Sri Lanka telcos to grow on higher usage, reduced competition: Fitch

Nov 19, 2012 (LBO) - Sri Lanka's telecom operators would grow on higher spending by subscribers and reduced price competition as the market penetration approaches 90 percent, a rating agency has said.

 Penetration has already reached 87 percent by the second quarter of 2012, and fixed wireless subscribers were declining, Fitch Ratings said in a report on Sri Lanka's telecom sector.

 The rating agency said the outlook for Sri Lanka Telecom (rated BB- with a domestic rating of 'AAA(lka) and Dialog Axiata (domestic rating of 'AAA(lka)' was stable with muted tariff competition.

Sri Lanka's telecom regulator stepped in with price floors following surge of price competition that came with the entry of a fifth mobile firm to Sri Lanka, which saw profits and capital expenditure coming under pressure.

Fitch said operators now charge two Sri Lanka rupees a minute for calls to other networks, despite the regulatory floor being 1.50 rupees.

"Overall, Fitch does not expect a resurgence of tariff-based competition – given the increase in operating costs and inflationary pressures stemming from hikes in energy prices, and the sharp depreciation of the local currency since early 2012," the rating agency said.

"However, tariff competition is likely to continue across data services, international roaming, and international direct dialling revenue.

"Yet the negative impact on blended ARPU (average revenue per user) is likely to be limited, as these segments do not yet account for a major portion of industry revenue."

Though the growth of new subscribers will slow, average minute use of subscribers will continue to grow in 2013.

If domestic call tariffs remain the same among operators, Fitch says multiple subscriber identity module (SIM) usage will decline.

Operators are expected to invest between 20 to 40 percent of revenues on modernising networks, and building capacity and coverage to support greater demand.

Network infrastructure-sharing is also likely to increase, particularly among the smaller players, Fitch said.

The outlook may be downgraded to negative on any adverse regulatory changes. Further consolidation could result in a lifting of the outlook to positive but acquisitions funded by debt may weaken balance sheets, Fitch said.

source  - www.lbo.lk