Sri Lanka’s Hutch-Etisalat to push harder in data; competition reduced: Fitch

ECONOMYNEXT – A planned merger of Sri Lanka’s Etisalat and Hutchison mobile network will reduce competition and armed with more spectrum, the merged entity may expand broadband and capture data revenues, Fitch, a rating agency said.

"The long-overdue industry consolidation, announced on 26 April 2018, is likely to provide some relief from pricing pressure, especially in the data segment, where telcos have not been able to fully capture the strong growth in data traffic," Fitch Ratings said in a statement.

"However, Dialog and SLT’s free cash flows will continue to be negative, despite potential of larger cash generation, because they need to invest to expand their fibre networks and infrastructure to address fast-growing data demand.

"We expect the merged Hutchison-Etisalat entity to also accelerate its 4G capex investment to strengthen its network position to catch up with Dialog and SLT."

The Hutch-Etisalat merger will create the third-largest celco in Sri Lanka with 10-12 percent of the market, ahead of Bharti Airtel’s Sri Lanka unit and below second ranked Sri Lanka Telecom which has 24 percent.

The merged entity will have spectrum of 50MHz, higher than Dialog’s 47.5 MHz and equal to SLT.

While the will push data, price competition was not expected.

"Importantly, it will have 15MHz of spectrum in the cost-efficient 900MHz band, compared with 7.5MHz each for SLT and Dialog, which it will likely use to roll out 4G networks," Fitch said.

"We do not foresee the Hutchison-Etisalat merged entity threatening more price competition or taking significant market share from Dialog and SLT in the short to medium term as they each have struggled to make meaningful EBITDA (earnings before interest, tax, depreciation and amortization) profits and have high capex requirements.

"Both Dialog and SLT benefit from entrenched market positions, backed by solid network positions and established customer bases.





"Hutchison-Etisalat may lose some market share in the process of integrating their operations, as it is natural in when such large telcos combine."

Competition in voice was also restricted by the regulator with a 1.5 rupee a minute mandate floor rate, which has given smaller players "little flexibility to compete in the voice segment," Fitch said. (Colombo/May01/2018)

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