INTERVIEW: New dynamics in Turkish mobile market

By bne IntelliNews August 12, 2010

David O'Byrne in Istanbul -

Time was when falling subscriber numbers would signal that a telecommunications company was in trouble, but with revenues and profits rising, Turkcell CEO Surrey Ciliv is confident that losing 2.4m customers over the past year isn't bad for business.

With 33.9m subscribers still on the books - making Turkcell not just the biggest mobile operator in Turkey, but also the third biggest in Europe - he can perhaps afford to be a little blase. Falling subscriber numbers, he explains, are just part of the dynamic of today's Turkish telecom market. "Since number portability came in 2009, multiple SIM card usage is going down," he tells bne, pointing out that despite a still growing population, Turkey's mobile penetration rate has dropped from a peak of 90% to 85% in line with customers giving up their second lines.

More important, Ciliv explains, is the 450,000 rise over the first half of 2010 in the number of Turkcell's "post-paid" subscribers - those who have to terminate their contracts - because average revenue per user, or ARPU, is significantly higher than for pre-paid, "which is one reason our revenues are still rising despite the drop in subscribers."

Indeed Turkcell's second-quarter results, released in August, make for interesting reading. ARPU for the company's 9.8m post-paid subscribers is $26.5 against $7.4 for pre-paid, both marginally down on the first quarter of the year. Total revenues for the quarter, however, reached $2.24bn, a rise of 1.7% on the year-earlier period, while net profits for the quarter hit $422m, up 8.5%.

The focus on higher-paying customers is, Ciliv admits, in part down to the tactics of its competitors, Vodafone's Turkish subsidiary and national fixed-line operator Turk Telekom's mobile arm Avea, who he complains have aggressively targeted increasing market share at the expense of profitability. He points out that while over the past two years Turkcell's ebitda margin, a type of profit margin, has hovered between 33% and 43%, that of Avea dropped from a peak of 25% to 1% before rebounding to 6% and that of Vodafone has dropped from 20% to -5%. "You should focus on the customer you have and grow year-on-year business profitably," he says, quoting Harvard Business school professor Michael Porter.

Next generation

Also contributing to Turkcell's bottom line has been the performance of Turkcell's 3G service - which on its launch a year ago the company targeted as a new engine to grow the business. "There is no question that 3G is the door to a new era of mobile internet and an era of non-voice services and revenues," says Ciliv, explaining that research has shown that while the global mobile voice market is expected to decline by 1% a year, mobile internet and data services are expected to grow by 20% a year.

That trend has been reflected in Turkcell's results by an 80% increase in revenues from 3G. How this reflects on the 3G market as a whole is unclear. Industry figures indicate just under 13m 3G subscribers in Turkey, of which Turkcell claims 6m, Vodafone 5.2m and Avea 1.3m. But at least 50% of these are reckoned to be inactive - customers who have signed up but have yet to buy handsets, with Turkcell reporting just 3m active subscribers.

Waxing lyrical on the quality of Turkcell's 3G service, Ciliv explains that thanks to Turkey coming late to the 3G party, long after Europe, the global economic crisis has enabled Turkcell to buy faster, more modern equipment far cheaper than would otherwise have been the case. "This has allowed Turkcell to have much faster mobile internet speeds than most countries in Europe," he grins, something that Turkcell highlighted in a recent publicity stunt where the company flew a plane load of reporters to the eastern Turkish city of Diyarbakir and then to Paris to compare the quality of 3G on offer. The result: mobile internet speeds in Diyarbakir were 10 times those in the French capital.

However, arguably Turkcell's best result of the quarter was its success in persuading Turkish tax officials to drop an extra tax demand of $180m that was claimed on calls made by Turkcell customers roaming abroad, a demand Ciliv explains is out of line with industry norms. "It's a tremendous compliment to them that they were able to let us make our case and to then drop the claim," he says.

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