Turkcell Iletisim Hizmetleri AS (TKC) 2003 Q3 法說會逐字稿

Thank you for holding ladies and gentlemen. I'd now like to hand the conference over to [indiscernible]. Please go ahead sir.

Thank you. Well good morning, or good afternoon, to everyone. I would like to once again welcome you to the Turkcell quarterly conference call.

Today we have the CEO, Mr. Muzaffer Akpinar, as well as the management team at this time. I would like to hand over to Mr. Akpinar for his presentation.

Thank you very much. Thanks to all the participants, and wishing a very nice beautiful Friday to everybody. I'll start my presentation.

In Q3 we operated in a more favorable business environment, supported by the continued favorable macroeconomic results, and of course the impact of seasonality. These, coupled with our continued customer focus strategies and management effort, boosted our results during the quarter.

Let me go over some of the key highlights of the quarter.

During Q3 our subscriber base grew by 5.4%, and from 17.2m in Q2 to 18.2m in Q3 2003. Usage also increased to 66 minutes, mainly due to the seasonality impact, supported by our segmented marketing and sales campaigns and the improved customer sentiment.

Our revenue [at] EBITDA also recorded a significant improvement in Q3, reaching $765m and $351m respectively, which implies an EBITDA margin of 46%.

One of the major developments in the industry during the quarter was the introduction of the new interconnection regime, and the termination rate effective as of and from September 24 2003, while the full impact of the change is yet to be seen.

Competition in the Turkish market during Q3 continued at similar levels as compared to Q2. Although the legal entity for the merged company, i.e. Aria and Aycell, is established, the merger process continues as far as we know.

During the quarter we indicated our intention to acquire the majority stake in Digiturk. The evaluation process is still continuing and we will say more on the topic later in the presentation.

Finally - as we have already announced - the extraordinary general shareholders meeting, scheduled to convene yesterday, was postponed and we (as management) have not yet been notified of possible rescheduling of the meeting.

On the next slide we've provided some of the key performance highlights for our information, indicating [Turkcell's sound] quarterly results. As you can see, we've recorded improvement in all of our key performance indicators.

I would like to note the fact that historically the second and third quarters of the year are seasonally strong quarters for the mobile business. On the contrary, Q4 is seasonally lower - mainly due to Ramadan and the religious holiday period in Turkey.

Additionally, due to the new interconnection agreements [amongst] the telecom and all mobile operators, all termination fees are now changed. As a reflection of these changes in the cost basis, like wholesale prices, new retail pricing schemes for consumers may be expected in the mobile market. Consequently, these may result in a further change in the contracts of subscribers, impacting the revenue levels and its composition.

The implications of the new interconnection regime are not yet fully clear. As a result of this uncertainty, we remain cautious in providing forecasts on the impact of the new interconnection regime on our year-end and long-term results.

In line with the continued positive sentiment in consumer confidence, subscriber growth continued in the market. This growth is in line with our expectations of moderate growth for the full year of 2003 in comparison to last year, as stated in our previous guidance.

We maintained our leading position in both overall market share and our share of new subscriber acquisitions. Competition continued at similar levels and general competitive trends have not changed much. Competition remains principally price-focused.

Aria and Aycell continue to operate and compete as separate companies. Neither company has made any clear announcements regarding their combined strategy and focus. During Q3, Aycell's pricing strategy was noticeably aggressive in the corporate segment, where it introduced targeted tariffs to government entities.

On the other hand, [Kaltim's] operations remained steady during the quarter. We continued our retention activities during the quarter, concentrating on increasing the [indiscernible] and the loyalty of our subscribers.

Turkcell's holistic [CRN] strategy was rewarded by the 2003 [CRN oscar] by the [CRN] institute of Turkey. Separate assessments of strategy analytical interactive and operational [CRN] were conducted, where Turkcell's average score was 9.2 out of 10 in those four areas.

We believe this award is very important, if only as an indication of our consistent customer focus and relations efforts. We believe our customer focus approach, combined with our bottom line management capabilities, will continue to allow us to deal with any future challenges that we may face from the competition.

Usage continued to improve in Q3, due to positive consumer sentiment and the seasonality effect, supported by our segmented volume-based campaigns. In Q3 we recorded 66 minutes of usage per subscriber with an increase of 10% compared to Q2. Value added services and SMS usage represented 11% of revenue during Q3 2003.

Generally, we can say that our intense marketing campaigns and new roll out of services continued during the quarter. Our [counter transfer] service, which rolled out in Q3, was one of the most successful as far as its contribution to total revenue [of variated] services. Those prepaid users who use the service both to transfer and to receive airtime, in average increased their usage more than the average prepaid subscribers.

The impact of our loyalty programs, combined with [volume] based offers, resulted in a higher usage than a merely seasonality-driven increase. We also continued our core branded campaigns, with leading companies in different sectors, in order to satisfy our customers' different consumption needs.

We have customized offers utilizing a variety of data and [voice bundled] packages, aiming to increase both awareness of different products and usage needs of different companies. Furthermore, our emphasis on development and communication of our new products and services will continue to enrich and [indiscernible] [ease] our customers' subscriber rights.

We believe such efforts will help stimulate further usage of our services on an ongoing basis.

As we have already announced, Q3 bought an important development in the Turkish mobile industry. In September 2003 we signed an agreement with Turk Telekom to revise the interconnection rates for call terminations, in line with the regulations introduced by the telecommunications authority. Additionally, the telecommunications authority recently announced the call termination rates for each mobile operator, effective from September 24.

The main aspects of the new termination rates are that they are set in Turkish Lira, they will be revised in line with the consumer price index, and they are [indiscernible] rates. Although the rates are lower than before, the implications of the new interconnection regime on our financials are not fully clear yet, since the players have not yet introduced new end-user tariff structures.

While the impact of new end-user tariffs on call traffic and consumer behavior may be significant, the final impact cannot be quantified at present.

On the legal front, we would like to briefly review the recent developments that were already announced in detail.

There was a recent development in the ongoing dispute regarding the Treasury share on interconnection revenues. The International Court of Arbitration ordered that the interconnection revenues should be included in the calculation of the 15% Treasury Share to the Turkish Treasury. Turkcell will continue to take the necessary legal action against the ICC ruling.

This development doesn't have any P&L impact since we already had provision of approximately $485m, however it may have a cash flow impact at a future date, depending on the outcome of the legal actions.

The second development, regarding the dispute on the frequency usage fees for prepaid subscribers. The court concluded that Turkcell is obligated to collect the frequency usage fees from the prepaid subscribers. Again, this development doesn't have a P&L impact since we already had provisions of approximately $78m, however the cash outflow is expected to suffer.

Given a strong cash generation ability, Turkcell continuously focuses its efforts to identify both local and international investment opportunities in strategic areas. Iraq and Digiturk are some of the recent investment areas, which we have placed on our focus. Unfortunately, we were not awarded license in Iraq, to our surprise.

As previously announced on September 4, Turkcell's Board of Directors unanimously agreed to authorize the management to enter into discussions to acquire 72.57% stake in Digiturk, and to initiate legal and financial due diligence.

Digiturk - which was established in March 1999 - offers its subscribers exclusive channels, as well as free-to-air TV channels and radio stations in one compact system through various subscription packages. Digiturk also holds the exclusive broadcasting rights of the Turkish Super Football League.

The acquisition is contingent on several conditions, such as [indiscernible] on the fair-value reports, financial and legal due diligence, as well as final board approval. The evaluation process is still continuing.

If Turkcell's Board of Directors decides to proceed with the purchase, Turktell - a wholly owned subsidiary of Turkcell - will use an option to buy the Digital Platform shares at book value of approximately $108m. The option of Cukurova to buy the Digital Platform shares at the book value was granted by the Turkish Banking Authority on January 31, 2003. This option has been transferred now to Turkcell by the Cukurova to be exercised at no premium.

Turkcell management decided to base its valuation on the [offer] solely on Digiturk's financials and will not include any calculations of future strategic gains.

We regard Digiturk as an attractive acquisition opportunity, which will strengthen Turkcell's future market position due to media sector convergence in Turkey, content-related synergies between Turkcell and Digital, and Digital's overall market potential as a financial investment.

We as management believe that the potential Digiturk acquisition is consistent with our strategic and financial investment considerations in telecom or technology areas [even the disability] of the management opportunities.

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

Thank you, [wishing you all again a] good afternoon. I will take you through the company's financial results for Q3 2003.

Our revenues increased to $765m in the last quarter of the year, from $584m in Q2. The increase in revenues is mainly due to first - [indiscernible] and segment based campaigns [indiscernible]; second - continued subscriber acquisition, and third - [the appreciation of the Turkish Lira against the US Dollar].

Revenues were negatively impacted by the interconnection dispute with Turk Telekom, as Turk Telekom refused to make its [indiscernible] interconnection payments to Turkcell [for May 2003], and only partially made for the period between June and September 2003.

The interconnection dispute [indiscernible] the company about $47.7m in Q3 of this year. Total net [impact] recorded as $45.1m, [after considering] increased interconnection costs [indiscernible] for the Q3 of this year.

Turk Telekom is expected to make payments according to the new interconnection agreement starting from October.

[As a result of the] revenue increase that was previously mentioned [blended output] increased around 23% to $14.2m in Q3 2003, from $11.5m in Q2 of the year. Similar increases have been recorded for both postpaid and prepaid ARPU. Postpaid ARPU increased to $32.1m in Q3, from $25.5m in Q2. [indiscernible] prepaid ARPU increased to $7.8m in Q3, from $6.1m in the Q2 of the year.

The company successfully controlled the cost levels, and as a result [indiscernible] Cost Revenue has decreased in Q3 2003 [for all main cost segments].

Direct cost of revenues, including depreciation, marginally decreased to 58% of the revenue in Q3 of this year, from 62% in Q2 2003, mainly due to increasing revenues. In absolute terms, direct cost of revenues increased from $364m in Q2 to $441m in Q3.

Selling and marketing expenses increased to $67m in Q3 from $58m in Q2, and decreased to 9% of revenues in Q3 of this year. The increase of sales and marketing [actual] amounts is mainly due to [first] increasing marketing activities and [costs attributed to] the subscriber retention program, and [due to the] 3% appreciation of the Turkish Lira against the US Dollar.

The cost of adding new subscribers increased to $30m in Q3 from $25m in Q2 of this year.

Although general expenses increased to $30m in Q3 from $27m in Q2, percentage of total revenues decreased to 4%, mainly due to [revenue increases] in Q3 of this year.

The company's EBITDA increased to $351m in Q3, from $218m in Q2 as a result of first - higher increasing revenues plus decreasing costs in Q3. The company revenue increased $181m, by 31%, whereas costs increased only [$89m], by 20%, in Q3. Second - a decrease in translation loss of $30m in Q3, mainly due to [the appreciation of the Turkish Lira] in Q3 of this year.

Turkcell reported net income of $117m for Q3 of this year. The increase in net income was due to the increase in revenues, along with the successful control of cost levels and decrease in translation loss.

The translation loss decreased to $22m in Q3, from $53m in Q2, mainly due to the appreciation of the Turkish Lira against the US Dollar by 3%. [Despite the appreciation of the Turkish Lira] the company reported a translation loss due to [Turkish Lira being nominated] as reserves against legal disputes.

As you may be aware, the SEC recently adopted new rules regarding the use of non-GAAP financial measures, including EBITDA. As required by the rules, we've hereby provided a reconciliation of EBITDA to its most directly comparable GAAP measure.

As a result of continuing [indiscernible] operating [indiscernible] of the company, our cash position increased to $696m at the end of Q3. Total debt decreased to around $1b. By deducting the cash balance of the company, the net debt position decreased to around $315m, which is much less than the total debt of the company.

Short-term debt of the company increased to $486m in Q3 of this year, as a result of a reduction of [$300m] 15% [indiscernible] 2005. The reduction [will be done on November 10]. The company [indiscernible], such as [indiscernible] and also continues to improve in Q3 of this year.

With $351m contribution of EBITDA to the company's cash flow, net cash generation in Q3 [realized as] $250m. This has enabled the company to reach a cash balance of $696m as of end of Q3.

The company has also paid $39m in Capex and investments, and an additional $77m for interest payments for the [increasing investment] in Q3. The company's cash position has [mostly] improved to [$776m] as of today.

Looking at the debt repayment [schedule] in the first three quarters of this year, we repaid [$407m] total, representing [$296m] principle and [$111m] interest. The company's net debt decreased to [$315m] as of September 30 of this year, compared to a net debt of [$1.1m] a year earlier.

In the first three quarters of this year we accelerated the process of restructuring our debt portfolio, in line with our policies to decrease our total borrowing costs. [indiscernible], and decreasing the amount of total indebtedness. To this end, we announced the early redemption of $300m Cellco 15% Subordinated Notes, which will be [serviced] on November 10 of this year. After the early redemption, the company's outstanding debt will [come to] around $684m, and average borrowing cost will decrease to 10.5% [indiscernible] from 11.6%.

In the last quarter of this year we plan to repay another $400m, representing $378m principle and $22m interest, including the Subordinated Note redemption.

Meanwhile, we have given mandate to IDB and HSBC to arrange [indiscernible] on September 19 of this year, for an amount up to $100m. The maturity will be two years from issue date, and [indiscernible] 180 days from signing of the agreement.

We aim to diversify our [international] investment base and lower our borrowing costs on an absolute basis. We are planning to close the deal by the end of this year and utilize the facility in the first half of 2004 [indiscernible].

As part of our [indiscernible], we always monitor and consider [indiscernible] financial alternatives in line with our business plan. To this end, [we received] Commitment Letter from Yapi Kredi Bankasi to grant a one-year cash loan to Turkcell for $150m. The availability period is twelve months, which can be extended further with the consent of the two parties.

It is a constant process for Turkcell to monitor and examine financial opportunities to improve the company's financial position and [indiscernible]. Depending on [market] availability in both domestic and international [debt capital] markets, we may continue to look for new financing alternatives for both structuring and [indiscernible] purposes.

That is the end of our financial part. Thank you very much.

Thank you Ekrem. Actually, before we go to the Q&A session I would just like to say that again - please limit your questions to two for the sake of [indiscernible] effectiveness. Also remember that you can always ask your detailed questions after the call by calling the I.R. people here.

So, if we could please [Patricia] move into the Q&A session now. Operator?

Certainly sir. If any participant would like to ask a question, please press the '*' following by the '1' on your telephone. If you wish to cancel this request, please press the '*' followed by the '2'. Your questions will be polled in the order they are received. There will be a short pause whilst participants ready to put their questions.

The first question comes from Mr. Ephraim Makepeace. Please go ahead sir.

Good evening gentlemen. I have two questions.

One is - I see that you have a tax table in Q3. Could you please tell us whether this is an actual corporate tax, or is it a result of readjustment of your different tax positions? And [Muzaffer], please elaborate on your [indiscernible] for tax outlook.

Secondly - could you please break down the roughly $500m provision for the treasury share into principal and interest?

The total amount that has been [explained] in Q3 is a result of the calculation of the [indiscernible] tax expense. It is actually quite a complex calculation.

If you remember, the company calculated $77m before [capital] tax by the end of Q2 of this year. This [deferred] tax does in fact represent the company's [indiscernible] tax benefit, which is different from the corporate tax rate, which is approaching 30% for all corporates in Turkey. In Turkcell, because of [indiscernible] tax exempt for this corporate tax.

There's another taxation for Turkcell, which is 19.8%. which is withholding tax. The net difference between 30% corporate tax and 19.8% withholding tax is 10.2%, it's called the [indiscernible] tax effect.

By the end of Q2 we had $77m [tax effect], but on the other hand calculated $37m withholding tax for the first six months of the year in 2003, and then reported $40.2m total before-tax credit for company P&L.

We have done the [similar] calculation according to [indiscernible] tax principle, we have done a similar calculation for Q3. The difference is actually between the 30% tax and 19.8% withholding tax, it becomes $81m. It's actually $77m for Q2, we ended up with $4m additional tax credit to company P&L.

On the other hand, we have ended up with $86m - the total tax calculation for the end of Q3 - $86m minus [$37m] for the first six months of the total tax calculation. We end up with this half $49m additional tax expense. So for the nine months, plus $4m additional tax credit, we end up with $45m total tax expense for Q3.

In Turkey, even though we disclose it to our company P&L, it doesn't mean that it is a cash flow item, so we have to look at the company's Q4 results and then we pay real tax payment in terms of the total tax. Still there is a tax payment, the company will pay a tax payment in terms of total tax next year for the year 2003.

OK, the additional deferred tax liabilities. [indiscernible] arithmetic, what you went through, or are they also the result because you have revised your profitability outlook going forward, without the value of the current tax credits you have?

The calculation of deferred tax.

In fact, each year the [indiscernible] tax calculated for each year, we have to look at one year [indiscernible]. According to [indiscernible] this is taxable income, and ends up with a tax payment. Then the company has to calculate the [before tax budget].

This is based on the principle, we have calculated the first nine months of this year by the end of Q3, and end up with $81m total deferred tax [indiscernible]. Additionally, for this quarter, because we have only disclosed $77m for the first six months, the additional $4m we disclose as a tax benefit to our financial reports, particularly for Q3.

And the next question was, Ephraim, regarding the provisions made for the Treasury-related [indiscernible]?

Yes, interest split and principal.

I can give you one number and [indiscernible].

In regard to the reserves, they're actually $485m, approximately, and reserved for the Treasury share of the interconnection revenues. In total, the total reserve Turkcell has for all of their legal [indiscernible] is (as of end of Q3) $664m.

Thank you.

Thank you. Next question please.

Certainly, the next question comes from Mr. Herb Ejeret. Please state your company name, followed by your question.

Yes, good afternoon, this is Herb Ejeret from HSBC.

My first question is regarding Algeria, you are reporting bidding for a license there. I was wondering if you can give us your assessment in terms of your probability of success there. As well - what [indiscernible] invested capital you expect to get, in terms of the assumption you are using to calculate the project opportunities.

My second question is related to your other pending legal issues. I was wondering if you have seen any change there regarding, for example, the asset class injunctions [indiscernible] and if it is still as before. Thank you.

I would like to give the information about the first question, which is Algeria.

As Turkcell - based on the general cash flow and strength outlook of Turkcell today - obviously we are open to any opportunity around us. Algeria is only one of them, but it is at a very preliminary stage at this time.

For this company's management, we haven't done any in-depth assessment yet, to give any guidance about the probability of success and expected return on investment. We did not even decide to participate and (if so) at what price range or what kind of commitment. It is at a very early stage, as I said, of understanding the realities of the marketplace.

Within the opportunities offered to you at the moment (in terms of the use of the cash that you have at hand), are there other opportunities at the moment, maybe in other countries, that would be above Algeria?

Could you please repeat the question.

It looks like (from what you said) that at the moment you are only at the preliminary stage in terms of assessing the opportunities in Algeria. I was wondering if, at the moment, there is a higher priority opportunity you are looking at.

Well there isn't any concrete opportunity that we can give any guidance on today. As I said, Algeria is not far away or closer than any other alternative today to this management. We are just looking around to chase after any opportunities for the shareholders.

OK.

As far as your legal question, Herb, we've already given you two updates. One was regarding the frequency usage fees, which [indiscernible] to Telecom Authority, and Treasury share on the interconnect fee payment revenues.

If you need additional detail on these than what we have already said, if you want to call us later.

As far as the class action [goes] there is also no progress there that we can tell you. We are behind the deposition phase and into the [cage], but we cannot give any further updates at this point in time.

OK, thank you for your help.

Thank you.

Thank you.

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

Hi, it's Alex Wright here, from UBS. My two questions are, firstly, relating to the growth areas that you're currently looking into. You've obviously given us your thinking behind Digiturk and Iraq licenses.

Could you give us any other details on which other technology-related sectors you may be looking in? Would you be looking, for example, across the media sector? Would you be looking potentially at areas such as newspapers, TV stations, cable TV? I wonder if you could just narrow that down a bit, specifically to the sectors that you're looking at there, potentially.

The second question I had was regarding the $150m loan facility just signed with YKB. I wondered whether there was any specific purpose behind that loan, as there was with the recent $100m loan agreement, or is this really just an effort to increase your financial flexibility going forward?

Well, for the first case, I would like to express that there isn't any specific investment opportunity I have at Turkcell, either for technology areas or for media areas.

Today we are rather concentrated on the Digiturk case, and as we have expressed we are going through a [indiscernible] process and we will see how it will end up. Based on the [indiscernible] evaluation, on the fairness opinion, and the due diligences.

So there isn't any specific guidance that we can give for any specific interest into any other company today.

On the other hand, this $150m YKB loan is, as you said, another approach to sanction the company's power in the financing environment. There isn't any specific reason for the company to use this credit today, but we believe it [indiscernible] for the company to lower the interest costs and make the terms longer on new borrowing, if there is any need.

Right, thank you. Just following up briefly on the first question. Is there any way you can eliminate any particular sub sectors from those that you may be looking at for further growth opportunities? Or are you really saying at the moment that you'll consider any opportunities for growth that emerge within the market?

Well, today, as we expressed, we see an opportunity in Digiturk, but we are running through the process.

Would we be able to narrow it down to any business sector, in the technology or media department? It is rather difficult and would be irrelevant to mention any business sectors. Today we are solely interested in the Digiturk business. It has some particularly interesting assets, being the only player in the marketplace.

OK, thank you very much.

Thank you.

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

Yes, good afternoon, it's Stephen Pettifer, from Merrill Lynch.

My first question relates, please, to churn. Given Aycell's proclaimed successes recently, I wondered if you had any expectations of rising churn going forward, or whether you think their successes have come from your competition.

My second question relates to legal issues again. I just wondered if you could go back to the retrospective interconnector issue. Last time I heard it was about $1.2b outstanding, I wondered if you could update us on the size of that, and perhaps any timetable of legal progress there. Thanks.

Hello. I'll answer your first question. Our churn rate was [indiscernible] decreasing this quarter, partly because of lower acquisitions than seven months ago. But we are monitoring the effect of [indiscernible] campaign, especially in the corporate segment.

There is an effect but it's not material at the moment. We believe that this will have a higher effect in coming quarters; it might be more visible in coming quarters.

However, the percentage - although we are expecting an increasing churn - it's not right to comment at the moment, especially on that segment [indiscernible].

[Does that answer your question?]

May I just ask as a follow-on to that - can you give us any guidance or thoughts as to where churn will be next year?

Unfortunately we are not able to give any guidance, but in an increasingly competitive environment we expect it to increase.

There are a number of unknowns in the marketplace, and we've outlined some of them. Like the interconnection, the pricing schemes, as well as the competitive environment and the status of the players, etc., and many other dynamics. From that standpoint we are cautious, and we'd like to remain guidance for the future guidance.

I'll now hand you over to Ruhi Dogusoy, for a response to the next question.

Hello. As you know, from the interconnection point of view, we've reached a new agreement with Turk Telekom, which is valid since September 20.

The basis of this agreement fully supports our previous [indiscernible] and related [indiscernible], what we were saying. This is not equal sharing, it is not [indiscernible] sharing between the parties, it is not [indiscernible], it is cost-based interconnection pricing.

During that period, more or less a couple of weeks ago, the court decided that our first approach is again considered by the courts. Turk Telekom took the decision to the higher court. The higher court previously decided from the duty point of view that this deal should not be in its scope.

Now a higher court will decide about the duty point of view. If [duty point of view] they will decide that they will continue, then the first-degree court's resolution is for our [indiscernible]. So all things are going through according to our previous [previews] and beliefs. We are not expecting any retrospective effects of this issue, but the [court still] continues, both in the legal and administrative part. This should be taken into consideration.

Can you give us an idea of when you think this will all conclude?

No, there are two parts, as I said. One is in the legal courts. In the legal courts we are expecting that within a couple of months.

From the duty point of view, the higher court will decide, it will not be in this [indiscernible].

So that is what we can say from the timing point of view, what we are expecting from the timing point of view. With the other developments, we don't have any idea about the timing.

Thanks very much.

The next question comes from Miss Benita Nicoleijuas. Please state your company name, followed by your question.

Good afternoon, it is Benita Nicoleijuas from ING.

I have a question about [traffic] levels. I've noticed that traffic on your network increased by well over 40% over the last two quarters, but obviously your [corporate] spend is still fairly low. How many subscribers do you think you could accommodate at current usage levels?

Also, if you can tell us what is your [corporate expectation] for [indiscernible] in 2003 and 2004?

You may recall that in previous conference calls we discussed about the [indiscernible] methods. With existing profiles of our subscribers, our method is definitely enough to give existing quality - which is really high quality - to all of our assumptions of subscriber growth.

During that period we continue to invest. We are investing in our company in the [indiscernible] network as necessary [indiscernible] upgrade level to give the quality comfort to our subscribers. From this point of view we can say that our network can serve 21m to 22m subscribers with today's profile.

Please note that we are continuing to invest in [those]. This year's investment level, the Capex level, is planned at approximately $200m, $202m, $203m. The developments are in line with these expectations. These figures give us enough room to give proactive service to our subscribers.

Can you give us any guidance for next year's Capex?

Of course, not exact figures, but our expectation can be this year's level, around this year's level, which is around $200m.

Thank you.

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

Yes, thank you. Steve Frank, of Morgan Stanley Credit Research.

On slide eight of the presentation. I just wanted to go back to the total cash that you may have to pay out over the next year or so, to a number of different people. I understand it's about $78m max. for frequency usage, then $485m (or almost $500m) for the interconnection dispute, then $108m for the Digiturk investment. Is that correct? Is there anything else in addition to that over the next five quarters?

Steve, just to make a correction, or reminder note, is that the $485m is not due for payment. The appeal process in the Turkish courts will continue, so from a finance perspective we can't give you an indication. [Our payment know] that in fact we will have to pay, but it is unlikely, and a strong chance [duty] ITC ruling [although if we appeal].

On the other hand, the frequency usage fees dispute and the related payment can be paid at any time, based on request.

As far as any additional possible cash out from any other proceeding, this is not expected at this point.

OK, but the $485m - that figure could occur over the next four to five, six, maybe even a year or so. Is that correct? I'm just trying to get a sense for what the probability is that you actually have to pay that amount of money.

We could not hear you well, could you repeat the question?

OK, the $485m - when will we have resolution of this one particular issue? How much time before it gets resolved?

Can we get any estimation for a resolution of this legal case?

For this legal case we should take into consideration some more details. First of all, all the legal procedures should be finalized. Most of them, all the legal procedures, are not finalized.

Secondly, these figures are including [all parts], the main part and the interest. So according to Turkish legal procedures the main part and interest should be taken separately. For that reason, this total figure cannot be understood [indiscernible] and finalized immediately.

So it is [indiscernible] to include a time frame, [which in this company we continue to produce change]. From a time point of view, I think the resolution should be accepted by the Turkish courts first. Then the appeal to the Turkish courts should be finalized, and then [indiscernible].

From the frequency usage point of view, these procedures are mostly finalized, but there are still some calculations and requests for the main and interest parts of the money. So to give the exact timing is not so easy, and still requires some more legal technical issues.

OK, thank you.

The next question comes from Miss Anna Bosson. Please state your company name followed by your question.

Yes, hello gentlemen, Anna Bosson from CRB. I have two questions.

The first one was - if you could split out how much of your net interest charge was interest on borrowing, and how much of it was interest related to court cases etc.

Related to that is how much you actually provided for, in Q3. In other words, increases in provisions. Specifically, there was an amount of $29.5m related to what seemed to be uncovered amounts in 2002 for the frequency charge on the prepaid dispute. In other words, I remember one of your press releases saying how much you provided for in 2002, and that was $29.5m, and how much of this you were going to have to pay.

For Q3 the company's total interest expense [before interest income] is approximately [$85.3m]. This has been reported in the P&L.

This interest expense does have some part which is related to the legal cases, that we present in the [indiscernible]. The legal cases, such as [indiscernible] interconnect, frequency payment is part of it also. These have not been [indiscernible], but included in the company Q3 figure. But also [company] includes some interest on the loan for the current period, of $85m.

The amount of the interest expense on legal cases is part of the $85m [indiscernible] approximately $45m, plus [indiscernible] approximately $53m representing the legal case. The remainder is actually in respect of the company's existing debt.

That's excellent, thank you. On the provisioning?

As far as the provisioning, we expect that in Q3 the total provisioning is approximately [$664m] versus [$525m] in Q2, so the provisions made in Q3 were [$139m].

Thank you very much. Where would they have been seen?

Sorry?

Where would they have been actually reported? In what line of the P&L?

Breakdown of [indiscernible].

Yes please. Would they have been, for example, in your G&A costs? Or would they [have been] in your financial costs?

As I said a little while ago, interest is inside the financial expenses, after [indiscernible]. The other part is a part of the sales and marketing expenses.

Thank you very much, that's lovely.

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

Yes, hello, it's UBS. I just have a couple of follow-up questions.

One was on the mobile-to-mobile interconnection payment. I wondered if you could explain, first of all, why Turkcell will pay more to Aria and Aycell than they receive on a permanent basis. Do you see this as fair, under the long-run incremental cost base calculations, or do you see it as an attempt (perhaps) to support Aycell and Aria through their merger?

The second question was relating to your costs of goods sold. One of the reasons you give for the increase in costs of goods sold is the radio network operation started in Q2 this year. I wondered if you could say how much they've contributed in terms of expenses, if you can just clarify what they are, please. Also just explain whether there are any revenues specifically associated with those radio network operations. Thanks.

As we mentioned before, in Turkey regulatory [indiscernible] you [indiscernible] quickly, and in line with the European community's telecom [indiscernible] regulations.

One of the very important regulatory developments was in the interconnection regime in Turkey. Within this [decree], one very important item is significant market power and dominance power of the market position.

Within this [decree] Turkcell is announced as the significant market power in the interconnection market. So this created a situation that [inaudible] Turkcell has been made to pay more premium to non [inaudible] companies. So this is the reason why Turkcell is paying [indiscernible] Aria and Aycell. This, as you know, is common in all the European [inaudible].

Sorry, just to follow up on that. How much market share do you think Aria and Aycell combined would need to win in order to also receive the significant market power status?

Previously there was this kind of figure, as you know, in the European regulations, it was 25%. But the European regulations have changed; it is not based on only the market percentage, but also some other conditions. But it should be around something like that.

OK.

We have a follow-up question from Mr. Ephraim Makepeace. Go ahead sir.

Patricia, we haven't actually answered the second question from Alex, which was regarding the cost of goods.

[indiscernible] radio network operation costs. In Q3 there is an increase from [previous] quarters, which is reported as $4.5m. It is actually in respect of all radio network operation costs of the company for Q3.

The reason behind [indiscernible] structure.

In the radio network costs there are two points, actually.

One point is [inaudible], the [lead line] costs, and [indiscernible] costs of the [site]. In Q3 there are some increases because of the market [indiscernible], but the other reason is that radio network is an [indiscernible] item, it is not an [indiscernible] item.

There are many changes, there are many movements [inaudible] and also changes on the [indiscernible] side but [inaudible] equipment and [inaudible].

OK, thanks very much, that's very helpful.

Next question please.

And now the follow-up question from Mr. Ephraim Makepeace. Please go ahead sir.

I just wanted to clarify the breakdown of the $485m provision. Is the $485m the principal only, or is it the total? Could you please break down the $485m into interest and principal?

Can you repeat the question Ephraim?

Yes. The $485m provision for the Treasury share at the end of Q3. Is this the total? And if it is the total, how much of it is interest and how much is principal? Or is it only the principal?

The $485m is the total amount, which represents principal plus interest. There is [indiscernible], the total principal amount of $485m is [$245m], that comes from the principal, and [$248] approximately comes from interest [payments].

$240m. Am I correct that you're paying 7% per month in interest on this?

There are actually different [insurables] and it is also an unclear point at this point in time. From different angles, this interest rate would vary between 5% and 7%, but it will have to be finalized by the court case at [Bonn].

OK, because if I calculate (let's say) 7% per month, call it 20-something%, then only the old principal - which was about $215m at the end of Q2 - should have increased to about $240m. But I think we can go through the arithmetic later. I don't want to take up your time.

I think in the arithmetic you should also incorporate the US Dollar exchange rates.

Oh, OK. Yes, thank you very much.

Thank you. Is there any other question?

Yes, we have a question from Mr. Attink Ozcan. Please state your company name followed by your question.

Good evening, this is Attink Ozcan, from HC Stanbull. First of all, congratulations for a spectacular quarter. I just have two questions.

First of all, concerning your intention to acquire Digiturk. Could you please provide us with some key financials, like whether the company has any financial burden? Or what are your plans once [indiscernible] broadcasting rights expire by May 2004? As well as whether the company's [pre] cash flow and [indiscernible].

OK, thanks for the good wishes and celebrations. We appreciate that.

On the other hand, for Digiturk. We know that the company has [positive] statements this year, but obviously this has to be approved by the third parties through which we are running the process at this time. We have the assumption - and that is what we are trying to ensure this time - that the company will not have a cash drain on the company, so that it can only stay as this $108m worth of investment for the company.

I think your next question was the football broadcasting rights for May 2004. We believe that in this environment today Digiturk would be the most valuable candidate for the football rights going forward after May 2004. Today, the contract that they have is a well-priced contract for the Federation and the clubs, so we have some assumptions that it would continue somehow.

Thank you, and

Yes, did you have any other?

I would like to direct my second question, if possible.

Please.

Recently your Greek partners, [Incaltech] made a press release at the stock exchange, that it had successfully launched operations in football betting games. Would you please confirm the news, and if it's true share with us some of the details about your business model and the prospect of [indiscernible] markets? Thank you.

Thank you. In this business we have the ultimate goal of remote betting throughout our mobile media, obviously. On the other hand, we know that no business is [soft] and mobile business, but we have to make it some kind of brick-and-mortar business approach, like it has been on the electronic shopping.

This time we have in this [Incaltech] company a brick-and-mortar approach starting from physical callers and dealers on the streets for betting on Saturdays.

This first [para mutual] approach has already started with the top five games in Turkey. The numbers are not significant yet, but (as I said) our ultimate goal would be for remote betting on our mobile network. I believe that soon we'll be seeing preliminary approaches and applications at the market place, both on our [indiscernible] and afterwards, a fixed odds betting approach on which we have expectations.

Thank you and finally, would you please elaborate on the business model? Is there a revenue sharing model, or is it a licensing one?

Well, the [para mutual] is a service that we are doing on behalf of [indiscernible] and we are giving this service based on some charges, percentages of the total revenue.

OK, thanks a lot.

Thank you.

The next question comes from Miss Effen Richtagloo. Please state your company name followed by your question.

Hi, this is Effen Richtagloo from DB Investments. I had two questions and one was - you've basically already answered the question.

The second one was related to the frequency usage fee, whether you'll start charging the fee to your prepaid customers. How this would affect your competition and whether your competitors are already charging this fee.

Well the prepaid customers are not charged so far. The frequency usage fee is obviously a question mark of the industry, and that question mark actually was the reason why we took this case to a legal dispute.

Practically, we are unable to collect this charge from our customers but we are paying this time so that we lost the legal case from our package.

At this point in time we don't have any concrete decisions to go ahead and charge this to our customers. We did not take this decision in the past either and there is little chance that we can do it going forward, based on understanding and a respectful approach to the customers and the competitive environment.

So most probably you will not charge it to the customer?

Most probably we will not charge it but still we should also bear in our mind it's a large value volume, so it is a total cost to the total industry.

OK, thank you.

Thank you.

The next question comes from Miss I Morrow. Please state your company name followed by your question.

Hi everyone, this is Isha from Raymond James Securities. Two quick questions.

The first is that in Q3 of the year, have you seen any market share gain regarding the possible weakness from [Carlton] and also the non-completion of the merger between Aycell and Aria?

Secondly, regarding [Pintel]. There have been some reports lately, denied by Telecom, that there might be a swap of shares of [Pintel]. How would you comment on that? Would there be any possibility for corporate action in [Pintel], like in [Icure] within the foreseeable future, within a year? Thank you.

Well for the market share, we haven't seen any specific trend for Turkcell because any weakness of any competition in the marketplace. On the contrary, we believe that especially Aycell has been pretty much active on the corporates, on their specific tariffs and approach to the customers.

For [Pintel] yes, there have been some rumors, which were not backed up by [Telia Sonera] officially, and we don't believe that there is any swap of shares on the agenda that we can discuss. We are going forward to our partnership with [Telia Sonera] and [Pintel] under which the operations are quite successful at this time.

Do we expect any corporate action for [Icure] at [Pintel] level? We don't have any discussion as such to make on [Icure] in the near future. It is not on the agenda for the board of [indiscernible].

Thank you.

Thank you.

We have a follow-up question from Miss Anna Bosson. Please go ahead.

Yes, thanks very much. I just wanted to ask if perhaps we could have that level of Digiturk that was asked for before, if I maybe missed it or if you could perhaps repeat it.

Also, your SAC numbers, what you're looking to actually happen in Q4. It sounded like quite a high figure in Q3, I didn't quite catch it - $35, I think it was. Could you comment on the SAC outlook for this quarter?

That level of Digiturk is not expressed. I believe that if the decision is taken after the due diligences with the objective reports we will announce the numbers of Digiturk.

I will hand over about the SAC to Tulin Karabuk.

Hello.

Hello.

Some of our SAC for last quarter and this quarter was because of the [re-evaluation of Turkish Lira], but of course we also had some campaigns directed to channel and end users during this period.

We believe that our SAC will continue to increase in coming periods, although we cannot say that we are expecting further re-evaluation in [Turkish Lira]. Because of the competitive environment there might be some increases in incoming [traffic costs].

We should also mention that we are covering more and more subscribers every quarter by our monitoring program.

Does this include a handset subsidy as well, or are you avoiding that?

Sorry?

The SAC - how much for the handset subsidy?

We do not have any handset subsidies.

Oh, OK. And the figure was $35 for Q3, is that correct?

Sorry?

The figure was $35 for Q3?

It was $29.

Oh, thank you very much.

[indiscernible] thank you.

Thank you.

I have been told that there are no additional questions. At this point I would like to conclude this session. Thank you for your participation and your good questions.

I would like to remind you that the audio recording of the conference will be available to you [in the next] three business days. Please do place your calls to [our team] after the call, if you have any follow-up questions.

Thanks again, good-bye.

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