VOD Vodafone Group PLC

By Stu Woo in London and Asa Fitch in Dubai 

Vodafone Group PLC is partnering with an Iranian internet-service provider to help improve its local networks--the first big Western firm to jump into Iran after the U.S. moved earlier this month to make it easier for companies doing business in the Islamic Republic.

The U.K. telecoms carrier said on Tuesday it plans to assist Iran's HiWEB, a small, privately owned operator, in modernizing infrastructure and expanding landline and mobile internet services for personal and business customers. It didn't disclose details, including any planned investment in the venture. It said it wouldn't take an equity stake in the project.

Vodafone isn't the first--or even the biggest--Western firm to enter Iran after world powers started lifting international sanctions earlier this year, following Iran's agreement to curb its nuclear program. But the move comes just a little over a week after the U.S. moved to ease regulatory hurdles that have kept many Western firms at bay.

Earlier this month, the U.S. Treasury loosened restrictions on Iran's ability to trade in the U.S. dollar, and widened the pool of potential business partners in Iran for non-American investors. Washington ruled that non-American investors can partner with Iranian entities even if those entities are still on the U.S. sanctions list, as long as the entities weren't controlling shareholders in any new venture.

That opens the door for a host of fresh deal making. Many big firms have worried about accidentally running afoul of existing U.S. sanctions amid a lack of transparency in Iran's business community and its state-dominated economy. Iran's Revolutionary Guard Corps, a paramilitary organization still under U.S. sanctions, for instance, holds controlling and noncontrolling stakes in many of Iran's biggest businesses.

Iran has a relatively youthful population of 80 million, making it an attractive market for many western goods and services. A host of foreign investors, including Boeing Co., Airbus Group SE, Peugeot-maker Groupe PSA and German industrial giant Siemens AG, have signed deals in Iran since the lifting of sanctions in January.

Tuesday's move by Vodafone, the world's second largest carrier by subscribers after China Mobile Ltd., is another significant vote of confidence. HiWEB began in 2003 as a subsidiary of Iran's Ministry of Industries and Mines, according to its website. The government privatized it in 2009, and it underwent an overhaul the following year.

Despite its long history, the company only got a license to provide mobile data in 2014 and fixed-line services last year. HiWEB's current ownership is unclear. A Vodafone spokesman wasn't immediately able to provide details.

Iran's telecommunications landscape has already attracted foreign interest. Broadband services in Iran have grown quickly in recent years despite hefty government censorship of the internet. Popular sites including Twitter, Facebook and YouTube are all blocked. Still, fixed broadband penetration is starting to take off: The share of internet users jumped from 19% in 2011 to 39% in 2014, according to a recent report by consultants McKinsey & Co., up from 19% in 2011.

While Iran has a higher mobile-phone penetration rate than the U.S. or Germany, its mobile data consumption lags, underlining a well of opportunity for investment in mobile internet services as the country catches up.

The Wall Street Journal reported in August that France's largest telecommunications company, Orange SA, was in preliminary talks to buy a piece of Iran's biggest telecommunications company. Orange already has a technical-assistance contract with the Iranian company.

"All operators around the world are looking for a form of cooperation with Iran," said Bruno Mettling, Orange's deputy chief executive for the Middle East and Africa, in an interview in London in July.

The agreement with HiWEB fits into Vodafone's strategy of focusing on fast-growing emerging markets, which also include India, Turkey and South Africa.

"It enables us to have on the ground a partner that can serve our multinational corporate clients," the Vodafone spokesman said.

Write to Stu Woo at Stu.Woo@wsj.com and Asa Fitch at asa.fitch@wsj.com

(END) Dow Jones Newswires

October 18, 2016 08:04 ET (12:04 GMT)

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