Economic Update

Turkey’s telecoms sector came under the spotlight again in mid-December, with Vodafone’s successful bid for Telsim, the country’s second-largest mobile phone operator.

Now sector analysts are wondering just what kind of impact the arrival of Vodafone, Europe’s biggest mobile phone operator, will have on the Turkish telecoms market.

Vodafone outbid Kuwait’s MTC Telecommunications in the closely fought open auction with a winning offer of $4.55bn.

Telsim, which has in the past come under intense scrutiny due to its controversial former owners, was finally sold-off to the British telecoms giant on December 13, after being embroiled in legal action with Motorola and Nokia over the past three years.

Owned by Turkey’s Uzan Group until taken over by the state last year, Telsim has a 25% share of the Turkish mobile phone market and an estimated 10m subscribers. The reserve price put on the company by the Turkish government was $2.88bn, well under Vodafone’s final bid.

Explaining Vodafone’s interest, CEO Arun Sarin told the press after the winning deal was struck that “We are delighted to have won the tender. With a larger population than every European country except Germany, and a penetration level of approximately 53%, the Turkish market represents a major growth opportunity for Vodafone.”

The UK based company is therefore looking at the acquisition as a long-term investment and plans to put an initial $1bn into the company in additional funding. Vodafone is hoping that the deal, still subject to regulatory approval, will be signed in the first quarter of 2006.

Only days after Vodafone won control of Telsim, news of another player in the game emerged, with Greek telecommunications and information technology company Intracom issuing a statement saying it held the option to buy up part of the British firm’s stake.

Socrates Kokkalis, president of Intracom, said his company had the right to acquire up to 10% of Telsim within three months of the sale under an agreement with Vodafone.

However, responding to Kokkalis’s statement, a spokesman for Vodafone then said that while preliminary discussions had been held with Intracom, no concrete agreement had been reached.

Concrete or not though, Intracom’s shares have been driven up more than 7% on expectations that it will become Vodafone’s partner in Turkey.

Yet while there may be speculation over Intracom’s involvement in Telsim, the Turkish government has cause for satisfaction over the sell-off.

Vodafone’s investment in the country could serve to spur more foreign investment. The country’s economic outlook has recently been upgraded by the international credit rating firm Fitch from “stagnant” to “positive”, which can only add to this momentum.

Turkish officials estimate they will be left with around $3.3bn from the Vodafone deal after paying off Telsim’s debts. These date from the time of the Uzan ownership and are owed to both Motorola and Nokia under a settlement reached with the Turkish government earlier this year.

This year has therefore seen two major developments in the Turkish telecoms sector. The formerly state-owned fixed-line provider Turk Telekom also went through ownership changes, with a consortium lead by Saudi Arabia’s Oger Telecom buying a 55% stake in the landline monopoly for $6.55bn earlier in the year.

Turk Telekom is the world’s 13th-largest telecoms enterprise, with 19m subscribers. Oger and its partners have said that they plan to invest a further $3.5bn to bring Turk Telekom up to EU standards.

Privatisation is a key component with regards to Turkey’s $10bn standby agreement with the IMF.

At the same time, the start of the long-awaited EU accession talks for Turkey on October 3 has also provided stimulus to the country’s drive of attracting more foreign investors.

The relatively smooth sale of Telsim and Turk Telekom has been in contrast to recent upheavals at Turkcell, the country’s market leader in the cellular phone sector.

In March, Nordic telecom TeliaSonera’s bid of $3.1bn for a further 27% stake in the company, which would have lifted its holding to 64.3%, was accepted by the Turkish firm only to be rejected two months later.

The Cukurova Group, Turkcell’s majority owner, declined to sign the deal, saying that it was looking for other options that would allow it to retain control over the company.

Then in November, Russia’s Alfa Group announced it had completed the purchase of 13.22% of Turkcell’s shares from Cukurova via the purchase of convertible bonds for $1.59bn.

TeliaSonera is now embroiled in a legal battle over the deal, demanding that Turkcell keep to its original agreement and avoid being lumbered with an unwanted partner.

All of Turkcell’s stakeholders will want to see the litigation settled quickly, as the company has a new battle to fight – protecting its 65% market share against a cashed up and aggressive Telsim under new management.

The Turk Telekom sale also has implications in the mobile market, as the firm had a stake in the country’s third GSM operator, Avea. It is widely expected that this company too will see an injection of new blood in the months ahead, setting the stage for some much tougher competition – and for consumers, perhaps lower prices and extra services.