Turkcell Iletisim Hizmetleri AS (TKC) 2003 Q2 法說會逐字稿

Welcome to the Turkcell conference call on the 15th of August, 2003. I will now hand the conference over to Mr. Koray Ozturkler. Thank you, sir, please go ahead.

Thank you. I would like to say hello and welcome to everyone on behalf of the management team here. All of our executive management team is present today on our conference call. Basically, I am going to hand it over to Mr. Akpinar for his presentation, and then there is going to be an overview of the financial section by our CFO, Mr. Ekrem Tokay.

I would just like to put in a reminder. We actually issued a correction during the day regarding a typo on the net income figure which is updated as $32.5m. In case you have not received the update, we just wanted to remind you of that.

Mr. Akpinar, if I can hand it over to you now.

Thank you very much, Koray. Good afternoon and good morning everybody. I would like to start by giving an outlook on the developments in the second quarter of 2003. During the second quarter, all major market economic indicators such as inflation rates and capacity utilization rates moved in the right direction and there was an improvement in the market sentiment which is partly reflected in our results of operations.

Despite the positive sentiment and the improvement in the market indicators, the recovery in the Turkish economy has not yet reached the pre-crisis levels. Combined with the positive consumer sentiment, fueled by positive developments in the market economic indicators, seasonality had a further positive impact on our results of operations, as we expected.

In this operating environment, our subscriber base grew by 5.5 percent and reached 17.2m by adding 927,000 net new subscribers, and usage levels increased 18 percent and reached 60 minutes in the second quarter of 2003.

In our operating environment, there were two other noteworthy developments. First the development in the regulatory environment. In May 2003, a new access and interconnect regulation was published. As per this regulation, we are currently in the process of renegotiating our interconnection agreement with Turk Telecom on a cost basis as required by the new regulation, and within the framework of procedures set by the authorities.

The second development was the merger announcement of Aria and I-Cell, which has yet to be completed. We believe a three-player market is better than four for Turkey.

On the next slide, we provide some of the key performance indicators for Turkcell. We are happy to state that there was an improvement in almost all of our performance indicators. As you can see, subscriber growth, usage and ARPU all increased thanks to the appreciation of the Turkish Lira, seasonality, and improved operating environment as well as our continued day-to-day management efforts.

As the second quarter ends, our cash position was also very strong. As we are planning to meet all of our debt obligations remaining for this year, we may also consider financial or strategic investments in telecom or technology areas, given the visibility of investment opportunities.

In line with the positive sentiment in consumer confidence, subscriber growth continued in the markets. The cumulative growth in our subscriber base reached 9.6 percent during the first half of 2003. We expect a modest growth in our subscriber base in 2003. The growth continued to come from the prepaid subscribers as 92 percent of the gross additions consisted of prepaid subscribers.

We still maintained our leading position in the market by acquiring over 50 percent of the new subscribers in the market. On the other hand, competition continued to be aggressive on pricing in order to attract subscribers, but was not so fierce on the cash spending necessary for the required acquisitions. Therefore, we can see that we have recorded only a slight increase in our average subscriber acquisition cost.

Churn level decreased 11 percent to 4 percent in the second quarter from 4.5 percent in the first quarter of 2003. The decrease in churn is mainly due to the relatively lower level of acquisitions during the second half of 2002.

In line with the positive impact of seasonality, combined with positive sentiment in the market, we recorded an 18 percent increase in minutes of usage per subscriber to 60 minutes in the second quarter, 2003. In addition to the seasonality factor and better consumer/customer sentiment in the quarter, our continued focus on introducing new campaigns aimed particularly at increasing prepaid usage helped improve usage and these improvements also positively reflected on prepaid ARPU.

Value-added services and SMS usage increased 11 percent as a percentage of revenue during the second quarter of 2003. During the second quarter of 2003 we focused our efforts on maintaining our leadership position through network investments, strong brand image, convenient customer relationship management and variety of distribution and sales points. Our segment based approach to tailor services and tariff plans contributed to our large subscriber base and as a result we have witnessed pleasing quarter end results.

We introduced Turkcell new branch, [Shamoor] with a vision to enable evolutional mobile services as primary media for different needs of users. While competition continued to focus on price-based competition in the second quarter of 2003, we avoided mere tariff cuts despite the pressure. Instead, we increased our focus on promoting segmented volume and destination-based incentives while emphasizing our loyalty programs and high-quality services.

We continue to focus on our mass loyalty programs for both post-paid and prepaid subscribers. We are continuously revising the terms of these loyalty programs to encourage our subscribers towards increasing usage.

Innovative services have provided important competitive advantages for Turkcell to meet the needs of our subscribers. For example, we introduced a service that enables prepaid subscribers to set counters to another prepaid subscriber by SMS.

We utilize co-branding campaigns with leading companies from different sectors to satisfy our customers various consumption needs.

Another material development in our market was the new access and interconnect regulation that was published in May, 2003. The regulation sets forth obligations and procedures for the implementation of such obligations in the telecom sectors. We believe this is a positive development in line with the efforts to comply with the new telecom regulations.

The regulations introduce several principles on interconnect, access related areas such as site sharing, number of ports of availability, local unbundling and additional requirements for operators holding significant party power.

Currently, the regulation provides clear procedures for the renewal of existing interconnect agreements of operators, whereas sub-regulations are required for the implementation of access related areas.

With regard to interconnection, the regulation required us to renew our interconnection agreements, including the one with Turk Telecom by July 23, 2003. No agreement was reached by that date, and currently cost-based interconnection negotiations with Turk Telecom are continuing under the supervision of the telecom authority. Since July 23rd, the telecom authority has reserved the right to interfere and force a solution for all parties by September 23rd unless an agreement is achieved among the parties before it.

As the new agreement has to be achieved by no later than September 23, 2003, we feel that it is too early to comment on the impact of such a new agreement, all the results of our operations.

On the legal front, we would like to give a brief update on the recent developments. As we have already communicated in detail in our press releases, there have been several developments in regard to the interconnect dispute with Turk Telecom. You may find details in our recent press releases as well as our presentation slides.

Due to related developments, Turkcell recorded less revenue in the second quarter 2003 and the details of the impact on our financials are provided in the financial section. We believe Turk Telecom's current actions of non-payment or partial payment based on their expectation of equal sharing violates the recent court decision and that until a new agreement is reached, current pricing terms apply.

Therefore, we cannot speculate on what Turk Telecom may do in regard to future payment, but we know that we will take further legal actions against Turk Telecom's recent action. There are no other major developments on other outstanding legal cases of the company.

Now Ekrem Tokay will talk in detail about our financial performance. Thank you very much.

Thank you. Good morning and good afternoon. I will take you through the company's financial results for the second quarter of the year 2003. Our revenues increased to $584m in the second quarter from $491m in the first quarter of this year, despite the negative impact of the interconnect dispute with Turk Telecom.

The increase in revenues is mainly due to first, 20 percent appreciation of the Turkish Lira against the U.S. dollar. Second, positive impact of usage. Third, continued subscriber utilization. And fourth, the full impact of the 5 percent tariff increase at the end of the first quarter.

Revenues were negatively impacted by the interconnection dispute with Turk Telecom, as Turk Telecom refused to make its interconnection payment to Turkcell for May 2003, and only partially made for June 2003. The net impact of the dispute on revenues was $56.6m for the second quarter of this year.

As a result of revenue increase that was previously mentioned, ARPU increased $11.50 U.S. in the second quarter, from $12.10 U.S. in the first quarter of this year. Post-paid ARPU increased to $25.50 in the second quarter, from $20.70 in the first quarter. Prepaid ARPU increased $6.10 in the second quarter from $5.28 in the first quarter of this year.

The company's successfully controlled local [inaudible] has been maintained in the second quarter for most items. Quarter revenues, including depreciation, margins increased to 62 percent of revenue in the second quarter from 61 percent in the first quarter of this year, mainly due to increases in revenues.

In actual terms, the value cost of revenue increased from $327m in the first quarter to $364m in the second quarter of the year.

Sales and marketing expenses increased to $58m in the second quarter from $49m in the first quarter and remain stable at the 10 percent level of revenues for both quarter. The increase of the actual marketing is mainly due to an increase in media advertising expenses, a 20 percent appreciation of the Turkish Lira against the U.S. dollar, and an increase in total sales promotion and activation costs as a result of higher gross subscriber additions.

The cost of adding new subscribers increased to $25 in the second quarter from $22 in the first quarter of this year.

G&A expenses, on the other hand, increased to $27m in the second quarter, from $22m in the first quarter, representing around 5 percent of the total revenue for the both quarters.

The company's EBITDA decreased to $218m in the second quarter from $232m in the first quarter, mainly due to higher revenue related costs in the second quarter, resulting from the negative impact of 12 percent of operations on [inaudible] on Turkish denominated [regulations], and the relative impact of the interconnection dispute with Turk Telecom, amounting to $56.6m on revenues in the second quarter of this year.

Turkcell positive net income of $32m for the second quarter of this year. The decrease in net income was due to the significant translation loss and the negative impact of the interconnection dispute with Turk Telecom. The translation loss increased to [$52m] as mentioned in the second quarter, from $1m in the first quarter. The significant translation loss in the second quarter of 2003 stems mainly from Turkish denominated reserves against the dispute that was negatively impacted by the appreciation of the Turkish dollar against the U.S. dollar by around 20 percent.

As you may be aware, the SEC rule regarding to the use of non-GAAP financial measures including EBITDA. As required by the rule, we provide you with the translation of EBITDA to GAAP measures. Turkcell changed its reporting of EBITDA effective of the second quarter of 2003. Turkcell will no longer report the effect of cost of EBITDA as defined in the year [inaudible] because that reporting requirement was released to the redemption of [inaudible] in the first quarter of this year. Historic EBITDA figures are recalculated for the comparison.

As a result of continued solid operating performance of the company, our cash position reached $444m at the end of the second quarter. Total debt decreased to $1.035b by deducting the cash balance of the company, the net debt position decreased to around $585m which is much less than last year at the end of the second quarter.

The company's financial performance in terms of ratios such as the [inaudible] to interest coverage ratio have also continued to improve in the second quarter of this year. We paid $280m contribution of EBITDA to the company's cash flow. Net cash generation in the second quarter realized $835m. This has enabled the company to reach a cash balance of $444m as of the end of Q2 of this year.

The company has paid around $56m for public investment and $46m for interest payments on the existing [inaudible] in Q2 of this year.

Looking at the debt repayment schedule in the first half of this year, we repaid $278m principal and $52m interest. Net debt decreased to $585m by the end of second quarter. In the second half of the year, we plan to repay a total of $154m, $96m principal for mainly domestic loss, and $90m to $91m and $59m in interest mainly for [Sanco] Bank loan payments.

The average cost of borrowing as of the end of July is around 11.6 percent, due to high payments of two high-yield bonds maturing in the year 2005.

In the first half of this year, we accelerated the restructuring of our debt portfolio in line with our priorities to decrease our total volume cost, extending the maturity and including the amount of total indemnities.

Of course, it is a continuous process for Turkcell to monitor development opportunities to improve the company's financial condition and performance. Depending on market availability in both domestic and international debt capital markets, we may continue to restructure our debt portfolio in the second half of this year, including [Sanco] Bank's option exercise. Thank you.

Thank you, Ekrem. This actually concludes the presentation session. Now we are actually ready to go over the Q&A. Just a reminder, as we've done it previously, if you could limit your questions to two which would provide further opportunity to others to ask questions as well. At this time, let me turn it over to the operator to start the Q&A session, please.

Thank you, sir. Your first question today comes from Alex Reitzes.

Good afternoon. It's Alex Reitzes from UBS. My first question relates to subscriber growth and usage trends going into the third quarter. I wonder if you can give us any guidelines as to if you are seeing similar trends in terms of net additions and in terms of minutes of use so far in the third quarter.

The second question relates to interest costs. I am a little bit confused as to what the actual cash interest payments were in the second quarter. On page 16 in the presentation where you show the reconciliation of EBITDA with net cash from operating activities, there is an interest expense in Q2 of $18.6m, but in the cash flow statements on page 18, the interest cost is $46m. I just wonder if you can clarify the difference between those definitions of interest payments, please. Thanks.

Well, I will take the first question about the subscriber growth and minutes of use going forward. Actually, usually we don't give quarterly based expectations in this very volatile environment, but in the past we have seen the third quarter as being seasonally a good one as well. So we expect the third quarter to be in line with the seasonality expectations on the historical data, and we just hope that this general positive sentiment in the marketplace goes on and helps to our subscriber additions and minutes of use increase.

On the other hand, for the total year as we've noted, we expect a moderate growth on our total subscriber base compared to last year's increase. For the second question, I will hand it over to Ekrem Tokay.

The amount that actually the company has paid in terms of interest for the ongoing financial investments is actually $11m as stated on page 19 of the presentation. This $18.6m interest expense in fact includes not only $11m actual payment but also legal [inaudible] of the company. As you may know that the company has legal obligations, legal cases and it is expensed on a quarterly basis. So the difference between actual payment and the $18.6m is actually the company's legal actuals that we do on a quarterly basis.

Okay, thank you. And the $46m that is provided on page 18 in the cash flow statement?

These are the company's actuals for the loans. The actual loan, but unpaid in terms of interest.

Okay. All right, that's great. Thanks very much.

Thank you. The next question comes from Mr. Havid Drued. Please state your company name, followed by your question.

Good afternoon. This is Havid Drued from HSBC. My first question is about your new definition of EBITDA. Can you clarify it and just confirm that corresponds to the EBITDA adjusted figures that you previously used - not on what is the difference, if it is defined.

My second question is, do you anticipate some pressure on the Turkish/Iraq currency in the coming six months, and if it is the case, in what extent do you think you can be protected from currency movement in the near future?

The EBITDA figure, actually, we have announced this quarter in respect to the SEC's recent ruling, as you may know, Turkcell had a bank facility that has been closed by the end of the first quarter. Based on that bank facility, we had an EBITDA description debt that excluded some old EBITDA items such as other income expense, interest income, other income from third parties, minority interest and equity and net income of unconsolidated subsidiaries. All these items can now in fact lower the company's historical EBITDA figures.

Now with the recent rule, we included these items to the EBITDA calculation in terms of as I said, the new SEC rule in respect to use of non-GAAP financial measures used in public disclosure.

In order to give you an example, in order to find out the EBITDA figure calculation we had this quarter, this quarter we announced $218m EBITDA figure. So we should deduct other income expense, interest income, other income from reported minority interest and equity and net income of unconsolidated subsidiaries. So then we end up with EBITDA up to 4X figure, which is comparable to the one that we announced a quarter ago.

Okay. Do you have the figures in the previous definition for the second quarter, just to give a bit of a feeling on the difference of your EBITDA adjusted previous figures for the second quarter. Do you have those figures you may communicate to us?

The last figure is $218m, but if we do it according to previous calculation, the quarterly calculation, it should have been $180m.

Okay. For currency movement, do you expect a currency movement in the future on the Turkish Lira, or?

Well on this topic, as the Turkcell team we believe at this point in time the Turkish Lira is over-valued, and on the other hand the markets don't see any reason why the Turkish Lira should lose value against hard currencies. There is the availability of lots of hard currencies, especially during the summer months because of labor working outside of Turkey flowing in hard currencies, and tourist reasons. Tourists coming into Turkey and leaving the hard currencies, but this international trade deficit might make a pressure on the total economies starting autumn onwards.

Still on our business plans, annual appraising plans, we have numbers like $1,725,000 Turkish Lira against the dollar, which is quite high compared to today's figures. We know that the business environment in Turkey are making some guesstimates between $1.6m to $1.7m Turkish Lira. So it is quite an unknown to us, but just for information, to recap maybe, this past quarter's number, the evaluation of Turkish Lira made us write down a translation loss which explicitly shows that this company's position is hard currency long at this point in time, when you put up all the items on top of each other.

So once there is a re-evaluation of hard currencies against the Turkish Lira, this is going to have a positive effect on the translation gain. On the tariffing, obviously this might have a deteriorating effect and it is difficult to make an expectation on that because of unknown situation in the competitive landscape with the new merge and three-player market strategies which are not explicitly expressed to the marketplace so far.

But you tend to be cautiously optimistic about the current valuation of the Turkish Lira against the U.S. Dollar?

I think cautiously optimistic would perfectly express our feelings.

Okay. Thank you.

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

Good afternoon, this is Ishtan Matis from CSFB. My first question is, could you please give us a breakdown of the other items of the $32m in your cash flow statement on page 18 of the presentation?

The second question is, could you give us your estimate of how much, what portion of this 900,000 new subscribers from the quarter came from existing operators?

The company accrues 15 percent [inaudible] share for the monthly revenue, and then pays a month later. For the end of June, we accrued $26m U.S. Dollars [inaudible] share to pay the Turkish regulatory, but paid in July. By the end of the second quarter this $26m impact is a major item of the cash flow which is closer to $36m. The remaining is working capital change.

Thank you.

And your second question, unfortunately it is impossible for us to know the exact proportion of these subscribers, what portion of them are coming from other operators, but we know from the research that the second card, double card usage is increasing. Both in the case of new subscribers and present subscribers.

Thank you very much.

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

Hello. Adam Cleary with ING. Great quarter, congratulations on some difficult times. My first question is about the interconnection dispute with Turk Telecom. It seems to me that even when you agree on a new interconnection agreement under the auspice of the telecom authority, am I right in thinking that this dispute will roll on about the old payments, as it were, relating to the past five years?

And just if I could get a sense as to when you are likely to achieve closure on some of these things, in particular this interconnection agreement. Because it seems to me, and please correct me if I am wrong or if I have misunderstood, but in Turkey there is always another appeal to be filed and you never seem to quite achieve closure on any sort of legal issue. So I'd appreciate your comments on that.

You mentioned interconnection agreements we have reached, the 23rd of September there will be a new interconnection agreement between Turk Telecom and Turkcell and Turkcell and the other combined operators too.

But unfortunately we are continuing in the legal arena, of course. But which type of picture we will see it is definitely a different question. First of all, there are two parallel legal actions. One of them is in the commercial courts, the other is in the administrative courts. Commercial courts decided in favor of us today. Now we are expecting approval from the higher courts.

In that case, the picture will be much more clear after getting this approval. So as of today, it is not possible to talk about the effects of the situation. These effects can be none or some.

But is - and I am sorry if I've mispronounced this, excuse me - but is the [Danastay] the final word on this issue, or will there be more beyond that?

Final words will come, of course, in the legal front. As I said, in the commercial court issue it is under the approval of higher courts, so it is near, let us say.

In the administrative point of view, the administrative court also started to take the issue, so final words, we expect to the end of this year or the beginning of the coming year.

Okay. The second question is about the subordinated bond issue, the 15 percent until 2005. I think the previous conference call if I understood correctly you said you couldn't call that issue because you had the senior debt ahead of it. And the senior, 12 and 3/4 of 2005 is not callable. So in order to call the 15 percent of 2005 you would have to pay off the senior debt.

I heard the end of the presentation, something about possibly calling the subordinated bond, et cetera. I had thought that this was off the agenda. Is the position still the position at the last conference call, or have you now put this on the agenda? What is your current position on this?

It depends between the previous conference call and now. In fact we had studied the ability of a possible call option for the [inaudible] bonds. So definitely that depends on the [inaudible] of legal ends, financial conditions and other things of the company. So the call option, based on the studies, the call option is a doable one, but also typically not a granted process. And also there are several risks and debts involved to the 15 percent bond call option.

So now it is to be understood that based on this perspective, this is a doable process. We are considering general things like the senior debt, whether or not this is the kind of guaranteed process, meaning we can get content from the bondholders for the [inaudible] call option. Also, it will depend on the financial markets. We should exercise the process at the right time, then it would depend on the financial market.

So there is a certain thing that the company is trying to decrease debt. Even though there is no certain decision to exercise this call option, still we are in a kind of examination and study process in order to reach the final decision.

Thanks very much.

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

Hi, it is Steven Pettifer from Merrill Lynch. Two questions please. The first one concerns your translation loss again. I was just wondering if you could tell us how much of your legal reserves are actually the underlying currencies in dollars versus lira, and if you could give us an idea of the size of that, the total reserves that is affecting that movement?

The second question, please, concerns pricing. Your prices have risen by about 5 percent in the year to date. Inflation is running about 12 percent so far. I am wondering if you still have a policy vaguely in place to raise prices by inflation, or if we should perhaps consider that given the pricing pressures that you mentioned you will consider not raising prices anywhere close to inflation this year?

By the end of the second quarter, the company already booked around $525m U.S. Dollar total accrued for the existing legal cases. Almost all of these accruals are in Turkish Lira. This is the reason that 20 percent increase of Turkish Lira against the U.S. Dollar negatively impacted our translation loss because of this denomination of the Turkish Lira. Our actual loss amounts to $525m U.S. Dollar in terms of U.S. GAAP.

So there is no real cash component then, of that?

No, there is not any cash movement. These are all accruals on the company balance sheet. There are no cash movements.

Thanks.

Coming to the next question, in the previous quarters we tried to express our intention on trying to keep up with the devaluation rather than the inflation, actually. At this point in time we see a very different trend between the inflation and the devaluation. As the whole team, we feel at this rate of Turkish Lira, we don't see making a further price increase. Once there is an adjustment of the overvalued Turkish Lira by devaluation, then it might be a question for the company to think about a second round of tariff increases this year, and also by that we will obviously be considering the competitive landscape.

So you don't mind your Turkish Lira margins being squeezed in the near-term, then?

The company's major cost breakdown is geared with the hard currencies. The salaries and G&A and other Turkish Lira denominated costs are less affecting our profit and loss. The capital expenditures, financial structure or the financial burden on the company, they are all hard currency denominated cost factors, so at least today we are more sensitive on devaluation rather than the inflation.

Thank you.

Thank you.

The next question comes from Mr. Neil Wedley. Please state your company name, followed by your question.

Yes, hello to all of you. It is Neil Wedley from Morgan Stanley. Some of my questions I think have already been answered. So I wonder if I can ask you if you can break down the components of MOU growth? I note that when you look at the breakdown of ARPU it is clear that contract ARPU has increased very significantly quarter on quarter, but the increasing prepaid is just 7 percent.

I note that in your commentary you note that the impact of the Turk Telecom dispute disproportionately hit prepaid, I am presuming from the lower share of outgoing revenue from that subscriber class, but even so there does seem to be some significant difference.

Even adjusting for that, it would appear that the pick up in ARPU for prepaid was below the currency impact. So what is the underlying pattern in terms of usage and the progression of usage quarter on quarter?

Quarter on quarter basis, we post post-paid and prepaid increase at similar levels, actually. The reflection to ARPU is different because of that interconnection dispute, so to say. Because the reason is that the calling proportion of prepaid subscribers are higher when you compare the post-paid. So the reflection is different but the MOU increase is more or less the same for this quarter.

Could you perhaps just give us some color as to what the share of ingoing and outgoing revenue for an average prepaid subscriber is?

There is a tendency, the trend is still going on, for incoming calls are getting less and less, but the rate is lower now for these calls.

That answers all my questions. Thank you.

You are welcome.

We have a follow up question from Ishtan Matis. Please go ahead.

You have increased your capex from $150m to $200m for this year. Do you already have a feeling what 2004 capex levels might look like?

Yes. According to our forecast, our year 2004 capex should be in line with 2003 capex, around $200m.

Thank you.

Maybe we can take one last question if there is a requirement.

We have a follow up question from Steve Pettifer. Please go ahead, sir.

Thanks. I was just curious whether or not Turk Telecom explained to you why they paid the amount they did in June, and whether or not you had any thoughts about July. Thanks.

Turk Telecom's approach depends on the development and strengthening decisions by the legal authorities. Because during that case, administrative court and one commercial court decided in favor of us. So Turk Telecom now is not claiming the retroactive payments, but only claiming to improve the sharing of the revenues for the existing situation.

This happened because of the development in the administrative and commercial courts which they decided in favor of us.

Sorry, just to be clear on that then, for July are you saying you are hopeful there will be no revenue reduction?

Of course we cannot estimate Turk Telecom's behavior, because as we announced in our official announcements, we are following our legal rights against Turk Telecom. So we cannot estimate their behavior. So we will see.

Thanks.

The next question comes from Mr. Olcan Uting. Please state your company name, followed by your question.

Good afternoon. This is Olcan Uting from HC Istanbul. Congratulations for the achievements of the company and good results. I would like to direct a follow up question to Mr. Akpinar related to interconnects. Besides the favorable local court decision obtained a month ago, has there been any developments in obtaining an injunction decision?

Because as far as I know, as long as there is no injunction Turk Telecom will be free to retain your entire interconnect revenues, despite the fact that it is unlawful.

For the injunction, we can talk with three different periods. For two periods, the local commercial court's decision are only the decision [inaudible] for the injunction, so it is nobody's fault. Only one period, more or less the last one year, it is in the administrative court. For this period, we ask for the injunction in the administrative court in [Anka] and this court will decide.

So if you are looking for the five year period, only for the last year an injunction is expected by us as soon as possible, when the court decides. For the rest of the period, there is only the decision, not necessarily any injunction, in favor of us.

Thanks a lot.

You are welcome.

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

Hello, it is Anna Berson from CIB. I have two questions. One was your debt fell quite substantially, 20 percent or so in the second quarter, and yet your interest costs stayed virtually unchanged. I wonder if you could just run through what is happening there.

Secondly, perhaps you could give me an idea of how much you provisioned in the second quarter for dispute related amounts, for example fines? I couldn't see it split out in the accounts.

The second question, is this regarding the legal provisions? We couldn't quite hear that.

That's correct, yes. Your provision for fines and legal disputes.

[Inaudible] will pursue with the first question. The answer of the second question is on the U.S. GAAP side we are talking about $525m of provisions for our legal cases.

Is that your total though, or the amount you provisioned in the second quarter?

That's right.

That's the total.

That's Right.

How much would you have provisioned though, in the second quarter. How much was expensed?

At the end of Q1 it was around $370m and it has increased to $525m in Q2.

So about $150m. Thank you.

The next question comes from -

Sorry. We didn't answer to Anna's first question, so let us respond to that before we go to the next question.

The figure actually that was announced is net of interest, income interest, interest expense. There is also interest income in the total amount. So this actually changes the total net interest expense of the company. So by looking at the interest income, there is a change for the interest income that was $28m in the first quarter, decreased to $21m in the second quarter. This is mainly because of lower short-term tier interest rate in the second quarter. The first quarter interest rate in terms of tier was around 44 percent and that decreased to around 38 percent levels.

On the other hand, the company's cash balance on that basis in the second quarter was lower compared to the first quarter, mainly from $244m, a payment of 99 bank facility. And also [$60m] to the [inaudible] fee in May. Based on these reasons, the total cash deposits was based on the second quarter that covered and included the net interest income.

Thank you very much.

Ms. Asain Riflout, please go ahead.

This is Asain Riflout from TB Investments. Could you please explain how you calculated the provisions for the interconnect dispute? Because the tallied amount by Telecom was actually higher. Are they simply stripped of the simple consumption tax and VAT?

The difference between what was announced by Telecom and what we have expensed is VAT and also special communication tax. These two items cannot affect the company P&L but are recorded in the company balance sheet, of course.

Thank you very much.

We have a follow up question from Mr. Alex Reitzes. Please go ahead.

Hello again. Could you give any indication as to the timing of implementation of something you've regulated as your principles, such as number portability and summit sharing - when do you expect those to be introduced?

Secondly, you mentioned in your presentation you are considering financial or strategic investments in telecom or technology companies. Obviously you have talked about this in fairly vague terms before, but I wonder if you could give any further detail on what type of company specifically you are looking at, and any detail on the minimum or maximum size of such investments?

In answer to your interconnect regulation, it is issued. We can implement these regulations for the sharing and number portability, there is also significant market power [inaudible]. All of that has been mentioned, but not regulated. Only mentioned. All these require sub-regulations. These sub-regulations will take some period, and these sub-regulations will require some involvement by us also to discuss with the telecommunications board to give our views and comments. So this will be a period.

But we are not able to give any timeframe, but this work requires some period.

On the other question regarding the possible strategic and financial investments going forward, taking into account the strength of the company on financial position, yes looking at the total framework we believe it is time for Turkcell to look around us and see the possible opportunities.

Frankly speaking there aren't many of them, but maybe Iraq is one of the agenda items today to be watched out. Still there is lots of volatility and uncertainties in that marketplace, and on the other hand it is one of the untouched markets on the global perspective. It is too early to give any information or guidance, but Iraq has been one of the important markets for Turkey going backwards before the Gulf Crisis in 1991.

It is a very close region and the Turkish conglomerates and companies had quite important and strong relationships with the Iraq authorities and companies. This is why basically it is an important market to look into. If there are other opportunities around us, we will obviously be watching that. Thank you.

Sorry, just concerning Iraq. There were supposed to be some discussions going on with the U.S. administration and the local administration as well about potential two-year licenses to be issued there. Have you been taking part in those discussions at all?

Yes, we've been following those discussions. We've been following the procedures and the rules of the RFP. We are trying to understand what is happening in the marketplace and watching very closely.

Thank you.

Thank you.

The next question comes from Mr. Neil Wedley. Please go ahead, sir.

Hello again. I just had a follow up on margins. Seeing as you've changed the way that you calculate EBITDA and therefore the EBITDA margin, I wonder if you could perhaps give us some guidance for the remainder of the year, maybe at the gross level. Gross margins have been increasing quite considerably over the last couple of quarters, and I know your commentary mentions that with the interconnect changes there might be a lack of visibility, but do you have some feel as to the way the gross margin is developing over the remainder of the year?

Obviously there are many uncertainties going forward starting from the interconnect regime, the economic environment and especially the Turkish Lira/hard currency exchange rates that you have asked questions for and which has to be answered to us as well.

But based on today's environment, we expect cumulative margins on the company and the third quarter, as we have said before, is usually a nice and quite active, lively quarter for us. This is the color of the frame that I can draw at this point in time.

So you would expect some improvement in the third quarter, all else being equal, and then maybe some seasonality in the fourth quarter, but generally maintaining the level we've seen over the last couple of quarters?

Yes.

Thank you.

The next question comes from Mr. Yabush Dusay. Please state your company name, followed by your question.

Hello, this is Yabush Dusay from Global Securities, Turkey. I was going to ask about your future dividend policy, because the company is exchanging significant amount of cash, and the capex guidance we are talking about for 2004. As well if you look at the local accounts, accumulated losses that are being consumed through profits in the next three or four quarters, we can expect this to go to positive.

So by the end of 2004, we can technically expect to start paying dividends. Are you thinking about a dividend policy for the future?

Well, as you've stated, it might be a possibility that this can be a possible item by the end of this year, actually earlier in the previous quarters we thought this would be a topic for next year. But based on our performance in the second quarter, it is a possibility that it might be a discussion item. Obviously, this will also depend on strategic investment plans of the company going forward as well. Once these are examined at the board of the company, it will be a proposal to the general assembly and there the decision will be taken.

So as the management, we don't have a guidance on this issue as of yet.

Thank you very much.

Thank you.

Thank you, sir. That was the last question.

Thank you. Since we understand that there are no further questions at this time, we would just like to close the conference call and thank all of you for your participation. Please remember that the audio recording of the conference call is available in the States and please also do call the IR team after the call for your follow-up questions. Thank you. Bye, bye.

Ladies and gentlemen, this concludes the Turkcell conference call. Thank you for participating.