US embassy cable - 02COLOMBO1610

UNCLAS SECTION 01 OF 02 COLOMBO 001610 
 
SIPDIS 
 
STATE FOR SA/INS 
STATE PLEASE PASS TO USTR FOR FHUEGEL 
TREASURY FOR DO/GCHRISTOPOLUS AND ADNAN KIFAYAT 
MANILA FOR USADB 
 
E.O. 12958: N/A 
TAGS: KTDB, BEXP, ECPS, ECON, EINV, ETRD, CE, ECONOMICS 
SUBJECT: Telecommunication reforms and opportunities in Sri 
Lanka 
 
Ref:  (a) Colombo 001400 (b) Colombo 001109 (C) Colombo 
 
00268 
 
1.  Summary: Sri Lanka plans extensive reforms in the 
telecommunications sector with the aim of developing a 
technology-neutral, open and convergent telecommunications 
market.  One of the most significant developments will be 
the opening of international voice services.  Other planned 
reforms include liberalization of all market segments, and 
deregulation of tariffs and controls on cross ownership of 
services.  A National Communications Policy (NCP) containing 
these reforms is to be adopted by the Government soon. 
These reforms will change the telecommunications landscape 
of the country and help implement an ambitious ICT sector 
strategy.  The reforms, if completed, will also enable Sri 
Lanka to meet its WTO commitments.  End Summary 
 
2.  The ending of a 5-year monopoly in August 2002 in 
international voice services enjoyed by Sri Lanka Telecom 
(SLT) has presented an opportunity for extensive reforms in 
the telecommunications sector.  Sri Lanka will adopt a new 
National Communications Policy (NCP) that seeks to promote 
the establishment of a technology-neutral, open and 
convergent telecommunications market structure with minimal 
restrictions and regulations.  The policy, the development 
of which was sponsored through a World Bank consultancy, was 
drafted with extensive industry and public input.  It covers 
fixed and mobile telephone services, data and internet 
services, satellite phone services, cable TV and 
broadcasting services, and tries to meet requirements of 
technological developments in these markets.  The GSL also 
plans to introduce a new Convergence Act covering ICT, 
broadcast, media and telecommunications by December 2002. 
This act will replace the various laws and regulations 
governing these services. 
 
Opening of international voice services 
--------------------------------------- 
3.  One of the most important reforms is the proposed 
opening of international voice telephone services.  The move 
will allow fixed voice, mobile and data operators to operate 
international voice services, and enable Sri Lanka to meet 
its WTO obligations to liberalize international voice 
telecommunications (due on December 31, 1999).  The new 
policy will lift current entry barriers to technologies such 
as Voice Over Internet Protocol (VOIP) and also remove 
approvals now needed for satellite connections.  In 
addition, it promises a review of the current de facto 
monopoly of SLT on underground international cables with a 
view to ending the monopoly. 
 
4. While the GSL plans to fully open the international 
sector with no predetermined limits on licenses, existing 
private fixed line telecom operators who have invested 
heavily on network expansion have warned against a "big 
bang" opening of the market.  Instead, they have urged the 
government to adopt an incremental approach for the 
international gateway liberalization by limiting the number 
of players to two initially.  The Government is unlikely to 
accede to this request.  A top government telecom official 
recently signaled that it would not establish a duopoly, 
saying that such an arrangement would lead to illegal bypass 
by other operators. 
 
5.  Prior to opening the sector, the GSL is hoping to 
establish a strong interconnection environment and has 
invited consultants to advise on three areas - comparative 
models in international telecom services markets, 
interconnection agreements, and licensing agreements for new 
players entering the international voice market.  The 
interconnection agreements will also seek to establish a 
calling party pay (CPP) system for mobile users, which will 
significantly boost mobile services. 
 
Opening of other markets 
------------------------ 
6.  In addition to the liberalization of the international 
gateway, the NCP will allow access by new entrants to fixed 
wire line and mobile services, and permit cross ownership of 
multiple networks and services.  At present, mobile 
operators cannot operate fixed lines and fixed line 
operators cannot operate mobile services.  For an initial 
period of 12 months, the ownership of multiple services will 
be allowed only in demarcated low-density areas.  Despite 
the market opening, complete liberalization of wireless 
services will be delayed until 2005 due to an exclusivity 
clause in the licenses of the current operators. 
 
Regulation: Communications Regulatory Commission 
--------------------------------------------- --- 
7.  Under the new policy, the Telecommunications Regulatory 
Commission (TRC) will be named Communications Regulatory 
Commission (CRC) and will play the role of an independent 
regulator to create an open and fair environment in line 
with requirements of WTO's telecommunications services 
agreement.  CRC's regulatory authority is expected to ensure 
competition in all markets. 
 
8. One of the most significant regulatory changes will be 
the deregulation of tariffs.  Under the policy, CRC will 
regulate tariffs only in cases of services provided by 
dominant or monopoly operators, where market forces are 
insufficient to constrain service pricing.  The policy 
contains safeguards to ensure fair competition in the use of 
infrastructure including restrictions on operators that have 
significant market power or control bottleneck facilities. 
Also in the cards is a review of spectrum management with a 
view to introducing a transparent spectrum allocation and 
pricing system.  CRC will also be responsible for ensuring 
access to space management through Intelsat or other 
satellite systems. 
 
Business opportunities 
---------------------- 
9.  The opening of the telecommunications sector, which is 
the fastest growing sector in the economy with a growth rate 
of over 25 percent in 2001, will present significant trade 
and investment opportunities.  Sri Lanka imports various 
telecommunications equipment from abroad, including the US, 
to support network expansion.  The services to be opened for 
investment include domestic and international telephone 
services, leased circuits and dedicated telecommunications 
networks and services. 
 
10. According to the new policy, CRC may entertain 
applications without regard to the nature of technology, 
including fixed wire line or Internet Protocol.  Additional 
licenses will also be issued for mobile and paging services, 
depending upon the availability of radio frequencies. 
Investors are likely to enjoy low license fees designed to 
promote market entry.  CRC will also evaluate the 
feasibility of introducing next generation communication 
services.  Another area to be liberalized is public access 
services on a resale basis such as public pay phones and 
tele-centers.  The government will also encourage cable TV 
and other multimedia broadband services. 
 
Expansion of rural services 
--------------------------- 
11.  The National Universal Access Policy (NUA) contained in 
the NCP seeks to promote the expansion of information and 
communication technology in rural areas not serviced by 
suppliers on a commercial basis.  The services include 
conventional telephone, Internet and email facilities and 
establishment of community tele-centers.  All 
telecommunications operators and service providers will be 
obliged to contribute to the achievement of "national 
universal access" (NUA) objectives as a condition of their 
license. 
 
e-Lanka Vision 
-------------- 
12.  The GSL is planning in the next few weeks to launch a 
comprehensive ICT road map that details an e-lanka vision 
for Sri Lanka.  Sri Lanka has sought the assistance of 
various partners such as USAID, the World Bank and the 
Government of India for the development of the ICT road map. 
Sri Lanka intends to use ICT as a lever for overall social 
and economic development in the country.  The new NCP is 
expected to lay the foundation for the implementation of the 
ICT roadmap by unshackling the sector and opening it for 
private investment and competition. 
Amselem