Turkcell Iletisim Hizmetleri AS (TKC) 2005 Q4 法說會逐字稿

Welcome to the Turkcell year-end 2005 results announcement conference call.

I will now turn the conference over to Mr. Koray Ozturkler. Please go ahead, sir.

Thank you, Kirstie. Hello, I would like to welcome everyone on behalf of the whole management team here today.

Before we proceed with our presentation, I would like to point out the fact that any forward-looking statements in this presentation we are about to cover, are not historic facts but rather represent Turkcell's future expectation. Turkcell believes that the expectations reflected in these forward-looking statements are based on reasonable assumptions.

However, forward-looking statements involve inherent risks and uncertainties, and therefore cannot be ensured that Turkcell's actual results will not differ materially from those expressed and implied by any forward-looking statements in this presentation.

At this point, I would like to hand it over to Mr. Muzaffer Akpinar, our CEO, for an overview of the 2005 year-end results.

Thank you very much, Koray. Dear all, I would like to welcome to you our 2005 year-end results conference call. We believe we have posted strong results for 2005 despite intense priced-based competition in our market, reporting a 19% growth in our subscriber base ending the year with 27.9 million subscribers. We believe that the stable macroeconomic environment, coupled with our management's efforts, led us to a record solid operational performance in 2005.

We continued our emphasis on our "Better Value for Money" approach. Our loyalty and retention programs designed accordingly resulted in higher usage and reasonable churn rates. All-in-all, we are pleased to record about $4.3 billion in revenues, and US$911 million in net income, along with an EBITDA margin of 45%, in-line with our guidance for the year.

Not only that, our ability to generate and manage cash enabled us to fulfill our liabilities for the whole year without any need for additional financing. The total cash outlay was more than $2 billion including settlement-related payments, and the payment of our high-yield Cellco bonds, which also led to a decrease in our borrowing costs. We are also very pleased with our International operations performance. The "life :)" brand in Ukraine which became operational just in February 2005, and Fintur operations continued their solid growth. We will elaborate on these operations later on during the presentation.

Now I would like to touch upon some aspects of the competitive environment in our markets. Based on various announcements, we understand that there are 44 million mobile lines in Turkey, with Turkcell having an approximate share of 63% as the market leader. These figures suggest that mobile line penetration in Turkey reached about 60% in 2005.

We think that growth will continue, but at a slower pace going forward. We believe that our market is still in a transitional stage after the long-awaited Telecom privatization, as well as the sale of Telsim. As part of this transitional period, aggressive price-based offers which we have seen in our market during the last year are being continued by the competition into Q1 2006, as in 2005.

Despite such a difficult environment, we made a competitive upward price adjustment of 5.7% on average during 2005, which was followed by a 3.4% price adjustment in January 2006, keeping our bottom-line focus, while remaining alert to market dynamics, as well as the sentiment of our customers.

In 2005, the growth in our subscriber base was pleasing with 1.2 million net new additions in Q4 2005 alone, and 4.5 million for the whole year reaching a total of 27.9 million. Throughout the year, 90% of the total gross subscribers acquired were prepaid, and the remaining 10% were post paid, which is a trend we expect to continue.

During the year our retention activities helped us to record an annual churn rate of 10.1%, only a slight increase in comparison to a year ago. For 2006, at this time, we do not see a major change in our churn rate despite the changes we expect in our environment. Subscriber acquisition costs throughout 2006 increased compared to 2004 in-line with our expectations, and mainly due to campaigns initiated during the year parallel to increased competition. Just to repeat, this is 2005 compared to 2004.

Subscriber acquisition cost will increase during 2006, depending on the level of the increasing competition. Or importantly, at this time we expect the proportionately sales and marketing expenses as a percentage of revenues to remain at similar levels to those of 2006, in 2005 and 2006.

Now I will move on to the next slide to give you a feel for our strategy behind minutes of usage increase, as well as the positioning of our products and service fourth quarter. Our emphasis on strengthening loyalty and promoting usage continued throughout 2005, and we continue to introduce new offers in-line with our "Better Value for Money" approach.

Accordingly our aim to strengthen loyalty and increase usage continued, with our focus on our bottom-line objectives, while satisfying the specific needs and expectation of our subscribers. With this in mind, we enhanced some of our previous loyalty programs, renewed our optional offers on a segmented basis, provided advantages in our starter packs, to increase subscriber acquisition, and improved our targeted offers by, for example, introducing specific campaigns, providing usage incentives to our valued Corporate segments.

In addition, we have launched the Young Turkcell Community program during the year, which now has more than 7 million members. Besides Kampuscell, a community offer we designed for government employees, or Kampuscell community for high school and University students, which are all examples of segment-based loyalty and retention programs, and campaigns contributing to usage increase. We expect further improvement in usage in 2006 as a result of ongoing initiatives, which will further strengthen loyalty, as well as promote usage.

On the products and services front, our development efforts contributing to customer satisfaction along with our strong emphasis on promoting data usage continued in 2005. We initiated service awareness activities through various media campaigns, including radio and print, with the aim of increasing penetration of our products service portfolio. Our efforts included campaigns enabling our subscribers to try our value-added services free of charge for limited periods.

As a result of our focused approach, value-added services and data revenues constituted approximately 14% of our total net revenues during the year. Our aim on this front is to continue to position our products and services so as to promote mobile usage and penetration of our services, while easing the daily lives of our subscribers.

Now I would like to talk more about additional factors which we believe contribute to Turkcell's positioning as a premium brand in Turkey. We believe customer centricity is one of the distinctive attributes of Turkcell, in an attempt to introduce right offers for such fine customers needs and expectations, we go through a comprehensive data mining and evaluation process of our subscribers' behavior. We introduced our loyalty programs, churn prevention, retention, and acquisition activities on a segment basis, as a result of these in-depth studies. Successful launch and execution of these offers give Turkcell a lead in our competitive environment.

In addition, Turkcell's diversified service and product portfolio, which we touched upon earlier, make the lives of our subscribers easier, in-line with our customer-focused approach. Our solid infrastructure and high-quality network also set us apart from the competition, since our inception, we have invested more than US$4.7 billion in Turkey in our network infrastructure, establishing nationwide GPRS coverage, and a more than 50% EDGE enabled network.

Accordingly, Turkcell subscribers have a unique privilege of accessing the Internet at a pace 3 times faster compared to GPRS connection. Our nationwide distribution channels, we believe are another important asset which helps us achieve our targets. Subscribers can walk directly into dealers or Turkcell Extra shops for assistance. Turkcell Extra shops, for example, always have available dedicated sales representatives, who are knowledgeable in advanced products and services.

We believe we have an excellent leadership management program, which ensures maximum loyalty and support, for sale of our various products and services over the years. In addition to the extensive dealer network, our subscribers can load counters to prepaid cards for more than 20,000 sales points in Turkey, including means such as kiosks, ATMs, and POS.

Another area of distinction is the customer care we are providing at our sales points as well as after sales service capabilities which we have developed over the years. Our efficient call centers serving our customers on a segment basis, along with in-house tele sales capability, we believe is a major factor in our customer care approach.

We believe all these factors combined have helped us build Turkcell as a premium brand name in Turkey over the years, and our intention is to preserve this perception into changing market environment through our future actions.

Now I will elaborate on our regulatory environment. I will start with the revision of the gross revenue definition to be used for the 15% Treasury Share calculation. We agreed with the Telecommunications Authority amendment in our license agreement regarding the definition of gross revenue, and the revised agreement has been submitted to the Danýstay, the highest Administrative Court in Turkey, for its review, and following this process and signing of the revised agreement, the modified definition of "gross revenue" is expected to be applicable. Although the exact time table is not clear, we expect the amended license agreement with the new gross revenue definition to become effective, either this quarter or beginning of next.

Effective of December 31, 2005, all GSM operators have been designated operators holding significant market power in the call termination market, whereas before Turkcell was the only operator with significant market power in call termination markets. We believe that the decision is timely, considering that the discussions for revisions of the pricing terms of the interconnection agreements are to be resolved.

Mobile number portability, mobile virtual network operators and 3G are likely to be other hot topics for the regulators in 2006. We feel that we are ready for these challenges, and particularly have the intention to lead 3G investments in Turkey, when, once this is under way.

Furthermore, a Draft Electronic Communication Law is in progress, and awaiting approval from the Parliament. In its current form, the draft law grants the Communication Authority with extended powers, and increases the obligations of the operators. In 2005, the law was enacted to legalize handsets that were brought into the country illegally during a specific period of time, and to prevent the reuse of lost or stolen handsets. We have fulfilled necessary procedures to comply with this law, and believe this matter did not create major inconvenience for our subscribers.

As for legal issues, as you may remember back in December 2004, we settled all major disputes with Turk Telecom regarding the split of interconnection revenues, and the Turkish Treasury on the definition of gross revenues to be used for the calculation of the 15% Treasury Share. Back then, we agreed on a payment schedule which related parties for the disputes that we fully provisioned for. I am pleased to report that along with an early payment of US$214 million in December, all our settlement obligations have been fulfilled, leaving our accounts clean of any major outstanding charges related to these legal disputes.

Now I would like to elaborate on our expectations for 2006. As for the growth potential of our market, given the young population in Turkey, we believe current line penetration rates provide sufficient growth opportunities. We expect the growth to continue at a slower pace, and line penetration is more likely to reach 70% levels during the first half of 2007. As I mentioned at the beginning of the call, our competitive environment is still in transition stage.

Price focused competition which has been our market reality continued in 2006, with aggressive competitive offers aimed at subscriber acquisition and increased usage. The changes in our market may lead to further competitive challenges, and we will continue to monitor the market carefully going forward. In any case, we believe we are well prepared to meet any new challenges that we may face.

In 2006, we intend to keep our leading position in the Turkish market by maintaining our lead in gross subscriber additions, targeting a market share of 50%, and by aiming to ensure continued growth in revenues. We will also continue to focus on customer satisfaction through offers that further capitalize on our strong brand, and through an ongoing emphasis on subscriber retention. We will maintain our focus of a segment-based approach, which we believe will further improve our "Better Value for Money" positioning, while ensuring the right balance between customer expectations and achieving our revenue goals.

As for infrastructure, we plan capital expenditure of up to $350 million for improvements in coverage and quality, as well as for adding on new features. We believe we will continue to lead our market in cutting-EDGE technologies while also leading the 3G investments in Turkey. All-in-all, on the back of double digit subscriber growth, and usage increase supported by the stable market economic environment, we expect our revenues to increase in 2006. Although we expect a decrease in ARPU, due to the dilutive impact of prepaid subscribers and campaigns, we expect to maintain our EBITDA margin at 2005 levels, given our balanced focus on cost efficiency.

Now I would like to talk about our International investments. But before I go into detail on our International markets, I would like to note that the number of Turkcell Group subscribers, including those of our subsidiaries, reached 32.1 million in the fourth quarter of 2005, from 29.5 million in the third quarter. On this slide, you can see the contribution from our Ukrainian operations, Astelit, with 2.5 million subscribers, 1.5 million for Fintur which has proportionately picked up, and 190,000 from our small Northern Cyprus operations.

Now I will continue with our Ukraine operations. Astelit, Turkcell's indirectly-owned subsidiary to Euroasia, has been operational in Ukraine since February 2005 under the new brand "life :)," using GSM 1800 technology. Ukraine is a challenging market with already two well established players, and the market is expected to get tougher. According to unofficial data, the mobile line penetration levels increased from 50% in the third quarter, reached to about 64% in the fourth quarter.

Aggressive usage incentives and multiple SIM card usage are the market reality in Ukraine. Having posted almost 100% growth in its subscriber base in the fourth quarter, with approximately 2.5 million subscribers as of year end 2005, excluding TDMA subscribers, "life :)" has already managed to capture an 8% share in this market.

Astelit which has achieved a population coverage of 66% within ten months of its inception, along with the first-time implementation of EDGE positions, the "life :)" brand as an innovative and most-preferred brand in Ukraine with more than 120 service offers. Astelit also offers its subscribers roaming services in 186 countries through 492 roaming partners as of February 2006. Today the Company offers the most extensive roaming in Ukraine due to implementation of the roaming replicators.

As for financial performance, we consolidate the Ukrainian business to Euroasia. In 2005, Euroasia recorded net revenues of $43.7 million. A gross loss of $49.9 million, a loss of $48.7 million on the EBITDA level. As a start-up business, net loss for the year was realized at US$100.4 million. As far as the performance indicators are concerned, blended ARPU of Euroasia increased to $3.00 from $4.09 mainly due to the dilutive impact of the pre-paid subscriber base, as well as intensive acquisition campaigns.

I would like to remind you that all financials include our originally established TDMA business numbers, unless otherwise specified. Here I would like to remind that you along with the additional contract subscribers to Astelit's subscriber base, the blended ARPU is to gradually approve compared to the current levels.

On the financing side, Astelit successfully closed a $540 million long-term financial deal, one of the biggest private financing deals in Ukraine. The total financing package consists of six-year syndication lottery of $390 million. The remainder six-year junior loan, $150 million is fully guaranteed by Turkcell. The proceeds from these facilities will be used to refinance Astelit's existing vendor loans and local bank loans, and financial additional capital expenditures and working capital requirements.

We expect the Ukraine market to remain very competitive in 2006 as well. Line penetration rates are likely to rise rapidly due to multiple SIM card usage. We believe Astelit combined a customer centric approach with a high-tech network and innovative service packages offered in the market throughout last year. We believe subscription growth of Astelit will continue in all six, while the key challenge will be to increase usage to necessary levels to realize bottom-line objectives. We also believe that "life :)" has performed reasonably well to-date, and is moving in the right direction to achieving its objectives of establishing a sound business model for its shareholders.

As far as Fintur is concerned, as you can see on the slide, we displayed the revenues generated by each operation in '04 and '05, for you to see the growth trend in each company which are producing high EBITDA margins and bottom lines. The total number of subscribers at the Fintur operations grew to 6.1 million, representing a 53% year-on-year increase. The markets that these companies operate, have lower mobile penetration rates compared to the European countries or Turkey, and there is plenty of room for further growth.

Given that Turkcell's share in Fintur operation is 41.45%, we are not consolidating this business into our financials, but record income, based on the equity pick up method instead. In the last quarter of '05, income from Fintur operations increased to $22 million. The annual income on the other hand, was realized at approximately $68 million from approximately $44 million, representing 55% year-on-year increase. All-in-all, we are quite happy with the progress at the Fintur operations, and are hopeful that the Fintur operation will continue to generate value, and we expect growth trends to continue during 2006.

Now I would like to hand it over to Serkan for the financial review.

Thank you. Good morning and good afternoon to everyone listening to us . Let me start by briefly talking about the fourth quarter and 2005 year-end financial results. Here I would like to remind that you that additional legal provisions which we have recorded in 2004 regarding the settlement with Turk Telecom and the Treasury, and also related one-time adjustments is totaled on our financial statement for the year 2004.

Accordingly, we believe it is very difficult to make a year-on-year comparison on an annual basis. Please just take this into consideration as you go through the financials.

On the macro improving macroeconomic indicators in Turkey, and our growing subscriber base, we managed to increase our revenues to US$4.3 billion in 2005, from US$3.2 billion in 2004, while maintaining our costs under control as a percentage of revenue. As a result, we successfully recorded US$1.9 billion EBITDA representing a margin of 45%, and posted a net income of US$911 million for the year.

During the last quarter of 2005, the Average Revenue Per User decreased by 20%, mainly due to loyalty programs and retention campaigns, as well as seasonally lower MoU , the one-time impact to unregistered handsets also adversely impacted ARPU during the last quarter. Average Revenue Per User in 2005 increased to $13.20, compared to $12.30 in 2004.

This was mainly due to the [political] macroeconomic indicators, price adjustments of 5.7% on average, improving usage, increasing gross revenues, renewed loyalty programs and retention campaigns throughout the year. Year-on-year comparison on post paid and pre paid ARPU, suggest that the increasing post paid ARPU in 2005 was lower than that of prepaid. This was mainly due to more incentives, prorated or prepaid funds.

We expect that ARPU is likely to decrease in 2006, mainly due to the dilutive impact of new pre paid subscribers, and volume based campaigns. We recorded slightly less than US$1.1 billion revenues during the last quarter, meaning a 14% decrease compared to the third quarter. As we mentioned on the ARPU slide, this was mainly due to seasonally lower MoU, loyalty programs and retention campaigns, and one-time negative impact of unregistered handsets.

On an annual basis, other revenues increased by 33% to US$4.3 billion in 2005 compared to 2004. This increase was mainly due to 19% growth in our subscriber base, 5.7% increase in tariffs throughout the year, increasing usage in an improving macroeconomic environment, and finally strong Turkish Lira against U.S. dollar during the year. EBITDA in the last quarter of 2005 decreased by 26%, compared to the third quarter, and was realized as US$466 million. This increase was mainly due to decreasing revenues, as well as increasing G&A and saves in marketing expenses.

On an annual basis, EBITDA in 2005 increased slightly about US$1.9 billion, representing an EBITDA margin of 45%, mainly due to the improving operations pro forma, as employed by the revenue growth, this lower direct cost of revenue levels, as a percentage of revenue compared with the previous year. In 2006, we expect to sustain 2005 EBITDA margin levels.

Our net income in the fourth quarter decreased parallel to the decrease in revenue, and was realized at US$241 million. We recorded a net income of US$911 million in 2005, in-line with improving revenues and successfully controlled cost levels, despite the negative impact of the authority tax charges.

Moving on to the next slide, I would like to give you a brief explanation on our cost structure. Even though direct cost of revenues in the last quarter decreased in nominal terms compared to the third quarter, the percentage in revenues increased. This was mainly due to fixed direct cost of revenues, which did not decrease parallel to revenues.

Percentage of direct cost of revenues improved to 56% in 2005, compared to 63% in 2004. This improvement was mainly due to increase in top line, while keeping fixed costs under control. Percentage of sales and marketing expenses and revenues increased 13% in the fourth quarter, from 9% a quarter ago. The increase was mainly due to competitive sales and marketing campaigns in both Turkey and Ukraine, as well as decreasing revenues. Percentage of sales selling and marketing expenses and revenues in 2005 remains flat at 11%, despite the year-on-year increase in nominal terms, due to increasing sales and marketing activities in a more competitive environment.

Percentage of G&A expenses in revenues increased to 4% in the fourth quarter of 2005, from 3% in the third quarter, mainly due to one-time expenses occurred during the last quarter related to the [Iran] project. Percentage of G&A expenses and revenues was realized as 4% in 2005, similar to 2004. Our operational margins in 2005 improved, mainly due to improved operation pro forma, as well as our focus on maintaining cost levels. But again, legal provisions and one-time adjustments in 2004 led to distort margins last year.

We recorded a net interest income of US$20 million in the last quarter of 2005, as opposed to a net interest expense of US$3 million in the third quarter. This was mainly due to increasing interest income on deposits in-line with increasing our Turkish direct deposits, decreasing interest expenses on outstanding balances related to settlement with Turk Telecom, and finally redemption of Cellco bonds in August 2005.

On an annual basis, we recorded a net interest expense of US$8 million in 2005, compared to a net interest income of US$31 million in 2004. This was mainly due to adjustments of interest expenses, related to the legal settlement agreement signed in 2004. Accordingly, the year-on-year comparisons may be misleading due to the one-time adjustments in 2004.

On the tax line, note the earlier settlement payment to Turk Telecom was planned until December 2005. As suggested by the Minister of Finance, those payments are tax deductible only upon payment; hence, the early payments made to Turk Telecom led to a corporate tax benefit during the last quarter. Whereas simultaneously, this increased the deferred tax charge due in the same quarter, by increasing the proportional deferred tax assets reversed in connection with settlement payments.

We recorded US$114 million deferred tax expense, and US$44 million corporate tax benefit during the last quarter. On an annual basis, the only cash out flow impact will be US$17 million Corporate tax to be paid in May 2006. All-in-all, our net income for the fourth quarter was realized at US$241 million. Despite declining tax charges compared to the third quarter 2005, net income decreased parallel to the decrease in revenue during the quarter.

Despite the negative impact of taxation charges in 2005, Turkcell posted US$911 million of net income, representing a 21% margin. We cannot make a year-on-year comparison due to the provisions in 2004, but we can conclude that our net income in 2005 reflects the positive outcomes of improved operational performance during the year.

As far as the balance sheet is concerned, after the US$240 million early payment made to Turk Telecom in December 2005, our cash balance has improved from US$642 million to US$795 million at the end of the last quarter. The increase in short-term debt of the Ukrainian operations was mainly due to our sale of capital expenditure, in particular our consolidated indebtedness increased to US$650 million as of 2005 year end, however, our net cash position has also improved to US$145 million as of 2005 year end.

Meanwhile, our total debt-to-annual EBITDA ratio is only 0.3 confirming our flexibility of leveraging the balance sheet in the forthcoming years, if needed. As for the cash flow, capital expenditures in the last quarter amounted to US$206 million, of which US$19 million was related to the Ukrainian operations.

Other items in the fourth quarter 2005 include settlement payments to Turk Telecom and various working capital items. Similarly, other items on an annual basis in 2005, consist of payments relating to settlement agreement signed with Turk Telecom, and the Treasury, Corporate tax payments made in 2005, and various work in capital license. Net change in debt in 2005, mainly because of Turkcell's payments of it's debt, such as Cellco bonds and others, whereas we are increasing the indebtedness of the Ukraine operations. In consequence, we managed to grow our cash position this year for a lump sum payment we made during the year, as I will mention on the next slide.

Last year, we paid approximately US$2.2 billion for domestic capital expenditures. Turkcell's standard on debt repayment, including principal and interest. Settlement payments including principal, interest, and taxes, after netting of two interconnection receivables from Turk Telecom, Corporate tax payments, and of course dividends to our shareholders. I want to emphasize that we have successful funded these payments without any additional external financing, thanks to our continued cash generation capability.

Also, the US$602 million debt repayment in 2005, we realized a US$32 million debt repayment during the last quarter of 2005. Mainly, thanks to the repayment of Cellco bonds, Turkcell's average cost of borrowing excluding subsidiaries reduced to 7 to 8% levels, down from almost 9 to 10% levels in 2004.

On the back of our strong cash generation capability, we aim to finance our upcoming liabilities, such as 2006 CapEx, Corporate tax, dividends, and possible acute injections in our International operations, through our future positive free cash flow and our current cash balance. However, as part of our ongoing recent management strategy, we continue to monitor in-depth and capital markets and consider contingent financing alternatives, and learnings of our business plan, in order to decrease our borrowing costs, and extend the maturity of our loans on an [inaudible] basis. And we will continue to evaluate such feasible options, when the market conditions are eligible in-line with our cash management strategy.

As a final note, I would like to I give you a brief insight about our shift to the IFRS starting from the first quarter of 2006. We have historically prepared and presented our consolidated financial statements in accordance with U.S. GAAP in U.S. dollars for the SEC, and in accordance with the CMB rules in Turkish Lira for the Istanbul Stock Exchange. Beginning from the 2006 fiscal year, we will prepare our interim and annual consolidated financial statements in accordance with International Financial Reporting Standards, IFRS, both for the SEC and the Istanbul Stock Exchange.

Please also be advised that our interim and annual consolidated financial statements will include comparable financial statements for 2005. Also, there will be an annual reconciliation between IFRS and U.S. GAAP financial statements, on the Form 20-S, to be filed for the year 2006.

The implementation of IFRS may result in material differences of several items in the financial statements. The major differences may be an increase in both revenues and sales and marketing expenses, leading to a decrease in our EBITDA margin. Additionally, we may face an increase in our depreciation expenses since our community CapEx amount is higher in our IFRS financials than in U.S. GAAP. However, please note that this change has no impact on our final cash flow.

Now I would like to hand over to Mr. Ozturkler for a final note.

Thank you Serkan. You know that we periodically receive feedback from the investor community through surveys, which we independently conduct besides our one-on-one interactions with you. And through this effort, we are trying to better meet your needs and expectations.

One of the suggestions we have been receiving was regarding the announcement of the financial results to be earlier, and that more details on the financial statements and their footnotes be provided on a more timely basis. Start next quarter with our transition to IFRS, we aim to achieve exactly what you suggest.

Another improvement area which we have been receiving suggestions on, was regarding the destination of EBITDA, which we report. For your information, we plan to change our EBITDA definition, in accordance with your expectations, to not include non-operational income items, such as translation, gain, loss, interest income, or income from our consolidated subsidiaries or related parties, so that it only includes pure operational income of the Company. We hope that this will also be satisfactory and planning transitions, so such definition will be parallel to IFRS transitioning time.

At this point, we would like to move on with the Q&A session. I would like to remind to you please limit your questions to two, for the sake of others, and Operator, if you could please proceed with the Q&A session at this time.

Thank you, sir. [OPERATOR INSTRUCTIONS] Thank you, the first question comes from Mr. Alex Wright. Please state your company name, followed by your question.

Yes, good afternoon. It is Alex Wright from UBS. I would like to ask two questions about the output comments you made for 2006, please. First one being on the margin guidance. What kind of assumptions have you made on the Treasury Share calculations for that. Do you think that the calculation has changed just to include the net revenues? Or do you see that continuing as it is?

And secondly, could you just clarify when you say that you expect an increase in usage, could you just confirm whether that means an increase in the minutes of use per subscriber? Thanks a lot.

For the first part of your question, in our business for year 2006, we have assumed the Treasury Share calculation will be changed starting from the beginning of the second quarter.

Just to add more on the expected changes. The main change that we expect, which is already written anyway, is the exclusion of indirect taxes, and the interest rates that we calculate from late payers, not to be included into the definition of the Treasury, or the revenue base for Treasury Share. So that will be the difference after the application, or availability of this new definition, which will be either in March, or in early Q2.

Thank you.

For the second question, Ali Kesan, Chief Marketing Officer.

Yes, we foresee some increase in the MoU per sub, as you know, we have started some segmented approach on loyalty programs, and as a part of this, we expect some slight increase next year in the MoU per sub.

Thank you. If I can follow-up on the second question. You indicates you expect some ARPU dilution as you added more prepaid subscribers, but you obviously already raised tariffs once this year, and I would presume you would like to raise tariffs further if the market conditions allow. Is it not possible given that you expect an increase in usage, that ARPU could also remain stable, or even increase over the course of the year?

There are obviously manufacturers into this equation as you have outlined. So it is not easy to give a direction on this, but just to repeat, yes, we expect the MoU use to increase, but it is difficult to give any guidance for any possible further tariff increase. As always we will follow up the markets, the macro realities, and the possible reaction or follow of the competition, and most probably the macroeconomic realities, and Turkish Lira will help, and which will to our expectations continue in the marketplace in Turkey.

And additionally, you know, we are looking for the rationality of this part. That's why it is not easy to say increase or decrease, but rather it is the more rational, rationality is more important.

Perhaps if I can just ask the question from a different angle, given your are expecting an increase in Minutes of Use overall, what assumptions do you make that lead to a decrease in ARPU? Do you assume that there are no further tariff increases? And what assumptions do you make on the Lira/Dollar exchange rates, in arriving at that ARPU decline?

Well, Alex, it is obviously not easy to answer so that there are so many unknowns into this equation, but, yes, we expect to the MoU use to increase.

On the other hand, there is always a tendency for lower ARMUs in the marketplace, but at the same time, we try to give more minutes to the customers, so that we balance the value, the "Better Value for Money" approach. That is the bottom-line target for ourselves. While we try to balance all these factors into one rational, sustainable business plan.

Thank you very much.

Thank you.

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

Sergei Arsenyev from Goldman Sachs. Can I follow up on the previous question on the EBITDA margin guidance. When you say that it's going to be at the previous, 2006 EBITDA margin is going to be at the level of 2005, does this refer to the consolidated EBITDA margin, i.e., taking Ukraine into this number? Or is it a stand-alone Turkcell in Turkey margin guidance? That is the first question. And also if you can disclose the EBITDA margin in Ukraine during 2005, that will be very helpful as well.

And the second question is also on Ukraine. And I was just wondering whether you can clarify what has happened with the 900 license. Whether you have got the license, or you've got the spectrum? So if you can tell what has happened, the 900 rather than just 1800.

Sergei, thank you for the question, this is Koray. As for the EBITDA margins, you are, basically we are providing a guidance on the consolidated basis EBITDA. So it is not stand alone. It is consolidated EBITDA.

As far as the Ukraine question, we have indicated the revenues Euroasia recorded at 43.7 million gross loss, we have indicated 49.9, and US$48.7 million was at the EBITDA levels. So this is a start-up business obviously net loss for the year was realized, and we said US$100 million, but all-in-all I think we would still say, as we said in the presentation, quite in-line with our expectation, it is a start-up business. Now I think Mr. Akpinar can make some comments on the licensing side.

Well, when we have made the purchase of shares on DCC Company and Astelit, we have seen that actually the license is a related issue to the frequence allocations, but it is managed in such a way that once you are licensed, if there are availabilities, you go and ask for additional frequencies on a regional basis, and you are granted for them. So after we have purchased the Company actually on 1800 megahertz.

We have applied to the Authority, to the National Authority for extra frequencies, and we were granted. As such, we have applied for 900 frequency as well, and we were granted limited frequency on this one as well, so it is not a separate and new license, but it is allocation of some of these resources.

Okay. That's clear. Thank you very much.

Thank you.

Thank you, the next question comes from Mr. [Osman Zaki], please state your company name followed by your question.

Yes, good afternoon. This is Osman Zaki from Merrill Lynch. I would like to see if you can give us some renewed revenue or EBITDA guidance for Ukraine in 2006.

And secondly, if you think that $200 million CapEx that you guided for for Ukraine might be on the lower end, or too conservative given your 3-year plan? Thank you.

This is Koray. Thank you for the questions. The answer to the first question, we are not being too specific as far as EBITDA or guidance in the financials, but I think from an impact perspective to Turkcell, we can say that we don't expect a major negative impact overall to Turkcell from Ukraine in the year 2006. And for the --

For the CapEx, I will try to elaborate the question or the answer. We had $270 million of CapEx in 2005, so with today's, this year's investments, it will be about $0.5 billion altogether, and at this time, we have 2700 base stations, as of end of last year. Another 2000 will be established with this new CapEx of 2006.

I would like to state that 900 Megahertz is helping on the geographical coverage, so that it will soften, ease our three-year guidance, and we will keep on investing on 2007 as well. This expected investment is in-line with our geographical and population-wide coverage expectation, so we can create a sound and reasonable sustainable business. So we are confident with 200 to carry forward, and we will see for 2007.

Just go back to the first question on the EBITDA and revenue guidance. You can't provide with us a figure for 2006 for Ukraine?

No. We are not able to do that, our apology at this time, but as I indicated as bottom-line impact to Turkcell, we would expect not a major impact.

All right, thank you.

Thank you.

The next question comes from Mr. Sean Gardiner, please state your company name followed by your question.

Yes, the Company name is Morgan Stanley. Just on the EBITDA margin, just going back to the answer to the very first question, it sounded like you are assuming the positive impact from the change in the Treasury Share calculation in the 2006 margins, which you are saying will be flat.

If that is correct, what has changed since the third quarter, when you said that margins for 2006 would be flat, and obviously from an underlying point of view something might have changed.

Second question is just on your uses of cash, will you just run through how you see the use of the cash during 2006 and '07, and what you are thinking in terms of dividends at this stage? Thank you.

Well reason for Treasury Share, there will obviously be some positive impact on our EBITDA, but on the other hand, we know that these assets being injected into the industry, is not on one company, but arms length and valid for all players, and the competition will continue, there are other factors incorporated into it, so with all the factors that we expect, we try to give the guidance of almost flat, the same EBITDA levels reachable for 2006.

On the other hand, therefore, the cash flow that we are creating, we are seeking for visible and valuable projects going forward, in order to create some shareholders value. At this time, unfortunately, we are not in a position to declare any specific new targets for investments for reasonable and valuable return.

On the dividend policy, the Company has 50% of the annual profits to be distributed in cash at a minimum level, and we have done so during the last year or so, but we will see the result of this decision making at the end of the general Annual Meeting after the Board's proposition, which may take in March or April. And our General Assembly will take place on the 28th of April for your information, as we have given the information.

Thank you. Just on the margin side. So in last quarter, something quite dramatic must have happened in order to change the guidance. Is that sort of effected in your EBITDA margin in the fourth quarter, is that what you feel will happen during 2006, because your guidance at the third quarter was for fat margins in 2006, and one would assume that there was no Treasury Share impact on that.

I think for clarification purposes, we can say that there isn't any major change in our assumptions, because the Treasury Share calculation issue has been going on since Q3 as well, and we were making assumptions that in 2006, that would be the result and actually our expectation was within Q1 2006.

It still is, but it is not just putting a reserve, possibly very early on in Q2. Progress is being made. So I would clarify the fact that there is not a major change in our assumption in Q3.

Can you quantify exactly how big the impact will be in your mind from the Treasury Share calculation?

I think I can't calculate it for you, but possibly as a methodology looking at 18% EBIT, and also interest charges a small portion collected from customers. We will not be paying 15% Treasury over these items. So whatever your expectation is in terms of revenues for year 2006. I think the calculation is quite easy at that time.

Okay, thank you.

Thanks.

Thank you, the next question comes from Ms. [Alice Toward] please state your company name followed by your question.

Hello, this is [Alister from the Upgrade Securities] My questions are partly answered already as you clarified the basis of your assumptions, but maybe I can ask you to further clarify. Can you tell us whether your guidance includes the impact of switching to IFRS reporting? Thank you.

Our EBITDA guidance is based on conserved with U.S. GAAP financials, and the IFRS EBITDA would be difference from that also. If it would make announce that IFRS EBITDA margin this year, that percentage would be 4 to 5% less than the U.S. GAAP EBITDA margin.

Okay, thanks very much.

Thank you, the next question comes from Mr. Will Draper. Please state your company name followed by your question.

Good afternoon, Will Draper at Execution. A couple of questions, one on Fintur. Apologies if I missed this in your disclosure, but can you help with the EBITDA margin and CapEx that is within the Fintur businesses, either the Fintur group as a whole, or even better to disclose them individually.

And then secondly, I wanted to ask you about the gray market handsets which you discussed in your release. I am a bit confused as to exactly how large the market, for gray market, illegal handsets in Turkey is. It would seem to me very large from what you disclose. I wonder if you can give me some guides on that? Thank you.

Thank you, Will. As for the first question, on the Fintur side, I think to give you our perspective as a minority for 41.45%, I would start by saying that we don't read the disclosure policy. We usually repeat what our major holder at Fintur level, i.e., TeliaSonera says. I think that is the right practice. And what we see is quite high EBITDA margins at each operational level for Fintur companies above 50% levels, I would refer to you their year-end press release for country breakdown, and it is available there.

In terms of next question, perhaps Mr. Akpinar will pick that up.

Actually, in the handsets market, we have to make differentiation between the gray and black. Actually gray is imports from different sources, but through legal process, which is the major portion in Turkey so far, and actually in this process of central equipment identity registrar, it has been quite difficult to form the white list, which had to be received from different importers, and the operators not being involved into the handset business, make the issue complicated, because operators have obviously more relationship transparency and information flow to the authority, compared to the importers, which have been on and off operational in the marketplace so far, when you look at the history of four or five years.

But at this time, it will take most probably another round for establishment, and the sound working of this infrastructure of CIRSC National Authority, and EIRs on the operators. So we may face some little disturbances going forward, but a majority of the issue is settled so far, although it was a very limited period of time.

We have given a major effort in order to not give a burden to our customers in this process. And although it was a magnified issue for us, I think the end result from the customer perspective was quite satisfactory. So with all this framework, unfortunately I am not informed, and far away from giving a percentage of illegal handsets market, saying the black market.

Thanks. Just a quick follow-up. There any chance of you having to take another revenue charge like the 40 million that you took in the fourth quarter?

Well, that is actually based on our loyalty campaigns that we have tried to ease the customer's lives, and there will not be further cash income from our customers into that expense, but there might be some offsets from the loyalty programs on some specific segments.

Okay. Thank you very much.

Thank you.

Thank you, the next question comes from Mr. Istvan Mate-Toth, please state your company name followed by your question.

Good evening, this is Istvan Mate-Toth from Credit Suisse, I wonder whether you can elaborate a little bit on your initiative for customer retention given the [new entrant] implications for subscriber recognition, and the retention cost, also could you give us an update of where you stand with your views of potential acquisition of further distribution assets, like the one at A-Tel , I am looking at additional infrastructure, if it is within Turkey. And lastly, could you just repeat the exact time table of the publication of the IFRS Financials. When are we going to get full-year '05 and '04 IFRS results? Thank you.

On the customer retention costs, we do not have a policy to announce that number, but on some activities maybe, we can elaborate. Ali, will you help on that please.

As we mentioned before, we have a strengthened mass loyalty program, and some retention activities, based on different segments, and in addition to that we have a very good CRM tools, and understanding in the whole company, that is used at different times for the different segments.

I think this will continue next year or so, according to competition and according to our companies and the market approach. On the other hand, the potential acquisition of additional distribution channels. A-Tel maybe. This is somehow to ask how the channels that we are using during last few years. A-Tel, at that time, that was at different segments that were not covered by the distributors, but now at this moment, we are still using A-Tel for the different companies, and at this moment, I don't see any big missing distribution channel at the markets.

For the acquisition of A-Tel, we can give the information that the process for the evaluation, and the fairness opinion is still continuing. It did not come to an end yet, so that is a work in process for us.

And I will hand it over to Serkan for IFRS obligation timing.

For the IFRS legal start, announced IFRS financials starting from the first quarter of this year, an we have even announced comparable financials timing, while announcing first quarter 2006 results, we will announce also first quarter 2005 results.

And regarding the full-year IFRS financials, together on the 20th of 2006, we will announce 2004, '05, and '06 IFRS results, but unfortunately not the 2003 full-year results.

Okay. So full-year IFRS we will get sometime in June? Okay. Thank you very much.

What was your question about after June? Or your confirmation? We didn't quite hear that.

Next question comes from Ms. Anna Bossong. Please state your company name followed by your question.

You expect that the IFRS results to be out in June for the full year, is that correct?

To make it more clear, full-year IFRS results for years 2004, '05 and '06 will be announced together with the 2006 to end year, which will be filed during the second quarter of 2007.

However, starting from the first quarter of this year, we will start to announce on a quarterly basis IFRS financials, which will be comparable to last year's IFRS financials.

We won't get the 2005 numbers until 2007 basically? Got you. Can I ask a question about the IFRS numbers. Can you give us some figures for the full-year 2005 revenue EBITDA and net profit under IFRS?

Anna, at this time we don't have such calculations, but we tried to give you an indication of differences between U.S. GAAP and IFRS, I think you are very familiar with both. Most people are. So we can leave it at that for now.

Did I hear correctly then, that you said the EBITDA margin on the IFRS was 4 to 5 percentage points lower than under U.S. GAAP?

Yes.

The revenues are probably are pretty similar, so I guess we can draw some conclusions for that.

Can I ask about ARPUs in Ukraine. Could you perhaps split out the fourth-quarter ARPU between the total subscriber base, and just the GSM subscriber base, please?

As far as the, Anna, this is Koray, TDMA business that we are conducting there, we have instigated that there are approximately 43,000 subscribers there, and they do contribute ARPUs at $30 levels, which are a contributor in our overall ARPU. The $3.00 ARPU that we communicated is less, obviously with exclusion of the TDMA, but we think it is in the right direction, as we started the contract, acquisition of contract subscribers just recently. So I think we will be seeing upward movement. That is the challenge, the Ukraine management is seeing in force, and that is what their focus is.

Excellent, so it was $3.00 just GSM in fourth quarter, which is an upward movement. Lovely. Thank you very much.

Thank you, we have a follow-up question from Mr. Alex Wright. Please go ahead, sir.

Thank you. If I can just follow-up with a couple more questions on Ukraine. Could you, first of all, clarify the churn policy on the existing prepaid GSM subs.

And secondly, can you give us an update on where you see yourself positioned, in terms of pricing, relative to the major competitors, and it seems that the average revenue yield per minute is roundabout US$0.10. Can you give us some idea of how you're positioned compared to that please?

As for the first question, Alex, the Ukraine is in the process of establishing their churn policy. They haven't actually churned subscribers, but they will be doing that, and adopting a churn policy. So right now we cannot disclose the, what their [torat] churn policy looks like. As for the major market dynamics, Mr. Akpinar.

Alex, on the churn policy, we can say that the one calendar year, or 12 months is just about to be finished this month. So after these months, we will start seeing some churn numbers, and we will obviously start disclosing those numbers most likely after Q2.

And on the market conditions and the competitive dynamics, could you please repeat the question once more.

Yes, certainly. Can I just follow up, first of all on the churn. You mentioned that the 12 months initial pay rate is about to finish. Are you implying that the prepaid subscribers currently counted on the network, if they've been inactive for more than 12 months, will become deregistered effectively?

Frankly speaking, I didn't try to say that, as Koray explained we will be working on policies, or the management in Ukraine will be working on policies, and we will start declaring them, once we have the policy of disclosure on these issues. Obviously, the Company has a policy, but the disclosure policy is not there yet. I just wanted to inform you that the first operational 12 months is just about to be finished. So I didn't try to mean that there are 12 months of churn policies. That will be announced once the policy is made.

Right. Thank you. Just to clarify the second question then. It was regarding how "life :)" is positioned in terms of price per minute compared to the major competitors, UMC and Kyivstar.

When he look at the Ukrainian markets, comparing it with Turkey, for example, I feel like the business model is rather different in the sense that once we start the GSM operation, first we have the license. Then we have establish a core network and the radio network, and then you start selling the SIM cards with a 1:1 expectation of revenue return.

But it looks like especially with the tough competition in Ukraine, and actually the penetration increase, so fast increase in Ukraine is also a show of this. Double, triple SIM card penetration is to our understanding, getting higher and higher compared to other markets. We do not have any precise number on this, so that there are no arms length authority declarations.

But the SIM card establishment into the pockets or usage of the customers, is an extension of the networks kind of an approach, is becoming very welcomed in Ukraine, especially with the fact that subscriber acquisition costs on prepaid, is quite reasonable and low. So as long as it is low on SACs, I think we will be seeing more and more marketing efforts, in order to have a fast penetration in a very short period of time, and our approach is very similar to the leading, co-leading companies in Ukraine.

That is why we could success on the fast growth on the penetration, but also with the lack of major postpaid subscriptions, our prepaid subscriber average is compared to the competition quite low. Still we believe with the investment and exposure that we have done so far in Ukraine, we may create, we can create a reasonable and sustainable business going forward. That's how we look into it.

As far as the pricing per minute compared to the competitors, we try not to rock the boat a lot, but on the other hand, we have to be relatively cheaper in order to attract the customers. Still, we try to keep the right balance for our own future as well.

Okay. Thanks very much.

Thank you.

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

Good evening, this is Dalibor Vavruska from ING. My question is concerning your guidance in terms of penetration for the Turkish market. You are talking about 70% at some point maybe in the first half of next year. I am just thinking, whether, perhaps, this is not too conservative given the growth rates that we are seeing, and also I am quite interested in perhaps breaking up this number.

What do you expect Turkcell is going to add versus the competitors. I am not sure whether it is in the official statement, but I have noticed somewhere that Vodafone, for example, wants to add 5 million subscribers in each year, this year and next year.

Also, assuming that you want to have half of the additions, and I understand there is a difference in net additions than gross additions, but, you know, it seems that you might be targeting at least 3 million subscribers, so it seems that perhaps the total subscriber additions in the market could achieve 70% even during 2006. I was just wondering what your thoughts on that might be.

Well, as you have summarized [laughter] actually, the answer is within the actions of the competition, and how eager we are to enlarge and make the markets mature, or get in the customers earlier than expected. That will obviously be driven by the behaviors of the competitive landscape. And that is still not very clear to us.

So if your suggestions and the numbers that you have express ready correct, yes, of course, we can expect 70% penetration earlier than 2007, but we try to put the major guidelines for our close of this, or for our business model going forward, and within these benchmarks, or commonly accepted rules, we will be maneuvering our loan business going forward, which is more than 50% of the new adds, while we seek a rational and balanced bottom line on any new customer acquired, and also we do care for churn, and the lifetime of the customers, and life value of the customers.

So the net acquisition is the most important thing, not the total monthly gross acquisitions, which is not so clear to the market from the competitors' perspectives, as they are not at least so far, public, and announcing quarterly results.

If I can just add, does that mean that if the market grew faster than you expect, you would perhaps put less priority on your target of half of the additions, or would that still be very important even if the market growth was faster?

That would still be a relevant target for us, as long as the rationality is within today's understandings.

Okay. Thank you.

Thank you, we have a follow-up question from Mr. Sean Gardiner. Please go ahead, sir.

Yes, thank you. I just wanted to revisit this EBITDA guidance, because you are talking about sales and marketing being flat year-on-year as a percent of sales. So I am just wondering, you know, where is the underlying pressure coming from in your guidance? Because if you look at the direct cost sales you have depreciation, amortization which gets stripped out, and then the other line items are going to be things like your interconnect and transmission costs and roaming. Can you help us understand where you see the biggest risk to costs going up in 2006, to get to the underlying guidance of a decline in EBITDA margin?

Well, actually on the U.S. GAAP EBITDA guidance, we didn't say a decline, but I am wondering if IFRS and U.S. GAAP statements have been mixed up. On IFRS, there are some EITF rules which do not exist, which really change the revenue recognition, and also some cost expectations or definitions. And for that perspective, we just try to give an early information to the community for the sake of transparency, and when the time comes after Q1, we will try to be more informative on each and every major critical performance indicator, with the comparison of the previous periods.

But on U.S. GAAP, we try to keep our EBITDA guidance in-line with the previous year, and on the sales and marketing in percentages of the revenue, we try to keep the same.

But what I am still not understanding, is that you are also factoring in the benefits of the change in the revenue share calculations. So there's something else in your cost base which is going up, which I am not too sure what it is. I am just trying to understand how you are thinking about the business for next year on the cost side?

I think when we are talking as Turkcell on the guidance, we are not saying an equal EBITDA expectation as for 2005, when we say similar percentages of the margin may be expected on positive or negative side.

As Koray has tried to explain the explanation of improvement of cost base coming from the new definition of the Treasury Share, actually that is obviously two percentages that may be offset by some other issues, or you may improve the environment.

So it is difficult to give a 1:1 strict and precise guidance. We are just trying to give a ballpark guidance, by saying almost similar around the last year's EBITDA.

Okay. Thank you very much.

Thank you.

Thank you, we have a follow-up question from Mr. Sergei Arsenyev. Please go ahead, sir.

Hello, again. Can I follow up on the CapEx issue. You mentioned in the presentation that the Turkish CapEx is $350 million in 2006. So in CapEx to sales terms, it is single digits. Outside of 3G investment, is this the sort of number that we can use in the sort of, in the medium term for your CapEx requirements in Turkey? Thank you.

CapEx guidance for year 2006 is US$350 million, and it does not include 3G. It includes mainly both coverage capacity, renewal of equipment, and new features in the software levels, for all of them, and of course, this is a sustainable continuation. We continue always in the investment. We never stop. So this investment of course will not be our last investment, but our investment levels will stay parallel with our business developments, and it is not sure what will be the fluctuations.

Right, so for the 2G CapEx, we can take this 350 million level going forward beyond 2006, as an indication of the 2G CapEx?

First of all, we are aware of that in some levels, especially in gradual levels. 2G and 3G CapEx are quite interchangeables, and it is getting more into repairable CapEx in radio and the basic network, or core network. So, of course, in later years, not in year 2006, this radio and core network CapEx can be interchangeable between 2G and 3G.

All right. Thank you very much.

[OPERATOR INSTRUCTIONS] Thank you. We have no further questions.

Thank you. Well given that there are no questions, we would like to thank you for participating in the conference call. Once again I would like to remind you that the audio recording of the conference call is available to you for the next few weeks, and of course, you can always call our IR team for any additional details, and we can support you with that. Thank you and Good Bye.

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