Iran has given a consortium led by Kuwait's Mobile Telecommunications Company (Zain) the country's third mobile licence, stripping it from Emirates Telecommunications Corp (Etisalat).

A spokesman for Iran's Communications Regulatory Authority told the official IRNA news agency on Monday that Etisalat and Iran's Tamin Telecom, which won the tender in January, had 'not fulfilled its obligations.'

'With the elimination of Etisalat's consortium from the third operator project, the Zain Iran consortium, which was runner-up in the bidding, takes over the project,' Mohammad Reza Farnaqi said.

Iranian telecommunications minister Mohammad Soleimani was quoted in an interview with Iranian IT daily Fanavaran Etisalat was removed after failing to submit 'the necessary collateral and payments of the licence fee on the appropriate time.'

In Kuwait, a Zain spokesman said the company was arranging talks with Iran about the licence. 'We will meet with the Iranians sometime in May to discuss the new terms and conditions,' Ibrahim Adel told Reuters.

Etisalat confirmed that it was no longer the winner of the licence, but said it would 'carefully review its options' and go back to the regulator with a formal response.

Zain, majority-owned by the country's sovereign wealth fund, has been aggressively has spent billions of dollars to expand abroad as competition heats up at home, where an affiliate of Saudi Telecom has started operations.

Farnaqi, the Iranian official, said two Iranian pension funds were also part of the Zain-led consortium.

Etisalat, one of the largest Arab telecommunications company by market value, had said it expected to invest up to $5 billion over five years in its Iran operations.

It said in January the group would have exclusive rights to provide third-generation (3G) services and it hoped to get at least 1 million subscribers in the first year of operation.

Iran has a mobile penetration rate of less than 60 percent, in a market where about half of its 70 million population is under 25 years of age.

The current telecom operators in Iran are the state-owned Iran Telecommunication Company (TCI) and Irancell, which is 49 per cent owned by MTN Group, sub-Saharan Africa's biggest mobile phone company.

Iran's nuclear row with the West has deterred many foreign companies from doing business in the country. US sanctions bar US companies from doing business with Iran, and United Nations sanctions have made other firms wary of investing there.

However, analysts say the size of the market and its energy riches still make it an attractive investment prospect.-Reuters