Business Times

Mobile phone market to expand, optimism high in telecom sector

Sri Lanka’s telecom industry is expecting better times fuelled by increasing mobile phone usage, regulatory interventions and post-war economic growth. “Optimism is running high in Sri Lanka, both economically and in the telecom sector,” said the latest telecommunication industry report from CIMB Research Pte Ltd, from Malaysia’s CIMB Group.

The report said Sri Lanka’s number one mobile operator Dialog Axiata is expecting good revenue growth from higher tariffs since the introduction of floor tariffs by the telecom regulator. A minimum price of Rs 2.00 per minute (1.8 US cents) for off-network calls, Rs1.00 per minute for on-network calls and Rs 0.15 per SMS has been set, which has helped to control price competition. The minimum price will be gradually removed within 12months -24 months from July 2010. However, mobile phone usage itself is expected to increase in the country. So large, established mobile operators like Dialog, are expected to do well.

“Dialog anticipates good revenue growth from higher tariffs following the imposition of floor rates in July, falling inflation, higher usage and rising tourist arrivals,” said the report. Sri Lanka’s main fixed line operator, Sri Lanka Telecom (SLT),SLT expects the mobile industry revenues to increase 10% - 12% in these years. CIMB has forecast revenue growth of 15% and 9% for Dialog in 2010 and 2011 respectively.

While SIM penetration was 77% in the first half of 2010, Dialog estimates unique user penetration to be about 55% due to multiple SIMs. It expects SIM penetration to rise to 85% by 2011, implying SIM growth of 10% over the next 18 months.

“Given that Dialog offers rates at the floor pricing and the largest network, it expects subscribers currently using Dialog as the 2nd and 3 rd SIMs to use it as their main line, thereby enhancing its MOU,” said CIMB.

Dialog is also expecting growth from increased usage of smartphones and computers. PC penetration is estimated at around 15% of households (SLT estimates it to be 10%), which suggests sufficient demand for broadband. Smartphone demand is also expected to increase on the back of declining prices and the robust economy.

“Dialog also believes the small geographical size of Sri Lanka favours the economics of building a fibre optic backhaul to support the data business,” said the CIMB report. SLT, however, is banking less on smartphones citing the affordability of smartphones, but SLT has big plans for triple play given that it is the only telco with such infrastructure.

Dialog, which changed its name to Dialog Axiata earlier this year, accounts for over half (57%) of the mobile industry revenues and 43% of the SIM share in the mobile market. Mobitel is at second place with 28% of the revenue share and 24% of SIM share. Number three in Sri Lanka’s mobile market is Etisalat, followed by Hutch and Airtel.

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