NATIONAL 3 -(Spotlight Weekly)

TELECOMMUNICATIONS

What Is Your Mobile No.?

As the government contracts out cellular mobile services to an Indo-Nepal joint venture, things may not be same again for the consumers

By BHAGIRATH YOGI

The small `handy gadget' billed as a privilege to upper middle class and upper class people may not remain so. As in Mumbai, Delhi and other major Indian cities, mobile phones may remain fashionable things but with much wider access than what is now in Kathmandu.

In a transparent bid system open to even the press, Nepal Telecommunications Authority (NTA), a regulating body, contracted out the country's telecom service to the private sector for the first time in more than two decades. The Khetan Group, a leading industrial and business house, together with its joint venture partner Spice Cell Ltd. bagged the prestigious bid last Wednesday. 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 shell out additional Rs 20 billion as renewal fee to the government after 10 years, thus outbidding other telecom giants like BPL, Bharati and MTNL and VSNL, all Indian companies. The decision was on the basis of the highest net present value of the bid.

The new company will be competing with state-owned Nepal Telecommunications Corporation (NTC) that enjoys monopoly in offering telecom services within the country till now. The NTC introduced mobile telephone services in May last year and so far has been able to cater to nearly 6,000 subscribers only. The NTC is planning to expand its 10,000-line network in future.

But to compete with an ambitious private sector operator, expanding its services alone will not be sufficient for the NTC. It will have to witness a cut-throat competition in terms of service charges and quality to its consumers. "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 the NTA.

NTC is working out on a proposal to make the incoming calls over mobile phones free and also reduce rates for outbound calls, sources said. It now charges Rs 3 for every incoming call and Rs 6 for outgoing calls. While the Modi Group of India had shown interest in investing in telecom services sector in Nepal after conducting a local market study through ORG-MARG, a reputed company, NTC is yet to devise strategies to compete with the private operator. Of course, its vast and country-wide infrastructure will come to its help but it will have to change its way of doing business. NTC officials could not be reached for comments about their future strategy.

The private sector operators, on their part, are still in the primary stage. "We'll now form a new public limited company and hope to begin the services within the six months," said Rajendra K. Khetan, executive director of The Khetan Group. "We have the target of expanding our services along trunk routes from Nepalgunj to Biratnagar within the next two years."

It has been the first international contract for Spice Cell Ltd. 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 by Distacom of Hong Kong and the rest by AIG Asian Infrastructure Fund. "While the Spice Cell will be looking after technical and other parts for our operations, we will be mainly responsible for market promotion and problems solving locally," said Khetan. As per the government rule, the Nepali partner will own at least 20 per cent of the equity in the new company to be formed to run the service. The proposed company can also float its shares to general public.

As the new venture is yet to take off, there has been skepticism about the renewal fee quoted by the Khetan-Spice Cell duo. "There is no basis to believe that the new company will be paying a whopping Rs 2000 million in just 10 years by offering a costly service like cellular mobile," said a telecom expert who did not want to be named. Some even claimed that there were no legal binding for the new company to pay the amount (renewal fee) at the end of the initial contract period.

Authorities don't agree. "A commitment (made by a company) is as binding as a law. So, there should be no room for suspicion," said Pandey of NTA. Rajendra Khetan, on his part, said he hoped to sell 75,000 lines in the next decade to be able to pay to the government and also make profit on its investment. " We can earn up to Rs 13 to 14 billion by collecting on an average Rs 1500 per month from 75,000 subscribers over a period of ten years." The total investment in the project could range from Rs 700 to 800 million.

As per the government rule, the license of the new company could be extended for up to 25 years.

The new company will have to pay 5 per cent of the license fee it has committed (Rs 210m) as performance guarantee upon receipt of the letter of intent and another 30 per cent on obtaining the license.

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, the NTA is working on to issue o 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.

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

After nearly a decade of embarking on the liberal, market economy, the government decided to invite private sector into telecommunications as less than 1 per cent of the country's 23 million-plus people have telephone connections. The NTC is yet to provide telephone connections to nearly 260,000 applications some of them waiting for more than last six years.

While the entry of private sector operators will be instrumental in expanding telecom services in the country, it might also help boost the economy besides providing reliable and cost-effective services to the consumers. "With the development of information technology and its growing integration with telecom, more and more people will benefit," said Khetan.

Let's wait for few more months to see if that starts happening.

The Final Bid

Fees Khetan-Spice Cell Turkish Company
Royalty 3900 4050
License 210 250
Renewal 20,000 5070
(all figures are in million rupees.)