TURKEY TELECOM LIBERALIZATION IN PROGRESS

UNCLAS SECTION 01 OF 02 ANKARA 006055 SIPDIS USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK FCC FOR A THOMAS AND A WEINSCHENK SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECPS EINT EINV TU SUBJECT: TURKEY TELECOM LIBERALIZATION IN PROGRESS REF: ANKARA 1256 ANKARA 00006055 001.2 OF 002 Sensitive But Unclassified. Please handle accordingly. ¶1. (SBU) SUMMARY: Turkey's telecom sector has achieved a number of important milestones: including creation of a semi-independent regulatory authority and privatization of Turk Telekom (and earlier termination of its monopoly in fixed line infrastructure and voice services). However, liberalization has faced delays and uncertainties and there is frustration about unmet potential in this critical sector. The Telecom Authority is weak and lacks independence and Turk Telekom has not significantly changed its statist approach, nor its intent to use its dominance to stifle competition. Turksat, a 100% state-owned firm, maintains control over the satellite and cable sectors, and developments in the latter are tied up in court cases. Turk Telekom maintains an effective monopoly over wide band internet provision. The Telecom Authority is interested in cooperation with the FCC. End Summary. -------------- Struggling Regulator -------------- ¶2. (SBU) Telecom Authority Board Member Faruk Comert (protect) painted a gloomy picture of slow progress in liberalization of Turkey's telecom sector. He said that Turk Telekom (TT) had undergone little change in its personnel and attitude, except at the very top of the organization, since its privatization in July 2005. Comert lamented that in effect the telecom regulator now has less control over TT since its privatization, given TT's connections with the Ministry of Transportation and Communication, which has control over the telecom board. Comert also expressed worries about the expertise and wherewithal of 55% majority owner Saudi Oger, even sharing with us a press story alleging that there had been significant bribes paid to the government. ¶3. (SBU) Comert expressed interest in cooperation with the FCC to help the Turkish regulator increase its capacity. He described his productive meetings with the FCC in Washington early last summer. Comert complained that the Telecom Authority was spending the bulk of its time cracking down on illegal cell phones and phone tapping, and neglecting timely progress on regulation. He did, however, express optimism on moving forward on licensing of new wireless "WIMAX" technology, especially for rural areas. ¶4. (SBU) While other interlocutors expressed optimism about a new telecom law that will bring Turkey's legal environment more in line with EU law, Comert asserted that it would have little effect on the Telecom Authority. He claimed that the constraints were political will from the Ministry, rather than the legal standing of the regulator. Other interlocutors told us that the new law would help reduce ambiguity about the respective responsibilities of the Telecom and Competition Boards. -------------- Slow Liberalization -------------- ¶5. (SBU) In the long-distance and ISP sectors, Dogan On-Line manager Halil Yalcin told us that great expectations for liberalization have largely been unmet. Although there were over 40 long-distance service license holders, fewer than ten are now active, and he expects only five to remain in the near future. Yalcin perceives a big gap between Turkey and the EU with respect to market competition, consumer choice, and "value added" services available. He observes that Turk Telekom maintains a monopoly over wide band internet service and his company and others could only resell, limiting their ability to compete. His company and others have benefited from the ruling that they can provide Voice-Over-Internet-Protocol (VOIP) technology, to date not provided by TT. The Dogan manager complained about the unmet potential for cable television as an alternative infrastructure, as it has effectively been tied up by 100% state-owned Turksat. In his view, the government aims to maintain control over cable television in the run up to 2007 elections. ¶6. (SBU) Many of these same complaints were echoed by Yusuf Ariak, President of the long-distance and ISP operator organization TELKODER. Complaining that liberalization was not occurring in Turkey, he noted that new entrants were being forced out of the market. He claimed that Turksat had effectively usurped the cable infrastructure even though the Telecom Board had issued licenses last spring to four companies which had realized the cable investments. (The Competition Board insisted that the cable business be separated from Turk Telecom prior to its privatization, ANKARA 00006055 002.2 OF 002 transferring it to the state-owned satellite operator Turksat.) Ariak criticized early Telecom Board decisions that stifled competition by allowing TT to implement deep price cuts and set high interconnection rates in advance of liberalization. He also criticized decisions that stifle competition for satellite business; for example, all state business has to go through Turksat. ¶7. (SBU) COMMENT: While slow progress in Turkey's liberalization is a negative factor for the investment environment, new technology cannot be excluded from markets. The arrival and expansion of use of internet-based services like Skype and Vonage is ineluctable. While Turkcell is dominant, the mobile phone sector exhibits substantial competition and Turk Telekom's role is limited to a significant share in the number three provider. Until the Telecom Board can act independently and in a timely fashion, Turkey's market will always be playing "catch up" and will remain subject to dominance by the fixed line operator Turk Telecom or the state-owned Turksat. Effective competition in the telecom sector remains very low. ¶8. (U) The ITU Plenipoteniary in Antalya in November will be a good opportunity for contacts between our FCC and other officials and the Telecom Authority. WILSON