Sri Lanka Telecom Capex
plummets amid price war

Operators and capital investment in Sri Lanka’s telecom infrastructure has plummeted amid a price war with high taxation threatening crimp expansion and broadband rollout on the island in the future, top telecom operators have said.
“Before the price war each operator was spending about 150 to 200 million (US dollars) a year in capital expenditure,” Head of Tigo Sri Lanka, Dumindra Ratnayake said at a forum held in Colombo by Lirne Asia, a regional policy research body.
“This year all operators put together may have invested about 150 million.” Dumindra added.
The price war started less than two years ago, just ahead of the entry of India’s Bharti Airtel to the island. Mobitel, a unit of fixed access operator Sri Lanka Telecom, led the price war with its Upahara package targeting state workers. Soon, most operators were in the red and margins plummeted. Fixed access operators were also hit.
Earnings before interest tax depreciation and amortization (EBIDTA) have plunged from 60% two years ago to around 30% now.
“Unless you can get your EBIDTA margins above the 50 percent mark - and today they are in the upper twenty percent or mid thirties – it means there isn’t going to be enough cash in the industry for re-investment,” Chief Operating Officer of Malaysia’s Axiata, Hans Wijayasuriya said. Axiata controls Sri Lanka’s largest celco, Dialog Telekom.
Operators say revenue to capital expenditure had fallen to about 15 to 20%.
Wijayasuriya said that in 2006, capex to revenue ratio was 90% at his firm and capex to profits was 200%.
“These are the kind to ratios we need to look at in developing countries,” he said. “This will slow down development. It will slow down the bottom of the pyramid story (the low income users).”
Ratnayake sad that around 35% of mobile revenues now go the government.
“Today my spectrum fees are 10 % of revenues,” he said. “I still make 35% EBITDA but it is not enough because the cost of equipment is very high. To sustain this business you need 60% EBIDTA - that is basic reality.”
Operators say the focus of the regulator should change from driving prices down.
“In Sri Lanka the only thing that has been going south is telecom prices,” said Ratnayake.
As a maturing industry with 50% penetration, the industry should be in a cash generating position,” said Wijayasuriya.
However a price war has also started in India, which is likely to mirror Sri Lanka’s trends, driving margins down. (LBO)