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Ó Paul Budde Communication Pty Ltd

Sri Lanka - Mobile Communications and Broadcasting
1. SYNOPSIS
The highly competitive mobile market in Sri Lanka had been running with a healthy overall annual
growth rate of 40%-60% for the last few years. With mobile penetration still relatively low compared
with other more developed Asian markets, having reached 76% by the middle of 2010, the strong
annual growth seemed to be continuing at around 25%. The market has undoubtedly benefited from its
liberalisation and the competition that came with four operators seriously battling it out for market
share. This is despite one of these – Dialog Telekom – still clinging to a large slice (44% coming into
2010) of the market. The number of mobile operators increased to five with Bharti Airtel Lanka
launching a mobile service in early 2009. Bharti hit the market hard, signing up one million subscribers
in just six months. This report presents an overview of mobile phone services in Sri Lanka. The
country’s TV broadcasting sector is also briefly reviewed.

2. MOBILE COMMUNICATIONS

2.1 OVERVIEW OF SRI LANKA’S MOBILE MARKET

Mobile telephone services have been booming in Sri Lanka. By offering an effective and efficient
alternative to the fixed-line networks, which have faced chronic problems in meeting the general
demand for telephone services across the country, the mobile phone has become an essential service
and is no longer considered a substitute for a fixed-line service. The Sri Lankan mobile market was still
growing at an annual rate of 40% into 2009; this growth rate had eased slightly to 30% coming into
2010. The strong
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battled for market share and position:
 Dialog Axiata (formerly Dialog Telekom);
 Mobitel;
 Etisalat Sri Lanka (formerly Tigo);
 Hutchison Lanka;
 Bharti Airtel Lanka (launched January 2009).

The rapid growth in mobile subscribers experienced over a number of years was in fact easing by
2009/10; in the meantime, the increased levels of competition saw all operators lowering prices and
advertising aggressively to retain customers or win new ones.

In July 2009 three of the operators said they were making special efforts to tap unmet demand in the
underserved northern and eastern regions where government troops had finally defeated rebel forces.
This move was in line with the accelerated development program that had been put in place in the
affected provinces:
 Dialog Telekom supported the government in its program of infrastructure development in what it
referred to as ‘the liberated areas’ in the northern and eastern provinces. It had been expanding its
services in parts of the north and east, reporting a total investment to that stage exceeding US$30
million. Dialog said it intended to expand its 2G and 3G/3.5G mobile services, as well as CDMA-
based fixed-line and WiMAX-based broadband services in both territories.
 Mobitel’s development plans for the north and east were estimated to reach approximately US$100
million over a three year period. It said there had already been deployment of over 25 base stations
in the northern province in the first half of 2009; the operator planned to deploy a total of over 100
base stations in the northern and eastern provinces.
 Tigo launched its GSM-based services in the northern provinces and had started coverage in the
east; it was hoping to expand its coverage in the north.

There were suggestions that the arrival of a fifth operator in 2009 was likely to create an overcrowded
market. When Bharti Airtel Lanka finally launched its service after a two year delay it certainly hit the
market hard signing up one million subscribers in just six months. By the end of 2009 it had claimed
about 8% of market share.

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Another of the operators, Lanka Cellular, had not remained competitive earlier on as customers left its
analogue service. The operator had been looking to the launch of a new GSM network to become a
strong performer in the market. In 2004 an energised Hutchison Lanka used its still valid mobile
licence to start a new GSM 900 service under the Hutch brand. The service grew an impressive 160%
in 2005 and by late 2007 was holding 14% of the expanding market. However, this had fallen back to
6% by 2009.

Sri Lanka was early to introduce prepaid mobile services, which have come down to the same price as
postpaid subscription rates under competitive pressures. Likewise, competition has resulted in
consumer-friendly practices such as per-second billing (as opposed to billing in increments of minutes
or longer) to be introduced without regulatory intervention.

Table 1 – Mobile subscribers and penetration – 1995 - 2011

Year Subscribers Penetration
1995 51,300 -
1996 71,000 -
1997 114,900 -
1998 174,200 0.9%
1999 256,600 1.3%
2000 387,100 2.2%
2001 590,500 3.3%
2002 726,600 4.6%
2003 1,394,600 6.8%
2004 2,156,500 11%
2005 3,322,600 16%
2006
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2007 7,783,500 41%
2008 11,082,100 59%
2009 14,095,300 70%
2010 (Jun) 15,868,400 76%
2010 (e) 17,000,000 83%
2011 (e) 20,000,000 97%
(Source: BuddeComm based on Global Mobile, TRC and ITU data)

The Ministry of Defence directed the TRC in 2007 to ban the sale of all telecoms services by third
parties in the north and east of the country. The move was triggered by the suspicion that Liberation
Tigers of Tamil Eelam (LTTE) were using the network to coordinate military operations against
government forces.

2.2 MAJOR MOBILE OPERATORS

Table 2 – Mobile operator market share based on subscribers – 2009
Operator Subscribers (million) Market share
Dialog Telekom 6.37 44.4%
Mobitel 3.40 23.7%
Etisalat Sri Lanka1 2.60 18.1%
Hutchison Lanka 0.73 5.1%
Bharti Airtel (e) 1.25 8.7%
Total 14.35 100%
(Source: BuddeComm based on company data)
Note: 1formerly Tigo.

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Table 3 – Mobile operators, subscribers and annual change – March 2009

Operator System Launch Subscribers Annual change
GSM 900/1800 2009 500,000 n/a
Bharti Airtel
WCDMA 2100 2009 100,000 n/a
GSM 900/1800 1995 5,659,000 27.3%
Dialog Telekom
WCDMA 2100 2006 193,000 93.0%
Hutchison Lanka GSM 900 1993 722,000 -44.0%
GSM 1800 2004 2,810,000 73.6%
Mobitel
WCDMA 2100 2007 105,500 955.0%
Tigo (Celltel Lanka) GSM 900/1800 2000 2,111,300 54.1%
Total 12,200,800 38.1%
(Source: BuddeComm based on Global Mobile data)

2.2.1 Dialog Axiata (formerly Dialog Telekom)

2.2.1.1 Company overview

Dialog Telekom continued to be Sri Lanka’s No. 1 ranked mobile operator, with a formidable 55% of
market share by mid-2007. This had dropped to 48% by mid-2009, as the mobile market became
increasingly competitive. The operator’s subscriber base was 90% prepaid by 2009, up from 75% in
2004. (See Table 5)

Under its corporate entity, MTN Network Pty Ltd, a fully owned subsidiary of Telekom Malaysia, the
company pioneered GSM technology in Sri Lanka. It was issued a GSM licence in 1994 and its service
was launched in the later part of 1994 under the name Dialog GSM and launched its dualband GSM in
2003. Initiallyin-iimbemis
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Colombo, Kandy, Nuwara Eliya, Anuradhapura, Polonnaruwa, Ratnapura, Kurunegala, Kataragama
and Puttalam.

As the network service provider for Asia Cellular Satellite System (ACeS) in Sri Lanka, Dialog GSM
focused on offering this service in the northern and eastern parts of the country where ACeS could be
used for emergency telecom needs. ACeS offered a regionally focussed Global Mobile Personal
Communications Systems (GMPCS) service. MTN subscribers could use the ACeS GMPCS/GSM dual
mode handsets in areas outside cellular range, using a single contact number. MTN also held the right
to distribute and market Thuraya’s mobile satellite services and products in Sri Lanka. (see chapter
2.4.1)

In 2006, Dialog Telekom acquired 100% of MTT Network for US$19.2 million. MTT Network held a
20-year licence, expiring in 2015, to offer leased line, switched and non-switched data communications
services. Its portfolio included an External Gateway Operator (EGO) licence and a CDMA WLL
licence. Dialog planned to run MTT Network as a separate entity.

Dialog Telekom changed its name to Dialog Axiata in July 2010. Apart from gaining the normal
approvals for the name change, the move was in step with the operator’s majority shareholder changing
its corporate identity in 2009 from Telekom Malaysia International to the Axiata Group.

Exhibit 1 – Special rural subscriber tariffs

The TRC approved what was described as a new concept in mobile access tariffs for Dialog Telekom.
Under the scheme, a subscriber in a designated cell that was served by a single base station without
overlap can sign up for home cell tariffs. The rental was lower and the call charges for calls originated
and received while the subscriber was within the home cell were at a lower rate than the normal tariff.
However, the subscriber had to pay higher than normal call charges when making or receiving calls from
outside the home cell. These tariffs were being offered primarily to rural subscribers. Subscribers in
densely covered areas such as Colombo were not eligible for home call tariffs because multiple base
stations with overlapping coverage served these areas.

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2.2.1.2 Company statistics

Table 4 – Dialog Axiata subscribers and market share – 2004 - 2010
Year Subscribers (million) Market share
2004 1.30 60%
2005 1.93 58%
2006 3.10 57%
2007 4.26 53%
2008 5.61 51%
2009 (Mar) 5.85 48%
2009 6.37 44%
2010 (Sep) 6.72 n/a
(Source: BuddeComm based on Global Mobile and industry data)

Table 5 – Dialog Axiata prepaid subscribers – 2004 - 2010

Prepaid subscribers Prepaid share of total
Year
(million) subscriber base
2004 (Sep) 0.92 76%
2005 (Sep) 1.51 78%
2006 (Sep) 2.84 83%
2007 (Jun) 3.14 86%
2008 (Jun) 4.22 88%
2009 (Mar) (e) 5.27 90%
2010 (Sep) 5.95 89%
(Source: BuddeComm based on company and industry data)

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Table 6 – Dialog Axiata ARPU – postpaid, prepaid and blended – 2004 - 2005; 2007 - 2009
Postpaid ARPU Prepaid ARPU Blended ARPU
Year
(LKR/month) (LKR/month) (LKR/month)
2004 (Sep) 1,550 380 680
2005 (Sep) 1,630 420 710
2007 (Jun) 1,710 410 600
2008 (Dec) 1,215 260 370
2009 (Mar) 1,060 240 330
(Source: BuddeComm based on company and industry data)
Note: LKR = Sri Lankan Rupee.

2.2.1.3 Financials – 2008-2010

Despite announcing a 29% year-on-year increase in its subscriber base for 2008 to reach 5.5 million
mobile customers by year end, Dialog Telekom incurred an annual net loss of LKR388 million
(US$3.4 million) for the year. The company said that investments made to expand and improve
coverage, capacity and quality of service caused total group costs to rise by 40%, including non-
operating costs, as finance costs jumped 233% and depreciation climbed 81%, year-on-year. Mobile
revenues for the year grew by just 1% compared to 2007, increasing to LKR33.1 billion, following
successive reductions in mobile call charges.

Dialog’s Average Revenue per User (ARPU) was running at around LKR330 (US$3) per month for
blended (postpaid and prepaid) revenue by 2009. This was possibly the best ARPU of the mobile
operators in Sri Lanka but was low compared with other markets in the region. Dialog’s ARPU had
declined by 50% from its 2004 levels (See Table 6).

Dialog Axiata reported that its mobile business had posted a net profit of LKR3.1 billion (US$27.4
million) for the first half of 2010, reversing losses incurred in 2009. The company said its mobile
subscriber base stood at 6.6 million by June 2010, a 10% increase year on year.

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2.2.1.4 Products and services

Dialog GSM started offering a commercial EDGE data service in 2004, initially launching in the
Southern Colombo area.

In 2006 Dialog Telekom launched BlackBerry wireless services in Sri Lanka: the BlackBerry 7100g
and 7290, both of which were designed for mobile professionals. The two wireless handhelds featured
a navigable user interface, quad-band functionality, 32MB of memory and Bluetooth support.

The operator launched commercial 3G services in Colombo in 2006, after receiving its Universal
Mobile Telecommunications Service (UMTS) licence. (For more information on Dialog’s 3G, see
chapter 2.3.2.)

Dialog also launched a public mobile phone scheme dubbed ‘eZ buddies’ in 2007. The service supplied
individuals with a ‘business in a box’ including a GSM mobile phone, branded marketing material and
training guides. Individuals were able to on-sell the phone service to customers.

Also in 2007 Dialog started offering what was Sri Lanka’s first WiMAX service. The company had
spent US$10 million constructing the network which included 225 base stations in 55 main cities and
75 towns. For more information on WiMAX in Sri Lanka, see separate report: Sri Lanka - Internet and
the Broadband Market.

The operator launched a pilot network in 2009 that was based on HSPA+ (also known as HSPA
Evolution) technology. Claiming it was the first implementation of the technology in the South Asia
region, Dialog said it would allow theoretical mobile download speeds of up to 21Mb/s and uplink
speeds of up to 5.76Mb/s. Upon completion of the trial, Dialog planned to progressively expand its
HSPA+ coverage
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spanning Colombo, Kandy, Galle, Kurunegala, Anuradhapura, Nuwara Eliya, Trincomalee and other
major towns.

2.2.2 Mobitel

2.2.2.1 Company overview

Mobitel began as a joint venture between SLT (40%) and Australia’s Telstra (60%) in 1993. SLT
purchased Telstra’s stake in the company in 2002.

Ericsson was contracted to digitise the operator’s original Advanced Mobile Phone Service (AMPS)
network using Time Division Multiple Access (TDMA) technology, enabling superior call clarity,
echo-free calling, confidentiality and access to enhanced messaging and information services. It also
offered a migration path to next-generation technologies such as EDGE, which was seen a possible
option to bridge the gap between Second Generation (2G) and Third Generation (3G) mobile.
Mobitel’s subscribers were gradually transferred to TDMA with dual mode handsets. The company’s
AMPS/TDMA networks were finally closed down in 2007.

By 2003 Mobitel had started expanding its network to the northern Jaffna peninsula, an area that had
been previously commercially unviable during the 19-year civil war. Mobitel became the second
mobile operator to set up operations in Jaffna following the ceasefire agreement between the
government and Tamil Tiger guerrillas in 2002. Mobitel also began finalising its plans for the rollout of
a GSM network in Jaffna.

In April 2009 the company announced its commitment to embrace the concept of a Next Generation
Network (NGN) in its next expansion phase which would eventually see it reach a total of over 2,500
base stations with an emphasis on covering the north and east of the country. The operator was set to
enhance the capacity of its backhaul system using its parent company’s sophisticated IP/MPLS optical
fibre backbone, while commencing trials on Long-term evolution (LTE) as its NGN. This was clearly a
long term plan in the wider conext of the market.

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Table 7 – Mobitel subscribers and market share – 2004 - 2010

Year Subscribers Market share
2004 360,000 n/a
2005 500,000 15%
2006 885,000 16%
2007 1,400,000 18%
2008 2,686,000 24%
2009 (Mar) 2,915,000 24%
2009 (e) 3,400,000 24%
2010 (Jun) 3,700,000 24%
(Source: BuddeComm based on Global Mobile and industry data)

2.2.2.2 Financials – 2009/10

Although suffering a net loss in the fourth quarter of 2009, the SLT group ended the year with a net
profit of LKR785 million (US$6.85 million). This was, however, down 89% from the previous year.
Mobitel, SLT’s mobile operating unit, made a loss in 2009 despite 28% sales growth, as it invested
heavily in capacity building, 3G network expansion and branding programmes.

Mobitel recorded a 30% jump in revenues in the first half of 2010 and a 720,000 year-on-year increase
in customers to exceed 3.7 million active mobile SIMs by June 2010. The mobile operator also turned
around a net loss of LKR36 million in the second quarter of 2009 to report a net profit of LKR336
million in the June 2010 quarter.

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2.2.2.3 Products and services

Mobitel launched Smart 5, an advanced prepaid package, in 2006, adding this to its Double M post-
paid service. In the meantime, the rates on the IDD service, Buddy, were reduced. The company’s SMS
service was expanded to include Sinhala and Tamil languages. Mobitel had also invested or committed
to investing over US$200 million in a three stage expansion program.

In 2008 Opera Software had been contracted to supply Mobitel with its Opera Mini mobile Internet
browsing application. According to the developer, Mobitel’s subscriber base would be able to access
all websites on their existing handsets once the system was installed.

Mobitel, SLT’s mobile subsidiary, was granted a licence for mobile TV broadcasting by the Ministry of
Mass Media & Information (MMMI) in 2008. The nationwide concession was to allow Mobitel to
transmit domestic and international TV content to its subscribers over the 3.5G HSPA network that the
operator had launched under its M3 brand in late 2007. The operator was running TV advertising that
presented M3’s mobile TV channels as an alternative to watching regular broadcast channels at home.

Mobitel announced in March 2009 that it would be one of the first telcos in Asia to provide its
subscribers with the ability to share and access Facebook information in real-time via their Mobitel
handsets. All Mobitel subscribers with a Facebook account would be able to update their status, send
messages and friend requests and write wall posts via SMS, as well as upload photos via MMS to their
Facebook profile.

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2.2.3 Etisalat Sri Lanka (formerly Celltel Lanka and then Tigo)

2.2.3.1 Company overview

Majority owned by the Luxembourg-based Millicom International, Celltel started operating its Total
Access Communication System (TACS) system back in 1989. The company also offered a range of
Value-added Services (VAS) such as stock quotes and news updates.

It remained the island’s sole mobile operator until the arrival of competition in 1993 and continued to
dominate the sector until the introduction of GSM services by MTN Networks (later to become Dialog
Telekom) in 1995.

In 2000 the company upgraded its network from analogue to digital using GSM technology. The
closure of its analogue service happened in 2007. It also introduced Calling Line Identification (CLI)
and SMS through its prepaid system Cellcard. Despite these changes, Celltel saw its market share fall
steadily.

Thee company changed its name to Tigo Sri Lanka in 2007, bringing it into line with a global re-
branding strategy by parent Millicom.

During 2008 the company invested heavily to expand its network, adding an average of 40 towers a
month.

Tigo’s parent Millicom, after posting worse than expected core earnings for the March 2009 quarter,
cut its capex forecast for 2009 and in a review of its Asian operations said it was looking at selling part
or all of them. Operations in Cambodia, Sri Lanka and Laos accounted for a total of 4.5 million
subscribers by March 2009.

Millicom confirmed
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Sri Lanka. This had stirred interest from several companies including Bharti Airtel, Malaysia’s Axiata
(the owner of Dialog Telekom), and Russia’s Vimpelcom, while representatives of UAE’s Etisalat had
also indicated that a bid for Tigo’s operations was possible. Analysts had put Tigo Sri Lanka’s worth at
between US$150 million and US$200 million. Parent Millicom announced in October 2009 that it sold
its Sri Lankan operator Tigo to the UAE’s Etisalat for approximately US$155 million. The new owner
rebranded its Sri Lankan business as Etisalat in February 2010.

Table 8 – Etisalat Sri Lanka subscribers - 2004 - 2010

Year Subscribers (million) Market share
2004 0.40 n/a
2005 0.60 18%
2006 0.86 16%
2007 1.18 15%
2008 2.00 18%
2009 (July) 2.20 18%
2009 (e) 2.60 18%
2010 (July) 3.00 19%
(Source: BuddeComm based on company and industry data)

2.2.3.2 Products and services

2.2.3.2.1 Infiniti
Launched in 2000 the company’s GSM network Infiniti operated alongside Celltel’s existing analogue
network, which covered practically the whole country apart from the Northern and Eastern provinces.

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From mid-2001 Celltel Infiniti GSM subscribers were able to use a mobile phone-based email service.
Cellmail, developed by Celltel and Omnibis.com, allowed customers to receive email and other related
services on their PC-based service.

2.2.3.2.2 Tango
Tango, a project launched in 2002, made it possible for families to own mobile phones, paying nearly
the same call rates as for a landline. Tango initially targeted people in south Sri Lanka who wanted a
connection and but did not require extensive mobility.

2.2.3.2.3 Cellwallet
The company announced in 2002 that it had chosen Network365’s mzone avatar to enable its users to
make payments for goods and services using SMS. The CellWallet provides encrypted electronic
storage for information about a user’s credit cards, debit cards, bank accounts and other personal data,
allowing the user to issue payment instructions from their mobile phone, without having to transmit
sensitive data for each transaction. Celltel also chose mzone SMS Banking Server, a mobile banking
solution which enabled subscribers to execute basic bank account operations from their mobile phone.
Payment instructions made from the subscriber’s mobile phone via SMS were executed by Sampath
Bank, initially for MasterCard credit card holders.

2.2.4 Hutchison Lanka

Lanka Cellular Services Ltd, which had been previously owned by Singapore Telecom (SingTel), was
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100% acquired by Hutchison Telecom International (Hong Kong) in 1997. Under its earlier ownership,
the company had launched a TACS network in 1993 after building an extensive network in the Greater
Colombo area. Per second billing, a one-off flat fee for incoming calls irrespective of duration, and
detailed billing statements were introduced by the operator.

In the meantime, Lanka Cellular moved to establish a full nationwide GSM network. Its subscriber
base dropped 70% in 2002, as the company continued to experience an exodus of customers from its
analogue service. The year 2004 saw the demise of Lanka Cellular’s TACS network.

Following the demise of the Lanka Cellular operation in 2004, Hutchison used its still-valid mobile
licence to start a new GSM 900 service under the Hutch brand. The service grew an impressive 160%
in 2005.

Hutchison Lanka selected ZTE in 2007 as its long term vendor for expanding its GSM network.
Hutchison expected the expansion to increase network coverage to around 80% of the population.

Hutchison Lanka’s monthly ARPU had fallen to LKR311 in the June 2007 quarter, down from
LKR402 in the same period in 2006.

In 2007 Hutchison Lanka had reached the one million subscriber milestone. The company, which had
been offering an exclusively prepaid service, reported that it had 12,000 outlets which customers could
use to top-up their credit. The operator started losing subscribers and market share in 2008 and by end-
2009 the subscriber base had fallen about 40% from its peak. More critically, market share had dropped
from 15% to just 5%.

Table 9 – Hutchison Lanka subscribers and market share – 2006 - 2009

Year Subscribers Market share
2006 559,000 5%
2007 1,141,000 15%
2008 887,000 8%

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Year Subscribers Market share

2009 729,000 5%
(Source: BuddeComm based on Global Mobile and industry data)

2.2.5 Bharti Airtel Lanka

In mid-2006 the TRC reported that ten local and foreign companies had expressed interest in acquiring
Sri Lanka’s fifth mobile phone operator licence. The TRC had earlier invited expressions of interest.
Among the companies expressing interest were local fixed-line operators Lanka Bell and Suntel.
India’s Bharti Airtel, Maxis Communications of Malaysia, Singapore Telecom, local payphone
operator Tritel and Sri Lanka’s Grant Communications had also submitted their interest in the licence,
according to the TRC.

India’s largest mobile operator, Bharti Airtel, was granted a licence by the TRC at the beginning of
2007, giving it the right to operate 2G and 3G mobile networks in Sri Lanka. Bharti won the fifth
mobile concession with a bid of around US$4 million, beating the nine other contenders including its
Indian domestic rival Reliance Communications. Bharti committed to investing US$100 million within
its first year of operation.

The new operator Bharti Airtel Lanka announced in late 2007 that it was spending US$150 million to
contract Huawei to deploy a 2G/3G network. Bharti expected its network to cover at least 70% of the
population by 2010. The company also anticipated that synergies between the Sri Lankan and Indian
mobile markets would help give it a competitive edge.

The company said it would spend US$200 million on the operations over a five-year period.

In moving to launch
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roll out 3G services in Sri Lanka (for more information on Bharti Airtel’s 3G strategy, see chapter
2.3.4). Bharti Airtel subsequently signed a deal with Sri Lanka’s Board of Investment (BoI) to spend
half of its planned US$200 million capital investment in setting up a network of GSM/WCDMA base
stations. In the meantime it was revealed that the operator had faced ‘difficulties’ in getting approval
for its towers from local authorities and for sharing towers with other operators. Bharti Airtel Lanka
said that operations would only be launched once adequate infrastructure was in place to support the
required quality of service. The approval process had reportedly been slow because ‘sharing towers is a
new concept for existing operators. It also depends on whether space is available and on the rivals’ own
expansion plans’. Bharti Airtel said it was willing to share its network, although it was not known how
many towers it was planning to roll out.

Although running behind schedule (the original target launch date had been March 2008), Bharti Airtel
was still hoping to achieve a commercial launch of its mobile service by end-2008. It still had not
completed interconnection agreements with the other operators. The company said it had been in
ongoing talks with the government, the regulator and rival operators to overcome differences in opinion
on network tariffs. In the meantime, Sri Lanka’s mobile operators were denying accusations that they
had been preventing the Indian operator’s entry into the local market by blocking interconnection deals.
In a joint statement the four operators, Dialog, Hutchison, Mobitel and Tigo, said: ‘As strong believers
in competition and the resulting dividends to consumers and market growth, Sri Lanka’s mobile
operators welcome additional competition’.

Bharti Airtel Lanka finally became the fifth mobile operator in Sri Lanka in January 2009, when it
launched its 2G and 3G mobile services under the Airtel brand. Bharti announced that it would be the
first operator in Sri Lanka to abandon the concept of peak and off-peak calling, setting standard tariffs
for all hours of the day. Users would also be able to make calls on- and off-network for the same rates.
The company reported that it had established 12,000 outlets in five of the nine provinces in the country
and that it was working on the expansion of the services to the remaining provinces, Uva, North-
Central, northern and eastern, at the earliest possible date.

By the end of July 2009 Bharti Airtel Lanka had crossed the one million subscriber mark, the company
having achieved the milestone within six months of launch of its mobile services.

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Table 10 – Bharti Airtel Lanka subscribers and market share – 2009

Year Subscribers Market share
2009 (Mar) 600,000 5%
2009 (Jul) 1,000,000 7%
2009 (e) 1,300,000 9%
(Source: BuddeComm based on Global Mobile and industry data)

2.3 THIRD GENERATION (3G) MOBILE

2.3.1 Licences
With Sri Lanka having busily worked its way towards the rollout of 3G services, all mobile operators
had committed themselves to participation in the process when it began in 2003. The TRC invited
tenders early in that year for a project to build a test 3G mobile network in Sri Lanka. The licence was
to be for a period of one year and was not intended to be extendable. Operations were to be confined to
the city limits of Colombo. Only one base station would be permitted and the power of this base station
would be restricted. Allocation of spectrum would be based on the minimum required for testing based
on bandwidth required for one channel. This would be up to a maximum of 5MHz of paired spectrum
or equivalent unpaired spectrum. All operators were to be asked to open their services to all interested
application service providers on a non-discriminatory basis. The successful bidder should also commit
to deploy all applications available for 3G services or necessary for a 3G trial. Operators would not be
permitted to levy tariffs from customers for this service.

The TRC issued a draft policy paper in 2005 as part of a public consultation process on 3G.

In the second in-iimbemis

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fromTRC awarded 3G licences
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mobileDownloadPDF.
phone operators
in Sri Lanka at the time for a concession fee of US$5 million each. The licences were formally awarded
to:
 Dialog Telekom;
 Celltel Lanka;
 Hutchison Lanka;
 Mobitel.

When the TRC awarded the country’s fifth mobile operator licence to India’s Bharti Airtel in 2007, it
also awarded the company a 3G mobile network licence as well as the 2G concession.

The following operators subsequently launched their commercial 3G networks:

 Dialog Telekom (2006);
 Mobitel (2007);
 Bharti Airtel Lanka (2009).

Table 11 – 3G mobile operators and subscribers – March 2009

Operator Subscribers
Dialog Telekom 193,000
Mobitel 105,500
Bharti Airtel Lanka 100,000
Total 398,500
(Source: BuddeComm based on Global Mobile data)

2.3.2 Dialog Telekom 3G

Dialog launched a pilot 3G service in Sri Lanka in early 2004 in accordance with the TRC’s guidelines.
The service initially covered Western Colombo with Colombo City following. Dialog was anticipating

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launching a commercial 3G service after a full service licence was granted by the TRC at the end of a
12-month test period.

When the licences were finally issued in 2006, Dialog Telekom immediately launched a commercial
3G service. The operator initially provided coverage in Colombo, with further expansion ton other
cities following. The company also confirmed that its chosen 3G platform would support HSDPA in
the future. The operator offered a range of services including domestic and international video calls,
streaming video/TV content, faster web browsing, music and movie downloads and online games.
Having run 3G trials since 2004 over a network spanning twelve base stations in the capital, Dialog
already had around 1,000 customers at launch.

Dialog had also acquired a television broadcasting licence in 2006 through its purchase of Asset Media,
flagging that this would give it the capability to offer real-time broadcast mobile TV to its 3G
customers in the future.

At the start of 2007 Telekom Ericsson was contracted as a lead partner for the building of Dialog’s
3G/HSPA network. The 3G/HSPA rollout would see Ericsson provide the entire core network, as well
as supply the majority of the radio access network.

Dialog Telekom launched a 3G International Video call service in mid-2007. In using the service,
Dialog subscribers were initially able to make video calls to 25 countries.

By early 2008 Dialog was using its 3G network to provide live news feeds for the local Derana TV
station. The operator said that ‘reporting instantly from any news location using 3G video calling
reduces the time lag that is usually associated with news transmission’. The feeds were to be captured
and transmitted with digital cameras and 3G handsets. Dialog had also been providing an SMS text
news service in partnership with Derana.
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2.3.3 Mobitel 3G
Mobitel commenced a 3G service trial, also utilising HSDPA, ahead of an official launch of the service
later in 2006. The company said that the trial service offered a wide range of options within the scope
of mobile broadband level connectivity, together with full interoperability with Mobitel’s existing 2.5G
network. At the start of 2007, the company was preparing to launch its 3G service and a further
extension of its GSM capacity and coverage. Under its Stage 3 expansion project, capacity was to be
extended to serve an additional 750,000 subscribers with 800 new base stations and with an intelligent
core network equipped with a soft switch to be fully deployed by the end of 2007. The company
contracted Huawei Technologies to supply the equipment.

Mobitel launched its 3G Wideband Code Division Multiple Access / High-Speed Packet Access
(WCDMA/HSPA) network in 2007 as planned. In fact the service was 3G/3.5G, with the operator at
the time of launch strongly marketing the higher speeds and capacity of its network.

The company spent US$200 million on the network and covering 60% of the population. The network
had been constructed by Huawei and was being dubbed a 3.5G service marketed under the M3 brand. It
was offering mobile subscribers downloads via HSDPA at speeds of up to 7.2Mb/s and uploads via
High-Speed Uplink Packet Access (HSUPA) at up to 1.92Mb/s. By launch date, the network covered
Colombo and most of the other major cities, reaching around 60% of the population. The company
claimed to have coverage of 95% of the population by the end of 2008.

2.3.4 Bharti Airtel 3G

The TRC awarded the country’s fifth mobile operator licence to Bharti Airtel in 2007, with the
concession covering the right to operate a 3G mobile network as well as 2G. Bharti indicated that it
would roll out and launch both 2G and 3G services at the same time.

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Bharti Airtel Lanka finally launched its 2G and 3G mobile services in January 2009. The launch had
been delayed after some of the incumbent operators failed to provide interconnectivity to the
newcomer’s network.

2.4 SATELLITE MOBILE

2.4.1 MTN Networks

MTN Networks was the network service provider for ACeS in Sri Lanka. ACeS claimed it would
complement existing GSM services in the country, by extending telecommunications coverage. MTN
Networks was a fully owned subsidiary of Telekom Malaysia. AceS was a regional mobile telephone
service operator co-owned by Indonesia’s PT Pasifik Satelit Nusantara (PSN), Lockheed Martin Global
Telecommunications (USA), the Philippines Long Distance Telephone Co and Thailand’s Jasmine
International.

Under an agreement with Thuraya Satellite Telecommunications Co Ltd, MTN Networks had been
granted the rights to distribute and market Thuraya’s mobile satellite services and products, including
user terminals and SIM cards. MTN was also responsible for overseeing service management and
aspects such as billing and customer care services.

MTN launched the country’s first satellite phone service in 2002 under its agreement with Thuraya.
The government approved the use of satellite phones which were previously prohibited for security
reasons. There had been an earlier government ban on the sale of satellite phones because of fears that
Tamil Tiger guerrillas fighting against the government for a separate state would use them in the war-
torn north and east of the country. MTN and Thuraya were to market the new satellite phone service
under the brand name Dialog SAT. The mobile phone handsets cost about US$800 at the time and
could be used in-iimbemis
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countries covered by theonThuraya
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2.4.2 Mobitel
In mid-2004 Mobitel started providing telephone services through 40 rural sub-post-offices in the
Matale and Moneragala districts following the launch of its MSat satellite phone service. The operator
said it was a solution that would allow telephony services to be provided in underdeveloped areas. The
satellite service has been provided by ACeS, which has already created a niche market in providing
rural telephony at an affordable price in Indonesia and the Philippines.

2.4.3 Dialog Telekom

Dialog Telekom partnered digital mapping specialist IWS Geographical Information Systems to launch
the country’s first voice-prompted mobile GPS navigation system in 2008. The Dialog SatNav system
featured a comprehensive digital street directory of Colombo and its suburbs as well as class A and B
roads across the island. The application provided audio and visual prompts, and allowed users to view
maps in either 2D or 3D formats, and to pre-configure frequently used routes.

3. BROADCASTING

3.1 MARKET OVERVIEW

Table 12 – Key broadcasting statistics – 2009
Service Units
TV receivers (e) 4.0 million
TV households (e) 3.2 million

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Service Units
TV household penetration 80%
Satellite TV subscribers 180,000
Cable TV subscribers (2006) 50,000
(Source: BuddeComm based on industry data)

3.2 REGULATORY ENVIRONMENT

For a long time Sri Lanka has struggled to put comprehensive regulations in place to cover television
broadcasting services in the country. A licence fee system for television was abolished in 1999. In the
absence of an independent broadcasting authority the TRC with its responsibility for managing the
radio frequency spectrum has become involved in the broadcasting sector. It has granted frequencies
for cable/satellite operators. Although the TRC had wide ranging regulatory powers in the telecom
industry, it had no specific powers with regard to TV or radio broadcasting.

In the meantime, the government was working towards introducing legislation to create a broadcasting
authority to regulate the industry. The Broadcasting Authority Bill of 1997 was drafted to create a new
broadcasting authority with regulatory powers on broadcasting and television broadcasting. The
proposed bill was subject to Constitutional review and was duly held to be unconstitutional by the
Constitutional Court because it did not give adequate independence to the Authority. A Select
Committee of Parliament with representation of all parties was appointed to consider the problem and
met on multiple occasions. However, the bill did not become law.

Another attempt was made in 2008 when the Minister of Mass Media and Information was reported to
be attempting to create a regulatory regime for TV broadcasting ‘by gazette.’ This proved
controversial, not least for the nature of the regime being proposed. The proposed regulations were
challenged in in-iimbemis
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or regulatory regime was put in place.

In September 2010 the government announced that it was setting up a Broadcasting Authority to
regulate activities of both the state and private media. It was noted by the MMMI at the time that ‘The
Sri Lanka Rupavahini Corporation (SLRC) Act and the Sri Lanka Broadcasting Act under which these
organisations operate at present are obsolete and new laws are required to regulate both the state and
the private stations.’

Meanwhile the government had gazetted regulations for the issuance of licences to new private
television broadcasting stations, internet service providers and telephone networks. The regulations
would apply only to new applicants. The new regulations require applicants who wish to establish an
internet-based or telephony-based broadcasting station to hold a valid licence issued by the TRC. In the
interim, private television and radio stations were being provided with ‘temporary’ licences’ under the
Sri Lanka Rupavahini Act and can operate with it for an unspecified period. Sixteen private television
stations function under the Act.

3.3 INTERNET PROTOCOL TV (IPTV)

The MMMI granted a TV broadcasting licence to SLT in 2007, permitting it to launch television
services over a range of platforms, including IPTV.

UTStarcom was contracted in the following year to provide its RollingStream IPTV platform to SLT.
The agreement reportedly covered establishing infrastructure capable of supporting 100,000
subscribers over a two-year period.

SLT launched a commercial IPTV broadcasting service late in 2008 with the objective of reaching
7,000 customers by year end. The plan had been to launch earlier but delays had occurred as a result of
the slow rollout of ADSL2+ as well as problems with some of the TV channels being tested by users.
SLT’s wholly owned subsidiary Visioncom had invested around US$1.0 million on the initial launch of
its TV-over-ADSL system, which was designed to support around 100,000 subscribers by 2010.

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According to the company, subscribers were initially being offered 14 international channels and five
local channels. As an introductory offer SLT Visioncom started providing 10 channels free of charge.
SLT VisionCom offered what was the country’s first and only IPTV service under the brand name PEO
TV, the company explaining that PEO TV stood for Personalised Entertainment Option Television.

SLT reported that the PEO TV service had over 15,000 subscribers by end-2009.

3.4 CABLE AND PAY TV

Cable operators were required to be officially licensed before beginning to operate a service in Sri
Lanka. Separate licences were required for voice and data transmissions. With approval from the
Ministry of Defence, the operators can link up to satellites and were allowed to downlink continuous
feeds. Until 2002 uplinking of voice was not allowed because SLT had a monopoly on international
telephony services. However, the government’s Economic Policy Sub-Committee decided to establish
a class licence scheme for international telephone gateways and also decided not to limit the number of
licences.

There were no regulations in place regarding transmissions to TV sets or personal computers. There
were also no regulations on two-way transmissions. To connect to the Internet, licensed cable operators
could use leased circuits from other licensed operators.

Satellite rebroadcasts required a licence and there were no restrictions regarding material that could be
broadcast from satellites, nor on the use of any particular satellite. Sri Lanka did not own a national
satellite. There were also no restrictions regarding individual ownership, installation and use of VSAT
and Satellite Master Antenna Television (SMATV) equipment to receive satellite broadcasts.

No restrictions
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telephone companies. However, structural and account separation was required to ensure that no anti-
competitive cross-subsidies existed.

The first cable TV and DTH pay TV services commenced in the country, following the licensing of
two operators, Comet Cable (see chapter 3.4.1) and TV & Radio Network Pvt Ltd (see chapter 3.4.3) in
1997.

Dialog TV, a subsidiary of Dialog Telekom, was launched as a DTH pay TV service in 2005. (see
chapter 3.4.2)

3.4.1 Comet Cable

Sri Lanka’s first CATV service, Comet Cable, was launched in 1998. The company was licensed to
operate cable, wireless cable and subscription television for over 10 million potential TV viewers
nationwide.

The company operated all its channels 24 hours a day and covered all major categories of television
entertainment including movies, sports, news and children’s programming. Most programs were in
English, while some were in Hindi. The channel line-up included Home Box Office (HBO), AXN,
Cinemax, ESPN, Star Sports, Hallmark Entertainment, Kermit Channel, MTV, TNT, BBC and the
National Geographic channel. The number of available channels had been increased to 30.

Broadband Internet Access services and other allied products were also being developed and marketed
by the company.

3.4.2 Dialog TV (DTV)

The country’s leading mobile operator, Dialog Telekom, acquired a 90% stake in Asset Media Ltd in
2006, marking its move into television broadcasting services. The TV unit did not commence

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operations immediately, but the business was expected to boost the company’s profits in the medium-
term.

During 2007 it was reported that Dialog Telekom had earmarked funds to develop a digital TV service
via its Asset Media subsidiary. A direct broadcast satellite pay TV provider, it initially operated under
the name CBNsat. But the TV broadcaster was renamed Dialog TV (or DTV) in early 2007 after the
company was acquired by Dialog Telekom.

Dialog Telekom reported that by the end of 2008 its subsidiary DTV had signed up 122,000 pay TV
customers. While DTV posted a loss of LKR303 million for the March 2009 quarter, its pay TV
subscriber numbers had increased to 130,000 by the end of the quarter.

By end-2009 DTV was the largest DTH digital television service provider in the country with 150, 000
subscribers after growing 22% in that year. The company claimed 83% of the total cable DTH pay TV
market. DTV offers a range of international content including CNN, BBC, HBO, Cinemax, AXN,
ESPN, Ten Sports, Discovery Channel, MTV and Cartoon Network, as well as a large portfolio of Sri
Lankan television channels.

Table 13 – DTV’s DTH subscribers – 2008 - 2009

Year Subscribers
2008 122,000
2009 (Mar) 130,000
2009 150,000
(Source: BuddeComm based on Global Mobile and industry data)

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3.4.3 TV & Radio Network (Pvt) Ltd
Australian company Summit Media held 85% of the joint venture company Channel Nine Ltd, which
began Sri Lanka’s first pay TV channel in late 1997. Radio and Television Network (RTN) of Sri
Lanka held the remaining 15%. The company, which had a licence for AsiaSat-2, employed digital
technology for its transmissions. Channel 9 was the authorised licensee in Sri Lanka for Star TV
Network. Channel 9 broadcast 30 channels of news, entertainment, education, sports and children’s
programming via satellite. It was targeting middle class audiences in Sri Lanka and about 20 other
countries in south and south-east Asia.

3.5 FREE-TO-AIR (FTA) TV

Broadcasting was deregulated in Sri Lanka in 1990. There were eight competing FTA TV broadcasters
supported by revenue from advertising. There were two state-run TV channels and several private TV
channels, two of which run 24 hours a day. There was no separate regulatory authority – spectrum
usage was heavy and management was poor. The government’s attempts to establish a separate
broadcasting regulatory authority had failed repeatedly.

The Independent Television Network Ltd (ITN) commenced operations in 1979 as a private company.
It was taken over by the government and converted into a government-owned public company in 1982.

The second TV operator, Sri Lanka Rupavahini Corp (SLRC) was established in 1982 under a total
grant aid from the government of Japan. SLRC runs two nationwide analogue channels with a
bilingual/stereo network of 13 transmitters, reaching more than 92% of the population. It offered
programs in three languages – Sinhala, Tamil and English.

The abolition of the licence fee in 1999 was a blow to SLRC and made capital expenditure very
difficult. However, it was considering starting the first Pay TV service in the country using a Digital
Video Broadcasting-Terrestrial (DVB-T) platform. This was to be a stand-alone operation with no
requirement for simulcasting existing services.

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Private broadcasting companies included:

 Sri Lanka Broadcasting Corp (SLBC);
 Maharajah Broadcasting Co (MBC);
 Asia Broadcasting Co (ABC);
 Telshan Networks Ltd (TNL);
 EAP Radio (formerly Colombo Communications);
 Television and Radio Networks Ltd.

Available channels included:

 Dynavision – which began operations in 1995;
 Extra Terrestrial Vision (ETV2);
 ETV1 (EAP Network);
 Independent Television Network (ITN), government owned and operated (one nationwide
channel);
 MTV Channel;
 Sri Lanka Rupavahini Corporation (SLRC), a joint government and public corporation;
 Swarnawahini;
 Telshan Network (TNL TV).

4. RELATED REPORTS
For more information relating to the country’s telecom market, see separate reports: Sir Lanka

For information relating to:

 Telecom markets for other Asian countries, see separate reports: Asia.
 Technicalin-iimbemis
ISIEmergingMarketsPDF information from
relating to the telecommunications
115.113.11.239 on 2011-05-02industry,
23:30:39see: Telecommunications
EDT. DownloadPDF.
Technologies Library;
 Technology - Terminology - Glossary of Abbreviations (free report);
 Worldwide activities in the telecommunications industry see: Global Overviews.

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