Anticipated high capital expenditure for Sri Lankan telecommunications companies (telcos) will likely translate into a challenging year for smaller operators in the country over the course of next year, according to a report from Fitch Ratings.
“The industry as a whole will benefit from growing demand across most product segments, however, the credit profiles of newer entrants are likely to be disproportionately affected by high capex required to improve capacity, as well as high marketing costs,” Fitch Corporate Ratings Team VicePresident Hasira De Silva said.
Nevertheless, more established telcos like Dialog Axiata and Sri Lanka Telecom were given a ‘stable’ rating, in large part due to their ability to meet planned capex, mostly through internally generated funds as a result of strong balance sheets.
Dialog and SLT are respectively the largest mobile and fixed line operators in Sri Lanka.
Other operators include Etisalat, Mobitel, Hutch, Lankacom and Suntel, a company recently acquired by Dialog. The latest entrant to the Sri Lankan market is Bharti Airtel Lanka.
“Fitch expects operators to invest between 20%-40% of 2013 revenues into modernizing the network and building capacity and coverage to support greater demand. Network infrastructure-sharing is also likely to increase, particularly among challengers, as the benefits of rapid capacity and coverage deployment may compensate for sub-optimal positioning of transmission equipment and lower profitability,” the report stated.
Tariff-based competition will also remain low, meaning that current rates of Rs.2 per minute on local calls to other networks across all operators, is likely to continue despite the tariff floor being lowered to Rs.1.50, largely as a result of increased operating costs and inflationary pressures following energy price hikes and a depreciated rupee.
Consequently, tariff competition is likely to continue mainly across data services, international roaming and international direct dialing revenue. Such competition is still unlikely to have a major impact on revenue since these segments still do not account for a major portion of industry revenue.