Make the connection: A small population spread over a huge area creates a number of hurdles

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Like most sectors, the technology industry in Mongolia is just getting started. Broadband networks are still in development, and internet and computer penetration rates are low. Getting everyone plugged in and computer-literate is going to be a challenge due to the country’s geography – Mongolia is the least densely populated nation in the world, and a large chunk of the population remains nomadic. For this reason it is probably unreasonable to expect a future in which everyone is connected via traditional networks, and as of now only half of provincial towns have high-speed access.

TRACK RECORD: The challenges seem less daunting, however, given Mongolia’s track record with technology take-up. The country has taken to mobile phones at exceptional speed, going from 10.4 subscriptions per 100 people in 2002 to some 91.3 in 2010. If that is any indication, the thinking goes, the IT sector is likely to be a major growth story, with sales of hardware and software, along with connectivity, peaking in the next few years. “As internet penetration is still low and the fundamentals that caused mobile penetration success have improved and will continue to improve, we think internet penetration will repeat the mobile penetration pattern,” read a research note from the Ulaanbaatar office of Frontier Securities, a local securities firm. “The internet sector is considered to be one of the most intensively growing sectors in Mongolia.”

This rapid expansion is in large part thanks to the efforts of the government. Mongolia’s leadership has embraced technology as the all-important catalyst for economic and social development, and is working with a number of partners to boost access throughout the country. That includes the domestic private sector, foreign multinationals, organisations such as the World Bank and other countries and aid bodies.

The government has created a variety of agencies to address the country’s technology take-up, and is currently in the midst of a programme that will make government services increasingly available online. A UN e-government survey conducted in 2010 boosted Mongolia’s ranking to 53 from 82 for 2008, based on the government’s commitment to this project.

MEASUREMENTS: The number of internet subscribers in the country increased almost 10-fold from 2006 to 2009 – from around 10,000 to just over 100,000. As of the end of 2010 there were an estimated 199,000 subscribers, implying an even faster take-up rate since 2009, in part due to costs falling as the market matures.

Computer access has followed a similar pattern. There were 46 computers per 1000 Mongolians in 2007, according to statistics from the Information Communications Technology and Post Authority (ICTPA), one of two main government bodies responsible for the sector. That number had surged to 85 per 1000 by 2010. Certainly a big factor has been the decrease in connection costs. According to research by Frontier Securities, the wholesale price of a connection has dropped from $3250 per 1 Mbps in 2004 to $80 in 2011. In that time, bandwidth has increased, too, from 78 Mbps to 17.2 Gbps – so download and upload speeds are likely to be an additional factor.

GETTING CONNECTED: According to the Population and Housing Census 2010 there are around 709,600 internet users in Mongolia, implying a penetration rate of 30.6%. That rate jumps to 49.3% in Ulaanbaatar. However, internet subscriptions are lower, estimated to be around 351,758. Frontier’s analysis concluded users currently reliant on internet cafes are likely to buy a computer and connect at home once that is affordable.

Hardware and software markets are also moving in step – there is increased activity, but from a small base. Hardware accounted for just 5.1% of Mongolia’s total import bill in 2009. Computer equipment in the East Asia and Pacific region, however, averages 24.1% of total imports, indicating there may be plenty of growth coming to Mongolia. “Compared with 2010 we have seen huge growth, and a lot of requests for comprehensive software solutions for exploration and production, from both foreign and local companies,” M. Dagva, the general manager of software firm Gemcom, told OBG.

EQUIPMENT: MCS Electronics, established in 1997, is currently the country’s leading provider of computer equipment and IT infrastructure for both personal and commercial consumers, with approximately 30% market share. It has established partnerships with some of the worldwide IT leaders, such as NEC and Canon for the distribution and maintenance of their products. MCS hopes to remain the country’s leader in providing IT products and services in the long-term and has introduced several education and training programmes for its employees in order to remain competitive in an increasingly popular and growing industry.

OVERSIGHT: Several government agencies and groups have strong influence over the IT sector. The Communications Regulatory Commission (CRC), the regulator for ICT, was formed by the Communications Act of 2001. Meanwhile, the ICTPA reports to the Prime Minister’s Office and is responsible for advising on policy and planning. There are also several public-private committees or councils commissioned with support roles.

A national information technology park opened in 2002 to act as an incubator and encourage research and development. Additionally, the National Data Centre was created in 2009, a joint project between the government and the Korean International Cooperation Agency. Its role is to provide secure access to data and information from the network of government organisations (see Telecoms overview).

The government’s E-Mongolia National Programme for ICT, which runs through 2012, has developed a master plan called Vision 2021 to guide the sector. The document outlines current and future development policies, including increasing accessibility of ICT to every citizen, developing high-speed broadband network and services, preparing necessary human resources, fostering e-government and high-tech industries, while also insuring information security and improving legal and regulatory framework. It also outlines the ways in which development of the ICT sector would support other sectors such as health and education and increase growth.

One part of the plan that has not developed as quickly as initially anticipated is training. The government wants to nurture a strong domestic labour market and foster enterprise through education at schools and private training centres, but this currently remains more of an idea for the future than a reality being pursued.

BROADBAND: The limiting factor for now appears to be the national network. As the numbers show, take-up is expected to increase as costs come down, and additional network capacity is likely to achieve that. There are currently about 17,900 km of fibre optic cable in the country, and a total of around 40,000 km is necessary, according to figures released by the ICTPA. The network at present covers around 70% of current and potential users. International connections run along the north-south railway line bisecting the country through its eastern half. There is a connection with both the Russian network to the north and the Chinese one on the southern border. The national network is owned by the Information Communication Network Company, a state-owned enterprise commonly referred to as NetCo. It is a descendant of the Mongolia Telecom Company, the legacy telecoms provider before the market was liberalised in the mid-1990s (see analysis).

MEANS OF ACCESS: Though in most countries a high-capacity fibre-optic network will cover the vast majority of needs, Mongolia’s vast territory, dispersed population and nomadic traditions mean wireless technologies will be an important part of the mix.

According to an ICTPA white paper published in early 2011, the most popular connection method was via general packet radio service (GPRS), which operates on 2G and 3G mobile systems, which provided access for 64% of users. Optic cable supplied approximately 18.7% and digital subscriber lines were used by 12.6%. Wireless technologies such as WiMAX, Wi-Fi and VSAT comprised a little under 1% of the total, but are likely to be more important technologies in the near future. Mongolia’s nomads, or those leading semi-nomadic lives, live in round felt tents called gers. They can be spotted in the rural areas but also in poor districts surrounding Ulaanbaatar as well as other cities and towns.

But the nomadic lifestyle in Mongolia does not imply a rejection of the hallmarks of settled civilisation. It is now a common sight to see a solar panel mounted on a wooden stake outside a ger, and next to it is often a satellite dish for television reception. A pilot project by the ICTPA will provide equipment and a year of free internet access to ger dwellers in Ulaanbaatar’s outskirts.

LIBERALISED MARKET: The market for internet service provision is fully liberalised, and at the end of 2010 there were 77 providers, according to the CRC. The biggest was Telecom Mongolia, one of two companies created from the legacy state provider when the market was liberalised in the mid-1990s. The company’s market share is 21.5%. Sky C&C was next, at 20.2%, with STX City Net and Yokozunanet, at 15.5% and 17.7%, respectively. No other providers have more than a 10% share. There are an estimated 200 internet cafes spread across the country, of which about half are in Ulaanbaatar, according to the ICTPA. Provincial capitals typically have at least two or three of the cafes.

The end-2010 cost of internet through fibre-optic cable and advanced digital subscriber lines stood at around MNT180,000 ($140) per month for a line providing speeds up to 1 Mbps for corporate customers and approximately MNT28,000 ($22) for lines supplying home service and small offices.

USAGE TRENDS: Several measures show that once connected, Mongolians are getting comfortable online. Intec, a local IT consulting firm, identified some 3400 websites with Mongolia-related content, with around 60% of them using the country’s “.mn” domain name. It found 1823 Mongolia-themed blogs, of which around a third were started in 2010. About 160,000 people have a Facebook account, with 78% of the total aged 18 to 34. Meanwhile, the country’s business community is increasingly logging on to a domestic social networking group called Biznetwork, which had around 70,000 users as of the end of 2011.

Around 30 companies import and supply computers and other ICT equipment, but growth in hardware is not solely a function of private enterprise. Public sector programmes provide computers at below market costs, such as the One Home One PC initiative, under which a home computer costs about $250. Such efforts have helped increase the penetration rate for computers to about 85 devices per 1000 people.

In the software and services segment, more than 100 companies have emerged, of which one-fifth are providing website development services, and 16% are writing applications, according to the Mongolian Software Association Survey. Most are providing imported programmes and applications, but some domestic software writers have emerged, such as Interactive. Domestic developers are overwhelmingly focused on writing programmes for computers, with a minority writing for mobile or web-based platforms. The survey found 10 domestic ICT consulting services and surmised that, because the concept remains such a new idea in Mongolian society, the bulk of the customer base was composed of foreign entities, such as multinational corporations or donor organisations.

OUTLOOK: Like many other sectors of the Mongolian economy, technology is on the rise in line with disposable income and education levels. Government efforts to reach underserved and remote populations will add a further boost to ICT’s reach.

The issue of expanding networks into rural areas will continue to require innovative solutions, as building traditional networks in many areas is unviable. Still, the comprehensive Vision 2021 plan will help support the sector’s public and private players and sends a clear signal of the industry’s overall economic importance.

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