Telecommunications

Iran's telecommunications market has been booming and its growth shows no signs of slowing. There are
several reasons for this phenomenon, the most important of which are the development of the installed base of
Iran's telecommunication, the change in policies that allow for more private as well as foreign investment, and
the country’s significant demographic trends.

Although the telecommunications industry was one of the least developed sectors of the Iranian economy until
the late 1980s, the strong demand for modern technology brought rapid structural changes in the following
decade. This has created business opportunities for foreign firms both in conventional as well as emerging
technologies and the industry’s development in the last ten years has been quite unprecedented. As such, the
communications market in Iran is not only the largest and most significant in the Middle East, but also provides
access to other regional markets.

Market Overview
The industry in Iran is entirely government-owned and is regulated by the Ministry of Post, Telegraph and
Telephones. The ministry has recently initiated a restructuring process that involved establishing provincial
telecommunication companies in the form of subsidiaries, which operate as profit centers. The absence of
private investment and competition in this sector has created a bottleneck, which prevents the national demand
from being met either in terms of quantity or quality.

The ultimate goal of deregulating Iran’s telecommunication sectors is to guarantee that Iranian businesses and
individuals have access to advanced telecommunications technology. This would allow the public as well as the
domestic economy to take full advantage of the opportunities available in the information age. It has to be clear
to all Iranian decision makers that deregulation of the country’s telecommunication sector is not optional or
merely the latest international trend that one can use or not. It is absolutely necessary if Iran is to avoid falling
behind the global economic norm.

Fixed Telephone Lines

In 1978 there were only about 850,000 fixed lines installed in Iran. This number rose to about 8,285,000 by
March 1999. The number of fixed lines in operation during the same period, increased from 830,000 to
7,354,000. The telephone penetration factor, number of main lines per 100 habitants, in March 1999 was 13,
while the same factor for 1978 was only 2.31. The table below presents the number of installed main lines,
main lines in operation and telephone penetration factor in Iran (1978 – 1999). Information on fixed lines for
2000 and 2001 were not available.

Main Lines 1978 1990 1992 1994 1996 1997 1998 1999*
Installed (1,000’s) 850 2,427 3,686 5,509 6,500 7,300 7,645 8,285
In Operation (1,000’s) 830 2,199 2,998 4,319 5,824 6,513 6,658 7,354
Main Lines per 100
2.31 4.01 5.24 7.21 9.28 10.13 11.0 13.0
inhabitants
* First three months
Source: Telecommunications Company of Iran

The number of fixed lines, however, is expected to rise to 20 million by end of the Third Economic Plan (2000-
2005).

Atieh Bahar Consulting – Iran Telecom Sector Study – Page 1 Data as of June 2002
Geographic Coverage

The development and expansion of rural communication has been one of the major objectives of the
Telecommunications Company of Iran (TCI), which is the main organizing and supervising body in the industry.
In light of this, systems such as point-to-point and point-to-multipoint digital radio, aerial optical fiber cable, and
satellites have been used to provide communication facilities for rural areas in Iran. These plans have resulted
in a huge increase in the number of villages covered by the telephone network. In addition, the situation in
urban areas has also greatly improved. In March 1999, about 18,051 villages were connected to the national
telecommunication network in Iran. The same number for 1978 was only 313.

Local Exchanges

The number of high capacity and low capacity local exchanges has been growing at a tremendous rate. This
has resulted in considerable growth in the number of local exchange communication channels, which has made
it possible to provide service to some of the most remote regions in the country.

Long-Distance Exchanges

The long-distance network in Iran has a three-layer hierarchical structure, consisting of Primary Centers,
Secondary Centers and Termination Exchanges.

International Exchanges

This network is currently based on two digital International Switching Centers (ISCs). Iran's more recent ISC
has a capacity of 12,260 ports and was established in 1996 in Tehran (the first ISC is also in Tehran). The
establishment of a third centre is expected in Shiraz in the near future, which would increase the total capacity
by about 9,840 ports. Iran currently uses the No. 5 and CCS7 (Common Channel Signaling System No. 7, also
known as C7) signalling systems to establish direct and transit routes for international connections.

Internet

The number of Internet subscribers in Iran stands at 400,000 and grows by 30% every six months. Internet
cafés offering broadband access have been widely used by younger segments of the population to make low-
cost telephone calls to relative and friends via Voice-Over IP (VoIP0 services.

Cellular Phones

During the 2nd Five Year Plan (1995-2000), the number of cellular subscribers in Iran increased from 9,200 to
over 480,000, covering less than 1% of the country’s population. Although these figures show great
improvements, Iran is yet far from meeting the overwhelming demand for more lines. To further develop the
cellular network, in 2001, TCI announced a tender for 400,000 cellular GSM connections. Presently, Iran has
over 1.5 million cellular lines.

Optical Fiber Channels

Fiber optic channels are rapidly gaining an important foothold in the Iranian telecom network, partly due to the
cost-effective - and fully domestic - production of a variety of fiber optic cables and systems. The Trans-Asia-
Europe (TAE) “Silk Road" fiber optic network, which connects Shanghai with Frankfurt via two redundant lines
through northern Iran, currently puts 33 Iranian cities directly on line with Europe and the Far East and provides
high-bandwidth access for the rest of the country. The system consists of 1,550 nm mono-mode fiber optic
cable using SDH transmission technology operating at the STM-4 (622.080 Mbps) data rate, with the possibility
of being increased to STM-16 (2.488 Gbps). With the current configuration, the system can carry 7,560
channels of traffic. All of the cable and transmission equipment used along the Iranian and Turkmen sections of
the TAE was manufactured in Iran.

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Another fiber optic link connects TCI's network at Jask, on Iran's southern coast, to Fujairah in the UAE. This
172 km long underwater line, which was put into service by Alactel, is a direct connection with no repeaters,
and supports up to 140 Mb/s bit rate over 6 fiber pairs.

Opportunities
There are number of projects proposed for the 3rd Five year Plan (200-2005) where foreign capabilities and
expertise can fully compete with other competitors from Europe and Far East. These projects include public
switching networks, mobile communication system, fiber optic systems, satellite based systems especially
VSAT’s, data transmission networks, the Internet, spectrum management, transition from analog to digital
system and rural telephone projects.

Iran plans to achieve the followings by March 2005:

• Increase it’s 1.5 million mobile subscribers to over 10 million

• Increase fixed lines from 9.5 million to 20 million
• Have internet access in all the cities of Iran (by March 2002, over 120 cities will be hooked to internet,
at the present the number of Internet subscribers stands at 400,000)

In addition, Iran has a particular need for the transfer of technology, which has prompted TCI to publish lists of
projects that are open to international companies, and issue tenders to foreign enterprises on a regular basis.
However, the market consists of more than just bidding for the major projects put forward by TCI, especially
since the organization will be increasingly restricted in its ability to manage and finance large projects as the
Iranian government tries to reduce its size. A greater number of projects and programs will therefore rely on the
private sector, which will in turn provide more opportunities for foreign companies.

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The private sector is actively engaged in providing telecommunications equipment and, increasingly, services,
and TCI uses equipment produced by Iranian businesses as much as possible (including cables, switching
equipment, microwave and radio equipment transmitters and receivers, telecommunications towers, and
measuring equipment, etc.). In recent years TCI has also expanded the private sector's role in providing
services in areas such as the development, operation and maintenance of local exchanges, paging facilities,
cellular phone exchanges, public telephones, telephone centers, cable networks, and multiplexers. Private
domestic or foreign companies carry out development projects, the commission of which is subject to TCI
approval.

The Iran Telecommunications Research Centre (ITRC), the research arm of TCI, also invests in developing
technology, which is then made available to domestic producers, however the majority of the developments are
relatively unsophisticated. Iran still relies on foreign companies for hi-tech products and services, which create
business opportunities for overseas - especially western - firms.

TCI may see fit to deal directly with foreign vendors and contractors to acquire the software and infrastructure
necessities, but would likely assign aspects of the projects’ implementation to the private sector, for example in
the upgrade of base stations.

Market Access Issues

Although there has not been any strict interpretation of the constitution, Iran’s constitution clearly states that the
telecommunications sector has to be entirely nationalized. However, according to the Third Five Year Plan the
government is authorized to take the required actions to have telecommunications services rendered by the
domestic Iranian non-government sector. Iranian non-government sector can include any company has been
registered in Iran. Iran has experienced similar limitations in other sectors (banking, insurance), but a gradual
change in the interpretation of the constitution has allowed for a certain level of private ownership. Thus, it is
expected that radical developments will not be seen in the privatization of the Iranian telecommunications
sector (as in most other emerging markets), and will instead follow a step-by-step approach.

According to TCI regulations, foreign companies cannot participate directly in telecommunications projects
unless they transfer expertise or technology to Iranian companies. The organization will only use local private
companies for its primary contractors, however they are authorized to involve foreign companies as long as the
specified conditions are met.

All tenders consist of two parts: local supplies based on local currency and foreign supplies based on hard
currency agreements. Any local contractor must be authorized by the foreign company it represents, and
should possess the necessary technical background. At the same time a number of Iranian companies, which
aim to become TCI's prime contractors, will need technology in the future to meet the industry demand. The
general approach to obtaining technology is through joint ventures or license agreements with foreign partners.

Major Competition
Local private and semi-private commercial entities are as follows:

Iran Telecommunications Industries

Iran Telecommunications Industries (ITI) was established in 1973 in Shiraz as a fully dependent subsidiary of
TCI. In the past 20 years ITI has equipped the telecommunications network by manufacturing analogue and
digital transmission equipment, and has also contributed to the communications developments in Iran. ITI
currently employs over 2000 staff, and claims to be constantly upgrading its technology to keep up with
international standards. The company is responsible for maintaining and expanding Iran's telecom network and
providing it with all the necessary hardware and software.

Pars Telephone Kar

Pars Telephone Kar (PTK), a privately owned company, is a major developer, manufacturer and supplier of
PABXs, public exchanges, personal computers and computer networks. It has been operating for 15 years, has
more than 200 employees, and has established a nationwide network of 75 vendors as well as benefiting from
a very close relationship with TCI. Traditionally, the major focus of PTK's business has been on developing
PABXs, and the company has a growing base of over 3500 installed systems, most of which are computerized.
Major products are the PDX-1, PSX-104, PSX-600, and PSX-36 systems (details and technical specifications of
Atieh Bahar Consulting – Iran Telecom Sector Study – Page 4 Data as of June 2002
which are available on the company’s website). The rapid growth of the computer and communications fields in
Iran has resulted in PTK's involvement in both the distribution and installation of these systems. PTK is also
experienced in designing and developing communications hardware and software.

Keresm Communications Research

Established in 1991 with only twenty employees, KCR is one of the few high-tech Iranian companies with a
growing international presence. It is essentially a research and development (R&D) company specializing in
mobile communications, IC design, industrial automation, and instrumentation. KCR prides itself on the R&D of
state-of-the-art technology for its clients. The company was originally setup to provide a high-tech consultancy
service for clients in the fields of mobile and RF communications, and electronics. With a rate of growth that
has almost doubled every year since its establishment, KCR has been very successful in completing its
projects. These have ranged from analog RF communications, IC design of mobile telephones and handsets,
production-ready design of measurement instruments, and complete design and implementation of a factory
monitoring system with remote access.

Hi Tel Kar

Hi Tel Kar is a small company involved in the preparation, production and sale of communication equipment,
including cable networks, M.D.F. equipment, and metallic components of long distance lines, as well as cable
accessories for the non-pressurized telephone network.

The following foreign competitors are also currently active in Iran:

Siemens

By far the best represented foreign company on the country’s telecommunications scene, Siemens' relationship
with Iran dates back to 1926. Thirty years later it supplied Iran’s first telephone switching and communications
technology.

Nokia

In 1992 Nokia was chosen to provide TCI with a complete GSM 900 network. Commercial services were first
launched in Tehran, and since then coverage has been extended to major provincial cities. Fax and data
services have also been added.

Alcatel

Alcatel has been involved in installing various switching systems in Iran, most notably the Alcatel 1000 S12,
which involves 2,597,000 terminals and 156 exchanges. Besides supplying a large proportion of Iran's digital
switches and establishing the DCI X.25 data network, in 1992 Alcatel participated in a major project laying
underwater fiber optic cables between Iran (TCI) and the U.A.E. (Etisalat).

Ericsson

Ericsson has been active in Iran since 1992, and currently has 45 employees in Tehran. At present, its Tehran
office is considering an Internet link-up between Ericsson Data and the Ericsson Corporate Network (ECN). In
May 1998 Ericsson was awarded its first AXE contract in Iran, valued at approximately US $45 million. The
equipment, bought by TCI, is in the process of being installed in Tehran. In addition to AXE, the contract
includes training, transfer of technology, establishing a repair center and a support center. Ericsson cited Iran’s
huge demand for telephone services - as well as its increasingly accessible economic climate - as factors
contributing to the country’s being a very important market for the company.

ItalTel

On February 1, 1999 Iran’s Minister of Post, Telegraph and Telephone, Dr. Mohammad Reza Aref, signed an
agreement with Italy’s Post and Telecommunications Minister, Salvatore Cardinale, to expand bilateral
cooperation in the sector. The two national companies, TCI and Italtel, are working together on research and
production methods, in addition to trading various forms of technical equipment and exchanging technical
expertise. Telecommunications channels between the two countries are to further increase, with specific
emphasis on fiber optic technology.

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Useful Information Sources / Websites
International Commerce Center of Iran: www.icciran.com
Trade Partners UK: www.tradepartners.gov.uk/telecom/iran/profile/overview.shtml
Telecommunication Company of Iran: www.science-arts.org/internet/node186.html
Iran telecommunication Research Center: www.icciran.com/itrc/
Global Tel: http://ld.net/globaltel
Hi Tel Kar: http://neda.net/hitelkar
Keresm Communications Research: http://www.keresm.com
Pars Telephone Kar: http://neda.net/parstelkar

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