ETILSALAT: THE NEWEST PLAYER IN THE SRI LANKAN

UNCLAS COLOMBO 001010 SIPDIS STATE FOR SCA/INSB AND EEB/IFD/OMA; STATE PASS FOR VICKY KADER, TREASURY FOR MARY BRENNEN, AND COMMERCE FOR ITA YESIN. E.O. 12958: N/A TAGS: CE ECON EFIN ETRD PGOV ECPS EINV SUBJECT: ETILSALAT: THE NEWEST PLAYER IN THE SRI LANKAN TELECOM SECTOR REF: COLOMBO 948 ¶1. (SBU) SUMMARY: Competition within Sri Lanka's mobile telecommunications sector is poised to increase further with the recent entry of Emirates Telecommunications Corporation (Etilsalat). In October 2009, Etilsalat purchased TIGO, one of five mobile service providers in Sri Lanka. Etilsalat's entry into the market is viewed with skepticism within Sri Lanka's intensely competitive mobile market. Price competition has led to a marked decline in mobile tariffs and has weakened profitability of all current operators. Foreign Direct Investment has been concentrated in the telecommunications sectors, which has dramatically reduced prices for consumers and increased choices. End Summary. ¶2. (U) Etilsalat entered Sri Lanka's mobile telecommunications market in October 2009 when it beat out fellow bidder Bharati Airtel (India) to acquire TIGO. TIGO had been owned by Millicom International, and was the third largest mobile operator in Sri Lanka with a market share of almost 20%. TIGO's Chief Executive Officer, Dumindra Ratnayaka, expressed satisfaction with TIGO's acquisition by Etilsalat saying that TIGO had been looking for a company with strong credentials and backing. TIGO will now be in a position to take advantage of Etilsalat's strength and experience in the voice, data, and video sectors. ¶3. (SBU) Etilsalat's entry into the Sri Lankan mobile market is viewed with skepticism by some telecom sector analysts. Fitch Ratings recently noted that the entry of Etilsalat may further delay any prospects of a return to profitability in the Sri Lankan mobile sector. Sri Lanka's mobile sector has five operators and it is highly competitive and thin on profit. Price competition has led to under-cutting, a marked decline in mobile tariffs, and weakened profitability of all telecom operators. As a result, the telecom sector, which had been one of the most profitable business sectors in Sri Lanka, is now facing financial uncertainty. ¶4. (U) It is not yet clear how Etilsalat will pursue its operations in Sri Lanka. According to Fitch Ratings, it is possible that Etilsalat may invest heavily to acquire significant market share, which will likely intensify challenges facing other mobile operators. Given Etilsalat's strong international links, local operators may see heavy competition in the international calling sector as well as potential cuts in already low calling rates for local calls. Competitor Airtel believes increased competition could possibly lead to consolidation. Surprisingly, an Airtel representative recently noted that Etilsalat's entry into the market was not a problem for their business. According to other key players within the mobile sector, the smallest mobile operator, Hutch, is likely to face the most difficulty moving forward. The Sri Lankan Telecommunications Regulatory Authority (TRA) will need to play an effective role in order to expedite the introduction of interconnection charges to the market and ensure a fair marketplace for all competitors. ¶5. (SBU) Comment: The introduction of Etilsalat into the Sri Lankan mobile telecommunications sector will undoubtedly be a win-win for the consumer. Prices will likely remain competitive in both the local and international calling sectors. It remains to be seen whether profitability can be restored to a sector which had hoped to now have four mobile providers vice five. That said, the TRA has a poor track record of positive involvement in the telecom sector and they may not be a force to be counted on moving forward. TRA has, in the past, been slow to respond to the changing dynamics of the mobile telecom marketplace and has not always made decisions in a transparent and equal manner. End comment. BUTENIS