Earlier this year I spent a fascinating two weeks in Mongolia, most of the time in the capital city Ulaanbaatar. I was there to research and write a report on the state of the Mongolian Telecoms sector. I was able to meet key private-sector executives and government officials in a large, sparsely-populated, landlocked country little known to anybody except its immediate neighbours, China and Russia, nearby Japan and South Korea, and the most adventurous tourists from elsewhere.
Somewhat to my surprise I found a well-developed, competitive telecoms sector, particularly mobile telecoms with four operators, the first of which was licensed in 1996 and the last in 2006. All the operators had received a healthy incentive from the government, a 100% tax break for five years and then a 50% tax reduction for another five years. This made it easier for them to invest in infrastructure and between 2005 and 2015 the market penetration in terms of unique subscribers increased from 15% to 60% and in terms of connections from less than 20% to nearly 160%.
Perhaps even more surprising in a developing country is the competition which has been introduced in the fixed-line market, even if limited to Ulanbaatar, Darchan and Erdenet, the most populous cities of the country. In 2008 incumbent Mongolia Telecom (MTC) had a 98% market share nationwide, but the introduction of fixed-line services by Univision in 2009 and SkyMedia in 2012 saw MTC’s share drop to 42% as of 2014 H1, thanks to the quad-play of fixed and mobile voice, broadband and paid-TV from the new entrants.
That said however, Mongolians lag well behind their neighbours and comparable countries in West Asia and Eastern Europe when it comes to broadband—both fixed and mobile. Mongolia’s history and geography go some way towards accounting for this. When the great Genghis Khan and his descendants conquered much of the world 800 years ago they were nomads. Although they later became city builders (“In Xanadu did Kublai Khan a stately pleasure dome decree …”—Coleridge) they remained nomadic at heart and this tradition is still strong in Mongolia today. Although 50% of the three million population live in Ulaanbaatar, many of them are “informal migrants” living in traditional tents (gers) on the outskirts, and 30% are rural dwellers with an estimated 300,000 living a purely nomadic lifestyle. With a population density of just two per sq km, getting any sort of mobile service—let alone broadband—to the people in remote areas is a challenge.
It is a challenge the government has been able to partially overcome in voice thanks to the introduction of a Universal Services Obligation Fund (USOF), into which all telecom service providers must pay 2% of EBIDTA, and an output-based aid (OBA) project, a form of public-private partnership. All four mobile operators were incentivized to join the World Bank-supported (www.worldbank.org/en/news/feature/2014/10/20/how-telecommunications-changed-the-lives-of-herders-in-mongolia)
project which brought voice and some data services to all the country’s 360 soums (districts).
The key challenge now is to overcome the large rural/urban digital divide when it comes to broadband. The means are at hand to do this if the government takes decisive action to break the rural dominance of indebted, inefficient state-owned infrastructure company NetCo. It holds a dominant role in rural fibre deployment and has prohibitively expensive backbone charges, since the government has blocked two of its competitors (Mobicom and Sky Networks) from any further fiber deployments, especially in rural areas. This block was to be temporary but it has already lasted for several years. Unless this market segment (rural fiber backbone) is further liberalised and private network operators allowed to run out their own fiber, alone or in consortium, and compete for mobile backhaul, the current policy framework will continue to protect NetCo and its 1,500 employees to the detriment of more than a million rural dwellers.