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Turkey’s mobile market, the fourteenth-largest in the world, saw considerable disruption in the final quarter of 2008 as a 33 percent reduction in termination fees led to a profit squeeze and the introduction of mobile number portability (MNP) ramped up competition.
Vodafone Turkey was the most adversely impacted, recording a 14.5 percent quarterly decline in service revenue. The UK-based group, which bought the operator for US$4.6 billion in 2005, said that the termination rate cuts had reduced service revenue at its Turkish unit by 7.1 percent, while it also saw some 630,000 subscribers churn to rival networks during the quarter. Vodafone has taken immediate action, installing a new Turkish CEO at the beginning of the year and pledging to invest TRL1.3 billion (US$754 million) to turnaround the network’s fortunes this year.
The most immediate beneficiary of the market shake-up (and Vodafone’s troubles) has been the third-placed player, Turk Telecom’s Avea. The operator is growing faster than either of its two larger rivals and claims to have achieved the same net adds in 2008 as it did in 2007 despite the overall number of net adds in the market halving during the year. It also claims to be leading in MNP net additions. Introduced in early November 2008, MNP had been used by some 654,000 subscribers to switch networks by year-end. Market-leader Turkcell claims that 294,000 subscribers churned to its network in 4Q08 using MNP, suggesting that Avea took much of the remainder. Avea also hinted recently that it was on track to overtake Vodafone in terms of revenues this year. Mobile EBITDA at the operator grew by 46 percent last year to TRL446 million, while revenues grew 24 percent to TRL2.1 billion. In contrast, Vodafone Turkey’s revenue was flat in 2008.
Meanwhile, Turkcell has protected its market leadership position in a volatile market by successfully refocusing its efforts on the postpaid and corporate segments. The operator said that postpaid subscribers accounted for 15 percent of additions in 4Q08, up from 11 percent a year ago, while postpaid subs rose 17 percent over the year compared to overall subscriber growth at the operator of 5 percent. Turkcell also claims to have achieved a revenue share of the Turkish market of 63 percent by year-end – up from 58 percent in 1Q08 – and higher than its connections market share of 56 percent. However, connections growth appears to have hit a ceiling and Turkcell expects its subscriber base to remain flat in 2009.
Competition in the market has intensified as the market has slowed, and with total mobile penetration of 86.2 percent, Turkey appears to be nearing saturation. The key to future growth – and profitability – will be the rollout of high-speed WCDMA networks in the country, the first of which are scheduled to go live later this year. After an earlier WCDMA license auction in 2007 was abandoned due to a boycott by Vodafone and Avea (reportedly because they refused to take part prior to the introduction of MNP), WCDMA licenses were finally issued to the three main players last November. Turkcell submitted the highest bid – EUR358 million – to secure the highest-frequency spectrum license on offer, while Vodafone and Avea bid EUR250 million and EUR214 million, respectively, for licenses in lower frequencies. All three bids surpassed the government’s reserve price for the licenses, though a fourth license was cancelled due to lack of interest. Turkcell said this week it would invest US$1.6 billion on building a new WCDMA/WCDMA-HSPA network this year, a figure that includes the license fee. The market-leader is using network kit from vendors Ericsson and Huawei. The latter was also announced as Vodafone Turkey’s WCDMA network supplier in late 2008.
Matt Ablott, Analyst, Wireless Intelligence
The final quarter of 2008 was a tumultuous one for Vodafone in Turkey, a subsidiary that had previously been an engine of growth for the UK-based firm. The operator’s high prepaid customer base made it particularly vulnerable to churn following the introduction of MNP, and it has struggled to compete against an entrenched incumbent and a fast-emerging third-placed player (Avea’s launch of Turkey’s first unlimited call package in February 2008 was just one of the factors behind the operator’s success during the year). Vodafone is already implementing a recovery plan at the subsidiary focusing on underperforming commercial areas such as distribution and marketing, but the operator is facing the prospect of reduced margins in the medium term. Meanwhile, the rollout of the country’s first WCDMA networks this summer is long overdue and could provide an important stimulus for future growth. However, the gloomy economic situation may mean operators face a lengthy delay in their return-on-investment from the new networks.