Competition Congress

1
Competition Congress Growth and Competitiveness
Trends Cahit Paksoy Avea CEO and Board
Member November 8, 2005
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Many criteria which are related with being an
information society are included in the country
competitiveness evaluations.
Countries competitiveness is directly linked
with the level of development in the knowledge
economy
Based on the Lisbon Review, Finland was the most
competitive country in the EU in 2004, followed
by Denmark and Sweden.
The dimensions of the Lisbon diamond are
information society, innovation and RD,
liberalization, networked industries, financial
services, enterprise environment, social
inclusion and sustainable development.
According to World Economic Forum, Finland was
the most competitive economy in the world in
2004. Finland was ranked first in growth
competitiveness and second in business
competitiveness after USA.
In 2005 International management Development
Institute ranks USA, Hong Kong and Singapore as
themost competitive three countries in overall
competitiveness.
Based on the comparison of the European
Commission, Finland wasamong the leading
countries in investing into knowledge-basedeconom
y and performance of the economy.
Sources WEF, The Global Competitiveness Report
2004-2005 and The Lisbon Review 2004 IMD, The
WorldCompetitiveness Yearbook 2005 EU, Key
Figures 2005 on Science, Technology and
Innovation andThe European Innovation Scoreboard
2004 United Nations University
3
Comparing USA and EU
The Lisbon scores
Source WEF, The Lisbon Review 2004
4
Turkeys growth competition position
2001 2003 2005 Turkey 48 56 48 Czech
Republic 36 Hungary 37 Spain 3
8 Slovakia 40 Portugal 45 Romania
55 Poland 57 Turkeys Improvement
Areas - Education and HR Qualification -
Investments in technology and internet
infrastructure - RD investments Sources
International Management Development, The World
Competitiveness Yearbook


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Some factors affecting Turkeys Competitiveness
Turkey Poland Czech Rep. Hungary of
advanced technology exports 2,06 3,07 13,23
25,63 of illiterate population (age
15) 13,50 1 1 1 Student/Teacher ration
in primary education 27,5 12,5 18,9
10,8 Telecommunication investments
(GDP) 0,10 0,16 1,66 0,59 Number of
internet users (among 1000 people) 105,5 270,3 344
,7 293,6 Cost of electricity in production
(/kwh) 0,082 0,037 0,043 0,05 Number of
PC per person (among 1000) 53 122 179
176 Life expectancy at birth 70 75 75
73 RD investments (US/ person) 17,6 29,1 112
,4 77,4


Sources International Management Development
Institute, The World Competitiveness Yearbook
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Ranking of EU countries
The Lisbon review
Sustainabledevelopment
Informationsociety
Innovationand RD
Networkindustries
Socialinclusion
Financial services
Liberalization
Enterprise
Total rank
1 3 2 6 4 7 5 9 8 11 10 14 12 13 15
1 4 2 6 7 3 13 5 9 8 10 11 12 14 15
1 2 6 3 5 8 4 7 10 9 12 11 13 14 15
4 1 2 8 7 3 5 6 9 10 15 12 13 11 14
1 3 4 2 7 8 5 6 10 11 9 12 13 14 15
3 2 5 1 7 10 6 9 12 8 4 11 15 13 14
2 1 2 8 4 12 5 9 7 6 10 11 13 14 15
1 4 3 7 6 2 8 9 5 10 13 12 11 14 15
Finland
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Denmark Sweden UK Netherlands Germany Luxembourg F
rance Austria Belgium Ireland Spain Italy Portugal
Greece
Source WEF, The Lisbon Review 2004
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Competitiveness 2002-2005
Total ranking
IMD Total compe-titiveness
WEFBusinesscompetitiveness
WEFGrowthcompetitiveness
2004
2005
6
1 14 11 7 15 3 8 21 4 22 13 23 9
Sources IMD, The World Competitiveness Yearbook
2005 andWEF, The Global Competitiveness Report
2004-2005
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Growth competitiveness by country
Ranking by WEF
Source WEF, The Global Competitiveness Report
2004-2005.
9
Competitiveness in technology and
science2002-2005
10
EIS 2004 - Summary Innovation Index
Source European Innovation Scoreboard 2004
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Total RD funding in 2003
Percentage of GDP
Great Britain 2)
1) 2001 2) 2002 3) Est.
Source Eurostat
12
Public grants and alleviation of taxes for
corporate RD in OECD countries
Share of corporate RD spending in 2001
Taxation practices according to funding of
large-company RD, public grantscover all
companies. Estimation by Tekes based on OECD
statistics.
13
Size and growth of the ICT sector
Share of ICT value added in business sector value
added in 2000

1999 2001
Source OECD, Technology and Industry Scoreboard
2003
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Overall maturity scores of eGovernment
Source Accenture 2004, eGovernment
LeadershipHigh Performance, Maximum Value
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The eEurope 2005 index
The eEurope 2005 index is calculated from
indicators on Internet usage, public on-line
services,eCommerce activities, information
security and broadband usage.
Source Insead/SAP 2004, eEurope 2005
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Competition in the Turkish Telecommunications
Sector
Price
Low
High
Competition
Bundled Services
Integrated market
Competitive market
Laws and Regulations
Service
First phases of competition
Monopolistic
Regulation
Service
High
Service Quality
Low
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Over the last decade the industry has witnessed
many important achievements.
1994
1997
1996
1993
1998

• Licensing of Cable TV services based on revenue
  sharing system
• Privatization efforts of Türk Telekom has started

• With other 68 countries, Turkey committed to
  liberalize its basic telecommunications services
  market till 2006

• Turkey's National Internet Backbone Network
  (TURNET) was put into service
• Frame Relay service which enables data transfer
  at high speed was put into service

• Split of the old model of the Post, Telephone and
  Telegraph monopoly
• Two 900MHz licenses were awarded to Telsim and
  Turkcell in 1993 to provide GSM cellular services
  under a revenue-sharing basis with Türk Telekom
• Turkey's first international Internet connection
  established by METU and TUBITAK (a 64 Kbps line
  to NSFNet in the United States)

• GSM network was transferred to the firms Turkcell
  and Telsim for 25 years by giving license at 500
  million.

Nr of GSM subscribers (-) 68K
620K
1.406K 3.053K
2000
2004
2001
1999
2003

• Türk Telekom became a joint-stock company,
  dependent on special law provisions.
• Telecommunications Authority became operational.
• GSM license, at 1800MHz, awarded to the Telecom
  Italia/IS Bank Consortium Turkcell listed on the
  New York and Istanbul stock markets

• On March, Aria has started operations
• Ay-Cell started operations soon after Aria

• The coalition government committed the
  abolishment of TT exclusivity on fixed lines

• Aycell and Aria merged.

• Alternative operators began to provide services.

2005

• Türk Telekom privatization will be concluded.

Nr of GSM subscribers 41.000K()
34.708K 27.888K 18.593K
15.183K 7.500K
() as of September 2005
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Turkish telecommunications market is not mature
yet, there are important opportunities.
- Mobile -
- Fixed -
- Broadband -

• Turkish Wired Communication Market is 29th in
  terms of total revenue but it is 229th worldwide
  in terms of ARPU.
• Room for improvement of Türk Telekoms services
  and efficiency.

• Low mobile penetration compared to Europe.
• The market has a total of 39.7 million
  subscribers.
• Competition became more tough and price wars have
  started. This trend will continue until the sale
  of Telsim
• Mobile internet has not achieved a success yet,
  because of technological constraints, current
  user preferences and more importantly cost issues.

• xDSL services are only provided by Türk Telekom
  until the markets full liberalization.
• Satellite Digital TV has developed and spread
  rapidly in the last years, with two companies
  (DigiTurk, StarDigital) jointly sharing the
  market.

Today

• Broadband market size continuously increases.
• xDSL services become more spread by Türk Telekom
  and other carriers (after full liberalization).
• Cable DTV operators start to emerge with
  additional value added interactive services.

• Mobile penetration increases.
• Prices tend to decrease, customer satisfaction
  and service differentiation become more and more
  important.
• Mobile internet penetration starts to increase
  and mobile Internet services evolve fast.

• Markets full liberalization.
• Competition in the market, alternate operators
  start to emerge.
• Türk Telekom starts to take necessary actions in
  order to increase its efficiency in services and
  processes.
• Market size increases with additional data and
  voice services.

Near Future
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The market has not saturated yet, however
purchasing power and the high tax rates are
important barriers for full realization of the
market potential.

• Turkeys mobile telecommunications market is
  directly correlated with domestic growth as most
  revenue comes from domestic operations.
• MoU and ARPU directly depend on growth in GDP per
  capita income.
• Turkey has the largest population and GDP of any
  market in the Middle East and Africa (MEA) but it
  has very modest GDP per capita.
• The country is the largest market for
  telecommunications services as well, accounting
  for an estimated 34.6 of all MEA telecom retail
  services revenue in 2005 (24 of fixed retail and
  44 of mobile services revenue)
• The analysts expect the telecom market to display
  a sustainable trend, in line with decreasing
  country risk and growing economic recovery linked
  to the EU accession process.
• On the road to EU membership Turkey will be
  aligning its telecommunications law to EU
  regulations.

Source TA and Ata Invest Estimations
GSM ownership per 100 inhabitants
Source ITU Statistics, 2004
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The market is unique in the way that both fixed
and mobile markets are of monopolistic nature.

• Turkish mobile market indicate a monopolistic
  market structure. The extraordinary on-net
  advantage is difficult to compete.
• The Authority is working on important subjects
  which critically affect the market dynamics.
• Number Portability
• A Committee is formed with the participation of
  GSM operators. The draft regulation regarding
  Number portability is expected to be finalized by
  the end of this year.
• Draft Law Amending Wireless Law
• The ground behind this draft is to prevent the
  theft and illicit usage of the handsets. The
  operators will be responsible to establish their
  own CEIR system in addition to the central
  database to be established by TA. All the
  handsets not registered to TAs database will be
  blocked by the operators.
• Draft Electronic Communications Law
• Abolishes the license and usage fees
• Describes a new framework for authorization
• Draws a framework for the designation of SMP
• Brings a new financial obligation for the
  participation to the Universal Service Fund.
• Draft Law Amending Environmental Law
• Brings a new fee to be collected from the
  subscribers (1YTL per month) and will be
  transferred to TA as environmental contribution
  fee. Describes the procedure to be followed for
  the activities that may have a negative impact on
  the environment.
• Regulation Regarding the Protection of Public
  From the Electromagnetic Fields
• Caused by Non-Ionized Radiation Based on the Law
  regarding Organization and Duties of Ministry of
  Environment and Forestry Brings new
  authorizations regarding electromagnetic areas
  and abolished TAs authority in related fields.
• Study Regarding Market Analysis
• Since TA is the authorized body to conduct
  studies regarding the SMP and give the final
  decision for the designation of SMP operators TA
  is trying to describe the market structures in
  which SMPs will be designated.

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There has been a steady growth in the number of
mobile subscribers

• Government took a big step in the privatization
  of Türk Telekom. Next step will be the sale of
  Telsim
• Telsims sale will significantly increase the
  competition However changes in the rules of
  competition are not expected before 2006.
• Delay in the regulation of number portability is
  one of the growth barriers.
• High tax rates another factor hindering growth.
  Although mobile phone growth is impressive, MoU
  and ARPU are still very low compared to the EU
  because of heavy taxation. (exceeding 60 of the
  invoice amount). On top of the existing rates
  government will introduce a new fee (1YTL/month)
  as environmental contribution fee.
• Due to high tax rates average call duration
  dropped from 103min/ month in 2000 to 67min/
  month in 2005.
• The market is highly dependent on prepaid cards,
  which represent around 75 of the total. Postpaid
  growth is flat. Prepaid subscription is also
  expected to compromise 95 of net additional
  subscription in the coming periods.
• Growth is expected to continue at a slower pace
  in 2005, carrying a total number of mobile
  subscribers to around 40millions.
• As of Q3 2004 average net monthly churn rate is
  0,7.

- Wireless Market Development in Turkey -
Source Merrill Lynch
Source Avea estimation based on Merrill Lynch
growth forecasts.
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Conclusion Turkey needs to invest in advanced
technologies to improve its competitiveness.
Policy, strategy and action plan to increase
competitiveness
Increase the share of RD in GDP
Increase internet usage and improve electronic
integration in the economy
Integrate public and private industries
processes, improve coordination among public and
private institutions