2014/02/12 Broadband in Iran: cautious optimism for the road ahead

Iran's telecoms market is known for its unpredictability. Would-be foreign investors, including Etisalat, Türk Telekom and Zain, have all come close to launching mobile operations in the country since its telecoms market was liberalised in 2004, but have been prevented from doing so following reported failures to adhere to their licence commitments. MTN has succeeded in establishing Irancell as the second national mobile operator in Iran, but has faced costly legal battles because of alleged improprieties when it acquired its licence, in addition to Western pressures to pull out of Iran. These setbacks have inhibited foreign investors' appetite for entering one of the largest mobile markets in the Middle East, where real penetration is estimated at 55%, compared with an average of 75% in the member states of the Gulf Cooperation Council (GCC).¹

Iran's fixed and mobile broadband markets are lagging behind those of the GCC member states

More telling is the relative state of broadband between Iran and its neighbours. Just as GCC operators were launching the first LTE services in the last months of 2011, Iran's third mobile operator (RighTel) was the first to launch 3G services on a three-year exclusivity basis. Two years later, 3G subscribers in Iran accounted for a meagre 0.1% of the total mobile market; by contrast, almost all operators in the GCC have now launched LTE and established sizeable customer bases of 4G subscribers. Fixed broadband networks have not been able to compensate for this lag: penetration in Iran equates to 14% of households, less than half that in Oman, itself the lowest performer in the GCC (see Figure 1).

Iran's lag in broadband adoption is a cause for concern. It is now widely recognised that broadband connectivity plays a key role in bringing socioeconomic benefits. This is particularly relevant for governments of the Middle East's resource-heavy economies, where economic diversification and addressing the 'digital divide' are national imperatives, and at a time when social discontent is increasingly (and sometimes violently) manifested. Encouraging development of, and access to, broadband infrastructure and services can contribute to laying the necessary foundations for transforming national economic and social landscapes. For instance, the development of e-government services should increase public accountability and efficiency levels, reducing opportunities for corruption and supporting more citizen participation. Broadband-supported education and health programmes can improve living conditions and give opportunities to the underprivileged. Increasing broadband penetration ultimately contributes to developing the ICT economy (which is arguably more accessible and fair than the hydrocarbon economy), and empowers individuals to participate in it, and for those who wish, to develop, realise and market their own ideas. In addition, more public transparency, civil participation in government and increased economic opportunities, leave less room for disenfranchised populations.

Figure 1: Share of mobile connections by technology and fixed household broadband penetration, Iran and the GCC member states [Sources: Telegeography (fixed broadband household penetration), GSMA Intelligence (mobile connections by technology generation), September 2013] (Click to enlarge)

Intentions to reinvigorate the broadband market are a start, but will need the active support of public and private organisations

Bridging the broadband gap can only be achieved by defining a clear regulatory and broadband strategy, which rests on an accurate understanding of the supply- and demand-side barriers to broadband market development. Technology-neutral and non-exclusive licensing schemes, national broadband plans and public–private partnerships are some of the key building blocks for developing the market and fostering widespread take-up of broadband services.

Iran’s national telecoms regulator, the Communications Regulatory Authority (CRA), has issued encouraging statements of its ambition to address the low rate of broadband penetration in Iran. This includes the development of a national broadband plan, as well as the intention to competitively auction LTE licences by the end of the next Persian calendar year (March 2015). RighTel’s 3G exclusivity is due to end in September 2014, which will open the way for mobile incumbent MCI and MTN Irancell to launch their long-awaited mobile broadband services. On the fixed front, government-supported FTTx operator Iranian-net has commenced its deployment of a national broadband network, with the stated objective of reaching 8 million fibre customers by 2020. A gradual lift of Western-imposed sanctions should remove some of the barriers to investment and importation of much-needed technology equipment.

Successfully implementing these initiatives is fraught with challenges. The government will need to be committed to confidence-building measures that will provide potential investors with greater clarity on the investment process as well as investment security guarantees. Confidence will also need to be provided to existing operators, by clarifying their role in the wider national broadband initiative, providing the necessary funding commitments, and abiding by the licensing schedule that the CRA has outlined. Just as importantly, public and private entities will need to work in unison to secure the broader, long-term national interests of Iran, putting aside corporate and political allegiances that could hinder broadband's development. Only then will the conditions be ripe for the Iranian broadband market to rise and become internationally competitive.

Analysys Mason has recently worked on the development of national broadband strategies for governments and national broadband networks (NBNs) in GCC member states and beyond, and we have a thorough understanding of the issues involved in designing and implementing such strategies. For more details, see our expertise in national and regional broadband strategy and implementation, or contact Nicolas Dunais.

¹ GSMA Intelligence, September 2013.

Source: Analysys Mason