Deal focus: WorldLink reaches into Nepal’s hinterlands

Karnali is the largest of Nepal’s seven provinces but also the most sparsely populated. Its approximately 1.5m inhabitants are scattered across mountainous terrain traditionally beyond the reach of modern communications. Nevertheless, WorldLink, the country’s biggest internet service provider (ISP), has made extending its broadband fibre network into Karnali a priority.

“A lot of the initial investment went into the Kathmandu Valley – Nepal’s commercial hub – but they are making forays into less developed areas,” said Abhinav Sinha, a managing director and head of technology and telecoms at British International Investment (BII). “Karnali is among the toughest areas to reach, but we wanted them to provide connectivity to less connected populations.”

The UK development finance institution became WorldLink’s first external equity investor in 2019, committing NPR 1.35bn (USD 12m). This week it re-upped to the tune of NPR 1.08bn, while Dolma Fund Management – a Nepal-focused impact investor – contributed an additional NPR 900m. WorldLink has now received more foreign investment than any other local internet services player.

BII’s first direct exposure to Nepal came through NMB Bank, also in 2019, but the investment was structured as debt. Total deployment in the country now amounts to USD 120m and the portfolio features renewable energy as well as financial services. WorldLink was the first equity investment.

“Normally, when we enter a country, we do it in three ways: through large financial services companies like banks; through telecoms; or through specific infrastructure projects,” Sinha explained. “Then the question is: Are there interesting companies? WorldLink was one of those.”

The company was established in 1995 as part of the first wave of domestic ISPs. It initially relied on a dial-up link to the US and from there progressed to dedicated leased-line internet and direct satellite uplink services, which bypassed local state-owned network operators. Over time, WorldLink built its own leased fibre backbone and began hosting local servers for the likes of Google and Facebook.

Still, progress was relatively laboured. Building fibre network is expensive and WorldLink was funding expansion using internal capital sources alone. During the first 18 years of its life, the company grew coverage to 319,000 households, of which 55% were in the Kathmandu Valley. There are approximately 6.5m households nationwide but not all of them have access to broadband.

The company started looking at external funding options in 2015. BII arrived four years later, and since then, the network has expanded to 750,000 households and the Kathmandu Valley share is below 40%. WorldLink is Nepal’s third-largest telecom company and one of the biggest employers with around 5,500 staff.

Efforts are being made to develop other business lines. The company is building out capabilities in enterprise services, mainly targeting small and medium-sized enterprise (SME) customers and it has controlling interests in two standalone businesses: content streaming platform NetTV and digital payments provider Khalti. Sinha regards the latter as especially promising.

“Khalti is the third-largest payments provider in the country and digital payment penetration is still very low. We see this model in many markets – there is always a payment engine attached to the telecom pipe that allows small merchants and retailers to receive money digitally and enables banks to integrate with those merchants,” he said.

BII’s decision to re-up in WorldLink was in part driven by satisfaction at how the company adapted to the professionalisation and governance requirements that come with third-party investment. But the first and second investments were separated by COVID-19 and BII was also impressed by WorldLink’s response to the pandemic.

The rapid onset of digitalisation that came with COVID-19 is reflected in a surge in broadband subscriptions in Nepal. According to the Nepal Telecommunications Authority, the number of subscribers rose from 14.9m to 19.4m to 21.8m during the three years ended July 2020; over next 24 months, the total shot up to 38.3m – exceeding the country’s population.

For WorldLink, the challenge was twofold. First, it had to ensure the network could meet rising demand under its standard flat-rate, unlimited-use service plans. Monthly bandwidth consumption per household rose from 330 kilobytes per second in 2019 to 520 kbps in 2022.

Second, it needed to secure enough supply. Nepal is landlocked, so it doesn’t own a subsea cable; bandwidth must be acquired from resellers, typically via India. Moreover, the additional cost could not wholly be passed on to consumers.

“Subsea capacity is almost infinite, you can flex it up and down, but Nepal must negotiate supply deals and it can get expensive. In general, there is pricing pressure from consumers – they can’t always afford to pay more – so WorldLink’s EBITDA took a short-term hit,” said Sinha.

“After a while, they started negotiating heavily and they got better pricing because they were buying at larger scale. EBITDA has now settled down, but it was higher pre-COVID, albeit on a smaller base.”

Following the latest investment, the company’s immediate objective is further expansion of this base. Sinha also highlights the need to provide better services, maximise inclusion as demonstrated through declines in the cost of connectivity for customers, and leverage developments in the payments space. This journey is likely to include some growing pains.

“With increased size come more issues around management and professionalising operations,” he added. “The plan is to get more external board members and then pursue an IPO or some sort of public presence.”

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• Topics
• South Asia
• Expansion
• Technology
• Nepal
• British International Investment (BII)
• Dolma Fund Management
• Impact investment
• TMT