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Message: <blockquote data-quote="prasadana2" data-source="post: 7812188" data-attributes="member: 4664">Sri Lanka number portability plan threatens celco profitabilityMay 07, 2010 (LBO) - Plans by Sri Lanka's telecommunications regulator to introduce mobile phone number portability, allowing subscribers to switch networks while using the same number, could threaten industry profitability, Fitch Ratings said.Implementation of Mobile Number Portability (MNP) could increase subscriber acquisition and retention costs within the industry, it said in a statement. Fitch said it believes the threat from MNP to larger and more established operators is higher, including Sri Lanka Telecom and Dialog Telekom.To limit further damage to the industry, formal tariff floors and strict laws that enforce healthy competition should precede MNP implementation, it said.Last month, Sri Lanka's Telecommunications Regulatory Commission (TRC) called for consultancy services to suggest ways to introduce mobile phone number portability."Severe price competition in the Sri Lankan mobile space since mid-2005 has significantly eroded the telecom operators' profitability," Fitch said."However, price-based competition has eased since 2009 given the operators' weakened financial profiles, and an unofficial tariff floor implemented by the TRC."Hasira De Silva, Associate Director with Fitch's Asia-Pacific Corporates team, said while the present unofficial tariff floor should help curb continued deterioration in mobile operators' finances, implementation of MNP could increase subscriber acquisition and retention costs within the industry."This would exert further pressure on the operators' balance sheet quality." MNP would allow subscribers to switch mobile service providers while keeping the same mobile number, and is seen as a tool to encourage competition and operator efficiency.Over 80 percent of Sri Lanka's 12.7 million mobile subscribers at end-December 2009 were pre-paid users.Sri Lanka is estimated to have a 60 percent 'headline penetration' rate, based on the number of SIM (subscriber identity module) cards in use, an indication of the percentage of population that are mobile subscribers.But a "sizable" share of these pre-paid customers uses multiple SIM cards and "arguably have little or no loyalty to any one operator," Fitch noted."With MNP, there will be more competition for post-paid and premium pre-paid users who are arguably more profitable for the operators," said De Silva.While MNP could force the operators to improve service standards, its implementation could also provoke greater expenses pertaining to loyalty-based rewards, brand-building and product differentiation."Furthermore, those operators who currently maintain a premium above-the-floor tariff, on account of greater investments in network capacity and coverage, and prior brand name investments, could be forced to match competitors' lower tariffs, in order to retain market share."Fitch said falling industry profitability was neglected by TRC for several years, in favour of higher competition.In a special report published in December 2009, entitled Fitch identified Sri Lanka as having the highest "regulatory risks" in the region due to weak and uncertain regulations."Fitch however considers TRCSL's recent actions, such as the introduction of floor tariffs for voice services, as positive for operators' credit profiles," the statement said."However, to limit further damage to the industry, the agency believes formal price floors and strict laws that enforce healthy competition should precede the implementation of MNP."</blockquote>

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