In the Name of Competition


Economic News

22 Jul 2010
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Turkey's largest mobile operator has reason to be frustrated this week following the cancellation of its successful bid on September 19 for an A-type third generation (3G) mobile phone licence - the greatest bandwidth from a total of four. The decision against Turkcell by Turkey's Telecommunications Board (TK) came following opposition from mobile competitors Vodafone and Avea, who insist that number portability - allowing subscribers to change mobile operators without changing their numbers - be granted prior to the distribution of 3G licences.

"The board decided to cancel the tender to protect consumers and the public good, taking into account the fact that awarding the licence to the said operator would make it impossible to guarantee and maintain efficient, effective competition in the sector," stated the TK following its unanimous decision to scrap the deal.

With a 60% share of the mobile market and 33.8m subscribers, Turkcell would, under present circumstances, be in a position to monopolise the 3G market following a successful bid for the 3G licence. Though obtaining tender documents, Avea, Vodafone and French operator Orange did not offer bids for the A-type licence and tenders for licences at lesser frequencies were called off due to a lack of bidders. Some analysts believe that these companies do not yet have a sufficiently developed infrastructure outside of Turkey's urban hubs to cope with tougher competition from Turkcell when 3G takes off.

But it is number portability that has been the chief point of contention, with Turkcell challenging the Telecommunications Board in court in April over a regulation to allow subscribers to keep the same mobile numbers when changing operators. Turkey's leading operator argues that it has made large investments into promoting those GSM codes between 530 and 539, for which it was granted a licence for a 25-year period. Number portability would mean that competitors could free-ride on the investment that Turkcell had made in promoting these mobile digits.

But the tables have now turned. Turkcell's competitors felt that the cart was being put before the horse by pushing ahead with the 3G licence before number portability was in place, resulting in the decision to cancel the auction result. Transport minister Binali Yildirim now says that number portability will occur before the new 3G tender takes place.

Turkcell's competitors want other conditions to change, allowing for greater competition and growth in the mobile market.

"Since last year we have been saying that there should be certain conditions for 3G. Taxes should be reduced and interconnection rates should be compatible to European standards but based on Turkish GNP levels," Cuneyt Turktan, Avea's CEO, told OBG.

"There is also on-net and off-net pricing, which should be rebalanced by the regulatory body. Turkcell subscribers can talk to each other for one or two kurus per minute but when their subscribers call AVEA it can come to 60 kurus," said Avea's CEO.

This is a deterrent to Turkcell subscribers from calling colleagues, family and friends registered with other operators.

Turkcell's frustration over its cancelled bid is understandable nonetheless, having placed an initial bid worth 311m euros for the 45 MHz A-type licence - an offer which was then increased to 321m euros, excluding value added tax.

The winning bid came despite the absence of contenders. Turkcell announced it had allocated $80m of a $480m annual investment budget for 3G, though the competition has also earmarked similar amounts to this end.

"We have invested a lot in quality and coverage with Turk Telecom. We have $400m in funding available for the 3G network and Turk Telecom is behind us," said Türktan.

While there has not yet been any precise indication as to when 3G licences will be auctioned, insiders do not expect a new bidder to take the A-type licence. Turkcell continues to eye the top prize, albeit at a price. Again there will be four licences with diminishing bandwidths on offer: A, B, C and D and these will be enough to satisfy the needs of all contenders, analysts say. "Turkcell's competitors won't mind getting B or C, since they are as good as A in the long-term," an insider said. A-type is only better for growth in the distant future in terms of the high bandwidth and associated growth potential that it offers.

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