 "Bharti Airtel")
Last month, Bharti Airtel’s Sri Lankan business announced a play to become the largest player in the country’s telecom market, up from the current fourth position.
It disclosed talks were on for a merger of operations with Dialog Axiata, the largest telecom service provider in Sri Lanka’s telecom market of 31 million subscribers.
Bharti Airtel has been tight-lipped about the developments, but sources said the proposed transaction will grant its wholly-owned subsidiary, Bharti Airtel Lanka, a stake in Dialog.
A subsidiary of Malaysian multinational telecommunications conglomerate Axiata Group Berhad, Dialog has dominated the telecom space for the past decade in Sri Lanka. With 17.4 million subscribers at the end of FY24, it accounts for 57 per cent of the country’s mobile market.
Meanwhile, Bharti Airtel Lanka has struggled in recent years to expand the customer base in a market where service penetration has reached 99 per cent. While market share figures for Bharti Lanka were not readily available, it is the fourth-largest player in the sector in terms of active subscribers, according to market estimates. Although it was the fastest operator to reach one million customers, competitive tariffs have meant stagnant user additions.
Majority government-owned SLT-Mobitel and Hutchison Telecommunications Lanka, formed as a result of a merger between Hong Kong-based CK Hutchison Holdings Limited and United Arab Emirates-based Etisalat in 2018, are the second- and third-largest telecom service providers, respectively.
So the merger is expected to give Airtel access to a much larger user base and make it the largest telecom provider in the country.
Sources said the latest merger proposal was a result of multiple years of talks. Both companies had first evinced interest for combining operations in 2016, in line with Bharti Airtel’s merger with Axiata’s Bangladesh arm.
This is a long distance from the contentious situation when Airtel entered the Sri Lankan market in 2009. It had complained that the existing telecom service providers were unwilling to provide it interconnection access. But the four competitors banded together to issue a joint statement claiming Airtel’s arguments were false.
The question is whether Airtel’s exponential expansion is a challenge or opportunity. According to the International Telecommunications Union, Sri Lanka had 30.76 million subscribers as of 2021. The country is reportedly preparing for the implementation of commercial 5G services this year.
As in most other sectors, telecom players have been cautious owing to the island nation’s uncertain economic future following its unparalleled economic crisis since 2021.
Consumer sentiment has hit new lows in the aftermath of the pandemic and the national economic downturn, as spiralling inflation, a food shortage and dwindling forex reserves have become the norm. An increase in the telecommunications tax from 11.25 to 15 per cent for operators is also likely to hamper future 5G roll-outs.
With market conditions tightening, tariff competition has spiked. In September last year, Airtel Lanka became the first telco to introduce unlimited calls to any network for all of its post-paid users in Sri Lanka, local media reported.
It is also the only telco to continue to offer the “data rollover” facility to post-paid users, allowing unused data of the month to be carried onto the next month, saving data and expenses for a user.
According to global market insight firm Mordor Intelligence, the country’s telecom industry is expected to grow at a compounded annual rate of 6.8 per cent over the next five years, lower than in Airtel’s other markets.
But Airtel Lanka is set to play a bigger role in other ways, too. A source pointed out, “As part of its outreach to foreign companies to increase investments in the country, the Sri Lankan government had sought Airtel Lanka’s help in national telecommunications infrastructure. The emphasis was on expansion of networks and IT systems.”
An agreement signed with the Board of Investment of Sri Lanka in November 2022 will see Airtel channelling its investments towards enhancing its network, in addition to introducing significant software upgrades, to strengthen 2G and 4G services over the next two years.
Airtel will also have its work cut out post-merger given that Dialog Axiata reported a net loss in FY22, citing one-off impairments and forex losses.
But Bharti officials pointed out that Airtel Lanka has had a history of deploying technical and tariff innovations. It was the first to introduce several services, such as the lowest rates for voice services, the lowest international direct dialling and international voice and data roaming rates.
The company has banked on technology innovation to drive rapid adoption rates among Sri Lanka’s youth population, a key demography.
It also has a 5G-ready 4G network across all parts of the country. The company is in the process of boosting its network capacity and has held its latest trials of 5G technology over its commercial network, achieving download speeds of over 1.9 Gbps — the highest recorded in the country to date.
With 494 million users as of June 2022, Bharti Airtel is widely accepted as the second largest mobile network operator globally in terms of users according to figures self-reported by companies. Company officials said the recent spate of sustained growth from international businesses have put them on a par with Indian operations, in terms of the corporate focus and organisational priority.
Of course, Airtel Lanka is dwarfed by Airtel Africa, which serves 14 markets, primarily in East and Central Africa. With a total user base of 140 million as of end-2022, it is the second-largest mobile network operator in the African continent.
Importantly, it is also the second-largest carrier in terms of subscribers in Africa’s largest economy, Nigeria, owing to its cheap data plans. Airtel Africa’s average revenue per user (ARPU) — a key performance metric — has held steady at a solid $3.2 over the past two quarters up to March 2023. Comparatively, Bharti Airtel’s ARPU in India was lower at $2.3 over the same period.
The focus remains on further expansion into the continent’s fast-changing telecom space. The company acquired spectrum in Nigeria, the Democratic Republic of the Congo, Tanzania, Zambia and Kenya in FY23. It has invested $500 million in additional spectrum, including 5G, across many of its operational areas in the process.
Dialling Sri Lanka
- Airtel Lanka is the fourth-largest player in a market of 31 million subscribers
- Talks ongoing for operational merger with market leader Dialog Axiata
- Move to help company in reaching up to 60% of users in the island nation
- High service penetration, low revenue growth projections make Sri Lanka a tough telecom arena
