Turkcell Gains in Turkish Mobile Turmoil

(page 2 of 2)

Ciliv's success in keeping Turkcell on top is all the more remarkable because of the threat he faced from Vodafone soon after he took the helm. When the British mobile giant—which is still the No. 1 mobile operator in the world by revenues—bought Turkey's No. 2 operator, Telsim, for $4.5 billion in late 2005, it was expected to pose a major competitive challenge to Turkcell. But it hasn't worked out that way. Vodafone relaunched Telsim in 2007 under its own name but then got distracted by corporate restructuring and its expansion plans elsewhere in the world, including in India.

discrepancy between quality and price

Even as it underinvested in its Turkish network, Vodafone continued to market and price itself as a premium provider. But as customers began to notice the discrepancy between quality and price, they defected in droves. Vodafone lost close to 2 million customers in the first six months of this year alone, plunging its share to 23.5% at the end of June from 27.3% a year earlier.

In fact, the surprise contender in the Turkish market has turned out to be No. 3-ranked Avea. When Turkish telecom authorities introduced mobile number portability a year ago, Avea launched a price war to grab customers from the other two providers. Its groundbreaking flat-price tariff for calls made to any network upended the industry's prevailing business model and pulled in millions of new subscribers. By the middle of this year, Avea was on the brink of overtaking Vodafone as Turkey's No. 2 mobile operator, especially in terms of revenue. But a lackluster rollout in the third quarter of new third-generation, or 3G, mobile services caused it to slip back to a 19% share.

All three carriers are hoping to gain a revenue and earnings boost from the introduction of 3G in Turkey last July. Although Turkey is years behind other countries in rolling out 3G, Turkcell's Ciliv says the delay has a number of hidden benefits. The network equipment is less expensive and more advanced than the bleeding-edge gear deployed in major European cities a half-decade ago. As a result, Istanbul is now blanketed with mobile broadband service three times faster than what's available in London, Paris, Frankfurt, or Moscow.

Analysts at local brokerages such as Finansinvest figure 3G will help lift industry profits in Turkey. But they won't know the financial impact until sometime next year, when a critical mass of consumers will have signed up for the service and started to use it.

Ciliv is convinced of the potential. "Mobile broadband is the biggest opportunity we see," he says. "Less than 5% of the Turkish population now gets e-mail on their mobile phones, so we see 95% upside." Now he just has to hope the economic turnaround forecast for Turkey next year erases all memory of the year the market shrank.

Kuser writes for BusinessWeek.com from Istanbul .

Business Exchange

Track and share business topics across the Web.