Strategic Management - Turkcell

History

Turkcell is a mobile communication company based in Turkey that started its operations in 1994. It was the time when Turkey first met the mobile communications. Its competitors are Vodafone and Avea. Turkcell is listed on the Istanbul (IMKB) and Newyork stock exchanges since 2000. It is the first Turkish company to ever be listed on the NYSE. Turckcell has over 34.1 million subscribers all over turkey and this has made it the leading and largest operator in the country with a market share of 54%. Its investments within Turkey are worth over 8.8 billion US dollars and through the years, it has continuosly increased the variety of its services as well as the quality of its services. Turkcell offers technologies that enable fast data transfer such as “TurkcellEdge”. Turkcell also provides GSM services internationally. Through Fintur and its affiliates, Turkcell has increased the number of its subscribers base by over 9.6 million. In 2002, Turkcell received a prize for Best New Service in World Communication Awards. In 2007, it entered the INFO Tech 100 list which is based on the financial data obtained from S&P.
Turkcell is owned by the group by 51% and nearly 35% of shares of Turkcell is publicly traded.
Turkcell employs 2800 people average age of whom is 33. 90% of the employees are university educated or higher. For Turkcell employees are most valuable assets and the company tries hard to provide employees with best human resources practices in the world with creative, innovative, and efficient work environment that will encourage high performance and make employee enjoy working.

Business: Industry, Market, Customers, Products

Turkcell is one of the leading companies in the mobile communications sector. The company operates in Turkey with a market share of 54%. Besides, it serves in Ukraine and Belarus under brand name “life : )”, in Kazakhstan as “Kcell”, in Azerbaijan as Azercell, in Georgia as Geocell, in Moldova under “Moldcell” brand and finally in TRNC(North Cyprus) as “KKTCell”. Market share of Turkcell in these countries, to say in sequence, is 18%, 14%, 50%, 55%, 44%, 32% and 69% for TRNC. Turkcell also started operations in Germany as “Turkcell Europe” in the first quarter of 2011. The group has 60.4 million subscribers in total.

Turkcell stands out in the market with its focus on quality and innovation. Turkcell mostly appeals to business people and people with income above the average, whereas the competitors in the market focus on attracting youth and people with lower income through sms packages and other promotions. Although Turkcell also has some promotions and packages, it does not get on a price war with other companies and just try to appeal costumers with its sound quality and coverage area which is proved to be 99.07% in Turkey.
Turkcell’s services, except the basic call, sms, and mobile internet services, can be stated as Music, TV and video services for mobiles, daily information and education services, and dozens of applications. The most recent innovation of the company came out on a new mobile phone “T20” produced by Turkcell itself. T20 enables people to use their simcard as a credit card and to ask and receive money from friends in emergency cases. Turkcell’s ambition is to follow up the newest technology and make the necessary changes immediately. Within this context, providing a speed of 42Mbps in 3G Turkcell is one of the first 10 companies using such a technology in the world.

Trends in Profits and Sales(US Dolars)

| 2008 | 2009 | 2010 | Revenue | 6,970,408 | 5,789,972 | 5,982,093 | Profit | 1,755,062 | 1,104,804 | 1,126,921 |

Revenue of Turkcell is developed from the subscribers in Turkey and also from the subscribers in 9 countries where the subsidiaries operate the business. The trends of the sales revenue of Turkcell are mostly improved. In 2008, although it did not significantly change, the revenue from sales still increased up 10.1%. This improvement is due to the inflation effect, increasing number of subscriber base, partial effect of the increase in usage, upward price adjustment, and the impact of positive contribution of revenue from subsidiaries. Due to the global crisis in 2008, there was a reduction in the sales so that the revenue decreased about 1% in early 2009. Lower contribution of one of the subsidiaries, Astelit, also has an impact in the total revenue. However, after the crisis, Turkcell began to improve the business again, and for the result, in 2010 the sales was increased and the company gained US$ 5,982,093, more or less 0.8% of sales revenue. Increasing in mobile internet and service revenue, also the contribution from the subsidiaries made this improvement to be achieved.
Profits are gained from the sales of the mobile data and service revenue after deducted by the operating expenses and taxes. From 2007 to 2008, the profit increased about 36% until it declined in 2009 about 25.9%, due to the fall in net financial income, fall in minority income from subsidiary, impairment charges, and fixed assets write-offs in 4th quarter. But since the company could handle the decline in its profit, in 2009 the profit began to grow slowly, about 3.7%.
Generally, the profit and revenue almost increased every year, except around 2008 due to some factors. Since the profit is just coming from 2 sectors, that are mobile internet and service revenue, the data in financial reports just shows the total amount of them. There is no complete data about the profit per SBU in the annual reports.

Structure

As seen in the schema, Turkcell operates in a functional structure. Since the company does not have many product lines, functional structure results well for Turkcell.

Vision Statement

Turkcell as pioneer of GSM-based mobile communication in Turkey began in 1994. Being the first in the mobile communication sector, the company has become not only the leading operator in Turkey, but also the third largest GSM operator in Europe in terms of subscriber number. The company’s vision is:
“To ease and enrich the lives of our customers with communication and technology solutions”.
Analysis:
The vision statement of Turkcell is not clear since a vision statement must answer the question “what do you want to become?”. In this statement, Turkcell does not clearly define what it wants to be, because their vision is more intended to the consumer not to the company itself. The vision statement could preferably be:
“To be the best company which ease and enrich costumers with communications and technology solutions.”
The new vision statement clearly defined what the long term objective of the company is, what they want to be in the next decades. It is very important to make an appropriate vision statement in order to make right strategies to achieve the goals.
Despite the decay of its vision statement, it has a positive side that i is not too narrow, so the vision statement gives the company space to enlarge the company and does not limit them in a certain field. An example for a narrow vision statement is: “to ease and enrich the lives of our consumers by providing good quality of GSM-Mobile”.
Using the current vision statement, Turkcell proves that they do not only go with the GSM-mobile but also improve themselves in 2G, 3G, and even become one of the most successful internet connection providers.

Mission Statement

The mission of Turkcell is stated as: * We believe that customers come first * We are an agile team * We promote open communication * We are passionate about making a difference * We value people
Analysis:
Applying the critics to Turkcell’s mission, we see that it answers the question “what business are they doing” through the following sentence: “We promote open communication.” This sentence both implies that the company is in the communications sector, and it believes in necessity of freedom. Secondly, “We believe that customers come first” shows the company’s focus on customer pleasure, where as the sentence “we value people” indicates the importance of the employees to Turkcell. Besides, “We’re an agile team” represents the company’s ambition to respond to the changes in technology and environment. Finally, Turkcell’s philosophy and self-concept is summarized in the following statement: “We are passionate about making a difference”. Although the mission statement does not contain information about the target market and the public image of the company, it can be evaluated as a fairly good one.
The mission statement identify that Turkcell operates in communication technology and the consumers are everyone who needs to connect to others. It is inspiring to energize and motivate people because Turkcell does not only work for its own interest but also to give back to the stake holders.

External Environment

Social and Demographic Indicators

The young and dynamic population of Turkey represents a favorable environment for sectors like Technology and Communications. Moreover, this growing population is highly urbanized and educated which results in the large demand for high tech products and services. Although penetration levels are quite high, there’s still room for growth in the mobile internet and telecommunications field, because of the emerging middle class in Turkey.
Also the high urbanization rates stand as an advantage for sectors working on technology, since people living and working in big cities are more interested in having the latest technology.

Competition

Competition in the sector is quite harsh and is carried out through aggressive offers such as high minute incentive port-in offers, launching lower priced voice packages and continuing to offer flat rate minute packages for all directions. The main aim is to get more postpaid subscribers.
Regulation
In 2010 there was a radical change in Turkish mobile communications market since the rates of interconnection decreased by 52% and maximum price by 38%. These factors has brought negative influence to the market, and reduced per minute revenue and profitability in the industry. Also the changes in the regulations effected the market wholly. Some of these regulations were settlement of an upper limit for the prices of phone calls up to 60 seconds, transition to TRY from unit based pricing for prepaid subscribers, and the modification of the definition for an active subscriber by change in the length of the period that a subscriber has to be active.
Taxation
The tax rates in Turkey are the main threat for the telecommunications sector. Whereas the total tax rates in the countries with similar penetration rates to Turkey are about 30%, it’s 43% in Turkey. (VAT+Special Consumption Tax)
External Factor Evaluation

| External Factors | Weight | Rating | Weighted Score | Opportunities | Emerging Middle Class | 0.15 | 3 | 0.45 | | Fast growth in GDP | 0.05 | 4 | 0.20 | | Increasing demand in surrounding developing areas | 0.10 | 4 | 0.40 | | High penetration of wireless-enabled devices (Laptops, Smart Phones) | 0.15 | 4 | 0.60 | | 28% of population between ages 0-14 | 0.15 | 2 | 0.30 | Threats | Growing Internet Based Communication | 0.10 | 4 | 0.40 | | Awareness on Harmful effects of Radiation | 0.10 | 0 | 0.00 | | Tough Rivalry | 0.15 | 4 | 0.60 | | Similar Services and Products | 0.05 | 4 | 0.20 | | Total | 1.00 | | 3.15 |

Internal Environment

Management
Structure of The Board and Committee There are some important parts on the top management level in Turkcell that responsible to the business of Turkcell. Those are the Board of Directors, Committees of the Board of Directors, Corporate Governance Committee, and Audit Committee. Board of Directors is held by, at least, 7 people with maximum 3 years term. The objectives of the Board are to review and determine which future activities should be done by the company. It is also the role of Board of Directors to set the vision, short and long term goals, and what strategy to be implemented during the business of Turkcell. Together with Corporate Governance Committee, Board of Directors also have to observe skills and other qualifications that is needed for choosing the membership. One of the qualification of the member is to involve in Board’s activities, improve their knowledge about telecommunications and related industry, and must attend at least 75% of Board meetings. Corporate Governance Committee is one of the two committees that established by Board of Directors. The role of Corporate Governance Committee is to help the Board through developing and implementing the principles, including the establishment of transparent system in the evaluation and training of board member candidates. Besides, the committee also gives recommendations to the Board related to the investor relations activities. Audit Committee is the other committees of the Board of Directors. As the name of the committee, Audit committee has role related to the evaluation of financial reports and performance. The tasks of the committee are to assess the financial of company, find any disclosure, oversee the efficiency of accounting system. The persons who do the audit process must be independent and qualified.
Mismanagement in Turkcell:
Wrong director: Now Turkcell is in the conflict since the Chairman of the board, Collin Williams consider as not qualified to leading the company. It caused the company lost 38 kurus, or 4.7 percent, to 7.66 liras inJune 2011, its lowest close since April 2009. Turkcell TeliaSonera group which is the biggest owner in Turkcell (holding 39% of shares) blamed CUKUROVA, which was the previous owner for choosing the wrong director
Risk management
To assess and manage the risk, Turkcell has complied with various regulations and laws since the beginning. Because now Turkcell is being listed on NYSE, the management responsible to ensure the compliance with the provisions of Article 404 Sarbanes Oxley Act. Turkcell also created an internal control mechanism for the company itself and for the consolidated group companies which are in line with Corporate Governance Principles. Another risk management done by Turkcell is the fraud risk. Because Turkcell has a large amount of revenue from the number of its subscriber, the company must aware of potential risk of fraud. The purpose of the fraud risk management such as prevent sudden increase in bad debtor’s uncollected amount, allocate fraud department resource to fund the investigation of complex frauds, ensure the customer satisfaction by taking relevant fraud action, give customers warning of “bill shock”. Lately, the company applied Minotaur Fraud & Credit Risk Management Solution (FCMS) to assess prospective customers for risk and manage risk throughout the customer lifecycle.
Operational Review
Subscriber: In December 31, 2010 the subscriber of Turkcell base in Turkey were 33.5 million which was decreased by 5.4% compare to the previous year. In 2010 they tried to maintain focus on the postpaid segment by launched many campaigns and offers , increased service in data lines and promoted switches from prepaid to postpaid consumers. It was lead to increasing number of postpaid consumer by 7.4% from 9.4 million to 10.1 million. The success of their value focus proofed by 734,000 net new prepaid subscribers. Accordingly, the postpaid subscriber base made up 30.1% of their whole subscriber base, up from 26.6% comapre to letest year. At the same time, the number of prepaid subscriber was slowdown and decreased by 10.4%, from 26 million to 23.3 million.
Churn Rate: This rate depict number of voulntary or involuntary disconnected subscribers. The annual churn rate rose by 1.3 per person to 33.9% in 2010. This numbers showed that Turkcell can’t keep the loyality of consumer because consumer tend to use multiple SIM card and at the end of the day they prefer to choose a cheaper one. The majority of chunners came from low ARPU (Average Revenue Per User) subscribers.
ARPU: The number of ARPU increased from 5.4 to TRY19.5, despite increasing disconnected rates in 2010. The rise was the mainly caused by increasing mobile internet revenues and postpaid consumer, while prepaid ARPU decreased slightly by 1.7% to TRY11.4. This was happened because reduction of the maximum price cap, as well as dilutive impact of switching preapaid to postpaid base.
Financial Structure Financial Ratios for Turkcell | 2009 | 2010 | Current Ratio | 1,85 | 2,45 | ROA | 0,62 | 0,61 | ROE | 1,02 | 1,00 | Profit Margin | 0,19 | 0,19 | Debt to Equity | 0,57 | 0,58 |
The ratios represent a robust financial structure for Turkcell. Current ratio is around 2.0 which is the ideal current ratio. Since Turkcell is in communications sector which does not require a lot of inventories, quick ratio is almost the same with current ratio. As seen on Return on Equity and Return on Assets Ratios Turkcell is quite a profitable company. Looking at profit margin and ROE together we realize that nearly 20% of total equity returns to the company as profit of one year. Finally, financial structure is summarized with the debt to equity ratio, indicating that company compensate its assets mostly on equity rather than on debt.
Marketing
Turkcell conducts dozens of campaigns and sponsorships in a year. TV commercials take the most part and social responsibility campaigns add a lot to Turkcell’s value in the eyes of community.

MIS
Turkcell recently uses InSite Connect for the solution to monitor and control its base station site operations. InSite Connect is a comprehensive solution that remotely controls, manages, and monitors the subsystems at each base station site. By applying this software, it will enable network operators in Turkcell to coordinate and manage the conditions at base station sites and other remote facilities across their networks. This software also benefits Turkcell in term of the flow of information spreads inside the company. With higher technology, spreading the information among the employees will be easier and more simple. Turkcell chooses InSite Connect because the software has extensive capabilities, scalability and future-proof expandability for site control, management and monitoring. This software benefits Turkcell in term of the flow of information spreads inside the company.

R&D
In order to undertake high quality research and development, Turkcell as a part of a group of companies has a research and development company called Turkcell Technology based in Istanbul. Turkcell Technology is a research and development and innovation company, which helps Turkcell in conducting research and innovation of its services in accordance to customer needs and preferences. It helps identify customer problems that can be solved through information and technologies and focuses the R&D in the same field. It also develops new services and products to ensure Turkcell increases revenue, controls costs and optimize operations, thereby gaining a competitive advantage with diversified services.
The telecommunications industry is rapidly transforming into an internet-led multimedia, IT and communications industry where unconventional competencies are a must. Turkcell Technology strives for open innovation by ensuring that it involves its cooperating partners like research universities, research centers in monitoring progress of solutions generated by research activities.
Infrastructure
Turkcell signed a facility agreement of approximately USD 296 million for the financing of products and services that will be purchased from Ericsson and Ericsson Telekomunikasyon for its 2G and 3G infrastructure investments. The facility is arranged by Credit Agricole Corporate and Investment Bank’s Swedish branch and Nordea Bank with partial or full guarantee of the Swedish Export Credits Guarantee Board and will be assigned to the Swedish Export Credit Corporation. The fixed interest rate bearing facility has a 5-year tenor with semi-annual payments and has an expected all-in cost that will range between 3.90 percent and 4.15 percent depending on the date of utilisations.

SWOT

Opportunities * Turkey has a relatively low mobile penetration rate; this points to a sector which continues to have further growth potential especially that considering the young population who are very flexible to modern technology. * Increasing computer penetration driven by the growth of organized electronic retail and companies will help fuel broadband growth (ADSL growth). Increasing PC usage is expected to create opportunities in broadband through ADSL (asymmetric digital subscriber line) residential internet. * The belief that it’s essential for businesses to have a mobile infrastructure. * Emerging Middle Class, Fast growth in GDP * Increasing demand in surrounding developing areas * High penetration of wireless-enabled devices (Laptops, Smart Phones) * 28% of population between ages 0-14
Threats
* Similar Services and Products * Growing Internet based communication * Highly competitive market * Emphasis on bad effects of radiation spread by the mobile devices
Strengths
* Strong Market Position * High Tech Network infrastructure * Turkcell 3G market is benefiting from the deployment of HSPA technology and the growing prevalence of smartphones in the market. Turkcell has deployed a high standard HSPA 3G network capable of transmission speeds genuinely competitive with the fixed line broadband sector. * Advantage of being the first in the Turkish market * Perception of customers towards Turkcell as serving good quality. * Turkcell has an innovative company culture that promotes employees for sharing their ideas. Weaknesses * Pricing of Turkcell services are relatively high which ends up with loss of market share for low income people and students. * Decreasing Operational efficiency * Decreasing Financial Stability