The Telecommunications Regulatory Commission of Sri Lanka (TRCSL) proposal for Mobile Number Portability (MNP), can hit profits of larger telecom operators like Sri Lanka Telecom (SLT) and Dialog, says Fitch Ratings.
MNP would allow subscribers to switch mobile service providers, while keeping the same mobile number. Therefore, this is seen as a tool to encourage competition and operator efficiency.
However, MNP could also force operators to spend more to prevent customers from moving away, by introducing loyalty-based rewards, brand-building and product differentiation.
Fitch says that while MNP is a threat to overall telecom industry profitability, the threat is greater for bigger operators like SLT and Dialog.
“Fitch believes the threat from MNP to larger and more established operators is higher, including Sri Lanka Telecom PLC (Foreign Currency Issuer Default Rating: 'B+'/Stable; National Long-term Rating: 'AAA(lka)'/Stable Outlook) and Dialog Telekom PLC (National Long-term Rating: 'AA(lka)'/Negative Outlook),” said the rating agency in a press release.
“Furthermore, those operators who currently maintain a premium above-the-floor tariff, on account of greater investments in network capacity and coverage, and prior brand name investments, could be forced to match competitors' lower tariffs, in order to retain market share,” said Fitch.
Over 80% of Sri Lanka's 12.7 million mobile subscribers (60% headline penetration), by end-December 2009, were pre-paid users. A sizable share of these pre-paid customers use multiple SIM cards and are not seen as loyal to any one operator.
"With MNP, there will be more competition for post-paid and premium pre-paid users who are arguably more profitable for the operators" said an Associate Director with Fitch's Asia-Pacific Corporates team, Hasira De Silva.
Severe price competition in Sri Lanka’s mobile space since mid-2005 has significantly eroded telecom operator profitability. However, price-based competition has eased since 2009 given the operators' weakened financial profiles, and an unofficial tariff floor implemented by the TRCSL.
Falling industry profitability was neglected by TRCSL for several years, in favour of higher competition. However, to limit further damage to the industry, Fitch says formal price floors and strict laws that enforce healthy competition should come in, before implementing MNP. |
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