IMI: SRI LANKA LIBERALIZES INTERNATIONAL

UNCLAS SECTION 01 OF 02 COLOMBO 000604

SIPDIS

DEPT FOR USTR

E.O. 12958: N/A
TAGS: KTDB ECON ECPS ETRD CE WTO ECONOMICS
SUBJECT: IMI: SRI LANKA LIBERALIZES INTERNATIONAL
TELECOM GATEWAYS

Ref: 02 Colombo 1610


1. Summary: In early March, Sri Lanka opened the
international voice telephony market, ending the
monopoly held by Sri Lanka Telecom (SLT),a
partially state-owned venture. The entry of
competitors into the international telecom services
market has resulted in significant reductions in
call rates. The liberalization has also enabled
Sri Lanka to meet its long overdue WTO commitments
on international voice services. The Government
has announced a new program of rural network
development to be funded through a charge on
international communications. End Summary.

SLT monopoly ends
--------------

2. Following liberalization, the
Telecommunications Regulatory Commission of Sri
Lanka (TRCSL) issued twenty-eight External Gateway
Operator (EGO) licenses. The liberalization has
enabled Sri Lanka to meet its WTO commitments on
international voice services, which were due in
year 2000. The EGOs are now able to offer
international telecom services, including voice and
voice over Internet protocol (VOIP). This ends
SLT's monopoly control over international switches,
which affected the competitiveness of other
operators previously forced to route their
international voice traffic, except data, through
SLT switches. The Government had also prevented
operators from providing VOIP services.


3. The new EGO licensees include existing network
operators as well as non-network operators. A key
feature of the EGO licenses is the prohibition on
non-network operators from building domestic
networks. Instead, they are required to use
infrastructure facilities of domestic network
operators. The EGO license fee is fixed at $50,000
and is valid for 10 years. In addition, the
operators have to pay an annual fee of 3% of
revenue. According to the TRCSL, there will be no
limit to the number of EGO licenses.

Call rates come down significantly
--------------

4. Already international call rates have come down
significantly. For example, a call to the U.S.
through SLT has dropped to Rs 20 per minute
(approximately US cents 20) from Rs 69.60
(approximately US Cents 70). Similarly, mobile
operators have also reduced their rates to US to Rs
22-Rs 25 (approximately US cents 22-25) per minute.
Call rates to other countries have similarly
dropped.

Charges
--------------

5. The EGOs are required to pay a Local Access
Charge (LAC) and an interconnection charge for
terminating calls. During the first five years,
part of the incoming LAC will be retained in a
rural telephony roll out fund, which will be used
to subsidize rural connectivity and to expand ICT
efforts. Currently, telecom penetration is largely
concentrated in the Western Province, which houses
over 65% of the fixed access phones in the country.

Concerns-SLT dominates the cables
--------------

6. Telecom industry sources highlight some key
trade concerns, which could inhibit the EGOs'
ability to obtain international leased lines and
other connections at reasonable rates and in a
timely, non-discriminatory manner. These concerns
include SLT's exclusive access to the (SEA-ME-WE)
fiber optic cable running through the region as the
only local investor to the cable project. Also,
EGOs are forced to lease circuits from SLT. A
senior official at the TRCSL acknowledged that
leased circuits provided by SLT are not
competitively priced and a substantial reduction in
tariffs is warranted, given the excess
international cable capacity owned by SLT. TRCSL
has recently commenced an investigation into the
matter and hopes to negotiate a new pricing
structure with the SLT.


7. Other connection options available to EGOs
include satellite links or investments in a costly
Indefeasible Right to Use (IRU) circuit directly
from SEA-ME-WE operators. Some non-network EGOs
already complain about the lack of cooperation by
network operators who fail to give them access to
the domestic networks.

A strong regulator will be key
--------------

8. Sri Lanka's telecommunications regulator,
TRCSL, must play a critical role in ensuring a
level playing field in terms of tariffs and access,
as well as in ensuring service quality of
international leased circuits and effective
interconnection. To meet these demands, the GSL is
planning a new Communications Convergence Act and a
strong regulator along the lines of U.S. Federal
Communications Commission.

Wills