U.S. Markets open in 1 hr 23 mins

Edited Transcript of TTKOM.IS earnings conference call or presentation 26-Apr-17 11:30am GMT

Thomson Reuters StreetEvents

Q1 2017 Turk Telekomunikasyon AS Earnings Call

May 2, 2017 (Thomson StreetEvents) -- Edited Transcript of Turk Telekomunikasyon AS earnings conference call or presentation Wednesday, April 26, 2017 at 11:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Boulos H. B. Doany

Turk Telekomunikasyon A.S. - CEO and General Manager

* Kaan Aktan

Turk Telekomunikasyon A.S. - CFO and Finance Assistant General Manager

* Sabriye Gozde

Turk Telekomunikasyon A.S. - IR Director

* Hakan Dursun

Turk Telekomunikasyon A.S. - Chief Marketing Officer

================================================================================

Conference Call Participants

================================================================================

* Alper Ozdemir

Oyak Yatirim Menkul Degerler A.S., Research Division - Analyst

* Herve Drouet

HSBC, Research Division - Head of EEMEA Telecoms, Media and Technologies Equity Research

* Ivan Kim

VTB Capital, Research Division - Research Analyst

* Mehmet A. Agyuz

UniCredit Research - Equity Analyst

* Ondrej Cabejsek

Wood & Company Financial Services, A.S., Research Division - Research Analyst

* Roman Arbuzov

UBS Investment Bank, Research Division - Director and Equity Research Analyst of Telecoms

* Walid Bellaha

Barclays PLC, Research Division - Credit Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Turk Telekom 2017 quarter 1 conference call. (Operator Instructions) I must advise you that this conference is being recorded today, Wednesday, 26th of April 2017. I would now like to hand the conference over to your speaker today, Gozde Cullas. Please go ahead.

--------------------------------------------------------------------------------

Sabriye Gozde, Turk Telekomunikasyon A.S. - IR Director [2]

--------------------------------------------------------------------------------

Hello, everyone. Welcome to our 2017 first quarter results call. Today's speakers are our CEO, Paul Doany; and our CFO, Kaan Aktan. Before we start, I would like to remind you kindly to review our notice in the second page of the presentation. I will now hand over the call to Paul Doany.

--------------------------------------------------------------------------------

Boulos H. B. Doany, Turk Telekomunikasyon A.S. - CEO and General Manager [3]

--------------------------------------------------------------------------------

Thank you, Gozde. Good afternoon. I am pleased to announce that we have had an excellent start to the year. We delivered strong financial and operational results, at the same we continue to move ahead towards our strategic target. Our new organizational structure is now in full force at the company and also our growth company subsidiaries as well, and we target to accelerate our strategic priorities for the remainder of the year and beyond.

In addition to our 5 years engagement with the Ptt through our Pttcell in the mobile segment, we recently signed another agreement, given that the national post office of the past had a lot of common real estate with Turk Telekom, either jointly owned or jointly used. So this cooperation will provide for a more rational utilization of our real estate values to both sides. And going forward, we are also considering other partnerships with the Ptt to create synergies using our experience in telecom and theirs in logistics. And these new initiatives should provide additional strengths in -- to our position and in relation to our customers, and also to both entities and some of our subsidiaries.

Another important development is our joint offer with Vodafone, which we submitted in this Universal Service Tender for mobile network implementation and operation in 1,472 locations in the country, which currently have no mobile infrastructure; rural areas. I believe this tender will pave the way for best-in-class services in rural areas at the most appropriate costs, without obviously duplicated infrastructure. This kind of joint venture partnership is an interesting model that we will consider with Vodafone and also with other operators potentially to go beyond limited passive sharing, which is all we have currently at this time. So we will continue to seek ways to deploy network CapEx and network OpEx in a more rational format and sharing to the extent -- maximum extent possible.

Now, we can move on to the presentation. Operational highlights -- operational highlights on Slide 3, we're showing the first quarter operational results. Fixed broadband was the leader in net additions in the first quarter with 218,000; followed by mobile, 142,000; and TV at 97,000. Losses in fixed voice subscribers decreased to 141,000, which is the lowest decline since the third quarter 2010. Number of group subscribers increased by 1.3 million year-on-year to 39.2 million. Subscriber additions in the first quarter reaffirm that we are on the right track with regards to our cross-sell and synergy offerings through which we differentiate ourselves in the market while avoiding value destruction.

Next Slide 4, let me briefly summarize the key financials. Our revenue continued to grow at double digits and also with an improvement in the EBITDA margin. Total revenue surpassed TRY 4.3 billion, growing 13% year-on-year, primarily driven by broadband and mobile performance. Excluding construction revenue adjustments, top line revenue growth is 10%, which put us on track with regards to our targets. I am also very pleased on the profitability front. EBITDA of TRY 1.4 billion, a 21% increase year-on-year; EBITDA margin at 35.5%, which is 2.3 percentage points up compared to the first quarter 2016.

On the other hand, negative FX environment continued to impact net income, although its impact is down in the first quarter of this year, where we delivered net income of TRY 66 million. We had TRY 400 million CapEx in the first quarter, corresponding to 9% CapEx to sales ratio, down from 19% last year. This was again in line with our targets as our investment program this year is more skewed towards the second half. Kaan Aktan will be covering this in his section.

Next Slide 5, digital services are core to our integrated services approach, enabling us to cross-sell, up-sell and increase our value proposition and enhance customer experience with reduction in churn. In 2017, we launched a series of enhancements to our products and their uptake accelerated. We re-launched an upgraded version of Wirofon services, which is developed by Argela company, which is our wholly owned R&D company, while providing a new generation of instant messaging and voice with high definition video to all mobile customers in Turkey. Wirofon also enables Telekom PSTN subscribers to use their fixed voice minutes using their mobile devices. It has been a great product designed to add value to our customers and also improve retention. Now, we are adding new functionality to this Wirofon product not only for consumer, but also for corporates, which features are lacking in competing messaging products, especially as we aim to target public institutions that require added security, and therefore this product would be addressing those requirements of security in addition to features that other messaging apps do not currently have.

We extend successful performance of digital pillars, namely Tivibu and Turk Telekom Music playstore, creating more value to our customers. All of these digital services reinforce the value of our product portfolio and highlight the growing number of ways in which consumers can connect to our services. These services serve as significant competitive differentiators in the market and therefore strengthening our position.

Next Slide 6, is on fixed broadband performance. In the first quarter, we added 218,000 net broadband subscribers in total, 10% higher than the net adds first quarter last year, and the highest first quarter net add in the last 5 years. On top of that, we delivered an accelerated growth in ARPU, 9% increase year-on-year. And again, this is the highest growth since fourth quarter 2011. All in all, we now reached 8.9 million fixed broadband subscribers with a strong ARPU at TRY 45. Our one stop shop concept all inclusive transparent sole offers, as well as our focus on multi-plays such as inclusive Tivibu campaign, cross-selling, et cetera, drives this performance. This explains the very strong broadband adds with increasing ARPU even in a seasonally low demand quarter.

We also delivered great results in fiber, adding 164,000 new subscribers corresponding to 75% of total net additions in the quarter. The number of fiber subscribers reached 2.2 million, which means 24% of our broadband base is now on fiber. We are now fully ready to speed up monetization of our fiber network further. We have passed 14.5 million premises with 235,000 kilometer infrastructure across Turkey and our network is open to all operators. We would like to increase our sales both on wholesale and retail level in a multi-win approach for the sector.

Another critical point is the tremendous opportunity in Turkey to grow broadband business further by driving household penetration, which we believe to be currently low at 47%. We have just initiated this week a wholesale broadband campaign offering broadband new entry level package, which is offered at no charge to retail ISPs to address households with an existing fixed line home connection. So these are homes that already have a fixed line connected, be it operational or non-operational. The campaign is called Internet Bizden. We are offering 20 gigabyte capacity to the customer at 4 megabit speeds. So, this is a good capacity, but obviously at a reduced speed. This offer does not have naked DSL option, so it's a tool to retain and attract new voice subscribers. The addressable market is very large. If we just take the working fixed lines that don't have broadband, that's a good enough size, and obviously beyond that there is a huge opportunity there for customers, as I say, that have existing fixed line connected straight into the home.

Now in retail, we will support this initiative with affordable prices. For PSTN customers, we offer more attractive prices. We also have 40 giga option up-sell on that 20 giga. So without such an offering, such homes would probably stay wireless. In other words, some of those fixed lines that don't have broadband may upgrade to broadband, but most of them or the others would probably just stay fixed or cancel. Therefore we would label those as wireless data homes. And obviously the cost of mobile data is higher than the cost of this particular form of fixed data, especially when you have an existing line, so we're basically trying to utilize what's already in there.

And our wholesale team are fully engaged with motivating all external retailers to grow the market so that all operators -- Turkcell, Vodafone and other independent providers -- will be growing the market and they would have future up-sells from those offerings. As customer data requirements increase with time, because obviously people need more data with time, this provides a very nice complement to our mobile offering, our mobile data offering, which obviously comes at a much higher price and indeed a much higher cost.

The future demand will require in time higher speeds above the 4 meg and obviously higher capacity and therefore the up-sell opportunity speaks for itself. This is our strategy as a wholesaler to enable an exciting new growth opportunity to the whole market in which all players will be able to get their fair share out of it.

Next, Slide 7 is up-selling dynamics in the fixed broadband. The first quarter of this year more than half of our customers have capacities over 50 gigabytes and this number has obviously doubled in the last 2 years and we will see that growing further. 29% have fiber-based high speed access, which is up from 24% a year ago. Turk Telekom's superior fixed network is clearly paying off and giving us plenty of room to up-sell in a market where appetite of customers for higher speed and higher capacity is strong. We are upgrading our customers from lower level packages to premium top end at full speed with commercial activities focusing on cross-selling more and more, and this translates into higher ARPUs and acceleration in broadband revenue growth.

Next slide is on mobile performance. In the first quarter of 2017, our focus again was on up-selling and cross-selling as well as offering value-added services to deliver best value to our mobile customers. We faced a tough competition in this period, so we needed to adjust some of our portfolio offerings in order to defend our base. However, rather than just dropping prices, we also undertook an integrated approach by enriching our offers with Tivibu, Wirofon and Turk Telekom Music as well as playstore, enabling differentiation in the market and fostering more aggressive cross-selling. This captured 185,000 new postpaid customers, enabling ARPU to maintain its positive year-on-year trend. In total, we added 142,000 mobile subscribers, reaching 18.7 million with a strong ARPU growth at 11% which is the highest in 5 years.

Supported by enhanced customer experience with a new frequency spectra acquired last year -- or 2015 rather, sorry -- we captured rates at historically low levels of 8%. We will continue to differentiate ourselves in areas where our competitors are less able to respond, given the diverse base of our offerings, thus minimizing profit erosion as far as possible in periods of tough competition as we faced in the last quarter.

Monetizing data on the next Slide 9, highlights on our data monetization. Currently, the differentiating factor between mobile offers in the market is data, clearly with LTE launch, and this trend has accelerated. Moreover data -- demand for data is on an upward trend which is natural. Our strong postpaid ratio of 53% and leadership in smartphone penetration at 76% continue to drive data consumption, led by our LTE customers. Penetration of LTE compatible devices among our smartphone users increased to 57%, up from 40% a year ago and monthly data usage of our LTE users was 4.3 gigabytes in March. Average monthly data usage per smartphone, 3.1 gig up from 1.9 gigabyte in the first quarter of last year. Accordingly, our data revenues increased 79% year-on-year reaching 50% share in our mobile service revenues. So the future is very promising for us in this space with strong LTE adoption in the country and encouraging data consumption patterns. As the conversion player, we are in a very good position to benefit from this.

TV performance, Slide 10. Our TV business performed well with accelerated momentum in the first quarter. Total TV customer base exceeded 2.1 million with 121,000 net adds, 2.5x last year's same period subscriber gain, with encouraging net adds for both home TV and Tivibu GO. Specific to home TV, net additions accelerated to 97,000 in the first quarter, the highest quarterly net gain we registered in the home TV segment so far. Our successful performance in TV segment is one of the good examples of group synergies. We launched mobile plus TV as well as broadband plus TV offers in this quarter. They became one of our most popular tariffs. Our TV position is strengthened by rich content, including football broadcasting rights and delivery platforms and unified sales channel.

We will continue to leverage our TV cross-sells and acquisitions and retention in management going forward, as this is one area we can offer very competitive and thus affordable pricing to grow the base into the free-to-air customer as this is the main market player, being Digiturk and D-Smart have obviously much higher prices. And they are currently not focused on the mid-market segment since obviously their prices are above that. So this is a unique opportunity for us to be a little bit disruptive on pricing and use that as our disruption rather than our mobile pricing as is or fixed.

Fixed voice on next Slide 11, we have reversed the downward trend in our total access line figure, and total access lines increased for the second consecutive quarter to 13.2 million. This a clear result of cross-sell that accelerated especially after the unification of brand and distribution channels, as well as our continuous retention offers and well designed tariff structure. The pace of fixed voice subscriber declined -- also decelerated 6% year-on-year from 9% a year ago. Fixed voice ARPU continues to be strong at TRY 23.1 and fixed voice revenue declines continued to -- decelerated the trend at 8% year-on-year in the first quarter.

Next Slide is 12 on group companies. We are very proud of the 5G center of excellence launched by Argela, our R&D subsidiary. It is not only a world-class test and demonstration center for our achievements with 5G, but a direct gateway to international markets and laboratories and vendors to follow the state-of-the-art technologies closely to carry R&D with universities and research institutions and industry partners between Turkey and also the U.S. base, in particular obviously for 5G technologies.

We are further extending Argela's product and services from serving us, but rather into other operators especially in consumer segment. This will be an area that we're focusing and we will be having more to say about this in the next couple of months. It is also worth mentioning that we recently hosted in Istanbul the ceremony to celebrate the successful SEA-ME-WE 5 launch, in which Turk Telekom International is a partner with a 40,000 kilometer fiber footprint outside Turkey, which is the only Turkish company participating in that project.

This project gives Turkey and Turk Telekom the opportunity to carry data to other countries. Now, I'm happy to see that these companies, together with Innova, together with Sebit and also together with AssisTT, our call center, are beginning to create critical value to the group, but also equity value in their own rights. And we will be saying more about that in the next 3 to 6 months. I will hand over to Kaan now. Thank you.

--------------------------------------------------------------------------------

Kaan Aktan, Turk Telekomunikasyon A.S. - CFO and Finance Assistant General Manager [4]

--------------------------------------------------------------------------------

Thank you, Paul. Good afternoon, everyone. We are now on Page 14 with financial performance. On the revenue front, excluding nonoperational FX revenues, top line growth continued to be strong at 10%. Broadband and mobile are the main drivers of the revenue growth. These are now accounting for 64% of our total revenues and growing high teens year-on-year. Meanwhile, fixed voice business now accounts only for 15% of total revenue.

As Paul mentioned in previous slide, we see a better trend in fixed voice with a slowdown in the decline rate. All in all, our revenue mix continues to shift from fixed voice towards broadband and mobile services. At the same time, decline in fixed voice is more than offset by growth in broadband. In the first quarter, annual growth in broadband revenues was around TRY 190 million. This is more than 3x of the decline in fixed voice revenues. Both scale and the mix of the top line growth contributed to the EBITDA performance. Combined with positive impact of organization streamlining and other efficiencies, EBITDA now reached TRY 1.5 billion. This is up by 21% year-on-year.

As you know, we had heavy commercial activity in the first quarter of last year. This was due to branch unification and LTE launch. This created base impact on EBITDA growth this quarter. In line with historic trends, our commercial OpEx will be more backloaded to the second half of the year this time. Network and IT expenses are higher year-on-year due to new network player in mobile, leading to increase in retail and maintenance expenses as well frequency fees and rental expenses. TL depreciation has also impact on these expenses items.

We implemented another voluntary early retirement program in the first quarter of this year as part of our continuous focus on operational efficiency. There is around TRY 34 million impact on EBITDA on personnel expense, but this is very much similar in size of the program that we run last year in the same quarter. Our personnel expense is under tight control, supported by organizational streamlining.

Coming to net income, on year-on-year comparison Turkish lira deprecation still demonstrated a major impact in our net income. However, this has significantly -- is down in the first quarters when we compare to the last quarter of last year. As a consequence, we delivered a positive net income of TRY 66 million in the first quarter of 2017. Finally on CapEx, we invested TRY 400 million in the first quarter. CapEx to sales came down to 9%, which is in line with our targets for the first quarter of the year. This means that we will still guide to TRY 3 billion in the full year.

We are now moving to next page, Page 15, debt profile. Our net debt increased by TRY 1 billion during the quarter mainly as a result of the Turkish lira depreciation. But it's also important to mention that first quarters are always the weakest quarters in terms of operating cash flow performance. We incurred very heavy OpEx and CapEx spendings in the last quarters which are paid out mostly in the first quarter. Historically, we generate around 60% to 70% of operating cash flow in the second half of the year.

This time, specific to this year, we also started paying the larger installments for Avea share purchase. We paid around TRY 200 million in January and there will be three similar payments in the next 3 years, and both in the same months in the first quarter. Adjusted net debt to EBITDA ratio is now at 2.23. We know that our leverage ratio is lower than many global peers, as you would see in the graph on this page. But still we would like to see the ratio to converge to the level of 2 in the short term. We have to expect one more similar or maybe higher ratio in the second quarter. You also remember that we had last payment for the LTE license in April. This is around TRY 900 million.

This will also put some pressure on the ratio, but starting from second quarter we should see gradual improvement in every quarter that will follow. Of course, FX rates will always be an important element in this equation. We kept our average debt maturity at 3.4 years at the end of the quarter. This is in line with our target. We don't have any material short-term financing requirements. We have TRY 2.6 billion in cash, close to 50% of this in dollars mostly and euro as well. And this is more than sufficient to cover even our 2017 fully financing requirements. We will continue to assist our financing and risk management strategy going forward, so we will try to bring even more diversification to our funding sources.

And this will be the end of my presentation. I am now handing over to Gozde for the Q&A part I suppose.

--------------------------------------------------------------------------------

Sabriye Gozde, Turk Telekomunikasyon A.S. - IR Director [5]

--------------------------------------------------------------------------------

Thanks. We can now take questions. Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instruction) And your first question is coming from the line of Ivan Kim from VTB Capital.

--------------------------------------------------------------------------------

Ivan Kim, VTB Capital, Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

Two questions from my side please. Firstly, on your TV revenues, so your broadband revenue was obviously very strong in the first quarter. And I was just wondering why the TV revenue doesn't pick up more because it's still kind of growing similarly from the low base but it's not accelerating. And the second question is on your digital strategy in mobile. So those applications about which you've talked a bit more, I think, for the first time now, Wirofon, the music application and other things. So, do you view them as more of the customer retention, lowering churn type of instrument? Or it's about diversification of your revenue stream and you potentially trying to maybe become more of a digital provider, I mean slow competition within the Turkish tech markets.

--------------------------------------------------------------------------------

Boulos H. B. Doany, Turk Telekomunikasyon A.S. - CEO and General Manager [3]

--------------------------------------------------------------------------------

On the question of television, actually I would like to make it clear that from what I mentioned earlier on is that this is the one area where television in this market, if you look at free to air, obviously has very, very poor content and any otherwise provider such as Digiturk, which is extremely expensive, and then you have D-Smart, which is not at all cheap. So, we have a unique opportunity to be disruptive actually in that segment, in order not to be disruptive with our main mobile service offering.

So, this gives us an opportunity, since the cost structure is rather flat in this business, once you pay for content. So, we changed the strategy and the direction of using this as a way of -- as an incentivizing cross-sell into a segment which is now severely underserved, meaning people just buy basically a television and a set-top box and basically have nothing to watch. So, we can give them very good film and a good amount of reasonable sport at a very competitive price.

So, rather than trying to generate revenue on a smaller base, this is something which we would rather grow the base as fast as we can. So, we are being a little bit disruptive in that segment given that this is a unique market making opportunity for us. And also we are now becoming number 2, in fact we have already now become the number 2 provider of television. And we'd like to grow even further, noticing that what has been paid obviously for the football rights is very, very excessive. So, therefore the value of the highest premium content will always be very high and that is what -- how Digiturk are pricing it. And if we price just a little bit lower than D-Smart, we're not going to gain what we would like to gain in this particular segment. So, that's a strategic drive.

In addition, to serve those homes, we are providing obviously a satellite TV into that home, which is on a self-install basis. So, we have a lower cost of provision. The customer makes their own installation so we don't have any headaches of installation and maintenance and all those stuff which obviously with an IPTV type of service, as we all know, it involves a higher cost. And therefore, that's the approach on that front.

On the digital content generally, we would like to move in a direction where we have more differentiation or giving more value. So it is a combination of the two that we're aiming for. Wirofon in particular is opportunistic for us because it provides the security advantage that special customers in this country would rather have a product that is, let me say, not open or available externally to Turkey. In addition, it gives you the advantage of putting bulk customers. So, if you want to install, for example, 100,000 base people who are working in a specific government sector, for example, you can do that through a single entry with this product.

So, it's designed really for that type of customer. So, it's quite specific in that regard. We will be coming with more products of this kind under the Argela company. This is a strategy for us to grow the value of Argela and we become a customer and therefore they then take it to other operators. So it could, in the end, become an opportunity of growing the value of Argela in that sense.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

Your next question is coming from the line of Herve Drouet.

--------------------------------------------------------------------------------

Herve Drouet, HSBC, Research Division - Head of EEMEA Telecoms, Media and Technologies Equity Research [5]

--------------------------------------------------------------------------------

Two questions as well on my side. The first one is going back to your digital strategy. I mean do you think on some of the -- your applications, you're going to give free data rating, i.e., if you use your application you are not paying for the data? I mean, we start to see that type of tariff policy you know in some other countries. I was wondering what is your thought on that. And the second question is on the mobile segments where it looks you've done, you know, quite pretty good results there. I was wondering, I mean usually Vodafone is -- in Q1 tends to be much more aggressive, usually. I mean is this quarter a bit different from what historically we have seen that can potentially explain your mobile performance? Or do you believe there is no change with -- in terms of the promotions usually been put by Vodafone in Q1?

--------------------------------------------------------------------------------

Boulos H. B. Doany, Turk Telekomunikasyon A.S. - CEO and General Manager [6]

--------------------------------------------------------------------------------

Thanks. Actually let me start with the second one. The strategy that I mentioned in relation to being disruptive on television, which has a mobile component, and it also has a satellite TV component. These are two new important directions that we can give a lot of value to the customer. Now, you notice that when we do this thing over satellite TV, and obviously we would call that a wireless home. Which means this is the home that's unlikely to ever use a broadband. So therefore, we are giving them entertainment over satellite and obviously that's a very good offer if they are a mobile customer with us.

So, that obviously -- Vodafone and Turkcell don't have that type of service. They could easily launch one, but at the moment they don't have it. So, this is an area where technically we're in competition with a satellite TV operator rather than a telco type. So, in that regard, that is how we have chosen -- and we've just launched these products, actually. So, we're not seeing effects of this yet. So we begin to see the effect of this actually during the course of this particular quarter and beyond.

So hence, during the first quarter, it was getting a little bit hot in the first month so we didn't want to react so much, but then we have to react at some point. And we weren't really ready with this approach. We needed an extra couple of months for this. So, we used more applications like you're indicating, which now takes us to the first part of your question or your first question, rather, which is in relation to, do we have to give free data to some customers for certain apps?

Yes, for example messaging app, let's say WhatsApp. Most people use WhatsApp. We have Wirofon and Turkcell have their BiP product. So, we thought that for certain parts of our customers, like the selfie, they're young. We say included in this price is basically free messaging and rather than being -- saying this only would apply to WhatsApp, that wouldn't be nice. We have a product Wirofon and not many are using it as yet because we just launched it. Perhaps some are using BiP. So we are saying any messaging platform you use but without the voice calls is included in that tariff.

This also is very important for roaming, by the way, because when people are roaming they tend to be very careful about their spend. So, if we include a bit of messaging in that, in the end messaging is probably the most important form of communication right now after voice. So, if you can't speak or you can't afford to make a call, at least you want to send a message. And that's why messaging is ultimately going to become part of the -- what you would have to give away, which is not a lot by the way. But that would be something essential to give so that people feel, even if they're out of quota, at least they can make a phone call, they can send/receive message and that will be the minimal. I think the market will go in that direction.

Now, for certain types of customers, if you're giving heavy content, for example, mobile TV or something, and if they're paying more than a certain amount it would be normally possible to provide something to those people. But as you notice from my earlier presentation, what we try to do is we're trying to gear customers towards using fixed data when they are in their home, because that obviously -- data usage is addictive as we all know. So, we're trying to make it more like a Wi-Fi access as opposed to a mobile data provision. So, that's the approach we're taking, because obviously the last thing we want is just to be price disruptive in our main core services because that none of us can afford.

--------------------------------------------------------------------------------

Herve Drouet, HSBC, Research Division - Head of EEMEA Telecoms, Media and Technologies Equity Research [7]

--------------------------------------------------------------------------------

And maybe just a quick follow-up on the cost side and especially on the commercial cost side. I mean obviously compared with last year when you launch LTE and you had your rebranding exercise, you had a heavier cost structure, which is now being phased away. I mean, are we going to continue to see that trend looking forward? I mean especially on the rebranding exercise, is it completely over and now we can assume those costs we've seen last year are not going to be booked this year? And same thing for LTE please, the LTE commercial exercise you had last year.

--------------------------------------------------------------------------------

Boulos H. B. Doany, Turk Telekomunikasyon A.S. - CEO and General Manager [8]

--------------------------------------------------------------------------------

Actually, last year I mean the heavy spend last year was to launch a unified brand. And obviously that is something you do once, once the unified brand is done, it's done. So we don't foresee any major launches equivalent to that. So now we are running as we are and obviously if we have something new to launch, we launch it, but it would be small in comparison with what had to be last year. And remember also last year was a total rebranding as well, which also was very heavy at the point of distribution and everything. So obviously, this is again something you only do once.

In relation to just normal marketing and advertising, as you know, what we did in the company is we rationalized all the marketing under a single unit. So now consumer, brand and corporate is under a single -- under a single budget and that allows us to control the budget better, if you like. So therefore, I think it's very easy for us to live within our operational guide.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

And there are no further questions at this time. (Operator Instructions) And your next question is coming from the line of Roman Arbuzov.

--------------------------------------------------------------------------------

Roman Arbuzov, UBS Investment Bank, Research Division - Director and Equity Research Analyst of Telecoms [10]

--------------------------------------------------------------------------------

I just want to follow up on the last one around the costs. If I heard Kaan correctly, I think he was talking about costs potentially picking up in the second half. So clearly, in terms of your strong performance in Q1, part of it is comps right, the easy comps versus Q1 '16. But are we actually sort of at the normalized level cost wise do you think or were costs relatively depressed in the quarter and will be picking up through the year? Just in terms of extrapolation of the trends that we saw this quarter, how should we be thinking about that, please? That's the first one.

And the second one is just around conversions. It would be great just to get maybe a few additional -- sorry, just a few data points around convergence and the overlap of your fixed and mobile bases. You spent a lot of time talking about it and it's clearly an important driver for the market overall, but we don't actually see much statistics coming out of you on that front. So if you could give something away in terms of the overlap and sort of how you are thinking about it and what's happening to churn and the value that you are creating through convergence, that would be very helpful.

--------------------------------------------------------------------------------

Kaan Aktan, Turk Telekomunikasyon A.S. - CFO and Finance Assistant General Manager [11]

--------------------------------------------------------------------------------

Yes, for the first part of the question I think it will be a business-as-usual quarter when you look at -- from the cost side. But as I mentioned in my part, we have some streamlining efforts already in place. So that will be kicking in, in the remaining of the year, it's some more impact on the financials positively. But you should remember that this business has a well established seasonality. We have always heavy OpEx as well as CapEx in the last quarter and in the second half. So I assume that it will be again a normal year in that sense.

--------------------------------------------------------------------------------

Roman Arbuzov, UBS Investment Bank, Research Division - Director and Equity Research Analyst of Telecoms [12]

--------------------------------------------------------------------------------

But nothing beyond the usual in that sense, it's just sort of normal seasonality?

--------------------------------------------------------------------------------

Kaan Aktan, Turk Telekomunikasyon A.S. - CFO and Finance Assistant General Manager [13]

--------------------------------------------------------------------------------

No, we don't foresee that.

--------------------------------------------------------------------------------

Hakan Dursun, Turk Telekomunikasyon A.S. - Chief Marketing Officer [14]

--------------------------------------------------------------------------------

For your second -- this is Hakan Dursun, the Chief Marketing Officer. For the second question actually we are providing broadband services, with voice services and TV services under single bill. The mobile part we are evaluating the single bill option with pros and cons and with technological constraints. However, our commercial strategy is rather than bundle, we are focusing on cross-selling activity in order to preserve the value in the best way possible. Because there are territories for cross-selling especially and we are looking at the different dynamics also in our market shares.

When you look at our revenue growth acceleration and churn reduction, this is reaffirming that our strategy is the right commercial strategy and we are proceeding in the right direction. What we are doing is we are continuing to enrich our group synergy offers to leverage our strength in fixed value especially to support our mobile acquisitions. And share of synergy offers in this respect within the new acquisitions and new subscriptions are in an increasing trend every day. So this is as much as I can provide.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

And your next question is coming from the line of Alper Ozdemir.

--------------------------------------------------------------------------------

Alper Ozdemir, Oyak Yatirim Menkul Degerler A.S., Research Division - Analyst [16]

--------------------------------------------------------------------------------

My question is about your doubtful receivables. As far as I can see, there has been a continuous increase in allowance for doubtful receivables in the past couple of years in both nominal and relative terms. Could you please give us details about the underlying drivers? And also, could you give us some guidance about what will happen in 2026 when your license expires?

--------------------------------------------------------------------------------

Kaan Aktan, Turk Telekomunikasyon A.S. - CFO and Finance Assistant General Manager [17]

--------------------------------------------------------------------------------

For the first part of the question, we had an adjustment in terms of the assumptions used for one of the segments of our customer base. So that shouldn't be a direction -- that shouldn't give you a direction for the rest of the year. And for the second part, Paul?

--------------------------------------------------------------------------------

Boulos H. B. Doany, Turk Telekomunikasyon A.S. - CEO and General Manager [18]

--------------------------------------------------------------------------------

I can give you some general background in relation to concession, let me say, renewals. I think this obviously is a sector wide issue. On Turk Telekom itself and on the mobile there are three main concessions at least, as you know, because the concessions are also coming by spectrum license as well ending at the 2029 front. So obviously, the government and the regulator are looking at all-in-all how to address this. Whether Turkey is going to go for renewing concessions or having some other form and -- of licensing, I mean. In relation to this particular company, I mean, let's say Turk Telekom itself the right of renewal is obviously enshrined into the concession agreement itself.

The matter of for what price, be that an amount or an annual amount or whatever it is, obviously would be determined at that time, let's say 2 years ahead of the intention to renew. I think there is a like a notice period like that. So we are obviously well away from that point, but that's the dynamics of how it works. And obviously all interested parties, us and the mobile operators as well, are talking to the government in relation to what would be the right approach given that the government already obtains very high annual charges from all the operators in the form of special communication tax and treasury shares for example in the mobile.

So therefore there is a natural annual licensing sort of revenue that the government is making, which as we all see, is one of the highest in the world, if not the highest. So in that sense, the government could look at soft renewal type terms since they are getting all of this. So I think that all these subjects are going to be, obviously, discussed let's say, this year and next year. I think we will have more clarity on that.

In relation to Turk Telekom itself, what is important for this company is that within this year and at least no further than next year, there should be some more clarity on the accounting treatment. Because this, of course, will be important for this company and we started that discussion. And the regulatory authority and the government understand this and we are positive that there will be good developments for the sector, at least be sector wide, let me say, clarity that will be helpful to everybody. And that's as much as I can say for now.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

Your next question is coming from the line of Mehmet Agyuz.

--------------------------------------------------------------------------------

Mehmet A. Agyuz, UniCredit Research - Equity Analyst [20]

--------------------------------------------------------------------------------

Congratulations on a strong quarter. I have two questions, if I may. First one, regarding your tower sharing plans you mentioned in the previous conference call, whether if there is any development on that front in terms of further cost cutting initiative. My second question is regarding the acceleration in your broadband revenues, we see there is healthy trends, especially on the ARPU side. How do you see that going forward especially looking at your new campaign to tap into new households, et cetera? Should we see some dilution on the ARPU going forward?

And my last question is in regarding your mobile data revenues. Like the other players in the sector, I see that you have shifted some revenues from voice to data and it's still at -- and I think it's the logical thing to do, which is the main cost site and the consumption site is going from the data side. Could you give us some color or some guidance about the -- what would be in the next couple of years the data revenues, where it could reach in the couple of years?

--------------------------------------------------------------------------------

Boulos H. B. Doany, Turk Telekomunikasyon A.S. - CEO and General Manager [21]

--------------------------------------------------------------------------------

Okay. Let me start with your first one. In relation to sharing, as you know -- and I mentioned in the last call that there was a standing agreement with Vodafone, which was to share a site for a site. So basically, no party pays anything to the other. So for every site that Avea was providing, Vodafone would provide a site and I think there was about 2,000 sites roughly shared each way. And that is more or less -- was the status quo. And in the same period obviously, Turkcell established a tower company, and obviously if we wish to use that tower company, there should be a payment that we would make. So this is a not a sharing form. This is a form where we can compare what we would pay them in relation to if we do it ourselves.

So, the structure in the market now is mostly around self provide, do it yourself. The same thing applies, by the way, to fiber or everything or if you are able to share, you share. And that's how the approach is done. Now, we started obviously engaging with the operators. Whether we can push that form of sharing into something more towards active sharing. So we are sharing active devices, as is allowed under the LTE license. Or in 3G for example, it would be more of a form of -- but obviously 3G is slowly being phased out. So we're focusing on the LTE side which allows for that. So we started to work on that and hence came this opportunity of the USF tender, which we have given the best offer jointly with Vodafone in a 51:49 JV structure for that particular, let me say, obligation, that USF obligation. So that model seems to be a useful model.

However, obviously we will be looking at now certain locations with them, where we are able to go beyond just passive sharing because active sharing would be a lot more efficient. In addition, by the way, even when there is passive sharing, like we have multiple occupants in a single location, there appears to be a form of multiple payment also for leasing. So we're also trying to rationalize that structure. This work is very advanced now, so we're very optimistic that mobile form of sharing, just like there has been a lot of talk around fixed sharing, there has not been any real talk around active mobile sharing, which is very, very key.

So we see there is good prospects especially now with this rural. It's a very good model for us to progress with Vodafone. We are also open to both of us paying Turkcell for use of its towers against a fee. So I think all parties are looking into this. Obviously, for our side the mobile is much more important because fixed people share what we have against the payment, which is regulated, so that's the maximum we can do on the fixed.

And your second question was in relation to the -- let me take the high broadband revenue. Let me just take the first part and I'll hand over to Hakan to cover the remainder of the broadband part and also your mobile data question. Since our target is to grow the broadband markets, then obviously that is going to be -- has an impact on the overall ARPU coming down. So if we stay as we are now, where Turkey is around 46% household penetration, which obviously we believe that number to be low, if we don't grow that number in the next 2 to 3 years, those homes are going to stay wireless homes. They're not going to benefit from the value of a fixed.

So, where we are coming from is we are coming from, let me say, the easy win. Now, the easy win comes from a customer that already has a fixed line and is currently operating it as a voice service and doesn't have broadband. Now that's an easy one to target. Why aren't they using broadband today? Because they are not prepared to pay the full broadband price. Perhaps their data requirements are sufficient using their mobile and they don't want to pay the full price of a full real broadband service, which comes at a higher speed and obviously a choice of generally high capacity.

So for this customer, what we designed is we designed a tariff, which is affordable after quite a lot of study. That's why it took a little bit of time to get to these numbers. So we try to understand, what is the number that this customer would be willing to pay, and make that increment a small enough for him to afford it. And from our side we are giving 20 giga, so it's a meaning full contribution to their shared, let me say, mobile data usage in that particular home. That's why we have to set at 20 giga, but we set the speed at 4 mega. That's very important to minimize cannibalization, and this is a useful protection because for them over Wi-Fi they won't perceive much difference on speed in reality if they are mobile data users in any case, you see. So, that's where we are coming from, from this particular broadband offering. So it is offer to customers where the incremental cost of provision, the marginal cost, is very, very low. It's is the lowest anyway, it is the minimum. We can't offer service at less than this incremental cost. So those who have voice, obviously this would be the easy pick.

The ones who've already cancelled their voice, obviously that would a different type of a sale. You can capture a customer at the point of sale when he is buying, let me say, a new mobile and he could be asked that and this would be offered by Turkcell, by Vodafone, by obviously our own mobile. And in addition obviously there are alternative operators in the market and we're trying to grow alternative channels in order to secure in particular customers that have cancelled their lines. So they are totally wireless at the moment.

In order to reach to those particular homes would require a different kind of a channel. So our wholesale team are very focused on how we can grow that penetration through, again, channels that will be willing to sell. Because it is important for us to have those channels and not that TTNET actually grabs the bulk of this. Part of our, let me say, understanding with the regulator and with the ministry is that this is a wholesale offer that not only TTNET should benefit from it.

Now, by growing the market to this level, it means that those homes that have the ability of having fixed will in the future be capable of an up-sell. We have a 40 giga up-sell now already designed by the team, which will be already available. And in time we also foresee that the main offers that we now have in broadband, which obviously we are trying to grow the ARPU through up-sell, I think that will continue. So we are able to capture customers that we wouldn't otherwise capture. If we don't capture them in the next 2 to 3 years, those homes are forever going to be wireless.

So therefore Turkey should be aiming at a broadband penetration more into like Central-Eastern Europe level, which we couldn't do without this type of an offering. So it took a while for us to, first of all, design it. And second to actually get consent for it. And I think all in all this wasn't -- I mean, to do this within this time came in almost at the right time I believe for us, but obviously this is going to have an impact on ARPU without a doubt. But what will come out of it will be a far higher revenue stream, I believe.

In addition, it's complementary to mobile data, remember, because the cost of this provision is lower than doing it by a mobile network. So Turkcell and Vodafone, I believe, will be benefiting from this, which is also important for us. We see it complementary and we hope that they will get their fair share of this product. In relation to the balance of your question for the normal customers, I'll focus on the low end myself. I'll hand over to Hakan, who handles the normal customers and the mobile data part.

--------------------------------------------------------------------------------

Hakan Dursun, Turk Telekomunikasyon A.S. - Chief Marketing Officer [22]

--------------------------------------------------------------------------------

So when we look at the growth factor in your growth actually that is very hard to grow, as you pointed out, which is driven by a solid subscriber gain, which is 8.7% year-on-year and an ARPU growth of 9.3% year-on-year. The main reason for the strong net additions is definitely the one stop shop, because after the integration we are now leveraging the total number of visitors in the shop regardless of they came for a mobile need or a fixed need or a TV need. So we are able to push all our products, that's very helpful.

The second reason is the brand unification and no more confusion. It's a single brand to meet all their demands. And the third reason it's all inclusive, transparent, solo offers with a clear speed levels and clear quota levels. So, these are the main reasons that we are driving strong net additions. When we look at the ARPU front, the main reason behind 9.3% ARPU increase is a main up-sell. Because our up-sell performance increased almost 40% to 50% year-on-year compared to the same period of last year.

And some price adjustments in tariffs and items like expiration fees. There is some seasonality in usage in Q1. So your point is correct, in Q1 there is some seasonality. And finally as the market will grow of course we will continue to drive sustainable market growth and we'll play a new game. So the penetration effort is an incremental effort, as Paul has mentioned. There is detailed research just to make sure that there is no cannibalization with the existing fixed broadband business.

And there are also mechanical fixed door number controls, so that if this -- the new penetration offer is not available for the existing fixed broadband users, also by a door number control. And of course, the needs are different; one is addressing the mobile users, the other is addressing the fixed broadband usage. And that fixed broadband gigabyte usage is almost close to 70 gigabytes. And so, it's not comparable to the 20 gigabyte offer. So we are quite comfortable in that front as well while we are building with future of the market for all operators.

On the mobile services, your third question. A current and differentiating factor between offers in the market is the data rather than voice minutes or rather than amount of SMSs. And the launch of LTE include this trend has even accelerated further. And moreover, the demands for data is on an upward trend. So in Q1 photo data usage increased more than 80% year-on-year. That was an accelerated increase in data revenues, is a normal trend. So, it naturally impacts the overall mobile revenues positively.

Our data consumption drivers are basically smartphone penetration, which is again up by 8 percentage points year-on-year, so our smart penetration in the base is now 76%. It is also related to 57% of all the smartphones are now LTE compatible. And LTE compatible smartphone users consume 50% more data than non LTE smartphone users. And the third one is of course we are doing a higher number of data package up-sells and cross-sells. And we are also migrating more customers from prepaid to postpaid, which is also stimulating more data usage.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

Your next question is coming from the line of Walid Bellaha.

--------------------------------------------------------------------------------

Walid Bellaha, Barclays PLC, Research Division - Credit Research Analyst [24]

--------------------------------------------------------------------------------

Thank you very much for the presentation. I have just a question regarding the full-year guidance. So, I see there was no slide on the guidance. Do you expect the guidance that you provided for earlier this year to remain?

--------------------------------------------------------------------------------

Kaan Aktan, Turk Telekomunikasyon A.S. - CFO and Finance Assistant General Manager [25]

--------------------------------------------------------------------------------

Yes, for the time being we don't foresee any change to our guidance. So, we will stick to the same set of numbers for our guidance. But looking at the first quarter performance, both in terms of revenue and margin. So, we can say that we should be targeting the higher end of it for the moment. But we won't change the guidance for -- in this quarter.

--------------------------------------------------------------------------------

Walid Bellaha, Barclays PLC, Research Division - Credit Research Analyst [26]

--------------------------------------------------------------------------------

Okay, understood. Just as a follow-up, because I understand, I mean one of the reasons that Q1 was very strong is that the comparables were quite weak, Q1 last year, in terms of EBITDA was relatively weak. There were a lot of commercial costs involved. So, do you expect some improvements quarter-on-quarter going into Q2 or rather a stable performance?

--------------------------------------------------------------------------------

Kaan Aktan, Turk Telekomunikasyon A.S. - CFO and Finance Assistant General Manager [27]

--------------------------------------------------------------------------------

Well, when we had this same discussions in our last call at the year end, there was a lot of questions around the margin performance and the trend of it. So, we said, we believe we should have seen the worst of it or the lowest point from last -- throughout 2016. And that would be a turnaround year for us, 2017. And in short to mid term, we should be targeting somewhere at mid 30s. This is the -- first quarter performance is a bit higher than this. So, we will still say this same thing. We believe that we definitely will stabilize and if we can, we will increase margin a little bit compared to the last years. But we have to wait and see for the next few quarters to see how big the margin improvements will be.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

Your next question's coming from the line of Ondrej Cabejsek.

--------------------------------------------------------------------------------

Ondrej Cabejsek, Wood & Company Financial Services, A.S., Research Division - Research Analyst [29]

--------------------------------------------------------------------------------

I want to follow up on the broadband discussion. So, maybe I understood wrong, but you mentioned that you feel like you have a 2, 3 year window now, during which you need to increase fixed broadband penetration. And if you don't do that basically a lot of these households that you're now targeting with the low end offers will remain wireless forever. I'm just wondering what makes you say that.

--------------------------------------------------------------------------------

Boulos H. B. Doany, Turk Telekomunikasyon A.S. - CEO and General Manager [30]

--------------------------------------------------------------------------------

Well, the main -- well, perhaps I was being too tough by saying 2 years. I mean 2 years is an arbitrary number. But what I mean by that is that customers who are using mobile data and are not willing to pay the price of broadband, and especially places where we already have a home connection right into the dwelling units, so that the incremental cost of providing this service is so low, there is no reason for us not to provide service. Now, what was the impediment? The impediment to doing this by the company was being able to get an approved wholesale tariff that the regulator can consent to without it turning out to be to the benefit only of TTNET and at the expense of other operators. So, the main problem in this has always been a regulatory competition issue. So, what we try to do this time is to design it well enough and get the approval and design a means for this to be a market wide offering. So, that was actually where the effort went into. So, this is not an entirely revolutionary, a new idea. It is just that this time we were able to get the consent for it.

Now, what happens if we don't do it? Well, obviously if we don't do it the prospect of a future up sell will be a lot harder in the future, right? So, once we did the market research, we understood that this tariff which is around TRY 15 incremental I think we already announced this tariff so I can say it this week. So, it became public just below TRY 15, TRY 14.9, on top of a fixed line amount and that's a total payable by the customer. Now that is a very, very compelling proposition to a mobile customer because you get 20 gigabyte in your home just for incremental of TRY 15. If you go into -- if you're going to buy anything like that over mobile a fraction of that is going to be at a multiple, between 5 to 10x depending on what tariff you're on. For people who are in that segment it will be a -- probably closer to the range of 10x. So, it's a lot, lot cheaper and therefore they get this advantage of keeping their mobile quota while they're out of the home. Hence this home which would be -- they would tempted to stay wireless will now become a fixed home provided. But obviously they can stay on Turkcell, Vodafone or any mobile provider that they are doing. So, this is a pro competition model that we have managed to design if you like this time and more importantly we got consent for it. That's the -- that's why actually it's quite an exciting proposition. It allows us therefore to grow the market at a very low incremental cost. Remember we can't offer this to any customer who asks for it.

--------------------------------------------------------------------------------

Ondrej Cabejsek, Wood & Company Financial Services, A.S., Research Division - Research Analyst [31]

--------------------------------------------------------------------------------

And just a follow up here. Does this approval have to do with the new wholesale pricing model and if do you expect more because it's -- after the instruction of the wholesale pricing model there has been very few changes on the retail and tariff seems to be quite the same as they were before this change. So, do you think -- do you anticipate this new pricing model to lead to more regulatory approvals in terms of pricing flexibility?

--------------------------------------------------------------------------------

Boulos H. B. Doany, Turk Telekomunikasyon A.S. - CEO and General Manager [32]

--------------------------------------------------------------------------------

Actually what we -- it has not been announced as yet but I can say that the regulator gathered all the sector players last week in a meeting in which I think we have now made major progress all of us. I mean every participant in the sector voiced their views in relation to the wholesale pricing, the model that the regulator would like to introduce. And it looks to me anyway that there's a very good likelihood that this week we will get an announcement in this regard. So, on the basis o what I can say with 90% probability of happening, I can see now that the notion of growing the market became actually a healthy part of this discussion because frankly this has been the most important thing to Turk Telecom. And if you are the main wholesaler in the sector you need to see growth in it because if you don't the only thing that happens is that the price point gets to a certain level of saturation and then people are just trying to steal each others' customers, if I can use a coarse word to describe it. So, that's basically what happens. So they take your customer, you try to win them back and that's not going to help anybody. So, growing the market is very important. Now, with the cheap Internet tariff restricted albeit to the people who have a fixed line which is the one already covered, the one that I haven't covered because I can't because the wholesale terms have not been announced but I think with 90% probability I can say that even with that there will be further opportunity to grow the market as well. And that comes with proposition of providing support to the small players and also providing some level of wholesale pricing flexibility that allows Turk Telekom to grow the market with what we call positive discrimination meaning that we can offer more discount on our wholesale in order to grow. So, the idea of it is all around growing the market. And in fact these other operators like it very much too because they also are trying to gain a margin out of doing this business and right now it's very hard for them to gain a margin because what happens is that in this type of model, whatever the wholesale rate is, all it takes is one person to sell at that price and then obviously there is no margin left at retail. That's the sort of danger of this model and that's why also you end up not being able to grow and this is where I think we have made major progress with both ministry at the policy level and the regulatory authority at the regulatory level. I mean I have to say that this is the first time I have seen it get to this level since -- I have been around for a while. So, I am very now -- I can see that we can, this country can easily grow into a healthy level of penetration first, second it has also a healthy level of facilities based competition which is important, where they can self-provide and do their own fiber and earn the whole revenue, but also carry the burden of investment, this is something that they can do and they are sharing that as well. I think Turkcell and Vodafone and [TurkSat] and telco members are working on that. This is also healthy competition, so we would have facilities based competition where they chose to self-provide, if they are using our facility, we now have a better basis of wholesale that allows us to grow the market and this cheap Internet, which by the way, is my personal follow up because I am working with our wholesale department to grow the market just to make sure that we actually benefit from this unique window of opportunity that I think will put this company in a much stronger position for the future to contribute towards data use. If you are a mobile data user and your data usage is becoming 3, 4 giga, your total data usage should be 10 on which 3, 4 is on your mobile network and 6 is on your fixed network, I mean that's where the market should be leading to, that's really what I meant. And if you miss that opportunity in the next 2 or 3 years, I mean, 2 years or whatever, then that customer is going to end up just using mobile, he won't be incentivized to pay anything, finish. And that's what happened with voice. So, we have this opportunity now to come from the other side, where fixed mobile substitution where it's mobile voice substituting fixed voice, now fixed data can complement, not substitute, complement mobile data. So customer has got a lot of value add and we generate more wholesale revenue for the future up sell because many homes will always benefit from having a cheaper data provision, so exciting times.

--------------------------------------------------------------------------------

Ondrej Cabejsek, Wood & Company Financial Services, A.S., Research Division - Research Analyst [33]

--------------------------------------------------------------------------------

Okay. That's a great comment. Thank you very much.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

Thank you. And your next question is coming from the line of Ivan Kim, please go ahead.

--------------------------------------------------------------------------------

Ivan Kim, VTB Capital, Research Division - Research Analyst [35]

--------------------------------------------------------------------------------

Yes, just a quick follow up on your new offering. So about 20% of your broadband customer base is still on up to 8 megabit per sec speeds and so you are not afraid of cannibalization coming from this TRY 15 offering for the broadband or you think it's kind of going to be more constrained to certain geographical areas and won't apply for all households let's say in Turkey. If you give some clarity on how it works from that perspective, that will be great. Thanks.

--------------------------------------------------------------------------------

Unidentified Company Representative [36]

--------------------------------------------------------------------------------

Let me take the question, this 8 megabit per second acquisition offered is 50 gigabytes, so and after -- right after the acquisition in the next couple of months, we up-sell this to 16 megabit per second (inaudible) or higher and this capacity is going to 75 gigabytes. So the customers when they use our services, they are basically using across 70 gigabytes of data. So, this is from a customer behavior perspective. The offer that we are talking about is not only lower speed, but also much lower gigabytes, from 20 gigabytes for a real fixed broadband user is no way enough for his needs. So, this will only appeal to the mobile phones. On the technical side, there are technical constraints, so this offer is not valid for existing fixed broadband users. So, the only risk we were taking is actually then somebody decides to buy a new fixed broadband connection would he consider this offer instead of buying the current offers which are high speed, high gigabyte offers and for that one we did a very detailed research and the cannibalization is at a very minimal level. So, this is why we decided on 4 megabit per second and 20 gigabytes capacity and we are very confident that with the limitations and with the right targeting as Paul described in detail, this will be a success for increasing penetration. By the way it's not only for Turk Telekom, so this is for all the operators that are going to take our fair share.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

Thank you. We don't have any further questions at this time. Please continue.

--------------------------------------------------------------------------------

Sabriye Gozde, Turk Telekomunikasyon A.S. - IR Director [38]

--------------------------------------------------------------------------------

Okay operator, we can close the call. Thank you.

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.