The cost of a phone call is the biggest roadblock obstructing the growth of Internet users," says Rajesh Lal Shrestha, Managing Director of Infocom.
It's been ten years since the World Wide Web hit the world. And in this short time, Internet Service Providers (ISPs) in Nepal have demonstrated how competi-tion can benefit customers. Computing power has increased thousand-fold, the price of connec-tivity has come down and there are more services to choose from.
But the industry could also be stagnating-thanks to high telephone costs, courtesy the Nepal Telecommunications Corporation (NTC).
Five years ago an average minute of Internet connectivity cost Rs 12. Today, it's just about Rs 1. Some service providers even go below the rupee barrier, especially start-ups trying to get a foothold in the booming market. Nepal is said to have 20,000 email/Internet account holders, which in real terms works out to about 100,000 users. The market is said to be growing by about 30 percent each year, but at existing telephone tariffs and in light of the fierce competition, it may not be long before many of the smaller companies begin to fold up.
"The cost of a phone call is the biggest roadblock obstructing the growth of Internet users," says Rajesh Lal Shrestha, Managing Director of Infocom, one of a new generation of ISPs. "At today's market growth rate and telephone charges, about half of the ISPs we have may shut down in about a year. You cannot stay in business long with earnings that average about 10 paisa per connection or less."
Life for ISPs may soon get harder. Nepal Telecommunications Corporation (NTC), our monopoly telephone network owner, is considering a hike in local phone tariffs. The NTC says use of its international services is down, and the proposed hike will help bolster diminishing revenues. It blames international calls through the Internet for some of that revenue loss . "Only pricing to reflect the costs of providing the service can keep us afloat over the long run," says Raghubar Lal Shrestha, general manager of NTC.
The NTC used to thrive on unusually high international tariffs which accounted for almost 55-60 percent of its revenue. This, it says, was used to subsidise local telephone rates. "Revenue data over the last year shows that we're losing more money than we'd anticipated. We could be in trouble if we cannot raise local tariffs," Shrestha added.
ISPs find this hard to swallow-public perception is that the NTC makes a killing on local and international calls. There's been a sharp increase in local calls as more people have gone online. ISPs argue that the NTC would benefit if it made telephony cheaper, not more expensive. They even have a proposal which they say could result in a win-win situation for all parties. "We're proposing a revenue sharing mechanism between NTC and the ISPs, or a reduction in the cost for those using phones for data communication," says Sanjib Rajbhandari of Mercantile Communications. "The competition in the market would force ISPs to transfer the reduced costs to customers, and everyone would benefit."
Generally, ISP economics is straightforward. The more people online, the more the benefits to be derived from the emerging knowledge economy. There's even a law, attributed to Robert Metcalfe, a pioneer of computer networking. "Metcalfe's Law" says that the value of a network grows in line with the square of the number of users. The truth could be somewhere in between, but the NTC doesn't seem too inclined to discuss it.
There are 15 ISPs in Nepal, and most have bitter stories to tell about working with the NTC. Until this May, when the Nepal Telecommunications Authority began licensing V-SAT users, ISPs relied on the NTC for their communications needs. This included everything from getting telephone connections to relying on NTC's network to get through to servers upstream in the web, Singapore, India or the US. That is no longer the case, even though NTC's connectivity has improved and is certainly cheaper than what ISPs pay V-SAT service providers. V-SAT stands for Very Small Aperture Terminal, and it's a cost effective satellite solution for users seeking an independent communications network connecting a large number of geographically dispersed sites. "We're paying more for total reliability," says an ISP source. "NTC rates are cheaper, but there are too many unseen costs." In plain English, the "unseen costs" are bribes and favours ISPs have to offer to get even routine official tasks done. Many ISPs have begun using radio modems for even local connections to bypass the NTC, especially for corporate clients.
Customer service and industry relations are the weakest links in the NTC's Internet backbone. The NTC's poor service record is old hat-about 40 percent of all complaints take more than 24 hours to fix. Unreliability on this scale is unacceptable in an industry rife with competition and growing exponentially. "You cannot blame us for trying to provide reliable services," says another ISP source. "We rely on speed and accuracy. If I get a faulty connection on a Friday evening, at NTC's pace it will be repaired next week."
When it began Internet services, the NTC tried wholesaling connectivity, spending six months trying to convince service providers to purchase its connections for resale to retail buyers. None of the ISPs-who had already been burnt doing business with the corporation-were interested. Eventually, the NTC decided to move into end-user sales, which its officials bragged would "teach ISPs a lesson". Its only aim was to enter the market cheaply and fast. It didn't take into account that it would have to provide installation and follow-up services. It offered the cheapest connections, and this forced prices down. But customers soon found out that cheap also meant erratic and unreliable service and maintenance. This is why the service provider with the lowest rates has just 2,000 email and Internet subscribers. We called the NTC asking how we could get an internet connection. "Come to Pulchowk and fill out a form. Then go to Jawalakhel to get your account." We then asked if the corporation would help us with installation and provide training on how to use the service. The person at the other end sounded irritated by this unreasonable demand. He said: "We'll give you a catalogue and you can do everything yourself."
With this kind of service, even the 2,000 subscribers the NTC has seems too many. But this total itself may be misleading. No one will say how many of those accounts are free-either service connections or like those made available to MPs earlier this year. The NTC's cheap unlimited internet connectivity does benefit people who need no help figuring out the difference between an IP address and an ISP or setting up and using a connection. But there aren't too many such users.
"We should be working to create a situation where NTC's returns would grow with the growth of our businesses," says Shyam Agarwal, Managing Director, Worldlink Communications P. Ltd. "It is scary to have such a large player in the market, especially one that has total control of the telephone network." The NTC, which sells everything from international telephony to Internet connectivity, also has the space to cross-subsidise different services and distort the market. "People are scared to put in too much money to upgrade their businesses, thinking that NTC is in a position to make connectivity free," says Agarwal. On average it costs Rs 5 million to set up an ISP making use of the NTC's phone network. Those willing to set up their own V-SAT gateways would need another Rs 2.5 million for the license and Rs 4 million for the system. But the relatively low start-up cost (minus the gateway) is misleading: the investment increases fast because companies must make frequent technological upgrades and pay for replacements due to high depreciation rates in the business.
ISPs say the NTC should focus on more important things. It has a backlog of over 260,000 applications for fixed line connections. "Even today we have not been able to get all the high speed digital lines we would like to have and here you have NTC retailing Internet connections rather than helping us meet the need," an ISP source said.
NTC's revenue per line, including international calls, is thrice as much as it was two years ago-up from about Rs 750 per line to about Rs 2,000 in Kathmandu, where telephone density is highest. ISPs say it is the services they provide that have helped increase the revenue and they want NTC to share that with them, as is being done in many countries. Alternatively, the NTC should be thinking about lowering dial-up rates, they add. NTC's numbers show that local calls have increased revenue by as much as Rs 60 million in the last year, but it is unwilling to accept that the increase is a result of the growth brought about by ISPs. The NTC doesn't have the technology to monitor usage and there's no way for them to realistically confirm or deny the suggestion. "We're thinking about special rates for data communications, but it's only a proposal," says the NTC's Shrestha. Nothing is said about revenue-sharing.
The NTC believes that the increased use of telephones is due more to the addition of new lines and other services that rely on telephony such as pagers, mobile phones and, yes, the Internet. It also says that the Rs 0.40 we pay per local call per minute is among the lowest in the world. Further, it blames ISPs for the reduction of its revenues from international calls, especially after the advent of Internet phones or the Voice Over Internet Packets (VOIP) services. There is some truth in NTC's grouse, but why should people pay its absurdly high monopoly tariffs when a phone call is just the Internet away. Privately many NTC top brass admit they themselves use Dial Pad to make personal phone calls abroad.
Providing Internet connectivity isn't all that profitable. One reason ISPs are in the business is to try and -*build large networks by popularising the Internet. When that happens, they'll be better positioned to add other services and charge for content. Both number of accounts and usage need to be diversified for them to make real money. And then, with size of networks providing economies of scale, ISPs could think about providing free connectivity.
The NTC is also headed for change. The plan is to break the huge corporation down into separate companies providing different services to level the playing field for private companies that are being allowed to undertake telecom services. That will not only change the monopoly profits it has been thriving upon but also force it to do cost/profit centre accounting to reflect its real costs-minus the corruption that takes place all the way up to the ministry. Its revenue structure-55-60 percent from international communications, 14-16 percent from domestic trunk calls and 16-18 percent from local calls-is also bound to change.
All this is reason enough to discuss the ISP proposal, especially because we're already talking about e-commerce and the need to base our growth on the knowledge economy. Internet access sale is not the NTC's main line of business, so it is unlikely that it would concentrate on propagating connectivity as much as private ISPs would. That is the reality that faces the government's recent pronouncement that we should work towards drawing benefits from the knowledge economy. Should we struggle to prop up an inefficient government monopoly whose real costs are unknown? Or should we prepare ourselves to become cost-effective netizens by formulating the right policies early in the game? It is telling enough that most ISPs will not go on record saying most of this. They say it's because the NTC has enough muscle to create problems for troublemakers and loud mouths.
