MTN has reached a nonbinding preliminary agreement to invest R540m in Iranian Net to widen the telecommunication group’s reach in that country even as it faces the risk of not being able to repatriate funds from it.

The investment in the fixed-broadband provider, with further investments of about R3.4bn in equity and loans over five years, will secure a 49% stake in Iranian Net for MTN, and add to MTN Irancell and Snapp.ir, the country’s answer to taxi-hailing app Uber.

“This investment, should it be completed, represents an opportunity to capitalise on the continued strong growth expected in the Iranian broadband market, with an initial focus on eight of the main cities,” said MTN.

Iranian Net has clinched a licence to build and operate an optical data transmission network and a fibre-optic access network across Iran. The deal is still subject to the conclusion of final transaction agreements.

But MTN has previously struggled to repatriate funds from the country, with MTN Irancell paying out only five years’ worth of dividends amounting to €468m earlier in 2017. The Iranian subsidiary also repaid a €425m loan to MTN.

“The cash-repatriation problems have eased significantly [after] the easing of sanctions on Iran,” said Peter Takaendesa, portfolio manager at Mergence Investment Managers. “There is always a risk of geopolitical events affecting Iran again, so MTN needs to balance that risk with the significant growth [in] the Iranian market.”

Consumers in Iran offered significant growth potential in the long term, supported by a population of 80-million people, Takaendesa said. “MTN Iran reported 77% mobile data revenue growth for the quarter ended March 2017,” he said.

MTN investor relations head Nik Kershaw said the data growth was driven by improved 3G and 4G penetration. “Iran is our highest market around 3G or smartphone penetration We have seen a very strong performance around that.”

The group reported 48-million subscribers in Iran, up 1% on the previous quarter.

“Telecoms companies globally are moving more towards offering converged fixed and mobile connectivity services, so the proposed transaction would play into that theme if concluded as proposed,” said Takaendesa.

Converged services would help MTN capture expected strong growth in data consumption in consumer and corporate markets, he said. While corporate customers were early adopters of fibre networks, the consumer market was increasingly doing so for home use.

“Wireless network operators also require fibre networks to link up their base stations to provide faster wireless data services.

There are therefore several ways the Iranian Net transaction could complement MTN’s existing mobile offering,” said Takaendesa.

•Text courtesy of Business Day SA.

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