Sri Lanka’s telecom regulator, Telecommunication Regulatory Commission (TRC) has issued instructions to telcos to scrap the existing two rate structure for on-net and off-net voice calls and replace it with a new common floor rate with effect from February 01, 2016.
While the new floor rates have been set below the existing floor rates for voice calls taken outside the network, the voice rates within the network and the SMS rates have been raised. (See table for the new and existing rates) The TRC said the floor rate revision was made in response to submissions made by the telcos and would only be applicable for new connections issued from the effective date.
New floor rates could be a move by the telcos to minimize the impact of declining margins amid the substitution of traditional voice/text services by low margin data services.
It may have also been prompted by the thumping one-off taxes slapped on telcos by the Interim Budget in January 2015.
However, the new floor rates are unlikely to have a significant impact on their margins as the voice market is long saturated in Sri Lanka. Meanwhile, the letter sent to the chief executives of telcos by the newly appointed TRC Director General, Sunil S. Sirisena on January 5, 2016 read, “…the Commission has decided to appoint a committee to study the Commission approved tariff plans which were below the determined common floor rates and make recommendations as to whether such tariff plans should be revised in line with the common floor rates or allow to continue as it is”.
The TRC in 2010 brought in floor rates for the first time to safeguard the industry when its viability was threatened by the intense price war among service providers, which led to price undercutting to grab market share from each other in a largely saturated mobile telephony market.
However, this measure only temporarily improved telco fortunes as the rapid take off of cheap data services subsequently began to eat into their margins.
Sri Lanka’s telco market is one of the most overcrowded markets in the world with five operators serving a 21 million population. Fitch Ratings this week revised the outlook on the Lankan telcos to ‘Stable’ from ‘Negative’ due to scrapping of recurring taxes imposed on them from the Interim Budget in 2015, which could have diluted the industry Earnings Before Interest Tax Depreciation and Amortization margin by 6 – 7 percent.
Fitch Ratings in March 2015 revised down the outlook to ‘Negative’ from ‘Stable’ due to a host of hostile, one-off and retrospective taxes imposed on the telcos.
However, Fitch Ratings in November 2014 said the outlook on the Lankan telcos could be revised to ‘Positive’ (from ‘Stable’), either if industry consolidation results in improvement in profitability or the regulator’s introduction of a data tariff floor, easing the pressure on profitability.