Iran cancels talks with Kuwait's Zain on mobile phone licence

Move comes after country also pulled out of deal with Etisalat.

ABU DHABI // Iran has cancelled negotiations with the Kuwaiti mobile operator, Zain, to become the country's third mobile network, just months after withdrawing the licence from Etisalat. In a new blow to the country's reputation among foreign investors, Iran's telecommunications minister was quoted in the local press as saying Zain had "failed to fulfil its obligations", the same language that was used when Etisalat's US$400 million (Dh1.47bn) licence was cancelled in May.

Zain was invited to become the country's third operator after the UAE's Etisalat, which won the initial tender, was stripped of its licence. Zain officials have not publicly commented on the status of the company's negotiations with Iran. Zain has made headlines around the world in the past week after it was revealed that it is seeking to sell its African operations, which currently account for more than half the Kuwaiti company's subscribers and revenues. It is seeking up to $10bn for the operations, according to media reports, with France's Vivendi listed as an interested buyer.

The cancelled negotiations represent the third time the Iranian government has cut ties with an international telecoms company after appearing to award it the rights to operate in the republic. The country's second mobile licence was originally won by Turkey's Turkcell, but was later cancelled and re-awarded to MTN of South Africa. No new company has been named as a possible replacement for Zain, but Oman Telecommunications was linked to the initial round of bidding and mentioned as a possible alternative to Zain when the Iranian communications regulator set a deadline of May 20 for the Kuwaiti company to provide financial commitments related to the licence.

Few foreign companies have made major investments in the Iranian economy in recent years, with a number of high-profile disputes deterring potential investors. Crescent Petroleum, based in Sharjah, invested an estimated $1bn in building a pipeline connecting the Emirates with an Iranian offshore gasfield. But the facility sits unused as the Iranian government attempts to negotiate a higher price for the gas than originally agreed in 2005, and Iran's national oil company drags its feet on commissioning gas production facilities.

Despite such uncertainties, the country's telecoms sector is still considered lucrative. Iran has a large and growing population, the majority of which is under 30. Combined with huge oil wealth and a relatively low rate of mobile phone usage, it is seen as a rare case of a regional telecoms market with the potential for significant growth. After being stripped of its Iranian licence, Etisalat said it "is and has always been committed to the development of the Iranian telecom market and perceives Iran as a great investment opportunity". [e-mail]