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Communication breakdown

15 Sep 2022

  • Communication services sector buckles under import bans, price increases, shortages, electricity tariff hike, sales drop
BY Sumudu Chamara   Communication plays a pivotal role in day-to-day affairs in the lives of modern-day people. Even though Sri Lanka’s communication sector, mostly led by mobile phone-based communication service providers, was a thriving sector just a few months ago, it is now facing massive risks to its sustainability due to the economic crisis and related developments.  The mobile phones and accessories industry, as well as the mobile network service providers industry, appear to be on the brink of a massive fall, mainly due to the recent import restrictions and the depreciation of the Sri Lankan rupee. Those within the industry highlight that in a context where mobile phones and accessories are not produced locally, the industry is at risk of collapsing in the coming few months.   Rising prices   According to several sellers of mobile phones and accessories who spoke with The Morning, in June and July, during which the impacts of the economic crisis started affecting the industry, the prices of these goods had increased by 20-50%. However, last month, especially after the latest import restrictions, these prices had increased by 80-300%. According to D.W. Wijetunge, a 57-year-old owner of a mobile phones and accessories store, this situation is caused by several reasons, which he said are beyond the seller’s control.  “On one hand, the US dollar rate has increased drastically, consequently increasing the prices of mobile phones and accessories proportionately. On the other hand, there is now an import restriction in place, which creates a scarcity of mobile phones and accessories in the market, which in turn compels sellers to increase the prices to cover costs. On top of this, electricity, an essential commodity in our business, has become more expensive. All these reasons have led to price hikes, and these are beyond our control.” With regard to the profit margin, Wijetunge said: “Just around six months ago, we had a profit margin between 30-70% of the price at which a product is bought by the seller, concerning certain products. We increased prices, which includes our profit, due to increased costs. However, although the profit went up as a percentage of the product’s price, it has declined overall. It is because we can increase the profit only to a certain limit. Passing that limit would mean a decline in sales.  “In addition, the value of money has decreased exponentially, and the profit has less value now compared to the situation six months ago. Customers are frustrated with us when we increase prices, but even though we understand their situation, they have no clue as to what we have had to deal with.” Due to this situation, some sellers have cut down on purchasing mobile phones in order to avoid losses, and have adopted new methods to ensure that they do not unnecessarily stock mobile phones. This development was explained by Sahan Chanaka (name changed on request), a 33-year-old employee of a mobile phones and accessories store, who said: “We used to purchase mobile phones in large quantities because we were certain that they could be sold within several months. We could rely on, and predict our clientele’s purchasing behaviours.  “However, with the people’s purchasing power decreasing, it has become difficult. Now, even at the bare minimum level, we are unable to predict how many mobile phones we can sell in a day or a week. This situation has made it risky to purchase mobile phones in large quantities.” To mitigate this uncertainty, Chanaka said that his store started accepting and promoting a pre-order system.  “We have a huge stock of mobile phones that we purchased earlier. While trying to sell those mobile phones, we have started a new system of accepting pre-orders. Not every customer is expecting to purchase a mobile phone in one visit to the store. Some can actually place their order a few days in advance. To those who can wait, we have introduced a pre-order system through our social media platforms.  “Through this method, we can keep the required product reserved if it is already in our stocks, or place an order only for the required number, or type of products, which gives us a certain assurance that the products we order or reserve are certainly going to be sold, and not sit in our shelves for months.” He opined that if the prevailing situation worsens, purchasing a mobile phone will soon become a luxury that requires advance notice and perhaps an advance payment.    Declining sales   All traders that The Morning spoke to expressed concerns about the drastic decline in sales owing to the said situation. While one seller claimed that the daily number of customers has decreased from around 50 to less than 20, another seller said that on certain days, the income is barely sufficient to cover the basic costs such as electricity, internet, and daily wages. Ishara Boditha, a 36-year-old employee at a mobile phones and accessories store, shed light on the present situation, saying: “Until April of this year, we sold at least 20 mobile phones a week. But now, we can sell only around six to seven a week. The sale of various accessories such as earphones, data cables, memory cards, and protective covers has also declined. People buy the cheapest products, whether mobile phones or accessories, which is not very profitable for us, although we have to keep selling cheap products in order to maintain our clientele.  “Nowadays, we meet people who inquire from us whether earphones and mobile phone chargers, which are almost always replaced if they do not work properly, can be repaired. What this shows is how the people have been affected by the prevailing economic situation. If purchasing a pair of earphones or a charger has already become difficult, imagine how difficult it would be to sell a mobile phone in the coming few months.” Even though there seems to be a severe decline in mobile phone sales, traders note that mobile phone repair services are booming. The main reason for this situation, they claimed, is people’s inability to purchase new mobile phones.  In this regard, the traders claimed that although mobile phone sales have dropped, people are tending to have their mobile phones repaired as opposed to buying new ones owing to the hike in prices. With this unfolding situation, the charges for repairing phones have also increased, especially due to the increased prices of spare parts. However, according to them, it is still cheaper than buying a new mobile phone.    Mobile phone connections   Those in the industry expressed these grievances in a context where the Telecommunications Regulatory Commission of Sri Lanka approved tariff hikes for telecommunication service providers, including mobile network service providers. The overall hike was 20%, which came in addition to the increase of the Value-Added Tax (VAT) from 12% to 15%, which is applicable to the telecommunications industry. According to those in the industry, this situation too has affected the industry in the form of a decline in the sales of recharge cards. Kamal Jananath, a 40-year-old employee of a communications centre, explained his experience: “There is a noticeable decline in the number of people who purchase recharge cards of higher value. The demand for cards valued at Rs. 50 and Rs. 100 has increased. Customers have actually complained about the prevailing situation, adding that using mobile phones has become more expensive than before.  “When it comes to reloads (a card-less recharging method), the situation is not very different. People recharge their mobile connection with smaller amounts such as Rs. 200-300. I do not see many people recharging more than that nowadays.” He added that even though regular reloads have declined in value, more mobile phone users have started buying various packages offered by mobile network service providers.  “There is a big demand for various call, messaging, and data packages. In terms of the value for money, they are considerably beneficial, and the people seem to have identified it as a method to save some money.” However, Jananath also noted that overall, people’s spending on card and card-less reloads are decreasing. He expressed concerns that if mobile network service providers do not take measures to decrease their charges or increase the services that they provide (call time, messages, and data), this decline would continue and worsen. This is a situation which is not just a challenge for those in the industry, rather, many have identified this as a situation that has an impact on all affairs of the country, as almost all industries depend heavily on mobile phone-based communication. In this context, it is essential to identify this as an essential service that requires special attention when it comes to economic decision-making.  


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