadband Internet market in Sri Lanka, though in its infancy with very low penetration levels, has the available technology which is on par with most developed nations, ranging from ADSL fixed wire-line services to Wi-Max fixed wireless broadband access, GPRS mobile telephony Internet to HSPA mobile broadband Internet connectivity.
 “Currently, affordability/lower disposable incomes are the main constraints to expansion in demand for broadband Internet connectivity in Sri Lanka. In addition to the initial cost of acquiring the connection and the monthly subscription charge, a computer, which is relatively new and therefore expensive is also needed to derive the optimum benefits of broadband Internet access. Such outlay still remains beyond the reach of most households/individuals in Sri Lanka,” it said.
The report provides an indepth assessment of the telecom market and says that the industry is set to show phenomenal growth with the war over and the telecoms regulator moving to ‘create an equitable industry playing field to promote new investment in infrastructure and technology’.
With Gross Domestic Product (GDP) forecast to grow by over 7% per annum in real terms in the next few years, demand for telecommunication and data transmission services from business enterprises is projected to rise considerably. Further, with per capita GDP already at a high of $2053, rapid economic expansion is expected to lift disposable incomes, driving demand for telecommunications, data transmission and entertainment services from individuals and households, the report said.
The Sri Lankan telecom sector is now a $0.8 billion industry, contributes almost 2% directly and some 5% indirectly to national output. More importantly, the industry also contributes over Rs 30 billion in taxes to state coffers. In addition, in 2008, the telecoms industry accounted for some 23% of total FDI into Sri Lanka, the report said.
Mobile phones
Leading telecom growth has been the mobile telephony segment, with total connections rising from just 256,655 in 1999 to an astronomical 13.9 million in 2009, a compound annual growth rate of a hefty 49%.
At end 2009, the mobile telephone connections accounted for 80% of the total in the country. Mobile telephony penetration has now reached 68% as at end 2009, up from just 0.5% in 1999. However, this number is deceptive as it is estimated that 30-35% of such activated SIM cards are used by one and the same individual, implying that actual mobile telephony penetration is much lower at around 45-48%. This leaves much room for further increase in mobile telephony penetration, especially at the lower end of the market, as economic growth accelerates and disposable incomes rise, the report added.
Dialog Axiata leads
The mobile telephony market is dominated by Dialog Axiata with a 46% share of SIM cards activated (6.373 million) and a 58% share of sub-industry revenue in 2009. “Dialog’s industry leadership has been achieved by very savvy marketing via innovative pricing, product/service offerings and technological innovation, which were judiciously combined to activate and dominate previously untapped market segments,” it said, adding: “This so called ‘Blue Ocean Strategy’ of the company enabled Sri Lanka’s telecom industry to grow rapidly over the past decade, forcing other telecommunications service providers to upgrade product/service quality/offerings to stay in business.”
In second position is Mobitel Ltd with a share of 24% of SIM Cards (3.382 million), followed by Etisalat with 17% (2.325 million SIMs). Airtel (a subsidiary of Bharthi Airtel of India, with 8% (1.1 million SIMs) and Hutch with a share of 5% (0.779 millio SIMs) make up the rest of the market.
Fixed wire-lines
Fixed wire-line telephony growth has been pedantic at best with the number of subscriber lines rising from 580,199 in 1999 to only 871,248 in 2009, a compound annual growth rate of just 4%. In fact, fixed wire-line telephone connections actually declined in 2009 from 933,536 in 2008 as subscribers shifted to fixed wireless and mobile telephony, the report noted.
The high cost of providing fixed wire-line connections, the inability to offer value added services, the lack of technological innovation in handsets and the relatively high cost of provision of broadband Internet access (via ADSL technology) have stymied growth in this segment of the market.
Monopoly in fixed wire-line
Sri Lanka Telecom (SLT) is the only fixed wire-line telecommunications service provider.
Whilst the company is a fully integrated/diversified telecoms operator (offering fixed wire-line and wireless and mobile telephony, ADSL and mobile broadband access and Internet protocol television [IPTV]), strategic issues have caused the group, owned jointly by the government and Malaysia’s Maxis, to lag the industry.
Given the relatively higher cost of providing fixed wire-line connections, the TRC licenced two operators -- Suntel and Lanka Bell to offer TDMA (Time Division Multiple Access) technology based Fixed Wireless Local Loop (Fixed WLL) telephones in 1995.
Then in 2004, TRC also permitted operators to use CDMA technology to offer Fixed WLL telephones. The CDMA Fixed WLL handsets are essentially mobile telephones with the physical characteristics of fixed wire-line instruments but connecting to a base station.
Whilst the instrument provides users with a limited range of value added services, the main attraction of the CDMA Fixed WLL telephones at the time of introduction in 2004 were their mobility (although this is legally prohibited) and the fact that incoming calls were free of charge, as in the case of fixed wire-line connections.
The mobility provided by CDMA Fixed WLL telephones combined with incoming calls being free of charge proved an instant hit, enabling subscriber numbers to rise from only 88,914 in 1999 to 2,559,560 in 2009, a compound annual growth rate of 40%. However, with all mobile telephony operators now offering incoming call termination free of charge (which is essentially a Calling Party Pays [CPP] regime), the previous advantage that the CDMA Fixed WLL segment enjoyed has disappeared.
Telecoms Regulator to support industry profitability
The vicious tariff war with the advent of new competition both in the mobile and the fixed wireless segments resulted in the erosion of telecommunications industry profitability over the past two years. This, combined with slower economic growth and thus business volumes and increased inflationary, cost pressures and unprecedented high levels of interest rates caused losses at almost all telecommunications service providers. The resultant financial strain has left little space for telecoms companies (particularly the smaller players) to reinvest in new technology and expand network capacity.
Mindful of poor industry health, the TRC is now taking steps to improve industry profitability.
In the final analysis, the report said Sri Lanka’s telecommunications service providers are headed for better times commencing the second half of 2010 and it is likely that the incumbent market leaders (such as Dialog) are set to reap the benefits of economic revival, underpinned by regulatory action to preserve industry vibrancy. |
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