Kathmandu, Nepal — The telecommunications industry in Nepal, once a robust contributor to the nation’s GDP, is now grappling with severe financial challenges, leading to a significant decline in its market presence and overall profitability.
Both major telecom operators, Ncell and Nepal Telecom, have reported a continuous decline in revenue, largely due to the rise of Over-The-Top (OTT) services and the diminishing profitability of international long-distance (ILD) services.
Despite the growing demand for data services, revenue from this segment has failed to offset losses, as aggressive pricing wars and the absence of government intervention to align service charges with inflation and investment costs have compounded the issue.
Over the past five years, the revenue of Nepal’s telecom industry has plummeted by 25%. This contrasts sharply with neighboring countries like Bangladesh and Sri Lanka, where the telecom sector has experienced a growth of 40% during the same period.
The average monthly data consumption per customer in Nepal stands at just 4.5 GB, significantly lower than the 20 GB seen in India, highlighting the challenges of digital literacy and the restrictions on the operation of Digital Value-Added Services (DVAS).
The lack of a level playing field is another pressing issue, with government policies often favoring the state-owned operator, Nepal Telecom. This, coupled with a widespread belief that private sector companies are exploiting consumers, has further stifled competition and growth.
At its peak, the telecom industry accounted for 5% of Nepal’s GDP. However, that figure has now dwindled to just 2%, with the market size shrinking from NPR 100 billion to below NPR 75 billion.
To maintain their networks, companies are being forced to reinvest 2-3 times their profitability, leaving little room for future advancements like the deployment of 5G technology.
Estimates suggest that deploying 5G in Nepal will require an investment of NPR 60 billion, a figure that is 12 times higher than current profits—a daunting prospect given the current financial landscape.
The government’s ambitious target to export IT services worth NPR 3 trillion over the next decade, and to produce 1.5 million IT professionals, is unlikely to be achieved without the support and growth of the telecom sector, which is a major player in the ICT ecosystem.
Further complicating matters is the high cost of spectrum, exacerbated by auction-based pricing, which has made essential telecom services more expensive. Despite the rapid technological changes over the past few decades, the Telecommunications Act of 1997 has not been amended in 27 years, leaving the industry with outdated regulatory frameworks.
Telecom companies in Nepal contribute more than 50% of their income in taxes and fees to the government, making the country one of the most heavily taxed markets in the telecommunications sector. Moreover, the requirement for companies to pay NPR 20 billion as a GSM license renewal fee every five years, after the initial 10 years, raises serious concerns about the sustainability of the industry.
Frequent changes in regulatory directives, coupled with the rapid adoption of smartphones and OTT services, have been identified as primary drivers of the market’s decline. A more stable and predictable regulatory environment is urgently needed to ensure the sustainability of the two major players in the market.
Looking ahead, industry experts estimate that the sector’s revenue could drop by NPR 16 billion over the next five years, leading to a potential loss of NPR 3.7 billion in government revenue. This decline is expected to be driven by a reduction in the telecom variable component by NPR 4.3 billion.
Capital expenditure intensity is also expected to decrease further due to low revenues, resulting in significant cutbacks in investment. This will likely lead to poorer network performance, ultimately impacting consumer experience and threatening the long-term sustainability of the industry.
As the telecom sector navigates these turbulent times, it is clear that a comprehensive and strategic response is required to address the myriad challenges facing the industry, ensuring its continued contribution to Nepal’s economic growth and development.