Turkcell Iletisim Hizmetleri AS (TKC) 2004 Q4 法說會逐字稿

Thank you for holding ladies and gentlemen, and welcome to the Turkcell year end 2004 results announcement. Throughout today's presentation, all participants will be in a listen only mode. After the presentation, there will be an opportunity to ask questions. If any participants have difficulty hearing the presentation, please press the "*" followed by the "0" on your telephone. I will now hand the conference over to Mr. Koray Ozturkler. Thank you sir, please go ahead.

Thank you [indiscernible]. This is Koray, Head of Investor Relations. I would like to welcome everyone again on behalf of the Turkcell management team here. Actually, we have the whole executive team here today. Before handing it over to Mr. Akpinar for his presentation, I would like direct your attention to the notice in the first slide, which is regarding the information contained in this presentation. Mr. Akpinar.

Hello. I would like to welcome you to our 2004 year end results conference call. 2004 has been favorable year for Turkey, with a positive consumer sentiment prevailing throughout the year, parallel to the revival of the economy.

The government complied with the conditions set forth by the IMF and concrete steps were taken as far as the EU accession talks are concerned. At the same time, the growth in our business environment continues, and we have preserved our leading position while continuing to offer new services and pricing options.

These initiatives, not only led to growth of our subscriber base while assuring majority of the gains in acquisition market, but also strengthened customer loyalty, leading to lower churn rates. Our initiatives throughout the year led us to record strong operational and financial results. Despite the distortion caused by the legal provisions recorded during the year, we managed to maintain our EBITDA margin at above 40% levels, as announced in our guidance for the year.

Accordingly, in an attempt to deflect the value that we generated through our operations, our Board of Directors has taken a decision to recommend 100% dividend distribution of its 2004 distributable net income to its shareholders. The proposed dividend, which is in the form of 50% cash and 50% bonus share, plus the inflationary adjustments, must be approved by Turkcell's shareholders at our Annual General Meeting to be held on April 29, 2005.

We believe the settlement of our legal disputes with Turk Telekom and the Turkish Treasury, was one of the positive milestones in the year, and we are glad these major disputes are behind us. During the year, we monitored and evaluated growth opportunities in our region. Accordingly, in the international front, our 51% indirectly owned subsidiary has been launched with the new Life brand, as on February 1, 2005 in Ukraine.

And as per the agreement achieved between our major shareholders, TeliaSonera has announced its intention to increase its effective shareholding to 64.3% of the Company, which is subject to completion of the transaction and necessary permissions.

GSM subscribers in Turkey reached a total of 34.8m, which corresponds to market line penetration of approximately 50% levels for year end 2004. Our year-on-year subscriber growth rate was 23%, keeping our market share at 67%. The remaining market shares are split between the 2 operators, slightly in favor of Telsim at 19% levels.

Transition in our sector continues with the expected sale of Telsim, and the privatization of Turk Telekom on the agenda for 2005, based on the announcements made by the authorities. We have also participated in the bidding process for the Turk Telekom privatization, which is still continuing.

Long distance telephony service operators are being set up in our market, and only a few operators have completed in their connection agreements with the incumbent fixed line operator so far. On the other hand, some operators, including our long distance carrier subsidiary, are now carrying mobile originated traffic to international destinations.

In 2004, we believe competitors in our market, generally maintained their price based focus with aggressive actions, such as price reductions for on-net calls, mini communities and corporates, acquisition campaigns and initiatives promoting churn from other mobile operators, and an emphasis on high and frequent [indiscernible]. Thirdly, discounts across various tariff plans were also introduced in the first quarter of 2005.

In this environment we believe we continue to be effective and have taken actions that resulted in an increase in our subscriber growth and usage, a decrease in churn and segmented loyalty, based on our "better value for money" approach. With this approach in mind, we have adapted pricing schemes, retention initiatives that includes, for example, tariff consultancy and various innovative services, along with our consistent network quality and coverage, not to mention our continuously improved portfolio of quality service and product offerings helped the customer satisfaction.

In an attempt to enhance loyalty of our growing subscriber base, we focused on mass retention programs that reward tenure, preferred usage volume and [average]. For example, we have designed a campaign where we provided free airtime spread over a time period for prepaid subscribers, who load a high amount of characters in consecutive months during the summer. We also initiated staggered offers for longer loyalty, which not only resulted in lower churn rates, but also kept the cost of churn at a minimum by targeting higher value subscribers.

We continued our segmented volume and destination based campaigns, together with the mass loyalty programs. Campaigns for targeted groups of corporate customers and selected communities, were among some of the other initiatives we have taken in line with our aim of increasing minutes of usage. While remaining proactive in the market, we managed our price and value perception without getting into price wars, but rather focusing on striking the right balance between our revenue goals and customer satisfaction.

We introduced PSTN calls on net pricing, which evolved from the 50% discount on PSTN calls campaign that started in March to PSTN on-net in August, and desired usage levels were reached during the campaign.

In June, we launched an optional campaign, where subscribers would choose a PSTN number as one of their calling options, could call this PSTN number below our net prices. We also adjusted our international call rates, after Turkish Telekom discount in the same direction. We believe that PSTN [calls] on-net pricing, not only benefited Turkcell subscribers, but also that this proactive action of ours has been another cornerstone in terms of introducing new pricing schemes, such as our on-net offer back in 2001.

In addition to actions with the aim of decreasing churn rate and increasing usage, we also continued to introduce user friendly innovative services that turn mobile usage into indispensable elements of everyday life. We enlarged our product portfolio with new value added services. Services such as instant messaging, M-ticketing. Other services to make tax payments, reservations in movie theaters, new SIM cards with improved features, negative balance, Camel, were some of the new services that we introduced in 2004 to name but a few. Recently, we also announced that we plan to offer BlackBerry services to mobile customers in Turkey, in addition to our current email solutions.

Having explained highlights of our operational environment, and our actions in 2004, I would like to move onto the next slide to give you an insight regarding our infrastructure initiatives.

When it comes to our technology [for stance] and network, we are continually monitoring our network performance parameters and making necessary investments to assure a high quality communication and mark. We believe that our capital expenditures of approximately $4.1b as of the end of 2004, including our license fee, demonstrates our long term commitment to high quality. In 2004, due to the growth in our subscriber base above our initial expectations, and improved subscriber profile, our capital expenditures amounted to $299m.

In 2005, we are planning approximately $500m of capital expenditures in both core and access network, in order to improve capacity, replace some of the phased out hardware, provide increased network functionality and improve network efficiency, in order to better serve our customers.

Our competitive coverage of nearly 100% of the population in areas with more than 5,000 inhabitants, and 75% of Turkey's territory, gives us a competitive advantage in our market. Our solid infrastructure sets us apart from the competition in terms of quality perception in our market.

Furthermore, we continuously enhance our network in order to introduce new services to enrich the lives of our customers. We continue to invest in infrastructure enabling services such as Push to Talk, Ring Back Tone and Active Passive CAMEL and GPRS Roaming. Having been unified with the necessary technical expertise with know and know how, we enabled our subscribers to use our services, not only in the domestic market, but also in the global arena through GPRS Roaming, as one of the leading operators in this area.

In 2004, with our new service named CAMEL, we offered services to visitors who came to Turkey, and we introduced Active CAMEL, which provides prepaid subscribers with roaming in international networks. We also enabled our subscribers to communicate with a person or a group by pushing a button on their mobile phones through the functionality better known as Push to Talk.

Our technological enhancement continued into 2005. We continually offer, not only basic GSM, but also general package radio service countrywide which is GPRS, and enhanced data rates for GSM evolution EDGE, in dense areas which provide for both improved data and voice services.

Through EDGE, our subscribers gained access to faster internet through their GSM handset and [indiscernible]. We have set up an international third generation trial system, despite the fact that strategy on 3G is expected to be clarified this year.

Now I would like to give a brief outline of the legal and regulatory environment. On the legal front, an important development was settlement of our disputes with Turk Telekom regarding the interconnection revenue split with the Turkish Treasury on the detention of gross revenue, based on which the 15% Treasury share is calculated.

The settlement amount is in line with our provisions, and the cash impact on the Company, which we will clarify later in the finance section of this presentation, does not create any further financing needs for the Company. With the settlement of these major disputes, we can affirm that currently we have no other major legal disputes outstanding.

On the regulatory front, the standard reference interconnection tariffs by the Telecom Authority were issued. The Telecom Authority is also in the process of preparing a number portability regulation, which is not expected to be implemented this year. Moreover, Turkcell was once again in 2005, identified as an operator holding significant market power in the mobile call termination services market, as in 2004. Turkcell was the only operator designated as [indiscernible] in 2005, after Telsim was identified as no longer an operator with SMP, as they were the year before. By the way, the same telecommunication authority in this direction also states that after January 2006, all 3 mobile operators will be designated as SMP on the wholesale market.

According to interconnection regulation, the pricing terms of the interconnection agreements among operators had to be renewed, and in September 2004, the Telecommunication Authority has announced standard reference interconnection tariffs providing call termination rates, which are lower than the current levels. That will be applicable in case new pricing terms of interconnection agreements among operators are not agreed.

Currently, an explanation has been made by Telsim, and it is also likely that Turk Telekom may escalate the unresolved matter. Consequently, the Authority may force standard rates for terminations made on our network, as well as established termination rates we may pay for terminating on other networks, based on regulation previously issued.

However, we cannot at this time predict the timing or extent of the possible changes. While global rates may have a downward effect in general, longer term effect may also be seen due to downward pressure on retail pricing for calls terminating between mobile operators. However, we believe the impact solely coming from low interconnection changes will be limited as much as the share of interconnection revenues, in the total revenue base, which is limited to 10% to 13% levels.

Furthermore, as for the 3G licensing process in Turkey, we are aware that the Telecommunication Authority is making preparations for the process and a possible approach to licensing. There is no clarity at this point as to the schedule or terms, but we believe it is fair to say that we are not likely to see the additions of license in 2005.

Despite this we are currently increasing our awareness, and knowledge base regarding the 3G technology, and implications of such implementation, so that we will be prepared when the licenses are issued.

As for our international investments, I would like to start with the FINTUR companies, where we own 41.5%. FINTUR continues to build steadily, as also implied by the $43.6m contribution of its operations to our financials in 2004 as [indiscernible]. While each company is in a strong position in its own market, the total number of subscribers reached 3.9m in 2004, which constitutes a 62% increase compared to last year.

FINTUR recorded $557m in revenues, posting a 5% EBITDA margin. In the Ukraine Astelit, Turkcell's indirect 51% owned subsidiary through Eurasia had introduced its new brand Life as of February 1, 2005 in the Ukrainian GSM market, using GSM 1800 technology. Life has currently no significant negative impact on our consolidated financials. Our intention in Ukraine is to work on building a fundamentally sound business, as per the working capital requirements of Life, an increase in the paid in capital by $50m is expected, and we intend to participate to the capital increase of the company.

Regarding Iran, as you know, the Iranian parliament have made amendments to the previous license agreement, which significantly differed from the original terms that were agreed on by the parties. We understand that after the Guardian Counsel of Iran has rejected these amendments of the parliament, the parliament of Iran sent amendments back to Guardian Counsel with limited changes. As the existing amendments create restrictions on management and control rights, as well as our ability to consolidate Irancell's financial results into our financials, they significantly defer from the original license terms, and jeopardize our ability to go forward with the project. Nevertheless, the interest regarding the Iranian market continues, and we expect that our involvement would resume through monitoring the ongoing process, or any new future direction.

As already announced Turkcell has fully fulfilled the tender requirements of the government, and initialed the license agreement prior to suggested changes by the Parliament. At this point, Turkcell has incurred minimal operational expenses, and no investments have been made in Iran. The €210m guarantee that had been issued, and matured on February, has not been further extended, and we have recently received back €105m that we have committed, and kept in an Iranian bank as paid in capital consideration, with insignificant translation loss.

Our international endeavors will resume in 2005. As we said before, our intention is to work on building a fundamentally sound business in the Ukraine, while following up on the issues regarding possible investment in Iran, particularly, even the delays we have faced in Iran, we may also continue to selectively evaluate other international opportunities in the region as they may arise.

Having touched upon our international strategy, I would like to give you an insight regarding our expectations for 2005. As for our business environment, we expect growth to continue at a slower pace, and aligned penetration of 65% levels by the end of 2007 should be achieved, based on current demographics and market dynamics in Turkey. As the leading GSM operator, our subscriber base continues to grow at satisfactory levels for the year, while we do expect a slower growth rate for 2005, compared to that in 2004.

We are aware of the fact that price pressure may increase as competition gets fiercer in the second half of the year, when Turkish Telekom privatization and Telsim sales are finalized.

So far we have already observed an impact of declining wholesale and retail prices in our market. We feel, depending on the level of directional play and strategic approach taken by existing or new competition, we may see further pricing pressure, which is hard to quantify at this point.

Despite some of the difficulties in our operating environment in 2005, we expect our revenues to further grow, maintain similar levels of ARPUs as 2004, and probably record slightly improvement in MOUs compared to last year.

Due to an expected increase in competition, we expect churn rates to increase as well compared to 2004 levels. Retention, therefore, remains key to our success, and we will continue to focus on the retention of our growing subscriber base. However, we aim to keep our churn rates below 2003 levels of 14.5%. We plan to maintain our leading position in the market in 2005 by capitalizing on our well established brand name, customer focused approach, nationwide quality network coverage, extensive distribution channels and successful CRM capabilities.

As a result in 2005, we expect our revenues to increase at a slower pace compared to 2004, and we also believe our EBITDA margin of about 40% is sustainable, with an outside potential depending on market conditions.

However, we are aware of the fact that political and regional tensions have in the past had an impact on the economy performance of Turkey, and our operating environment, and may continue to do so in the future. Therefore, while we remain optimistic for the year ahead, we will continue to monitor these external developments that may have an impact on our business environment.

Now I will hand it over to Ekrem for further analysis of our fourth quarter and year end financial results.

Thank you. Good morning and good afternoon to everyone. I would like to start by briefly talking about the fourth quarter and 2004 full year financial results of the Company.

On the first slide we provided you the fourth quarter and full year reviews, as a snapshot to make a quick assessment of our improved operational results in 2004. However, here I would like to remind you that additional provisions that we recorded in the last quarter of 2003, and during the year 2004, and also the impact of the one time clear adjustment made, typically to make new comparison on quarter and annual basis.

But still, on the better improved economic environment [indiscernible] we managed to increase our revenues to $3.2b in 2004, [indiscernible] while maintaining our costs at a stable level, except for the one time adjustment.

In 2004, we successfully recorded $1.3b EBITDA, representing a margin of 42%, and costing a net income of $512m for the year.

Our blend ARPU decreased to $12.4m in Q4 from $14.7m in Q4 2003, mainly business seasonality and negative [indiscernible] despite the 10% depreciation in US dollars during the fourth quarter.

Accordingly, both postpaid and prepaid ARPU decreased to $29m and $7.2m in the fourth quarter from [$33.8m and $8.9m] in quarter 3 respectively. After the elimination of the negative effect of legal provisions increasing in the last quarter of 2003, we can say that the decreasing both postpaid and prepaid ARPU in the fourth quarter of 2004 compared to the third quarter, was no more than [indiscernible] in 2003.

On a yearly basis [indiscernible] in 2004, from [$10.6m] in 2003, mainly due to the increase in usage per subscriber. Our revenues increased to $3.2b in 2004 compared to [$2.2b] in 2003. This increase is mainly due to first, 23% growth in our subscriber base. Second, increasing usage [indiscernible] and segment based [indiscernible] campaign. Third, 5% increase in tariffs. And fourth, approximately 4% depreciation of [indiscernible] in U.S. dollars.

We reported $880m revenue in last quarter, which implies a [10% plan] compared to [$909m] in the third quarter, mainly due to seasonality and negative effect of [indiscernible].

On now to the improvement in revenue and maintained operation costs in 2004. EBITDA increased to $1.339b in 2004, from $481m in 2003, representing a 42% EBITDA margin. The Company's EBITDA decreased to $384m last quarter, from $481m in quarter 3, mainly due to the decrease in revenues.

The Company posted a net income of $512m in 2004, despite the negative impact of legal provisions, and accession charges, reflecting the increase in revenues and [indiscernible].

Direct cost of revenues, including deprecation, decreased to $478m in quarter 4, from $549m in quarter 3, mainly due to the decrease in revenue [indiscernible], and one time impact of income recorded due to the payment of certain penalties [indiscernible] collected by the Telecom Authority regarding [indiscernible] and interconnection [indiscernible].

Sales and marketing expenses representing 12% of revenues in quarter 4, increased to $107m, compared to $89m, representing 1% of revenues in quarter 3. The increase is mainly due to advertising expenses, related to the New Year campaign and roaming related advertisements.

In parallel the total [indiscernible] new subscribers also increased to [$22.4m] in fourth quarter, from [$20.8m] in quarter 3. Despite this increase, year-on-year [indiscernible] from [26.3, 22.7 in 2003, from 21.5 in 2004].

Sales and marketing expenses in 2004 were realized at $349m, representing a 2% year-on-year rate. However, the proportion of selling and marketing expense revenues declined 12% in 2004, from 13% in 2003.

General expenses increased to $43m in last quarter, compared to $27m in quarter 3, mainly due to the one time effect of cost related to the dispute with the bank on deposits, the expenses related to the Iran project and consultancy fees.

Our cash position reached $764m as of 2004 year end, despite the $491m payment related to [indiscernible] in the fourth quarter of this year. [Indiscernible].

Total debt decreased to $833m, and net debt position decreased to $69m, after developing the [indiscernible], which is much less than the total equity of the Company.

We strongly believe that we will be able to recover the debt and further the payment plan with our [indiscernible]. Despite additional legal provisions and [indiscernible], and deductions from revenues due to interconnection [activities to telecom] this year, we kept our year to date EBITDA margin at 42%. The Minister of Finance confirmed that 2 set payments related to [indiscernible] resulted in a [indiscernible]. Therefore we reserved a portion of our deferred tax assets in parallel with [indiscernible] payments made and that's from our appropriate tax rate in 2004.

It's also mentioned in our press release we have already paid $462m into [indiscernible] the last quarter. Total net effect of the deferred tax amount [$880] as taxation expense in 2004. Additionally we provide a total tax provision of $94m which will have a cash ARPU impacting in year 2005.

In spite of the negative impact of taxation charges in 2004 which was close to $512m net impact representing cash a 2% margin. [indiscernible] we start to disclose our actual CapEx and [indiscernible] starting from the third part of this year onwards.

[indiscernible] CapEx 2004 it represents mainly the DSL [indiscernible] license fee and new networking [indiscernible] Q4 and Q3 respectively. Other income in Q4 mainly represents principle payments based on the presentation you saw in front of you, it represents on going licensing payments to Turkish Treasury.

We start payments regarding [indiscernible] $56m helped to make [indiscernible] marketable securities [indiscernible] our year end [indiscernible] $764m this is mainly due to our strong operational [indiscernible].

Now I would love to discuss a little bit about how our legal provisions worked during the last quarter of 2004. Announced in December 2004 we had a scheduled a [indiscernible] regarding internet connection and [indiscernible] telephone. And 62% annual license fee will be Turk [indiscernible].

[indiscernible] we had paid slightly less $500m in total and most is deferred 3 years. As a result our legal provisions and payables as of Q3 2004 amounted to $1.110m decreased to $781m as of middle 2004. Additional provisions amounted to a total of $37m [indiscernible] provides in Q4, mainly related to the increased expense included last quarter regarding [indiscernible].

Provisions include some internet [indiscernible] related to the nation roaming and money from disputes amounted to $39m. Provided mainly due to impairments made the sales opportunities [indiscernible] with the nation roaming [indiscernible] provision charge. These payments will realize subsequently after the first quarter 2005.

Finally, Turk Telekom starts to deduct all our [indiscernible] in last quarter of this year in line with the condition of [indiscernible], and net of deducted amounts from our respective repayments.

I would like to give you some brief information on the current state of the [indiscernible]. If I mention the [indiscernible] we are paid $491m in total to Turk Telekom and the Treasury in the last quarter of this year.

Payments regarding the Treasury [indiscernible] have been completed during the first quarter 2005. On the Turk Telekom side, $434m and $110m of principle payments excluding taxes will be made in 2005 and 2006 respectively.

I would like to remind that excluding loan agreements an interest charge will be applied on our outstanding balances based on the annual simple interest rate of the most recent TRY denominated discount bond issued by the Turkish Treasury. Which is currently around 1.77% a month.

Moving to fourth quarter, we have made around $30m of principle interest payments. For the whole year of 2004, our total [indiscernible] is [indiscernible] around $300m includes this [indiscernible]. [indiscernible] our total [indiscernible] in 2005 is $616m.

[indiscernible] new financing from debtor capital markets moving to fourth quarter 2004. As for expenditures, our total equity injection to our information operations, the payments of [indiscernible] bonds and the expected settlement payments due to the discretions in 2005, will finance to our principle [indiscernible] our current cash balance.

As part of our risk and liquidity management strategy, we continuously monitor debt and capital markets and consider constantly financing our debt [indiscernible] in line with our business plan. We maintain our focus on increasing volume growth in time expanding the [maturity] of our loans [indiscernible] on a secured basis whilst looking for opportunities to diversify our international investor base. Thank you for your time.

At this point actually we can start the Q&A session. Our coordinator Yvonne.

Yes sir.

If you could actually go ahead with the Q&A session now. I would like to make a quick reminder that we like to limit the questions to 2 per person, so we have a manageable amount of questions by each person. Thank you.

Thank you sir. [OPERATOR INSTRUCTIONS]. The first question comes from Mr. Esteban Nator (ph). Please state your company name followed by your question.

Good evening, this is Esteban Nator of Credit Suisse First Boston. My key question is on your guidance you provided for us. I was [concerned] [indiscernible] of this guidance on the margins for 2005. Could you give us further background? What kind of expectations are underlying this margin guidance, in terms of the development of the competitive environment? Do you see any major pricing pressure going forward and what are you expectations in terms of your market share in net additions and market growth overall?

And secondly, could you please clarify your ARPU guidance? You said that you would expect ARPU to remain roughly stable. Should I take it that you meant to remain stable in nominal Turkish Lira terms if compared to Q4? Or, do you expect this to remain stable in dollar terms given the current U.S. dollar Turkish Lira exchange rate?

Well in the first question obviously there are many things that are incorporated into our annual plans and expectations. But from the competitive perspective the price competition and price war at the market place from Telsim and [Albaer] although they've been more severe than before they are not new to the market place. And we expect that this will continue for the balance of the year, and we expect that we can counter back or stand against these attacks with some balance, rationale move between our market shares on the monthly new adds and the revenue sensitivity.

On the monthly new adds we still have our target of being the leader and having more than half of the new adds at the market place on the monthly basis. And on the pricing terms, we expect the average revenue per units to be stable on the U.S. dollar values as of today.

Okay. That's very kind. And can I take this statement as a confirmation that during the first quarter you continue to have over 50% of net additions?

Well for that obviously we will have to wait for a while more before we see the first quarter results. But that is our main guidance and our philosophy for the new adds market share.

Thank you very much indeed.

Thank you.

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

Yes, good evening. It's Stephen Pettifer from Merrill Lynch. If I could just - my first question is just to follow up on the previous question about ARPU guidance. You say in your statement, broadly flat I believe on the 2004 level. I just wanted to confirm that that's on an underlying basis as opposed to the -- you could argue it's a revised down figure that you actually reported.

And the second question, I wonder if you could explore a little bit the news today from Turk Telekom. I guess the sense was in December you had -- your relationship with Turk Telekom had improved by settling all the disputes, I wonder if you could give us your thoughts as to why Turk Telekom has demanded that payment on international calls today? Thanks.

We're trying to grab the questions. Sorry for a few secs. Okay Stephen, the first question is based on the reported average revenue per user, we expect a flat guidance. And the second question on the Turkish Telekom after the settlement, would you please repeat that?

So just on the first 1, so you're effectively guiding ARPU down by 8%, are you for 2005 then?

Why do you devalue that at 8% lower?

Because your reported ARPU in 2004 includes your provisions you made at the revenue level, especially in the second quarter, and if you strip those out, I would calculate that your underlying ARPU is about $1 higher than that.

If you look at it from that perspective, you may end up with that statement yes.

Okay. And my second question. Just again on the news today from Turk Telekom. My sense was after your extensive negotiations and the settlement you made in December with Turk Telekom that relations had improved, and I just was wondering if you could give us some color as to why you think Turk Telekom has come out today and demanded a fair amount of money for the international call situation?

I see. It is a fact that we had 2 major rounds in the past in the near past with Turk Telekom on a better environment sentiment and amicable resolutions, both the clearance of the past history and also last year's interconnect agreement.

This issue of Millenicom has cropped up somehow and we can hardly judge and elaborate on the dynamics of this request from Turk Telekom. But coming down the basic and fundamentals of that request, we don't see a sound legal environment and base for that request. And actually we have returned that letter back to Turk Telekom in that perspective and in that understanding, and it appears at this time on official letter exchanged level between the companies, no legal environment has been triggered yet.

Okay. Thank you.

Thank you.

Thank you. The next question comes from Mr. Sergei Arsenyev. Please state your company name followed by your question.

Hi. Good afternoon. This is Sergei Arsenyev from Goldman Sachs. 2 questions please. Firstly, something that you mentioned in the press release, you're saying that you expect or there's a potential for interconnect traffic, specifically termination rates, to come down during 2005. I'm just wondering if maybe you could elaborate a little bit on this, and talk about the timing of when it can happen and the magnitude of the potential terminate rate cuts?

And my second question is on the Ukraine. As I understand now you operate in the 1800 band in Ukraine. Are there any plans to upgrade this license and get an additional 900 frequencies there? Thank you.

Okay. On the first question we have also informed that the relationship with Telsim is already escalated to the Telecommunication Authority, and we sense that the relationship with Turk Telekom may also be escalated to Telecommunication Authority. As far as the magnitude of lowering the interconnection rates, you can look at the reference tariffs announced by the Telecommunications Authority. I believe that would be the lowest price you can speculate on, but on the other hand, on the timing it is very difficult to make any judgments because there are many players, it might be a longer stage before we come to an end, as it happened in the previous disputes. So on the magnitude you can look at the reference tariffs. On the timing it is hard to give a guidance at this time.

On the Ukraine, obviously based on the geographical and demographic realities of Ukraine it would be a beneficial environment to operate both under 900 and 1800. At this time, we do not have any concrete plans and strategy to acquire 900 as well. But if we would have, that would be a better operational environment for us, yet no concrete road map to acquire 900 MHz frequencies.

Thank you very much.

Thank you.

Thank you. The next question comes from Mr. Reece Sudgen (ph). Please state your company name followed by your question.

Yes. Hi there. It's Reece Sugden from Citigroup. I have 2 questions. On your CapEx guidance there's $500m for '05. If you had a rough guidance on what the Ukraine elements -- does that include Ukraine, or if that's autonomous from the Ukraine? And then secondly, just a small point on -- in the fourth quarter there was other revenue of about $15.5m if you could just give an explanation on what that was? Thanks.

I will answer the first question. I'm not sure that we've got the second. In the first 1, the guidance, the CapEx guidance of $500m is Turkcell only. It does not incorporate any investment number for Ukraine. For Ukraine for the next 2 years, including the 1 that we are in it now, the total CapEx guidance of us was $250 to $300m. So $500m doesn't include any part of this CapEx guidance for Ukraine.

For the second part?

For the second part, we believe we've returned $500m additional revenue [indiscernible]. The $15.5m I can named as other in our total revenues for the last quarter and is coming from our statutory [income tax], because of the reason that we are consolidating in that 100% to our financial statements. We have recorded 15.5% -- $15.5m in the last quarter, that comes from income in terms of revenue.

Thank you very much.

Thank you. The next question comes from Mr. Neil Wedlake. Please state your company name followed by your question.

It's Neil Wedlake from Morgan Stanley. My 2 questions actually return to the previous Ukraine and CapEx. First thing on CapEx, would you say that $500m now at face level, do you see that as an ongoing maintenance and growth requirement? Or it is a case of really that the expansive growth we saw, which you say is now slowing down, means that 2005 could be a peak year for CapEx and you'll return to lower levels?

And on the Ukraine, having now launched, I know it's still very early days, but perhaps you could just give us a little bit more color in terms of the competitive environment as you find it? And maybe a little bit more guidance not just on the CapEx you expect to spend there, but on some of your revenue or profitability targets?

As far as CapEx guidance, what we mean by $500m is it's for this year. And looking at the years ahead we don't actually expect as high over CapEx item as this point in time. Probably expect that we assume somewhere around $250 - $300m, unless we are talking about a new technology implementation, such as 3G. So the guidance does not include sole assumptions.

For Ukraine, obviously the market is very competitive. It is a very colorful market environment and we are from scratch a new entry into the market place. And lately, we hear and see that there are some new acquisitions and new energies coming into the country as well. Still the penetration is not that high and the growth rate is quite high especially this year, and most probably next year.

So with a rationale well balanced between the price competition and eagerness to get a bite from the market, against some revenues we will try to put our color as well into the market place in 2005 and 2006. And get a decent portion of the market place. It is quite difficult for us to give concrete guidance for Ukrainian market share or numbers. I think we will be sharing more numbers in the next quarterly results, and those will give a flavor on how we are going to perform in Ukraine. And on the CapEx, as I've said, we have a guidance of $250 - $300m, we still believe we will be able to stick to that on the CapEx.

On the competitive edge of Life Astelit in Ukraine we see 2 things. First of all, to get the 51% of the company holding the license, it was on a reasonable price level for us. And on the other hand, as a even investment rollout from scratch the prices and the total cost of the investment from Nokia and Ericsson were quite favorable compared to the existing operators. So we believe we have a reasonable price to enter to the market at this time, as long as we operate on relatively well established CapEx environment and innovative services and customer understanding, we believe we have some chance over there. We feel very strong for the market realities.

Do you feel that you're be competitive enough in terms of coverage population within the next quarter or 2 to firstly start adding significant subscribers?

As far as the coverage is concerned, is that the question is about the coverage of population is it?

Yes, I'm just saying -- if you take the next quarter or 2 -- 2 quarters do you think you'll be competitive enough in terms of coverage to really start making inroads?

Yes we believe so, most probably by the end of the year we will have about 70% of the population covered on our network. Obviously this is going to be an evolution from today onwards.

Okay. Thank you very much.

Thank you.

Thank you. The next question comes from Mr. Emery Timmis (ph). Please state your company name followed by your question.

Hi. This is Emery Timmis from H.C. Stanwerk. The first question is on the termination rates issued -- did I understand your [indiscernible] did you say beginning 2006 all 3 operators will be considered as SMPs and they're going to offered standard rates which will be lower than where we are today? And then I have a follow up.

The latter the degree of Telecommunication Authority, which changed the position of [indiscernible] from SMP in the past to managed [MPs] for 2005, also has the wording for the period starting from January 1, 2006 saying that on wholesale markets we all know that there are 2 parts of being SMP, 1 for the retail market and the other for wholesale market. For the wholesale market all 3 operators will be treated as SMPs from January 1, 2006 onwards. This is actually very much in line with the practices in the EU as well.

Right. And you also mentioned that there will be a standard rate applied, starting from 2006 regardless of what you negotiate right now?

No that part is not relevant. Obviously companies may make mutual commercial agreements. Or Telecommunication Authority may apply the reference tariffs, or a combination of both may be applied for different mutual dual relationships, based on dispute or mutual commercial understanding. So there isn't any complete guidance from January 1, 2006 onwards, whatever is going to evolve from today onwards in 2005, will be a base for 2006.

Okay. And my follow up is you mentioned it for the -- your market share in the net adds, you would like it to be north of 50%. 50% price range for 2005. Firstly to clarify you mentioned the gross adds or net adds and secondly, can you give us a understanding of what the trend has been for the past 6 months. Did you see any kind of a change in your market share in the net adds over the last 6 months? Thank you.

This guidance did not actually change for Turkcell for several quarters now. We always stated that our mission is to have more than 50% of the new adds, and that is actually on gross numbers. And it is quite difficult for us to evaluate and speculate on the net adds of all the market realities, so that the churn numbers on the other operators are not being announced on a quarterly basis. This is why all the numbers that we have used at our [loop] at this time, are based on the declaration of Telecommunication Authority as of end of the year, out of which we have 68/67% market share. And on the new adds, we have the target of 50% plus new gross adds, and the company did not have a default on this target lately.

I didn't mean to imply, I'm sorry if I mis-stated, but I didn't mean to imply that you'd changed your guidance. I just wanted to understand what the actual numbers had been for the past 6 months, relative to your 50% guidance?

No, we had also understood that as a statement a consultation, I didn't understand that anyway. No problem.

Thank you.

Thank you.

Thank you. The next question comes from Mr. Daniel Avigad. Please state your company name followed by your question.

Hi. Yes. It's Daniel Avigad here from DRKW. Good evening. I just have 2 questions. The first is I see that comments with regard to changing shareholder control includes only TeliaSonera and nothing with regards to the potential rivalry from Alpha. I just wanted to really get your impressions as the management team, and the likelihood of that deal going through, given that it also requires CMD approval?

And secondly, just to ask you any indications of what regions specifically maybe looked at with regard to expansion, or any regions that we could, for example, exclude would be very helpful for me? Thank you very much.

Thank you. The first question is obviously out of our scope, our duty and our responsibility. At this time we hear from the shareholders that TeliaSonera and Cukurova has found an amicable way of changing the control over the company, and there is obviously a way -- a path for the closing of this deal. At the same time as all of us, we heard Alpha news at the newspapers we do not have any certain information on that. We also heard from the existing shareholders that they still have a valid understanding on the existing transaction going forwards. So we believe the existing deal between TelioSonera and Cukurova is continuing.

Thanks.

On the regions for expansion. Obviously the geographical realities are important. I do not want to give specific geography but closeness is important to us, and you can draw a map, like the Black Sea region and the CIS countries, Middle Eastern maybe near Northern Africa but just to paint a color for you. And on the other hand, size of operations, not too small and not too big for us to chew and to bite and chew, would be important, and obviously we are looking for growth. We need to see some kind of growth potential and expansion in any region that we step into. These will be the criterias that we would take on to the table as a first election criteria.

Okay. Thanks very much.

Thank you.

Thank you. The next question comes from Ms. Esra Appinas (ph). Please state your company name followed by your question.

Hello. I'm calling from [indiscernible] Securities. I was wondering is there any progress on Pakistan Telecom?

There is no concrete improvement. There is no concrete new stage as yet. It is under the evaluation of the management team. We are preparing the evaluation and understanding of the market realities and the asset for sale. Once we make our minds up as management we will take the situation to Board of Directors to have a final clearance for whatever the decision is. So, it is at a very rough level as yet.

Okay, thank you very much.

Thank you.

Thank you. The next question comes from Miss Zeneka Mikhalkowich (ph). Please state your company name followed by your question.

Yes, good afternoon. It's Zeneka Mikhalkowich from ING. I have a question do you have a target capital structure for the Group? And how and when do you think you can achieve it?

And also, in terms of competitive environment in Turkey, do you see any signs or do you believe that competition may change towards handset subsidies in Turkey?

I'm not sure what we mean on capital structure target for the Group. Could you please elaborate that question?

Well, of course, your net debt to equity right now is quite low.

I see.

Yes.

Well, it is obviously low and the Company is very much under leveraged. But we see that the shareholders and the Board of Directors of the Company have a trust and an interest in the Company's operations. And at this time the dividend for 2004 earnings are set at 50% cash. And that is our limit to the general guidance and policy anyway.

So, the Company is being taxed [strong] on the financials for any potential new value to be taken for the shareholders -- say it, name it 3G in Turkey or other operation if it be internationals. I think we should see some new projects to invest into before talking about the leverage ability and higher leverage of the Company. So, the question is to find [1] new and valuable sustainable, maintainable projects rather than the debt equity ratio.

And on the competitive environment handset subsidy is always an issue, will it start in Turkey or not? At this time obviously we are happy for all the operators and the industry itself that handset subsidies are not relevant or existing in Turkey. We wouldn't start that. But obviously we have to watch and see how the other operators are going to take it as a tool. So, we do not have any clue on how that will evolve. That is always a possibility.

Sure. Thank you very much.

Thank you.

Thank you. The next question comes from Miss Givko Mutafo (ph). Please state your company name followed by your question.

Hello, this is Givko Mutafo from Standard Pacific Capital. Congratulations on your result first of all.

My question has to do with your calculation of EBITDA, I'm wondering if you can go over it. How you calculate it based on the income statement and explain the rationale for not using the more common definition in my view, which is operating income plus depreciation amortization.

Thank you very much for the comment and compliments. I would hand it over to Ekrem for the elaboration of the EBITDA description [indiscernible].

Well, in fact there is a [secured] exchange commission regulation for the non U.S. GAAP financial measurements. It has been declared in January 2003. And based on these rules of [securitization] commission the definition of the EBITDA is very clear.

The EBITDA -- it state that EBITDA equals the net income gross before depreciation and amortization, interest, expense and income tax benefit [are explained]. So, we are actually calculating our EBITDA based on this very clear rule of [segregation] commission for the non U.S. GAAP financial measurements.

Okay, thank you.

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

Hello, it's Anna Boson. I'd just like to add my voice to the previous caller that I'd think it'd be very helpful if it was possible to revert to operating profit plus depreciation. I for 1 find it very, very difficult to forecast and understand what's going on with the reported EBITDA number. Which leads to my next question which is can you perhaps give us some guidance on your gross margin expectations because at least [that] I actually understand a bit more clearly is my first question.

And my second question is could you perhaps provide a little breakdown of the 1 off costs in the fourth quarter the Turkish Bank dispute and the 1 time expenses on the Iranian project. And you mentioned another expense as well if possible please.

For the argument that in the last quarter increase our G&A around $6m. This comes from the -- 1 of the Turkey Bank's account [reconciliation]. So, we have some difference between the conciliation with the Turkish banks and that's why we have gone to court [indiscernible] for this. That's why even though the case is still going on. So, conservatively we have accrued this $6m for [SB&A] G&A expense.

That's $6m not $16m, right?

Sorry, just $6m, yes $6m.

Thank you.

The other correction in respect to Iran for the expenses, so as you know we have been dealing with the Iran for the long time and because of the recent developments that happened in last quarter we have done a expense adjust in Iran. Our project cost has increased in last quarter mainly. The total amount that we have recovered for Iran project is around $4m.

Lovely. And the third extraordinary area, can you perhaps detail that? That was the -- consultancy fees, that's included in the $4m, I guess?

Yes.

Lovely, thank you. And on the gross margin is it possible to get some guidance?

On the gross margin we believe the existing levels obviously for the historical data we should clear the 1 time effects on the gross margins. But the latest gross margins we believe are maintainable -- sustainable. There might be some effects of this definition of the gross margin affecting that and if it happens to the positive side, especially for the exclusion of indirect taxations to be taken out of the treasury share definition on top of the interest rates from the customers -- interests received from the late payers.

And would that go into other expense areas?

We hope that [proves] to be sustainable.

Thank you but that -- those areas -- those items -- indirect taxation would then go into other costs or would they just disappear?

Sorry, once more please?

Sorry. You said that if indirect taxation comes out of the gross margin that would be positive for the margin. But would it then go back into another cost line further down?

No, it is not -- that's the situation for the -- it is a better situation for the cost of treasury share, which will obviously improve the gross margin but it wouldn't go in under another section.

It won't. That's excellent. Thank you very much.

Thank you. We have a follow up question from Mr. Stephen Pettifer (ph). Please go ahead with your question sir.

Thank you. Just a couple of data points please. Could you tell us what your SAC was in the fourth quarter and for the full year? And also could you please tell us what your data component or value added component was of ARPU please?

The SAC number for Q4. It is $22.4 for Q4 2004 SAC number.

And as for the value added services --

Sorry?

I'm sorry -- ARPU Stephen, we don't have that breakdown actually. We don't disclose that. But what I can tell you is that for percentage of revenue in Q4 was 15.4% [indiscernible] and for the year it's around [14%] also.

Thank you. Sorry -- do you have a SAC number for the full year?

It is again [landed] basis $21.5m.

Excellent, thank you.

[OPERATOR INSTRUCTIONS]. We have a follow up question from Mr. Emery Timmis. Please go ahead with your question sir.

Hello, on the marketing expenses there is a big jump this quarter. Is this a new level that we should anticipate for 2005 also or was this just a 1 time deal to promote your new programs and it's going to turn back down to more like 9 or 10% levels for the 2005? Thank you.

Usually the fourth quarter is a high quarter for us on sales and marketing expenditures. At this time we know that the [hatch] and then the new year and also international roaming promotions we spent more advertisement budgets compared to Q3. But overall in average we believe the same level of the year is sustainable for 2005.

Thank you.

Thank you.

Gentlemen there are no further questions at this time.

Thank you very much Yvonne for managing the call. We would like to repeat the mention that the audio recording of the conference call will be available to you for the next 3 weeks. And we appreciate your participating. And we will all be available for follow up questions. Bye, bye. Thank you.

Thank you ladies and gentlemen. This concludes the Turkcell year end 2004 results. Thank you for participating.