The entrance of a second player in the Iranian market has heralded the beginning of an era in the country’s mobile industry. With the expectation that it will start offering services in mid-2006 and a third player in late 2008, Pyramid Research forecasts the country’s mobile penetration to more than double over the next five years, increasing subscriptions from 7.1m at YE2005 to 18.6m by 2010.
For years, subscribers in Iran were at the mercy of the country’s largest and only telecommunications provider, TCI. Although TCI has done a fairly decent job of establishing a telecommunications infrastructure in the country, the lack of competition never really compelled the operator to offer services at a level on-par with operators from rest of the world. Service issues and an extremely high one-time connection fee of up to US$1,200 have kept potential subscribers at bay.
The expected entry of IranCell in 2006 and a third operator in late-2008 will drive significant growth over the next five years. Pyramid Research Iran Mobile Demand Forecast charts the growth from a mere 7.1m subscriptions at YE2005 (penetration of 10 percent), to 18.6m by YE2010, equally 25 percent penetration. This growth will be driven by the introduction of competition (only 14 percent of net additions will be on TCI’s network), and the introduction of prepaid in a country which until 2004 only had post-paid subscriptions. Although TCI introduced prepaid subscriptions for the first time in 2005, only a mere 30 percent of 2005’s net additions are expected to be TCI’s prepaid platform. However, with the new entrants expected to add vibrancy to the market beginning in 2006, 84 percent of net additions from 2006 to 2010 are expected to occur on the prepaid platform
The introduction of competition will result in the lowering of connection/activation fees to levels in-line with global standards, average revenues per subscriber (ARPS) in local currency should rise due to operators’ increasing per-minute tariffs. Driving an increase of per-minute tariffs (in local currency) is due to that fact that TCI enjoyed healthy revenue growth and EBITDA margins primarily because of their high connection fees. TCI could then subsequently afford to offer lower per-minute tariffs to its subscribers. The lowering of connection fees due to increased competition and the introduction of prepaid, operators would need to raise per-minute tariffs in order to maintain profitability. Since Pyramid Research ARPS calculations exclude one-time connection, activation, and termination fees, the increase in per-minute tariffs will result in our forecasts indicating a rise in ARPS.
