Once considered a lucrative industry, Nepal's telecommunications sector is facing a financial crisis due to declining revenues, rising competition from internet-based services, and a burdensome tax regime.
The latest quarterly report by state-owned Nepal Telecom reveals that its net profit plunged by 48.67 percent in the third quarter of the current fiscal year 2024/25, compared to the same period last year when Nepal Telecom had earned a net profit of Rs 5.53 billion.
This year, profit fell by Rs 2.69 billion to Rs 2.84 billion, reflecting a sharp deterioration in the company’s financial health. The company’s total investments, cash, and cash equivalents also dropped to around Rs 34 billion, signaling growing liquidity challenges.
Nepal Telecom attributes the decline in profits to the growing use of over-the-top (OTT) platforms such as Messenger, Viber, WhatsApp, and email, which have eroded traditional revenue streams like voice calls and SMS.
"Due to the increasing use of OTT services, the volume of incoming international calls has decreased, resulting in a 22.37 percent drop—worth Rs 535.57 million—in interconnection revenue compared to the third quarter of the previous year," the company said in its report.
The telecom operator also cited a one-time payment of Rs 20 billion for the renewal of its GSM license and rising competition from internet service providers (ISPs) offering Wi-Fi mobility services as key reasons behind the profit decline.
Nepal Telecom Joint Spokesperson Navin Kumar Mishra pointed to heavy taxation as another major factor. "Telecom companies are subject to a 13 percent VAT, 10 percent service charge, and 2 percent ownership tax—resulting in a combined tax burden of 21.2 percent," he said. "When spectrum and royalty fees, Rural Telecommunications Fund contributions, and other deductions are accounted for, companies are left with just 8 percent of gross revenue. After paying corporate tax, only around 5 percent can be considered net profit."
Industry-wide concerns reflect a similar trend. According to the Nepal Telecommunications Authority, the combined revenue of Nepal Telecom and private operator Ncell declined by 26 percent over five years—from Rs 98.71 billion in fiscal year 2017/18 to Rs 73.14 billion in 2022/23.
Former Chairman of the Nepal Telecommunications Authority, Bheshraj Kandel, criticized the government’s policy of treating telecom as a luxury sector. "Telecommunications should be considered an essential service. But in Nepal, they are taxed at 30 percent, compared to 25 percent for other sectors,” he told the state-owned national news agency RSS.
IT expert Manohar Bhattarai echoed the need for policy reform, suggesting that outdated tax structures be revised. "The revenue model has changed due to technology. It's time to amend existing laws to reflect this new reality,” RSS quoted Bhattarai as saying. While he opposes banning OTT services, Bhattarai urged the government to regulate them more effectively to protect telecom operators' investments.
With voice service use declining and data usage surging, ISPs have emerged as dominant players in internet delivery—further squeezing telecom companies. Telecom firms fear that this trend could jeopardize future projects, such as the expansion of 4G and the introduction of 5G.
Though Nepal Telecom has piloted 5G in select areas, insiders warn that financial constraints could stall its full rollout.
Ncell CEO Jabor Kayumov voiced concern at a recent public event that the telecom sector is entering a complex crisis.
“A large chunk of revenue goes to taxes, 20 percent is used for equipment, and the rest for operations. That leaves little room for future investments like 5G.”
Kayumov estimated that over Rs 60 billion would be required for both major operators to deploy 5G services nationwide—a figure that appears increasingly out of reach as profits continue to shrink.
As Nepal moves toward a more connected future, the question looms: can its telecom industry survive the digital shift without urgent policy and regulatory intervention? – With inputs from RSS
