CDMA is a low cost cellular technology that has been effectively used world over to provide cheaper connectivity to rural homes. Though the technology is similar to mobile phones, the handsets are similar to a bulky fixed line unit.

Being BOI companies, Suntel and Lanka Bell, are allowed to import customer premises equipment or handsets without paying import duties.

However, since rolling out CDMA services since last June, Lanka Bell and Suntel have been asked to pay up for around 180,000 units sold todate.

Sri Lanka Telecom (SLT), which is partially owned by the government and Japan's NTT and pays taxes regularly, however has got away, despite selling around 100,000 CDMA connections, according to the telecom watchdog.

"We are going on the premise that both operators (Lanka Bell and Suntel) sell the equipment to the ultimate user, hence they have to pay," BOI chief Lakshman Watawala explained.

While Suntel and Lanka Bell (who currently enjoy duty and tax breaks) have objected, the move puts SLT on equal footing on handset prices.

"It (the import duties) looks unfair, because our aim is to make telephony affordable to all," Kanchana Ratwatte, Director General of the Telecommunications Regulatory Commission of Sri Lanka told LBO on Monday.

Ratwatte, who however, declined to be drawn into the handset controversy, last Friday issued an order on SLT to cut handset prices by March 20.

"SLT charges Rs. 18,400 for a post-paid connection now when the others are charging around Rs. 12,000 for the same service," Ratwatte said.

SLT's Chief Operating Officer, Pat Abeysekera says they are still studying TRC's directive.

However, industry watchers say the move will lead to some form of price war among all three operators.

To begin with SLT's consistent 86 percent market share fell to 78 percent when Lanka Bell and Suntel had a head start in the CDMA race.

"I don't see a price war erupting because all three operators are now on equal footing, they should work on giving better tariffs and packages to retain customers," Ratwatte said.

Sri Lanka's 900,000 fixedline telephony market dominated by SLT with nearly 80 percent, distantly followed by Suntel and Lanka Bell. However, mobile penetration has skyrocketed with 3.4 million users split between Dialog Telekom (2.2 million), Mobitel (12 percent), Celltel (17 percent) and Hutchison (9 percent).

-Mel Gunasekera: mel@vanguardlk.com