Deriving socio-economic dividends from mobile communications

The recent controversial tax increase on cellular phones from 2.5 percent to 10 percent was described as a consumption based tax according to a telecom sector expert.

Managing Director of Dialog Telekom, Hans Wijayasuriya addressing a gathering at the Centre for Banking Studies recently said that tax regimes change when revenue is needed by governments but is hopeful that this increase is not irreversible.

The mobile phone sector in Sri Lanka has grown 54 percent year on year since 2002 and is considered the engine of telecom growth. Wijayasuriya said the turning point came in the late 1990's when Dialog focused on turning mobile phones, then a luxury item, into a product available and affordable to as many people as possible, adding that those who develop product for the South Asian market should adopt an 'inclusive' philosophy in order to survive.

The market and population has to be viewed for its full or inclusive potential which is to bring every citizen to potential markets and areas of business. The mobile sector is deriving its full potential through inclusion, resulting in 'digital empowerment' or putting cell phones in the hands of ordinary citizens.

Wijayasuriya said the next stage of development is looking at how other sectors can use this digital empowerment and described technology as a great social leveler but said technology choices are important. “Cycles often start off slow but the infrastructure must already be in place, ready to take consumer demand when it becomes widely used. Consumers must be mobilised by maximising affordability, part of the inclusive philosophy. Inclusion makes business sense,” he said, because it sells equality. He also pointed out that market growth is strongly linked to infrastructure investments.

The telecom sector is the largest in terms of foreign direct investment and re-investment averages 140 percent yearly for Dialog. Moreover, the sector has made over 20 percent contribution to GDP growth since 2001 and made up 6.6 percent of total economic growth in Sri Lanka in 2005. The sector has created 10,000 direct employment and over 20,000 in indirect employment. Wijayasuriya also said he expects mobile phone penetration to exceed seven million by the end of 2007.

In terms of the banking sector, there is a strong acceptance of electronic money culture with over four million Dialog KIT, Tigo and Hutch users. Wijayasuriya urged the banking sector to use it to deliver far less complicated electronic transactions. He said some people remain 'un-banked' due to inadequacies in access to banking infrastructure, payment infrastructure and an un-banked ecosystem. "Our people are technologically savvy but there is no access," he said, adding that there are 300,000 electronic transactions each day via 12,000 outlets with no repudiations and no disputes.

Mobile phones and SIM cards are powerful computing devices. Phones are clever enough to carry out banking functions and can replace point of sale machines, automated teller machines and bank tellers. Wijayasuriya said this was looked at positively by the Central Bank. He also said that given the importance of the telecom sector, fiscal policy planning should be carried out with the wireless industry in mind.