Roll-out of new technologies in Mongolia's IT sector have continued to grow in recent years

Over the past five years, Mongolia’s ICT industry has experienced rapid growth. As of the first half of 2013 the nation was home to more than 1m internet subscribers, up from fewer than 200,000 as of the end of 2010, for example. As in many other nascent technology markets around the world, the majority of this growth has taken place in the mobile segment. Almost 80% of subscribers accessed the internet via their mobile handsets in 2013, according to the Communications Regulatory Commission of Mongolia (CRC), the nation’s telecommunications regulator. The growth in internet users is the result of developments over the past decade, including major investments in national ICT infrastructure by the government and private operators, cautious and enabling regulation, and raising public awareness about the benefits of ICT.

However, most of the challenges currently facing Mongolia’s ICT industry can also be linked to the rapid growth that has taken hold in recent years. The rate of uptake of 3G mobile data services, for example, has in some cases been constrained by a lack of capacity, as the country’s four mobile operators – namely MobiCom, Unitel, Skytel and G-Mobile – have struggled to keep up with demand. Additionally, while numerous networks cover the greater Ulaanbaatar region – home to more than 50% of the country’s population – service outside the capital is somewhat lacking. This has been attributed in large part to Mongolia’s challenging geography. As of the end of 2013 the country was the single most sparsely populated country in the world, with a population density of around 1.76 people per sq km. Around 40% of the total population lives in rural areas, many of which are extremely remote and hard to reach. With this in mind, providing truly national internet connectivity remains a major challenge.

History

Mongolia’s first communications network was set up in the early decades of the 20th century by the Mongolian National Telegraph Agency, a state body that was set up by the communist government in 1921. The roots of the modern ICT industry can be traced to the early 1990s, when the newly independent democratic government issued a wide variety of directives aimed at liberalising the country’s economy, boosting production and encouraging the formation of new sectors. The telecoms sector began to expand rapidly during this period under a state-led master plan that was put in place in 1994. Datacom, Mongolia’s first internet service provider, and MobiCom, its first mobile operator, were set up in the mid-1990s through this plan.

Since then – and particularly over the past decade – the sector has developed quickly. The CRC was founded in 2001 and two years later the government launched the Information and Communications Technology Authority (ICTA), which had a mandate to oversee the development of the country’s burgeoning ICT sector. In 2005 ICTA began the E-Mongolia National Programme, which served as the development blueprint for the sector for the following seven years. In 2012, as part of a restructuring of the sector, the ICTA was reorganised and renamed the Information Technology, Post and Telecoms Authority (ITPTA). Later that same year the authority launched ICT Vision 2021, the country’s current umbrella ICT development plan.

Oversight & Development Strategy

The CRC has a mandate to draw up and enforce a wide variety of laws and regulations in the areas of telecommunications and ICT, including the Communications Law of Mongolia, which was introduced in 1995 and revised in 2001 in conjunction with the formation of the CRC itself; the Radio Wave Law of Mongolia, the Postal Law of Mongolia and the Public Radio and Television Law of Mongolia, among others. According to a white paper released by the ITPTA in 2013, the government is in the process of finalising a new law on e-signatures, which will allow local internet users to sign official paperwork and other forms online. The ITPTA, meanwhile, has a mandate to oversee the implementation of laws, regulations and policies that apply to the areas of ICT, broadcasting, the postal service, telecoms (in conjunction with the CRC) and other niche technical segments.

The government has a long history of leadership in the ICT sector. Major technology-focused programmes put in place over the past two decades include the first ICT Vision, which ran from 2000 through 2010; the Medium-Term Strategy and Framework for the ICT Sector (2002-10) and the E-Mongolia National Programme (2005-12). These and other earlier initiatives are widely regarded as major contributors to the sector.

As of late 2014 the CRC and the ITPTA were in the midst of implementing several development strategies and programmes in various segments, both individually and in conjunction with one another and a variety of additional government and non-governmental organisations. Some of the major ongoing state-led initiatives in this vein include the National Broadband programme, which was launched in 2011 and runs through 2015; the National E-Government programme ( 2012-16); a national programme to digitise television broadcasts in the country, which was launched in 2010 and is expected to be completed by 2016; and the overarching ICT Vision 2021, among others.

Tracking Growth

By the middle of 2014 Mongolia was home to 1m internet subscribers, up from 841,143 at the end of 2013 and 457,624 at the end of 2010, according to data from the CRC. The 2013 figure was equal to just over 28% of the total population, though it should be noted that the overall number of users is likely considerably higher. For example, all the members of a family may share a single mobile data connection. Mobile data was the dominant means of connecting to the internet in Mongolia in mid-2014, representing 83% of total subscribers, while fibre-optic fixed-line subscribers made up around 10%; DSL subscribers accounted for 2.5% and WiMAX subscribers made up around 1.7%. Other technologies currently used to access the internet in Mongolia include Wi-Fi hotspots, very-small-aperture terminal (which is primarily used in remote areas) and dial-up, among others.

With a mobile penetration rate of around 140% at the end of 2013, it was clear why the great majority of internet users accessed the web via a mobile handset of some kind or another (see Telecoms chapter). This can largely be attributed to economics. Despite the fact that many Mongolians have benefitted from rising average incomes in recent years, most computer hardware remains out of reach of a majority of the population. As of the end of 2013 the country was home to 505,596 computers, according to CRC data, up from 478,186 at the end of 2012 and 421,901 in 2011. The 2013 figure is equal to 181 computers per 1000 inhabitants, up from 175 per 1000 inhabitants the previous year and 157 at the end of 2011.

Economic Contribution

In 2013 the ICT industry as a whole brought in total revenues of around MNT784bn ($470.4m), up considerably from MNT649.7bn ($389.8m) the previous year, according to data from the CRC, and nearly triple the 2007 total of MNT283.5bn ($170.1m). Some 58% of 2013 revenue came from the mobile telecoms segment, while 7% came from IPTV, 6% came from fixed-line internet provision, and an additional 6% came from other network communications services. Total investment in the ICT sector reached MNT122.2bn ($73.3m) in 2013, according to CRC data, up slightly from MNT108bn ($64.8m) in 2012 and MNT107.7bn ($64.6m) in 2011, for example. The great majority of this investment – around 70% – took place in the mobile segment, and can be traced to the four mobile operators working to both improve and expand their network infrastructure.

Several upcoming developments are expected to boost investment in other parts of the ICT segment. The government’s television digitalisation initiative, for example, will likely result in a considerable portion of the wireless spectrum going on sale in the next five years. In mid-2014 the CRC and local television broadcasters reportedly installed 10 digital television transmitters in Ulaanbaatar, the capital, and more than 240 elsewhere throughout the country. While not all of these transmitters were operational as of time of publication, they are expected to be by mid-2015. Analogue broadcasts will continue alongside the new digital transmission through January 2016, at which point the analogue signal will be switched off. A long-term plan for the sale of the newly cleared spectrum has yet to be announced, though many local players expect that it will likely be allocated to the mobile telecoms segment in order to support increased high-speed data coverage.

Infrastructure

Five companies provide wholesale internet bandwidth services in Mongolia via a relatively large – given the nation’s small population density – network of fibre-optic cables. The Information and Communication Network (ICN), a state-owned company, that operates the country’s largest and oldest cable system, according to data from the CRC.

As of mid-2014 ICN’s network spanned nearly 16,556 km throughout Ulaanbaatar and along a number of major transport corridors. The second-largest fibreoptic network in Mongolia as of mid-2014 covered 7342 km and was operated by Mobicom. SkyNetworks, another mobile service provider, operated the third-largest network, at just over 6850 km.

This was followed by Railcom, which is a subsidiary of the state-owned Mongolian Railway, with a 1406-km network; and Gemnet, a local independent firm, with a network covering 1210 km. Both the mobile operators and the government are conducting major investment projects to expand their network coverage, with the goal of reaching the most populous of Mongolia’s rural areas. According to the ITPTA, Mongolia’s internet speed capacity has increased 10 times in recent years, from 3.7 gigabits per second (Gbps) in 2009 to 30 Gbps by the end of 2012. Gemnet, despite its comparatively small fibre-optic network, accounted for more than 90% of domestic wholesale bandwidth sales in Mongolia at the end of 2013, according to the firm, largely because the company leases much of the government’s publicly available capacity.

As of the end of 2013 Mongolia was home to 55 internet service providers (ISPs), which provide connectivity services to end-users, including both individuals and corporate customers. This figure is down somewhat from 67 at the end of 2012 and 85 at the end of 2011, according to data from the ITPTA, primarily as a result of a series of mergers and acquisitions in the ISP segment in recent years. According to data provided by Ookla, a US-based digital metrics firm, as of the end of April 2014 Mongolia’s top ISPs by average download speed were Yokozunanet, at 33.13 Mbps and Bodisoft, with speeds of 30.78 Mbps. Other major ISPs include Mobinet, SkyCC, Digicom, G-Mobile, Gemnet and Mongolia Telecom, among others.

Bandwidth Benefits

Mongolia’s well-developed fibre-optic infrastructure has contributed to the country’s rising reputation as an upcoming player in ICT. The industry has benefitted from the nation’s proximity to China and Russia, and interaction with major firms is expected to grow in the coming years. For example, Gemnet has been developing a project that would allow international financial data traffic to travel via Mongolian infrastructure as it moves back and forth between major European and Asian financial centres. Gemnet estimates that the deal has the potential to speed up traffic travelling from Hong Kong to London, for example, by more than 30 milliseconds.

Mongolia’s considerable network capacity and speed has also attracted interest from a handful of other key international players. The country is widely considered to be a potentially ideal location for data centres, for example, with some local players suggesting that the country’s cold climate might be put to good use cooling huge arrays of servers for major international firms. In 2011, for example, the executive chairman of Google announced that the American technology firm could potentially build a data centre in Mongolia in the future. In the meantime, domestic demand from local banks and other financial firms has encouraged a number of local firms to invest in data storage projects.

In 2009 the state-funded National Data Centre came online. The facility, which was built by the government in conjunction with the Korean International Cooperation Agency, is used to store sensitive state data, though private firms lease space as well. Development is under way at a number of other data centre projects in the country, including MobiCom, which opened one of the country’s only tier-3 data centres in Darkhan in March 2015. “Global demand for data storage outstrips supply by a ratio of nine to one and demand is rising,” David Holliday, CEO of Mobicom Group, told OBG. “With its abundant space, prime location between Russia and China, and lower cooling costs, Mongolia is well-positioned to take advantage of this trend.”

Outlook

Given its many strengths, Mongolia’s ICT sector is widely acknowledged as a key area of potential economic growth. That said, the industry is only partially insulated from the broader challenges facing the country. Despite passing a new foreign investment law in November 2013, foreign direct investment (FDI) and GDP growth in Mongolia have continued to slide, with FDI dropping by 62% year-on-year by June 2014, for example. This has had a negative impact on the tugrik, the country’s currency, which lost a lot of ground against the dollar between 2012 and 2014 (see Economy chapter). Other challenges for ICT players include the low level of ICT awareness among the general population, and rising levels of competition in various segments from nearby China and, to a lesser extent, Russia.

Despite these issues, the domestic technology industry is regarded as a strategic growth area. The government has made a concerted effort to encourage the sector to invest in expansion. Boosting internet coverage – primarily via mobile services – is a central tenet of the state’s ICT Vision 2021. With this in mind, most local players see a bright future for Mongolian ICT.

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The Report: Mongolia 2015

Telecoms & IT chapter from The Report: Mongolia 2015

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