Turkcell Iletisim Hizmetleri AS (TKC) 2002 Q4 法說會逐字稿

Thank you for holding ladies and gentlemen. Welcome to the Turkcell conference call. I will now hand you over to Mr. Karay Ozturkler. Please go ahead, sir.

Good morning and good afternoon, everyone. I'm the Head of Investor Relations here at Turkcell. I would like to welcome you to our year-end 2002 conference call on behalf of management here. I will quickly introduce the management team here. We have our CEO Mr. Muzaffer Akpinar.

Good morning and good afternoon to everybody.

Our Chief Marketing Officer, Tulin Karabuk.

Good morning and good afternoon.

Our Financial Officer Ekrem Tokay.

Good morning and good afternoon.

Our COO Ruhi Dogusoy.

Good morning and good afternoon.

And at this point I would like to introduce again Mr. Akpinar for his presentation.

Thank you very much. I would like to start by highlighting the major events in 2002. There were developments creating volatility in the market in 2002, but the more important aspect of the year was the improvements achieved in macro economic and political areas. Although these resulted in signs of recovery in consumer sentiment, after a long-lasting crisis the Turkish economy and the consumer demand remains fragile even today.

On the other hand, Turkcell benefited from the positive sentiment in the market, especially during the second half of 2002, which reflected in our subscriber growth figures. Turkcell also managed to meet its targets set a year ago. We have maintained our leading position, realized cost efficiencies, profitability and customer satisfaction.

We achieved 29% subscriber growth in 2002, and acquired approximately 60% of new growth additions in the market. As a result of the improved operations, our cash generation ability increased, and we ended the year with approximately $394m cash at hand.

Turkcell paid a total of $474m financial debt, including principle interest. We increased our focus on our core business by increasing our stake in the cash generating [indiscernible] GSM operations from 25% to 41%. Turkcell managed to increase its tariffs during 2002. Turkcell did not lead the market in the price war, and has not responded to price cuts in the market during the second half of the year.

Signs of recovery in Turkey in 2002 indicated the worst of turmoil is over, and Turkey recorded a consumer price index of 29.7%, which is the lowest inflation rate over the last decade. These developments in the political and macroeconomic areas, created a positive sentiment in the market, which helped increase consumption.

Turkcell, with its leading market position, [indiscernible] fundamentals and focus on customer satisfaction, benefited from the improvement in consumer demand, and achieved a 29% growth in its subscriber base in 2002, which is higher than the growth rate in 2001.

For our 2003 targets, we believe Turkey still faces several challenges to meet its targets. Armed conflicts in the region may create further instability in our operating environment, and we are unable to predict the extent of the impact on our operating results today. Due to our macro concerns, we target a modest growth in our subscriber base in 2003. We will continue to monitor the developments in the market, and remain flexible to take the necessary measures to seek opportunities, and assess risk in a timely manner in the market.

We have remained focused on bottom line management, ensuring efficiency of our operating performance. In 2002 we have taken several measures to achieve cost efficiency. We continue to acquire new subscribers at a reasonable cost. We have taken actions to convert our foreign currency denominated costs, to Turkish Lira denominated costs, and approximately 60% of our cost base is TL denominated [indiscernible].

We have taken measures to improve our collection methods. We have created a cost conscious management style in all areas of our operations that contributed to our bottom line. As a result, despite the fact that we acquired higher than expected subscribers in 2002, and recorded slightly decreasing average blended usage compared to 2001, we improved our EBITDA margin to 37% in 2002, compared to 36% in 2001. In 2003 we plan to achieve comparable EBITDA levels to 2002.

As expected, usage levels declined in Q4 to 53 minutes, compared to Q3, due to seasonality reasons and Ramadan. We have chosen to focus on campaigns based on a number of users volume or destination, and offer different programs attractive for different segments, parallel to our segment approach. This [indiscernible] to perform better in Q4, [indiscernible] and more seasonal decreases compared to Q3.

This campaign has also led to the stable ARPU of our prepaid subscribers n Q4. The average MoU in 2002 was 56 minutes, which is 12% lower than the average of 2001 average MoU, mainly due to the dilutive impact of increasing prepaid subscribers in the cumulative subscriber base. Whereas our postpaid subscriber base remains stable.

Value added service and SMS usage improved during New Year and religious holiday in Q4. Overall data contribution to our revenues remained stable at approximately 10% to 11% levels, both in 2001 and 2002.

We are a customer-focused organization, backed by our strong brand, quality of service and product, and economies of scale. We maintained our market leadership. Our focus on subscriber growth was balanced by our continuously monitored acquisition costs. In fact, that continues to decrease since Q4 2001, from $31 to current levels as a result of continued cost control measures.

We implemented pricing adjustments by closely monitoring the market developments in 2002. The annual increase in our tariffs was in line with inflation and higher than the devaluation. We are planning to introduce a new tariff increase, done in line with inflationary indicators. Starting from the Q3 and more intensely in Q4 2002, the competition became more price focused, and introduced aggressive price cuts. Along with our strategy of not leading the price war, we have not responded to price cuts.

On the other hand, we initiated campaigns and segment loyalty programs focused on emphasizing the strengths of Turkcell, such as its large subscriber base, wide coverage and differentiated products and service offerings.

Turkcell's CRM program evolved in 2002, which was one of the predetermined focus areas for 2002. With this program we've been managing organization-wide customer related projects and initiatives, under the umbrella of an extensive change program that we call a Business Journey. Our aim with this journey is to move our organization to a higher level of customer [centricities], by means of applying the right customer strategies that relate to customer segments.

This approach not only helps us to be much more efficient in terms of implementing segmented acquisition and retention programs, but also reinforces our product and service performance, through better understanding customer needs. Improving this relationship also yields an increase in the customers' [indiscernible]. Additionally, we believe that our strong brand image will continue to be a key factor for ensuring customer loyalty, as our persistence to increase brand awareness will remain.

According to recent surveys realized by independent parties, network quality and coverage are still the most important reasons determining customers GSM operator preference in our market. Therefore, we believe that our fully established network and its quality, is one of our strengths and competitive edges. Therefore we continue to invest in our network to improve and maintain its superior quality.

In 2002 we spent $69m on CAPEX. With this CAPEX we ensured capacity increase in selected dense areas, as well as building necessary infrastructure for newly developed services and products. In 2003 we budget approximately $150m for CAPEX mainly to be spent on capacity increasing investments in dense areas. The relative CAPEX expenditures or relative revenue trend information, throughout the years of our operations, confirm the emphasis we put on our network.

In line with the changes in the regulatory issues in the global telecom market, the Turkish regulatory body, Telecom Authority, is working on introducing some changes to the Turkish regulatory environment. The Telecom Authority is currently working on an access and interconnection regulation. The new Telecom Act and a separate Wireless Act, is being worked on in parallel by the Minister of Telecommunication and Transportation. There is no clear timetable for the implementation of the planned post-paid interconnection tariff regulation, and we believe it is too early to assess the impact of these changes on our operations.

At this point in time, I would like to give a brief update about the status of Cukurova Group's stake at Turkcell. On January the 31st 2003 Cukurova Group signed an agreement with the Turkish Banking regulatory party concerning the status of Pamukbank and Yapi Kredi Bank. As per the agreement, Pamukbank and Pamuk Factoring [indiscernible] stakes at Turkcell of 0.57% in total has been transferred to Saving Deposits Insurance Bank on February 28, 2003.

According to the agreement, Turkcell shares of Pamukbank and Pamuk Factoring will be purchased back by Cukurova Group from Savings Deposit Interest Fund.

As far as on the legal front, we would like to give a brief update on the recent developments, about the dispute on tariff increase of transmission lines leases. On December the 26th, 2002 the court hearing the transmission lines lawsuit between Turkcell and Turk Telekom decided against Turkcell. Turk Telekom may deduct the total amount that it claims Turkcell owes for increased fees between March to October 2001, from its interconnect payments it paid to Turkcell. As a result, Turkcell has accrued a total provision of $37.4m in the fourth quarter of 2002. We expect no impact for after the period of March to October 2001.

The action by Turk Telekom on basic unit price. In a case filed by Turk Telekom against the Turkish Telecommunications Authority, the Court has granted an injunction to stop the implementation of the last paragraph of article 13 of our license agreement. Clause 13 regulates the base unit price, the minimum price charged by the Turk Telekom to its customers for calls originating on fixed lines and terminating on Turkcell's network. We believe it is too early to assess the impact of such action by Turk Telekom.

Last, about the tax amnesty. On February 27th, 2003 the new Tax Amnesty Law has entered into force. On March 13th, 2003 Turkcell initiated the process to benefit from the new law for the ongoing dispute about VAT on upfront license fee. There is no cash flow effect of this process.

There are no other major developments on other outstanding legal cases of the company.

Our leading market share and business fundamentals placed us in a strong position to benefit from improvements in 2002. In 2003, however, Turkey again faces a number of new challenges. We realize that these apparent risks may impact our business plan for 2003. On the other hand, we are committed to maintain our leadership position again this year, while our focus on customer retention will remain. We will lead markets based on service and quality. We are once again targeting a profitable year in a year of modest market growth expectations.

Now I would like to hand it over to Ekrem for the financial review.

Thank you very much. I will be giving you some highlights from the company's financials.

The total subscriber base of $15.7m at the end of year 2002, consisted on $11.1m prepaid and $4.7m postpaid subscribers. The portion of prepaid subscribers in total subscriber based increased to 70% in year 2002, from 62% in year 2001. Our [indiscernible] MoU per user in the last quarter and year 2002 decreased by 14% and 12% when compared with the previous quarter and year, respectively. The main reason for this decrease is seasonality effect in quarter four, and increased portion of business in total subscriber base in year 2002.

If we look at the development of the company's ARPU, blended ARPU decreased to $10.9 in the last quarter, from $12.6 in the quarter three. In the same periods, postpaid ARPU decreased from $25.4 to $22.4 while prepaid ARPU remained almost stable at $6.0. [indiscernible] the negative effect of Ramadan and seasonality, volume-based campaigns to encourage prepaid usage, enabled us to maintain our previous ARPU level.

Blended ARPU decreased to $11.7 in 2002, from $12.6 in 2001, mainly due to the dilutive impact of the expanding prepaid subscriber base.

Our revenues decreased by around 5% to $505m in quarter four, from $534m in quarter three. The decrease in revenues in the fourth quarter this year resulted primarily from the decline in usage due to seasonality. On a yearly basis, revenues increased 16% to $1,974m in year 2002, from $1,702m as result of the growth of the subscriber base and real increase in tariffs.

The company's pre-FX EBITDA margin decreased 32% in the last quarter from 41% in quarter three, mainly due to the [indiscernible] provision for the transmission line dispute with Turk Telekom, amounting to $28.2m at EBITDA levels.

On a yearly basis, pre-FX EBITDA margins increased 37% in 2002 from 36% in 2001. The [indiscernible] is focused on all business efficiencies.

Post-FX EBITDA also increased to 36% in year 2002, from 27% in 2001, due to higher pre-FX EBITDA base and lower FX loss during the year.

The company's net income of $59m in quarter three, [indiscernible] $37m in the last quarter of the year. Quarterly decline in net income was due to the lower revenues and increased costs, specifically the provision for the Turkish [indiscernible] amount to $37m.

Direct cost of revenues, including depreciation, increased to [76%] in quarter from, from 65% in quarter three. The main reason is the provision expense related with the transmission lines [indiscernible] with Turk Telekom, and [indiscernible] $28.3m in the last quarter at the EBITDA level.

Selling and marketing expenses increased 6% to $48m in quarter four from $45m in quarter three, leading to an increase in the [proceeds] of sales and marketing expenses to [12%] in quarter four from 8% in quarter three. The increase is mainly due to the increase in the [indiscernible] advertising costs of the company.

The costs of adding new subscribers is kept under control in 2002, reflecting 35% decrease in subscriber acquisition costs from $40.1m to $205.9m in 2002. Mainly due to the depreciation of the Turkish Lira based portion of subscriber acquisition costs and larger new subscriber addition base for the fixed portion of subscriber acquisition costs.

G&A expenses in the quarter increased $2.0m from $24m in quarter three to $27m in quarter four. Representing 5% of the total revenue in both quarters.

On a yearly basis, G&A expenses decreased 20% to $105m in 2002 from $131m in 2001, mainly due to the decline in the bad debt expense during the year.

Operational cash flow from EBITDA level recorded as $170m in the last quarter of the year, and $704m by the year-end 2002. CAPEX and investment was around $11m in quarter four, and recorded as $142m for the whole year in year 2002. The company also has paid $4.0m for the interest in quarter four, and $184m for the year 2002. The cash debt generated in last quarter recorded as $89m and increased $251m for the whole year in 2002.

After successfully meeting all our payment obligations, we achieved a cash level of $394m at the end of this year, plus total cash at hand even reached a level of $508m as of today.

As [indiscernible] a while ago, [indiscernible] solid operation platform of the company, our cash position is $394m at the end of the last quarter of the year 2002.

Our net debt position after decreasing $294m [indiscernible] by the year end 2002, the net debt position decreased to $940m, which is less than the total equity at the end of last quarter of 2002.

Some important ratios, such as total debt to EBITDA. Net debt to EBITDA and EBITDA to interest significantly improved comparing yearend 2002 to a year ago.

As we look into the financing policy [indiscernible] of the company, these are reflected in strong cash generating [platform] improving the total debt to [repayment] capacities. We have taken new steps on the financing side which changes the [indiscernible]. We have [indiscernible] agents stating it is intention to repay the outstanding demand on 1999 bank facility. We will be repaying the outstanding amount of these loans $244m on 1 March, 2003. The prepayment will aim to show our capacity of lowering the total indebtedness as well as making the debt portfolio unsecured, which will [indiscernible] our [indiscernible] and capital markets.

Meanwhile, we are also with Garanti back to extend our standing 2003 debt obligation of $75m, to be paid in three equal installments in June 2004, January 2006 and April 2006. We believe that the current [indiscernible] of the company, and outstanding [indiscernible] our plans to meet all this year's debt obligations successfully for [indiscernible] of year 2003. Currently total debt [indiscernible] is $650m in year 2003, and $132m in 2004.

Along with the improved debt servicing capacity, we continue to aim to maximize returns on excess cash, from our operation to a successful [indiscernible] policies. Turkcell diversifies its excess cash on alternative [indiscernible], which helps the company to maximize sales on what's [indiscernible] market.

Okay. Thank you Ekrem, and than you Mr. Akpinar. At this point our presentations have been concluded. We would like to go into the Q&A session. So if we could ask our operator to read that session for us please?

Certainly, sir. If any participant would like to ask a question, please press the star followed by the one on your telephone. If you wish to cancel this request, please press the star followed by the two. Your questions will be polled in the order they are received. There will be a short pause whilst the participants register for their questions. The first question comes from Mr. Vladimir Postelovski. Please state your company name followed by your question.

Good afternoon, ladies and gentlemen. It's Vladimir Postelovski from RCD Group. Two questions if I may. The first one is on this action by Turk Telekom on basic unit size. I appreciate that it's too early to comment on that, because well nothing has happened as yet with regards to Turk Telekom's pricing. But could you maybe expand a little bit on that issue and try to think of what is the agenda of Turk Telekom? What is it you can do if Turk Telekom will lower prices to mitigate the negative impact on your revenues? And what the likely outcome could be, because there is obviously a downside to your revenues?

And the second question is with regards to the pricing campaigns by your competition. Obviously it started only at the end of last year. So far it didn't really affect your market share. But what do you think is happening this year? Do you see any impact of that on your business this year, because they're obviously continuing? And how this is going to affect your pricing policy in 2003? For example will you be in a position to increase your tariff in line with inflation as you used to be doing? Thanks very much.

Thank you Vladimir. I think we will hand the first question over to Ruhi, our Operating Officer.

[indiscernible] regime if they're under a new formation. You may understand [indiscernible] because as we mentioned also Telecommunication Authority is preparing another interconnection regime both in [indiscernible] and other mobile operators. So base limits rate regimes may evolve or may change. This is a general tendency in the regulation area.

So Turk Telekom's action is regarding base units rates issue, is to stop the validity application of one of our clauses in our license agreement. But how these affect the total regime it is not possible to see. We should understand this issue it is a general development. A part of the general development in the interconnection regime.

Well I guess my question -- I'm sorry to interrupt you, but my question is, if tomorrow Turk Telekom lowers its fixed-to-mobile price, and still keeps their 6 cents per minute and starts paying you much less, what is there you can do?

I'm not expecting that kind of thing, because these units [indiscernible] it is still valid. What is [indiscernible] from ourselves to Turk Telekom [indiscernible] that is under discussion, not the total of it as of now. But it is also a general regulating action for the interconnection. So also [indiscernible] after this decision is --

I think if that's alright we can move into the next question. Tulin will respond to that.

Although it's very early to offset the impact of discounting, we may say that [indiscernible] effect of the [indiscernible] and the other companies are quite limited. They were discounting [indiscernible] operators to increase their acquisition market share. In the meantime, our market share, new acquisition market share, is at a 60% level, and we continue to have that market share. And we do not intent to promote a price war, and we are planning to increase our tariffs parallel to inflation rates. [indiscernible] the environment, and then we will be acting accordingly.

Thank you very much.

Next question, please.

The next question comes from Mr. Steve Frank. Please state your company name followed by your question.

Hi, it's Steve Frank from Morgan Stanley Credit Research. On page 19 of your presentation, in the fourth quarter you've got -- this is the cash flow page -- you've got positive $87m of cash inflow. Can you tell us what that is for? That's the first question, what that's from? And the second question is, can you just review for us again what kind of credit facilities you have? And it doesn't look as though you need money, but in case you do, what kind of credit facilities you have access to now? Thank you.

In the last quarter of 2002 [indiscernible] we have stable cash flow, [indiscernible] it is consisted of several items. One item is [indiscernible] stated transmission fee dispute that is still unpaid, amounting to $20.3m. It becomes kind of positive [indiscernible] cash flow. Also there's another item related to [indiscernible] over the expense but not paid yet, but will be paid in the beginning of year 2003 it also amounted $26.6m for quarter four.

Also in the last quarter the company generated approximately $35m [indiscernible]. If you [indiscernible] we end up with [indiscernible] cash flow item is shown in Other.

Okay, just to make a review. So overstated transmission fee of $23m and is that going to flow out of the company next quarter, is that correct?

Well it is not being claimed by the two telecom yet, but we assume that the [indiscernible] will claim these amounts in year 2003.

Okay, and the last two things were $24m for revenue share, and then $25m for working capital, is that correct?

$35m for the working capital and $23.6m for the share expense. But not paid yet.

And the revenue share expense, that will also flow out of the company at some point next quarter I guess, right?

Actually, yes.

I'm sorry, then the last question was, the credit facilities?

First of all the company has significant [indiscernible] in hand, as I stated in the presentation. As of today we have $580m cash to use. We are planning to repay [indiscernible] the bank facility amounting to $244m. I seem to [indiscernible] the company has over $200m cash already it at hand. So that shows [indiscernible] cash flow at hand, the company does not need any additional financing. Plus we have extended Garanti bank [indiscernible] domestic loan, in order to [indiscernible] for the year 2003 to year 2006. This is actually current [indiscernible] for the company's [indiscernible].

Okay, so $580m is what you have on the balance sheet now, is that correct?

As of today, yes.

Okay great. Thank you very much.

Next question please.

Your next question comes from Albert Druet (ph). Please state your company name followed by your question.

Good afternoon, this is Albert Druet (ph) from HSBC. Two questions. The first one, can you give us a little bit more light why during the fourth quarter mostly the postpaid ARPU was the most impacted by the seasonal decline on the Ramadan period, and not that much the prepaid segment?

And second question is around your promotion on your loyalty programs. Do you include any free minutes, especially for the heavy users in your loyalty programs? And do you think that could have an impact on your postpaid ARPU? Thank you.

I'll hand it over to Tulin.

When we compare to [indiscernible] for ARPU [indiscernible] postpaid ARPU declined due to seasonality and Ramadan and just quite typical [indiscernible] results. But prepaid ARPU is just stable because of our intensive [indiscernible] volume. As to the free minutes, yes we are giving some free [inaudible] a percentage [inaudible]. And I may add people are also increasing their usage [inaudible] and also increasing [inaudible].

Albert did you hear the answer?

No I think it was -- I mean the communication was cut two times. Is it all right if you can repeat briefly your answer, I did not really get the whole story? Sorry about that.

When we compare quarters three and four, it's historically typical that the ARPU declines and the ARPU of postpaid declines because of seasonality and Ramadan, where we have less mobility. But prepaid ARPU is just stable, due to intensive campaigns where we encourage usage. A volume discount campaign.

As to the free minutes, yes we are offering some free minutes on a volume basis. So therefore they increase their usage as well and the total effect is clearly material.

And those free minutes, is it more the postpaid segment which is targeted, or is it all your subscribers prepaid and postpaid you have targeted?

You might be following that we are offering to different [companies], not just for different groups of people, but also our [indiscernible].

Okay.

Thank you, Albert. Next question please.

The next question comes from Mr. Ishtan Makter (ph). Please state your company name, followed by your question.

Good evening, this is Ishtan Makter (ph) from CSFB. I have a follow-up question on the mobile termination charge issue. I understand that the general agreement by Turk Telekom of mobile termination charges was very much in line with what the agreement had stipulated. Could you please tell us what the February payment looked like, whether it was still roughly the same as under the old agreement? Or was there material difference?

And relating to this, have you decided upon the accounting treatment and accruing for the incoming revenues from Turk Telekom? So when we see your first quarter results what method are you going to use for accruing for this amount?

I think we will had that over to Ekrem, Ishtan (ph).

Well in terms of accounting policy, we quote what we see from Turk Telekom. So it actually eliminates all [indiscernible].

But I suppose these are monthly payments, so when we have the first quarter results then you are going to be probably accruing these upon February. And my question is, what was the February payment like compared to the January or compared to last quarter?

[indiscernible] I said it was in fact similar.

Ah, it was similar, thank you very much.

Thank you. Next question, please.

The next question comes from Miss Hermira Sheik. Please state your company name followed by your question.

It's Aberdeen Asset Management. Can you just talk a little bit more about the availability that you have under your credit lines at this point? And whether any of those credit lines are from Pamukbank or Yapi Kredi? Also, if you can just comment a little bit about how... what your sensitivity is to local interest rates? What sort of -- a number of your loans appear to be variable rate in local currency.

And then finally, on your cash balances, if you can just tell us how much of your cash balances are in Turkish Lira versus in dollars? And of your cash balances that are in hard currency, whether they are in Turkish banks or foreign banks? Thanks.

Well there is not any credit line between Turkcell and Yapi Kredi and Pamukbank, and we have not used any credit in the companies history from both banks. By looking at the Turkcell interest rate that it's paying to the bank, there are three major [indiscernible] bank facilities in place. These are [indiscernible] Bank, Garanti and [indiscernible] lines.

The total interest is [indiscernible] for [Garanti] Bank. We have [indiscernible] Garanti Bank to [indiscernible] currency. And [indiscernible] we take out [indiscernible]. On the other hand there are some high yield insurances. There are two high yield insurances. The first one is [indiscernible] 10% interest rate. The other is 12.75%.

The cash bonds as of today, as I stated, is around $580m. Approximately 60% to 65% of that amount is actually in US dollars. [indiscernible] Turkish to the balance, kept in several banks, but majority part is actually in Turkish banks.

Given the economic and political uncertainties that you mentioned what sort of steps have you taken to try to protect any volatility that you might face, and any pressure on your cash flows? With respect to, for example, having access to hard currency cash on a [indiscernible] basis. I'm just wondering what sort of protection, whether any currency hedging or any other similar instruments have been used?

We have done several small amount actually currency hedging, several [indiscernible]. But these are actually quite [indiscernible] amounts that has been finalized by the yearend 2002. On the other hand, we actually transfer the company's TL bank account to US dollars in order to eliminate any FX volatility. Also another initiative that we have already taken is, try to decrease the company's [indiscernible] level of [indiscernible]. It's now the total debt of [indiscernible] is all in US dollar basis, and we [indiscernible] that amount already to [indiscernible] by the yearend. And repaying $244m bank facilities.

Right, okay, thank you.

Thank you, Hermira. Next question, please.

the next question comes from Mr. Martin Taylor. Please state your company name followed by your question.

The company name is Thames River Capital. My question is, given how low your CAPEX was last year and how low as a percentage of sales your CAPEX forecast for 2003 is, could you give us an idea of what kind of CAPEX number as a percentage of sales you think your company can sustain in the longer term? I.e., from 2004 onwards?

Capital expenditures are growing in line with the [indiscernible] factor. That means supporting the areas which necessarily [indiscernible]. And also [inaudible] [indiscernible] technology [indiscernible].

Also today year 2002's CAPEX cannot be as low [indiscernible] according to this [indiscernible] and today we are quite comfortable our networks quality. [inaudible]

For the longer term, we are expecting [indiscernible] and year 2003, so we see this [inaudible], this is our forecast. As a guidance it is the normal CAPEX level that you have seen from our [indiscernible]. Our CAPEX expenditure until now is more or less 40% of our total [indiscernible].

We should remind you that our longer term project also does not include 3G, which is not in the agenda at this point.

Sure, I missed some of that because the phone line was quite poor. But in terms of just a straight sort of percentage of sales, what do you think is sustainable? About 10% of sales, 12%, 15%, something like that? Could you give me an idea, a range?

If we take a look at it from the community point of view, out CAPEX level it is 40% of our sales to the end of year 2002. So this is quite [indiscernible] of CAPEX and should be. But for the future, maybe the level can be more for that year, but as an average it will give us quite an understandable and accessible figure, I believe.

Thank you very much.

Thank you, Martin Next question please.

Your next question is Mr. Steven Pettifer. Please state your company name followed by your question.

The company name is Merrill Lynch. Four question, please. For starters just a follow-up on the previous question. Could you please give us an idea of your -- when you say 'modest' subscriber growth in 2003, I just want to get a feel for what's supporting your CAPEX budget. What does modest mean, is that a single-digit number, or double-digit percentage growth?

Second question, please. Could you give us an idea, or I would be grateful if you could give us any sort of range in terms of your mobile termination rate as a percentage of your overall revenue? Third question is, please could you give us a figure for your transmission costs in 2002? And finally, just a follow-up on some previous question in terms of the price environment. I just was curious as to whether or not you are seeing any of your competitors increasing subsidies as well as being more aggressive on the pricing front? Thanks.

We've heard all of your -- almost all of your question. I think we heard the first three. We're going to ask you to repeat the last one. But let us respond to the first three first. In terms of the modest growth, then what this means, Mr. Akpinar if you could actually lead that.

It's difficult to give any precise information like one digit or two digit growth, but obviously modest gives a guidance, lower expectation compared to 2002. Beyond that it's quite difficult for us to give any further precise guidance at this point of time, unfortunately.

The next question was --

Regarding the termination rates as a percentage of revenue, what that might be. I think we will turn it over to Ekrem.

Well looking at the yearend 2002 the mobile [indiscernible] was approximately 27% by the year end 2002. That actually [indiscernible] comparing a year ago when it was around 30% by the yearend 2001. [inaudible]

And the next is the total transmission cost?

It is for the whole year 2002, that is actually approximately [indiscernible]

And still we did not hear your fourth question, if you could repeat that for us?

Yes, sure. Just before I do that, can I just go back to the first answer. I realize it's difficult to give us precise numbers here, but just maybe turning the question around. Is there a level of growth where you would feel uncomfortable with your CAPEX guidance? I.e., if you have 20% subscriber growth, do you think that your CAPEX number is looking too conservative?

We don't see any problem with our CAPEX guidance, and the trend that we foresee from the markets today. And on the other hand, as we stated before, this is a criteria or a comparable advantage, comparative advantage to our competition that we will never give up, especially in this very strong cap position. On this issue we will never sacrifice. So we think we are right balanced on our expectation of subscriber growth compared to our CAPEX, yes.

Okay, maybe just the final question again. You've commented on the price cutting actions of your competitors, I was wondering if you'd also noticed them being more aggressive on the subsidy front?

Well their acquisition costs may increase in 2003 [indiscernible]

I think the question is, Steve, if I'm not mistaken you asked if in the market we see any, and we have any expectation of subsidies increasing from the competition?

Well actually if you're seeing not an expectation, if you're seeing it now?

We are seeing it now.

You are. Okay, thanks very much.

We don't see it --

We won't see it because as long as new acquisitions are [indiscernible] heir strategy is to follow us. And they are being very aggressive on [indiscernible], they have been cutting the prices, but in terms of acquisitions they have been following our price increases. [indiscernible]

Okay, thanks very much.

Next question, please.

The next question comes from Lindsey Hayes. Please state your company name followed by your question.

Hi, Lindsey Hayes from Morgan Stanley. Following announcement last week by TIM, that it was writing off its Turkish mobile assets. Do you see there's potential for consolidation in the Turkish market possibly between the third and the fourth operators? And if so, would Turkcell look to block any such consolidation in the market? Or, how do you think the regulator would view that? That's the first question.

The second question relates to the level of ARPU and usage. Do you think that your ARPU and usage will rebound to a level we've seen in the first quarter of 2002, following the seasonal weakness that we saw in the fourth quarter? Or do you think given the aggressive competition that you're seeing, you won't manage to reach those same levels again. Thank you.

The first question. When we look at the environment in the last three years, we see that there has been many changes in the Turkish environment as well as the global telecommunication environment. And so there we see that there are some difficulties in the marketplace with the four operators. But we haven't seen any solid signs of any kind of merge or acquisition [indiscernible]. On the other hand, we will still [indiscernible] so that we are the leaders and the committed party into the market.

What can happen or how we can be interested? As long as it's just speculation, that's is normal, and I wouldn't like to make any further comments. So that there isn't any concrete reality in the market, at least [indiscernible].

The question as for the ARPU and minutes of usage. Tulin?

Well as to the MoU we expect to maintain similar levels to 2001, although we are going to have a dilutive impact of including prepay subscriber base. When we are talking about the blended MoU and ARPU it's rather difficult to give the similar levels. But we foresee that the level will increase for postpaid. However, the dilutive effect of the prepaid base may affect the [indiscernible] figures.

And as to the ARPU, it's more or less a similar situation. We expect a change in [indiscernible] composition, and also increase in prepaid base. Therefore the blended [indiscernible] may go down also in 2003.

Okay, thank you very much.

Thank you, Lindsey. Next question, please.

We have a follow-up question from Mr. Vladimir Postelovski. Please go ahead, sir.

Good afternoon again. Can I just confirm the figure you mentioned for interconnect revenues as a percentage of total revenues? Did I hear you right, it was 27% for the [indiscernible]? And could you confirm that that it is [Photo] interconnect or just fixed-to-mobile?

And the second question was on your dividends policy. Would you say that you would not even consider paying any dividends in 2003? And what are your potential views on 2004? Looking at your cash flows it seems like there won't be many outflows and you would be in a position to pay significant dividends. Would you consider doing that as well? Thanks.

Ekrem will pick up the first question.

The percentage of the mobile terminated call, was, as I said, 27%. But that represents all terminated calls to Turkcell, not only from the fixed network but also on the other competitors [indiscernible].

In this case could you maybe just roughly, very roughly indicate what is the [indiscernible] in fixed-to-mobile and mobile-to-mobile in terms of your interconnect revenues?

I can only give you a rough distribution. [indiscernible] currently stand approximately 90% actually comes from fixed networks. The remaining is split between two operators, [indiscernible].

Thank you. And dividends?

I may elaborate on the second question, which is I couldn't understand clearly, because the line wasn't clear enough. I think at the dividend policy [inaudible] agreement, am I correct?

Well it's, would you consider paying dividends either in 2003 or particularly in 2004?

As far as the Turkish laws are concerned, first of all dividend has to be decided by the Board and then taken to the General Assembly for a decision. This is the regular process for it. On the other hand, there's another constraint saying that a company who wants to distribute dividends, pay dividends, has to have a zero balance in the accumulated losses. This company has, as of end of last year, 750 [trillion] accumulated loss in its accounts, so before considering any decision at the Board and General Assembly level we have to clear away this accumulated loss with the new profits.

Right, and it will probably take you another year and half at least, right?

At least, we don't foresee that for 2003, yes.

Thank you very much.

You may take the next question, please.

The next question comes from Esan Roystrue (ph). Please state your company name followed by your question.

Hi, I'm coming from [indiscernible] Investment [indiscernible]. My question relates to the basic [indiscernible] Turk Telekom. I understand that Turk Telekom made a one-time deduction from it's payments to Turkcell - correct me if I'm wrong. Do you expect it to continue, or is Turk Telekom going to wait for the Telcom Authority to finish the regulation on the interconnection regulation in general?

Mr. Akpinar will respond to that.

Well first of all we haven't seen any deduction from the monthly payment so far. So we don't know what will happen in the next payment. But as we have tried to explain in the previous questions and answers, this is a total environment which is being evolved and reshaped. And in this [indiscernible] obviously the Turkish Telecommunication Authority is going to play the major role, especially with the basics of cost plus pricing methodologies, which is being worked on.

When do you expect this new regulation to be finished or finalized?

Well it might be within this year, but beyond this large timeframe we don't have any further specific date or expectation for it.

Okay, thank you.

Next question.

the next question is a follow up from Miss Hermira Sheik. Please state your company name followed by your question.

It's Aberdeen Asset Management. If you could just clarify what the cash balance is at the end of December? I think you said it was $580m, but I think on your press release it seems to be somewhat lower. And then if you could also just clarify the amount that was -- sorry, the cash inflow for the fourth quarter '02, which you said is likely to be reversed in '03, as it relates to claims that will be made from Turk Telekom? I think the amount was $80m. If you could just clarify those points.

And sorry, finally on market share. If you could just tell us what your market share was in the fourth quarter and what it was in the third quarter. And then one last question, what sort of activities, minutes of use, demand, etc, you're seeing in the first quarter of '03? Thanks.

the first question, Ekrem will pick that up.

In terms of cash balance at hand. Actually I have [indiscernible] two different numbers. The first one is $394m representing year end 2002 cash balance. And also $580m, the cash balance of the company by today in fact. So that's why I have given two different figures for the cash balance.

Oh I see, thanks.

And as for the other questions, in terms of the market share we've actually said that we haven't seen material change, and the range we can provide is 60% to 65%. As you know we are the only public company in Turkey, and the market data does change. So other than ours it is too speculative to comment. So that would be the range we can give on a yearly [indiscernible] basis.

As for the Q1, Hermira, we haven't provided any guidance. On the MoU's I think it will be three more weeks. We can make a comment on that at a later time.

Okay, thank you.

Next question, please.

The next question comes from Miss Aysha Moya. Please state your company name followed by your question.

Hi, Aysha Moya, [indiscernible] Securities. Sorry if this is a repeat question, but could you give us a guidance on subscriber additions for 2003? And also if there's any sort of development regarding your case in the US, and what do you think is a timeline for that case to be completed? Thank you.

Aysha thank you. As for the guidance on the subscriber growth, we've said that modest growth expectation in comparison to 2002. So it should be lower than what we added in 2002. So as you know there are a number of also uncertainties in the marketplace, from a macro standpoint. At this point we are not being more specific on that guidance.

Next for the case in the US, we can say that the litigation is continuing, and there is no material information we can share with you today.

Okay, thanks.

Next question, please.

The next question is a follow-up from Mr. Ishtan Makter (ph). Please go ahead, sir.

Hello. I was wondering whether you are already thinking of any refinancing strategy for the bonds which are due in 2005? I know this is years from hence, but can we potentially see something from you in terms of a refinancing or financing the bonds to pay them, this year?

I will hand that over to Mr. Akpinar.

Well obviously starting from the first quarter of last year, we've always stated that on the financing we have the priorities as lower costs, longer terms, and enough liquidity for ourselves to maintain the company in this very volatile market. Within these perspectives we are going to evaluate and exploit all the possible opportunities in the environment, in the financing environment for ourselves. Do we have an [indiscernible] and concrete guidance for the bonds? We don't have at this point of time. Thank you.

Thank you very much.

Next question.

The next question comes from Miss Anna Berson (ph). Please state your company name followed by your question.

Hello, I from [indiscernible]. The first was can you [indiscernible] for this year versus last year. Secondly your maintenance costs for subscriber, I guess they will be going up this year as you're trying to encourage loyalty? If you can give us some idea of what you think might be happening there? And thirdly, an idea of what percentage of your loans are in Turkish Lira? You said you had eliminated your US dollar exposure to your cash balances, is that correct, did I understand that correctly? And after you have repaid this 1999 bank loan, will that still be the case? Thank you.

Thank you, Anna. We hear the next three question, we did not hear the first question. So I start with first three, then I will come back to the first one. The first one I believe was the maintenance costs for subscribers. Could we comment on that?

There will be [indiscernible] so we expect that [indiscernible] and that will be of course included in our sales and marketing expenses. And our sales and marketing expenses will increase slightly as a percentage of revenue.

Excellent.

And the next question is regarding the percentage of loans in Turkish Lira.

We do not have any Turkish Lira bank loan actually on the company balance sheet.

So what you were discussing earlier was just Turkish Lira cash balances. Okay, that makes more sense. Okay. And the first question was your gross margin, if you can give us some thoughts on what you're expecting this year?

Meanwhile, could you repeat the first question?

Yes, the first question was gross margins, what are you expecting on your gross margins this year?

Okay, that was the first question. Mr. Akpinar can comment on that.

Well on the gross margin and the total P&L numbers, we said that the performance will be pretty much in line with 2002 numbers. This is what we can expect in bulk at this point of time, until we see the impacts of the geopolitical environment in Turkey.

Alright, thank you.

Next question, please.

The next question comes from Mr. Atinc Ozcam (ph). Please state your company name followed by your question.

Good evening, this is Atinc from HC Turnbull (ph). I have two questions, please. On page 12 of your presentation you are mentioning that you have initiated the process to benefit from the Tax Amnesty Law. And this is regarding your dispute on the upfront license fee VAT. As far as I know - correct me if I am wrong, you also have a similar dispute regarding your ongoing license fee VAT. Are you considering taking any steps regarding that?

And my second question is on, what percentage of your subscriber base is actually on [Superon Net]? Thank you.

Thank you Atinc. Ekrem will respond to the first question.

We are [indiscernible] actually we are in a position right now to evaluate the [indiscernible] position and its impact for the ongoing license fee. So you may know [indiscernible] for submitting application for a Tax Amnesty till the month end. Based on the outcome of our current discussion with Legal and Tax Counsels, we will be deciding.

[indiscernible] percent of our subscribers on [Superon Net].

Sorry, could you repeat your answer for the second question please?

75% of our subscribers are on [Superon Net].

55%, right?

75%, 7, 5.

Alright, thanks a lot.

Thank you. Next question, please.

The final question is a follow-up from Mr. Vladimir Postelovski. Please go ahead, sir.

Yes again I'm sorry. One last question from me. Would you, yourself, consider taking part in a consolidation process if there would be one on the Turkish market? For example would you consider buying IS TIM subscribers if IS TIM and/or part of the infrastructure, if the company is for sale at some point?

Well I wouldn't like to make any comment on any specific name that you have suggested in your question. But talking about this question in a broad perspective, with our position in the Turkish market and our commitment [inaudible] during the last several years, 8, 9 years. I would say that any restructuring and any new [indiscernible] market, would be something that we would look into. We would not stay away from any possible operation or any [indiscernible]

And what do you think the regulatory position on this would be? Would they allow you to do anything like that?

Well, I don't know, it depends on the structure, it depends on the numbers. And obviously that is an issue that has to [indiscernible]

But you can't think of any regulation which would, for sure, preclude any deals of that kind?

Excuse me, could you please repeat that?

At the moment you cannot think of any regulation which is already in place which would prevent you from any transactions of this sort?

Well there are many Boards and Authorities which are following these mergers, and acquisitions and market positions in [indiscernible] like Telecommunication Authority to start with. And then the Competition Authority might be the second authority in this perspective. These are the two authorities that I can think of at this point of time.

Okay, thanks very much.

We believe that concludes our conference call. I'd like to again, on behalf of management, thank you for all the participation and questions. I'd like to also remind you that an audio recording of this conference call will be available the next three business days for you to re-listen. And please let us know if you have any follow-up questions, we are available at the Investor Relations. So thanks again. Bye-bye.

This concludes today's conference call. Thank you for participating.