Turkcell Iletisim Hizmetleri AS (TKC) 2009 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the Turkcell 1Q '09 Results Announcement Conference Call on May 14, 2009. (Operator Instructions).

I'll now hand the conference over to Mr. Koray Uzturkler, Chief Corporate Affairs Officer. Thank you, sir. Please go ahead.

Thank you very much. I would like to welcome all of you on behalf of the management team here at Turkcell. At this time, we're going to begin with a presentation, and I will hand it over to Mr. Ciliv for that.

Good morning, and good afternoon. Welcome to Turkcell's first quarter 2009 results call. To start with, I want to say that I am very pleased with our solid first quarter financial results in a tough economy and very competitive environment. Turkcell's technology leadership, customer focus, and improved efficiency contributed to our success.

Our revenues increased by 12% to TRY2.1 billion, and our EBITDA increased by 13% to TRY774 million versus Q1 2008. EBITDA margin improved by 3.8 points from the previous quarter to 37%, and we recorded net income of TRY563 million. 38% devaluation of Turkish lira against US dollar had negative impact on our US dollar financial results.

As you know, we also announced a record cash dividend distribution of TRY1.1 billion for our shareholders.

In summary, our commitment to technology leadership, value-driven strategy, and innovation ensured us to maintain our leading market positions in our local and international operations.

Let's move to the next slide. I will now briefly explain some of the key dynamics in our main market, Turkey.

During the quarter, we effectively managed the competitive and macroeconomic challenges. We have seen some impact of the economic slowdown on consumers, but, nevertheless, we have been able to drive minutes and ensure revenue growth. I am cautiously optimistic about Turkish economy. The main positive is that crisis environment is not getting worse.

Competition intensified through the quarter. The word "unlimited" became the buzz word of our market. We have seen unlimited adjective used in many limited offers. We retained our valuable customers and grew our postpaid subscriber base while maintaining ARPUs. We successfully managed the number portability process. We believe we set a unique example as an operator increasing its postpaid subscriber base while sustaining our strong revenue share in the market after a full six months of MNP implementation. Now MNP has become a part of our daily life.

A very important point I want to make is this-- Our technology leadership, our superior network quality, and coverage are the most important contributors to our success. We have 16,000 base stations, almost half of all of the base stations available in Turkey. Superior network quality and coverage, technology leadership, and customer confidence are important parts of our Turkcell brand, which has become number-one brand in Turkey.

In addition, over the last two years, having reduced our (inaudible), we have changed our image from expensive to more affordable and reasonably priced. A combination of superior quality and technology and technology together with reasonable prices has been the winning formula. Our technology focus also resulted in higher value-added service revenues. Our value-added service revenues grew 26% year over year and now constitute 16% of our consolidated revenues, up 14% in the first quarter of 2008.

We extended our co-branding activities, passing on additional benefits for a wide range of Turkcell customers who get substantial discounts through our partners.

Let's move to slide 6. I would like to share information on some of the key operational indicators. In a highly competitive and slowing Turkish market, we continued to grow our postpaid subscriber base. We successfully focused on value-generating subscriptions, recording the highest growth postpaid acquisition since 2001. We increased our net postpaid subscriptions by 329,000 to 7.8 million, despite the economic downturn. However, our prepaid subscriber base declined, and we recorded a net loss of TRY595,000 during the quarter, mostly coming from the prepaid, low-ARPU-generating subscriptions.

We are pleased with the MoU and ARPU improvement compared to the first quarter of 2008. Our MoU increased by 46% to 107 minutes, due to the effective communication of our usage incentives, both for postpaid and prepaid subscribers. ARPU increased by 9% to TRY17, despite lower termination rates. This was largely due to our usage incentives and focus on value-added services revenues.

In summary, we continued to lead the mobile communications market in Turkey.

Now I will elaborate on the regulatory environment in Turkey. The authority revised mobile termination rates for the Turkish market, effective May 1, 2009. Turkcell's mobile termination rate was reduced by 28% to 6.55 kurus, which is TRY0.0655. Following the 33% rate cut in 2008, Turkcell's mobile termination rates are now 70% below the European average. However, fixed-line termination rates were unchanged and remain approximately 10% above the European Union averages.

Additionally, the asymmetry between the mobile operators continued. We have 18% differentiation asymmetry versus Avea and 3% versus Vodafone. The authority also set a lower limit for Turkcell's on-net retail tariffs and decreased the price caps for all GSM operators.

We believe that some of the regulators' decisions constitute interference with our retail pricing and may be in conflict with our license agreement and fair competition conditions. And we also think the steep reduction in interconnection pricing without any warning is unfair, especially when fixed-line termination rates are kept above European Union average. We are currently evaluating legal action to protect our rights.

However, I must also mention that we do not foresee any changes to our revenue guidance in 2009 due to these developments at this time. We will work hard and creatively to make up for these losses.

While there is intense competition in mobile communications markets, the fixed-voice telephony and fixed-broadband market in Turkey are still monopolies, with one company dominating these markets with 99% share. Nothing works forever. Turkey is a developing country, a candidate to join EU. We expect progress in regulation and opening of these protected markets to fair competition. Turkcell Group will be in a strong position to benefit from this progress.

I will now cover our approach on 3G implementation in Turkey. We recently signed our 3G license agreement and expect to implement 3G in Turkey within three months. With our highest frequency band and superior service offering, we will build on our know-how and expertise in 3G to differentiate Turkcell from its competitors with the highest speed and coverage. During this rollout, we are using the latest technologies - example HSPA-plus, with 21 megabits per second speeds - to bring a real alternative to limited ADSL offers in Turkey. Our capabilities will naturally roll into other future technologies, such as LTE, which we will begin testing in Turkey in 2009.

We keep a focused investment strategy behind 3G, covering 81 cities, the main priority being the areas where population and data usage is most dense.

We are very excited about developments in smart handsets market, as well as SIM-card-embedded netbooks and laptops. Our pilot projects about selling netbooks through our channel have been very successful. We plan to build on this market potential of new terminals and differentiating Turkcell's 3G network.

We believe, also, the (inaudible) tax reduction from 25% to 5% was very timely, thanks to government's initiative to do this. I sincerely thank and appreciate efforts of our Minister of Communication and our regulators in this area.

I will now talk about our international operations, starting with Ukraine. Political and economic uncertainties resulted in a weakened currency in Ukraine, where our subsidiary Astelit operates. However, this now seems to have stabilized. In USD terms, the total market significantly contracted due to the 62% currency depreciation. Astelit's annual revenue growth in local currency was 34%. In USD terms, it decreased by 12.3%, a significantly better performance than the market.

Despite worsening economic conditions and increased operational expenses, Astelit remained profitable. EBITDA remained positive, at $3.6 mi, with a 5% margin. There was no material translation impact during this quarter due to the stable currency.

Looking to the future, negotiations with the [INF] Commission are proceeding well, and we see new opportunities arising for the country with its October 2009 elections coming. We are pleased with Astelit's performance and remain confident in its long-term growth potential.

Now I will talk about our Fintur operations in slide 10. Fintur had 12.8 million subscribers, up 10% from a year ago. Our market leadership positions were maintained. Foreign exchange volatility again impacted the financial results, particularly in Kazakhstan, which has the largest share of revenues. Mobile usage was relatively unaffected, but the average price per minute declined as a result of price pressure and promotion campaigns. Consolidated revenue decreased by 8% compared to last year to $373 million in the first quarter of 2009. We accounted $80.1 million income for our 41.45% stake in Fintur in the first quarter of 2009.

Now I will hand over to Serkan for the financial review.

Good morning, and good afternoon to all participants. Now I will talk about our financial results.

Turkcell recorded strong financial results, despite more visible economic downturn, which led to a 38% year-on-year depreciation of Turkish lira and 53% depreciation of Ukrainian hryvnia against US dollar. Exchange rate movements in both countries negatively impacted our first quarter financial results in US dollar terms. In consequence, although revenues in Turkish lira increased by 12% to TRY2.1 billion compared to a year ago, revenues in US dollars decreased by 19% to $1.3 billion for the first quarter, mainly due to the depreciation of Turkish lira against US dollars.

During the first quarter, increased subscriber base, usage growth, and upward price adjustments compared to last year contributed positively to our revenues. On the other hand, depreciation of the Turkish lira and smaller contributions from our consolidated subsidiaries resulted in 19% decrease in our US dollar revenues.

In the first quarter, as a result of higher revenues and maintained operational efficiency, the year-on-year Turkish lira EBITDA increased by 13% to TRY774 million. On the other hand, US dollar EBITDA declined by 18% to $472 million, while the EBITDA margin broadly maintained at 37%. Quarter on quarter, the effectively managed cost base led to EBITDA margin improvement of 3.7 percentage points.

In Q1 '09, we recorded $344 million in net income, representing 29% year-on-year decline. Compared to the same period last year, decrease in translation gain resulted in a 4.1 percentage point decline in our net income margin. During the first quarter, we recorded $102 million translation gain from Turkcell Turkey, mainly due to our fixed loan position, and $34 million translation loss due to our liabilities related to the acquisition of Belarus operations. No significant translation gain or loss recorded from the Ukraine operations during the quarter.

On the other hand, net income increased by 8% quarter on quarter, mainly due to translation gains recognized in Q1 '09 amounting to $47 million, as opposed to translation loss amounting to $116 million recorded in the previous period. Consequently, net income margin improved by 6.6 percentage points to 27%.

Moving on to the next slide, year-on-year direct cost of revenues decreased by 24% to $631 million, mainly due to lower depreciation and amortization, wages and salaries, and interconnect expenses, despite higher network-related costs and handset costs, as a percentage of revenues. Direct cost of revenues also decreased compared to previous quarter, primarily due to decrease in handset costs since less activity is done during this quarter, like iPhone's launch helped in September last year.

The selling, general, and administrative expenses [on revenues] remained broadly flat year on year, at 4.7%, as the decrease in wages and salaries was offset by higher bad debt expenses. Although a decrease in nominal terms, with the help of currency depreciation, the year-on-year selling and marketing expenses remained flat, at 19% of revenues. Quarterly, lower advertising expenses and net subscriber acquisitions led to a decrease in selling and marketing expenses, despite higher frequencies of prepaid based on the number of prepaid subscribers at yearend.

Moving on to the next slide, we record consolidated EBITDA of $472 million and continued to generate strong cash flow during the first quarter. During Q1 '09, the major cash outflows were $252 million CapEx, of which $42 million was related to our Ukraine operation; $157 million for the frequency usage prepayment for the prepaid subscribers; and $108 million for corporate tax payment on Q4 '08 profits. In consequence, our cash balance decreased to around $2.8 billion at the end of Q1.

Our consolidated debt amounted to $777 million as of end of March, of which $545 million was related to Ukraine operations. All of our consolidated debt is based on floating interest rates denominated with either US dollar or euros, and $606 million will mature in less than a year. Recently, we paid 3G license fee of $453 million, excluding the VAT, and we are going to pay a record dividend of around $700 million next week. Therefore, our cash balance will decrease further in the coming days.

As a final note, we are still keeping around 50% of our cash in hard currencies, such as US dollar and euros.

This is the end of our presentation. Thank you.

Thank you very much, Serkan. At this time, we can proceed with the Q&A session, if I may remind you to limit your questions to two, so everyone will get a chance to ask questions. If I may turn it over to our operator right now to initiate the Q&A session, please.

Thank you, sir. (Operator Instructions). Herve Drouet, HSBC.

My first question is regarding your loss of subscribers in Turkey in Q1. Is it something that worries you? Do you think in the coming quarters you will have to respond to more aggressive competitions and will have to increase your marketing or subscriber-acquisition costs or launch a more aggressive offering? Where do you see the priorities? Do you see it more in terms of market share of subscribers, protection of margins? This is my first question.

And the second question is regarding value-added services. You mentioned the fact that value-added services is a growth engine in your business. Can you give us a bit more split on what is-- in Q1 what has improved value-added services? Is it more coming from SMS or is it pure data or is it iPhone usage? If you can give us a bit more light on that, that would be appreciated. Thank you.

Regarding your first question, we have always been saying that we have a value focus on the market. Therefore we are not worried about the negative numbers of subscribers. We have focused on our valuable customers specifically succeeding to increase our postpaid subscriber base, having a very successful switch from prepaid customers to postpaid customers as well. We have a premium (technical difficulty) customers. We are really closely monitoring the revenue generation of the acquisitions we are making. We are very cautious and careful about getting customers who talk and actually create revenue for us. That is why we will maintain our revenue and value focus in the coming quarters. We do not see a need to increase our acquisition costs at this expense.

Regarding value-added services-- The value-added services have been growing at a much higher rate than our revenue growth. And the main driver is data growth, both on consumer and corporate customers. The data revenue growth has been 90% in quarter one of this year versus the quarter one of last year. And we believe that value-added services' growth will continue and increase with the launch of 3G as well.

I would like to add that our priority is growing our business in a profitable way. When I say that, I mean growing our revenues and also growing our profits. So, since these are the important priorities for us, we are very keen on protecting our valued customers. But subscriber number by itself is not our top priority. They're as important as their impact onto the revenue and bottom line.

I also want to point out that I expect, overall, the market in Q1 to have a decrease-- decline in net adds. One of the operators has not announced their quarterly numbers yet, but we expect, overall, for the market to have a negative net add.

And I am very pleased and confident about Turkcell's maintenance of its revenue shares over the last two years and one quarter.

Okay. And do you perceive the competitive environment worsening, or do you think it's stable at this stage?

I didn't understand the question. Can you repeat, Herve?

Do you perceive any change of the competitive environment in terms of the offers that are currently proposed in the market? Do you see any change? Is it worsening, or is it stable at this stage?

I actually think that-- I should say I am optimistic that the market will become a lot more rational in the future. I think we have seen one of the operator's significant decline in their EBITDA margin. And the other operator is suffering from similar results. The result, at the end of the day, I think everybody wants to recoup their investments. So I think the market--

I also mentioned in my comments that three or four months ago, unlimited offers in all directions started. But these offers are quickly evolving into limited offers, and unlimited is becoming a sexy marketing term - a buzz word in the market. But there is a shifting of these offers into, really, more limited offers, although they may be unlimited in a certain bracket or range or certain time bracket.

Okay. Thank you.

Alex Wright, UBS.

My first question is just relating to the telecom authority's ruling on net pricing. As you said, you're planning-- You're examining your options as far as legal action may go. But could you give us also some thoughts on what action you may have to take on your tariff packages and whether there are any specific adjustments to certain campaigns that you've had to make or you think you may have to make and which packages those apply to, please?

My second question is on the impact of the various unlimited tariff campaigns you've described on your postpaid ARPU? It looks as though in the first quarter your postpaid ARPU was quite resilient. But I've been hearing from at least one of your competitors that a lot of the subscribers that they are taking on to their unlimited package have also kept their Turkcell contract. So I'm just wondering whether you expect to see more of an impact on your postpaid ARPU going into the second quarter and onwards from that. Thank you.

I will make a comment, and then I'll have Lale add onto it. About the telecom authority's decision on on-net, Turkcell, at least while I am here, and I'm sure it was happening before-- We have seen a lot of challenges in our business, either from competitors, or economy, or regulators. And it is our job to manage these and find solutions to the challenges that we face. And I am very confident that we have achieved-- It is now kind of seasoned about dealing with these challenges.

And I personally think the latest ruling is not as harsh as the ruling we had last year. If you notice, this one has a lot more weighted-average components to it. Last year, it did not have this weighted-average component. And we have a much fewer number of tariffs that are impacted by this, and we are willing to make the adjustments to comply with the ruling. Lale, would you like to add?

The comment on the postpaid ARPU (inaudible) in the quarter regardless, but we say that we expect the ARPU to stay around the same level. There are a couple of reasons. First of all, we have a lot of new acquisitions into postpaid who haven't-- below the average postpaid ARPU, so that is negatively impacting our average ARPU while increasing our postpaid base. We also have a good number--

I would like to add that, although they may be below the postpaid ARPU, most of these customers are spending more versus what they were doing as prepaid customers.

Yes. I was referring to prepaid to postpaid switch, as well as new acquisitions that we are getting fresh from the market. So these are-- It is bringing the average ARPU down, but we are increasing the number of our postpaid package customers, which is bringing some revenue reassurance and upgrading customers' ARPUs to a stable level through the packages. So, in the average of all these effects, we expect the postpaid ARPU to say around the same level.

Okay. Thank you. And, sorry; just returning to the first question, as you said, the ruling probably isn't going to have such an impact as last year and it only really impacts a small number of packages. But, looking at those specific package-- For example, does it prevent you in any way from competing directly with, for example, Avea's unlimited package with a similar package? I think you have a TRY65 package out there with unlimited on-net minutes and then a large number of off-net minutes. Do you foresee having to make price adjustments to that package?

Alex, we don't see any issues on the TRY65 tariff package. And, basically, that package continues to remain as an offer in the market. That's what we expect it to continue. We may do a few fine-tunings, but these will of course be in dialog with the authority. And, by the actions that we have been taking already, we think that we have a limited impact. And per that saying, we haven't also revised our (inaudible) guidance and overall expectations for the yearend.

Right. Thank you very much.

Dalibor Vavruska, ING.

Just two quick questions. One is-- It appears that your main competitor is trying to rebalance their revenue structure a little bit. And, obviously, that is one of the reasons which is causing this competitive pressure. Now, obviously, the two ways that you can respond to it is, one, to try to protect your revenue market share in mobile and either through commercial, legal, and other ways, or you can just say, okay, we'll lose 10% and we'll gain that in the broadband market or we'll attack them through 3G or something else. I was just wondering at this moment strategically where-- what you're thinking. Obviously, you're talking about both of these things. But I just wanted to see if you can give a little bit more color where you see this equilibrium and where this could lead to, because I think you're right that all players, at the end, would want to be rational and make money. It's just a question of where the equilibrium can shift. I think that Turkcell obviously is a key player in determining where it's going to end up.

And my second question is a very simple, technical marketing question. You mentioned that there's lots of unlimited offers in the market, and some of them are actually limited. So I just wanted to check who is offering what. My understanding is that Avea's offer is unlimited without any strings. I'm not sure what are the other. If you can just very briefly mention which players [are reflecting] really unlimited and how long this is, you think, going to stay and which of them are called unlimited but, in fact, limited. Thank you.

I'll take the first question. First of all, in Turkcell two and a half years ago, we redefined our business. We said we are not only a GSM voice company. We don't see ourselves as a carrier. We don't see ourselves as a downpipe. We don't see ourselves as a commodity player in the long run. We are differentiated, superior mobile services providers. And we have been focused on value-added services, and we are very well known in Turkey as a superior network-- faster network, quality network, higher-coverage provider.

So we are very excited. We are very optimistic about the future of mobile communications. With 3G coming, with mobile internet broadband, the value proposition of mobility internet and the convergence, all of these three together, is going to enable us to position ourselves very, very, very strongly not only versus other mobile operators but also versus fixed-line operators. So I think the future is mobile communications, and we are very excited about the services we provide.

And we have formed the Company Turkcell Technology. We have 330-plus software engineers. Our engineers provided applications on the iPhone 3G in Turkey. These applications are helping people in Istanbul deal with the busy traffic. These applications are helping Turkish people receive videos on their phones about their favorite soccer team when they score a goal in their match. And we have online banking applications running. We have two cell mobile signatures, enabling us to do banking transactions without using a bankcard.

So, basically, we are very optimistic about the future of our business, and we will essentially double up these value-added services. We have been and we are distributing these to our customers in our operating countries. And I think as mobile communications become lower priced, I think the shift from fixed to mobile is going to accelerate.

So the value proposition of mobile communications is extremely high, and that makes us very, very, very positive. It's important to know that Turkcell is not a commodity player. And, when we do more of these services, they are going to be less regulated businesses. They are going to be incremental, differentiated services. That is how we see the growth of our Company.

Regarding the second question, let me try to answer that one. All the operators have at least one package; some have more than one package for unlimited offers. There are various limitations for on-net or off-net direction in these so-called unlimited packages. And some of these offers are mainly given for (inaudible). Some operators' unlimited offers aren't given only to (inaudible) customers. This is also limiting the number of customers these offers are being exposed to. That is why we believe that there will be a stabilization of customers who are going to opt for these unlimited offers as well.

Okay. So, just to clarify, at this moment, each of the operators-- Is there any unlimited offer to all networks in the market? If so, does each of the operators have one? Can you maybe say how they are priced?

There are various offers. Let us just try to give you a list of the offers (technical difficulty) because there are offers that have limitations to each direction in the so-called unlimited offer.

Okay. Thank you.

[Alexander Ballotman], Goldman Sachs.

(Inaudible), Goldman Sachs. I just wanted to ask you can you probably disclose the numbers for telcom and fixed-line subsidiary? And can you probably share with us your [humors] here? What is the number of broadband subscribers you managed to connect, what investments you have made into this project, and what investments in your fixed-line business are planned for 2009? Thanks.

Okay. It is important to know that our Company [telcom , cheaper online] is a fixed-line operator, but its main focus is offering fiber optic to the homes and to the businesses. And like many other companies in Turkey, this company also has tried in the past to become a partner with Turkish Telecom to be a value-added reseller of ADSL. And Turkish Telecom, very successfully on their behalf, drove most of these companies out of business. And out of 43, I think probably there are only three or four left. And this unfortunately affects about this fixed-line part of the business.

We decided after a while that we are not going to participate in this reselling activity for Turkish Telecom, and we decided to focus on our fiber optic business. You all know that laying fiber to the home is an expensive process. So we have been very selective about prioritizing where do we go with this. Our telcom business has four components, and three of these businesses are EBITDA-positive. And one of the businesses is long-term, residential fiber to the home. It's a longer-term investment.

We do want to disclose a lot of numbers in this business for competitive reasons at this point. But this investment is very strategic to Turkcell's future. Because of 3G, it has increased traffic between our base stations. And not only we move some of this traffic to our own backbone infrastructure, but we also offer this as a competitive alternative to Turkish Telecom. And we hope that in certain markets they will offer us competitive rates. If they don't we'll go and build our own fiber optic connection.

May I follow up on this probably? Do you have a more or less structured plan on this business probably you can disclose? For example, you will be rolling out the networks in the larger cities, like Istanbul, in the Turkish capitol, and probably plan some uptakes? Or it's just too early to talk about?

Right now, again, for competitive reasons, we are not talking about our strategy in this space. But in the coming quarters, we will make more explanations, and we'll provide you with more information.

Great. Thank you.

Istvan Matetoth, Credit Suisse.

My questions are, number one - in light of the first quarter results, do you think a little bit more upbeat about your margins? Would you be willing to say that you feel a bit more opportunities about your margin guidance (inaudible) full-year results?

And, secondly, can we expect that concurrently we see HSDP rollout-- you will step up your fixed investments in telcom. I wonder whether you could just run through some of the key financial and operational KPIs-- what we can expect in fixed business in the second half.

About our margin guidance, we are not making an official revision to our margin guidance. We said we will face some pressures on our margins. But I am more optimistic after the first quarter, and I also feel that the second quarter is the bottom of this economic downturn. This is my feeling for some of the major economies, like the US and also for Turkey. So I am a little bit more optimistic. But we wanted to be conservative, and we gave-- We are not making a revision to our margin guidance.

The second question is related to 3G investments?

No. It's, in fact, concurrently with 3G, will you step up your investments in telcom-- in the fixed business?

The total CapEx guidance we've given is $1.3 billion for Turkey. On a consolidated basis, it is $1.6 billion. So, in that, there's license fee, 2G/3G investments, as well as telcom. We really, as Sureyya said, want to break that down at this time.

But I want to say that I am very pleased with the progress we are making in telcom, cheaper online. We did go through learning, and we did go through restructuring. But, as I mentioned, we have telcom organized in clear, focused businesses, and we measure profitability of each division-- each business. And they are complementary. They are very strategic to Turkcell's future. And I am very pleased with the progress we are making. And, because it is going to be more-- a larger part of our business in the future, in the future we will disclose and share with you a lot more information about that business; I expect in the next six months.

Very helpful. Thanks very much.

Anna Bossong, Unicredit.

I just want to touch back on the issue of postpaid ARPUs that was mentioned before. I was wondering if an actual fact you were saying was the blended ARPU you were looking for stability, because it sounded like, with the dilution from prepaid customers migrating across and pressure, I assume, from competing with Avea's unlimited package, that you would have quite a lot of pressure on your postpaid ARPU in the second quarter. I wonder if there are, obviously, other factors pushing the ARPU up and if you could perhaps talk to them a little bit.

And then, secondly, the margin was very good. I just wondered what exactly you were doing, because, obviously, you would have had some upward pressure from the currency. So was there some one-off items in there, or are you particularly doing things in the third quarter to reduce costs that you think will continue on for the rest of the year? Thank you.

I'll answer the second question first, while Lale then can answer the first one. And then, second, you can also add my comments.

We did not do any one-time deals about our margin in our Q1 business. We manage our business for the long term. And we have done one-time, one-off expenses in the fourth quarter. And please remember that the fourth quarter was the quarter we were going through a number portability. And that fourth quarter was the quarter that we were doing iPhone. And there were a lot of one-off expenses that we had in the fourth quarter. And we cleared those one-time expenses in the first quarter, and we went back to normal business. And we also optimized our terminal businesses, and we'll continue to make improvements.

But there's not a really major one-time cost reduction we have done in the first quarter. And Turkcell has been an efficiently run business for many years, and we have managed our headcount very carefully. As a result, during this economic crisis, we did not have to deal with any layoffs or any write-offs like that. But, we are still-- Our eyes are open to improve our efficiency further. And I am also optimistic about efficiency improvement in the future.

The prepaid ARPU-- What we see generally is slightly negatively impacted by the economic situation. But we have successful number of shifts from prepaid to postpaid. Postpaid ARPU is in an increasing trend, and the customers who are switching from prepaid to postpaid are increasing their ARPU. They are not increasing this to a level of the postpaid ARPU average, so that is also slightly (inaudible) from the postpaid ARPU. But, on the overall, we are happy about the number of customers moving from prepaid to postpaid and increasing their ARPUs. That is why we also give in general similar levels of ARPU guidance for 2009 as in 2008.

Sorry. In case I misheard you, you said that the postpaid trend is decreasing and not increasing.

The postpaid trend is also stable. What I meant was the switchers from prepaid to postpaid are increasing their ARPU but not to a level of the average postpaid customer. But, in general, the other postpaid customers are in an increasing trend so that, on the average, postpaid ARPU also remains at similar levels.

That's excellent. Thank you very much.

(Inaudible).

Can you give us some guidance on the effect of decline in mobile termination rates? Is it possible to quantify the effect?

And, also, it would be useful if you could give us some more color on the 3G license - when you start three months later what kind of effect you expect on the financials of Turkcell for the rest of the year and next year, for example. Thank you.

I'll take the first question. Mobile interconnection revenues make up approximately 7% of our revenues in Q1. So it is really at lower levels when we compare it to a couple of years ago. So the reduction has some impact, but we can say that it's limited. When you look at the cost side, the cost is also being reduced, so there is actually a gain on the cost side. And some of these, of course, unlimited offers to all directions have been beneficial to us from interconnection revenue perspective. The 7% in Q1 actually is an increase from Q4 2008.

The impact of the 3G on the revenue side we are conservatively estimating to be little. Obviously, there is CapEx, and depreciation expenses will start to kick in for 3G investment. We feel that we are kind of fortunate about the timing of 3G because the value, the speed, the throughput of 3G networks has increased sharply. And, because of the monopoly structure of fixed-line ADSL business in Turkey, it has not advanced as much as in other countries. So, for many people, it will be a reasonable alternative for internet usage.

So we are very optimistic about 3G and mobile applications on 3G network for our customers. We see mobile communication contributing to education, to health, to economies, for businesses-- in many aspects. With the convergence of mobile computing, mobile communications, together-- I kind of describe this as internet broadband coming to the pupil in Turkey. So, because cell phones are very popular, the penetration is high in Turkey. Now we'll have mobile internet users. It will help the penetration of mobile internet in Turkey.

Thank you.

Esen Raifoglu, Standart Unlu.

Regarding your sales and marketing expenses, the ratio to revenues remained stable year on year. Should we expect it to go up throughout the year with the introduction of 3G services? Could you give us a bit more color on that?

And, secondly, you said you expect the postpaid ARPU to stay around the same level. Are you referring to the first quarter's number, because, if that's the case, then it means that's around 11% or 12% nominal decline for the whole year. Thank you.

As for the sales and marketing expenses, we've actually guided for the year as higher cost base versus last year. Therefore, it pointed up to pressure on the margins. But we did not break down the expenses and where the expenses may increase for, again, competitive reasons. So we won't elaborate on that in terms of guidance.

And the next question is--?

-- if you were expecting postpaid ARPU to stay around the same level. Is that referring to the first quarter's figure?

Again, we have guided the market on the ARPUs year on year at stable levels. But we do not want to elaborate right now on the breakdown of postpaid and prepaid. And Lale has already shared some trends that we expect on prepaid and postpaid ARPU.

But, there is also seasonality between the quarters. First quarter is a shorter quarter. During the other quarters, we see the ARPU rates change. We expect the ARPU levels to go up in the second and the third quarters.

Okay. Thank you.

I want to say-- Lale, do you want to make a correction?

(Inaudible) that we aim to keep the ARPU stable, there are lots of dynamics. Like I mentioned, the negative impact of the economy on the prepaid side, the switch to the postpaid, which is decreasing the postpaid-- diluting the postpaid ARPU but, in total, it is affecting the ARPU positively. So, with the effect of all these dynamics, our guidance is that we aim to maintain the ARPU levels throughout the year.

So, quarterly, it may vary, but, when we look at the year, we see a more or less stable year.

Lena Osterberg, SEB Enskilda.

My question relates to Ukraine, actually. First of all, you mentioned in your presentation that you believe that the Ukrainian market has bottomed out and that you feel confident that it will increase from now. So I'm just wondering what signs in the market you're seeing to make you believe that.

And the second question is also on Ukraine. Why do you think you're doing so much better than your competitors, both in terms of net additions and ARPU trends?

I'm not a fortune teller about the economy. It's very difficult. I only know that the economy in Ukraine has stabilized versus the fourth quarter of last year. And I also know that they had positive regulations with INF. But my comment about the economy was more Turkey and the United States economy. I am not making a statement that Ukraine economy has hit the bottom, and it will improve from now. I don't have tremendous insight into Ukraine economy.

We are doing well, and we are increasing our revenue share and subscriber share in Ukraine because of our very attractive offers. And we are also improving our pricing in that market, as well, because EBITDA is an important priority for us in all of our markets.

[What was the second question?]

The second question was actually why you believe that you're doing better than competition. But, also, if I may ask you on the Turkish market, you write in your report that you have managed to increase prices. I was just wondering roughly how much prices have gone up.

The second question was referring to the Turkish market? Was it?

The second question on price increases is on Turkey. Yes.

Could you repeat the question, please?

Yes. The second question was-- In your report, you write that you have managed to pass on price increases in the Turkish market. So I was just wondering how much those price increases are.

In 2009, the price increase we've made is about 2.8%, on average. And, last year, it was above 10%.

For the full year?

Last year. Yes.

Okay. Thank you.

(Operator Instructions). Alex Wright, UBS.

Just one question please, on Vodafone and what you're seeing they're doing. They've had new management installed not too long ago, and they highlighted, I think, a couple of dealer relationships. And in their network there's been some specific problem areas. I just wonder whether, from what you've seen, there has been any significant changes in those areas, or, indeed, anything else that you would highlight unto the new management there.

Vodafone's management is-- It has not been six months since the new CEO has joined the company. There were a lot of rumors in the market about Vodafone getting out of Turkey. And their group CEO visited Turkey last week and made statements that they are here to stay. They also made statements-- He also made statements that they recognized that Turkcell's leadership is really strong. And he mentioned that he did not have goals to take over Turkcell, but they wanted to offer new, innovative, and quality services in Turkey.

So, we really have not seen significant changes in the area that you mentioned in your question about Vodafone's position in the Turkish market.

Okay. Thank you.

(Inaudible).

(Inaudible question - highly accented)?

Excuse me. Actually, could you please repeat the first question? You were breaking up, and we couldn't hear you clearly.

In your audit report in the first quarter, you changed your (inaudible) reporting to Turkcell Euro, Asia, [Urals], and in Other. Those are the four segments. It's a little bit different from previous years. Anyway, you also disclosed your EBITDA for each segment. I was wondering what this Other is. I think it's betting and Cyprus, but do you have other businesses within this Other component in your (inaudible) reporting. That's my first question. And, because your EBITDA margin is very high, like 61% in this Other, so I was wondering - Do you think the margin trends continue like that for this segment as well.

The companies that we are reporting in the audit report are mainly (inaudible), our betting business, telcom, our broadband company, and also our strategic operations. And, as you mentioned, the reason for the higher EBITDA margin is mainly coming from the betting business.

I'm sorry. I didn't catch that. You said telcom and betting and Cyprus. Am I correct?

Yes. Those are the main ones.

Okay. So, after-- I think, after March 2009 in the betting business, the structure is going to change, and it's going to affect your margin here?

Starting from March 1, the margins in the betting business have diminished, but we haven't seen the full impact in our Q1 results, since the result for the months January and February were higher than the current margin. But, going forward, they will come down.

Okay. Thank you very much.

There appear to be no further questions. Please continue with any further remarks you wish to raise.

I'd like to thank you for your participation on behalf of the Turkcell management team here. Please be reminded that the audio recording will be available for your convenience for the next two weeks. And, also, please call the IR team for those follow-up questions. Thank you, and bye-bye.

Thank you. This does conclude the Turkcell 1Q '09 Results Announcement Conference Call. Thank you for participating. You may now disconnect.