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 By
Susan
Akbarpour
Continued
growth of Internet use in Iran is putting strains on the country’s
public switched telephone network, while heightened demand for mobile
lines far exceeds supply. These and other pressures stand to force
the hand of the Telecommunications Company of Iran (TCI) in its
plans to liberalize. Voices in TCI call for a limiting of the government’s
control over the telecoms sector and the company’s evolution
into a regulator. Iran’s new minister of communications and
information technology has set the ambitious target of 10m GSM subscribers,
20m fixed lines and 15m Internet users by the end of the country’s
third five-year development plan, around 2005.
A restructuring now underway within TCI aims to corporatize the
government company and pave the way for competition in mobile telephony.
A second mobile license is expected to be tendered by end-2002,
and a fixed and mobile network expansion contract will be finalized
within months, for which expected bidders include Siemens, Nokia
and Ericsson. On the Internet side, the 450-odd cybercafés
closed by Tehran police in May have reopened, and a licensing process
is in place to protect their legal status. The growing number of
Internet service providers, however, face a precarious situation
of their own; laws to license them are still under discussion, and
concerns have been raised about a crackdown. They meanwhile continue
to add dial-up subscribers and have begun to sell leased lines.
THE PYRAMID PERSPECTIVE
Opportunities for foreign companies to help develop the mobile market
- Mobile tariffs are under review by TCI, while prepaid and roaming
services are scheduled to be unrolled by the end of the year. These
incentives, coupled with the heightened capacity that a mobile network
expansion project will bring, stand to breed a mobile cash cow yielding
significant returns for the state-owned company (see Exhibit 1).
Foreign vendors and consultants could play a valuable role in this
process, international political conditions permitting. A likely
frontrunner in the bid for TCI’s planned tender of a second
mobile license is Tehran-based Faran Telecommunications Company,
a longtime distributor of mobile phones in Iran.
Iran stands apart from its Central Asian and Middle Eastern neighbors
as a producer, as well as a consumer, of mobile and telecommunications
devices. TCI executives hope to steer government debates in favor
of easing restrictions on foreign direct investment, facilitating
joint ventures to make Iranian telecommunications exports feasible
on a grand scale. But hardliners in parliament recently moved to
block a watered-down law to make foreign investment easier.
Leased-line demand still small, but TCI may lease international
bandwidth
The limited number of private leased lines sold to date, which we
estimate not to have exceeded 300 country-wide, serve mainly foreign
companies and range from speeds of 128 Kbps to 256 Kbps. Despite
steep fees — ISPs charge roughly $6000/month for 1 Mbps of
bandwidth — leased lines are a cost-saving device enabling
foreign firms to establish virtual private network (VPN) connectivity
to their home offices. The business case for leased lines is less
compelling for local and national companies. Thus, we expect lease-line
penetration to remain low until a significant price cut anticipated
for end-Q1 2002.
A contracting opportunity for entrepreneurs inside Iran and perhaps
beyond lies in TCI’s overextended international capacity and
need to hire out bandwidth. Ninety percent of the country’s
bandwidth currently runs through a single hop link to Europe. TCI
also maintains a Teleglobe uplink to Iran, which connects to the
satellite company’s hub in northeastern Canada. A new cable
connecting Iran’s southern port of Jask to the FLAG backbone
has been installed, and will be in service by January 2002. Yet
TCI has sold more capacity than it can offer. Parsnet, a leading
Tehran ISP, recently offered TCI a 15 Mbps bandwidth-sharing deal
in exchange for a full transponder, but legal restrictions designed
to restrict government cooperation with the private sector have
stalled negotiations. Efforts by pro-liberalization elements in
the government to ease these restrictions stand to benefit TCI immediately.
In a country where most fixed communications run along fixed copper
cable, TCI’s fiber backbone puts it in a strong negotiating
position with ISPs. Many will want to go the way of Parsnet, slated
over the next month or so to become the first ISP with direct fiber
connectivity to the backbone.
Tehran ISPs reap and reinvest in a robust market …
Since mid-spring, the number of ISPs in Iran has doubled to 200,
although only a handful claim more than 5000 subscribers. Most are
modest operations that fuse a one-way satellite download connection
with multiple dial-up uploads to offer dial-up access at a reduced
fee. Iran’s five leading ISPs include three government companies,
of which the frontrunner is probably DPI (www.dpi.net.ir), the Internet
arm of the erstwhile IBM corporation, nationalized after the 1979
revolution.
Perhaps the largest privately owned ISP is Parsnet, which serves
only Tehran and maintains 13,000 dial-up subscribers. Pent-up demand
allows the company to grow at a rate of 2000 dial-up subscribers
per month, but Parsnet has neared full capacity and recently put
advertising on hold. The company is reinvesting its profits into
added capacity and strengthened services vis-a-vis its competitors.
Next month, Parsnet will plug into interexchange fiber rings recently
built by TCI in order to unroll multiple access numbers in areas
nearest subscribers’ homes and reduce PSTN-side Net congestion.
… While their provincial counterparts eye broader geographic
coverage of Iran’s populous west
ISPs in Tehran believe that access demand in the city is far from
sated and hence struggle to improve quality of service and deepen
their hold on the local market. Their counterparts in the provinces,
by contrast, are investing in geographic breadth. Revenues are somewhat
slower in coming, but long-term prospects are strong.
The leading ISP with a provincial focus is Isfahan-based Irangate.net,
which claims 10,000 subscribers and has been expanding along Iran’s
populous west. The company operates 300 lines in Isfahan, 120 in
Bandar Abbas, and 50 in Ardebil, and is growing into the south-central
town of Abadeh as well as Khomeinishahr, on the fringes of the Isfahan
province. By contrast to Tehran’s Parsnet, which manages concurrent
connections at an average of 15 users
per line, Irangate averages 20-30 users per line, depending on the
time of day.
Additional Pyramid Research Resources
“Iran: A Growing Internet Market Weathers Temporal Storms,”
Pyramid Perspective, May 18th, 2001
“Iran: Is the Communications Market Opening Up for Foreign
Investors?” Pyramid Perspective, February 28, 2001
This Perspective provides Pyramid’s view on a significant development
in the communications industry. Perspectives are a component of
Pyramid’s Advisory Services. For information about our Africa/Middle
East Advisory Services, in-depth market analysis reports, or strategic
consulting, please contact Marcel van Galen in our London office
at 44 207 8301062.
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