Fighting Talk

South African mobile operator MTN has given guidance on its subscriber level predictions and infrastructure partners for its 49% investment in Iran's second mobile licence holder. Alex Ritman considers the potential risks and opportunities for the new operator, branded MTN Irancell, as it edges towards commercialisation.

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By  Alex Ritman Published  April 30, 2006

|~|Phuthuma-NhlekoMTN200.jpg|~|MTN CEO Phuthuma Nhleko believes that Iran, after South Africa and Nigeria, will become the operator's third key growth pillar.|~|MTN has said it expects to push the number of mobile subscriptions in Iran up to 31 million by 2015. The South African operator has so far been cautious about detailing plans for its first investment in the Middle East, but as the Iranian consortium of which it is a 49% stakeholder works towards the launch of services commercially, MTN is more forthcoming regarding its outlook. The new operator is due to commercially launch in the third quarter of 2006, according to MTN Group CEO Phuthuma Nhleko. “August is when we are expected to launch. We are hopeful that we will meet that date.” Alongside its major operations in South Africa and Nigeria, Nhleko believes Iran is set to become the third key growth pillar for MTN. By the end of 2006, having been operational for less than five months, Nhleko hopes to have 1.5 million MTN Irancell subscribers in place, translating to the addition of over 300,000 subscriptions a month. A fairly optimistic target perhaps, but with the mobile penetration rate among Iran's 69 million population standing at just 11%, it is not unobtainable. Nhleko says he hopes to expand this penetration rate to 40% of Iranians by 2015, with ARPU per month for MTN reaching US$10. Chris Kilowan, who heads up MTN's office in Tehran and is a director of the new operator, says that MTN hopes to gain around 50% of the market by 2015. “The Irancell projections are about half of this 31 million figure,” he says. The operator will be branded MTN Irancell and the South African operator will be heavily dependant on its local partners in order to connect with the Iranian people. “(The name of the operator is) MTN Irancell. It has the MTN colours and logo,” says Kilowan, adding that the company's board will sign off the branding and marketing plan this month before it is unveiled to the public shortly thereafter. Figures from IDC research predict that by 2010, Iran will have 20 million mobile subscribers. Mohsen Malaki, the research company's MEA region programme and consulting manager, says that it is difficult to forecast the market as far out as 2015 and say whether 31 million is an obtainable figure. “It plausible, but difficult to verify, but it is something that the GDP per capita of the country could sustain,” says Malaki, adding that, from an economic income level perspective, it’s feasible for Iran to achieve even higher than 50% mobile penetration. A significant and growing threat to MTN Irancell and the entire Iranian economy in general is the risk of sanctions or military action as international concern over the Iranian government's use of nuclear power escalates. Even Nhleko admits Iran's political situation could well be a challenge for the company. “The honest truth is we have not budgeted for bomb shelters, because we generally take a far more positive view of life.” The continuing ban on US patented products being imported into Iran could also have a negative impact on the operator's network deployment. “MTN is going to need to leverage vendors that are allowed to export to Iran, so maybe Chinese vendors,” says Malaki. Chinese manufacturer Huawei is indeed among MTN's list of suppliers. “Nokia will supply the core network,” says Kilowan, who denies that the US ban has affected any infrastructure plans. “And Nokia, Huawei, Alcatel and Ericsson will each supply parts of the base station network that will connect into the core, because of the demands to have the network rolled out in a very short space of time.” ||**|||~||~||~|According to stipulations by the Iranian government, MTN Irancell must have rolled out its network to 50% of the population in its first year. While Nhleko describes this demand as "onerous" he says that having around 12-15 million of Iran's 69 million population living in Tehran should assist in the operator's efforts to reach its initial coverage targets. So far, MTN has issued infrastructure tenders to the tune of US$603 million. The operator says that peak funding is estimated to be around US$1.5 billion, which will be reached in 2007/2008. Regarding market entry strategies, Kilowan says that obviously the tariff structures and products will be aimed at attracting as many subscribers as possible over as short a space of timeas possible. “We have developed quite a comprehensive plan for both marketing and distribution,” Kilowan states. Currently the market in Iran is predominantly contract based, though Kilowan suggests that MTN Irancell will offer a combination of contract and prepaid subscriptions. The Iranian regulator has already gotten involved regarding tariffs, but not any more than any other national regulator says Kilowan. “We've been given quite a wide band with which to fix our tariffs, which is not very distant from any other regulator. We've been given the band and we're comfortable that within that band we can develop appropriate products.” Despite MTN's stake in Irancell being below the level necessary to assume management control of the operation, Kilowan says MTN's influence within MTN Irancell is significant. “The chief operating officer and chief financial officer are both MTN people,” he says. The CEO, however, is Iranian. MTN's official role within the consortium is that of technical partner, and Kilowan says the South African operator has had no difficulty in fulfilling that position. Within two or three years, he predicts that over 90% of MTN Irancell employees will be Iranian. “It's the same as what we have done in other parts of the world, like in Nigeria or Uganda. Over time we have trained up locals to take up senior positions in our operations.” There are obviously cultural differences for an African company entering one of the most conservative Middle East nations. However, IDC's Malaki says this should not constitute a significant risk. “It is an African company, and obviously the cultures are different, but it's more an issue of business culture, and to be able to deal with countries where the government gets involved in a lot of details.” MTN, with its operations across sub-Saharan Africa will no doubt have similar experiences, helping positioning it well in Iran. “What our African operations have taught us is that there is always more than one way to solve a problem,” says Kilowan. “And that is what we are bringing to Iran. Obviously there are many challenges, but because we have learnt to think these things through creatively we have managed to resolve those issues that could potentially cause serious problems. Because of the way we generally approach problems I think we have been able to overcome a lot more here than if we did not have that experience in Africa,” Kilowan adds. Another issue that is set to impact on MTN Irancell's business in the near-term is the entry of a third mobile operator into the market. “I think the government is probably going issue something by 2007,” forecasts Malaki. Judging by the time it took for the second licence to be awarded, it could possibly be 2008 before the operator commercialises its operations. “So in reality, if MTN gets up and running soon, and is allowed (relatively) free rein with regard to pricing and deployment, then it shouldn't be a problem and it'll get a good head start as second operator,” predicts Malaki. The penetration rate though, still allows huge room for growth even with the arrival of a third operator. Malaki believes that should no hurdles arise, MTN Irancell's ambitious plans and targets can be realised. “I think realistically speaking the operator’s forecast is reasonable but it really depends on if it has issues with its deployment, pricing, and so on,” Malaki forecasts. ||**||

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