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CONFIDENTIAL
Competition CongressGrowth and Competitiveness Trends
Cahit PaksoyAvea CEO and Board Member
November 8, 2005
2CONFIDENTIAL
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
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 the
most competitive three countries in overall competitiveness.
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 R&D, liberalization, networked industries, financial
services, enterprise environment, social inclusion and sustainable development.
Based on the comparison of the European Commission, Finland wasamong the leading countries in investing into knowledge-based
economy 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 and
The European Innovation Scoreboard 2004; United Nations University
3CONFIDENTIAL
Comparing USA and EU
The Lisbon scoresThe Lisbon scoresUS score
5.9
6.1
5.15.74.5
5.85.66.1
5.8
5.75.85.6
5.05.65.34.2
5.0
5.6
EU average
4.6
4.4
4.75.14.2
5.86.05.6
5.5
4.74.55.0
4.85.15.04.4
5.2
5.0
An information society for all
Innovation, research and development
LiberalizationCompleting the single marketState aid and competition policy
Network industriesTelecommunicationsUtilities and transportation
Efficient and integrated financial services
Enterprise environmentBusiness start-up environmentRegulatory environment
Social inclusionReturning people to the workforceUpgrading skillsModernizing social protection
Sustainable development
Overall Lisbon score
Source: WEF, The Lisbon Review 2004
4CONFIDENTIAL
Turkey’s growth competition position
20012001 20032003
20052005 Turkey 48 56 48Czech Republic 36Hungary 37Spain 38Slovakia 40Portugal 45Romania 55Poland 57
Turkey’s Improvement Areas Turkey’s Improvement Areas
- Education and HR Qualification- Education and HR Qualification- Investments in technology and internet infrastructure- Investments in technology and internet infrastructure- R&D investments- R&D investments
Sources: International Management Development, The World Competitiveness Yearbook
5CONFIDENTIAL
Some factors affecting Turkey’s 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 ($/kwh) 0,082 0,037 0,043 0,05
Number of PC per person (among 1000) 53 122 179 176
Life expectancy at birth 70 75 75 73
R&D investments (US$/ person) 17,6 29,1 112,4 77,4
Sources: International Management Development Institute, The World Competitiveness Yearbook
6CONFIDENTIAL
Ranking of EU countries
Denmark
Sweden
UK
Netherlands
Germany
Luxembourg
France
Austria
Belgium
Ireland
Spain
Italy
Portugal
Greece
Info
rmat
ion
soci
ety
Inno
vatio
n
and
R&D
Liber
aliz
atio
n
Finan
cial
ser
vice
sEnte
rpris
eSoci
alin
clusi
onSust
aina
ble
devel
opm
ent
Netw
ork
indu
strie
s
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
The Lisbon reviewThe Lisbon review
Source: WEF, The Lisbon Review 2004
FinlandFinland
Totalrank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
7CONFIDENTIAL
Competitiveness 2002-2005
Sources: IMD, The World Competitiveness Yearbook 2005 andWEF, The Global Competitiveness Report 2004-2005
IMDTotal compe-
titiveness
2004 20052214
177
2010
58
19693
13
WEFBusiness
competitiveness2003 2002
112354967
118
15121310
22153
10946
1312111514
7
2004
1123456789
1011121314
WEFGrowth
competitiveness
Total rankingTotal ranking
USASwedenTaiwanDenmarkNorwaySingaporeSwitzerlandJapanIcelandGreat BritainNetherlandsGermanyAustralia
FinlandFinland 661
1411
715
38
214
221323
9
8CONFIDENTIAL
Growth competitiveness by country
Ranking by WEFRanking by WEF
Source: WEF, The Global Competitiveness Report 2004-2005.
9CONFIDENTIAL
Competitiveness in technology and science2002-2005
Sources: WEF The Global Competitiveness Report 2004-2005 andIMD The World Competitiveness Yearbook 2005
2003 20022004
USATaiwan
SwedenJapanDenmarkSwitzerlandIsraelNorwayGermanyCanadaEstoniaAustraliaGreat Britain
FinlandFinland
12
45678
101213151718
22
13
45879
131411101916
12
45
1167
1012
814
915
33
WEFTechnology
IMDTechnology Science
20052005
33
15
139
1114101216
6312018
110
42
135
1424
317422612
1515 77
10CONFIDENTIAL
EIS 2004 - Summary Innovation Index
Source: European Innovation Scoreboard 2004
11CONFIDENTIAL
Total R&D funding in 2003
Source: Eurostat
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
LatviaSlovakia
PolandGreece
LithuaniaEstonia
PortugalHungary
SpainIrelandItaly 2)
CzechiaSlovenia
Netherlands 1)EU 25 3)EU 15 3)FranceAustria
BelgiumGermanyDenmark
USAJapan 2)Finland
Sweden 1)Percentage of GDP
1) 20012) 20023) Est.
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 %
Great Britain 2)
12CONFIDENTIAL
Public grants and alleviation of taxes for corporate R&D in OECD countries
Taxation practices according to funding of large-company R&D, public grantscover all companies. Estimation by Tekes based on OECD statistics.
Share of corporate R&D spending in 2001
13CONFIDENTIAL
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
ICT manufacturing ICT services
14CONFIDENTIAL
Overall maturity scores of eGovernment
Source: Accenture 2004, eGovernment Leadership:High Performance, Maximum Value
15CONFIDENTIAL
The eEurope 2005 index
Source: Insead/SAP 2004, eEurope 2005
The eEurope 2005 index is calculated from indicators on Internet usage, public on-line services,eCommerce activities, information security and broadband usage.
16CONFIDENTIAL
Competition in the Turkish Telecommunications Sector
Integrated market
Competitive market
First phases of
competition
Monopolistic
Price
Service Quality
La
ws
an
d R
egu
lation
s
Se
rvic
e
Service
Bundled Services
High Low
HighLow
Competition
Regulation
17CONFIDENTIAL
Over the last decade the industry has witnessed many important achievements.
1994
Licensing of Cable TV services based on revenue sharing system
Privatization efforts of Türk Telekom has started
1997
With other 68 countries, Turkey committed to liberalize its basic telecommunications services market till 2006
2000 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
2004
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
1996
On March, Aria has started operations
Ay-Cell started operations soon after Aria
2001 1999 The coalition
government committed the abolishment of TT exclusivity on fixed lines
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)
1993
Türk Telekom privatization will be concluded.
2005
2003 Aycell and Aria
merged.
1998
GSM network was transferred to the firms Turkcell and Telsim for 25 years by giving license at $500 million.
Alternative operators began to provide services.
Nr of GSM
subscribers: (-) 68K 620K 1.406K 3.053K
Nr of GSM
subscribers: 41.000K(*) 34.708K 27.888K 18.593K 15.183K 7.500K
(*) as of September 2005
18CONFIDENTIAL
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 Telekom’s services and efficiency.
Turkish telecommunications market is not mature yet, there are important opportunities.
- Mobile - - Fixed - - Broadband -
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 market’s full liberalization.
Satellite Digital TV has developed and spread rapidly in the last years, with two companies (DigiTurk, StarDigital) jointly sharing the market.
Tod
ay
Near
Fu
ture 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.
Market’s 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.
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.
19CONFIDENTIAL
The market has not saturated yet, however purchasing power and the high tax rates are important barriers for full realization of the market potential.
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
9.000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 E 2005E
-10,0%
-8,0%
-6,0%
-4,0%
-2,0%
0,0%
2,0%
4,0%
6,0%
8,0%
000 # of subsriber addedReal GDP growth percentage
0102030405060708090
100110
Source: ITU Statistics, 2004
GSM ownership per 100 inhabitants
Turkey’s 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
20CONFIDENTIAL
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 TA’s 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 TA’s 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.
21CONFIDENTIAL
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
Telsim’s 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: Avea estimation based on Merrill Lynch growth forecasts.
Source: Merrill Lynch
22CONFIDENTIAL
Conclusion: Turkey needs to invest in advanced technologies to improve its competitiveness.
Increase the share of R&D in
GDP
Increase internet usage and improve
electronic integration in the economy
Policy, strategy
and action plan to increase competitiveness
Integrate public and private industries’
processes, improve coordination among public and private
institutions