ECONOMYNEXT – Telecommunications companies in Sri Lanka face moderate to high and increasing regulatory risk with sales expected to be boosted by growth in demand for broadband data services, Standard & Poor’s ratings agency said.
The island’s telecom market is fairly mature with competition high and in need of consolidation with smaller players not being able to increase market share, they said in a report on emerging Asia’s telecom industry.
Pakistan has the highest country risk followed by Sri Lanka, Indonesia and Bangladesh, according to the report.
“From a regulatory perspective, we view the greatest risk to telecom operators to be in Bangladesh, India, Pakistan, Sri Lanka, and Thailand, although proposed reforms could help to moderate risks in some of these markets, such as India and Thailand,” it said.
Standard & Poor’s said it expects competition to remain stiff across most of emerging Asia’s telecom markets, particularly in Bangladesh, Pakistan, and Sri Lanka.
“We also see a high degree of telecom regulatory risk in Bangladesh, India, Pakistan, Sri Lanka, and Thailand, although proposed reforms could temper risks in some of these markets.”
The rating agency said it expects the region’s telecom companies will maintain low borrowings to moderate these risks and support their credit quality in the next few years.
“Growth in broadband data demand driven by 3G and 4G adoption should boost revenues in the Sri Lankan telecoms industry by mid-to-high single digits over the next few years,” the report said.
“The top-three players could benefit from further consolidation, although regulatory obstacles may stand in the way.”
Sri Lanka’s mobile market has five players with the top-three, Dialog Axiata, Sri Lanka Telecom–Mobitel, and Etisalat controlling more than 85 percent of the subscriber base of more than 22 million mobile connections.
The other two smaller operators, Hutch and Airtel, have not been able to gain “meaningful” market share, Standard & Poor’s said, noting that with increasing market saturation, it expects them to make way for consolidation in the small market.
“We see potential for consolidation, especially with the weaker players eyeing an exit from the market.”
Deeper smartphone penetration resulting in increased data consumption and lower capital spend should also support industry profitability, the report said.
But it warned of potential regulatory disruptions, such the super gains tax and the prepaid card levy imposed by the new government, which remain a key risk for Sri Lankan telecom operators. (Colombo/September 2 2015)