The country did not have a mobile phone industry under Saddam Hussein but the sector expanded rapidly after the 2003 U.S.-led invasion which toppled the dictator.
Yet revenue growth has stagnated in recent years, largely because the government delayed permission for the three national operators - Zain Iraq, a unit of Kuwait's Zain, Ooredoo subsidiary Asiacell and Orange affiliate Korek - to launch 3G services.
The hold-up has persisted for several years, but last week the Council of Ministers agreed in principle to auction 3G licenses for a minimum price of $307 million, Ahmed Alomary, a former commissioner at the Communications and Media Commission (CMC), told Reuters.
A government source, who declined to be named because of the sensitivity of the issue, confirmed this. The Council refused a request from the CMC to grant the 3G licenses automatically to the three existing mobile operators, the sources said, because the Council believes that would be contrary to the regulator's statutes.
An open auction could potentially allow new entrants into Iraq's telecommunications sector, although the prospect of building out a network from scratch in crisis-torn Iraq may limit interest, and the process could slow the introduction of 3G services.
The government source said no time frame had been set for the auction, and it would take considerable time to study and decide on an auction mechanism. "I doubt it will happen this year."
The $307 million minimum price has not been set in stone. "The price is more of a shot in the dark to see what the reaction is," the source added. The current operators each paid $1.25 billion for their 2G licenses in 2007 and had argued they should not pay any more to launch next-generation services; 3G would allow for faster mobile Internet access, allowing users to access web-based videos or other data-heavy applications.
"Mobile services have been the big success story of telecoms in post-war Iraq," said Paul Budde, managing director of Sydney-based telecommunications consultancy BuddeCom.
"The market has grown very quickly, partly due to the lack of fixed-line service. With mobile penetration reaching levels indicative of a maturing market, mobile data is the next revenue growth opportunity for the mobile sector."
Iraq's fixed-line network is limited; the country had 300,000 fixed-line broadband subscribers and 1.9 million landlines in 2013, according to BuddeComm. So mobile may in future become the primary way for Iraqis to access the Internet, although Internet cafes are a popular means to get online.
About 3.4 million Iraqis, or 10 percent of the population, now use the Internet, while mobile phone penetration is 81 percent, BuddeComm estimates.
Mobile phone operators had wanted the government to provide 3G licenses and frequency for free or at minimal cost, arguing their 2G licenses were much more expensive than even those in Europe when factors such as gross domestic product, population and revenue-per-user were considered.
Charging for 3G licenses and spectrum would hurt operators' ability to roll out 3G services, as they could have put this money towards boosting networks and expanding coverage, said an industry source who declined to be identified.
"In Iraq it's like Africa and other countries where the infrastructure suffered for whatever reason - mobile is the fastest way to get people onto the Internet," this source said.
"But it depends on how the government feels, does it want to get cash or do they want to accelerate Internet access?"