Nepal Telecom, or go?

Nepal Telecom (NTC) is losing market share so rapidly to private rivals that many have begun to compare it with Janakpur Cigarette Factory, the Soviet-era public sector enterprise that was allowed to go bust.

The cigarette manufacturer dominated Nepal’s tobacco market for two decades, but bled slowly to death because of corruption, mismanagement and politicisation after democratisation in 1990. Today, the factory premises have been converted into the headquarters of the Province 2 government.

Just as Janakpur Cigarette Factory rapidly lost market share to private tobacco companies in the 1990s, NTC is following the same patttern, and falling behind the aggressive growth of Ncell owned by the Malaysia-based Axiata group.

NTC was the unchallenged leader in the country’s fast-growing telecommunications sector when most users used cell phones for voice calls. But market dynamics began to change with the shift towards mobile data, and most cell phone users spending more for the Internet rather than voice calls.

Three years ago, NTC held 56% share of the country’s internet data market, with Ncell (at that time owned by Telia-Sonera) holding 40%. Today, NTC’s internet market share has shrunk to 44%. Ncell too has lost its internet market share, but not as much as NTC.

NTC’s income dipped slightly to Rs39 billion this year from Rs40 billion last year, largely due to a fall in income from international voice calls. The company has lost 28% of its earnings from international calls in just three years because of inroads by Internet-based messaging apps.

Nepal Telecom’s assistant spokesperson Shobhan Adhikari justifies the slowdown in income from international calls, arguing this is now the trend worldwide. “It is not just us,” he said.

But there are other trends that show NTC’s decline from being the country’s largest tax-paying company till a few years ago. Ncell is now paying more in taxes than NTC, with more than Rs14 billion in each of the last three fiscal years. NTC’s tax total went down to Rs9 billion, compared to Rs13 billion three years ago.

To make matters worse, NTC is currently rocked by a corruption case with its first female executive head sacked following an ugly legal tussle. The anti-corruption watchdog CIAA is investigating the company for initiating a process to award a multi-billion dollar 4G service network installation contract to a Chinese company, which reportedly quoted a much higher price than the estimate. There is also an argument that spending billions in expanding the 4G service would be a waste of resources because the world is moving towards 5G. The controversy has delayed NTC’s expansion plans for its 4G service beyond the Kathmandu Valley and Pokhara.

When Nepal Telecom launched 4G service in the valley in 2016, Ncell was not allowed to upgrade its service for failing to clear its capital gains tax. But Ncell secured a license to launch 4G service last year, and it has already expanded to 21 cities. NTC is lagging far behind.

A former top manager of Nepal Telecom says: “The State-owned company is not collapsing any time soon, but its downfall has definitely begun.”