Turkcell Iletisim Hizmetleri AS (TKC) 2012 Q1 法說會逐字稿

Welcome to the first quarter 2012 results announcement on the 5th of May, 2012. Throughout today's recorded presentation all participants will be in a listen-only. After the presentation, there will be an opportunity to ask question. (Operator Instructions).

I will now hand the conference over to Koray Ozturkler, Chief Corporate Affairs Officer. Please go ahead.

Thank you, Julia. I also like to welcome everyone here to our conference call on behalf of the management team.

Before we proceed with our presentation, I just like to note that this presentation may contain statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially due to factors discussed in this presentation.

Please also note that all financial data are consolidated, whereas non-financial data are unconsolidated unless otherwise specified. At this time, I like to hand it over to Sureyya Ciliv for the business section of the presentation.

Good morning, good afternoon, and welcome to Turkcell's first quarter of 2012 results call. We are glad to report a strong start to the year with revenue and EBITDA growth over 12% year-on-year. This was driven by 8% growth in Turkcell Turkey together with 43% higher contribution of our subsidiaries and cost effectiveness initiatives.

As a result, we recorded Group revenues of TRY2.4 billion, EBITDA of TRY703 million in the first quarter, while sustaining the EBITDA margin around 29.5%. This strong operational performance as well as higher non-operational income mainly driven by interest income and FX gain resulted in 56% year-on-year increase in Group net income.

Based on our first quarter performance, we remain on track with our 2012 targets and therefore maintain our guidance for the full year.

Moving on to page 5; our Company performed strongly across all major business lines and we are happy to see the benefits of our business model. Turkcell Turkey witnessed growth in voice revenues of 3% for the second consecutive quarter despite accelerated competition in the Turkish mobile market.

Our broadband business continued its impressive performance in the quarter. Mobile broadband and service revenues increased by 25% while fiber broadband business grew by 59%.

Our subsidiaries also sustained strong operational performance as their contribution to top line rose 43%, mostly driven by Turkcell Superonline and Astelit. These figures clearly reflect the success of our strategic vision, synergies between Group companies and the long-term investments of the Turkcell Group.

Moving on to page 6, in the first quarter of 2012 the market witnessed accelerated competition driven by aggressive offers, which continued to pressure profitability. In this environment to ensure long-term retention of our valuable customer base, we simplified our tariffs, responded to aggressive competition and focused on contracting our subscriber base.

Results of our actions are a maintained subscriber base and 1.5 percentage point lower churn rate year-on-year. Strong momentum in the smartphone market driven mainly by Turkcell continued in the quarter. We put considerable energy into fueling mobile broadband usage by promoting smartphones, bundled offers and innovative services. Smartphones sold at 2,000 distribution channels accounted for 61% of total handset sales compared to the market average of 38%.

As we said, we defend our subscriber base in an aggressive market for future growth and profitability. In fact, we know that the Turkish market offers growth potential in many areas for all three operators.

The demand for data and services is increasing and sustainable investments will be achieved through differentiation in the quality level that the market deserves. That's precisely why we should encourage more profitable and sound play in the market.

Moving on to page 7, let's take a look at how we will differentiate ourselves from the competition in the bigger picture. At Turkcell. we have always invested in cutting edge technologies and contribute to Turkcell's -- in Turkey's future with technology and innovations.

We are proud of our internationally recognized mobile and fiber network on which we deliver our customers superior services. Today we provide the highest quality mobile network in Turkey, with 6,000 more base stations than our closest competitor.

We currently deliver a mobile internet speed up to 43.2 megabits per second, which we plan to increase to 84 megabits per second in 2012. Meanwhile, Turkcell Superonline is the first and the only operator to deliver fiber-to-the-home in Turkey at 1 gigabits per second, 1000 megabits per second through its 30,000 kilometer fiber network.

Reflecting our long-term strategy of providing the best quality and innovative services, in Q1 2012 we continued to differentiate ourselves by launching Turkcell SuperBulut to provide corporate customers cloud computing services.

We have also recently launched Turkey's fist mobile health solution, enabling doctors to monitor patients remotely, as well as TVPlus, our new personalized TV platform with an enhanced multi-screen user experience and on-demand content.

In short, we focus on innovation to provide new communication and technology solutions.

On page 8, we would like to share some independent research findings that rank our 3G network the fastest in Turkey. This will give you a better picture of our network strength.

According to the independent test results of PCnet Magazine in Turkey, just recently published on Monday, Turkcell has by far the fastest network with an average 3G download speed of 11.9 megabits per second and upload speed of 2.4 megabits per second. These results were obtained through 2,136 measurements taken at 59 points in seven regions and nine cities in Turkey. We are very happy that these results confirm our network mobile internet superiority.

Moving on to page 9, as highlighted earlier, we maintained our subscriber base of 34.5 million by improving postpaid in our subscriber mix. In the highly competitive postpaid segment, we registered 347,000 net additions to reach 12 million in 2012 Q1. As a result, the share of postpaid in the total subscriber base rose to 35%, and in total, revenues to 65%. The greatest share of postpaid in mobile broadband contribution increased blended ARPU by 4% year-on-year. In the meantime, our blended MoU rose to 222 minutes, up by approximately 15% compared to last year.

Moving to page 10; in line with our focus on broadband business and on the strength of our network, our mobile broadband and service revenues rose by 25% overall to TRY529 million with the increased contribution of all three components.

Mobile broadband revenues was the main driver of the increase, up 52% year-on-year. Meanwhile, our mobile service revenues climbed 16% with our emphasis on innovative service and applications, while messaging saw a 6% rise. I am pleased to note that mobile broadband was the largest component of overall mobile broadband and service revenues with its 43% share.

Turkcell contributed -- sorry, Turkcell continued to promote Turkcell branded and other affordable smartphones. In consequence, their number in our network grew to 4.3 million on a 500,000 net quarterly increase. This also resulted in a higher 12% share of mobile broadband in total revenues. Going forward, we are committed to sustaining the pace of growth in mobile broadband revenues.

Moving to page 11; our fiber broadband business, Turkcell Superonline continued to deliver strong results in all segments, with year-on-year revenue growth of 59% in the first quarter. During the quarter the residential segment grew by 92%, mostly due to similar growth in FTTx subscribers. Meanwhile, the corporate segments rose 105%, mainly on improving group synergies for integrated solutions.

We achieved a better EBITDA margin, up from 16% to 20% year-on-year, and recorded a positive net income for the second consecutive quarter. This was enabled by the rising rate of more profitable data business. Going forward, we expect Turkcell Superonline's impressive performance to continue and post positive net income for the full year.

I will now move to page 12. In the first quarter of 2012 after a strong execution brought sustained growth and profitability. Revenues of TRY91.4 million was up 17% year-on-year mainly due to a regional focus and a 1 million net increase in active subscriber base. Astelit's EBITDA margin historically peaked at 27.2% for the quarter from 24% a year ago, having record EBITDA margins of above 25% for the fourth consecutive quarters.

I am pleased to say that Astelit achieved a positive free cash flow for the first time in the full year 2011, which continued in the first quarter of 2012 with 21.4% free cash flow margin. Overall, we appreciate the success of Astelit's operations and expect an increasing contribution to the Group going forward.

Thank you. And now I will hand over to Murat for the financial review.

Thank you, Mr. Ciliv. Good morning and good afternoon to all participants. I will continue starting from page 14. Momentum in the first quarter of 2012 was almost equally driven by Turkcell Turkey and the contribution of our subsidiaries.

Group revenues rose by 12.4% year-on-year to TRY2.4 billion. The 25% growth in mobile broadband and services plus 3% rise in voice revenues resulted in a TRY144 million increase in Turkcell Turkey's contribution.

Revenues of subsidiaries grew by TRY120 million while their contribution to the top line rose to 17% from 13% a year ago. Compared to the previous quarter consolidated revenues lost 2.6%, mainly on the declining mobile voice revenues of Turkcell Turkey due to seasonality. Quarter-on-quarter subsidiaries contribution was broadly flat.

Moving on to page 15, in the first quarter, our earnings before interest, tax, depreciation and amortization, EBITDA, grew by 12.3% to TRY703 million, while the EBITDA margin was flat at 29.5% year-on-year. This was due to the rising direct cost of revenues driven by higher interconnection cost due to intensified competition in Turkey. This was offset by cost effectiveness initiatives and a primarily lower selling and marketing expenses.

The 2.5 percentage point fall in selling and marketing expenses arose from a decline in frequency usage fee expenses following our decision to charge frequency usage fees to prepaid subscribers starting from June 2011. Quarter-on-quarter EBITDA margin rose by 1.1 percentage points due to cost effectiveness initiatives. Selling and marketing expenses as a percentage of revenues lost 1.6% points mainly on a decreased volume of advertising quarter-on-quarter where we had increased investments in our brand.

Moving on to page 16, Group net income grew by 56% to TRY515 million on improved operational performance and higher income from non-operational items. Specifically, the improvement in EBITDA was further supported by higher interest income and FX gain.

Please note that net income recorded in first quarter 2011 was also negatively impacted by TRY56 million additional provision related to tax amnesty application. In this quarter our Company did not report a major one-off item.

Net income rose by 55.2% compared to the previous quarter, which had suffered a number of one-off items, totaling TRY105 million, mainly on high devaluation and high pre-inflation in Belarus. In addition to a slight EBITDA improvement, TRY37 million translation gain instead of a loss a quarter ago, were the main drivers of higher net income [that's highlighting] the decrease in depreciation and amortization expenses and in monetary gain was mainly due to absence of one-time impact of inflation accounting and impairment for Belarus operation.

I will now talk about our balance sheet on page 17. In the first quarter of the year we maintained our full financial position in over TRY6 billion of cash on our balance sheet. As of March 31, 2012 our consolidated debt was around TRY3.4 billion; TRY914 million of this amount related to our Ukrainian operations, TRY724 million of this related to our Belarus operation.

Of the total CapEx figure of TRY253 million, TRY160 million was related to Turkcell Turkey, TRY64 million to Turkcell Superonline and TRY29 million to other subsidiaries. Subsequent to the quarter end, on April 6th 2012, we paid the guaranteed loan of our 55% on subsidiary Euroasia amounting to $150 million. Recall that in order to finance -- in order to provide financing to Astelit, Euroasia borrowed $150 million from banks under full Turkcell guarantee.

This brings our introductory presentation to an end and thank you very much.

Thank you, Murat. Julia, at this time we are ready to start the Q&A session please.

(Operator Instruction).

Cesar Tiron, Morgan Stanley.

Two questions please. The first question is, well, you've done very well this quarter, but some of the competitive measures that competitors have taken have happened towards the end of the quarter. I'm thinking about some new other offers, some bundles offers that are quite aggressive. Is it fair to assume that the margins will decline probably in the next quarters on the back of that? That's the first question.

The second question would be on the shareholder profit and also the dividend reinstatement. I think you said that there's going to be an EGM scheduled for July. Can you please explain how can you be sure that an EGM could be scheduled in July and if the happening of this EGM is subject to the election of independent board members? Can you explain if the shareholders have elected those independent board members or yet? Thank you.

First about the market, it is true that the competitive environment in Turkey is very intense and price competition mostly driven by our competition has also been strong in Q1. But we also see that this had an impact on EBITDA margin of some of our competitors, we see that. I also want to point out that in mobile internet data traffic has increased 13 times in the last two years in Turkey, and smartphone penetration is less than 15% for Turkey. And we see that lower priced strong performance smartphones coming to the market, tablets coming to market. And as a result, we see that mobile data traffic will continue to increase very fast. So the demand for our services will be increasing rapidly.

Now as operators, as mobile operators, we will have a significant challenge to build capacity to meet the demand without compromising on the performance. So I think, yes, there has been a lot of price competition, but the numbers are very clear. I think the market has come to very low level (inaudible) and price points. And for us to -- or all of the operators in the market, to maintain quality service and fast mobile Internet we will have to invest in the future into our infrastructures.

As a result, I am optimistic and -- I'm optimistic that the market will turn more rationale because the numbers are plainly in front of us and we need to all together avoid bad scenarios of lower quality, and we want to deliver a good quality service, create win-win for our customers.

On Turkcell side, we have started to differentiate ourselves not through price but -- historically, we've always been quality and innovative services, and this is going to be more of our focus going forward. And we hope that the whole market goes in the direction of higher competition on value and higher competition on differentiation through innovative services versus just cutthroat pricing.

So I would like turn this -- or turn the microphone to Emre Sayin and Burak. Maybe they can comment additional points on this.

Let me just give a bit more information on Q1 and Q2. It's true that both our competitors launched new bundles in campaigns mostly towards the end of Q1. The most effective campaigns were actually carrying over from the last year. So we will not see additional impact from those campaigns and we are basically keeping to our guidance. And I don't see a major impact on EBITA figures. I guess that was part of your question.

Yes. Thank you.

On the second part of your question, I have no idea where you heard about our AGM in July. It's news to me. So as far as I know, we don't have a set annual shareholder's general assembly meeting yet.

I think you were quoted by the press saying that. But --

May be I can explain that. Probably this is tied to the notice by Capital Markets Board. As you know, some time ago Capital Markets Board declared a communique where they brought some changes to publicly traded companies and they required all publicly traded companies to have -- to change their bye-laws, approve -- get their bye-laws changes approved by the CMB, and also include at least one third of their board members as independent board members. So this -- the deadline for this is end of June.

And Capital Market Boards needs about 45 days approval. It needs to process all of these applications. So Turkcell also needs to comply with these conditions. And according to Capital Markets Board's requirements, Turkcell needs to conduct a AGM before June 30th so that they can -- Turkcell can have independent board members nominated, approved by CMB and also approved by the general assembly.

Okay, thank you.

San Dhillon, Barclays.

A couple of questions. The first question, at your 4Q '11 results you said that 1Q '12 would be a trough margin quarter. Do you still believe that to be the case?

And secondly, just a follow-up on the deadlines 30th of June, 2012 to amend the articles of the association and include independent board directors. If you -- do you have to submit nominees 45 days prior to the meeting? It seems as if you only have two weeks to do that, to meet the deadline at the latest. So there seems to be a risk that the deadline may not be met. What are your views on any repercussions from the Capital Markets Board in the event that you don't meet the deadline? Thank you.

Okay. I think about the -- about the first part -- first question. Okay, first question -- I'll start with the second question. I think you're right -- you're right, I think Turkcell has at the most less than two weeks to make changes to its bye-laws, articles of association, nominate board members to the CMB and then receive feedback from CMB, conduct an AGM and get these new independent boards at Turkcell.

I think your timing is correct. And I know that it is a short time and our Chairman has communicated this to our board members.

As for the first question -- this is Koray -- we have mentioned that the first quarter would be relatively weak, possibly one of the weakest quarters. And throughout the quarter there were several challenges. Frankly, we've done some improvements and the quarter results including the margin is slightly better than our initial expectations.

There were different reasons for that. We think the challenges do continue throughout the year. For that reason we have not changed our guidance. We still think that the full year guidance, which is for the year TRY9.9 billion to TRY10.1 billion in revenues and TRY3 billion to TRY3.2 billion in EBITA is valid and fair.

Okay. And just a follow-up on the changes to the board structure. Do you still think you can do all that in two weeks? And I guess what's been the delayed, because you knew the new rules six months ago. So it's interesting to see why, understand why the AGM hasn't taken place ahead of time?

Okay. This is really a board issue, Turkcell's board of directors issue. And first of all, I'm not part of the board, but I attend board meetings. And, yes, Turkcell board knew about this for some time. But the key shareholders groups in Turkcell has not come to a mutual agreement about these revisions to the articles of association and the process of nomination of these independent board members and on the nominations of these board members.

So basically, the disagreements and not having an agreement between the shareholders of Turkcell board has resulted in this situation.

Okay, thank you very much. Cheers, guys.

Alex Wright, UBS.

So my first question, please, would be regarding sales and marketing expenses, which were reduced quite heavily from Q4. And I understand you had some quite strong campaigns in Q4. So how sustainable do you think the current level of sales and marketing spending is that we saw in Q1?

And the second question is relating to the Eurasia loan that you paid off. And the other loans stand at a -- in cross defaults, as I understand, currently. Could you outline for us the likely scenarios that you see evolving there going forward? In other words, do you expect that Turkcell will pay off more of those loans? Do you think there will be a capital increase of Astelit together with the local partner? If you could talk about the possible scenarios, please, that would be helpful.

This is Murat speaking regarding the second question on the Eurasia. We have stated that we have made $150 million regarding the guaranteed loan. We have the cross default on our loans which we have applied in 2012 first quarter. You will recall that on first of February 2012, Astelit was the first company who was on technical default and there was cross default triggers in that event.

So we had already received waivers for this cross default loans. Right now, for the ETH, we will follow the same procedures so we applied to the banks for the waiver process. I personally do not think it's going to be a problem. It's going to be just a procedural waiver process. And regarding that, it is much more of a technical loan waiver process.

On the shareholder related side, we look to the Eurasian and the Astelit transaction as a whole and the local shareholders and ourselves using close contacts.

I will pass on to Mr. Ciliv, who will give some more insight about the relations and how we proceed the outstanding default issues regarding the ongoing Astelit business.

Yes. First of all, I think we should all recognize that Astelit has made a lot of progress in relatively short time in its market in Ukraine. We now increased in the last year 1 million new active subscribers to 7.1 million subscribers. And with 7.1 million subscribers we have reached 27% EBITDA margin and 17% growth in US dollars year-over-year, and we feel very confident about our value and customer focused strategy.

And we do have a very good partner, [Eskayem]. In the operations, they have been very supportive and I think they add -- they bring a lot of value to the partnership. And I strongly believe that we have very high level potential to negotiate a new partnership agreement to refinance all of these loans that Murat described. So I think Turkcell board, I hope, will support this future agreements that I believe we can reach with our partners and support our company Astelit in Ukraine.

As for the sales and marketing expenses, it's true that compared to last year the sales and marketing expenses are relatively lower due to the prepaid frequency usage fee that we are charging our customers. But when you compare Q4 of last year to Q1 of this year, the difference is basically a shift between quarters. So I would not say this is a trend that will change our plan. So we are basically sticking to our AOP and our guidance. Our S&M expenses will probably be at about the same level as last year, maybe a couple -- when you say zero point something percent down. So the same levels.

Okay, thank you very much.

Herve Drouet, HSBC.

My first question is regarding the survey you showed us from PCnet, that I found as well quite interesting. What in your view explains the fact that on your networks you get higher speeds to your users in terms of data connections compared with your competitors? Do you believe it's due to the fact that you have a more dense network and therefore less simultaneous user per base stations or is it due to other reasons? And how do you see that evolving over time, especially with take up of smartphones?

And my second question is regarding again this issue about the appointment of this independent director on the board. If no solution has been found by end of June what could be possible scenarios after that? Can the Turkish regulatory body impose [regulation] on Turkcell board? Do you think it is likely or unlikely? Thank you.

Okay. Related to network, first of all, we made a very large investment into the 3G. And then we were spec'ing this investment, we spec'ed this for mobile broadband speeds north of -- at that time, two years ago, 1 megabit per second. So we kind of estimated that mobile Internet was going to take off, and then later devices like iPhone and other smartphones came to the market.

And we had a vision to see this and we invested accordingly. And this is why we invested for A-type license, which gives us dual carrier capability, and we are the only operator in Turkey which has A license which has dual carrier capability. And we are using Ericsson and (inaudible) with HSDPA plus capabilities. They are giving us 43.2 megabits per second maximum speed, but we are going to double this in just a matter of months. And we think that we can continue to double this again in 2013.

So A-type license, which is a structural competitive advantage for Turkcell. And we see that the new iPads are utilizing LTE and dual carrier capabilities of 3G, which positions us as the only vendor that can take advantage of these capability. And more dense investment into 3G. All of these coming together resulted in the PCnet's survey and declaring Turkcell as the champion in 3G in Turkey.

And just if I have a follow-up on that. Do you see in term of spare capacity with this ramp up of data traffic -- you mentioned any still spare capacity you have in your network, and do you see your competitors having the same spare capacity or do you see some being challenged on potentially some spare capacity in rush hours?

We unlike some of the other operators, which were kind of burned by over demand for their capacity, we learned from experiences of AT&T and some of the experiences in some other countries. As a result, we priced our mobile Internet offers accordingly and we continue to pay a lot of attention to this.

So we wanted to have a pricing methodology that is going to -- that is not going to jeopardize our future quality, and we need to remain disciplined about it. We internally have a lot of discussions about this sometime. But we are watching the increase in demand. And demand, we can control it through pricing and tariffs and building capacity. So we are trying to balance all of this so that our customers in the long run have a good quality service.

So coming to your question about what happens if Turkcell board doesn't complete all of the necessary actions requested by CMB, then CMB will have to make a decision to correct this as quickly as they can. That's all I can comment at this time. I don't have more insights. And again, Turkcell's board has the main responsibility to comply with these requirements.

Right. Thank you. Thank you, Sureyya.

[Memit Agous, Uniqueray].

First of all, thanks for releasing the results earlier. That was really helpful. My question is about pricing. As we are aware with the new MMP launches actually we had seen some price increases by Avea in some of the major postpaid tariffs. And, Koray, your previous statements that the inflation -- the need for the inflationary price increases in the market. I understand the competitive situation is very fragile, but do you see now further may be some room for some selective price increases in the next couple of months, especially considering the most aggressive player Avea did that?

Actually, right now, whenever we feel there is room for improvement in terms of margins, in terms of prices, we also act accordingly. Sometimes this is in terms of price increases, sometimes it's in terms of giving our customers more value and selling them bigger packages. And this is actually work-in-progress at the moment. It's happening as we speak. In the coming quarters, in the coming months if we see the opportunity to lead the markets in a responsive way, we will do that. And we hope that will be the case.

We hope there will be more rationale pricing in the market and that we can, as Sureyya mentioned at the beginning of his speech, that we can prepare for investing more and giving better service to our customers.

Okay, thank you.

Alex Kazbegi, Renaissance Capital.

My first question would be about the lawsuit with MTN. What I was just wondering, just to understand, what is your expectation out of this lawsuit, so to say? What is the best case scenario for Turkcell if whichever way this lawsuits may go?

And the second question would be still on the margin side, and that may be just two parts of this. One is that the Astelit margin has been consistently growing, so I was wondering if you have a target to which you could potentially see this margin grow. Is it going to be beyond 30% sometime soon? Do you have a target you can share with us?

And the other part of the question is, again with a 61% of income, the handsets which were sold being smartphone, so I was just wondering how many of them are Turkcell brand -- that you have the several models there? And what is the typical, so to say, contract you are getting the customers into it? Is it, whatever, two year contract? Is there any subsidy involved? If you can elaborate on that, that will be great. Thank you.

Okay, about the first question --about MTN question, basically Turkcell went and participated in a tender and Turkcell, our Company, was awarded the second license in Iran. And we made investments to build this company and deliver a quality service. And some time past and in 2005 all of a sudden, in a very surprising way, our license was taken away. And we were shocked by this and we tried to get it right and we started a court case.

And the court case in Europe was moving, has been moving. But in the last six months new developments have happened and certain witnesses who knew these operations very well and who were involved with these operations very well, they came forward and delivered very convincing evidence and proved that MTN was involved in this transformation, Turkcell losing this license which it had won.

So our shareholders had a right and it was taken away. And then these witnesses are telling us, told us, showed us, proved us that there was some wrong doing. And what did we do? We went to MTN, and said, "Guys, now there is this facts, you know these facts and we have been hurt by this. Our shareholders have lost value and we cannot let people take value from our Company and our shareholders. And let's talk fairly as business people."

And, unfortunately, those discussions broke to our surprise. They made some announcements that we were threatening them and we took the case forward to legal lawsuit. So that is where we are.

Now if people come and take our rights, take our assets, we'll have go and try to get it right, get it back. So we want compensated, fair compensation for our losses. That's what MTN case is about.

Do you have an estimate of how much that compensation might be?

Obviously, I cannot tell you about this at this point. We or the experts calculated what is the value to MTN of this transaction, which would have been ours under normal conditions. So we'll look, as I said, a fair share, and I cannot comment on what that fair is in. Yes, it's in the legal process, so I think this is as far as I would like to talk about.

Okay, thank you.

Thank you. The next question -- Oh, I'm sorry.

I'm sorry, I think there was also a small question about the smartphone sales and Turkcell branded smartphones, their share in them.

Correct, as well as the Astelit margin, please.

I'm sorry, what margins?

Astelit margin -- if margin can still continue to go up and what will be target for that?

Hold on one second. Okay, I think the Astelit in the first quarter performed better than the AOP targets for the years. Our AOP targets are a little bit more conservative. They are around 10% USD dollars growth, and EBITDA margin was about 25% for the year. Obviously, if you can do better than this, we will take it. In the first quarter we did significantly better. We do 17% in revenue and 27% in EBITDA margin. So that is the situation with Astelit.

But no change of the target for now?

Obviously, the management team and -- the management team in Ukraine, which is, by the way, a local team. And the team that is supporting them from our Group, they are motivated and they are encouraged to beat the targets that we set and their goal is to maximize our revenue growth in a healthy, profitable way, and keeping a good balance between customer satisfaction, profitability and growth.

So we have a good strategy there and it has been working well, so we will continue to execute on this. First quarter's results were encouraging. It gave us more confidence that we will meet and probably beat our 2012 annual operating plan. And I'm sure the teams will do their best to maximize their performance.

I think there's another question on, yes, about the smartphones?

Yes.

The question was I believe the percentage of Turkcell's smartphones within the total smartphone market -- how much of those we are selling. Now --

We sell 61%. Of the phones sold through our Turkcell exclusive shops --

Right.

-- 61% of them are smartphones versus 38% in the overall market.

Yes. But how many of them are branded, because you have your own models which you sell. All of them or --?

No, no, no. When we look at the total market, we see about 9% of the smartphones in the whole market are Turkcell branded right now.

Okay.

And I would like to add that in 2012 we are going to continue with the Turkcell branded phones, but we are perfectly happy to work with quality vendors who deliver an attractive price performance ratio for citizens of Turkey, for our customers, so that the adoption rate of smartphones is not constrained by price.

Okay. Very good. Thank you very much.

Atinc Ozkan, Credit Suisse.

Two question, please. The first one is actually a follow-up regarding the independent board member appointment process. I think recently you communicated that you have lost a court case against CMB regarding one of the members of the audit committee.

Have you already replaced that member in the audit committee and is the audit committee still in charge of making nominations for independent board members? And can the committee operate with only one member? That's the first question.

The second one is regarding the healthy trend in mobile data revenues. Assuming that there is no improvement in the overall -- some of your competition, would it be fair to assume that the -- how to take -- the take up in smartphone sales and mobile data revenues would result in some kind of margin improvements this year or maybe next year? Any color will be very helpful. Thank you.

Yes, in response to the first question, according to -- actually, the Securities and Exchange Commission, foreign-listed parties also should have two independent members on their audit committee. However, in the US there's a exception rule and there is a observer status.

So our audit committee was set up using this observer status, which is -- which was acceptable by SEC in US. So one independent member on the audit committee functioned with one of the others members of the board. CMB had reacted to this and did not accept the observer status and there was a lawsuit regarding that. CMB have won that case.

Basically, the board will address this issue through these changes that will take place through the new compliance issues, which is going to require one-third of board members to be independent at least. So through that structural change we will address basically appointment of two independent members to the audit committee. That's to come with the overall change.

Next question, Emre will respond to that.

Okay. About the mobile revenues and what would happen if they improve above expectations, right? So right now we are trying to price mobile Internet responsibly and improve the readiness and margins as much as we can. If -- increasing trend in mobile revenues would definitely improve our EBITDA as in absolute terms.

In margin terms, we are right now speaking to the guidance, but if there was a big improvement in mobile revenues above expectations, we will try to keep the margin levels the same.

Okay. That's been helpful. Thank you.

[Alpa Ozthemuz, Oak Securities].

My question is on fiber. Turk Telekom initiated this fiber strategy this year and they have an aggressive target of reaching 3 million capacity. Well, how do you expect Superonline's revenue growth to be affected from higher competition going forward, and also do you think you can differentiate your product from two telecoms?

Okay. Yes, our product is pretty clearly differentiated. We are using FTTH, fiber-to-the-home. And our competition has actually has been in a regulated -- by regulation they had been asked to be careful about using fiber in their offerings because they were using fiber offering if there was fiber in their network versus fiber-to-the-home.

So our differentiation is fiber-to-the-home and which is delivering speeds up to 1 gigabits per second. And -- so that is the difference basically. I think we'll -- this is a niche play, fiber-to-the-home, and we had been on this strategy since 2008 and we now have 307,000 subscribers in this.

I think there is plenty of households, 17 million in Turkey. Our home pack is 1 million. If Turkish Telekom say they will do 3 million that would still be -- first of all, I'm not sure that when they say 3 million, they don't mean -- I'm not sure that they mean FTTH extra 3 million.

So that is point number one. But even if that was the case, that would be 4 million altogether, that would still be 13 million homes to go. So as you know, in fiber business it is a pretty high level of investment that needs to be done.

In Turkcell we were kind of a uniquely competitive advantage position, where Turkcell mobile Company is a good customer of Turkcell Superonline. So as a result, we can afford these investments. But if it was done just purely for FTTH to the home, I think the business case would be very difficult to justify. So basically, all around the world delivering fiber to the home is a very challenging situation, and Turkcell Superonline has succeeded in doing this well and I think we will continue to do as well in the future.

Okay, thank you.

(Operator instructions)

San Dhillon, Barclays.

And quickly, now that the Vivacom deal looks dead what is your preference with regards to uses of cash? Will you pursue other M&A opportunities or will you go down the buyback which you were talking about a few months ago? Thanks.

Yes, in Vivacom I think again Turkcell showed that we are very careful about these investments and we are very responsible about investing our shareholders' cash. We made a very -- we made the best offer we can and it was I think well regarded among the four companies who bid for this process, but eventually none of them was accepted. And we respect that. But it needs to be a win for us. We don't want to win the tender and lose a lot of money.

As a result, we don't have any regrets. Going forward, I think first in the next two months we have a lot to do about our board composition, bringing independent board members as required by CMB. We need to do that first. And then starting July 1st, I think the new commercial law will be applicable and Turkcell will have an option to acquire its own shares and do share buyback.

We have also a dividend situation. 2010 dividend has not been paid and -- actually, our boards of directors has not approved 2010 and 2011 again. So we have the dividend way, a share buyback way and also investment opportunities in Turkey and outside Turkey. So we will do the best investments as we can think of to maximize the shareholder value.

Does that answer your question?

Yes. Thank you very much. Cheers, guys.

Atinc Ozkan, Credit Suisse.

Just a final one on -- I don't know whether you disclosed this, but in terms of your postpaid net additions, can you disclose how many of that was attributable to internal upgrade from prepaid and how many was acquisitions from competition or new subscribers? Thank you.

Okay, let me answer this question. Of the net add figures, more than half of the postpaid figures came from prepaid to postpaid switch.

Okay, thank you Emre.

Okay.

Thank you. There are no more questions, please continue.

Okay. I understand that there are no more questions. Before we close, I like to hand it over to Sureyya Ciliv for some final remarks.

Okay, I think we had a very successful and very good start to 2012. We achieved results that was better than our annual operating plan. We are happy about that. Going forward, I think there is tremendous opportunities not only for Turkcell, but for all of the telecom companies in Turkey.

I think we are in a fortunate situation that the demand for our services is going to increase very rapidly, and we have responsibility to be in a position where we can meet this demand to bring new technology, new services at reasonable prices. So this is going to continue to require a lot of investment. And to be able to make long-term investment we need to be rational about pricing and our offers.

So I think starting Q2 at Turkcell, we'll be very (technical difficulty) about being rationale and delivering value, the newest technologies, the best technologies, great service at reasonable prices. And we hope that the market follows us and we find ways to compete by delivering innovative products and services for customers in Turkey.

So thank you very much for listening and thank you very much for your support.

Thank you. This concludes the conference call. Thank you for your participation. You may now disconnect.