TURK TELEKOM: FROM MONOPOLY TO COMPETITION

UNCLAS SECTION 01 OF 02 ANKARA 000094 SIPDIS STATE FOR EUR/SE, EB/IFD, AND EB/CIP TREASURY FOR RADKINS AND MMILLS USDOC FOR 4212/ITA/MAC/CPD/DDEFALCO SENSITIVE E.O. 12958: N/A TAGS: ECPS EINV TU SUBJECT: TURK TELEKOM: FROM MONOPOLY TO COMPETITION REF: A) 04 Ankara 6484 B) 04 Ankara 6673 Sensitive But Unclassified. Please handle accordingly. ¶1. (SBU) Summary. State telecommunications monopoly Turk Telekom (TT) has been taking steps to maintain its dominance in Turkey's newly liberalizing telecom market, including by making significant investment in new technology in order to strengthen its "natural monopoly" position in the market. TT Management hopes its extensive network infrastructure - in combination with consistent profitability - will be attractive for potential buyers. End Summary. ¶2. (SBU) On December 2, Turk Telekom (TT) General Manager Mehmet Ekinalan briefed us on the company's activities and privatization prospects. Ekinalan pointed out that TT was a profitable company, despite its requirement to invest and provide service in unprofitable areas as a state service provider. Ekinalan said TT received 50% of its revenues from only 10% of its subscribers, those residing in big cities. ¶3. (SBU) Ekinalan expressed full support for TT's privatization, emphasizing that he could not manage a business in a competitive and consumer oriented environment with the bureaucratic constraints of being directly part of a government ministry. The GM was optimistic about TT's prospects for privatization, since he thought this was the first time the GOT was fully committed to privatize the company. Ekinalan noted that TT had achieved USD 6.5 billion turnover in 2003, and recorded USD 1 billion net profit. Given these figures, Ekinalan thought it would not be difficult for a prospective buyer to calculate the value of TT. Ekinalan said the GOT would like to see TT remain as an active, competitive (read, dominant) operator in Turkey in the long term. ¶4. (SBU) Ekinalan described TT's extensive fiber cable investment in Turkey, reaching as far as small villages. He pointed out the capacity of such infrastructure to support other networks and technology, such as cable TV and ADSL high speed internet, further strengthening TT's natural monopoly position. With respect to TT's international connection, Ekinalan mentioned a new cable linkage recently made to Italy through Greece, raising the company's high speed internet capacity and connectivity for its customers. The GM admitted that it would be hard for newcomers to compete with TT in some areas, noting that it would require a considerable amount of investment and patience. Ekinalin claimed that he supported liberalization and competition, but stressed that it must be fair and give consideration to past investment and mandates for service for smaller towns. ¶5. (SBU) Ekinalan also responded to the criticism by private telecom companies newly entering the long- distance market on TT's high interconnection fees. Ekinalan said the companies' expectations were unrealistic: they expected to make profits without making any investments. The TT GM claimed TT's infrastructure investments (USD 500 million this year, for example) justified the interconnection fees, and said the fees in Turkey could not be directly compared to those in EU countries. Ekinalan noted that EU countries used a fixed fee structure, which enabled the telecom provider to keep interconnection fees low. In any case, Ekinalan expected the interconnection fee problem to be resolved soon, asserting that TT had reached an agreement with 20 of the 40 companies that received telecom operator licenses earlier in 2004. ¶6. (SBU) Comment: Turk Telekom's management will continue to take advantage of its entrenched monopoly position for as long as it can. Potential investors in TT will expect that dominant position to endure; i.e., achieving privatization/liberalization as practiced in many European countries where the privatized national operator maintains a dominant market share. This may delay broad telecom market diversification and limit new companies entering the market. In the meantime, many factors will continue to delay TT's privatization, no matter how committed management and (some in) the GOT (reftels). End Comment. Edelman