Ncell & Nepal’s Telecom sector face 25% revenue decline amid regional growth surge

KATHMANDU: Ncell & Nepal’s telecommunications sector is grappling with a significant revenue downturn, reflecting a broader regional and global trend influenced by various factors.

The industry, once a robust contributor to Nepal’s economy, has witnessed a staggering 25% decline in revenue over the past five years.

This drop is compounded by a contrasting 40% growth in neighboring countries such as Bangladesh and Sri Lanka, highlighting the urgent need for reform and support in Nepal’s telecom landscape.

Revenue Challenges and Competitive Pressures

Both Ncell and Nepal Telecom are experiencing financial strain due to a continuous revenue decline. The market downturn is driven by the rising influence of Over-The-Top (OTT) services, a decline in International Long Distance (ILD) revenue, and a minimal contribution from data services despite increasing demand. The price of data has been dropping, driven by competition, but the government has not yet intervened to adjust service charges in line with investment costs and inflation.

Nepal’s per customer monthly data usage stands at a mere 4.5 GB, significantly lower than the 20 GB in India. This disparity reflects the country’s lower digital literacy and the restrictive environment for Direct Value-Added Services (DVAS). Additionally, the telecommunications sector’s contribution to Nepal’s GDP has shrunk from 5% to just 2%, with the market size contracting from NPR 100 billion to below NPR 75 billion.

Investment and Technological Challenges

The declining revenue and profitability are forcing telecom companies to invest 2 to 3 times their profits merely to maintain existing network infrastructure. With an estimated NPR 60 billion required to deploy 5G technology in the near future, the sector faces a daunting challenge, given the current financial constraints. The government’s target to export IT services worth NPR 3 trillion in the next decade and to develop a workforce of 1.5 million IT professionals may be jeopardized without substantial growth and support for the telecom sector.

Regulatory and Market Dynamics

The sector is also hindered by regulatory challenges, including heavy spectrum auction charges, outdated legislation, and high taxation. The Telecommunications Act of 1997, which has not been updated for 27 years, fails to address the rapid technological advancements in the sector. Telecom companies contribute over 50% of their income in taxes and fees, making Nepal one of the most heavily taxed markets in telecommunications.

Further compounding the sector’s troubles are the NPR 20 billion GSM license renewal fees every five years, which raise sustainability concerns. The frequent changes in regulatory directives, the rapid adoption of smartphones, and the rise of OTT services have all contributed to the sector’s declining market performance.

Future Outlook

If current trends persist, revenue in the telecom sector is projected to decrease by NPR 16 billion over the next five years, leading to a loss of NPR 3.7 billion in government revenue. The anticipated reduction in capital expenditure due to lower revenue will likely result in deteriorated network performance, adversely affecting consumer experience and the sector’s long-term sustainability.

For the sector to regain stability and growth, a healthy and predictable regulatory environment is essential. Without significant reforms and support, the telecom industry’s ability to innovate and sustain its role in Nepal’s economic development remains in jeopardy.