Recent developments in the
telecommunications industry of Nepal
Jason Whalley
Jason Whalley is Senior Lecturer
in the Department of
Management Science,
Strathclyde University, Glasgow,
UK.
The fieldwork was funded by a grant
from the Nuffield Foundation. The
author wishes to gratefully
acknowledge the comments of
Ramesh Adhikary and others on an
earlier draft. Any errors are the sole
responsibility of the author.
DOI 10.1108/14636690610643285
Abstract
Purpose – The purpose of this paper is to chart the development of the Nepalese telecommunications
industry and assess how they may develop in the future.
Design/methodology/approach – A country case study approach is adopted. The Nepalese context is
outlined before the telecommunications industry is described and the main drivers of its development
identified. The paper draws on interviews as well as secondary sources and models the relationship
between the main drivers of the industry in Nepal.
Findings – Although the Nepalese telecommunications industry has substantially changed since the
modernisation process began in early 1980s, large parts of the country remain without access to
telecommunication services.
Research limitations/implications – Some data collection problems were encountered, but these
were addressed through the use of multiple sources.
Practical implications – The industry’s future development will be shaped by the interplay between
geography, resources and the CPN (Maoist) insurgency.
Originality/value – Previous studies have tended to focus on one part of the Nepalese
telecommunications industry or one specific issue. This paper provides a broad overview of the
industry and draws attention to the inter-relationships that exist between the key drivers of
telecommunications diffusion in Nepal.
Keywords Telecommunications, Nepal, Design and development, Network operating systems
Paper type Research paper
Introduction
The Nepalese telecommunications industry has changed considerably in recent years. The
telecommunications infrastructure has been modernised, competition introduced into the
market and new services such as mobile launched. In 1999 the Nepalese
telecommunications reached an important milestone in their development, namely,
achieving a tele-density figure of more than one line per 100 people.
However, the development of the Nepalese telecommunications industry has not been
without its problems. Many parts of the country are without access to telecommunication
services, even though the expansion of the network into remote and rural areas has been a
policy objective for several years. Where telecommunication services are available the
quality in rural areas is often unsatisfactory, as investment has not kept pace with demand.
Although new entrants have been licensed, they have yet to make their presence felt in the
market with the consequence that the incumbent state-owned operator remains the
dominant provider of telecommunication services in Nepal. The Maoist insurgency has also
contributed to the difficulties encountered through using resources that could have
otherwise been used to expand the telecommunications network, and restricting where the
network may expand.
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 This paper assess the development of the Nepalese telecommunications industry to date,
and suggests how the aforementioned issues may determine their future development. As a
consequence, the remainder of this paper is structured into four sections. In the first of these
sections, the focus is on providing an overview of Nepal in terms of its geography, economy
and political and administrative system. The emphasis then shifts in the second section to
the Nepalese telecommunications industry. In this section, both the structure as well as
service provision are described. In the third and final section, three inter-related issues that
will shape how the Nepalese telecommunications industry will develop in the coming years
are identified. Conclusions are then offered in the final section.

Nepal
Nepal is a landlocked country bordered by the Tibetan Autonomous Region of China to the
north and India to the south, east and west (see Figure 1). The total surface area of Nepal is
141,877 km2. The country rises from just over 60 m in the south to more than 8,800 m on the
northern border with China, and is home to eight of the world’s ten highest mountains
including Mount Everest. This mountainous country is home to roughly 27 million people.
However, the mountainous nature of the country means that only 20 per cent or so of the total
surface area is fit for arable cultivation and population densities across the country vary
considerably from eight people per km2 in Karnali to 318 in Kathmandu (Shrestha, 2004,
p. 5).
The process of the modern development of Nepal began in 1951 when the Rana system of
hereditary prime ministers was replaced with cabinet government that included both
commoners as well as members of the aristocracy. Until 1951 Nepal had largely been
isolated from the international community, though this has gradually changed as
transportation links with the outside world have improved and Nepal has joined regional
or international organisations such as the United Nations, International Telecommunications
Union, SAARC[1] and the World Bank[2].

Politics
As recent events demonstrate, politics within Nepal is a turbulent affair. In late 1950, King
Tribhuvan Bir Bikaram Shahdev (1906-1955) fled to India where he joined with anti-Rana
forces to overthrow the Rana system. At the heart of the Rana system was a hereditary prime
minister who wielded power instead of the monarch, politicians or Prime Minister. In 1951 the
Rana system ended, to be replaced by a Prime Minister and government formed from
members of the Nepalese Congress party and representatives of the Ranas.
In 1959 a multi-party constitution was adopted. However just a year later King Mahendra Bir
Bikarm Shahdev (1920-1972) dismissed the elected Prime Minister, parliament and banned
the activities of political parties after the Nepali Congress (NC) party gained power in the
elections. The King then instituted the ‘‘panchayat’’ system of cascading non-party councils

Figure 1 Location of Nepal

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that culminated in the National Panchayat. Significantly, the King nominated 16 of the 135
members of the National Panchayat thereby ensuring that he controlled the council. The
panchayat system continued until 1980 when, after a prolonged period of unrest,
constitutional reform occurred that saw direct elections to the national assembly. These
elections were, however, on a non-party political basis.
The worsening economic climate, and continued civil unrest led by the Nepali Congress
Party, eventually led to King Birendra Bir Bikarm Shahdev (1945-2001) agreeing to a
democratic constitution and interim government headed by the Nepali Congress leader Mr
Krishna Prasad Bhattaria as Prime Minister and party based elections. Although the Nepali
Congress party won the 1991 elections, their government was not long lasting due to their
internal party crisis, and in 1994 they called a midterm election that they failed to win
outright. The Nepali Congress party was replaced in government by a minority government
of the Communist Party of Nepal-Unified Marxist Leninist (CPN-UML). The CPN-UML
government, and subsequent coalition governments, proved to be inherently unstable, with
the consequence that several governments were formed in rapid succession.
As governments came and went, the CPN (Maoists) increasingly felt that the needs of the
population were not being addressed and eventually they declared a ‘‘people’s war’’ in
1996[3]. Beginning in the far west of Nepal, the insurgency gradually edged its way
eastward towards the Kathmandu valley and was largely non-violent until November 2001
when the Maoists launched multiple attacks across the country[4]. Not only were 14 soldiers
killed at their barracks in Ghorahi, but also 23 policemen were killed across the country and
NR225 million looted from banks (Shrestha and Uprety, 2004, p. 20). In response to these
attacks, a state of emergency was declared and the army ordered to tackle the insurgents.
The army’s intervention intensified the conflict. As clashes continued to occur across the
country, Amnesty International accused both sides of violating human rights. In May 2002,
Prime Minister Mr Sher Bhadur Deuba dissolved the parliament and new elections were
called, but as the violence escalated the government unconstitutionally asked the King in
November 2002 to delay the elections by another one year. King Gyanendra Bir Bikram
Shahdev (1947-) dismissed the coalition government of the Nepali Congress and CPN
(UML). A new prime minister was appointed, with the mandate of triggering election within
six months and reinstating the derailed democratic system, he resigned the following year
amid continued unrest to be replaced by another royal appointee who also resigned in May
2004, an action labelled as unconstitutional by some. Finally, responding to an all-party
demand to reinstate Deuba government, the King once again appointed Sher Bhadur
Deuba as Prime Minister. Against this background of political instability, peace negotiations
did take place in 2003. While some progress was made, the talks ultimately collapsed in
August 2003[5].
In both August and December 2004, the Maoists blockaded Kathmandu with the
consequence that supplies including food could not reach the capital. With the peace
process stalled, the government effectively limited to the Kathmandu Valley and the
economy worsening The Economist (2004, p. 10) magazine wrote a leader describing Nepal
as a ‘‘failing state’’. On the 1 February 2005 King Gyanendra Bir Bikram Shahdev once more
dismissed Sher Bahadur Deuba as prime minister, but instead of replacing him with another
politician a new cabinet, headed by the King himself, was formed. In doing so, the King
assumed direct power in what The Economist (2005, p. 57) described as ‘‘an old fashioned
coup’’.
The King has stated his intention to restore democracy within three years, and although he
has announced that local municipality elections are to occur before the end of April 2006, his
actions have been criticised as being unconstitutional and undemocratic. Moreover, the UK,
the USA and India all voiced their opinion that the move was actually a backward step for
democracy and recalled their ambassadors for consultations (BBC News, 2005a). Shortly
after the King took power, the US State Department was quoted as saying that the King had
agreed to begin to restore democracy within 100 days and not three years as initially
suggested (BBC News, 2005b). This is not surprising given the widespread international
condemnation of the King’s move and the continued instability that Nepal has experienced.

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 Tom Philips, leader of the October 2005 European Union delegation to Nepal, stated that
Nepal was in danger of political collapse (BBC, 2005c). It is, however, interesting to note that
the view has been expressed that if the King were to be successful then he would be forgiven
for suspending democracy (The Economist, 2005, p. 57).

Administrative system
Given the political uncertainty that Nepal has been experiencing due to the ongoing CPN
(Maoist) insurgency, it is useful to describe its administrative system separately from its
politics. For administrative purposes, Nepal has been divided into five development regions,
14 zones, 75 districts, 58 municipalities and 3,914 village development committees (VDC).
Municipalities and VDCs are also divided into wards, with the number of wards varying
between nine and 35 for municipalities while each VDC has nine wards. In recent years,
municipalities and VDCs have been the focus of both service provision and development
within Nepal.
Each of the five development regions – Eastern, Central, Western, Mid-Western and
Far-Western – encompasses three different types of terrain – tarai, hills and mountains – as
well as a development centre (Shrestha, 2004, p. 8). The tarai region of Nepal is a belt of flat
alluvial land that runs along the India-Nepal border. It is, as a consequence, more fertile than
other parts of the country and produces the majority of Nepal’s crops (Bhattari, 2003).
It is also possible to identify four different types of governmental organisation. Government
ministries like the Ministry of Information and Communication (MOIC) have the greatest
degree of autonomy, while corporations have the least. In between these two extremes are
authorities and development committees, with the former being more autonomous than the
latter. The degree of autonomy is important as it means that a ministry has its own secretary,
budget independence as well as the ability to develop new policy. The room for manoeuvre
declines between authority, corporation and development committee.

Economy
With a gross domestic product (GDP) of $5.8 billion, Nepal is one of the poorest countries in
the world. Nepal’s per capita GDP of $223 in 2002 places the country firmly within the least
developed category of countries. Almost half the population lives in absolute poverty
(Dhungel, 2004, p. 81), and Nepal ranks 140th out of 177 countries on the UN’s human
development index.
Agriculture is the mainstay of the Nepalese economy. Around 80 per cent of the population is
employed in the agricultural sector (Shrestha, 2004, p. 127). The remaining 20 per cent are
predominantly employed in the service sector (16 per cent); just 3 per cent of the population
are employed in industry. Although a substantial proportion of the 80 per cent are employed
in subsistence agriculture, cash crops such as sugar, tobacco and tea are also farmed
(Shrestha, 2004, p. 135).
Whilst agriculture employs approximately 80 per cent of the population, its contribution to
GDP is considerably less at 39.2 per cent (Asian Development Bank, 2004, p. 225). Industry
contributes 20.9 per cent of GDP and services 39.9 per cent. Within the service sector
contribution to GDP, tourism has traditionally played an important role but with the advent of
the Maoist insurgency this has declined.
Although Nepal has sought to encourage foreign direct investment (FDI) since 1991, it has
received on average only $8 million a year (UNCTAD, 2003, p. 1). Several reasons are
suggested for this: the country’s mountainous terrain and its land locked location make it an
unattractive location to invest in; unfriendly taxation, regulatory and administrative regimes;
and, the continued instability brought about by the Maoist insurgency. The FDI that has
occurred is spread across the economy though manufacturing dominates with 43.3 per cent
of the total compared to tourism with 21 per cent and other services with 20.8 per cent.
Construction, energy and mineral based projects have received 14.4 per cent of the total
FDI, while agriculture accounts for just 0.4 per cent of the total (UNCTAD, 2003, p. 4).
The energy sector has also received some, albeit limited, FDI. The hydroelectric power
potential of Nepal is around 83,000 MW, of which 25,000 MW is commercially feasible, yet

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less than 250 MW of hydroelectric power is currently produced (Dhungel, 2004, p. 9).
Utilising more of Nepal’s hydroelectric potential would not only meet the country’s own
energy needs, but would also generate much needed foreign currency (Dhungel, 2004, p.
30f).
As the Kathmandu Valley enjoys the best infrastructure, it is no surprise that this is where FDI
has tended to congregate. The tendency for FDI to concentrate in the Kathmandu Valley
both highlights as well as exacerbates the spatial inequalities that are present in Nepal.
Broadly speaking, the east of the country is economically more developed than the west and
urban areas more than rural. An apt illustration of spatial inequality in Nepal is the human
development index compiled by the United Nations. The human development index (HDI)
value for urban areas is greater than that for rural areas where the majority of the population
live, and is greater in the Western, Central and Eastern districts than the Far Western and Mid
Western regions (Tropp, 2004, p. 18). Almost half of the districts in the Far Western region
and a majority of those in the Mid Western region have a HDI of less than 0.4 (Tropp, 2004, p.
19). In contrast, every district within the Western and Eastern regions and all but one of the
districts in the Central region have a HDI of greater than 0.4 (Tropp, 2004, p. 19).

The Nepalese telecommunications industry

Although the telecommunications industry has long been present in Nepal, its modernisation
and expansion began in the early 1970s when the first trunk line was installed linking Nepal
with India. Since then the Nepalese telecommunications industry has changed
considerably, with increases in its geographical coverage and trunk capacity occurring as
well as more recently the launch of new services.
From Table I the development of telecommunications within Nepal can be divided into two
broad periods. During the first phase, which lasted for a decade from the early 1970s, the
industry was transformed through the expansion of the network, the launch of new services
and the creation of Nepal Telecommunications Corporation in 1976. International
connections with India were established in 1971, and in 1975 a modern microwave link
connected Kathmandu, Pokhara and Birgunj with towns in the east of the country (ODC et al.,
2004, p. 38). Nepal’s first satellite earth station was installed in 1982, and the first digital
telephone exchange was commissioned in 1984.
The second period in the development of the industry began in 1995 when private sector
involvement in telecommunications occurred for the first time. Since then a
Telecommunications Act has been passed in 1997, and two telecommunication policies
launched in 1999 and 2004. Not only have these established an independent regulator, but
they have also liberalised many parts of the telecommunications market as well. Mobile and
internet services have been launched; with the latter being the first part of the
telecommunications industry to receive private sector investment.
A significant milestone in the development of the industry was reached in 1999 when
tele-density passed one line per 100 people. Even so, considerable variations in access to
telecommunication services existed in Nepal. To counter this and continue the expansion of
the telecommunication across the country, the 1999 Telecommunications Policy stated that
15 per cent of all investment should occur in rural areas and set a target of at least two fixed
lines per VDC. In 2002 the expansion of the telecommunications network into rural areas was
given a major boost with the launch of a special rural development programme, funded by a
loan from the World Bank, which would target the Eastern Development Region.
In 2002 the east-west fibre optic plan was announced. This link, which has now been laid,
runs along the route of the east-west highway and complements the existing fibre,
microwave and satellite trunk infrastructures that vary considerably in their quality and
reliability. The fibre link increased capacity between the eastern border of Nepal and Lamahi
in the Midwestern Development Region, though it is planned that the link will continue all the
way to the western border. At present, the link is 150 km short of the western border of Nepal.
As the fibre link can act as the backbone for mobile and WLL services, it has also laid the
foundation for their subsequent expansion (ODC et al., 2004, p. 42).

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 Table I Milestones in the development of the Nepalese telecommunications industry
Year Development

1914 Line between Kathmandu and Indian border opened

1957 Radio Act passed
1959 Telecommunications Department created
1963 First telephone exchange installed in Kathmandu
1970 Modernisation begun with First Telecommunications project
1971 Telecommunications Corporation Act passed
1972 Telex services launched
1976 Nepal Telecommunications Corporation created
1982 First satellite earth station installed
1984 First digital exchange commissioned
1992 Cable-TV services launched
1992 National Communications Policy outlined
1993 National Broadcasting Act passed
1995 Private sector involvement in the Nepalese telecommunications industry starts
1997 Telecommunications Act passed
1997 Mobile licence awarded to NTC
1998 Nepal Telecommunications Authority established
1998 Nepal Doorsanchar Company Limited (NDCL) created to replace NTC
1999 Telecom Policy launched
1999 Mobile services launched by NTC
1999 Letter of intent signed with Spice Nepal for second national GSM licence
1999 Tele-density passes one line per 100 people
2001 NDCL licensed to provide basic telecommunication services
2002 Special Rural Telecommunications Programme agreed with WorldBank
2002 United Telecom Limited granted second basic licence
2002 East-west fibre optic plan launched
2003 STM Telecom Sanchar Pvt Ltd licensed to operate in Eastern Development Region
2004 New Telecom Policy launched
2004 Second GSM licence awarded to Spice Nepal
2005 Mobile services launched by Spice Nepal

Sources: NTA (2004a), Goodman et al. (2000), ODC et al. (2004), interviews

Structure
There are two distinctive types of actors within the Nepalese telecommunications industry:
institutions and companies. The most significant institutions are the MOIC and the Nepal
Telecommunications Authority (NTA). Although parts of the telecommunications industry
have been opened to competition, the pre-eminent supplier of telecommunication services
within Nepal remains the state-owned Nepal Doorsanchar Company Limited (NDCL). Other
companies present within the telecommunications market include UTL and Spice Nepal. The
structure of the Nepalese telecommunications industry is shown in Figure 2.
The MOIC is responsible for policy making within the telecommunications industry. The
Ministry’s remit also extends to the film industry, broadcasting, press and printing media and
postal industries as well. With respect to telecommunications, the Ministry develops policy
through its policy planning section and frequency management division (FMD) that also
enforces legislation and investigates disputes in areas such as frequency allocation,
assignment, allotment and interference.
The telecommunications industry is regulated by the NTA, which was established in 1998,
and its main objective is to ‘‘create a favourable environment in order to make the
telecommunication services reliable and accessible to all people at reasonable price
throughout the Kingdom in collaboration with the private sector et al in order to support the
socioeconomic development of the country’’ (NTA, 2004a, p. 2). This objective is clearly very
broad. It can, however, be broken down into a series of duties and responsibilities
undertaken by the NTA, namely:
B granting licences;
B attracting foreign investment;

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Figure 2 The structure of the Nepalese telecommunications industry

B encouraging accessibility;
B identifying appropriate new technologies and becoming familiar with their properties;
B resolving disputes between operators;
B protecting consumer, disseminating information; and
B advising the government on how policy should develop (NTA, 2004a, pp. 7-11).
The regulatory body is funded by a licence fee levied on operators, and at present is staffed
by 30 employees – a chairman, five members, two advisors, 14 assistant managers and 13
office assistants and others. While it is not clear what roles the assistant managers, office
assistant and others perform, the scope of activities in which they are involved includes
consumer issues, legal affairs, engineering, licensing and rural development. Significantly,
the regulator is not fully independent of the Ministry as it falls under its auspices.
A key task for the regulator, has been licensing. To date 133 licences have been awarded in
Nepal. As shown in Table II these licences can be found across the entire spectrum of the
telecommunications industry. However, this is somewhat misleading as almost two-thirds of
the licences have been awarded to VSAT users such as large hotels, banks and educational
institutions.

Table II Licences awarded, January 2005

Number of licences awarded

Basic telecommunication services 2

Cellular mobile 2
VSAT provider 10
Internet (with e-mail) 29
Radio paging 8
VSAT user 71
GMPCS service 2
Fax mail 6
Local data networks 1
Rural telecommunication services 1
Video conferencing 1
Total 133

Source: NTA (2005, p. 9)

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 Table II also highlights that the protracted and contentious licensing of the second cellular
operator has eventually been resolved. In 1999 Spice Nepal, a Nepalese Indian private
sector joint venture, won the auction of a mobile licence and signed a letter of intent to
operate a nationwide GSM licence. A fee would be paid for the licence, which would be
renewed after ten years for another ten years on payment of a renewal fee. While all parties
agreed to a fee being imposed, when the renewal fee would be paid emerged as a
stumbling block. Spice Nepal and the NTA felt that the renewal fee would be paid after the
completion of the first ten years, that is, when the initial licence period had expired. In
contrast, the Ministry of Information and Communications felt that collecting the renewable
fee after ten years was too late. If Spice Nepal did not renew the licence, the government
would have no leverage to ensure that the fee was paid.
The ensuing discussion suggested two ways in which the renewal fee could be levied. The
regulator suggested that the fee should be levied at the end of the licence period while the
ministry suggested that fee should be spread over the entire licence period with one-tenth
being collected every year. Unsurprisingly Spice Nepal preferred to pay the renewal fee at
the end of the licence period and not every year. It was not until 2004, after a change of
management at Spice Nepal that turned the company into a Nepalese Kazakhstan joint
venture (Cellular News, 2005), that the company agree to pay the renewal fee every year. As
a consequence, the licence was eventually awarded in late 2004, allowing Spice Nepal to
request tenders to purchase GSM equipment in January 2005. The anticipated launch date
was June/July 2005 though the service was eventually launched in September 2005. The
service is initially available only in the Kathmandu Valley, and Spice Nepal aims to attract one
million subscribers within 12 months of the launch (Cellular News, 2005).
With the exception of VSAT user licences, which are geographically limited to a specific
location, most of the remaining licences that have been issued in Nepal are national in their
geographical scope. There are, however, two exceptions to this. Four out of six radio paging
licences are limited to specific development regions and a special licence has been issued
in the Eastern Development Region to STM Telecom Sanchar Pvt Ltd, a Nepalese-American
joint venture. In 2002 Nepal launched a special rural telecommunications programme
focused on the Eastern Development Region that would provide two lines in each of the 534
villages that was without telecommunication services. The programme was supported by
financial assistance from the World Bank totalling $11.865 million.
There are two licensed providers of basic telecommunication services. One of these is NDCL
whilst the other is United Telecom Limited (UTL), a Nepalese-Indian joint venture. At present
NDCL is wholly owned by the government, though there are plans to partially privatise the
company (see Table III).
UTL was granted a licence in October 2002 to provide basic telecommunication services
nationally, though to date it has not expanded its Wireless Local Loop infrastructure outside
of the Kathmandu Valley. UTL opted to use CDMA technology with limited mobility, and
initially deployed handset that were not portable. In order to improve its competitiveness in
the market, UTL decided to import smaller versions of the handset into Nepal.
The NTA felt that the smaller handsets were a precursor to mobility being offered, a
development which would be contrary to the licence conditions. UTL disagreed with this
assessment, arguing both that the smaller handsets would be more aesthetically pleasing,
and thus more likely to be purchased, and that mobility was inherent to CDMA. In return, the
NTA argued that the licence was for fixed basic telecommunication services and any
delivery of mobile services, however limited, would require a new licence to be granted.
Through the use of the gazette, it was suggested that the appropriate licence would cost
around NR120,000. However, before the licence could be awarded a case was filed at the
Supreme Court of Nepal stating that the regulator’s actions were improper and should be
overturned. The subsequent discussion raised two issues. First, what is meant by ‘‘limited
mobility’’ is unclear and secondly, was it unreasonable for UTL to expect a second licence
when they had broken the conditions associated with their first? To resolve the issue a
committee has been formed to determine what ‘‘limited liability’’ means. This committee is
yet to report.

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Table III Licensees distributed by operation of service in various regions of the country
Mid-western
Eastern and Development
Central Region and
Eastern Development Western Far-western
Kathmandu Development Region without Development Development
Services Nationwide Valley Region Kathmandu Valley Region Region

Basic telephone (fixed) 1

Basic telephone (WLL) 1
Mobile 2
Internet (with email) 26
Radio paging 2 2 2 2
VSAT Network provider 10
Fax mail 6
Video conferencing 1
GMPCS 2
Rural telecommunications
services 1
Local data network 1

Source: Derived from NTA (2004b, p. 10)

Service provision
Although the Nepalese telecommunications industry has been liberalised, the primary
supplier of telecommunication services is the state-owned NDCL. As befits an incumbent,
NDCL operates across the entire spectrum of the telecommunications industry. NDCL is the
monopoly provider of wired fixed telephone lines only, and until Spice Nepal launched its
own mobile services in late 2005 it is also the sole provider of GSM mobile
telecommunication services. In January 2005, the NDCL had 422,456 fixed subscribers
and 243,579 mobile subscribers, 70 per cent of who were on pre-paid contracts (NTA, 2005,
p. 9). While the number of fixed lines has enjoyed steady growth in recent years, mobile
subscriber numbers have grown dramatically (see Table IV).

Table IV Basic market characteristics, 1990-2005

Main lines Waiting list as
Population Main Mobile per 100 Waiting percentage of Revenue
Year (million) a lines subscribers people lists main lines (NR million)

1990 18.11 57,320 – 0.32 72,434 126.36 699

1991 – 64,894 – 0.35 88,548 136.45 1,147
1992 – 68,886 – 0.36 126,817 184.09 1,316
1993 19.39 72,683 – 0.37 130,009 178.87 1,818
1994 19.86 75,637 – 0.38 136,221 180.09 1,905
1995 20.34 83,713 – 0.41 153,751 183.66 2,147
1996 20.83 112,645 – 0.54 202,363 179.64 2,677
1997 21.33 139,989 – 0.66 243,444 173.90 3,320
1998 21.37 208,387 – 0.95 277,997 133.40 4,321
1999 22.36 247,214 5,500 1.11 269,025 108.82 4,633
2000 22.90 266,890 10,226 1.20 283,432 106.19 4,956
2001 23.21 298,062 17,286 1.31 286,035 95.96 5,487
2002 23.67 327,673 21,881 1.41 317,293 96.83 6,555
2003 24.20 371,800 50,000 1.74 319,500 85.93 –
2004b – 400,217 179,126 2.70 – – –
2005c – 422,456 243,579 2.84 – – –

Notes: a As of 1 July in each relevant year; b As of 15 October 2004; c As of 15 January 2005

Sources: Asian Development Bank (2004, pp. 224-9), Goodman et al. (2000, p. 12), ITU (2004a,
p. 117, b, pp. A5-A9), NTA (2004a, p. 28, 2005)

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 Although tele-densities figures continue to improve, this partially masks the geographical
disparities in access to telecommunication services that exist in Nepal. In 1999 a goal of
providing at least two telephones in each VDC was set. While this may be a relatively modest
target, it is one that Nepal is finding difficult to achieve. By January 2005, 1,963 VDCs had at
least one public call office while 1,951 did not have access to any telecommunication
services (NTA, 2005, p. 7). It is interesting to note that the figure in October 2003 was 1761
VDCs (NTA, 2003, p. 2) as this suggests that the rate of expanding telecommunications
access is around 200 or so VDCs per year. As it is reasonable to assume that the easiest
VDCs were tackled first, it may take another eight or so years before every VDC has at least
one public call office.
In January 2005 NDCL made two announcements that indicated its intention to expand its
subscriber base. In the first of these announcements, the company stated that it intended to
offer WLL services before the end of the fiscal year in July 2005. In the initial phase of its
introduction 500,000 lines would be offered, with the remainder being delivered by 2008
(Kathmandu Post, 2005a, p. 2). Significantly, these lines would be offered initially within the
Kathmandu Valley and Pokhara, and then across the country. The necessary equipment is to
be supplied by ZTE Corporation, a Chinese telecommunications manufacturing company, at
a total cost of US$30 million. Given that the one million new lines that this project would make
available is double the current installed base, this represents a substantial expansion by
NDCL of its network.
The second announcement, made just three days later, further expanded the network of
NDCL though this time in the mobile market. The company stated that an additional 70,000
pre-paid lines would be issued before the end of January 2005 (Kathmandu Post, 2005b, p.
2). To facilitate such an expansion of its network, NDCL stated that additional base stations
would be built to relieve congestion. In the Kathmandu Valley this expansion in network
capacity would amount to an extra 18 base stations. Pre-paid mobile services would be
offered for the first time in four new districts: Nepalgunj, Bhairhawa, Dhangadi and Butwal.
NDCL also provides international telecommunication services via a range of technologies.
There are fibre links with India as well as a microwave link to Bangladesh, and international
services to the rest of the world are provided through two Intelsat earth stations located in
Balambhu, Kathmandu. In addition to these links there are other international links operated
by UTL and ISPs (ODC et al., 2004, p. 41). The second national basic telecommunications
service provider is UTL. The company has aggressively pursued the smaller handset in part
because it has found the Nepalese market tougher than anticipated. UTL has not been able
to meet its subscriber targets, having just 28,000 subscribers in January 2005 even though
its network capacity is twice this figure. That UTL can attract only 28,000 subscribers across
the Kathmandu Valley is both surprising and worrying. It is surprising because there is
significant pent-up demand across the valley, and it is reasonable to expect that this would
translate into high network utilisation for UTL. It is worrying because the failure of UTL to meet
its subscriber targets has led to questions being asked about the company’s long-term
viability. Quite simply the company is not generating sufficient revenues either to cover its
costs or to fund the further development of the business.
In addition to NDCL and UTL there are several other telecommunication companies
operating within Nepal. Since the first ISP was established in the mid-1990s there has been a
steady growth in their number so that by mid-1994 NTA could identify 26 ISPs[6]. The ISP
market in Nepal is interesting for several reasons. First, the first ISP was not established by
the incumbent operator, but by Mercantile Office Systems. Since then the role played by
NDCL in the internet market has largely been one of catch-up. Thus, unlike the other
telecommunication markets in Nepal the ISP market is not dominated by the incumbent
operator. Second, when the first ISPs were founded their legal status was unclear and was
only formalised with the passage of the 1997 Telecommunications Act. Third, several of the
larger ISPs have invested in their own infrastructure. Not only have they acquired VSAT
network licences, but they have also invested in their own access networks. Such investment
has, however, occurred primarily within the Kathmandu Valley.

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Mercantile Office Systems is just one of the handful of companies owned by the Mercantile
Group that are active in the telecommunications industry. The Mercantile Group is a
diversified conglomerate that in additional to its ISP interests also runs Nepal’s first call
centre in Kathmandu, distributes PCs and office equipment, operates an internet portal and
radio station, produces films and has a stake in a leading publishing house as well. The
other, non-ICT, interests of the Mercantile Group include housing, finance, forestry and
electric vehicles.
Finally, the largest cable-TV company in Nepal is Space Time Network Private Limited. After
an uncertain start, the company has enjoyed considerable and sustained growth. The
company now offers several dozen television channels including one that carries Nepalese
content as well as several that carry Indian and foreign content. Interestingly, the channel
carrying Nepalese content – Channel Nepal – is wholly owned by Space Time Network. A
key component of the company’s strategy has been, according to the company’s managing
director, its willingness to invest in its network. To this end, the company has 3,600 km of
distribution network, 125 nodes and its own head-end. In recent months parts of the
distribution network have been upgraded with fibre, thereby creating the possibility for new
services such as VoIP to be launched in the future. However, at present the company does
not have a licence to offer such a service.

Discussion
How the Nepalese telecommunications industry will develop in future will be determined by
interaction between three sets of related issues. The first of these is whether sufficient
resources are available to fund network expansion as well as manage the process. The
second set of issues emanates from low population densities and increasing urbanisation
that is partially due to the third issue: the CPN (Maoist) insurgency. Even before the recent
escalation of the conflict, the country was not wholly under the government’s control with the
consequence that expanding telecommunications into these parts of the country was
challenging to say the least.

Resources
A key factor influencing the development of the Nepalese telecommunications industry is the
availability of resources. Although it is perhaps only natural to focus on the availability of
financial resources, two other types of resources – managerial and regulatory – are also
important.
The challenge of diffusing telecommunication networks across Nepal is a daunting one,
requiring considerable expenditure. It is, therefore, no surprise that World Bank
development loans have been sought. The use of external sources of capital to fund the
expansion of the telecommunications network should not, however, be interpreted as
implying that NDCL was either loss making or without its own financial resources. NDCL is
widely acknowledged to be the most profitable state-owned enterprise, and according to
some it is the only profitable state-owned enterprise in Nepal. The combination of large
margins and a dominant position in the marketplace enabled NDCL to amass a substantial
cash reserve that it has been, until very recently, reluctant to spend.
In some respects this reluctance is understandable – as others were prepared to fund the
investment, NDCL opted to retain its reserves so that they could be invested when these
alternatives sources of investment capital were exhausted. The decision of NDCL to expand
its network has substantially reduced its financial reserves, however, by relieving congestion
in the Kathmandu Valley and expanding network coverage elsewhere it is likely that
revenues will increase. Making the most of this opportunity will depend, to a lesser or greater
extent, on the management of NDCL. Thus, the network expansion that has been announced
by NDCL draws attention to human resource issues within the Nepalese telecommunications
industry.
That NDCL was able to amass a substantial cash reserve is testament to the success of its
management. However, on other criteria such as waiting lists and repair times, the
management of NDCL have been less successful. It is also unclear as to how well NDCL will
cope with increasing competition, either from a rejuvenated UTL or from Spice Nepal. The

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 past successes of Space Time Network and the Mercantile Group have demonstrated that
they are both innovative and well managed. It is not inconceivable to suggest that if either of
these companies were to enter the voice telephony market, they could emerge as significant
competitors to NDCL.
The final set of resource issues concerns the regulatory. The regulator is a relatively new and
small agency whose budget is not set by the MOIC but instead is funded by income from
licence fees. The small size of the regulator raises the inevitable question of whether it has a
sufficient number of staff to regulate what is becoming an increasingly complex
telecommunications industry, with not only more actors, but also a greater array of
technologies.
The regulator is able to recruit new staff so that it can expand to take into account the
changing nature of the Nepalese telecommunications industry. The NTA has its own
employee bylaws and recruitment committee headed by its chairman. However, even
though the NTA can recruit additional staff it may find it difficult to do so. There may be a
shortage of qualified staff willing to work in the public sector when the financial rewards of
private sector employment are greater.
There is also another dimension to this lack of independence, namely, the feeling of some in
the telecommunications industry that the Ministry is willing to intervene in regulatory matters
when lobbied. Although strictly speaking there is no legal foundation on which the MOIC can
intervene in the regulation of the telecommunications industry, it may be able to exercise
influence if the regulator fails to exercise all of the powers that are available or act to preserve
its autonomy. As a consequence of lobbying by some industry players, the ability of the
regulator to act impartially has been curtailed to a limited degree. This should not be
interpreted as suggesting that the regulator has been sidelined, but rather as an indication of
the increasing politicisation of the industry as well as the protracted decision-making
processes of the regulator.

Geography
The geography of Nepal impacts on the diffusion and use of telecommunication networks in
two related yet distinctive ways. First, urban areas are better served in terms of access to
telecommunication services than rural areas. Given the economics of network diffusion, this
is not a surprise. What is a surprise, however, is the slow pace of network diffusion into rural
areas more generally and out of the Kathmandu Valley in particular. Although operators
within Nepal do acknowledge the need to expand outside of the Kathmandu Valley, into
urban and rural areas alike, their actions do not convincingly support such sentiments.
Large parts of the highway network are without coverage. Some Nepalese commentators
believe that by linking together the isolated pockets of telecommunications coverage that
correspond to urban areas, the use of the network in the areas in between will be
encouraged. The potential of the rural telecommunications market has also been
downplayed, with the argument being made that some form of price subsidy may be
required to ensure that rural consumers can afford to purchase telecommunication services.
Having said this, such an argument does not appear to have been vigorously pursued and
can easily be interpreted as being a gambit to acquire a subsidy, advantage in another
discussion or some form of exclusivity.
As demand for telecommunication services has grown in urban areas, the quality of service
delivered has come to the fore. Increasing demand for telecommunication services in urban
areas has not been matched with sufficient infrastructure investment so to maintain, let alone
improve, the quality of service enjoyed by subscribers. Thus, whilst urban residents may
have access to telecommunication services network congestion on the one hand and
network unreliability on the other hand impinge on their ability to make use of the
telecommunications network.
In addition, the cost of making a telephone call is, according to Khadka (2004, p. 8), high.
Part of this can be attributed to the limited competitive impact that UTL has had on NDCL,
though the 25 per cent return that NDCL has been allowed to make on its investments and
the bewildering array of products and tariffs has undoubtedly contributed as well.

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Maoist insurgency
Notwithstanding the undoubted suffering endured by individuals across Nepal by the Maoist
insurgency, the continued instability affects the country’s telecommunications network in two
ways. First, the very fact that the Maoists control a significant proportion of the country
means that the process of diffusing telecommunications will be difficult at best and not
possible at worst. Take, for example, those parts of the country where the Maoists control the
rural areas whilst the government’s influence is limited to urban areas. In such circumstances
the installed lines are often found in the police station, which inevitably restricts access by
the wider population to telecommunication services.
In addition it has been argued that from a security perspective it is not in the interest of the
government to expand the telecommunications network outside of those areas it does
control. The Maoists have, it is alleged, used telecommunications to co-ordinate their
activities with the consequence that the army has actively sought to disconnect them.
However, as the Maoists have used satellite mobile phones among other technologies the
extent to which this can be successful is debatable.
Second, the Maoists have in the past destroyed VSAT installations in those parts of the country
that they control. Not only does this ensure that individuals and businesses do not have
access to telecommunication services with all that this entails, but also that the destroyed
investment will need to be replaced at some later date. Given the limited financial resources
available within Nepal, such duplicated investment could be interpreted as being wasted
investment as it means that another part of the country is denied its investment. Although
replacing the destroyed equipment would enable the latest technology to be installed,
thereby widening the range of services that could be delivered, a more likely outcome is that
the destroyed equipment will either not be replaced or will be replaced by older technology
that recognises that the equipment may be destroyed once more in the future.

Resources, geography and the Maoist insurgency

Although geography, resources and the Maoist insurgency have been dealt with separately
in the previous three sub-sections, they are in fact inter-related with one another. Some of the
inter-relationships that exist are shown in Figure 3. The availability of financial resources to
telecommunication companies will influence whether the network can be expanded
geographically into rural and remote areas. This decision is also influenced by the Maoist
insurgency that ensures that some parts of the country are outside the control of the
government in Kathmandu.
Assuming that the network could be expanded into rural and remote areas, it does not
necessarily follow that this will happen. Although many companies within Nepal have stated

Figure 3 Inter-relationships in the Nepalese telecommunications industry

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 their intention to provide telecommunication services throughout the country, they have often
concentrated their attention on higher population density areas where the greatest potential
in terms of market and revenues are to be found. This is an inevitable product of both the
liberalisation of the Nepalese market and the Maoist insurgency that creates uncertainty in
many parts of the country. Together these help perpetuate the differences that exist across
Nepal with respect to access to telecommunication services.
External sources of funds have been utilised to expand the telecommunications network. For
example, a World Bank loan has funded the expansion of the network in the Eastern
Development Region. This region is not affected by the Maoist insurgency to the same extent
as other parts of the country, but its difficult terrain has slowed down the speed at which the
network has been expanded and contributed to the higher than expected prices charged for
the telecommunication services offered.

Conclusion
This paper has charted the recent development of the telecommunications industry in
Nepal. In doing so the transformation of the industry has been described, and key
developments such as liberalisation and the establishment of the regulator identified. This
description identified three issues whose interplay has shaped the development of the
industry in Nepal to date. The first issue is that of geography while the second is the
resources that are available to develop the industry. These resources may be financial,
managerial or regulatory in nature. The third issue is that of the Maoist insurgency, which
limits the expansion of the telecommunications network and more broadly engenders
socio-economic uncertainty in Nepal.
These three issues will also determine how the telecommunications industry will develop in the
future. While geography and resources are undoubtedly important, they are overshadowed
by the influence exerted by the Maoist insurgency. Socio-economic uncertainty within Nepal
has increased in recent months as the conflict between the government and the CPN
(Maoists) has intensified. Until the conflict is resolved, foreign investors and donors alike will
be weary of Nepal. Moreover, the continuing conflict is also likely to curtail the expansionary
ambitions of Nepalese companies with the consequence that they will concentrate on those
parts of the country within government control. In other words, resolving the CPN (Maoist)
insurgency will shift the debate in Nepal onto the more familiar ground of encouraging network
expansion and investment in areas that companies tend to overlook.

Notes
1. South Asian Association for Regional Co-operation.
2. For a detailed history of Nepal see Whelpton (2005).
3. For further details of the period prior to the declaration of the ‘‘people’s war’’ see, for example,
Shrestha and Uprety (2004).
4. On the 1 June 2001 Crown Prince Dipendra murdered ten members of the royal family, including
King Birendra and Queen Aishwarya, before attempting to commit suicide. Although this attempt
failed, and he was in a coma, Dipendra assumed the throne. After his death two days later,
Gyanendra became King.
5. See Shrestha and Uprety (2004, pp. 20-28) for a detailed chronology of the peace talks that
highlights those areas of agreement between the two sides.
6. There is the possibility that the number of active ISPs is less than the 26 that have been licensed. In
January 2000 three of the 11 ISPs that the NTA attempted to contact did not reply, leading Goodman
et al. (2000, p. 15) to suggest that it was doubtful whether these companies were actually
operational.

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Further reading
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Bird & Bird and Antelope Consulting, Kathmandu, November.

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