Once considered as the best performing industry in Sri Lanka, the telecommunication industry in recent years has seen almost all the players making losses mainly due to unhealthy competition, and prices which cannot sustain the businesses, according to industry analysts.
“In the second quarter of this year (Q2 2009), only Sri Lanka Telecom (SLT) reported profits and that too with a drastic reduction (57% reduction) in profits. Dialog, Mobitel, Tigo and Hutch all posted losses and Airtel too is in the red. The industry is in crisis (with eight out of nine companies posting losses in Q2 2009) and could result in slowing down of the telecom industry,” a telecom industry analyst noted.
In results released on Thursday, Dialog reported a profit for the third quarter of this year.
“Presently the industry is operating at prices which it cannot sustain. In most cases the telcos are operating at costs which are higher than its revenues. (Effective rate per minute charged by companies are lower than its total operating costs). Unhealthy competition and very low prices have pushed leading mobile companies to opt into giving as many as 1,000 outgoing minutes free at a minimal subscription (within its network or even to other networks) and all incoming minutes free at no revenues, although all these minutes have an operating costs,” the analyst noted, adding that Telecommunications Regulatory Commission (TRC) is also partly to blame.
“It is mainly due to their haphazard regulation,” the analyst noted, adding that the price war worsened in August 2008 when Mobitel launched the Upahara plan with 1,000 outgoing minutes per month free and total incoming free for a mere subscription of Rs. 240/- per month.
“This saw Dialog introduce the Blaster package again with 1,000 (within network) outgoing minutes free and total incoming free for also a mere subscription of Rs. 300 per month. To add to the problem Airtel launched outgoing at Rs. 2 and Rs. 0.49 (Airtel to Airtel with a monthly fee of Rs. 49) in January 2009. Mobitel followed this Rs. 2.50 per minute prices in March 2009 and with a telescopic pricing which offers prices as low as Rs. 2,” he explained, adding that Dialog dropped its prices in July 2009 to be on par with the telescopic prices of Mobitel.
“Tigo and Hutch had to follow the same in August 2009. Airtel offer 3 times of the reload value as free airtime in September 2009. TRC should have taken a stance against the price war at the outset,” he said.
He said while the price war is at its peak with mobile telcos, fixed line operators are also in this quandary. “They are feeling the pinch too as the mobile price cuts invariably affect fixed line pricing as well,” he said.
TRC Director General Priyantha Kariyapperuma told the Sunday Times FT that the regulator ‘always’ discouraged price cuts. “The TRC constantly advised all operators not to declare a price war and thereby narrow down on their profitability, because they may not have the financial capacity to invest in Next Generation (NGN) infrastructure which is the future of telcos,” he said. He said that profitability decline is due to the operators’ infighting and not due to regulatory decisions.
The analyst said that if this trend in decreasing pricing and increase in costs continues without immediate correction, the telcos’ survival of the companies would be questionable in the short term to medium term.
Lanka Bell’s Managing Director, Prasad Samarasinghe said that the price competition from the industry point of view is unhealthy.
“It is therefore vital that all operators realize this sooner rather then later and avoid using price as the only platform to compete in the market,” he said, adding that the fact that all operators have started to compete on price has resulted in the very survival of the industry coming into question. |
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