सिंहदरबार संवाददाता
Kathmandu. As the income of telecom service providers has declined, investment in telecom infrastructure has also declined. Along with declining income, the impact of reduced budget allocation for telecom infrastructure construction has been seen in service expansion and upgrading and quality service delivery.
In addition, experts say that the future of the companies does not look good. Telecom companies, which once spent almost half of their total income on infrastructure development, have now limited that expenditure to around 10 percent.
Telecom sector experts understand that telecom is hesitating to make the necessary investment in infrastructure due to declining income, lack of amendments to the necessary laws, high renewal fees and lack of facilitation in operations.
Looking at the statistics, it seems that telecom companies emphasized capital expenditure from 2008 to 2016. Experts say that this period can be called ‘hyper growth’ in terms of capital expenditure.
Former Chairman of Nepal Telecommunications Authority Bheshraj Kandel said that it was a time of investment for telecom companies at that time. The capital expenditure situation was good until 2017. After that, he understands that the required capital expenditure also started to decrease along with the income.
The revenue of the two telecom companies currently operating was Rs 97.3 billion in the fiscal year 2073-74. It increased by 1.44 percent to Rs 98.71 billion in the fiscal year 2074/75, but since then the income has been continuously declining.
According to the Nepal Telecommunications Authority, the revenue from the telecom sector has decreased by about 26 percent in the fiscal year 2079/80 compared to the fiscal year 2074/75, reaching Rs 73.14 billion.
Continuous investment
The telecom business is one of the sectors that requires more capital expenditure than other sectors. There is continuous expenditure on quality service delivery, infrastructure construction, maintenance and upgrading, BTS construction, fiber optical cable, data center, and spectrum fees.
Telecom services require the Nepal government to pay a fee for radio spectrum, which is very expensive. New spectrum is required for the provision of services including 4G and 5G. This increases capital expenditure dramatically.
Former Chairman of the Authority, Kandel, says that the demand for capital expenditure in the telecom sector will continue. ‘As the work of developing technology, expanding services and improving quality in the telecom sector is ongoing, investment is also required every year. When companies bring 4G from 3G and 5G technology from there, they have to make a huge investment, but since there is no income, it seems that they are not able to make the corresponding investment,’ he said.
According to him, 5G services cost at least three times more than 4G. ‘Nepal Telecom had expanded 4G services by spending 19 billion, in the case of 5G, it could reach nearly 60 billion,’ he said, ‘Not only 5G, but the current income of the telecom company is a problem to cover the expenses of service expansion and infrastructure maintenance.’
Since the average lifespan of infrastructure in the telecom sector is only 5 to 7 years, capital expenditure will continue, he said. ‘This is a sector where capital expenditure is continuous, there is no room for confidence after investing once,’ says former chairman Kandel. ‘A large budget should be allocated every year for service expansion, investment in new technology, spectrum, infrastructure construction and maintenance.’
Telecom expert Vishal Upadhyay says that despite the increase in demand for capital expenditure in the telecom sector, income has not increased accordingly. This sector still needs to spend 15 to 20 percent of its income on capital expenditure.
Whereas, in the manufacturing sector, five to 10 percent, in technology (hardware and cloud), two to five percent, and in the banking sector, only one to five percent of income is spent on capital expenditure.
Impact on the economy
The impact of reduced capital expenditure also affects the country’s gross domestic product.
A study by the World Bank has also shown that every 10 percent increase in Internet investment leads to 1.3 percent economic growth. The framework itself mentions that the impact of this will further increase economic growth once Internet services reach the general public.
However, due to the decreasing capital investment of telecom companies, it seems that Internet access will not expand as expected. But since investment is declining, its contribution to GDP does not seem likely to increase.
According to statistics, the telecom sector’s contribution to the country’s economy in 2016 was 3.9 percent, but by 2023 it had been limited to 1.8 percent.
The telecom sector’s contribution to GDP has been limited to 3.4 percent in 2017, 3 percent in 2018, 2.7 percent in 2019, 2.4 percent in 2020, 2.2 percent in 2021, and 1.9 percent in 2022.
Not only has the telecom sector’s income decreased, but the state’s revenue from it has also decreased. In the fiscal year 2076/77, Nepal Telecom and Ncell paid a total revenue of Rs 67.48 billion, but by the fiscal year 2079/80, it has decreased by Rs 20 billion to Rs 47 billion.
Former Senior Director of Nepal Telecommunications Authority Ananda Raj Khanal says that if the law is not amended immediately, telecom companies will be in crisis.
‘The income of telecom companies is continuously decreasing, which means that they are in crisis. If expenses continue to increase but income decreases, it will not do the telecom sector any good,’ he said. ‘If the government does not address their problems immediately, problems will arise.’
Khanal The benefits of capital expenditure by a telecom company are not only for that company but also for all sections of society. For example, just by installing a telecom tower, the landlord gets monthly rent, the state gets taxes, and the general public gets telephone and internet services.
There are benefits to be gained through telephone and internet. Therefore, he understands that companies need to earn money first to invest in infrastructure.
Former Director Khanal says that although there is a possibility of a third telecom company in the market, there is doubt that a new competitor will come soon due to the declining income and increasing expenses of telecom companies.
Nepal Telecom Managing Director Sangita Pahadi says that they have suggested a solution to this type of problem in the draft of the new Telecommunications Act.
According to him, if the necessary amendments are not made through the new act, telecom companies will face problems. ‘A new act is necessary to solve the problems currently being faced by the telecom sector, we have already given necessary suggestions in this regard, we are confident that most of the current problems will be solved after the new act is made,’ he said.
According to telecom service provider Ncell, telecom companies currently have to pay more capital expenditure than their total income.
48 percent of the total income must be paid to the government under various heads. When 13 percent value-added tax, 10 percent service charge and two percent ownership tax are included, a total of 21.2 percent goes to tax.
When operating expenses, spectrum charges, royalty fees and the four percent amount to be paid to the Rural Telecommunication Fund are deducted from the remaining amount, the amount is saved by 38 percent. From that, only eight percent of the amount is left on average after deducting cost deductions, financial expenses, license renewal fees and installment loan payments.
Even after paying corporate tax, five percent can be considered profit. ‘Even though five percent was a large amount until a few years ago, the income of telecom service providers was about 100 billion, but now the income has declined by about 25 percent, and studies have shown that it will decrease further in the coming year,’ said telecommunications expert Upadhyay.
Stating that telecom communication is also a public service like drinking water, electricity, waste management, etc., he says that it is necessary to increase the fee based on inflation. However, unlike other services, these telecom companies have not yet received a fee increase based on inflation.
Annual investment of 6 billion is required
Telecom sector experts say that the telecom sector requires an annual capital expenditure of 6 billion to continue operating in this situation.
But as income and profits have started to decline, telecom companies have also started reducing capital expenditure. While voice revenue has been declining in recent years, there has been no encouraging growth in data services, and service providers have not been able to revise or increase their service fees.
‘Today, an annual investment of six billion is required just to keep the service running, but less than that is being spent now. If revenue does not increase, the telecom sector will not be able to spend on service expansion and quality improvement,’ says Khanal, former director of the NEA.
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