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Budget Telecom Network model in article marking 25 years of mobile in Sri Lanka

LIRNEasia research is extensively quoted in this Sunday Times article by Nalaka Gunawardene.

The past decade has seen the highest number of telephone connections being given out across South Asia. It happened thanks to what researchers call the ‘budget telecom model’, where low cost technologies coupled with business process innovations helped telecom operators to reduce costs.

First, regulatory reforms lowered or removed entry barriers for more operators to enter markets. Then intense competition brought down sign-up and call charges, so phone users started calling more. Higher volumes, in turn, enabled further rate reductions.

Introducing pre-paid packages was a critical element. It allowed small and irregular payments, eliminating transaction costs for companies and simplifying phone ownership for new users. This brought telecom services within reach of the common man and woman.

“The new model makes ARPU (average revenue per user) irrelevant, because what really matters is how many revenue-yielding minutes are carried on the network, not how much money is earned from an average customer” says Rohan Samarajiva, chair of the Colombo-based think tank LIRNEasia, and a former telecom regulator of Sri Lanka.

He adds: “In the same way that Ryanair and AirAsia make profits while conventional airlines lose money, budget telecom networks make more money than conventional operators.”

The model has some weaknesses. Given the scattered and numerous resellers, the quality of service is not consistent. And it increases the volatility of telco earnings.

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