Iran substitutes no. 2 for no. 1. Again

In a development that echoes the 2005 ousting of Turkcell as winner of Iran’s second mobile licence in favour of second-placed bidder MTN of South Africa, a consortium led by Zain, which was runner-up for the Persian country’s third mobile concession, is reported to have been handed Iran’s third mobile licence, following Etisalat’s alleged failure to comply with obligations.

Etisalat’s planned entry into Iran lies in ruins, should reports regarding its ousting from the third licence award prove to be true  

Mohammad Reza Farnaqi, a spokesman for Iran’s Communications Regulatory Authority is quoted as saying the consortium led by Etisalat had had its participation in the process cancelled, and that second-placed bidder Zain was now in a position to negotiate in order to be awarded the licence.

“With the elimination of Etisalat’s … consortium from the third operator project, the Zain Iran consortium, which was runner-up in the bidding, takes over the project,” Farnaqi, was quoted as telling media in Iran.

In January, Etisalat confirmed that together with Iran’s Tamin Telecom it had become the successful bidder for the country’s third mobile licence, at an upfront licence fee of around US$400 million. At the time, it had been suggested that Etisalat agreed to pay an amount of no less than 80 per cent of US$5.6 billion to the Iranian government during the course of its 15-year licence, which amounts to US$4.48 billion.

It was understood that in comparison, second-placed bidder Zain pledged to pay up to 80 per cent of US$3.8 billion (US$3.04 billion) over the life of the licence. Thus Etisalat’s pledge amounted to an annual payment of US$299 million in revenue share to the government, while Zain’s bid would have resulted in an annual payment of US$203 million a year for every year of the licence’s validity. At this time, it remains unclear whether Zain will have to raise its revenue share offer in order to secure the licence.

“There is nothing to confirm at the moment,” commented a source close to Zain. “I believe Zain is only likely to make an official comment later in the week, as negotiations are still ongoing.”

Failure to win in Iran will be a significant blow to Etisalat, which has aspirations of becoming one of the top 10 operators in the world by 2010.