Turkcell Iletisim Hizmetleri AS (TKC) 2005 Q1 法說會逐字稿

Thank you for holding ladies and gentlemen, and welcome to the Turkcell Q1 2005 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. [OPERATOR INSTRUCTIONS]. I will now hand the conference over to Mr. Koray Ozturkler. Thank you sir, please go ahead.

Thank you Yvonne. Hello everyone. This is Koray, Head of Investor Relations at Turkcell. I’d like to welcome you once again to Turkcell’s financial conference call for Q1 2005 results.

Whole management team is here today, including our CEO, Mr. Akpinar. I’d like to point your attention to the web. Our presentation is available on our website, and after pointing out the first slide, which is a notice slide, at this time I would like to hand it over to Mr. Akpinar for his presentation.

Thank you Koray. Dear all, I would like to welcome you to our 2005 first quarter results conference call. In the first quarter of 2005, the GSM market witnessed higher than expected growth in a stable macroeconomic environment, mainly driven by the price based competition.

We remained focused on Better Value For Money approach, keeping our costs stable, and maintaining the balance between customer satisfaction and our revenue goals, despite pricing pressures and seasonally lower usage.

We have not seen any concrete structural changes in our sector during the quarter. Moreover, with the recent announcement of Turk Telekom regarding the decision to postpone the bidding deadline until the end of June.

Before giving further insight regarding our business environment, I would also like to remind you that after the approval of the General Assembly on April 29, 2005, total amount of cash dividend to be paid out of 2005 earnings, is approximately $182m.

Once the dividend distribution is in shares realized, each ordinary share and ADR holder will receive approximately 25.8% additional shares or ADRs. Accordingly our paid in capital will increase by approximately TRY1.9b, from TRY1.5b.

With regard to our business environment, we are enjoying stable macroeconomic environment, with continued strength of [Lira], and low inflation. Government is on track with conditions set by IMF and the positive consumer sentiment is reflected in increased consumption.

On the regulatory front, not much has changed since our year end announcement last month. We have not been able to agree on the pricing terms of the interconnection agreements with other operators, as we said before, and the issue has been referred to Telecom Authority.

On the competition front, our competitors continue to promote aggressively price alternatives. For example, we have seen aggressive price schemes offering of the low flat rate plan to calls in all directions. These efforts, coupled with the positive consumer sentiment, led to an overall subscriber growth in the market above our initial expectations.

We believe we have continued our leading stance in new acquisitions during the quarter. We continued to introduce new retention activities and usage incentives, keeping an eye on the balance between our revenue goals, and customer satisfaction.

We have also recently made an upward price adjustment of 4.6% on scratch card prices. We believe the continuation of irrational play we have seen in our market over time and potentially lower termination charges in the future, will be areas to watch as these factors have an impact on our earnings.

Now, I would like to shortly talk about our operational performance for the quarter. Our subscriber base increased to 24.3m at the end of the first quarter. While the growth in our post-paid subscriber base remained almost flat, 90% of the new additions were pre-paid subscribers, which we think is a trend that will continue.

We are quite pleased with the growth trend we are observing in the market. As for the churn rate, we are seeing an increase compared to last quarter levels, on the back of higher number of subscribers acquired last summer. Intensifying competition also contributed to the increase. However, the churn rate remains lower than a year ago, and there is no change in our guidance for the year.

As far as MOU is concerned, there was a decline on the back of seasonal trends since people become less mobile during winter months. We believe the usage should pick up, as we enter into summer months, coupled with our continuous efforts to stimulate more usage, and hopefully continue the positive consumer sentiments.

We have put a lot of effort in various campaigns and new services launches in 2005, which I would like to go over on the next slide. To give you a flavor, some of the segment based offerings that we introduced in the first quarter backing our better value for money approach included acquisition campaigns providing discounted high volume scratch cards in starter packs, and the opportunity to pay for starter packs and counter cards in installments.

On the products and services front, Blackberry and Turkcell Connect were the highlight of the quarter, which enabled fast and easy access to email platforms, internet via Blackberry terminals and laptop computers respectively. As part of efforts to increase usage, the volume discount campaign was introduced, which included 50% discount to all of our customers after the first on-net minute during March, to mark the anniversary of the start of our operations in 1994. This offer resulted in higher usage levels, during a period when we experience seasonally lower usage levels.

We have also recently revised and re-launched a mass loyalty program, for both post and pre-paid subscribers during the second quarter. A separate campaign aimed at increasing usage was an offer to give free counters, if counters are uploaded in the first month of acquisition. Also, a try for free campaign, which enabled our subscribers to try our value added services free of charge for a period of time was offered.

This campaign helped to increase usage and penetration of our existing value added services portfolio, and resulted in new subscriptions to these services through increased awareness created by the program.

We have also received an excellent feedback on the introduction of the Young Turkcell Club – a loyalty program for our subscribers, aimed at establishing and strengthening the community. Now we have 3.5m subscribers. Ringback tone and instant messaging service were some of the other popular services we introduced during the quarter.

We also introduced EDGE, Enhanced Data rate for GSM Evolution technology, providing our subscribers services such as faster internet access through their GSM handsets and laptops that have more positive roaming capabilities, as well as Push To Talk.

On the international front, shareholders of Eurasia, owner of Astelit in Ukraine, decided to increase the share capital through an additional $50m cash contribution [Nor] Turktell International, and one of the local partners contributed pro rata basis an additional amount for the non-contributing shareholder.

As a result, we received the right to de-subscribe for the additional shares of the non-contributing minority shareholders. The final stake of Turktell in Eurasia increased to 52.35% from 51%, and total liquidity of Eurasia increased to $100m.

As for the new financing arrangements, Astelit signed the main mandate for long term financing of $280m, to re-finance the existing value loans, as well as working capital and new investments requirements.

Speaking of market dynamics, the Ukraine is a market with well established players and a penetration of approximately 35%. Given the relatively low penetration rates, we are optimistic about the prospects. Astelit, operating under Life brand, is currently operational in 25 cities, and this number is planned to be increased to 91 by year end, with 70% of population coverage.

On the network front, first EDGE infrastructure was launched in Ukraine by Life. We remain highly competitive with new introductions, such as incoming call bonus, ringback tone, USSB and event notification, missed call notification, pre-paid contract convergence, balance transfer and advanced video MMS. Our objective in Ukraine is to establish a fundamentally sound business model, and we can generally say that our performance so far is in line with our expectations.

In Iran, the Guardian Council approved all of the amendments to the license agreements between Irancell and the government that were proposed by the Iranian parliament. As a result, it is likely that we will be limited to 49% stake in Irancell’s ownership structure. In addition, the proposal approved by the Guardian Council includes several other amendments to the terms of the license agreement.

As a consequence of these developments, we plan to evaluate the potential elements of the new structure and extend discussions with local authorities as well as current and potential partners, to ensure appropriate ownership structure, and management councils in the local company, as well as the amendments to the license agreement conditions.

As for our well developed Fintur operations, we are glad with the operational performance of Fintur companies, the combined subscriber base of which increased to 4.2m, with a net profit of $64m, as of end of first quarter. The income from Fintur, on equity pick up methods was $13.1m for the quarter.

Moving on the next slide, I would like to give you some insight as to our stance and expectations going forward. As for the GSM market, we expect to remain as the leading GSM operator of Turkey. Increasing competition may induce higher than expected growth and penetration in the longer term. However, it is difficult to make that assessment at this point in time as to what extent the market may grow, more than expected on the back of intensifying competition. We feel we will remain in our leadership role, while always watching the bottom line.

On the pricing front, as mentioned, price pressures remain a market reality. The other factor is the potentially lower interconnection charges which can, over time, put further pressure on retail and user pricing. Despite the price pressures on wholesale, and it’s reflection on retail pricing, we maintain our annual guidance of higher revenue expectation for the year in comparison to last year.

As for the privatization of Turk Telekom, we are currently in the process of evaluating potential bidding through 1 of our subsidiaries, Turktell, in a consortium where we can eventually have minority stake.

On the international front, our focus on Iran will remain as priority. The process may be a lengthy one, but we will try to achieve acceptable conditions. We may also evaluate selective opportunities in the region as they arise. At this point we do not have anything major in the horizon, except for Pakistan, and we believe it is still too early to make a clear statement on Pakistan, as we are still in the process of understanding the market and conditions surrounding the tender.

Our capital expenditure, budgeted for the domestic market, remains at $500m, in line with new acquisitions and usage trends in Turkey. Given these expectations, and longer term outlook, we aim to keep our costs stable, as a percentage of our revenues. Stable EBITDA margin, despite the pressures we are facing on the competition front.

Now I would like to hand it over to Ekrem for a financial overview.

Thank you very much. Good morning, and good afternoon to everyone. I would like to start by briefly talking about the first quarter 2005 earnings results. On this slide, we provide you with first quarter review as a snapshot] to make a quick assessment of our operational results in the first quarter of 2005.

On the back of improving economic environment and growing subscriber base, and despite the negative effect of seasonal low usage, we managed to increased our revenues slightly to $898m, while maintaining the share of our costs to revenues at a stable level.

As a result, we essentially recorded $394m EBITDA, namely an EBITDA margin of 44% confirming our consistent performance in an environment of increasing price based competition.

Now I would like to give more insight into our financial performance. In the first quarter of 2005 both post-paid and pre-paid ARPU slightly decreased on the back of seasonally low usage. Accordingly ARPU [indiscernible] levels. This takes into account a number of factors, such as price discounting initiatives in the market, generally decreasing [strand] of income revenues, and favorable exchange rate, we expect our average year ARPU to remain at similar levels as last year.

As for revenues, despite a 7% decline in the usage due to seasonality, we recorded a slight increase compared to last quarter, mainly due to the growth in our subscriber base, and an average 8% appreciation of Turkish lira in the first quarter.

A slight increase in revenues, coupled with stable operational costs, asset versus our revenues, led also to a slight increase in EBITDA in nominal terms in the first quarter.

As a result, we successfully managed to record a 44% EBITDA margin. All in all, we posted a net income of $128m during the quarter, despite the [indiscernible], which also includes the impact of [indiscernible].

Moving on the next slide, I would like to give a brief explanation on our costs. Our cost of revenues, including depreciation increased by [9%] to $523m in the first quarter. This comes from the one-time [indiscernible] income, recurrent in the fourth quarter of 2004, due to the repayment of certain penalties due to be collected by the Telecom Authority.

Accordingly, as a percent of revenues, the share of value posted was realized at 8%. In the first quarter, sales and marketing expenses increased slightly to $104m, whilst share in revenues remained flat at 12%. The decrease in nominal terms comes from the absence of [indiscernible] advertisement in the last quarter of 2004. Meanwhile, our private commission costs increased to [$23.9m] from $22.1m, that in the last quarter of 2004.

General and administration expenses, on the other hand, decreased to $35m in the absence of one-time costs, which will be covered in the last quarter of 2004, related to [indiscernible]. Accordingly the share of G&A increased to 4%.

As we stated before, our expectation is generally stable costs and pricing revenue for this year, [including] also stable margins.

A closer look on our balance sheet shows our cash position reached $872m as of end of March. Despite the $390m payment, including principle, interest and taxes, related to the settlement with telecom [regulatory] during the first quarter, reflecting the solid operational performance of the Company.

Despite this increase in the short term debt, mainly due to upgrades [indiscernible] through vendor financing, total debt slightly increased to $868m on the back of repayment of longer term loans, and we had a net cash position of $5m in the first quarter of 2005.

We strongly believe that we will be able to pull our liabilities for debt and settlement related payments, with the cash we will be generating throughout 2005, and our strong cash balance at the end of the first quarter.

As for the income statement, the general operation performance is implied by the 44% EBITDA margin. [Inaudible – audio fault] this is now out of the reversal of certain amount of deferred tax assets, related to the settlement agreement.

[Inaudible – audio fault]. Additionally, booked a total tax provision of $28m [inaudible] for 2005 year end. The cash ARPU impact of which will be realized in May 2006.

All in all, despite the negative impact of taxation charges in the first quarter of 2005, we posted a net income of $128m along with a margin of 14%.

On the cash flow front, the total capital expenditures amounted to $217m, and $55m out of this was for the new network development in Ukraine in the first quarter of 2005. All in all, despite the payments regarding the settlement in this first quarter of 2005, and the [quantification] of approximately $60m helped to [indiscernible] our [policy] and cash position was $872m.

Please turn to our debt repayment schedule. Payments related [inaudible – audio fault]

Sorry for the interruption in the conference call. There seems to be a technical fault. Please stay online. The conference will resume shortly. [Music].

Ladies and gentlemen, please continue to hold. The conference will resume shortly.

Thank you for holding ladies and gentlemen. The conference will begin shortly. Please continue to hold.

Thank you. Please go ahead.

Well after this little bit of delay, we apologize for the trouble, we are back on the conference call. Ekrem was going over to debt repayment schedule, and will continue from where we left off. Ekrem.

Thank you Koray. So, let me take these repayments, and I’ll start these from the beginning. As for the debt repayment, out of the $684m total salaries in 2005, we have already realized $70m in the first quarter, including [indiscernible] interest.

Considering debt capital expenditures, possible equity injection to our operations and obtaining of some bonds, and the stable settlement payments due to [indiscernible] in 2005, will be financed through our future positive free cash flow and are [$870m].

We haven’t made any new financing arrangements for the debt or capital markets during the first quarter of 2005. Currently the cost of borrowing of Turkcell, excluding [indiscernible] stands at 9.7%, but will [indiscernible] decrease towards the 7% levels, after the payment of $400m, to help with the 5% [capital] bonds, which is due [inaudible].

As part of our risk and liquidity management strategy, we continuously monitor debt and capital markets and consider [indiscernible] financing alternatives in line with our business plan, in order to decrease our borrowing costs and expand the maturity of our loans on an unsegregated basis.

We have recently been heavily in touch with our financing alternatives in order to minimize the effects on our balance sheet. Recently, [indiscernible] amended to ING Bank and Standard Bank London, to arrange a financing of $280m, with a tenure of 6 years to re-finance our very significant vendor loans, and to make additional capital expenditures and working capital requirements. The financing will be in the form of a syndicate loan, and is expected to be finalized in the third quarter of 2005. Thank you.

Thank you Ekrem. This actually concludes the presentation part of our session. At this time, we will move into the Q&A. We would like to propose again, please to limit the questions to 2 as much as possible. And also, let’s try to keep our questions to a strategic level, again as much as possible, while we have the management here. Please remember that the IR team will help you after the call in the coming days as well.

So having said that, I will hand it over to Yvonne to open the Q&A session please.

Thank you sir. [OPERATOR INSTRUCTIONS]. There will be a short pause while participants register for a question.

The first question comes from Mr. Istvan Mate-Toth. Please go ahead with your question sir.

Good evening. This is Istvan Mate-Toth from CSFB. I would like -- could you please tell us whether, on balance, you are more likely to do Iran or not? What is your thinking regarding the Iranian venture?

And secondly, could you please elaborate a little bit on your views of the competitive environment? You see, you talk about aggressive pricing pressure, irrational competition, but in my calculations your quarter average price remains relatively stable. And I would have also thought that, since your competitors have this huge scale disadvantage compared to you, it’s very rational of them to try and decrease the difference between them and you. And I wonder what your strategy towards this will be, going forward.

Well, first of all, about Iran, we have to separate 2 things. First of all the market is very attractive from any perspective. When we look at the penetration, also population and the market penetration, and the size of the country, everything is very attractive from any perspective.

On the other hand, from the ownership and governance part, we have to find a good balance, in order to balance out the appetite for the market, to the management of the risks in this quite different environment. And this is what we are trying to do. So, when we started the bidding, and when we were announced as provisional licensee, the conditions were not like this. So there is a major change from where we started from, and we are at a very different platform at this time.

Still, because of this appetite and our long term commitment to this very new market to ours, we are trying to find a well balanced risk and return environment. So it is difficult to make a complete statement on whether we are more or less likely to do it. Instead of making that kind of a concrete statement, I wanted to draw this whole plan for your judgment.

Okay.

Obviously, we will be working on the case. We are constantly working on the case, and if there is any other concrete improvement, we will let the community know.

On the other hand, about the competition. Obviously, things are relative, and irrationality that we are judging and stating is from the P&L, balance sheet, cash flow perspectives, against the market realities, and wish -- and attempt to gain some ground at the marketplace – for the competition I’m talking about. And, in that perspective, we know that there are very rare environments where you unit prices lower than the fixed environment, for example. And this is what we are facing from time to time from the competition.

And when we say rational, irrationality in our minds is very much attached to sustainability and maintainability. So if this is a sustainable strategy, from the competition, that is a major question mark with all the drain at the cash flows. And on our strategy, we are trying to push forward the total value proposition of Turkcell, not only with price, but coverage, roaming, quality, reliability, consistency, value added services, understanding of the customers, community approach like [Bienj] Turkcell, [Bianc] Turkcell community approach.

And this is our strategy, so there isn’t any major change, compared to our previous quarters, but we are constantly emphasizing this dilemma, which is a rather breadth keeping strategy, so we’ll see whose breadth is longer than the other.

Okay, this is very helpful. Thank you very much.

Thank you.

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

Yes, hello. It’s Alex Wright from UBS. My first question is what your current expectation is regarding the timing and, most likely, magnitude of the interconnection rate changes that the regulator may make.

And the second question is regarding the cash flow statement. Unfortunately when Ekrem was going through that, the line was beginning to break up a bit, and I think that you were giving some more detail on the “other” elements of the cash flow statement. My question there is really, bearing in mind that you redeemed just over $300m of the legal liabilities in the first quarter, what sort of detail you can give on the cash inflows that helped to offset that cash outflow? Thanks very much.

On the interconnection, I will do my part and then hand it over to Ekrem for the second part of the question. For the first part of the question, interconnection was a major, major unknown environment. And even legal dispute environment until the last year, since several years for the Company we sold all the past stories. We sold the story for a year ahead, but unfortunately the contracts that we signed with the other mobile operators, and the incumbent Turkish Telekom have come to an end. And after that, we couldn’t come to mutual commercial based negotiation and agreement terms.

So at this time, because of this uncertainty, and understanding of un-reachability of a shake hand, let’s say, this time this issue is escalated to the Telecommunication Authority. There isn’t a concrete timeframe for the Telecommunication Authority to decide, and to express a statement on this issue, but we know that they are constantly currently working on the issue.

There are some reference prices announced by the Telecommunication Authority for different directions. They are already published on their website and known public information. So we are expecting their final view on these disputes, of course, with other mobile operators and Turkish Telekom, with an unknown deadline, frankly speaking.

As far as the magnitude is concerned, we do not think that it is a major issue that we should put a big question mark on our statements and liabilities if there is any, like the old days. But still, this is becoming a new uncertainty, accumulating, let’s say. So for the next part of the question, Ekrem.

The question in respect to the “other” items in the cash flow statement of the Company. So, we actually, a quarterly basis, paying the amount that comes from [includes] the first quarter of 2005 [total] amount repaid for the settlements related to trade [agreements] is around $390m. This is the cash outflow [indiscernible] levels.

But also, this is an item only for this quarter, which is offsetting this $290m cash outflow for the second payment. It’s known that we have received a award from Turk Telekom for the settlement of interconnect fee by the end of December 2004. So [indiscernible] special communication tax on invoice. [Indiscernible] to deduct this amount from our [indiscernible] special communication tax payable.

So in the first quarter of this year, we have deducted VAT and special communication tax, which amounts to $297m. This is creating the cash inflow for the Company cash flow. So this amount is offsetting the cash outflow for the settlement.

The remaining is mainly the other working capital cash flow items that comes from the movement of the dollar for the first quarter of this year.

Okay, thank you. And then if I look forward over the remaining 3 quarters of this year as you continue to settle the outstanding interconnection disputes, am I right in understanding that there will be no offsetting cash inflows relating to VAT or special communication tax?

Exactly. We have fully deducted VAT and special communication tax that comes from settlement payments. And in the second quarter and the following quarter you will not be seeing an offsetting effect of the payment that we are doing to the Authority.

That’s great. Thanks very much.

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

Thank you. It’s Stephen Pettifer from Merrill Lynch. My first question relates to usage trends going forward in the year. I wonder if you could comment, perhaps, on what you’re seeing in the second quarter, as it stands, whether or not indeed you are seeing the seasonal upturn that you saw last turn -- last year rather, in usage?

And secondly, I wonder if you could give us any more color on what’s -- how your operation is doing in Ukraine? For instance, whether or not you can give us an idea of your subscriber numbers? Thank you.

Well, for the first part on the MOU, our 2005 guidance was as follows. There are, obviously, some realities as severe competition and major CRM effort from Turkcell in order to maintain and satisfy the existing customers. And on the churn, obviously, we are quite keen on watching out the subscriber churn, and also MOU churn.

This is why you are seeing all these attacks, and quite deep and thorough, well thought of community approaches, and these are really helping our critical factors on our industry. And our expectation on MOU is to find a slight increase on MOU compared to 2004. This is the major guidance for 2005.

On Ukraine, the market is obviously at 35% penetrated, and 2 major competitors’ environment. Our advantage to come into this market is a rather low cost entry for us. As you know, we didn’t pay any lump sum major advance for the license, but we’ve purchased the Company in exchange of $50m, of share capital increase or contribution to the existing company.

And on top of it, we believe we have made a good bargain and negotiation with the vendors, in order to roll out the countrywide network out of [LCM], Nokia France. And with our understanding of the industry and business model so far, we believe there is playground for ourselves, in order to structure a rational and sound business model in Ukraine. And the first few months of operations showed us that we are in the track of our annual operating trends, and most probably, hopefully, we will be able to give you more concrete numbers in the following quarters on the Ukrainian project.

Can I just ask as a follow up. In terms of your transparency, can you tell us, going forward, what sort of metrics you will be able to give on a regular basis in the Ukraine please?

Well, there are obviously some fundamental metrics of the industry. We will put them through a situation and on consistency basis, and transparency basis, we will try to give, let’s say, a certain amount of numbers. I cannot name the criteria that we are going to touch on, but on a continuity basis, we will try to do some basic fundamental key priorities and key indicators for your information.

That will be very helpful. Thank you.

Thank you. This is well noted.

Thank you. The next question comes from Mr. [Toral Shamalda]. Please state your company name, followed by your question.

Good evening, this is Toral Shamalda from American Century. I would like to follow up on Ukraine, [that would be] question. Well the first question is, can you give us the current ARPU number that you are generating? Well, it may be a bit too early to give a firm number, but can you give us some sort of revenue metric that you were generating in Ukraine, as well as subscriber numbers that you have so far?

And the second question would be, I would like to get a better sense of what you are thinking about EBITDA margin on a consolidated basis for the rest of the year? Thank

Well, for the first question, with my apologies, I will have to turn this question down. And in the second quarter, most probably, we will be able to give more concrete metrics on the Ukrainian project, including the average revenue per user and total revenues.

So on the next question, on the EBITDA margin, we believe 40% plus historical EBITDA margin will be sustainable for us. In the first quarter we had 44% EBITDA margin. Historically, looking into the graphics and the performance of the Company, second and third quarters are usually better total revenues, compared to first, and the fourth is usually lower than the second and third. So with all this guidance maybe you can have a judgment on the expectations of 2005.

Thank you.

Thank you.

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

Hi, it’s Rhys Summerton from Citigroup. I just wanted to get some kind of clarity on your tax rate. What do we expect the effective cash tax rate to be at the end of ’05, obviously excluding deferred tax assets, and then any kind of reversals which may impact that line?

And secondly, would you be able to give us an indication of what your pre-paid minutes of use are for the first quarter as well? Thanks.

We have not heard the second question. If you don’t mind repeating that, about pre-paid.

Yes, sorry. I just wanted to try and get an understanding of what your pre-paid minutes of use number is for the first quarter.

Well starting with that, as disclosure policy, we have not been communicating minutes of usage breakdown, for competitive reasons mainly. Having said that, taxation question, I will hand it over to Ekrem.

Effective tax rate for a typical Turkish corporate is 20%. However, as you may know that we are hoping to have a [indiscernible] [advocate] and this advocate runs Turkcell a lower tax rate. The tax rate is currently is 19.8%, very close to 20%, which is cash. So that means that any cash payment regarding tax for Turkcell will be equal to 19.8% tax rate.

Lovely, thank you very much.

I’d like to add 1 more thing to this. Unfortunately, the environment is quite complex on this issue in Turkey, because the taxation rate is coming from our Turkish tax statements. And when you make a, write away, percentage expectation on your simulations going forward, that may not always be the correct number, because the Turkish taxation statements might sometimes be different than the U.S. GAAP numbers.

Right, lovely. Thank you.

Thank you.

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

Yes, good afternoon. It’s Benita Mikolajewicz from ING. I just have a question about Iran. Do you think that are there any chances that the outlook for your investment in Iran is going to change after parliament elections in Iran?

And second question, again on Ukraine. Maybe you can give us an indication what would be your EBITDA margin for Turkcell only excluding Ukraine for the quarter?

Well, for Iran, obviously, the elections are important happenings in Iran, and so that there are parliament rulings, laws and the government intervention and a major activity happening around this private GSM bidding, this election is also very important.

And also this election may put solidarity between different governments’ parts of Iran, so we are obviously waiting the result of this election as well. That might have some important effect on our expectations, and the environment in Iran.

But that is not the only concern, or only milestone for this project to come to a concrete end. We are currently actively pursuing to find a doable project profile for ourselves.

On Ukraine, once again apologies please on Ukraine. We will be sharing some concrete numbers, and if possible, some guidance on concrete metrics starting from the next quarter. Thank you.

Sure, thank you very much.

And just for your information, though, as for the Ukraine, we information that we provide is available and limited to the debt position of the company, and the CapEx figures, which can be found on the presentation.

Sure, thank you.

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

Hi. It’s Emre Temiz from EFG Istanbul. My question relates to the interconnection charges. If the Telecom Authority accepts the current reference pricing, could you quantity what kind of impact it would have on your revenues and the margins, if any? Just an estimate would be fine.

Well, based on our calculations and simulations, the total figure that reference terms may have as impact on our statements is rather minor. So we are talking here lower levels of 7 digit numbers. So few 10m effect maybe. But more important than that, the effect of these wholesale prices to the retail prices are important for the industry as fundamental reality.

And the second question. If we look at your revenues per minute in Turkish lira terms, they were down about 4% in the first quarter, sequentially. Would you expect that trend and that magnitude to continue in the second quarter, given the new promotional programs that you have initiated since the beginning of the year, or do you think the revenue per minute is kind of, going to stabilize going into the strong summer seasonality in the second and third quarters? Thank you.

Thank you. It’s difficult to judge if this 4% will continue like this at this magnitude or not. In general, we can always accept that the industry will have lowering average revenues per minute used, based on 2 realities behind or besides the competition. 1 economy of scale, and then obviously lowering infrastructure and other involved costs environment.

But on the other hand I can hardly give a guidance for the second and third quarters. We can only say, as usual, we will never lead the price cuts in Turkey. We will try hardly to follow, as long as we can keep it, the price cuts. And we will altogether be how the industry evolves, and at this point of time I would like to point out the reality that we have all the industry players increase the counter prices on the pre-paid part of the industry lately. That is also a different sign.

And this is another concrete and stable trend downwards, when you look at the pricing and tariffing approach from all the players, especially from the high price competitive offering-making operators, but they do some corrections to the very sharp offerings from time to time as well. So we will be watching altogether, and based on these fundamentals and understanding, we will be trying to optimize our position.

Thank you.

Thank you.

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

Good afternoon. This is Sergei Arsenyev from Goldman Sachs. I’m sorry, but can I just ask you another question on Ukraine. I won’t bug you with your numbers and guidances, but it’s just more from the conceptual point of view. Are you genuinely worried by the levels of ARPUs which are being recorded in Ukraine in the first quarter of this year? [Kievstaf], for example, reports ARPUs of slightly over $8. And, you know, does this generally correspond with the kind of, you know, with the business plan that you’ve had for the country?

Also, if you look at the CapEx plans of the major -- of the 2 main operators in Ukraine, they are accelerating massively in this year, and in the next year. Do you think that there is a danger for you that you will have to accelerate your CapEx program as well, or sort of, be left out with a very distant third position in the market?

Thanks for the questions Sergei. Well, first of all the ARPUs at the marketplace. At this point of time and at these levels do not worry us. Our expectations are rather conservative as well. So we are not surprised with these improvements at the marketplace. We knew that after our existence, the market conditions would change, and the capital expenditures from the 2 leading operators would be accelerated. So we also had this in our expectations. That is also not a surprise for us. So we still have the optimistic view about the fundamental, reasonable, doable business plan for ourselves.

Right. Okay. Good luck.

Thank you. Always need that.

Thank you. The next question comes from Miss. [Aisha Morrow]. Please state your company name, followed by your question.

Good afternoon. This is Raymond James Securities, Aisha Morrow. I just wanted to see what would drive your decision making process for Turk Telekom privatization. A lot of the visible potential bidders for Turk Telekom mentioned Avea as one of the potential problems here. Other than Avea, there might be some other issues that other companies are mentioning. What will your final decision be based on? Thank you.

Well obviously, it is a relatively delicate issue for us, and I’m not going to make any argument on their situation at this point of time, taking into account our realities that we are competitors as well. On the other hand, we are at this point of time, evaluating at the management and Board levels. The reality that Turkcell can only be a minority financial stakeholder in this business, looking forward, which is a rather different approach than previous other major investments so far. But on the other hand, this is a unique and special occasion as well, where the incumbent of Turkish Telecommunication industry is going to change hands, and that is not only an upside or a new business environment for ourselves, but on the other hand, as far as the new outlook of the country’s telecommunication industry is concerned, it is a very major and important happening for our existing assets. That is why we are thoroughly investigating the situation, and until June 10, we are going to make our minds up on how and when to pursue with this tender, and by then, obviously, you will be seeing the final structure of the consortium. And then, we will have 2 more weeks for the bidding, if our decision from the Board is for a pursuant of the second phase.

Thank you very much.

Thank you.

Thank you. You have a follow up question from Mr. Toral Shamalda. Please go ahead with your question sir.

Hello. This is Toral Shamalda again. Again, 2 questions. 1 is in Ukraine, strategic. How -- what kind of distance do you think, or what kind of extra value do you think you should provide versus MTS and UMC in order to be able to get the market share, I mean in terms of pricing difference?

And the second question is, looking at the second quarter developments in Turkey so far, can you tell us again a little bit about the difference between you and your main competitors in Turkey, in terms of tariff pricing? Thank you.

Well, in Ukraine, actually our main business, fundamental business model understanding is not based on price anyway. So we carry the same fundamental understanding to the Ukraine as well, while we do not forget that, in Turkey, we are the leaders, and in Ukraine we are the followers at this point of time. So we make some slight adjustments to our major philosophies, but we do not forget our main understandings of the industry. This is why when we started, when we first launched the network in Ukraine, we launched it with the first EDGE network in Ukraine, with the first ringback tone service -- value added service in Ukraine, and some fundamental services lacking at the other operators.

We believe these all have some values for Ukrainian customers as well, while we are making some differentiation for the preference of Life in Ukraine, with price attractiveness as well. But we do not build the strategy only on the tariffing and pricing in Ukraine either.

In Turkey, the difference between us and our competitors, in terms of financing, difficult to give precise ratios. But as far as relative pricing levels are concerned, there is no doubt that they will usually be follower than us. But the level will be important, where this relative positioning will be positioned and set, will be important in the next 3 quarters of the year, in order to show the effects on the statements.

Okay. May I ask a follow up question here?

Yes please.

On Ukraine then, am I to understand that your, I guess you could call it, nominal pricing is the same as the competitors, but you are trying to throw in a few extra value added services that are not available at other operators? So basically, the nominal pricing is the same, but what the customers are getting for the same money is greater, is that my understanding your approach correctly?

I would slightly change it in the sense that our nominal pricing will be more attractive than the competition, but we will try not to give very large difference against the competition, because on the other hand, we are keen to balance out our cash flows and our own statements as well. And we are keen to protect the business models in Ukraine, going forward as well, so that we have a full commitment going forward as well.

But, obviously, it will be shaped up, flavored, made more attractive with other value added services and technology enhancements, like EDGE, ringback tone, etc.

Thank you.

Thank you.

Thank you. [OPERATOR INSTRUCTIONS].

At this point, I think, we don’t want to push you any further to add questions. We may conclude the conference call at this time. Please be reminded that the audio voice recording of the conference call will be on tape available to you in the next few weeks. And, as always, please do call the investor relations team for any follow up questions. On behalf of the management team, thank you for your participation. Bye bye.

Thank you ladies and gentlemen. This concludes the Turkcell Q1 2005 results announcement. Thank you for participating.