Shareholders of Turkcell dispute Case Study

Document Type:Thesis

Subject Area:Business

Document 1

Currently, there are ongoing conflicts and legal problems among shareholders about ownership of shares. Because of these conflicts and resulting court cases are still not resolved, the company board of directors can’t operate normally, which affects governance and management of Turkcell. Political problems in Ukraine and belarus are other concerns for Turkcell as it has significant investments in these countries. On the other hand, strong position, cash generation and cash balances are strengths of Turkcell. What were the implications of this dispute for Turkcell's broad ambitions? How would the continuing battle affect management, talent, and the company's financial performance? This study analyzes Turkcell using the PESTLE, Porter’s Five Forces and SWOT analysis tools. Turkcell has subsidiaries in Ukraine, Belarus, Germany, Turkish Republic of North Cyprus, Kazakhstan, Azerbaijan, Georgia and Moldova.

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Turkcell is the dorminant player in the mobile telecommunications market with a share of 52 percent of all mobile subscribers as of december 2012. Also, turkcell provides fixed line broadband intrenet services through its subsidiary superline and competes with Turk Telecom Subsidiary TTNET. The shareholder structure of Turkcell is complicated and disputed. Currently ownership of Turkcell shares is as follows: Turkcell Holding AS has 51 percent Cukurova Holding AS has 0. Because of these conflicts and resulting court cases are still not resolved, the company board of directors can’t operate normally, which affects governance and management of Turkcell. Political problems in Ukraine and belarus are other concerns for Turkcell as it has significant investments in these countries. On the other hand, strong position, cash generation and cash balances are strengths of Turkcell (Standard & Poor’s, 2013) STATEMENT OF THE PROBLEM The problem that prompts this thesis is the failure of Turkcell Holding AS to hold its General Assembly Meeting for the fifth time since 2010.

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Hence, this study seeks to determine the implications this would have on the Turkcell’s broad ambitions and how the continuing battle for company control would affect management, talent and the company’s financial performance. RESEARCH QUESTIONS This thesis attempts to answer these questions: • What were the implications for Turkcell’s broad ambitions? • How would the continuing battle for company control affect management, talent and the company’s financial performance? RESEARCH AIMS & OBJECTIVES This thesis focuses on understanding the implications for Turkcell broad ambitions and the resulting effects on the management, talent and on financial performance due to the continued battle for company leadership among the three major company’s shareholders. Thirdy, the battle for control among the shareholders is briefly discussed.

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Fourthly, the competitive landscape and business enviroment is difined. In addition, the regulatory uncertainity surrounding Turkcell is outlined. Then, SMS and Voice decline is explored. Lastly, competition is described. Turkcell’s share of subscribers and revenue declined overtime but the company still served roughly half of the Turkish market in 2014. In the mobile segment Turkcell offered four products voice, SMS, data and value added services. Turkcell’s customers spent over more time on the phone but calling had become more affordable leaving the company only modest increases in average revenue per customer. In 2013, 60 percent of Turkcell’s customers paid for airtime upfront down from 70 percent in 2010. Turkcell offered broadband internet access under its Turkcell Superonline brand, spending $1 billion to build the fastest fiber optic networks globally providing speeds of upto 1000 mbps.

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7 %, EBIT 5. 8 %) and the regional subsidiaries (EBIDTA 30. 5 %, EBIT 4. Despite this Turkcell’s apparent success the company’s shares still traded at a significant discount, one of the reasons for the continued shareholders dispute. Battle for Control The protracted court battle between Turkcell’s three major shareholders; Karamehmet’s Cukurova Holding, TeliaSonera, the Finnish telecoms operator had merged with Swedish Telia and Altimo a subsidiary of Alfa Group (a large Russian investment firm). As Cukurova and Alfa were unable to reach an agreement Turkcell’s shareholders meetings were left without quorum although work at board level continued. The board met every month and made many decisions although without the board’s approval they could not announce quarterly results, make investment decisions exceeding specific limits or even adopt an operational budget.

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The board was also unable to agree on the dividends and new members and hence difficult to set performance targets and compensation levels. Turkcell’s shareholders were also unable to bring the company’s board in compliance with the new rule that required one third of the board members of Turkish companies to be independent. Because Turkcell could not act by September 2013, the Turkish Capital Market Board had appointed all seven directors. In 2012, Turkcell launched TVPlus which allowed customers to watch TV, movies and soccer games on their phones, tablets and PCs. Later, Turkcell also launched Mobile Wallet Application which allowed customers to store debit and credit cards in their electronic wallet and used the application for instore purchases, bill payments and person to person money transfers.

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Finally, Turkcell allowed brands to use the wallet as a marketing channel. The wallet subscribers received upto five offers a day, reflecting their preferences and behavior. By early 2014, more that 1 million customers had signed up for the service. External analysis includes macro enviromental and micro eniromental analysis. There are different tols for each analysis type. In this case, PESTEL analysis is used for macro enviromental analysis, Porter’s Five Forces is used for micro enviromental analysis and SWOT is used for both external and external eniromental analyses. Then, the CSFs method is used to determine critical success factors and key success factors based on the result of these analyses. PESTLE ANALYSIS PESTLE stands for political, economic, social, technological, legal and enviromental factors.

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The results of PESTLE analysis can be used to determine two external factors in SWOT analysis, which are opportunities and threats. Best practice for using PESTLE and SWOT analysis together is performing PESTLE analysis and using the results for the external factors of SWOT analysis that include opportunities and threats. PORTER’S FIVE FORCES The Porter’s Five Forces model was developed by Harvard Business School professor Michael E. Porter in 1979. Porter lists five forces that determine the state of competition in an industry: threat of entry, replacement products, power of buyers, power of suppliers and competitive rivalry. Rockart defines critical success factors (CSFs) as “The Limited number of areas in which results, if they are satisfactory, will ensure successful competitive performance for the company.

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They are the few key areas where things must go right for the company to flourish. If results in these areas are not adequate, the company’s efforts for the period will be less than desired (Bullen & Rockart, 1998). CSFs are closely related to the strategic goals and mission of a project or a company. According to the British online management and leadership training provider, mind tools, while mission and strategic goals define what a company aims to achieve, CSFs focus on the most important areas and on how to achieve these goals. As political factors affect overall economy and businesses, companies need to adapt their policies accordingly (Marketing Theories- PESTEL analysis, 2014) a. Strengths The Turkish government gave Turkcell a 25 years license to provide cellular services under a revenue sharing agreement with Turk Telecom, for an upfront fee of $500 million.

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This was a great deal for Turkcell. Turkey is a member of the OECD, NATO and G20. Also, membership negotiations with EU have been in progress since 2005. Challenges Taxes applied to mobile services are too high. Turkcell being one of the mobile services provider is required to pay these taxes and other regulatory charges such as MTRs. Turkcell contribute to investment increase, technology development, productivity, economic growth, income inequality and poverty decrease and tax revenue increase. High taxes increase costs, resulting in lower Turkcell growth. As a result, high taxes restrain mobile sector growth and their economic benefits. Turkey has a sound financial sector. Structural reforms after the 2001 economic crisis strengthened the finance sector and enabled banks to keep their positions and net profits against the global financial crisis.

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The financial strength of banks enables investment in the economy. All these factors contribute to the development of the economy in general and Turkcell specifically as it has close ties with the general economy. b. Political problems in the neighboring markets as Europe, the Middle East, Caucasus and Balkans may affect Turkcell negatively, as it operates in Ukraine, Belarus, Germany, Cyprus, Kazakhstan, Azerbaijan, Georgia and Moldova. On the other hand, poor work force quality, high tax rates, tax regulations, insufficient bureaucracy, insufficient venture capital, poor work ethic, restrictions in labour regulations, price based bidding policy and corruption can be mentioned as risk factors threatening Turkcell. Socio-Cultural Factors Social or socio-cultural factors include factors such as demography, population growth, education, cultural norms, and distribution of income.

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a. Strengths Turkey has a young population inclined to adopt and use technology and various communication means. 5 by 2030 (Euromonitor, 2013).  As the driving force for the ICT sector is the youth population, the aging population may create a challenge for the ICT sector development. That means Turkcell will have to come up with services that target the aged specifically. c. Future Expectations The FAITH (Movement of Enhancing and Improing Technology) project, will have an influence in the education sector in the coming years. Strengths The mobile services sector is being strongly supported by government within the scope of the Vision 2023 strategy of government.  Vision 2023 aims to include 30 million broadband subscriptions, increasing the domestic provision rate to 50 percent for ICT products and services, increasing ICT sector share to 8 percent of GDP, providing all public services in a digital environment by 2019, and increasing computer literacy to 80 percent.

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Government-supported R&D expenses are also increasing in terms of both amount and as share of GDP, and reached 0. 92 percent of GDP in 2011 in comparison with 0. 4 percent of GDP in 1998 (Data Monitor, 2012).  (YASED & Deloitte, 2012). c. Future Expectations Turkey declared 50 areas scattered around the country as Technology Development Zones (TDZs) that are aimed at supporting R&D activities in technology, and 34 of these are currently operational.  The remaining 16 TDZs are under construction. Techno-parks aim at developing technology through R&D using institute, university, or R&D center facilities in which they are located and transforming innovation into products or services.  Also, the authorizations and competencies of ICTA and the Ministry are mostly well separated (EBRD, 2012a).  Regulator independence and structure, numbering, consumer protection, interconnection, and access can be mentioned as strong points in the telecommunications legal framework.

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 Figure 11 shows best practices as outer borders and Turkey as thick lines.  The shaded area shows the average for 31 countries that are mostly located in Eastern and Southern Europe, the Middle East, and the former USSR region (EBRD, 2012a). b.  Regulatory measures can be taken to support fiber and broadband infrastructures. c. Risks According to ICTA regulation, the local infrastructure owners do not have to share their infrastructure and manholes, and thus, alternative operators cannot use idle fiber infrastructure in return for a reasonable cost.  Thus, alternative operators prefer building up their own fiber networks, but obtaining permits required from municipalities or other authorities for right of way or excavation is challenging.  This is one of the most important problems preventing fiber infrastructure development in Turkey Turkey has heavy taxes on the telecommunications sector and two different taxes are applied, putting the taxes in one of the highest places in the world in terms of both GDP per capita and total cost of ownership.

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 Environmental pollution may negatively impact human health and a country’s economy (Marketline, 2013).  The ICT sector is the fifth most energy- consuming sector (YASED & Deloitte, 2012), and thus, it contributes to pollution caused by energy production from fossil fuels.  New renewable energy production methods should be used to prevent pollution caused by fossil fuels. Turkcell will howeer have to embrace this inorder to held minimize enviromental pillution. c. Turk Telekom is exposed to threat from new market entrants and losing market share. For mobile communications, the threat from new entrants is lower as licenses are required from ICTA for a new mobile network operator.  Also, there is no available radio spectrum left that will meet data and voice communication satisfactorily for now.

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 On the other hand, MVNOs (mobile virtual network operators) can enter into the mobile communications market more easily as ICTA has been issuing new licenses since 2009 and MVNOs do not have to invest in infrastructure as they use infrastructure of existing operators (Boynudelik, 2011). Threat of Substitute Products Fixed communication market services, both telephony and broadband, are exposed to substitution by their mobile equivalents.  The same threat is also valid for voice market.  OTT providers that provide voice and text messages such as Skype, Viber, and Tango are increasing their number of uses, and Whatsapp has plans to extend its service coverage to voice. Power of Suppliers As smartphone usage increased rapidly, popular smartphone suppliers such as Apple and Samsung gained significant power.

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 Thus, having distribution and retailing agreements with these suppliers is an advantage for mobile network operators and having no such agreement can turn out to be a significant disadvantage.  Having more agreements with more suppliers can help operators enlarge their user base.  Avea agreed to have Nokia produce a Lumia 525 model especially for Avea at an affordable price and attractive contract offers. As explained earlier, the power of suppliers has increased after smartphones were introduced and mobile network operators have to take them into consideration to keep their market share and competitiveness.  On the other hand, the power of suppliers is not high in fixed telephony and fixed broadband markets as there are many providers with similar products that fixed network operators can cooperate with.

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i. e Vodafone, Avea and Turkcell offer similar products. Competitive Rivalry The competition level is high for both fixed and mobile telephony and broadband markets.  As mentioned earlier in the discussion of new entrants, incumbent fixed operator Turk Telekom is exposed to competition from new fixed line entrants and mobile market substitution.  This high competition decreases profitability in the fixed market. For the mobile market, the competition level is also high.  Three existing mobile network operators in Turkey compete for existing customers as the market is mature.  Thus, the profit margin is decreasing and operators are forced to find alternative sources of income to stay profitable. C. SWOT ANALYSIS FOR INTERNAL AND EXTERNAL ANALYSES As explained in Chapter III, SWOT and PESTLE analyses may be used together and PESTLE analysis results may be helpful for defining the external part of SWOT analysis (that is, opportunities and threats).

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 In this section, SWOT analysis is made using the findings of PESTLE analysis in the previous section of this chapter.  Also, other external sources are used. Critical Success Factors (CSFs) Performance Measures Availability of products and services -     Increased penetration rate for fixed, mobile, and broadband access paths equal to or greater than EU/OECD averages -     Availability of various telecommunications access paths for all population -     Broader definition of universal services Accessibility of products and services -     Lower telecommunications access path to GDP ratio -     Lower subscribers’ rates for products and services -     Increased information technologies literacy among citizens -     Closer penetration rate among all regions and demographic groups across the country Increased innovation capacity -     Increased R&D expenses to GDP ratio to OECD/EU average -     Increased researchers to employment ratio to OECD/EU average -     Increased number of patents -     Increasing conversion of R&D and research activities into products (venture capital) -     Increasing educational quality in vocational schools and universities -     Inclusion and retention of well-educated young women in labor force Adoption  of Legal and Regulatory Framework -     Full adoption and implementation of EU ICT 2009 Regulatory Framework Increase of investments -     Increased size and variety of government led or supported information technology projects -     Increased number and intensity of technology parks -     Increased share of information services and software in information technologies subsector -     Increased number of IT start-up companies -     Increased and diversified amount of start-up investments -     Increased clustering of large technology development zones around universities -     Increased support for cooperation between university research centers and industry -     Increased tax advantages and other economic incentives for domestic subscribers CHAPTER FIVE: PROPOSED SOLUTIONS, FUTURE WORK, RECOMMEDATIONS LIMITATIONS & BEST FIT SOLUTION PROPOSED SOLUTIONS • Review of the dividend policy, pay dividends to shareholders with regard to trends in the company’s operating performance, financial condition and other factors.

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• Set appropriate risk limits and controls and also monitor risks and adhere to those limits. • Review risk management policies and systems regularly to reflect changes in market conditions and company’s activities. • Establish more strategic operating segments to generate more revenue, offer similar services but managed separately as they operate in different economic conditions. • Ensure that the audit, corporate governance, candidates nomination, early detection of risk and remuneration committees are working effectively. • Cutting off partners or subsidiaries that may expose the company to varies economic, social, financial liquidity, regulatory and legal issues. Also cut off partners that may not benefit the company as expected. • Successfully intergrate and manage the opportunities that the company pursues, particullary related to current mobile communication business, new business model, new technologies and international activities.

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• Abiding by the requirements of the company’s license and applicable regulations. BEST FIT SOLUTION Review of the dividend policy, pay dividends to shareholders with regard to trends in the company’s operating performance, financial condition and other factors. • Avoid over dependency on certain systems and suppliers for IT services and be prepared incase of exposure to potential natural disasters, regular or severe IT and network failure, human error, hacking and IT migration. LIMITATIONS Time allocated for this study may not be enough to cover all aspect of Turkcell extensively. Care should be taken when generalizing these findings to the entire population. Finally, the use of simple statistical techniques may introduce an element of subjectivity into the interpretation and analysis of the data.

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All attempts have been made to minimize the effects of these limitations on the study. STRENGTHS  Steadily increasing broadband penetration rate  Increasing number of businesses for designing value added services and products in ICT sector  ICT legal framework based on EU acquis and continuous harmonization process  Increase of e-government applications and services and strong political Support  Increasing R&D funding for major company’s income generators  Developed manufacturing infrastructure for consumer electronics  Young and dynamic population inclined to use new technologies  Geopolitical position of Turkey – proximity to EU and Middle East markets  Strong integration with world economy and growing market size B. WEAKNESSES  Limited number of company’s brands in international mobile services markets  Poor education system that cannot support innovation, high-tech industry requirements, and technical skills to meet the human resource demands of mobile service sector  High taxes imposed on Turkcell  Insufficient cooperation in mobile market and insufficient coordination between government institutions  Negative contribution of ICT sector to current account deficit, high import rate  Limited capital amount for investment and lack of venture capital standards, culture, legislation, and regulatory framework  Insufficient Turkish content  Openness of independent media regulator (RTUK) to political influence  Lack of special courts for ICT sector and violations of intellectual property rights (IPRs), poor IPR protection and law enforcement, and high piracy rate  Relatively low GDP and high income distribution inequality restricting access to mobile  services C.

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OPPORTUNITIES  Attractive market for skilled and qualified human source  A large and expanding market because of young population interested in new technologies and increasing population  High interest for infrastructure investments, especially for fiber deployment  Developing neighbor markets (Caucasus, Middle East, North Africa, Asia) bordering with Turkey on south and east  EU accession negotiations and full membership perspective contributing to development process of the ICT sector, particularly further alignment of ICT framework with EU acquis during accession negotiations  Low mobile sector share in GDP indicating future growth potential  Emergence of new services that will contribute to development and growth of mobile service sector  Existence of large ICT projects like FATIH education project and e- government projects that will contribute to the development of Turkcell  Strong development potential of e-commerce  Potential for manufacturing mobile equipment, such as smartphones and tablets, and creation of world class brands  Promising increase of broadband and fiber penetration rates D.

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THREATS  Continuing international political unrest, armed conflicts, and economic crises in neighboring regions and countries  Slow e-transformation of private sector and public organizations  Increasing cyber threats and security problems  Digital divide, meaning inequality of people for accessing or using services  Geographical imbalance of infrastructure investments between regions  Fast increase in demand for scarce resources such that it cannot be met in time  Fast increase of mobile technologies versus slower change of  mobile legislation  Inefficient infrastructure investments and sharing of existing infrastructure  Poor innovation and cooperation culture and low number of patents LIST OF REFERENCES Atiyas, I.  Regulation and competition in the Turkish telecommunications industry.  A primer on critical success factors (CISR No.  69, Sloan WP No.  Cambridge, MA: Center for Information Systems Research, Sloan School of Management, Massachusetts Institute of Technology.

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Critical Success Factors Identifying the Things That Really Matter for Success.  (n.  Retrieved April 14, 2018, from http://www. gsma. com/publicpolicy/wp-content/uploads/2012/05/ Mobile_telephony_taxation_Turkey_report_eng. pdf The Economist.  (2012, April 21).  and Castilla, G. , 2006: Object-Based Image Analysis: Strengths, Weaknesses, Opportunities and Threats (SWOT).  The International Archives of the Photogrammetry, Remote Sensing and Spatial Information Sciences, Vol XXXVI- 4/C42. Information and Communication Technologies Authority.  2010–2012 strategic plan. pdf Marketing Theories – PESTEL Analysis.  Professional Academy, n. d.  Retrieved April 13, 2018, from http://www. professionalacademy.  doi:10. 1787/comms_outlook-2013-en OECD.  (2013b).  Fixed and wireless broadband subscriptions per 100 inhabitants [Data file].  Retrieved April, 16 2018, from http://www.  Universal service in turkey: Recent developments and a critical assessment.  Telecommunications Policy, 37(1), 13‒23. Ozel, I.  Differential Europe within a nation: Europeanization of regulation across policy areas.

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