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Turkcell Connects Turkey


Expansion in Eastern Europe and Into Broadband Internet



In the United States the use of cellular phones is widespread. Certain emerging markets have a lower penetration rate, however, and this presents investment opportunities.

Turkey is one such example. Historically a strong ally of the United States, the country has a population of 70 million and is often seen as a bridge country between Europe and the Middle East. Turkey also has one of the world’s most advanced mobile phone operators, Turkcell Iletisim Hizmetleri (ticker: TKC). 
  

Turkcell, the only Turkish company with an American Depositary Receipt listing on the New York Stock Exchange, started its operations in 1994 and currently has 36 million subscribers in Turkey (as of the end of June 2009). It has a dominant market share of 57 percent in its home market. The company is also active in Eastern Europe, where it has fully owned or partly owned operations in Azerbaijan, Kazakhstan, Georgia, Ukraine, Northern Cyprus and Moldova. In all, Turkcell has 62 million subscribers.
   
According to independent surveys, Turkcell consistently ranks highest in customer satisfaction. One reason is that it has the best coverage and most-advanced services. These services generate extra revenues for Turkcell and increase its average revenue per user. Recently in Istanbul, Turkcell showcased its very fast 3G (third generation) network and all its capabilities. The possibilities range from crystal-clear television reception to live traffic updates and advanced salesforce automation tools.
   
Turkcell is now also expanding into broadband Internet. Penetration rates are low at 38 percent, but its SuperOnline brand is gaining traction against incumbent Turk Telecom.
   
Turkcell currently has a market capitalization of $14 billion, and its revenues in 2008 were almost $7 billion. Current estimates have revenues totalling $5.5 billion in 2009. Earnings per share estimates for 2009 are $1.51. Turkcell also will pay a dividend of $0.97 a share, which recently gave it a dividend yield of more than 5 percent.  
   
Additionally, the company has a strong balance sheet, with a net cash position of $2 billion. The company historically has had a consistently high return on equity of more than 25 percent. Considering its appealing long-term growth prospects and its strong balance sheet, the stock’s current valuation seems interesting, assuming that over the long term Turkcell can defend its dominant market share and continue to generate strong cash flow. Turkcell should be able to grow its bottom line in the high single digits over the next few years.
   
The risks include Turkcell engaging in a price war with its main competitors: Vodafone Turkey and Avea. Turkcell’s competitors currently aren’t very profitable; hence, we don’t expect them to lead a destructive market-share war anytime soon. 


   
New taxes on telecommunication services might also hinder long-term growth. The Turkish currency (Turkish lira) historically has been quite volatile versus the U.S. dollar, and Turkey has had high inflation rates in the past.




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