Iran plans to open its mobile telephone market to foreign firms, in a move that would end the state's monopoly in the telecoms sector, a report has said.

President Mohammad Khatami wants economic liberalisation

"We have decided to allow foreign private mobile phone operators into the field from March 2004," Ali Kermanshah, deputy minister of the telecoms ministry told the news agency Reuters.

The presence of foreign firms would help Iranian mobile phone users move beyond "the limited capacity and sometimes inefficiency of the governmental sector".

Ending the state monopoly would "create competition and therefore would improve the quality [of service] as well as creating jobs", Mr Kermanshah added.

Competition

While "many" European mobile phone firms had shown an interest in Iran, initially just one foreign firm would be allowed to enter the market, Mr Kermanshah said.

"We don't want to switch from state monopoly to private monopoly," he said.

But further companies would be allowed access, "maybe six months after the first one hits the market".

The move is said to be part of President Mohammad Khatami's plans to liberalise the economy which is dominated by the Iranian state.

Growing market

Iran aims to boost the number of mobile phone users from 2 million at present to 10 million by 2005.

The number of fixed lines should also grow from 11 million to 20 million.

But Iran has no plans to liberalise the fixed line telephony market, Mr Kermanshah said.

Foreign assistance

BNP Paribas, HSBC and PriceWaterhouseCoopers have been shortlisted as potential consultants ahead of the market liberalisation, Mr Kermanshah said.

President George W Bush will not be happy

"The consulting company would advise us about the best regulatory system, management, the number of needed operators, tariffs, taxation system, the kind of contract and so on," he said.

Foreign mobile phone firms wishing to enter the Iranian market would have to comply with the country's constitution, which obliges partnerships with domestic firms.

In effect, this would involve taking a stake no greater than 49% in an Iranian company which would be awarded a license to offer mobile phone services.

"We consider the party to the contract as an Iranian private company that has a foreign partner," Mr Kermanshah said.

This would give Iran access to "foreign technology and management science" without it yielding control to non-Iranian operators.

Iran appreciates that many foreign firms would be loath to invest under such strict conditions, but a regulatory institution would be established to balance the interests of the state and private firms.

Axis of evil

With Iran condemned by US President George W Bush as part of an "axis of evil", European involvement in the country's telecoms industry is likely to prove controversial.

The US believes Iran is an active state sponsor of international terrorism, and has barred US firms from investing in the country.

This summer, the credit rating agency Moody's eliminated its sovereign credit ratings for Iran because it could be "inconsistent" with the US sanctions.

But several European financial firms have refused to take a lead from Washington.

This spring, Germany's Commerzbank and France's BNP Paribas agreed to help Iran borrow money via the international financial markets.