Mirror, mirror, on the wall, who is the fairest of them all?

Thursday, 17 January 2013 00:04 - - {{hitsCtrl.values.hits}}

With near-saturated mobile penetration and Average Revenues Per User (ARPUs) across most countries showing a gradual decline, telecom companies are being forced to take a good look at themselves as well as their competitors.

As the chart above depicts, profitability of market leaders around the world shows a strong decline with increasing competition (measured using the Herfindahl-Hirschman Index). This is particularly relevant to a country such as Sri Lanka with a mobile penetration rate of over 90% and a consortium of five players serving a population of 21 million.

An ARPU figure of about $ 3, one of the lowest in the world, further compounds this issue.

Profitability and, by extension, market leadership is evidently a crucial feather in one’s cap in order to attract/retain customers and evolve with technology. As things currently stand in Sri Lanka, only the market leader makes an acceptable bottom line and this performance is still not sufficient for significant re-investment.

Based on global trends (India alone witnessed 14 telecom M&A transactions in 2012, 11 of them being domestic), it can only be a matter of time before consolidation filters down to Sri Lanka. After all, the mirror never lies, does it?

(The writer is an investment banker in Asia.)

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Mirror, mirror, on the wall, who is the fairest of them all?

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