Iran's Mobile Operators are Throttling MVNO Startups

In the past couple of years more than two dozen firms prepared themselves to join the newly emerging Mobile Virtual Network Operator (MVNO) market in Iran in the hope that with several new players competition would increase.

No foreign brands have yet entered the market based on Iran's current MVNO model on offer from the Communications Regulatory Authority (CRA).

The Rouhani administration was key to the deregulation of the fast expanding mobile networks. However, many firms have openly complained that progress in launching their services has been too slow.

 Rules of Entry

According to the rules of opening a new virtual mobile network in Iran, the main operators must offer nationwide coverage, have a contract with the MVNO for five years.

The regulations of the CRA mean operators must abide; the MVNO must also be 51% owned by an Iranian national.

Despite the criteria outlined by the telecoms ombudsman, things have not been as it should be according one speaker at the MVNO World Congress in France.

International telecoms advisor, David Whitefoot, who gave a speech in Nice earlier this week, said several hurdles are stymieing the industry in Iran.

In a keynote address he said one of main issues with Iran’s market is the lack of will by the three major network operators to provide a wholesale pricing structure to the MVNOs.

In essence, the ‘Big 3’ networks insist on old-fashioned business strategies and act as if letting people move to a MVNO is tantamount to losing customers, he said.

“You can understand they don’t want customer cannibalization,” Whitefoot told Financial Tribune in an email interview.  

“Maybe a collective approach by all the licensed MVNO’s to the CRA to try to tackle these issues would be helpful,” he added.

A lack of wholesale prices is another major hurdle slowing down the takeoff the new sub-sector, according to Whitefoot. Due to the main operators’ refusal to lower prices for MVNO, the profit margins are virtually non-existent for the telecom startups that have a high cost of market entry to start with.

MVNOs are also being told by the main operators what they can offer by way of services and in which segment they can and cannot operate.

 Possible Price Controls

The CRA also needs to step up its work. It has not pushed the operators to play fair with the new MVNOs, including setting wholesale prices and by linking contract finalization to obtaining a contract with the MNO puts the game play squarely in the hands of the MNO’s who they want to play with.

“We need the CRA to set a wholesale pricing structure for MVNOs with the MNOs they cannot leave settlement as a take it or leave it deal” he said. Elaborating further, Whitefoot added, “The MNOs also need operational SLAs (service-level agreement).”

At current prices set by the operators, MVNOs can  make a profit only from Value Added Services (VAS), rather than taking a percentage from minutes, text and megabytes.

Controlling prices top-down level is neither rare nor unrealistic as prices for many items in Iran are set by several bodies related to the specific sector.

For instance, take the case of gasoline prices; the Majlis Plan and Budget Commission is in charge and decides prices at the pumps. Likewise, car prices are the function of so-called Competition Council whose members we often see on state TV and media outlets most often than not at war with local carmakers infamous for their low quality and high prices.

Despite the big three network operators stance that  they do not control the prices and are making little money from their own services, recent investment of 4G services and high data package prices suggest otherwise.

There is no MVNO eco system in place, MNO operators are considering an MVNE (mobile virtual network enabler) solution but expect the MVNOs to pay for the privilege of interconnecting with this solution with prices yet to be determined, Whitefoot noted.

“The MVNO model in Iran can only work in its present form if it is subsidized or cross subsidized, as say a marketing extension of a bank who want to increase their reach and services to their customers.”

He let it be known that “Clearly the Iranian MVNO cannot be a stand-alone and come to market based on the current structure on offer.”