Telecom sector struggles: Profit slump as OTT platforms and heavy taxes take toll

KATHMANDU: Nepal Telecom, the state-owned telecommunications giant, reported a staggering 48.67% drop in net profit for the third quarter of the current fiscal year, according to its latest financial report. The company’s net profit plummeted from NPR 5.53 billion in the same period last year to NPR 2.84 billion, a decline of NPR 2.69 billion. The report also highlighted a reduction in current assets, with cash and cash equivalents dropping to approximately NPR 34 billion, signaling a concerning downturn in the company’s financial health.

The telecom operator attributed the profit decline to multiple factors, including the rising popularity of Over-The-Top (OTT) platforms such as Messenger, Viber, and WhatsApp, which have significantly reduced revenue from traditional voice calls and SMS services.

Additionally, a one-time payment of NPR 20 billion for GSM license renewal and increased competition from Internet Service Providers (ISPs) offering Wi-Fi-based mobility services have further eroded mobile data consumption and profitability. “OTT services have negatively impacted incoming international call volumes, leading to a 22.37% drop in interconnection revenue, approximately NPR 535.56 million, compared to last year’s third quarter,” Nepal Telecom stated. “The growing use of OTT platforms continues to adversely affect our overall voice and SMS revenue.”

The broader telecommunications sector is also grappling with declining revenues. According to the Nepal Telecommunications Authority (NTA), the combined revenue of Nepal Telecom and Ncell, the two major telecom operators, fell by 26% from NPR 98.71 billion in FY 2074/75 to NPR 73.14 billion in FY 2079/80.

Nepal Telecom’s Deputy Spokesperson Navin Kumar Mishra pointed to excessive taxation as a key contributor. “Outdated policies, OTT platforms, Wi-Fi hotspots, and high license renewal fees have impacted us. Various revenue taxes further strain our income,” Mishra said. He explained that telecom companies pay a 13% VAT, 10% service fee, and 2% ownership tax, totaling 21.2% in taxes. “After spectrum fees, royalties, and 4% contribution to the Rural Telecommunications Fund, only 38% of revenue remains. Deducting operational costs, financial expenses, license renewal fees, and loan installments leaves just 8% of revenue, with only 5% counted as profit after corporate tax.”

Industry experts warn that the continuous revenue decline poses long-term challenges for service expansion, new technology investments, and operational sustainability. Former NTA Chairman Bhesh Raj Kandel criticized the heavy tax burden, noting that telecom services, treated as essential, are taxed like luxury goods. “Telecom companies pay a 30% corporate tax, compared to 25% for other sectors,” Kandel said. IT expert Manohar Bhattarai urged policy reforms and tax restructuring to benefit both consumers and providers. “Technological changes have shifted revenue sources, necessitating amendments to the law to address new challenges,” Bhattarai said.

The rise of OTT platforms has also reduced voice service demand, with data consumption increasingly dominated by ISPs. Bhattarai added, “I’m not advocating for banning OTT platforms, but the government must consider how to regulate them. Otherwise, telecom companies with billions in investments risk a crisis.” The revenue crunch is already impacting plans for 5G rollout, with Nepal Telecom facing budget constraints despite ongoing 5G trials.

Ncell’s CEO Jabbor Kayumov echoed these concerns at a recent event, stating, “Telecom companies are navigating a complex crisis. A significant portion of our revenue goes to taxes, 20% to equipment purchases, and the rest to operational costs.” He estimated that launching full-scale 5G services would require over NPR 60 billion, a daunting prospect given the sector’s shrinking revenues.