Downturn Could Stall Appetite for Turkish 3G Services

Fitch Ratings says that the impact of the current economic downturn could stall Turkish consumer demand for new 3G phone services despite industry expectations that it will significantly boost data revenues and result in overall increases in average revenue per user (ARPUs).

"August's launch of 3G will see operators striving to increase mobile broadband usage and revenue in the long-run while building out their 3G coverage during the remainder of 2009 and 2010. However, Fitch believes that the impact of the economic slowdown could mean that even a 15% handset penetration may only be reached by 2011 at best," says Bulent Akgul, Director in Fitch's Corporate Finance team, Istanbul.

As of H109, up to 4 million mobile phones were compatible with 3G in Turkey which addresses only 5-6% of the current subscriber pool. Fitch estimates that currently more than 50% of existing handsets are already mobile internet capable.

Whilst take-up of 3G services may initially be rapid due to marketing around the August switchover and consumer appetite for the long-awaited technology, limited 3G coverage and convergence of multiple technologies - such as voice, music, video and data - may likely translate into initial network service quality problems as the UK experienced during its 3G rollout.

Fitch also notes that non-messaging revenue in Turkey has already risen to approximately 7% and compares reasonably favourably with developed 3G markets such as the UK and Germany.

"Operators appear to have pinned their hopes on video calling to attract a wider audience and raise visibility of the wide array of 3G services on offer. However, as over 20 million Turkish subscribers already access the internet through their mobile telephones, the anticipation of greater speeds and wider usage of 3G may be more of marketing tool than a reality, at least in the short-term. Fitch anticipates that 3G will merely substitute existing GPRS/EDGE technologies in the short-term rather than provide revolutionary new services," Akgul added.

In Europe, where the post-paid share of the subscriber base is significantly higher, the growth in the number of 3G subscribers has only picked up in the last three years and has not yet translated into significantly higher revenues for operators. Non-SMS data revenues accounted for an average of 10% of mobile revenues in different European markets such as Germany and the UK. Accordingly, the small absolute size of non-messaging data revenues has had a limited impact on European mobile operators ARPUs so far, and the agency estimates that the share of non-SMS data revenue has to rise above a 20% threshold before it will have a significant impact.

Fitch expects this trend to be repeated in Turkey since Turkcell's non-SMS data revenue is already at 7% with nearly 19 million Turkcell subscribers (50% of the overall subscriber base) using the internet for content and data throughout 2008. Whilst the switch to 3G technology will certainly boost internet connection speeds and provide greater choice to consumers, it remains to be seen whether it will significantly boost the number of users. Fitch still expects the share of non-SMS data revenue in Turkey to reach 10% in the next 3 years, but pricing of services will be critical. Fitch notes that operators have already cut Internet access prices by 50% with likely more to follow for wide-spread usage.

Posted to the site on 31st July 2009