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The overcrowded mobile phone industry in Sri Lanka needs to look at new strategies with intensifying competition eroding profitability. Sri Lanka’s telecom industry has been overcrowded during the last few years and this remains the key medium-term risk to telecom operators in the country. 

Sri Lanka’s mobile industry is one of the most competitive markets in the region with five operators competing for a total addressable population of 21.7 million and the competition among the five operators -- Dialog, Mobitel, Etisalat, Airtel and Hutch -- is expected to remain high in the years ahead.

Thus, the industry must begin to focus on the strategies that will ensure its success in a more stable and growth-oriented economic environment. The following four aspects are suggested to change the face of the industry, locally, regionally and globally. 

•    Commoditization versus innovation 
•    Lean operations versus strategic investment 
•    Consolidation versus fragmentation 
•    Reregulation versus deregulation 

Each of these trends requires the industry players to understand the interplay between the opposing forces and what that dynamic will mean for them. All industry players, along the entire telecom value chain, must examine their place in the industry, determine their aspirations for the future and create the right set of strategic capabilities to get them there. Ultimately, companies need to define their undeniable right to win in the more challenging marketplace of the future.


Commoditization versus innovation   
The commoditization of infrastructure and especially basic connectivity has been accelerated by the downturn. As a result, only players that can achieve significant scale will be able to compete on the basis of infrastructure. Players that are not in a position to make major investments in infrastructure projects must shift their focus, differentiating themselves from their competition with innovative services, applications and technologies especially those requiring relatively less investment than do infrastructure projects. One approach may be to partner with or acquire new, innovative players to enhance their own capabilities in this area.


Lean operations versus strategic investment 
Telecom players have turned to short-term cost optimization as a defence against potential declines in revenue and the limited availability of financing, a trend that will continue as players’ hedge the risk of longer-term shifts in consumer behaviour. At the same time, however, creating a sustainable market position will demand that players make selective smart investments in areas that will allow them to remain competitive after the dust has settled.

The circumstances and priorities will vary depending on the player but everyone will have to dedicate future investment to building scale and/or scope. Driving cost reduction will be a critical capability. Telecom players will need to cut costs substantially, not just enough to sustain their current business but enough to generate cash flow that will allow them to invest in growth.


Consolidation versus fragmentation 
The commoditization taking place within the industry is forcing large operators to consolidate even further to build scale. Locally operators must improve their cost positions by directly consolidating infrastructure. At the international level, the same is true for service providers, such as IT system integrators, as well as most equipment makers. Although funding for acquisitions is scarce or available only on less than favourable terms, the strongest players still have access to financing and there are plenty of attractive acquisition targets, now that company valuations have dropped sharply. 

As always in consolidating markets, opportunities will arise for niche players to assume attractive alternative positions, based on a combination of innovative technology and business models. Therefore, every player must gauge its capabilities either to take an active part in the consolidation trend or to define its own differentiated niche capabilities.


Reregulation versus deregulation 
The heyday of accelerated liberalization and deregulation, when market forces were thought to be the best way to shape the course of the industry, is over. Now, policymakers and regulators are facing a bipolar scenario. On the one hand, they want to continue promoting competition and deregulation. On the other, they are realizing that pure market forces will not by themselves promote the significant investments in new infrastructure every economy needs to build the mass-market broadband network of the future. 

Thus, regulators are beginning to take an active role in enhancing value in the sector, promoting investments in national telecom infrastructure as a means of supporting present and future growth and even committing substantial public funds to the effort. Every player therefore must determine how best to position itself to benefit from changing regulatory approaches, while taking an active part in shaping the outcome of those regulatory changes.

These four tensions pose clear challenges to the global telecom marketplace. Industry leaders must navigate this new marketplace carefully, investing in the capabilities needed to prevail in the long term. Operators may decide to exit specific segments or regions; suppliers may streamline the existing product portfolios while determining where to grow. Content and service providers will benefit from commoditized infrastructure even as they are challenged by the struggles of the advertising business and by operators expanding their value chain. 

Several companies have already started on this challenging journey. There are some mobile operators who have outperformed the market leader on a cost basis in some parts of the world is now struggling to finance the next round of 3G and 4G investments and seriously considering retiring from the infrastructure business entirely. Every company’s overall portfolio of capabilities must be designed in a coherent and comprehensive way to support its strategies, which may mean eliminating capabilities that do not fit revitalized goals as well as building new ones. Industry players that fail to recognize and respond to these new realities will find it difficult to maintain their competitive advantage in the long run.

(Dr. Arosha Fernando is a Senior Consultant at the Telecommunications Regulatory Commission of Sri Lanka. He has a distinctive professional background covering 22 years in the telecommunication and media industry, globally. He has held a number of senior positions including Project Director of Ericsson Australia Pty Ltd in Melbourne, Australia, a Swedish multinational and a leading provider of communications technology and services, Director/CEO of Sierra Global Network (Pvt.) Ltd in Sri Lanka, a leading telecommunication infrastructure development and managed services firm, Chairman of Verazo Holdings (Pvt.) Limited, a company that manages two manufacturing plants, Working Director and a Board Director of the No. 1 TV channel in Sri Lanka - Independent Television Network Ltd (ITN). Arosha holds five university degrees from Australia’s two of the leading universities including one Bachelor’s degree, three Masters degrees and one doctorate (PhD))