A growth market: High network capacity and rapid uptake signal future opportunities

While Mongolia’s information and communications technology (ICT) industry is relatively young by international standards, the country is widely regarded as an emerging centre of technology in Asia. The government, alongside a handful of leading private sector companies, has invested heavily in the nation’s fibre-optic networks and other technologies over the past decade, which has resulted in a rapid rate of growth in bandwidth in recent year. According to data from the Information Technology, Post and Telecoms Authority (ITPTA), as of the end of 2012 the country boasted an overall bandwidth of 30 gigabits per second (Gbps), nearly 10 times faster than in 2009, when Mongolia’s overall bandwidth was at just 3.7 Gbps. Similarly, as of the end of 2012 Mongolia was home to 641,000 Internet subscribers, up 40% from 457,600 in 2011, and up nearly 15-fold from 2008, when there were fewer than 42,000 subscribers in the country. Despite this rapid expansion – and in some cases as a result of it – Mongolia’s local ICT sector faces a number of pressing challenges. While the country’s networks offer fast, cheap internet through a variety of technologies and service providers, the distribution of the population across a vast geographical area and – in some cases at least – nomadic, represents a major hurdle in terms of providing nationwide access. Perhaps more importantly, a considerable percentage of the nation’s population, particularly those Mongolians over the age of 50, remain largely unaware of the benefits of ICT. Additionally, while the amount of Mongolian-language content on the internet has jumped considerably in the past few years, the language remains underrepresented online, presenting an obstacle for Mongolians who do not speak English. Finally, in recent years the sector has had to compete with the booming mining industry for both well-trained, educated employees and investment, which is a major challenge. The government – in the form of the ITPTA and the Communications Regulatory Commission of Mongolia (CRC), the latter being the sector regulator – as well as various private sector companies and non-governmental organisations are working to address and overcome these issues. Under the National Broadband Programme, for example, the state is aiming to ensure that at least 40% of rural households have access to high-speed internet connections by 2015. In recent years, local ICT firms have similarly invested heavily in the production of local content, including websites and smartphone apps. With these efforts in mind, and considering the rapid growth throughout the sector in recent years, Mongolia’s ICT industry is poised for further expansion for many years. “Mongolia has great infrastructure, both in terms of capacity and reach,” said N. Battulga, the general director of IT Zone, a local technology solutions provider. “Since the beginning of 2012 the focus has moved to software, online services, cloud computing and related products. These areas represent the future of the sector right now.”

History

Mongolia’s technology sector can be traced back to 1898, when the organisation that would eventually become the state-owned firm Mongolia Telecom was involved in setting up and operating a telegraph link through the country. In the early 1980s a group of young Mongolian students and technology enthusiasts, inspired by the room-sized workstations in use at major corporations in Mongolia and around the world at the time, constructed the country’s first personal computer using parts from various labs in nearby countries and running on the programming language BASIC.

The nation’s modern ICT industry can be traced back to the years following the end of communist rule in 1991. In 1994 the government launched a master plan to develop the telecoms sector by 2010. This resulted in the establishment of MobiCom, the country’s first mobile telecoms operator, in 1995, and Datacom, its first internet service provider (ISP), in 1996. In the years that followed, the government invested heavily in rolling out network infrastructure and training programmes. By 2000, 1.3% of Mongolia’s population used the internet. A year later the CRC was formally established by the Communications Act of 2001. Also in 2001, a handful of local ISPs came together to form the Mongolia Internet Exchange, the country’s first domestic internet traffic exchange point. Two years later, the state launched the Information and Communications Technology Authority (ICTA), which was charged with drawing up a comprehensive, long-term strategy for the sector. In 2005 the authority started the EMongolia National Programme, an ambitious development blueprint running through to the end of 2012. Since then the ICTA has been rebranded as the ITPTA.

Regulation & Oversight

The ICT sector is regulated under the Communications Act, which replaced an earlier law and has since been amended and updated a number of times. The CRC is responsible for implementing the regulations laid out in the law, including licensing new firms, ensuring interconnectivity operability, managing frequency, regulating subscription and other prices, standardisation and handling industry disputes. In some ways the rapid development of the sector over the past decade can be attributed to Mongolia’s legislative environment, which is widely regarded as relatively hands-off in terms of content and oversight. Mongolia does not appear to operate any sort of digital filter or security apparatus at the country’s internet exchange. For example, while a 2011 law technically allows the state to restrict digital content deemed to be obscene or inappropriate, the state has not been proactive about enforcing this legislation.

Development Planning

Since the establishment of the sector in the early 1990s the state has carried out a handful of major development plans, including the ICT Vision (2000-10), the Medium-Term Strategy and Framework for the ICT Sector (2002-10) and the E-Mongolia National Programme (2005-12). Under these initiatives the state has played a major role in facilitating the extension of ICT services to Mongolia’s rural population, which is a major challenge considering the country’s large area and low population density. Additionally, the government has overseen the introduction of high-speed, low-latency and low-cost broadband services in Ulaanbaatar and other urban areas, and, more recently, the rapid expansion of high-speed mobile broadband services, which has resulted in a major uptick in internet usage across the country.

In November 2012 the government launched a new long-term development programme, the ICT Vision 2021 policy, whose central component is an initiative that will see the launch of Mongolia’s first communications satellite by 2015. The satellite, which will likely be developed with Japan, one of Mongolia’s key allies in the region, will be designed to provide the country with a variety of services, including internet, television and radio connectivity of various sorts. The satellite project is estimated to cost the country around MNT630bn ($378m) in total, which includes MNT280bn ($168m) for research and development and MNT350bn ($210m) for launch, operation and maintenance costs. The country pays around $2m per year to rent capacity on other nations’ satellites, delivering weather information, telecoms services and media services to remote rural populations. The new satellite project is expected to be jointly funded by the state and by a mix of domestic and foreign investment.

Other objectives of the state’s ICT Vision 2021 programme include expanding e-government services, establishing an ICT research and development centre, streamlining the wholesale internet traffic tariff regime, boosting rural access to internet services, and organising campaigns to boost awareness of the benefits of ICT usage among the general population, among others. A number of these aims will be addressed under the National Broadband Programme, which was launched in 2011 and is set to run through 2015. The initiative’s primary overarching goals include extending high-speed broadband access to at least 50% of all Mongolian households and 40% of rural households. Finally, in April 2012 the government launched a four-year action plan to update the country’s e-governance legislation, including introducing a new e-signatures law and strengthening the CRC’s regulatory powers.

Rural telecoms development in Mongolia is funded in part by the Universal Service Obligation Fund (USOF), which was formally established by the government in 2001 with a mandate to extend service delivery to remote areas. The fund is financed by mandatory contributions from the nation’s communications service providers, all of which are required to contribute 2% of their taxable revenues.

Due primarily to large donations from the country’s four mobile operators, in its first four years, USOF contributions reached MNT10.6bn ($6.36m) in total. According to ITPTA data, from 2010 through the end of 2012 USOF financing resulted in the extension of communications infrastructure to 23 soums (districts) in 13 aimags (provinces), and the extension of wireless internet services to 66 soums in 17 aimags. The programme has also financed a variety of studies on mobile telecoms coverage in the country.

By The Numbers

According to data from the ITPTA, by the end of 2012 some 85 internet service providers (ISPs) were active in Mongolia, and the nation was home to 641,000 internet subscribers, up from 457,600 at the end of 2011, 199,800 at the end of 2010, 106,000 at the end of 2009 and just 42,000 at the end of 2008. A large part of this expansion has taken place in the mobile broadband segment, which, according to Mongolia’s four mobile telecoms operators, has grown exponentially since the end of 2011. According to data from the National Statistical Office of Mongolia, as of the end of 2012 just over 16% of the total population used the internet on a regular basis, up from 12.5% at the end of 2011, 10.2% at the end of 2010 and just 2% in 2002. As a whole, over the past four years Mongolia’s total bandwidth has grown from 3.7 Gbps in 2009 to 11.2 Gbps in 2010, 17.2 Gbps in 2011 and 30 Gbps in 2012, according to the ITPTA.

As a result of the country’s diverse physical landscape, numerous remote areas and sizeable rural population, a wide variety of communication technologies are currently used to deliver internet connectivity to various parts of the country, including dial-up, DSL, fibre-optic and coaxial cables, GPRS, 3G, evolution-data optimised (EVDO) technology, WiMAX, Wi-Fi and very-small-aperture terminal technology. A majority of the expansion in the industry that has taken place in recent years can be chalked up to growth in mobile broadband subscriptions. Indeed, mobile technologies, such as GPRS, EDGE, 3G and EVDO, accounted for around 74% of all internet connections at the end of 2012, according to ITPTA data, while fibre-optic cable access accounted for 8%, DSL accounted for 5% and other types of technology accounted for the remaining 13%.

In terms of human resources, according to ITPTA data some 8023 people were directly employed by the ICT sector as a whole as of the end of 2012. This figure was up from 7650 in 2011 and 7320 in 2010. The industry also supports an estimated 25,000 people who work in short-term or contracted positions on an annual basis. The ICT workforce is primarily supplied by 24 domestic educational institutions, including seven public universities as well as 17 private universities.

Infrastructure

One of Mongolia’s key ICT strengths is its extensive, high-capacity fibre-optic network. Installation began in 2000, and was largely undertaken by Mongolia Telecom, the state-owned fixed-line operator (see Telecoms chapter). A substantial percentage of this early installation work was carried out in conjunction with UB Railways, which installed fibre alongside tracks throughout the country, including along the main Trans-Mongolian rail link. Additionally, a variety of private firms have laid their own fibre-optic cables, including Gemnet, MobiCom and Sky Networks. As of the end of July 2013 the Mongolian fibre-optic network was made up of 18,343 km of cables in total (see analysis). The Mongolia Internet Exchange was established in 2001 by a local ICT consultancy in conjunction with a handful of local ISPs. Prior to the formation of the local exchange, all internet traffic in the country was being routed through foreign exchanges – primarily in Hong Kong or the US. Today the exchange is hosted at Mongolia Telecom’s offices.

Broadband

At the end of 2012, according to CRC data, there were 104,291 fixed broadband subscribers in Mongolia, up from 88,878 in 2011, 71,709 in 2010, 36,742 in 2009 and just 500 in 2003. Nearly all of these subscribers are located in Ulaanbaatar, and the majority are businesses or commercial entities of some kind or another. Most of the growth in internet connectivity in recent years is due to rapid uptake of mobile services. According to CRC data, as of the end of 2012 there were 3.38m mobile subscribers in the country, up from 2.94m at the end of 2012, 2.5m at the end of 2010 and just 319,000 in 2003, for example. Moreover, a steadily growing percentage of these mobile users subscribe to data services.

Mongolia’s mobile telecoms segment is currently made up of four players. According to statistics published by the CRC, as of the end of 2011 – the most recent year for which market share data was available at time of publication – MobiCom controlled around 43% of total mobile subscribers, while Unitel had around 21%, Skytel had 20% and G-Mobile had 16%. All four operators offer 3G services in the capital city and other regional centres, and in December 2012 MobiCom became the first operator to provide high-speed data services across all of Mongolia’s 21 aimags. Both MobiCom and Unitel are currently in the early stages of developing 4G long-term evolution (LTE) networks in the country, although these plans have not yet been finalised (see Telecoms chapter). One major limiting factor in terms of demand for 4G services is the fact that only a small percentage of the population can currently afford smartphones. According to a recent report released by Frontier Research, a local financial research firm, as of the end of 2012 smartphone penetration in Mongolia was at 10-15%. As a result of the release of a number of low-cost handsets in the near future and rising awareness of the benefits of smartphones among the general population, however, this figure was projected to rise to 25% by 2015.

Financials

According to the ITPTA, the ICT sector brought in MNT650bn ($390m) in revenues in 2012, up 17.1% from the previous year. Mobile services, including mobile data subscriptions, accounted for 78.3% of the 2012 total, while 6.7% came from internet services (not including mobile data), 5.6% came from fixed-line telecoms, 5.6% came from maintenance services and the remaining 3.8% came from other services, including cable television, broadcasting and postal services, all of which fall under the umbrella of ICT in Mongolia. Total investment in the ICT sector reached MNT108bn ($64.8m) in 2012, up from MNT94.4bn ($56.64m) in 2009. The ICT sector’s state budget tax contribution reached MNT107.2bn ($64.32m) in 2012, up from MNT76.5bn ($45.9m) in 2013.

Content

While the number of internet users in Mongolia has expanded rapidly in recent years, the local IT industry remains small by international standards. Facebook, Google, YouTube and Yahoo are the top four most visited websites in the country, according to Alexa, Amazon’s internet information service. The most popular Mongolian site – caak.com, an entertainment site – comes in at number five overall. Major foreign social media brands are increasingly popular in Mongolia. According to a recent survey carried out by Cereja Technology, a Japanese company, around 17% of Mongolians use Facebook on a regular basis.

However, the relative paucity of local content means that many locals – and particularly those that do not speak English – have very little reason to get online. With this in mind, a number of firms have worked to establish Mongolian-language mobile apps and websites in recent years. MobiCom, the leading mobile operator, and one of the biggest local ICT players, launched Mongol Content, a digital content firm, in 2005. The firm has developed successful apps that offer Mongolian-language access to music, new and ring tones, for example. Both MobiCom and other firms have also developed mobile banking apps in recent years (see Banking chapter).

On the business services side, the ICT sector is currently made up almost entirely of Mongolian firms. In addition to service providers such as Gemnet and the mobile operators, for example, an impressive array of companies are already active in providing ICT services to corporates and government entities, which is widely considered to be an area of rapid growth in the coming years. Interactive, a local software development and systems integration company that was launched in 1995, develops turn-key software for both the public and private sector, for instance.

IT Zone, meanwhile, distributes hardware and has provided software to both consumers and businesses. The government has played an active role in the development of the local industry. In 2003 the ITPTA launched the National IT Park (NITP), which functions as a hub for the industry in Mongolia. Located in downtown Ulaanbaatar, the park provides a variety of services to IT firms, including solid and affordable network infrastructure and technical assistance on a wide variety of issues. NITP is also home to the country’s first IT incubator, which offers various services geared towards attracting and supporting entrepreneurs and small businesses across numerous ICT-related segments.

Data Services

With a substantial amount of network capacity and good connectivity to major financial and commercial markets in Europe and East Asia, Mongolia could also become a regional centre for data hosting in the coming years. In 2006 the government, supported by the Korean International Cooperation Agency, began work on the National Data Centre. Since it opened in 2009 the centre has served as a dedicated digital locker for government data. Various private sector firms also store data at the facility.

Mongolia has also attracted attention from a variety of private sector players looking to set up independent data centres in recent years as well. During a 2011 visit to Mongolia, Eric Schmidt, the executive chairman of Google, announced that the US-based technology giant was considering setting up a data centre in the nation, although nothing had come of this as of late 2013. With the ongoing rise of cloud computing and software as a service around the world, Mongolia is widely expected to attract attention of this sort in the coming years. The local firm IT Zone recently announced that it would complete construction work on its first data centre early in 2014. The new facility has been designed to provide cloud computing and other similar services to the Central Asian market. There is much hope that Mongolia will see new investments in data hosting and related services in the coming years, as the country is well suited to data hosting. In addition to the fast fibre network, Mongolia also benefits from its location in a low-risk zone in terms of natural disasters and a cold climate, which could provide a natural form of cooling for data centres.

Outlook

Mongolia’s reputation as a centre for ICT in Central Asia has risen considerably in recent years. On the World Economic Forum’s 2013 Networked Readiness Index, for example, the country was ranked in 59th place out of 142 nations in total, up from 63rd place the previous year. Perhaps most impressively, the nation was ranked 10th in the world for overall affordability and 30th for international internet bandwidth. Mongolia also jumped five spots on the International Telecommunication Union’s 2013 “Measuring the Information Society” report, compared to the previous year. With these developments in mind, many local players expect to see increased levels of competition, potentially from international players.

“The local software and ICT services markets have to develop quickly in order to prepare to compete with the big international companies in the coming years,” B. Uuganbayar, the president and CEO of Interactive, told OBG. Therefore, based on the government’s ambitious plans for the sector under ICT Vision 2021 as well as expected continued subscriber growth, particularly within the mobile broadband segment, the market looks set to expand rapidly for the foreseeable future. This bodes well not only for Mongolia’s burgeoning ICT industry, but also for the country’s economy at large.

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The Report: Mongolia 2014

Telecoms & IT chapter from The Report: Mongolia 2014

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