Doing Their Sums


Economic News

22 Jul 2010
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Of all the sectors that saw change last year in Turkey, mobile telecoms ranked among the leaders, as Telsim, Turkcell and Turkish Telekom all hooked up with foreign players. Nonetheless, challenges remain, with executives watching the competition carefully.

One key concern for operators is high taxation, with the state-imposed 25% levy on mobile service providers continuing to hamper profits.

“The tax issue has always been a thorn in the side of the market,” Cuneyt Turktan, general manager of Avea told OBG. “Whilst I do not see it as a very important barrier for new subscribers, it is an obstacle for increasing the airtime of existing subscribers usage-wise and prevents companies from getting more value from existing clients.”

Although insiders expect this tax to be cut in due course, for the time being it prevents the market from meeting its true investment potential. Consequently, according to Turktan, it may limit the implementation of new generation technologies such as 3G. Lower taxes would allow subscribers to indulge in greater airtime, allowing Turkey’s mobile operators to generate more revenue, which could in turn be used to develop additional services at reasonable prices.

This is not to say the market is suffering from a lack of competitive pressure. The entry of the world’s leading mobile operator, Vodafone, with its December acquisition of Telsim, sent Turkey’s mobile executives scurrying to their drawing boards. The entry of such a global giant will force local players to closely examine the quality of their services and methods to keep apace with increasingly tough competition.

In spite of such pressure, experts do not see price cutting as the way forward, with quality of service and new infrastructure being viewed as the more important drivers on the market.

“What I see is a focus on call centres and customer care, so as to make the life of customers easier,” says Turktan. “I do not expect harsh competition in the pricing but in single-point service solutions and fixed mobile convergence, to name a few examples.”

This was borne out by a statement issued on February 10 by TeliaSonera, the Scandinavian-based telecom that is a major stake holder in Turkey’s number-one mobile services provider Turkcell. Despite being mired in legal wrangling about a share handover with its Turkish partner Cukurova, now the subject of international arbitration, TeliaSonera reported increased profits and strong subscriber growth in its Turkish operations for 2005. In large measure this was attributed to new technology and “value added services”.

Telecoms analysts have also examined the prospect of subsidising handsets in the future, as in Europe. For now at least, the prospect of there being subsidies at the mass-market level seems unlikely, although some do already exist based on longer-term relations and contracts at the corporate level. Although potential exists for a mass-market subsidy on handsets, Turkey’s mobile culture – along with high taxes on phone usage – has prevented mobile operators from contemplating it as a method to attract new customers. One important reason for this is that although they tend to be loyal customers, most Turks prefer not to sign mobile contracts, without which operators cannot justify the subsidies.

Still, there is cause for optimism. Apart from the prospect of taxes being reduced, insiders expect telecoms legislation to change in the coming months. The much-awaited Electronic Communication Law will ensure that players in the telecoms sector compete on a non-exclusive basis, outlawing the exclusive relationship that suppliers and distributors currently enjoy with their partner networks.

All this is important information for would-be investors. However, they are unlikely to be distracted from the primary rationale for eyeing Turkey as an attractive market, with a mobile penetration rate of just 55% providing considerable business potential. This, along with a young and growing population, its proximity to Europe, and the ever-increasing level of national wealth, has placed Turkey on the map as a top investment destination for the telecoms industry.

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