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On May 3, home broadband customers all over Nepal had significant downtime for around five hours, as internet service providers (ISPs) couldn’t pay bandwidth fees to the company that controls much of the country’s access to the global internet: Bharti Airtel Ltd. A tax dispute between Nepalese ISPs and the country’s government, brewing for months, led to a situation where ISPs’ requests for permission to buy US dollars to pay Airtel stalled, with one executive estimating collective outstanding dues to Indian bandwidth providers at Rs 200 crore.

The ISP Association of Nepal (ISPAN) held a press conference in Kathmandu the day before, and warned mediapersons that the long delay in payments would lead the landlocked country to lose all internet access. Sudhir Parajuli, ISPAN’s president, told The Hindu in a telephonic interview from the US that Airtel caters to around 80% of Nepalese ISPs’ bandwidth needs, with the rest largely served by Tata Communications Ltd, and two small connections from China. 

Mohammad Amer, an Airtel Business executive who addressed an audience in Kathmandu last year on the firm’s activities in the country, estimated that half the upstream internet traffic in Nepal is sourced from Airtel. 

Despite the warnings from ISPAN, Nepal’s Ministry of Communications and Information Technology did not clear ISPs’ foreign exchange requests, said Mr. Parajuli. Airtel shut off connectivity for five hours, restoring it only after the Nepal Telecommunications Authority assured the company that the issues leading to the payment delays would be resolved. The hours-long lapse highlighted Nepal’s high reliance on Airtel and Tata Communications Ltd, and the vastly different nature of the growth in internet connectivity in India’s neighbourhood.

Unlike India, where Reliance Jio Infocomm Ltd’s entry in 2016 led to cratering prices, Nepal’s internet prices only came down on the fixed line home broadband side, when the Chaudhary Group and DishHome, two large Nepalese conglomerates, entered the market during the pandemic, betting on a boom in demand for internet access. 92% of data traffic in Nepal is served through wired broadband that relies on bandwidth from India, Mr. Parajuli of ISPAN said. 

Much of this boom is served by just two firms, Airtel and Tata — less than a dozen data centres are present in Nepal to cache and serve content locally. Airtel operates three terrestrial links to Nepal from India; the first one, built in 2009, was between the border towns of Sonauli in Uttar Pradesh and Butwal in Lumbini. Two more came up in the following years between Forbisganj in Bihar and Biratnagar in Koshi, and Raxaul, Bihar and Birgunj, Madhes Pradesh. Together, Mr. Amer of Airtel said, these links account for 5 terabits of capacity, with another link connecting Nepalganj with India planned. 

Indian firms selling bandwidth to Nepal have grown frustrated with a standoff between ISPs and the Nepalese government, which has been demanding retrospective taxes on components that Mr. Parajuli argued had been invalidated by the Supreme Court of the country, a decision that he said was also backed up by a Parliamentary committee that met during the previous government. The heart of the dispute, the CEO of a leading ISP in Nepal told The Hindu, was that the government has been demanding back taxes on maintenance work that ISPs spend on, in addition to the levies on the monthly rental they collect from subscribers.

As this dispute goes on, the executive said, Nepalese ISPs haven’t paid Airtel or Tata in 13 months. While Nepalese government officials have assured Airtel that the issue will be resolved, no foreign exchange approvals seem forthcoming for the firms. These issues have stalled the appetite of at least one Indian firm from investing in Nepalese ISPs. 

“Sify Technologies operated in this market for four years and we have refrained from providing service [there] for the last 2 years due to payment issues from Nepal ISPs,” a Sify spokesperson told The Hindu. “Resident ISPs in Nepal have huge payment outstanding pending for an inordinately long time, without any solution in sight.”

Wireless telecom firms don’t face the same issues — the state-owned Nepal Telecom (NTC) announced this January that it was buying 200 gigabits per second in capacity from India. Mr. Parajuli said that since NTC was government-owned, it did not have to deal with bureaucratic hassles that ISPs do in getting approvals to pay dollars to upstream providers.

The Nepalese broadband executive told The Hindu that bandwidth from Airtel and Tata typically costs $2 per megabit per month of connectivity, with rates going down the more bandwidth an ISP buys. While ISPs spend more on payroll and laying out cables, these prices are much higher than in India, according to an estimate by the head of an Indian ISP.