Turkcell Iletisim Hizmetleri AS (TKC) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Turkcell 4Q 2010 Results Announcement on the 24th of February, 2011. 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 Koray Ozturkler. Please go ahead, sir.

Thank you, Holly. I'd like to welcome everyone, on behalf of the management team here, for our year-end conference call. I'd just like to remind you that 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. At this time, we'll start with the presentation by CEO, Sureyya Ciliv.

Good morning, good afternoon, and welcome to Turkcell's results call for the full year 2010. The Turkish mobile market has undergone the most radical regulatory changes in recent years, while competition has remained aggressive. Yes, Turkcell has successfully minimized the negative impact of these changes. We maintained our leadership of the Turkish market, differentiating our 3G business through our unique services and applications and significantly improving the performance of our group companies.

In 2010, Turkcell recorded revenues of TRY9 billion, EBITDA of TRY2.9 billion and net income of TRY1.8 billion. The growth of group revenues and EBITDA was negatively impacted by the significant reductions in interconnection rates, down by 52% and in the maximum price gap, down by 38%. Despite these challenging market conditions and regulatory changes, we maintained our group EBITDA margin at 33%.

On a positive note, the negative impact of the regulatory changes was largely offset by the strong increase in mobile Internet revenues and by the significant improvement in the contribution to our operational profitability of both Superonline in Turkey and Astelit in the Ukraine. We are also pleased that the worst is behind us. The authority recently announced that it has now almost completed its interventions to regulate the market and we therefore do not expect further cuts in mobile termination rates and in maximum price cap in 2011.

Moving on to the next slide, I will talk about the mobile market in Turkey. Slide five, we believe that Turkey's mobile voice and data business is poised to grow considerably, as Turkey has a sizeable economy and young population. Two years after MMP implementation, mobile line penetration has stabilized at around 84%. The telecommunications market has seen a gradual pick up in usage with the share of mobile traffic as a percentage of all traffic increasing to 84%, up from 72% in 2008.

This was due to lower priced voice packages, flat rate minute packages for all directions and high minute incentive porting offers. Undoubtedly, one of the most important developments in 2010 was the Turkish market adoption to mobile Internet services. Smartphone prices decreased significantly, while 3G and terminal bundled offers gained pace after the launch of 3G.

Accordingly, the penetration of these devices in the Turkish market increased, resulting in a strong pick-up in mobile Internet and service usage and, therefore, revenues. In 2011, we expect the number of mobile lines to grow in parallel with the Turkish population growth and mobile penetration to remain in line with year-end 2010 levels. Voice and data usage is set to grow further.

Going forward, we will continue to invest in our brands and in maintaining the loyalty of our large subscriber base. We will not proactively initiate irrational competitive behavior in our market, although we will be ready to respond quickly to market distorting initiatives by our competitors. We will build on our leadership in Turkey as we differentiate Turkcell with our unique value propositions.

Moving on to the next slide. In 2010, we focused on growing our post-paid subscriber base, while retaining our high-value subscribers. During the year, we encouraged upselling through segmented offers and switches from our prepaid to postpaid subscriber base. Consequently, we added 734,000 net postpaid subscribers in 2010. In the fourth quarter, our postpaid subscribers reached 10.1 million with 264,000 net additions. The mix of our subscriber base improved in favor of postpaid to 30.1%, up from 26.6% in 2009.

Consequently, the 3.5 percentage point increase in our postpaid subscriber base led to an even higher rise in the share of postpaid revenues in total revenues by 5.6 percentage points to 60% in Q4 2010. Our prepaid subscribers totaled 23.3 million, down by 2.7 million in 2010. As a result, our total subscriber base contracted by 5.4% in 2010 to 33.5 million.

Our upselling activities will continue to increase switches, while we will continue our segmenting initiatives to ensure customer loyalty. Retaining our high-value subscribers will remain a priority for us. In 2011, we will grow our postpaid subscriber base, while we expect our total subscriber base to remain flat.

Slide seven, in 2010, we increased our postpaid subscriber base and grew usage in a healthy manner, in line with our value focus. Consequently, we increased our branded ARPU to TRY19.5, despite declining interconnection rates and highly competitive environment. This was mainly due to rising mobile Internet revenues and positive effect of switches from pre to postpaid packages. Prepaid ARPU slightly decreased by 1.7% to TRY11.4, meanwhile increasing usage incentives and the dilutive impact of the growing postpaid subscriber base resulted in just a slight 2.4% decline in postpaid ARPU to TRY40.

Thanks to our successful campaigns and effective tariffs, we increased MOU to 179 minutes in 2010, up by 33% compared to 2009. This was a result of increasing postpaid subscriber base and usage, along with revenues from mobile Internet and services. I would now like to elaborate on mobile Internet and services revenues along with our network capabilities.

In 2010, we saw a rapid uptick in Smartphone penetration along with the decrease in prices. The number of Smartphones on our network reached approximately 2 million, or 6% of total subscribers, almost doubling our expectations for the year. We expect this impressive growth trend to continue with Smartphones on Turkcell's networks reaching around 10% of total subscribers in 2011.

Due to this encouraging trend, we introduced an Android-type Turkcell branded Smartphone. With T10, the lowest priced smart phone in the market, we are aiming to widen the Smartphone penetration into the lower income segment. We believe higher Smartphone penetration should result in an increase in application and data usage, thereby boosting revenues.

In 2010, mobile Internet revenues increased 74% to TRY454 million. Meanwhile the share of mobile Internet and service revenues, in Turkcell Turkey's revenues, increased by four percentage points to 20%. We expect this further increase to 23% in 2011. From day one, we have been differentiating ourselves from the competition through our superior network, with the widest coverage in highest number of base stations.

After our 2G network, which we called 2.57G due to its EDGE capabilities, we have established one of the world's leading 3G networks and rolled out our fiber network to the major cities in Turkey for the past two years. Looking at global trends, we see the world is moving towards the increasing use of smart phones and mobile Internet. The demand for data is tremendous and operators must have capacity to provide with the quality services to stay in the business.

I am proud to say Turkcell anticipated these global trends and introduced dual carrier technologies to Turkey. So increasing mobile Internet speeds up to 42.2 megabits per second. We are the undisputed market leader. Our timely investments in our superior 2G, 3G and fiber networks already benefit us in this new era of mobility, Internet and convergence, while ensuring sustainable growth in our home market.

We believe that there are plenty of growth opportunities in the broadband business and for 3G services in Turkey. We will continue to focus on this area to drive growth and differentiate Turkcell from competition. I will now briefly elaborate on the performance of our subsidiary, Superonline.

Slide nine, our fixed broadband business, Superonline, recorded a solid financial performance in 2010, increasing its revenues by 33%. Superonline's fiber network reached 22 point -- 22,400 kilometers, with 580,000 home passes. The Company increased its marketing activities in the fourth quarter of 2010, reflecting the higher sales and marketing expense in the fourth quarter of 2010. The Company recorded a 9.8% EBITDA margin for the whole year.

Meanwhile, Superonline's contribution to Turkcell Group's operational profitability improved significantly, as Superonline carries 66% of Turkcell's transmission and accounted for approximately 46% of Turkcell's transmission costs in Q4 2010. In 2010, non-group revenues accounted for approximately 59% of total revenues and we expect this figure to reach approximately 70% in the near term.

In 2010, we focused on the higher margin international segment, increasing its revenues by 70%, corporate segment's revenues grew by 30%, leveraging the strength of the Turkcell Group, while wholesale revenues grew by 26%, in line with the increasing group synergies.

Throughout 2010, Superonline has been on the right track to deliver high quality broadband services as an alternative operator in Turkey's fixed telecommunication market. Superonline also pursued opportunities to expand its 3G across borders, forming the region's longest terrestrial fiber infrastructure to connect the Middle East to the world via Turkey. We are very confident about this business and we expect it to contribute greatly to Turkcell Group as it continues to offer differentiated and integrated telecom solutions.

Now, I will jump to our Ukrainian operations. Slide 10, in 2010, Astelit improved its operational profitability in a better macroeconomic environment, with a continued focus on its turnaround strategy. Astelit's management increased its focus on profitability and cost cutting measures. To this end, management has decided to move out of the non-profitable carrier business line. This, coupled with the reductions in interconnection rates during the year results in a 3.4% year-on-year decline in revenues to US$339 million.

However, Astelit's EBITDA tripled versus last year and its EBITDA margin reached 19% with an impressive rise of 13.3 percentage points compared to 2009. We are satisfied with the positive return achieved by our strategy in the Ukraine and expect Astelit's 2011 revenues to grow, exceeding 2008 levels. We are also confident that with continued execution on driving profitability, we will see a further improvement in Astelit's EBITDA margin.

Going forward, we expect to see a better operation environment in the Ukraine, as the macroeconomic environment recovers. Additionally, we expect an improved competitive environment as we believe that consultation will reduce aggressive behavior in the market. We also expect to benefit from some regulatory developments such as the implementation of mobile number portability and the imposition of a symmetric interconnection rate.

Moving onto the next slide, slide 11, in 2011, we will continue to focus on our home market, which is the driver of our group. We expect our mobile business to grow its top line by 5% in Turkey, capitalizing on our new, get more out of likely, Turkcell motto and ensuring a healthy growth in voice and data usage. As for mobile Internet revenues, which grew by 74% in 2010, we expect similar growth trends to continue in 2011.

And for our subsidiaries, Superonline is expected to grow its top line at a higher rate, while improving its EBITDA margin compared to 2010. Life is expected to grow its top line around 20% in dollar terms, while its EBITDA margin is also expected to further increase in Ukraine. In 2011, our estimated CapEx for the group is TRY1.7 billion. For the last two years, we have made the required investments throughout our 3G and fiber networks. As we have completed our major investments, we expect our CapEx sales ratio to improve going forward.

Overall, in 2011, we expect the Turkcell Group to deliver high single-digit top-line growth and a similar EBITDA margin compared to 2010. Growth will be mainly driven by higher voice and mobile Internet revenues as well as a growing contribution from our subsidiaries. However, it is important to note that the reduction in termination rates by 52% and in the maximum price tier by 38% input by the authority has negatively affected the pricing environment in our markets, as of April 1st, 2010.

Consequently, since the second quarter of 2010, we have a lower mobile termination rate and the price cap structure, which is expected to negatively impact our revenues and EBITDA in the first quarter of 2011, as compared to a year ago. Additionally, marketing initiatives by the competition, which is focused -- which focuses on increasing market share at the expense of profitability seemed to continue into the first quarter of 2011.

As a result, we are incurring higher operational expenses to further differentiate Turkcell in the intensely competitive Turkish market. Accordingly, we expect our financial results in the third quarter -- in the first quarter of 2011 to reflect the negative impact of such regulatory and competitive dynamics. However, we are confident that we will [see] convergent improvement in our financials, starting from the second quarter of 2011.

As our market moves throughout the mobile Internet era, we have invested in our business to make us more agile and able to navigate successfully through it, sacrificing higher EBITDA margin for the sake of the future of our business. To achieve this agility, we have invested in quality, in our sales channel, in our partners and in our employees. Simply put, in our valuable brand. We believe we are well positioned as the leading communications and technology company. I will now hand over to Serkan, who will walk you through our financials.

Thank you, Sureyya. Good morning and good afternoon to all participants. I will now talk in more detail about our financial results. Starting with the revenues, we were able to partly offset the negative effects of the reduced interconnect rates on our voice revenues at Turkcell Turkey through strong growth in mobile Internet and service revenues and also 3.1% higher contributions from our subsidiaries.

As a result of our group revenue performance in the fourth quarter, showed a slight decline. For the full year, TRY338 million growth in mobile Internet and service revenues in Turkey, along with the increased contribution from our subsidiaries by TRY101 million, which was particularly stems from Superonline, strong performance throughout the year, appointed to group revenues in such a challenging year. Consequently, consolidated revenues improved slightly, over TRY9 billion.

Moving on to the next slide, in the fourth quarter, group EBITDA margin was at 29.7%, down by 0.5 percentage points year-on-year. During the quarter, Turkcell Turkey's rising general and administrative and selling and marketing expenses, resulting mainly from intensified marketing campaigns, were largely offset by lower interconnect costs and the increasing contribution of our subsidiaries, particularly Astelit, to group EBITDA.

For the full year, despite the challenging market conditions and regulatory changes, we were able to maintain a broadly stable EBITDA level compared to 2009. In 2010, higher general and administrative expenses and the cost of revenues, partly offset by lower selling and marketing expenses. General and administrative expenses as a percentage of revenues increased by 1.1 percentage points to 5.8%, mainly due to higher net debt expenses arising from the increase in the postpaid subscriber base.

Decreased selling and marketing expenses was attributable to lower selling expenses and frequency usage fees paid for prepaid subscribers as a result of the decline in the prepaid subscriber base.

Moving on to the next slide, slide 15, compared to the fourth quarter of 2009, which was negatively affected by a number of one-off items, totaling TRY256 million, our net income in the fourth quarter of 2010 increased by 45.6%, to TRY368 million, which was also negatively affected by TRY36 million goodwill impairment, recorded at our Belarusian operations.

For the full year, net income increased by 3.7%, to TRY1.8 billion, mainly due to the absence of one-off items recorded in 2009 and also higher contribution of center operations, particularly from Kazakhstan, despite higher depreciation and amortization expenses.

I will now talk about our balance sheet and cash flow on the next slide, slide 16. Our financial position remains strong, with more than TRY5 billion of cash on our balance sheet as of year-end 2010. Our consolidated debt at year-end was just about -- above TRY2.8 billion. TRY941 million of this amount was related to our Ukrainian operations. During 2009 -- 2010, our debt to annual EBITDA ratio was increased to 96.4%.

Our major cash outflows throughout the year were CapEx and a dividend payment. We paid a cash dividend of TRY859 million to our shareholders in 2010. Of the total CapEx figure of TRY1.7 billion, TRY782 million was related to Turkcell Turkey, TRY480 million to Superonline, TRY185 million to our Belarusian operations and TRY103 million to our Ukrainian operations.

In line with our investment strategy, we expect to maintain our current overall CapEx level of around TRY1.7 billion in 2011. This brings our introductory presentation to an end. We are now happy to take any questions you may have. Thank you.

Thank you, sir. (Operator Instructions). And we kindly ask if all participants could limit their questions to two per person. Thank you. The first question comes from Cesar Tiron from Morgan Stanley. Please go ahead with your question.

Hi. I have two questions please. First, I have a question on your market share assumptions for next year. It looks like your 2011 guidance implies roughly a 5% top line growth at Turkcell Turkey. Can you please tell us by how much do you expect the mobile market to grow in 2011? First question. Second, by looking at the Vodafone numbers, it looks like they've gained 530,000 postpaid subscribers in the quarter. Can you please tell us how much you think of those were Turkcell subscribers, in your view? Thank you.

Excuse me. Can you repeat the second question?

The second question. It looks like Vodafone has gained 530,000 postpaid subscribers during the quarter. Can you please tell us how many of those do you think were subscribers taken from Turkcell?

Hello? Can you hear us now?

Yes.

Okay. Sorry about that. We could not get through for a second. In terms of the markets, this is Koray, by the way. We do expect penetration rate to actually remain stable, so there will be, from a subscription point of view, possibly some growth. But since we also expect population growth in the market, we actually don't expect penetration rate to increase. So the penetration rate to remain at around 84%.

On the top-line side, from our perspective, we've highlighted the fact that high single-digit growth. I don't think we are prepared to make comments on the, let's say, the market's growth at this time. But we remain quite focused on the revenue share and obviously EBITDA share and profitability. And that's -- this is the answer to the first question. And the second question was about the Vodafone numbers and postpaid. The -- [Brock], would you like to take that?

(inaudible - microphone inaccessible).

Thank you, sir. The next question comes from --

We will respond to the second question of the gentleman. Holly, just a sec.

Thank you.

Vodafone additions are mainly driven by two -- a few sources. The -- some of it is switch within the prepaid base and postpaid base and some of it is through other operators. And some of them are the newcomers in the markets. We cannot exactly comment on how many of their additions come from each area. So -- but in general, we see an overall focus from the operators, especially switching their own prepaid subscribers to postpaid base and supporting actions for that.

Just if I can just follow-up on my first question. You said that your guidance for 2011 is high single-digit growth. But that's for Turkcell Group. What's the implied growth rate that you expect for Turkcell Turkey in local currency terms, please?

It's up to about 5%.

5%?

Yes.

Thank you very much.

Thank you.

Thank you, sir. The next question comes from Atinc Ozkan. Please go ahead with your question.

Yes, this is Atinc from Credit Suisse. Two questions please. The first one is regarding your selling and marketing expense items, and the relationship to your subscriber retention. In the third quarter, we had mentioned some pick up in S&M expenses and indeed it's up 18% quarter-on-quarter. Yet you have lost, this quarter, around 400,000 subscribers. I'm having difficulty to reconcile this. Can you please elaborate on this? My second question is regarding the breakdown of your blended domestic ARPU in terms of data and voice for fourth quarter and full year 2010. Thank you.

This is Serkan. Regarding your first question, about sales and marketing expenses, our sales and marketing expenses consist from a few items. First of all, the frequent usage fees that we are paying on the ARPU of our prepaid subscribers, that's a fixed amount on a monthly basis because we are paying that frequent usage fee based on the prepaid subscribers at the end of 2009.

And the second item is the marketing expenses, which is mostly flexible, variable. Those are mainly our sponsorships and also advertising expenses. And the third item, main item, is the selling expenses, which are the expenses, fixed and variable expenses coming from our sales channels.

The fixed part is coming from the overhead expenses and the fixed expenses of the shops that we have. And the variable part is depending on the acquisition of new subscribers. So if I'm not understanding wrong, you are trying to reconcile the numbers only based on the acquisition numbers in Q4, which is only representing one part of the total sales and marketing expenses.

I would like to say that on a quarterly basis, I think Turkcell had lost close to 1.1 million subscribers in Q1 and we finished the year in total, 1.9 million subscribers reduction, subscriber numbers would have changed. Some of it is due to the contraction in the lower penetration rate and in the fourth -- and this subscriber loss trend has been going down.

But in the fourth quarter we also had a kind of cleanup operation as well where there were certain subscribers who were not active. I think they were discontinued in the cleanup. So, Lale, would you like to comment on the marketing expense in Q4 increase as we had mentioned in the last conference call?

Yes. The marketing and the advertising and the brand support expenses varies quarterly, but the competition has been very active in the fourth quarter and they are very (technical difficulty) the loyalty and retention of our customers, [of the plan] we launch in the fourth quarter and maintained our share of (inaudible) against heavy [competition]. That is the fluctuation between the quarters' advertising spend.

But I would like to add that, Lali, I think you would confirm me, that Vodafone has the highest amount of money spent on advertising in 2010 in Turkey.

Yes.

So we have twice as many subscribers and despite this, Vodafone outspent us in advertising dollars in 2010. And we -- in -- at the end of Q3, we decided that we were also going to increase and match their share of voice and advertising spend, so Q4, our advertising has gone up significantly, not only from this just competitive matching point of view, but in Q4 we also launched a new motto in marketing, where we say the offers buy [at] Turkcell. Turkcell gets more value out of life, [comment].

We -- our analysis actually shows that in Q4 we had the lowest port-out number throughout the year, between the four quarters in 2010. We didn't want to give you, because it would be a guess. We know that port-outs from us to other vendors, other operators, but how many of them go to different postpaid or prepaid, do you want to comment on that? But I can report that in Q4, we had the lowest port-out numbers between four quarters in 2010.

Thank you very much for the very comprehensive answers. And if I could get a comment on my second question, regarding the data ARPU contribution?

Did you say data ARPU contribution or data and mobile Internet contribution?

No. The blend of --.

Can you repeat the question?

Sure. I am looking for the quarterly and full year breakdown of your blended Turkish lira ARPU in terms of voice and data? Or in more broader terms, the contribution of mobile and the allotted services to your domestic top-line?

Atinc let me go over this with you. In 2010, we have actually monthly average Internet users up to about 8 million. Blended mobile Internet ARPU is about TRY5, while the dongles is up to about TRY28.

And do you have a weighted, blended average for the blended Turkish lira out before year-on-year comparison purposes? This is why I am asking that.

Yes. We -- I am giving you some indication on the ARPUs, as I mentioned, but we don't have a specific disclosure yet on that. On here, in maybe the next coming quarters, we'll consider that.

Okay. Fair enough. Thank you very much for the comprehensive answers.

And an additional comment on this, as you know, approximately 20% of our revenues come from data. In 2011, we expect this percentage to increase up to 23% levels or so, as a percentage of revenue.

Okay. Thank you. Thank you very much. [Kuraby].

Thanks.

Thank you, sir. The next question comes from Vera Sutedja. Please go ahead with your question.

Yes. Good evening. I have a question on the guidance for Turkcell Turkey, it's assuming 5% growth. What do you expect in terms of population growth in Turkey? And the second question would be still on Turkcell Turkey. Since you are going to also to push smart phones, mobile Internet and so on, do we expect that actually EBITDA margins for Turkcell Turkey to come down in 2011?

What do you mean by calm down?

Decline.

Come down. Sorry. Come down.

Yes.

Okay.

Yes. Yes. To come down, to decline. To reduce. To fall.

The population -- okay. Our estimate is Turkish population will increase by 1.2 million people in 2011.

Okay.

So we have about 72 million, so I think we can do the math.

Okay.

On the mobile Internet side, we actually expect similar levels of growth in 2011, approximately 70% levels we had achieved in 2010. So it will be comparably. Our main focus is actually mobile Internet via handsets. We will promote dongles, obviously, but main focus will be increasing Smartphones in the market, smart devices and push mobile Internet via these handsets.

And the EBITDA margin for Turkcell Turkey?

We do not disclose EBITDA margin for Turkcell Turkey. But we have given consolidated guidance.

Okay. It's just one more question regarding Ukraine. Can you tell me what the percent -- the rate of decline in the mobile combination rate cut in 2010?

It was around 10%.

Thank you.

Thank you, sir. The next question comes from [Daria Famina]. Please go ahead with your question.

Yes, hi. That's Alexander Balakhnin from Goldman Sachs, actually. I have two questions, if I may. The first is, on the investor day, you said that the Company expects 2011 EBITDA margins to be the same or to grow versus 2010. Now you guide for a just flat to down margin. What happened for the last month? So you had the effect to the guide for a lower level of EBITDA.

And my second question is, on overall competition in Turkey. The competition is big stuff for a few years, I would say. And Turkcell's workforce was basically to fight for market share and spent more on CapEx, which is basically negative for free cash flow generation.

And it doesn't look like this strategy stops your competitors from trying to get a market share from you. So probably this strategy is not working. Do you have a plan B or do you think that this strategy will bear fruit in the very near term? And if so, when? Thanks.

Okay. About the first question, our guidance is for the Turkcell Group revenue, high single-digit growth and our guidance for Turkcell Group EBITDA margin is similar to 2010. And we add a comment saying based on market dynamics. Basically I think we would like to leave our guidance at this similar. This is what we said to -- about the guidance for EBITDA margins. And based on market dynamics, obviously, this could move a bit.

But what has changed, if you ask me what has changed, basically there was a trend towards more rational markets towards the end of Q4, and we also felt that our competition had very aggressive attacks on Turkcell, with almost no focus on profitability, offering a lot of free minutes to take customers away from us.

And we thought that eventually while they were doing this, they tripled their EBIT losses for some time. But in January, we had, actually, our analyst day, I think, on January 17th. But on January 20th, Avaya launched a new campaign and if they -- it was a very aggressive 1,000 minutes for TRY29 offer. And normally they had this offer targeting public sector employees. But for a campaign, they opened up this to everybody.

And 20 days later, on February 10th, around that date, Vodafone matched this offer. So they're also offering 1,000 minutes for TRY29. But they also added that they are also going to give a phone for TRY1 per month addition if the customers signed up for a long-term contract. So this has -- these two offers from competition has been very aggressive offers and then we do press calculations. We calculate a loss or a very small profit for them. As a result, these are market dynamics that could impact our business going forward.

And Turkcell has significant advantages, competitive advantages, and we believe that we have the best value proposition for most of the segments in the market. And we are going to defend our customers and so we increased our market -- marketing spend and sales channel investments in Q4 and we plan to continue these -- we are going to match competitions' aggressive attacks and we will defend our customer base. Okay?

Yes. Thanks. And on the second question, as soon as basically this strategy didn't stop your competitors over the last three years. Why do you think it'll stop them now?

Well, basically if you look at the last year, despite all the very aggressive pricing and marketing and sales expenditure on the competition, the dynamics in the market, in terms of market share, did not change a lot. We only see 1% decline in our market share.

And we keep on investing on new value propositions that will differentiate us from the competition. So -- such as a better mobile Internet and other value propositions for different segments. So we believe we will succeed in expanding our market position with the help of those better value propositions to the customers.

I will add one addition. Just hold on one. I would just like to say that again, looking at the numbers, we -- in 2010, first quarter we had lost 1.1 million subscribers. The second quarter this was minus 328,000. In the third quarter it was minus 17,000. And in the fourth quarter, this number went up to, again, around 400,000, but that number includes some other losses that we are aware where there was some inactive customers getting deactivated and stuff like that.

So if you look at trend, at least for the first three quarters, there was a very sharp decline in loss of subscribers. So we believe that we can defend our customers. We wanted to lead. We are the biggest player in the market and we wanted to have a more healthy market where we could grow the market for everybody. That was our strategy in the beginning, but when the competition continued it's very, very aggressive attacks, I think we had no choice but to match them.

Right. Thanks a lot.

Thank you, sir. The next question comes from Dalibor Vavruska. Please go ahead with your question.

Hello, this is Dalibor Vavruska from ING. Just a quick question. You are talking about return to growth in your guidance, which I think one of the previous analysts mentioned that we are talking about 5% at least, positive growth for the Turkish business. I'm just wondering, we are in a situation when the penetration is not going to grow. Your own revenue was down. You're losing subscribers. The prices are going down. Competitors are climbing with this.

Have you thought that maybe there's some structural saturation or perhaps even a decline in the voice business? I'm not talking about mobile data and everything, but of course that's a different story. But would it not be reasonable to assume that the voice business is perhaps just got saturated and readjust the policy, the way you look at the costs and the way you look at spending in voice, just not assuming that the growth will start?

Or are you so convinced that you will see more growth? And if so, where is it going to come from? Is it repricing up? Or are these free minutes that are giving -- adding suddenly going to be charge? Or where do you see the voice growth coming from?

Well, before I hand it over to Brock, let me clarify this. We said up to 5% growth. We did not say minimum 5% growth for Turkey. So it's up to. And Brock will comment on those growth KPIs.

Hi, Dalibor. We still see opportunities in growing our voice business, along with the high rate of increase within the mobile Internet business. And there are still huge opportunities in switching our customers from prepaid to postpaid and generate additional revenue out of that.

In addition to that, we have run very successful upsell campaigns within our postpaid base recently and we are focused on increasing the rate of success of these campaigns. So, we still see an upside in the voice business as well as the mobile Internet business, by upselling the existing customers and switching from a prepaid customer to a postpaid.

Okay. Could I just very quickly only ask just a quick follow-up, please? It's kind of to [Surey's] point. Basically, you are obviously the market leader. Everyone else would look at what you do in terms of deciding what they should do, because of your power. And I think in many markets, you already see, is that the operators are attacking each other in a market which is simply not going to grow rather than focusing more on the areas of which are going to grow, which right now I think is mobile data, which is going to explode in the next two years. And you have a very significant lead in that market, which I think is going to be appreciated.

But do you see -- do you envisage that this year, perhaps, the market is going to refocus from the companies killing each other on the voice markets and perhaps investing in data, where you can actually grow the whole market faster? And are you prepared to lead the process?

Yes, I would like to comment on this. First of all, I think not only in Turkey, but I think it's worldwide, coming from GSMA, we heard from CEOs from all mobile operators, I think one of the biggest challenges for the mobile operators is the very fast rising demand for mobile Internet and how do mobile operators meet this demand?

And there are some -- actually CEOs of very large mobile operators think that there will be so much demand that they cannot meet this demand through radio alone and they will have to roll out some Wi-Fi networks to balance things as well. So I think, overall, we know that there will be significant demand for our network and the spectrum in the network itself will be a tight resource. So that makes us bullish about our market for the long term.

And in the short term, there are different dynamics in place and Turkey has just invested into 3G and there was very small percentage of the funds. They were in 3G. 3G compliance. So still a 3G network was not fully utilized. And this dynamic is going to change pretty quickly, I think, with the increase in demand. So this is why we are bullish about the long term of Turkcell and even some of the other operators around the world.

A second point is, our competition, as I mentioned, without really any focus on profitability, was offering attack campaigns, where they were offering customers three months free, six months free, minutes. And we have a lot of customers who are very loyal to the brand and who are very loyal to the quality, they don't switch. But there are also a segment of the market where they're price sensitive and some of them are very price sensitive and we did see some movement, some port-outs, from us to them.

But these days, on a very regular basis, we are also hearing that a lot of people, they were used to the Turkcell quality and service and they heard from competition that we have similar quality and service claims and then they ported out and then they found out that they don't have the same service and coverage, because we know that it's a fact. We are factually superior in coverage and quality.

But they also found out that some of our competitions' pricing strategy to offer extremely aggressive port-in offers, tariffs, but increased internally their customers' pricing so that they can get their revenues up. So the customers are also experiencing, when they move to other operators, sometimes, not only they see lower quality and coverage, but they were -- they -- after two or three months, after these free offers are finished, they see they are paying comparable or, even sometimes, higher prices.

And then this is advertising has impact to a certain point. But people are also using the phones every day. They expand the service. They also see their bills at the end of the month and we see that a lot of people are planning to -- or coming back to Turkcell as well. So this will also kick into motion, I think. I also want to say, we said we are going to be in growth mode, because of the April 1st impact. I think during the first quarter of 2010, we had a relatively fast growth, around -- I think it was approaching 9%.

And then April 1st came, and it -- after April 1st, we had a lower -- significantly lower MTRs than price caps. So in the first quarter of 2011, we will compare -- our growth rate compares since will be with a quarter where there was a significantly higher, two times higher, MTR rates. Brock, do you want to add anything else?

Just a quick add-on, we have -- within month, January and February, we made price increases in some of our major tariffs in postpaid. And we'll see if the competition will follow on, on that.

Okay. Thank you. Much appreciated.

Thank you, sir. The next question comes from Cesar Tiron. Please go ahead with your question.

Yes. Can you please explain to us, why there was no guidance for dividends in the press release? And when do you expect the Board to meet and to give some guidance on the dividends for 2010, please? Thank you.

Okay. Our next Board meeting is on February 28th. Okay. On an annual basis, I think we distribute dividends in May. Is it true, Serkan?

Yes.

May time frame, right?

At latest, by the end of May.

Yes. So basically the dividend decision needs to be approved by the general assembly, which is going to happen in April. So the Board will finalize its dividend decision either in February Board meeting or in March Board meeting, so that we have a proposal for the April general assembly.

Okay. Okay. Thank you. I have a follow-up question. I think you were quoted in the press saying that you are planning to use some of the cash balance of Turkcell for the purpose of M&A. Can you please tell us which countries you're looking at and what's the time frame on that? Please.

Okay. Basically, our international development team is analyzing acquisition opportunities. At this point, there is not any acquisition that we can report. There is no decision by the Board to make any offers on anybody at this point. We are going to start our Germany operations in April time frame and after Germany, we plan to expand with similar strategy to others -- some of the other European countries.

I think if you look at the latest political changes in the Northern Africa and Middle East, I think we could probably make an assumption that there will be some opportunities to make some acquisitions in those countries. So that is something that we will be evaluating. So that is what I can report at this time.

In terms of size, are you -- would you be looking at transformational deals? Or really just smaller acquisitions? I'm just trying to basically understand how you're planning to physically sort out the inefficient capital structure of Turkcell. Just because you don't seem to -- shareholders don't seem to agree to increase the dividend pay-out.

And although I understand that you will be able to do share buy-backs, in Turkey, that's not going to happen between -- before the second half of 2012. So between now and then, what can you do to increase -- to improve the capital structure? Thank you.

I cannot say that the Board doesn't want to increase the dividend ratio. So I think the Board, our Chairman, we understand the need to make our balance sheet more efficient. So I think we will -- the Board -- me, myself, and the management team, we think dividend increase ratio would be reasonable. We will share this with the Board and I think that will be a healthy discussion at the Board level about this decision and so I don't -- I think it will be wrong to say the Board doesn't want to increase dividend ratio.

I think some of the shareholders have publicly stated that they will be voting for increased dividends at Turkcell as long as the shareholder disputes would not be sold. Am I incorrect in believing this?

I think you are making the statement, so I cannot comment on that. I don't know which statement you are talking about.

Okay. Thank you.

But, I want to add that we, the Board, ourselves, we understand that we should make our balance sheet more efficient, so expanding our operations in a very smart way, without overpaying and with a clear plan of creating value, goal. And I think we have been very conservative in these acquisition evaluations and I think we will continue to be careful about spending -- investing our shareholders' money.

I think, also, in Turkey, the commercial law has changed. Now the new commercial law, which has passed, enables up to 10% stock buy-back, stock purchase programs. Most of this commercial law will go into effect in 2012, July, to give us some time to it. But I think in the future that will definitely be an option. And second -- the third alternative is to increase the dividend to make the balance sheet more efficient.

Thank you very much.

Well, I -- we understand that there are no more questions. At this time, then, we would like to thank you for participating. Please make sure to follow-up on any follow-up questions with the IR team or myself. We are available after the call. And the audio recording of the call is also available for you for the next two weeks. So thanks for joining.

Thank you.

Thank you, sir. Ladies and gentlemen, this does conclude the Turkcell 4Q 2010 Results Announcement Presentation. Thank you for participating. You may now disconnect.