A number of factors had been slowing the development of Nepal's telecom network, according to Research & Markets. The country's topography has made it extremely difficult to develop its telecommunications infrastructure. Furthermore, Nepal had been struggling under an adverse economic situation caused largely by political instability. Over the years, acts of terrorism and the activity of the Maoist rebels operating throughout the country had also taken their toll on the telecom network.
By early 2007, however, hope for Nepal's transition to a more stable period was certainly on the rise. The country's first elections for over nine years were finally held in April 2008; a clear victory going to the Maoists who were expected to renounce violence and become a party of government. Although the way forward was not necessarily going to be smooth, with this remarkable turnaround following years of great difficulty, the scene was set to build on the considerable progress already made in recent years in meeting the growing demand for telephone services. Not only has there been strong subscriber growth, especially in the mobile sector, there was evidence of a clear vision in the sector, including putting a reform process in place and planning for the building of necessary telecommunications infrastructure.
In its early development phase, telecommunications in Nepal were basic and limited, with the first telephone exchange not being established in the country until 1960. Despite an absence of any substantial foreign investment, telecom services steadily expanded from 1995 onwards, mainly as a result of assistance provided through foreign grant-aid and the introduction of transparent tendering, which increased threefold the number of lines that could be purchased for the same money. Nevertheless, for a long time the number of fixed-line connections remained woefully low. Unmet demand remained high and the waiting time for a fixed-line service could be five or more years.
In Nepal's 75 districts, five did not have a local exchange and needed to use HF radio to link into the network. In some of the districts that did have exchanges, no lines were connected. In total, twelve districts, or roughly 1.2 million people, were without any direct service.
The Nepal Telecom Company, the state-owned incumbent operator, has been the major builder and operator of the national telecom network. For a long time it held a monopoly over all aspects of telecom in the country. With the opening up of the market, Nepal Telecom Company lost its monopoly on basic telecom services in 2001 and then on mobile telephony services in 2004, with the licensing of United Telecom Ltd and Spice Nepal Pvt Ltd, respectively.
The period from 2006 to 2008 saw notably strong subscriber growth. The total telephone penetration rate by early 2007 had reached at about 8%; this comprised 2.7% in fixed-line services (including WLL and Limited Mobility) and 5.3% in mobile services. This was substantially up from the figure twelve months earlier of 3.7% total telephone penetration (2.1% fixed line, 1.5% mobile).
In other words, the mobile subscriber base had expanded by around 150% in 2006. With the country's mobile market growing rapidly, mobile subscriber numbers had swept quickly past fixed services in 2006. By 2007 Nepal Telecom Company with the help of its private operator rivals was setting what were regarded as ambitious targets for network expansion; it aimed to achieve an overall penetration (mobile and fixed) of 20% by 2010. By end-2009 the total telephone penetration had in fact reached 30%; the 7.6 million mobile subscribers at the time comprised just over 90% of all telephone subscribers in the country. Fixed-line penetration had remained static at just under 3%.
Despite all the effort, there remained a significant disparity between the high coverage levels in the cities and the coverage available in the underdeveloped rural regions. Progress on providing some minimum access had been good, however. Of a total of 3,914 Village Development Committees across the country, only 306 were unserved by December 2009. In order to meet future demand, it was estimated that Nepal needed to invest around US$135 million annually in its telecom sector.