Foreign Cellphone Bidders Still in Running in Iran
By BORZOU DARAGAHI
February 11, 2004
The New York Times
Tehran- As Iran's traditionalists and modernists continue their political struggle, the government, faced with growing demand for mobile phone service and an unreliable, overburdened state-run network, is moving ahead with its plan to hand control of a second network to one of five foreign-led consortiums that have made a short list of bidders.
The prize has its costs, of course. The winner must pay Iran's telecommunications ministry a concession of 300 million euros (about $380 million) immediately and agree to give up to 25 percent of revenues to the state. It must also do business in a country with much political infighting and a sketchy legal framework for foreign investment, a place where Islamic codes restrict marketing content and a United States embargo weighs heavily.
Still, industry analysts say Iran's large, largely underserved and largely youthful market means room for growth. Only 4.3 percent of Iran's 67 million people subscribe to the Telecommunications Company of Iran, which runs the sole, state-owned mobile service now available. With its mere 2.9 million mobile accounts, the company has annual mobile revenues of about $425 million.
"Iran is a good deal," said Mohamed-Tahar Djafri, an analyst with the Global Insight economics consultancy who is based in Abu Dhabi.
Mr. Djafri said Iran's commitment to reforming capital repatriation and ownership laws should make it friendlier to foreign investors within six or seven months. "In any other market that size, the concession would be more," he said. "If it weren't for the embargo, it might be $700 million."
Iran, emerging from decades of economic and political isolation, has begun adopting privatization and foreign investment as strategies to combat high unemployment and encourage economic development. And while major telecommunications players already have footholds in Middle Eastern countries - even neighboring war-torn Iraq - Iran, the Mideast's second-largest country after Egypt, is up for grabs.
The five finalists here are consortiums. One is led by the Orascom Group of Egypt, another by the Istanbul-based Turkcell, a third by the MTN Group of South Africa, and another by Mobilkom, Telekom Austria's mobile unit. The fifth bidder is a joint venture of the Mobile Telecommunications Company of Kuwait, known as MTC; a Kuwaiti rival, Wataniya Telecom; and Deutsche Telekom's mobile unit, T-Mobile International.
The license will allow the winning company to set up five million lines by 2005. The contract will be renewable every five years for the next 15 years, with no competition guaranteed for at least two years. Final bids covering companies' proposed revenue split with the government were due this week; a provisional winner is to be announced on Feb. 23. Each bidder must also have a local partner with a minimum 20 percent stake.
Vodacom of South Africa had also qualified but dropped out of the running. Company officials declined to comment, but analysts said that Vodacom's financial backers may have feared running afoul of Washington's trade embargo on Iran or had other political concerns.
MTN officials declined to comment on rumors that it, too, would pull out of the tender, because of the quick deadline and a lack of clarity on regulatory and financial issues.
Analysts also said that Iran's relatively comprehensive landline network of one line for every five residents makes for a potentially less profitable mobile environment than in some other emerging markets.
Still, Iran's economy - and household disposable income - has grown steadily in the last few years. And the Arab Advisors Group, a consultancy based in Amman, Jordan, predicted that 23 percent of Iranians would have mobile service by 2007.
Experts say Iran's demographics are its biggest selling point. According to the National Organization for Civil Registration, nearly two-thirds of the total population is under 30, a group particularly attractive to mobile services companies.
Besides, MTN, Turkcell, MTC, Wataniya and Orascom are flush with cash from successful recent ventures in undeveloped African, Middle Eastern and Central Asian countries. T-Mobile and Mobilkom, having built networks in Europe, are thought to have greater technological expertise as well as deep pockets.
Iranian mobile phone service, introduced in the mid-1990's, is a patchwork of mismatched technology that has provided unreliable, poor service at high cost. Iranians must wait as long as a year and pay $500 to the state-owned company. Access can cost as much as $1,200 on the open market, not to mention the costs of a handset and subscriptions, making the service mostly unaffordable in a nation with a per capita income of $2,000.
Last year, however, the government awarded a contract to create a prepaid service with $25 activation fees to a joint venture of the Rafsanjan Islamic Industrial Complex, an Iranian consortium that dabbles in everything from pistachios to telecommunications, and Tele2 of Sweden, a telecommunications company operating in 23 countries, with Ericsson providing the technology. The project, which could provide six million additional lines, has been stalled by legal wrangling. http://www.nytimes.com/2004/02/11/business/worldbusiness/11iran.html?ex=1077166800&en=c8c7075e25973088&ei=5062&partner=GOOGLE