Setoral

Upon hearing the news that the government had awarded license to the private sector to start cellular mobile telephone services, Rajesh Shrestha, a Kathmandu-based businessman, was full of hopes. He had thought of owning a mobile phone for the last few months but could not subscribe it due to its high costs. "Now I hope the prices will come down benefiting consumers like me," he said.

When the state-owned monopoly, Nepal Telecommunications Corporation (NTC) decided to offer 10,000-line cellular mobile telephones for the first time in the country last year, there were very few takers. Even after nearly one year, little more than 7,500 people have subscribed the services

As soon as Nepal Telecommunications Authority (NTA), an autonomous regulating agency, awarded contracts on November 1 to an Indo-HK-Nepal joint venture to launch cellular mobile services in the country, even the ‘middle class’ consumers have high hopes that the ‘fashionable gadget’ may well be within their reach.

R.K. Khetan With Mobile:
Soon to get his own

The awarding of license to private sector to operate cellular telephony marked the end of an era for the NTC that enjoyed monopoly in offering telecom services in the country. Private sector has already been providing Internet, e-mail and pager services. By providing little more than 100,000 fixed telephone lines in the country the Corporation is earning up to Rs 5 billion as profits every year. Once dubbed as having the best telecom infrastructure in the region, Nepal was, however, lagging far behind in meeting the demands of consumers. Till now, nearly 270,000 applicants are in the ‘waiting list’—some of them for more than last six years—to get a telephone connection.

In a transparent bid system praised by international investors, NTA contracted out the country’s major telecom service to the private sector for the first time in more than two decades of NTC’s existence. The Khetan Group, a leading industrial and business house, together with its joint venture partner Spice Cell Ltd. bagged the prestigious bid. They offered to pay Rs 4.1 billion (approx. US$ 55m) as royalty and license fees for operating nationwide cellphone services over a period of 10 years. Moreover, they also promised to pay additional Rs 20 billion as renewal fee to the government over the period of license, thus outbidding other telecom giants like BPL Broadband (India) Bharati Global (England), Rumeli Telecom (Turkey), United (India) and milicom International (Singapore) in the final round of the bidding. The decision was on the basis of the highest net present value of the bid.

The new company will be competing with state-owned NTC, which introduced mobile telephone services in May last year and has already called tender to expand its existing 10,000 line network by another 50,000.

Officials say the opening up of the telecom sector will benefit the consumers most. "The first beneficiary will be the consumers. And, the government will also be benefiting in terms of royalties and other fees," said Bhup Raj Pandey, chairman of NTA.

The prospect of having to compete with a private sector player has put NTC on its toes and it is going to reduce its prices.

NTC is working out on a proposal to make the incoming calls over mobile phones free and also reduce rates for outbound calls, sources say. It now charges Rs 3 for every incoming call and Rs 6 for outgoing calls. NTC officials were, apparently dissatisfied having been forced to compete with a new player in the market in which it hither to enjoyed a monopoly market. "We are not afraid of competition with the private sector. But it would have been better if the government had asked us to compete with the new operators after privatizing us or giving us autonomy," said Madhusudan Karmacharya, spokesman at NTC. Since Khetan Group is going to pay Rs. 210 m as the license tee to operate there service, NTC to has to pay the same amount to NTA, thus raising NTC’s operating costs.

The private sector operators are still doing their ground works. "We’ll now incorporate a new public limited company and hope to begin the services within the next seven months," said Rajendra K. Khetan, executive director of Khetan Group. "We have the target of expanding our services along trunk routes from Nepalgunj to Biratnagar within the next two years." The Group is targeting 75,000 customers within first 10 years of the license.

It has been the first international contract for Spice Cell Ltd. of India that provides cellular mobile services in Calcutta. It has also bagged license to provide services in Karnataka and Punjab states of India. The B. K. Modi Group of India owns a 45 percent stake in Spice Cell, around 43 percent is owned by Distacom of Hong Kong and the rest by AIG Asian Infrastructure Fund.

As per the NTA Policy, the license of the new company could be extended for up to 25 years. A third player would enter the field only after five years when this sector will be fully opened for the private sector.

"After 2004, all the telecom services will be opened for private sector investment," says Pandey.

A total of six companies were short-listed for the financial bidding, including joint ventures between Nepali and Indian, Singaporean and Turkish companies. After awarding contract of the cellular mobile services, NTA is working to issue license to a private company to operate telecom services based on Wireless Local Loop (WLL) technology. Last month, it also invited companies to bid for setting up and operating rural telephone services with the assistance from the World Bank.

While it is yet to be seen if the introduction of cost-effective cellular mobile services helps farmers in far-flung rural areas as seen in Bangladesh under Grameen experience, entrepreneurs say the entry of private sector operators will be instrumental in expanding telecom services in the country, it might also help boost the economy.

Send your feedback to the editor: bizage@ecomail.com.np 1999 © Mercantile Communications Pvt. Ltd. P.O. Box 876, Durbar Marg, Kathmandu, NEPAL. Tel : 977 1 220 773, 243 566 . Fax: 977 1 225 407. Reproduction in any form is prohibited without prior permission. No part of the articles which appear in the internet version on BUSINESSAGE may be reproduced without the permission of Mercantile Communications Pvt. Ltd. For reprinting rights, please write to us. Send us your feedback:contact us . CLICK HERE FOR PAST ISSUE. This site is best viewed at : 800 X 600 resolution

Cellular Phones New Player In the Field

Will the opening up of the telecom sector for private investment benefit the consumers?