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Telecommunication industry in Nepal witnessing tele density of over 132.82%

According to NTA, the tele-density in Nepal has crossed 132.82%. Most of telephone lines are mobile technology with market penetration of 129.88%. The latest NTA data shows the internet penetration of 58%. Broadband subscription is 50.32% which include broadband wired, broadband wireless and mobile broadband

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Definition / Scope

In simple words, Telecommunication means transmitting or exchanging information electronically over a significant distance. In modern world, the Telecommunication is not only used as way of communication but also treated as inseparable part of development. The development of telecommunication has open new method of doing business such as online marketing, online payment, online buying and selling of product and services, and so on.

Telecommunication has added a new aspect in modern era. It is pre-requisite for improvement and performs a vital function for industrialisation of the country. Telecommunication has dual role of providing its products and services as well as being facilitator of trade in other product and services. Moreover telecommunications have dramatic impact on accomplishing precise social and financial improvement goal.

Currently government has been implementing the telecommunication policy: 2004 to address the entire telecommunication sector like e-governance, e-commerce, e-education and so on. Telecommunication technologies are today an integral part of developing, touching all sectors of economy and every aspect of human life. Telecommunication is also changing the way we do business and run economics, exhibiting prospect for sustainable development.

Market Overview

The history of telecommunication in Nepal can be trace back to date 1916 A.D. where first telephone line was introduced in Kathmandu; but telecom service was formally introduced in 2005 B.S. by introducing MOHAN AKASHWANI

The telecommunication sector has gone through a massive change in the last few decades. Innovation of modern technologies have immensely aided to development of telecommunication sector which evolved from telegraph to today’s modern technology. The cellular mobile services have seen a tremendous growth leaving behind the traditional fixed telephone service by huge margin.

According to NTA, the tele-density in Nepal has crossed 132.82%. Most of telephone lines are mobile technology with market penetration of 129.88%. The latest NTA data shows the internet penetration of 58% [1]. Broadband subscription is 50.32% which include broadband wired, broadband wireless and mobile broadband according [2]

Key Metrics

Metrics Value Explanation
Base Year 2018 Researched through internet


Market Risks

Some of market risk is political instability, lack of basic infrastructural development, labor union and so on.

Political scenario: Nepal has seen many political changes in past decade and currently facing same unstable political scenario. It is one of the major threats for investment. Unstable political scenario means unstable rules and regulations.

Competition: Private telecommunication companies have been entering the market. Competition is growing rapidly. Currently there are 6 telecommunication service providers in Nepal.

Unstable economic condition: Nepal has been struggling under an adverse economic condition caused largely by political instability.

Top Market Opportunities

Telecommunication is a highly competitive business and there are lots of opportunities as well as risk associate with Telecommunication companies in Nepal. There are many unexplored markets, especially the rural areas, that have potential to generate large revenues for the market players.

Expansion of market shares: Nepal’s mountainous topography has made it extremely difficult to develop its telecommunications infrastructure. Nepal telecommunication industry has not yet reached to every corner of country. There is still large segment which current service provider is not been able to reach.

Value added services: Mobile banking, e- payment and online marketing has shown massive growth. It helps companies to have additional revenue streams from these value added services.

Increasing demand: Demand for communications is increasing day by day. People are getting used to technology. Innovation has also helped to expand the market wider.

Market Drivers

The telecommunication in Nepal has developed significantly in the last few decades, but is still in the infancy stage; due to the lack of infrastructure needed to provide quality services to the costumers. The telecommunication companies, including NDCL and Ncell, are working on improving quality of their services as well as increasing range of their services and geographical reach. This has provided business opportunities for equipment sales, laying optical fiber, and network installation.

Social media popularity: Increase in social media popularity has helped telecommunication industry as people are using more mobile data than ever.

Network coverage: There is still part of country which has yet to be touched by telecommunication sector. Government has been planning to cover more are and reached to urban part of the country.

Government policies: Government has planned to developed rular telecommunication services. For that purpose government has been planning to issue more license to encourage operators.

Market Restraints

Unstable political scenario: Nepal has seen unstable political scenario for a long time. Unstable government has made it hard for the development projects to progress efficiently.

Change in technology: Telecommunication is all about modern technologies. Nepalese telecommunication companies have not been able to keep pace with the rapid changes and are somewhat behind the technology curve

Industry Challenges

Major challenges face by Telecommunication industry in Nepal can be listed as below:

  • Price: Companies are struggling when it comes to pricing. Fixed line are being dominated by mobiles. Voice has been challenged by demand for data.
  • Human resource: Nepal lacks specialized talent force for telecom industry. Though literacy rate is increasing rapidly in Nepal, there is a lot to catch up when in comes to workforce supply
  • Availability of technology: Almost all equipment’s are imported from India and China including sim cards to recharge cards. Importing from other countries makes equipment expensive and also pushes organizations behind in adopting new technology and innovating themselves.
  • The inadequate electricity supply requires the industry to deploy alternative energy solutions to generate electricity at the time of power cut-offs. This has increased their cost significantly.

Technology Trends

Regarding service technology, there is trend of 4G technology; it is next generation mobile communication technology. Nepal is currently trying expanding its 4G service throughout the country. Currently 3G is standard of Nepal mobile communication technologies. 3G and 4G provide fast internet service but they are yet to reach every corner of the country.

According to NTA report, at the end of 2017 the internet penetration, total population of country who uses internet, had reached 63.17%, which is 7.35% more than beginning of year 2017.

In this bar diagram, the horizontal line shows numbers of subscriber whereas vertical line shows different types of internet connections. The above bar diagram show the customer are more subscribed to GPRS, EDGE, WCDMA type of internet connection; this also implies GPRS, EDGE, WCDMA type of internet connections are easily available to the large number of customer.

In 2017, 4G was introduced in Nepali Market; this has brought improvement in the quality and speed of internet in the market; but this service is not yet available all over the county. The telecommunication companies that are providing 4G service are Nepal Telecom, Ncell and smart cell telecom; they are also continuously improving and expanding their services by using improved and latest technology.

Tech Trends.png

Pricing Trends

The monopoly of Nepal telecom comes to ends when UTL started providing basic telephony services in 2003. After that, Ncell entered in the market as the first private owned mobile operator in 2004. The entries of new telecommunication company led to competition in telecommunication sectors, mainly focused between Nepal telecom and Ncell, to capture more customers by expanding their services and coverage. This also made voice call, internet charge, and other telecommunication services price cheaper.

This trend still exist today, where Ncell and Nepal telecom jointly holding 93% of the total market share, still compete with each other to attract more customer by providing services at competitive price; this competition has benefitted customer as they are able to enjoy better service at cheaper prices.

While competition has driven prices low; communication has become cheap.

Smart cell, the third largest telecommunication in Nepal, is trying to penetrate in the market by making their prices attractive to the customer; but they are able to secure only 5% of total market.

The price of services offered by Telecommunication Company depends on the type of subscription brought by the customer. Without the subscription of the suitable pack, the prices of services tend to be high, for example, in the below table the price of per GB data without subscription of pack is approximately 30 times greater than with subscription.

In Federal budget of 2075/76(2018/19), the government has increased income tax of internet and telecommunication services, and the new income tax will be 30%. In additional to that, there is increase in service charge from 11% to 13%. This is applicable to telecommunication operators only. Due to this reason, price of voice call, internet, SMS and more has increased significantly recently.

Table1.PNG

Regulatory Trends

Nepal Telecommunication Authority is established under Telecommunication Act 1997 A.D. with the view of managing and regularizing Telecommunication services and making it reliable and easily available to the public.

Nepal Telecommunication authority (NTA) not only issues the license to operate Telecommunication services but also responsible to regularize and systematize telecommunication services. Besides these function and duties, other important function and duties of NTA are as follows:

  • To provide appropriate suggestion, regarding plans, polices, program to be adopted for the development of the telecommunication service, to the government.
  • To make sure Telecommunication service is reliable, easily accessible to the public and available though out the kingdom.
  • To ensure healthy competition
  • To protect right and interest of consumer
  • To involve national and foreign private sector in the operation of the Telecommunication Service.
  • To prescribe, fix and approve the standard and quality of plant and equipment relating to Telecommunication and Telecommunication services.
  • To initiate and encourage to carry out research for the development and use of the new technology in the field of Telecommunication
  • To promote to develop skilled manpower for the Telecommunication sectors
  • To develop Nepal as international transit for Telecommunication

Nepal telecommunication authority has also recognized the importance of net neutrality, the equal treatment of internet by government and internet service providers, in the present context. Thus, NTA has started to prepare the frameworks and polices to enforce net neutrality in the country.

Previously, the net neutrality was violated in many cases, for example, Ncell was providing free facebook, free twitter and free Wikipedia whereas Nepal Telecom was providing different youtube packs to their customer. This isn’t the case anymore.

Government has been trying to make things easy for development of telecommunication industry.

  • Government has develop broadband master plan has been developed for the development of GSM, W-CDMA, WiMAX, satellite and LTE.
  • Use of The Rural Telecommunications Development Fund (RTDF) for the improvement optical fibre backhaul networks has been insisted by government.
  • NTA 10 year plan 2010-2020 has mentioned that barriers will be minimized and open competition will be encouraged.
  • NTA has been issuing license on the basis of current act 2004.
  • According to NTA planning report, they will offer new licenses to offer benefit for customers.
  • NTA is planning to reduce license fee and other fee structure.
  • Government has encouraged research work on telecommunication.
  • Government has been encouraging in sharing infrastructure. Different companies with similar services can share their resources so that it can minimize expenses (Nepal Telecommunication Authority, 2018).
  • Provide incentives for smaller new operators to deploy infrastructure at low cost
  • Adopt lighter regulation for rural and isolated areas.
  • Promote and encourage usage of spectrum efficient technologies.
Table 2.PNGNTA plan.png

Other Key Market Trends

Currently value added services has shown massive growth in market. E-banking, e-education and other online payment. Use of internet has shown massive growth in past few years.

Market Size and Forecast

  • The tele-density in Nepal has crossed 132.82%.
  • The mobile penetration itself is 129.88%.
  • The latest NTA data shows the internet penetration of 58%.
  • Nepal Telecom and Ncell are major player of market with market share of 51% and 42% respectively.
  • Nepal’s mobile market is now relatively developed and has experienced extraordinarily strong growth over the last five years.
  • Strong growth in mobile broadband is predicted in future.

Telecommunication industry has shown massive change in a decade. Innovation has brought fast change in telecommunication sector.

10 yr plan.png

Technology Roadmap

Nepal is lacking behind to adopt modern technology compared to other countries. 4G mobile communication technology has recently entered market. Broadband has also shown market growth. Currently broadband penetration is 50.32%.

Distribution Chain Analysis

Telecommunication in Nepal uses both direct and indirect method of distribution channel.

Direct distribution channel: There are no intermediaries in direct distribution channel. Nepal telecom and Ncell have their own customer care outlets set up at different part of the country, where customer not only provided any customer service needed but also different types of services and product are sold to the customer. Another example of direct distribution channel in Nepal is the customer can go directly to the different offices of Telecommunication offices located at different part of the country and purchase desired product and services. Smart cell have also recently set up customer care outlets in some part of the country.

Indirect distribution channel: In indirect distribution channel, one or more than one intermediaries are used to deliver service and product to the final customer. The indirect distribution channel most commonly used distribution channel by all the Telecommunication Company to expand their market in Nepal and it has enable telecommunication to reach larger group of customer and to provide product or services to the customer who does not have access to their direct distribution channel.

Distribution2.pngDistribution1.png

Competitive Landscape

There are six telecommunication operators among which two are major players: Nepal telecom and NCell. These both operators have 2G, 3G and 4G communication service. 4G has recently entered market where as 3G is currently market standard as 4G has yet to reach different part of country.

NCell is lacking behind in terms of coverage as Nepal Telecom has reached to 75 districts touching all around the country. NCell has shown many innovative way to attract its customers. Nepal Telecom has a strong brand image as it has history of more than 100 years. In this 100 years Nepal Telecom has been able to establish itself as a market leader.

NDCL, the state-owned company and Ncell, the private own company are holding the majority of market shares; they are together holding about 93% of the total market share. They are key market player in Telecommunication business in Nepal.

In the bar diagram, horizontal line shows number of subscribers whereas vertical line shows the different telecommunication company. The bar diagram shows total number of telephone subscriber of different telecommunication company over three months’ time periods.

NDCL is the leading telecommunication company in Nepal with the most number of subscribers whereas Ncell is first private owned mobile operator and second largest telecommunication company in Nepal. They are competing with each other to expand their services and markets.

Others UTL, STM, NSTL, and STPL: Among these private owned telecommunication companies, STPL is the third largest and fast growing company. These companies are also continuously increasing their network coverage though out the country and trying to expand their market.

NDCL has largest market in data/internet whereas Ncell have second largest market.

Comp land1.pngComp land2.png

Competitive Factors

The telecommunication companies in Nepal mainly compete on price and services; telecommunication companies compete to expand their market by providing varieties of services at cheaper prices as well as increasing their geographical reach. The competition among the Telecommunication companies has brought down the prices of their product significantly; at the same time customer are getting better quality and services.

Key Market Players

NDCL (Nepal Doorsanchar Company limited): Nepal Doorsanchar Company limited is also known as Nepal telecom, is a state owned company, with 91.49% of share is government owned. They are the market leaders who provide a wide range of services mainly focused on PSTN, GSM, internet, and CDMA to their customers. Nepal telecom was the first telecommunication company to introduce 4G in Nepal.

Ncell: Ncell is the first private mobile service provider in the country. On April 12, 2016, Ncell became the part of the Axiata Group Behrad. Axiata is one of leading telecommunication group in Asia, operating in 11 countries with approximately 350 million of subscribers.

Keymarketplayers1.pngKeymarketplayers2.pngKeymarketplayers3.png

Strategic Conclusion

The telecommunication market in Nepal is still in infant stage. There are few major market players in this sector and they have gain trust and loyalty of large number of customers because of this smaller telecommunication barely surviving in the market. For any company who would like to enter the Nepalese market will have to face tough competition and also there are plenty of opportunities if they can survive and able to take advantages of their opportunities.

The major market player, Nepal and Ncell, may have penetrated through the country but quality of their services in large part of the country is poor. Many customers are upset with their poor performance and demanding higher quality products and services but the major market player are able to provide decent service in main cities only and if any existing company or potential new entries company could take advantage of this situation and concentrate on providing better services and product, they can penetrate in the market and gain their own business.

References

  1. Nepali Telecom, 2017
  2. Nepal Telecommunication Authority, 2018)

Further Reading

Appendix

  • NDCL: Nepal Doorsanchar Company Ltd.
  • UTL: United Telecom Limited
  • STPL (Smart cell): Smart Telecom Private Limited
  • NSTPL: Nepal satellite Telecom
  • STM: STM Telecom
  • IPSs: Internet Service Providers
  • PSTN: Public Switched Telephone Network
  • ISDN: Integrated Services Digital Network
  • ADSL: Asymmetric Digital Subscriber Line
  • GPRS: General Packet Radio Service
  • EDGE: Enhanced Data Rates for Global Evolution
  • WCDMA: Wideband Code Division Multiple Access
  • CDMA: Code Division Multiple Access
  • EVDO: Evolution Data Optimized


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