The Iranian government has opened negotiations with inter-national telecoms operators in advance of the auction for Iran’s third mobile phone licen ce in the second half of 2008.

Tehran has held talks with Etisalat, the Middle East’s largest telecoms operator, about the new licence and the possible sale of a controlling stake in the state-owned incumbent operator.

“They introduced us to the people running the auction and privatisation,” says Jamal al-Jarwan, chief executive officer of Etisalat International Investments.

The talks between the Communications & Information Technology and the giant UAE operator are the first evidence that the Iranian government is negotiating directly with multinational companies about the auction for the third licence, and are sure to alert rival bidders.

The ministry says it expects bids from Arab telecoms operators, some European companies, as well as Russian and Chinese groups. “Some leading mobile operators across the world have voiced readiness to invest in the Iranian communications sector,” says Ahmad Parang-Nia, head of international affairs at the ministry.

On 12 May, Russian telecoms company MegaFon announced it was prepared to invest about E3bn ($4.6bn) in a mobile phone business in Iran. Any company wanting to build a telecoms network in Iran from scratch would need to invest several billion dollars.

Iran will hold the auction in the second half of 2008, though a date has not been set, says Al-Jarwan.

Iran was the fastest-growing mobile phone market in the Gulf in 2007. The incumbent operator, Mobile Company of Iran (MCI), cut prices after South African operator MTN was allowed to enter the market at the end of 2006. MCI signed up 7.7 million customers in 2007 – more than any other operator in the Middle East – as its cheaper prices allowed lower-income Iranians to buy mobile phones for the first time.

MTN’s subsidiary in Iran, which trades as Irancell, signed up 5.9 million customers in 2007.

Etisalat says it would prefer a new mobile phone licence to a stake in a privatised MCI.

“Normally, I prefer greenfield opportunities because things are much easier to handle,” says Mohamed Hassan Omran, Etisalat’s chairman.

In September 2007, Kuwaiti telecoms operator Zain said it was interested in the sale of MCI (MEED 14:9:07). “We would definitely have to have management control,” says Ibrahim Adel, investor relations director of Zain. “If there is not a road map that leads in that direction in Iran, we are not interested.”

Iran has been preparing MCI for privatisation since the summer of 2006, but the flotation of an initial 5 per cent stake on the Tehran Stock Exchange has been repeatedly delayed without explanation.