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ADB Review [ November 2004 ]

In just one decade, Mongolia has succeeded in modernizing and expanding its once ageing and inefficient telecommunications system

By Jet Damazo (lmdanazo@adb.org)
Consultant Public Relations Writer

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The advent of the information age did not happen in Mongolia in the early 1990s, as it did for most countries. At the time, telephones were still a luxury for most Mongolians, as their telecommunications infrastructure consisted of an inefficient and outdated Soviet analog system built decades earlier.

There was only one telephone for every 25 people, but even fewer were able to actually enjoy phone conversations because local calls were difficult to make and international calls had high costs.

Services other than voice telephony, telegrams, and telexes were almost nonexistent. Call completion rates were low, network congestion led to high levels of shared services, and automated systems, such as international and long distance direct dialing, were impossible.

Before the decade was over, though, Mongolians began to enjoy not only efficient telecommunications services, but also mobile communications, Internet, and e-mail services.

The changes began in 1992, when the Government approached the Asian Development Bank (ADB) for assistance in modernizing the telecommunications sector.

At the time, Mongolia was deep into recession with the dissolution of the Soviet Union and the Government, then trying to shift from a centrally controlled to a market-based economy. It saw the improvement of the telecommunications sector as a priority. Connectivity was even more important because the country is landlocked, with a small and scattered population.

To make things worse, Mongolia was vulnerable to all sorts of commercial pressure.

“The telecommunications sector itself was an impediment to economic growth,” says Silvio Cattonar, ADB’s Project Officer for the Mongolia telecommunications project. (He is now ADB’s Director for Special Projects for the Mekong Region.) “The high costs of making calls were stopping business in and business out.”

To help overhaul the country’s telecommunications sector, ADB developed a master plan that covered policy reform, an institutional framework, and capital investment.

Based on the master plan, the Government set up the Mongolian Telecommunications Company (MTC) and the Mongolian Data Company to provide telephony and data services. In 1994, a $24.5 million loan, covering half of the total project cost, was approved, with the balance covered by development partners.

The loan financed equipment, cables, civil works, and consultants to arrest the degradation of the existing network, digitize selected telephone exchanges and trunk lines, provide other trunk line improvements, and replace and expand old cable networks that connected customers to the exchanges.

Originally, the main project locations were Darkhan, Erdenet, and Ulaanbaatar—major population and industrial centers where efficient telecommunications would have the greatest impact in supporting transition and development.

However, lower than expected costs for some items allowed modern exchanges to also be installed, within the project budget, in three other main cities: Arvaiheer, Bulgan, and Sukhbaatar.

The Government partly privatized MTC to become Mongolian Telecom (MT), which served as the operating entity, while all telecommunications assets were transferred to a new entity called the Post and Telecommunications Authority.

The project then helped improve MT’s financial and management systems, and provided training for its technical and other telecommunications personnel. In July 1996, about 2 years after the project started, timed local calls were introduced.

A technical assistance grant that accompanied the loan also helped the Government set up a regulatory framework, and a Telecommunications Law was passed and revised in 2001.

Fostering competition was an important feature of the master plan, allowing the entry of other telecommunications companies. The first license for a mobile telephone network was granted to a private company in 1996, and another one in 1999.

“We encouraged competition,” says Mr. Cattonar. And this has driven the sector well beyond project expectations to encompass a diversity of services.

“The project highlights the benefit of opening up service sectors to private enterprise and competition, as opposed to maintaining state monopolies,” says Lester Neumann, ADB Senior Evaluation Specialist who assessed the project.

The project was completed by May 1999, well within the anticipated time-frame of 5 years, and as a result, telecommunications services and their use have grown substantially in Mongolia.

By 2002, about 140 communications and information technology companies were operating in the country, including two fixed line companies, two mobile telephone companies, and seven Internet service providers. There are now about eight different services for communicating internationally, including four voice-over-Internet protocol services.

The number of telephones rose from less than 70,000 before the project to around 376,000 in 2002, with MT having 127,000 customers, the second landline operator 11,000, and the two mobile operators about 238,000.

Most of MT’s growth has come from the six towns that benefited from the project’s network improvements. Fixed line and mobile telephone traffic increased substantially, along with improvements in the quality of MT’s service.

The increase in telephone ownership and traffic shows that the lack of adequate telecommunications services is not the bottleneck that it once was, a conclusion supported by comments from business operators and other users.

“Without the project, the network would have become obsolete and unreliable, on the verge of collapse, and with virtually no prospects to accommodate traffic growth,” says Mr. Neumann.

“ADB was instrumental in liberating the sector, providing the infrastructure to reduce the effective cost of making calls to encourage business and provide lifelines to people, externally and within major centers,” adds Mr. Cattonar.

“It’s been a great project and a very good example because ADB played an important role in providing infrastructure financing, gave sensible advice, and served as an honest broker.”

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