TURKEY'S TELECOM SECTOR - VOIP AND OTHER REGULATION: SLOW

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SIPDIS

USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK
FCC FOR A THOMAS AND A WEINSCHENK

SIPDIS

E.O. 12958: N/A
TAGS: ECPS EINT EINV TU
SUBJECT: TURKEY'S TELECOM SECTOR - VOIP AND OTHER REGULATION: SLOW
PROGRESS

REF: A) 06 State 202978
B) 06 Ankara 6055

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1. SUMMARY: While Turkey's Telecom sector achieved a critical
milestone with privatization of Turk Telekom (TT) in early 2006, the
six-year old regulatory body Telecom Authority (TK) is still
struggling to gain competence and maintain its independence vis a
vis still dominant TT and the Ministry of Transportation and
Communication. Pending telecom legislation is aimed at bringing a
patchwork of legislation under one umbrella and assuring consistency
with EU legislation. In response to the ref A request for the
status of VOIP (Voice over Internet Protocol) regulation, the TK
told us imminent issuance of fixed telecom services licenses would
provide a EU-consistent, over-arching, and technology-neutral
approach. The TK is carefully studying worldwide experience with
VOIP and other services and technologies and aims to maintain a
hands-off approach. VOIP is currently used by long distance license
holders, but it is not currently allowed to compete with TT on local
service. The TK is planning a trip to visit the FCC in early 2007.
End Summary.

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VOIP as an Example of a New Budding Service
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2. Ref A transmitted the U.S. VON Coalition comment to the USTR on
compliance with Telecommunications Agreements (Section 1377) with
respect to Turkey and USTR requests information on when VOIP
regulations will be issued by the Council of Ministers.


3. The Telecom Authority (TK) gave a two-step response, noting that
issuing regulations was under its authority. The Council of
Ministers, however, approves license duration and fees and opines on
major new developments like third generation GSM service (3G) and
WiMAX. TK board member Galip Zerey told us that VOIP could be used
by current long-distance license holders, but local competition with
TT -- whether VOIP or otherwise -- is not yet allowed. However,
competition with TT on calls from one city to another and calls to
cellular operators exists. Zerey said the board was actively
studying worldwide experiences with VOIP with an eye for quickly
normalizing its use in Turkey. He noted that companies like Skype
and Vonage freely operate to and from Turkey without restriction.


4. Secondly, the TK board member claimed that the issuance of fixed
telecom service licenses is imminent. The text is prepared and
would soon be published in the Official Gazette. The intent will be
to establish an over-arching telecom environment and expand telecom
service to include local (TT continues to have a monopoly on local
land lines, as opposed to long-distance where out of forty licenses,
half are operating, but with some difficulty). VOIP could be
employed, but the intent of the license was technology neutrality;
i.e., specific technologies were not defined in the license. TK
will also tender new licenses for telephone number portability. New
regulations will also clarify interconnection (TT has long sought to
take advantage of its dominance by making interconnection difficult
or expensive),and would clarify legal interception by the GOT. The
TK made a recommendation for fee structure still under consideration
by the Minister.

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The Brave New World - WiMAX, ADSL, cable
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5. As in previous discussions with TK Board Members, Zerey stated
that licensing for 3G GSM service, which will provide broadband
services over cell phones, and WiMAX are key elements of the board's
work plan, but timing is uncertain. The TK President and The
Minister of Transport and Communications announced that the 3G
tender will be held at the beginning of summer. Again, the board's
intent is to license specific frequencies, but not to prescribe a
specific technology. Zerey noted that the Minister would define the
license duration and fee structure (likely viewing this as a revenue
source for the GOT).


6. Zerey admitted that TT maintained dominance over provision of
broadband ADSL Internet service. He noted that four infrastructure
licenses had been granted, but there is still no activity or
competition. There is limited resale and remarketing of ADSL from
TT. In recent years TT has expanded provision of ADSL to 2.5
million subscribers at "reasonable" prices (approximately $33 per
month for unlimited 256 kbps service) to apparently meet demand, but
penetration remains low. Zerey noted that despite the board's
provision of four licenses for new cable infrastructure, the cable
sector is troubled and inactive, because state company Turksat took
new license holders to court. (The existing cable network was

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separated from TT prior to privatization and transferred to
state-owned Turksat.)


7. The mobile sector continues to display modest competition and
Turkcell remains dominant. Telsim, acquired by Vodafone last year,
appears to be gearing up its investment and marketing, in
cooperation with Motorola. The third operator Avea's shares were
consolidated by TT when Telecom Italia sold its interests after
becoming a shareholder of Turk Telekom. The competition is expected
to increase after telephone number portability licenses are issued.

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Comment and Proposed Visit to FCC
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8. Turkey is still endeavoring to provide the level playing field
envisioned by the recent privatization of Turk Telekom. Although TT
has remained aggressive and dominant in the marketplace and the
regulatory process, seeking to maintain its revenues against
competitors, TT's main competitor has become GSM companies, in
particular Turkcell, whose subscriber numbers and revenues now
exceed those of Turk Telekom. The government maintains an important
presence in the satellite communications market via its ownership of
Turksat. The Telekom Board seeks to increase its expertise by
gaining worldwide experience. After fruitful contact with the FCC
at the November International Telecommunications Union meeting in
Antalya, a regulator team is planning to visit Washington as soon as
possible in 2007 to learn more from FCC experiences.

McEldowney