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Fitch: Turkish Telecoms Face Increasing Triple-play Competition

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Fitch Ratings expects that increased focus on bundled services within the Turkish telecoms market could lead to an increase in content costs, especially for live football broadcast rights. Expanding pay TV services can help telecoms operators to maintain and grow mobile and broadband market share, but high content costs could erode profitability. The Turkish telecommunications market is becoming increasingly convergent as the major operators begin to offer pay TV services as part of their triple or quad play service bundles. Turk Telekomunikasyon launched satellite TV services in July to supplement its IPTV product, and Turkcell has a growing IPTV offering, with 16% of its fibre customers taking up triple play services at end June 2015. Football rights are likely to make up an important part of pay TV operators' content offerings. In November 2014, Turk Telekom acquired the rights to UEFA European football (champions and Europe leagues) for three seasons, beginning in 2015 2016, and although the cost was not disclosed, we expect it to be sufficiently offset by reduced direct sport sponsorship. D Smart, the second largest pay TV satellite broadcaster with 1.74 million subscribers, previously held the UEFA rights. The leading Turkish pay TV operator is Digiturk with its satellite TV offering serving 2.7 million customers at end 1Q15. It owns the rights to broadcast the Super Lig, the country's top football league until the end of the 2016 17 season. The company's initial four year deal, which ended with the 2014 15 season, cost USD321m per season, but this was extended for two more years at a reported cost of USD450m per season an increase of 40%. In their 2Q15 investor call Turkcell stated that they are interested in continuing to grow their IPTV offering, and to potentially acquire sports content to increase its attractiveness. With Turk Telekom having already secured the UEFA European football rights for three years, the Turkish Super Lig rights could see a lot of interest when they come up for auction in 2H16. We expect Digiturk to want to retain these key content rights, as their ownership is a key differentiator of their satellite TV offering. Having recently been acquired by Qatar based Al Jazeera's sports arm, we expect that they will have significant resources to try to hold on to these rights. Turkcell, however, with a net cash position at end 1H15, has signalled that it is planning to run a higher leverage profile. This could release significant resources to bid for these rights. D Smart and TT may also be interested. Competition for football rights could result in a significant increase in content costs, as seen in the UK. The cost of live broadcasting rights for English Premiership football has increased over 70% as BT Group Plc (BBB Positive) competed against Sky Plc (BBB Stable) for the content.

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Tags: Turkey