Mobile phone use is taking off in Sri Lanka – though not, perhaps, in ways that service operators might have hoped.

FROM THE ECONOMIST INTELLIGENCE UNIT

In the world’s poorer countries, the purchase of a mobile phone has become increasingly affordable. Using it, however, can still be a struggle. Low-income mobile phone owners in Sri Lanka are getting around this problem with a novel method for keeping costs down.

Known as ring cutting, mobile phone subscribers rely on ring tones to communicate with others, rather than actually staying on the line to talk. By a pre-arranged signal that will convey the desired message – “two rings means I’m home” – callers negate the need for a conversation. They simply hang up as soon as the number of tones are finished. The recipients’ phone log records the number of the person who dialled, and at what time. They can choose to call back, or not.

In a country where regular bloodshed, terrorism and sectarian violence has many people living in fear of their safety, ring cutting has developed into an extremely popular, cost-effective way of keeping in touch. A recent survey by LIRNEasia, a regional telecoms think-tank that studied mobile phone usage patterns in Sri Lanka, India, Pakistan, the Philippines and Thailand, found that Sri Lanka lagged only the Philippines in the ring cut stakes. LIRNEAsia surveyed around 9,000 low income earners aged between 18 and 80 years old. About half of mobile phone users in Sri Lanka are confirmed ring cutters, compared to 65% in the Philippines.

The economics of ring cutting are simply. Sri Lankans can buy a mobile phone for about US$30. But call rates of 5.00 rupees (0.05 US cents) per minute are not affordable to the many who earn less than US$100 a month. However, under a pre-pay system they can pay as little as 20 rupees (0.19 US cents) for a SIM card. If they mostly use their phones to ring cut, the credit on the SIM card can last for months.

Needless to say, telecom service providers are hardly thrilled by the practice. Mobile phone companies offer incoming calls for free and rely on a connection being completed to make their money. Adding insult to injury, many people use landlines, often at their workplace, to return calls, further circumventing the mobile network. Harsha de Silva, LIRNEasia’s lead economist, observes: “Missed calls are not good for the networks – less revenue; not good for the state – less taxes; and not necessarily good for the user – networks get blocked and we can’t talk.”

Model e-village

And for those Sri Lankans not able to jump onto the mobile bandwagon, a new service is taking root that’s even better than ring cutting. Far from the bright lights of Colombo, the country’s first 24-hour outdoor wireless computer network is now up and running in Mahavilachchiya, an tiny village 40km from the nearest town of Anuradhapura.

Mahavilachchiya is surrounded on three sides by the Vilpattu jungle, and most of the residents are farmers or labourers with a monthly income of about 5,000-10,000 rupees (US$50-100). While the village is connected to electricity supply, it is not yet covered by either terrestrial or mobile phone networks. The number of phones in the village: zero. The number of PCs in the village: 50 and rising.

Given the absence of telecommunications infrastructure and the scattered nature of the settlement, a more traditional wired network was not practical in technical terms, nor economically feasible. But thanks to the efforts of a charity, the Horizon Lanka Foundation, and the Information and Communication Technology Agency of Sri Lanka (ICTA), a workable solution has been found. Most of the computers are situated in the homes of local children, and as many as 200 use the machines for their studies, to access the Internet, and to send emails. Given a set of headphones, internet telephony is also possible. The computers are linked to a multimedia lab, which provides training and resources.

Projects like these, however, are not crimping growth in Sri Lanka’s telecom sector which soared to 7.3m users in 2006, led by a 59% rise in new mobile phone connections. Growth was spurred by competition from new market players and call rate cuts of as much as 40%, the Sri Lanka Telecommunications Regulatory Commission says. Although the waiting list for fixed-line phone services remains long – 366,000 at last count – fixed-line subscribers rose to 1.9m in 2006 from 1.2m a year earlier, after the Commission granted CDMA licenses to three firms, allowing them to use the cheaper technology to expand their offerings outside the main centres.

But it is cellular services, based on both GSM and CDMA technology, which have enabled many rural residents to get phones. The number of cellular phone users grew to 5.4m by the end of 2006, from 3.4m a in 2005. Liberalisation of the sector is hitting its mark and it’s an ongoing process. India’s largest private phone company, Bharti Airtel, is set to become the fifth mobile phone player in Sri Lanka, launching services by the end of 2007. Bharti plans to invest US$100m in the first year of operation, so the number of those without access to a phone can only keep falling.

As competition increases, rates will need to continue to fall, otherwise service providers will find more and more of their customers deserting them for internet telephony and tricks like ring cutting.

SOURCE: INDUSTRY BRIEFING

Read article on Global Technology Forum

The Information and Communication Technology Agency of Sri Lanka (ICTA) and LIRNEasia have partnered to conduct an in-depth baseline sector analysis of the BPO sector in Sri Lanka, to assess its direct, as well as indirect impacts on the country, and to identify opportunities and constraints for its growth.

The preliminary findings of the analysis will be presented at the colloquium. The finalized country report will be available publicly and it is envisaged that it would constitute an essential input in the formulation of effective policies that would catalyze sector growth.

The study tries to understand three main areas – infrastructure, labor and govt provision of services. For example where the industry is today, what kind of jobs have been created, the infrastructure issues part with electricity and communications, the HR issues (whether there are enough people and whether these people had the necessary transport etc to to come into work, etc), tax relief, etc.

What is a BPO?
A BPO is defined in this study as an independent entity that took on an entire process that was outsourced (eg: HSBC Call Center). This excluded the software (eg: Virtusa) and garment industries (eg: MAS).

Nuwan – as in garment sector, is a cost center considered a ‘BPO’?

Harsha -No

The company has to be an ITES & separate legal entity to be considered in the survey; resultantly, only less than 30 companies were eligible, and 21 were surveyed.

Astron was the first BPO (entered in 1983, previously known as ‘Data Entry International’). In the earlier days, they used to do data entry, but they were not online at that stage. It is one of the largest employers; presently, Astron & HSBC are the largest employers ; other BPOs don’t employ large numbers. Some of them have as little as 3 employees only.

Can it be concluded that a lot of these companies come in as BPOs only to enjoy the tax holiday they get?
Harsha – The tax incentives have been available since 1989 and I don’t think this has had any effect on the spurt of BPOs opening up in 2003-2005.

The final study will try to relate the policies that may have affected (if at all)the sector to the growth in the sector.

The findings….
Reasons for locating in Sri Lanka: The main reasons that BPOs cited for locating in SL were low labor costs, low operational costs, and tax incentives.

Investments: BPO investments in Sri Lanka Investments are mostly made by offshore BPOs. Onshore investments are a total of equipment and labor costs only as they do not invest in land and buildings (except for the large offshore BPOs).

[Offshore - the process is outsourced outside of your country. Onshore - the process is outsourced within the country.]

Sujata: Is there a difference between offshore and onshore employment? Dilshani: This will be covered in detail in the final report.

Services on offer: Almost half the companies offer accounting services.

Most of the BPOs in SL are non-captive (not a part of a parent company; they bid for work independently); this may explain the concern for security in SL and SL’s image. THey are also concerned about transport facilities in the country.

Employment:
Astron & HSBC employ large numbers. Some of the others are planning on increasing employment ; but when they have 2-3 employees and increase it by 2-3 more people then the growth rate will be 100%, which may be misleading cause their sizes are very small.
Harsha: we can ask BPOs how many years they have been in existence and ask them how many employees they have

Nuwan – is ther a correlation between the number of employees & investment, turnover (e.g 3 employes could be running 10 servers, which is a lot of work!)

Dilshani – we tried to find out turnover in terms of export earnings but they have not responded.

Helani – perhaps SL is just a location for many small BPOs, unlike india who has many big ones. Is there a difference in the reasons for setting up in SL between offshore & onshore? Why would local BPOs locate themselves in Sri Lanka? It can’t be cheap labor and operating costs, can it?

Dilshani – there were no differences in the reasons cited between the two groups. its cost based.

Sriganesh (in Chicago)- even in india, altho offshore investments are large, ..>??? Its the policy environment that encourages BPOs to locate. Eg. getting land.

Nuwan – we started much later than India; shouldn’t we compare india at year 1 with SL at year 1, rather than india & SL in year 2006.

Harsha – we don’t have the data.

Luxman – SL liberalised far earlier than India.

Sriganesh – anomalies in the data? e.g. most companies say they give compulsary training in speech/language. why is this necessary, unless the BPOs are predominantly call-centers?

Divakar – what are the policy persepectives that can be taken from this? what can be done from a policy perspective to encourage BPOs? what barriers can be removed?

Harsha – Zoning – e.g have BPO parks or zones. this will for e.g sort out the transportation problems, along with other infrastructure problems.

Divakar – in SL we don’t have the scale of operations to make transportion for BPO workers economical.

Luxman: Infrastructure issues will depend on scale of operations.

Dilshani – the political environment at the time of survey (straight after terrorist attack on army chief) may have impacted the results (high concern for security situation in country, law and order and also maintaining SL image abroad)

Siganesh – perhaps the data can be verified against BOI data and ITESA.