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Iran to Open Mobile Telecommunications Market. From Business Middle East.
Feb 8, 2003

The government had announced the Iran's mobile phone market will be opened up to foreign companies within 18 months. The government will allow foreign private mobile phone operators into Iran from March 2004, and will seek to avoid a private monopoly by licensing several firms by the end of 2004.

The demand for telecoms services is growing rapidly in Iran. The Telecommunications Company of Iran (TCI) has focused on the provision of a countrywide mobile telephone network, designed to relieve the strain on Iran's analogue terrestrial system, sidestepping the need for an expensive upgrade. However, the system has already reached, if not exceeded, capacity, making it difficult to make mobile phone calls at peak times.

The government aims to double the number of fixed lines from 10m to 20m by 2004, and increase the number of mobile phone lines eight-fold, to 10m. However, the ministry--and the TCI--lack the investment capital to fund such an expansion. Foreign participation is an obvious answer, but notwithstanding the fact that the government has opened its market to foreign equipment suppliers, many investors remain wary of Iran's volatile business environment.

In part this is due to nervousness about political in-fighting: reformers face opposition from conservative quarters concerned about too great a foreign presence in what is considered a strategic sector. Crucially, there are also question-marks over the likely legal status of such projects. Iran's post-revolution constitution explicitly requires that the state own and provide industries such as power generation, post, telegraph and telephone services and the like. all these will be publicly owned and administered by the state.

Lacking the political power to change the constitution, the government has instead opted to work around its dictates or, in many cases, simply ignore them. The position remains unclear, however, and continues to undermine the foreign-investment law, which was due to come into effect last month.

Of course, a number of the largest international telecommunications companies will remain out of the picture whether or not the authorities clarify current uncertainty over the way in which the maximum share to be allowed for foreign-owned entities (foreign market share should not exceed 25% in any one sector, or 35% in individual industries) is to be calculated and judged. US telecoms operators are barred from participating in the Iranian market by Washington's Iran-Libya Sanctions Act, leaving the way open for European, and more particularly Asian, competitors.

Expected bidders for the contracts to expand the fixed and the mobile phone networks include Germany's Siemens, Nokia of Finland and Ericsson of Sweden, as well as Japan's NEC. Siemens should in theory enjoy first-mover advantages, since it was not only the first foreign equipment supplier to enter the market--delivering telecoms switching and communications technology in the 1950s--but has played a direct role in helping Iran to shape its telecommunications industry.

This assumes, of course, that international operators will be interested in the Iranian market. They are highly unlikely to secure a majority shareholding in any new venture, while the global downturn in telecoms shares, and a growing perception that investment in third-generation technology--and licences--may outstrip potential returns, has made many telecoms companies wary of expansion into non-core markets.

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