Strategies for increasing mobile penetration in Sri Lanka

Poornima Weerasekera

GOOD SIGNS: While Sri Lanka has become one of the top countries with a high mobile phone penetration per capita within the South Asian region, in comparison to many other countries in the ASEAN and APAC regions and other developing countries the national penetration still hovers around 28 per cent.

According to industry gurus we are still very much on top of the growth wave. Yet there appear to be many challenges ahead in pushing this up, to achieve the perceived target of increasing penetration up to 40 per cent by 2009. Nokia Networks Country Director Sunil Lakshmanasinghe highlighted potential strategies and lessons that can be learnt from other successful countries in making the convenience of a mobile phone a reality for all Sri Lankans.

Q: How do you compare mobile penetration in Sri Lanka, when compared to its South Asian neighbours and the Asia Pacific region?

A: When you look at the region, countries like Malaysia and the Philippines have achieved over 80 per cent and 50 per cent penetration levels respectively. Countries like India, Bangladesh and even ourselves, are setting similar benchmarks and progressively turning our goals into reality.

However, we are ahead of other countries in the South Asia region at 28 per cent mobile penetration. There are countries in the APAC region which, have even achieved near 100 per cent mobile penetration. Thus, Sri Lanka can expect to keep growing mobile penetration for some years to come. We have had exponential growth over the last couple of years at near 50 per cent levels.

This is a good sign that shows people are faster in their mobile uptake, which is a trend seen in other rapidly growing markets as well.

Q: Has the rate of growth of our telephony subscriber base, kept in par with that of our South Asian neighbours or a global benchmark?

A: Due to improved technology, aggressive competition, affordability, quick connectivity and large coverage. The national telephone density (telephones per 100 persons) for fixed access telephones increased from 5.1 to 6.3, while total telephone density including cellular phones increased from 16.4 to 23.6 in 2005. By end 2006 fixed line density increased to 9.5 per cent, while overall tele-density spiked to over 36 per cent.

The mobile telecommunication industry in Sri Lanka will grow in the next two years in terms of demand as the number of subscribers reach eight million or as the mobile telephone penetration reach 40 per cent of the population.

However, future growth will slow down, compared to previous years. Penetration rose to 27 per cent by the end of 2006 and will continue to rise to 40 per cent in the next couple of years. In countries such as Malaysia at the penetration level is over 80 per cent now and in some of the countries in the ASEAN/APAC it is at near 100 per cent levels.

In some developed countries it is over 100 per cent. Sri Lanka has plenty of room to create a level-playing field to increase the telephony penetration further.

India continues to be one of the fastest growing major telecom markets in the world. Sweeping reforms introduced by successive Indian governments over the last decade have dramatically changed the nature of telecommunications in the country.

According to figures from the Telecom Regulatory Authority the mobile sector has grown from around 10 million subscribers in 2002 to 80 million (including both GSM and CDMA services) by early 2006, aided by a mix of higher subscriber volumes, lower tariffs and falling handset prices.

Whilst GSM technology remains the dominant technology platform in the market, CDMA has quickly grabbed a 23 per cent market share. Despite the huge mobile subscriber base, this represented only around 8 per cent of India's one billion plus population.

Therefore, in comparison Sri Lanka is on the right path.

Q: What are the critical factors required to increase penetration in a developing country like Sri Lanka, where 70 per cent of the market is rural based?

A: Several factors influence the decisions made by operators to increase penetration, especially since the Average Revenue per User (ARPU) levels of customers from these areas will be low.

Operators must consider the initial capital cost of investment and the ongoing operational cost. It is critical that they pick products/technologies that can meet these challenges and help to reduce the total cost of ownership by significantly bringing down the CAPEX and OPEX.

The speed of roll out in to rural areas and areas with less support infrastructure is also critical. A whole range of new products and technologies are available - base stations are becoming smaller and can be moved around and installed speedily, they consume less electricity, need no air-conditioning or shelters, can be mounted on poles or buildings, etc.

Technology such as WiMAX and Flash OFDM make it possible to deliver voice and high speed data to the rural populace at lower costs. Operators are also moving into high capacity 3G networks in urban areas like Colombo and its suburbs, while moving 2G infrastructures into the areas demanding low capacity.

Investments need to be made on effective infrastructure platforms that enable operators to manage these different technological domains effectively without incurring too much cost on network management.

This is where they need to look into concepts like managed services (at least in some ares initially) where the network management is outsourced for greater effectiveness at a lesser cost.

When costs come down, operators will be in a position to push tariffs further down thus pushing penetration higher. In addition, operators will be able to focus on their core business of developing innovative subscriber services and finding new markets and revenue sources.

Q: All the mobile heavy weights in the local market have touted on the importance of their pre-paid customer base. Certain operators have attributed most of the growth in their subscriber base to their pre-paid clientele. How important is the 'prepaid model' to improve penetration in a developing country market?

A: In developing countries, as you penetrate each market further, prepaid becomes more and more important, to match the disposable income levels of individuals. Cards or reload values will also need to come down to accommodate the needs of different market segments.

The wide distribution of cards will be the key to success in the pre-paid model, and the ultimate success would be to make them available in every nook and cranny like certain successful FMCG products like Coca-Cola.

Some operators in other countries are even using vending machines to sell prepaid cards and to 'top-up' current cards. Thus operators will have to consider efficient Integrated Network platforms to ensure they can manage easy accessibility (for acquisition and topping up of the cards); as well as to ensure there will be no fraud, leakage of revenue, etc.

Q: Tariff reductions have been used as a weapon in recent years as competition has heated up in the local market. Some operators have reduced tariffs across the board as much as 30-40 per cent. Is the mobile industry shooting itself on the foot by inviting a price war or is this a key tool to increase penetration?

A: As the operators attempt to penetrate deeper into the market and competition becomes aggressive, specially with new entrants eyeing the market it is natural for tariffs to drop and also for more innovative service bundling strategies to emerge. Operators would be looking at the possibility to reduce total costs of operation in order to maintain margins and make each voice or data minute profitable.

Q: The regulatory framework in Sri Lanka plays an important role in determining tariff policies, mobile industry taxation as well as in spectrum allocation. Should the legal regime be more liberalised to enhance penetration. At present there is a rebate on the investments in RTNs (Rural Telcom Networks). What other incentives can be given to facilitate greater penetration?

A: A liberalised environment certainly encourages competition and improves penetration as seen in other countries such as South Korea, Malaysia, Singapore and Japan that have achieved rapid mobile penetration due to a liberal regulatory regime. The phenomenal growth we have seen is also due to the liberalised policies set by the TRC.

Also, it is important to provide incentives to ensure that gains made in urban sectors will be channelled for rural telecom development and the TRC appears to be cognisant of this need. Actually enacting policies and providing incentives that encourage operators to compete and penetrate the market would automatically create the necessary scenario for greater rural penetration.

Q: Most of the Mobile heavyweights have accelerated attempts to increase coverage islandwide, and almost all the local operators have begun to aggressively erect base stations all over. How important is this aspect in the drive to increase penetration?

A: Speed and costs will be critical in this race. The size of the market is limited, so whoever gets in there first and saps out the customers will be at an advantage. Although as the market becomes more and more prepaid based, levels of customer loyalty will decline - savvy operators will look for strategies to increase prepaid customer loyalty levels, including providing the ease of 'topping up' credits on existing cards.

Operators should look for products that will enable them to get there fast and to minimise resource requirement in doing so. Also they will need to look at the ongoing costs and resource requirement of maintaining these sites.

For examples considerations such as low power consuming equipment, ongoing maintenance (how many visits will technicians have to make, is there remotely supported maintenance and upgrade assistance) will all play a critical role. Another key aspect to consider, that is becoming increasingly important with the presence of various pressure groups is how environmentally-friendly your solutions are.

Further, the lack of other infrastructure and support facilities in the rural outskirts may also hinder penetration. However, there are special solutions that take these needs into consideration and operators will be seriously studying these products/technologies in the not too distant future.

Q: How important is the concept of managed services in increasing penetration and driving TCO?

A: Managed services enable operators to focus on core areas which they want to keep within their control and manage efficiently and effectively in order to acquire and retain customers who create the real wealth for the operators.

Outsourcing the whole or parts of their backend operations to specialists, especially as their market share grows and penetration increases will be become critical to minimising their TCO (total cost of ownership).

Tying up with a specialist on network management based on agreed KPIs (key performance indicators) and SLAs (service level agreements) can ensure that the network is maintained effectively and is up to date. It can be a win-win strategy for both the operator and the networks industry.

TCO will come down since operators will need to pay for only what they need in terms of capacity and services and will not need to make provisions for the long term. It also helps operators find new ways to cost-effectively manage a complex multi-vendor spare part and first line maintenance process and to find expertise to manage all the technologies in a multi-vendor environment.