PYRAMID RESEARCH Africa/Middle East Perspective
Continued growth of Internet use in Iran is putting strains on the country's public switched telephone network, while heightened demand for mobile lines far exceeds supply. These and other pressures stand to force the hand of the Telecommunications Company of Iran (TCI) in its plans to liberalize.
Voices in TCI call for a limiting of the government's control over the telecoms sector and the company's evolution into a regulator. Iran's new minister of communications and information technology has set the ambitious target of 10 million GSM subscribers, 20 million fixed lines and 15 million Internet users by the end of the country's third five-year development plan, around 2005.
A restructuring now underway within TCI aims to corporatize the government company and pave the way for competition in mobile telephony. A second mobile license is expected to be tendered by end-2002, and a fixed and mobile network expansion contract will be finalized within months, for which expected bidders include Siemens, Nokia and Ericsson.
On the Internet side, the 450-odd cyber cafés closed by Tehran police in May have reopened, and a licensing process is in place to protect their legal status. The growing number of Internet service providers, however, face a precarious situation of their own; laws to license them are still under discussion, and concerns have been raised about a crackdown. They meanwhile continue to add dial-up subscribers and have begun to sell leased lines.
THE PYRAMID PERSPECTIVE
Opportunities for foreign companies to help develop the mobile market
• Mobile tariffs are under review by TCI, while prepaid and roaming services are scheduled to be unrolled by the end of the year. These incentives, coupled with the heightened capacity that a mobile net-work expansion project will bring, stand to breed a mobile cash cow yielding significant returns for the state-owned company (see Exhibit 1).
Foreign vendors and consultants could play a valuable role in this process, international political conditions permitting. A likely frontrunner in the bid for TCI's planned tender of a second mobile license is Tehran-based Faran Telecommunications Company, a long-time distributor of mobile phones in Iran.
• Iran stands apart from its Central Asian and Middle Eastern neighbors as a producer, as well as a consumer, of mobile and telecommunications devices. TCI executives hope to steer government debates in favor of easing restrictions on foreign direct investment, facilitating joint ventures to make Iranian telecommunications exports feasible on a grand scale. But hardliners in parliament recently moved to block a watered-down law to make foreign investment easier.
Leased-line demand still small, but TCI may lease international bandwidth
• The limited number of private leased lines sold to date, which we estimate not to have exceeded 300 country-wide, serve mainly foreign companies and range from speeds of 128 Kbps to 256 Kbps. Despite steep fees—ISPs charge roughly $6,000 per month for one Mbps of bandwidth—leased lines are a cost-saving device, enabling foreign firms to establish virtual private network (VPN) connectivity to their home offices. The business case for leased lines is less compelling for local and national companies. Thus, we expect lease-line penetration to remain low until a significant price cut anticipated for end-Q1 2002.
• A contracting opportunity for entrepreneurs inside Iran and perhaps beyond lies in TCI's overextended international capacity and need to hire out bandwidth. Ninety percent of the country's bandwidth currently runs through a single hop link to Europe. TCI also maintains
a Teleglobe uplink to Iran, which connects to the satellite company's hub in northeastern Canada. A new cable connecting Iran's southern port of Jask to the FLAG backbone has been installed, and will be in service by January 2002.
Yet TCI has sold more capacity than it can offer. Parsnet, a leading Tehran ISP, recently offered TCI a 15 Mbps bandwidth-sharing deal in exchange for a full transponder, but legal restrictions designed to restrict government cooperation with the private sector have stalled negotiations. Efforts by pro-liberalization elements in the government to ease these restrictions stand to benefit TCI immediately.
In a country where most fixed communications run along fixed copper cable, TCI's fiber backbone puts it in a strong negotiating position with ISPs. Many will want to go the way of
Parsnet, slated over the next month or so to become the first ISP with direct fiber connectivity to the backbone.
Tehran ISPs reap and reinvest in a robust market …
• Since mid-spring, the number of ISPs in Iran has doubled to 200, although only a handful claim more than 5,000 subscribers. Most are modest operations that fuse a one-way satellite download connection with multiple dial-up uploads to offer dial-up access at a reduced fee. Iran's five leading ISPs include three government companies, of which the frontrunner is probably DPI, the Internet arm of the erstwhile IBM corporation, nationalized after the 1979 revolution.
• Perhaps the largest privately owned ISP is Parsnet, which serves only Tehran and maintains 13,000 dial-up subscribers. Pent-up demand allows the company to grow at a rate of 2,000 dial-up subscribers per month, but Parsnet has neared full capacity and recently put advertising on hold. The company is reinvesting its profits into added capacity and strengthened services vis-à-vis its competitors. Next month, Parsnet will plug into inter-exchange fiber rings recently built by TCI in order to unroll multiple access numbers in areas nearest subscribers' homes and reduce PSTN-side Net congestion.
… While their provincial counterparts eye broader geographic coverage of Iran's populous west
• ISPs in Tehran believe that access demand in the city is far from sated and hence struggle to improve quality of service and deepen their hold on the local market. Their counterparts in the provinces, by contrast, are investing in geographic breadth. Revenues are somewhat slower in coming, but long-term prospects are strong.
The leading ISP with a provincial focus is Isfahan-based Irangate.net, which claims 10,000 subscribers and has been expanding along Iran's populous west. The company operates 300 lines in Isfahan, 120 in Bandar Abbas and 50 in Ardebil, and is growing into the south-central town of Abadeh as well as Khomeinishahr, on the fringes of the Isfahan province. By contrast to Tehran's Parsnet, which manages concurrent connections at an average of 15 users per line, Irangate averages 20- 30 users per line, depending on the time of day.
ISRAEL: PALESTINIAN INTERNET USERS UP 40%
November 1, 2001
According to Al-Bayan newspaper (October 19, 2001), the Chief Executive of the Palestinian Information Technology Association, Dr. Mashhour Abu Dakka, said that the Number of Internet subscribers in the Palestinian Authority grew by 40 percent during the Intifada of the past year. The number of subscribers presently stands at 250,000. Mr. Dakka estimated the local computer programming industry at $130 million. 150 information technology companies operate in the Palestinian Authority.
Joseph Braude, Pyramid Research
This Perspective provides Pyramid’s view on a significant development in the communications industry. Perspectives are a component of Pyramid’s Advisory Services.
© 2001 The Economist Intelligence Unit Ltd. All rights reserved. Pyramid Research is a division of the Economist Intelligence Unit
© 2001 Mena Report (www.menareport.com)
