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Cablegate: Etilsalat: The Newest Player in the Sri Lankan

VZCZCXRO8184
RR RUEHBI RUEHCI RUEHDE RUEHLH RUEHPW
DE RUEHLM #1010 3080259
ZNR UUUUU ZZH
R 040259Z NOV 09
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC 0722
INFO RUEHAD/AMEMBASSY ABU DHABI 0481
RUEHKA/AMEMBASSY DHAKA 2010
RUEHIL/AMEMBASSY ISLAMABAD 9046
RUEHKT/AMEMBASSY KATHMANDU 7284
RUEHNE/AMEMBASSY NEW DELHI 3439
RUEHCG/AMCONSUL CHENNAI 9609
RUEHDE/AMCONSUL DUBAI 0178
RUEHKP/AMCONSUL KARACHI 2560
RUEHCI/AMCONSUL KOLKATA 0448
RUEHLH/AMCONSUL LAHORE 0091
RUEHBI/AMCONSUL MUMBAI 6903
RUEHPW/AMCONSUL PESHAWAR 0374
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS COLOMBO 001010

SIPDIS

STATE FOR SCA/INSB AND EEB/IFD/OMA; STATE PASS FOR VICKY
KADER, TREASURY FOR MARY BRENNEN, AND COMMERCE FOR ITA
YESIN.

E.O. 12958: N/A
TAGS: CE ECON EFIN ETRD PGOV ECPS EINV
SUBJECT: ETILSALAT: THE NEWEST PLAYER IN THE SRI LANKAN
TELECOM SECTOR

REF: COLOMBO 948

1. (SBU) SUMMARY: Competition within Sri Lanka's mobile
telecommunications sector is poised to increase further with
the recent entry of Emirates Telecommunications Corporation
(Etilsalat). In October 2009, Etilsalat purchased TIGO, one
of five mobile service providers in Sri Lanka. Etilsalat's
entry into the market is viewed with skepticism within Sri
Lanka's intensely competitive mobile market. Price
competition has led to a marked decline in mobile tariffs and
has weakened profitability of all current operators. Foreign
Direct Investment has been concentrated in the
telecommunications sectors, which has dramatically reduced
prices for consumers and increased choices. End Summary.

2. (U) Etilsalat entered Sri Lanka's mobile
telecommunications market in October 2009 when it beat out
fellow bidder Bharati Airtel (India) to acquire TIGO. TIGO
had been owned by Millicom International, and was the third
largest mobile operator in Sri Lanka with a market share of
almost 20%. TIGO's Chief Executive Officer, Dumindra
Ratnayaka, expressed satisfaction with TIGO's acquisition by
Etilsalat saying that TIGO had been looking for a company
with strong credentials and backing. TIGO will now be in a
position to take advantage of Etilsalat's strength and
experience in the voice, data, and video sectors.

3. (SBU) Etilsalat's entry into the Sri Lankan mobile market
is viewed with skepticism by some telecom sector analysts.
Fitch Ratings recently noted that the entry of Etilsalat may
further delay any prospects of a return to profitability in
the Sri Lankan mobile sector. Sri Lanka's mobile sector has
five operators and it is highly competitive and thin on
profit. Price competition has led to under-cutting, a marked
decline in mobile tariffs, and weakened profitability of all
telecom operators. As a result, the telecom sector, which
had been one of the most profitable business sectors in Sri
Lanka, is now facing financial uncertainty.

4. (U) It is not yet clear how Etilsalat will pursue its
operations in Sri Lanka. According to Fitch Ratings, it is
possible that Etilsalat may invest heavily to acquire
significant market share, which will likely intensify
challenges facing other mobile operators. Given Etilsalat's
strong international links, local operators may see heavy
competition in the international calling sector as well as
potential cuts in already low calling rates for local calls.
Competitor Airtel believes increased competition could
possibly lead to consolidation. Surprisingly, an Airtel
representative recently noted that Etilsalat's entry into the
market was not a problem for their business. According to
other key players within the mobile sector, the smallest
mobile operator, Hutch, is likely to face the most difficulty
moving forward. The Sri Lankan Telecommunications Regulatory
Authority (TRA) will need to play an effective role in order
to expedite the introduction of interconnection charges to
the market and ensure a fair marketplace for all competitors.

5. (SBU) Comment: The introduction of Etilsalat into the Sri
Lankan mobile telecommunications sector will undoubtedly be a
win-win for the consumer. Prices will likely remain
competitive in both the local and international calling
sectors. It remains to be seen whether profitability can be
restored to a sector which had hoped to now have four mobile
providers vice five. That said, the TRA has a poor track
record of positive involvement in the telecom sector and they
may not be a force to be counted on moving forward. TRA has,
in the past, been slow to respond to the changing dynamics of
the mobile telecom marketplace and has not always made
decisions in a transparent and equal manner. End comment.
BUTENIS

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