Iran: Zain poised to take advantage of Etisalat's troubles?

Many people who visit this blog regularly will probably have been following the saga of Iran's third national mobile licence. This is something I've personally tracked for some time. Without claiming any particular expertise or any direct involvement in the various twists and turns, at times I've been just about close enough to some of the interested parties to maintain an interest.

In 2008 I hosted a conference in Moscow. The Deputy CEO of Russian cello MegaFon, Sergei Soldatenkov, was among the speakers and did not seem to be in stealth mode when firing questions to a speaker from an Iranian delegation, which was on hand to raise the visibility of the third mobile licence auction and other investment opportunities in their country's telecoms sector.

At other times, I've had reason to spend time in Istanbul. So Turkcell is a company which I find myself watching with interest. The market-leading Turkish cellco had to go legal after a painful, untimately unsuccessful attempt to secure Iran's the second national mobile licence. South Africa's MTN eventually took advantage of Turkcell's rebuttal by the Iranian Government.

A foothold in the Iranian market does, on one hand, look like a rather rich prize for courageous strategic investors in the telecoms space. The latest mobile penetration figure from WCIS is just 72.02%, which is low for a country with a well-educated, youthful and growing population. Moreover, the third national mobile licence comes with a useful two-year exclusivity period with regard to the provision of 3G services. On the other hand, the Islamic Republic is not a market in which a foreign telco can establish full ownership of an operation. Local investors are required by law, with the non-Iranian party limited to a 49% stake in a telco.

Etisalat weighed all of this up and decided to proceed with what turned out to be a winning bid.

Many of you, however, will be aware that this deal now appears to have gone sour. This is due to different problems to those encountered by Turkcell a few years ago. Complications around getting into Iran, however, do seem to be something of a recurrent theme.

I've received news updates about the stalled Etisalat deal almost daily for around a week now. The most recent one came yesterday from Cellular News, whose article reports the UAE-based telecoms group is in talks with Iran’s telecoms regulatory agency in an effort to retain the recently acquired licence. As the article reminds us, the regulator earlier withdrew the 2G and 3G concession which was awarded in January, claiming that Etisalat failed "to give necessary guarantees and licence fees on time".

Quoted in the article, Mohammed Omran, CEO of Etisalat, is keen to assert that "The Iranian regulator did not strip Etisalat of the country’s third mobile licence; but disagreement with its local partner may have cost the company the licence. The local partner that controls the consortium that was awarded the licence wanted to change the terms of the deal, which put it at odds with the Iranian regulator."

The Cellular News piece indicates that Zain may be waiting in the wings in anticipation of Etisalat not being able to turn this around. Zain are reported to have stated that the asking price may be too high considering the current economic climate. The Iranian Government, however, may be unimpressed by any attempt to cite economic woes as justification for a significantly lower bid. According to Cellular News, a spokesman for the Iranian regulator has stated that "the price proposed by Zain should not differ by more than 5% from Etisalat’s proposition."

Iran: Zain poised to take advantage of Etisalat's troubles?