Turkcell Iletisim Hizmetleri AS (TKC) 2010 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the Turkcell Q1 2010 Results Announcement Conference Call on Thursday, sixth of May, 2010. 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, Chief Corporate Affairs Officer. Please go ahead, sir.

Thank you, Kirsten. This is Koray. I would like to welcome all of you on behalf of the management team. I have a quick notification before I hand it over to Sureyya Ciliv, who will start making a presentation and followed by a financial section by our CFO.

This presentation 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 factors discussed in this presentation. Please also note that all financial data are consolidated, whereas non-financial data are unconsolidated, unless otherwise specified. Mr. Ciliv?

Good morning and good afternoon. Welcome to Turkcell's first quarter of 2010 results call. In the first quarter of 2010, Turkcell Group revenues increased to TRY2.25 billion, with EBITDA of TRY711 -- TRY711 million and net income of TRY418 million. Turkcell Group achieved revenue growth of 7%, driven by our strong performance in the Turkish mobile market and the gradual macroeconomic recovery in our key markets.

EBITDA margins increased 1.4 percentage points to 31.6% compared to the previous quarter, while decreasing by 5.2 percentage points year-on-year, mainly due to the higher interconnection costs as a result of the increasing off-net traffic.

Group net income increased by 65% compared to last quarter. It is important to note that net income was negatively impacted by TRY256 million, due to the provisions, impairment charges and fixed asset write-offs in the last quarter of 2009.

On the other hand, in the first quarter of 2010, net income was negatively impacted by TRY42.2 million of litigation-related provisions recorded during the quarter, due to the telecom authority's recent administrative fines, announced on April 28, 2010, regarding maximum pricing and certain marketing campaigns as well as a translation loss of TRY9 million as opposed to a gain of TRY78 million last year.

Recently, we announced a cash dividend of TRY859 million on our 2009 earnings, representing a net and gross cash dividend of TRY0.39 per ordinary share and approximately TRY0.98 per ADR. Moving on to the next slide, I will now focus on the market conditions and our achievements in Turkey in the first quarter of 2010.

Slide six, following a difficult year, marked by macroeconomic and regulatory challenges, in the first quarter we have seen some economic recovery. Although focus on subscriber acquisition continued, the composition of the shares in the mobile market remained unchanged. The number of mobile lines continued to drop as multiple SIM card usage decreased to 14%, down from 19% prior to mobile number portability and the introduction of flat-rate offers.

In the first quarter, mobile line penetration fell by three percentage points to 84%, compared to the previous quarter. We expect this trend to continue and mobile line penetration to decrease to around 80% by the year-end.

In the first quarter, heavy advertising campaigns in the market continued, focusing on incentives, the mobile Internet and bundled offers. The market also started to adapt to a new era in mobile communications in Turkey, characterized by the lower interconnection rates and maximum price cap levels as well as the transition from country-based to Turkish lira based pricing for our prepaid subscribers. All of which came into effect as of April third, 2010.

We believe that we have ensured a smooth and transparent transition through these charges -- through these changes by redesigning our tariffs and offers, with an emphasis on achieving an optimum balance between our revenue and customer -- revenue growth and customer expectations.

Now I would like to share our view on the Turkish market. The third chart on this slide shows that in other similar markets where more than three operators operate, the second and third operators are able to record reasonable EBITDA levels with comparatively low market shares.

In the second chart, it is interesting to see that in 2008, Q3, competition in Turkey had EBITDA margins of 20% to 25%, triggered by mobile number portability, significant reductions in mobile termination rates and maximum price caps. Competition has focused on capturing subscribers from competition, particularly from us, Turkcell, resulting in significant drop in their profitability.

We believe that reasonable operational profitability levels can also be restored in the Turkish market and expect to see this trend going forward. We plan to continue to provide our customers with superior value at reasonable prices and grow our valuable customer base.

Now I would like to provide you with a few comments on our key operational indicators. In the first quarter of 2010, our subscriber base totaled 34.3 million. During the period, we lost 1.1 million subscribers, 70,000 postpaid and just over 1 million prepaid as a result of declining multi-SIM card usage as well as some increase in churn. Nevertheless, the composition of the subscriber base improved in favor of the postpaid at 27% from 21% a year ago. Thanks to our focus on retaining high-value subscribers.

During 2010, we expect our postpaid subscriber base to grow at a slower pace compared to 2009 and our prepaid subscriber base to contract further. When it comes to usage, our blended MOU increased to 153 minutes, up by 43.3% compared to the first quarter of last year. In addition to improvement in our customer sentiment and effective communication of our usage incentives, aimed at all segments, we succeeded in sustaining solid MOU growth in the first quarter of 2010.

In 2010, we expect MOU to increase at a slower rate as our incentives and loyalty programs continue with greater focus on profitability. Blended ARPU increased by 13.5% to TRY19.4 year-on-year due to the positive impact of mobile data service revenues and usage incentives, partially driven by the decreasing number of subscribers. In 2010, we expect ARPU to increase in Turkish lira terms.

Moving on to the next slide, I would like to elaborate on the mobile data business in Turkey. During the first quarter of 2010, we maintained our focus on positioning Turkcell as the leader in the 3G era. Declining smart phone prices in the Turkish market, with the lowest handset prices of TRY400 encouraged smart phone sales, which constitute -- which constituted 14% of all handset sales in the first two months of 2010 as opposed to 3% in the same period of last year. This also drove mobile data usage by increasing the number of monthly average mobile data users to approximately 7 million.

In 2009, we had approximately 70% share of the smart phone market and 65% of the mobile broadband market and we continued to lead the market with our highest quality and technology focus. During this period, we continued to focus on data and services by encouraging mobile data usage with attractive offers and differentiating Turkcell, we had 12 applications for our subscribers, which ease and enrich their lives.

Consequently, our mobile data revenue in Turkey grew by 70% to TRY92 million, increasing the share of mobile data and service revenues and consolidated revenues to 18.4% from 15.7% and extended on the revenues to 19% from 16% in the first quarter of 2009.

Going forward, we are determined to capitalize on the considerable growth potential in mobile broadband, which will have positive impact on overall market growth in Turkey. Now I will briefly elaborate on the performance of our subsidiary, Superonline.

Turkcell's Superonline business continued its growth, increasing revenues by 62% to TRY71.2 million and improving its EBITDA margin as well. In line with our strategy of strengthening our fiber backbone and reducing transmission service costs, Superonline fibre optic networks reached over 10,000 kilometers as of end of March 2010.

Thanks to our continued investments, the synergies derived from the Superonline business improved further. Superonline's share in Turkcell's transmission requirements reached 33% at the end of March 2010 from 13% a year ago.

In 2010, we plan to invest approximately TRY500 million in Superonline. This will help Superonline improve its network further, increasing its fibre optic infrastructure by 2.5 times, following its successful tender for the state-owned petroleum pipeline corporation, Potash.

Superonline's plans for this year is to selectively expand its fibre optic network across eight to 11 cities. We expect to see benefits from our investments in Turkcell's mobile and Superonline's fixed networks and plan to capitalize on the opportunities in the market by offering, differentiating total telecom solutions. We believe that Superonline will make a significant contribution to our group in the mid to long-term range and create future value for our shareholders.

I will now talk about our international operations, starting with Ukraine. Astelit's revenue increased by 4.9% to $83 million compared to the first quarter of 2009. In local currency terms, revenues increased by 9% year-on-year. Astelit's market share remains flat at 22.7% year-on-year and with 12 million registered customers.

During the period, Astelit's management increased its focus on profitability and cost cutting measures, which resulted in an improved EBITDA compared to a year ago. The increase in EBITDA was due to Astelit's new strategy and resulting tariff revisions with limitations to usage in Fintur and upward price adjustments, which focused on profitability for subscriber and cost cutting measures.

With continued execution of the strategy, we believe Astelit's performance will improve further in 2010. In the first quarter, Fintur maintained its market leadership across the region by adding 400,000 new subscribers with its total subscriber base reaching 14 million. Fintur's revenues increased by 1.5% to $378 million. Fintur's contribution to net income increased to $36.6 million in the first quarter of 2010, from $18.1 million a year ago, based on the equity pick up method.

Moving on to the next slide, I will briefly talk about our action plan for 2010. In Turkey, we have redesigned our offers with a particular emphasis on achieving an optimum balance between revenue growth and customer expectations. In a contracting market in terms of mobile lines, our main focus will be on the retention of our valuable and postpaid customers and the growth of our postpaid customer base through promoting Turkcell's key advantages.

As we aim for a healthy growth in voice usage, we will continue to focus on promoting the usage of mobile Internet and services, enhance growth of our ARPU. In Turkey, despite market challenges, our market leader position remains unchanged and we remain as confident as ever in our ability to lead the mobile market going forward. To start with, we will continue to undertake major investments in our 3G and fixed fiber backbone networks in 2010.

Our estimated CapEx for the year is TRY2.4 billion, of which TRY1.8 billion will be invested in Turkcell Turkey and TRY600 million in our international subsidiary. We believe that these investments are vital to continue to win against competition and create greater value for our shareholders.

In the meantime, our focus on strict cost controls and improving cost efficiency will continue throughout the year. All in all, in 2010, we expect moderate growth in our consolidated Turkish lira revenue and EBITDA. At our international subsidiaries, we also plan to pursue a strategy aimed at profitable growth as the management focused on a value-driven play and EBITDA performance. We expect growth in mobile data and increased subscriber retention and loyalty to be among the key pillars of this strategy. I will now hand over to Serkan to talk you through our financials.

Good morning and good afternoon to all participants. Now I will talk in more detail about our financial results. Thanks to higher mobile voice usage, strong performance in the mobile data and services business in Turkey and higher interconnect revenues, our revenues in the first quarter increased by 6.9% year-on-year.

In the first quarter of 2010, our mobile data and service revenues from our mobile business in Turkey increased by 26% and interconnected revenues increased by 45%, compared to a year ago. Among our subsidiaries, Intertech was negatively affected by lower commission rates under its new contracts, which caused a revenue decline of 73% against Q1 2009. Quarter-on-quarter, our revenues decreased by 0.5%, mainly due to the lower subscriber base and lower contribution from consolidated subsidiaries.

Moving on to the EBITDA slide, our EBITDA margin in the first quarter declined by 5.2 percentage points year-on-year to 31.6%, mainly due to higher direct cost of revenues. AS a percentage of revenues, direct cost of revenues, excluding depreciation and amortization, increased by 5.5 percentage points, mainly due to higher interconnection costs, which was driven by higher off-net usage.

On the other hand, during the same period, general and administrative expenses increased by 0.8 percentage points as a percentage of revenues, due to increasing bad debt expenses, while selling and marketing expenses decreased as a percentage of revenues by 1.1 percentage points as a result of higher revenue basis.

Given that the interconnection costs and network-related expenses are higher in the fourth quarter of 2009, than in Q1 2010, than the absolute provisions recorded in the fourth quarter, the EBITDA margin improved by 1.4 percentage points quarter-on-quarter.

Moving on to the net income slide, our first quarter net income decreased by 26% year-on-year, to TRY418 million, corresponding to a drop of 8.2 percentage points in net income margins. In addition to higher interconnection costs, which negatively affected our EBITDA, main drivers of this decrease were the absence of translation gains and increased depreciation and amortization expenses.

In addition, provisions of [TRY42 million] recorded during the quarter, due to the telecommunication authority's recent administrative fines, regarding maximum pricing and some marketing campaigns negatively impacted our net income. Given the role of provisions and the absence of fixed asset write-offs and also goodwill impairment charges compared to Q4 2009, quarter-on-quarter, our net income increased by 65%.

Moving on to the balance sheet and the cash flow slide, as you can see from the balance sheet, our financial position remains strong with approximately TRY2.1 billion of net cash on our balance sheet as of the 31st of March.

Our consolidated debt at the end of Q1 2010 remained virtually unchanged quarter-on-quarter at TRY2.3 billion, of which TRY900 million relates to our Ukrainian operations and TRY0.5 billion to Turkcell Turkey.

Our debt to annualized EBITDA increased to 78.8% compared to 39.2% in Q1 2009. Of this total debt figure, TRY1.6 billion is at a floating rate and TRY1 billion will be mature in -- will mature in less than a year.

Capital expenditures in the first quarter totaled TRY367 million. Out of this total TRY180 million was related to Turkcell Turkey, TRY74 million to Superonline, TRY41 million to Ukraine and TRY55 million to Belarus.

As per the [ATMF] approval, a dividend of TRY859 million from our 2009 earnings will be paid to our shareholders in May. This brings to our introductory presentation to an end. We are now happy to take your questions. Thank you.

Thank you very much, Serkan. At this time, we'll move into the Q&A session. If we may ask you to limit your questions to two, so we can have -- allow everyone to ask questions, we would appreciate it. Kirsten, if you could please start the Q&A session. We'll take questions.

Thank you, sir.

(Operator Instructions).

Thank you. Our first question comes from William Kirby of Nevsky. Please go ahead with your question.

Thanks. Yes, I have two questions please. Firstly, on the bad debts within general and admin expenses. Is that something you'd expect to repeat in future quarters this year? Is it because of net book subsidies, for example? Then my second question is on the CapEx outlook. How long do you expect CapEx to remain at the sort of level that you're now guiding for 2010, please?

Regarding the first question, about bad debt, I would like to briefly summarize our bad debt provision and policy to you. We provisioning 100% of our doubtful receivables, which we cannot collect for the last one year. For the last one year's outstanding receivables, we are allocating bad debt reserves based on a calculation formula and after briefing the bad debt provisioning methodology, I can say that due to the unfavorable trends in the uncollected ratio of the company in 2008 and 2009, I think that we should expect a similar trend or better provisioning for the rest of the year.

Okay. Thank you.

On the CapEx side, the numbers we have given are really the high-end of the numbers. It is likely that the 2010 numbers may be lower because of the discounts we have received and also this number includes certain building projects and they -- if they are not done, it may be lower. But in -- for 2011 and beyond, I expect the CapEx numbers to be lower than the 2010 numbers.

Okay. Great. Thanks. That's helpful.

Thank you. Our next question comes from Alex Wright of UBS. Please go ahead with your question.

Yes. Thank you. I've had a couple of questions on CapEx as well, please.

On Superonline, first of all, can you quantify at all how much cost saving on transmission you've achieved so far in increasing your reliance from 13% to 33% over the last year? How much more do you think you can potentially gain from the additional investments you're making in Superonline, either in terms of an absolute amount or gross margin? What sort of time period do you think you can see that over?

Then my second question is on the CapEx in the international subsidiaries. Can you provide some sort of breakdown between Ukraine and Belarus please? Also just explain briefly why the CapEx in those markets is increasing fairly substantially over previous years? Thank you.

Regarding your first question, Alex, about transmission benefits from Superonline, unfortunately I cannot disclose an absolute amount for you, but I can say that the transmission costs of Turkcell, which we are getting the services from Superonline is broader than the transmission expenses that we are getting from other companies.

I think having Superonline had two benefits for us. Number one, our vendor, Turkish Telecom, the fixed line operator, is a supplier of transmission services to us. Having competition creates pricing efficiencies for us and savings for us. So we benefit from that. Also some of these revenues trade in our own group. We also create additional revenue opportunities in the enterprise space and the residential consumer space.

So we think it is very complementary to our business and when you consider, in the 3G world, mobile data traffic is increasing very rapidly, we would have been facing a significant increase in transmission costs if we did not have Superonline. Superonline infrastructure also gives a competitive advantage versus one of the operators who doesn't have a similar transmission backbone in our Turkish market.

On the international side, Belarus is a new operation. So we started that operation in 2008. As a result, we are making decent CapEx investment in the Ukraine. I think the need for that is not as high as it is in Belarus, but we have basically given similar amounts, around TRY100 million, TRY170 million, on each. On the alternate side, it may be lower.

Regarding the CapEx allocation of the international CapEx total, you can assume that it's around 50/50 in both countries.

Okay. Thank you. Just a couple of follow-up questions on that. I think when you bought the business in Belarus, your initial CapEx expectation was about $0.5 billion over the first ten years, but it looks as though you're tracking at a higher level than that in the first two years at least. Do you still think that total CapEx is relevant or has something changed to persuade you to invest more in that market?

The total CapEx guidance hasn't changed for the whole project, Alex. But we spin up the investment phase in Belarus. [Into the fee for you], we are investing heavily in these first years to make an [assistant] coverage and other capacity as soon as possible.

Okay. Thank you. Then the final follow-up question, if I may, just on Superonline. The $340 million, approximately, of CapEx that you're planning there, is that almost all in backbone or is there a significant amount of last mile investment that you're planning within that total?

Both.

It is both. We are doing both. We -- as we mentioned, at the end of the first quarter, we have about 10,000 kilometers and we expect to increase this to 25,000 kilometers by the end of the year.

Okay. Great. Thank you very much.

Our next question comes from Alexander Balakhnin from Goldman Sachs. Please go ahead with your question.

Yes, hi. I have two questions, if I may. The first is on your move from counter-billing to Turkish lira billing. Is it possible to estimate the impact, which this move had on your average pricing level? It would be very helpful.

My second question is, you had a slide on the presentation showing that number, two numbers, that are operators in the developed countries normally have much higher profitability, which suggests that IBM, Vodafone profitability should also be higher. Can you please share with us your thoughts, how -- your thoughts on this scenario, how this profitability recovery can be achieved in Turkey? What are the preconditions for this to happen? It would also be very useful. Thank you.

Okay. On the first part, the transition from the counters to Turkish lira, by itself, does not have an impact. It just, I think, simplifies and makes it more transparent for the subscribers to monitor what was the cost of the call and how much money is left in their account. It just makes it easier.

But on the same date that we transition to this, there was also all of these regulatory decisions related to pricing. They came into effect. The regulatory decisions were -- had lowered certain parts of these price tariffs and we also made some adjustments, upward adjustments, to some of the tariffs. Lale, would you like to add anything else?

So I think -- not much to add. It's like you said, we have made a smooth transition and we have redesigned all the tariffs. Some parts of the tariffs have some upward adjustments and some other parts, directions, have some lower adjustments, in line with the regulatory bodies' requirements.

About the second part of your question, or your second question, I think we tried to demonstrate in slide seven that point number one is there are quite a few operators around the world, many, who have much smaller scale than our competitors in Turkey who have built very profitable operations with high levels of EBITDA.

In Turkey, one of our competitors has about 16 million subscribers. The other one has about 11 million or 12 million subscribers. These numbers are much bigger than many companies -- many countries in Europe. So there are quite a few operators who operate in these countries and they have very successful EBITDA operations.

As I -- as we also showed in the chart, in the second chart on slide seven, these companies had EBITDA margins between 20% to 25% before number portability in the third quarter of 2008. Then basically, I think, their strategies have been not to focus on improving the profitability of their business, but capturing share from us and that has also combined with the regulatory decisions, together, has resulted in significant drop in their profitability, in EBITDA profitability and this doesn't include the depreciation of the 2G and 3G networks, which are also pretty high.

So we hope that, I think, in normal business, eventually people who want to get their return on their investment and eventually these companies will also start paying attention to returning at least some money on the investments that were made and eventually that will lead the market to a more rational structure.

Just a quick follow-up on this, on your answer. Just to make it clear. So basically you are saying that this [Totaray] and Vodafone have enough scale to improve their profitability and there is just nothing to do with the overall market dynamics, the competitive dynamics? I mean, don't you think -- like do you think that they have the -- this low level of profitability to some extent because Turkcell was responding to all these attempts quite aggressively and my question is probably are you prepared to, say, allow them to restore their profitability by not competing aggressively?

We are mainly focusing on our business. We really -- I think the other operators' businesses there, their business -- we focus on growing our business in a profitable manner. We think that profitability is important for us to have a decent return to our shareholders and also for the consumers, so that we can invest in new areas, new technologies and provide state-of-the-art services for the people in Turkey.

So the basically what we are showing is there are quite a few companies in quite a few countries that are number two and number three operators and they have much lower scale than the two competitors in Turkey and they have built very successful EBITDA operations and there is no reason to achieve similar results in Turkey. But it depends on the, obviously, the strategy of these companies. If they are always focusing on just improving their subscriber share, then they have to make offers, sometimes as it was done last year. There were offers that were made. The cost of the offer was in excess of TRY110 and it was offered at TRY55. Offers like this caused significant drops in their profitability.

Thanks very much. It's very clear. Thank you.

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

Good evening, gentlemen. I wanted to ask you about use of your balance sheet. You have significant cash on it. I think in an interview to Reuters, you mentioned [Zain] in the Middle East. I just wondered if you could give us an update on your M&A strategy? Also, kind of interrelated with that, you have an ambitious CapEx program, which may depress your cash flows for this year. Is there a possibility that you will revise your short-term remuneration?

Okay. On the news, I mean, this morning, we had a press conference in Istanbul and they asked me to comment on news that came out in Kuwait that the news in Kuwait said Turkcell was looking at Zain. I said our international business development is looking at a lot of different opportunities and Zain is one of them, they are analyzing.

But I said very clearly that there was no newsworthy development to report. It may not have come across the line -- across the wire as clearly as I stated. So in -- really to clarify it, today we have put more emphasis on our international development. We have a more focused team that is not only analyzing, but visiting these countries and talking to the government officials.

We want to expand in the next two years, in 2010 and 2011. But at the same time, we are very -- we want to be very disciplined and careful about investing at the right price to make sure that we provide good return for our shareholders.

Okay. Thank you.

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

Yes, hello. I have two questions. The first is on the changes in tariffs just recently made. You alluded, obviously, in April to rebalancing your tariffs because of the tariff cap reductions and more recently there's been reports of increases in fixed fees on lower-priced products. I'm just wondering, what customer reaction are you seeing that's rebalancing? Is it actually having a negative impact, perhaps, on churn? Has it left you less perhaps well-positioned in the lower end of the market where your competitors can perhaps have lower monthly fees and higher call charges? It's my first question.

My second question is, you've very hopefully restored a lot of your guidance, which I think should improve confidence. I'm just wondering, is it possible that since the fourth quarter results, you have become a lot more confident that MTR cuts and tariff cap reductions are not going to cause huge problems for the business? I mean, what you felt in the fourth quarter release that you were really, really very worried. Now it seems a lot more -- you're a lot calmer about all that. Can you give us some light on your thinking?

Lale, could you respond to the question? Now the first part of the question, it wasn't 100% clear to us. We want to make sure that we understand it clearly. Could you please repeat the first question?

Sorry. Yes. You have reduced -- you have had to reduce a lot of your tariffs because of the cut in tariff cap. I understand that you have therefore, in some cases, increased the monthly fixed charge for some postpaid packages. My question is, does this mean that in the lower income segments of the population that potentially your packages are now less attractive because they have higher monthly charges? Could this lead to increased churn?

After the -- in line with the regulatory bodies' requirements, we have redesigned all our tariffs and in some -- in one of our tariffs, as you mentioned, we have increased the monthly fixed fee, but then we have reduced the per minute charge of that tariff.

We have many tariffs and less cost packages that our customers can choose from and our focus on growing our postpaid subscriber base and improving our ARPU continues. So with the number of different packages and tariffs we have, we do not foresee any change in our postpaid focus. We will continue to increase our subscriber base on the postpaid and value book customer side.

Can I perhaps put the question differently then? Have you seen since the restructuring of your tariffs, any increased impetus in churn?

We do not see any major changes in any of our indicators after the redesign of our tariffs. It has been a pretty smooth transference, change, into the new system and we do not see a major change in any of our indicators.

Thank you.

(Operator Instructions).

Thank you. We have a follow-up question from Alexander Balakhnin from Goldman Sachs. Please go ahead.

Hi. A quick follow-up on the competitive dynamics in the market. Basically, we saw the results of one of your competitors, IBM, your results, and it looks like IBM and Turkcell are sort of trying to preserve the pricing stability and do not really raise the level of competition. But what do you see from Vodafone, in terms of their competition? Do they still aggressive in what they are doing on the market and is Vodafone a big [datacenter] factor for you?

Lale, do you have a comment?

We see that the market is still quite competitive with lots of aggressive offers and as heavy advertising. We see on the other hand that the competitors are making upward price adjustments on both of the competitors and we hope that these are signs of more rational behaviors going forward in 2010.

Thank you.

I think I would also add that Vodafone is a very good company and I am sure they want to build profitable operations as well, so they have been in this market for more than four years and I am sure that eventually they will also want to improve their EBITDA and return on -- get a return on their investments.

Thank you. Thank you.

Thank you. Our next question comes from [Paulina Yokamova] from Morgan Stanley. Please go ahead with your question.

Yes, hello. Can you please indicate what is your current portion of off-net traffic, in total traffic? Also, have you seen any significant changes in Q1 versus Q4? Thank you.

Yes. Approximately 60% of our traffic is on-net and that's within the outgoing traffic. Outgoing traffic is about 80% of our traffic, by the way. When you look at our trends, we have not actually seen any trend changes from Q4 to Q4 -- Q1 in terms of traffic. Similar, I can say, revenue and cost trends are valid from Q4 to Q1.

Okay. Thanks.

Thank you.

Thank you. Our next question comes from [Zara Zutedia] from ERSTE Bank. Please go ahead with your question.

Yes. Good afternoon. I would like to ask, regarding 3G, please, could you update us with the 3G services so far? How many take-ups from -- in terms of modems or how many handsets, based on 3G? I would like maybe to find out the potential of this 3G for this year?

In terms of subscribers, we have actually 5.5 million registered subscribers on our networks, the 3G. But 2.5 million are active 3G users, so there are more demands and people interested in 3G services, and those are good leads for us.

In terms of terminals, we are really increasing the terminal penetration and approximately 45 million 3G terminals on our network and the costs of the terminals are going down. In average TRY400 handsets -- smart phone handset prices available in the market and we have a lot of contract and installment plans, et cetera.

In terms of mobile Internet, we believe the trends are good, although slowed down a bit during Q1. We expect to still hit around 750,000 mobile Internet users by year-end. Those are the -- some estimates I can share with you.

The 750,000 is for 3G mobile Internet? Or overall?

750 is for mobile Internet only. We have today 7 million customers who are using either 2G or 3G mobile Internet from their phones or from their laptops.

Okay. Thank you.

Thank you. We have no further questions at this time. Please continue with any further points you wish to raise.

We understand that there are no follow-up questions. At this time, I would like to thank, on behalf of the management team here, for your participation. Please be reminded that there's an audio recording of the call available for you for the next two weeks and we will appreciate you calling the IR team for any comments or questions.

In the conclusion, this is Sureyya, I would like to add I feel very confident about the future of Turkcell. I think the value of our brand is well recognized, well understood and very much appreciated by the population, a large part of this population in Turkey. Not only do we have won the minds of people about delivering higher value at reasonable prices, but through social responsibility projects, we have also touched and won the hearts of many of -- a large part of the population in Turkey.

So Turkcell as a brand is the leading brand in Turkey. We have invested heavily over the last 4 or 5 years against our competition and as a result, we are able to offer a much superior service and this is also very much appreciated by our customers.

So with the 3G investment, as you know, Turkcell was the leading company who was working very hard to bring this technology to Turkey and people of Turkey now appreciate that, having everybody understood the value of mobile Internet.

The number of smart phones in Turkey, as we're getting the numbers from last year, it was about 6%. Now we are seeing 14% in the new shipments. So as the smart phones increase the adoption of mobile Internet by the Main Street, by the mainstream of customers, it will increase and we are very encouraged by the use of mobile data traffic and the increase in that.

We also see Superonline not only saving us a lot of transmission costs, but it is going to be a very strategic, very important asset, helping us create a lot of synergy, not only on the fiber Internet side, but also on the mobile Internet side.

We also have made improvements to the strategies in Belarus, in Ukraine and I see those operations improving and driving -- not driving value to our customers and we are encouraged by the progress we are making in EBITDA in those countries.

So overall, there has been a pretty tough market environment. The global economic crisis is impacting Turkey. Regulatory decisions, sometimes a very tough competitive actions. Sometimes irrational plays. But on top of all of this, we were building a very important 3G network that is going to be very key for the future.

So our EBITDA margin has been also influenced a little bit by the fact that we are investing for this network. In 2010, we are continuing with this investment, but in the years ahead, we will see significant benefits of our superior network.

So thank you very much to everybody and thank you very much for your support and if you have more questions, obviously, our investor relations team will be happy to work with you to answer those questions. Have a good day.

This concludes the Turkcell Q1 2010 Results Announcement Conference Call. Thank you for participating. You may now disconnect.