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An overall teledensity at 45.6%, indicates that the market could reach saturation in the near future. With mobile penetration alone at 40%, the mobile services market carries great significance, be it in Sri Lanka or any other country. The mobile services market has been growing exponentially for the past few years, with mobile subscribers growing at 50-60% year-on-year. However, since 2007, growth rates have moved downwards and the mobile market faces a high probability of saturation by 2012.

Apart from the mobile services market, the telecom sector is also fuelled by the CDMA (code division multiple access) market which is also experiencing increased penetration. The current penetration of CDMA is around 6.7% next to mobile.

Market Overview
Like any other telecom market in the world, Sri Lanka faces very much the same problem of competition eating into the ARPUs of all operators. Currently, commencement of operations by Indian operators such as Reliance and Airtel is expected to fuel this competition further. However, with the introduction of 3G and WiMax, the Sri Lankan market should be able to improve on its ARPU, provided core applications are developed on these technologies. At present, 3G and 3.5G are mainly used in video calling and messaging. Hence, to be able to reap complete benefits from 3G, the presence of killer applications is necessary.

Another challenge faced by the industry is lack of strong regulations, to direct the market players in terms of processes and the way these processes are executed. Presence of strong regulations could enable a level playing field for all players, which would in turn pave the way for healthy competition.

All in all, there are four operators in Sri Lanka that provide complete telecom services in the region ranging from fixed services to data offerings such as MPLS, leased lines, etc.

SLT (Sri Lanka Telecom) and Dialog are considered as the major players in the market with SLT focusing on fixed line and data services and Dialog on mobile services. However, both the players have diversified to cover the entire gamut of telecom services. Suntel and Lanka Bell focus on the fixed wireless and data services markets.

SLT has introduced services such as Metro Ethernet and 3G while Dialog has been one of the forerunners of WiMax in the Asia Pacific. While SLT has a strong brand presence, Dialog is perceived as a more reliable and customer friendly brand.

The players that exhibit maximum growth by virtue of their aggressiveness would be Dialog and Suntel. Though SLT has a strong market presence it is yet to capitalize on the same to grow aggressively.

Apart from these telecom service providers, there exist other companies that only cater to a particular market. These include companies such as SLT-Mobitel, Dialog, Hutchison, Tigo.

The fixed services market in Sri Lanka, like several other countries, is dependent on CDMA for its growth. While the fixed teledensity in Sri Lanka is around 11.3% the fixed line teledensity alone stood at only 4.5%, whereas WLL (Wireless in Local Loop)/CDMA connections stood at 6.7%. CDMA was introduced in Sri Lanka in 2005 by Lanka Bell. Considering the fact that the penetration level is already at 3%, the growth is expected to be enormous.

When comparing the existing top four players, SLT is an incumbent where fixed line services are concerned. On the other hand, Suntel is a player that focuses on the enterprise segment while SLT and Lanka Bell focus on the retail and rural segments. Suntel's profits are commendable as it targets the enterprise market while Lanka Bell is yet to completely reap the benefits as it targets mass markets. However, each of the players mentioned above, including SLT, provides CDMA based fixed services.

With most telecom markets undercutting on price to lure more customers, SLT has been able to offer the lowest price as it is with any fixed line operator. However, with decreasing growth of fixed line services, SLT has slowly started offering CDMA based services. One of the main reasons for declining fixed line connections is the lead time that is required to procure a connection. Additionally, infrastructure plays an important role in the slowdown of adoption rates of fixed line services.

CDMA as a wireless service is catching up with the rural markets thereby prompting all operators to offer it as a product offering so that they do not lose out on revenue from those services.

A CDMA connection costs around $180 to $120 and is considered more cost effective than a fixed line connection. The prices of SLT are the lowest, pegged at approximately $120. The pricing schemes of SLT and Lanka Bell are the lowest as they cater to the mass market; these companies are considered to have the most robust pricing strategies.

The mobile services market, like most countries in Asia Pacific, is highly competitive characterized by a high churn rate. In Sri Lanka mobile penetration stood at 40% with around 8 mn subscribers.

Technology leadership and supremacy in the value added services (VAS) space continued to be the strategy of Dialog's service proposition. Dialog is the most highly branded mobile services provider in Sri Lanka. With a base of nearly 4.2 mn subscribers, Dialog has a 53% market share and enjoys the first mover advantage as far as mobile telephony is concerned. Dialog is also considered a pioneer in technology as it was one of the first providers to introduce 3G services. It is also a forerunner for WiMax technologies. While most countries are still hesitant to deploy WiMax for commercial use, Dialog is one the first few companies in the Asia Pacific region to deploy WiMax.

Dialog has seen a dip in its profit margins in the current year, which could be attributed to its investment toward the capital expenditure of advanced services such as 3G and WiMax. It has expanded its footprint across Sri Lanka with over 1,000 base stations within its GSM network. It has even rolled out 3G services by adding 300 3G base stations. It is the first company to introduce e-banking facility in association with NDB Bank, Sri Lanka.

However, Dialog still maintained a healthy monthly ARPU of $5.6 for the year 2007.

Domestic revenues consisting of prepaid and post-paid subscribers are the major contributors to overall revenues of approximately 81%. Its prepaid segment has contributed 48%, and registered growth of 38% over the previous year. It has also introduced VAS services like color SMS and SMS morphing, breaking news alerts, mticket, SMS direct, mobile TV, D2D share credit, push mail-connect.

Mobitel, the mobile arm of SLT since 2002, is not far behind. With a market share of nearly 18%, Mobitel is slowly trying to gain market share through the introduction of 3.5G (HSDPA) high-speed downlink packet access services through its sub brand M3. The speed on download link is as high as 14.4 Mbps and uplink is around 1.9 Mbps. The introduction of 3.5G services is not only to provide broadband services to its users but also 3G products such as video calling, video messaging, mobile TV, push-mail etc. at a monthly cost of $4 to the subscriber. The ARPU of Mobitel remained at $3.85 for 2007 which would be sustained by its exclusive range of 3G products.