With rapidly rising demand for telecommunications services and increasingly intense price competition in the mobile market in recent years, Mongolia is poised for substantial expansion in the foreseeable future. Mobile subscriptions have expanded rapidly, from fewer than 160,000 in 2000 to more than 3m as of the end of 2012, according to data from the Communications Regulatory Commission of Mongolia (CRC), the telecoms regulatory authority. The nation’s four major mobile operators – namely MobiCom, Unitel, Skytel and G-Mobile – have grown quickly in recent years, both in terms of subscriber base, as well as network size and speed. As of early 2013 all four operators were providing 3G services of some kind or another, and a few had begun to look into rolling out high-speed 4G long-term evolution (LTE) networks, the latter of which are widely considered to be the future of telecoms in Mongolia. At the same time, in recent years all four mobile operators have continued to invest in expanding and upgrading their 2G voice networks, which, given Mongolia’s large rural population, are considered to be particularly important in the country. However, Mongolia’s telecoms players are currently facing a number of pressing challenges. For example, with a population density of 1.76 people per sq km, according to recent census results, Mongolia is the single most sparsely populated country in the world. Additionally, more than half of the population currently resides in Ulaanbaatar, the capital city, which means that some rural provinces are home to only a handful of residents. Ensuring that these remote areas have access to telecoms services is a costly challenge, particularly in light of the decline in the average revenue per user (ARPU) in recent years and, consequently, the steadily increasing price competition in the sector. Despite these issues, the fact that demand for telecoms services, and particularly mobile data services, has grown continuously for the past 15 years bodes well for future outcomes. Indeed, many local players are broadly optimistic about the industry’s growth potential. “Five years ago everyone had simple Nokia phones,” B. Uuganbayar, the president and CEO of Interactive, a Mongolian software development and systems integration company, told OBG. “Now everyone seems to be upgrading their smartphone every few months, in order to make sure they have the newest model. This is a sure sign of growth.”
History
During the communist period the telecoms market was strictly controlled, and the Ministry of Communications acted as both the regulator and sole fixed-line service provider. In 1992 the government introduced a number of liberalisation and privatisation policies, which resulted in the establishment of a handful of new private players in the following years. At this point the government stopped acting as a service provider. In 1995 the state put forward a tender for Mongolia’s first mobile telecoms operator, which was won by MobiCom, a joint Mongolian-Japanese venture. As of early 2013, MobiCom was the largest mobile operator in the country. Skytel, the country’s second mobile operator, was launched in 1999, followed by Unitel in 2005 and G-Mobile in 2007. By 2008, 2G voice services were available across all of Mongolia’s 329 soums (districts).
In the late 2000s the CRC – which itself was established as a result of the Communications Act of 2001 – began to issue 3G licences to the four mobile operators. In April 2009 both MobiCom and G-Mobile launched high-speed 3G networks, which allowed subscribers to log onto the internet from their phones for the first time. As of the end of 2012 MobiCom’s 3G services had become available throughout the country, and the other three mobile operators were in the process of extending similar networks outside urban areas.
Oversight & Regulation
The CRC has a mandate to supervise “a wide range of subjects, including competition issues, the provision of networks and services for fixed-line and wireless telecoms, television, radio and satellite transmission, spectrum management, postal services and the internet to ensure that the public interest is well served”. Ensuring the conduct of free and fair competition is perhaps one of the CRC’s most important jobs. MobiCom currently provides services to nearly 50% of the subscriber market, according to some sources of data, more than double the number served by Unitel, the next-largest mobile operator. As a result, the regulator holds MobiCom to strict standards in terms of pricing, marketing and service offerings, in an effort to protect against anti-competitive policies and products. “The complete liberalisation model works in most countries, and makes sense in a sector like telecoms,” David Holliday, the CEO of MobiCom, told OBG. “I think that it will eventually happen in Mongolia. It is just a matter of time.”
While the sector is regulated by the CRC, long-term strategies and policies for the telecoms and information and communications technology (ICT) sectors are developed and implemented by the Information Technology, Post and Telecoms Authority (ITPTA). In practice the CRC and ITPTA work together to develop complementary policies and regulations. Most of these programmes are primarily aimed at developing the ICT sector (see IT overview). In addition to its duties as sector regulator and developer, the government also owns a considerable amount of Mongolia’s telecoms infrastructure. According to the CRC, state-owned communications infrastructure includes nearly 20,000 km of optical cable links, a 1400-km digital microwave network and more than 400 very-small-aperture terminal (VSAT) sites, which link urban areas – primarily Ulaanbaatar – with remote rural soums.
In early November 2013 a new foreign investment law came into effect in Mongolia. The legislation was rolled out in response to a rapid decline in foreign direct investment (FDI) in Mongolia in late 2012 and 2013. For example, according to data from Reuters, international investment in the country fell by 43% in the first half of 2013 alone. The 2013 law removes restrictions on foreign investment that were enacted by a 2012 investment law, under which the telecoms sector – along with the mining and financial services sectors – was deemed a “strategic” industry, and was thereby cut off from large amounts of foreign investment. Under the new law, however, the government does not differentiate between foreign and domestic investment, and foreign private firms are allowed to invest in Mongolia (including in the telecoms sector) without seeking governmental approval. As a result, the new law is expected to result in an influx of foreign investment in the mining industry, among others.
The Mobile Sector
The rapid expansion of mobile services over the past decade has been the key story in Mongolia’s telecoms sector in recent years. According to CRC data, as of the end of 2012 the country’s four mobile operators had 3.38m mobile subscribers in total, up from 2.94m at the end of 2011, 2.5m at the end of 2010 and 2.25m at the end of 2009. Between 2003 and 2008, the number of mobile subscriptions in the country grew from 319,000 to 1.76m, which is equal to growth of more than 450%. In 2012 the number of mobile subscriptions per 100 inhabitants reached 117.6, up from 104.6 in 2011, 90 in 2010, 83 in 2009 and just 66 in 2008. This high number can be attributed in large part to the fact that many Mongolians carry more than one mobile phone, allowing them to take advantage of the different pricing plans and deals offered by various operators.
According to CRC data, MobiCom had a 42.9% share of the mobile market at the end of 2011 – the most recent year for which market share data was available – while Unitel had a 21.2% share, Skytel had a 19.7% share and G-Mobile had a 16.2% share. Mobicom has invested heavily in its national network in recent years. In 2012 it became the first operator to offer 3G services throughout the country, and as of mid-2013 it was in the process of installing 200 new base stations, a project that was expected to wrapped up by the end of the year. In October 2013 the CRC and the Authority for Fair Competition and Consumer Protection launched an inspection of Mobicom’s recent charges after receiving complaints from consumers about high post-paid service bills. Depending on the outcome of the inspection, the company could potentially face a fine. With this in mind, as of late 2013 the firm was in the process of shoring up many of its policies. “The focus of the firm from now on will be on fixing the basics, which essentially means improving the quality of customer service and being utterly dependable 24 hours a day, seven days a week,” said Holliday. “We are the only ISO-accredited telco for 2701 and 9001 (data quality and integrity), and just got our 2014 ISO renewal.”
Unitel is a subsidiary of the Unitel Group, which, in turn, is controlled by MCS Holding, the largest private company in Mongolia. As of mid-2013 the company provided basic 2G services to 100% of Mongolia’s soums, and 3G services to most major population centres. Skytel was established in 1999 as a joint venture between Mongolian and Korean firms. In December 2010 the operator was acquired by the local firms Altai Holdings and the Shunklai Group. In 2012 Skytel extended its 3G services to a number of new soums and updated its billing and customer service management technology. G-Mobile, meanwhile, was launched in 2007 after it won a government tender aimed at improving the state of rural communications. Since that time it has grown into a full-fledged mobile operator, covering 280 soums nationwide, including Ulaanbaatar. In general, the firm has focused on providing low-cost services.
Rural Areas
Expanding the reach of telecoms services to the estimated 40-50% of Mongolians in rural areas continues to be a challenge. Providing this frequently peripatetic population with reliable, accessible telecoms services is a unique challenge. Complicating this issue is the fact that Mongolia is the 19th-largest country in the world by total area, and many of the nation’s remote areas are mostly inaccessible by car.
Despite these issues, the country’s four mobile operators have invested heavily in rolling out rural telecoms infrastructure in recent years. Much of this expansion activity has been subsidised by the government or by a handful of non-governmental organisations. A World Bank project, for example, resulted in the establishment of a network of 152 satellite telephones in remote areas, outside the reach of the mobile networks. The phones are designated for public use.
In recent years local players have publicly called for increased cooperation between the operators and throughout the industry in order to extend coverage to hard-to-reach areas. Infrastructure sharing, which is common in many other more developed telecoms markets, is non-existent in Mongolia, despite the fact that in theory it would reduce costs for the entire industry.
For example, one feasible method of accomplishing this would be for different companies to come together in rural areas of country and to help one another pay for base stations. The resulting increased and improved coordination among all the telecoms operators would thus yield benefits for the sector as a whole, as opposed to the status quo where companies have maintained their positions in the hope of gaining market share, rather than sharing their assets.
High – Speed Future
As the mobile market has neared saturation in recent years, new subscriptions have dropped off somewhat, and competition among local operators has ramped up. As in many other similar markets around the world, this has resulted in a decline in ARPUs. Consequently, in the past few years the four major players have been working to roll out high-speed 3G mobile data services, for which the operators can charge a premium. When G-Mobile and MobiCom first introduced 3G technology in 2008-09, uptake was minimal. Indeed, until mid-2012 most operators reported very slow growth in high-speed data subscriptions, with Western expatriates and a small number of wealthy Mongolians making up the majority of the customer base. The slow pace of adoption can be attributed to both the high price of smartphone handsets and a widespread lack of awareness among the general population about the benefits of and uses for mobile data.
Since mid-2012, operators have reported an uptick in 3G subscriptions. This considerable increase in demand for 3G data services has been attributed by many market observers to a jump in the availability of local online content since 2009, when there was still very little available. In fact, the recent expansion in 3G uptake can also be attributed to the falling cost of smartphones over the past few years, and, more generally, rising awareness. “Many young people are starting to buy smart phones as fashion items, even if they don’t know how to properly use them,” R. Ganbold, the CEO of Unitel, told OBG. Both Unitel and MobiCom are in the early planning stages of setting up 4G LTE networks, though – at least initially – demand for this faster (and likely more expensive) service is expected to be centred largely in Ulaanbaatar.
Fixed Line
As 2G and 3G services have become the norm in Mongolia, the country has seen declining fixed-line subscriptions. In 2012 the country was home to 176,706 fixed-line subscribers, down from 187,561 in 2011, 193,239 in 2010 and an all-time high of 200,494 in 2008, according to data from the CRC. Indeed, as of the end of 2012 Mongolia Telecom, a state-controlled firm that was established in 1995, controlled around 89% of the country’s fixed-line market, in addition to 22% of the internet market and 7% of the cable television market, according to the ITPTA.
ECONOMIC CONTRIBUTION: While the telecoms sector as a whole accounts for less than 1% of GDP, the industry’s economic contribution has been rising steadily for years. In 2012 the ICT sector as a whole – which includes telecoms – posted total revenues of MNT650bn ($390m), up more than 17% from the previous year, according to ITPTA data. Around 78% of this total came from the mobile telecoms segment, while around 7% came from the rapidly expanding internet segment, 6% came from fixed-line telecoms, 5% came from maintenance services and the remaining 4% came from other segments, including voice-over internet protocol, cable television, broadcasting and postal services.
In 2012 the ICT sector attracted investments worth MNT108bn ($64.8m), up only slightly from MNT107.7bn ($64.6m) in 2011, but a major jump on 2009 and 2010, when annual incoming ICT investments totalled MNT94.4bn ($56.6m) and MNT89.9bn ($53.9m), respectively. The majority of the recent activity in this area can be chalked up to the expansion of mobile telecoms infrastructure and the establishment of new internet service providers (ISPs) and other internet-related firms. The expansion of the telecoms sector has been a boon for Mongolia’s state budget, which benefitted from MNT107.2bn ($64.32m) in ICT sector tax contributions in 2012, up from MNT96.5bn ($57.9m) in 2011 and MNT81.8bn ($49.08m) in 2010.
RISING REPUTATION: In the 2013 edition of “Measuring the Information Society”, an annual report published by the International Telecommunication Union (ITU), the telecoms arm of the UN, Mongolia was ranked 85th in the world (out of 157 countries in total), up considerably from a ranking of 90th in the previous report. Mongolia was the fifth-most improved country in terms of rankings in the 2013 report, after the UAE, Lebanon, Barbados and the Seychelles.
Similarly, in the World Economic Forum’s 2013 Networked Readiness Index (NRI), which aims to measure the level of ICT development of 142 countries around the world, Mongolia was ranked in 59th place, up from 63rd place in the 2012 index. The NRI is made up of a number of individual categories, including a handful that relate to telecoms. For example, in 2013 Mongolia ranked 86th in the world in terms of the intensity of overall competition in the ICT market, and ranked 94th in terms of internet and telephony competition, which is a reflection of the rapid growth in the mobile sector in recent years. Additionally, in the 2013 NRI the country ranked 106th in terms of mobile network coverage; 21st in terms of mobile tariffs at purchasing power parity; 60th in terms of mobile broadband subscriptions per every 100 people in the nation; and, more broadly, 93rd in terms of the importance accorded to ICT in the Mongolian government’s long-term strategic vision.
Outlook
While various hurdles to ongoing growth are currently in place, most firms in Mongolia’s telecoms sector look forward to continued expansion for years to come. The country’s four mobile companies are making plans for a considerable amount of capital expenditure, both to meet the needs of Mongolia’s rural population and to develop new higher-speed networks in Ulaanbaatar and the small number of other population centres (see analysis). After many years of slow growth, high-speed mobile data subscriptions have picked up in recent years, and a growing number of Mongolians are purchasing smartphones and other broadband-enabled devices. The burgeoning local market for 3G and 4G services is expected to have a positive long-term impact on ARPUs and overall profitability in the mobile segment.
With these issues in mind, the local telecoms sector has the potential to attract a considerable amount of FDI in the coming years. The country’s new investment law has been widely praised, and is expected to result in new interest from foreign investors. While the mining industry will likely continue to receive the largest percentage of incoming investments, the law could also facilitate new activity in the telecoms sector and the larger ICT industry over the course of the following decade. The sector is thus poised for ongoing expansion for the foreseeable future. “As mobile coverage has improved in recent years, the mobile operators have seen rising demand among the general population for even faster and better services,” said Ganbold, Unitel’s CEO. “This is a positive sign for the local industry.”
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