There was a reported 50% drop in the number of net additions during Q208 to the Sri Lanka mobile market as compared to the previous quarter. The second quarter announced just 418,000 new subscriptions compared with Q108 at 852,000. Differences between the two quarters were largely blamed on the performances of Mobitel and Hutchison. Second-ranked mobile operator Mobitel announced it had 5,000 net additions in the second quarter, as opposed to 228,000 in the first quarter. As for Hutchison, the smallest operator, it managed 2,000 net additions, a considerable fall from the 148,000 net additions reported in Q108, and compared to 134,000 net additions in Q207. Although not all operators have provided figures for their Q308 performance, data available do show there are some mixed results, with Hutchison announcing a significant loss of 333,000, a decline in its subscriber base for the first time.

However, it was not all bleak, as Tigo reported a record 201,000 net additions to take its overall subscriber base to 1.7mn by the end of September 2008.

The decline of Hutchison could relate to the introduction of stricter customer registration requirements, as alluded to in our previous report, which has been experienced in other South Asian markets such as Bangladesh. In the case of the latter, this led to a number of customers, particularly prepaid rural users, being disconnected as they did not have the appropriate documentation. Furthermore, all four operators (Mobitel, Hutchison, Tigo and Dialog) still face an uncertain operating environment, with political and security issues remaining a major cause for concern.

We were disappointed to learn that neither Bharti Airtel nor Reliance Communications had launched their services. It had been widely expected that this would occur during 2008, but at the time of writing, no further information had been forthcoming. The addition of the two operators would certainly encourage competition, particularly in terms of tariff rivalry. However, we anticipate that they will both launch services in 2009. Investment in the market overall will go towards extending coverage to rural areas, given the growth potential, with penetration rates forecast to reach 73% by 2013.

High costs of internet connection mean that internet take-up is very low in Sri Lanka. It is an important aim of the government’s to alter this. At the end of 2007, our estimates of broadband penetration at 0.3% were met and BMI fully expects this to grow to 3% by the end of the decade, and to 15% by 2013, driven by greater competition in the marketplace, reduced tariffs and the rise in popularity of mobile broadband services.