Iran opens for telecoms connections

Posted on November 1, 2016

When Twitter’s Jack Dorsey tweeted Hassan Rouhani in 2013 to ask if any of the citizens of his country were able to read the Iranian president’s tweets, he probably did not expect a response. To the surprise of many in the West, Mr Rouhani quickly shot back a friendly missive that access to global information for Iranians “is their #right”.

Such gestures of welcome alongside the recent lifting of economic sanctions on the country have sparked hopes among Western telecoms, technology and media groups that one of the only new markets in the Middle East is finally open for business.

Sir Martin Sorrell, chief executive of WPP, which was one of the first Western companies to test the water in the post-sanction Iranian economy, called Iran the “last great untapped market”.

Mr Sorrell says it is “early days” but that the US State Department was “very keen” for companies to invest to prove the value of the Iranian Treaty.

“Position on sanctions [is] not crystal clear. Having said that we’re making progress,” he adds, pointing to WPP’s partnership deal with Rahbar Bazaar, a market research company, in July.

Rewards for companies with first-mover advantage could be considerable. Iran, for all its enforced isolation from Western influence, is a relatively wealthy country with a youthful population seen as eager to embrace modern media and communication services and technology.

The telecoms sector is largely state-owned, with expectations among analysts that parts of the market will be privatised in the near future. Iran is already the largest mobile phone market in the Middle East with more than 103m mobile connections and 47m smartphones — mostly Samsung and Huawei models — in use in 2015, according to Analysys Mason.

Meanwhile, fixed broadband internet connections quadrupled between 2011 and 2015 to 8.3m lines.

An already long list of international telecoms companies is lining up to enter the Iranian market to improve internet access and mobile services. Vodafone, Telecom Italia, AT&T and Nokia have rushed to get into Iran in recent months, striking deals with local groups, while Orange and Interoute, the London-based networking company, also plan to have a presence in the country. There have been 52 applications for licences to operate telecoms services since sanctions were lifted.

They will not be the first, however. MTN of South Africa and Swedish telecoms equipment maker Ericsson have both operated in Iran even during the period with sanctions in place.

But subsequent scrutiny of Ericsson in particular reflects concerns that telecoms networks, funded by foreign companies, could also be misused by the government to track its population. Internet speeds are seen to be kept low in the country, and some social networks as well as opposition political websites are filtered.

Six Iranians who posted a video of themselves on YouTube dancing and miming to the Pharrell Williams song “Happy” were arrested in 2014, showing that the country is still some way from accepting online behaviour that would be typical in the west.

Iranians can use illegal software to unblock filters, however, and some analysts claim that more than 60 per cent of Iran’s citizens already have a Facebook account using technology to bypass barriers.

The hope among telecoms executives is that the country will gradually loosen its grip in its eagerness to attract investment.

The centrist government of Hassan Rouhani, which swept to power in 2013, has welcomed western telecom companies to enter Iran’s market.

“The year 2016 marks a new era for doing business in Iran,” boasted the Iran Telecoms Innovations conference, one of two telecoms conferences held in Tehran in September. It highlighted that the country offers access to a population of 79m “highly educated, consumption-savvy” citizens.

That signal has been received. Alessandro Talotta, chairman and chief executive of Telecom Italia Sparkle, told delegates at the Capacity Eurasia event in Athens last month that there is a groundswell of investment from the private sector in upgrading the country’s telecoms infrastructure.

“The Iranian government has a clear vision in terms of broadband and information communications technology investment,” he said. Sparkle signed a deal with the Telecommunication Infrastructure Company of Iran to expand its global internet network to Iran as a result.

Analysts say that the introduction of Western companies would help balance the sector both against Chinese control of telecoms infrastructure and the Revolutionary Guards, which bought the Telecommunication Company of Iran (TCI) in 2009.

TCI controls MCI, known locally as Hamrah-e Aval, has more than two-thirds of subscribers in the Iranian telecoms market, compared with 28 per cent for Irancell, which is 49 per cent owned by MTN.

Karim Yaici, senior analyst at Analysys Mason, argues that further growth of the telecoms market will require a greater relaxation of restrictions on investment by foreign companies.

“We believe that the state will want to privatise some of the telecoms infrastructure and bring in foreign investment, but it will want to maintain control over the market. The risk is moderate to high, but the potential rewards are likely to outweigh the risks in the long term,” he says.

Some believe foreign telecoms companies should steer well clear of Iran due to the repressive nature of the regime. Mark Wallace, the former US ambassador to the United Nations and now a representative of the United Against Nuclear Iran pressure group, said: “Partnering with telecoms companies in Iran is partnering with a regime that monitors, tracks, arrests, detains and even kills people that use this technology.“

In reaction to such fears, many companies remain cautious about investing directly in Iran. Orange, the French telecoms group, has been linked with the purchase of a minority stake in MCI but has admitted only to exploring areas of “potential co-operation and business topics” due to the complexity of operating in Iran with some sanctions still in place.

Vodafone has also not invested directly in Iran, but instead through a partnership agreement with HiWEB, an internet service provider with ambitions to becoming a fully fledged telecoms group.

Vodafone owns a network in Egypt and was criticised for sending out text messages on behalf of the Mubarak government during the Arab Spring. Vodafone says that HiWEB, which is owned by the Miri family, has no links to the government.

Diego Massidda, head of Vodafone’s partner markets division, says that Vodafone is simply following its customers: “Multinational companies are beginning to enter the market, many of whom are our customers globally, so we wanted to be able to offer them high-quality connectivity when they do business in Iran.

“After careful assessment of the market, we decided to proceed as it will enhance communications services for both HiWEB’s and Vodafone’s customers.”

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