Turkcell Iletisim Hizmetleri AS (TKC) 2006 Q4 法說會逐字稿

And good afternoon, everybody. This is Ferda Atabek from investor relations. I'd like to welcome you all to our Q4 and year 2006 results announcements presentation on behalf of all the Turkcell management team. Today, Mr. Koray Ozturkler will present you the business overview picture, followed by Mr. Serkan Okandan, who will present you the financial results overview. Then Mr. Sureyya Ciliv will present you the strategic priorities and his 2007 outlook. At the end of the presentation, we will have a Q&A session.

Please note that the presentation we will use is on our website. Before I hand over to Koray Ozturkler, I will read our legal notice regarding the forward-looking statements. Any forward-looking statements in this presentation are not historical facts but rather represent Turkcell's future expectations. 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 there can be no assurance that Turkcell's actual results will not differ materially from those expressed or implied by any forward-looking statements in this presentation.

Now, Koray Ozturkler will start. Thank you.

Thank you, Ferda. I would like to welcome you to our 2006 year-end conference call as well. Firstly, I would like to point out some highlights. We have posted strong operational results for 2006, despite macroeconomic volatility during the second quarter, as well as increasing competition in our market.

Through growing subscriber base, an increase in usage, along with the contribution of our consolidated subsidiaries, we ensured a top-line revenue growth of 4%, despite depreciation of Turkish lira against USD. Improvement in cost management led us to record EBITDA margin of 39% and net income of $875 million in 2006. On the international front, Astelit, operating with the Life brand in Ukraine, increased its subscriber base to 5.6 million in less than a two-year period and recorded better results in Q4 2006, highlighting that sound business model is reachable.

And all Fintur operations continue to declare ongoing solid contribution to our bottom line. We will elaborate on performance of subsidiaries later on during the presentation. Now I would like to comment on some of the key performance indicators.

Turkcell subscriber base continued its strong and consistent growth in 2006 to 31.8 million, with net additions at a pleasing 3.9 million. New subscribers acquired during the year consisted of 90% prepaid and 10% postpaid subscribers, a trend we expect to see continue.

We continued our emphasis on retention throughout the year. Although the churn rate increased to 14.7%, we have continued to retain our valued subscribers and the majority of the churn lost from involuntary prepaid disconnections. As for the usage, our blended MOU in 2006 increased to 73.3 minutes, mainly due to strengthened offers and various incentives on segment basis.

Moving on to the next slide, during the fourth quarter of 2006, our blended ARPU decreased slightly to $11.80, mainly due to seasonally lower usage. The decease in Q3 to Q4 in 2006 period was lower compared to that in 2005, thanks to positive impact of the campaigns initiated during the third quarter 2006, despite seasonality.

In 2006, our blended ARPU decreased to $12.10 due to loyalty programs, depreciation of Turkish lira against USD, combined with the dilutive impact of prepaid subscribers.

Moving on to the next slide, during 2006, we continued to remain the clear leader in our markets. While we concluded the year with 60% market share in Turkey, our revenue share remained well above 60%, given our profit-oriented play.

Although the mobile line penetration has reached 70% levels in our market, we believe there is still more room for growth. Turkcell has always had very strong brand image in the Turkish market. Our renewed communication effort in July 2006 with the new motto, Connect to Life with Turkcell, we believe further strengthened the emotional bond between our brand and our customers during the third quarter and actually helped us achieve better results in Q4 2006.

Turkcell invested $357 million to its infrastructure during 2006, totaling cumulative investments of $6.2 billion, consistently offering by far better quality and coverage for our customers, with over 12,000 base stations. Additionally, 60% of our network is EDGE capable, and we are well prepared for upcoming 3G, aiming to reiterate our leadership in technology and related services.

Moving on to the next slide, we have maintained our clear leadership in customer satisfaction, quality of service and technology-driven offers during the year, thanks to our strong campaign management, advanced service delivery platforms, as well as our well-established customer relationship management approach.

Throughout 2006, we continued to enhance our loyalty programs and introduced new customized offers. As part of our lifestyle segment management, we have launched IsTcell, which is Turkcell at work for professionals, providing advantages to its members, similar to Young Turkcell club.

Many other segment based offers were strengthened, including the corporate segment. Our 24 hours, seven-day dedicated customer service, coupled with our efforts on sales channel, ensured once again our superiority in quality of service.

During 2006, we increased the contribution of value-added service revenues, mainly due to increase in content revenues, as well as creating stickiness through new services. In order to provide easy access to our services and increase data revenues, our mobile portal, Turkcell IM, is positioned as a single point of access to Turkcell's all value-added services, in addition to the rich variety of content through local and global partners.

Also, our leadership in services continued with our recently launched mobile digital signature service, which is the first in the world with its advanced security features. We believe mobile digital signature will play a vital role in increasing the usage of digital services in Turkey.

At this time, I would like to briefly talk about the competitive landscape. The Turkish GSM market grew above expectations in 2006, with efforts of GSM operators to increase their share of new subscribers and number of total subscribers reached to 52.6 million, based off recent announcement of the authority.

In 2006, the ownership structures of competiots in the Turkish market were settled, with competitors remaining generally active and behaving more rationally in trying to create more chargeable minutes. On the subscriber acquisition side, we are seeing more aggressive campaigns after year end.

On the regulatory front, we have seen the impact of lower termination pricing already. Regulation regarding mobile number portability was issued and the plan for 3G licensing process was approved, a process we are looking forward to participating in.

At this time, I will hand it over to Serkan to talk about our financials and performance of our subsidiaries.

Good morning and good afternoon to all participants. Despite being a seasonally weak quarter, our revenues remained flat at $1.2 billion in Q4. 3% growth in the subscriber base and the total impact of marketing campaigns during the third quarter led to higher usage levels than the last quarter. On an annual basis, our revenues increased by 4% to $4.7 billion on the back of increasing subscriber base and usage, along with the contribution of our consolidated subsidiaries, despite the depreciation of the Turkish lira against U.S. dollar.

While the level of growth will be dependent on the developments in the macroeconomy, as well as the competitive environment in 2007, we aim to increase our revenues and anticipate continued growth of our subscriber base and usage. Our EBITDA in Q4 '06 was $465 million, and EBITDA margin stayed almost stable at 39%.

On an annual basis, EBITDA in 2006 increased by 6% to $1.8 billion, mainly due to savings from the coefficient method change on treasury share and recurring interconnection expenses, ensuring 30.7% EBITDA margin.

In Q4 '06, net income decreased to $290 million, due to lower net financing income compared to previous quarters. The increased operational efficiency led to $876 million net income in 2006.

Moving on to the next slide, the direct cost of revenues in Q4 remained almost stable at $663 million, despite the 4.8% depreciation of Turkish lira against U.S. dollar. Consequently, the proportion of direct cost of revenues to total revenues was maintained at 55%. On a unit basis, the direct cost of revenues decreased to $2.6 billion, mainly due to the decrease in treasury share and interconnection costs. Consequently, the share of direct cost of revenues to total revenues improved to 56%.

Our selling and marketing expenses as a percentage of revenue remained stable at 18% in Q4 '06. Selling and marketing expenses in 2006 on an annual basis increased by 18% in nominal terms to $828 million as a result of the increase in advertisements and marketing campaigns, as well as dealer and distributor activities.

Consequently, the proportion of selling and marketing expenses to revenues in 2006 increased to 18%. Our administrative expenses decreased $29 million in Q4, after recording a one-time total impact of $[16] million related to a collection of previously expensed items.

During 2006, we recorded $155 million of general and administrative expenses. Administrative expenses, as a proportion of revenues, was 3% for the full year. In 2007, we aim to keep overall costs stable as a percentage of revenues in general.

Moving onto the balance sheet, our cash balance has improved to approximately $1.6 billion at the end of 2006 as the result of our ability to generate cash from our operations during the year. On a consolidated basis, our total debt amounted to $640 million, as of 2006 year end. Of this total amount, $465 million was related to our Ukraine operations.

As of year end, our total consolidated debt to annualized EBITDA ratio was at 0.35, which verifies our strategy of leveraging the balance sheet when needed. On February 26th, we have closed a syndicated financing for a committed facility amounting to $3 billion. This amount is the largest unsecured syndication loan closed by a single company ever in Turkey and will be utilized for potential international investments.

The utilization of the financing will be based upon need as we continue our efforts to selectively seek and evaluate many international investment opportunities.

Moving on to the cash flow, in 2006, we invested $605 million in CapEx, of which $200 million was in Ukraine. In 2007, we plan to spend approximately $400 million in operational CapEx, excluding potential 3G license fees and related 3G CapEx in Turkey. Potentially approximately 20% additional capital expenditure for 3G, excluding the license fee, can be assumed in 2007.

As for, Ukraine in 2007, we expect to spend around $150 million U.S. in capital expenditures. In 2007, we believe that all the cash needed for CapEx, including 3G, corporate tax payments, Ukraine financing and dividend can be financed through our existing cash and future operational cash flow.

The Fintur operations in Azerbaijan, Kazakhstan, Georgia and Moldova continued to have successful growth in 2006. Fintur, our associate in which we hold a 41.45% stake, grew its number of subscribers to approximately 7.3 million in 2006, nicely contributing to our bottom line as the strong operational financial performance of each operation continued.

As you can see on this slide, the business delivered revenues and high EBITDA margins with which we are quite satisfied. In 2006, the income that Turkcell recorded based on he equity pickup method totaled to $81 million, and we are pleased with the value that Fintur operations are generating.

Now I will elaborate on the Ukrainian market. Our affiliate, on the Life brand, achieved encouraging results in Q4 '06. Since its inception, Life realized a fast network rollout and today has more than 3,900 base stations, covering already 90% of the population, providing a comparable coverage to leading players.

For your reference, we started to disclose three-month active subscribers and the respective ARPU figures. As can be seen, more than 50% of the subscriber base is three-months active and developing rapidly. Three-month active ARPU in Q4 '06 is above $4, highlighting the pickup from minutes of usage and more subscriber stickiness to our [inaudible] operations.

During Q4 '06, Life recorded net revenues of $31 million and annual revenues of $88 million, a pleasing growth rate of 47% and 93%, respectively. [We'll be] participating to a total capital increase of approximately $300 million, planned for the years 2007 and 2008 in Life, proportionate to our shareholding. As shareholders, we are fully supportive of Life and we believe the company is in the right direction to achieve the fundamentally sound business model we are looking for, in a highly competitive market.

Now I would like to hand it over to Mr. Sureyya Ciliv. Thank you.

Good morning, and good afternoon, everybody. It is Sureyya Ciliv, and as you know, I started as the CEO on January 9th of this year. I am happy to join such a successful company and I am also excited about the future. I am also looking forward to meeting you in meetings in various parts of the world, talking about Turkcell's future.

Before giving you some insight on our strategic priorities, I would like to say that I am glad to see that Turkcell has maintained its strong leading position in the market and has performed very well financially in 2006. In our market, we intend to continue our leadership in the foreseeable future.

Our main priority is to drive customer satisfaction and customer loyalty. We will ensure retention of our valued subscribers across customer segments through our increasing focus on our customers. Our customer focus is being differentiated on a segmental basis, maximizing loyalty and delivering products and services accordingly. Our value propositions will be tailored to the needs and expectations of our customer segments. Through our refined market and innovative thinking, our intention is to ensure our leadership in the market and technology in the longer term. Our aim is to grow our business while maintaining the profitability of the business.

Now I would like to elaborate more on our expectations for 2007. Looking into 2007, we expect the market to continue its growth and the mobile line penetration to reach around 80% levels in Turkey.

In the longer term, although the growth rate will slow, we should see line penetration levels similar to that of the Western market. We view our business as a communications business. With this perspective, we intend to realize benefit in the longer term for our business through emerging technologies and services. We will continue to monitor changing dynamics in technology and market size.

Looking at the competition in our markets, while our efforts for retaining our high-value customers continue, we are targeting new value subscriptions as part of our bottom-line thinking. We don't intend to be a part of the pure market share play, as we are observing some free distribution of SIM cards by competitors and lower startup package pricing by both competitors for the new acquisitions.

We will continue with the premium that we attach to our brand while we sustain quality in all aspects of our operations. And our aim is to continue to ensure that we capture the better quality of new subscriptions. As a result, financially, our goal is to maintain top-lien growth and strong EBITDA margin throughout the year.

While we are aware of the importance of international expansion, we intend to be cautious and selective about our prospects. As far as the use of cash is concerned, we will be distributing a dividend from 2006 earnings and the final approval will be given during our general assembly meeting on March 23rd, regarding the percentage of the dividend.

We plan to invest approximately $480 million in capital expenditures in Turkey. Further payment will be planned for a 3G license, again in 2007, in Turkey. We believe our investments will continue to help differentiate our unique standing against competition. In conclusion, Turkcell has delivered a robust set of results for 2006, and we look forward to building on this promise for the next year. Thank you.

Thank you. Operator, now we are ready to take the questions. Can we please request you to limit your questions to two each time? Thank you.

[OPERATOR INSTRUCTIONS]

Thank you. The first question is from Mr. Atinc Ozkan. Please state your company name, followed by your question.

Good evening. This is Atinc from Global Securities. First of all, I'd like to congratulate you for the solid set of results, especially cash generation and margins are impressive for the last quarter. My first question is actually related to your sales and marketing expenses. During the presentation, you have mentioned that you see more aggressive action from your competitors on subscriber acquisition, especially post year end.

Could you provide us some guidance regarding sales and marketing expenses as a percentage of sales in 2007 and a similar guidance on subscriber acquisition figures you are budgeting?

My second question is actually regarding your football betting games operation, Inteltek. It has drawn my attention that the revenues in Inteltek are almost double the level of your Ukrainian opportunity. I would be very glad if you could provide some more color on existing margins of this opportunity. Thank you very much.

Thank you, Atinc. Starting with the acquisition expenses and overall the market, I think as we stated throughout the presentation, we are seeing certain free SIM card distributions, as well as lower startup package pricing in the market. From our standing perspective, of course, the market share we are still continuing to focus on. Acquisitions are important for us. On the other hand, this is not our pure focus. The bottom-line thinking is valid.

Therefore, subscriber acquisition costs, let's say, is watched quite closely. And when you look at the average revenue per user and SAC, we still have very reasonable payback periods. We'd like to be able to maintain that.

We are making, of course, improvements through sales and marketing. We are investing both in premium segments on the individual side and the corporate side and we aim to get better end of the new subscriptions with this strategy in mind.

Overall, we expect our cost base to remain stable. We don't want to break down per sales and marketing SAC, which is part of sales and marketing, or other operational expenses, but simply stating that 38% EBITDA margin we think is maintainable. So that's how I'd like to cover at this time S&M and SAC guidance.

On the Inteltek side, this business is more or less established and became a mature business in Turkey, so in terms of forward-looking perspective, growth of GDP in Turkey, maybe three points over that, would be what we expect in terms of Inteltek's growth potential in this market. So we wouldn't expect as much growth rates. Simply it's become a mature business now.

Okay, thank you very much.

Thank you.

Thank you. The next question is from Mr. Sean Gardiner. Please state your company and then your question.

Yes, my company is Morgan Stanley. Firstly, on your market share ambitions for 2007, it sounds like you're not going to chase these multiple SIMs or free-SIM distributions. Can you help us understand how much of the 10 percentage point increase in penetration you expect to come from the multiple SIMs going into the marketplace.

And then secondly, on the Ukraine, can you help us understand what the exit ARPU was in December, because I think you started your promotions during -- your new programs in November. So I was wondering if we could have sort of an exit ARPU run rate for Ukraine.

On the market share side, I think to comment on the double SIM card in the market, yes, there is a double SIM card issue in the market. On the other hand, this is not a major issue in our market as we are seeing some of that in other Mediterranean countries. So we are close to about 20% levels of multiple SIM card usage in our markets. This is actually highlighting a benefit from potential increase of line penetration levels further, which we conclude now is about 71%. So we think it only points out to [a] potential.

Sorry, just to go back, the question was of the 10 percentage points penetration you expect to come in 2007, how much do you think is coming from your real subscribers and then obviously the total, the nominal? What's coming from multiple SIM ownership?

We don't have a specific guidance on that. Frankly, we want to read into and monitor market dynamics, given the acquisition-related behaviors that we have highlighted, and we will continue to focus on strong EBITDA margin and bottom line. Yes, we do want to lead the market in all aspects. In terms of acquisitions, we will be careful, trying to get better hand of the market.

I intentionally did not give you a guidance on the specifics that you asked.

Maybe I can ask the question a separate way, or in a different way, I should say. Your market share seems to have dropped about 400 basis points in 2006. How much of that do you think has come from multiple SIM and how much of it is because you're losing market share to the competition on a real basis?

We don't elaborate at that level of detail. I don't have that, and after that, I can't share with you for competitive reasons.

Okay.

Thank you. The next question is from Mr. Istvan Matetoth. Please state your company and then your question.

This is Istvan Matetoth from Credit Suisse. Ladies and gentlemen, good evening. I have two questions, one if the increase on acquisitions don't pan out as you expect, is there anything you are looking at domestically? And, secondly, given that both AVEA and Vodafone have made very upbeat statements about revenue growth in the Turkish market, what do you think revenue growth in the overall market is going to be in '07? And is your guidance of a slight decline in U.S. dollar ARPU but stable to slightly increasing in Turkish lira terms, is still the same or have you changed in any meaningful manner?

Thank you, Istavan. On the ARPU side, we are foreseeing actually flat to slight decline ARPU, average revenue per user in the U.S. dollar terms on the basis of the assumption that we will have some depreciation of lira against U.S. dollars in 2007. And our assumption, which we declared, was about 13% last quarter. That's still valid. We may be on the conservative side, but we will see how it goes.

On the YTL terms, it's I think fair to say double-digit growth in terms of revenues. You had asked the question about the revenues, can be ensured. On the ARPU side, I wouldn't give you a percentage, but we see an upward trend in terms of our planning.

The question was, if this doesn't happen, is there anything interesting domestically for you?

Domestically, we are considering -- we are defining our business as communication business and we are going to evaluate new technologies that come up that can give us new business opportunities where we can compete a competitive advantage and build a solid business model in the communication space. So we are going to be looking at new opportunities, but nothing specific that I can talk about.

That's very kind. Thank you very much.

As per the previous question that we, I think, missed the answer on the specific ARPU trend for Ukraine, we can note that on each month we are seeing reasonable month to month basis ARPU increase when we look at our results. I think we would highlight the fact that we are focusing on increasing the total contribution, total revenue we are receiving from each subscriber. And based on this, let's say, tactical approach, we are introducing monthly fees and/or flat fees for securing certain services and insurance of similar payments as a refill condition each month.

So this has actually helped our opportunity in the Ukraine, and as you see from the results, numbers are picking up.

Thank you.

Thank you, and the next question is from Pamela Antay. Please state your company and then your questions.

Hi, good afternoon. Pamela from KBC. I understand that you can't give us the specifics of any potential acquisitions that you're looking at, but can you give us a clear idea of the criteria or parameters for your M&A considerations, for example, geographical or greenfield or existing operations, and whether there is a set timeframe to utilize the billion facility? And can you tell us regarding the license bidding process in Saudi Arabia and the fact that there are now reportedly eight to nine bidders. Do you expect the price to be pushed up considerably, and how long would you stay on in the process if that's the case?

And the next question is really to that, and that is if there are no acquisitions that meet your criteria or you don't succeed in the M&A area, would you consider using any of the facility to distribute cash to shareholders instead? Just go over your 50% payout policy?

I will take these questions. First, on the international expansion front, our view is can we build profitable operations in a reasonable time without paying too much upfront? And so our focus is on areas like Eastern Europe, Turkish-speaking countries in the CIS world and some countries in the Middle East. Those are the areas that we are looking at this time, but again, as I mentioned before, we do not want to overpay up front.

You don't mind whether it's greenfield or existing operators that are in the list?

Example, although some of you may be pessimistic about Ukraine, we are pretty bullish about Ukraine. When you look around, you see licensees being awarded in multi-billions, and we have acquired a license almost free of charge and we built operations in Ukraine and our total investment is less than $500 million, and Ukraine is a very promising country with population close to 50 million, and they are going to experience similar growth like Russia.

So, looking, I think we are very much into building value and I can't be specific about being greenfield or an acquisition.

Okay, and Saudi Arabia?

Saudi Arabia, we are one of the nine bidders.

Can you give us the timeline for the process, actually?

It is going to be a few weeks. We don't have an exact timeframe. Maybe two, three weeks time we will hear more. To maybe elaborate further, we have set up a consortium. In the consortium, through the consortium, we believe we've given a reasonable offer, and we do take some minority position in the consortium with proper rights. This is our standing. We will all hear about this from the authority, as I said in the timeframe.

Okay, and if there's nothing in these [states] that come that you can use the 3 billion on, would you consider using that to increase dividends?

I think we will evaluate that. We cannot comment on that right now, but definitely our aim is about increasing shareholder value and we will evaluate business opportunities in Turkey and in the region and I think we are in a very hot market with the 3G broadband coming to mobility.

So if we don't think -- if you don't think that we have the right business opportunities, we will consider what you mentioned.

Okay, thank you.

Thank you. The next question is from Mr. Alex Wright. Please state your company name and then your question.

Yes, hello, it's UBS. Two questions, please. The first one, if you could just give us some detail on the strong cash inflow that you saw from changes in assets and liabilities and whether that is likely to be a one-off cash inflow, whether it may be reversible to any time in the coming quarters.

And the second question is regarding the usage trends in Q4. As you highlighted, the promotions that you ran in Q3 helped to raise usage levels going into Q4, as well. And I'm just wondering if there's a risk that subscribers may not yet have reacted fully to the discontinuation of that promotion, and whether we might therefore see a decline in usage over the next couple of quarters. Thanks.

Starting with the second, question, Alex, actually, when you look at our mass offers and segment-based offers, they're our number one going offers. We have actually discontinued with one of the mass market offers and made that as segment-based offers, turned it into a segment based offer for our prepaid subscribers, based on subscription.

So we don't feel that there has been a disruption feeling, let's say, in the market in terms of ongoing campaigns and offers. So from that point of view, we don't expect such trend, actually, for the next year. We are expecting also usage to continue to increase through loyalty programs and our efforts to further stimulate usage.

Could you update us on how many prepaid customers have taken up that option now?

It's about mid million and a half or so. It's not near as it was initially awkward in Q3.

Regarding the second question, on an annual basis, the improvement in operating cash flow is coming from various balance sheet items. However, the major portion in that difference is coming from the provision for the corporate tax, which will be paid in Q2 this year, and the total amount is slightly more than $300 million. That will be reversed in Q2.

Sorry, the figure was how much?

Three hundred million U.S. dollars.

300 million, okay. Thank you very much.

Thank you, and the next question is from Anna Bossong. Please state your company and then your question.

Yes, hello, it's Anna Bossong from CA-IB. I just wanted to ask firstly about the 3G rollout spend. You've indicated it would probably be around the $80 million this year. On a five-year view, what sort of spending pattern should we be putting into our models on that?

And in relation to the 3G, will the license fee be all payable in 2007, and my next question is in regards to Inteltek, you mentioned a new tender must be held by March 2008. Can you talk through a little bit if that affects all the income from your Inteltek business and what you think are the prospects of winning that tender and how you see that playing out over the next year. Thanks very much.

Regarding the 3G-related CapEx, in your model you can increase the CapEx you have as 20% for each year for the forthcoming five years' time.

Twenty percent per annum on the 80 million. Thank you very much. That's great.

Inteltek commission income as of year end is approximately $160 million. As we have highlighted before, it's quite a high EBITDA margin business at about 70% levels or so. And we just pointed out the growth aspect as because it has become more of a mature business, about 3 points above GDP growth can be expected.

Right now, we are looking at about 6% level of bottom line impact coming from Inteltek. In terms of the tender process, of course, given the experience and current resources of the company, as what's been achieved, we will be again a candidate for the tender process when it is renewed.

That's lovely. Thank you. And the 3G license fee, is that all payable this year?

That's difficult to elaborate on, Anna, because the tender specifications are not available at this time.

Thank you very much.

Thanks.

Thank you. The next question is from Mr. [Brad Radulovacki]. Please state your question after your company name.

Yes, it's Brad Radulovacki from Oaktree Capital. Congratulations on a very good quarter and good guidance for '07. What I did want to just get a little more clarification on the use of cash. You do highlight as a first bullet point payment of dividends with your cash proceeds. You have a tremendous amount of cash on the balance sheet, net cash, you're generating -- your dividend payout policy is not less than 50%. Is it possible to get a little more clarification and say, look, if we don't find uses for this cash, whether in a regular dividend or a special dividend, we'll pay out the entire amount of our earnings, which should not hinder either your acquisition policies or any kind of investments you're doing domestically?

I think it is also important to know that in addition to the dividend we have the 3G license payment that is coming. We have about close to $500 million of taxes we will have to pay. So those are some cash outflows that will happen in 2007. We are going to -- our goal is to increase shareholder value. We are going to evaluate all of those possibilities, but I cannot make any announcement about the dividends percentage at this time. I think it will be a board decision before our general assembly.

Okay, but is there any reason why the concept of paying out a larger portion of your earnings, if there aren't any other uses, why that couldn't be a part of the language and the way you would treat your overall dividend payout?

I think in principle we agree, but we also have to be cautious about the increased competition. We also have to evaluate new technologies or new businesses, business opportunities that we will face, and if we think that we have no better use of cash, then we will consider what you mentioned.

Okay, thank you, and when is the board meeting?

The March 23d is the general assembly. Before that, the board will meet, but we can't give you an exact date today, Brad.

Okay, that's fine. Thank you, guys.

Thank you. The next question is from Mr. Rizwan Ali. Please state your company and then your question.

Okay, I have two questions. One is regarding the capital injections into Astelit. I was wondering how much more capital injection should be forecast for this year and potentially next year, and second question is about the Turkish market. Have you seen any kind of a bundling between AVEA and Turk Telecom given that they are both owned by the same investor party? And do you expect bundling of services in Turkey or elsewhere where you operate to begin either this year or going forward?

For the first question, the shareholders of Astelit have already committed $300 million cash injection to the company, and $200 million will be this year and 100 will be next year, and Turkcell will join this capital injection proportionate to its shareholding in Astelit.

On the second question, about bundling, we have not seen any bundling from Turkish Telecom and AVEA yet, but it is a possibility into the future.

Okay, and one last question if I may. EBITDA margin, you were talking about EBITDA margin, 38%, is it fair to say that as the market matures you can start longer term or medium term, you can start hitting low 40s, mid 40s EBITDA margin?

I think for a longer-term period we are not ready to guide you at this time. As we go through the dynamics of the competition and things get more clearer and we get more clear behaviors established in the market, maybe we can give longer term projections, but we are not ready to do that as yet.

Okay, thank you very much.

Thanks.

Thank you. The next question is from Mr. [Ben Joseph]. Please state your company name, and then your question.

Company name is Nevsky Capital. Two questions, please. The first one, should we expect any additional write backs relating to Iran BNP in 2007 in the income statement? Or will there only be a cash flow effect? And then the second question is depreciation. Obviously, it declined quarter on quarter, and you mentioned that assets have been fully written down. Can you just give us a little more color there, please, what exactly was driving that and the outlook for next year with regard to depreciation. Thank you very much.

For the BNP sector, as you may remember, we paid a success fee regarding Iran's project to BNP Paribas late in 2005. However, after that, BNP also connected similar success fees from the other party for the same license tender. And we have just signed a settlement action with BNP Paribas so they are going to pay back that success fee to Turkcell within a couple of weeks time. Therefore, we have recorded that amount as income in our administrative expenses. And there won't be any additional impact for 2007 financials regarding the Irancell and BNP.

For the second part of your question, Turkcell has started its operations back in 1994 and starting from '98 started to make big network investments and the average useful life of the network equipment in Turkcell is eight years. And starting from 2006, some of the network equipment purchased back in '98 has been fully amortized. Therefore, in Q4 this year, we saw that there is a slight decrease in the depreciation expenses. However, looking forward, since we are continuing to invest in CapEx, I don't think that on a total basis that will be a trend in decreasing depreciation. I think that the depreciation expense of the company will be at similar levels in 2007.

That was very helpful. Thank you.

Thank you. The next question is from [Alex Sanonika]. Please state your company name and then your question.

Hi, good afternoon. It's Alex Sanonika from Citigroup. Just two questions, please. In your press release, you mentioned that you managed to put through 16.5% price increases in 2006. I wonder whether a 7.7% price increase in December was included in that 16.5% overall number. And, basically, coming from here is that assuming that you've had 16.5% price increases in Turkey, I would expect that your effective price also goes up year on year, but in fact it actually came down. I was wondering whether that was due to the fact that you gave a lot more free minutes away, or was there something else?

My last question is, again, on the import tax. Could you please give us some information on EBITDA margins of that business? Thank you.

I actually already mentioned EBITDA margin for Inteltek is about 70%. On the price increase by 7.7%, actually included as part of the 16.5, but it was made on last day of December, so the impact of 7.7 should be seen largely in Q1.

In terms of how you should look at this is we are, of course, making some price increases and we are seeing also some similar increases by the competition. On the other hand, we have some loyalty programs and incentives that we provide for the customers, as you put it. There in terms of minutes of usage offers, usually reward programs, ensuring longer-term loyalty and in order to minimize churn.

So the price increases that we make may not totally compensate for the incentives that we are providing, so you need to, I think, more or less observe average revenue per minute charges in the market.

Okay, but if I do a backwards calculation, it looks like the number of chargeable minutes has actually come down year on year.

In 2006, it has come down. We don't expect as much deterioration in 2007. I can tell you that as a general management feel, given more rational behavior we see on the competition side. They are also trying to contribute and increase chargeable minutes on their part.

Okay, thanks.

Thank you. The next question is from Mr. Alex Kuznetsov. Please state your company and then your question.

Good afternoon. It's Alex Kuznetsov from Bear Stearns. My first question is about the depreciation charges. You previously highlighted and explained part of it, but I still would like to clarify some issues. As stated in your press release, depreciation and amortization declined by 9.4% quarter-over-quarter, due to full depreciation of some assets. However, it appears that the property and equipment account rose by about 2% here in the quarter.

Could you let us know if you changed depreciation policy or increased depreciable life of some of your assets, please? And my second question is regarding your market positioning. Do you have some estimates of your market share net additions in Turkey? And if you have forecasts for the current year, would -- do you expect to be your market share net adds in Turkey? Thank you.

Regarding the depreciation question, we didn't make any change in our policy. However, we should keep in mind that the capital ratio analysis are made on a monthly basis. Therefore, there are maybe some assets, the extent of debt that have been fully depreciated at the end of Q3 and before. That's the reason we saw a decrease in Q4.

And your question was regarding net adds in 2006, if I heard it right. We've led both net additions and gross acquisitions market in 2006.

And may I also clarify -- hello?

Yes.

According to the regulators data, the number of subscribers in Turkey rose by 1.44 million, and since stocks are reported, Turkish subscriber base grew by 1 million. The data imply that Turkish Telecom accounted for 69% of the total net adds in Turkey during last quarter. Could you let us know if this estimate is correct, please? And if you have any forecast for the current year, could you tell us what you expect for the current year.

We missed the numbers that you provided a bit, but I can tell you that the net adds number was about a million in Q4 and we don't want to comment on the other operators, but they've mentioned their net addition numbers publicly. It is not as high as 69%, but when you look at it, we've been leading close to 50% if you look at the whole year for the year 2006.

And do you have an estimate for the current year? Do you have any targets?

We don't want to be exact in terms of forecast for net additions, simply because of the behavior that we have outlined. Actually, we believe outlining this behavior is more important. We definitely want to lead in all aspects. On the other hand, value-based subscriptions, more important for us. Our aim is to retain and acquire value of the subscribers from the market.

Thank you very much.

A pure market share play is not valid for us. Thank you, Alex.

Thank you. The next question is from Stephen Pettyfer. Please state your company name and then your question.

Hi, it's Stephen Pettyfer From Merrill Lynch. Two questions, please. First, could you just tell us how much of your Turkish ARPU comes from non-voice or value-added services. And, secondly, just a point of clarification on your licenses in Ukraine, I see from your year-end accounts that you have, if I understand this correctly, two of your four licenses expire in 2008. Am I reading that wrong, or is that an overlapping situation with the other licenses? Thanks.

We don't have a breakdown on the ARPU terms of the data revenues, but data revenues did increase overall as a percentage of revenue, and now it is about 14% for the year from 13% last year, so we do see encouraging results and we believe we can maintain this percentage in nominal terms. We should do better. For the Ukraine, frankly, I'm not aware of such case.

My colleagues are looking into it. If there would be certain situations, we would tell you, but it hasn't --

Oh, we can take it offline. That's fine.

It hasn't come to our attention, frankly.

Thanks.

Thank you.

Thank you. The next question is from Mr. Osman Memisoglu. Please state your company and then your question. Please go ahead Mr. Osman Memisoglu.

Thank you. We have a technical problem there. The next question is from Mr. Sean Gardiner. Please state your follow-up question, Mr. Gardiner.

Yes, thanks for taking a follow-up question. I actually have two. Firstly, your margin guidance of 38% for the group, am I right in thinking that that implies that your Turkish margin sort of goes flat to slightly up in 2007. It's quite difficult knowing what you're thinking about the Ukraine on the profitability stuff. Maybe you can help give us some color there.

And, secondly, a question for Mr. Ciliv, if you're still there. Basically, in terms of the KPIs, I bet you've been set by the board. Can you help us understand some of the numbers that they're going to be focusing on when it come to your remuneration at the end of the year? Thank you.

On the margin side, we are talking consolidated basis and we don't actually break down the margin impact at subsidiary basis at this time. So I wouldn't further elaborate on that, but given the prospects both in Turkey and internationally, things are moving in the right direction, so we should see better impacts, actually, in 2007.

You think your EBITDA loss in 2007 will be less than 2006 for Ukraine?

We expect to improve, actually, EBITDA for Ukraine, and our thinking is by end of 2008 we should see actually a positive EBITDA, possibly, if not end of 2008, late as early as 2009 when you put a reserve, positive EBITDA, in Ukraine.

Okay, because at your analyst day in December, I think you were talking about 2009 at the earliest. So has Life got a lot better than you expected in the Ukraine in the last few months of the year?

I think we were consistent. We said end of 2008 if not early 2009.

Okay, I'll check my notes. Okay.

Thank you.

Thank you. We have a follow-up question from Ms. Anna Bossong. Please go ahead with your question.

Yes, thank you very much. My first question was once again on Ukraine, just the postpaid subscribers and the fixed rate packages. I just wondered if you could give us an update on how many customers have taken up those new packages, which are very important at the moment. And also, I noticed that in Turkey the postpaid ARPU was very strong, relative to the prepaid. And I wondered if there as some sort of Ramadan impact or something else you could perhaps talk us through, sort of why there was a little bit of a separation in the trend there. Thanks.

Sureyya, do you want to go through -- Anna, we've missed a question before your question, so we'll go through that. Let me try to cover your questions first. In terms of the Ukraine market, actually, I can specifically postpaid, prepaid numbers, the majority of the subscriptions are prepaid, as we've started the postpaid late in the game. You'll remember it was during the summer months, if I'm not incorrect, all this timeframe also.

So we are seeing, though, stimulation of the base of 5.6 million subscribers that are active subscribers. But we are specifically saying three-month active is becoming and developing rapidly in the direction that we like through these refills and more usage.

We don't have a breakdown that I can give you. On the Q4 ARPU breakdown side, actually we are seeing a trend, similar trend, both in postpaid and prepaid. I don't think there's anything unique that I can highlight on the postpaid side.

Sorry, I just thought that the growth in ARPU in the postpaid side was much better than the prepaid, and I thought maybe the stimulation traffic, stimulation measures, might have been more successful perhaps there than in the prepaid, but you're saying that's not really the case.

Actually, we have broken that down and when you look at the numbers, we have slightly better ARPU breakdown on the postpaid side, and slight decline in the prepaid, but this is quite expected, given the dilutive impact of prepaid subscribers, so there is nothing unique that I can tell you, really.

Okay, thanks very much.

Thank you.

Thank you. The next question is from Mr. Osman Memisoglu. Please go ahead with your question after stating your company.

Hi, this is Osman Memisoglu of [EC Investments]. Sorry for the problem in my last connection. I would like to ask a question about the argument that subscribers of competition make largely off-net calls through Turkcell network in line with the size of Turkcell's network. To clear out the issue, can you give some details on the interconnection fees received?

Osman, what issue did you refer to? We are not quite clear.

Well, what I asked is I ask about the argument that subscribers of competition, namely Vodafone and AVEA, AVEA subscribers, largely make off-net calls through Turkcell's network in line with Turkcell's market share and Turkcell's network size. To clear out this issue, can you give some guidance on the interconnection fees received from competitors?

The per-minute basis on the interconnection side, when you get between us and Turk Telekom, obviously because of cost of basis differences we pay them more -- excuse me, less, $0.02 to $0.04 per minute, and we get paid about $0.14.

What I really meant was the proportion of it in total revenues?

I can tell you the interconnection revenues overall, 9% of our revenues come from interconnection.

Nine percent. Okay, thank you. And I have another question about number portability, keeping in mind that the churn rate of Turkcell is increasing, can number portability be a risk factor for Turkcell and competition in the near term. Do you have some other ideas on that?

In our term guidance, we already included portability assumptions for Q4 2007, with that staying on a yearly basis we may have a slight increase, maybe one or two points or so. So from that perspective, we already take in a cut and we believe it works both ways and we will continue to rely on our ongoing loyalty programs and what we do on the customer satisfaction side as well as other technical aspects that we went over on our technology side. We believe that we can deal with that quite effectively, actually.

Also, may I have -- I have another question about the share of SMS short messages and corporate sales figures in your total revenues.

On the data revenue side, the contribution of SMS versus data is equal, about 50-50 contribution is in shares, when we talk about 14% of revenues come from value-added services.

Okay, thanks.

Thank you. There's a follow-up question from Mr. Alex Kuznetsov. Please go ahead, sir.

Good afternoon. Again, it's Alex Kuznetsov from Bear Stearns. I recall that somebody asked you the question on your expansion plans, but could your probably give us some flavor on your Saudi Arabian expansion, please. Could you probably outline the major underlying assumptions, such as return on capital, expected market share, ARPU and long-term wireless penetration? It would be helpful to estimate your potential benefits from this expansion.

My second question is regarding your 3G expansion plans, as we know that the Turkish government is going to allocate licenses this year. And have you done some estimates of the potential ARPU and subscriber base in Turkey? And, finally, as far as I know, you have extremely strong position in the corporate segment, and it appears that Vodafone may be targeting your corporate subscribers. Have you considered any measures to retain your corporate subscribers and you probably have information what is your recent share in net additions in the corporate segment? Thank you very much.

On the Saudi Arabian side, we submitted a bid with a partner and we are one of the nine bidders. One out of nine probabilities are not really high. There is nothing else I can give you at this time.

From the corporate segment, yes, we are very strong in the corporate segment and we plan to remain strong. We reorganized our team and the teams are energized. And because we have the best quality service, I can be in a strong position to defend our share there.

On the 3G side, the cost of equipment, as you know, has gone down, and we see a lot of advantages to per product service offering basis given the speed, the wider band we are getting, we believe we will show better customer experience in general. I can comment on the fact that when we look at it, generally, the business plans with 3G versus 2G, we see a better plan with 3G and simply cost of investing into 3G for us is a marginal increase, as Serkan already mentioned is about 20% above our current CapEx levels.

And may I ask you a follow-up question on the corporate segment? First of all, do you probably have some estimates of the recent percentage in net adds in the segment? And, second, could you probably elaborate on the measures you're going to take to protect your market share in this segment?

Corporate sector is an extreme focus for us. The IsTcell or Turkcell at work campaign and flavors of that has been launched through corporates, as well as employees of corporates separately. I can tell you that we have a larger market share on the corporate side, and we have led acquisitions market in that area as well. So we are aware of value-related attacks and we are doing our best to protect it and we've been successful.

I would also like to add to that, we have reorganized our corporate sales organization and we have lunched IsTcell, which is a business-focused marketing program. We have renewed our tariffs and loyalty programs.

We currently offer the highest quality service and also the best coverage. We have significant lead in customer service. We have edge technology which [Turkish] Vodafone doesn't have on the data side, and we have a rich set of value-added services that we think will give us an edge going forward when we turn these services into solutions for our customers.

This is our strategy.

Thank you very much.

Thank you, sir, and there are no further questions. Are there any points you would like to continue with?

Thank you, operator. Thank you for everybody participating -- just a second, please.

This is Sureyya Ciliv again. As I mentioned, I am very excited about Turkcell's future. We are in a strong market position today because we have the best technology infrastructure and a strong market position. It is also important to note that we really have the best quality service for our network on the voice side and also data side.

We have significant advantage and, second, on the coverage side, we are ahead of everybody else. We have 12,000 base stations versus our competitors being in the 6,000, 7,000 range. Also, our call center is without a question the best in Turkey. We just won an award in the European market as well, and we have 3,400 people. We are using technology well and we have real competitive advantage in that, as well.

Lastly, in addition to a rich set of value-added services, we do offer lower total cost for most of our customers because of the in-network pricing. There was a question about off-network calls into Turkcell. Those are in general a lot more expensive than in-network calls, and most people are using Turkcell for their business and, as a result, I think we're in a strong position. We are going to continue to invest in our technology to stay as the number one in quality.

And we are going to focus in customer segments, improve our customer intimacy so that we can deliver more custom-made solutions for our key customer segments. Thank you very much for attending the call and congratulations to all of the Turkcell team for our outstanding achievements. In an increased competition era, we continue to increase our revenues. We increased our income and I am looking forward to working with all of you in the future in communicating about Turkcell. Thank you very much.

Thank you again for participating. For any further questions, please do not hesitate to call investor relations. Have a nice day. Thank you.

And this concludes the conference call. Thank you for participating. You may now disconnect.