|  By
Joseph Braud
This
was the headline of a lengthy In a region, which often views telecom
as a key strategic sector to be reserved for domestic players, Iran
is unexpectedly moving to liberalize its market. Telecom was included
in the sectors that will be open to foreigners under a recently
approved foreign investment law. That law will allow foreign entities
to own up to an aggregate of 35% of the value of assets in the sector
and will allow foreign investors to repatriate profits in hard currency.
Foreign Vendors Welcome
Those moves are intended to attract foreign capital and expertise
to a market that is forecast to grow substantially in the years
ahead. The information and communications technology minister, Ahmed
Motamedi, has set an ambitious target of 10 million mobile subscribers,
20 million fixed lines and 15 million Internet users by the end
of the country's third five-year plan in 2004/2005. That compares
to a paltry 490,000 mobile subscribers, spread over 217 cities,
only a decade ago.
But Iran faces significant barriers to reaching those ambitious
goals. The chief bottleneck is the shortage of investment capital,
exacerbated by the hesitancy of many investors to plunge into Iran's
volatile and often unfriendly business environment.
Internal political differences exacerbate the situation. Mr. Motamedi
faces opposition from conservative quarters concerned about too
great a foreign presence in a strategic sector. On the plus side,
Iran has also gained credibility during the past year for its seriousness
of purpose in developing infrastructure and improving its operating
environment. Despite political resistance, Mr. Motamedi has made
progress by incorporating certain state-owned telecom entities,
with a view toward eventual privatization.
Significantly, too, the government has opened its market to foreign
equipment suppliers, with the aim of introducing competition. The
Telecommunications Company of Iran (TCI) is the single largest client
for foreign vendors. But other state-affiliated organizations, such
as the National Iranian Oil Co (NIOC) and state-run banks have awarded
big telecom contracts to outside entities, as have free-trade zones
in Kish Island and Qeshm.
European vendors took an early lead in the Iranian market, but Asian
competitors are gaining on them fast. German-based Siemens was the
first foreign equipment supplier to enter the market, with ties
to Iran stretching back to 1926. It delivered the first telecom
switching and communications technology to Iran in 1956, and has
formed various joint ventures with equipment suppliers controlled
by the government. Significantly, Siemens has played a direct role
in helping Iran to shape its telecom industry.
Sweden's Ericsson entered the Iranian market only in 1992, but it
also plays a major role. Ericsson has supplied mobile network equipment
for the Kish Island free trade zone and for the city of Isfahan.
Like Siemens, Ericsson improved its standing in the market by partnering
with government entities, by funding telecom initiatives, and by
offering its technical and managerial expertise.
In April 2000, Ericsson won a contract to boost the country's 350,000
line mobile phone network capacity to 650,000 lines. That turnkey
project includes network planning, radio base station delivery,
and switching. Ericsson, as well as its competitors, are now eyeing
the expected introduction of the country's second mobile operator
in the next 18 months.
Italy's Italtel, is also a significant player. It had some initial
success in the early 1990s when it was chosen to extend Nokia's
original network of 300,000 mobile phone subscribers to 450,000
users. The CEO of Telecom Italia has said his company is considering
build-operate-transfer (BOT) opportunities in the mobile, Internet
and satellite communication sectors.
However, in view of Iran's strained ties with the US, Britain and
other western countries, Iran presents a special opportunity to
Asian vendors large and small. In November 2001, TCI signed a joint
venture agreement with a Malaysian company to expand the mobile
phone network from 650,000 to one million subscriptions. Contracts
for two telecom projects, worth a total of US$50 million, were also
concluded between TCI and a partnership comprising Japan's NEC and
Silicomo Corp. The first project, valued at US$34 million, was to
build advanced switching systems, while the second, valued at US$16
million, was to expand the range of mobile phones in Iran.
Also last November, China-based network firm ZTE Corp set up a Tehran
branch, with the aim of raising its profile in the Iranian market.
Its switching systems currently serve fixed line subscribers in
Shiraz and Isfahan, but the company sees major growth ahead in mobile
telephony. It predicts that one million subscribers will use its
systems and services over the next six months.
If projected telephone growth is rapid, forecast increases in Internet
access will be even faster. TCI information affairs director Mohammed
Sadri notes that only 2.5% of Iran's population currently has access
to the Internet.
Officials aim to boost that figure to 50% within five years. Two
more Internet gateways are due to become operational at the end
of this year, and laws dealing with illegal Internet service providers
(ISPs) are in the pipeline.
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