SUBSIDY PROJECT-YILMAZ NURI ALTUNTUG - _üç_

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1 THE REPUBLIC OF TURKEY BAHÇEŞEHİR UNIVERSITY THE GRADUATE SCHOOL OF SOCIAL SCIENCES İstanbul, 2013-05 İSTANBUL, 2013 THE ANALYSIS OF DEVICE SUBSIDY ON TURKISH TELECOMMUNICATION MARKET CAPITAL MARKETS AND FINANCE PROGRAM GRADUATION PROJECT YILMAZ NURI ALTUNTUG

Transcript of SUBSIDY PROJECT-YILMAZ NURI ALTUNTUG - _üç_

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THE REPUBLIC OF TURKEY BAHÇEŞEHİR UNIVERSITY

THE GRADUATE SCHOOL OF SOCIAL SCIENCES

İstanbul, 2013-05

İSTANBUL, 2013

THE ANALYSIS OF DEVICE SUBSIDY ON TURKISH TELECOMMUNICATION MARKET

CAPITAL MARKETS AND FINANCE PROGRAM

GRADUATION PROJECT

YILMAZ NURI ALTUNTUG

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THE REPUBLIC OF TURKEY BAHÇEŞEHİR UNIVERSITY

THE GRADUATE SCHOOL OF SOCIAL SCIENCES

İstanbul, 2013-05

Advisor: Asst. Prof. EMİN KÖKSAL

İSTANBUL, MAY 2013

THE ANALYSIS OF DEVICE SUBSIDY ON TURKISH TELECOMMUNICATION MARKET

CAPITAL MARKETS AND FINANCE PROGRAM

GRADUATION PROJECT

YILMAZ NURI ALTUNTUG

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THE REPUBLIC OF TURKEY BAHÇEŞEHİR UNIVERSITY

THE GRADUATE SCHOOL OF SOCIAL SCIENCES

THE ANALYSIS OF DEVICE SUBSIDY ON TURKISH TELECOMMUNICATION MARKET

This project has been found adequate and successful in terms of quantity and quality as

a Graduation Project

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Advisor of the Project Member of the Commission

Asst. Prof. EMİN KÖKSAL Asst. Prof. HAKKI ÖZTÜRK

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ACKNOWLEDGEMENT

I am grateful to my professor for his support and trust on this project. I would like to

express my sincere gratitude to my project supervisor Asst. Prof. Emin Köksal for his

inspiration in the selection process of project topic and his guiding and help throughout

the project.

Yilmaz Nuri ALTUNTUĞ

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ABSTRACT

THE ANALYSIS OF DEVICE SUBSIDY ON TURKISH TELECOMMUNICATION MARKET

Yılmaz Nuri Altuntuğ,

Capital Markets and Finance

Project Supervisor: Asst. Prof. Emin Köksal

May 2013, 49 pages

Rapidly growing telecommunication sector witnesses significant improvements in terms of the usage of smart devices and entrance of those devices into our lives in Turkey in last years. Emerging Turkish device market closely followed by mobile operators and device manufacturers is substantially competitive. Willingness of the manufacturers to launch more smart devices and the encouragement of the operators for more data usage and smart device usage are principal factors that trigger the competition in this emerging market. The rising trends in Turkey, the methods applied as worldwide marketing ways of devices in developed markets, and the developments on abroad that we might face in Turkey will be evaluated in this project. The idea observed that existing device campaigns do not have sufficient time yet to measure the profitability, those campaigns might be enough for consumers and manufacturers by now but in the near future campaigns increasing the usage of data will take the place of current campaigns. When it is considered what happens in developed markets in terms of profitability, we can predict that profit satisfaction is not possible for carriers in the long term. In the light of information that is mentioned below, we can highlight the substantially rising importance of data usage and due to this reason the importance of data revenue in terms of operators so as to preserve their profit stability when we evaluate the different improvements that happen in the number of markets all around the world. The roles of education campaigns, content and application upgrades in order to enhance the usage of data are highly supported. As a result, increasing costs of smart devices will reduce the profitability of operators, and it is determined that just as in foreign markets, “bring your own device” campaign will be a new method applied in Turkish device market as well.

Keywords: Subsidy, Smart Device, Data Usage

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ÖZET

TÜRKİYE TELEKOMUNİKASYON PAZARINDA CİHAZ DESTEK ANALİZİ

Yılmaz Nuri Altuntuğ

Sermaye Piyasaları ve Finans

Proje Danışmanı: Asst. Prof. Emin Köksal

Mayıs 2013, 49 sayfa

Türkiye’de son yıllarda hızla gelişen Telekomunikasyo nsektörü akıllı cihazların hayatımıza girişi ve kullanımı açısından önemli gelişmelere sahne olmaktadır. Mobil operatörlerin ve akıllı cihaz üreticilerinin yakından takip ettiği bu piyasa oldukça rekabetçidir. Üreticilerin daha fazla sayıda akıllı cihazi piyasaya sürme isteği, operatörlerin müşterileri daha fazla data kullanımına ve bunun sonucu olarak cihaz kullanımına teşvik etmesi gelişmekte olan bu piyasadaki rekabetin başlıca faktörleridir. Türkiye’de yükselen trendleri, cihazların pazarlamasında dünya genelinde uygulanan yöntemi ve yurt dısındaki gelişmiş piyasalardaki gelişmelerden yola çıkarak Türkiye’de yaşanabilecek ihtimalleri bu projede değerlendiriyor olacağız. Mevcut cihaz kampanyalarının kârlılığı ölçmek için yeterli süreye henüz sahip olmadığını, şu an için üretici ve tüketiciler için gerekli olsa bile ilerleyen dönemlerde yerini data kullanımını artıracak eğitim kampanyalarına bırakacağını gözlemlemekteyiz. Gelişmiş piyasalarda yasananları gözönüne aldığımızda uzun dönemde operatölerin bu yöntemle karlılık açısından tatmin olmayacaklarını öngörebiliriz. Data kullanımının öneminin gün geçtikçe arttığını ve buna bağlı olarak data gelirlerinin de operatörlerin kârlıllığını koruyabilmeleri açısından ne kadar önemli olduğunu dünyadaki çeşitli piyasalardaki gelişmelerden yola çıkarak belirtebiliriz. Bu süreçte data kullanımını artırmayla ilgili eğitim kampanyalarının, icerik ve uygulama güncellemelerinin rollerinin oldukça fazla olduğu desteklenmiştir. Sonuç olarak; Türkiye cihaz piyasasında da artan akıllı cihaz maliyetlerinin operatörlerin kârlılığını oldukça azaltacağını ve tıpkı yabancı piyasalarda olduğu gibi “Kendi cihazını getir” yönteminin uygulanan yeni bir kampanya metodu olacağı belirtilmiştir.

Anahtar Kelimeler: Teşvik, Akıllı Cihaz , Data Kullanımı

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TABLE OF CONTENTS

FIGURES ....................................................................................................................vii

ABBREVIATIONS .....................................................................................................viii

1. INTRODUCTION .................................................................................................. 1

2. THE SMARTPHONE SUBSIDY ............................................................................ 3

2.1 THE IMPACT OF SMARTPHONE SUBSIDIES ON MARKETS .................. 4

2.2 THE POINTS THAT OPERATORS CAN ATTRACT ATTENTION TO THE SUBSIDY ISSUE.............................................................................................5

2.3 THE AFFECTS OF LOWERING AVERAGE SUBSIDY EXPENDITURE.... 6

2.3.1 The Importance Of Segmentation For Operators ................................... 6

2.3.2 Negotiations With Oems Come Into Question........................................ 7

2.3.3 What are the options to decrease subsidy costs: share it! ........................ 8

2.3.4 What Is Good For Subscriber Acquisition Cost...................................... 9

2.3.5 Introduction Of The Sim-Only Model..................................................... 9

3. THE REASON OF DELAYING UPGRADES .......................................................11

3.1 DISCOUNT OPTIMIZATION ......................................................................11

3.2 MANAGING THE ECONOMICS OF DATA ................................................12

3.3 THE EFFECT OF SUBSIDY COST ON MARGINS .....................................12

3.4 WORLDWIDE-KNOWN MOBILE OPERATORS CUTTING DOWN ON SUBSIDIES AND CHANGING THE WAY OF SUBSIDY.............................13

3.4.1 Increasing Importance Of Data Gains ..................................................13

3.4.2 Is The New Finance Programme Going To Take The Place of Subsidy 15

4. WHAT IS THE RISING TREND IN TURKEY.....................................................17

4.1 REFLECTIONS OF DEVICE MANAGEMENT IN TURKEY WITH FIGURES FOR SUBSIDY ANALYSIS ...........................................................................18

4.2 TURKCELL ...................................................................................................25

4.3 VODAFONE...................................................................................................28

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4.4 AVEA .............................................................................................................31

4.5 EXCLUSIVE CHANNELS .............................................................................33

4.6 GENERAL VIEW OF WHOLE DEVICE MARKET WITH THE FIGURES OF JANUARY 2013 .......................................................................................42

5. CONCLUSION .................................................................................................45

REFERENCES ............................................................................................................48

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FIGURES

Figure 4.1 : Quantities of Devices Sold ......................................................................... 20

Figure 4.2 : Turnover of the Sales of Devices(Euro) ..................................................... 21

Figure 4.3 : MOBSM Device Market ............................................................................ 22

Figure 4.4 : MOBSM Device Market – Turnover (Euro) .............................................. 23

Figure 4.5 : Distribution of Device Sales Channels (2012 -2013)................................ 24

Figure 4.6 : Quantities of The Sales of Turkcell Branded Devices ............................... 25

Figure 4.7 : Turkcell Smartphone Device Sales............................................................ 26

Figure 4.8 : Turkcell – Quantities of Device Sales ....................................................... 27

Figure 4.9 : Quantities of The Sales of Vodafone Branded Devices ............................ 28

Figure 4.10 : Vodafone Smartphone Device Sales ......................................................... 29

Figure 4.11 : Vodafone – Quantities of Device Sales.................................................... 30

Figure 4.12 : Avea - Devices Sales on Sales Channels................................................... 31

Figure 4.13 : Avea – Quantities of Device Sales ........................................................... 32

Figure 4.14 : The Rates of Device Sales According to Exclusive Channels .................. 33

Figure 4.15 : The Market Rates of Device Sales In Terms of Manufacturers

(MOBSM) ................................................................................................ 34

Figure 4.16 : The Rates of Turnovers In Terms of Manufacturers (MOBSM)............... 35

Figure 4.17 : Smartphone – Manufacturers’ Device Market .......................................... 36

Figure 4.18 : Smartphone – The Turnover Rates of Manufacturers ............................... 37

Figure 4.19 : Prices of Devices (MOBSM).................................................................... 38

Figure 4.20 : Prices of Smartphone Devices................................................................... 39

Figure 4.21 : Touch - Operated Device Sales (MOBSM)............................................... 40

Figure 4.22 : 3G & 2G (MOBSM)................................................................................. 41

Figure 4.23 : SM Operating Systems .............................................................................. 42

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ABBREVIATIONS

ARPU : Average Revenue Per User

EBITDA : Earnings Before Interest, Taxes, Depreciation and Amortization

EDGE : Enhanced Data rates for GSM Evolution

GPRS : General Packet Radio Service

GSM : Global System for Mobile Communication

HSPA : High Speed Packet Access

MOB : Mobile Phone

OEM : Original Equipment Manufacturer

OPEX : Operational Expenses

OTT : Over the Top

SAC : Subscriber Acquisition Costs

SM : Smartphone

SRC : Subscriber Retention Costs

1. INTRODUCTION

Telecommunication is one of the most developing sectors. There are countless

improvements that people witness. The entrance of smart devices such smart phones,

mobile PCs, tablets and so on is much faster than expectations and now those devices

are clearly inseparable parts of people’s life.

Smart phones are one step ahead of other smart devices when the usage of the devices

considered. This is a specific sign that indicates smart phone penetration is more than

others. Excessive usage of smart phones is the point that triggers smartphone subsidy.

The meaning of device subsidy is financial support or assistance for devices. This is a

great expression to support the feeling of operators against that much demand for using

those devices. Carriers look ready to support their customers so as to increase smart

phone penetration because they know that they could be able to reimburse what they

sacrifice for as number of attention grabbing smart phones come out each day.

On the other hand, it is not the only option that works for carriers, data usage, contents

and applications are other factors that encourage smart phone penetration by attracting

customers’ attention and there is no need to say that operators use those components to

make more profit. However, there are some obstacles that operators need to solve

smoothly because those notions are also important for sustainability. Subscriber

acquisition cost and subscriber retention cost are the notions that explain gaining of

customer and retaining of them respectively. Increasing costs of smartphones make

acquisition and retention hard for carriers. This requires market segmentation carefully

as reaching the end-user started being crucial and good negotiation skills with the

manufacturers so as to strict margin less.

Operators need to increase data revenue by fostering customers use more data. Data

usage, contents and applications are the factors to build up increasing data revenue but,

it is not easy to support them for carriers as they have some requirements. For example,

increasing the usage of data is not simple as it needs education campaigns and backing

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up nascent customer awareness. On the other hand, applications and contents live with

upgrades and the upgrade is the thing that take customers attention to other sides easily.

This means that upgrade is a positive improvement but it is what makes retention hard at

the same time. Delaying upgrades or sharing the cost of subsidy with other means such

facebook, e-bay and game producer so on might be good for cutting down on subsidy

costs.

It is observed that increasing subsidy costs restrict margin and in the light of this news

actions that world-wide known companies do are evaluated with the reason of change.

During this change that is shown by operators what type of key factors enhance its

importance will be seeing. Without doubt, operators come to the pitch with new offers in

their pocket against decreasing smart phone subsidy and this new way indicate us device

and service will not be together anymore.

In the light of information above, the rising trends and the reflections of analysis

evaluated in accordance with the conditions of Turkey and it is commented that what are

the possibilities that might be faced in Turkey in the end. In this project, aimed at

providing detailed information about current subsidy conditions and the possibilities of

nascent developments that will be likely to take subsidy’s place are investigated

tactfully.

As a result of this, the direction of device subsidy is assessed by taking the reflections of

the improvements that happens different parts of the world related to subsidy issue and

in the light of recently updated figures of Turkish device management market into

account so as to analyze the device subsidy in Turkish device market.

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2. THE SMARTPHONE SUBSIDY

The issue of smart phone subsidy is getting more important for executive managers. The

increasing smart phone subsidy issue spreads much-anticipated yet unrealized data

revenues. Also, wide-spread use of such incentives that take place on the bottom lines of

telecom companies is getting really worrisome in the near future.

Some of high ranking European executives delivered their opinions in a negative way in

terms of subsidy issue in Europe. After the United Kingdom’s four main operators

released their latest financial results in August 2012, the CEO of O2 Ronan Dunne

declared that the existing subsidy model “needs a big change permanently” so as to

protect stability operators’ margins.1 Subsidies were enhancing the responsibilities of

operators as financially and it wasn’t a good signal for the industry according to

executives.

In Asia, there are two giant telephone company that attracts analysts attention in terms

of results. One of them is China Unicom, the company announced as percentages of 2

decrease in quarterly net profit as their changing handset spending by as percentages of

15 in the first half of 2012.2 The other one is China Mobile without doubt. This operator

was the only one that has no suffer because of subsidy losses. The attention grabbing

side related to this operator was the carrier does not offer Apple’s iPhone. This news

puts the reality of increasingly heavy costs of subsidies for operators as a sample.

1Dunne, R., 2012, DunneSubsidies ‘NeedtoChange’ , http://www.mobiletoday.co.uk/News/22269/Dunne__Subsidies_%E2%80%98need_to_change%E2%80%99.aspx [accessed 18 March 2013] 2Chyen, L., Leung, A., 2012, Chine Unicom Q2 net slips as handset subsidies rise, http://www.reuters.com/article/2012/08/23/chinaunicom-earnings-idUSL4E8JN22T20120823 [accessed 22 March 2013]

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The situation was not so different in the states when we consider the launch of iPhone 5.

We are able to observe negative impact of iPhone subsidies on carriers’ margin. AT&T

and Verizon are the best references to explain the truth.3

In Turkey, it might be early so as to evaluate the market as Turkish market is emerging

one. Turkey is likely to face this inevitable end if the market does not take a lesson from

the reflections of developed markets.

2.1. THE IMPACT OF SMARTPHONE SUBSIDIES ON MARKETS

In this part, we will handle the data so as to understand the meaning of smartphone

subsidies and their relative impact on market performance.

Subsidy expenditure among worldwide operators over the past two years has risen

significantly by being about 18% of revenue. During this period, this increase on

subsidy expenditures cause carriers forwent some of EBITDA margin. We still do not

know a direct line of cause and effect between subsidy increases and decreasing margins

because of the number of variables affecting profitability, there is no need to discuss the

importance of subsidies is, both as an enabler and as a cost item for operators.

I strongly believe that change in margin are directly related to the change in subsidy

costs, and many other variables will also play a role for this change. However, the

impact of subsidies on performance cannot be assessed by simply extrapolating short-

term implications; subsidies stimulate smartphone penetration, which means higher

mobile data adoption, thereby lifting ARPU, and a shift towards lower churn rates.

On the other hand, if exclusivity agreements are reached, being the sole provider of

certain devices may also improve an operator’s positioning because this time carriers

3 Gara, A., 2012, Why Telecom Investors Should Be Wary of Record Iphone 5 Sales, http://www.cnbc.com/id/49061053 [accessed 22 March 2013]

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might have a right to say something about cost of the devices. For example; let’s say

Avea is the sole provider of Samsung S4 and can market the device 500$ instead of

440$. If the carrier was not a sole provider of the device the carrier was going to be in

need of lowering the price of the device. If Avea would be a sole provider of the device

they can keep the sale-price of the device around 500$ by making successful education

campaigns not suffering because of subsidy incentives and this way they will no need to

forgone their EBITDA margin.

2.2. THE POINTS THAT OPERATORS CAN ATTRACT ATTENTION TO THE SUBSIDY ISSUE

Some of high ranking executives think that device subsidies should find an industry-

wide end immediately. We will see that subscriber figures do not agree this idea

especially over the short term. Everything should be carefully assessed that aimed at

modifying subsidy policies. Telefonica and Vodafone affected heavily by cutting down

on subsidies. The reflections of the results on customer numbers are really devastating:

Vodafone lost more than 600,000 subscribers. Telefónica shed 930,000 subscribers.

Orange mobile was the profitable one by not following subsidy cut method and

increased its base by 135,000 customers during this period.4

As a result of those facts, Vodafone reintroduced subsidies in the form of a summer

promotion. We understand that a radical move away from subsidies is neither realistic

nor advisable for operators around the world. While operators try to reduce the impact

of device subsidy on bottom lines they should take the measures in accordance with

negative possibilities.

4Arantxa, A., 2010, Yoigo y Orange lasoperadorasque mas portabilidadesrealizan, http://www.muymovil.com/2010/04/08/yoigo-y-orange-las-operadoras-que-mas-portabilidades-realizan [accessed 15 March 2013]

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2.3. THE AFFECTS OF LOWERING AVERAGE SUBSIDY EXPENDITURE

2.3.1. The Importance of Segmentation for Operators

Operators need to reach a big part of mobile Internet users in their base in order to

monetize data networks. Expensive devices are not the only barrier to usage. 30% of the

people who do not currently own a smartphone expressed no intention of purchasing one

because they “do not need it”.5 This information plays a vital role for operators so as to

separate their customers and understand them better. This way operators might

understand the ones and their consumption tendency who may be unable to afford a

smartphone from those who are not yet ready to embrace the service. The change of

marketing device subsidies should change a way by applying successful education

campaigns to not suffer from losses because of device subsidy.

This way telecommunication companies do not need to spend more money than they

need to spend. Rogers Communications’ Nadir Mohamed recently commented that they

were looking at ways to reduce the amount of money spent “getting smartphones into

the hands of customers who don’t use a lot of data.6 For this 30% of the people

companies should not offer sophisticated smartphones, as result of this they will be

affected less by increasing smartphone costs.

In developing markets, device affordability is a path that is hard to pass as customer

economics are limited. For this reason, operators should define their device portfolios

with additional care to ensure an effective mix of high- and low-end smartphones as

well as cheaper data-enabled feature handsets for those who are not ready or for whom

subsidies do not pay off. 5Renesse, R., Scott, M., 2012 Smartphones and apps: consumer perception versus reality, http://www.analysysmason.com/Research/Custom/Webinars/Smartphones-and-apps-webinar-Apr2012/Slides/ [accessed 01 April 2013] 6Ladurantaye, S., 2012, Telcos look to cut smartphone subsidies, http://investdb2.theglobeandmail.com/servlet/story/GAM.20120426.RBPRICEYPRINTATL/GIStory/[ accessed 4 April 2013]

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Companies need to take other components into consideration such as EDGE/3G/HSPA

data usage, ARPU levels to maximize value-creation over the long term. Also, the

achievement of GPRS/EDGE networks is important to leverage mobile internet

penetration. As we understand above, operators check every details that enable them to

achieve profit maximization out those components are directly related to retention and

acquisition issues of subscribers. Every point that operators overlook will cause an

increase on costs and profit limitations.

2.3.2. Negotiations with Oems Come into Question

Operators need to build up their strength when it comes to negotiations with original

equipment manufacturers. Especially with their great leadership in the smartphone

segment by generating about billions USD in mobile device sales Apple and Samsung

are the ones that attract most of the attention in this case for operators.

It is time for telephone companies to stand together and seek more favorable conditions.

Price, minimum unit commitments, commercial support and so on should be assessed by

those companies tactfully. Smaller operators need to pursue strategic procurement

partnerships. For having more favorable device pricing is important for telephone

companies. In a result of this, carriers are agreeing on worldwide agreements, gathering

the purchase orders of several operator companies. This is why building up their

negotiation skills with vendors are crucial for them.

In Turkey, Avea and Vodafone are the operators that need to carry out the point of

establishing successful partnerships in terms of device sales figures as they share

relatively small portions of the market share. Especially Avea has more disadvantages

when compared to the Vodafone cause Vodafone runs its business in world-wide scope

and being a well-known company all around the world makes Vodafone more powerful

when it comes to negotiation with OEMs.

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2.3.3. What are the options to decrease subsidy costs: share it!

Operators could share subsidy costs by establishing new alliances and creating new

business models together with third parties. Facebook, Twitter, E-bay, Amazon,

newspapers and game producers might be willing to establish that kind of partnerships.

This way, they are not just going to advertise a product, they will reach number of

several consumers and have chance to attract different type of customers’ attention

related to their know-how area.

Game producers might be a good choice for them while the game company advertise of

their best-selling game ready to be played, they can work for operators at the same time

by giving a place for the carriers’ devices/products or doing initial advertising for the

company and its products. Facebook and Twitter shortcuts pre-installed on feature

phones (for free) by vendors or operators are an obvious example. However, even

everything looks ok from the frame of those social media giants the balance of power

could shift to the benefit of operators if they or smartphone manufacturers call on them

to share the cost of subsidies, bringing an end to their free ride.

Nowadays, operators that take place in Turkey do some campaigns by using social

media’s power on their national commercials pushing their customers to increase the

usage of smart devices by explaining how it easies their life with those devices. It is a

smart way of setting the stage for sharing subsidy costs.

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2.3.4. What is Good for Subscriber Acquisition Cost?

The issue of subscriber acquisition cost is climbing to the top of urgent action needed

issues. Handset-leasing model is an acceptable model to reduce SAC for operators.

Customers can rent their handsets in accordance with the duration of their contracts and

in the end they return the device or pay a real price.

This idea brings “BYOD” method to mind which we will give place in the next parts.

Subscribers pay only monthly subscription fee with bring your own device program.

There is no need to pay anything for a device in this way. It is a specific signal that the

perception of device campaigns is changing and started to be evaluated separately from

contracts. There are several examples that lighten us up; with its phone-recycling

programme through several European operator companies, O2 has committed to their

customers receiving cash or store credit in case they return their old handsets. The other

attention grabbing offer was from AT&T. The company offers a refurbished iPhone 4S

for 149.99 USD for subscribers with a two-year contract, this way AT&T was offering

for a subsidized a new device by saving almost 400 USD.

As the Turkish market is emerging one, in my opinion this is not a suitable time for this

programme. The market needs more time for customers to get used to smart devices

increasingly and for operators to analyze their customer habits in a healthier way. There

is a possibility to apply this leasing model in Turkey as a part of device subsidy if the

prices of smart devices continue to increase in next period.

2.3.5. Introduction of The Sim-Only Model

The sim-only model represents “no obligation” phone deal that comes with an agreed

monthly fee, but does not include a subsidized handset. In this programme, customers

bring their existing phones and receive a discount on their subscription fee. Free mobile

succeeded in winning more than 5% market share by offering the sim-only model to its

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customers. This model is seen on 27% of postpaid subscribers in France.7 In my

opinion, this method helps a lot to lower SAC cause the responsibility of the operators

will decrease financially. Turkish operators can embrace this model in the future when

the limit of using smart devices reaches the expected levels. Actually there some

campaigns that reminds us the sim-only model but, most of them are device supported

ones.

7 Schechner, S., 2012, Iliad Nabs 5.4% of France's Mobile Market,

http://online.wsj.com/article/SB10000872396390444914904577622822655324242.html [accessed 29 March 2013]

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3. THE REASON OF DELAYING UPGRADES

Renewals and upgrades make up a big part of subsidy costs for operators, when we look

at from distance we suppose that new customer activations play an important role for

this case but, the result shows different parameters at least in developed markets.

Operators tendency to keep their customers in the same position in accordance with the

duration of their contracts so understandable. This is why operators try to evaluate to

increase improvements on their bottom lines to delay upgrades.

Operators can specify another strategy that persuades customer who is keen on waiting

for a renewal by offering discounts from monthly subscription fee. This way they will

be extending the lifetime of their smart devices and also managers place less importance

on upgrading devices in this uncertainty.

3.1. DISCOUNT OPTIMIZATION

Generally, operators subsidize the devices to customers according to their contract term

and get monthly subscription fee for each month when operators net off their main

investments from the collected amounts the remaining part makes up their profit. This

model is regarded as a big risky model for operators as customers do not fulfill their

commitments in accordance with their contracts. Regulations and rules are not sufficient

for operators so as to look for their rights and when we think of the number of this issue

it makes the situation harder.

Operators offer discounts on monthly subscription fee as a way of reducing the cash risk

for themselves. The monthly discounts that operators offer provide convenience for

carriers to generate customer loyalty So as to offer interest-free credit lines for

smartphone purchases or provide payment installment plans operators cooperate with

consumer credit providers.

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3.2. MANAGING THE ECONOMICS OF DATA

Managing the economics of data and successfully monetize opportunities are crucial

factors for operators. Those factors should be attention grabbing offers to consumers and

workable as a sustainable business model. Transparent pricing models for consumers

structure enables operators to monetize the data opportunity.

Operators are always looking for functioning models that enable to wipe-out negative

affect of device subsidy on their bottom lines throughout the world. Most of the

operators have wait-and-see stance at the moment but, there are a few of them which

have already taken some measurements like Vodafone and Telefonica in Spain.

Operators that operate in Turkey should achieve a great deal of income from data

revenues and then use it in favor monetizing opportunities. Even in this point the

importance of education campaigns for more data usage can easily cross our minds as

those campaigns trigger the data usage.

3.3. THE EFFECT OF SUBSIDY COST ON MARGINS

In this part we are going to take a look at relationship between smartphone subsidies and

operator margins deeply. Operators are trying to increase smartphone penetration but it

triggers to restrict margins on the other hand. Besides, data revenue increases its

importance as the impact of voice revenue declines.

We observe that the effect of discounted handset pricing is a factor that terminates the

benefit of higher sales and upgrade volumes largely. We already know that renewals and

upgrades make up a big part of subsidy costs for operators as a result of this discounted

handset pricing will affect margin badly.

The increasing smartphone penetration provides customer retention on long-term and an

increase on mobile data revenue by enabling an increase on data usage due to the

increased handset subsidy costs which aimed at acquiring new customers and retaining

existing customers.

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3.4. WORLDWIDE-KNOWN MOBILE OPERATORS CUTTING DOWN ON SUBSIDIES AND CHANGING THE WAY OF SUBSIDY

3.4.1. Increasing Importance Of Data Gains

Some of European countries started to cover the declining voice revenues with data

revenues. This means price stabilization but, work for acquiring new customers and

activities for retaining existing customers keeps on restricting operators’ profits. In the

light of those datas, operators will try to reduce the high level of subsidies. Some of

them are planning to terminate the practice of subsidizing smartphones for new

customers. Their new method is offering free financial tables to purchase a new device.

In the part of USA, we have been witnessed number of news about T-Mobile's plans for

the future. The most attention striking one was which announces that T-Mobile USA

will terminate subsidizing smartphones with 2-year contracts since the beginning of

early 2013. The company will instead free finance programmes for the purchase of new

handsets at full price or on installments. It indicates that devices and services will be no

longer take place together in all-you-can-eat packages of the carrier.

Without doubt, ownership for the long-term contract period will decrease. We will

observe this decrease even when buying a device with monthly installments. The notion

of “winning it while buying it” will nascent in terms of consumers for a longer period of

time as well and we will face the importance of data usage again for gaining more data

revenue as the devices and services will be completely separated.

The market of the USA is a way ahead of the market of Turkey and relatively the market

of Europe.. Already we call it in the developed markets when we evaluate consumers,

economic stability and the power of original equipment manufacturers and operators so

on. Even all powerful components are together in the states if the market suffer from

subsidies I believe the market of Turkey will meet this situation in the near future.

However, offering this type of plans and separating devices and services will be

14

inevitable end in this area as well. We have already started to hear the reflections of it in

Europe zone.8

Another one of the most beautiful examples for data gains is the story of Vodafone. In

the UK data revenue showed substantial increase after several years of declining data

costs for users due to all-include packages. Reaching the mobile data was much cheaper

than it was used to be and declining cost of data triggered an increase of data usage. As

a result of this, data costs were started to cover the revenue gap against declining voice

revenues. Data revenue at the operator showed substantial increase by 20.3% and this

result was extremely sufficient to cover the decline in voice revenues.

The operations of the company showed similar success stories in Germany, Spain and

Italy as well. Even though, the figures of the revenues indicate that increase on data

revenues not sufficient to compensate whole drop in voice revenue the result was

promising. Also, observing increase on total service revenue was another driving force

for the operator.

All of those promising improvements brought the good news with them that the share of

data revenues jumped by 2,8% and reached the level of 15% when compared to the

figures of 2010.Smartphone penetration and the ratio of its customer base shows a great

deal of increase. Vodafone had announced the “Data Test Drive” campaign by offering

more than 20 type of different smartphone against increasing data revenue. This was not

an offer to oblige customers to accept the recommendation it was a little bit waiting for

signing up of better tariffs by experiencing the usage of data.

In the same region in Europe, that kind of promotions and day-by-day increasing device

subsidies might also threaten the growth of data revenue as subscriber retention and

acquisition costs rise with an increasing usage of data. This information needs to take

8 Martonik, A., 2012, T-Mobile to stop subsidizing handsets in 2013, http://www.androidcentral.com/t-mobile-stop-subsidizing-handsets-2013 [accessed 15 April 2013]

15

into account so as not to affect margins badly. This is one of the main reasons for

European operators look to cut smartphone subsidies to preserve data gains. 9

3.4.2. Is The New Finance Programme Going to Take The Place of Subsidy?

Mobile phones have showed a big change over the last years, but the business model of

mobile phones has not. Customers were buying multifunctional smart phones for two

year contracts and then standing head to head with unstable and surprisingly costly bill.

Because of this reason, customers was admiring manufacturers while they hate operators

as devices are great, the billing system is terrible.

Besides, marginal cost of serving an additional customer is much less than fixed costs.

So, operators need to challenge to sign up as many customers as possible. Actually, they

have been successful for doing this by offering discounted price of the latest gadgets.

Customers looked really cheerful when they got on their sophisticated devices but, this

is not going to last for a long time. They were going to realize the truth when high bill

comes and they understand they have been ripped off.

This plot was working well for some operators but some of them were already made the

decision to change the situation and being in the competition in more challenging way.

Their way is to sell devices and smartphones without subsidy. They know that will make

the device a lot more expensive but the plan that is made with a subsidized smartphone

is very similar to mortgage system. Customers were paying lower monthly costs but in

the end total costs were going up and customers had to pay all it off.

Smartphone owners are likely suffer from rapid depreciation as technological

improvements go further like crazy. Paying the full monthly bill, saving on a cheaper

phone, and changing it as you wish is more sensible than relying on one long-term

9 Dewar, C., 2012, European operators look to cut smartphone subsidies to preserve data gains, https://wirelessintelligence.com/files/analysis/?file=2012-03-22-european-operators-look-to-cut-smartphone-subsidies-to-preserve-data-gains.pdf , [accessed 28March 2013]

16

contract like locked out of heaven. It is extremely hard for making customers do this

sensible thing. Decreasing subsidized phones were risky for a company but they were

going to offer official Apple support in their network for Apple users as well.

The company that was announced as such a big game-changer is T-Mobile. The

company knew that customers were going to realize that this deal was much better and

they were right. T-Mobile offer a new financial method with this way which requires

customers to buy a phone full-priced or bring your own device which is a model that

European and all international users will be familiar with. In the end customers will get

around 20 USD or 30 USD cheaper service prices for each month. They also declined

that 80-percent of new acquisitions were on new finance programme recently. This

means that what the operator does is not a big change for T-Mobile.

As I mentioned above, we observe that new financial plans will take the place of

subsidies once the awareness of the customers, impact of education campaigns and the

usage of data such applications and contents increase. There are some factors that are

going to prepare substantial decrease on subsidy.

17

4. WHAT IS THE RISING TREND IN TURKEY?

Mobile phones which are one of the most accessible versions of the technology users

has become an integral part of everyday life. In Turkey, mobile phone market has more

than 10 million of a sales volume and it keeps the rate of growth by increasing. Growth-

promoting factors can be divided into two options:

One of these is the willingness of the manufacturers for supplying new featured phones

at least each two years, it is one emerging trend in renovation. Through emerging

technology with each passing day, manufacturers has begun to bring consumers a new

generation of mobile phones in more frequent intervals by improving the functions or

adding new functions to the current products.

Trend in the transition of using "Smart Devices" is rapidly developing in our country is

a major factor in supporting the growth of the market.

Through smart devices many functions has entered into mobile phones. Game, photo,

video, web, social media, traffic, health and such functions cater for different needs of

smart device users and facilitate users' daily idle times (for example, by bus to work / go

to school).

One of the main reasons for this rapid change of using smart devices can be defined as

the desire to reach "Internet" anywhere on mobile. The Internet and smart phones are

becoming an important source of information because users access to information via

those means in more practical way everyday life. Especially in big cities, the increasing

pace of everyday life makes smart device consumers’ desire increase for using those

devices to evaluate their time more effectively.

On the other hand, a large touch-screen devices, is the new increasing trend. Touch-

screen is no longer considered as a luxury, even on a mid-range phone this feature can

be found easily. Touch screens are preferred because of being user-friendly and having

better design.

18

In parallel with the increased use of smart phone, mobile data traffic has also increased.

Mobile data traffic in the world in 2011, compared to 2005 increased by 8 times. The

number of devices connected to internet, mobile (smart phones, mobile PCs, 3G modem

cards and tablets) has been passed the number of people on earth in 2012. In 4 different

smart devices for accessing internet on mobile, smart phones are expected to have the

highest share (48%) of equipment in 2016. Operators in the smart phone market have

begun to take place with their own-branded devices on the market with an attractive

began to grow.

Tablets are the devices that we will face in the coming period more than any other

device in our daily life. Tablets came into our lives in the last quarter of 2010, are

rapidly increasing. A tablet that uses 517 MB of data per month on average in 2011, will

use 4.2 GB of data per month by the year 2016.

4.1. REFLECTIONS OF DEVICE MANAGEMENT IN TURKEY WITH FIGURES FOR SUBSIDY ANALYSIS

The mobile phone market volume is 1,078K in units, the volume of turnover is 343

million Euros.

When compared the results with the previous month’s, the mobile phone marketgrew6%

in terms of units, while turnover grew by as percentages of 13.

In comparing the results of the previous year, the market grew by as percentages of 77

in terms of turnover and as percentages of 23 in terms of units.

The distribution channels of devices based on units sold:

i) 68 percent of the operator dealers (50 percent of small-franchisees, 32 percent of

Turkcell, Avea 8 percent of, 9 percent of Vodafone).

ii) 22.4 percent of the technology markets,

19

iii) 8 percent of hyper / super / DIY (do-it-yourself) stores and multi-storey shops

Looking at the breakdown of the devices sold in brand ranking,

i) Samsung's (The leader of the market) share decreased 0.2 points (49 percent)

over the last month, Apple's share increased by 3 percentage points (10 percent),

while the share of Turkcell's shows 3.8 percent decline.

ii) In whole market the best-selling first 3 devices are Galaxy Ace, iPhone 5 and

Galaxy Y S5360.

iii) Sales for iPhone5 is remarkable in January 2013.

200-300 euro price range devices sold most in the market with a share of 22 percent,

while devices sold over 500 euro take second place with a share of 21 percent.

Devices sold;

i) 66 percent of Smartphones

ii) 34 percent of Mobile phones

Smartphone devices;

i) Sales volume of Smartphones increased to 66 percent and the turnover rate of

Smartphones is 88 percent.

ii) According to the previous month in the Smartphone market, Samsung and

Turkcell's shares dropped 2 points and Apple's share increased by 4 points while

Nokia's share remained constant.

iii) 68 percent of the devices sold in January 2013 are 3G-featured phones.

20

Figure 4.1: Quantities of Devices Sold

http://www.gfk.com/gfkturkiye/

According to figure 4.1; 1,079 devices were sold in the market. Compared with the same

month of the previous year sales increased by 23 percent and in comparison to the

previous month sales increased by 5 percent.

21

Figure 4.2: Turnover of the Sales of Devices (Euro)

http://www.gfk.com/gfkturkiye/

According to figure 4.2; € 343 million turnover has been achieved from the sales of

devices. Compared with the same month of the previous year the turnover increased by

77 percent, while an increase of 14 percent was observed in comparison to the previous

month.

22

Figure 4.3: MOBSM Device Market

http://www.gfk.com/gfkturkiye/

According to figure 4.3; 66 percent of devices sold are Smartphones.

23

Figure 4.4: MOBSM Device Market – Turnover (Euro)

http://www.gfk.com/gfkturkiye/

According to figure 4.4; 88 percent of income is derived from smart devices.

24

Figure 4.5: Distribution of Device Sales Channels (2012 -2013)

http://www.gfk.com/gfkturkiye/

i) According to figure 4.5; 49 percent of whole sales in unit terms and 51 percent

of turnover was made by mobile operators.

ii) The sales of distribution that comes from Operators and franchisees shows that

Avea has share of 8 percent.

25

4.2. TURKCELL

Figure 4.6: Quantities of The Sales of Turkcell Branded Devices

http://www.gfk.com/gfkturkiye/

According to figure 4.6; Device sales increased by 58 percent compared with the

previous year in January 2013.

i) Turkcell-branded unit sales decreased by 8 percent compared to the previous

month and decreased by 5 percent compared to the same period last year.

ii) Turkcell-branded device sales made up 15 percent share of total Turkcell sales

channel in January 2013.

26

Figure 4.7: Turkcell Smartphone Device Sales

http://www.gfk.com/gfkturkiye/

According to figure 4.7; 84 percent of devices sold in Turkcell channel are smartphone

devices in January 2013.

Feb’12 Mar’12 Apr’12 May’12 Jun’12 Jul’12 Aug’12 Sep’12 Oct’12 Nov’12 Dec’12 Jan’13

27

Figure 4.8: Turkcell – Quantities of Device Sales

http://www.gfk.com/gfkturkiye/

According to figure 4.8; Apple's share increased up to 20 percent when we consider the

whole-sale of Turkcell sale channel.

NOKIA : %17

Dec12 vs Jan13: -1p

Jan12 vs Jan13: -18p

Samsung : %42

Dec12 vs Jan13: -3p

Jan12 vs Jan13: +18p

Apple : %20

Dec12 vs Jan13: +8p

Jan12 vs Jan13: +4p

Turkcell : %15

Dec12 vs Jan13: -1p

Jan12 vs Jan13: -1p

28

4.3. VODAFONE

Figure 4.9 : Quantities of The Sales of Vodafone Branded Devices

http://www.gfk.com/gfkturkiye/

i) According to figure 4.9; the total sales of the device shows a 10 percent increase

compared to the last year in January 2013.

ii) 8 percent of the devices sold in January 2013 are Vodafone branded devices on

Vodafone sales channel.

29

Figure 4.10: Vodafone Smartphone Device Sales

http://www.gfk.com/gfkturkiye/

According to figure 4.10; 73 percent of devices sold in Vodafone channel are

smartphone devices in 2012.

Feb’12 Mar’12 Apr’12 May’12 Jun’12 Jul’12 Aug’12 Sep’12 Oct’12 Nov’12 Dec’12 Jan’13

30

Figure 4.11: Vodafone – Quantities of Device Sales

http://www.gfk.com/gfkturkiye/

i) According to figure 4.11; the rate of Apple branded device sales show

continuing increase on Vodafone sales channel.

ii) Vodafone-branded device sales have decreased over 8 percentage points of share

compared to the same period last year.

NOKIA : %20

Dec12 vs Jan13: 0 p

Jan12 vs Jan13: -18p

Samsung : %51

Dec12 vs Jan13: -5p

Jan12 vs Jan13: +22p

Apple : %16

Dec12 vs Jan13: +7p

Jan12 vs Jan13: +6p

Turkcell : %8

Dec12 vs Jan13: 0p

Jan12 vs Jan13: -8p

31

4.4. AVEA

Figure 4.12: Avea - Devices Sales on Sales Channels

http://www.gfk.com/gfkturkiye/

According to figure 4.12; Smartphone sales show substantial increase by 300 percent

while there is a big decrease observed by 69 percent on mobile phone sales

Smartphone sale-rate has increased to 71 percent from 16 percent of share in one last

year in the total share of the device sales.

32

Figure 4.13 : Avea – Quantities of Device Sales

http://www.gfk.com/gfkturkiye/

According to figure 4.13; 9 percent of the devices sold in January 2013 are Avea in

Touch on Avea sales channel.

NOKIA : %22

Dec12 vs Jan13: -1 p

Jan12 vs Jan13: -44 p

Samsung : %53

Dec12 vs Jan13: -2 p

Jan12 vs Jan13: +26 p

Apple : %9

Dec12 vs Jan13: +3 p

Jan12 vs Jan13: +4 p

Avea in Touch : %9

Dec12 vs Jan13: +1 p

33

4.5. EXCLUSIVE CHANNELS

Figure 4.14 : The Rates of Device Sales According to Exclusive Channels

http://www.gfk.com/gfkturkiye/

According to figure 4.14; Avea total sales and smartphone sales increased by 1

percentage point compared to the previous month, Vodafone has dropped 1 percentage

point. Turkcell's share of total sales has dropped 1 percentage point while the share

smartphone of sales has remained constant.

Distribution Channels of Total Sales Distribution Channels of Smartphone

34

Figure 4.15: The Market Rates of Device Sales In Terms of Manufacturers

(MOBSM)

http://www.gfk.com/gfkturkiye/

According to figure 4.15; Apple's share increased by 3 percentage points while

Samsung's share has remained constant in January.

Samsung : %49

Dec12 vs Jan13: -0,2 p

Jan12 vs Jan13: +17 p

Nokia : %25

Dec12 vs Jan13: -2 p

Jan12 vs Jan13: -24 p

Apple : %10

Dec12 vs Jan13: +3 p

Jan12 vs Jan13: +4 p

35

Figure 4.16 : The Rates of Turnovers in Terms of Manufacturers (MOBSM)

http://www.gfk.com/gfkturkiye/

According to figure 4.16; Apple's share of turnover is 27 percent in January 2013

NOKIA : %14

Dec12 vs Jan13: -1 p

Jan12 vs Jan13: -22 p

Samsung : %46

Dec12 vs Jan13: -4 p

Jan12 vs Jan13: +20 p

Apple : %27

Dec12 vs Jan13: +7 p

Jan12 vs Jan13: +4 p

Turkcell : %3

Dec12 vs Jan13: 0 p

Jan12 vs Jan13: 0 p

36

Figure 4.17: Smartphone – Manufacturers’ Device Market

http://www.gfk.com/gfkturkiye/

According to figure 4.17; Apple gains some shares due to loss of share of Samsung

while the share of Nokia remained stable.

NOKIA : %12

Dec12 vs Jan13: 0 p

Jan12 vs Jan13: -19 p

Samsung : %53

Dec12 vs Jan13: -2 p

Jan12 vs Jan13: +27 p

Apple : %15

Dec12 vs Jan13: +2 p

Jan12 vs Jan13: -2 p

Turkcell : %6

Dec12 vs Jan13: -1 p

Jan12 vs Jan13: -3 p

37

Figure 4.18: Smartphone – The Turnover Rates of Manufacturers

http://www.gfk.com/gfkturkiye/

According to figure 4.18; Apple’s smartphone turnover rate has achieved to 31 percent

of total.

NOKIA : %9

Dec12 vs Jan13: +1 p

Jan12 vs Jan13: -19 p

Samsung : %46

Dec12 vs Jan13: -6 p

Jan12 vs Jan13: +24 p

Apple : %31

Dec12 vs Jan13: +7 p

Jan12 vs Jan13: -5 p

Turkcell : %3

Dec12 vs Jan13: +1 p

Jan12 vs Jan13: -1 p

38

Figure 4.19: Prices of Devices (MOBSM)

http://www.gfk.com/gfkturkiye/

According to figure 4.19; 200-300 Euro price range devices sold most in the market

with a share of 22 percent.

Devices sold over 500 euro keep on growing its share in the market.

39

Figure 4.20 : Prices of Smartphone Devices

http://www.gfk.com/gfkturkiye/

According to figure 4.20; the price range of the devices that are cost more than 700

euros were sold more than other devices with the rate of 21,4 percent when we consider

the smartphone sales.

40

Figure 4.21: Touch - Operated Device Sales (MOBSM)

http://www.gfk.com/gfkturkiye/

According to figure 4.21; Samsung branded devices make up 56 percent of touch-

operated device sales.

Apple has a noteworthy increase of 4 percentage points compared to the previous

month.

41

Figure 4.22: 3G & 2G (MOBSM)

http://www.gfk.com/gfkturkiye/

According to figure 4.22; 68 percent of the devices that were sold in this month were 3G

featured devices.

3G

Aug’12 – 1 p

2G

Aug’12 – 3 p

42

Figure 4.23: SM Operating Systems

http://www.gfk.com/gfkturkiye/

According to figure 4.23; IOS operating system has an increase of 4 percentage points

compared to the previous month.

4.6. GENERAL VIEW OF WHOLE DEVICE MARKET WITH THE FIGURES OF JANUARY 2013

1078 K devices sold in whole market. The device sales showed 6% increase in

compared to the previous month.

i) Looking at all brands in the market-based sales Samsung lost 0.2 points

compared with the last month and has 49% share in the market, continues to

lead. Apple's market share rose 3 percentage points, and its share in the market

increased to 10 percent. Turkcell's market share remained stable, and covers 4%

of whole market. (T21 34K sold last month, down 14 percent).

ii) Smartphone sales rates have been 66 percent of all sales by increasing 3

percentage points. Samsung's share fell to 53 percent, down 2 percentage points.

Apple keeps on its continuing growth in this month as well, and has the share

ANDROID : %70

Dec12 vs Jan13: -4 p

Jan12 vs Jan13: +29 p

IOS: %15

Dec12 vs Jan13: +4 p

Jan12 vs Jan13: -2 p

43

of 15 percent. The launch of the Apple iPhone 5 has been very effective in

increasing the share of Apple in the market.

iii) 32 percent of total sales and 40 percent of the Smartphone sales were made by

Operators.

iv) In the brand ranking “Operator-Smartphone” Samsung-branded devices were

sold the most by all of the operators.

v) In whole market the best-selling first 3 devices are Galaxy Ace, iPhone 5 and

Galaxy Y S5360. T21 has a rank of 5.

Avea

i) The device sales have been 55K by showing 4 percent increase in unit sales.

ii) Smartphone sales have been 39K by showing 11 percent increase. Smartphone

sale-rate has increased to 71 percent from 16 percent of share in one last year in

the total share of the device sales.

iii) The launch of Avea in Touch shows its effect in January as well. AveainTouch

sales rates have been 9 percent of all sales by increasing 1 percentage points.

Turkcell

i) The device sales have been 235K by showing 1 percent increase compared to the

last month.

ii) Smartphone sales have been 197K by showing 3 percent increase.

iii) Apple's share increased by 8 percentage points and it makes up 20 percent of

Turkcell sales-channel.

Vodafone

i) The device sales have been 66K by showing 7 percent decrease in unit sales.

ii) Smartphone sales have been 48K by showing 2 percent increase.

iii) Apple's share increased by 7 percentage points and it makes up 16 percent of

Vodafone sales-channel

44

In the light of figures and evaluations that I researched above by stating rising trends

and giving the updated figures that are belong to device management in device market

we can observe that there is an emerging device market day by day. Carriers will be

more keen on entering into rivalry with each other in the near future as the technologic

developments increase their acceleration gradually on behalf of smart devices. We will

be observing the growth of Turkish device market and those improvements will enable

people using more smart devices. Without doubt people and carriers will be asking for

taking more places in this world. I regard consumers more lucky ones than carriers even

though they both look like happy from this development. European countries, the States,

Canada and such countries are way ahead of Turkey in this market and figures will

develop by showing substantial increases considering the usage of data and expenditures

for this business. There is a long way to go in smart device market. Those improvements

might satisfy operators and customers in short term but I believe that marketing styles of

smart devices will take a different path and will not satisfy carriers for long terms. We

will see the reflections of this idea in the next chapters of my project. On the other hand,

it has not been enough time to evaluate profitability for carriers yet as terms of contracts

more or less two years and this is an emerging market in Turkey.

45

5. CONCLUSION

In this study, the rising trends in Turkey, the methods that are admitted by authorities as

worldwide marketing ways of devices in developed markets, and the developments on

foreign resources that we might face in Turkey against rapidly growing Turkish device

market are presented. The information that is aiming to provide current conditions of

Turkish device market in terms of device subsidy issue by showing the pros and cons of

foreign markets up is intended to be informed customers. In the light of facts, the

reflections of this information are evaluated by comparing foreign resources and current

conditions of Turkish device market. It has not been sufficient time to assess existing

device campaigns, but a strong possibility which is stated that in the near future

campaigns increasing the usage of data will take the place of current campaigns. The

method of “bring your own device” is considered strongly as a way that will be applied

in the future.

Operators that are having the advantage of being the market leader take advantage of

moving away from subsidies and doing activities to increase the value of other

components such branding, service quality, and so on. Operators which keep on

sustainability on their margins have more place to pay less attention subsidy cuts.

Operators which have the shortage of cash and face with the bad sides of economic

stagnation are more likely to oblige to take extremely cost-cutting measures.

Operators are always willing to protect and increase their market share. Carriers know

that to cut down on subsidy levels is risky in competitive markets. Especially in

emerging markets this could be riskier and more tragic cause in that type of markets

there are some disadvantages on acquiring new customers as much as there are some

positive side of it. Customers might not be willing to change their operators in the short

term and it might require new and permanent updates which increase subsidy costs even

if they want it. At the same time, the leader of the market has the chance of controlling

46

subsidy costs by showing its tendency. Although can create business models that could

be an example for competitors to follow suit.

Data adoption is still new and the carriers are in need of completing the capacity that

customers do not use and to fill this gap operators might be obliged to foster device

subsidy. So as not to jeopardize the returns of long-term contract pricing services which

are not sufficient carriers need to foster penetration. Increasing smartphone penetration

provides convenience for carriers to enhance activities that foster data usage instead of

struggling for the adoption of 3G devices. Education campaigns, the number of

increasing content and applications also upgrades on them are the means that support

data usage.

All of those expressions above highlight the importance of subsidy strategies and we

observe that education campaigns, contents and applications and so on play vital role for

the carriers if they do not want to restricts EBITDA margins.

When we take the developments and analysis into consideration in terms of device

subsidy, Turkcell has more advantage than its competitors as being a market leader. The

carrier has a chance to postpone subsidy cuts and can focus on smartphone penetration

to increase data usage through education campaigns and such activities. Applying this

method will be healthier for operators in long term subsidy activities otherwise they are

going to have a hard time against increasing cost of smartphone devices. If they can’t

take the required action on time they might face the situation of subsidizing handsets as

the carriers do in the States and Europe. Device subsidy and campaigns are essential to

increase smartphone penetration and essential for carriers in Turkey to achieve more

subscribers and retention of existing ones. I believe that the concept of “retention of

existing subscribers” will be more important in the near future when we think of

increasing cost of smartphones. Unless education campaigns for more data usage give

expected result the way of marketing smartphones will change. It is not the time yet to

evaluate profitability related to this issue in Turkish device market due to long term

47

contracts but the reflections of developed markets’ figures show that this way will not

satisfy operators in terms of profitability.

As a result of this, “bring your own device” program will be a new model that is going

to be applied by operators. Subscribers are going to pay only monthly subscription fee in

accordance with bring your own device program. There is no need to pay anything for a

device in this way. It is a specific signal that the perception of device campaigns is

changing and started to be evaluated separately from contracts. According to statements

above, when the costs push carriers sacrificing EBITDA, BYOD will be the model that

is going to be applied by operators.

48

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