Lost opportunity

Etisalat’s failure to secure Iran’s second mobile licence has surely come as a significant blow to the UAE incumbent

Tags: Emirates Telecommunications CorporationUnited Arab Emirates
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By  Roger Field Published  May 13, 2009

Etisalat’s failure to secure Iran’s second mobile licence has surely come as a significant blow to the UAE incumbent, and the emergence of a consortium led by rival Zain as its replacement can only exacerbate its sense of frustration.

Certainly, the Etisalat-led consortium appeared to be the natural choice of telecom operator to enter Iran, with the UAE’s close proximity to the country, long standing commercial ties between the two nations, and a significant Iranian population in the UAE all pointing to a strong business case.

But just four months after being named as the winner of the licence, Etisalat’s hopes of expanding its presence into Iran appear to be dashed.

With only a minimal response from Iran’s Communications Regulatory Authority (CRA), which told Iran’s official IRNA news agency that the Etisalat-led consortium had not “fulfilled obligations” or paid its licence fee on time, speculation about the collapse of the deal is rife.

This has been fuelled further by Etisalat’s limited response. So far, the company has remained silent apart from confirmation that it “received a notification” from the Iranian CRA that the consortium “is no longer the winner of the Iranian third mobile license”.

While it is difficult to guess the genuine reasons for the CRA’s u-turn, it seems unlikely that a company of Etisalat’s size and experience of overseas expansion would forget to pay a licence fee on time, or fail to fulfill obligations.

One reason for the loss of the licence being mooted by some analysts is that the consortium may have wanted to amend or confirm certain aspects of the agreement, perhaps to iron out any ambiguities, and that this led to a wider breakdown in the deal.

The experience of Turkcell, which had been selected to back Iran’s first private GSM operation back in 2005, lends some credibility to this view. The Turkish operator was edged out of the deal following disagreements with Iranian authorities concerning the size of its stake in the enterprise, and was eventually replaced by MTN Group.

Some commentators have suggested that the decision to deny Etisalat the licence could have been driven at least partly by politics, although this seems unlikely. If politics had ever been an issue for the CRA, it would have probably selected another winner from the outset.

It is also possible that both sides decided that the deal was unsuitable. Perhaps Etisalat thinks it will be able to find a better, or less risky, opportunity to enter Iran in the future. The company did say in a statement that it remains committed to the development of the Iranian telecom market and that it perceives Iran as “a great investment opportunity”.

While Etisalat mulls its options, it may take comfort by focusing on some of the more negative aspects of entering Iran. Although it would have gained access to a country with a population of more than 70 million people, it has also been spared some restrictive business conditions, including a law that demands private operators pay a hefty share of their revenue to the government.

Indeed, according to press reports in January, Jamal Al Jarwan, CEO of Etisalat International Investments, the Etisalat consortium had agreed to pay the Iranian government 23.6% of its revenue under a 15 year licence deal.

As Mauricio Franca, a partner at consultancy firm Delta Partners told CommsMEA, this type of agreement makes business planning particularly tricky, mainly because the private operator is obliged to provide the government a prediction of its projected revenue. If a company fails to hit its projected figures, it must still pay 80% of its projected revenue share, effectively raising the fee for companies that fail to hit their targets.

But this is most likely cold comfort to Etisalat, as it no doubt watches Zain’s progress in a market that retains plenty of potential.

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