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Cablegate: Telecommunication Reforms and Opportunities in Sri

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 COLOMBO 001610

SIPDIS

STATE FOR SA/INS
STATE PLEASE PASS TO USTR FOR FHUEGEL
TREASURY FOR DO/GCHRISTOPOLUS AND ADNAN KIFAYAT
MANILA FOR USADB

E.O. 12958: N/A
TAGS: KTDB BEXP ECPS ECON EINV ETRD CE ECONOMICS
SUBJECT: Telecommunication reforms and opportunities in Sri
Lanka

Ref: (a) Colombo 001400 (b) Colombo 001109 (C) Colombo

00268

1. Summary: Sri Lanka plans extensive reforms in the
telecommunications sector with the aim of developing a
technology-neutral, open and convergent telecommunications
market. One of the most significant developments will be
the opening of international voice services. Other planned
reforms include liberalization of all market segments, and
deregulation of tariffs and controls on cross ownership of
services. A National Communications Policy (NCP) containing
these reforms is to be adopted by the Government soon.
These reforms will change the telecommunications landscape
of the country and help implement an ambitious ICT sector
strategy. The reforms, if completed, will also enable Sri
Lanka to meet its WTO commitments. End Summary

2. The ending of a 5-year monopoly in August 2002 in
international voice services enjoyed by Sri Lanka Telecom
(SLT) has presented an opportunity for extensive reforms in
the telecommunications sector. Sri Lanka will adopt a new
National Communications Policy (NCP) that seeks to promote
the establishment of a technology-neutral, open and
convergent telecommunications market structure with minimal
restrictions and regulations. The policy, the development
of which was sponsored through a World Bank consultancy, was
drafted with extensive industry and public input. It covers
fixed and mobile telephone services, data and internet
services, satellite phone services, cable TV and
broadcasting services, and tries to meet requirements of
technological developments in these markets. The GSL also
plans to introduce a new Convergence Act covering ICT,
broadcast, media and telecommunications by December 2002.
This act will replace the various laws and regulations
governing these services.

Opening of international voice services
---------------------------------------
3. One of the most important reforms is the proposed
opening of international voice telephone services. The move
will allow fixed voice, mobile and data operators to operate
international voice services, and enable Sri Lanka to meet
its WTO obligations to liberalize international voice
telecommunications (due on December 31, 1999). The new
policy will lift current entry barriers to technologies such
as Voice Over Internet Protocol (VOIP) and also remove
approvals now needed for satellite connections. In
addition, it promises a review of the current de facto
monopoly of SLT on underground international cables with a
view to ending the monopoly.

4. While the GSL plans to fully open the international
sector with no predetermined limits on licenses, existing
private fixed line telecom operators who have invested
heavily on network expansion have warned against a "big
bang" opening of the market. Instead, they have urged the
government to adopt an incremental approach for the
international gateway liberalization by limiting the number
of players to two initially. The Government is unlikely to
accede to this request. A top government telecom official
recently signaled that it would not establish a duopoly,
saying that such an arrangement would lead to illegal bypass
by other operators.

5. Prior to opening the sector, the GSL is hoping to
establish a strong interconnection environment and has
invited consultants to advise on three areas - comparative
models in international telecom services markets,
interconnection agreements, and licensing agreements for new
players entering the international voice market. The
interconnection agreements will also seek to establish a
calling party pay (CPP) system for mobile users, which will
significantly boost mobile services.

Opening of other markets
------------------------
6. In addition to the liberalization of the international
gateway, the NCP will allow access by new entrants to fixed
wire line and mobile services, and permit cross ownership of
multiple networks and services. At present, mobile
operators cannot operate fixed lines and fixed line
operators cannot operate mobile services. For an initial
period of 12 months, the ownership of multiple services will
be allowed only in demarcated low-density areas. Despite
the market opening, complete liberalization of wireless
services will be delayed until 2005 due to an exclusivity
clause in the licenses of the current operators.

Regulation: Communications Regulatory Commission
--------------------------------------------- ---
7. Under the new policy, the Telecommunications Regulatory
Commission (TRC) will be named Communications Regulatory
Commission (CRC) and will play the role of an independent
regulator to create an open and fair environment in line
with requirements of WTO's telecommunications services
agreement. CRC's regulatory authority is expected to ensure
competition in all markets.

8. One of the most significant regulatory changes will be
the deregulation of tariffs. Under the policy, CRC will
regulate tariffs only in cases of services provided by
dominant or monopoly operators, where market forces are
insufficient to constrain service pricing. The policy
contains safeguards to ensure fair competition in the use of
infrastructure including restrictions on operators that have
significant market power or control bottleneck facilities.
Also in the cards is a review of spectrum management with a
view to introducing a transparent spectrum allocation and
pricing system. CRC will also be responsible for ensuring
access to space management through Intelsat or other
satellite systems.

Business opportunities
----------------------
9. The opening of the telecommunications sector, which is
the fastest growing sector in the economy with a growth rate
of over 25 percent in 2001, will present significant trade
and investment opportunities. Sri Lanka imports various
telecommunications equipment from abroad, including the US,
to support network expansion. The services to be opened for
investment include domestic and international telephone
services, leased circuits and dedicated telecommunications
networks and services.

10. According to the new policy, CRC may entertain
applications without regard to the nature of technology,
including fixed wire line or Internet Protocol. Additional
licenses will also be issued for mobile and paging services,
depending upon the availability of radio frequencies.
Investors are likely to enjoy low license fees designed to
promote market entry. CRC will also evaluate the
feasibility of introducing next generation communication
services. Another area to be liberalized is public access
services on a resale basis such as public pay phones and
tele-centers. The government will also encourage cable TV
and other multimedia broadband services.

Expansion of rural services
---------------------------
11. The National Universal Access Policy (NUA) contained in
the NCP seeks to promote the expansion of information and
communication technology in rural areas not serviced by
suppliers on a commercial basis. The services include
conventional telephone, Internet and email facilities and
establishment of community tele-centers. All
telecommunications operators and service providers will be
obliged to contribute to the achievement of "national
universal access" (NUA) objectives as a condition of their
license.

e-Lanka Vision
--------------
12. The GSL is planning in the next few weeks to launch a
comprehensive ICT road map that details an e-lanka vision
for Sri Lanka. Sri Lanka has sought the assistance of
various partners such as USAID, the World Bank and the
Government of India for the development of the ICT road map.
Sri Lanka intends to use ICT as a lever for overall social
and economic development in the country. The new NCP is
expected to lay the foundation for the implementation of the
ICT roadmap by unshackling the sector and opening it for
private investment and competition.
Amselem

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