Financial Times

While direct comparison between competing pre-paid packages of mobile companies is not easy, new customers will be attracted by innovative advertising, product positioning and service coverage, a Colombo broking firm said.

CT Smith Stockbrokers Ltd said in an analysis of the stockmarket last month that mobile penetration levels, which are currently estimated at around 22% (up from 17% as at end 2005), are likely to rise to approximately 26% by end 2007, with such new users accounting for the bulk of subscriber growth at the mobile telcos.

“In the longer term however, mobile players will have to seek to wean away existing consumers from rival operators to boost subscriber levels, and price competition is likely to increase further (also targeting the post-paid corporate market) as operators seek to increase their subscriber numbers and thus indirectly increase the switching cost to consumers (own network calls usually attract concessionary rates),” the report said.

CT Smith said that while the advent of a fifth mobile telco (around 10 players, including Reliance Infocom of India, Maxis of Malaysia and Singapore Telecommunications have bid for the fifth licence) will add fuel to the price war, longer term customer retention and profitability are likely to be determined by service quality issues and the provision of value added services (VAS).

The Telecom Regulatory Authority (TRC) has offered 3G licences to all four mobile sector players with each license likely to be priced at $5 million, the stockbroker said

Dialog initiated a 3G pilot run in late 2005 and has tested around 30 base stations with 3G technology, being the most prepared player for 3G deployment once the licence is awarded. A 3G licence allows operators to provide wireless access at the 2GHz band, facilitating faster Internet access for browsing the web, email communications and to receive faster video calls.

CT Smith said the entry of a new player into the mobile market will increase competitive pressures on all four existing players. Additionally, a foreign player with significant technological strengths may elevate the industry to new highs, driving the voice market as well as less penetrated data and broadband markets. “We believe the entry of a new player will likely pose a challenge for Dialog, depending on extent of expertise and capabilities of the new entrant,” the report said, adding however that Dialog is in a position of strength to withstand competition and deploy strategies to capture market share and pursue new growth oriented segments within the industry

Dialog is expected to post a net profit of Rs.9.2 billion in the current financial year given the forecast increase in interest expenses on likely new borrowings and modest margin erosion in 2H2006, the report said.

On the tourism sector, the report said John Keells Holdings’ leisure sector reported a modest after-tax profit of Rs.6 million in 1Q07, compared to a loss of -Rs.43 million in the tsunami affected 1Q06 and a profit of Rs.120 million in pre-tsunami 1Q05.

It said while the Group’s properties in the Maldives are expected to have contributed strongly (with Hakuraa operational after being closed in 1Q06 due to tsunami related damage), JKH’s Sri Lankan city hotels have under-performed despite higher revenues and lower city hotel occupancy levels (a likely casualty of the recent upsurge in violence related to the North and East conflict and lower levels of tsunami related arrivals).

Operating expenses at the city hotels (in particular the recently refurbished, ‘Cinnamon Grand’) are also expected to have increased in line with increased operating capacity, it said.