Profit Pressure

May 24, 2011 (LBO) - Sri Lanka's mobile phone industry is 'overcrowded' and ripe for consolidation with intensifying competition eroding profitability, Fitch Ratings said in a new report on the telecoms sector. Overcrowding remains the key medium-term risk to telecom operators (telcos) in Sri Lanka, the rating agency said.

It expects competition among local telcos to remain high through 2011.

"Sri Lanka’s mobile industry is one of the most competitive markets in the AsiaPacific region, with five operators competing for a total addressable population of 21 million," Fitch said.

"Subscriber acquisition and retention costs are likely to keep operators' profitability under pressure over the medium-term, as subscriber growth in both the mobile and fixed segments has slowed."

This was because of high headline penetration which by end-2010 was 83 percent of population for mobile phones and 17 percent of population for fixed phones.

The agency noted that "some consolidation among operators is likely to prove healthy for the industry."

The three larger mobile operators - Dialog, Mobitel, a subsidiary of state-run Sri Lanka Telecom, and Etisalat, a subsidiary of Emirates Telecommunicat