Remote Success

With the MTN Group’s operations in Afghanistan and Iran still in their respective launch years, both operators have made significant gains in challenging market environments. Etisalat is set to follow suit shortly in Afghanistan and in Iran, the licensing of a third mobile operator is forecast. Ronan Shields takes a closer look at these two country’s unconventional mobile markets.

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By  Ronan Shields Published  May 30, 2007

Iran and Afghanistan|~|IranianGirlonphone.200.jpg|~|MTN Irancell added close to 1 million subscribers in 1Q07 alone.|~|With the MTN Group’s operations in Afghanistan and Iran still in their respective launch years, both operators have made significant gains in challenging market environments. Etisalat is set to follow suit shortly in Afghanistan and in Iran, the licensing of a third mobile operator is forecast. Ronan Shields takes a closer look at these two country’s unconventional mobile markets. The tenuous political climates in Iran and Afghanistan may be good reason for foreign investors to be wary of establishing sustainable businesses there, but the telecoms sector defies the odds but has seen substantial investment and returns being generated from these two markets in recent years. South African operator MTN Group operates networks in both Iran as well as Afghanistan, and the company's results in 1Q07 reflected the rampant subscriber growth being achieved in these markets, be it from particularly low installed bases. MTN Irancell posted a 601% growth in its customer base quarter-on-quarter for the three months to end-March, adding a total of 926,000 subscribers to end the period with a total of 1.08 million users. Growth in Afghanistan during 1Q07 to end-March represented a 62% growth rate, with the operator – Areeba Afghanistan - adding a total of 136,000 new users. The number of subscribers on the operator's network numbered 354,000 at the end of March. Having launched in October 2006, MTN Irancell’s subscriber base has grown exponentially, and key to the addition of over 1 million subscribers in under six months has been the operator’s ability to rollout its network in over 70 cities since launch. This has enabled the operator to offer end-users advanced data services such as MMS and mobile internet services. MTN Irancell reported the lowest monthly ARPU across MTN’s international operations in 4Q06 amounting to US$9, but the addition of value-added services has aided the operator in raising the ARPU level marginally in 1Q07 to US$10, representing an 11% quarter-on-quarter growth rate. Overall mobile penetration in Iran stood at approximately 20% of the country’s 70 million-strong population, with incumbent operator TCI continuing to dominate the domestic market. In Afghanistan, MTN gained a foothold through its acquisition of Investcom last year, a company that was in the process of establishing its Areeba brand across a number of markets in the Middle East and Africa. In July 2006, Areeba Afghanistan launched services as the country’s third GSM operator, in competition with market leader Roshan as well as Afghan Wireless Communications Company (AWCC). Since winning the third licence in 2005 with a US$40.1 million bid, Areeba invested over US$140 million in the network. Investcom initially bid for the second licence in the country back in 2003, offering US$1 million compared to Roshan’s US$5 million. The fact that the company came back with a much higher offer years later shows the opportunity of the mobile market, according to Roshan CEO Karim Khoja. “Three years later, they’ve seen the success that we’ve had, and are willing to up the ante by eight times what we paid.” ||**||Mobile penetration|~|Afghanistan.Mobile.200.jpg|~|Many Afghanistan mobile subscribers were forced to own more than one mobile subscription in order to avoid the country's high interconnection fees.|~|Areeba Afghanistan believes there remains a significant opportunity to participate in the country’s mobile market. “We estimate that mobile phone penetration will rise to somewhere between 3.6 and 4 million subscribers by year-end 2007, that’s almost double the current number of mobile phone users in the country [2.4 million],” says Kauser Najmee, chief marketing officer of Areeba Afghanistan. When Areeba’s licence agreement was finalised in 2005, mobile penetration in the country stood at 3.3%, and the operator has looked at expanding its network rapidly in a bid to add new subscribers to the network as quickly as possible. Mobile penetration has grown in Afghanistan from 4.5% in July 2006, when Areeba entered the market, to 6.45% as of June this year. Presently, Areeba’s network extends to 19 of Afghanistan’s 35 provinces and by the end of July this coverage is expected to cover almost every “small-to-medium size town in Afghanistan” according to Najmee. “Given the delicate security situation in certain parts of Afghanistan it is not always possible to rollout infrastructure in every part of the country as certain areas are beyond government control,” Najmee comments. Areeba Afghanistan’s ARPU fell from US$14 to US$12 in the three months to end-March, and Najmee admits the market is a relatively low ARPU one, though what continues to make the venture so appealing is the low level of mobile phone penetration, which the operator is helping to rise steadily. The operator continues to rank third in the Afghan market with a 17% market share, behind incumbents Roshan and AWCC, which hold 48% and 35% market shares respectively. “Our development over the last few months has been significant as we successfully added 220,000 subscribers to our network since 4Q06,” adds Najmee. He also attributes the continued growth in subscriber numbers to the operator’s specific targeting of the country’s large proportion of first-time mobile phone users. Areeba reports that almost 98% of its customers in Afghanistan are prepaid and suggests the main thrust of its strong marketing campaign is to win favour with this potential mass market. “Our activities in the market have centred on adding value to our services. We have invested US$100 million since we began operations in Afghanistan and much of this has been aimed at instilling confidence in the market,” says Najmee. The operator reports that a major bar to Afghan end-user uptake had been the inefficient prepaid network services in place. Najmee further claims the old network systems resulted in a situation where consumers were overcharged for services causing them to shy away utilising mobile telephony. “Our solution to this scenario was to have system-generated messages detailing the tariff end-users had incurred, as well as informing customers of their remaining credit. This transparent service enabled us to keep in constant contact with our customer base and gain their trust,” explains Najmee. Additionally, Areeba has introduced a number of other value-added services aimed at the entry-level market. These include a starter pack offering free SMS and a per second pricing structure, as well as additional services enabling users to send an SMS requesting a callback free of charge. With a number of interconnection agreements also in place, Areeba Afghanistan claims to be the first mobile operator in the market to offer users a flat rate billing system with no extra charges for calling subscribers on different networks. “Before we entered the market with this pricing strategy a large proportion of Afghanistan’s end-users had to have two separate SIM cards and mobile phones to avoid the costs of calling another network,” claims Najmee. ||**||

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