National 5 (Spotlight Weekly)

Talking Blues

Nepal Telecom's mobile telecommunications monopoly has produced more headaches than SIM cards in recent years. But there are signs the stranglehold it has on the market may soon prove its death grip

By Joe Bavier

It was all eerily similar to the scene at the U.S. Embassy in Saigon at the end of the Vietnam War, as the fallen superpower frantically attempted to airlift its last remaining citizens from the besieged city.

Under the wary eyes of gun-toting police, a crowd jostled against the steel gates of the main entrance, hoping to get a glance inside through the gaps in the metalwork. A few meters away, as a side door opened to let a young man out, a dozen people tried to muscle their way through in what soon became a shoving match between the masses and a beleaguered security guard. In the end, a woman wedged her body into the door and refused to budge.

NT Mobile : A target for finger pointinting

And though this wasn't Saigon, just Nepal Telecom Naxal branch during a prepaid SIM card sale, the parallel with the retreating giant may not be far off the mark, as the country's sole mobile telecommunications provider struggles under the weight of a monopoly that is proving unsustainable.

“It's gone very smoothly,” Surya Malakar, Executive Engineer at the Naxal office said as he surveyed the crowd. “We have our own security, and we got help from the ward police office.”

And, on one level at least, he was right. Once inside, those who had succeeded in breaking away from the teeming mob had miraculously transformed themselves into an orderly queue of a few hundred eager customers, each clutching an application filled out in advance.

Most have had plenty of time to do the paperwork. It's been four months since Nepal Telecom last released a batch of 50,000 new prepaid SIM cards. And by closing time on the first day of the two-day sale, some 30,000 were already gone.

But despite Malakar's optimistic assessment, it soon became clear that all had not gone according to plan. Scalpers began popping up all over town selling the new Rs. 1,700 SIM cards for as much as Rs. 2,500, prompting many customers to level charges that NT was in bed with the middle men.

Before even laying a finger on the merchandise, many of those who had waited all day to go the legal route were already disgruntled customers.

“It's a bad system,” said Ranjit Kunwar, who decided to wait and brave the smaller Sunday crowds. “They should always be open to sell SIM cards. It's because of money. It's big corruption,” he added, expressing a sentiment that is widespread and growing among many Nepalis, who see the national telecom as reaping the financial benefits of its monopoly while doing little to improve service.

Improvements to infrastructure were already lagging, even before the latest SIM card release. And though the current practice of strictly limiting new numbers is partly meant to allow engineers the time to catch up, a continuing technology deficit has resulted in widespread network tie-ups. The 25 percent jump in the number of mobile connections over the weekend only promises to make matters worse.

This latest sale brings the number of mobile numbers in Nepal to nearly 250,000. But that total is still well below the level of public demand, a fact that has led to a ballooning illegal market on SIM cards.

Plagued by bad service and hit hard by black market price gouging, many are now pointing an angry finger at Nepal Telecom.

“Public enterprises must provide a maximum level of service with a nominal profit if possible. That's why they exist,” says Nandan Adhikari, a financial analyst who monitors the telecom sector. “This is the failure of Nepal Telecom. It is taking in huge profits, but that money isn't going towards improving service.”

But Nepal Telecom managing director, Sugat Ratna Kansakar says such accusations are misplaced.

“Some people think it is because of inefficiency, but that's not the case,” he says. “It is not only a matter of SIM cards. It is a lot of things. There's infrastructure, but there's also the agency regulations government companies face.”

He says Nepal Telecom is doing everything it can to improve the situation, citing its efforts to secure a new tender that would create a million new connections and a plan to sink at least Rs. 150 million into infrastructure over the next three years.

But for now, he says, the current system of SIM card rationing as unavoidable.

“I think it is the same everywhere in the world.”

But part of the problem stems from the very fact that Nepal is by no means typical. Though government-owned monopolies still control the majority of the world's conventional telecommunications markets, a fact normally attributed to the massive infrastructure required to run a system of land lines, most countries allow open competition in the wireless sector.

However, in Nepal, the Telecom Act of 1997 only allows for only two license holders in the mobile telecommunications sector. One, of course, is Nepal Telecom. And though the Indian firm, Spice Cells, was meant to be the other, its failure to scrape together the cash for its Rs. 210 million bid led the Nepal Telecom Authority to block its license, essentially creating a de facto monopoly for NT.

The lack of competition has left Nepal Telecom conspicuously free of market pressures, much to the detriment of Nepali consumers.

The same prepaid SIM card that is sold for Rs. 1,700 here goes for less than a third that price in India. And per minute rates are consistently lower there, a fact that has spawned a thriving trade in Indian mobile services along Nepal's southern border.

Nandan Adhikari thinks the sector would greatly benefit from the kind of competition that is the norm elsewhere, with the likely results being better service at a cheaper price. It's just a matter of opening the door.

“There are very many countries already interested in Nepal,” he says.

But such a move could prove disastrous to Nepal Telecom, whose mobile division has been a much-needed shot in the arm in recent years. Opening the market would end NT's monopoly, cut into its market share, and force it to lower prices. The company's leadership has understandably not warmed to the idea.

“I don't think there is any point giving unlimited licenses,” says Kansakar. Given time, he claims Nepal Telecom will be more than capable of keeping up with pressure from subscribers. “If the demand is there, that will be our goal.”

But there are indications NT could already be doing much more.

Nepal Telecom reported profits topping Rs. 3 billion for 2003. Nearly half of that was invested in government bonds.

And even those profits that do find their way back to Nepal Telecom don't always go directly towards improving service. Recently, NT employees received up to a 75% increase in their salaries and perks.

If nothing changes over the next three years, the company's commitment to invest Rs. 150 million in new wireless infrastructure will break down to an annual expenditure of only 1.6 percent of the company's total profits.

With such massive profits at its disposal and little market pressure to reinvest in technology, Nepal Telecom, many say, has a strong motive for maintaining the status quo and keeping the market closed, a charge Kansakar flatly denies.

“I'm not the one that issues licenses,” he says.

But change may soon be on the way from the agency whose job it is to do exactly that.

Two weeks ago, the Nepal Telecom Authority submitted a draft document to the Ministry of Law, Justice, and Parliamentary Affairs, in what it hopes will prove the first step towards passing a new Telecom Act.

“It will be limited only by the available frequencies,” says NTA chairman Suresh Pudasaini. “We will do away with the bidding system. And priority would be given to new companies offering service to rural areas.”

Pudasaini expects a decision on the matter by the end of the year (Nepali calendar), matching the government's timetable on new parliamentary elections. Though, parliament would have to vote on the new bill before it can be passed into law, if elections don't go through as planned, there is still the possibility it could be pushed through by an ordinance from the palace.

Meanwhile, Spice Cells will soon be making its belated arrival onto the Nepali market. After finally fulfilling its contract obligations, the company was recently issued a telecommunications license by the NTA. It plans to begin offering service within the next nine months.

For Nepal Telecom, this all means its days as a monopoly are likely numbered.

But for Nepali consumers, these may be the first signs that the weekend's SIM card madness may soon be a thing of the past.