NewBiz Conversation

NTA Policies Financially Not Viable For Rural Telecom Operators-

July 18, 2011

Subhas Bajracharya is the Chief Executive Officer of Smart Telecom Pvt Ltd which offers services in the villages of Central, Western, Mid-Western and Far-Western Development Regions. The company established in joint venture with a Singaporean and an Israeli company has been operating since November 2009. Bajracharya had previously served as a Manager with Nepal Telecommunications Corporation (NTC) for 22 years out of which six years were spent working as Switching Engineer and as Mobile Project Manager. He graduated from the BIT in Mesra, Ranchi as an Electrical Engineer. In an interview with Gaurav Aryal of New Business Age, Bajracharya talked about the programmes and policies of Smart Telecom and his experiences of establishing rural telecommunication services. Excerpts:

Smart Telecom began its service from the remote villages of the four development regions. How has peopleâ€™s access to telecommunication services improved in these areas?

Smart Telecom was awarded a license in July 2008 and we started our services from November 2009 with VSAT (Very Small Aperture Terminal) technology. With this technology, we can provide services like basic wire line telephones. In each VDC (Village Development Committee), we can provide up to six lines. When we started, there were many VDCs that did not have any means of communication â€“ either voice or data. So, in these VDCs, our services have come as a big relief for the local people.

The company expressed a commitment to introduce services in 398 remote VDCs. What has been the progress so far?

The initial commitment of 398 VDCs as per the license has already been completed. And we submitted a letter to the Nepal Telecommunication Authority (NTA) saying we completed the obligation of 398 VDCs in November 2010. With these 398 VDCs, we cover about 40 districts. In 25 of these districts, we have limited mobility service where we are operating on GSM technology. We now intend to expand our network into district headquarters and villages where there is demand for phones. For that, we are going to build about 100 BTS (Base Transceiver Station) sites in this second phase. For the 398 VDCs, we have 54 BTS sites.

Why did you go for VSAT technology when other cheaper wireless technologies like CDMA were available?

VSAT technology is very expensive indeed and bandwidth cost is also very high. But in the places where we are operating and building our network, there are no other options. For example, in the districts of the far-west, there is no optical fibre laid and microwave transmission is very difficult. So, there was no option except using VSAT service. As per the license obligation, we had to build our network under any circumstances so we didnâ€™t have a choice. At this stage, we are only focused on fulfilling the obligation under the license. We are not able to think in terms of competition at this moment. We are really hoping that the NTA will provide some facilities to us so that we will also be able to compete with the existing network operators.

How long will it take for your company to begin service in the urban areas as a full-fledged operator?

Since we have completed the 398 VDCs obligation, we are requesting the NTA to expand our scope of work into urban areas. That will help us to become commercially viable because at this moment, the cost of construction of sites and operations in the rural areas are very high. With this kind of operation, it will be impossible for the company to make any profit even in 15 to 20 years time. But to compensate that cost, we are requesting the NTA to let us explore the urban areas where the costs of construction and operation are much lower than in the rural areas. However, there has been no development on this yet.

Our services are based on the same GSM technology that other operators are using. We will be providing voice and data services as well as some value added services. So, our services will not differ from other providers but we will try and make ourselves different in the cost and the quality of the services. We plan to bring some value added service focused on the rural population. For example, we started a service around a month ago in association with the TU Teaching Hospital called â€˜IOM Smart Healthâ€™. This service has been very helpful for the rural areas where there is no health service available. We have even received calls from the subscribers to thank us for our initiative. Similarly, we also intend to bring some other services in agriculture and education which will be focused only for the rural areas.

When you started operation other telecom operators had already captured a large segment of the market. How are you coping with the constraints arising out of this?

I agree that it will not be so easy to compete with big operators like NTC and Ncell but since the total penetration of telephone services in Nepal at this moment is still about 42 per cent we have a lot of scope. And if you talk about cellular phone services, it is less than 35 per cent. In the rural areas, the telephone penetration is much less than this. Therefore, I believe that there is plenty of room for telecom service.

How difficult is it for the new entrants to find a space in the market already captured by Ncell and NTC ?

Definitely, wherever NTC and Ncell already have a presence, it is not easy for us. We are trying to promote our products by doling out special promotional schemes. For example, the subscribers get almost Rs 1100 worth of services by paying only Rs 200 for our SIM card because they get a monthly bonus of Rs 150 for up to six months. We are trying to sell our product in the market by introducing such lucrative schemes and build a customer base.

It is said that after you began your services in the mid and far-western regions, Ncell also has been aggressively marketing in these areas.

We donâ€™t want to comment anything on their strategic planning but we can safely assume that they are expanding their network very rapidly for the same reason that we are.

The cost of telephone services in Nepal is still higher than in India. By when do you think people can enjoy quality services at low prices?

I tyhink the cost of telephone services in our region is probably the lowest in the whole world. So, you cannot call it very expensive. But if you compare our costs with India, thatâ€™s a different point altogether. India is a special market and we are not in a position to compare with them. These are totally different markets. The cost of construction and all the resources, for example, are much lower in India when compared to Nepal.

Telecom service providers have been complaining against NTCâ€™s monopoly on the optical fibre network. What exactly is your point about it?

To tell you the truth, this is unfortunate. NTCâ€™s policy of not sharing its resources is not beneficial for anybody, not even for NTC. I have now heard that they are preparing to change their attitude. Even though they donâ€™t have fixed any tariff or policy on the matter yet, they are working on it. I think the resource should definitely be shared with other interested operators. At the same time, the rate should be reasonable.

How do you see the future of telecommunications market in Nepal?

For a developing country like Nepal, I think telecommunications is definitely vital. The development of the country and that of telecommunications must go hand-in-hand. The government should put more focus on the development of this sector in the larger interest of the country.

What are the services most appropriate for Nepali customers?

Now that the technology is growing very fast and Nepali people are getting the information about the latest technologies available in other parts of the world, the demand of Nepali customers is not very different from that of the people living in Europe or America. So, the Nepali people expect services at par with the developed world. However, there is still a disparity when it comes to the availability of content. I hope that if we start providing the service, gradually the contents too will be provided. If we can build the network, it will create the market for the contents here as well.

How much is the investment in Smart Telecom?

We have already invested Rs 1.1 billion in phase-I and we are going to further invest Rs 1.5 billion for phase-II. So, the total investment has been around Rs 2.6 billion already. Depending on the policies of the NTA, there will be more investment as found suitable. If the investors do not see returns, they will not be interested to invest more. This we have been trying to explain to NTA. Given the existing policies of the government, it is very difficult to get reasonable returns on the investment. We may not even be able to recover the investment in another 20 years if the same situation prevails. The NTA has to definitely find a way to provide hope to the investors so as to attract them to go on increasing investment in this sector.

The major shareholder of our company is Lal Sahu Distribution from Singapore that holds 70 per cent shares while Square Networks of Kathmandu has a 20 per cent stake in the company. The rest 10 per cent is owned by Israel-based Gilat.

What is the size of your companyâ€™s operations at present and what is the growth target you have in mind?

We have close to 100,000 subscribers and we are present in 40 districts spanning across different parts of the country. However, we are not present in the eastern development region and our operations in the mid-west is very small right now. We are more focused in the central, western and far western regions. We are targeting a subscriber base of around 500,000 in the next year. If the NTA allow us, we will definitely explore the eastern region too.

What are the major challenges that you face currently?

A big challenge is the high cost of construction in rural areas. Due to poor infrastructure, access to these places is very difficult. There are places where materials have to be carried by porters or on animal back spending number of days. This results in increased construction cost. Another concern is the lack of electricity. There is no electricity, so we have to build our own alternate power supply system, e.g. solar or otherwise. Local issues too bother us. For example, there are groups who make undue demands to let us operate. The bureaucratic process such as getting permission to build our sites and towers in the forest region takes a very long time.

How should the government policies address the issues of rural telecom service providers?

The government processes should be simplified and decisions must be expedited. Instead of simply copying rules from other countries, the government must do some analysis of the financial implications of the policies they intend to implement. These policies must be financially viable. The present policies of NTA are financially infeasible for rural telecom operators. I hope that there are measures taken to correct these issues because our survival is at stake. The investors are not going to keep investing without seeing any possibilities of returns.

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