Wireless Federation

Iran with a population over twice as high as any other of the countries of the Middle East has low mobile penetration levels. This scenario is changing and the market is seeing high mobile growth, particularly since the launch of a second national operator in late 2006. During 2007 the Iranian government announced that it would split up and sell off the state owned Telecommunications Company of Iran (TCI), as part of its program to privatise 80% of state-owned businesses. Previously the telecom market was a state-owned monopoly with the exception of retail Internet service provision.

Irancell and TCI are currently the only two mobile operators working in Iran.

MegaFon, Russia’s third largest mobile operator, is ready to invest around €3 billion ($4.6 billion) in its business in Iran. In addition, UAE-based Etisalat, the second-largest Arab phone company by market value, is considering investments in Iran’s mobile-phone market.

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The Turkish mobile operator Turkcell has filed an arbitration lawsuit against the government of Iran for allegedly blocking its acquisition of a stake in Iranian mobile operator Irancell. A consortium led by Turkcell was approved as the winning bidder in a tender to take a 51% stake in the newly created national mobile licensee Irancell in February 2004, but the deal with Turkcell ran into difficulty, with conservative Iranian politicians unhappy with the involvement of a Turkish firm in one of the country’s main communications networks. Turkcell had been seeking a majority stake in Irancell but the government pushed through legislation in April 2005 to limit its stake to 49%; the cellco says it then faced a number of other blocking tactics and it was left with little choice but to walk away from the deal. MTN of South Africa took its place in the consortium in October 2005 and Irancell has gone on to take second place in the country’s mobile market, with 3.72 million subscribers at the end of September 2007.

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South Africa and Nigeria continue to lead the pack in terms of the MTN Group’s operations, with 13,4-million and 14-million subscribers respectively, but CEO Phuthuma Nhleko said on Wednesday that he would like to see revenue and earnings contributions more evenly spread across each of the telecoms group’s three primary regions.

The company has operations in the South and East Africa region, in the West and Central Africa region and in the Middle East and North Africa.

For the six months ended June 31, Nhleko commented that market share in South Africa had remained relatively stable. He added that lower denomination airtime vouchers had stimulated usage and had a positive impact on bringing dormant users back into action.

“Average revenue per user (ARPU) in the postpaid segment decreased to R435 from R487 in December 2006 and prepaid ARPU decreased to R87 from R94, both decreases owing to continued penetration into lower-usage segments,” MTN explained in a statement.

Nhleko said that realigning the country’s distribution strategy was “key to retaining market share, and growing it.”

The roll-out of 3G in South Africa was also gaining momentum, the company said, with a total of 1 152 3G sites compared with 793 in December 2006, which lead to an increase of 58% in data revenue.

MTN intends to roll out more 3G sites by the end of the year.

The group launched in South Africa in 1994, and currently has a market share of 35% and a penetration of 81%.

The West and Central African (Weca) region, which includes, among others, Nigeria, Ghana, Cote d’Ivoire, Cameroon and Benin, had the highest revenue for the group and was the biggest contributor to earnings before interest, tax, depreciation and amortisation.
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Nhleko said that MTN was not looking to merely retain its market share in the region, but rather to increase the market size to 52-million subscribers by 2011.

“MTN’s aggressive penetration into markets shunned by other operators is the group’s most significant competitive advantage,” said global growth consultancy Frost & Sullivan.

It added that the company’s position as a “risk-taker” continued to show rewards.

“They have managed to thrive in challenging markets such as Nigeria where other operators have failed to survive,” commented research analyst Spiwe Chireka.

“It is this ability or willingness to go where no one else is willing to go that puts MTN apart from its competitors,” he said.

Ghana recorded an increase of 31% in subscriber numbers for the period, and now boasted 3,4-million subscribers compared with 2,6-million in September 2006.

Market share in the country increased from 52% in December last year to 54%for the six months ended June 31.

In the Weca region, Nhleko noted that Benin remained a challenge, owing to what he called “inappropriate demands” from local authorities and regulators. The network in Benin was suspended on July 12.

Looking to MTN’s Middle Eastern and North African operations, Syria boasted the most subscribers with 2,6-million for the period, compared with 2,2-million subscribers in December last year.

MTN Irancell, which had a soft launch in October last year, with prepaid services only effective as of January, saw significant growth. During the period, MTN Irancell recorded net additions of 1,8-million subscribers, with 3,2-million active subscribers recorded in August 2007.
The company said that the network had been enhanced and now had the capacity to service 6,5-million users.

Nhleko noted that the operations in Iran had grown to about 25% of the 13-year-old South African operations in just eight months.

He added that he believed there was an opportunity to enjoy significant growth over the next three to five years in the Middle East and North Africa region.

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South Africa and Nigeria continue to lead the pack in terms of the MTN Group’s operations, with 13,4-million and 14-million subscribers respectively, but CEO Phuthuma Nhleko said on Wednesday that he would like to see revenue and earnings contributions more evenly spread across each of the telecoms group’s three primary regions.

The company has operations in the South and East Africa region, in the West and Central Africa region and in the Middle East and North Africa.

For the six months ended June 31, Nhleko commented that market share in South Africa had remained relatively stable. He added that lower denomination airtime vouchers had stimulated usage and had a positive impact on bringing dormant users back into action.

“Average revenue per user (ARPU) in the postpaid segment decreased to R435 from R487 in December 2006 and prepaid ARPU decreased to R87 from R94, both decreases owing to continued penetration into lower-usage segments,” MTN explained in a statement.

Nhleko said that realigning the country’s distribution strategy was “key to retaining market share, and growing it.”

The roll-out of 3G in South Africa was also gaining momentum, the company said, with a total of 1 152 3G sites compared with 793 in December 2006, which lead to an increase of 58% in data revenue.

MTN intends to roll out more 3G sites by the end of the year.

The group launched in South Africa in 1994, and currently has a market share of 35% and a penetration of 81%.

The West and Central African (Weca) region, which includes, among others, Nigeria, Ghana, Cote d’Ivoire, Cameroon and Benin, had the highest revenue for the group and was the biggest contributor to earnings before interest, tax, depreciation and amortisation.
RISK AND REWARD

Nhleko said that MTN was not looking to merely retain its market share in the region, but rather to increase the market size to 52-million subscribers by 2011.

“MTN’s aggressive penetration into markets shunned by other operators is the group’s most significant competitive advantage,” said global growth consultancy Frost & Sullivan.

It added that the company’s position as a “risk-taker” continued to show rewards.

“They have managed to thrive in challenging markets such as Nigeria where other operators have failed to survive,” commented research analyst Spiwe Chireka.

“It is this ability or willingness to go where no one else is willing to go that puts MTN apart from its competitors,” he said.

Ghana recorded an increase of 31% in subscriber numbers for the period, and now boasted 3,4-million subscribers compared with 2,6-million in September 2006.

Market share in the country increased from 52% in December last year to 54%for the six months ended June 31.

In the Weca region, Nhleko noted that Benin remained a challenge, owing to what he called “inappropriate demands” from local authorities and regulators. The network in Benin was suspended on July 12.

Looking to MTN’s Middle Eastern and North African operations, Syria boasted the most subscribers with 2,6-million for the period, compared with 2,2-million subscribers in December last year.

MTN Irancell, which had a soft launch in October last year, with prepaid services only effective as of January, saw significant growth. During the period, MTN Irancell recorded net additions of 1,8-million subscribers, with 3,2-million active subscribers recorded in August 2007.
The company said that the network had been enhanced and now had the capacity to service 6,5-million users.

Nhleko noted that the operations in Iran had grown to about 25% of the 13-year-old South African operations in just eight months.

He added that he believed there was an opportunity to enjoy significant growth over the next three to five years in the Middle East and North Africa region.

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The entrance of a second player in the Iranian market has heralded the beginning of an era in the country’s mobile industry. With the expectation that it will start offering services in mid-2006 and a third player in late 2008, Wireless Federation forecasts the country’s mobile penetration to more than double over the next five years, increasing subscriptions from 7.1m at YE2005 to 18.6m by 2010.

For years, subscribers in Iran were at the mercy of the country’s largest and only telecommunications provider, TCI. Although TCI has done a fairly decent job of establishing a telecommunications infrastructure in the country, the lack of competition never really compelled the operator to offer services at a level on-par with operators from rest of the world. Service issues and an extremely high one-time connection fee of up to US$1,200 have kept potential subscribers at bay.

The expected entry of IranCell in 2006 and a third operator in late-2008 will drive significant growth over the next five years. Wireless Federation Iran Mobile Demand Forecast charts the growth from a mere 7.1m subscriptions at YE2005 (penetration of 10 percent), to 18.6m by YE2010, equally 25 percent penetration. This growth will be driven by the introduction of competition (only 14 percent of net additions will be on TCI’s network), and the introduction of prepaid in a country which until 2004 only had post-paid subscriptions. Although TCI introduced prepaid subscriptions for the first time in 2005, only a mere 30 percent of 2005’s net additions are expected to be TCI’s prepaid platform. However, with the new entrants expected to add vibrancy to the market beginning in 2006, 84 percent of net additions from 2006 to 2010 are expected to occur on the prepaid platform

The introduction of competition will result in the lowering of connection/activation fees to levels in-line with global standards, average revenues per subscriber (ARPS) in local currency should rise due to operators’ increasing per-minute tariffs. Driving an increase of per-minute tariffs (in local currency) is due to that fact that TCI enjoyed healthy revenue growth and EBITDA margins primarily because of their high connection fees. TCI could then subsequently afford to offer lower per-minute tariffs to its subscribers. The lowering of connection fees due to increased competition and the introduction of prepaid, operators would need to raise per-minute tariffs in order to maintain profitability. Since Wireless Federation ARPS calculations exclude one-time connection, activation, and termination fees, the increase in per-minute tariffs will result in our forecasts indicating a rise in ARPS.

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The Iranian government is expected to offer another national cellular licence in 2008, two years after its last wireless auction which was won by IranCell. The research and development centre at the Ministry of Communications is ‘preparing the preliminaries of the auction’, Taliya News reports. Iran is currently home to around 20 million mobile subscribers, with the bulk of these served by state-owned TCI; national licences are also held by Taliya and IranCell.

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Iran’s dominant phone operator Telecommunications Company of Iran (TCI) says the country is now home to 42 million fixed line and wireless telephony customers. TCI claims 22.8 million landline users and 17.79 million cellular subscribers; rival cellcos Taliya and MTN Irancell have another 1.5 million customers between them. More than 51,000 towns and villages are covered by the various mobile networks, according to local news agency IRNA which has seen a copy of the latest TCI market report.

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Telegeography writes…Iran’s largest cellular operator, state-owned TCI, says it will sign a roaming agreement with the country’s second national cellco Taliya only when the latter’s network has capacity for two million subscribers. TCI managing director Saber Feyzi told local news agency ILNA that the roaming will be set up under the terms of a contract which has been in place for some time. Feyzi added that Taliya is still free to sign a roaming deal with the only other national cellular operator, MTN Irancell. TCI had around 13 million subscribers and 95% of the Iranian mobile market at the end of 2006, according to TeleGeography’s GlobalComms database. Taliya claimed an estimated 500,000 customers at the same date, while Irancell, which launched in October, had 154,000.

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Telegeography writes…South Africa-based wireless group MTN says it plans to see its customer base in Iran pass the six million mark by the end of this year. The firm has a 49% stake in MTN Irancell which launched last October and had attracted just over a million subscribers by late March. Irancell is signing up between 15,000 and 20,000 new customers a day. MTN Group chief executive Phuthuma Nhleko says he expects the Iranian business to sign up 46 million customers by 2011, beating MTN’s earlier estimate of 31 million by 2015.

MTN Irancell is one of three national GSM operators in Iran; the market is currently dominated by state operator TCI, while Irancell is battling for second place with another privately owned firm, Taliya. Irancell currently has networks covering 26 cities: Tehran, Mash’had, Tabriz, Oroumiyeh, Sari, Maraqeh, Shiraz, Qom, Kermanshah, Ardebil, Hamedan, Germi, Meshkinshahr, Khorramabad, Sarab, Bojnourd, Amol, Aligoudarz, Miandoab, Qa’emshahr, Sabzevar, Qouchan, Neyshbour, Fredows, Neka and Fereydounkenar. The MTN Group has 40 million subscribers in 21 countries; it hopes to attract an additional 16 million new customers by end-2007.

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Telegeography writes…Iran’s three largest cellular operators - Mobile Communications Company of Iran (MCCI), Irancell and Taliya - are close to finalising negotiations aimed at clearing the way for the trio to share their network infrastructure. Taliya News reports that the cellcos have drawn up a contract under which they will share their base stations. The largest of the three, MCCI, currently has around 9,000 active base stations, 3,000 of which are in the capital Tehran. Irancell, which launched towards the end of last year, has said that local councils are resisting the construction of new base stations and this is hampering its expansion plans.

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