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FM IRAN RPO DUBAI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0083
INFO IRAN COLLECTIVE IMMEDIATE
RHEHNSC/WHITE HOUSE NATIONAL SECURITY COUNCIL WASHINGTON DC IMMEDIATE
RUEAIIA/CIA WASHINGTON DC IMMEDIATE
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C O N F I D E N T I A L SECTION 01 OF 04 RPO DUBAI 000035 
 
SIPDIS 
NOFORN 
 
E.O. 12958: DECL: 2020/02/15 
TAGS: PGOV IR ECON PREL EINT
SUBJECT: IRAN: TELECOM GROWTH VICTIM OF CONGESTION AND POLITICS 
 
REF: DUBAI RPO 31 
 
CLASSIFIED BY: Vinay Chawla, Economic Officer, DOS, IRPO; REASON: 
1.4(B), (D), (E) 
 
¶1. (C) SUMMARY: In Iran, a large number of private-sector telecom 
companies offer a multitude of services including mobile, Internet 
access, and Voice over IP.  While the private sector offers a 
dynamic set of services, all telecom services terminate or are 
routed through the government-controlled telecommunications 
backbone, which means the government and the IRIG is able to slow 
broadband adoption, monitor traffic and limit service when it deems 
necessary.  Additionally, the failure of government investment to 
keep up with the pace of demand means service quality continues to 
deteriorate. 
 
 
 
¶2. (C) According to telecom executives, consumer and business 
demand remain high and companies continue to push the government to 
both build more capacity and provide more bandwidth. At the same 
time, they understand that government investment or its 
relinquishing control of the telecom backbone will be slow in 
coming.  Consequently, many are investing in building out their own 
networks for the last mile (ie the connection between the telecom 
backbone and the local point of service). This leg of a 
'connection' is relatively unregulated and provides an opportunity 
for providers to improve service and attract additional customers 
albeit on the margins.  IRPO contacts that follow the sector 
suggested that the combination of private-sector solutions for the 
'last mile' and the widespread demand for telecom services, have 
created a market for an alternative backbone 'plug-in.' 
Specifically, they suggest satellite-based service would circumvent 
congestion on the government backbone and provide a larger swath of 
Iranians high-speed and unfettered access to the Internet free of 
political interference.  END SUMMARY. 
 
 
 
STRONG DEMAND FOR TELECOM SERVICES 
 
 
 
¶3. (C) EconOff recently talked to an executive at the country's 
second-largest ISP, Pishgaman Kavir Yazd Cooperative (PKY) 
(reftel). According to the executive, PKY offers ADSL (high-speed 
Internet access) in all but one of Iran's provinces with plans to 
go nationwide this coming year. ADSL service packages range from 
128 kbs/sec (with 1 GB download cap) for 6,000 touman/month (USD 
6/month) to 1 Mb/sec (with unlimited download) for 22,000 
touman/month (USD 22/month).  (Note: ADSL is a high-speed internet 
protocol that rides (light-wave) on top of established copper 
telephone lines. It is similar to the high-speed internet service 
provided by traditional telephone companies in the United States 
like Verizon. In order to activate ADSL, a provider must make an 
investment in hardware at a node that serves a certain number of 
users (eg neighborhood).  An ADSL modem is attached at the 
receiving end that already has a telephone connection and a 
high-speed connection is established over the copper line. End 
Note.) 
 
 
 
¶4. (C) The executive also discussed PKY's Voice over IP (VoIP) 
business (ie routing telephone calls over the Internet), a 
subsidiary of the parent company that he manages. He said the 
company pays the government approximately USD 100 million a month 
license fee to offer the service.  Callers dial a prefix before the 
international number they want to call using a traditional 
telephone. The call is routed from a caller's residence or business 
to the switch where PKY takes the call and then carries it on 
bandwidth rented from the government and then connects it to 
international carriers who then carry the call to its final 
destination. As a result of the alternative service, the company 
can offer calls from Iran to the UAE for 80 Touman/min (USD 
0.08/min) which is half of what the government charges. Calls to 
the US are even cheaper at 40 Touman/min (USD 0.04/min). 
 
 
 
¶5. (C) The executive claimed that demand for both ADSL and VoIP are 
high. For ADSL, he said the company receives approximately 2 
million connection requests for service a month. His company's 
business analysis shows that 75 percent of Iranians are educated 
 
DUBAI 00000035  002 OF 004 
 
 
and at least 25 percent of that population uses the Internet in 
some capacity and demand for personal access among them is booming. 
The executive also believes the difference between the country's 
low broadband penetration rate (number of subscribers/100 
inhabitants) of 2 percent and the high number of Internet users (34 
users/100 inhabitants) is a strong indicator of latent demand and 
hence a strong business opportunity. The executive emphasized 
high-speed Internet/ADSL is a relatively new product in Iran (4 to 
5 years old) and growth possibilities are enormous. Similarly, the 
company's VoIP service is growing at 20 percent a month with users 
placing nine to ten million calls using VoIP daily. He expects the 
company will be making a profit on its admittedly high USD 100 
million monthly license by April of this year.  (Note: The figures 
provided on the VoIP license fee and the number of calls placed 
were provided by the executive and IRPO has no means to corroborate 
them. End Note.) 
 
 
 
GOVERNMENT IMPEDIMENTS TO GROWTH 
 
 
 
¶6. (C) The executive blamed the increasingly congested government 
network and the country's politically-motivated regulations as the 
biggest hurdles to providing more users with Internet services. 
High-speed home and business Internet service requires access to 
fixed lines owned by the government carrier Telecommunications 
Company of Iran (TCI).  According to the executive, while PKY 
receives 2 million requests for Internet service a month and has 
been granted the rights to 6 million ports under its ISP license, 
the government only makes about 7,580 available monthly. 
Additionally, he complained about an arcane government rule that 
prohibits ISPs from officially advertising speeds higher than 128 
kbs/sec for residential use, which makes ISPs dependent on 
word-of-mouth advertising and customer initiative to sell 
higher-level services. 
 
 
 
¶7. (C) Beyond the government's politically-motivated aim to limit 
broadband adoption, the executive argued the number and speed of 
Internet connections is limited by antiquated infrastructure. 
Comparing the country's telecom backbone to a small house that 
cannot hold more furniture, the executive said the government's 
access to international gateways is simply not adequate to meet the 
number of users who want to access the Internet. Lack of investment 
is compounded by the government's inability to negotiate reasonable 
rates for access to international gateways. For example, the 
executive delineated PKY's successful negotiations for 250 STM-1s 
(an industrial-size Internet access pipe to underwater fiber-optic 
lines) with FLAG (submarine fiber-optic cable provider) at USD 
2,000/STM. The IRIG's negotiated price was 10 times higher, and it 
in turn sought to rent it to ISPs like his for USD 38,000 a year. 
 
 
 
¶8. (C) PKY has leveraged its relationship with fiber-optic gateway 
providers to negotiate directly for international access from 
Iran's port cities. It has hopes that its ability to obtain pricing 
at 10 percent of what the government wants to charge (through TCI) 
will encourage the government to want to increase the bandwidth in 
and out of the country and would be willing to utilize PKY's 
negotiated prices passing on more bandwidth to PKY as a result. In 
the interim, the company will continue to sign up residential and 
business customers throughout the country at the maximum numbers 
the government allows. 
 
 
 
STRENGTHENING THE LOCAL LOOP 
 
 
 
¶9. (C) Asked what plans his company had in place to increase 
business if government constraints are not eased, the executive 
said the company could do no more than urge the government to build 
more capacity by trying to negotiate on the government's behalf 
with international Internet-access providers. In terms of new 
business ventures, he said the company would be bidding for a 3G 
mobile license in the next six months and had long-term hopes of 
 
DUBAI 00000035  003 OF 004 
 
 
offering service packages that included internet, telephone, 
television and mobile. In the short-term, he said,  the company's 
best opportunity was in the mobile sector, where it could 
capitalize on demand without government limits on the number of 
customers it can enroll. He added 3G mobile internet access could 
also provide another avenue to broadband albeit to the same 
government backbone.  The executive acknowledged that constraints 
on service, like cutting off SMS and other features, would be a 
constant risk as long as the government owned the network. 
 
 
 
¶10. (C) Although ADSL is the main form of broadband internet 
connectivity, other broadband technologies to connect the last mile 
have emerged and have the potential to grow in significance, with 
wireless technologies like WiMax being one example.  Laser Company 
(a Tehran-based ISP) announced in January 2007 that all of Tehran's 
districts had been covered by its WiMax-based wireless broadband 
network.  In March 2009, it was reported that WiMax licenses had 
been awarded to four companies, enabling them to launch services in 
specific provinces of Iran including mobile operator MTN Irancell. 
It is understood that a fourth operator, Mobin Net, with possible 
IRGC connections, was licensed to provide WiMax services in all of 
Iran's provinces. Mobin Net's Hosein Riazi was quoted by Mobna news 
agency as saying that, "preliminary works for WiMax service have 
been carried out and Mobin Net is completing testing in 30 
provinces."  The service offers a cheaper and easy way to implement 
broadband that goes around the government-owned fixed-lined ADSL 
network but like all other services licensed in Iran it is subject 
to government limits on the number of customers it can enroll and 
must terminate all traffic on the government network. 
 
 
 
¶11. (C) A business executive based in Tehran who depends on 
Internet access for his business told EconOff that in addition to 
ADSL and WiMax, a number of other unregulated wireless technologies 
are used by ISPs to provide access to the Internet. When he needed 
an Internet connection, in order to circumvent the long wait for an 
ADSL and WiMax connection, he paid for a wireless transmission 
signal to his business which used unlicensed frequency.  The signal 
eventually terminates on the government backbone but it allows ISPs 
to sign up new customers without waiting for the government to 
provision additional ports via ADSL or WiMax. 
 
 
 
A USG ROLE? 
 
 
 
¶12. (C) Outside industry analysts are skeptical that even with the 
pro-active actions of ISPs and other telecom providers in Iran to 
increase service to meet high demand, there will be no meaningful 
change in market dynamics. All agree that demand for access to 
broadband and faster Internet speeds is high in Iran and very few 
businesses, let alone private citizens are happy with their current 
Internet speeds. One IRPO contact argued that "the state has 
specifically decided not to invest in the last mile (the most 
important network component for high speed access) to keep speeds 
from increasing in order to maintain access to information." 
Further, he argued, since all STM-1 and Internet traffic "goes 
through a centralized fiber optic connection through Tehran and 
then out of Iran, filtering, and slowing down access to the 
Internet is easy since there are so few access points. All ISPs are 
subject to the same regulations and restrictions." Most analysts 
believe that the only real solution is to circumvent all 
state-owned network assets in order to allow total access to the 
Internet. 
 
 
 
¶13. (C) One industry executive in the US who follows Iran's telecom 
sector believes by providing satellite-based Internet services, the 
state will have no control or access to block the Internet. 
According to the executive, who manages a telecommunications fund, 
"This type of access is common in rural and remote areas in the US 
and Canada, and although expensive, it provides an opportunity to 
provide un-filtered and higher speed access." Since many households 
already have "illegal" satellite TV services, adding another dish 
to rooftops could be accomplished, especially if people are told 
 
DUBAI 00000035  004 OF 004 
 
 
that free Internet exists and all they need is the hardware 
installed -- just like satellite TV is not a paid service in Iran, 
but remains highly popular, he said. 
 
 
 
¶14. (C) COMMENT: While private-sector providers in Iran are 
attempting to expand their user base by extending the local loop 
especially in dense-urban centers like Tehran, IRPO contacts who 
monitor the industry believe that fundamental market dynamics -- 
the government's absolute ownership and weak investment in the 
country's internet backbone as well as its continued restrictions 
on connectivity will only hamper the ability of Iranians to get 
online for the foreseeable future. According to at least one 
industry expert, the most promising solution for providing a larger 
swath of Iranians high-speed and unfettered access to the Internet 
and  circumventing the government-owned telecom backbone is 
satellite-based technology, but that will most likely require 
assistance from outside Iran to make it a viable alternative.  END 
COMMENT. 
EYRE