In the last week of October, the Nepal Telecommunications Authority (NTA) - the telecom sector regulator - formed a five-member committee to evaluate the need for an additional telecom operator in the country. The committee, which is led by Amar Sthapit, director of NTA’s regulatory division, has been tasked with assessing whether Nepal’s telecom market requires another player. This move comes at a time when the two existing telecom players are struggling with declining revenue, and uncertainty over the government’s plans to bring Ncell under its control after four and a half years.

According to the NTA, the study aims to assess the current state of Nepal's telecommunications market, identify challenges faced by existing operators and evaluate the feasibility of introducing a new service provider. The failure of telecom companies like CG Communications, SmartCell, Hello Nepal and UTL, combined with declining revenue from voice services, and high license and renewal fees, have made telecom experts sceptical about the viability of new entrants.

However, government officials argue that the current duopoly limits consumer choice and primarily benefits the two operators. They believe the entry of a third telecom operator could enhance competition, improve services and provide better value for money. Until 2015, Nepal had six players in the telecom market - the state-owned Nepal Telecom and five private operators Ncell, UTL, SmartCell, Hello Nepal and CG Telecom. By 2024, only two — Nepal Telecom and Ncell — remain in operation, creating a market dynamic that, officials say, stifles genuine competition and consumer choice.

Breaking the Duopoly

While experts remain sceptical about the viability of a third operator, officials at the NTA argue that introducing a new player is necessary to disrupt the existing duopoly. “Currently, both companies offer similar packages, leaving consumers with virtually no choice. While it is technically a duopoly, the market essentially functions as a monopoly shared by these two operators,” said Santosh Paudel, spokesperson for the NTA and a member of the Sthapit-led team.

Defending the government’s move, Paudel highlighted the benefits of a third operator, including increased competition fostering innovation and efficiency. He explained that a new entrant would push Nepal Telecom and Ncell to improve their services, resulting in better network coverage, faster internet speeds and enhanced customer service. “Consumers often bear the brunt of complacency in a less competitive market, but increased rivalry typically compels all operators to perform better,” he added.

Pricing is another area where consumers could gain. A third operator could challenge the current pricing structure by introducing competitive plans, lower tariffs, or more affordable data packages. Many consumers feel that the cost of data and call services in Nepal is high relative to the quality provided. A new competitor could force existing players to revisit their pricing strategies. Additionally, a third operator could address coverage gaps, particularly in rural and remote areas where Nepal Telecom and Ncell have limited or inconsistent service. By targeting underserved regions, the new entrant could bridge the digital divide and expand access to reliable communication services for more people.

Scepticism Over Third Operator

As the Sthapit-led committee prepares to recommend whether Nepal needs a third telecom operator, industry experts and telecom executives remain sceptical. They argue that, given the current framework — particularly the Rs 20 billion licence renewal fee — introducing a new service provider seems improbable. Adding to the uncertainty, the expiration of 25-year operating licences has left the telecom sector in a state of instability. The government’s lack of a clear long-term strategy has further compounded the issue. Nepal Telecom and Ncell have received only five-year license extensions, leaving Ncell, the country’s sole private GSM operator, facing an uncertain future. These developments raise significant questions about the telecom sector’s future direction.

"In principle, the market needs a third player to foster competition," said Ananda Raj Khanal, former senior director of the NTA. "However, with the current financial constraints, sustaining a third operator seems nearly impossible. While it could reduce the risk of market cartels, the financial challenges are overwhelming.”

Ncell CEO Jabbor Kayumov echoed this sentiment, asserting that a third operator is not financially viable. "The telecom sector is heading downhill," Kayumov said during a recent media interaction. "In this situation, there is no possibility for a third operator to achieve a return on investment." He added, "That’s why I don’t see any potential for a third entrant in terms of investment."

Kayumov supported his claims with solid data. Over the past seven years, the sector’s contribution to Nepal’s GDP has sharply dropped from 3.9% to 1.8%. Revenue from mobile and internet services has declined by 5% over six years, with mobile revenue falling by 25%. In contrast, ISP revenue has surged by 400%. Neighboring countries like India, Bangladesh and Sri Lanka, meanwhile, have seen substantial growth in mobile service revenues grow by 112%, 46% and 38%, respectively. In terms of market value, Nepal's telecom sector, including both telecom and ISP services, peaked at Rs 108.6 billion in fiscal year 2017/18 but fell to Rs 96.8 billion by 2022/23. This decline is largely due to the shrinking mobile service market, which contracted from Rs 97.3 billion in 2016/17 to Rs 73.1 billion 2022/23. Conversely, the ISP market grew from Rs 4.7 billion in 2016/17 to Rs 23.6 billion in 2022/23.

The erosion of telecom revenue stems from several factors: intense competition from ISPs, a shift in consumer behaviour from voice services to data, and the growing use of over-the-top (OTT) platforms. International calls (ISD), which once accounted for 30-35% of telecom income, have seen sharp declines due to OTT services. Operators also face regulatory and structural hurdles. The Telecommunication Service Charge (TSC) has added financial pressure, while steep license renewal fees further strain resources. For instance, the renewal fee for GSM mobile services is Rs 20 billion, compared to just Rs 300,000 for internet services. Moreover, mobile services are no longer the primary means of internet access for many Nepalis, with 77% of users spending over 60% of their internet time on WiFi. Despite 4G coverage exceeding 90% nationwide, mobile data usage in Nepal remains the lowest in South Asia. Only two in 10 users regularly use mobile data, with an average consumption of just 4 GB per month. In comparison, eight in 10 users in Bangladesh, nine out of 10 in India, and seven in 10 in Pakistan use mobile data regularly

Regulating OTT Challenge

The rapid, unregulated rise of Over-The-Top (OTT) platforms like WhatsApp, Viber and Messenger, which bypass traditional telecom networks, raises a critical question: can Nepal’s telecom industry support a third operator while OTT platforms remain unregulated?

OTT platforms offer low-cost or free messaging and voice services, bypassing traditional telecom networks and significantly eroding telecom operators’ revenues. Voice calls and SMS services, once the backbone of telecom income, have seen sharp declines. In Nepal, this trend is particularly pronounced, driven by the widespread use of OTT platforms, supported by affordable internet services from ISPs rather than telecom operators. Unlike telecom operators, which are subject to stringent licensing, renewal fees and taxes, OTT platforms operate without such financial or regulatory obligations. Under these conditions, the introduction of a third operator may only exacerbate these issues, as the new entrant would face similar revenue pressures without a clear strategy to counter OTT competition. Globally, some countries have introduced regulatory measures for OTT platforms, such as licensing requirements or revenue-sharing agreements. However, Nepal has yet to adopt such policies. Without regulation, OTT platforms will continue to siphon revenue from traditional telecom operators, making the market less attractive for potential new entrants.

OTT platforms are profiting from a monopoly by using Nepal’s frequencies and infrastructure, while local service providers bear the associated fees. “Adding a third operator under these conditions could lead to unsustainable competition. Nepal’s telecom market already faces declining Average Revenue Per User (ARPU) and rising operational costs. Unregulated OTT platforms further shrink the potential revenue pool,” said Khanal. To create a favorable environment for a third operator, Nepal must address the OTT issue. Industry stakeholders suggest introducing regulatory frameworks requiring OTT platforms to register, pay taxes, or share revenue with telecom operators.

Strategic Reform Needed

Since 2019, telecom operators have consistently reported that their capital expenditures (CAPEX) exceed their profits, creating an unsustainable financial environment. The industry requires a minimum annual investment of Rs 6 billion to keep mobile services running, which places significant financial strain on operators and leaves little room for growth or innovation. Additionally, over 48% of revenue from customers is directed towards taxes and fees, further squeezing operators’ margins.

Ncell CEO Kayumov highlighted the industry’s CAPEX-intensive nature, explaining that telecom operators need to allocate 15-20% of total revenue annually to sustain operations. The rapid evolution of technology demands continuous investment, with new equipment required every five to seven years due to its limited lifespan. Nepal’s financial demands on telecom operators are far steeper than those in neighbouring countries. For example, India’s renewal fee for GSM mobile services is set at 6-10% of net income depending on the region, while ISPs pay a flat rate of 8%. In Nepal, however, the burden is significantly higher. The TSC was raised from 10% to 13% in 2018, costing operators Rs 7 billion annually. If the TSC is applied to data services, operators could face an additional financial burden of around Rs 5 billion annually.

“Running a telecom business in Nepal is prohibitively expensive,” said Khanal. “Operators must invest Rs 2 billion for frequency allocation and Rs 5 billion for annual licensing fees. This means a telecom operator needs to spend at least Rs 8–9 billion annually, excluding the costs of adopting and upgrading technology.”

Khanal also criticised Nepal’s licensing renewal mechanism as overly rigid and unfriendly to new entrants. “For a new player, generating substantial revenue immediately after entering the market is highly unrealistic. This raises significant concerns about the viability of introducing new telecom operators under the current framework.”

(This report was originally published in   January 2025 issue   of New Business Age Magazine.)