Etisalat’s entry affects profit recovery - Fitch

The entry of Emirates Telecommunications Corporation (Etisalat) into Sri Lanka can further delay any prospects for recovery in the Sri Lankan telecom operators’ profitability, says Fitch Ratings.

Millicom International Cellular SA recently sold its fully-owned subsidiary in Sri Lanka, Tigo, to Etisalat in a competitive bidding process. Competition in the mobile space is already highly intense with five operators vying for market share.

Price competition has led to a rapid deterioration of tariffs over the last four years which has weakened profitability of the operators, especially in the wake of the licensing of India’s Bharti Airtel Limited (‘BBB-’/Stable) as the fifth mobile operator in 2007.

There was some hope for consolidation in the market with several local mobile operators interested in Tigo. Etisalat is among the world’s fastest growing telecom companies.

Etisalat has entered markets late in the race and aggressively challenged established operators. “If Etisalat’s track record is anything to go by, it is possible that it may invest heavily to acquire more market share in Sri Lanka, which will intensify the challenges facing other operators,” said Fitch’s Asia-Pacific Corporates Team Director Buddhika Piyasena.

Tigo took a less aggressive approach to competition, although it did respond to tariff cuts initiated by others. However, Etisalat’s strong financial position allows it to aggressively challenge the established operators.