Turkcell Iletisim Hizmetleri AS (TKC) 2011 Q3 法說會逐字稿

Ladies and gentlemen, welcome to Third Quarter 2011 Results Announcement on the Third of November 2011.

(Operator Instructions)

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

Thank you, Sarah. I'd like to say thank you for participation to our quarter three results announcement call. At this time, I will give you a brief notice as part of the procedure and then hand it over to Sureyya Ciliv for his presentation. 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 not that all financial data are consolidated, whereas month financial data are unconsolidated, unless otherwise specified. Thank you. Sir?

Okay. This is Sureyya. Good morning, good afternoon, and welcome to Turkcell's third quarter of 2011 results call. We are pleased to report strong operational and financial results for the third quarter of 2011. We recorded Group revenues of TRY2.5 billion, EBITDA TRY871 million, and net income of TRY537 million.

Turkcell Group achieved revenue growth of 8.6% and reported the highest ever quarterly revenue, driven by our strong performance in the Turkish mobile market, due to a growing subscriber base in and 71.5% rise in mobile internet revenues, and additionally, the increasing contribution of our subsidiaries.

The Group's operational profitability increased through strong top-line growth and 48% higher EBITDA contribution of our subsidiaries and we registered an EBITDA margin of 34.5%, up by 2.9 percentage points compared to a quarter ago. As a result of this strong operational performance and lower impact from one-off items compared to previous quarters, our net income reached TRY537 million. Overall, based on our performance in the first nine months, as we communicated to the market in the previous quarter, we maintain our expectations for the full year of 2011.

Moving onto the next slide, I will now elaborate on our operational performance in Turkey. Slide five. As we have indicated, the investor community at the start of the year the following - and following our notable second quarter turnaround, we sustained our momentum in the third quarter of 2011. We are happy to see the benefits of our business model. We have invested in our technology brand and customer satisfaction to increase customer retention.

During the third quarter, competitors proceeds remained unchanged and aggressive offers continued as in previous quarters. In this market environment, we sustained our leading edge against the competition in all areas and have seen no major change in market balance. We continue to increase our subscriber base and registered net subscriber additions for the second consecutive quarter of 368,000. Overall, based on this, we are now - we now expect our subscriber base to grow year on year in 2011.

Following five consecutive quarters of top-line contraction, mainly due to regulatory decisions and aggressive competition Turcell Turkey revenues rose by 4.8% year-on-year, which is a reflection of our turn-around in our (inaudible).

While improving our top-line, we meant to sustain a profitable business model, where our EBITDA margins climbing for the past three quarters reach 34.6%.

Moving onto the next slide, I will continue with the key operational performance indicators in Turkey. Slide six. As highlighted earlier, our total subscriber numbers continued to rise for the quarter to TRY34.4 million. Our ARPU rose by 3.4% to TRY21.1 year on year, thanks to our upsell activities, both in postpaid and prepaid segments and increasing contribution of mobile internet business.

Effective communication of our well-designed segmented offers ensured healthy usage growth. In the third quarter, MoU rose by 12.8% year over year to 222 minutes. For the quarter, we registered 324,000 net postpaid additions to reach a total of 11 million, accounting for 32% of our total subscriber base versus 60% of our total mobile revenues. On the prepaid front, we recorded positive net additions for the first time since Q4 2008, excluding the impact of the change in life cycle definition. ARPU rose from TRY11.2 to TRY12.2 quarter on quarter.

Moving onto the next slide, I would like to elaborate on our mobile internet strategy. Slide seven. As we said, since 2007, mobility and mobile internet are the future. We have been executing a focused mobile internet strategy to tap strong growth potential. The key components of this are our superior network, Smartphone orientation, and data penetration.

100% annual rise in the number of Smartphones in our network once again exceeded our expectations, thanks also to our exclusive sales channel, which is the market leader in Smartphone sales among the mobile operators.

Internet users among the subscribers for the Smartphone in our network generated data ARPU of approximately TRY13, which is five times more than regular handsets. Therefore, we have been working to boost Smartphone penetration and spread mobile internet usage through the introduction of Turkcell branded Smartphones and contracted bundled offers.

In the Smartphone market, we are widening access to broadband internet in Turkey, as well as strengthening our leadership by providing our customers with an excellent internet experience at affordable prices with the Turkcell T20, the successor to the Turkcell T10. With an exciting untapped potential in our subscriber base, we will continue enhancing our network and differentiating ourselves through a strong distribution channel, our device portfolio and unique mobile services, and application.

Moving onto the next slide, slide eight. This slide clearly confirms that the potential we have envisaged is materializing. With the most advanced technology, the wireless coverage in new mobile services, we continued our efforts that enable our customers to access the internet and information any time, any place. As a result, strong increase in the mobile internet revenues continued. In the third quarter, our mobile internet revenues rose by 71.5% to TRY207 million year on year. It's sharing total mobile internet and service revenues increased to 39% from 28% a year ago.

Moreover, I am pleased to note that, for part of the quarter, mobile internet, the focus of our attention, was actually the largest component of overall mobile internet and service revenues. Additionally, other mobile service revenues, including mobile marketing and content revenues, increased by 28% year on year. Overall for the period, our mobile internet and date-related service revenue has risen by 24% to TRY528 million, while its share in revenues rose by 3.8 percentage points to 24.3% year over year. We expect this increasing trend to continue.

Moving onto our fixed broadband business, Turkcell Superonline, slide nine. In the third quarter of 2011, our subsidiaries performed impressively. Their contribution to Group revenues climbed 3.1 percentage points to 14%, while EBITDA contribution was more visible at 14% from 9% previously. As a major contributor, Turkcell Superonline's revenues grew by 36% year over year through its focus on high-end customers and capitalization of synergies achieved with Turkcell. Revenue growth was mainly driven by 93% rise in the residential segment and 23% growth in the corporate segment.

Meanwhile, EBITDA rose 96% year on year and Turkcell Superonline recorded an EBITDA margin of 17.7%. As a separate note, Turkcell Superonline registered positive EBIT during the quarter as well. Throughout the quarter, we continued investing in our fiber backbone, reaching a network over 20,000 kilometers and providing a speed of 1,000 megabits per second among the top five in the world. We also increased our home passes to 831,000 with 215,000 FTTX subscribers.

I will now talk about our operations in Ukraine, slide ten. Strong execution in Astelit delivers financial result in line with our turnaround strategy. In the third quarter of 2011, Astelit's revenues rose by 23% year on year to $104 million, while at the same time, EBITDA margin was sustained at around 26% levels.

Following four quarters of top-line contraction, revenue growth was driven by the rising subscriber base in ARPU. Astelit's three month active subscribers rose to 7.1 million from 6.3 million year on year with that improvement in ARPU. This was mainly due to our successful marketing campaigns, mainly through touristic packages as well as our regional focus in Ukraine.

Thank you and now I will hand over to Serkan for the financial review.

Thank you, Sureyya. Good morning and good afternoon to all participants. I will now talk about our financial performance in more detail. During the third quarter, Group revenues rose by 8.6% year on year, reaching a record high level of TRY2.5 billion. Major contributors to this growth were 4.9% increase in revenues of Turkcell Turkey, which again returned to annual growth, together with the 39.8% higher revenue contribution of consolidated subsidiaries.

71.5% growth in mobile internet revenues, and growing subscriber base were the underlying reasons of Turkcell Turkey's performance. The contribution of consolidated subsidiaries as a percentage of total revenues increased to 14% from 10.9% a year ago, thanks to 36.2% annual growth in Turkcell Superonline and 39.3% increase in Astelit's revenues in Turkish lira terms.

Compared to the previous quarter, higher revenues from outgoing and incoming calls, mobile internet and value-rated services, and the roaming revenues in Turkey along with higher revenues from our subsidiaries resulted in roughly 10.9% revenue growth on a consolidated basis.

Moving onto the EBITDA slide, our third quarter EBITDA was slightly higher year on year and up 21% on the previous quarter. EBITDA margin at 34.5% fell by 2.6 percentage points year on year, mainly due to the increase in direct cost of revenues and selling and marketing expenses, which was partially offset by lower general and administrative expenses. During the third quarter, interconnection costs, which increased by 2.7 percentage points as a percentage of revenues, was the main driver of the increase in direct cost of revenues.

Selling and marketing expenses, as a percentage of revenues, remained mostly flat, around 16.7%, as a result of increased sales and marketing activities, which was partially offset by lower frequent usage fees as a percentage of revenues. General and administrative expenses, as a percentage of revenues, fell by 1.4 percentage points year on year to 3.8% of revenues, mainly due to lower bad debt expenses.

Driven by the 48% higher EBITDA contribution of group subsidiaries as well as lower direct cost of revenues, selling, marketing, and administrative expenses as a percentage of revenues in Turkey, due to strong top-line performance, our EBITDA margin improved by 2.9 percentage points quarter on quarter.

I will now talk about our net income. Driven by the solid performance - operational performance of Turkcell Turkey, together with a more visible EBITDA contribution of our subsidiaries, we reduced a net income of TRY537 million. Year on year, our net income was down slightly by 3.4%, due to higher depreciation and amortization and TRY24 million translation loss. Accordingly, our net income margins fell by 2.6 percentage points to 21.3%.

The main drivers of the quarter-on-quarter increase in our net income were higher EBITDA, a lower impact from currency movement and one-off charges, plus the absence of TRY188 million impairment charge for our Belarus operations. As you may recall, we have included the total of TRY443 million loss in Belarus in terms of impairment charges and translation losses in Q2.

During the third quarter, we recorded a TRY24 million translation loss as opposed to TRY246 million in the previous quarter. This was mainly due to TRY159 million translation gain of Turkcell Turkey, resulting from US dollar denominated net assets, which partially offset the translation loss recorded at the subsidiaries.

During the third quarter, devaluation in Belarus realized at 12.8%. The Belarusian ruble against US dollar rate and also of September 30, was BYR5,599. However, as of November 1, exchange rate went up to BYR8,450, representing an additional devaluation of 51% in October. Consequently, based on the estimated calculations, approximately TRY263 million translation loss may be incurred in Q4 financials.

However, this amount may vary depending on the actual ForEx rate at year end. As a separate note, during the quarter, TRY40 million provision recorded for the Telecommunications Authority file separately TRY68 million provision concerning the Competition Board fine, which was recorded in the second quarter level, we reversed.

Moving onto the balance sheet slide, our financial position remains strong with approximately TRY6.2 billion of cash on our balance sheet and the net cash position of TRY2.7 billion as of September end. Our consolidated debt increased to TRY3.5 billion and reached around TRY1.1 billion of our debt related to our Ukrainian operations. Of this total debt, TRY2.4 billion is at floating rate and TRY1.2 billion will mature within a year.

During the quarter, the major cash out items was the capital expenditures, which amounted to TRY402 million. As of the end of September, 33% of our total cash was eliminated in foreign currency, on which we get around 4.4% annual return. While the cost of our foreign currency debt is lower, at around 3.2% per annum. This brings our introductory presentation to an end.

Thank you, Serkan. Sarah, at this point, we are ready to start the Q&A session. I'd like to remind the participants to please limit your questions to two at a time. Please go ahead, Sarah.

Thank you, sir. (Operator Instructions). Our first question comes from Cesar Tiron from Morgan Stanley. Please proceed with your question.

Hi. Good afternoon, everyone. I have two questions, please. The first question is - I'm quite surprised to see that you're not increasing your guidance for full year 2011, given the strong operating momentum that you had in Q3. I understand that this is because you feel you have to spend a little bit more on [southern] market in going forward.

Can you please explain why this is the case, as the trend seems to be coming down and also explain if this is mainly advertising or if this is - implies paying more your dealers for each gross addition.

My second question is that you mentioned several times that Turkcell is going to do a share buyback. And you, I think, reiterated it today. Can you please tell us what's the timeline of that? And also, I assume that you first need to sort out the shareholder distribute at the board level and comply with the CMB decision. And I would like to understand when you expect to nominate new board members and when you expect to announce this share buyback. Thank you very much.

First, about the guidance. We gave a guidance range in revenue between TRY9.3 billion to TRY9.6 billion and an EBITDA between TRY2.9 million and TRY3.05 billion. So we are keeping that guidance because we are still in a pretty tough competition and this quarter, we see our competitors still promoting price discounts significantly, trying to capture customers from us.

And as we mentioned in the past, we are keen on keeping our customers and not losing for short-term benefits. And we also, in this quarter, have some marketing programs that we had planned as investments for the next year in the future.

So in Q4, if the market turns more rational, we may do better results. Our results maybe may improve, but we wanted to be conservative on our estimate and we wanted to a room to respond to market share tax by our competition. So this is the reason.

On the share buyback side, there is a new law and the law will be going into effect in July of 2012. And that will give us opportunity to buy up to 10% of our shares. And so is something we are interested because we believe in the future of Turkcell. But obviously, this needs to be approved by our board of directors and also our shareholders in the general assembly.

On the board issues, you know that there was - Capital Markets Board has passed a legislation, asking for companies who are public, who have shares in stock markets traded to have at least one-third of their board members to be independent members. And this independent means independent of other shareholders and also independent of the management. So this is the new law in effect and our board of directors has started taking actions to comply with this new legislation.

But this is a process. It is going to take some time and there needs to be certain applications and approvals to be received by CMB as well. I heard from our board members that there is a willingness to complete this as soon as possible, a possible in 2011 and also get dividends approved. But there is no guarantee and I don't know exactly. I cannot give you any firm timeline about the completion of this process, which will include a general assembly approval as well. Okay. There were three questions. I think I gave three answers.

Yes. Can I just ask -- just a very quick follow-up? I just want to understand the share buyback. Can it happen before age 2012 or it can't?

To my understanding, it cannot, but I think preparations maybe could start before.

Thank you very much.

Thank you. Our next question comes from Jean-Charles Lemardeley from JPMorgan. Please go ahead with your question.

Just a bit more - the question is on your impressive revenue trends in data and also in the Ukraine. First, in the Ukraine, you mentioned there was tourists packages and 3Q is a very peak season for tourism in the Ukraine.

So does that mean that there was a seasonal boost there and that revenues will normalize in the next few quarters or do you think that this kind of 20% revenue growth is something you can sustain? And then on the data side, can you - just if you think - can you tell us the percent of the Smartphone subscribers that subscribe to a data plan today? Is that - is it 100% or is it substantially less?

And then if you could break down the mobile broadband revenues between handsets and dongles at this point and how profitable the change is between one and the other. I mean, what's - yes, what kind of return on investments in for both, essentially, given the different network usage characteristics.

In Ukraine, some time ago we changed our strategy. We moved from market share and new subscriber strategy to more value strategy. And in the last year to year-and-a-half, we actually deemphasized some of the businesses that were not very profitable and we were willing to face revenue decrease. But we also sharpened our customer focus and we said how do we make our service one of the best service for our customers. And the result was we achieved pretty high percentage market share in some key markets like Kiev.

But we decided to follow our focused strategy on certain regions in Ukraine and where we were integrating our network, our IT, our corporate, our consumer, our marketing efforts into certain regions so that we built, like a network effect and also more momentum in those regions. And as a part of this strategy, in the southern part of Ukraine, we also wanted to take advantage of the dynamics of that market and we were awakened to the fact that these were touristic destinations and there were a lot of tourists coming in.

So I am very optimistic that this focused regional strategy is going to be beneficial to the Company for many quarters to come. But I also realize that this particular quarter there was tourist and which was - there was a temporary impact and we cannot necessarily count on this for every quarter to come in Ukraine.

Could you possibly give us an idea of the magnitude of the - that impact or --

As per the year-end guidance, I can tell you that 10% levels growth year on year in 2011 versus 2010 is being expected in dollar terms. And margin-wise at Q1 2011 level. So I think from that you can work with Q4 numbers.

Thank you.

On the Smartphone side, my understanding is, in Turkey, the Smartphones represent about 10% of the phones that are in our network. This doubled from 5% to 10% in the last 12 months. But what is exciting is there is 90% to go. So we are very focused on our marketing educational programs together with terminal programs so that provide a good mobile internet experience at reasonable prices.

This is why we are implementing this Turkcell T20 strategy. Now I will pass to Burak to give you more details about the other questions you asked related to our mobile internet revenues.

As Mr. Ciliv has mentioned, we have around 10% of our current subscriber base using Smartphones. And around 70% of those users use mobile internet in a particular period. So most of the Smartphone users provide mobile internet revenue for us.

Yes.

And the data revenue for handset and dongles is - dongles are around TRY25, TRY26 per month. So - and we are tracking the profitability board for our mobile internet from handsets and from dongles and we make sure that our pricing allows us enough profitability on both ends. And we also try to keep a balance in our total revenue coming from handsets and dongles, so that we can maintain the profitability on both sides.

Do you - sorry, do you have a rough breakdown for then of how much of the revenues are dongles and handsets and which one is growing faster? Presumably the handsets are growing faster?

The handset growth is going - the growth of handset is faster. And almost 70% of revenues are coming from handsets.

Sorry, did you say 70%? Is that -

Is handsets.

70%. Okay. Thank you.

70% of mobile internet revenue is from handsets.

Okay. Thank you.

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

Yes, thank you. So my first question is on the trends as regards traffic. And first of all, it looks like minutes growth is slowing down quite a lot. And at the same time, it appears that there's some change in your traffic mix because the net interconnect payments appear to have come down in Q3 compared to previous quarters.

So I wondered if you could comment on that and as to whether you see that as a sign that, in some areas, the pricing competition is becoming a little less intense. In other words, or are we seeing less high minute bundled packages offered. And is this a deliberate ploy to rebalance your net interconnect payments somewhat.

And then my second question is - it's probably quite early for this, but how are you thinking about a dividend for 2011, given that obviously your earnings have been depressed by translation losses and probably will be further in the fourth quarter? Given that that is obviously a non-cash item, do you expect that you'll look to propose a higher payout of earnings, given those earnings will be depressed by those translation losses? Thank you.

Hi. This is Burak. I will try to answer your first question. Regarding the traffic, actually, in terms of the offers of competition in the market, we don't see a major change in terms of providing less minutes or higher prices. So the top competition on that end is still going on. But still, we are seeing a little slowdown in - at this [not] data on traffic.

The reason why is we have made some - and also, this is reflected on the mix of traffic, as well, as you mentioned. We have made some rebalancing and optimization in our offers and in our marketing campaigns, which led to a more efficient traffic revenue mix and so that we could provide - we could increase ARPU without too much increase in traffic.

But do you think there is more to go on that then, and particularly on the net interconnect payments? Because if I look at your interconnect revenue and interconnect costs, the revenue is growing a little more strongly than the cost. Do you think that we may see more of that going forward, based on the traffic - on the tariff packages that you're putting into the market?

We are not expecting a major change in that because the - especially our competitors still provide high minute packages. So we are expecting this level to be almost stable for going forward.

Okay. Thank you.

About the second question you asked, Alex, about the dividend for 2011, I think we need to complete this process of increasing independent board members and completing the board revision process. And then completing the dividend approval for 2010. And then I think we can look at what is the best use of our cash. Is it the dividend amount or dividend percentage or considering this share buyback issue - all of these will be considered, I think. At this point, I cannot comment on the dividend for 2011 yet.

Okay. Thanks for that.

Thank you. Our next question comes from San Dhillon from Barclays Capital. Please go ahead with your question.

Hey, guys. Just the one question. On the share buyback, at what speed can you buy back shares? I understand there may be a restriction based on average daily volume shares.

San, we had already answered that, but just to be brief, probably likely execution will be after July 2012, as the regulation and the commercial law will be in effect by then.

Oh, yes. I heard that question earlier. It was just that at what speed you could buy back shares. Is it dependent on the average daily volume of your shares traded? That was my understanding of the new legislation being put through.

We are, over a period of time, as I understand, a month's period or so, up to maximum 10% levels of shares can be purchased. It has to be planned and basically purchased after this declaration is made.

Okay. Cheers, guys.

Thank you.

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

Yes. Good afternoon. Two questions. The first one is, from what I remember, I think you have very light subsidiaries on your T20 Smartphones. I was wondering, have your changed the [credit fee] this quarter, but these are small subsidiaries? And my second question is about the [plates] of the cash between foreign currency and Turkish lira. I was wondering, if you are going to keep the current plates or if it's going to evolve of a time in the coming quarters. Thank you.

Okay. We have not changed our strategy about the subsidy of handsets. We try to pass the cost of the terminal to our customers who are buying the handsets. You want the second part?

Regarding the second question, our treasury pulse is not determined by the percentage of the cash. As our policies say is such that we are keeping a certain amount of cash in foreign currencies. Going forward, we do not plan to change this amount until the end of the year, I can say.

Okay. And just a follow-up question. When you are saying you are not planning to change this amount, do you mean in absolute amount or in terms of percentage out of the total cash pot?

Absolute amount.

Okay. Thank you. That's very clear. Thank you.

Thank you. Our next question comes from Alex Kazbegi from Renaissance Capital. Please go ahead with your question.

Yes. Good afternoon. Could you - one question on the tariffs. I mean, I still want to clarify. I mean, this increase in the implied prices, I understand there was a rebalancing of the tariffs and maybe that helped. But I was wondering if you also started to pass onto the consumers the wireless license or wireless usage fee as it seems some of your competitors started to do.

Secondly, I was just curious the Superonline. You now give also quite a good number of the subs past in terms of the whole past - 215,000 subscribers there. Could you give us - what is the amount of the retail revenues Superonline currently is making and what sort of ARPUs are you getting there? That's two for me. Thank you.

This is Burak. Your first question is, actually, we were the one who first started to charge and pass onto - pass on the wireless usage fee to the subscribers in June. And our competitors started to follow it after a few month's lag. But it does not have any impact on the pricing or the revenue and it takes our cost structure. Does that answer your question?

Well, yes, I guess. I mean, you're passing it on, but it's not really sort of affecting the minutes - the same applied minute pricing. That's what they're saying.

Yes, that's right.

It's more taken out of the cost side. Yes, okay.

Yes, that's right.

On the Superonline side, we have not disclosed a lot of detail about FTTX business so far, but I want to make it clear that Superonline is a niche player and its focus is on offering fiber internets to corporations and to residentials. And we only have 850,000 or so home passes out of 17 million home passes in Turkey. And out of this 850,000 home passes, we have so far 215,000 residential customers. And the value of this offering is more the performance of internet on fiber to the home connection.

As a result, we are offering 20, 50, 100 and 1,000 megabits per second. And so our pricing for these offers in the latest revision started TRY44. So it is - the pricing discount is not the selling point of these offerings. And we are finding that people who use fiber internet are very satisfied and happy about our service, but I also want to state that Turkish telecom internet business is - they have access to 17 million homes and we are in different markets. Ours is a more niche market play.

Of course, but you - before you deemphasized the retail side and I was just wondering if you, given again that your footprints became bigger, you will be emphasizing much more the retail sales going forward.

We are happy about the progress in the revenue. It is - this part, there are different businesses in Superonline like the Turkcell, the wholesale business. In the wholesale business, Turkcell is an important customer. And there is the corporate business and then the residential FTTX business. And FTTX business is our fastest growing business segment.

Okay.

We are starting to see good revenue growth and the size is becoming more material. And I am also very happy that the Company already has reached, last quarter - I hope that it stable - it has reached positive EBIT - E-B-I-T. So that was an important milestone for us.

Okay. Thank you very much.

Thank you. Our next question comes from Alex Balakhnin from Goldman Sachs. Please go ahead with your question.

Yes, good afternoon. I had two questions. First is I'm just trying to reconcile what you say on the competitive dynamics in the third quarter and your expectations on the fourth quarter and your guidance for full year 2011 and EBITDA margin in the fourth quarter. So on one hand you are saying that you were able to adjust your prices upward a little bit. So basically, that indicates that competition situation is actually improving. But on the other hand, you remain fairly cautious.

And my question is are you just trying to be as conservative as possible for the fourth quarter financial expectations and for giving guidance effectively? Because from what you say, it looks like the competition is actually stabilizing in the quarter. In the third quarter and translates in the fourth quarter as well. And my second question is just a small accounting question. How do you account for your costs related to T10, T20 Smartphones?

Do you just expand them as you give them to the customers or you capitalize them when you distribute the Smartphones with the sort of subscription model? As far as I understand, it's TRY19 a month. Thank you.

Hello. This is Koray. I'll take the first question. Let me give you more visibility to the fourth quarter as far as we can see. For the fourth quarter in 2011 compared to fourth quarter 2010, we still expect better revenue and EBITDA in terms of nominal terms, while EBITDA margin is likely to remain flat year on year.

So overall, that's why we have maintained our lower end of the revenue and EBITDA guidance for 2011. And based on the competitive environment, possibly we can achieve better results. Right now, the growth that we see is coming from, basically, existing customers, upselling activities and basically switches to postpaid, et cetera, Smartphones, mobile internet, date-related growth. There is still an aggressive environment, particularly in the acquisition markets.

Regarding your second question, our role in Smartphone sales is just intermediate role between our sales channel and the customers. All we are doing is just collecting the Smartphone bills from our customers. Therefore, in our financials, there is no revenue and no cost coming from Smartphone sales. The only thing is what we are doing is just the collection of the Smartphone amounts from our customers.

But as far as I understand, you have a certain tariff plan for your T20 Smartphone where you charge, as far as I remember, TRY19 a month, which is sort of a subscription fee. Is this like the payment for the use of your T20 Smartphone? So it's, actually, it's like the lease payment for the Smartphone. Is that right?

That's the monthly payment for the Smartphone plus a limited usage of internet.

Maybe, when we are collecting the amount for the Smartphone, since we are making installments, we are giving some credit lines to our customers. We are not collecting the amount of Smartphone in one month. So you can see the Smartphone amounts on an installment basis. That's why you can think that we are charging Smartphone.

And what do we see on the cost side when you do this - Smartphone is?

There is no cost of Smartphone in our financials because, as I said, we are playing as an intermediate collect agents between our retail shops and our customers.

Okay. Understood.

It's only a balance sheet item for us. Not a P&L item.

Understood. Thank you.

Thank you. Our next question comes from Tibor Bokor of ING. Please go ahead with your question.

Hi. I have a strategic question for you. I mean, you have mentioned earlier on the call that in Ukraine you have made a major change in the strategy. Stop focusing on revenue share and focusing on cash flow. And my question is what needs to happen in Turkey for you to make a similar strategic change?

In Turkey, we are happy with our strategy. We keep a very good balance, I think, between keeping our customers and running a business that is profitable. And also we focus on customer subscription for the long term. So we look at a lot of KPIs when we are running our business in Turkey. And, I mean, the challenge is, in Turkish market, our competitors have not made any EBIT or net profit, at least for the last five years, but we run a business that is balanced and profitable.

So our strategy in Turkey really was about bringing new technology, like mobile internet. As you know, our competition was, in a way, blocking the 3G introduction to Turkey or they were delaying it. And we invested very large sums of money for 3G licenses and also 3G infrastructure.

And consequently, we now have one of the best mobile networks in the world and we rank number one in network coverage in the world - among 138 countries, according to [IZEA], the World Economic Forum Report. With mobile internet, it was a new business and, as I mentioned in the last quarter, the new business revenues from mobile internet passed our revenues from SMS. So this is an important milestone, I think.

In the future quarters, mobile internet will become the number two big revenue item after voice, passing SMS. And with mobile internet business, we have increased our - we have sharpened our focus on our customers so, in the corporate side, we have focused, dedicated teams, not only looking at overall corporate, but even verticals inside the corporate. So we have teams that are focused on finance, in banking, logistics, retail, distribution, all kinds of different verticals.

And we have partners aligned with us to deliver total solutions for these customers. On the consumer side also, we have increased our customer segmentation and, again, we have also invested in R&D.

We have two [stock] technology, which is a large R&D center with a lot of software engineering capabilities. And this capability enables not only for us to deliver mobile services for various platforms specific to Turkey as a differentiator for Turkcell, but also enabling our partner ecosystem to develop applications as well. In Turkcell T20, there are more than 20 partners who are involved in writing software for Turkcell. So I think, because of this strategy - obviously, in any market, strategy depends on the regulation, on the competition, on the technology, a lot of different aspects.

And to the best of our ability, we try to optimize our strategy, responding to all of these elements of the market. And I think the fact that we have gained customers shows us that our value proposition is appreciated by our customers. And I think that we have a lot of work still ahead of us, a lot of areas we can improve on. But I can say that our strategy in Turkey is working well, similar to Ukraine.

Thank you very much for that. For - second question, please. Can you give us guidance on the CapEx for 2011? Thank you.

Our latest guidance was TRY1.5 billion and we made - we are making no change to this guidance.

Thank you very much.

Thank you. Our next question comes from Dalibor Vavruska from Citibank. Please go ahead with your question.

Oh, hello. Good evening. Just a couple of questions. First, in terms of postpaid subscriber additions, it appears that you are quite successful in adding subscribers again. I was wondering, of the postpaid, how much of them are on a real, like 12-month, 24-month contract as opposed to maybe shorter contracts or postpaid without contracts?

My second question is about the situation in Belarus, Ukraine. I just saw some analysis. I'm not sure which is right or not, but in terms of the fiscals risks of countries and potential default risk of countries. And I think these countries seem to be quite high on the - in terms of those risks. I'm just wondering whether that's something that you're taking into account.

And if so, how is it impacting your strategy in those countries? And finally, I just wanted to ask the obviously - I don't know if this was discussed earlier in the call in terms of the shareholder situation and potential progress in terms of how do you see the timeframe for that progress.

And also, I'm interested whether there are any specific opinions of the individual shareholders about the Company's strategy and whether there is - basically, whether is it just the controls battle or whether there are any differences in opinions between the shareholders in terms of the actual strategy of the company. Thank you.

Regarding the amount of contracts, we have different types of contracts that customers are on, like handset contracts, other contracts, et cetera. So we have many different kinds of contracts. I cannot share the exact number, but I can say it's a significant amount of our postpaid - under contract.

So is that significant or insignificant?

Significant.

Okay. Thank you.

Regarding the second question about the risks in Belarus, maybe I can give you additional information about our unique situation there in terms of financial reporting. And really, it's about the possibilities in Q4. Around 99% of the debt in Belarus, debt of [back], is to our wholly-owned subsidiary named [Finas] and established in The Netherlands.

So actually - and those loans will be matured starting from March 2013. So there won't be any loan repayment in 2011 and 2012 next year. So the earliest repayment - cash repayment to our financial experience established in Holland will be one-and-a-half years later.

And we have evaluated and still evaluating and discussing with the banks and the government there to hedge our open position. But unfortunately, there is no market in Belarus for a fixed hedging. Therefore, for us there no possibility to hedge that risk. On the other hand, we have 80% stake in the company, 20% is owned by the government. Therefore, we also evaluated for the repayment of - early repayment of the loans.

However, since we have just 80% stake in the company, currently it's not possible in the short term. Therefore, having said that, there won't be any actual cash repayment for the next one-and-a-half years. And the repayments will be 99% through payments that will be to our own subsidiary, our financial experience. And there is no cash risk for the next year.

We have started to discuss the possible accounting treatments for this with our auditors. Actually, until now, we took the most conservative approach in the reporting and, as you know, we have reflected the whole amount as translation loss. Actually, since Q2, if you sum up the numbers, we have recorded almost whole of the loans as translation losses. Therefore, this guidance or this estimation that we have disclosed in this press release is the amount that - assuming that we will continue to record the whole amount as expense, as translation loss.

However, as I said, we are currently discussing with our auditors whether they made some alternative measures. Also in line with Finas, of course. So we will see. But at this moment, I think there is nothing to do for us in Q4 to eliminate this risk - this translation loss risk, apart from that accounting policy change.

Okay. I would like to add that no major shareholders from our board has informed me or made aware of their desire to change the strategy of the company. And about the process - about the adding new independent board members, we discussed this a little bit more in detail earlier on. Basically, it is a process that is going on and I cannot give you any specific timeline. I mentioned that there is a desire to complete this process in 2011, but there is no guarantee that it can happen. So that's where we are.

Thank you very much.

Thank you. Our next question comes from Duygu Kalfaoglu from Yatirim Finansman Securities. Please go ahead with your question.

Good evening. Thank you for the presentation. I was just wondering if the particular economic turmoil in Belarus still affects the continuity of offerings within this country. Well, do you think your exposure in this country can have further impact on Q4? And I have one more question after that.

Okay. I think, Serkan, maybe you can mention about the impairments we have already done and how much exposure we have left.

During the previous question I have in detail explained the translation loss treatment in Belarus and the risks. On top of that, as per the IFRS standard, we have to make impairment analysis for our subsidiaries, for investments every year end. As you may recall, we have recorded a significant amount of impairment loss in Q2 and some additional at the end of 2010.

And at the moment, the whole investment for the whole Belarus investment in Q3 balance sheet is less than $100 million. So in practice, there is isn't too much left that can be impaired anymore. Therefore, from a financial perspective, the impairment risk, going forward, is very minimal.

And I have one quick question about your global strategy. Well, given change in global drivers with the recession over the next few years, do you consider changing your acquisition target strategy? I mean, we know that the main targets are generally emerging markets in Turkey and surrounding regions with mobile penetration rates. But maybe the recession can become - and unfortunately for Turkcell, undeveloped markets in Europe. Do you consider changing your acquisition targets in the medium and long run with - after the recession?

Yes, we are open to - yes, we are considering those opportunities as well. But I think all along we have been very careful about investing when we are making acquisitions and we also now - or in a short time, in about six months or so, we will have an opportunity to invest in our own shares.

So we take this acquisition strategies very carefully and, in a way, the fact that we have been conservative for many of the Northern African countries in the past, turned out not a bad decision. And our operation in Germany, it is an [NBN] operation, but it is recognized by Deutsche Telecom as one of the fastest they have seen in the German market history.

So I think we will have to see how the economies of Europe and - develop and now the companies and the valuations are impacted. And - but we are also confident in many of the analyst and investors meetings. People, when they look at our mobile internet and mobile services strategies, they commend us on being one of the leaders among any mobile operators around the world. So if the right opportunities arise, we will go with them.

Thank you.

Thank you. A follow-up question from Cesar Tiron, Morgan Stanley. Please go ahead with your question.

Yes, hi. I just wanted to ask a follow-up question on these sales and marketing expenses that you think that you need to spend in Q4. Can you please - I didn't understand what was it about. Is it really advertising or is it more commissions that you need to pay to dealers? Thank you.

I'll make a comment and then I think Burak can respond on it. When we acquire customers, actually, we do - we do incur some sales costs - acquisition costs. And we are taking a long-term view. If we have the opportunity to acquire good quality customers, I think we are wiling to make the investment and pay for those acquisitions. We also have upgraded our brand - Turkcell brand - in Turkey. And we have some - although not high amounts, we have some expenses related to that marketing event. And I think - Burak, do you want to add?

The marketing costs are the main driver of that increase. And also, I can add that usually in Turkey, Q3 is a period that we tend to spend less on marketing communications because it is not that efficient. A lot of people are on vacation, et cetera. So traditionally, Q4 is a period where all operators invest more in marketing communications. So that's also another reason why we will be increasing our stand in Q4.

Okay. Thank you. And very last question. Do you see that your pricing is now - your voice pricing is now almost in line with Vodafone?

In general, if you look at the overall price per minute, we still have - we still have a premium and we think it is healthy, given the quality of service and the difference that we provide. But we are also managing our retention activities and pricing on a quite complex segmented approach. So we are trying to be competitive when required and also we try not to miss any opportunities to charge the premium that we think we deserve in terms of the quality of service.

Thank you.

Thank you. Our next question is a follow-up question from Alex Kazbegi from Renaissance Capital. Please go ahead.

Yes, thank you. Just a quick one on the CapEx for the next year, actually, if you could give us some idea what it could be again. I mean, your 3G network is largely from the best in class in Turkey. So that shouldn't take a lot of money. So again, are you going to be still investing about 15%, 16% of revenues or you're looking at a reduction of this number? Any guidance will be helpful. Thank you.

I think if you give us a little more time, we are working on - we are working on the operating plan for 2012. But when you are considering not only 3G, also the fiber optic network, it is not, I think, unreasonable to say that our CapEx will go down in 2012 versus 2011. We did make significant investments into fiber in 2010 and 2011. And we think that that will slow down and that may bring the whole CapEx numbers down.

Okay. That's helpful. Thank you.

Thank you. Our last question comes from Oytun Altasli from Standart Bank. Please go ahead with your question.

Hi. Good evening. You had pretty impressive postpaid growth in two consecutive quarters. I was wondering if you expect to see this in Q4 as well. Thank you.

We are - we keep on investing in our efforts to switch customers from prepaid to postpaid and also we have made a lot of investment in increasing customers at [retention] on that end. So we are expecting to have a good performance in postpaid in Q4 as well.

Maybe just a follow-up on your answer then. What percentage of that, would you say, are coming from, actually, dongles?

Sorry, I couldn't get the --

What percent is coming from dongles?

It's a little bit than less of the total net add.

Okay. Thank you.

Thank you. There appear to be no questions at this time. Please continue with any remarks you wish to raise.

I'd like to thank you, on behalf of the management team here, for participation to our call. Please remember that the audio of the call is available to you for the next couple of weeks. And please do follow up with the IR team and myself with any follow-up questions you may have. Thank you.

Thank you. This does conclude the third quarter 2011 results announcement conference. Thank you for your participation. You may now disconnect.