Turkcell Iletisim Hizmetleri AS (TKC) 2009 Q3 法說會逐字稿

Ladies and gentlemen, welcome to the Turkcell Q3 '09 Results Announcement Conference Call on the 13th of November, 2009.

Throughout today's recorded presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions.

(Operator Instructions)

I will now hand the conference over to Mr. Koray Ozturkler.

Please go ahead, sir.

Hello, everyone. I would like to welcome you to our conference call on behalf of the management team here. We will briefly proceed with our presentation.

Before we start, I would like to remind you on the fact that the presentation, you will -- that may contain some statements that are forward-looking. These statements are based on the current expectations and assumptions. They are subject to risks and uncertainties, which may cause actual results to differ materially, due to the factors discussed in this presentation.

Please also note that all financial data are consolidated, whereas non-financial data are unconsolidated, unless otherwise specified.

We will now proceed with Sureyya's presentation.

Good morning and good afternoon. Welcome to Turkcell's results call for the third quarter 2009.

In the third quarter of 2009, we delivered solid operational results in a challenging environment. We recorded group revenues of TRY2,368 billion, EBITDA of TRY814 -- TRY814 million and net income of TRY497 million.

EBITDA margin declined to 34.4% compared to a year ago, mainly due to the decreasing revenue and higher interconnection costs as a result of increasing of net traffic. During the third quarter, we strengthened our competitive position in Turkey through a successful launch of Turkcell 3G network, offering the fastest mobile broadband and the widest coverage. Profitability of our local and international subsidiaries, particularly of Superonline in Turkey and Astelit in Ukraine also improved, positively contributing to group financials.

Moving on to slide six, the GSM market revenue was flat in the third quarter, despite challenging macroeconomic environment and decreasing mobile line penetration compared to last year.

We feel that this proves the resilience of our business, while the opportunities arising from PG technology demonstrates the further growth potential.

In the third quarter, the Turkish market welcomed 3G. We are very pleased with the high level of customer interest ahead of our expectations and excited about offering innovative mobile services to our consumer and corporate customers.

Higher interconnection costs resulting from the unlimited flat rate offers, triggered by competition, negatively impacted profitability across our sector in the first nine months of 2009. However, we have seen some upward pricing revisions in limitations to the unlimited offers towards the end of the quarter, aimed at increasing profitability.

On the regulatory and legal fronts, we recently made three announcements. Firstly, the authority notified us of alleged maximum pricing limits. We are currently discussing its authority to clarify the notification. In the third quarter, we netted off TRY23.7 million from our revenues for the potential payment -- payments, related to this and other potential issues arising from customer complaints.

Secondly, the tax authority notified us regarding the [AT] and special communications tax charges on roaming revenues. We are working on resolving this issue with the tax authority in a manner that is fair to both the government and our subscribers.

Finally, there has been a development in regards to the court case with Turkish Telecom regarding the international interconnection agreement. We believe that this court decision is unfair and against the law. We will appeal this decision when we receive the court decision.

We already booked a conditional of TRY122.3 million in the second quarter, related to this case. And we are not trying to set aside additional provisions.

Now I would like to give you some more detail on our performance in Turkey.

Slide seven, focusing on value, Turkcell Turkey continues to grow its post-paid subscriber base by 26% to 9.1 million, compared to last year, while our post-paid subscriber base contracted by 7.6% to 26.9 million subscribers.

Consequently, the composition of the subscriber base changed in favor of the post-paid, with the share of the post-paid subscriber base up to 25.3% from 19.8% in the same period last year.

In the third quarter, our net subscriber loss totaled 338,500. However, thanks to our successful campaigns and attractive tariffs, we increased the MOU 36% year-over-year to 148.6 minutes, and recorded the highest usage levels since 2001, in spite of Ramadan in the third quarter.

Moving on to the next slide, slide eight, in the third quarter, blended ARPU was negatively impacted by declining revenues from outgoing calls with lower mobile termination rates, as well as the increasing subscriptions to minute packages. Blended ARPU decreased by 4.4% to TRY19.7 in the third quarter compared to Q3 2008. Nevertheless, we are pleased with increasing ARPU compared to the second quarter and particularly with the strong post-paid ARPU which remained flat in the third quarter thanks to our segmented offers. During the quarter we continued to differentiate Turkcell through our 3G offerings. These indicatives enabled us to maintain broadly flat revenues in Turkey compared to Q3 last year while quarter-on-quarter revenues input by 6%.

Moving onto 3G, slide nine, during the third quarter in Turkey we focused on implementing our 3G strategy to reinforce Turkcell's position as market leader in this new era of mobile communication. This is something we are very excited about and plan to focus on going forward. So far we have seen significantly higher than expected growth in subscriptions and sales of USB modems, netbooks and notebooks which reached at 175,000 units.

As of the beginning of November 89% of 1.8 million 3G subscribers with enabled devices are active data users, additionally, the number of 3G devices on our network is 4 million and registered at 3.9 million demonstrates the strong growth potential of the business model on the data front.

As shown on this slide, the volume of mobile Internet users increased seven times over the past nine months driven by our efforts to promote 3G services through data package bundles, netbook and notebook offers as well as over Turkey, new innovative product and services that we introduced from day one.

Looking ahead, we believe that the initial reactions of Turkish mobile subscribers clearly demonstrate 3Gs ability to drive future value-added services revenue growth. We expect the number of mobile modem users to reach 1 million next year through USB modem netbooks, and notebooks with ARPU around TKY24.

We also estimate the monthly Internet connections via handsets to reach 6 million on average with over 1 million Smartphone ownership in 2010. We expect ARPU of these users to increase by 25% in 2010 to ARPU around TKY4. Accordingly, we plan to build on our strong value-added services revenues which constituted 15% of our consolidated revenues in the third quarter. Going forward, in line with our strategy we will continue to differentiate ourselves by far the best coverage and network quality, reinforcing our position as the leading communications and technology company in Turkey.

Now, I will move on to our fixed line business, Superonline. In slide ten we are pleased with the performance of Superonline which selectively invests in fibre infrastructure and serves high-end corporate and residential customers in the wholesale market. In a short time Superonline's contribution to Turkecell Group's financials increased successfully. At the same time, we expect Superonline to close the year with a posted EBITDA and to continue to grow in 2010 increasing network synergies with Turkcell.

Moving on to the next slide I will talk about our Ukrainian business. Slide 11, Astelit improved its operational performance in the third quarter compared to the second quarter in a volatile economic environment in the Ukraine where GDP contracted by 20% in the first half and local currency depreciated by 62% in the third quarter, compared to last year.

Year-to-date, Astelit managed to increase revenues by 23% in local currency. However, the depreciation of Hryvnia against the US dollar led to a revenue decline in dollar terms.

In the third quarter, Astelit's active subscriber base grew by 24% to TKY7.8 million, allowing it to increase its revenues in local currency terms by 18% compared to last year. Astelit also improved its operational profitability, posting a 7.9% EBITDA margin in the third quarter, compared to 3% a quarter ago. We expect this trend to continue in Q4.

We believe that Astelit's contribution to Turkcell Group will gradually increase, once economic stability returns and we remain committed to the Ukrainian markets.

Moving on to the next slide, I will now talk about our Fintur business. Slide 12. Fintur's operations in Kazakhstan, Moldova, Georgia and Azerbaijan continued to operate in a difficult macroeconomic environment. However, the company maintains its market leadership across the region, with a subscriber base totaling 13 million. Turkcell's share of income from Fintur reached 41.1 million in the third quarter of 2009.

Finally, I would like to say a few words on our expectations for 2010. We expect improvement in the macroeconomic environment in Turkey in 2010, with GDP growth expected to trend towards 3.5%. Our core business in Turkey should also benefit from continued development of new 3G services as well as more rational pricing behavior next year.

In Turkey, we will continue with our efforts aimed at accelerating mobile broadband revenues through 3G and higher value-added usage and growing our post-paid subscriber base and voice usage, aimed at maintaining market leadership.

Our focus on value across the Turkcell group will continue with an emphasis on the unique value propositions to ensure subscriber loyalty and satisfaction. We will grow profitably in our local, international group companies, and particularly invest and capitalize in opportunities arising from fixed mobile convergence and further 3G implementation.

On a group level, we will continue with effective cash management, constantly monitoring our cost structure throughout the year.

We remain confident and optimistic about 2010. We expect 10% revenue growth in Turkish lira terms and EBITDA improvement in a better macroeconomic environment, with improving customer confidence.

Growing Mobile Broadband business, a more rational market and the increasing profitability of our subsidiaries will also be drivers of our growth.

I will now hand over to Serkan to talk to you through our financials.

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

Before I go into financial analysis, I would like to remind you that throughout the presentation, there might be slight discrepancies in the margin, depending on the Turkish lira and the US dollar analysis.

In the third quarter of 2009, group revenues decreased by 3.7% year-on-year in Turkish lira terms, mainly due to the decreasing revenues from outgoing calls in Turkey and to lower revenue contribution, especially from Asterlit and Inteltek. In US dollar terms, Turkcell recorded revenues of slightly lower than USD1.6 billion for the third quarter, mainly due to a 25% depreciation of Turkish lira against US dollars.

Our EBITDA margin dropped by 6.5 percentage points to 34.3%. Group EBITDA margin was negatively impacted by higher interconnection costs, increased net [circulated] expenses and selling and marketing expenses as a percentage of revenues.

Compared to the second quarter of 2009, EBITDA margin increased by 2.2 percentage points, mainly due to absence of litigation provisions, set in Q2 '09 and decrease in selling and marketing expenses, as a percentage of revenues, partially netted off with the increase in interconnection costs.

Third quarter net income was adversely impacted by lower EBITDA, USD47 million FX losses and lower interest income with decreasing cash balance and interest rates in Turkey. Therefore, net income margin was realized as 21%.

Moving on to the next slide, direct cost of revenues decreased by 11% to USD846 million in the third quarter of 2009, however, increased as a percentage of total revenues, to 52.7%, from 45.5%, mainly due to 4.4 percentage increase in interconnection costs as a result of increasing off-net traffic, 1.3 percentage point increase in net regulated expenses. And finally, 1.1 percentage point increase in depreciation, amortization expenses.

And general and administrative expenses, as a percentage of revenues, remained broad to flat year-on-year at 4%. Selling and marketing expenses slightly increased by 0.4 percentage points to 18.2% as a percentage of revenues in the third quarter of 2009, mainly due to higher advertising expenses for 3G launch and higher fixed usage fees due to increased fees per subscriber.

Compared to previous quarter, 1.6 percentage point improvement was mainly due to almost stable selling and marketing expenses, as opposed to increasing revenues.

Moving on to the next slide, in the third quarter, our cash balance remained quite strong at USD2.6 billion and we have increased our debt by more than USD480 million, improving the efficiency of our balance sheet.

Our consolidated debt amounted to USD1.2 billion, of which USD533 million was related to Ukraine. USD983 million, or our consolidated debt, is at floating rates, denominated in either euros or US dollars and USD602 million will mature in less than a year.

During the quarter, we have recorded a consolidated EBITDA of USD545 million and continued to generate strong operating cash flow. During the quarter, major cash out item was CapEx, amounting to USD326 million, of which USD32 million was related to our Ukrainian operations, USD33 million to our Belarusian operations and USD44 million to our Superonline subsidiary.

This is the end of our presentation. Thank you for your attention and we will now hand over for questions.

Thank you very much, Sureyya.

Before we go to the questions session, I'd just like to make a reminder that if we can limit our questions to two, then if we have time, we can come back for another round of questions.

Let me also remind you that today, we have here Chief Executive Officer, Sureyya Ciliv, Serkan Okandan, who has just presented, also Chief of Marketing, Lale Saral, and myself. We will try to respond to all the questions.

Meral, if you could please start the question session please.

Thank you, sir.

(Operator Instructions)

Our first question comes from Alex Wright from UBS.

Please go ahead with your question.

Yes. Thank you for the presentation. I have a couple of questions relating to the outlook statements that you gave, 2010, please.

First of all, if I could just ask you to elaborate on the statement of improved EBITDA. Do you just mean growth in absolute terms? Or do you expect some margin improvement in 2010 compared to 2009? And if you could just comment on the outlook for interconnection costs as a percentage of revenues within that margin guidance please?

And then secondly, on the revenue guidance, what would be the key drivers of the 10% revenue growth that you're expecting for next year? Do you expect the core Turkish wireless business to grow more or less in line with that 10% figure? Or do you expect a significant proportion of that growth to come from some of the other businesses?

Thank you.

Okay. First of all, the EBITDA, growing EBITDA, what I meant was improving EBITDA margin. And about why are we thinking the revenues will grow? We are counting on the Turkish economy to go back from decreasing 6.5% in 2009, growing 3.5% in 2010 and we expect the market from subscriber base to go back to growth and we also think that our 3G business will start to contribute in 2010.

Lale, would you like to add?

No, I think in general the Mobile Internet business, our 3G as well as the 2G consumers, increase in our revenues will also help growth.

We were very specific and -- in our slides or in our explanation about the output for our mobile Internet business. So if you do some of the math there, you see that we are expecting a contribution from there.

We also expect improvement in all of our other businesses as well.

Yes. But -- thank you. And just coming back to the margin point, what do you think has been a key driver of the margin improvement? Will it be the revenue recovery or will it be -- do you think interconnection costs should decline as a percentage of revenues as we see more rational behavior surrounding the unlimited tariff campaigns that have been out there this year?

I want to comment and I'll -- I want to give also Lale an opportunity to chime in.

First of all, I think basically in 2009, other operators really pushed very hard on competing with us on price. And I think the prices have come down as much -- the price have come down a lot and we see this in the ARMU numbers, but this price competition has resulted in decreasing profitability for all of the operators.

We -- our profits -- our EBITDA declined and also our EBITDA margin declined a little it and they also have also seen their EBITDA margins decline very significantly. I think, I hope, but I also think that the operators, now have discovered that competing on price is not necessarily good for anybody. So I am sure the competition will be very intense in the future. But in addition to price I expect that there will be other dimensions and 3G opens up the space to compete in new fronts.

On Turkcell side we believe that we have been successful in the past because we are number one in technology, number one in the value we generate, the advantage we generate for our customers. We offer very reasonable prices and create a lot of other advantages for our customers, a lot of savings for our customers and number three, we have the widest coverage not only in network but also in our service, personnel and staff so these advantages will carry us to differentiate and when customers are acting rationally they will continue to chose Turkcell.

I would like to comment, another point on our revenue, one of our revenue drivers, this year we have successfully implemented our focus on the post-paid customers. We believe we will maintain the focus and continue to convert our prepaid subscriber base to more post-paid which will help us to reassure our revenues and further revenue growth on the post-paid side.

And I mentioned our other businesses, I -- in addition to Superonline in Turkey we are also expecting our Ukrainian operation and also in our international subsidiaries we expect to see higher growth than probably what we see in Turkey.

Okay. Thank you, Sureyya and Lale.

Thank you.

Our next question comes from [John-Charles Lamrdella] from JPMorgan.

Please go ahead with your question.

Yes, just a couple of questions. When you -- just on group matter, on margins, what kind of gross margins do you get on data, is it -- is there an accretive impact there of 3G and data on your gross margins?

And the same question on post-paid, what's the impact, when you switch a subscriber from pre-paid to post-paid what kind of revenue impact from that particular subscriber and maybe profitability impact do you see ?

And then last question is, you mentioned your handset based Internet users, which only part are Smartphone users. How much higher is the usage of the Smartphone relative to the other handset based Internet users?

Now on the first part, you know 2009 if you notice I think we very clearly identified that the decrease, about 6.5% in the margin, was mostly coming from rising interconnection costs and higher network costs.

This means that we really controlled our expenses very well in 2009, so we will continue to control our operations to make sure that they run very efficiently and will be looking for ways to improve our efficiency. But we also know that interconnection costs are a significant cost item as well. So in our campaigns we will take measures to control interconnection costs as well.

So Lale, do you want to add on pre-paid, post-paid compared to --?

What I can say is the subscribers that we are adding to the post-paid base are bringing an ARPU slightly lower than the postpaid averages but are significantly higher than the prepaid average. So we see that it has a dilutive effect of reducing the post-paid ARPU but on the overall it has a positive effect to our revenues. You can see the development of the ARPU so far, that on the post-paid side it has slightly decreased because we are converting customers from postpaid, but at a significantly higher ARPU level, which is helping our overall revenues.

Okay. And then just on the 3G, on the data margins, I assume -- we were usually told that it's accretive to margins, that the margins are higher. Is that correct?

And just to question regarding your revenue growth, when you talk about 10% how much of a contribution do you expect from interconnect revenues? We've seen this year I guess, the adoption of more old action tariff packages in Turkey of what's the expected change in your interconnect revenues versus your own user generated revenues, is there an assumption made?

I don't think we can get into that in much detail at this time. We are still working on our -- details of our, completing our 2010 budgeting so I think you will have to wait a little bit longer before we answer the details of that question.

John, the, as a trend, just to remind you, from Q2 to Q3, we had said it before, both interconnection revenues and the costs are getting higher so the -- as a total percentage of revenue the connection revenues were about 10.5% in Q3 '09 and the cost side was 8.7% so right now at least we haven't made an assumption that interconnection posts will decline year-on-year but what percentage we may manage it in terms of increase we will have to get back to you on that. But certain traffic may increase and we may have some increase on the cost side as well.

Okay. And data margins, that --?

On the Smartphone side I think the real value is coming from the data, we don't see specific voice coming from the Smartphone but the data side, and as we mentioned over one million Smartphone users and ARPU levels of about TKY4 per sub is estimated for the mobile Internet users for next year. This is only typical Smartphone users, about 3 to 4 times increase over data usage from more basic handsets.

And this TKY4 is for Smartphone users, or is it for all handsets?

It's a total 6 million, at this time we didn't break that down but we will work on breaking down for you.

Okay. Thank you very much.

Well, I want to add that I know most of you are living in developed parts of the world but 3G experience in Turkey is probably world-leading class at this time because we just introduced the latest technology available, HSB-plus, and the average throughput is more than 1 megabyte per second and very frequently we see mobile broadband throughput at 5 or 6 megabytes per second, when we are using our PCs with our Turkcell modems.

It is very interesting 1.8 million Turkcell 3G users are creating three times the data volume of 34 million 2G users. So you know there is a saying "build it and they will come." We are very encouraged that people are really using mobile Internet and we had some shortage of our modems in the third quarter because the demand was significantly higher than the expectation. We hope that in 2010 we will continue this adoption of a mobile Internet broadband, not only on handsets and smart devices but through modems on netbooks and laptops and other computers as well.

Thank you.

Thank you.

Our next question comes from Istvan Mate-Toth from Credit Suisse.

Please go ahead with your question.

A very good evening. I wanted to go back to Alex's question on the structured drivers for revenues for 2010. Your voice ARPU has been under some pressures in the past quarters. Do you see it stabilizing at current levels or do you think that with increased pricing discipline your voice ARPU in Turkey will actually grow?

Secondly, could you give us a feel, how big do you think the mobile Internet platform will become in Turkey by the end of 2010 versus DSL? And just to clarify, thirdly, your margin guidance, does it have an assumption about a further mobile termination rate caught or it assumes that mobile termination rates will remain at the current level?

Istvan, before we get into the details of the answers I just want to tell the whole community today that on the guidance side, just to have you get a better feel of our thinking for next year, we wanted to provide you some sense of what we are thinking in terms of growth and in terms of margin development. But I don't think that we are prepared yet to share specifics of operational or financial indicators in a forward-looking way. So if we can exclude those questions --.

Okay. That's fair enough, all right. So then maybe just tell me whether you expect the mobile termination rate cut for 2010 and how big do you expect the mobile internet to be in terms of total subscribers in the market, let's say.

It is very difficult to estimate exactly what's going to happen on mobile termination rates but it is a fact that in Turkey mobile termination rates are 70% below the European average and I think it is very clear that dropping mobile termination rates further will negatively impact all of the sector, not only Turkcell, but other operators as well.

Also, to be honest, if mobile termination rates as you know, the telecommunication authority has a decision, Turkcell is obliged to keep its tariff above mobile termination rates. So if this -- more termination rates come then the room that Turkcell operates gets wider and this is not necessarily what our competitors want.

So this year I think different than the other years. I think other operators would be a lot less excited about dropping mobile termination rates and also, in the cost calculations for mobile termination rates, 3G network has been rolled out and these expenses are going to contribute to the costs of the operators. So I think from many fronts there is a lot less reason and motivation for mobile termination rates to come down. But I cannot guarantee that it will not come down.

Okay.

Thank you.

Our next question comes from [Meta Usbook] from Deutsche Bank.

Please go ahead with your question.

Good afternoon, I had two questions, one of them the main reason behind your gross margin deterioration in the third quarter was the higher share of net traffic resulting in interconnection expenses, as far as I understand. Do we expect this trend to continue into 2010, going forward or do you expect some normalization of net traffic share as a result of fewer flat rate plans?

My second question is that you mentioned about a USD60 million deduction from revenue as a result of the reimbursement decision of the telecom authority. Do we have this USD60 million in the P&L or you even don't show it the revenues or ARPU, this USD60 million provisioning or what do you call it, I don't know, reimbursement?

First of all, on the first part, I think we have already started seeing normalization of net traffic because as I mentioned unlimited tariffs are becoming more limited on all the (inaudible - background noise). So I think we have already started seeing a normalization on that front.

I didn't understand the USD60 million, Serkan, did you understand this?

Maybe I can answer, USD6 million was net of both from revenues and also ARPU calculation. So the figures that we have announced are net total from that USD60 million.

Thank you very much.

Thank you.

Our next question comes from Ilke Homris from Is Investment.

Please go ahead.

Hello, I have two questions. One is on the mobile penetration rate going forward and the other is on the recent warning by the telecom authority to Turkcell. The first question is do you think the net additions in Vodafone subscriber base especially those on the prepaid segment are temporary and related with more tourist arrivals in the third quarter and that some of it may actually be reversed in the fourth quarter?

At what level is the multi-SIM card penetration at the end of September and penetration rate do you expect for 2009 year end? And if you could also give us some guidance regarding 2010? I don't know you might have already answered this, shall I go to the second question or wait for your answer first?

Wait.

Okay.

Let me start by commenting on the penetration. As of this quarter the mobile penetration is at 88% and we expect it to stay around the same level in 2010. We see that -- so far we have seen that due to the market getting more competitive with flat offerings and so on, we see that the distinct subscriber penetration has not gone down but due to people with multiple SIM cards reducing some of their SIM card the market penetration has come down to levels of 88% and we believe it will remain around this level in 2010.

Okay. And but do you still expect further decline in the multi-SIM card usage, that I didn't understand -- I mean, if there's some decline in multi-SIM card plus new subscribers in 2010 that's something else or no growth?

Possibly both.

Okay. And would you also like to comment on Vodafone subscriber base growth or no?

No.

All right. Thank you then.

And regarding the telecom authority's warning yesterday, it was a pretty long one and I understand it's initially based on their decisions on the 4th of November. It includes a number of statements but I believe it can be summarized as -- they're saying basically Turkcell needs to really take the necessary steps to inform the telecom authority about its tariff packages in the way and in the timing that they want to be informed. And unless Turkcell does so, Turkcell may be obliged to actually pay a penalty in the end. I understand Turkcell is also setting forth some technical difficulties as an excuse.

Could you please elaborate a little bit on what telecom authority is saying, and whether there could be a penalty going forward, obviously you do have a lot of regulatory issues on your hand?

First of all, Turkcell complies with the regulations, decisions in the timeframes it is asked to do. But sometimes in these decisions there are some uncertain grey areas that are not crystal clear and we do our best to communicate and clarify these issues as early as possible. So we read all of the announcements and they apply to all of the mobile operators and we will take necessary steps to comply with them.

Anything else?

Well --.

Do you want to ask a follow-up question?

I just -- you know, they keep saying that -- you keep saying that you're taking the necessary steps, they keep saying that it's enough. So I'm just trying to understand what kind of risks lie ahead of us.

No, I think, you know like in some situations telecommunications is very, very complex and Turkcell's business is big and complex and it takes sometimes time to understand from both parties and it is two-way, sometimes we try very hard to explain and understand their point of view and it happens the same in the other direction as well. Like on the -- this maximum tariff side, decision, on the maximum tariff decision, we asked for a three-month extension.

I think for a company, Turkcell's size, its 36 million customers and hundreds of thousands of corporate accounts, when our tariff conditions change it takes a while to revise our tariffs, optimize our tariffs according to the new rules that came at the maximum and the lower end.

And then for the tariffs to turn into campaigns and then the right communication to go out, and more importantly it takes time for the computer systems to be customized and refigured and also it takes a lot of time to educate the call center people in the field so that they are providing precisely correct information to our customers. And authority's initial estimation for the time it takes to do this was significantly low. In some cases it was only day, they felt, they thought that we could do this in one day.

In Europe it takes about one year to do these kind of changes so we had asked for a minimum of three months so that is example, one area that we are discussing. And we are explaining the processes we go through and I think they are understanding our real reasons.

So that kind of communication is going on. And I -- but I think it's a positive thing. I think we have a lot of confidence in the regulator body and I think we will continue to communicate and reach the optimum conclusions.

Ilk, to be -- to contribute further to your question you were referring to public employee package plan offer and warning regarding to that yesterday. Just to let you know, that unlike the maximum tariffing issue which is widely expanded to 36 million subscribers, the public employee package plan is limited to about 1 million subscribers. We think we've done the necessary measures and taken actions to comply with the regulation on that front also.

We may have some assumption differences, we have to clarify with the authority but from the impact perspective, the extent of the impact is limited to one package plan and a limited number of subscribers. Maybe that can give you some sense for potential risk.

Okay. Thank you very much.

Thank you.

Our next question comes from Anna Bossong from Unicredit.

Please go ahead with your question.

Yes, thank you very much. I'd just like to talk a little bit more about this Vodafone situation with them adding 700,000 subscribers in the third quarter. There was a question previously, if this was somehow seasonal. I noticed that their share or proportion of pre-paid subscribers continued to fall so it doesn't look like it would be seasonal, but can you perhaps talk through what they are doing and why it is that they are adding subscribers and their ARPUs are so high?

And if you think that their very low margins are going to see them become more -- less price competitive, or if in actual fact it looks like they are just very focused on market share growth?

Also, I just wondered on pre-paid tariffs, if you were actually increasing your tariff, Avia mentioned that there had been tariff increases and they had been carried out across the sector. I just wondered if you had been seeing these and if you are looking to do more there?

Thank you.

Commenting on the pre-paid subscribers, our competitors and specifically Vodafone, has seen getting very aggressive offers to pre-paid, new pre-paid subscribers. Our focus is and has been on converting our pre-paid subscriber base to post-paid. So overall we are not very concerned about our pre-paid subscriber decrease and increase on the post-paid side. We are being more rational about the value of the customers we are losing or the value of the customers we are getting. We are not specifically looking and watching out after pre-paid subscriber numbers alone.

What was the question about the pre-paid tariff increase?

Yes, if you were actually putting through tariff increases in your pre-paid customer base because I understand from Turktelecom that there has been a number of tariff increases going through across the sector, is that correct?

We have, on our side, done some tariff adjustments, upward adjustments on our tariffs on the prepaid side, as well as increasing our counter card prices which is affecting the whole of the prepaid subscriber base, we have done that in October corresponding to an increase of around 4.5%.

Thank you. And was that followed by Vodafone, do you know?

I don't remember the exact timing but they have also made a price increase on the prepaid side.

In April they have done an increase, by 5% to their prepaid offer and Vodafone also has passed on some increase, this is our estimation, in average about 7%, levels to their prepaid subscribers. So we have made in average year-to-date 9.9% and the market has followed and we think similar behavior should continue for the market.

I would like to add one more thing, in the past we have seen some of our competition when they are losing substantial subscribers, to stop that big loss of subscribers to take very aggressive, almost free offers and these free offers take a certain part of the market that is really very, very cost conscious and they are willing to switch cards very easily and their numbers very easily. And when these competitors also go and increase the dealer commissions substantially and they also make an impact.

But we have seen that these make the SIM card numbers go up and look like they are growing, but in most cases they are fluid, they are a group of customers which flow very easily from one side to the other. So I think we are focused on value customers and as a result we are not terribly bothered by the developments.

Okay. Thank you very much.

(Operator Instructions)

We have a follow-up question from Anna Bossong.

Please go ahead.

I wondered about your gaming result, it looked like from your positive revenue in the third quarter that you've improved the situation. Was this due to your changes that you implemented or was this more or less good luck?

Also, you have a very strong increase in receivables which I notice happened the same thing last year in the first nine months of the year which last year fell back by the end of the year. Should we expect the same thing to happen this year?

On the first part of the question, it was bad luck in the second quarter, where we actually recorded, if I remember correctly, negative revenues in the second quarter. So in the third quarter the bug kind of evened out and we I guess you could call it, it was good luck and as a result we had positive contribution to our EBITDA. I didn't understand the second part of the question.

Your receivables, increase, I noticed the same thing last year. So for example you had TKY811 million in trade receivables and accrued income, versus TKY587 million at the end of last year and there was a similar trend in 2008 and then the balance seemed to fall back at the end of year. I just wondered if it's the seasonal factor that we should expect again this year, that you will -- won't have all the working capital won't be tied up in receivables?

I think that you can expect a similar level of reserve, we will get down low this year. I don't think that there will be a significant decrease, like we saw last year.

Lovely. Thank you.

Thank you.

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Thank you. This does conclude the Turkcell 3Q earnings result announcement conference call. Thank you for participating you may now disconnect.