Sri Lanka's mobile sector is expected to consolidate in the next 12 months seeing the number of mobile service providers in the market reduced to three.

BMI View: Improved monetisation opportunities will arise from consolidation in Sri Lanka's mature mobile market. Although consumer choice will be diluted as the number of operators shrinks from five to three, the increased scale enjoyed by the survivors means they will focus less on pricing and more on service quality for growth. Sector profitability will improve with a shift away from price-based competition.

Sri Lanka's mobile sector is expected to consolidate in the next 12 months seeing the number of mobile service providers in the market reduced to three. According to Hindu Business Line, Airtel, the smallest operator in the market, has been negotiating with rival Etisalat since June 2013 concerning the sale of its operations but deal terms have yet to be finalised. Second-ranked Mobitel agreed to acquire fourth-placed Hutchison in February 2014 pending regulatory approval. BMI believes slower sector growth prospects and low EBITDA margins are forcing smaller players to leave the market.

BMI forecasts mobile subscriptions to grow at a compound annual rate of 3.1% between 2013 and 2018, compared with the 13.1% growth seen in the preceding five year period. Tariff discounts have been the main driver for multiple SIM adoption, but operators now need to innovate and introduce more appealing services to both attract and retail customers as well as growing their bottom lines. The shift in market dynamics makes it harder for smaller players to compete as scale is needed to justify investment in new services and products.