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Sri Lanka Telecommunications Report Q2 2010
Market |
Telecommunications |
Report Type |
Market Research |
Country |
Sri Lanka |
Published |
26 February 2010 |
Number of Pages |
79 |
Download |
|
Immediate |
|
Publisher |
Business Monitor International |
Sri Lanka continues to recover from its long-running civil war, which caused untold damage and had limited the level of telecoms development in the north and east of the country. The mobile operators are rapidly trying to take advantage of this growth opportunity and provide service to areas that have been deprived for sometime.
Millicom International Cellular (MIC) made the decision to exit the Sri Lankan market as it was finding it too competitive, facing squeezed ARPUs and declining profit margins. This is not really a sign that the market has become too unappealing for investors, as many were keen on acquiring the Tigo network, and in the end it was Etisalat of the UAE that succeeded, taking control in October 2009. A new, and strong, international investor is a good thing for the market, and when Etisalat starts seriously investing in its new asset, we should see a growth spurt in the market corresponding to the one in 2009 resulting from the launch of Bharti’s new network.
There is much hope in Sri Lanka, and much to entice investors, but still, MIC may have had a point. We estimate that, by the end of 2009, mobile penetration in Sri Lanka was around 70%, and that it should break through 100% within a couple of years. It seems doubtful that the market will be able to support a full five mobile networks for very much longer, and Hutchison is starting to look vulnerable. It has failed to grow throughout much of 2009, and it was quickly overtaken by Bharti following the new network’s launch. Hutchison, as a larger international company, is undergoing some changes. We would not be surprised to see the Asian company quietly exit Sri Lanka, and we believe it would make sense to sell the network assets to one of the other networks, as four would perhaps be a more viable number in the long run.
Sri Lanka remains at the bottom of our Asia Business Environment Ratings. Despite increased stability and efforts to rebuild, the lengthy civil war’s effects are still very much in evidence. We view the reelection of President Mahinda Rajapaksa as positive for Sri Lankan growth in the short term as it will ensure the political stability needed to support the economic recovery. However, Rajapaksa’s first term has been characterised by a high degree of nepotism, bureaucracy and public corruption, and the likely continuation of such a regime constitutes a threat to Sri Lanka’s long-term growth prospects.
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