Hutch Sri Lanka completed its 100% acquisition of Etisalat Sri Lanka. With this deal, CK Hutchison Holdings Limited Group (the parent company of hutch) will hold an 85% controlling stake in Hutch Lanka. Meanwhile, the Etisalat Group will own the remaining 15%. When ReadMe initially reported this, we like many others had questions as to the effects of this merger. During a recently held media roundtable, Thirukumar Nadarasa – CEO of Hutch Sri Lanka answered these questions. Here’s what he shared.
With a population of 21 million, there was over 100% mobile penetration. Despite intense competition, the market was dominated by Dialog and Mobitel. Together, they hold a market share of 70%. This left the smaller operators fighting for 30% of the market.
According to Thirukumar, this prevented them from offering competitive 4G and 5G services. He elaborated on this saying, “These are massive investments where the operator must have some form of critical mass, in terms of subscribers and revenue to afford this kind of investment.”
As such, talks of mergers and acquisitions have been ongoing for years amongst the telecom operators. In 2016, it was reported that Dialog was in talks of acquiring Airtel Sri Lanka. Similarly, there were talks of Hutch Sri Lanka being acquired by Mobitel in 2014 and Lycamobile in 2017.
But despite the government promoting these deals, they never materialized. Thirukumar explained that this was simply because “the right agreement between two parties didn’t materialize.”
However, one could argue that with this merger, there is a loss of choice for consumers. After all, we’re going from five telecom operators to four. This naturally raises fears of higher prices for poorer quality connections. Thirukumar responded to these concerns saying, “Before you had two strong choices and three weak choices. But today, you get three strong choices and I think that’s better for consumers than what was happening earlier.”
Currently, both Hutch and Etisalat offer a 2G/3G network. Additionally, Hutch also offers a 4G network in Colombo. With the merger finalized, they’ll be now working towards combining their 2G/3G network. Additionally, on top of this combined network, customers will get a nationwide 4G network from Hutch.
This process is expected to take 6 – 12 months. Once completed, Hutch will offer a nationwide network offering 2G, 3G, and 4G services. Thirukumar added, “This could not be achieved on our own. It couldn’t be achieved on Etisalat’s own. We just didn’t have the scale. But by combining our resources, our towers, we can then build that bigger network.”
So how will this affect Etisalat customers? Currently, they’ll be able to continue with their existing packages. Once the networks have been merged, Thirukumar said, “We will then offer them the Hutch portfolio of products and services to choose if they wish to migrate” However, if Etisalat customers wish to continue with the existing package they can do so. Additionally, there will be no change to mobile numbers.
In other words, it would be business as usual. At least, that would be the case for a while. Once the networks have been merged, existing Etisalat customers might possibly see a barrage of offers from Hutch. But with phone numbers remaining the same, it adds some ease to our minds.
It’s typically expected to see employee layoffs following a merger. However, Thirukumar assured that there would be no employee layoffs. He shared that this was an important topic during discussions involving the regulators. As such, he shared, “A commitment we have given the government is that we will retain 100% of the Etisalat staff going forward.”
Therefore, following the merger, Hutch will have a workforce of 850 people. Furthermore, Hutch will have majority shareholding control and will manage the business. Thirukumar shared that for now, the 2 companies will operate separately. Over the next 6-8 months, they’ll gradually merge into a single business.
“A commitment we have given the government is that we will retain 100% of the Etisalat staff going forward.” – Thirukumar Nadarasa
Once that occurs, Hutch will have a market share of 20%. This is a far cry from Dialog and Mobitel. Thirukumar admitted that it was a significant gap. But he shared that they’ll be betting on their larger network and nationwide 4G network to hopefully close the gap. This is why the company will also be investing $200 million to develop its infrastructure to support the growth of data and broadband in Sri Lanka.
However, these investments won’t be in building 5G networks immediately. “You can put the tower up. But if the handset is not there or affordable, nothing is going to happen,” said Thirukumar. Nonetheless, the larger operators are already investing in building 4.5G and 5G networks.
One could argue that investments in 5G by larger operators show that once the network is in place, the devices will follow. While expensive initially, over time the devices will become more affordable. But one could further argue that smaller operators may not have this luxury of waiting. To make such investments requires having high revenues and subscribers.
In Sri Lanka, the telecom operators utilize three frequencies. These frequencies are 900/800Mhz, 1800Mhz, and 2100Mhz. The 900/800Mhz band is utilized to provide 2G services. The 1800Mhz band is utilized to provide 2G and 4G services. Finally, the 2100Mhz band is utilized to provide 3G services. The allocation of this spectrum is decided by the regulator, which is the TRCSL.
So how will these allocations be affected by the merger between Hutch and Etisalat? The data by the TRCSL helps us get an understanding of this. In the 2100Mhz band, Hutch would acquire 20Mhz both for uploads and downloads. This would give it more spectrum than both Dialog and Mobitel. Thirukumar shared that with these gains, they would be able to support more customers.
Meanwhile, in the 1800Mhz band, it would obtain 15Mhz following the merger. Here it would still be 3rd with Mobitel coming in 2nd and Dialog owning the most. Whereas with the 800/900Mhz, they’ve agreed to release 5Mhz to the TRCSL. This means Hutch would 10Mhz in this band. Meanwhile, it will be up to the TRCSL to decide how this 5Mhz will be allocated, which should happen via an auction.
Commenting on this Thirukumar said, “Keeping in consideration that we will be moving 3G and 4G broadband it’s very important that we must have a minimum block of spectrum to make efficient use of that infrastructure and resources. So in 3G and 4G, you need a minimum of 10Mhz so that’s why we argued that otherwise, we are wasting infrastructure and resources. So the regulator asked us to release 5Mhz and will decide what to do with it.”
Collectively, Hutch and Etisalat have 2500 towers. Over the next 6-8 months, the goal will be to combine the network these towers form into a single unified tower. This presents a challenge besides utilizing hardware from different vendors, there are towers next to each other. The company will have to decide, which of these will be shut down.
The final network will be whatever remains. Yet, a telecom network isn’t merely a set of towers. There are also various billing systems and many others utilized to give customers connectivity. Once completed, Hutch will be offering a network with nationwide coverage. However, coverage doesn’t always mean people will use it.
The GSMA states that there are 3 billion people globally that live with internet coverage but don’t use it. In Sri Lanka, despite almost everyone having a mobile phone, internet penetration is at a mere 30% according to the TRCSL. For this to change, the GSMA argues four factors play a key role.
These four factors are infrastructure, affordability, consumer readiness, relevant content, and services. Over the years, we’ve seen operators invest heavily in building their infrastructure even for 5G. One could also argue that there is an increase in content produced in both, Sinhala and Tamil in recent times.both,
Additionally, speaking to the press Thirukumar stated that Sri Lanka now enjoys some of the cheapest data rates in the world. The reason for this he stated was due to intense competition between the five telecom operators. So why is internet penetration still at a mere 30%?
Thirukumar argued that this was because of handsets. He explained this saying, “The handset price has to come to an affordable level that meets the budget of the consumer. And that’s only happened in the last 12 to 24 months. 3G handsets globally have come to a price level that is now affordable. So today a majority of handsets coming to Sri Lanka support 3G.”
Thirukumar added, “I believe with handsets reaching this critical price point, in the next two to three years this will rapidly change.”
However, according to the Sri Lanka Census Department, digital literacy in Sri Lanka is also at approximately 40.1%. This can present a barrier to another factor to connectivity, which is consumer readiness. Will devices becoming more affordable mean people are more eager to learn? Only time will tell.
For now, it’s likely business as usual. Etisalat customers can likely expect a smooth transition since their phone numbers won’t change. But what about the future? Despite this merger, Dialog and Mobitel will continue to be the dominant players in the market. Following the merger, the market share of Hutch would only increase to 20%.
Will competition between the operators intensify? Likely no. We probably won’t see a price war like when Airtel first came to Sri Lanka. Yet, the future of Airtel might be the biggest variable to decide the future of the local telecom industry.
Thirukumar ruled out any other acquisitions by Hutch at this time. But if Dialog or Mobitel were to acquire Airtel, then we’ll likely see competition intensify between the two. Yet, for this to happen, the right agreement would need to be in place. And talks have been ongoing to find that right agreement for years.
But right now, once the networks and businesses have been combined, Hutch would become the third largest telecom operator in Sri Lanka. One that would offer 2G, 3G, and 4G services. As such, we’re getting a stronger smaller operator in the market. It likely won’t dethrone Dialog or Mobitel any time soon. But with a strong customer-centric approach, it likely can give a tough fight.
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