Tele Outlook

Nov 19, 2012 (LBO) – Sri Lanka’s telecom operators would grow on higher spending by subscribers and reduced price competition as the market penetration approaches 90 percent, a rating agency has said.

Penetration has already reached 87 percent by the second quarter of 2012, and fixed wireless subscribers were declining, Fitch Ratings said in a report on Sri Lanka’s telecom sector.

The rating agency said the outlook for Sri Lanka Telecom (rated BB- with a domestic rating of ‘AAA(lka) and Dialog Axiata (domestic rating of ‘AAA(lka)’ was stable with muted tariff competition.

Sri Lanka’s telecom regulator stepped in with price floors following surge of price competition that came with the entry of a fifth mobile firm to Sri Lanka, which saw profits and capital expenditure coming under pressure.

Fitch said operators now charge two Sri Lanka rupees a minute for calls to other networks, despite the regulatory floor being 1.

50 rupees.

“Overall, Fitch does not expect a resurgence of tariff-based competition given the increase in operating costs and inflationary pressures stemming from hikes in energy prices, and the sharp depreciation of the local currency since early 2012,” the rating