The Mongolian information communications technology (ICT) sector marked its 90th year in 2011 – it was in 1921 that the new state installed its first telegraph machine. The same year the Mongolian Telegraphic Agency and the General Committee of Postal and Telegraphic Information were created, providing the beginnings of a telecoms sector.
SLOW START: The country spent most of the 20th century in a process of slow uptake. There were 200 telephone lines by 1939, and the first television broadcast was not until 1967. Mobile telephony and internet access arrived in 1996, and legislative reform implemented at the same time created a new and much more clarified suite of laws governing activities in the sector, as well as introducing the concept of long-term planning, such as reform programmes and the reshuffling of government roles.
Today, the telecoms sector is marked by fast growth, enthusiastic take-up and the adoption of modern technologies in the few areas in which they have not already been incorporated. Mongolia has achieved hard-earned recognition for its commitment to leveraging telecoms technologies. The UN ranked it 53rd in its 2010 E-Government Survey, which measures countries according to their adoption and use of technology in dispensing services to citizens.
FAST RISE: Mongolia jumped approximately 29 places in 2010, with the survey describing this as a “dramatic rise” and citing the national portal and overall improvement of ministry websites. “The government’s relatively forward-looking policies have encouraged the private sector to become a leading force in the ICT sector,” stated a report by the Ulaanbaatar office of the Mongolian securities firm Frontier Securities. “The private sector has in turn responded to opportunities in building infrastructure and providing hardware and software services.”
In the private sector, Mongolia’s wireless telephony segment has jumped from a frontier market to a saturated one in a little more than a decade. The mobile penetration rate was approximately 92% in 2010, according to government figures, up 20% from 2009. There was also a 53% year-on-year increase in the country’s number of internet subscribers.
SIZE AND SCOPE: Liberalisation of the sector came in the mid-1990s, starting with the 1995 Law on Communications and the sale of the first mobile licence in the same year. Those developments were followed by several other legislative reforms, including the 1999 Law on Radio Waves and a 2001 update to the umbrella communications law.
The legacy firm, Telecom Mongolia, was then separated into two companies. The main company retained the role of services provider, although not with the monopoly status it once enjoyed. Telecom Mongolia today is a diversified firm that has inherited the fixed-line and international gateway businesses of its predecessor. International calling still remains one of its most profitable services.
The physical network assets of the legacy provider were placed under the ownership of the newly created Information Communication Network Company, another state-owned enterprise commonly referred to as NetCo. Some consider it the dominant provider, but private sector firms have built their own networks in parts of the country, so competition does exist on a limited basis.
Overall, the sector’s contribution to GDP stood at some 8% in 2010, and revenue from postal and communications services – they are handled by the same bureaucracies in Mongolia – reached approximately MNT471bn ($367m), up 4.8% from MNT449.2bn ($350m) in 2009, according to the Information Communications Technology and Post Authority (ICTPA), one of two main government bodies responsible for the sector. The ICTPA is primarily responsible for policy and planning, while the second body, the Communications Regulatory Commission (CRC), handles regulation and supervision. The CRC is currently undecided on a long-term projection for growth from the 8% GDP contribution seen in 2010, but plans to set one in the coming years.
STAFFING THE SECTOR: As of summer 2011 there were around 7200 people employed in the telecoms and technology industries, working for approximately 650 licensed providers across a range of subsectors including four mobile providers, four fixed-line providers and 77 internet service providers (see IT overview). The four mobile carriers provided the majority of revenue (see analysis).
There is currently only one national communications network in Mongolia, and it is owned and operated by NetCo. One of the main issues that exist in the sector is the high rates NetCo charges to use the network. The company’s high debt load is behind the rates, and while it does have the power to intervene, the regulator must balance customers’ needs with the health of the network operator.
By the end of 2010 the network reached all of Mongolia’s 331 local administrative regions, called soums, although in some of these areas, at least one of the current four providers were offering communications services, according to the UN survey.
FIXED-LINE: As in most countries worldwide, Mongolians have rushed to embrace wireless telephony, but, in a departure from global trends, there has also been increased take-up of landlines. CRC data shows that the number of fixed lines grew from 3.5 per 100 people in 1996 to 6.1 in 2010. This growth, however, is much smaller than in the wireless segment, and at an increasingly slow pace.
Fixed-line service is handled by one of the two incumbent state companies. Telecom Mongolia has seen declining revenue from fixed-line services despite the larger number of overall lines in comparison with 15 years ago. The firm also has divisions offering wireless local loop service, broadband data transmission, cable TV and broadcasting.
Overall profit rates have been declining since liberalisation. Its international gateway for fixed lines has been a major source of revenue because there is no competition in this segment of the market. However, the increasing popularity of texting on mobiles and voice over internet protocol services such as Skype is shrinking this market.
Telecom Mongolia is a state-owned enterprise that was created as part of the country’s transition from communism to capitalism in the early 1990s. Partial privatisation came in 1995, when Korea Telecom stepped in as the largest shareholder. Full privatisation of the company is expected to happen in the near future. Shares of Telecom Mongolia are also traded on the Mongolian Stock Exchange.
BROADCASTING: The first television broadcast in Mongolia was in 1967, and nationwide service commenced in 1992. Unlike in the wireless segment, in which technologies are current, Mongolia continues to play catch-up in this segment. Broadcasting is still conducted on an analogue basis, and in October 2010 the CRC and the ICTPA submitted a plan to the government to transition to digital service by 2014. Implementation is under way now, and analogue service will end on June 30, 2014.
At the CRC, one of the chief concerns in late-2011 was that of convergence, which is the provision of internet, voice and video services by one company. The benefit of convergence for the private sector is the ability to make content available across several platforms. Across the globe, telecoms firms are attempting to negotiate favourable rates with content providers or have even begun forming their own television studios, news organisations and other content-generating companies.
Regulators do not want other content providers to be crowded out, however, and how to handle this issue in Mongolia is under discussion. A common solution in other countries has been to mandate that private companies can create content or disseminate it, but not both. If that were to happen in Mongolia, several firms, including Mobicom and Skytel, may be forced to sell one of their units.
The 2009 tender that was won by Unitel to provide internet protocol television (IPTV) has sped up the need to confront this problem, as service commenced in the first quarter of 2011 and another two providers have since been licensed to compete. In the near future is it likely that Unitel and others will start bundling content – offering service packages across several media platforms.
An alternative solution under consideration at the CRC is to create a new type of licence. Unitel had to buy three different ones in order to provide bundled content, but a new category of could have specific rules such as forbidding licensees to create content as well as disseminating it.
RURAL DELIVERY: Across all forms of telecoms, rural access remains a concern for the government. Mongolia’s 2.76m inhabitants are dispersed, and some 40% of them are nomadic or semi-nomadic, living in round felt tents called gers. Getting technology to people living off the grid is a challenge, and costs can be high. For ger dwellers, the solution is expected to be solar power – panels are already a common site, mounted on a pole outside the tents.
It is expected that the nomadic and semi-nomadic people will increasingly use either solar-powered solutions or 3G networks and newer technologies for wireless internet access. Regulatory moves that took place in 2010 included harmonising tariffs for rural and urban access to fixed-line and mobile telephone services, but the CRC told OBG that charges for internet access were still higher in rural areas.
The state has had help from the Asian Development Bank and the International Telecommunication Union, which has been studying rural ICT issues in eight countries: Mongolia, Korea, Malaysia, the Philippines, China, Indonesia, India and Cambodia. The project is surveying government policies and regulations and hoping results will include conclusions and shared experiences useful across these regions.
STATE OVERSIGHT: The CRC was formed by the Communications Law of 2001 as the regulator for telecoms and postal services. Its revenue comes from licensing and regulatory fees, sales of space on the radio spectrum, numbering assignments, licence tendering, as well as a 2% levy on the pretax revenue of licence holders. This last revenue stream is applied to servicing non-commercial areas, a universal service obligation. The fees have been collected since 2007, and thus far approximately MNT14.8bn ($11.5m) has been placed in a fund that will serve to close the gap between telecoms access in the cities and in rural areas. The other main government organisation in the sector is the ICTPA, which until 2008 was the Information Communications Technology Authority. The 2008 change added postal services to its scope. The body reports to the Prime Minister’s Office, and its role is to advise on matters of law, regulation, policy and planning.
In 2010, for example, it oversaw equipment upgrades at state facilities; used universal service funds on a pilot scheme to provide wireless internet to households in the ger district in Ulaanbaatar; and boosted the capacities of transmission stations to increase rural access to broadcast television.
Mongolia has created several other bodies that are important to the telecoms and technology sector. The National ICT Committee’s mandate is to provide guidance on policy and implementation. It is chaired by the prime minister and includes government and private sector representatives. The Chief Information Officers (CIO) Council is a group comprised of CIOs of government bodies. It is charged with a support role in policy development and ensuring a common approach and cooperation among government bodies. Both the National ICT Committee and the CIO Council were created in 2011.
The National Information Technology Park, which was opened in 2002, currently has four mandates: a technology company incubation service, outsourcing, nurturing research and development activity, and developing mobile content. The park also introduced software standards in 2010.
The National Data Centre was founded in 2009, the result of a joint project by the ICTPA and the Korean International Cooperation Agency. It aims to become the focal point for national information databases and to provide secure access to data and information from government organisations.
In 2010 the new organisation’s activities included developing document registration and archiving systems, as well as multi-platform language translation applications. Also active is the Mongolian Radio and Television Broadcasting Network, which is a state-funded enterprise that retransmits radio and television programmes nationwide.
OUTLOOK: Mobile telephone service in Mongolia has caught on fast enough to help burnish the country’s credentials as a developing market that is worth watching. The rapid take-up is proof that scaling up business is both possible and profitable, and success here is prompting predictions of more progress elsewhere: Frontier Securities believes that internet take-up will follow the same narrative, for example. The government’s approach is another contributor to the speedy progress, given its commitment to creating the laws, regulations, institutions and e-government websites necessary for growth.
For private sector investors, the question now is which segment is most attractive. With the exit SK Telecom, and the mobile penetration rate nearing 100%, evidence is mounting that investments in mobile telephony could be subject to smaller profit margins in the coming years, as carriers may increasingly end up competing with each other for existing customers due to the slowing growth being seen in the number of new subscribers.
With the CRC currently focused on convergence and services like IPTV entering the market, it seems likely that growth from here will be in the variety and subscription of what sorts of deals are on offer, and courting potential customers will be paramount.
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