Turkey - Avea to overtake Vodafone

Avea seen to overtake Vodafone in Turkey

Turk Telekom’s subsidiary Avea will overtake Vodafone in Turkey’s increasingly cutthroat mobile market in the next year, chief executive Paul Doany said on Thursday as the fixed-line incumbent met expectations with a 31 per cent fall in full-year net profit.

Vodafone’s Turkish operation, which it bought for $4.6bn in 2005, was among its worst-performing businesses last quarter, plagued with problems linked to its mobile network and sales outlets.

Oger Telecom, the Middle Eastern group that paid $6.5bn in the same year for its 55 per cent stake in Turk Telekom, appears to be making more headway against the dominant mobile operator Turkcell.

Avea has gained a net 300,000 subscribers since November, when the introduction of number portability allowed customers to keep the same number when switching provider. Mr Doany said new subscribers had a higher average revenue per user than those leaving.

“We think Avea will be the number two by revenues this year, even in six months,” he said. Turkcell also says it has increased its subscriber base since November.

But Turkey’s mobile market is getting tougher. All three operators are bringing out rival pricing offers, and the economic downturn has hit mobile phone sales, meaning investments in higher value 3G services may not pay off as quickly as hoped.

Turk Telekom has also been hit by the decline in the Turkish lira, raising the cost of servicing foreign currency debts – the likely cause of the 31 per cent drop in net profits to TL1.75bn ($1.04bn)in 2008. Operating profit rose 6 per cent to TL2.7bn.

But Mr Doany expects stable margins and revenue growth of 8 to 10 per cent next year. He said Turk Telekom was taking advantage of the downturn to upgrade its fixed line network more quickly while copper prices were low, and to press ahead with building projects at “prices that are frankly stunning”.

The former state monopolyhas set aside up to $1bn for acquisitions in 2008, eyeing options in the Balkans and Central Asia.

Mr Doany said many deals in the sector would be difficult to price, with recent valuations now looking hard to justify but sellers unwilling to slash prices. But he said the number of operators in many markets was now unsustainable.

“Markets will have to see more consolidation – there’s too much price competition,” he said. “If not, it’ll be burning money for no reason.”