Turkcell Iletisim Hizmetleri AS (TKC) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the fourth quarter and year end 2011 conference call on the 23rd of February, 2012. 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, Ken. Welcome, everyone, on behalf of the Turkcell team here to our year end and Q4 2011 conference call. I just have, as part of the procedure, a brief notice, and then I will hand over the presentation to Mr. Sureyya Ciliv for his part of the 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. We undertake no duty to update or revise any forward-looking statements.

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

Mr. Ciliv, please.

Good morning/good afternoon, and welcome to Turkcell's results call for the full year 2011.

I will start from slide 4. In 2011, Turkcell Group revenues grew by 4% to TRY9.4 billion, while we recorded a EBITDA of TRY2.9 billion. We are happy to have met our targets. Group revenue growth was mainly driven by 60% growth in mobile Internet revenues, and also by the 32% higher contribution of our subsidiaries reflecting the success of our strategies.

Of note in the fourth quarter, despite a challenging environment, our revenues saw the year's strongest growth of 12%, while EBITDA climbed 7%. Our EBITDA margin in the fourth quarter was 28.4% due to investments in our brand and channel to strengthen our market position, as well as the treasury share impact of frequency usage fee changed to prepaid subscribers.

Our net income was TRY1.2 billion, down 33% from a year ago due to the impact of one-off items mainly resulted by the devaluation in Belarus. So, excluding these one-off items, our bottom line would have been TRY1.9 billion. Specifically in the fourth quarter, the impact of one-off items on net income was TRY105 million.

Moving onto the next slide on page 5, I will talk more about our momentum in 2011. On the strength of our three main segments of voice, mobile Internet and subsidiaries, we achieved a notable turnaround starting from the second quarter of 2011, which continued on increased momentum in the third and fourth quarters.

Our customer orientation and unique offers led to a rise in voice revenues in Q4, reversing 6 consecutive quarters of decline due to significant cuts in MTR and price cap. We were particularly excited by our sustained high growth rates for mobile Internet and services revenues of 26%, leveraged by our investments in technology.

On the subsidiaries front, we continued to see strong growth of 49%, mainly driven by strong performances of Turkcell Superonline and Astelit. Total contribution to Group revenue rose from 11% to 14%, a rising trend we expect to continue.

Moving onto page 6. During the year, Turkish mobile markets remained very aggressive, as the competition continued to sacrifice profitability in pursuit of market share, which pressured prices. In this market environment, our strategy was to increase our focus on customer retention and satisfaction. We managed to sustain our leadership in service, as well as technology. We have seen no major change in market shares because of Turkcell's superior value propositions.

Our segmented offers, bundled campaigns, attention to customer pain points, and contract orientation enabled us to decrease our churn rates by 6 percentage points from 34% to 28%. This marked the lowest churn rate since 2008. In fact, numerous attributes, including the perception of our network and service quality, ensure that we clearly remain the operator of choice in the eyes of Turkish consumers.

Moving onto page 7, I will now talk about key performance indicators. Slide 7 -- net addition of 1.1 million in 2011 was a clear indicator of our strong momentum during the year. We have increased our customer base in the last 3 consecutive quarters to reach 34.5 million. In the highly competitive post-paid segment, we notably increased our base by more than 1.5 million in 2011, 637,000 of which relates solely to the fourth quarter. The share of post-paid customers in our total subscriber base rose to 34% in 2011 from 30% in 2010. The share of the post-paid segment in total revenues rose from 58% to 62%.

Turning to average revenue per user, our blended ARPU rose from TRY19.5 in 2010 to TRY19.8 in 2011, mainly on the increasing share of post-paid customers and our upsell and cross-sell efforts.

Now, I will move onto page 8. Our main focus areas are mobility, Internet, smart devices, and mobile applications. In 2011, we were able to increase smartphone penetration in our network to 12% from 6% in 2010. In line with our strategy, we have enriched our device portfolio with our Turkcell branded smartphones, T11 and T20. The T series, driven by Turkcell software, provides the experience of high quality mobile Internet at affordable prices. Consequently, the T20 became the best-selling Android smartphone of 2011. We expect a continued increase in smartphone penetration of our base to around 20% in 2012; and given Turkey's potential, we foresee further increases ahead.

Moving onto page 9, I will continue with the mobile Internet results. Slide 9 -- throughout 2011, our ongoing investments in 3G and fiber network put Turkcell's communication and technology infrastructure into a leading position in the world. In 2011, World Economic Forum and INSEAD University listed Turkey number 1 among 138 countries in mobile network population coverage. Moreover, according to Ericsson survey, Turkcell 3G exchanges ranked first among 53 countries for 3G data download speed. Turkcell Superonline 1 gigabit-per-second fiber Internet put Turkey among top 5 in the world.

On the strength of our network and increased demand for mobile Internet, from day one we have focused on the most efficient use of our capacity. Accordingly, we have been implementing tiered mobile Internet pricing, avoiding the unlimited data tariff plans. With this strategy, strong growth in mobile Internet revenues continued on a 60% rise in 2011 with a controlled increase in data usage. In a short period of time since the launch of 3G in Turkey, mobile Internet and service revenues as a percentage of Turkcell Turkey's revenues has risen from 16% to 24% and reached TRY1.9 billion. Mobility is clearly a future we believe in. Turkcell will continue to lead mobile broadband in Turkey.

Moving onto page 10. On fixed broadband business, Turkcell Superonline continued to perform impressively. Turkcell Superonline showed continued strong growth in all segments, particularly residential which soared 93% year on year on a 70% rise in the FTTX subscriber base. Meanwhile, home passes met our 1 million target.

In the fourth quarter of 2011, Turkcell Superonline showed continued growth on a 53% year-on-year rise. Full-year growth stood at 37%, amounting to TRY460 million. Meanwhile, the EBITDA margin rose 17.7% in 2011 from 9.8% a year ago, up 148% in nominal terms. Moreover, I am pleased to say that Turkcell Superonline has also now achieved a positive full-year EBIT for the first time. Going forward, we expect Turkcell Superonline's contribution to Turkcell Group to rise as we continue selective investment in our fiber network, which now stretches to 30,000 kilometers.

I will now talk about our operation in the Ukraine on page 11. Strong execution in Astelit has delivered financial results in line with our turnaround strategy. Astelit's 3-month active subscribers rose to 7 million from 6.1 million year on year on a 20% rise in ARPU. This was mainly due to our successful marketing campaigns addressing regional needs in Ukraine.

We are delighted with both top line and operational profitability in this quarter. Revenue was at $98 million, up 20% year on year. Meanwhile, the EBITDA margin reached 25.4% from 20.6% a year ago. Accelerated growth over the past 2 quarters also translated into solid full-year results. Accordingly, in 2011 Astelit's revenues rose by 9% year on year to $369 million. In addition to strong revenue results, our sharp focus on operating efficiency improved the full year 2011 EBITDA margin to 25.5% from 19% a year ago. Based on Astelit's outstanding performance over the past 2 years, we fully expect to see continued profitable growth going forward.

On slide 12, I will now talk about the 2012 outlook. With our focus on mobility, the Internet, smartphones, and applications in Turkey, and with the continued momentum of our Group companies, we will continue to create value for our customers and shareholders. Through our growing mobile Internet and fixed broadband businesses and the increasing contribution of our international subsidiaries, for 2012 we expect consolidated revenue in the range of TRY9.9 billion to TRY10.1 billion. We also see consolidated EBITDA between TRY3 billion to TRY3.2 billion.

Bear in mind here that when we look at the projected quarterly trend for 2012, we estimate the first quarter to have the lowest profitability because of seasonality. This is due to further investments in our brand and channel to position ourselves strongly in the market. Subsequent quarters will be stronger, enabling us to reach our 2012 targets.

In pursuit of our growth targets, we will continue our investments both in Turkey and abroad. For 2012, Turkcell Group's estimated operational capital expenditure to sales ratio at around 17% is similar to that of 2011.

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

Thank you.

Starting with revenues, we observed strong growth in this quarter equally driven by Turkcell Turkey and contribution of our subsidiaries. This quarter, we reversed a decline in our voice and other revenues by TRY18 million despite continued aggressive pricing in the market and recorded a TRY109 million increase in mobile Internet and services revenues, along with the increased contribution of our subsidiaries at TRY133 million. As a result, in the fourth quarter we posted the highest Group revenue performance of the year on 11.9% year-on-year growth.

For the full year, 20% growth in mobile Internet and service revenues offset the decline in our voice and other revenues at Turkcell Turkey. In addition, the 32% higher contribution from subsidiaries particularly stem from Turkcell Superonline and Astelit's robust performance, resulting in consolidated revenue growth of 4.1%.

Moving onto the next slide on page 15, in accordance with the Q4 2011 projections, we grew 7% in nominal terms in EBITDA year on year. Within this context, we had planned and implemented several actions. We continued with subscriber acquisitions and recorded 108,000 net additions in Q4 2011. We increased our post-paid subscriber base 16% Q4 2011 year on year, recording 637,000 new subscriber additions during the quarter. We continued our investments in our sales channel and brand with a new communication campaign with a new motto with greater focus on subscriber retention and satisfaction.

And pertaining to the non-operational costs, we paid around TRY10 million additional treasury fee on prepaid frequency fees during the quarter, which was actually [tax over tax] and which we intend to correct through communications with the tax authorities in the coming month. Excluding the treasury share impact, our EBITDA margin would have been 0.5 percentage points higher in Q4.

In consequence of our investments in our market position, our EBITDA margin was at 28.4% in Q4 2011. And as a result of these foreseeable investments, we have met our guidance for the full year of 2011.

For the full year, despite challenging market conditions, we were able to maintain broadly stable EBITDA levels in nominal terms compared to 2010. Direct cost of revenues as a percentage of total revenues rose by 3.1 percentage points. This is mainly due to higher interconnection costs stemming from increase of net traffic and network-related costs due to higher voice and data usage.

General and administrative expenses as a percentage of revenue declined 1.4 percentage points to 4.4%, mainly due to lower bad debt expenses as a result of improved collection performance.

Sales and marketing expenses as a percentage of revenue were almost stable at 18%, mainly due to lower frequency usage fees paid for prepaid subscribers, which were partially offset by higher marketing and selling expenses. We have invested the savings that we generated by our decision to charge frequency usage fees to prepaid subscribers to strengthen our position in a highly competitive environment.

Moving onto the next slide on page 16. Despite successful operations in the fourth quarter, Group net income suffered from a number of one-off items totaling TRY105 million, mainly on high devaluation and hyperinflation in Belarus. As for the fourth quarter, hyperinflation accounting was implemented in the financial statements of BeST, our subsidiary in Belarus. The depreciation and amortization expenses rose by TRY299 million, mainly due to appreciation of assets related to the inflation accounting applied for Belarus operations. Moreover, a monetary gain of TRY274 million was recorded due to the net effects of the inflation adjustments on non-monetary items. Additionally, net finance income decreased by TRY60 million. This was mainly as a result of higher translation loss of BeST that offset the increase in interest income and decrease in interest expense.

Overall in the fourth quarter, Turkcell Group registered a net income of TRY332 million. Excluding the aforementioned one-off items, Group net income would have been TRY437 million.

Moving onto the next slide on page 17. For the full year, net income declined to TRY1.2 billion due to one-off items in the amount of TRY735 million, mainly on negative impact of BeST. This was mainly due to total translation losses recorded at BeST in the amount of TRY438 million, as well as total impairment charges of TRY204 million in BeST. Excluding one-off items again below the EBITDA line, Group net income would have been TRY1.9 billion.

I will now talk about our balance sheet on the next and the last slide. Our financial position remains strong with more than TRY6 billion of cash on our balance sheet as of year end 2011. Of note, TRY1.6 billion of our cash was deposited with a maturity longer than 3 months; therefore, as per the rules of IFRS, this amount is recorded as financial investments under other current assets.

Our consolidated debt at year end was TRY3.5 billion. TRY982 million of this amount was related to our Ukrainian operations and TRY780 million of this was related to our Belarus operation.

Our major cash outflow through the year was the CapEx. Of the total CapEx figure of TRY1.6 billion, TRY894 million was related to Turkcell Turkey, TRY393 million to Turkcell Superonline, TRY123 million to our Ukraine operations, and TRY104 million to our Belarusian operations.

This brings our introductory presentation to the end. At this time, I will hand it over to Ken to take questions. And I'd like to remind you that please limit our questions to 2 at a time, and then you can possibly come back and ask more questions.

Ken, at this point, would you please start the Q&A session.

Thank you, sir. (Operator Instructions) Alex Wright.

So, my 2 questions, please. First one is on the guidance. You've indicated that you expect Q1 to be quite tough in terms of profitability. And I wondered, first of all if, you can just say more specifically what you are doing in Q1 that is different to Q4 from a marketing standpoint? And can you give anymore color, and do you expect the margin to decline in Q1 compared to Q4? And then, for your full year guidance, do you -- are you assuming that competition normalizes from Q2 onwards?

And then, my second question is really on the use of cash. There's been some comments reported today, as we've seen before, that you're considering the potential acquisition of Vivacom and potentially a buyback in the second half of the year, and I just wanted to ask you about the order of priorities. If you succeed in paying out the 2010, and then potentially 2011, dividends, do you think it's possible that you would then consider the acquisition and the buyback or are they mutually exclusive do you think? Thank you.

Let's start with the first question. Basically, I would like to make a point that Turkcell had lost 1.9 million subscribers in 2010. In 2011, we decided that the dynamics of the market -- the strategies of our competition to grab share from us versus rational play to grow the market was in place. And as a result, we -- early in 2011, we decided to defend our most valuable assets, our customers. So, that strategy is very much in place. And this strategy has been relatively successful. We gained 1.1 million customers in 2011. So, in addition to all of these financials, it is very important to realize -- recognize that Turkcell increased its subscriber base to 34.5 million subscribers.

And in Q4, we very much took a long-term view of things. We realized that our revenues were now growing at a double-digit healthy 12% rate for the Group. We recognized that we were going to grow our EBITDA in absolute numbers in Q4 versus last year. And we decided to invest in acquiring customers, and when we acquire customers we obviously incur substantial costs. In Turkey, there is a high-tax fee for the initial acquisitions, plus we pay commissions. And we also communicated that in Q4 we had more than 637,000 post-paid customers. This number is actually more than the post-paid customers both of our competitors have gained. So, we gained a lot of post-paid customers, and we paid a lot of attention to acquisition of quality customers.

And we also launched a new marketing campaign. We say life is beautiful when you are sharing. And the launch of this marketing campaign also required investment. So, investments into channel, investments into commissions for acquisitions of quality customers, in launch of a new marketing campaign, all of these had an impact to our EBITDA margin in Q4.

And we also -- as Koray explained, there was a one-off item that had an impact around TRY10 million to TRY11 million as well. We think we'll be able to recover this, and we are working with the authorities because this was about paying treasury share on taxes we were collecting from our customers for usage fees. And it is pretty clear that we should not be paying treasury share on tax collections for amounts that we don't recognize as revenue.

So -- but, our financial team decided to be very conservative at the year end. We were hoping that we would be able to close this -- we would clear this with the authorities before the end of the year, but unfortunately it didn't happen. And at the end of the year, we decided to be very conservative and expense it.

So -- and then, in the fourth quarter, some of -- certain market dynamics changed, and one of our competitors lost negative -- or wrote negative mobile number profitability numbers, and the market became a little bit more fierce in January with increased price competition and substantial amount of increase in marketing expenditures in advertisement.

So, we will continue our strategy in 2012. We believe that EBITDA is very important, but to get EBITDA you need revenue. And we also think revenue is important, but to have good revenue you need customers. So, defending our customers is our top priority. And if it is price war, we are going to do -- join the price war. Whatever it takes, we are going to defend our customers, so this is our position.

And we see the markets in 2012 started with, again, very aggressive attacks in market share, so this is why we just wanted to communicate openly and directly to the market and to the analysts that our financial EBITDA margin may suffer, but we are going to defend our customers. So, this is the message that we wanted to give.

I think, overall, we think 2012 will be a growth year for Turkcell Group. We gave it range TRY9.9 billion to TRY10.1 billion. That represents at least 5.6% growth versus last year. And we think that we have solid revenue forces, and we think our mobile Internet business will grow nicely in 2012. We think our Superonline business is growing nicely. And we think our Astelit business will continue to grow in 2012. So, these 3 businesses will contribute to our growth.

EBITDA is always a priority for Turkcell, but also market dynamics and attacks by our competitors is also -- comes into play in our strategies. And as I mentioned from the beginning, we will do whatever it takes to defend our quality customers, and we will not have -- take a very short-term view, one-quarter view. We are going to take a long-term view of keeping our customers where they belong.

So, this was my answer to the first question. I will not give specific numbers about the Q1 number. Basically, Q1 in general seasonally is not our peak number -- peak quarter. But, we think that we feel confident that -- about our EBITDA performance and revenue performance for the year. But, if necessary, we are willing to sacrifice a few EBITDA margin points for the long term keeping customers.

And just to sum up quickly on that first question, are you essentially assuming then that you have to continue to defend against this intense competition for the whole year or are you assuming that things get better at some time in the coming months?

I think -- if people act rationally, I think, hopefully, the market will become more rational. If necessary, we are just willing to compete hard as long as it takes. But, I hope that the market acts more responsibly and rationally. That's all I want to say. Koray, do you have anything to add?

I think we can go to the next question. You had asked about the order of priorities in cash spending. Obviously, a dividend payment is a high priority. Board has not taken decision yet on dividend payment related to 2011 earnings. It will be on the Board's agenda very soon. And as you know, before May 2011, according to CMB, a dividend payment should be made. And the Board will also consider, obviously, dividend payments from earnings of 2010 this year.

As per the buyback, we feel it is a very good tool -- mechanism to have in Turkey. It becomes available in July. I will remind you that management is positive on this. It will, again, require a Board decision, as well as a general assembly decision to allow the Board to trigger this process. We intend to go through those steps.

As per Vivacom, it is part of our evaluations in the region. We are currently finalizing our evaluations, and we will, again, talk to the Board on the opportunity. A Board decision has not been taken yet on Vivacom.

I just want to add that -- on the dividends, I think everybody realizes that the management had recommended to the Board and the Board had approved that dividend. But, in -- the shareholders at the General Assembly decided not to distribute the dividend, so -- for 2010. I hope that the situation improves, but it is very much up to -- it's out of our -- management team's control. It is up to the shareholders of Turkcell.

And I just want to add one more thing on Vivacom Bulgaria. We are very careful about investing our shareholders' money for acquisitions. And we are still in the analysis phase for Vivacom, and the management team and the Board are working together so that -- to make sure that we make a very good, shrewd, correct analysis and a decision for our shareholders.

San Dhillon.

First question, on Superonline, you've previously said that it was primarily aimed at the corporate segment. But, given the residential revenue growth you've achieved in the year, can we infer that you will increasingly be targeting this segment going forward?

And secondly, on the TRY1.6 billion cash balance that you removed the longer-dated deposits, could you give a guide on what level of interest you earned thus? Thank you very much.

On the first part of the question about Superonline, almost -- I am sorry. Maybe you misunderstood, but for Superonline -- Superonline has really 3 businesses. One of them is a wholesale business, and Turkcell is a very good customer for that business. And now, 87% of our traffic is going over Superonline network. And then, in the residential and corporate businesses, they're almost equal size businesses, and they are both -- residential is growing faster, and corporate business -- Turkcell sales force sells mobile products and services and also sells Superonline's products and services.

Obviously, the market is very much going in the direction of total communication. And because of cloud computing and all of these new technologies, I think the synergies between fixed and mobile and also cloud computing, like architectures, is very important. And we have a very focused sales force that handles our corporate customers, and they are very vertically focused. And we work with our partners to deliver total solutions to our customers.

So, for Superonline, residential fiber to the home has been an important business, and now it represents about 24% of total revenues -- and it will continue to be. We have a little bit more than 1 million home passes, and we have exceeded 266,000 FTTX customers.

So, any other questions about Superonline?

Yes, just a quick follow up. How many homes are you looking to pass next year or are you happy with the 1 million and will start to try and penetrate that footprint?

Obviously, fiber is a very expensive investment, and we have to be careful. And next year, we plan to have about 300,000 to 400,000 new home passes. And we are in 10 cities in Turkey, and we plan to expand the numbers. But, this is very much dependent on agreements with the local municipalities who would give us authority to lay this fiber, and sometimes they let us use their infrastructures to use -- to rent, to put this fiber network so that it's available to deliver FTTX to the homes. And we -- next year's Superonline growth will be more than 30%, and this year it was 37%. And as I mentioned, it turned EBIT positive, and we are very happy about that.

Because our Company is less than -- has been in operation in this business less than 5 years, and in the fixed line business it has turned EBIT positive, to my understanding, if I don't have misinformation, I think the other two mobile operators are not EBIT positive in Turkey.

As per the next question on the interest on cash in the bank for 3 months time deposit, let me remind you that 80% of that cash is Turkish lira; the rest is US dollars. On Turkish lira, we gain about 12.2% and on US currency 5.4%.

Cesar Tiron.

I have 2 questions, actually. The first question is can you please go again through your strategy to defend your market leadership in Q1? I would like to understand if those would be mainly pricing actions because if I look at your voice pricing and compare it to Vodafone, for example, it's still 30% more expensive on average. Or is it more sales and marketing initiatives, so in Q1 we should see your sales and marketing expenses grow faster than your revenues, which isn't the case in Q4?

And my last question would be on this implementation of the new CMB regulation. I would like to understand if the Board has already selected the independent Board members and if you have already applied to the CMB to check whether or not the CMB is fine with the independent status of those Board members. Thank you.

About the first question, I will answer briefly, and then I will give to our team who heads our consumer business.

We think the market in mobile termination rates and also in price caps -- there needs to be adjustment to inflation, so I personally think there is need to increase prices because our expenses have gone up. And obviously, regulatory decisions are very important here, but I think we have to be looking at some moderate inflation adjusted price increase in the near future because, as I mentioned, the expenses for the whole industry is going up. Obviously, in this tough competitive market this is pretty tricky, but I think there is a need -- there is room to increase pricing.

On the marketing expenses side, compared to last year our marketing expenses numbers included some of these usage fees; as a result, it may be a little bit misleading. But, we do have -- we see that sometimes our competition is spending at levels equal to us where we have twice the subscribers, twice the market share, and so we do not -- as a result, we end up spending significant money to make sure that we are -- our voice is heard in the marketplace.

Emre or Burak, if you guys want to add something.

Yes, I'll add. Hi, guys. Sureyya already mentioned that in 2010 we lost almost 1.9 million subscribers. In 2011, we gained 1 million. In 2011, in number portability, the numbers were slightly negative on our side, but new customers kept coming in, and at the end we were positive. That's the balance we want to keep. I'm using the word balance knowingly. We do not want to be so aggressive in the markets so as to start a price war, but when the competitor's strategy is based on growing by stealing our customers, we will just resist that, and we will show that that's not the wise move.

The market can grow in a lot of other ways. Sureyya already mentioned that the prices are low. The inflation is not being reflected to our prices. That's one way to grow. The other way is to grow in mobile Internet and other services, and that's what we are trying to do with our customers. We just want to defend against the competition. And when you look at the marketing -- sales and marketing levels spent, we are actually not trying -- planning to overspend in 2012. The levels are quite close to the previous year. But, in Q1, because the revenues are low due to seasonality and because the competition is kind of hot, we will just make sure that we make our stand. And then, I hope, and I think, things will become more rational in Q2 and onwards, but we will have to see.

Can you please give us one example where you saw competition deteriorating since the beginning of the year, just one tariff or an example? Is it mainly on voice? Is it mainly on data?

Do you mean last year, 2011?

No, no, this year, since the beginning of the year.

Deterioration meaning getting worse or getting better?

Yes, getting worse.

I would say the price level has been mentioned, for example. There were -- competitors were mentioning price levels around [220] TL levels. Now, there is talk of 9 TLs and 5 TLs, so that's a deterioration, which I don't think will last long. Also, when competition deteriorates, we see it mostly in [porting] campaigns, the strength of porting campaigns. These kind of slackened in the second half of last year. There is, again, new offers coming into the market in Q1. Those are the areas we look very closely into.

Thank you, Emre.

I just want to make one more addition. Basically, I think if you look at ARPU levels between the operators, and if you look at the [mobile] levels between the operators, you'll see that Turkcell is still selling its services at a reasonable price, but at a premium to other operators. While there is this situation, I mean, the average pricing of our competitors is still going down, so this was our concern.

But, as the CEO, I think, really, the market is -- both on data, and also on voice, can benefit from inflation adjustment pricing -- pricing adjustments to make up for the inflation, which was around 10%.

As per the next question regarding CMB regulation, as you know recently CMB made some revisions to the regulation. And based on these revisions, companies have to modify the articles of association. That change is applied to CMB. We are following up that process with the Board of Turkcell. We recommended some changes. The Board is evaluating, and it will be on the Board's agenda to decide on those changes. As soon as it's finalized, we will send them to CMB. As you know, one-third of the Board has to be composed of at least one independent member in -- and it's applicable to Turkcell. And until June, we are required to comply with these changes.

Can you please say what happens if you don't comply?

I don't want to speculate on that because it is required by law. And under the law, CMB requires companies to comply. They could possibly take certain actions, but I cannot speculate on actions that they can take.

Jean-Charles Lemardeley.

Yes, so 2 lines of questions. The first on your -- the dynamics on the data side. You mentioned in passing the -- your applications. If you could give us just an update on that, the applications. Was it a revenue driver? Is it a churn tool? You were talking about your -- are you giving some maybe usage statistics on your proprietary apps particularly? And maybe if you could discuss -- it looks like based on the number of smartphones and the revenue growth in mobile Internet that ARPU is not going down very -- is going down fairly slowly. So, if you could discuss dynamics on ARPU dynamics.

The second line of questions is on international and just on Vivacom. It sounds like it's a part of the world where growth dynamics are very challenging. And what could attract you to an asset like that? And tied to that, what's your outlook for turning around Belarus, which is also looking very challenging? And what are the options in Belarus?

Well, first question is related to the data side, what's driving the data growth, applications, the handsets, some of the trends, and also ARPU dynamics, so possibly Emre and Burak can tackle that?

Regarding the drivers on data, we can mention a few drivers on that side. One of them is increased penetration of data services. So, as we have more people using our mobile Internet each and every quarter, then that helps our data revenue. And the second one is smartphone penetration. Obviously, any customer migrating from a feature phone to a smartphone starts generating more data revenue for us. The third one where applications come in is the increased usage of existing users, and applications play a key role in that because they create a need and reason for people to switch to larger data packages that generate revenue for us, so applications are very key for our upsell efforts.

I understand, but for your proprietary applications, the ones that are developed by Turkcell, what's the -- if you could comment on those specifically.

Sure. Well, what we try to do is -- obviously the applications world is a huge world, but there are certain local needs that we understand much better than anyone. So, what we do is we create applications that address local needs of different segments of customers here. So, those are heavily used by our customers, and they create a need to buy Internet packages and generate mobile data revenue for us. So, this is how we position the in-house developed applications.

I mean, I can name a few applications, such as our music application which is very popular, such as traffic information, such as mobile applications for sports where people follow soccer games, etc. So, these are the kinds of applications that have either local content or that are addressed to local needs that are developed by us, and they are very key in generating need for mobile usage.

And the last important is the increase in number of data subscribers, which is basically dongles, and also tablets nowadays, and that's the fourth driver of data revenue.

And, sorry, dongles -- how much of your mobile Internet business is dongles versus the small screens?

Dongles are -- I'm checking with Burak, but less than 1 million or so, so our main focus is actually -- of course, we'll carry these dongles and provide attractive competitive offers, let's say, but the main focus, as Burak said, is terminals and smartphones, increasing the penetration of these handsets and mobile Internet usage via these handsets.

The majority of our data revenue is coming from handsets, and dongles is a smaller portion.

And on the ARPU dynamics, what I was just trying to get to is when you see somebody -- a smartphone user, how will ARPU evolve? Presumably it is a big increase from -- in ARPU going from feature phone to smartphone, but do you see an increase over time as the usage develops from the smartphone user or is it static or --?

-- The data revenue of the smartphone users is around 3 to 4 times higher than a feature phone mobile Internet user.

And how does it tend to evolve as that person gets to know how to use a smartphone a bit better? I mean, as the usage develops, is it static or does it increase?

Yes, it usually increases, and what we try to do is as usage increases, we try to upsell to larger packages and generate more revenue.

So, basically, if a customer has -- we have -- in our customer base of 35 million, we have X number of customers that are not using mobile Internet and this is more than half. And there are some customers who have normal phones, and they are using mobile Internet, and their ARPU level is, let's say, at Y levels. And smartphone users, they have 5 to 6 times ARPU of this Y level. So, these are the dynamics, and this is why the strategy is clear. We need to increase the smartphone penetration in Turkey, and this is why we have this T series strategy in place. And we introduced our first phones. They have been very successful. Now, we need to make sure that the next-generation phones are even more successful.

On the application side, in T-Market, which is Turkcell application market, 14 million application downloads have happened. In Turkcell Music in 2011, 15 million songs have been downloaded. And we have a mobile TV application that works very well because of our high-speed 3G network, and we had 152 million minutes of television in 2011. And also, 12 million goals, football goals, was -- videos were delivered and watched by our customers. So, these are some of the applications.

And our partners' ecosystem and Turkcell Technology is working on applications that are segment-focused. On the consumer side, we have segmentation for farmers, for housewives, for professionals, for young people. But, also on the corporate side, obviously, we have, as I mentioned, very sharp focus approach. So, our partners and our Turkcell Technology team works to build these applications.

I also want to let you know that in Turkey, the average speed of Internet is 2.7 megabits per second, for all of Turkey 2.7 fixed line average. And Turkcell Superonline average is closer to 20 average, but we offer 20, 50, 100, and 1,000 megabits per second offers. So, if it takes a customer 51 minutes to download a video of 1 gigabyte with normal 2.7 megabits per segment, in Turkcell Superonline the same video takes 7 to 1 minute time to download, depending on if you have 20 or 50 or 100. So, this is, I think, a significant competitive advantage for fiber Internet that Turkcell Superonline offers.

About -- you asked 2 more questions about Vivacom. What is interesting for Vivacom is we -- obviously, Bulgaria is next to Turkey and it is a very short distance, 35 minutes flight from Istanbul. But, in Vivacom, they have, obviously, fixed line business, they have mobile business, but in mobile they are number-3 operators. So, we think that Turkcell's experience in mobile and their 3G network and capabilities in place, yes, there's -- we can improve the mobile revenues rapidly, so this is one area we can improve.

Also, secondly, we think Vivacom has fixed mobile -- fixed Internet, high-speed Internet capabilities, but due to the pragmatic market and a lot of piracy in the market, they have not been able to capitalize on this as much. So, that will be some area of growth as well because the market has already started consolidating, and small operators will be disappearing, and customers will move up to fiber Internet kind of offerings. But, we are still at the analysis phases, and we'll be careful about buying this asset at the right price so that we invest wisely.

On the Belarus side, Belarus is a country of 10 million, and they have a very high level of education, and they also have -- their average income per person is significantly high versus many other emerging countries. Unfortunately, they did have this devaluation. But, our business is solidly growing, and we are applying what we have done in Ukraine, which is a very focused strategy, which is a value-driven strategy, which is innovation in services and away from your net kind of offers. We think Turkcell's smartphone volume purchases, mobile applications, can be helpful to us in all of these operations.

So, we are in the building phase of our Belarus operation. I mean, there has been a lot of write downs on this, but I think you -- I hope you all realize that these were all non-cash write offs, and they did not have any impact on our cash. This was mainly because Belarus had a loan outstanding of $370 million from the banks. It's in dollars. As a result, doing the valuations, we faced trading currency losses, and that impacted our bottom line in 2011. But, now it has been drawn down to a significant number -- a significantly low number. So, there is not much more to impair or write off anymore, so we have almost hit the bottom in that area.

Vera Sutedja.

Yes, I have a question regarding the 3G. Could you explain to us how much is the coverage of your 3G at the moment at what is your target considering the CapEx for this year is targeted to be pretty high at 17%?

And second question would be on the Ukraine. Should we expect that the revenues in 2011, the rate of revenues, can be extrapolated also into 2012?

As per the coverage of 3G currently, we cover 88% of the Turkish population. And as you know, 2G -- in case of 2G, it is above 99%. And as per our investment of TRY1.7 billion, about TRY1 billion will be related to Turkcell Turkey. I don't want to break down 3G/2G for competitive reasons, and I think we have already given the details of Superonline investments, so I won't repeat that.

Could you remind me of the next question, please, related to Ukraine?

Yes, on the revenue. Are the strong revenue growth in the 2011, can I use it for the 2000 as well -- or 2012 or do you expect a slowdown in the revenue growth for Ukraine?

Well, I -- yes, I think in 2011, if I remember correctly, the revenue growth was about 9% in dollar terms for the year, close to 20% in the fourth quarter. I think for the year, our assumption is around 15% in dollar terms.

For full year?

Yes.

And the driver would be --?

-- Actually, let me correct that to 12.5%.

12.5% in terms of dollars for 2012 Ukraine?

Yes.

And the driver would be the subscriber growth and the ARPU development, so similar to what took place last year?

This is ARPU question as related to Ukraine, right?

No, no, I meant I just want to know what would drive the revenue growth. Is that -- can I use the same explanation that it would be driven by the subscriber, as well as ARPU?

I think it's a safe assumption because we have a regional strategy there in the regions that we have invested, and we are not -- we think we don't have the right market share. We are going after subscribers, but we are doing that very selectively. It's not pure subscription gain. Obviously, we have edge there. We are offering data things, and we are focusing on ARPU increase as well.

Max Loginov.

My first question is, again, on your CapEx guidance on 17%. Could you please repeat once again what is the CapEx breakdown?

And the second one is on the share buyback. Do you expect it will be supported by the Board, and what buyback structure do you currently have in mind? Thanks.

As per the CapEx, as I said, TRY1 billion is related to Turkcell Turkey, approximately TRY240 million is related to international subsidiary for Astelit and BeST, and Turkcell Superonline is about TRY340 million, less than the TRY400 million or so of last year. And there's some other CapEx of close to TRY95 million, so that puts us to TRY1.7 billion. And it is, as per CapEx sales ratio, approximately 17%, so similar to last year. And I think you can find the details in our press release as well.

On the second question about share buyback, a share buyback has to be proposed by management, but it needs to be really approved by the Board. But, more importantly, it needs to be approved by the General Assembly of shareholders. Considering the fact that -- we think this is a very good opportunity, and we are excited about this law change in commerce law in Turkey that will allow this because we do have cash and we think highly of Turkcell's future potential. But, you also have to be realistically about the Board and the General Assembly's approval of these transactions. The General Assembly has not even approved a 2010 dividend yet, so -- and we don't have a date for this.

So, I think -- I am the CEO, and I think this is a -- this is going to be an exciting opportunity. We welcome this decision by the change in the commerce law, but hopefully our General Assembly will agree with this action item as well.

Aktug Baloglu.

I have 2 questions. The first one is regarding the shift from the post-paid subscriber base to the prepaid in 4Q compared to the last year, and it's up to 34% from low 30s. And we see on the other -- on your competitors a similar trend, like 20 -- from 28% to 20% at Vodafone and with Avaya from low 40s to 44%. And I was wondering at this point if you could --?

-- Aktug, I just want to ask you a question. You said shift from post to pre in fourth quarter --.

-- I'm sorry, from prepaid to post-paid --.

-- The other way around.

Yes, exactly. The Y first. I apologize, sir. And I was wondering if you can give us some color. Do you see this shift as only -- as Turkcell's success or it's the market's reality and the consumer's reaction?

And the second question is how much percentage of your post-paid X comes from the data post-paid subscriber?

First, I will answer, and then I'll pass it to Emre. First, I want to say that this is not only for Turkcell. This trend from pre to post strategy applies to all operators, and actually all operators and all of our customers can benefit from this because ARPUs of post-paid customers are higher, about 3 times higher than the prepaid. And we have seen that -- Avaya traditionally had a high percentage of post-paid customers because of their public tariffs. But, Vodafone traditionally had a very low percentage of post-paid, and in the last 3 years they have capped this prepaid base, and they have shifted a lot of customers to post-paid, and this has been a revenue generator for them.

But, we have also been using this strategy for a long time. But, I'm happy that in the last quarters we gained additional momentum, accelerated momentum. And if I remember correctly now, number of post-paid now constitutes 34% of our subscriber base. And in one year, our revenue base went from 58% to 62% of our revenues are now coming from post-paid. So, it is -- it applies to all of the operators.

Do you guys want to add anything else?

Just one thing. There was a question also about whether the customers or the -- yes, the customers pushed that trend or whether it was the operators. I would say it was what the operators brought to the market in terms of tariffs than offers that drives this trend because we are solving the problems of -- some problems that customers have with post-paid, such as controlling their -- the amount they pay and getting more information about their spending, and that's why they feel more comfortable moving to post-paid tariffs.

As to your second question, you asked what percentage of that was coming from data subscriptions, and that's -- it's about 20%. So, most of this is coming -- still coming from voice.

Cesar Tiron.

On the -- just a follow-up question on those sales and marketing expenses. I'd like to understand if there is an inflation of a dealer cost in -- I mean, of SAC per gross add in Turkey.

I'm sorry, can you repeat that? What inflation --?

-- Is there an inflation of subscriber acquisition cost per gross add in Turkey?

Subscriber acquisition cost?

Yes. Do you need to pay more your dealers per gross add?

There is an increase in some of the taxes we have to pay, and this year it's been a little bit above inflation. But, other than that, no, it's quite [complete].

About the commissions, commissions are -- there level are -- it's not changing. The commissions and the way we pay the commissions is changing, so I would say in general the level is pretty flat.

Jean-Charles Lemardeley.

Yes, I just wanted to follow up on those administrative expenses that dropped quite a bit year over year. You mentioned bad debt. Is that -- was that entirely driven by bad debt, and what's the outlook on that line as well moving forward? I mean, is -- what should we expect?

Hi, this is Koray. This is mainly driven, as we said, and you confirmed, by bad debt. It's basically -- it's also better collection process, as well as some methodology change we had also announced last quarter. Instead of applying --.

-- Last year.

Last year, excuse me. As we were applying a rate, now we are using basically an aging methodology, and it'll be pretty much similar going forward in 2012.

So, was there, like, something -- I mean, kind of an accounting change that helped that drop or --?

Yes, [Handa] would you like to elaborate?

Yes. We have changed about that methodology in the end of 2010. Before 2010, we are using an unpaid ratio to the invoice amount, and we set 100% provision for the receivables older than 1 year. In the new methodology, we are using an aging analysis and set provisions according to the aging of receivables. For example, if the unpaid amount is coming from 0 to 3 months, we set no provisions, and then we are increasing the provision amount by 25% for each 3 months. And in the end, if the receivable is older than 1 year, we set 100% provision.

Was that a rule that changed in Turkey because it's -- we saw something similar at Turk Telekom as well.

No, it's just on management's estimates.

But, the change was made at the end of 2010. I just want to remind you of that. But, we have been pleased by our success in collection because some of the outstanding receivables which were written off we were able to collect back and that capture has helped reduce the bad debt expense.

And just on the sales and marketing -- because it looks like there was a -- quite an increase in the second half of the year specifically. It was more kind of flattish in the first half, if I'm not mistaken. Should we see easier comparisons in the second half of next year -- or sorry, in 2012 in the second half? Should they -- does it mean we see sort of kind of a step up, but in the second half the comparisons ease?

I think at this point we are a bit hesitant to give quarterly trends on this, but as we spoke, Q1 will be more of an intense quarter. As we do expect to improve our margins in the next quarters, we will spend accordingly. But, it will depend on, obviously, the market dynamics and the positioning of competition as well.

I want to add that our market research shows that Turkcell's quality, confidence levels to Turkcell and Turkcell's technology perception is -- our image in these areas has been rising. And the actual performance of our services is superior to the other alternatives. So, we just have to make sure that [Marcom], our competition, does not change this perception. So, we just need to make sure that the facts are well understood, the customer experience is delivered at the highest level to our customer base. So, this is why we did increase our marketing spend in Q4, and we plan to keep it at that level in Q1.

But, we think that in general mobile communication sector is overspending in advertisement compared to other markets. So, if the -- I think there is room for the market to move to more rational levels, but it needs to happen together. And when all the players do not comply with this, we end up also spending at the high level. But, I think it is an opportunity for the overall marketing spend, especially in advertising, which is at high levels, to come down if the markets move to more rational levels.

Just a final question. I mean, if nothing changes, if you see -- the dynamics you see today aren't changed by the end of the year, where do you think you'll land in your -- in the range you've given on the EBITDA?

We gave our guidance. I think the guidance is revenues TRY9.9 billion to TRY10.1 billion and EBITDA between TRY3 billion to TRY3.2 billion. So, this is our guidance, and this guidance takes into account everything that we see. Obviously, these are all in Turkish lira.

San Dhillon.

I'll make it very quick. On your 12.5% revenue growth guidance in Ukraine in US dollar terms, what FX assumptions are you making? Are you assuming flat US to UAH rate?

Right now, actually, there is not a major expectation of a deval in the Ukraine overall, but we have put about 10% of devaluation assumption in our annual operating plan for Ukraine at this time.

Well, at this point, I'm informed that we've taken the last question. So, I thank you on behalf of the management team for participation to our call. Please bear in mind that the audio recording of the call will be available to you for 2 weeks or so. And thanks for participating. Bye-bye.

Thank you. This concludes the fourth quarter and year end 2011 conference call. Thank you for participating. You may now disconnect.