FROM THE ECONOMIST INTELLIGENCE UNIT
Sri Lanka’s telecommunications sector has continued to grow at a rapid rate. The total number of fixed telephone lines crossed the 1m mark to reach 1.2m in 2005, representing growth of 25.5% on the 2004 figure of 991,239 lines. Following the introduction of Code Division Multiple Access (CDMA) technology by the country’s two private wireless local loop operators, Lanka Bell and Suntel, the number of such connections rose by 122% to 289,933 in 2005, from 130,771 in 2004. Nevertheless, in terms of market development the cellular-phone market remained the most vibrant field, with the number of subscribers rising by a spectacular 53.5% to 3.4m in 2005. The number of Internet subscribers also grew by a respectable 23.3% to reach 115,072 in 2005, although by international standards Sri Lanka’s Internet connectivity is still very low.
The telecoms sector is poised to grow at an even faster pace in 2006, buoyed by increased investment and an effort by the leading mobile-phone operators on the island to expand their network. In February 2006 Dialog GSM, the country’s leading mobile-phone operator (majority-owned by Malaysia's state-owned Telekom), announced plans to invest an additional US$150m in expanding its network from the existing 600 base stations to 1,000 stations by end-2006. This expansion is aimed at increasing Dialog’s subscriber base from an estimated 2m customers (equivalent to 70% of the total cellular-phone market) to 3m by the end of the year. The company also plans to divert part of its planned investment towards introducing a third-generation (3G) network by building a fibre-optic system that will facilitate improved broadband access for its customers.
Dialog's aggressive expansion and penetration into rural areas has resulted in a large increase in net profits, which jumped by 71% year on year to SLRs7bn (US$70m) in 2005. The introduction of prepaid call cards, which Dialog pioneered in the Sri Lankan market, has made mobile phones more accessible and affordable for low-income earners. In 2005 the number of prepaid card subscribers grew by 63% to 1.7m. The success of this strategy is clearly reflected in the company’s annual results, which indicate that the prepaid card segment accounts for 37% of its revenue. By contrast, the growth in the post-paid segment was more modest, increasing by only 34% to 441,400 subscribers, although post-paid revenue, at 40% of the total, is still the company's largest source of income. In January 2006 Dialog further consolidated its leading position in the market by entering into a strategic partnership with a UK-based telecoms giant, Vodafone. The agreement between the two companies aims to develop and expand the range of products and services available to international travellers, as well as increasing choice for domestic subscribers.
Dialog is not alone in its plans to expand its network. In March 2006 Sri Lanka’s second-largest mobile-phone operator, Celltel (owned by Luxembourg-based Millicom International Cellular), also announced its intention to invest US$100m to construct 750 new transmission towers. A highlight of Celltel's proposed investment is the company's plan to expand its coverage in the northern and eastern provinces that are most affected by the Tamil insurgency. An estimated 500 of the 750 towers planned are set to be located in these areas. It remains unclear how realistic these investment plans will be, given the deteriorating prospects for the country's peace process.
Meanwhile, Sri Lanka’s only private pay-phone provider, Malaysian-owned Tritel, has taken advantage of the latest CDMA technology to launch an expansion of its services. The company announced in March that it would invest US$35m over a three-year period to establish more than 20,000 pay phones using CDMA technology. The areas that the company hopes to extend its coverage to include Anuradhapura in central Sri Lanka, Galle, Hambantota, Kalutara and Tangalla in the south and Batticaloa in the east. The company also has plans to double its coverage to 40,000 booths by end-2009. At present Tritel serves an estimated 3.5m customers.
