Is Nepal ready for a third telecom operator? NTA’s feasibility study sparks debate

KATHMANDU: The Nepal Telecom Authority (NTA) has recently initiated a feasibility study to assess whether Nepal’s telecom market needs a third operator. The move is led by a committee headed by Amber Sthapit, NTA’s Director of the Regulatory Division, and includes senior officials Directors Santosh Paudel, Dr. Pradeep Paudel, Sundar Pyakurel, and Assistant Director Sunil Khatri. This committee, given a three-month deadline, will conduct an in-depth review to determine if an additional operator would benefit the nation’s telecommunications infrastructure and overall digital advancement.

Chairman Bhupendra Bhandari of the NTA has reportedly been under significant pressure to advance the third-operator process, particularly after Prime Minister KP Sharma Oli’s administration took office. This feasibility study aims to clarify whether another telecom operator is necessary to fulfill Nepal’s growing demand for high-quality telecom services.

Rationale Behind Considering a Third Telecom Operator

A significant push for a third operator has come from the government’s interest in strengthening Nepal’s 5G infrastructure. Currently, state-owned Nepal Telecom and private operator Ncell control the telecom market in Nepal. However, as Nepal Telecom has seen a gradual decline in service quality and Ncell will eventually transfer to government ownership in four years, some stakeholders argue that an additional operator could foster healthy competition and improve the quality of services.

The potential profitability of Nepal’s telecom sector has attracted interest from influential business houses. Collectively, Nepal Telecom and Ncell generate approximately NPR 75 billion annually, indicating the lucrative nature of the industry. The government sees this as an opportunity to introduce a revenue-based licensing model, creating a more favorable environment for a new operator to enter the market. According to sources, the new model would allow operators to pay licensing fees based on revenue, lowering the initial administrative costs and making market entry easier for a new player.

Market Challenges for a New Operator

While the revenue-based licensing model could ease market entry, there are considerable challenges to the profitability and sustainability of a third operator. First, Nepal’s population is relatively small compared to other telecom markets, which may limit the customer base for an additional telecom operator. Furthermore, any new operator would need to compete with the existing players, Nepal Telecom and Ncell, which hold a significant market share and established infrastructure.

From a regulatory standpoint, existing operators are required to pay NPR 20 billion for each license renewal. This licensing fee model, critics argue, is outdated, with telecommunications experts like former Nepal Telecom Managing Director Buddhi Acharya emphasizing the importance of frequency-based charges rather than flat renewal fees. “Operators should be charged based on the frequency and bandwidth they use. It’s unfair to have a flat renewal fee of NPR 20 billion. The operators primarily pay for frequency access, not the license itself,” Acharya noted.

New Telecommunications Bill and Revenue Collection

In anticipation of potential regulatory changes, the Ministry of Communications has drafted a new telecommunications bill, which, if passed, would require telecom operators to pay 8% of their total annual revenue to the government. This change would reduce the financial burden on operators by aligning fees with their revenue generation, possibly benefiting existing operators and making it more feasible for a third operator to enter the market. For instance, with an annual turnover of NPR 34.46 billion, Nepal Telecom would need to pay NPR 2.75 billion annually under the proposed structure, compared to the flat NPR 20 billion currently required for license renewal.

The Impact of Foreign Investment Restrictions

The potential restriction on foreign investment in the telecom sector is another point of contention. If enacted, this policy would directly affect Ncell, which is majority-owned by UK-based Spectra Lite following a sale by Malaysia-based Axiata. The ownership transfer and subsequent operations may be complicated by these restrictions, raising concerns over the treatment of established foreign investments in Nepal’s telecom sector.

Ncell’s recent application to the Department of Industry for ownership transfer has reportedly stalled due to government directives, which insiders claim are linked to efforts to pave the way for a new operator. “Efforts to secure a license for a new company appear to be coming at the expense of established foreign-invested companies,” one source commented. Critics argue that such measures could create an unfavorable environment for foreign investors in Nepal, impacting the long-term growth of the telecom sector.

Is the Third Operator Needed?

The feasibility study initiated by the NTA raises the question of whether Nepal truly needs a third telecom operator or if it is more about political and commercial interests. Proponents argue that a third operator could help improve the quality of services by stimulating competition and enhancing 5G deployment. Additionally, a new operator could provide job opportunities and contribute to the national economy through license fees and revenue sharing.

However, skeptics caution that the introduction of a new operator could create market saturation and intensify competition in an already limited market. The high entry costs, especially given the current licensing requirements, pose significant barriers for any new player. Moreover, they argue that Nepal should first focus on improving the performance of existing operators rather than introducing a new one, which could result in an unsustainable market.

While the government’s interest in licensing a third telecom operator could have potential benefits, experts argue that the process must be grounded in a realistic understanding of Nepal’s market dynamics and technological needs. If implemented effectively, a third operator could improve services and boost 5G adoption. However, without a clear framework that considers frequency-based licensing and sustainable market demand, the third-operator initiative could face significant obstacles.

As the NTA committee’s report is awaited, the debate continues over whether the introduction of a new player would truly enhance Nepal’s telecom sector or merely serve political interests at the expense of established operators. The decision is set to shape the future of telecom infrastructure in Nepal, affecting businesses, consumers, and the broader digital landscape.