Terminating calls in Turkey

By bne IntelliNews September 16, 2010

David O'Byrne in Istanbul -

It's an age-old adage that's what's good for the customer is good for business. But it's a piece of folk wisdom with which Turkcell may beg to disagree, following another huge cut by Turkey's telecommunications regulator of the rates that mobile operators can charge each other for handling calls from other networks.

The enforced 52% cut in so-called termination rates follows similar cuts of 28% in April 2009 and 33% in April 2008, which together have contrived to make mobile termination rates in Turkey 80% lower than the EU average, while leaving termination rates for fixed calls to fixed lines 10% higher than average. "People calling Turkcell numbers pay us 80% less than the average in the 27 EU states, but when our subscribers call fixed line numbers we have to pay 10% above the average," complains Surreya Ciliv, CEO of Turkcell.

That's of course great news for Turkish mobile users, but not so great for Turkey's biggest mobile phone operator Turkcell, which because it boasts 54% of Turkey's 63m mobile phone subscribers has been disproportionately hit by the drop in revenue caused by the change, as well as having to retool its billing system for 9.8m subscribers on contracts and 24.2m pre-paid users.

Little surprise then that Turkcell has chosen to go to court to challenge the changes, though Ciliv himself concedes that the case may take years to resolve. Furthermore, European telecom regulators are also intent on reducing mobile termination rates - and possibly even eliminating them altogether - so analysts think that even though Turkcell has a good case against the short notice given for the changes, they hold out little hope of the rate cuts being reversed, predicting instead further cuts over the coming years.

Political element

As is so often the case in Turkey, the issue has a political angle - one which means that while many analysts and even company executives are keen to comment, few will do so on the record.

Turkcell is up against the UK-owned Vodafone Turkey, which boasts 17m subscribers, and Turk Telecom subsidiary Avea, which has 12m subscribers. As a subsidiary of the partly state-owned Turk Telekom, Avea is seen benefiting from regulatory policies that favour smaller operators at the expense of the dominant player - policies which may also have helped Vodafone.

Many analysts question too whether Turkcell has overplayed it's long-time dominant position, one that has arguably benefited from being part of the controversial Turkish conglomerate Cukurova Group, which holds in its portfolio several important and influential newspapers and TV stations.

In the past two years leading up to and following the introduction of number portability, competition between the three players heated up as they aggressively cut tariffs. Vodafone and Avea are reported to be offering some tariff packages that are below cost price to attract Turkcell subscribers to defect, while Turkcell itself began offering very low cost calls within its own network in an effort to stem subscriber drift. This led Turkey's telecom regulator to issue warnings to Turkcell to raise the cost of calls between its own subscribers to an acceptable level or face hefty across-the-board reductions in termination rates - as indeed happened.

Worse for Turkcell is that, according to some analysts, Cukurova's influence is waning. Many point to the 11-year jail sentence handed down to the group's chairman, Mehmet Emin Karamehmet, earlier this year, relating to the collapse of Cukurova Group bank, Pamukbank, eight years ago, as well as two international arbitration rulings ordering Cukurova to hand over control of Turkcell to a consortium of Scandinavian mobile operator TeliaSonera and Russia's Alfa Group.

Those rulings stem from Cukurova backing out of an agreement five years ago to sell its stake in Turkcell to the company's second biggest shareholder, TeliaSonera, instead opting to sell a part of its Turkcell holding to Alfa. When relations between Cukurova and Alfa soured, the Russians joined forces with jilted TeliaSonera to try to take control of Turkcell.

Karamehmet remains free on bail pending appeals and few expect him to be forced to serve out his sentence, but it remains to be seen whether or not the arbitration rulings will bring a change in ownership at Turkcell.

Whether the issue of call termination rates can also be resolved, much depends on Turkcell. "Neither Avea nor Vodafone really want another cut in call termination rates, and if Turkcell increases the cost of calls between its own subscribers, there wouldn't be any reason for the regulator to make another cut," says one senior executive in the Turkish telecom sector, speaking on condition of anonymity.

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