While we believe there is some scope for upside potential to our growth forecasts, we do not expect the effect to be seen before the end of 2014. The opening up of the 3G market to other players should drive demand for smartphones in the medium- to long-term, and we expect the lifting of sanction in 2013 to begin to take effect on market growth and the availability of devices towards the end of 2014. Iran's large population offers considerable growth potential. However, we believe the government's continued interference with internet services and content will limit the appetite for computers and broadband services, although many Iranians will be unaware of the differences.
Headline Expenditure Projections
- Computer Sales: US$5.1bn in 2014 to US$6.7bn by 2018; low PC penetration means significant potential, but the cost of devices remains a barrier to rapid growth .
- AV and Gaming Device Sales: US$2.4bn in 2014 to US$3.0bn in 2018; digital broadcasting offers opportunities, but demand is nevertheless likely to be weakest in this segment.
- Handset Sales: US$2.0bn in 2014 to US$2.6bn in 2018; the slow development of 3G services by telecoms operators will slow the potential for smartphones, but increased competition in the 3G market from 2014 poses upside risks in the long term.
Iran's score was 38.8 out of 100, the second lowest in the region, ahead of only Egypt and nearly ten points behind Oman in eighth position. Iran's score is dragged down by its Industry Risks and Country Risks scores: in both categories Iran has the lowest score in the region.
Key Trends & Developments
The 3G market continues to be held back in Iran, with the two largest operators having a combined market share of 99%, and they will continue to be restricted to EDGE and GPRS services into 2014. We therefore expect the smartphone market will only gain significant growth momentum from 2014 and into 2015. Finally, despite the easing of sanctions on communications devices, the tightening of sanctions on Iran's financial sector in early 2013 has made it more challenging for vendors to source internationally branded products directly from East Asia. Many have resorted to importing products via the Middle East and Turkey, which resulted in higher customs tariffs.
In the AV market replacement TV set purchases will be driven by the roll-out of digital TV broadcasting. Iran launched its first digital TV channel in January 2012 after developments gathered pace in 2011. Larger screen sizes and increased features will encourage consumers to upgrade their existing sets. The switch to digital TV will provide short-term impetus to market growth.