Turkcell Iletisim Hizmetleri AS (TKC) 2008 Q4 法說會逐字稿

Welcome to the 2008 Year End Results Announcement on the 26th of February, 2009.

(Operator Instructions)

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

Ladies and gentlemen, thank you for participating to our Year End Results announcement call. This is Koray, Chief of Corporate Affairs. I like to go over briefly the notice statement and then I will hand it over to Sureyya Ciliv for the presentation.

And the presentation we are about to make may contain statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially due to the factors discussed in this presentation.

We do undertake no duty to update or revise any forward-looking statements, whether as a result of new information of future events or otherwise. Please note that all financial data are consolidated whereas non-financial data are unconsolidated unless otherwise specified. Thank you.

Good morning and good afternoon. I would like to welcome you all to Turkcell's full year 2008 results conference call.

We are pleased with our 2008 performance in one of the most challenging environments in business history. The global crisis had an impact on our key markets where GDP growth has slowed down significantly, consumer confidence declined and, the currencies were sharply devalued.

Despite these challenges and serious competition, we achieved solid results. Turkcell Group recorded revenue of $7 billion, 10% year-on-year increase, EBITDA of $2.6 billion, 2% year-on-year decrease, and net income of $1.8 billion, 36% year-on-year increase. The number of Turkcell Group subscribers reached 62 million.

We faced a challenging operational environment in 2008. We faced some regulatory hurdles in the first quarter and political tension rose in the second quarter. Additionally, the increasing volatility in the global macroeconomic environment throughout the year led to a sharp evaluation of the Turkish lira by 25% against the dollar in the fourth quarter of the year, impacting our consolidated fourth quarter and full year results.

The Group ended the year with a cash position of $3.3 billion. Moving on to the next slide, I will now give an overview of the Turkcell Group results. The Group ended the year with a cash position of $3.3 billion.

Moving on to the next slide, I will now give an overview of the Turkcell Group companies performance. As the leading communications and technology Company, we definitely maintain our leadership in Turkey. We have our strengthened our position in many [prescriptions] particularly in a year of active competition, thanks to our strong value propositions. We had completed the year as net gainer from the mobile number portability implementation process, despite competition utmost attention and best efforts.

Astelit, our Ukrainian subsidiary, grew its top line by 71% to $439 million, maintaining positive EBITDA generation and recording full year positive EBITDA margin despite the financial turmoil, which led to a severe devaluation in local currency.

BeST, our subsidiary in Belarus made strong progress in [Onix] network rollout, and recorded north of both subscriber gains following the life brand launch in December.

Our Turkish broadband business, Tellcom, continued its fiber optic network rollout in major cities of Turkey. Turkcell is already enjoying through synergies derived from this business. We think the business is on track and we will progress proudly in 2009.

Fintur operations continue to grow and contributed nicely to our bottom line. Fintur distributed dividend for the first time and paid $83 million to Turkcell.

Moving on to the next slide, I will now focus on our achievements in Turkey in 2008. Slide 6 -- in Turkey, we continued Turkcell from the competition. Here I would like to emphasize to you the fact that our value proposition are definitely a key differentiator for us, allowing us to endorse this competition. This is how we won those competition in 2008 and it is why I like to give you more insight on our value propositions in the next slide.

But before that, I will go through some other factors that were critical driving customers in loyalty in growing our business in 2008. Consistent communication of this wining value propositions was very, very important. We proactively committed to the advantages of a Turkcell subscriber, clearly through every channel.

We improved our dealership structure, particularly on [our] exclusive site resulting in better loyalty, support in higher acquisitions throughout the year. Mobile Number Portability was introduced in our market and enabled more people to experience Turkcell quality. We were a net gainer from the Mobile Number Portability process in 2008.

However, as we guided you before, Mobile Number Portability did not have major effect on market balances. Our focus on customer retention, especially in the premium and corporate segments, supported by the launch of new tariff incentives led to higher revenue generation.

In November, we were granted the A type 3G license, the approval process is underway. We are now looking forward to 3G as another major differentiating factor for Turkcell. In 2008, we are happy about services progress and the growth evaluated services revenues by 27%, compared to last year especially driven by the corporate segment.

As a result of our increased focus on various services, the share of those revenues increased to 14% of consolidated revenue from 12% by the corporate segment. As a result of our increased focus on value added services, the share of those revenues increased to 14% of consolidated revenue from 12% in 2007.

We think with 3G, the progress in [watts] will accelerate. Moving on to the next slide, I will now talk about more on Turkcell's distinctive value propositions.

In 2008, we spent $388 million in Turkey to further improve indoor coverage and provide outstanding GSM services. We are in total 15,100 base stations allowing us have the best coverage and quality network in Turkey.

Throughout the year, we designed and effectively communicated many customized offers providing the most advantageous campaigns [in tariffs] for the largest community.

Distribution channel is very important for us. Realizing this, we have put a lot of emphasis on non-exclusive channel. Now, we are turning the channel into a sales force on with the latest technologies, smart phones, and our value added services.

We believe our channel will continue to play a key role in our competitiveness in the future. Our increased focus on value added services emphasize community advantage through our corporate, customized projects in office solutions. You see examples of some of the differentiating value products on slide. I just like to underline that in Barcelona last week, during GSMA, we won a GSMA Oscar on Best Mobile Advertising Services, valuing the business model we have implemented in Turkey.

Our focus is definitely in this area, and we believe that we will continue to be the provider of creative solutions for the sector and our customers. Co-branding offers for youth and corporate members continued. Benefits utilized by 6 million members totaled TRY120 million Turkish in 2008. This is widely accepted and appreciated in Turkcell in Turkey as it contributes to individuals in businesses welfare very much.

In 2008, we are proud to have extended our value propositions into this sixth one, that is Turkcell contributed to Turkey's growth. Social responsibility programs play a key role in Turkey's future. And in this area, we think we really touched the hearts and minds of the public and contribute to their lives greatly.

We are particularly proud to have opened that we have a (inaudible) call centers during 2008, now coupling with Eastern parts of Turkey creating employment opportunities and supporting educational programs for youth to further contribute to the economy and the country's social well being. We will continue to be a contributor in this area as a leading Turkish company, particularly through combining the benefits of our sector and technology developments.

Slide 8, the GSM market continued to grow with mobile penetration in Turkey reaching 92% as of 2008 year end. In an increasing competitive year, we saw a continuation of our competitors aggressive subscriber acquisition initiatives, dealer activities in campaigns to manage price perceptional subscribers.

However, we continue to grow our subscriber base and thanks to our value focus increased our postpaid subscriber share in total subscriber base to 20% in 2008 from 18% in 2007. Our offers helped encourage loyalty and enabled us to keep churn under control in an intensifying competitive market.

Our initiative not only draw increasing usage but also helped sustain Turkish lira ARPU at 2007 levels despite the dilutive prepaid subscriber base. We successfully maintained our market share 56% for four quarters in a row and increased our share of traffic while ensuring best quality networking in the Turkish market.

In 2008, we not only we had maintained market share and increased traffic share, but we have also generated higher revenues ensuring an increased in the revenue share as well. This is clearly a result of our efforts to create incentives, it allows win-win situation for us and our customers. Going forward, revenue share will be one of our key focus areas.

Moving to the next slide, I'll focus on the operational performance of our GSM business starting with the subscribers. Slide 9 -- our subscriber base reached 37 million showing a 4.5% annual increase in a market slowing growth. For the year as a whole, net additions stood at 1.6 million subscribers, 69% of which were postpaid additions.

Despite the introduction of Mobile Number Portability, net additions in the fourth quarter of 2008 increased 10% compared to the fourth quarter of 2007 to 651,000. Throughout 2008, we focused on the postpaid and the corporate segment through [executive] acquisition and retention campaigns, which also promoted switching from prepaid to postpaid subscriptions.

MOU increased by 55% to 108.2 minutes in the fourth quarter of 2008 and 26% to 95.9 minutes in 2008 on annual basis. This was primarily due to the positive impact of successful [tariff plans and] campaigns and the effective communicational such actions to manage subscribers price versus perception, despite the seasonally lower usage.

In the fourth quarter and full year of 2008, Turkish lira base blended ARPU remained broadly at 2000 levels at TRY18.6 and TRY80.4 respectively. Despite the increasing interconnect rates and the diluted impact of prepaid subscribers.

To summarize, 2008 was a year of solid operational performance despite the macro economic and competitive challenges throughout the year along with the regulatory hurdles we had faced during the first quarter. At this time, I would like to talk about our thinking for 2009 briefly.

Slide 10 -- as Turkcell Group continued market leadership in Turkey in our home market is a top priority. Accordingly, we will emphasize propositions favoring them to the changing dynamics of the Turkish GSM sector and the Turkish society as a whole. We will underline the value of the Turkcell brand.

We will continue with our technology leadership through introduction of the latest technologies and solutions. As I highlighted before, we will focus on 3G and differentiate us from competition in quality, coverage, and speed.

Continuous improvement of distribution channel capabilities will be another priority for us. To drive customer satisfaction and loyalty, we will focus on offering major customer experience through simplicity, personalization, and interactivity. We believe we will make the best use of 3G technology in this area.

We will continue to defend market share particularly in those premium segments and create [stickiness] through various services to increase loyalty. I'm very pleased with our achievement in this area in the year 2008. The main drivers of growth will be increasing minutes of usage and additional value added services and associated revenues.

We believe 95 minute levels of average monthly usage is still low for Turkey and we can stimulate further usage through win-win scenarios despite macro difficulty. I would like to point out that we had great success in 2008 with the implementation of smart phones such as Blackberry Bold and iPhone 3G.

We think this market is not nearly tapped and there is a long way to go. We believe reduction of mobile Internet taxes from 25% to 5% will also be instrumental in exploring data related business through 3G.

Now, I will move on to the Turkcell Group. Slide 11 -- on this slide, I would like to go through Astelit's financial and operational performance in Ukraine. Astelit increase its revenues by 71% and improved its EBITDA margin to almost 7%, recording full year EBITDA margin for the first time in 2008 in an economically and politically challenging environment.

Throughout 2008, Astelit has been the leader in the net additions market in a very competitive environment and successfully improved its subscriber market share from 16% to 20%, while increasing its revenue share in the market 10.4% from 7.4% compared to a year ago.

Astelit grew its subscriber base to 11.2 million while the three month active portion increased to 53% of the total. Currently, we are concerned about the unstable political and macro environment in Ukraine, which also caused Grivna to depreciate around 52% against US dollars as of December 31st, 2008 compared to the previous year.

Having observed this unstable and challenging environment is continuing into 2009, we are cautious reduced our capital expenditures in the fourth quarter of 2008. In 2009, despite the severe macro economic challenges in the Ukrainian market, based on our growth projections, we expect to spend higher than 2008 CapEx.

However, we intend to evaluate CapEx on an ongoing basis based on developing market conditions. Going forward, we expect operational expenses to increase particularly during Q1 2009 and therefore, we may not have similar EBITDA margin trends as in the fourth quarter of 2008.

In summary, our Ukraine operation is challenged by economic conditions. However, our focus will continue to be improving operational profitability of the Company. Now, I will talk about our Fintur operations on slide 12.

In Fintur, we hold 41.45% stake and we are pleased with the value that Fintur operations are generating. Fintur operations in Azerbaijan, Kazakhstan, Georgia, and Moldova continued their successive growth in 2008. Its subscriber numbers increased by 2 million to 12.8 million in total at the end of the year.

In Azerbaijan, Kazakhstan, Fintur maintained its leadership position and became market leader in Georgia. In the fourth quarter, its strong operational performance, Fintur recorded $473 million consolidated revenue with a 12% year-over-year growth, and its contribution to our bottom line increased to $42 million.

In 2008, Fintur's consolidated revenues increased by 23% to $1.8 billion and income that Turkcell recorded based on the equity pick up methods amounted to $151 million, up from $109 million. Now I will talk about the objectives of Turkcell Group.

Slide 13, we expect to continue our growth in our core business in Turkey through mainly increasing voice and data usage. As the mobile penetration is expected to increase slightly in 2009, our main focus will be retention of our customers and increasing activity in our [12 million] subscriber base.

We do expect growth in our international subsidiaries despite difficulties in macro environment in Ukraine and Belarus. However, in Ukraine, we will continue to grow revenues through increasing subscriber base and usage. And in Belarus, we plan to rapidly take market share from competitors turning back into a viable service providers.

I'm very pleased with Tellcom's progress in fiber optic rollout since 2007. We have already started to create pleasing synergies between Tellcom and Turkcell. We believe these synergies will increase on a timely basis during 3G implementation phase. We expect Tellcom to continue to invest selectively and as necessary to fiber infrastructures.

From a future fixed mobile convergence standpoint, we also value Tellcom business a lot. In 2009, we continue to explore new business opportunities. We see the future and room for growth in mobility, internet, and convergence.

Convergence of communications Information Technologies. We believe that availability of latest technologies in Turkey, we expect to continue focusing this area and turn it really into an advantage for our future business.

Internationally, we are currently evaluating Macedonia operator COSMOFON. We have not made the final decision to bid, but it is in consideration. We expect to continue to look at various international acquisition opportunities provided there is reasonable pricing and strategic reason for us to expand.

Recently, we had qualified to bid for the national lottery in Turkey through our subsidiary. As you know, we are in a remote betting business through Inteltek already in Turkey. We think national lottery also can be very interesting and quite profitable business. We will give you updates later on this as we are developing our position.

All in all, to summarize our expectations from guidance perspective, in 2009 we will aim to achieve revenue growth in Turkish lira terms. However, this growth should not be higher than growth in 8% in 2008, depending on market conditions. We do expect some margin pressure due to volatile macro environment and increased competition. We will continuously evaluate our cost structure throughout the year.

We plan to double our investments and spend $5.3 billion in Turkey on 2G and 3G regulated expenses, including license fees and other consolidated subsidiaries. CapEx for the international subsidiaries will be approximately $300 million. I will now hand over to Serkan to talk through our financials.

Good morning and good afternoon to all participants. Now, I will talk about our financial results. During the last quarter of 2008, the volatile global market resulted in 33% and 59% depreciation of local currencies against US dollar in both Turkey and Ukraine respectively.

Significant devaluation in both countries negatively impacted our fourth quarter financial results in US dollar terms. Despite the sharp decrease in interconnection rate and significant devaluation during the last months of the year, our revenues increased by 10% in 2008 mainly due to increased subscriber base, usage growth, along with price adjustments, and also increased contribution or consolidated subsidiaries mainly Ukraine.

During the fourth quarter, even though Turkish revenues grew by 9%, we recorded $1.6 billion revenues in this 12% decline in US dollar, along with the depreciation of Turkish lira and Ukrainian Hryvnia.

In the fourth quarter nominal EBITDA declined to $525 million, while EBITDA margin was realized at 33% mainly due to our increase in cost space in line with our expectation in an increasingly competitive environment and also introduction of Mobile Number Portability in Turkey.

In 2008, nominal EBTIDA almost remained flat at $2.6 billion, while EBITDA margin decreased from 42% in 2007 to 37% including the effect of lower revenue growth compared to higher cost space along with absence of one time positive items which have positively contributed last year.

Net income in the fourth quarter decreased to $320 million mainly due to lower EBITDA amount and higher translation losses from Ukraine operation.

In 2008, net income increased by 36% to $1.8 billion and net income margin improved by 5 points to 26% with significant lower translation losses, lower depreciation expenses, and higher interest income.

Moving on to the next slide, direct cost of revenue decreased by 6% in Q4 mainly due to decreases in depreciation and amortization expenses despite higher network-related expenses and hence that cost coupled with absence of the one-off positive Treasury share impact recording last year. However, direct cost of revenue has remained flat in 2008, as percentage of rating is mainly due to lower depreciation and amortization expenses.

Despite increasing bad debt provision, administrative expenses as a proportion to revenues remained flat. Although in absolute terms remain in Q4 '09 -- '08, the share of selling and marketing expenses in revenues increased from 18% to 21% during the quarter.

In 2008, higher selling expenses [with] higher acquisitions and restructuring in the sales channels, as well as high for prepaid usage fee less than 19% increase in selling and marketing expenses as a proportion to rating is selling and marketing expenses increased by 1 point to 19%.

Given the continuing volatility in the global economy, we are taking necessary steps for increasing group cost efficiency to offset the pressures from both the macro economy and the competitive environment. And also we are very determined to keep our cost base under control.

Moving on to the next slide, Sureyya quoted a consolidated EBTIDA of $2.6 billion in 2008 and continued to generate strong operational cash flow during the year. In 2008, the major cash outflows were $808 million for CapEx for which $653 million (sic) was related to Turkcell and other subsidiaries and $156 million was related to Ukraine.

Additionally, $882 million for corporate tax payment, $502 million for the dividend payment in May 2008 and finally $300 million for the acquisition of BeST in Belarus. Our cash balance increased by $165 million to $2.3 billion at 2008 year end. We are keeping around 50% of our cash in hard currencies such as US dollar and euro.

Our consolidated debt amounted to $786 million as of the year end for which $542 million was related to Ukraine. All of our consolidated debt is floating rate, denominated with either US dollar or euro, and $656 million will mature in less than a year.

We are continuously monitoring the markets and the alternatives to implement correct strategies for securing currency liquidity and also reasonable return on our cash. We are behaving in a conservative manner for the management of cash position. We do not carry [derivate] instrument and we are mainly investing in short term with maturities less than a month.

In 2009, we are anticipating higher cash outflows. We expect to increase CapEx to fixed and 3G investments in Turkey and network rollout in Belarus. Make higher corporate tax payment, pay dividend to our shareholders', finance in our local and international subsidiaries. And finally invest in the business opportunities in local and international markets. This is the end of our presentation. Thank you.

Thank you, Serkan. At this time, we would like to hand over to Sarah for managing the -- opening up the Q&A session. I would like to please ask you to limit your questions to two and then possibly can back and additional questions. Sarah, if you can open up the session for questions?

Thank you, sir. (Operator Instructions) Thank you. Your first question comes from Mr. Alex Wright with UBS. Please go ahead with your question.

Yes, hello. Good afternoon. I had a couple of questions on the cost. The cost of revenues you mentioned two items that driven that hand set cost and network maintenance.

Just wondered if you could elaborate further on those and in particular -- what had caused the network maintenance cost to increase -- what the outlook is for that cost item -- and what is pushing these handset cost up? Are you continuing to start to more aggressively subsidizing handsets, are you anticipating to continue with that strategy?

And then just connected with that question, on the margin guidance for 2009, which cost items specifically would expect to increase as a percentage of sales to bring the margin from the further pressure this year. Is it sales and marketing? Is it cost of revenues? Yes. If you elaborate on that it would be great. Thank you.

This is Serkan. Regarding your first question, the expense base increase related to network is due to the rollout in Eastern parts of Turkey. We have (inaudible) operation in eastern part of Turkey. So, in Q4 specifically, we incurred one time expenses related to the rollout there. And coming to the term loan side, you remember we started our iPhone sales in September 2008. Therefore for Q4 specifically there were some iPhone fees to our subscribers on a long-term contract basis that we didn't have any such contract before Q4. Therefore, those are the main two reasons for the increase of --

Okay. Can I just follow up on that? You mentioned that the network maintenance item was a one off cost. Can you quantify that or give us some idea of the size of it?

Actually, it's not network maintenance. It's the rollout of (inaudible) operation there?

So, the rollout of which operation?

(inaudible)

What happened is we usually have Ericsson equipment in 100% of the locations. We decided to also try Huawei and take out some of the Ericsson equipment from the Eastern part and move them to the Western side and install new Huawei equipment on some of the eastern cities. Because we also think Huawei will be one of the formidable vendors in the future. And this transaction has some CapEx advantages and we also wanted to have experience with Huawei equipment.

And during this rollout and also because of increased traffic in this regions, we did have above budget expenses, operational expenses, and as Serkan said this was mainly one time charges and this originated because we were experimenting with this new equipment and we had some unusually new expenditures that we had to make to improve the systems performance.

Okay. Thanks. That's very helpful. Could you give some idea of the magnitude of that one off costs so we can make the adjustments?

It's around $10 million.

Okay. Thank you. And on the side can you give any idea of again the size as to how many subscribers or how many handsets you have already sold -- whether that is continuing with the similar rate?

No. I don't think we can give too much information in this phase for competitive reasons. But we haven't changed our philosophy or strategy. We do not subsidize or we do not have a subsidization of handsets model widely used in our system. I mean we may do campaigns, but, in general, our marketing campaign do not include hardware terminal subsidies.

Okay.

We will continue with that strategy going forward.

Okay. Thank you. And then returning to the final question is to when you look at your guidance -- the driver, it's a margin pressure that you are seeing. Can you comment on which is the big barrier to see the cost increasing?

I think we are making this guidance -- it is more of a general guidance because of the economic uncertainties in some of our markets and some of our expenses are dollar based in some of these markets and that is one factor. And we also wanted to leave some room for ourselves because intense price pressure from our competitive actions. But we also plan some cost reduction, cost efficiency programs. So, this is why we are making this guidance but we are optimistic that we will be able to grow our business with profitability in 2008.

Okay. Great. Thanks very much.

Thank you. Your next question comes from William Kirby with Nevsky Capital. Please go ahead with your question.

Hello. Yes. Thank you. I also have two questions. Coming back to Alex's point on handset subsidies as well as the iPhone -- are you going to be launching any other handset subsidies in the future? And then secondly, what was the ARPU of these subscribers which you got from Avea and Vodafone? Thank you.

Actually to your first question I mentioned we are not making handset subsidies. We are contracting our customers for a long-term contract and handsets are bundled with those contracts. So, if the first month of the contract we are incurring the costs and the rating of the contract and during the life time of the contract, we are incurring the communication revenues. So, in our financial view, you are seeing the handset revenues and the cost attached to those handset -- contracted subscribers that's not handset subsidiary actually.

As for the second question, in terms of acquisitions from [M&T] from competitors, we can state that we are quite happy with the level of ARPU contributions. To give you a feel, it is better than average prepaid ARPUs we are seeing in our base of subscribers. And it's also important to know that we have a very good success on the retention side with retention of our premium subscribers. The impact we've seen actually is better than we had originally considered.

Okay. Thank you.

Thanks.

Thank you. Our next question comes from [Istvan Mate-Toth] from Credit Suisse. Please go ahead with your question.

Good afternoon. Istvan from Credit Suisse Two questions, the first one is the follow-up on you margin guidance. I just want to better understand your'09 margin pressure. Are we talking about margin pressure to guidance? Are we talking about also some pricing pressure or is it's the assumptions come from cost of site, i.e., retention or recuperation costs?

And my second question is regarding the potential synergies you have mentioned between Tellcom and Turkcell, can you quantify for '09 or longer term potential savings from your fiber optic -- switching on transmission costs on an annual basis? Thank you.

Istvan, thank you for the question. We don't really want to elaborate further on the margin pressure that we have already gone through. Mr. [Gilan] has already explained that. We will look into potential cost saving as well through out the year, but it will depend on competitiveness, the pricing pressures and along with macro. So, we will do our best in that area, and as we get more clarity probably during Q1, after Q1, we will be able to be more specific on that guidance.

And regarding the second question, we are currently paying to telecom more than $100 million transmission fees on an annual basis. And after 3G, specifically the transmission need of the Company will increase significantly. Therefore, during the forth coming year, the potential savings are very weak.

Can you provide some magnitude regarding -- I mean how much of this $100 million are you planning to save, 50%, 20%, all?

It will become more meaningful within the next two years or so. I think we still are not looking at major, major savings in the first year or two. Also our strategy of investments into this fiber optic will depend on two telecoms pricing polices. If they reduce and offer -- if they reduce their pricing and offer us very competitive pricing, we will always reevaluate our strategy to buy versus billed.

Okay. Thank you very much.

Thank you. Our next question comes from Thomas Chadwick from Banc of America. Please go ahead with your question.

Good afternoon. My question is looking at your CapEx, what kind of discounts are you getting in this environment when you cut CapEx? And second question is, of the $300 million that you are spending internationally, which specific areas are you actually going to be investing that into?

We are getting significant discounts on the equipment. We have created a very competitive bidding environment between the top 4, 5 vendors. And -- and that's the answer to question one. I think we really are seeing a lot of introductory pricing as you know, we were using a lot of Ericsson equipment and Chinese operators who are very interested to be out reference sites, references with large companies like Turkcell. And so we are benefiting from the competition.

Second part of the question, FX related to international. This is about the Ukraine market and Belarus. Although, Ukrainian market is going through really difficult time as an economy these days, we believe in the long-term potential of Ukraine and our Company is making very good progress. And as a result we plan to support the expansion of the network at reasonable cost through the vendors that I just mentioned. And in Belarus, we are building a new network. So, we have investments to make. So, those two countries will be --.

How much would go towards Belarus and how much would be in Ukraine, what's broadly the split?

Approximately one-third is related to Belarus, the rest is Ukraine.

Great. Thanks very much.

Thank you. Our next question comes from [Herve Drouet] from HSBC. Please go ahead with your question.

Yes. Thank you. My first question is regarding operating expenses. Can you remind us how much of your perking expenses are hard currency? Are they US dollar or euro [there's] local currency the presentation would be useful.

And my second question is regarding for the shareholders' -- what is your expectations in terms of rewarding shareholders'? I mean do you expect to pay a dividend as last year or an increase dividends, basically what do you think of the use of cash and CapEx is one thing you are looking at. Are there any changes in terms of their return to shareholders'? Thank you.

Regarding your first question, I would like to answer in two separate sections. The first one is the ethics of vocational expenses in Turkey. We have around 70% -- 80% of expenses are in Turkish lira base. And in Ukraine, around 75% of the Ukrainian operational expense are also in local currency. The balance is either in US dollar or euros.

Okay. Thank you. And for the recent shareholders' fees?

On the dividend side, we plan to make this decision in April timeframe to be approved by our General Assembly. And we will be considering all aspects of this before the decision and obviously this will be a final decision by the -- that needs to be approved by the Board of Directors. So, I cannot say more that that at this time.

Okay. Any comparison with last year, I mean any indication compared with last year?

I think we would rather keep -- stop at this point and we need to discuss the issue with the Board. I don't want to give wrong guidance. It's still, we have a lot of thinking to do with the Board of Directors.

Okay. Fair enough. Thank you.

Thank you. Our next question comes from Lena Osterburg from Standard Chartered Bank. Please go ahead with your question.

Well, it's actually is SEB Enskilda Bank in Stockholm. I have two questions. First of all, you had very strong minutes of using 55% in Q4. Now I was just wondering how much of this is related to campaigns and how much is underlying usage growth? Do you expect this to have any effect on CapEx going forward? Then the second question is, do you have any sort of views on how long this higher level of marketing spend will be in the market related to Number Portability?

Okay. The first question about needs of usage, yes, it has increased from 69.9 points to 108 points, but it is important to realize that last year in 2007 fourth quarter, there was an unusual circumstance because of a decision by the telecommunication authority, the regulator, that were limited to do any campaigns under the interconnect prices.

As a result, we were not able to promote many of our normal campaigns. And as result, I think overall, if I remember correctly in 2007, Q4 was relatively low year in MOU. And if you look at year over year, really it's a more balanced comparison. The MOUs have increased 26%.

But you have strong increase in Q3 as well, right?

Q2 and Q3 is seasonally high quarter and combined with strong campaigns after Q1 particularly, it's taken its toll and minutes have increased. And mainly the boost is coming from these campaigns. This is also valid for Q4. So, we are not necessarily stating that it's an impact from free usage. It is mainly campaigns, and incentives and people mainly used more. I'm told that we are the only market leaders -- mobile operative company that has gone through Mobile Number Portability with a gain, net add, positive net add. So, I mean definitely 2008 is a year to [get ready] for Number Portability and to remain very competitive. And I think our strategy has worked.

Thank you.

Thank you. Our next question comes from Anna Bossong from UniCredit. Please go ahead with your question.

Yes. Hello, thanks very much. My first question relates to your traffic and tax rate in the fourth quarter. Would you just run through a little bit what caused that? And second one was the liability that you generated FX losses on. I was just wondering - Astelit obviously was a major part of that, but I assumed most of Astelit's borrowings where to use, that will be eliminated. Could you just run through that little bit?

Regarding your first question, the effective tax rate tends to be higher than the previous quarters in Q4. That is basically because the losses that's we consolidated mainly from the Ukraine operations. If we eliminate the net losses coming from Ukraine operation, the effective tax rate of Turkcell, Turkey which is the main tax paying entity in the Group is around 20%.

So, there wasn't any significant change in that effective tax rate. And going forward, you can take the effective tax rates of Turkcell, Turkey around 20%. And moving to the next question, the FX losses, did the breakdown of losses in Q4. I can say that total FX losses that we reported in Q4 is $160 million. Actually if you breakdown that amount between the entities, we recorded $217 million, FX gain from Turkcell, Turkey. However, the $233 million loss from Ukraine and $66 million loss from Belarus. So, net basis, we are including FX losses on a consolidated basis.

There were $217 million and $233 million and $66 million, is that correct?

That's correct. And the balance is coming from other subsidiaries.

Okay. Could I also ask -- would it be possible in future to have interest and common expense [ForEx losses] in your account. You give a lot of detail in the areas that's very hard to find that sort of basic building block financial data?

Okay. We can I think.

We can consider that.

That would be lovely. Thank you.

Thank you. Our next question comes from Handzade Kilickiran Nomura International. Please go to the question.

Hi, my question is regarding to your cash management. You already mentioned that you kept [60%] of the cash in hard currency. And I wonder [considering] that your CapEx increased $1.6 billion and down $785 million net debt provision. Are you planning to hedge on position through increase in hot currency position, and what is the current rate in the total cash position? Is it possible to give some numbers about that?

As of today, actually we have allocated 45% of cash in hot currencies US dollar and euros. And going forward, under theses economic conditions, hedging is very expensive from our perspective. Therefore, we are going to continue to focus on maintaining our cash balances, according to our forthcoming liabilities in terms of local currencies and foreign currencies. So, in the short term, we do not consider to hedge because it is very expensive.

Are you planning to increase you hot currency -- covert from Turkish lira to dollar because of heavy -- But are you planning to increase your hedge currency rate in compared to some Turkish net to dollar because of the continuation of weakness in the local currency as both in Turkey as well as in Ukraine?

Actually, in Ukraine, more than 90% of our cash is in US dollars so we are to limit there. And in Turkey, as I mentioned before, around 80% of our expenses are in Turkish lira. Therefore, from an operational cash flow perspective on that, the liabilities are mainly in Turkish lira. Therefore, keeping the hot currency allocation around 60%, it's an upward Cap is okay for us at this moment.

Alright. And thanks.

We have a follow up question from Mr. Alex Wright. Please go ahead with the question.

Yes. Thanks to guys. I have one question on the revenue reported from call center revenues and other revenues that was strong in the quarter. Is that increase mainly due two iPhone sales or is there something else that caused that to increase. And if you could just comment on how sustainable that is based? And then on the depreciation expense that has come down quite a bit in the quarter, is that just a [function] of exchange rate or it is also coming down on an underlying basis at this point?

First question, I think the increase in our call centers expenses and revenue is related to --

The increase in the -- if you look at the line, the definition is cost on the revenues and other revenues which include the handset revenues. So actually you have given the answer to your question, the main increase is coming from the handset bundle products which are mainly iPhone and Blackberry.

Okay.

And the second question, decrease in the depreciation expenses. There are two reason, two main reasons. The first one is, again, you gave your answer to your question. A fixed devaluation in Ukraine decreased the depreciation expenses coming from Ukraine, and the other reason is that they have some 100% depreciated items in the network. Therefore, the network expenses in Turkey is slowing down. Those are the main two items for the decrease in depreciation and amortization expenses.

Okay, thank you. Maybe another one just one more general question, is that okay? You talked in your presentation a number of times about competitive pressure increasing further. Again, presuming this is which why we have seen some increase in competitive pressure historically. So I'm just wondering where is the additional pressure coming from incrementally from here. It seems that Vodafone is rebuilding, they are really just taking on new management, your churn has been coming down, you have your revenue share has been increasing as you pointed out. Can you elaborate on where the additional pressure is coming from? Where do you see it coming from in '09?

We always say there is intense competition. I think Turkish market has been very competitive. Vodafone entered this market almost three years ago and I think we have competed very effectively against them. If you have followed their latest quarterly financial announcements, I think they declared Turkey is one of their worst performing subsidiaries among 27.

But we think Vodafone is obviously a very strong company, a very global company and they have a lot of advantages, and they do have a new talented management, and I'm sure that they will be a serious competition for us. And on the other side, we see Avea is doing well in the market, and in some cases, starting to do better than Vodafone in the market, so we have to watch very carefully, Avea as well.

But has there been any specific shift would you say in recent weeks, or ever since it's become a more (inaudible) than you were before?

Yes. I think in 2009, in February, I mean this month Avea has introduced a new campaign it says, "In every direction, unlimited for 55 lira." And obviously, this is a very competitive offer, and we have responded to this with an attractive offer ourselves. So we see a lot of price competition in the market at this time.

Okay, great. Thank you very much.

Thank you. (Operator Instructions)

Sarah if there are no questions -- are there any question, Sarah?

Yes, we do have two questions. First question comes from Duygu Kalfaoglu from Garanti Securities. Please go ahead.

Hello. I would like to ask a question regarding your wages and salaries expense, although the number of personnel hasn't gone up that much, this figure has gone up by 30%. Could you give us a little bit about what happened there? And also, could you share the involuntary churn towards 2008, and also, can you talk about your bad debt expense or your uncollectibles? How has that fared in 2008? And going forward, how do you think that (inaudible) will be in 2009? Thank you.

Regarding your first question with wages and salaries, wages and salaries are mainly based in the local currencies in Turkish lira and Ukrainian Grivna, and it adjusts on an annual basis I as good [inflation]. Therefore, the first reason is the inflated raise in salaries based on the inflation.

And the second one including the head counts mainly coming from the acquisition of Belarus operations. And those are the two main reasons regarding wages and salaries increased. And regarding your last question about bad debts, we are recording 100% provision for a lot of receivables which we cannot collect for until or more than one year. So we are booking 100% provision for the receivables which are aged more than one year. And for the last 12 months, we are recording a provision no basis, based on a percentage, the rate of formula, actually.

And as you can estimate, since the beginning of the year, the economy fundamentals in both Turkey and Ukraine are getting worser, and the payment habits of the customers, mainly the mass consumer segments are getting worser -- are getting worse, actually. And based on this provisional methodology, we are including our bad debts provisions.

And of course, even though we are increasing our bad debt provision, of course, we are taking necessary actions including illegal actions to collect our receivables. Therefore, those actions that are still pending, but to be on a conservative side, we have increased our provisions for those not for receivables actions.

Can you share by how much you've increased your bad debt provisions for 2009?

If you compare on the year of the basis, the absolute number downsize they're around $30 million to $35 million. I mean, the provision that we have recorded in 2007 versus the provision that we have recorded in 2008.

Okay. Thank you very much.

And as for the involuntary churn question, we can say majority of the churn, i.e., about 90%, is involuntary, so, we don't have a trend. It shifts in that area.

Okay. Thank you. Thank you very much.

Perhaps we can take a last question, if there is still one.

I want to make a final comment.

Before the final comments.

Okay. There seems to be no further questions at this point. Please continue with any further comments or issues.

Final comments.

Okay, this is Sureyya. In many markets, mobile number portability is an important milestone and in the Turkish market, there has been a talk of changing market dynamics after this Number Portability. And I think we really prepared well for this process and we discommunicate our value proposition and the fact that it is the best versus alternatives in the market, and we were successful in coming out of this process with a net add gain.

I am also extremely encouraged by the progress our Company has made in transition from being a simple GSM voice operator, being a carrier, being a down pipe into a mobile application services provider to consumers and businesses. I think if you look at our value added services, it used to be only 12% in 2007. It now is 14% in 2008 and there was more than double, more than 20% growth in value added services -- actually, 27% in dollar terms from 2007 to 2008. And the Company has made a complete adjustment to the new world of new era of connected world, where these mobile Internet devices, mobile computing devices, mobile phones, mobile entertainment devices are going to be in the future.

The Company has made this adjustment and we have a technology center, where we are innovating new services that are specific to our Turkish markets. We are sharing these services with our subsidiaries in the area in the eight countries and we are very much encouraged that this will be a very important differentiation point going forward.

It is very important to note that, number one, we have faced competitors that are significantly bigger than us on a global scale, but we have competed extremely effectively in the marketplace against them. The Company has a 15-year-old history and has become the most valuable company in Turkey, in the Business Week list, 25th most successful company in the world among all 30,500 technology companies worldwide.

We are very encouraged by this progress. It is important to note that last week in Barcelona, Turkcell won the Oscar in mobile advertising services, and all of the largest telecom providers, and mobile operators are extremely interested in mobile advertising services. On top of that, there are other companies like Microsoft there also.

We are competing in this category against them and it is, I think, very impressive that Turkcell won this award, became number one in Turkey. And it is very interesting that we already have 7.5 million people who have given us permission to receive mobile ads. I also have to point out that in 2007, as you know, our competition did enter the 3G tenders. And one year and two months passed in November, the 3G tender was conducted again and we won the A-license. And I think 3G will open up a new space, new area that we can differentiate our services versus competition.

In the end, I also want to say that I think our distribution channel has been a very strong competitive advantage, both on the exclusive side and also on the non-exclusive side. We have invested a lot into this channel, giving better services to the dealers. We have provided a lot of training to the people in the channel. I think all of these factors contributed to our unusual success in our number portability.

Lastly, I want to point out that we have one of the best industrial practices on a global basis in human resources management, talent management leadership programs. We believe that in the end, people in the companies using their minds, working hard, being creative make a difference and I think Turkcell is, over the years, consistently recognized as the most admired company in Turkey, best brand in Turkey, and I am sure that people of Turkcell team make a huge difference. They made a huge difference in the past and I think -- I am confident that they will make a huge difference in the future.

We also value the people who are working in our ecosystem that are close to 50,000 people. We are very fair, open, and we provide great opportunities to them. I also am very proud that we defined our business not only as a GSM voice company but leading the trend in the changes as a company of service provider being valuated services high on our agenda, and I think -- I feel very good going forward that in the mobile world, we'll be able to offer all the valuable services to our consumers, customers, and also our business customers.

In our business segment, our sales force is the best in the country and our growth in the corporate business has been significantly higher than consumer side. And also, the valuated services in the corporate side have been significantly higher than the company average. So, this company not only has been successful at the time. I think it's getting ready to compete very well in the future.

So, with all of these, thank you very much. This was the first meeting after number portability. This is a first meeting after closing year 2008. I thank all of you for your support of Turkcell and we are looking forward to our relationship in the future. Thank you and goodnight.

Thank you. This does conclude the 2008 year-end results announcements conference call. Thank you for participating. You may now disconnect.