Mobile Market

Mar 15, 2011 (LBO) – Profit margins of Sri Lankan mobile phone operators are likely to come under pressure as the market matures and competition intensifies, a Fitch Ratings report said. The industry is now benefitting from the pentup demand from the north and east since the end of the island’s ethnic war in May 2009.

Fitch said revenue growth may lag subscriber growth due to the potential for a gradual fall in tariffs over the medium term.

“Moreover, given the overcrowded nature of the mobile segment, profit margins are expected to come under pressure due to higher subscriber acquisition and retention costs, even if the tariff floor is maintained.”

Although the telecom regulator intervened in mid2010 and introduced floor pricing and an interconnection regime to ease competitive pressure that causes losses among operators, the floor price could be removed.

“Fitch expects that price competition cannot be ruled out in the event of the removal of floor pricing by the regulator, which the agency expects could happen in the medium term,” the report said.

The floor tariff of two rupees a minute still offers “some scope of further tariff erosion” which was evid