Turkcell and Vodafone claim bullish start to 3G in Turkey

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Turkey has made significant progress in WCDMA (3G) following the launch of the country’s first commercial 3G networks last year, according to new Wireless Intelligence research. Data for the last quarter of 2009 (4Q09) suggests that 3G was a key factor in enabling Turkish mobile operators to offset the impact of slowing subscriber growth, regulatory pressures and a depressed macroeconomic environment. 3G connections accounted for almost 10 percent of total country connections by year-end and Wireless Intelligence reaffirms its earlier forecast that 3G will account for more than a third of all Turkish connections (an estimated 30 million) by the end of 2013.

Leading the way was market-leader Turkcell, which is forecast to have reached 4 million 3G connections by year-end 2009. This was largely the result of the operator having a significant number of 3G devices already in circulation prior to switching on its new WCDMA network in August (it has been offering the iPhone 3G in Turkey since 2008). The operator has also used the new network to push HSPA-enabled dongles and notebooks and claimed to have approximately 300,000 mobile broadband devices in the market by February 2010, giving it an estimated 65 percent share of the Turkish mobile broadband market. It is targeting 1 million mobile broadband devices by the end of 2010. Over 62 percent of Turkcell’s 3G device portfolio is HSPA-enabled, according to our research. We predict that 3G devices will account for around 20 percent of Turkcell’s installed base of devices by the end of 2010 with 42 percent of these HSPA-compatible.

Turkcell commercially launched its new network simultaneously in 81 provinces in August, providing instant coverage across an estimated 60 percent of the population. According to the operator, this had been expanded to over 70 percent within five months of launch. Turkcell is in the process of upgrading the network to HSPA+ and recently claimed to hit download speeds of 42.2Mb/s in dual carrier frequency tests with Ericsson. Trials of LTE are expected later this year.

The focus on 3G in 4Q09 helped lift Turkcell’s mobile data revenues for full-year 2009 by 100 percent to TRY261 million (US$169 million). Data as a percentage of its total revenue rose from 14 percent to 16 percent between 2008 and 2009. Growth in this area is considered vital for offsetting the effects of regulatory pressure, which has been an ongoing concern for the market-leader for the last two years. Mobile termination rates are to be cut by a further 52 percent from 1 April 2010 alongside a 38 percent reduction in price caps.

Second-placed Vodafone has been equally aggressive in its 3G rollout, with 13 percent of its total connections base (2 million) on its new networks by year-end – the highest proportion among the country’s three main operators. Turkey had previously been an underperforming market for Vodafone but 3G rollout appears to have played a key role in a successful recovery, which has seen the unit recently upgraded by ratings agencies (to stable). Service revenue at the subsidiary rose 12 percent in 4Q09 – its first quarter of growth for a year – while average monthly data traffic increased by 20 times following the launch of 3G.

Vodafone had achieved 60 percent 3G population coverage by the end of 2009 and – like Turkcell – benefited from an existing installed base of 3G devices at commercial launch. However, Vodafone is more aggressively marketing HSPA services (using the ‘3G+’ brand), targeting homes without fixed-line connections with its mobile broadband offering (‘Vodafone Mobile Modem’) and even its own Internet browser (‘Websin’). The operator said last month that it had notched up 100,000 Mobile Modem customers to date, 20 percent of which were existing subscribers of rival operators. Wireless Intelligence forecasts that 45 percent of Vodafone Turkey’s 3G connections will be based on HSPA by the end of 2010 with two-thirds of its 3G devices portfolio HSPA-enabled. 

By contrast, third-placed Avea has made a cautious start to promoting 3G, noting in its 4Q09 earnings statement that it has seen “no significant 3G take-up so far.” We estimate that 3G accounted for just 1 percent of its connections base by year-end. As a subsidiary of the country’s fixed-line incumbent, Turk Telekom, this caution appears linked to fears of cannibalisation of its existing fixed-line base by mobile broadband. Avea has consequently positioned 3G as a complementary ‘mobile add-on’ service to its fixed-line broadband (ADSL) offerings; growth in ADSL has been a key factor in offsetting declines in Turk Telekom’s traditional PSTN business. Wireless Intelligence predicts that 3G will account for 5 percent of Avea’s total mobile connections by year-end 2010.

Growth in 3G in Turkey was achieved despite a contraction in total subscriber connections during the year. The total market shrunk by 4 percent during 2009 to 62.9 million connections by year-end. Market penetration stands at 82 percent.

Joss Gillet, Senior Analyst, Wireless Intelligence

In 2009, Turkcell and Vodafone combined to lose a net 2.6 million mobile connections (1.6 million and 1 million, respectively), yet they each managed 4 million and 2 million 3G subscribers, respectively, by year-end. This raises a number of questions as to the true nature of 3G migration in the country and casts doubt over whether the initial high demand for 3G seen in the operator numbers reflects seasonal organic growth. Vodafone, for example, added around 200,000 contract and 500,000 prepaid net additions during the second half of the year, suggesting that a sizable amount of the new 3G subscribers added during this period were already accounted for in the figures prior to commercial launch. This makes it impossible to determine the split in the 3G connections base between contract customers – which will sustain revenues for around 12 to 24 months per user – or the more volatile prepay customers. It is also unclear how many existing subscribers at Turkcell and Vodafone with 3G compatible devices took out new data plans to access the new networks and are actively using them for data services. In February, for example, Vodafone reported that more than 450,000 people downloaded its web browser, which would represent less than a third of its 3G base clearly devoted to consuming mobile web services. So, despite the encouraging numbers released by operators since the launch of 3G, the lack of clarity means we must express a degree of caution with regards to the potential cash-generation value of the new networks. Nonetheless, strong adoption of data services remains a key factor that will lead both operators to a recovery path.

Turkey Mobile Connections, 4Q09
Source: Wireless Intelligence, company data