Kuwaiti-owned mobile operator Zain Iraq has selected Sweden’s Ericsson for a $900m five-year managed services contract. Both parties are in the final stages of negotiations and payment terms are being finalised, according to a source familiar with the deal.

Other firms that bid for the contract included China’s Huawei and Europe’s Nokia Siemens Networks (NSN).

Ericsson will start work at the beginning of 2012. It will take over work from US-based Motorola, which was acquired by NSN in April this year. Motorola won the three-year managed services contract in 2009.  

While NSN currently manage parts of the Zain Iraq network, this new deal involves managing the entire network together with additional management functions. Ericsson will manage, operate and maintain the network. As part of the agreement, Zain Iraq employees who work on network operations will transfer to Ericsson.

The type of contract is not new to the Zain Group, which has outsourced this sort of work to Ericsson before for its operations in Nigeria, prior to selling its African stakes to India’s Bharti Airtel.

Zain refused to comment specifically on the contract. A statement from the chief executive’s office said: “Zain Iraq is in the final stages of selecting a third party to which it will award an outsourcing agreement for the management of its mobile network. Once selected Zain Iraq will enter into final negotiations with the selected third party, which may take several weeks.”

Ericsson refused to comment on the deal.  

Outsourcing the management of the network frees up the operator to focus on its day-to-day business and service offerings. This is expected to increase efficiency and improve network quality, which is still a major issue for all the Iraqi mobile operators, who face frequent jamming of their networks by the military to fight terrorism in the country. Individuals can also jam networks with devices that are available in the market.

In 2009, industry regulator Communications and Media Commission (CMC) fined the operators a total of $20m each for poor quality services. None of the operators have paid the amount, blaming the problem on the government for jamming the networks.

“The way to improve services is to have the right infrastructure, security and minimise the interference on the networks,” said Emad Makiya, chief executive of Zain Iraq in an interview with MEED on 6 June in Amman.

“This all comes down to the government to improve. We spend of money on protecting infrastructure every year, which can be used in better ways and invested to improve our operations,” he added.

According to Makiya, the company spends about $100m a year on diesel on generators to run their sites and paying for security.  

To date Zain Iraq has invested $4.5bn in its operations. This year it has invested $500m on infrastructure, particularly for its operations in Kurdistan where it launched its services in April 2011. In February, Zain Iraq secured a seven-year $400 million debt facility from the World Bank’s International Finance Corporation to fund its expansion plans. It plans to add more sites and stations particularly in the Kurdish region.

Makiya says the company will be focusing on acquiring fibre-optic cables and upgrading its networks to third-generation (3G) once disputes with the regulator have been settled.

While the telecoms licences in Iraq are GSM licences and do not prevent the operators from upgrading to 3G or even 4G, the CMC has not issued the operators the necessary spectrums to launch 3G services.

Zain Iraq is still appealing against its $262m fine issued by the CMC for distributing five million unlicensed SIM cards.

The operator plans to raise $80m by floating 20 per cent of its shares on the Iraq Stock Exchange by the end of August in a bid to meet the requirements of its licence.

Zain competes with Qatar Telecom-owned Asiacell and Korek Telecom, which was acquired by France Telecom in February 2011. Zain has the largest market share with more than 12 million subscribers.