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This island nation with a small geography of 65,610 sq km has been creating sensational news on telecom front in the SAARC region. Sri Lanka, home for about 21 mn people (July 2008 census), has a very high literacy rate (92.5% population aged fifteen and above can read and write) compared to any of its colonial cousins. This could be a primary reason for the country being pioneer in introducing advanced technologies like 3G and 3.5G, as awareness is an important factor in adapting any new thing. Despite the fact that the country's overall developmental activities have been crippled by long-drawn internal wars due to a pot pourri of ethnic groups, Sri Lanka's telecom sector has always been witnessing enormous growth attracting foreign investors. The government also gives prime importance to the sector as it realizes that ICT is the key to the overall development of the country.

The Sri Lankan telecom industry is the most liberalized the in South Asia. Sri Lankan government had launched an initiative called e-Sri Lanka with an aim to leverage its ICT prowess to develop the country's economy, alleviate poverty, improve the quality of life and the opportunities for all its citizens. In recent years, telephone services have improved significantly compared to the 90s. Now telecom services are available in most parts of the country with a high penetration level of more than 50% reaching about 10 mn plus people out of a total 21 mn. In the war-ravaged regions, the density is thin compared to normal areas. In rural areas, the penetration is about 30%. The competition among mobile services players is strong and mobile cellular subscription is continuously increasing; combined fixed line and mobile-cellular teledensity is about 50 per 100 persons.

Sri Lanka is the leader in mobile communication in Southeast Asia. GSM was first introduced in Sri Lanka, much earlier than in India and other bigger markets in Asia. Also, 3G was first introduced in Sri Lanka while other geographies in South Asia were still formulating norms for introducing 3G.

Communications Infrastructure
Sri Lanka realizes that a modern telecommunications infrastructure is an essential requirement for rapid economic and social development of the country. Therefore, it is moving toward a fully liberalized telecommunications market. At present, there are four fixed access operators including Sri Lanka Telecom (SLT) that operate in mobile space through their subsidiaries Mobitel, Lanka Bell, Suntel, and; Dialog Telekom. There are four cellular mobile operators including Dialog Telekom, Hutch, Tigu, and Mobitel; six data communications and Internet service providers (facility based), making the industry one of the most competitive in Asia. Apart from this, there are twenty-three data and Internet service providers (non facility based) and thirty-two external gateway operators in the country. Deregulation has also resulted in the country's largest ever privatization initiative, with NTT docomo of Japan purchasing 35% of Sri Lanka Telecom for $225 mn.

FY 2007-08 was significant for the telecom segment in Sri Lanka. Total telephone subscribers (fixed and cellular) was 14,528,865 in FY 2007-08. Total number of fixed phones was 3,446,411 by December 2008, while teledensity (fixed phones per 100 inhabitants) was seventeen. Number of mobile subscribers was 11,082,454, while mobile phones per 100 people was 54.6.

In Sri Lanka, national trunk network consists of mostly digital microwave radio relay, fiber-optic links, which is now used in the capital city Colombo. The SEA-ME-WE-3 and SEA-ME-WE-4 submarine cables provide connectivity to Asia, Australia, the Middle East, Europe, and the US. The Sea-Me-We 4 was launched in November. 2005. According to SLT, a shareholder of the Sea-Me-We 4, the cable will provide access speeds four times higher than that of the current Sea-Me-We 3 cable. Sri Lanka's largest mobile operator, Dialog Telekom is also a shareholder of the new cable system through its parent company, Telekom Malaysia (TM).

Investment
As Sri Lanka has already introduced 3G and 3.5G, there are a lot of growth opportunities for transnational companies and they are likely to invest more in the Sri Lankan telecom industry. Though there are few issues in rolling out network by new players, the country attracted considerable investments in telecom sector. Out of eight access or BSO/MSOs, only three-that include, state owned SLT and Mobitel-have controlling stake from Sri Lanka or domestic investors. The rest five operators are subsidiaries of global telecom players and promoted by foreign investment. Even in the state-owned enterprises, 35% of the stake is owned by Maxis, Malaysia. In the international long distance, especially in data segment, Tata Communications Lanka plays a significant role, thanks to the quality conscious clients/enterprises in the island. The better relationship and cooperation between the public and private sectors lead to a rapid development of the telecommunication sector. Hence, private sector investment is further encouraged and facilitated by creating a conducive level playing field.

Sri Lanka encourages the promotion of the widest possible development and availability of information and communications technologies and services. Toward this end, an open, market-oriented environment is promoted to allow private sector companies maximum flexibility to develop the sector in response to consumer demand and public needs. All these are aimed at reducing and eliminating traditional limitations or barriers to market entry and, thus ultimately creating a fully liberalized environment. Mohan K Jayasekera, director general international relations, says, “The liberalization of the telecommunication industry was an important step toward developing the infrastructure that would provide the country a solid platform for economic and social growth.”

Challenges
The reluctance to share infrastructure facilities among operators (national backbone, switching capacity, last mile connections) and between sectors (Sri Lanka Railways, Ceylon Electricity Board, Road Development Authority, etc) has been one of the challenges for the industry. V Ravi Sankar, CEO, Tata Communications Lanka, says, “There are many aspects that can be addressed by Telecommunications Regulatory Commission of Sri Lanka (TRCSL) on the infrastructure side. Today, the cost of accessing the cable landing station is very high, and the last mile costs are prohibitory in nature. Fiber on ground is very limited and is available with incumbents who still hesitates in sharing the domestic fiber with its international competitors, surely a backward step in recovering the capex and under utilizing the resources.”

According to a report by TRCSL, some local authorities are not co-operative in issuing approvals for the development of towers. Also, there are no clear guidelines for site approvals. Inefficient usage of the allocated frequencies, lack of a coordinated plan in implementing the universal service obligation or universal access requirements, and wide disparity between urban and rural areas in the country in terms of the availability of telecommunications facilities are other challenges that have to be addressed by the industry. Inability to afford access to Internet and broadband services both in urban and rural areas, lack of effective quality of service management mechanism, non-availability of an effective surveillance mechanism to monitor compliance with provisions in the telecommunications act and conditions in the license, insufficient enforcement powers in the act, and high increase in annual rentals charged by local /urban authorities for payphones are some other issues. And convergences in technologies have posed new regulatory challenges in the traditional sectors- telecommunications, broadcasting and information technology.