Why Telecom Operators Suffered a Huge Revenue loss this year?

In the year 2020, the telecom sector suffered a massive loss in revenue/profit. It was in a declining stage from a few years back. Various reasons have fueled the loss, whereas the root reason is the global COVID-19 pandemic for this year.

To prevent the Coronavirus spread, Nepal underwent a strict lockdown that engulfed half of the year 2020. The lockdown knocked down the life of many people and the economy of the country. People were forced to stay at their homes, but most people carried out their work from home via internet service, which did not yield any good results. 

In such an odd situation, Nepali telecom operators continued providing service to the people despite the restrictions. Though the telecom operators didn’t pause during the lockdown, they suffered losses in revenue and profit. Ncell revenue declined by 5 billion in the Q2 of 2020 while Nepal Telecom suffered more than 2 billion in Q4 of 2020.

Unlike many businesses, telecom operators were working so hard even during the lockdown. Then, what contributed to the sharp decline in the revenue/profit of telecom operators? Let’s take a look at it. 

What contributed to the decline in the revenue of telecom operators? 

The telecom operators faced a lot of challenges while working during the lockdown and prohibition. Providing service to the people amid the COVID-19 pandemic didn’t come easy to them. Here are some factors that contributed, directly or indirectly, to the revenue loss in the current fiscal year 2020/21. 

1) Mobility restriction 

Due to the extended lockdown, physical transportation, shops, and outlets could not operate for a longer time. People couldn’t purchase SIM cards and recharge cards. So, there was slow growth in new subscribers for the telecom companies’ due to the restriction in mobility. The telecom operators couldn’t provide physical assistance to the people properly during the pandemic. The telecom operators also couldn’t import equipment and components to improve telecommunication services in the country.

2) Delay in 4G expansion and Fiber internet

The most anticipated project that was supposed to complete by mid-February of 2020 is 4G expansion throughout Nepal, which delayed by some time due to other reasons. Later, due to lockdown, Nepal Telecom had to suspend the 4G expansion works and could not complete the project in time. It is the same for all telcos, as they had to stop their development projects while giving more focus to maintenance with limited technical personnel.

Similarly, there was a halt in deploying Fiber-To-The-Home (FTTH) to all places of the country. If there was no pandemic, the 4G network should have reached to all the inhabitants by now. The telcos missed considerable revenue and profit out of these services due to the expansion delay. 

3) Voice call service 

Since people stayed at their homes during the lockdown, they used voice services lesser than internet/data service. Due to the restriction of mobility, people made fewer voice calls from legacy networks. As people are mostly online, they can easily make voice/video communication over OTT apps. 

Voice call service is one of the primary revenue sources for telecom operators, which accounts for around 60 to 70% of their income. So, a decrease in voice call service led to a sharp decline in revenue and profit. 

4) International Services

Due to no international flights and restrictions, very few people have crossed the borders and used the international roaming service, both inbound and outbound. As International services have a premium tariff/rate and account for a larger share, losing service usage made the telco’s miss a massive revenue amount.

5) Discounts and bonuses 

The telecom operators provided discounts and offers of high amounts on the data packages and voice call services. They were directed by the high authorities to provide such offers to the people during the lockdown period when internet usage increased drastically. Find how did Ntc, Ncell, Smart respond to the COVID-19 pandemic with several offers and discounts.

6) Recession 

As all of the businesses dropped due to lockdown, several companies slacked their employees. Many people lost their job in the blink of an eye. As a result, many people had less to no income during the lockdown. When people (mostly daily wage laborers) were having difficulties fulfilling their basic needs, they couldn’t spend more money on their mobile services.

So, the ARPU of the telcos got down heavily. Ncell published the ARPU to decrease from Rs 233 in the first quarter to Rs 190 in the second quarter of 2020. Moreover, many people didn’t continue subscriptions to other services like value-added services during the lockdown.

7) Data consumption 

Though telecom operators saw a fall in voice call service, they also noticed a spike in the use of data service. Telecom operators gave several discounts and bonus schemes in data packages during the lockdown.

As data consumption increased, and internet users also increased, this led to heavy internet traffic at all hours. But the revenue did not grow significantly due to the ever-decreasing data tariff (from subsidized data packages like eLearning offers) and the COVID offers. Though Telecom companies gained some income from it, the profit was not enough to offset voice call service loss.

Besides all those above, Telecom companies also donated in the COVID-19 relief fund to support the government in taking initiatives against Coronavirus spread. 

As we approach the end of the year 2020, the world is slowly returning to normalcy. But the losses that we incurred during lockdown is not something we can quickly recover. It may take years to regain the same stability in the economy that we had a year ago, but it is not impossible. 

One of the reasons why telecom operators suffered a loss in the revenue this year has to be a weak intervention by higher authorities. The telecom sector would have suffered less income if the higher authorities had responded with some plans and ideas to improve the business. Apart from directing telecom operators to offer discounts and bonuses to the people, the higher charges couldn’t develop a response plan, which would have helped the telecom operators reduce loss. 

Ministry of Education has now announced to provide free internet to students to run the academic session online. If there is no proper plan and subsidy from the government for this free internet, the telcos and ISPs will suffer more.

NTA latest action for relief to the Telecom sector

Nevertheless, Nepal Telecommunication Authority (NTA) has recently come with an industry relief plan with a recommendation for customs duty exemption in some areas on telecom equipment import, a concession for network service providers on reverse VAT on international internet bandwidth, and an extension of 3 months period for payment of internet bandwidth brought by the internet service provider from abroad. 

NTA has also requested the international bandwidth provider to extend three months to pay for internet bandwidth imported from abroad. Similarly, NTA has asked several banks and financial institutions to extend the repayment period of the loan and interest of the amount taken by the internet service provider by one year.

Read: Challenges of Telecom operators in Nepal.

Please put your comment if the recent NTA relief is enough for the telcos for revival while people are still complaining for expensive tariff.