Turckcell Team II

Strategic Management 436

Turkcell Sec I

• Current Situation• D. Shepley

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Current Situation

• End of year 2002, Turkcell had total assets of $3.2 billion, revenues of $1.97 billion, net income of $101 million, and more than 2000 employees. They also held More than 60% of the Turkish market with 16.3 million subscribers as of March 31, 2003.

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Strategic Posture Mission

• No stated mission statement but the implied mission of the company is to continue to hold the majority of the growing Turkish market while expanding to more European countries by differentiating the services provided from competition and maintaining a loyal customer base.

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Objectives

• Increase customer base• Retain its current customers• Increase the amount of usage per customer (amount

of usage dropped from an average of 100 minutes per month to 56.2 because of Turkey’s economic crisis in 2001.)

• Maintain Good customer relations and social responsibility

• Expand to other European Countries

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Policies

• Have large amounts of consumer services• Stay on the forefront of technology• Promotion from within (Turkcell provides extensive employee training

which increases employee loyalty which in turn helps to provide better service because of more experience and a will to do a good job.)

• Pay slightly above industry average (This also helps to maintain employee loyalty and provide better service.)

• Proactive approach• Result oriented• Minimum hierarchy• Full accountability• Simplicity

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Turkcell Sec II

• Corporate Governance• J. Brayall

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Turkcell Management

• Governance Compliance– Turkcell Board is composed of 7 members elected by the Annual General

Meeting for max terms of 3 yrs.

• General Assembly Mtgs-– held during April. Turkcell's fiscal year is the 12-month calendar yr Jan -

Dec.

• NYSE (2000) Symbol TKC // Istanbul Stock Exchange - TCELL

• ADRs / ADSs traded on the NYSE- Turkcell's # for its ADSs is 900111204.– American Depositary Receipt- (ADRs) are receipts for the shares of a foreign corp held by a

U.S. depositary bank. American depository share (ADS) = certificates representing portions of foreign shares held by the bank, usually by a branch in the country of issue.

Turkcell Shares

• Disclosure Policy– IAW the Capital Markets Board of Turkey (SPK) and its US counterpart,

the Securities and Exchange Commission (SEC), Turkcell continues its implementation of Corporate Governance Principles. The company’s “Disclosure Policy” regarding public announcements are prepared IAW domestic and international capital markets regulations.

• Dividend Policy– The Board may decide the amount or if any, distribution of dividend to

recommend, through the general assembly, may accept or reject such proposal.

• Financial Rights– Board members receive no special rights or privileges & receive no

compensation for their board service. – Nor are they eligible for credits or other special favors such as surety-ships .

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Turkcell Board

• Board of Directors & Independent Members– As of Apr 05, no independent members sit on Turkcell’s Board of Directors.– Information is presented in the “Investor Relations” section of Turkcell’s

website.

• Board responsibilities:– Building the vision of the Company, local & international business strategies &

determining short / long-term goals – Approving the Company's annual budget & business plans – Monitoring & controlling the strategic & financial performance

• Participation of Stakeholders in Mgmt– Currently, there is no provision for the participation of the stakeholders in

management. – However, info is shared w/ business partners & stakeholders.

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Board Makeup

• Turkcell’s board is comprised of members from their business partners, i.e., holding companies & those from the inner workings of the company.

• Experience backgrounds range from those that have just joined the organization to those that were there at the inception. This shows the company is dedicated to joining tried & true methods & external / multi- functional competencies.

• There is an intentional strong influence of representation gained from the international telecom sector, financial & consumer services industries.

• Specifically, there is an exceptionally strong experience base represented from the successful Nordic based telecom partnerships.

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Turkcell Managers

• Personal Development of Managers : Mandatory training tracks provide continuous improvements to customer

value & Turcell’s brand placement & market share enhancement.

– Development Program for Leadership & Mgmt (Lider Yönetici Yetifltirme Program)

– Coaching / Mentorship– Assessment Center – Human Resources Training

Their DIYET program puts corrective & improvement activities, creativity, effectiveness & teamwork into practice.

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Turkcell Human Resources• Turkcell touts highly-skilled & highly-motivated team of

employees.

• States continuous investment in human resource development as a top priority for the company.

• Mgmt’s goal is- promote a leading, trustworthy, success-oriented, productive, respectful & customer-driven corporate culture.

• Continuous investments to ensure that the employees work in an environment that is flexible, responsive, democratic & supportive of change. 13

Founding Shareholders

• Turkcell's founding shareholders are Sonera Holding, formerly known as Telecom Finland Ltd. & currently owned by TeliaSonera, Çukurova Group & MV Holding.

• Çukurova Group is one of Turkey 's leading conglomerates, active in insurance, media, trade, industrial services, communications, IT & tourism.

• TeliaSonera was formed in Dec 02 with the merger of Sonera Corporation, a Finnish telecom provider, and Telia, a telecom operator in Scandinavia. It is a major GSM operator in Scandinavia .

• Combines the expertise of Sonera in building GSM networks and Çukurova's local mkt knowledge & experience in marketing / distribution.

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Dominant Shareholders

Shareholder Number of shares Share (%)

Turkcell Holding A.Ş. 752,066,074,110 51.00

Çukurova Investments N.V. 43,230,288,153 2.93

Çukurova Holding A.Ş. 109,195,314,495 7.40

Yapı ve Kredi Bankası A.Ş. 42,807,402,352 2.90

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Shareholder Structure

• Turkcell shares are listed on the Istanbul Stock Exchange & on the NYSE as ADS. Currently 2 ADS = 5 tradable shares.

• Shareholder Value of Stake (TRY) % Share

• Turkcell Holding A.Ş. 1,122,000,000 51.00%

• Çukurova Holding A.Ş. 995.509 0.05%

• Sonera Holding B.V. 287,632,179 13.07%

• MV Holding A.Ş. 51,021,712 2.32%

• Other 137,199,575 0.01%

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Turkcell Sec III

• External Environment:– Opportunities / Threats (SWOT)• J. Austin

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Natural Physical Environment: Sustainability Issues

• - No mention in the case of any sustainability issues

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Societal Environment

• The demise of the Lira in 2000 created a large deficit to repay, $1.0 B (T)

• 25 year GSM license to operate in Turkey (O)• Marketing campaigns may be too expensive (T)• Possibility of ten year payoff to raise profit from 3G

technology (T)• GPRS advancement created faster mobile services,

allowing postpaid users full-time access to their e-mail (O)

• MMIS creation allows for Outlook and Exchange access for Turkcell users (O)

• Future challenge to offer 1st 3G services to Turkey (T)

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Societal Environment cont.

• Taxation of GSM businesses are 66% (T) • Entrance into the European Union (O)• Government hasn’t issued license for 3G

advancement • Rural users still uncertain how mobile

communication may benefit (T)

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Societal Environment cont.

• Their philosophy includes good customer relations and social responsibility (O)

• Sabbit possibly appeals to family values through marketing campaign (O)

• AN Rpt shows clear intent (i.e., mgmt / sales / service language skills) to expand into foreign mkts- regional neighbors. They do have contracts w/neighboring and EU companies for roaming services.

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Task Environment

• Threat of new entrants – Medium• Bargaining powers of buyers – Medium• Threat of substitute products or service – Low• Bargaining power of suppliers – High• Rivalry among competing firms – Low• Power of unions, government, special interest groups

– High

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Turkcell Sec IV

• Internal Environment:– Strengths / Weaknesses (SWOT)• J. Taylor

• External Environment: – Strengths / Weaknesses (SWOT)• J. Austin

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Corporate Structure

• Centralized structure. CEO is a visionary who is always moving forward with technology and expects his managers to implement his ideas.

• Turkcell is a part of the Board of Directors of the GSMA (Association of the worlds mobile service providers).

• To keep employees on the same page, corporate puts together a major Turkcell information day to offer training on multiple company issues and policies to the staff.

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Corporate Culture

• Executives and workers alike share Turkcell’s five structural principles: Proactive approach, result orientation, minimum hierarchy, full accountability, and simplicity.

• A majority of the corporate culture is based on the ideas of the original CEO and visionary, Cuneyt Turktan. He had a vigorous approach to giving the best service possible, providing the best coverage and technology, and obtaining the largest portion of the market.

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Corporate Resources:Marketing

• Turkcell created a character called the Snabbit that is an icon in Turkish homes.

• Main objectives are to increase two things: the number of subscribers, and the number of call minutes per subscriber.

• Launched a very successful “Signal Tour” project in 2000 to educate people on mobile communication.

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Finance

• They bought an additional 16.45% of Fintur Holdings B.V., owner of GSM and technology businesses, increasing their stake to 41.45%.

• In 2001, the Turkish Lira plummeted in value causing an inflation rate of 114%.

• Turkcell is the only Turkish company on the NYSE.

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Research & Development

• They are watching mobile operators; Orange, Vodafone, and Telecom Italia as these companies expand their borders.

• Turkcell is considering the option of offering 3G technology to their customers but still researching the associated costs and length of time to see a return.

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Operations & Logistics

• In Maletape they have a $10 million Network Control Center offering 24/7 coverage.

• They have 7,500 strategically located base situations offering 100% coverage of Turkish cities with populations of over 5,000.

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Human Resources Management

• Turkcell has more than 2,000 employees divided into 49% technical, 26% customer care, 16% finance and administration, and 9% marketing.

• They pay employees slightly above the industry average.

• Over 80% of the employees have a college education.

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Information Technology

• They are on top of the IT field with over 40% ownership of mobile communications IT companies.

• They are able to troubleshoot issues when alerted by a red light on an intricate grid from any 1 of 7,500 base stations.

• They are 100% efficient in areas with a 5,000+ population.

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Turkcell Sec V

• Analysis of Strategic Factors – (SWOT)• B. Howard

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Analysis of Strategic Factors: Situational Analysis

• Strategy– Well established 3G service with very high speed. – High product development and market development competencies (Like, Mobile Marketing and mobile banking). – Employee Salaries are above industry Standards. High technology network control center offering 24/7 coverage

•Weaknesses –Operation cost is not suitable for expansion in emerging markets like Africa, India and South America. –Incapable of cost leadership in subsidiaries markets. –Required funds for expansion

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Analysis of Strategic Factors: Situational Analysis cont.

• Opportunities – Broadband transmission will increase dramatically during the coming

five years. – Huge dependence on wireless-enabled devices (navigation devices, E-

Books, digital camera and media players. – High consumer’s expenditure in application stores. – Increasing demand for mobile services in many developing regions in

Africa, south America

• Threats – Services & products imitation in a tough rivalry industry environment. – Threat of suppliers exclusive agreements with competitors.

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Analysis of Strategic Factors: Situational Analysis cont.

• Review of Current Mission and Objectives

• Mission Statement – Appears Appropriate

• Objective– Increase customer satisfaction and loyalty through improving

customer’s experience

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Turcell Team II Exhibits

• See next slides for corporate data

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Internal Factor Analysis Summary

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Exhibit 1 Internal Factor Analysis SummaryInternal Factors Weight Rating Weighted Score Comments

Strengths:Quality known with name 0.1 4 0.4snabbit iconHighly trained employees 0.15 5 0.7580% college degreeLarge market share 0.1 3.4 0.34small competition100% coverage 0.2 4.7 0.945000+ populationsImmediate response 0.15 4.6 0.69troubleshooting

Weaknesses:Potential customers do not understand mobile communications 0.15 2 0.3need to educate citizens3G technology is almost out of reach 0.05 2.3 0.12too expensiveGovernment restrictions 0.1 1.6 0.16taxes

Total scores 1 3.7

External Factors

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Exhibit 2

Summary of External Factors

External Factors Weight Rating Weighted Score Comments

Opportunities25 yr GSM license to operate in Turkey 0.05 3.6 0.18 Ensures stability

GPRS advancement 0.05 3.2 0.16 Established standardsMMIS for Outlook 0.05 3.9 0.2 PDA like accessEntrance into the EU 0.1 3 0.3 Economic reliability

Customer relation and social responsibility 0.15 4.4 0.66 Essential for businesses

Threats

Debt created by Lira nosedive 0.15 2.9 0.44 Slows profit marginTaxation of 66% 0.2 2.5 0.5 Decreases income

Possible ten year wait for 3G profit 0.1 2 0.2 Long wait for profit

Rural users uncertainty 0.05 4.1 0.21 Need everyone onboard

Marketing campaigns too expensive 0.1 3.8 0.38 Develop simpler ads

Income Statement

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Exhibit 5Income Statement

2002 2003 2004Revenues 1,973,850 2,219,237 3,200,765Direct cost of revenues -1,366,899 -1,613,150 -2,001,223Gross profit 606,951 606,087 1,199,542

General and administrative expesnses -104,523 -137,222 -137,315

Selling and marketing expenses -223,496 -294,611 349,249Operating income 278,932 174,254 712,978

Income (expense) from related parties-225 3,738 1,919

Interest income 95,548 117,240 152,751Interest expense -302,335 -483,622 -121,500Other income, net 13,560 6,190 7,113

Equity in net (loss) income of unconsolidated investees-20,392 18,927 43,646

Minority interest in income of consolidated subsidiaries333 3,558 7,466

Translation loss -18,045 -102,403 -11,192Income (loss) before taxes 47,376 -262,118 793,181Income tax benefit (expense) - 477,285 -281,360Net income 47,376 215,167 511,821

Assets

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Exhibit 5 cont. Income Stmt Year Ending December 31 2001 2000

AssestsCurrent Assets:

Cash and cash equivalents 243,114 363,365 Trade receivables 256,143 325,636

Due from related parties 164,448 113,860 Inventiories 12,154 16,402

Prepaid expenses 20,843 22,484 Other current assets 46,965 44,476

Total current assets $743,667 $886,223 Advances to related parties 1,020 Due from related parties 10,085

Prepaid expenses 3,300 11,765 Investments 58,329 60,068

Fixed assets 1,655,110 1,762,168 Construction in progress 119,363 233,299

Intagibles 916,920 892,995 Other long-term assets 28,996 37,382

Total Assets $3,535,770 $3,884,920

Liabilities

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Exhibit 5 cont.Liabilities Current Liabilities

Short-term borrowings $383,167 $438,081

Trade payables 302,039 208,890

Due to related parties 3,626 2,811

Tax Payable 130

Deferred tax liability 21,103

Other current liabilities and accrued expenses 303, 425 271,194

Total Current Liabilities 992,387 942,079

Long-term lease obligations 1,218,903 1,600,676

Long-term lease obligations 37,103 34,472

Retirement pay liability 4,737 3,545

Deferred tax liabilities 3,491

Minority interest 896 12

Other long-term liabilities 6,792 5,838

Shareholders' Equity

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Exhibit 5 cont. Shareholders' equity: 2001 2000

Common Stock 636,116 458,239

Additional paid in capital 178

Advances for common stock 119 141

Legal Reserves 5 5

Accumulated other comprehensive loss -1,875 -1,049

Retained Earnings 650,682 837,471

Total shareholders' equity 1,285,225 1,294,807

Total Liabilities and Shareholders' equity 3,546,043 3,884,920

Turkcell Team II

• Questions ?

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