New Market Report: Sri Lanka Telecommunications Report Q1 2014

Sri Lanka's telecoms market is mature when compared with its regional peers: penetration rates are high, 3G licences were first available in 2007 and, by mid-2013 two Sri Lankan operators had launched 4G LTE services with more launches expected in the near future. Sri Lanka is also seeking to improve speeds in the wireline market, with a national broadband network strategy taking shape as the government aims to facilitate internet access. While Sri Lanka is relatively well developed, its progress has not always been smooth, as the civil war previously prevented the development of telecoms infrastructure in affected areas in the north of the island. Since the end of the civil war, private and public sectors are aggressively investing in the reconstruction and expansion process.

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Key Data

* The telecoms regulator reported a sharp drop in mobile subscriptions in Q113 as it adopted a new definition of active subscriptions. However growth in Q213 indicates that the trend of underlying subscription growth is continuing.
* Operator ARPU has been increasing in Sri Lanka, but we believe ARPU will begin to decline from 2014 as price competition in a saturated market will outweigh the positive contribution from migration of users to data services. The fixed and mobile broadband markets have continued to expand, with the latest data showing fixed internet subscriptions increased 15% to 438,000 in Q213, while mobile internet subscriptions increased 35.7% y-o-y to 1.038mn.

Key Trends And Developments

The LTE market in Sri Lanka is developing rapidly. Dialog Axiata was the first operator to launch commercial LTE services for mobile in April 2013 in the capital Colombo, followed by the June 2013 launch by Mobitel, the mobile subsidiary of Sri Lanka Telecom, in seven cities within Sri Lanka. Etisalat is expected to launch services in the near future, while in September 2013 it was reported that Lanka Bell, a fixed-wireless telephony and broadband operator that is a subsidiary of Sri Lankan Distilleries Corporation Group, was preparing to deploy 4G LTE services after March 2014 to keep up with its domestic competition. BMI believes that a competitive LTE market will benefit consumers and help drive growth in the mobile and broadband markets.

There is limited penetration of fixed broadband services in Sri Lanka, leaving operators vulnerable to competition from high capacity wireless broadband such as LTE. However operators are investing in higher capacity services, which should help to insulate them somewhat from LTE competition, particularly among high usage groups. Sri Lanka Telecom is investing in a fibre-to-the-cabinet (FTTC) network, and initial demand has been strong. It rolled out 57,000 FTTC lines by June 2013, with 20,000 subscriptions taken, supporting BMI's view that fixed broadband providers can still capture growth at the high-end of the market.

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