Telecommunications, economy and digital future

Michael Foley, CEO, Ncell

Nepal has a telecommunications history spanning more than a century. With the advancement of technology, mobile service was introduced, and Ncell has been serving as a key GSM mobile service provider in the country for nearly two decades. Today, mobile services have become a basic necessity for every consumer, reaching over 98% of the population.

Over the past two decades, telecom companies have played a significant role both directly and indirectly in driving social and economic development. They have been instrumental in transforming society for today’s digital age, and through mobile internet, these companies are making a substantial contribution to building an inclusive and digital economy.

Telephone booths, STD, and ISD calls are now a thing of the past. Today, we have reached the era of high-speed 4G internet, and thanks to telecom companies, banking, classrooms, and offices now fit right into a small mobile device. Paying bills of essentials from water to electricity bills has become effortless simply through mobile phones. Transactions that once required physical presence and cash, but now whether at a small local shop or for larger transaction, cashless digital translation is possible via mobile. Overall, mobile services have become an integral part of every Nepali’s daily life, woven into communication, commerce, information access, and socio-economic activities.

Access to telecommunications and the services they enable including, financial services, social media, health and education to name a few, have become essential to tour day to day lives and have in essence acquired the status of a human right.

Telecommunications and information technology have achieved remarkable progress, yet recent data shows that Nepal’s telecom sector is facing challenges. Once a major contributor to the national economy, the sector is now struggling, and telecom service providers are seeking support from the government. Factors such as the easy availability and growing use of OTT platforms, high taxes and fees, and expensive frequency charges have led to a continuous decline in revenue and profits, impacting the sector’s contribution to government revenue as well. The very sustainability of the sector is in peril.

Contribution to national economy

In the last fiscal year 2023/24, the telecom sector made a significant contribution to the country’s revenue collection. However, these companies are no longer consistently among the top taxpayers as they once were. Ncell alone contributed 0.6% to Nepal’s total GDP and 1.7% to revenue collection in 2023/24. Ten years ago, the telecom sector contributed nearly 4% to the country’s GDP, which has now declined to 1.2%. Each year, around 60% of the sector’s income goes to the government in various taxes and fees. To date, Ncell alone has paid nearly Rs. 360 billion in taxes and fees. However, the continuous decline in revenue, coupled with regulatory challenges, has made investments by telecom companies in new technologies increasingly uncertain.

A report by the World Bank shows that in any developing economies, a 10% increase in broadband access can contribute to lifting GDP by 2%. In Nepal too, the expansion of telecom services has had positive impacts across different dimensions of the economy.

Even before the COVID-19 pandemic, most Nepali consumers primarily conducted transactions in cash, but today, mobile banking has become the norm. According to the Nepal Rastra Bank, digital payments exceeding Rs. 100 billion are now made through QR codes in a single month, compared to just Rs. 3.5 billion little over two years ago. This is a strong testament to the critical role telecom companies have played in developing the country’s cashless payment system.

Easy and quality access to mobile services has also boosted e-commerce, with monthly transactions now averaging around Rs.1.5 billion. Farmers are receiving vital information through mobile phones, and some are even applying skills learned via mobile to grow vegetables and fruits. Beyond agriculture, the telecom sector has made significant contributions to education and health, among other sectors.

Telecommunications has become a key medium for learning, and telemedicine, along with data-driven health services, has made healthcare more accessible in remote areas. Mobile services have also helped prevent substantial losses during disaster management. Additionally, telecom companies continue to support job creation and the growth of startups.

In general, it may seem that the work of a telecom company is limited to providing telephone and internet services, but it has become clear that its role extends far beyond that. Ncell has been making a significant contribution—both directly and indirectly—to technological development, expansion, and establishing access, as well as to the growth of an inclusive economy. The company also plays an important role in job creation, innovation, and corporate social responsibility (CSR). Ncell has supported socio-economic development by investing more than NPR 2 billion in social initiatives across sectors such as education, health, environment, and the preservation of art and culture. Likewise, the company has also contributed to direct and indirect job creation for nearly one hundred thousand people, along with facilitating technology transfer.

Digital Nepal and telecommunications

The government has been working in-line with the Digital Nepal Framework to build a ‘Digital Nepal,’ which envisions ensuring internet access for every citizen, expanding 4G services across the country, and in time, deploying 5G networks. Achieving these goals is not possible without increased investment from telecom companies. If telecom companies do not invest in infrastructure, these targets cannot be realized.
To fulfill the objectives of the Digital Nepal Framework, the government needs to ensure that telecom companies receive returns on their investments and facilitate the process through necessary amendments to the laws. Without such measures, it is not only the future of telecom companies at risk, but the entire telecommunications sector could face significant challenges.

In last fiscal year’s budget, the government set a target to achieve Rs. 30 trillion in IT-related service exports over the next 10 years, and to create 500,000 direct and 1 million indirect jobs. To achieve this target, the telecom sector must play a crucial role. We have become in essence the operating system of, not only the ICT sector, but of the economy as a whole.

This requires that the fundamental telecom infrastructure, which underpins the IT sector, remains robust and sustainable , the outdated Telecommunications Act be updated, and OTTs platforms be properly regulated with facilitation for telecom companies.

Nepal’s Telecommunications Act 1997 has not been amended till date. Since the enactment of that law, mobile technology has evolved from 2G to 3G, 4G, and now 5G. While the needs of the time have changed dramatically, we are yet change the law accordingly. The need for digital telecom and convergence has become urgent, yet legal reform remains unaddressed.

FDI, law and practice

For economic development, many sectors require significant foreign direct investment. Nepal, situated between two rapidly advancing technology hubs India and China has a predominantly young population and a growing demand for digital technologies, making substantial foreign investment essential. However, the flow of foreign investment has slowed and is limited.

After adopting economic liberalization, foreign investors entered Nepal’s telecom sector. Yet, so far, only Ncell has managed to sustain operations. While Nepal offers considerable potential for foreign investment, questions arise as to why such investments have struggled to last over the long term. The main factors appear to be regulatory uncertainty, outdated laws, high taxes, delays in decision-making, difficulties in easy entry and exit for investors, and challenges in repatriating profits, among others. If we address these obstacles, Nepal can shine as an attractive destination for investors.

Ncell is a company established in accordance with Nepal’s law and has always operated in full compliance with it. However, events over the past few years have created some ambiguity. Ncell has been providing services in Nepal for 20 years, and we take pride in the significant contribution we have made to the development of the country’s telecommunications and ICT sector. The old build, operate and transfer (BOT) license structures are not at all adapted to industries and projects requiring constant renewal of investment in a rapidly changing technology.

Each year telecom companies should be investing 12-15% of revenue in capital expenditure for tangible assets. In less than five years, Ncell’s GSM license will expire, and there is public speculation that the government will take ownership of Ncell. Without prospects for future value the investment in this critical national asset is stalled. Axiata exited because in part there was not future prospect for returns on massive yearly investments given the rules that the licence could not be renewed in favor of a foreign owner.

The divestiture by Axiata in favor of the new owners is designed to make Ncell a Nepali owned company. Under such conditions, a license can be renewed and a runway for future investments in the company can be secured. These efforts to create a private Nepali operator have been frustrated by delays and retroactive regulator changes

It is important to consider whether such actions align with laws and practices on Foreign Investment and Technology Transfer Act, and what impact they could have on Nepal’s ability to attract foreign investors.
It has been a long time since the need for amendments in the telecommunications law was recognized, and a draft of the new law has already been prepared. Most of the processes for its formulation have been completed, and stakeholders, including Ncell, have provided their suggestions. However, the law is yet to be amended. If the law is passed, it could only address some of the challenges currently faced by the telecom sector.

We believe that issues related to license renewal fees, tariff structures, spectrum fees, competitive market dynamics, and long-term planning in the telecom sector would be much easier to manage if this new law comes into effect.

Moreover, the long and complex processes of obtaining various approvals from the Nepal Telecommunications Authority, the Ministry of Communications and Information Technology, Nepal Rastra Bank, the Department of Industry, and other local authorities have also caused delays in technology expansion and service improvement. Procedures for capital enhancement, frequency allocation, laying fibre, and making foreign currency payments above USD 5,000 are lengthy and cumbersome.

On top of that, repatriating profits abroad is even more complicated. When foreign investors earn a return on their investment and repatriate, it is often viewed negatively. Easy facilitation and repatriation send a positive message that returns can be realized in Nepal, the reality has sometimes fallen short of this expectation.

These challenges may not be faced by Ncell alone. Problems in investment processes also impact Nepal’s ranking on the Ease of Doing Business index, where the country currently stands at 94th. It is a fundamental right of foreign investors to repatriate their dividends.

5G and road ahead

The future of Digital Nepal, as envisioned by the government, is closely linked with 5G. To realise the dream of a truly digital Nepal, it is essential to roll out 5G services across the country. From building smart cities and leveraging AI to providing cloud services and managing spectrum, 5G is a critical enabler. However, for the two telecom operators in Nepal, launching and operating 5G is not as straightforward as one might hope.

The telecom sector is one that requires continuous investment, it is not like hydropower, where a single large investment can last for years. Without keeping up with technological changes, sustaining services becomes a real challenge. Currently, 5G demands significant investment. For state-owned Nepal Telecom and Ncell to operate 5G nationwide, they would need to invest an additional NPR 60 to 65 billion each.

However, this doesn’t seem feasible unless the government provides concessions on taxes and spectrum fees, consumers adopt a subscription model, and there is clarity on what happens after five years regarding Ncell operation. Declining revenues make investing in 5G even more challenging. If Nepal is serious about rolling out 5G service, the government must establish a clear legal and regulatory framework for the telecom sector.

For the sector to truly develop, the old Build, Operate and Transfer (BOT) model needs to be phased out. Processes for repatriating dividends must be made simple. Investors seek legal clarity, and having a one-stop system with predictable taxes can encourage more investment. Additionally, all service providers must be treated equally, with consistent rules on foreign exchange, regulatory compliance, and license fees. This approach strengthens the entire system and builds confidence in the market.

The UNCTAD World Investment Report (2018–2022) clearly highlights legal and regulatory uncertainty as a key reason for weak FDI in Nepal. Inconsistent interpretation of laws, unexpected policy changes, and long, cumbersome procedures increase the perceived risk for investors and affect decisions on long-term investments. Despite these challenges, Nepal remains an attractive destination for investment, particularly in sectors like hydropower, infrastructure development, tourism, construction, and information and communication technology, where significant opportunities still exist.

If Nepal can effectively leverage these opportunities, ensure clear policy direction, maintain transparent regulations, and streamline approval processes, it can attract significant foreign investment. This, in turn, would accelerate economic empowerment and transformation. When it comes to telecommunications and information technology, Nepal has made remarkable progress compared to many other sectors and is striving to keep pace with developed nations. However, if we fail to set clear priorities and implement timely policy interventions, we risk falling behind in the rapidly evolving global market.

Nepal’s unique geographical location is one of its key advantages to leverage and the country hold a huge potential for growth in the ICT sector if the telecommunications industry is permitted its full measure of initiative in developing the infrastructure necessary for this sector and the economy in general.

The underinvestment by foreign entities in Nepal is an eminently resolvable situation. It requires close partnership between the state and those companies capable of creating an environment that is welcoming to foreign investors. Ncell fully intends to play its role and, while the issues that are mentioned above are significant, they do not absolve us of our responsibility as corporate citizens to promote the country as an FDI destination.

It would be disingenuous not to mention the current dynamic socio-political environment in Nepal. While Ncell has been intimately affected by recent events, this is not a unique set of circumstances. Numerous societies around the world namely Madagascar, Bangladesh, Sri Lanka, and my home in Kenya, to name a few have all felt the impact of youth-led movements. It is important to note that the largest ICT market segment in all these markets is the younger population. Companies need to engage with them more, listen attentively, involve youth in decision making, and act swiftly.

(Excerpted from ‘Arthaniti’ SEJON Smarika 2082)