What is the addressable market for telecom?

Posted on October 11, 2006 / 4 Comments

According to an equity research firm, the limits of the addressable market in mobile in Sri Lanka will be reached when 2 million more phones are connected. This conclusion needs further interrogation, but on first glance it looks like they have the mobile/per 100 number understated by about 1.1, which does not bode well for the veracity of their claims. For 4.3 million phones to give a mobile teledensity of 21.5, the population has to be 20 million. Last we heard, Sri Lanka had 19 million people.

“Sri Lanka’s mobile phone penetration is due to peak at 38 percent in 2008,
amidst regulatory bottlenecks to iron out crucial issues like interconnection and the management of frequency spectrum, an equity research report said Wednesday.

There are over 4.3 million mobile phone users in Sri Lanka for the six months
to June, according to Central Bank figures, with growth averaging at about 50 percent.

Growth has been led by falling handset prices and attractive tariff packages, which have helped cellular phone penetration (mobile connections per 100 people), climb to 21.5 percent in June from 17.09 percent at the start of 2006, stockbroker, Capital Alliance Securities said.”

Source.

More follows.

4 Comments

Salil
October 11, 2006, 12:46 pm
Lanka is surely gaining inspiration from its neighbour India. Being a small country, I feel its a considerable amount of growth.

While browsing through various blogs, i found an interesting blog titled Mobile Industry Research at http://rncos.com/Blog/mobile.html dealing with latest happenings in mobile industry.
samarajiva
October 12, 2006, 4:13 pm
Comments sent by Harsha de Silva, Lead Economist at LIRNEasia to the authors of the report are posted with permission:

The analysis of the economy is good; it is also good to see a breakdown of the growth areas and how important the telco sector really is in sri lanka.

1. the contribution to growth chart is misleading; i cant understand it. what is the 150% contribution by gov? i know it is expenditure based, but the figures are somehow off… better rethink that presentation next time. well…that whole section of private/public components needs a relook; its confusing.

2. the attempt to explain the telecom story is appreciated. some points:

how do you know that a mobile phone is a ‘must have’ among youth? what evidence do you have to make such a statement which much of the analysis is basd on?

how do you know that ‘many prepaid subscriber bills’ are in the lkr 100-200 range? what kind of price elasticities do you estimate at this level of use?

is it really the older people (aging population as you say) that are post-paid customers? or is it mercantile sector and more affluent customers? i am interested to find out your source.

i am confused with your supply-push argument for investments by mobile operators. how do you justify that? i thought the investments were demand-driven?

your investment numbers are interesting. how reliable are these numbers? for instance what constitutes the lkr 9 billion investment in 2004? it would be good to see how much is plough-back, how much is fdi etc. do you have more recent numbers?

you bring out an important point about number portability when you say you bet on dialog’s continued dominance based on its customers holding on to their numbers. what if number portability is introduced? will that change the picture completely? how loyal are dialog customers?

is 3G really the future? with lkr 100-200 monthly bills for many subscribers as you say, will it make a dent?

you bring out the CDMA story. how do you think it is impacting the slow down in the mobile growth is not mentioned. how strong do you think the correlation is? is it short or medium term?

i like your choice of word ‘regulation will be the wild card’ in the sector performance!

interconnection you say will be an issue for newcomers. does it mean it is ok for the current players (except you say some periodic complaints and TRC is ‘looking into’ them? another interesting investigation is to see how many of the 32 EGOs have interconnection agreements.

your most important figure is that mobile penetration will in the next 2 years go from 21.5% at mid 2006 to 38% by sometime 2008. this means total connections will increase from 4.3m to around 7.8m. so what you are saying is supposing the industry expands by 50% next 12 months to 6.5m (likely according to your figures), the growth in the following 12 months (2007/8) will fall dramatically to something like 20%. this is startling. it would be good if this can be justified because that will have quite significant impacts on investments and overall growth figures for the economy.

also of interest would be to know if your estimate is more on existing users (middle class) obtaining another connection for the same household (family member) or whether it is penetration to the ‘bottom of the pyramid’?

one other thing you might want to address is the international/bypass story. how big is it? how does is impact on the numbers?

i hope my observations are useful and would like to see your team respond if possible as this IS the most important sector in the country and we need to understand the dynamics of it. even an addition of 2 pages to supplement your report might be appreciated by the community! the work you have done is most appreciated and hope you will continue to track its performance.
harsha de silva
October 18, 2006, 2:56 pm
the authors have still not responded, but they will need to justify their projected slow-down in growth from 50% to 20% if their research is to be taken seriously.
harsha de silva
October 19, 2006, 9:53 am
the board of investment of sri lanka has just released its investment figures for jan-aug 2006. it is interesting to see the importance of telco investments in to the country.

http://www.lankabusinessonline.com/fullstory.php?newsID=427432335&no_view=1&SEARCH_TERM=1

note sri lanka’s current growth is driven by the services sector led by telcos.