Opportunities & Challenges in Nepal’s Telecom Sector

Opportunities & Challenges in Nepal’s Telecom Sector
New Business Age, September 2007
By Dinesh Mahur (General Manager of United Telecom Ltd.)

The years 1997 & 1998 can be considered as the dawn of a new era in the telecom sector in Nepal. These were the years when the Telecommunications Act 2053 (1997) came into force and the telecom regulator i.e. Nepal Telecommunications Authority (NTA) was established. The establishment of regulator was a clear signal from the Government to introduce competition in the telecom.

During the long era of the monopolistic environment, the tariffs were high and penetration of telecom services was low. The telecom services were mostly concentrated in the urban areas primarily in the capital city of Kathmandu. The progress was slow but steady. License to the second basic service operator was issued in the end of year 2002 and to the second mobile service operator was awarded only towards the end of the year 2004.

The regulator or the Government has taken a cautious approach in opening of the telecom sector. A safer way of limited competition was adopted as some times it may happen that the sector collapses if opened suddenly to the unlimited competition (as large number of operators jump into the market while due to prevalent economic conditions, the demand is not created at the same pace).

Opening of the telecom sector has created opportunities for the direct consumers, business community, government, operators etc. With the entry of new operators, the direct and indirect employment opportunities for the youths of the country have increased and the overall life conditions have improved. Now, people are not required to queue up and wait long to get a telephone connection, at least in the big cities. The telecom connectivity is no longer a luxury, it is a necessity now.

The telecom penetration though increased times over past six years, still remains at low levels. The growth in the telecom sector has spiraling effect on the growth of economy of the country. Growth in economy creates demand for telecom services and growth in telecom sector has direct effect on the economic growth of the country. This is a win-win situation for all stake holders i.e. government/ regulator, operators, economy and foremost for the consumers.

There is usual thinking among the incumbent operators that the new operators will take away their cream and they will be left with the crust of dry bread. It may happen, if the incumbents watch the developments passively. However, the reality is otherwise. The incumbents also gear up to take the challenge head on and in this process, they improve their customer support, staff as well as network efficiency, decision making process etc. which are generally their weaknesses otherwise and remain unchallengeable for long periods of their monopoly. Thus, the incumbent operators should perceive the opening of the sector to the competitive forces as an opportunity in disguise. Live example is in this country itself. We can witness the rapid developments in the incumbent operator (Nepal Telecom) after the sector was opened for the competition.

In the multi-operator environment, the most critical issue is the making available of adequate interconnections in time by the incumbent operator to the new operators. Inadequate and untimely interconnections from the incumbent operators generally occur due to long decision making process in procurement of equipments for capacity augmentation to cater the requirement of the new operators. Interconnections with the new operators open up new revenue streams to the incumbent operator. They should provide interconnections to the new operators as liberally as possible. However, experience has been that the incumbent operator is normally reluctant to provide the interconnections, perhaps, in anticipation of unknown.

IUCs (Interconnection Usage Charges) are other critical issues in the multi-operator environment. Generally, in the absence of clear guidelines from the regulator, these charges remain a bone of contention between the operators. In case of Nepal, though we had well drawn interconnection guidelines from the regulator with detailed IUCs; still it was not a smooth transition from monopoly to duopoly regime. The regulator needs to play an important role in managing the situation in favour of overall development of telecom sector in the country. A large part of the regulator’s responsibility is to manage the incumbent operator in turning the hostile attitude to facilitating one. IUCs are not a thing which can be kept fixed for long time. Thus, the regulator needs to periodically revise the IUCs in consultation with stake holders. However, this is not happening.

Providing telecommunications access in the rural and in-accessible areas of the country is one of the most challenging issues for the government, regulator as well as for the operators. Still large part of the country remained unconnected. The country cannot achieve economic stability unless the majority of the population living in rural areas get opportunity to be part of economic development of the country. Little could be done for providing telecom facilities in the rural or in-accessible areas of the country. License for providing RTS (Rural Telecom Services) could be issued only in one development region i.e. Eastern Development Region though it is perhaps now extended to cover all parts of country.

Collective efforts from the Government, Regulator, Operators, NGOs etc. are required to be put together to carry out this responsibility. However, NTA as the regulatory body will have to take a lead and the incumbent operator will have to play a supportive role. All the telecom service providers are making contributions to the RTDF (Rural Telecom Development Fund). This fund should be suitably and wisely used for providing telecom services to unconnected areas. There seems to be some movement in NTA in this matter.

One of the major problems the operators are experiencing in extending the services to the rural areas, is the long distance connectivity due to difficult terrain of the country. Because of the terrain, it is not always possible to build up parallel infrastructure by individual operators in the initial stages. The regulator should promote or rather enforce (upon the operators) sharing of the infrastructure available with them, of course on cost basis. Incumbent operators naturally have quite good infrastructure. However, they are not quite willing to share the same. NEA is doing quite appreciable job by leasing out the dark fiber (overhead) hanged on their HT lines. However, the cost remains high due to no competition and unregulated environment. Creating parallel infrastructure may be viable once the telecom market is matured. The Government or NTA may also think of issuing license on minimum subsidy basis for creating national infrastructure for connecting various places in the country or licenses may be considered on regional basis. Prices for the infrastructure sharing should be defined by the regulator on annual basis. This will facilitate various service providers to rapidly expand their services to various parts of the country.

The local call charges for the basic telephones are, perhaps, the lowest which seemingly make the calls affordable even for the lower strata of the country. But, reality is not that. What make the cheaper call rates dearer to the consumers is the taxes levied on the basic call charges which are, perhaps, the highest. The call charges are subjected to 10% TSC and 13% VAT which make total taxation of over 24% on the basic call charges. The earlier decision of government to reduce TSC from 15% to 10% shows that the government has recognized this high level of taxation on the use of telecom services. It is the need of the hour to drastically reduce the taxation on use of telecom services so that fruits of lowest tariff reach to the telecom end users.

High taxation is one of the aspects that makes the telecom services unaffordable to the lower strata of the country and is a stumbling block in the way to achieve universal service obligations. The other and even more important is the entry barrier of one time ownership tax of Rs 1000 (recently reduced from Rs. 1500) charged at the time of providing new connection to a customer. Recognizing this as barrier, the government considered reduction of this amount for the prepaid services and allowed Rs. 20 initially and on every re-charge coupon of pre-paid services and subsequently on the basis of percentage denominations of pre-paid cards. This made the pre-paid services highly popular even though the call charges for prepaid are higher when compared to post-paid services. The government/ NTA should consider revising ownership tax for post-paid services also. Such a decision will go a long way in the overall development of telecom sector in the country.

It is a matter of pride for all of us that this country, perhaps, became the first country in south Asia to allow customers to choose their operators for making ISD calls by implementing the CAC (Carrier Access Code). I remember that special date i.e. March 20, 2006. Though, that was a special achievement for the country, it got little importance obviously from the operators, but surprisingly from the regulator. Only, Nepal Telecom and UTL implemented the CAC for their customers while other operators remained passive to this achievement, perhaps, in the absence of clear directions from the concerned authorities. Regulator, being the protector of telecom consumer rights, should put in more efforts to make CAC a success in the overall interests of the customers.

The technological advancements happening elsewhere around the globe can be explored and roped in for the benefits in the country. Use of IP technology is becoming more and more popular due to lower costs. People of this country should also not be kept away from the technological developments around the globe. This has been under discussion in Nepal for past many years. However, a decision in the matter is yet to be taken. There are two different activities; one is using IP as technology option by the facility based operators like Nepal Telecom and UTL and another is allowing Internet telephony. Regulator should promote use of IP as technology option by the existing facility based operators. Recently, the regulator has permitted UTL and Nepal Telecom to provide VoIP (Voice over IP) based international long distance services. However, without any commercial arrangements between various operators (mainly incumbent operator), it remains a theoretical exercise. Using IP directly or indirectly implies reduction in costs and also operators’ shares. The regulator should see that proper commercial arrangements are done between various operators for catering the VoIP traffic. In case of internet telephony, the regulator need to take vary cautious approach as the tracing of the internet calls is difficult if not impossible. The security monitoring of the calls have become very important in view of rising global terrorism.

International incoming call bypass has become perennial problem for the country. Lots of revenue leakage is there from the international incoming call bypass. Call bypass is also security threat to the country as the bypassed call cannot be traced for its origination as it generally make use of public internet as transport media. In most of the cases, it happens that the caller is not aware that his call is going through the grey route and he is charged at the normal call rate. Thus, it would not be exaggeration, if we call it as socio-economic evil for the country. NTA/ government are required to lay stringent laws so that the perpetrators involved are not be spared.

For long time, we have been hearing that the new Ordinance (now in the form of an Act) will come and sort out all the major problems that the telecom sector is facing at present. I remember, it has now been more than two years and still it seems to be a distant future. Stakeholders have been consulted recently and there have been some development in the matter in recent time. Though, the government may have other pressing priorities, still it need to spare some time for telecom sector as it is one of the major accelerators to the economic growth in the country.

For the development of telecom sector at accelerating speeds, the funds from the government alone are not sufficient. Private participation is must. Private players are attracted once the regulatory environment in the country is strong and able to safeguard their interests. The opening of the telecom sector to the competition should be viewed as the opportunity by all the stakeholders. Sharing of infrastructure should be promoted. NTA should lay down guidelines in this matter. It is the moral responsibility of all the operators to follow guidelines laid down by the regulator. NTA/government should take appropriate steps to reduce the taxation on use telecom services and ownership tax to meet the objective of universal service availability in telecom sector. The government should give due priority to the telecom sector and bring out the new Act as soon as possible. All round development in the telecom sector at a rapid pace is possible only if all the stakeholders are working in unison with each other with healthy competition.