COLOMBO, Nov 17, 2014 (EconomyNext) – Sales growth of Sri Lankan telecommunications firms will be in the mid-single-digits in 2015 supported by growing data usage with the need for heavy investment requirements to expand networks or acquire new spectrum, Fitch Ratings said.
It said in a report on telco profitability in South and South East Asia that Sri Lanka continues to be the most crowded market with five operators serving a population of 21 million.
"Most South and South-East Asian telcos will face a generally challenging environment in 2015, although our sector outlooks will remain broadly stable," Fitch said.
"Free cash flow (FCF) will be minimal or negative due to high capex; profit margins will decline on competition; and revenue growth will be limited to low-to-mid single digit percentages as fast-growing data services offset declines in traditional voice and SMS revenues."
Fitch said Indian, Indonesian, Sri-Lankan, and Philippines telcos’ 2015 revenue is likely to grow by mid-single-digits due to growing data usage arising from the greater availability of cheaper smartphones and generally affordable data tariffs.
But FCF will be under pressure as telcos will continue to invest heavily in 3G/4G networks at the same time as cash from operations grows slowly due to lower margins.
"Philippine, Sri-Lankan and Thai telcos’ investment requirements are particularly high as they plan to invest 25%-30% of their revenue either to expand networks or acquire new spectrum," the report said.
More consolidation is expected with mergers and acquisitions. "Weaker telcos in India, Indonesia and Sri-Lanka may consolidate or exit the industry allowing the remaining telcos to enjoy higher tariffs," Fitch said.
"These weaker, unprofitable operators will see mergers as a way to strengthen their uncompetitive market positions, and to maximise their ability to invest in capex, given their limited financial flexibility."