PYRAMID RESEARCH Africa/Middle East Perspective
Tehran police this week shut down 450 Internet cafés offering broadband access but left open the 1,200-odd cafes in Tehran and elsewhere that connect at slower speeds of
64 Kbps or less. Authorities cited the cafés’ lack of a permit, although no law yet exists in Iran requiring one. The number of Internet users in this country of nearly 73m stands at 330,000 by Pyramid Research estimates and grows by nearly 30% every six months. Cafés offering broadband access had been widely used by younger segments of the population to make low-cost telephone calls to relatives and friends abroad via Voice-Over IP (VoIP) services. Sources in the government-owned Telecommunications Company of Iran (TCI) confirmed that international long-distance revenue has fallen somewhat in recent months.
The closures come on the eve of Iran’s presidential elections. Although reformists and hardliners alike have hailed the Internet’s potential and called for increased uptake and the development of a suitable infrastructure, they differ on the extent of the government’s role as a regulator, operator and filter. The country’s religious establishment and news organisations have already made extensive use of the medium, and some Internet business ventures recently began to show a profit. A conference on the development of an Internet free zone was held earlier this month in the southern island of Kish, winning public and private sector support and attracting 2000 visitors from abroad. Iran’s government of clerics has not yet deployed a filtering device to local ISPs, unlike Saudi Arabia, where all legal Internet traffic runs through a proxy.
The Pyramid Perspective
G2G projects and new laws to streamline mainland access
· Gloomy media pronouncements notwithstanding, most entrepreneurs in Iran expect broadband Internet cafés to reopen shortly after the June elections. The closures stem from a dispute between reformists and hardliners over the best way to make ISPs and Internet cafés sign on to a new government bandwidth provision initiative — a satellite to be operated jointly by the governments of China, India and Iran. TCI, in which supporters of reformist president Muhammad Khatami wield considerable influence, gave broadband café owners two weeks to make a modest advance payment on capacity through the new satellite service, to be launched later this year. When few responded favourably, legislative and executive authorities backed by hardliners moved to strong-arm the industry.
· High-speed bandwidth is available to ISPs in Iran through a variety of operators, including a semi-independent subsidiary of TCI and some foreign and domestic private sector initiatives. Many of the latter ventures may be forced out of business by new laws and G2G initiatives. In mid-June, TCI will unroll 2 Gigabyte connectivity services in 180 hitherto offline towns and villages through a joint venture with Eutelsat, a pan-European government satellite operator. This project, together with the Chinese-Indian satellite venture covering Iran’s main cities, will help TCI recover lost international long-distance revenues and facilitate control over the new medium. Eutelsat will also give the government of Iran the ability to filter. Censorship policies toward foreign political and religious web content will be determined by the Ministry of Culture and Islamic Guidance, and there is widespread public consent for a thorough purge of pornography.
A niche role for Kish
· Streamlined connectivity and access on the mainland will leave the southern island of Kish, a free trade zone permitting 100% foreign ownership of businesses, in a unique position to serve entrepreneurs in Iran and abroad. The “Kish Electronic City” conference held earlier this month served to showcase a commitment by government and businesses to further enhance infrastructure while maintaining a hands-off approach to the island’s connectivity and access. Kish has two connections to the Internet cloud and will soon introduce a third. The first comes through Amsterdam via Eutelsat, in a joint venture with an Italian company. The second is a double hop connection via satellite through the United Arab Emirates to the global fibre optic network. By year-end, an 8-meg download, 6-meg upload connection will also be provided by ITC.
· Entrepreneurial initiatives hatched at the Kish conference include an e-banking project to be developed with a Nassau, Bahamas-based bank. For some, Kish offers the additional attraction of dramatically discounted software. Since Iran is not a signatory to international copyright agreements, one may acquire Microsoft BackOffice, for example, for less then US$6.
Domestic Internet business remains modest, with small wireless partnering and vending opportunities for foreigners
· Pyramid Research forecasts rapid Internet uptake in Iran. In a country where more than half the population is under the age of 17, the number of users stands at 330,000 presently and will exceed 1.2m by year-end 2003. The value of the domestic e-commerce market remains modest, however, because credit cards are not in use. Users will access the Web mainly via Internet cafes and universities; the $850 average cost of a personal computer remains prohibitive for most Iranians. VoIP is still the main draw and primary uptake driver. In a country where entertainment is sharply curtailed, Internet users browse American web sites above all, with Yahoo! topping the list of portals.
· Iran’s ISPs pay US$1200 monthly for a 64 Kbps leased line, but only $40 monthly for a dedicated 33k line. Internet café access costs users an average $0.80 per hour, roughly the cost of a cinema ticket for a two-hour movie. Some ISP owners use VSATs and others have expressed an interest in acquiring them from foreign vendors, although new legislation may hinder such prospects. As broadband connectivity continues to grow one way or another, Iranian ISPs will turn to Canadian and American companies for VoIP call termination services, a market Pyramid values at $3m for 2002 and $3.7m for 2003. ISPs also hope to join forces with foreign companies to service TCI in the provision of voice mail for the country’s 1m mobile phone subscribers. Voice mail functionality, still unavailable in Iran, will cost the phone company $5m over the next two years.
· TCI may see fit to deal directly with foreign vendors and contractors to acquire the software and infrastructure needed, but may task the private sector with aspects of the project’s implementation, such as upgrading base stations. Canadian companies are already in talks with TCI and some ISPs. Some of the requisite software may be available at a better price elsewhere, however, notably India and Egypt, where IT houses have developed effective voice mail and other messaging applications for mobile operators.
… But the global addressable market for Persian-language and Shi’i religious content is large and growing
· Despite Iran’s modest domestic e-commerce prospects, a large and affluent diaspora community has already shown enthusiasm for the country’s web sites. Pyramid Research estimates that the average annual income of foreign browsers to Iranian web sites is $17,500. The figure is based on available surveys of Iranian communities, juxtaposed with traffic analysis of Iranian web sites provided by ISPs in Tehran, Isfahan, Qom and Kish. Persian language speakers abroad include 7m Iranian nationals living outside Iran, a figure that excludes millions of political refugees and expatriates’ children. Iranians abroad like to follow their homeland’s news and maintain an appetite for Iranian music, literature, carpets and handcrafts, all available for purchase through Iranian web sites. In the long run, the audience for Persian language content could increase significantly as new audiences in central Asia go online. Tajiki and Dari forms of Persian are spoken by more than 10m people worldwide. The new fibre optic cable line running from China through Turkey to Europe will pass through Iran and numerous central Asian countries, raising hopes to bring new online communities into the Persian orbit.
· The two pie charts in Exhibit 1 are based on a global traffic analysis of visits and hits to various Iranian web sites. The chart on the left is an amalgam of Persian- and English-language media and commercial sites based in Tehran, Isfahan and Kish. The chart on the right represents traffic data provided by leading Arabic-language religious web sites based in the religious capital of Qom. The latter sites far exceeds the former in traffic volume, reflecting the enormous prestige Iran enjoys in the broader Shi’i Islamic world. US visitors figure prominently into both charts, although Saudi Arabia dominates the latter, a fact that is worthy of note because Saudi Arabia’s proxy bans most Iranian religious sites.
Iranian Internet players to watch
· The country’s most widely surfed web sites are government media organs and religious sites. Some have already begun to pick up revenues through advertising, and others are open to the possibility of corporate sponsorship. The Islamic Republic News Agency’s Irna.com wins more than 400,000 visitors per month. Some of its overhead has been offset by advertising revenue. Rafed.net, a clearinghouse of Shi’i religious edicts and writings, has 120,000 visitors per month and subsists on annual funding of $100,000 from Qom’s religious endowment. Its employees face the logistical challenge of communicating regularly with as-Sayyid as-Sistani, the leading cleric in Najaf, a city holy to Shi’is in southern Iraq. Surfers can e-mail their religious quandaries to Sistani via the site and expect an answer in the form of a fatwa (religious edict) within two weeks. Communication with Sistani is managed via discrete human messengers and occasional fax contact.
· Early successes in the private sector demonstrate that there are viable business models for web content, e-commerce and applications development in Iran. Isfahan-based Rahnema.com is a portal run by a staff of 40 offering a bouquet of e-commerce and non-profit sites. The first to show a profit is Iranmelody.com, an online catalogue of the country’s music industry, featuring streaming audio clips from locally produced cassettes and CDs. Rahnema also operates a portal indexing doctors in Iran and a portal for exporters. The company is working to develop Persian-language translation software, along the lines of the profitable Arabic translation software now available on the Internet through the Saudi company al-Alamiah. A local B2B venture under consideration is a portal for the dairy and cattle industry, for the exchange of cows, dried alfalfa and other foodstuffs. The company is struggling to find a way to guarantee transactions. By contrast to some of the religious and media sites which are visited overwhelmingly by foreign nodes, Rahnema receives 3,500-4,000 visits per day, 30% of which are local.
Joseph Braude, Pyramid Research Analyst
This Perspective provides Pyramid’s view on a significant development in the communications industry. Perspectives are a component of Pyramid’s Advisory Services.
©2001 The Economist Intelligence Unit Ltd. All rights reserved. Pyramid Research is a div. of the Economist Intelligence Unit
© 2001 Mena Report (www.menareport.com)
