"This year all operators put together may have invested about 150 million."

The price war started less than two years ago, just ahead of the entry of India's Bharti Airtel to the island. Mobitel, a unit of fixed access operator Sri Lanka Telecom, led the price war with its Upahara package targeting state workers.

Soon most operators were in the red and margins plummeted. Fixed access operators were also hit.

Earnings before interest tax depreciation and amortization (EBIDTA) have plunged from 60 percent two years ago to around 30 percent now.

"Unless you can get your EBIDTA margins above the 50 percent mark - and today they are in the upper twenty percent or mid thirties - it means there isn't going to be enough cash in the industry (for re-investment)," says Hans Wijayasuriya chief operating officer of Malaysia's Axiata which controls Sri Lanka's largest celco, Dialog Telekom.

Operators say revenue to capital expenditure had fallen to about 15 to 20 percent.

"These are the kinds of ratios we need to look at in developing countries," he said. "This will slow down development. It will slow down the bottom of the pyramid story (low income users)."

Ratnayake says about 35 percent of mobile revenues now go the government.

"Today my spectrum fees are 10 percent of revenues," he says. "I still make 35 percent EBITDA but it is not enough because cost of equipment is very high. To sustain this business you need 60 percent EBIDTA - that is basic reality."

Operators say the focus of the regulator should change from driving prices down.

"In Sri Lanka the only thing that has been going south is telecom prices," says Ratnayake.

As a maturing industry with 50 percent penetration, the industry should be in a cash generating position, Wijayasuriya said.

However a price war has also started in India, which is likely to mirror Sri Lanka's trends, driving margins down.

Operators also raised concerns as to whether there was predatory competition, where services are offered below cost due to a new entrant with external support, or from capital markets, somewhat similar to what is now happening in India.