Capital Question

Dec 15, 2009 (LBO) – Capital investment in Sri Lanka’s telecom infrastructure has plummeted amidst a price war and high taxation, which will crimp expansion in the future and broadband roll out in the island, top telecom operators said. “Before the price war each operator was spending about 150 to 200 million (US dollars) a year in capital expenditure,” Dumindra Ratnayake, head of Tigo Sri Lanka said at a forum organised in Colombo by LirneAsia, a regional policy research body.

“This year all operators put together may have invested about 150 million.”

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 percent two years ago to around 30 percent 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 indust