Turkcell Iletisim Hizmetleri AS (TKC) 2003 Q1 法說會逐字稿

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

Good morning and good afternoon everyone. I am the Head of the Investor Relations at Turkcell. I would like to welcome you on behalf of management team here today to our Q1 2003 conference call. We have our CEO, Muzaffer Akpinar, here along with our executive management team. At this time, I would like to pass it over to Mr. Akpinar for his presentation. Thank you.

Thank you very much. Wishing a beautiful day to everybody. I would like to start by giving some of the key successes during the first quarter of 2003. Firstly, we performed in line with our 2003 year-end expectations during the first quarter, despite the tension in the region. Our subscriber base group grew by 4% and reached 16.2m by adding 589,000 net new subscribers. This subscriber base presents a large portion of the Turkish population, which we believe gives us also an advantage for better understanding of the behaviors and expectations of the overall market giving us a full picture. As we have communicated before, we continue to follow the market closely and introduce an average 4.7% [Inaudible] increase. We have maintained our revenue levels in line with the subscriber growth and improved our operating margins, tends to improved operational costs and the stability of the exchange rate on quarterly average basis. The first quarter of 2003 was another quarter with uncertainties, which impacted our operating environments. These uncertainties were mainly due to the developments in the region, which resulted in volatility in the exchange rate and interest rates.

The volatility resulted in tension, in democratic economic dynamics objective, which was perceived as fragile. These developments had a negative impact on the fragile consumer segments and environment where we operate. Thanks to the fact that the war in Iraq and that in a short period of time which limited the impact on Turkey. However, the tension in divisions still contributes to exist as a potential source of further uncertainties. With the war behind us and some recent developments such as potential US aid to Turkey, finalized our MF agreements, success of tax collections achieved during due to the recent Tax Amnesty Law introduced, and some post and recent market indicators such as improved capacity utilization rate in March, provide us with basis to be more optimistic on the macro front of rest of the year as of today. Despite the negative sentiment in the consumer confidence, subscriber growth continued in the market and our subscriber base increased by 4% to 16.3m as of annual first quarter 2003. We still maintained our leading position in the market by acquiring over 50% of the new subscribers of the market despite the increase in the competition. The growth continues to come from the peak rate subscribers and 91% of the growth additions consisted of prepaid subscribers. We believe our efforts to acquire majority of the new acquisitions will continue while retention of our valued subscribers will be our top priority. Over the course of the past few quarters, we have mainly seen aggressive competition in terms of pricing.

We believe that there has been limited impact of this competitive behavior on our operations. We continue to believe that there are a number of success factors that helped us to maintain our leadership position. The importance of customer loyalty is also increasing with increasing competition. Thus our CNM program plays an important role to apply the right programs and treatments to each segment of our customer base. Our national royalty programs continued in Q1 aimed at retaining high-volume of customers by means of offering free Turkcell services staggered to out coming 1 to 12 months. Other programs addressed different value segments with respect to the segment customer values course. First and business class royalty programs covered theme of the cream corporate and individual subscribers. We believe that fixed house network investments, strong band image, convenient customer care services, unique and variety of distributional sales points and segmentation efforts to cater services and study plans for its non subscriber base proved successful while maintaining its leading position. Coupled with this market-oriented effort, we are constantly reorganizing ourselves and organization to adopt the changing factors. We are keen on effective enterprise management and we have implemented a coaching and leadership program to ensure leaders of tomorrow. This is why we believe that our continuing focus of competing on multiple platforms as opposed to solely on price will ensure our future success. The two key performance indicators that we follow to measure the impact of competition, our subscriber acquisition costs and turn rates. We observed that the competition is more fierce on pricing.

Turkcell's competitors continued to focus on lower tariff campaigns throughout the quarter where further sacrifices from their future revenues were made. However, competition was not as aggressive on new subscriber acquisitions, which will require cash outlay. As a result of the current characteristics of the competitive environment in Turkey, we were able to maintain low level of subscriber acquisition cost per subscriber without leading to significant loss of market share in new subscriber acquisitions market in the first quarter of 2003. On the other hand, our turn rate increased to 4.5% in the first quarter of 2003, which was mainly due to the increased competition and decline in disposable income. This level of turn rate may continue in the coming quarters. In line with seasonality impact combined with the negative sentiment in the consumer confidence, turn over declined 4% from 52.9% in the first quarter of 2002 to 50.9% in the first quarter of 2003. We continued to focus on campaigns based on number of users rolled in all destinations and offered different programs attractive for different groups of customers other than to our segmented approach to help a more unit per form basis. Especially our continued campaigns aimed at increasing pre-paid usage helped to maintain pre-paid usage levels which also reflected into pre-paid average revenue per user. Value added services and SMS usage remained stable during the first quarter of 2003 due to special days in the quarter like religious holiday, the Valentine's Day and mainly service such as [Inaudible] due to Iraqi war and constituted approximately 12% of our revenue in the first quarter of 2003. On the legal front, we would like to give a brief update on the recent developments. First of all, the dispute on frequency usage fee for pre-paid subscribers.

As we have already communicated in detail in our press release dated April the 30th, 2003, there was a recent development on the ongoing dispute regarding the frequency usage fee for pre-paid subscribers. Due to this development, Turkcell will make a payment of the annual frequency usage fee totaling to approximately $55m including principal and interest for the year 2003. We will make necessary provisions in 2003 financial statements regarding this transaction. We will also amend our 2002 financials due to these developments, although we are not making the payment corresponding to the year 2002. Legal proceedings continue with regards to these disputes. Second, Tax Amnesty. Regarding the VAT of ongoing license fee dispute in March, we took actions to benefit from the recent Tax Amnesty law for the period starting April 1998 to November 2001. This action had no impact on our US GAAP financial statements, since we did not have provisions in those financials. There are no other major developments or other outstanding relocations of the company. Now I would like to pass the word to Ekrem Tokay, who will talk in detail about our financial performance. Thank you.

Thank you. Good afternoon. I will take you through with the company's financial results for the first quarter of year 2003. Starting to [Inaudible] the company's [Inaudible] decreased to 10.1 in first quarter of 2003 from 10.9 in the last quarter of year 2002. [Inaudible] decreased to 90.7, it follows 122.4 in the same period. [Inaudible] remained stable at 5.78 during the first quarter of the year due to the company's continued marketing activities to encourage [Inaudible] . [Inaudible] too declined due to the negative impact of lower corporate output [Inaudible] being the first quarter of this year. In order to give better clarification, we provide with table to illustrate the amendments in our quarter 2002 and year-end 2002 financial statements due to recent developments regarding dispute on [Inaudible] subscribers. I will not go to it since I don't think it is quite satisfactory to me. Now, I will continue with my presentation, I ask you to keep in mind [Inaudible] and their effect on the past statements for remaining slides. Despite the amendments, the company maintained strong margins in the first quarter of this year. Our revenues slightly decreased to $491m in the first quarter from $505m in the last quarter of year 2002. Negative [Inaudible] first quarter of this year was partially offset that allows subscriber base and [Inaudible] in the first quarter of this year. The company operating margin increased to 30% in the first quarter of this year from 21% in the last quarter of year 2002. It is important to note here that what extra expense revenue in Q4 2002.

First, transmission lines dispute with Turk Telekom amounts to [Inaudible] US dollar. Second, frequency usage fees [Inaudible] subscribers amounting to $23m. Our net loss of [Inaudible] in the last quarter of the year 2002 turned out to be around US$ [Inaudible] in the first quarter of this year with the impact of [Inaudible] provision that I mentioned a while ago. Direct cost of revenues including depreciation decreased to 61% of the previous year in the first quarter from 22% in the last quarter of 2002 mainly due to the absence of one-time costs recorded in the fourth quarter of 2002 related to the transmission line dispute with Turk Telekom. Sales and marketing expenses decreased to US$49 (Audio Gap) in the last quarter of 2002. The cost of getting new subscribers remains stable at US$22 in the first quarter of this year. Yearly expenses in [Inaudible] decreased US$5m in the first quarter to US$22m in the last quarter of 2002 representing 5% of the total revenue in both quarters. After meeting all our payment obligations we achieved a cash flow of [Inaudible] at the end of the first quarter of 2003. CAPEX has been [Inaudible] around US$12m in the first quarter, whereas US$11m in the first quarter of 2002. During the quarter, we had paid around US$50m interest and decreased our net interest expense by around US$241. As you may know, the SEC recently adopted new rules regarding the use of nonGAAP financial measures, use the [Inaudible] public declarations, including earning releases and comprising [Inaudible] . Since these new rules includes results of EBITDA we reconsolidated such as the global [Inaudible] calculation, which is net [Inaudible] activities. We know that EBITDA is commonly as finance measurement in the telecom industry. And therefore, we still use EBITDA in our public announcements by including the consolidation followed by the SEC as mentioned in the rule. As a result of the continuing [Inaudible] operational tax revenue of the company our case position became clear [Inaudible] end of the first quarter.

Our net debt position decreased to US$740m, which is less than total [Inaudible] at the end of the first quarter of this year. I will now remind you that our cash position has improved to US$402m as of today. We have taken some actions on the financial side, with change of debt structure proposal. First, we repaid the outstanding due amount of US$244m, there is no rate [Inaudible] in the first quarter of this year. We also agreed to extend the principal payments of the loan from Royalty Bank totaling to US$75m. [Inaudible] . We continuously monitored the investigating commission of debt and [Inaudible] to improve our debt structure by decreasing the process of funding and extending the year of maturities. We not only just published it, we agreed to extend directly to [Inaudible] a total of US$1025m during May and June 2003 to be repaid in two equal installments in the years 2004 and 2005. In the first quarter, we received a total of US$320m. We serviced a total of US$320m principal and interest and promise to service another US$181m during the next three quarters. We do intend, given the current cash standard ability of the company and outstanding strong cash balance at hand, to meet all issued debt obligations successfully for the remaining of the year 2003. Thank you.

Thank you, Ekram and this is Koray Ozturkler. Actually we are now going to go into the Q&A session. Just as a housekeeping item, I would just like to communicate to you that based on the feedbacks we've received from you, we would like to limit the number of questions per person to two initially and a second round after first questions. Operator, if you could please take the questions, we are ready to answer to that.

Thank you 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 your calls, please press the star followed by the two. Your questions will be played in the order they are received. There will be a short pause while participants register their question. The first question comes from Mr. Vladimir Postelovski. Please state your company name followed by your question.

Good afternoon ladies and gentlemen. Vladimir Postelovski from CD group. Congratulations on good results. Three questions. First one is on cash flow. Your first quarter [Inaudible] was one-third of your development budget as you have announced previously. Could you reach [Inaudible] is going to stay at 160m as you said before discussing this budget, and if that is the case, then based on my calculations, you are going to handle about $5650m of cash in hand towards the end of the year. So what are your plans with regards to this cash? It is probably sub optimal to keep it on your balance sheet. The second question right after the sequences usage fees, I guess everybody will be asking you what are your, could be maybe summarize key outstanding potential legal liability that you have at this point of time. Only the largest ones, regardless of whether you believe that you are going to win or lose those negotiations and remind us of the magnitude of the potential cash flow and P&L impact. And finally the third question is on your cash flow statements.

Actually, due to the limits we will take the first two questions.

Okay.

Time is [Inaudible] keeping minus and then [Inaudible] I will come back to your first question if it is not asking. So let's start with the first question.

Vladimir thanks for the questions about the Capex. We still believe that we will be able to maintain 165 at the end of the year. So this number in the first quarter doesn't give guidance for us at a higher number. On the other hand, about our cash flow or the cash in hand by the end of the year, we will be looking for all the alternatives to make the best evaluation and the action for the sake of the company, we don't have a concrete strategy on that yet looking forward to the alternatives. And the third one about the major re-election. From the Turkish Telecommunication environment point of view, there are lots of new regulations and new laws about the responsibilities about this one. Of course Turkcell is managing all the legal requirements and legal issues very closely, and taking into consideration all the racks of its shareholders and investors. From his point of view, we may need help in some more new developments, of course all the existing developments, but these are generally already considered in our quantity announcements. We are not expecting anyone at the time being, the existing ones like the frequency, [Inaudible] customers. These are the proceedings, which we have always already [Inaudible] , and also follow-up the legal stage point of view. So we can summarize that all the new developments including new regulations about the interconnections etc are chased and accordingly, so we are not expecting any unexpected new developments.

The only reason I pose this question as that you previously provided us with an estimate of about 200m potential legal ability that you might have. This frequency usage cease our liability of 120m as I understand was not included in this 200m. So my question is, is there anything else that might suddenly come up and you believe you are not applicable but in fact it may materialize? That I guess is the question.

Already the proceedings had some major headlines, one of them regarding the treasury it is based on the telecom related issues and the tough ones regarding the taxes issues got already changed and finalized. Today, we get to use the ones that are already summarized in our books and the given figure considering these cases, so we believe that the given figures are already covering all the [Inaudible] of the day.

Okay. Thank you very much.

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

Good evening. Could you please tell us what exactly the ramifications of the Tax Amnesty law will be in terms of a settlement over the dispute of the [Inaudible] and the ongoing licensee, I believe you have been providing for this for the treasury share in your financial statements in the past and will there be an impact from the Tax Amnesty law on this and will you be providing for the treasury share going forward.

In respect to treasury share on the licensee, we have not allocated any provision in the past, so as stated before the impact of the Tax Amnesty on the [Inaudible] what we expect is at one point US $1.2 m. We are actually putting to the Tax Amnesty and to send it a delivery packet, which is then - just keep on wait over the year-time license fee and if you really wonder, we had covered that part in the last quarter year 2002. And as I say it was - you talk of, you haven't penetrated - you are talking to companies in cost [Inaudible] 2000 series.

Okay, so that has been corrected and that there will be no impact on your financial statements or on the liabilities from this or what will be the exact impact on.

There is not any financial impact on the company if it is going through Tax Amnesty

Okay. This is very kind. Thank you so much.

The next question comes from Mr. Alex Right. Please state your company name followed by your question.

Good afternoon, Alex Right from UBS Warburg. My first question is on the frequency usage fees. Could you tell us of the $55m that you [Inaudible] 2003, how much of that is principal and how much is interest, and also could you explain briefly the methodology for the calculation of frequency usage fees, and the second question is relating to ARPU trends. In the press release that you put out, part of the weakness in ARPU in the first quarter compared to the fourth quarter last year was attributable to changes in call traffic patterns, and I was wondering if you to give a little bit more color on that. Do you see more on net traffic? How much of that we found in ARPU was caused by this trend in call traffic patterns? And, in terms of the trends in ARPU going forward over the next couple of quarters, could we expect to see similar trends in 2002 [Inaudible] such an ARPU recovered in the second and third quarter relative to the first quarter of the year? Thanks.

[Inaudible] relating to fees it's sort of [Inaudible] to give the calculations as a big approach. The big-end (ph) residual here is [Inaudible] beginning of the year, it was approximately $4.5m of share. That makes approximately three years for each subscriber and for the present subscriber, we calculated to subscriber for the year 2002 and [Inaudible] with three year [Inaudible] and angled with the total calculations from year 2003. This is a very simple calculation that is improved by various telecom authorities. [Inaudible] year 2002 financials [Inaudible] as the company's financial impact would allow us to [Inaudible] and install it and we showed that the impact is [Inaudible] as net income [Inaudible] for the first quarter or use by [Inaudible] as we are always in, we expect a modest [Inaudible] involving $3.8m including interest and principle to the first quarter of year 2003 and for the remaining quarters consolidating expense [Inaudible] the 1.5m (Audio gap)

Thank you. This is Turkcell back on the conference call. We again apologize for the difficulties. We don't know why we got cut off and could not be connected back. We have reached you through a different line. Operator, if we could at this point pick up from where we had left of, we would appreciate it. Thank you.

Please go ahead, Mr. Right.

Yeah, thank you. I was just finishing off on a follow-up question on the ARPU, which was just as -- I was wondering what trends you are expecting in the second and third quarter of this year rather than subsequent years, are you expecting to see a recovery out in 2002? Thank you very much.

[Inaudible] . Did you hear me?

Could you hear us?

Not, not very well. I didn't hear the answer.

We might [Inaudible] what the deciding ARPU is still in this year in the other quarter, coming quarter because of the reasons I have explained.

Okay, fine, thanks very much.

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

Yes. Good afternoon, Steven Petruska (ph) from Merrill Lynch, two questions please. The first one is a sort of a follow-up, I suppose from the previous question. I wonder if you could give us an update on what's happening with termination rates, specifically from the fix line operator? And secondly further to the frequency usage situation, I wondered if you could tell us whether or not we should expect that you could -- you will pass any of that pact through to your customer base or if indeed you are talking to any of the other operators about resulting in that form?

Nowadays, telecommunication authority is working under new regulation under fixed band termination, fixed mobile termination and mobile-to-mobile termination, both of them, making them a cost based termination structures. This is a just started issue and termination issue, it is not only a one-sided issue, it includes also SMS termination, it includes also international calls termination and it includes also some foreign exchange effect of the terminations today, which we have. So, the full picture will give a lot of accounting and all of the interconnection terminations will be regulated with this internationally accepted rules, long run incremental cost methods by using -- from top down methods by using. That gives us a -- the process has just started and it will take some more time, this is the step you got into termination. Well, about the frequency usage fees, as you would remember, we have a court case going on for 2002 numbers, which is not finalized yet, so we would obviously wait for that court case to come to an end and so far none of the players in the market charged this cost to the subscribers, so we don't have a complete intention yet, that will be considered after the court case is finished. Thank you.

Could I just ask a follow-up to the first question, in terms of the effective mobile termination rate that you are receiving from Turk Telecom now, have you noticed any change in that rate in the last month specifically?

Till now we didn't have any change, everything is according to our existing interconnection agreement. First of all, we didn't experience any change including the last payment two days ago, which is [Inaudible] , but total regime could be changed or could be regulated again. This is the stats.

But in terms of the existing regime, they are still charging the same fixed to mobile tariff and I see you receiving the same amount in --?

Yes, basic unit base is used as before, as also both methodology and the quantity was as before.

Thank you.

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

Hi there, it is Owen Flanagan from [Inaudible] River Capital in London. Two questions, the first one relates to your debt management. You have a callable debt issue, I believe that's callable in June or July of this year, do you tend to use cash and/or additional bank facilities to call that on the issue? My second question is related to fixed to mobile, you've mentioned the process of moving towards lyric-based assessment of fixed mobile and mobile termination rates, for a start, could you give us some ballpark figures of how much that might reduce your current termination rates that you are receiving?

The company has cleared to a higher issues, higher built, the first one done in year 98 and the second one in 99, the first one is [Inaudible] , it is callable, the other callable portion as I said. The high advantage issue in the year 1999, this is totally a non-callable. [Inaudible] grew this year to between 98 bond and 99 bond. Because of this unit, 99 bond which was callable cannot be called before 1999, which was uncallable. So just like this year's issue, it may make quite difficult to -- in order to call the complete existing high-yield bonds if there is a message of cost from the investors.

So, can I just check, as I understand, this is new news to me. So you are saying, the 98 issue was a callable issue and you can't call that last because the 99 is senior to it. So, as you called the 98 issue, you'd have to -- as you said, you'd have to hold it on to 99 issue as you can't call that?

Great that is very helpful [Inaudible] if I take because 99 is [Inaudible] between 98 and 99. We shouldn't get amendments from the indenture, you know, it's growth year 1998, higher growth. It is global but in practice it is quite difficult.

Are you in the process of signing to get that amendment indentured?

No.

Okay.

That quarter, it's interesting, time being, I think to give neither a rate nor the total revenue effect, it is not possible at this time being because most of all, the cost of these are not done with the other operators, by the other operators, and approved by the telecommunication authority at the time being, neither distant operator nor the other mobile operator [Inaudible] . Also, [Inaudible] generally advanced, it is not discussed and it is not agreed by the authority. Second, this issue is not continuing on the termination rate but also contains the foreign currency effects as of today which we have, and also SMS and international calls issues. So, this is a big picture, to give a single figure of [Inaudible] it is not possible at this time.

But at this time, let me target some idea of the amounts involved, is that correct that your current mobile termination fee for fixed mobile course of circuit telecom is about $0.06 a minute, is that correct?

No, the situation is just not like that. There is a basic unit rate. From this basic unit, which is changing every month most probably and this is in Turkish Lira, from them this telecom is given to set up with all the taxes according to the time from $0.16 up to $0.22, $0.23, it's changing. So, this is our termination as of today. And to telecom's termination rates for the mobile phones -- mobile course, it is changing from 1.4 to 2.5 cents per minute. All these will be based on a cost base, which is not carried yet, only the methodologies are under discussion and it is not official, final decision of the matters or regulation is finalized yet.

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

Yes, I am Stephen Frank, Morgan Stanley Credit Research. If you could just go to page 16 of your presentation. On page 16 you got your cash flow and if you could just explain to us the other $69m additional cash. If you could tell us what those - I mean where it came from?

Well, you said this $69m those in case I don't like them came from [Inaudible] which is able to depress our cash flow. In fact this is too big item may need [Inaudible] frequent speed and amount approximately $21m or so. And also a complete [Inaudible] expense revision progress with regular fees. So, this are all, say small item for the working capital plus. But mainly, these two big items generate the US$69m to the cash flow in the company's cash flow statements.

Sorry, I couldn't -- I didn't get either one of those. Could you tell me again please?

Yes, there are two big items of this -- inside this $9 m on the cash flow item, because we start from the EBITDA level which is $197m. There are actually -- the numbers, all stated EBITDA but unpaid. Because this frequency fee expands that [Inaudible] and also expands cash flow for the trading period is stated in the EBITDA but unpaid. We include to these 12 items, the companies other cash flow items is plus. This amounted $21 m for the frequency fee and $27 m for trading (ph) share. Mainly the two big items generate almost all the cash flow items of the company for the first quarter of this year.

Okay, so 21 plus 27 and the difference is part of the working capital. And is working capital positive or negative?

It is plus. Yeh we are consecutively plus.

Okay and just a few reminders. Your credit facility. It doesn't work as though you need them. But you paid off now that the 1999 bank facility. Essentially you have no credit facilities at all at the present time. Is that correct?

We had donating bank loans as stated for the guarantee bank for the urban, district, city, and we are going to extend it to year 2006 and year 2005. And also there is a small portion for the local bank. These are in place. Right, but if you go and get extra money for some reason, I don't think you need to, but if you did, you don't have any credit facilities now other than just increasing the existing bilateral launch you now have. Is that correct?

That's correct. Exactly.

Okay. All right, thanks very much.

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

Hello. I am from CIBC.

Anna, we can't hear you, could you just speak up please.

Because in the second quarter of last year, there was a significant increase in sales spread ARPUs, which I have seen arose from the [Inaudible] and therefore it seems, [Inaudible]

Hello Anna?

Do you have a decline in your ARPU number? Because basically you are saying that the underlined level we are looking for a substantial deterioration? So, I just wanted to check with that really is [Inaudible] seasonal impact in the next few quarters into the account when you say ARPUs could decline further?

Anna, we couldn't hear your question at all.

Hello, can you hear me now?

Yes, we can.

Oh, sorry there is a problem in my handset. Yes, I was just saying.

Could you go little slowly as well?

Okay, sorry. Okay, in your previous answer to a question on ARPU and saying it would potentially go down further in the next few quarters. I just wanted to check given that seasonality normally means an increase in ARPU in the second and third quarters, but does your guidance take this into account, because last year we had ARPU going up from $11.50 in the first quarter to $12.50 in the second. I just wondered if that affected your comments?

Yes, you are right. We are expecting seasonal increases in the ARPUs, as I here just stated in the previous question, although we are having some increases in post-paid or pre-paid ARPUs time to time, this may not be reflected in the blended (ph) ARPU. And, actually when we compare to last year's ARPU post-paid and pre-paid separately, they are more or less similar year-on-year basis. But [Inaudible] you know, that's the reason we are just feeling the guidance. Normally, we will definitely - we are definitely expecting seasonality increase.

Okay.

We always want to state that we might have some different inflictions because of competition or the regional is probably the same.

Okay. Excellent. Can I have a follow-up on the discussion of the increase in tariff to cover the frequency tax? It sounds like you are prepared to wait several months on a protocol base to finish before actually acting, which sounds like the loss you could incur with the higher, is there any reason why you wouldn't let sooner given that the other operators must be in the same position to you with the bill to pay?

Well, the thing is this exercise has not been the reality of the market for the whole history of the pre-paids in Turkey. So, I think as took (ph) so we will be cautious on it, and we would like to see the court case ending. And afterwards based on the competitions, moves and reactions on the sites, we will position ourselves. But, this would be a couple of months you are seeing, probably took more longer than that?

I will say it will be longer than that because the court case coming to a full end, it will take more than two months we believe.

So, in that case, it will be the fixed at normal tariff increase, [Inaudible] something like that?

Actually, you have started saying that is a tariff increase compensating the frequency usage, which is not actually correlated to each other. We have not made the price increase because of the frequency usage. This actual difference actions in the marketplace and as far as the usual and general tariff increasing is concerned, our strategy will be to follow up the competition very closely. On the other hand, based on our sense on other items besides the pricing and the tariffing, we will try to explore as it much as possible, but we will be cautious on the competition and leadership as well.

Thank you very much.

Thank you.

We have a follow up question from Mr. Vladimir Postelovski (ph) Please go ahead sir.

I should like to come back to the two questions, which were already asked. The first one is the dynamics of the breakdown of minutes. Could you tell us what you are seeing a noticeable increase in the on-net mobile-to-mobile minutes at this point in time, which could explain gross margins and at the same time decline in revenues? And, the second question, if we want me to go back to the question about cash flows find it difficult to believe that you don't have any plans whatsoever for $500m to $600m worth of cash you have in hand. Let me ask it this way, may be you cannot pay down your debt down based on what you just said and for me to understand the dividends is not an option this year either, would you see the acquisitions and if yes, would the priority be given to acquisitions domestically or would you be looking outside of Turkey or perhaps you won't see it. Right now you would consider increasing the stake and see (ph) or may be you would be doing something else? Could you please comment on that? Thanks.

Now, while as to these mix composition of the MoU, yes, there's a general trend that on-net calls and outgoing calls, outgoing calls including the on-net ones are increasing and the incoming ones are decreasing. It's just a general trend that because all operators now are promoting the on-net's price, but this is not the status as the only reason of the decrease within two quarters. Well, the reason is that package because of the composition of all tariff items [Inaudible] .

Sure. On the net cash position, actually we expect that to grow on a positive statement looking forward. There will be several options ahead of Turkcell which is leading the market and which made the market so far. Acquisitions domestically or regionally are always, or there might be options but there isn't any concrete at the moment. We just try to keep Turkcell as solid and strong as possible as far as the financing and liquidity is concerned in order to exploit any possible upside in the possible domestic and regional markets. On the other hand, we've seen and experienced that the Turkish market is very volatile and there are some downturns from time to time, which are not expected at all, and we want to keep Turkcell a strong muscle in case we face any unexpected downturn as well. There is obviously a base, a low base at the moment, and there is a very low probability for a lower market economic condition, but anyhow we want to keep the customer (ph) company as liquid as possible and as strong as possible by exploitation of upsides and in order to protect the company from any possible downslides. Nothing concrete at the moment unfortunately.

Thank you and sorry. I think this question might have been answered. I didn't hear the question. Price increases later in the year, do you believe that the market environment would allow you to do more on this front to increase prices further this year?

It's early to make any assessment on that. We made 4.7%, and in the meantime US dollars lost value against Turkish lira. So that really made our tariffing strong enough so far for at least for the first three months of the year. We'll be following the markets very closely for the next nine months based on [Inaudible] realities, US dollar exchange value, the competitions spent in the market. We will try to do our best in the tariff increases.

Thank you.

Thank you.

We have followup question from Stephen Petruska (ph) . Please go ahead sir.

Yeah, thank you. Just if I could follow up on one question just there about your balance sheet going forward. Does that -- should we imply from that -- your previous answer that you would see a strong company having no debt and thus we should expect you to take your debt down to zero before you would look to perhaps get back cash? And the second question, I was just wondering if you could give us what your best guess is at your market share currently please? Thanks.

As far as the balance sheet and the strategy is concerned, obviously market conditions will change in the due course and some opportunities, domestic and regional, will occur and we have an ambitious team here for goals and expansion, which has been proven so far by the realities. So, if there is any such opportunity, we would go for it. Our aim is not for no indebtedness balance sheet, but we want to be flexible and strong enough to reach and exploit the possibilities. On the other hand, our market

share is around 60% on cumulative basis so far.

And just as a follow on, do you still have any ambitions in Iraq?

Before 1991, Iraq was one of the major international trade partners of Turkey. Unfortunately after the Gulf War, everything stopped but there are some natural routes, which really worked before 1991. The war is over, the political environment is not settled yet. After watching it closely, it might be an opportunity, yes. It is very close and there are some routes. There isn't anything concrete on the table yet though.

Thanks.

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

I apologize. I wasn't keen of previously. My question related to the Turkcell share for which you have provided 37m in this quarter. Is these dispute for which you continued you to provide in your statements, is this affected by the MSC law at all. And could you please also tell us what the cumulative amount of the potential payables with treasury is which you [Inaudible] and which currently you have on your balance sheet?

In this scope of the tax analysts (ph) as names, there should be a transactional tax relation between the tax alternatives and the conference. [Inaudible] . So because today we issued [Inaudible] not tough legal issues, unfortunately it is not in the scope of tax amnesty.

Okay.

That's very clear.

Okay. And what is the purpose [Inaudible] going do you have among your payables?

For the treasury, so a direct [Inaudible] items for the treasury share, dispute between the company and we speak to alternative, treasury share for the quality of the services, treasury share and the purchase to create educational prompt and also some other taxation on the treasury share. So, by looking at the total amount that has been actually expensed, it's provision that all of the booking of the company's total balance sheet, it is around $280m. So the treasury share on interconnect, really for example as talking about [Inaudible] .

So, thoughts [Inaudible] . That does also include potential interest?

This does include treasury shares basically [Inaudible] and also interest to calculate.

Thank you very much.

The next question comes from Mr. Achinsk Oksan (ph) . Please state your company name followed by your question. Please go ahead Mr. Oskan.

Good evening. This is Asginsk Oskan from HC Stanley. I have two questions actually. Looking at your quarterly churn number, you said the first time ever 4% and the trend is going upwards. Would you please provide the guidance whether this is mainly attributable to the disconnection of dormants (ph) or non paying subscribers or relative net churn out to your competitors? And second question is related to your marketing and selling expenses. I see it's 10% of your [Inaudible] in the first quarter. Should we expect the same trend over the next couple of quarters in 2003? Thank you.

Our estimate churn is not increased because of competition and slowdown in economy, but on the other hand it was probably due to a high prepaid acquisition last year, we had last year in second quarter. So, we expect up to level make and continuing in coming process. However we do not expect to continue to increase the average delay in the quarter. To clear the marketing expenses, I am talking excluding the provision for frequency usage, more or less similar than you compare to less partners (ph) , but we expect an increase in terms of marketing excesses in the following quarters because of competitive environment. Also in this quarter, there was a decline in the total usage in the market because of war environment. So, without in advertising spending for new source, so without losing our share force our expenses declined, so this may go up in coming quarters.

Okay. Thank you. I appreciate that.

You are welcome.

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

Hello, Adam Cleary, ING in London. Given the deal, which was done with Cukurova and also securities and merger of Telia, Sonera. There seems to be uncertainty and changes in your shareholder structure. Could you comment a little bit about for example Telia Sonera? May not be a core holding for them since they seem to want to focus on Northern Baltic States and Cukurova seems to have some difficulties and you are now it's most valuable holding. Could you comment on any expected changes in your shareholder structure?

Yeah we believe that. Actually based on these statements the share holding structure of Turkcell is at a stable level at this point of time compared to previous quarters. On Telia Sonera there is a complete statement saying that this is a financial statement but it is a long term and valuable financial statement and they have stated that they are not seeking for an early and near future exit yet. On the other hand for Cukurova as you have stated it is the most valuable asset and we haven't heard any statement or move for an exit or a request or an search of exit on Turkcell. So we don't expect any change on the share holding structure in the near future on Turkcell.

Right, okay. But given that you are the most valuable asset is it not conceivable that basically you and your customers depend on the sort of verbal loans between Cukurova and the State Depositing Depositary Insurance Fund and that conceivably ask Cukurova sales to pay and unless you pay substantial dividends I think they might have some trouble in the medium term. You could conceivably pause to be part of the STIF. Is that a concern or should we know more about that at the moment?

Well as far as the management we are not concerned about it but on the other hand this is the game plan of Cukurova holding. So it is a rather a share holders issue that we can hardly make comments on and as we are informed they have some grace periods for the restructuring of the credits on the [Inaudible] credit and the total indebted nets which is transferred to STIF through a public bank (ph) . So that grace period is giving some depth to the whole environment at Cukurova holding anyway. But at the end of the day it's a shareholders issue that I cannot make much comments on.

Okay thank you very much.

Thank you.

The final question is a followup from Mr. Vladimir Postelovski. Please go ahead sir.

Hi, sorry one more time coming back to this, Thursday's provisions, 280m you have already provided, that's clear from

what you have said, have you paid any of it, because from what I remember on interconnecting some VAT you are actually paying some of the amount, so of these 280m that you have provided, have you paid any of it. Have you?

We have not paid anything to it.

So, potentially you might be viable to 280m. Right?

In two years (ph) .

Okay, thank you very much.

Ladies and gentlemen, thank you for participating to the call just to give closing remarks, as one of the highlights of the call was on some of these legal proceedings and the provisions, what I would recommend is the company has a disclosure policy and we have quiet detailed disclosure on these issues in our product report, which you will have shortly, as I would recommend to have you go through that and along with this issue or on any other issue please give the IR team a call after the call on the next days or so, we are available to answer your questions and please remember that the audio of the conference call is available next three business days, so you can access and listen and thanks again for participating through Q1 2003 conference call, on behalf of Turkcell management team here. Bye, bye.

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