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Wednesday June 29th, 2022

Sri Lanka’s data prices are low, but it is still expensive for low income earners due to tax

The author is a researcher working on telecom and big data projects at LIRNEasia, a regional ICT policy thinktank. She was appointed Chair of the ITU’s sub-group tasked with proposing revisions to the ITU’s ICT Price Baskets in 2017. The revised methodology was adopted in 2018 by all member states.

At the World Telecommunication/ICT Symposium (WTIS) held in Geneva, December 2018, there was a panel dedicated to affordability of ICT services. The conversations were centered on price as a key driver for adoption and use of Information and Communication Technologies (ICTs).

Price isn’t everything. But it is the most notable and distinguishable factor when purchasing a good or service and therefore is paramount. It is also the perception and value of a specific service that affords the rationale for spending. According to LIRNEasia’s recent “AfterAccess” multi-country surveys, lack of affordability is among the top three reasons that affects consumer’s choices of getting online and staying online.

With the ubiquitous nature of the Internet and the increasing dependence of services offered via mobile networks, it is important to analyze the pricing of mobile broadband plans.

Are prices in Sri Lanka high?

The International Telecommunication Union (ITU), the UN apex body on ICTs, annually benchmarks prices for voice, SMS, and fixed and mobile broadband for its member states. Sri Lanka has among the lowest prices in the world, ranked at no.21 for mobile broadband (plans with minimum 1 GB data allowance/month) out of 181 countries, based on price in USD (including taxes) as a percentage of GNI per capita.

It has the lowest prices among SAARC countries in terms of absolute prices as well as price as a percentage of GNI per capita, despite the third highest tax rate (Table 1).

Price vs. Affordability

“Price” and “affordability” are terms often confused and used interchangeably. Affordability is impacted by variations in price and income, among other things. In theory, the underlying costs of providing a service tend to decrease with time (as capabilities of newer technologies afford higher levels of efficiency). However, this may not always be reflected in the final price the consumer pays.

But how low should prices go to be affordable?

According to the new targets set in 2018 by the UN Broadband Commission for Sustainable Development, “entry-level broadband services should be made affordable in developing countries at less than two percent of monthly Gross National Income (GNI) per capita, by 2025.”

While Sri Lanka is well within the target (Table 1), a country-level average of GNI per capita does not really represent the ground reality. Further analysis on price as a percentage of household income per capita (and considering the average size of a household as 3.8 persons, based on data published by the Department of Census and Statistics), by decile (Table 2) paints a clearer picture of affordability.

Table 2: Mobile broadband basket (1 GB, 2017) price as a percentage of household income per capita, by decile.

As Table 2 shows, for the poorest in the country, 1 GB of data will cost approximately eight percent of their monthly income.

Although the Broadband Commission target is not met across all income deciles, prices in Sri Lanka are still a lot more affordable than, for example, in India.

Based on the published household income quintiles, prices in India range from five percent to 33 percent of monthly income per capita, per quintile (from the highest to lowest, respectively).

There is no doubt that low prices allow for greater adoption and use. Prices that are too low, however, can threaten long-term sustainability and are detrimental to the market.

Given the capabilities of newer technologies such as 5G that promise greater speeds at lower levels of latency (or round-trip time) while dealing with issues like congestion that current networks face, operators should to be incentivised to invest. Without regulatory certainty, it is unlike that the significant investments required will be made.

If the government wants to make Internet access more affordable, it should consider cutting taxes, which are third highest in the region, below only Pakistan and Bangladesh.

If the government wants to address the needs of those in the poorer deciles or specific market segments, it should use the revenues collected from international calls and design targeted subsidies without harming the already problematic investment environment.


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