Expanding overseas is a tough call to make

Mobile operators looking to extend their sphere of operations into uncharted territory with unpredictable governance should beware the fate of Etisalat in Iran.

A woman uses a mobile phone in Tehran. The Iranian government pulled the rug from under Etisalat's planned expansion of operations into Iran.

There was a time, not long ago, when a mobile operator in search of growth opportunities only had to look to the Middle East or Africa, home to many countries with large populations, growing economies and few mobile users. But today, such low-hanging fruit has been thoroughly picked, and markets such as Nigeria, Egypt, Kenya and Saudi Arabia are as competitive as anywhere on the planet. The search for virgin soil takes operators to places most fear to tread.

One such market is Iran, governed by a political class that most foreign companies would not go near. The history of major foreign investments in the republic is one of projects and joint-ventures that have collapsed from the weight of a system under which even the toughest international operators struggle. Some, such as the Turkish consortium that built Tehran's new airport, have seen their work taken at the barrel of a gun when the country's revolutionary guards seized it on its opening day and ordered the Turks out for unspecified security reasons.

Others, such as Etisalat, have watched their prospects evaporate as ministers tell local news agencies that their consortium, which was set to spend billions building Iran's first modern high-speed mobile network, has "failed to fulfil its obligations", and no longer has the rights to operate in the country. Iran's huge oil wealth and large, young population make the country a tempting opportunity.

But other markets, less appealing in terms of wealth or demographics, are still receiving plenty of attention. Their status as closed, strife-ridden nations shunned by the international community makes them rich markets for mobile operators. Just months after showing Etisalat the door, Iran last week announced that Zain, the Kuwaiti company named as its replacement, would also not be doing business in the country, again for failing to meet its obligations. Zain was runner-up in the initial round of bidding and was quick to point out that it needed to discuss the terms of any possible deal in light of its lower original bid.

Since it was named by the Iranian authorities as successor to the tender, Zain has kept quiet on the deal, never formally announcing that it had won the contract or even that it was close to signing it. The company's caution over the mobile licence reflects, at least in part, the treatment it saw given to Etisalat. One wonders how the next company to be named by Iran's telecommunications ministry will react.

Egypt's Orascom Telecom, run by Naguib Sawiris, the country's richest man, has turned doing business in such countries into a speciality. Last year, North Korea joined Zimbabwe and the Central African Republic as home to Orascom mobile networks. Turning a blind eye to government wrongdoing and humanitarian tragedy is a cornerstone of doing business in the developing world. Telling companies to avoid anywhere with questionable human rights practices or endemic public corruption would mean telling them to withdraw from most of Africa, Asia, the Middle East and Latin America.

But Orascom did not just make a large investment in North Korea. On launch, it heralded how the country was "opening up in a remarkable way", and said the new mobile network was another example of North Korea's increasing liberalisation. North Korea is not just another failing state ruled by a corrupt strongman clinging to power. It is the final bastion of the kind of absolute dictatorship that has been essentially erased from the world. There is, quite simply, nowhere else on earth that can match it for totalitarian control.

It could be well argued that in bringing such a powerful tool for personal communication to North Korea - or Iran, for that matter - mobile operators are aiding the country in becoming a more open place. But this is not what motivates Mr Sawiris, Orascom's chairman and founder. "For me it's about the money," he said at an industry conference in 2007, responding to speeches from other executives who emphasised the role the mobile industry plays in improving society.

"I'm the largest shareholder in my company so I am very interested in the money. Where I smell money, I go." Such honesty is much needed and refreshing. Following the powerful scent of profit has led to much of the technological innovation that makes the world what it is today. The unprecedented global spread of more than 2.5 billion mobile phones and 1.5 billion internet connections in just a decade was driven by money, not good intentions.

There is no doubt that the worldwide presence of the internet and mobile telecommunications is a good thing, bringing power and knowledge to people once deprived of both. That delivering this technology turns out to be hugely profitable, even when your customers are rural villagers in the world's poorest places, is good news not only for companies but also for society. Compared with resources companies, who have long done business in the world's most dangerous places, technology and telecommunications players bring much good to the places in which they operate.

Resources businesses extract diamonds, gold or oil and in return give money to the government, and perhaps send some "social responsibility" dollars to local charities. Telecoms build things that will be useful for decades. But for mobile operators, working in places such as Iran or North Korea is risky business, as the downfall of Etisalat's Iranian investment has shown. The governments are unpredictable and have little to lose, already under international sanctions and facing extreme isolation.

Mistreating a telecommunications company is unlikely to hurt them any further. [e-mail]