The telecommunications industry's potential for prompting socioeconomic growth has spurred massive changes in telecommunications sectors the world over; Sri Lanka has followed this path, and ever since the mid-1990s the industry has inched towards liberalization. As in several other developing countries, Sri Lanka liberalized the domestic segment of its telecommunications market before introducing competition in international telephony. In addition, liberalization and the setting up of a regulatory body preceded the partial privatization of the incumbent operator.

Telecommunications sector reforms have undoubtedly had a positive impact on the industry and on the Sri Lankan economy. Tele-density has increased over the years with the number of fixed lines per 100 people rising from 0.73 in 1991 to 4.9 in 2003, while mobile penetration has increased from0.01 to 7.3 over this same period. As indicated in Table 39.1, in the years 2002 and 2003 alone, mobile density shot up from 4.9 to 7.3. Investment in the telecommunications sector over the past two decades meanwhile has amounted to over US$1.3 billion (Zita and Kapur 2004). According to the Central Bank of Sri Lanka (2003) the telecommunications sector remains one of the highest growth sectors in the economy, expanding from 19.3% in 2002 to 24.5% in 2003.

In line with its commitment to liberalization, Sri Lanka is a signatory to the WTO Agreement on Basic Telecommunications Services and has fully adopted the Telecommunications Reference Paper that sets out the regulatory principles for the effective implementation of this Agreement as well as the Annex on Telecommunications Services.