Turkey - call for increased reforms

Alternative telecoms call for increased liberalization of communications infrastructure

TELKODER Chairman Arıak says privatization of the cable network offers the best opportunity for a liberal market.

Although the Turkish telecommunications sector has made significant advancements in recent years with respect to liberalization, it still does not receive passing grades when compared to the vast majority of European countries, according to the European Competitive Telecommunications Association (ECTA), which recently published its first-ever Regulatory Scorecard featuring Turkey.

Leading the charge to increase this ranking and bring the Turkish telecommunications sector up to the standards of competitive countries elsewhere, the Turkish Telecommunications Operators Association (TELKODER) has been vocal in criticizing what it sees as policies and behaviors taken by incumbent telecom providers that limit a more competitive environment. It hopes these criticisms will ultimately lead to more competition, lower rates and better services.

"It is difficult everywhere in the world," said Yusuf Ata Arıak, the chairman of TELKODER. "But in Turkey it is especially difficult."

The figures lend credence to this view. At present in the sector, the three GSM providers permitted to operate in the market -- Türk Telekom, Avea and Vodafone -- and the sole provider of fixed line telephony, Türk Telekom, make up 97 percent of the total revenue generated by the telecommunication services sector.

The monopolization of infrastructure provision for fixed-line telephony by Türk Telekom is an issue that TELKODER identifies as a key concern. According to Arıak, this is the primary roadblock to establishing a truly competitive telecommunications environment in Turkey.

Signs, however, suggest things are changing. A few months ago the introduction of competitive fixed-line local calls was approved, and now all that is needed is final approval by the Cabinet.

Last month's decision by the Competition Board on the provision of "Naked ADSL," which permits ADSL to be provided without any subscription to a fixed telephone line, is cited as another positive development.

"If there is only one infrastructure provider and not a second one, then there are problems," Arıak said. The result has been a price squeeze in which alternative providers have been forced to rely on Türk Telekom's infrastructure and, Arıak explains, Türk Telekom's end-user prices are often lower than the amount it charges alternative operators.

Türk Telekom representatives have in the past responded to similar accusations by saying that such claims are simply unfounded and that Türk Telekom engages in "positive discrimination" toward alternative Internet service providers. Basically, Türk Telekom charges TT Net, its Internet service provider, fees that are about 20-25 percent more than what they charge alternative Internet providers. The goal, they say, is to bring down TT Net's present market share of about 95 percent to 80 percent or less.

They also responded to alternative telecoms' views on infrastructure limitation by claiming that there is nothing that prevents these companies from creating their own infrastructure and that they have spent many billions of dollars of their own money creating their infrastructure.

"This is not realistic," Arıak responds. "The argument that they built it and therefore it is theirs to use as they wish is a 50-year-old idea," he said, adding, "Turkish telecommunications infrastructure is a national infrastructure; they have to let everyone make use of that infrastructure."

He says Türk Telekom's argument is like a government charging an exorbitant highway fee to a company that makes deliveries to clients, saying, "Build your own roads and highways if you don't like it."

The process of obtaining the required licenses in order to operate in a given field was another area of concern cited by Arıak. Alternative operators must make their way through lengthy processes to complete required procedures and submit the necessary documents, while Türk Telekom has had the opportunity to prepare itself and take the competitive edge.

Take the new Naked ADSL regulation, for example, which permits the provision of high-speed broadband Internet connections without the presently compulsory fixed telephone subscription requirement. Despite having been passed by the Competition Board, Arıak believes the regulation will soon be challenged by Türk Telekom in the higher courts. "I am sure Türk Telekom will resist it," he said, noting that this will provide the incumbent telecommunications provider with the opportunity to prepare for the ultimate implementation of the regulation and gain a competitive edge over the competition as the courts deliberate.

According to the TELKODER chairman, the best hope for a competitive market at the moment would be the privatization of the cable television infrastructure, which is said to have the potential to deliver ADSL and telephony to 2.5 million homes across Turkey and is controlled by Turksat. "We believe that there is a political will to implement this within 2009," he noted
Arıak stresses that TELKODER has provided the government with a "blueprint" on how the cable network could be privatized based on the experiences of the Telsim privatization, which had a similar number of convoluted legal issues surrounding it, as it was in the hands of the Savings Deposit Insurance Fund (TMSF).

Nonetheless, the introduction of Naked ADSL was seen as a step in the right direction and one that would ultimately pay off. "I believe Naked ADSL will be possible,” said Arıak.
When asked when he thought it would come into effect, Arıak grinned, saying: "There is no answer to such a question in Turkey. Some day."

Prohibitively high taxes were yet another obstacle cited as preventing further penetration in the telecommunications sector. Three taxes -- the Special Communication Tax (ÖİV), the value-added tax (VAT) and the GSM services tax -- apply. The recent reduction of the ÖİV to 5 percent on Internet services was a step in the right direction, according to Arıak, but it does not go far enough. "We think the ÖİV, which was implemented after the 1999 Marmara earthquake to provide much-needed government funds, is no longer justifiable, so it should be lowered. We propose they phase it out over three years," he said, adding, "If they do this in three years, the volume can be higher and they can make up for the lost taxes."

Market penetration for broadband Internet in Turkey is amongst the lowest in Europe, standing at just about 5 percent, and studies have repeatedly shown that increasing market penetration is directly correlated with an increase in the number of providers.