Plan in place to improve services and expand access in Sri Lanka's ICT sector


After years of strong economic growth and population expansion, Sri Lanka’s telecoms and IT sectors face increasing demand for a wider range of services. At the same time, a more tech-savvy populace has increasing expectations of service standards and quality, as technological changes reach greater numbers of people.

A Strong Foundation

The body responsible for implementing Sri Lanka’s ICT roadmap is the Information and Communication Technology Agency (ICTA), which was established following the implementation of the ICT Act of 2003. At the ministerial level, the sector is supported by the Ministry of Science, Technology and Research (MoSTR) and the Ministry of Telecommunications and Digital Infrastructure (MTDI). MoSTR works to connect research and development (R&D) with industry requirements, ensuring that the activities of the institutions under its purview are aligned with national objectives, while MTDI oversees the development of information and communication services, including the internet and telecoms. The Telecommunications Regulatory Commission of Sri Lanka (TRCSL), established under the Sri Lanka Telecommunication Act of 1996, regulates and monitors the telecoms sector.

A key initiative being pursued by the MoSTR is formulating an investment framework for R&D. In May 2016 the National Science and Technology Commission unveiled the National Research and Development Framework to President Maithripala Sirisena, which identifies 10 critical areas in need of attention from the scientific community. This includes plans to develop ICT in various areas such as cloud computing, bioinformatics and the internet of things. At a higher level, the MoSTR is working to ensure that the country achieves its objective of becoming a knowledge-based economy. Business process outsourcing is an established industry in the country, and growing the emerging knowledge process outsourcing industry is within the ministry’s remit. From a wider regional perspective, a framework for regional cooperation is in progress. The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) is an international organisation involving Bangladesh, India, Myanmar, Sri Lanka, Thailand, Bhutan and Nepal. The Asian Development Bank partnered with BIMSTEC to foster technological and economic cooperation among South Asian and South-east Asian countries, with work spanning technology, commerce, investment, tourism, human resource development, agriculture, fisheries, transport and communication, and textiles, among other areas.

Each member country leads progress in a different sector. Sri Lanka’s leadership, for example, is in technology. In October 2016 President Sirisena reiterated the government’s commitment in establishing a BIMSTEC Centre for Technology Transfer as part of his administration’s vision to create an integrated, knowledge-based competitive social market economy, as well as to contribute to the organisation’s collective drive towards economic advancement in the region.

Innovation & Skills

As part of the administration’s vision, Prime Minister Ranil Wickremesinghe stressed in October 2016 the need for innovation, technology and appropriately skilled technical personnel for the ICT industry to help the country speed up its development and become a high-income, knowledge-based economy by 2030. Further to this point, Prime Minister Wickremesinghe urged sector leaders to address a skills gap in the market. This, he suggested, could be done by providing training to up-skill and retain local talent; developing new talent by offering more research and technology offerings and through continuing negotiations on a controversial trade agreement with India, the Indo-Sri Lanka Economic and Technology Cooperation Agreement. Mahendra Dissanayake, CEO of local software development and IT solutions firm Infosoft, told OBG, “Sri Lanka is prepared to move up ICT value chains and supply global businesses with solutions.”

Indeed, developing the ICT industry has been a governmental goal for many years. The 1983 National Computer Policy, the first major effort towards creating a federal ICT policy was followed in 2003 following the founding of the ICTA. The ICTA is responsible for implementing IT-related policies of the MTDI and for helping to develop new policies for the cabinet of ministers. It is instrumental in delivering projects to aid the country’s transition towards a knowledge-based economy, and in 2017 aims to implement 80 projects to develop the country’s ICT infrastructure. It is also mandated with developing the sector’s legal and cybersecurity framework. Aiding the ICTA in the private sector is the Sri Lanka Association of Software and Service Companies. Consisting of stakeholders from the IT and business process management sectors, the organisation aims to catalyse Sri Lanka’s IT growth by expediting trade and business, multiplying educational and employment opportunities, fostering innovation and research, and championing a progressive national policy framework.

International Gateway

Such digital economic growth promoted by the government will only be made possible by Sri Lanka’s excellent access to high-capacity undersea cables. Complementing the SEA ME WE 5 system – the latest upgrade to the fibre-optic cable in the SEA ME WE series capable of carrying 24 Tbps – Sri Lanka has now been connected to its first 100 Gbps-plus submarine cable. In May 2016 telecoms service provider Dialog Axiata announced the connection to the Bay of Bengal Gateway (BBG), which is a submarine fibre-optic cable system exceeding 100 Gbps, via its state-of-the-art cable landing station (CLS) at Mount Lavinia in South Colombo. The BBG cable is co-owned by a consortium of global telecommunications operators, including Dialog Axiata, the UAE’s Etisalat, Omantel in Oman, Reliance Jio Infocomm in India, Malaysia’s Telekom Berhad and the UK’s Vodafone. The BBG uses high-speed, fibre-optic technology and dense wavelength division multiplexing, which allows its capacity to be increased without additional submarine intervention. The system’s initial equipped capacity is 6.4 Tbps on the back of a design capacity of 55 Tbps, which enables future expansion of the cable’s bandwidth and capacity.

Dialog Axiata’s investment in the BBG exceeds $34.5m, with the system expecting to significantly speed up the country’s connectivity. The BBG cable also underpins the company’s 3G high-speed packet access, 4G and fibre-optic networks as well as its cloud service, Cumulus. Dialog will share the bandwidth delivered via the BBG CLS with other local telecoms providers.

Major Operators

After more than 20 years of market liberalisation, five mobile operators remain in the country. Working in a strongly competitive environment, these operations have kept retail tariffs low, allowing end users to benefit from wide coverage and fast speeds. A rise in the smartphone penetration and the adoption of 3G and 4G services are driving demand for broadband data services, as are the increasing availability of e-commerce applications. As of the third quarter of 2016, there were 3.71m mobile and 847,018 fixed broadband subscribers in the nearly 20m-person country, according to data released by the TRCSL in September 2016, the latest available figures.

In Sri Lanka’s telecoms sector, five network operators have been locked in a contest for limited market share: state-owned Sri Lanka Telecom (SLT), Dialog Axiata, Hutchison Telecommunications Lanka (Hutch), Bharti Airtel subsidiary Airtel Lanka and Etisalat Lanka. There is not much room for growth, either as mobile subscriptions have reached a plateau, increasing just slightly from 24.3m in 2015 to 25.8m as of September 2016, according to TRCSL statistics. Some estimates place the mobile penetration rate at 123%.

SLT-owned Mobitel, the mobile service operator, launched South Asia’s first super 3.5G high-speed packet access network in December 2007, and trialled an improved version and multiple input-multiple output in 2009, as well as 4G LTE technology in 2011. Continuing to be at the forefront of telecoms technology in June 2016, it announced it had successfully trialled 4.5G LTE services capable of achieving speeds in excess of 1 Gbps, another regional first.

Once rolled out, 4.5G services are expected to strengthen the country’s emerging ICT industry with improved quality of experience. A reduction in latency is expected to enhance end-users’ experiences with time-critical applications such as video, online gaming and voice services. It should also be a benefit to businesses by significantly reducing data transport time for financial transactions such as online trading.

Revenue for the SLT Group (SLT and its eight subsidiaries, including Mobitel) for the second half of 2016, the most recent time available statistics, increased by 9% year-on-year (y-o-y) to LKR36.6bn ($249.5m). Group operating costs were capped at SLT’s operating costs increased by 15% y-o-y to LKR26bn ($177.2m) in the first six months of 2016, in line with 2015 year-end results, with group operating costs capped at LKR48bn ($327.2m) due to cost-control measures. In 2015 the group recorded a before tax profit of LKR5.52bn ($37.6m) for the fiscal year, reflecting a 33% y-o-y decline, with the drop attributed to the US dollar’s appreciation against the Sri Lankan rupee, which it said resulted in an exchange loss of LKR2.13bn ($14.5m) for 2015, compared to LKR13m ($22,600) the previous year.

Mobitel recorded earnings before interest, taxes, depreciation and amortisation in excess of LKR10bn ($68.1m) in 2015, as well as a 6.4% increase in revenue to LKR32.6bn ($222.2m) in 2015, driven by broadband, value-added services, and voice revenue, which continued to grow despite high subscriber penetration levels in the mobile market. In its annual report, the group credited the increase in broadband revenue to investment in upgrades to 3G and 4G technology, marketing initiatives that drove increased smartphone adoption and innovative pricing.

On the downside, Mobitel recorded a 6.6% increase in operating costs to LKR22.7bn ($154.7m) during 2015 and a profit after tax of LKR2.73bn ($19.5m), reflecting a marginal decline of 4.6% from LKR2.86bn ($19.5m) in 2014, with decline again due to the US dollar’s appreciation against the Sri Lanka rupee, resulting in an exchange loss of LKR1.2bn ($8.1m) for 2015. The report also pointed to the introduction of additional taxes, such as the mobile operator levy of LKR250m ($1.7m) and prepaid recharge tax, as impacting profits.

SLT continued to deliver strong results in 2016. In November SLT reported revenue of LKR55.7bn ($379.7m) for the first nine months of 2016, which translated into 9.5% y-o-y growth. SLT attributed this rise to increased demand for new products related to data and broadband, which were in turn boosted by the country’s increased LTE coverage and availability of fibre optic-based broadband.

Operating costs for the group registered a 15.2% y-o-y increase to LKR39.7bn ($270.6m), which was mostly due to the government’s increase in the levy on international telecoms operations and damaged telecoms infrastructure affected by natural disasters in the latter half of the year. The holding company’s revenue increased 7.2% y-o-y to LKR32.4bn ($220.9m) with operating expenses rising 10.8% y-o-y to reach LKR24.3bn ($165.6m), with y-o-y earnings after tax growth of 13.6%, reflecting the positive impact of lower foreign currency translation losses. Dileepa Wijesundera, Group CEO of SLT Group, attributed the top line growth of the group to investments made towards improving users’ experience through information, communication and entertainment services.

Major Contender

SLT’s major contender for market share, Dialog Axiata – a subsidiary of Malaysia’s Axiata Group – has been one of the leaders of Sri Lanka’s mobile industry since the late 1990s and is now one of the largest listed companies on the Colombo Stock Exchange. As of end-2015 Dialog Axiata had a market share of around 43%. The company’s range of services include advanced mobile telephony, external gateway operations, internet services, data and backbone, fixed wireless and transmission, television broadcasting, media services and high-speed mobile broadband services via its 2.5G, 3G/3.5G and 4G networks.

Dialog Axiata’s operational network comprises more than 2900 2G and more than 3100 3G base station sites distributed across all nine of Sri Lanka’s provinces. Its network covers about 84% of the country’s land mass and 97% of the population, according to the company. In mid-April 2017 Dialog Axiata Group reported stable fundamentals for 2016 year-end results, with the group’s revenue expanding 17% y-o-y to LKR86.7bn ($591.1m). This revenue expansion was largely supported by its businesses across its mobile, digital pay television, telecoms infrastructure and fixed-line segments. As of September 2016, the holding company had a healthy customer base of 11.3m, composed of 10.1m prepaid customers and 1.2m post-paid customers.


The fragmented nature of the sector might soon see a shift, with industry insiders and observers predicting both consolidation and some exits from the market in the near future. In October 2016 ratings agency Fitch Ratings stated in a telecoms sector outlook that it expects Hutch and Airtel Lanka to exit the market, as increased taxes and competition make their small operations unviable. Hans Wijayasuriya, regional chief executive - South Asia, of Axiata Group, told OBG, “As evidenced in several regional markets, discretionary fiscal policy has often targeted telecommunications on the presumption of inelastic demand for voice and data services. Such taxation, if stretched beyond an optimum level, can result in contraction in demand and consumption, which will squeeze margins and limit returns on investment.” However, both SLT and Dialog Axiata have enough room in their credit profiles to absorb the lower margins likely to result from higher taxes and lower profits, according to Fitch. Despite “regulatory risks,” the ratings agency maintained a stable rating on the sector based on the market’s demand for data, which it expects to generate single-digit revenue growth in 2017. The regulatory risks include a government-imposed 15% value-added tax and a 2% nation-building tax on telecoms services, which has in turn raised tax on data from 12% to 32% and on voice services from 28% to 50%. In October 2016 Jamaludin Ibrahim, president and CEO of Dialog Axiata Group, stated that the firm had no plans to downsize its Sri Lankan operations, and was looking to increase its presence. The CEO’s statement came in the wake of rumours at the time that Malaysia’s Axiata Group, Dialog’s parent group, was considering moves to divest all or part of the asset from its Asian portfolio.

For its part, Mobitel’s growth potential been hampered due to spectrum constraints, according to a ministerial committee. In July 2016 the Cabinet Committee on Economic Matters gave Mobitel permission to perform a study on technical and due diligence to explore buying out Etisalat, presumably to enhance its spectrum allowance. A government committee was also appointed by the Cabinet of Ministers to look into the acquisition of Hutch. If Mobitel acquires the Etisalat network, and Hutch experiences a buyout, then the only mobile phone operators left in Sri Lanka will be Mobitel, Airtel and Dialog Axiata.

Budget 2017

In late October 2016 the Wickremesinghe administration unveiled a blueprint for the country’s future path in its 1500-day economic development programme, something that was backed up by subsequent proposals during the 2017 budget speech delivered in November 2016. The government emphasised the importance of the digital economy in empowering the country by providing affordable and secure internet connectivity to every citizen and by removing international trade barriers. The government also plans to add digital technology to school curricula. Denis Brunetti, managing director of Ericsson Sri Lanka, told OBG, “We are encouraged by the increased focus the government is placing on promoting IT integration at a younger age in schools.” Additional initiatives include building a platform for cashless payments, creating digital commerce entrepreneurship opportunities and providing cybersecurity training. Under the proposed 2017 budget, the telecoms industry will see structural changes. To jumpstart the country’s digitalisation, all mobile operators will have six months to provide 3G services, with a surcharge of LKR100m ($681,860) per district to be imposed for any operators failing to follow suit. Furthermore, all metro areas must be converted to 4G by the end of June in 2018. Wijayasuriya told OBG, “Sri Lanka is the leading telecoms provider in South Asia because it constantly seeks to innovate in the face of a dynamic and changing market place.”

Cooperation Opportunities

Proposed items in the budget give the private sector several investment opportunities. The government intends to list state-owned Mobitel on the country’s stock exchange in 2017 in order to settle existing debt passed on from the previous administration. Telecoms operators will also be provided with a public-private partnership company that will take possession of Sri Lanka’s nearly 5200 telecoms towers. The logic behind this move is to divest telecoms companies of the capital expenditure and operational costs required to install and maintain these towers, develop expertise and to create synergies from the sharing of assets. Sulaiman Al Kaabi, CEO of Etisalat, told OBG, “Telecoms providers should operate in an environment where they compete on the quality of their services and not on price because in the end the consumer will lose out.”

Other initiatives under the government’s programme for creating a knowledge-based economy include the provision of a common platform for online tourism and allocations of LKR1.3bn ($8.8m) for the science and technology sector, as well as LKR250m ($1.7m) for the Sri Lanka Institute of Nano Technology. In addition, LKR250m ($1.7m) was proposed to be allocated for the establishment of an e-learning centre at Kelaniya University. The budget also makes fiscal proposals ranging from upping the levy on internet services to 25% to instituting a SIM card activation levy of LKR200 ($1.40) per SIM, increasing the present annual spectrum charge by 25%, and levying taxes on online transactions. To implement this last tax, the ICTA will be charged with creating a platform to help online firms with collecting taxes on transactions carried out within Sri Lanka. The treasury will monitor the platform. Tax incentives were furthermore proposed for the areas of robotics, cybernetics and electronics, and a policy of allowing free technical education in the country was tabled.

ICTA will also be responsible for implementing the national payment platform, which is intended to facilitate peer-to-peer payments – online payments for goods and services and fund transfers, for instance – by using computing devices. Running in lockstep with the platform, the ICTA will strengthen cybersecurity with a cryptography key that uses blockchain technology.


ICTA will also launch a new national data centre in 2017. To automate public services and e-services, the centre will gather data that has until now been separately maintained by state institutions such as registering people, immigration and emigration, elections, census and statistics and pensions. The new centre will help minimise those costs, according to figures from the ICTA. Dissanayake told OBG, “A totally integrated e-government would cut a lot of waste and create greater efficiencies on all levels of society.”

Secure transactions should be further facilitated by the introduction of the national digital identity (NDI) system. Already in the process of implementation by the ICTA, the NDI will be used by all government institutions as a unique identifier for both citizens and businesses. In addition, secure digital signature technology will be made available, a move that is expected to drastically improve the country’s ability to coordinate and accelerate international trade. An allocation of LKR15bn ($102.2m) was proposed for the digital initiatives.

Expanding Coverage

With data quickly becoming the currency of advanced economies, the provision of fast mobile and broadband connectivity has become a necessity akin to water and electricity. With this new landscape in mind, ICTA has partnered with Google X to launch balloons that will extend 4G LTE high-speed broadband connectivity to all of Sri Lanka. The aim is to enable Sri Lanka’s telecoms companies to expand their LTE coverage from the major cities to the country’s rural areas, enfranchising entire communities that have been are left behind by the digital revolution.

Project Loon is a Google X R&D project that aims to provide internet access to rural and remote areas across the globe. The project in Sri Lanka aims to create an aerial wireless network with up to 4G LTE speeds by launching balloons into the stratosphere at an altitude of about 18 km. In February 2016 Google began testing an internet service beamed via balloon, after striking a deal for spectrum with the government. The same month, Harin Fernando, minister of telecoms, told local media that the Sri Lankan government intended to buy a 25% stake in the project, while existing telephone service providers would be offered 10% of the joint venture shares. The government is using spectrum allocation to pay for the 25% stake in the project. “Our objective is to extend coverage so that the entire island will be covered,” Fernando told local press in February 2016. “With competition, tariffs will also come down.”

The launch of the project has been met with delays, which were attributed to an apparent malfunction of a test balloon and issues with spectrum allocation. In October 2016 the ICTA announced that Project Loon would be operating on a 700-MHz band and that it would resume after receiving a shipment from Google X of around six balloons. Commercial operations were set to be launched about a year after ground and balloon infrastructure tests are completed, according to an ICTA official. However, the project hit another snag in mid-February 2017 when Google ran into legal issues over using its own radio frequency without violating international regulations. As of May 2017 both Google and the Sri Lankan government were in the process of lobbying Geneva-based International Telecoms Union – the organisation that raised the issue.

Improving Speed

In another effort to address internet speeds – this time regarding governmental operations, not keeping up with ambitions to digitise the national economy – the government is decommissioning the existing government fibre network to build a faster one. In October 2016 SLT announced that it will build the new fibre network, called Lanka Government Network 2.0 (LGN 2.0), which will connect government offices across the country to each other. In addition to connecting public institutions and governmental agencies, LGN 2.0 will also provide free public Wi-Fi services to Sri Lanka’s citizens. The ICTA is administering the two-year LGN 2.0 project with a total budget of LKR12.7bn ($86.5m). The outlook for these ICT development programmes is promising. Omer Fareed, CEO of Envoy Facility Management, told OBG, “Sri Lanka has a young and ICT-savvy populace which has allowed us to thrive in providing global IT solutions.”


Despite its embrace of the digital economy, one vital area has been left behind. The use of electronic documents and electronic signatures has lagged behind in Sri Lanka compared to its trade partners and competitors. This has been largely due to a perceived inability to accept electronic signatures in situations where a signature is required for processing. In an effort to speed up electronic business and trade transactions – and address the gap in trade efficiency and competitiveness between Sri Lanka and its regional counterparts due to cumbersome trade processes and a low level of ICT integration – in October, stakeholders from private sector organisations met with representatives of government institutions responsible for trade-related processes to discuss the benefits of accepting electronic documentation facilitated by electronic signatures, and resolved to move the conversation from stakeholders to the trade community and governmental offices at large.


With a dedicated government ministry ensuring that the activities of the country’s ICT institutions under its purview are aligned with national objectives and connecting R&D with industry requirements, the country is on the right path in having a good pair of hands at the ICT helm. This is underscored by the digital economy’s growth, which is in turn enabled by Sri Lanka’s excellent access to undersea cables and a new cable system that is significantly speeding up the country’s connectivity. In addition, the rollout of 4.5G services is expected to strengthen the country’s emerging ICT industry. All this is taking place in a strongly competitive environment in which wide coverage, fast speeds, and low retail tariffs have benefitted end users.

However, mobile subscriptions appear to have reached a plateau, and the mobile penetration rate is unlikely to budge much further from its current level of over 100%. It is very likely that 2017 will see consolidations among telecoms operators, along with or in addition to mergers and acquisitions, to leverage spectrum allowances. The government has outlined several initiatives related to technology and telecoms in its proposed budget for 2017. It is clear that it foresees the digital economy empowering the nation by providing affordable and secure internet connectivity to every Sri Lankan citizen and by removing international trade barriers. If the government and industry stakeholders can reach these goals together, the ambition to digitise the national economy and reap all the rewards this embodies should be easily realised in the years ahead.


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The Report: Sri Lanka 2017

ICT chapter from The Report: Sri Lanka 2017

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