In response to a number of factors, including a growing youth demographic and a rising interest in technology, Turkey’s population of high-speed internet users has ballooned in the previous decade. The country had nearly 30m total internet users in 2010, the 16th-highest overall internet population in the world, according to the World Bank’s world development indicators. Between 2002 and 2010, the country’s internet user count rose from 11.4 to 39.8 users per 100 people. Although Turkey’s usage rate tops that of the Middle East and North Africa (25 per 100), it is still less than half of the EU rate (70.9), an indication that there is indeed still much room left for growth in the market.
The Ministry of Science, Industry and Technology is the state’s primary arm for fostering the development of Turkey’s IT industry. The ministry traces its history to the Ministry of Industry and Trade, which was created in 1971. Subsequently, Decree Law No. 635 on June 3, 2011 changed the name to the Ministry of Science, Industry and Technology, emphasising its newfound roles. In addition to raising industrial growth, the ministry also took responsibility for maintaining cooperation with foreign scientific institutions and expanding the use of technology in the economy.
INTERNET GROWTH: Fast and accessible internet is perhaps the single-most important infrastructure for a growing IT sector. In Turkey, both speed and accessibility are improving thanks to continued investment. As connection quality and accessibility continue to rise, so too does the internet user population. Internet subscriptions climbed from 18,600 to 12.7m between 2003 and the third quarter of 2011, according to Information and Communication Technologies Authority (ICTA), the sector regulator. Currently, the most popular high-speed internet services are ADSL (7m), mobile (5m) and cable (450,000). Despite rapid growth, the country’s broadband penetration stands at just 17.4% (10.2% fixed and 7.2% mobile), giving Turkey one of the lowest broadband penetrations in Europe. Sensing a major opportunities in this low rate, providers are scrambling to lay new infrastructure, attract new customers and expand in what they anticipate will be a high growth sector in coming years (see analysis).
EXISTING INFRASTRUCTURE: Within the fixed segment, ADSL users make up the majority of subscribers, about 82.5% according to the ICTA. ADSL is divided among TTNET (86.37%), the market leader owned by Türk Telekom, and alternative operators including Turkcell Superonline (4.62%), Do ğan Telekom (3.43%), Koç.net (2.02%), Türknet (1.67%) and others. The major draw of ADSL technology has been its ability to use existing copper phone lines as infrastructure. Although cable television exists in Turkey, like other countries in the region, it is quite common for homes to use satellites for television rather than fixed-line cable networks.
Without a cable network as prevalent as in other parts of the world, and with fibre-optic infrastructure still a work in progress, phone lines offer a nearly ubiquitous pre-existing network of copper lines. The use of phone lines for internet access helps explain TTNET’s powerful market position. As a subsidiary of former state monopoly Türk Telekom, TTNET enjoys use of the largest fixed-cable network in the country, which it has leveraged to make itself the biggest fixed broadband provider.
The speeds available to users have gradually increased over the years, with new ADSL technologies like ADSL2, ADSL2+ and VDSL2 (very-high-bit-rate digital subscriber line 2) raising maximum data bit rates as high as 100 mbps (see analysis). Although speeds currently available have been growing, about 80% of the country’s connections are around 8 mbps, with 7% greater and 13% less than this rate.
FIBRE OPTIC: The next step for Turkey’s internet connectivity is laying down a fibre-optic network. As the name implies, fibre-optic cables use light to transmit data over long distances at high data rates. These cables are filled with silica fibres that act as “light pipes”, each about as thick as a human hair. These types of networks have been spreading throughout Europe, but in Turkey they are in their infancy. “European cities, even, for example, a minor city in Ireland, have metropolitan fibre networks. Now what Europe is discussing is last mile, fibre- to-the-home, to provide broadband to a larger population,” Mehmet Çelebiler, the chairman of the board at internet operator TürkNet, told OBG. “Turkey is trying to copy them but it has no metropolitan networks. Not even in Istanbul.” Most fibre-optic networks in Turkey have been laid by operators for their own uses, such as transferring data to base stations. For homes and workplaces near these networks, operators often offer fibre-to-the-building connections.
Providers have plans to invest in creating larger fibre optic networks. Türk Telekom is set to make major investments to increase coverage of its physical fibre optic network, raising the number of homes connected from 730,000 to 3m in 2012, its CEO Gökhan Bozkurt announced in January 2012. Turkcell’s wholly owned subsidy, Superonline, has been investing in fibre as well. The company reported that it had reached 1m fibre internet users with roughly 30,000 km of cable by the fourth quarter of 2011. Vodafone Turkey has also been moving into fibre. The country’s second-largest mobile operator acquired Borusan Telekom and Koç.net in 2010 and 2011, respectively, both of which have their own fibre networks (see Telecoms analysis).
THE TWEET ECONOMY: Rising broadband internet penetration and higher speed connections have made the web ripe for the cultivation of a larger web economy. Markets that did not – and indeed could not – exist prior to the advent of high-speed internet have now sprouted up. Social apps in particular have woven themselves into everyday life. The country is home to the sixth-largest Facebook user population in the world. At 31.25m, roughly 40% of the Turkish population has an account. Social platforms such as Twitter and Foursquare are also widely used.
Social media sites have also helped catapult other segments of the Turkish web economy, especially in the case of online and social gaming. With such high volumes of users on social media sites, gaming companies saw an opportunity to provide activities within sites like Facebook. Istanbul-based Peak Games, which brands itself as the fastest-growing social gaming company for emerging markets, says it has 4m daily users and 16m monthly users, making it the sixth-largest social gaming company in the world. The company’s early games drew on traditional board games and card games from the Middle East to tap into the MENA regions growing population of internet users. The firm works on what it calls “localised and culturally specific” games for markets it says are underserved, including Turkey, MENA and Latin America. So far, investors have seen potential in the firm’s business plan – it has raised $19m from Earlybird Venture Capital, Hummingbird Ventures and an unnamed strategic investor.
E-COMMERCE: Perhaps the largest shift Turkey has been experiencing as its web economy continues to expand is the growth of e-commerce. Europe as a whole has seen steady gains in the segment. Between January and December 2011, daily total unique visitors to European retail sites grew about 10%, from just over 270m to more than 300m, according to data collected by internet data aggregator comScore.
Turkey has been no exception to this growth. The range of items available online – from cars, computers, stationary, massages – is quite comprehensive. Indeed, online retailers have seen increases in sales, customers and investments. In April 2011 eBay, the world’s largest online marketplace, announced that it would expand its stake in GittiGidiyor.com, a Turkish online auction marketplace. California-based eBay bought 93% of the company, adding to the minority holding it had acquired in 2007. Retailers such as Hepsiburada.com have also done well. The company began offering online retail services in 1998. Over a decade later it has grown into one of Turkey’s largest online stores, with more than 13m users, who are buying everything from LCD TVs to fishing poles to books from the site.
ECONOMIES OF SCALE: The advent of online retailing has also brought a new way to shop called group buying. Group-buying sites typically offer a handful of goods and services at discounted prices every 24 hours. The site and seller set a minimum threshold for the number of buyers. If customer volumes do not meet that threshold, the deal is off and no transactions take place. If volumes do meet the threshold, then the seller offers the discount – which can be as high as 90%. A slew of group-buying sites have grown up in the country in the past 2-3 years, including Groupon’s CityDeal (called Groupon ŞehirFırsatı), Grupanya.com and Gruponi.com.
The first of these group-buying sites appeared in late 2009. In April 2010 CityDeal secured funding from Turkish investors and opened an Istanbul office. The low costs to enter the market and image of high profits attracted many entrepreneurs and companies who wanted to get in on the action. By March 2011, they created roughly 80 daily deal sites and 15 aggregator sites. In November 2011 Grupfoni, one of the group-buying sites, sold a controlling stake to Quants Financial Services, a Swedish investment company.
Still, the sector faces some challenges. “When you look from outside it is seen as a very profitable business and at the same time very easy,” İlker Üstüner, the founder of a daily deal aggregator Firsaton.com, told OBG. “In truth, it is not that profitable, and it is not that easy.” The market reached its growth peak around the end of 2011, according to Üstüner, and consolidation is likely in coming years as firms compete for customers, both against other group deals sites and traditional online retailers. “By the end of 2011 I counted 300 daily deal sites. But around that time they started to close,” Üstüner told OBG. “They saw you really need to be big, and that there’s only room for four to five big, well-capitalised players.” In the meantime, well-informed customers could benefit from competition.
In addition to e-commerce sites offering a broader range of products, a number of specialised retail sites have grown up in recent years. One that stands out is Yemeksepeti.com. The online takeout service allows users to access a network of over 3500 restaurants that have home delivery services. Yemeksepeti processes about 15,000 orders on any given day from a user base approaching 1m. The company, through a number of subsidies, has also expanded into neighbouring countries, including Russia and the UAE.
These specialised retailers have been generally successful in attracting foreign investment. Çiçeksepeti.com, an online flower and gift seller, received funding from Belgian-based Hummingbird Ventures and American online retail giant Amazon. Trendyol, a private shopping site, attracted more than $25m from Kleiner Perkins Caufield & Bryers and Tiger Global in the summer of 2011.
TECHNOPARKS: As Turkish websites continue to create customer-pleasing, front-end experiences, the government and industry stakeholders are working to bring about more back-end innovation through increased research efforts. Since its renaming in 2011, the Ministry of Science, Industry and Technology has taken an active role in encouraging the growth of Turkey’s IT sector. It has set an overall goal of raising research and development (R&D) activities to 3% of the GDP, by 2023 – an ambitious goal given that GDP spent on R&D was 0.84%, or TL9.26m (€3.9m) in 2010, according to data collected by the Turkish Statistical Institute (TurkStat). To reach the 3% level, the government has created benchmarks for growth, with the first set at 2% by 2017.
One of the government’s ongoing incentives for increasing R&D activities has been the creation of technoparks. These are intended to bring academic and industry leaders together for research activities and in time spur more technological and scientific innovation. Technoparks obtained legal status in 2001 and were put under the authority of the Ministry of Science, Industry and Technology. The government offers technoparks incentives, including tax and duty exemptions, aid in construction and rent subsidies. These technoparks are also intended to act as a forum and focal point for competitions and prizes to encourage innovation. Each year, for example, 500 young entrepreneurs receive grants for TL100,000 (€42,500) from the government for work in technoparks.
In the past 10 years, technoparks have grown up in a number of regions. The first and largest of these was the Middle East Technical University Technopark (METUTECH), located in Ankara. Since its founding, METUTECH has grown to include 2700 researchers and 240 firms. Start-ups and smaller businesses have been focal points, with small and medium-sized enterprises (SMEs) making up more than 90% of the companies. Other technoparks are located in Istanbul, Antalya, Konya, Adana, Elazı ğ and Mersin.
FOREIGN INVESTMENT: Foreign investment has been one of the ministry’s main goals. In 2010 less than 1% of Turkey’s R&D spending was funded by foreign sources, according to TurkStat. To shore up foreign investment rates, Nihat Ergün, the minister of science, industry and technology, took a trip in November and December of 2011 to the West Coast of the US, home to Silicon Valley. During his trip, he visited major IT universities including the California Institute of Technology and industry players such as Microsoft to learn more about the industry in the US and encourage investments in Turkey.
Following the US tour, in January 2012, Ergün met with software programmers, hardware manufacturers and GSM producers in Istanbul to discuss the future of Turkey’s IT sector. Ergün and attendees discussed topics like increased cooperation among universities and the industry, incentives for foreign firms to establish production and research facilities in Turkey, and the development of technology parks to act as points of concentration for the sector. Turkey’s IT sector, along with the automotive sector, would receive the bulk of government incentives, the minister said.
Turkey’s domestic hardware manufacturers and IT service providers have been successful in attracting foreign investment. In February 2011 Hewlett-Packard (HP), a US company based in Palo Alto, California, opened a manufacturing centre in Tekirda ğ, a province to the east of Istanbul in Turkey’s Marmara region. HP, in cooperation with Taiwan-based Foxconn technology group, established the plant to manufacture PCs and PC components. “This plant will serve as HP’s supply centre for Europe, the Middle East and Africa,” Serdar Urçar, HP Turkey’s general manager, said at the launch ceremony, according to Today’s Zaman. The plant, which required an investment of $60m, is set to export some 90% of its products to these regions.
Meanwhile, Arena, a company offering logistics and supply chain management services, received an investment from India-based Redington Group. Founded in 1991, the company listed on the Istanbul Stock Exchange in 2000. By 2008, amid domestic political tumult and the international economic crisis, its profits took a hit, sliding by 48%. Still, even in harder times the company was doing well compared to the rest of the IT sector, which as a whole shrank by 65% during that period. Since then, the company’s revenues have bounced back to the tune of a compound annual growth rate of 15%. In November 2010 the company sold 1.58bn shares, amounting to a 49.40% stake, for $42.5m to Redington Turkey, a supply chain solutions firm.
E-GOVERNMENT: In addition to encouraging the use of technology in its economy, the Turkish government has been adamant in increasing the use of technology among its own agencies. The government’s Society Strategy Action Plan 2006-10 called for more information gathering activities to increase the Turkish economy’s competitiveness.
Throughout the duration of the programme, the state introduced various e-government projects. These have included the Central Population Administration System, Tax Authorities Automation Project, National Jurisdiction Network Project, Land Registry and Cadastre Information System, as well as databases for the Social Security Authority. By creating these new systems, the government aims to increase the amount of information gathered, broaden access to that information and use it to streamline government duties.
TECHNOLOGY IN SCHOOLS: Efforts to increase technology use does not stop with bureaucracy, however. In 2012 Ankara initiated a project called the Movement to Increase Opportunities and Technology (FAT H), aimed at providing more opportunities for students to interact with technology and update curricula in Turkey’s primary and secondary schools. The government articulated five major goals for the programme: provision of hardware and software infrastructure, provision and management of educational e-content, instructional programmes and effective use of IT, teacher training, and the promotion of IT usage that is informed, secure, manageable and scalable.
In February 2012, at the start of the 2011/12 school year’s second term, the project started its pilot phase in 52 schools in 17 provinces across the country. In these areas, schools received tablet PCs and smart boards for classroom use. The government hopes that the 12,800 tablets employed in schools will eventually replace textbooks. Ankara expects the project to cost some TL3bn (€1.3bn), which would make it the largest single education budget allocation in the country’s history.
The project will certainly face challenges. In addition to the costs, ensuring effective use of the technology in the classroom and training teachers to integrate the equipment into curricula will not be easy, and a number of stakeholders have brought up these concerns. Still, Ankara and a number of voices in the field focus on the potential for long-term impact on the way Turkish children learn to interact with technology, and how they can apply that knowledge to improve the economy. “The FAT H project will enable the country’s youth to contribute to the economy as producers in 15 years time,” Faruk Eczacıba şı, the president of the Turkish Informatics Foundation, said at an IT sector meeting with Ergün in January 2012.
OUTLOOK: On the back of faster internet and higher broadband penetration, the IT sector has in many ways been able to flourish. The web economy is growing rapidly, and factors such as credit card usage and overall internet penetration look set to support growth even further. The partnership between the government and industry, meanwhile, has helped propel research on the back-end. Although progress in these areas has been impressive, the sector still faces a number of challenges. Sustaining the growth of internet infrastructure is set to be critical to remaining competitive. The growing presence of Turkcell and Vodafone in the fixed-line segment should encourage more competition in the internet market, which could support further growth.
Accessibility also remains a major challenge. Despite operators’ success in covering the majority Turkey’s territory with some form of internet infrastructure, there are still areas where many households lack internet connections. Whether the reason for this is high prices or lack of interest or IT skills, the state and the economy both have a strong interest in encouraging people to connect, especially from a young age. If programmes like FAT H are successful, they could have major impact on the sector and economy as a whole.
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