Remote success

The tenuous political climates in Iran and Afghanistan may be good reason for foreign investors to be wary of establishing sustainable businesses there. However, the telecoms sector has defied the odds and substantial foreign investment has been attracted in both these markets in recent years.

South African operator MTN Group operates networks in Iran as well as Afghanistan, and the company's results for 1Q07 reflect 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 numbers 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 service provider 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 footprint in 4Q06 amounting to US$9, but the addition of value-added services aided the Iranian 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.

In July 2006, Areeba Afghanistan launched services as the country's third GSM operator, in competition with market leader Roshan and Afghan Wireless Communications Company (AWCC).

Since winning the third licence in 2005 with a US$40.1 million bid, Areeba went on to invest 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 were willing to up the ante by eight times what we paid."

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% currently.

Presently, Areeba's network extends to 19 of Afghanistan's 35 provinces and by the end of July this coverage is expected to extend to 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.