http://www.lankabusinessonline.com/fullstory.php?nid=1159776458
Sri Lankan celcos in technology battle
May 17, 2011 (LBO) - Sri Lankan celcos are showing signs of recovering from cut throat competition and soaring inflation a few years ago, but experts say the recovery is short lived as the sector has already hit its next stumbling block.
Shorter life spans in emerging technologies and ill advised expansion plans are the latest threat to the sector's future sustainability. Rohan Samarajiva, chief executive of South Asian think-tank LIRNEasia, says most Sri Lankan celcos burnt their fingers migrating to 3G (Generation).
Most 3G networks are notorious for weak signal strengths; hence data speeds are much slower than promised.
"I think from a consumer perspective it really doesn't matter, prices are set by markets and not in relation to costs and I don't care if my provider writes-off or doesn't," Samarajiva said.
"From an investors' perspective they should be looking at the track record of management in understanding technology trends and making the right kind of decisions.
"Because for example if they had set a short depreciation period they don’t have to do write-offs; if they are doing too many write-offs purely looking at a technology perspective then they are guessing wrong."
The Sri Lankan celco market is shared between Dialog Axiata, Etisalat, Mobitel, Airtel Lanka and Hutch.
An intense price war started with Mobitel, a firm connected to state-run Sri Lanka Telecom giving a cut price tariff plan to state workers, ahead of Bharti Airtel's entry to the island.
Soon afterwards the celco sector played a tit-for-tat policy that soon turned into a bloodbath that ended with all operators posting record losses.
In 2009 market leader Dialog Axiata made a loss of 12.2 billion rupees, the highest loss ever recorded at the Colombo Stock Exchange. Nearly 66 percent of the loss came from writing-off the old network.
Dialog is the only celco that provides detail information of its finances. Mobitel publishes a summary of its finances, while the rest do not publish accounts.
Telco infrastructure is a highly cost centric investment that require millions of dollars at any given tech upgrade.
"In the past what happened was technology moved slightly slower than today and once the technology was put in place the business became a cash cow at least in the initial stages," Imran Furkan, an independent telecom sector analyst said.
"What has happened in the recent past is the rate of technological change has been so fast that it has been very difficult for telecom companies to keep up with the technological changes. It has become mandatory for them to adopt new technology and adopt them quickly.
"Competition has brought about this need and obviously from a financial perspective these are very costly investments."
Due to cut throat competition and rising costs celcos scaled back investments to upgrade networks, while continuing to milk the voice business.
Furkhan says celco firms have themselves to blame by upgrading towers to a market that lacks hand devices to support the network.
The Sri Lankan mobile handset market is currently flooded by cheap Chinese handsets that lack technology to support 3G networks.
Analyst says the technology mismatch had severely impacted the revenue model.
"What has happened is in other countries telecom providers also subsidise the phones, so if they wanted them to adopt 3G there was a subsidy process happening with regard to the phones as well," Furkhan said.
"So in effect they were incentivizing the consumer to adopt a model that fits in their business model. Here what has happened is the telecom operators, probably because of bad analysis, arrogance, in complete disconnect with their consumers have developed their own business model.
"Recently I have seen companies putting out offers with regards to free phones if you tie up with packages, but the package looks so unattractive to consumers, they really haven't tied up. If you check the numbers the sign up rates are horrible."
Sri Lankan celco's are already warming up for a price war without a fully operation 4G network.
Sri Lankan celcos in technology battle
May 17, 2011 (LBO) - Sri Lankan celcos are showing signs of recovering from cut throat competition and soaring inflation a few years ago, but experts say the recovery is short lived as the sector has already hit its next stumbling block.
Shorter life spans in emerging technologies and ill advised expansion plans are the latest threat to the sector's future sustainability. Rohan Samarajiva, chief executive of South Asian think-tank LIRNEasia, says most Sri Lankan celcos burnt their fingers migrating to 3G (Generation).
Most 3G networks are notorious for weak signal strengths; hence data speeds are much slower than promised.
"I think from a consumer perspective it really doesn't matter, prices are set by markets and not in relation to costs and I don't care if my provider writes-off or doesn't," Samarajiva said.
"From an investors' perspective they should be looking at the track record of management in understanding technology trends and making the right kind of decisions.
"Because for example if they had set a short depreciation period they don’t have to do write-offs; if they are doing too many write-offs purely looking at a technology perspective then they are guessing wrong."
The Sri Lankan celco market is shared between Dialog Axiata, Etisalat, Mobitel, Airtel Lanka and Hutch.
An intense price war started with Mobitel, a firm connected to state-run Sri Lanka Telecom giving a cut price tariff plan to state workers, ahead of Bharti Airtel's entry to the island.
Soon afterwards the celco sector played a tit-for-tat policy that soon turned into a bloodbath that ended with all operators posting record losses.
In 2009 market leader Dialog Axiata made a loss of 12.2 billion rupees, the highest loss ever recorded at the Colombo Stock Exchange. Nearly 66 percent of the loss came from writing-off the old network.
Dialog is the only celco that provides detail information of its finances. Mobitel publishes a summary of its finances, while the rest do not publish accounts.
Telco infrastructure is a highly cost centric investment that require millions of dollars at any given tech upgrade.
"In the past what happened was technology moved slightly slower than today and once the technology was put in place the business became a cash cow at least in the initial stages," Imran Furkan, an independent telecom sector analyst said.
"What has happened in the recent past is the rate of technological change has been so fast that it has been very difficult for telecom companies to keep up with the technological changes. It has become mandatory for them to adopt new technology and adopt them quickly.
"Competition has brought about this need and obviously from a financial perspective these are very costly investments."
Due to cut throat competition and rising costs celcos scaled back investments to upgrade networks, while continuing to milk the voice business.
Furkhan says celco firms have themselves to blame by upgrading towers to a market that lacks hand devices to support the network.
The Sri Lankan mobile handset market is currently flooded by cheap Chinese handsets that lack technology to support 3G networks.
Analyst says the technology mismatch had severely impacted the revenue model.
"What has happened is in other countries telecom providers also subsidise the phones, so if they wanted them to adopt 3G there was a subsidy process happening with regard to the phones as well," Furkhan said.
"So in effect they were incentivizing the consumer to adopt a model that fits in their business model. Here what has happened is the telecom operators, probably because of bad analysis, arrogance, in complete disconnect with their consumers have developed their own business model.
"Recently I have seen companies putting out offers with regards to free phones if you tie up with packages, but the package looks so unattractive to consumers, they really haven't tied up. If you check the numbers the sign up rates are horrible."
Sri Lankan celco's are already warming up for a price war without a fully operation 4G network.
