Telecom

Telecommunications

Iran's telecommunications market has been booming and its growth shows no signs of slowing. There are several reasons for this phenomenon, the most important of which are the development of the installed base of Iran's telecommunication, the change in policies that allow for more private as well as foreign investment, and the country’s significant demographic trends. Although the telecommunications industry was one of the least developed sectors of the Iranian economy until the late 1980s, the strong demand for modern technology brought rapid structural changes in the following decade. This has created business opportunities for foreign firms both in conventional as well as emerging technologies and the industry’s development in the last ten years has been quite unprecedented. As such, the communications market in Iran is not only the largest and most significant in the Middle East, but also provides access to other regional markets.

Market Overview The industry in Iran is entirely government-owned and is regulated by the Ministry of Post, Telegraph and Telephones. The ministry has recently initiated a restructuring process that involved establishing provincial telecommunication companies in the form of subsidiaries, which operate as profit centers. The absence of private investment and competition in this sector has created a bottleneck, which prevents the national demand from being met either in terms of quantity or quality. The ultimate goal of deregulating Iran’s telecommunication sectors is to guarantee that Iranian businesses and individuals have access to advanced telecommunications technology. This would allow the public as well as the domestic economy to take full advantage of the opportunities available in the information age. It has to be clear to all Iranian decision makers that deregulation of the country’s telecommunication sector is not optional or merely the latest international trend that one can use or not. It is absolutely necessary if Iran is to avoid falling behind the global economic norm. Fixed Telephone Lines In 1978 there were only about 850,000 fixed lines installed in Iran. This number rose to about 8,285,000 by March 1999. The number of fixed lines in operation during the same period, increased from 830,000 to 7,354,000. The telephone penetration factor, number of main lines per 100 habitants, in March 1999 was 13, while the same factor for 1978 was only 2.31. The table below presents the number of installed main lines, main lines in operation and telephone penetration factor in Iran (1978 – 1999). Information on fixed lines for 2000 and 2001 were not available. Main Lines Installed (1,000’s) In Operation (1,000’s) Main Lines per 100 inhabitants

1978 850 830

1990 2,427 2,199

1992 3,686 2,998

1994 5,509 4,319

1996 6,500 5,824

1997 7,300 6,513

1998 7,645 6,658

1999* 8,285 7,354

2.31

4.01

5.24

7.21

9.28

10.13

11.0

13.0

* First three months Source: Telecommunications Company of Iran The number of fixed lines, however, is expected to rise to 20 million by end of the Third Economic Plan (20002005).

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Data as of June 2002

Geographic Coverage The development and expansion of rural communication has been one of the major objectives of the Telecommunications Company of Iran (TCI), which is the main organizing and supervising body in the industry. In light of this, systems such as point-to-point and point-to-multipoint digital radio, aerial optical fiber cable, and satellites have been used to provide communication facilities for rural areas in Iran. These plans have resulted in a huge increase in the number of villages covered by the telephone network. In addition, the situation in urban areas has also greatly improved. In March 1999, about 18,051 villages were connected to the national telecommunication network in Iran. The same number for 1978 was only 313. Local Exchanges The number of high capacity and low capacity local exchanges has been growing at a tremendous rate. This has resulted in considerable growth in the number of local exchange communication channels, which has made it possible to provide service to some of the most remote regions in the country. Long-Distance Exchanges The long-distance network in Iran has a three-layer hierarchical structure, consisting of Primary Centers, Secondary Centers and Termination Exchanges. International Exchanges This network is currently based on two digital International Switching Centers (ISCs). Iran's more recent ISC has a capacity of 12,260 ports and was established in 1996 in Tehran (the first ISC is also in Tehran). The establishment of a third centre is expected in Shiraz in the near future, which would increase the total capacity by about 9,840 ports. Iran currently uses the No. 5 and CCS7 (Common Channel Signaling System No. 7, also known as C7) signalling systems to establish direct and transit routes for international connections. Internet The number of Internet subscribers in Iran stands at 400,000 and grows by 30% every six months. Internet cafés offering broadband access have been widely used by younger segments of the population to make lowcost telephone calls to relative and friends via Voice-Over IP (VoIP0 services. Cellular Phones During the 2nd Five Year Plan (1995-2000), the number of cellular subscribers in Iran increased from 9,200 to over 480,000, covering less than 1% of the country’s population. Although these figures show great improvements, Iran is yet far from meeting the overwhelming demand for more lines. To further develop the cellular network, in 2001, TCI announced a tender for 400,000 cellular GSM connections. Presently, Iran has over 1.5 million cellular lines. Optical Fiber Channels Fiber optic channels are rapidly gaining an important foothold in the Iranian telecom network, partly due to the cost-effective - and fully domestic - production of a variety of fiber optic cables and systems. The Trans-AsiaEurope (TAE) “Silk Road" fiber optic network, which connects Shanghai with Frankfurt via two redundant lines through northern Iran, currently puts 33 Iranian cities directly on line with Europe and the Far East and provides high-bandwidth access for the rest of the country. The system consists of 1,550 nm mono-mode fiber optic cable using SDH transmission technology operating at the STM-4 (622.080 Mbps) data rate, with the possibility of being increased to STM-16 (2.488 Gbps). With the current configuration, the system can carry 7,560 channels of traffic. All of the cable and transmission equipment used along the Iranian and Turkmen sections of the TAE was manufactured in Iran.

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Data as of June 2002

Another fiber optic link connects TCI's network at Jask, on Iran's southern coast, to Fujairah in the UAE. This 172 km long underwater line, which was put into service by Alactel, is a direct connection with no repeaters, and supports up to 140 Mb/s bit rate over 6 fiber pairs.

Opportunities There are number of projects proposed for the 3rd Five year Plan (200-2005) where foreign capabilities and expertise can fully compete with other competitors from Europe and Far East. These projects include public switching networks, mobile communication system, fiber optic systems, satellite based systems especially VSAT’s, data transmission networks, the Internet, spectrum management, transition from analog to digital system and rural telephone projects. Iran plans to achieve the followings by March 2005: • • •

Increase it’s 1.5 million mobile subscribers to over 10 million Increase fixed lines from 9.5 million to 20 million Have internet access in all the cities of Iran (by March 2002, over 120 cities will be hooked to internet, at the present the number of Internet subscribers stands at 400,000)

In addition, Iran has a particular need for the transfer of technology, which has prompted TCI to publish lists of projects that are open to international companies, and issue tenders to foreign enterprises on a regular basis. However, the market consists of more than just bidding for the major projects put forward by TCI, especially since the organization will be increasingly restricted in its ability to manage and finance large projects as the Iranian government tries to reduce its size. A greater number of projects and programs will therefore rely on the private sector, which will in turn provide more opportunities for foreign companies.

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Data as of June 2002

The private sector is actively engaged in providing telecommunications equipment and, increasingly, services, and TCI uses equipment produced by Iranian businesses as much as possible (including cables, switching equipment, microwave and radio equipment transmitters and receivers, telecommunications towers, and measuring equipment, etc.). In recent years TCI has also expanded the private sector's role in providing services in areas such as the development, operation and maintenance of local exchanges, paging facilities, cellular phone exchanges, public telephones, telephone centers, cable networks, and multiplexers. Private domestic or foreign companies carry out development projects, the commission of which is subject to TCI approval. The Iran Telecommunications Research Centre (ITRC), the research arm of TCI, also invests in developing technology, which is then made available to domestic producers, however the majority of the developments are relatively unsophisticated. Iran still relies on foreign companies for hi-tech products and services, which create business opportunities for overseas - especially western - firms. TCI may see fit to deal directly with foreign vendors and contractors to acquire the software and infrastructure necessities, but would likely assign aspects of the projects’ implementation to the private sector, for example in the upgrade of base stations. Market Access Issues Although there has not been any strict interpretation of the constitution, Iran’s constitution clearly states that the telecommunications sector has to be entirely nationalized. However, according to the Third Five Year Plan the government is authorized to take the required actions to have telecommunications services rendered by the domestic Iranian non-government sector. Iranian non-government sector can include any company has been registered in Iran. Iran has experienced similar limitations in other sectors (banking, insurance), but a gradual change in the interpretation of the constitution has allowed for a certain level of private ownership. Thus, it is expected that radical developments will not be seen in the privatization of the Iranian telecommunications sector (as in most other emerging markets), and will instead follow a step-by-step approach. According to TCI regulations, foreign companies cannot participate directly in telecommunications projects unless they transfer expertise or technology to Iranian companies. The organization will only use local private companies for its primary contractors, however they are authorized to involve foreign companies as long as the specified conditions are met. All tenders consist of two parts: local supplies based on local currency and foreign supplies based on hard currency agreements. Any local contractor must be authorized by the foreign company it represents, and should possess the necessary technical background. At the same time a number of Iranian companies, which aim to become TCI's prime contractors, will need technology in the future to meet the industry demand. The general approach to obtaining technology is through joint ventures or license agreements with foreign partners.

Major Competition Local private and semi-private commercial entities are as follows: Iran Telecommunications Industries Iran Telecommunications Industries (ITI) was established in 1973 in Shiraz as a fully dependent subsidiary of TCI. In the past 20 years ITI has equipped the telecommunications network by manufacturing analogue and digital transmission equipment, and has also contributed to the communications developments in Iran. ITI currently employs over 2000 staff, and claims to be constantly upgrading its technology to keep up with international standards. The company is responsible for maintaining and expanding Iran's telecom network and providing it with all the necessary hardware and software. Pars Telephone Kar Pars Telephone Kar (PTK), a privately owned company, is a major developer, manufacturer and supplier of PABXs, public exchanges, personal computers and computer networks. It has been operating for 15 years, has more than 200 employees, and has established a nationwide network of 75 vendors as well as benefiting from a very close relationship with TCI. Traditionally, the major focus of PTK's business has been on developing PABXs, and the company has a growing base of over 3500 installed systems, most of which are computerized. Major products are the PDX-1, PSX-104, PSX-600, and PSX-36 systems (details and technical specifications of Atieh Bahar Consulting – Iran Telecom Sector Study – Page 4

Data as of June 2002

which are available on the company’s website). The rapid growth of the computer and communications fields in Iran has resulted in PTK's involvement in both the distribution and installation of these systems. PTK is also experienced in designing and developing communications hardware and software. Keresm Communications Research Established in 1991 with only twenty employees, KCR is one of the few high-tech Iranian companies with a growing international presence. It is essentially a research and development (R&D) company specializing in mobile communications, IC design, industrial automation, and instrumentation. KCR prides itself on the R&D of state-of-the-art technology for its clients. The company was originally setup to provide a high-tech consultancy service for clients in the fields of mobile and RF communications, and electronics. With a rate of growth that has almost doubled every year since its establishment, KCR has been very successful in completing its projects. These have ranged from analog RF communications, IC design of mobile telephones and handsets, production-ready design of measurement instruments, and complete design and implementation of a factory monitoring system with remote access. Hi Tel Kar Hi Tel Kar is a small company involved in the preparation, production and sale of communication equipment, including cable networks, M.D.F. equipment, and metallic components of long distance lines, as well as cable accessories for the non-pressurized telephone network. The following foreign competitors are also currently active in Iran: Siemens By far the best represented foreign company on the country’s telecommunications scene, Siemens' relationship with Iran dates back to 1926. Thirty years later it supplied Iran’s first telephone switching and communications technology. Nokia In 1992 Nokia was chosen to provide TCI with a complete GSM 900 network. Commercial services were first launched in Tehran, and since then coverage has been extended to major provincial cities. Fax and data services have also been added. Alcatel Alcatel has been involved in installing various switching systems in Iran, most notably the Alcatel 1000 S12, which involves 2,597,000 terminals and 156 exchanges. Besides supplying a large proportion of Iran's digital switches and establishing the DCI X.25 data network, in 1992 Alcatel participated in a major project laying underwater fiber optic cables between Iran (TCI) and the U.A.E. (Etisalat). Ericsson Ericsson has been active in Iran since 1992, and currently has 45 employees in Tehran. At present, its Tehran office is considering an Internet link-up between Ericsson Data and the Ericsson Corporate Network (ECN). In May 1998 Ericsson was awarded its first AXE contract in Iran, valued at approximately US $45 million. The equipment, bought by TCI, is in the process of being installed in Tehran. In addition to AXE, the contract includes training, transfer of technology, establishing a repair center and a support center. Ericsson cited Iran’s huge demand for telephone services - as well as its increasingly accessible economic climate - as factors contributing to the country’s being a very important market for the company. ItalTel On February 1, 1999 Iran’s Minister of Post, Telegraph and Telephone, Dr. Mohammad Reza Aref, signed an agreement with Italy’s Post and Telecommunications Minister, Salvatore Cardinale, to expand bilateral cooperation in the sector. The two national companies, TCI and Italtel, are working together on research and production methods, in addition to trading various forms of technical equipment and exchanging technical expertise. Telecommunications channels between the two countries are to further increase, with specific emphasis on fiber optic technology.

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Data as of June 2002

Useful Information Sources / Websites International Commerce Center of Iran: www.icciran.com Trade Partners UK: www.tradepartners.gov.uk/telecom/iran/profile/overview.shtml Telecommunication Company of Iran: www.science-arts.org/internet/node186.html Iran telecommunication Research Center: www.icciran.com/itrc/ Global Tel: http://ld.net/globaltel Hi Tel Kar: http://neda.net/hitelkar Keresm Communications Research: http://www.keresm.com Pars Telephone Kar: http://neda.net/parstelkar

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Data as of June 2002