Focus: ICT

Getting Connected

Getting Connected

May. 14, 2013

In the context of low penetration in strategic ICT areas, this formula portends the exponential growth. Iran's mobile phone penetration is 129%, representing the fact that many Iranians have more than one phone or subscriber identity module (SIM); however, the number of smart phones on the market remains relatively low. There are an astounding 23 million internet users in Iran, but only 2 million have access to broadband.

“The market is very good, and the demand for new services is high," Alireza Gh. Dezfouli, CEO of Irancell, told TBY. “This means there are substantial incentives for operators to make significant investments." A joint venture between South African mobile giant MTN and an Iranian government consortium, Irancell, is one of several mobile providers investing aggressively in broadband technology and WiMAX throughout 2013 and 2014 in order to increase data speed and capacity.

This and other major investments from both the public and private sectors are expected to have a tangible spillover effect into the economy, particularly in terms of strategic growth in non-prime sectors. The World Bank recently estimated that a 10% growth in broadband penetration is expected to correspond to 1% GDP growth in emerging markets.

Iran is by far the biggest market in the Middle East for mobile phone subscriptions, with 90 million by end-2012. In terms of revenue, it is the fourth most lucrative market, in the region of $9.2 billion. Its estimated growth rate of 6%-7% per annum puts it among the top-five countries in the world. According to the Electronic Journal on Information Systems in Developing Countries (EJISDC), the sector employs 150,000 people and accounts for 1.3% of GDP.

Growth has been matched by the dynamism in the business and regulatory landscape. Over the last five years, the Telecommunications Company of Iran (TCI), which traditionally dominated the industry, listed its shares on the Tehran Stock Exchange as part of a partial privatization. In addition, a third mobile license tender was held to provide 3G services, a WiMAX license was issued, and a new senior management team was established at the ICT Ministry.

Rural expansion has been a key element in the government's growth strategy, and the country was recently awarded the UNESCO special certificate for developing telecommunication services in rural areas. The current administration is targeting to provide computers and internet to every school in the country.

MOBILE

Iran's mobile telephone segment is the centerpiece of its ICT sector. The current level of 90 million subscribers is up sharply from 68 million at the end of 2011 and 35 million in early 2008. The vast majority of subscriptions are in the form of pre-paid users.

The sector is dominated by the government-owned incumbent Mobile Communications Company of Iran (MCI), a subsidiary of TCI. Also known under its brand name Hamrahe Avval, MCI commands a 68% share of the market, almost evenly split between post-paid and pre-paid subscribers. MCI's CEO and Board Member V. Sadoughi told TBY that the company expects a 30% growth in revenue for 2013.

Recent years have seen the emergence of two highly competitive private operators, MTN Irancell and Taliya, the latter owned by the Rafsanjan Industrial Complex Islamic Cooperative Company. Tamin Telecom, an affiliate of the Social Security Investment Company of Iran and known under its brand RighTel, became the country's third mobile operator in 2010 and has since launched 2G and 3G services throughout the country. It intends to cover 60% of Iran's population with 2G service and 40% of the population with 3G service by 2014.

The data segment is now seen as the key driver of the industry, as players vie for various 3G technology rights. “Data and VAS are currently giving direction to the markets," Hamid Farang, CEO of RighTel, explained to TBY. Data's share of the total revenue is expected to double over the next five years reaching $4.5 billion by 2014. By the end of 2009, Iran's mobile telecoms market was the fourth-largest market in the region at $9.2 billion and it is expected to grow to $12.9 billion by 2014 at a compound annual growth rate (CAGR) of 6.9%.

INTERNET

There is substantially more competition in the internet arena, where 11 private access providers (PAPs) and TCI vie for market share, offering ADSL2+, WiMAX, and other fixed wireless broadband services. Iran currently has only 2 million high-speed internet users, compared to 7 million in similarly sized Turkey to the north west. “I think the potential of the market is 8 million to 9 million," says M. Hassan Shanesaz, President of Shatel, pointing to investment and growth potential in the edge, core, and access layers of the country's broadband infrastructure.

The government's fifth Five-Year Development Plan (FYDP) calls for the establishment of a fiber-based national broadband network by 2016. Recognizing the role of multilateral broadband development in the nation's economy, the Iranian government has also awarded significant WiMAX tenders to private players in recent years. In 2010, Irancell rolled out WiMAX services in Tehran, Mashhad, Isfahan, Tabriz, Shiraz, Karaj, and Ahvaz. Currently, RighTel is in a pilot stage and has launched WiMAX in Tehran and Karaj.

Shatel is the country's first ADSL2+ provider and the first gigabit wireless network operator. It holds a 50% market share, with 30% of its high-speed internet services going to corporates. Pars Online is the largest internet provider in Iran and the only Iranian company that has end-to-end data communication services.

Abdollah Fateh, Managing Director of Pars Online, told TBY that the dominant trend in the sector moving forward is the drive to build Iranian content. “Approximately 90% of traffic [in Iran] goes through Yahoo, Google, and Hotmail, as well as other foreign content providers," he said. “One of the things that they are trying to do is build online services…to keep traffic within our borders."

Companies like MCI see retail potential in this equation. “The market for applications is explosive," said V. Sadoughi, CEO and Member of the Board of MCI, in an interview with TBY. “One of our strategies is to build local app stores to protect the Farsi language and meet local demand."

It is expected that this trend will also spur the development of Iran's nascent e-commerce offering. Saman Bank, the first to offer online banking services in Iran, is leading the way in electronic banking, while the state-linked Rouyesh Technical Centre has established the country's first online supermarket.

THE KNOWLEDGE ECONOMY

An increasingly sophisticated infrastructure and human capital base is providing the foundation for an emerging knowledge-based economy. The government has put its weight behind the trend in the form of technology parks that offer incentives for R&D investments and act as a lynchpin for the public sector, the private sector, and academia.

The Pardis Technology Park (PTP), in general, aims to be the regional hub for biotechnology, nanotechnology, and ICT. It is equipped to host 1,000 enterprises and is armed with millions of incentives allocated through mechanisms such as its technology incubator, which helps entrepreneurs commercialize their innovations. According to PTP President Mahdi Safarinia, 80% of investments in the park come from the private sector and 150 technologies have been developed and registered there.

Iran's fifth and current FYDP has allotted $3 billion to the Initial Investment Technology Fund, which is designed to support new university graduates who want to develop their ideas and carry out innovative projects.

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