Interview: Turkcell finds growth in Belarus

Nicholas Birch in Istanbul

Chief corporate strategy and international expansion officer for Turkey's leading mobile phone company, Tayfun Cataltepe is a man it's difficult to imagine getting into a flap.

On August 26 Turkcell completed a $500m deal to buy an 80% stake in BeST, the number-three mobile operator in Belarus, a country until recently absent from most business radar screens. But talking to bne in Turkcell's central Istanbul headquarters, the soft-voiced Cataltepe sounds as though it was the most natural decision in the world. "Belarus is just a good market to be in," he says. "There is growth potential and active efforts on the part of the government to modernise the market. It is rare to find these two together."

The buy-up is a logical continuation of Turkcell's expansion north of the Black Sea, which began when it bought a 55% stake in Ukrainian GSM operator Astelit in 2005. Boosted by a subscriber base that hit the 10m mark this July, Astelit recorded $110m in revenues in the first half of 2008, 101% up on last year. Turkcell's minority stake it took in Fintur in 2007 - active in Kazakhstan, Azerbaijan, Moldova and Georgia - has proved a good bet too, with contributions to income up 78% to $39m in the second quarter of 2008. "We know this region well," Cataltepe says. "We know the culture, we know the people."

While he thinks it would be wrong to describe Turkcell's acquisition of BeST as a simple extension of its operations in Ukraine, he says the existence of a well-trained local team in Kiev will help get Turkcell off to a flying start in Minsk. "It's only five hours by car between the two cities, you know," he points out.

And though it runs counter to cliches of Belarus as Europe's last dictatorship, he expects working there to be easier in many ways than in other former Soviet countries. "You need nearly 50 different permits in Russia to roll out operations. Bureaucracy in Belarus is better defined, and getting better,, Cataltepe says. "And the level of education is higher than in Ukraine, which means a really well-qualified work force ready to do the sorts of jobs we'll be asking for."

While it only has 3% market share, BeST invested $200m recently to push out its coverage to 68% of the Belarus population. Cataltepe thinks the mix of smallness and a solid technical base suits Turkcell's style perfectly.

While companies like Vodafone tend to buy into well-established companies, Cataltepe says "Turkcell has a unique capacity to go to a green field and roll things out, not just technically, but commercially too."

Full up at home

For most analysts, Turkcell's decision to brave the vagaries of Eastern Europe's newest emerging market stems from the fact that its home market is approaching saturation. Due to be introduced here this November, number portability is likely to help Turkcell's competitors Avea and Vodafone to eat into its 52% market share, they add.

That's not necessarily true. While market penetration in Turkey is around 90%, that figure includes double SIM-card holders. In time, penetration should reach 110%. As for number portability, Nergis Kasabali, research chief for brokers Ata Invest, says it's a double-edged sword. "Turkcell is just as likely to acquire Avea and Vodafone customers as vice-versa," she says.

For Kasabali, the real impulse to Turkcell's ongoing expansion is its strong cash position - net profits in the first half of 2008 were $426.4m, well above the average estimate of $359m in a Bloomberg survey of six analysts - and low expenditure inside Turkey. Announcing on August 17 a deal to bring Apple's new iPhone 3G to Turkey later this year, Turkcell has already completed the majority of its 2.7G investments. "There is little doubt in my mind that we'll be seeing more moves by Turkcell internationally," Kasabali says.

Asked about future overseas ventures, Tayfun Cataltepe is coy. "We're looking around, yes, but we'll announce results only when we have some", he says. "We are a public company and we have to abide by the rules."

Yet while the Balkans and CIS have until now been the centre of Turkcell's operations, new strategic deals are probably more likely to take place on Turkey's southern flank. The company entered several tenders in the Middle East in 2007, most notably being outbid in Kuwait and Saudi Arabia.

More recently, plans to buy a controlling stake in Syriatel ground to a halt amid political tensions and behind-the-scenes U.S. lobbying. Owner of at least 69% of Syriatel's shares and a cousin of Syrian president Bashar al-Assad, Rami Makhlouf was expected to sell a stake in the company - which has a 55% market share - for around $1bn this spring. Then the US imposed sanctions on him for alleged involvement in public corruption in Syria as relations between Damascus and Washington plummeted. While some analysts say Turkcell could still make a move on Syriatel, it appears to have backed off for now. The money it would have spent is still in its pocket.



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