Sri Lanka's telecom regulator is enforcing floor prices and interconnection rates form mobiles from July 15, ending a price war that has put the industry deep in the red, though concerns remain.

Sri Lanka had a 'sender keep all' regime for mobiles where all the revenue could be kept by the originating network. From July 15 operator will have to pay 50 cents for each voice minute terminated in another network and 15 cents per text message.

The regulator is also enforcing floor rates.

"We have a put floor rate of two rupees for off-net calls and one rupee on-net calls for new customers," Indrajith Handapangoda, deputy director - competition at the Telecommunication Regulatory Commission of Sri Lanka told LBO.

"This is for new customers and the existing customers can continue with their existing tariff plans."

The market is shared between Dialog Axiata, Etisalat, Mobitel, Airtel Lanka and Hutch.

An intense price war started with Mobitel, a firm connected to state-run Sri Lanka Telecom giving a cut price tariff plan to state workers, ahead of Bharti Airtel's entry to the island as the fight player.

The competition however has made players leaner, but the industry was in turmoil and losses made it difficult for firms to invest in expansion and broadband services.

"It is not the responsibility of a regulatory agency to ensure the profitability of telecom operators," Rohan Samarajiva, a telecom policy researcher and a former regulator in Sri Lanka and the US wrote in his regular column on Lanka Business Online.

"Yet, when every single operator in the country, including the incumbent who used to make profits even under inefficient government management, starts bleeding red ink, it is not possible for the government and the regulatory agency to sit on their hands.

"After years of bad policy decisions and regulatory inaction that led to a crisis in the industry, finally, the government has started to act."

Samarjiva said lack of inter connection regime was also an incentive to smugglers of international calls. With no termination fees to be paid, operators had no incentive to stop international call smuggler who used their network to terminate in other networks.

Bharti Airtel however warned that floor prices do not foster competition of efficiency.

"Worldwide in any country with multiple operators the policy of forbearance is allowed, where operators are allowed pricing freedom," Bharti's head of mobile services Atul Bindal told a forum in Colombo earlier in the month.

"This enables efficient operators to offer services at a competitive rate and more importantly it allows customers to get affordable tariffs.

"On the other hand floor pricing only rewards inefficiency and inefficient operators."

Though Sri Lanka has only five players, Bindal said some areas in India had seven or more operators. July 14, 2010 (LBO)