TELECOM_Sector_Initiation

17 October 2011 Equity Research
Sector Report
UniCredit Research page 1 See last pages for disclaimer.
Telecommunications – Turkey
Ring my bell
■ We initiate coverage of Turkcell (TCELL) with a Buy rating. We
believe Turkcell offers a favorable risk/reward profile with accelerating
operational earnings momentum and better cash return potential to help
narrow the discount to its wireless peers. We expect Turkcell-Turkey's
underlying service revenues to resume growth, starting in 3Q11, and
register ARPU (average revenue per user) CAGR of 4% in 2010-2015E
thanks to decelerating contraction in outgoing APPM (average price per
minute) associated with narrower APPM premium against the
competition, growth from incoming revenues with stable MTRs (mobile
termination rates) and a strong uptake in mobile internet. We expect
moderate improvement in EBITDA margins for Turkcell-Turkey with lower
pressure from interconnect (higher incoming traffic growth than outgoing
traffic) and the structural improvement in opex (wireless usage fee). The
stock is trading at 4.4x 2012E EV/EBITDA, implying 18% discount to its
wireless peers. We believe Turkcell’s unique value proposition powered
by its fiber subsidiary and strong technology portfolio positions it well to
generate additional revenue streams through bundling and VAS (value-
added services) in the medium term.
■ We initiate coverage of Turk Telekom (TTKOM) with a Hold rating.
Turk Telekom has benefited from the stabilization in its core PSTN
business over the past year, while offering decent growth driven by its
ADSL business, thanks to its pricing power and low fixed broadband
penetration. However, these positives are mostly reflected in the stock
which is trading at 6.2x2012E EV/EBITDA, implying a 15% premium and
7% discount to international fixed-line peers, respectively. The potential
deterioration in dividend yield due to sizable FX losses this year may hurt
investor sentiment.
■ The Turkish mobile market has gone through a perfect storm caused by
a combination of aggressive price competition and regulatory cuts
applying pressure on market growth and the profitability of operators over
the past three years. While we do not factor in an improvement in the
competitive landscape in the near term, we believe the room for smaller
operators to capture market share by using pricing as a tool has
narrowed on the back of: i) significantly reduced APPM premiums among
operators (Turkcell’s premium to Vodafone has narrowed to 25% from
107% two years ago) which is also supported by stabilization in MNP
activity; ii) Initial signals of waning price elasticity of demand (down to
1.1x from its peak of 2.1x) with MOUs reaching one of the highest levels
in Eastern Europe may suggest that smaller operators would need to
focus on traffic yields for growth.
SUMMARY OF RECOMMENDATIONS
Rating Price 12M TP Upside 2012E EV/EBITDA
Turkcell BUY TRY 8.82 TRY 10.54 20% 4.4x
Turk Telekom HOLD TRY 7.56 TRY 8.03 6% 6.2x
Source: UniCredit Research estimates
Contents
Investment case 2
Turkish cellular and fixed voice market 3
MOU outlook 3
ARPU comparison and economies 5
Mobile market struture 6
Regulatory outlook 9
Mobile internet 12
Broadband market 14
Company updates
Turkcell 17
Turk Telekom 37
Mehmet A. Agyuz, CFA
(UniCredit Menkul)
+90 212 385 9527
mehmet.agyuz@unicreditgroup.com.tr

Telecommunications - Turkey
Investment case
We initiate coverage on Turkcell with a Buy rating and a 12M target price of TRY 10.54
per share, offering 20% upside potential. The improving operational earnings profile as well as
better cash return potential will likely help narrowing the valuation discount against its wireless
peers, trading at 18% discount on 2012E EV/EBITDA multiple.
We expect Turkcell-Turkey to register 4% ARPU CAGR in 2010-2015E driven by decelerating
contraction in Turkcell-Turkey's outgoing APPMs (thanks to much narrower premium against
competition), which is likely to be offset by growth in mobile internet and incoming revenues.
While smaller operators will likely maintain their aggressive stance, they will have a tougher
time to post similar growth rates as in the past due to: i) declining price sensitivity of demand
with MOUs in the domestic mobile market reaching one of the highest levels in Eastern
Europe which should underline the importance of traffic yields; ii) base effect; iii) a much
narrower price premium of Turkcell against Vodafone (down to 25% from 107% pre-MNP) and
significant contract penetration within Turkcell's subscriber base compared to a year ago,
which will make it harder for smaller operators to capture subscriber market share without
further deterioration in their profitability. The stabilization in MNP data for Turkcell over the
past five months supports this, in our view.
We conservatively forecast slight improvement in consolidated EBITDA margins, reaching
32.5% in 2013 from the expected 31% in 2011 partly driven by Turkcell-Turkey (100bps)
thanks to a structural improvement in opex (reflecting wireless usage fees), as well as lower
pressure from interconnect costs as we expect higher growth from incoming traffic to offset
the continued increase in off-net traffic. In our view, The improving performance of
subsidiaries will be supportive for the overall improvement in consolidated EBITDA margins.
While the outstanding shareholder dispute may continue to create short term volatility in the
stock, we view this weakness as a buying opportunity. We believe the dividend prospects
have improved notably based on the changes in legislation which will likely result in an
increase in the number of independent board members of the company in the upcoming
months. We believe this will weaken foreign partners’ hand, which have cited this issue for the
main reason for blocking dividends in the past. Coupled with the expected dividend for next
year, Turkcell could potentially distribute TRY 0.97 per share in total dividends in 2012,
corresponding to 11% dividend yield. Furthermore, in the event of a change in controlling
shareholder as a result of the outstanding case between Cukurova Group and Alfa in London
(likely to take about a year), the prospects of a tender call will provide support on the
downside, in our view.
We initiate coverage on Turk Telekom with a Hold rating and a 12M target price of
TRY 8.03 per share, offering 6% upside potential. Our cautious view on the stock is mainly
due to our valuation concerns, as the shares trade at sizable premiums to international peers,
but there are downside risks to its historical average dividend yield.
We believe TT offers decent cash earnings visibility on the back of the resilience of the main
value driver, the fixed line business, and the stabilization in PSTN revenues thanks to higher
recurring revenues (approx 67%) and growth potential in ADSL, which benefits from its pricing
power due to its strong position and good penetration potential over the coming years. The
mobile business profitability is likely to continue to suffer thanks to the revenue market share
focus of Avea, its contribution to the consolidated financials is likely to remain limited at
approx 8%.
The main risks include acceleration in PSTN subscriber erosion, as well as lower than
expected ARPU expansion in ADSL due to stronger competition.

Turkish cellular and fixed voice market
MOU outlook
Mobile MOUs offer limited room for growth; initial signs of waning price elasticity of
demand: Turkish mobile MOUs have reached 257 minutes as of 2Q11, a threefold increase
over the past three years (now the second highest in Europe), and represent 87% of total
voice traffic compared to 24% in 2004, one of the fastest F2M substitutions in the CEE region.
The increase is mainly due to high price elasticity of demand as the APPM for mobile calls
has come down sharply (Turkcell's APPM is down 63% since 2007, while its MOU is up by
188%). But the price elasticity of demand has been declining from its peak of 2.1x in 1Q10 to
1.35x, which may prompt mobile players to focus on traffic yields for growth.
Increasing penetration of all-direction offers resulted in off-net traffic increasing its share in the
mobile traffic mix to 32% as of 2Q11, compared to 11% in 1Q09, which is still below the EU
average of above 50%. This has also changed the interconnect revenue/cost structure of
mobile operators, with Turkcell becoming a net payer of interconnect (TRY 40mn loss in
1H11) while Vodafone was a net receiver. Off-net traffic should continue to increase,
considering the ongoing emphasis by mobile operators on all-direction bundle packages.
MOBILE MOU VS. APPM PRICE ELASTICITY
0
50
100
150
200
250
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
0.00
0.05
0.10
0.15
0.20
0.25
MOU APPM
0.5
1.0
1.5
2.0
2.5
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
price elasticity
Source: Company data, UniCredit Research
MOBILE MOU COMPARISON
0
50
100
150
200
250
300
France
Turkey
Ireland
Norway
Sweden
Austria
UK
EUaverage
Italy
Denmark
Spain
Holland
Belgium
Switzerland
Portugal
Germany
0
75
150
225
300
375
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
Turkcell Vodafone Avea Turk Telekom (PSTN)
Source: Telecom Authority, UniCredit Research

The widening APPM gap between mobile and fixed voice, which has become 122% more
expensive than mobile (Turkcell) is one of the key reasons for one of the fastest F2M
substitutions in Eastern Europe. Fixed line MOUs have come down 17% since 2005 while
PSTN ARPU was down only 15% during this period, partly attributable to the higher
penetration of bundle packages for TT (higher fixed fees), reducing dependence on declining
fixed line voice traffic.
The floor for PSTN subscribers is the number of ADSL subs: The fixed line incumbent
Turk Telekom is continuing to face an uphill battle to increase fixed voice MOUs in order to
narrow the price premium against mobile to be able to lower the churn rate in PSTN. Fixed
line penetration for households in Central and Eastern Europe (excluding Turkey and Russia)
stands at 53% and is expected to reach 47% by 2016, according to the consulting firm
Analysys Mason. In Turkey, fixed line penetration stands at 85% as of 2Q11, down from
107% in 2005. There is further room on the downside for fixed line penetration and we believe
the floor for PSTN lines is the number of ADSL connections, which stands at 6.7mn compared
to the PSTN lines of 15.6mn as of 2Q11.
TOTAL VOICE TRAFFIC BREAKDOWN APPM - TURKCELL VS. TURK TELEKOM (TRY)
24%
41%
56%
63%
72%
83% 84% 86% 87%
76%
59%
44%
37%
28%
17% 16% 14% 13%
0%
20%
40%
60%
80%
100%
2004 2005 2006 2007 2008 2009 2010 1Q11 2Q11
Mobile traffic Fixed-line traffic
0.18
0.19
0.14
0.11
0.10 0.09
0.19
0.20
0.19 0.20 0.20
0.24
0.00
0.10
0.20
0.30
2007 2008 2009 2010 1Q11 2Q11
Turkcell Turk Telekom
MOBILE TRAFFIC BREAKDOWN
89%
81%
74%
73%
72%
71%
74%
72%
70%
68%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
On-net traffic Off-net traffic (mobile) Off-net traffic (PSTN+intl.)

ARPU comparison and economies
Lower mobile ARPU due to GDP per capita and high tax burden: In the chart below, the
differences in GDP per capita explains the significant portion of Turkey's low ARPU relative to
the CEE region. Nevertheless, the regression analysis of ARPUs and GDPs of countries in
the CEE region reveals that the ARPU level for Turkey should be around USD 15, which is
25% higher than the actual 2010 figure of USD 12. However, there are country-specific issues
that explain this difference, in our view. We believe the major portion of this difference can be
explained by the high tax burden on mobile telecommunications in Turkey. The SCT (25%)
and treasury share (15%) could effectively increase consumer bills by 40%, if passed in full.
Mobile spending, as a percentage of GDP, stands at 1.3% in Turkey, marginally lower than
European average of 1.5% in 2010.
GDP PER CAPITA VS. ARPU (USD)
Greece
UK
Germany
Netherlands
Denmark
Spain
France
Croatia
Ukraine
Slovakia
Hungary
Poland
Russia
Turkey
y = 0.0006x + 8.8049
R
2
= 0.7478
0
10
20
30
40
50
0 10,000 20,000 30,000 40,000 50,000 60,000
Source: Analysys Mason, UniCredit Research
CELLULAR RETAIL SPENDING TO GDP (2010)
0.5%
1.0%
1.5%
2.0%
2.5%
Turkey
Russia
Poland
Hungary
Slovakia
Ukraine
Croatia
France
Spain
Denmark
Netherlands
Germany
UK
Greece
Czech
Republic
Mobile spending/GDP (2010) average

Mobile market structure
More sustainable pricing structure in mobile on the back of narrower pricing premium
of the market leader: The APPM premium of the market leader against smaller players has
narrowed to 25% and 34% against Vodafone and Avea, respectively, compared to 138% and
102% in 1Q08. The decline in Turkcell's APPM was 59% compared to the 30% decline in
APPM of smaller operators on average. After our analysis of comparable tariff plans, we
believe the pricing structure in the mobile market has reached a more sustainable level.
APPMS OF MOBILE OPERATORS VS. TCELL'S PREMIUM TO SMALLER OPERATORS
0.00
0.05
0.10
0.15
0.20
0.25
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
0%
30%
60%
90%
120%
150%
Turkcell Vodafone Avea premium to Avea premium to VOD
Vodafone losing subscriber addition momentum, based on the latest MNP data: Since
the management reshuffle in early 2009, Vodafone has gained approx 300K subscribers per
quarter through MNP on average. However, MNP data for 2Q11 suggests that Vodafone has
lost 56K subscribers while Turkcell's net port-out was 147K, from an average quarterly run-
rate of approx 400K in losses. In the first two months of this quarter this picture has not
changed meaningfully, according to our checks. In addition, recent comments from Vodafone-
Turkey's management, which expects mid-teen growth, suggest that the trend is unlikely to
change in the foreseeable future, in our view.
NET PORT-OUTS (in '000)
-414
-563
-344
-458 -417
-147
-196 -208
435
250 253
372
-15
164 203
-281
-684
-318
90
-164
159173
699
274 302
-56
122155
94
128140
106
145
-800
-600
-400
-200
0
200
400
600
800
4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
TCELL VOD AVEA

Mobile revenue market shares becoming more balanced: Smaller operators now
command 48% of the mobile market in terms of revenues, compared to 32% in 1Q09. Since
early 2009, Vodafone has increased its revenue market share by 1,090bp to 27.8% as of
2Q11, while Avea was able to raise its market share by 440bp to 20.1% at the expense of the
market leader.
We would note that the progression of shares in the post-paid market should be seen
differently than the market share of the total SIM card market. The post-paid market has been
a growth area in the mobile market (5.1mn newcomers to the post-paid market over the past
six quarters), with all of the mobile operators having posted net adds since the beginning of
2010. Smaller operators seem to gain post-paid market share at first glance, but this was
mostly due to the introduction of low-ARPU (TRY 20-25) beginner packages, which catalyzed
up-sells within their pre-paid subscriber base, to a large extent. We understand Turkcell has
successfully executed its high-ARPU subscriber retention strategy.
Although further material deterioration in mobile pricing seems unlikely considering the
relatively low premiums of Turkcell, smaller operators will likely maintain their aggressive
stance, considering Vodafone's revenue market share target of 30%-35%, as well as Avea's
increasing investment in distribution channels. It is expected to reach 1,000 exclusive stores
by the year end, equal to that of Vodafone and slightly lower than Turkcell stores despite
being a distant third player.
TOTAL REVENUE MARKET SHARE POST-PAID REVENUE MARKET SHARE
67%
60%
53% 52%
17%
21%
27% 28%
16%
19% 20% 20%
0%
15%
30%
45%
60%
75%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
Turkcell Vodafone Avea
67% 67%
64%
54%
11% 10%
13%
21% 23% 23%
56%
23% 24%
21% 22%
0%
20%
40%
60%
80%
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11

TOTAL SIM CARD MARKET SHARE POST-PAID SIM CARD MARKET SHARE
54%
27%
24%
17%
20% 19% 19% 19%
55%57%56% 53%
27%
26%
27%
10%
20%
30%
40%
50%
60%
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
58%
52% 51%
15% 14% 16%
23% 24%
31% 31%
27%
55%54%
25% 25%
0%
15%
30%
45%
60%
75%
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
*2Q11 subscriber market share figures include the positive impact of the change Source: Company data, UniCredit Research
in Telecom Authority’s churn policy
MOBILE MARKET SUBSCRIBER OUTLOOK
2008 2009 2010 2011E 2012E 2013E
Mobile penetration 92.1% 86.5% 84.4% 87.7% 88.7% 89.7%
Market shares
Total subscribers
Turkcell 56.1% 56.4% 54.2% 53.1% 52.5% 52.2%
Vodafone 25.4% 24.9% 27.0% 27.7% 28.0% 28.1%
Avea 18.5% 18.7% 18.8% 19.3% 19.4% 19.7%
Post-paid subscribers
Turkcell 55.4% 59.3% 53.5% 50.1% 48.8% 48.1%
Vodafone 14.2% 14.2% 21.8% 24.7% 25.8% 26.1%
Avea 30.4% 26.5% 24.7% 25.2% 25.4% 25.8%
Pre-paid subscribers
Turkcell 56.3% 55.4% 54.4% 54.7% 54.8% 54.9%
Vodafone 28.3% 28.5% 29.3% 29.3% 29.4% 29.4%
Avea 15.5% 16.1% 16.2% 16.1% 15.8% 15.7%
Post-paid mix 20% 25% 31% 35% 38% 40%
Source: Company data, UniCredit Research estimates
Continued migration to post-paid: We expect the migration to post-paid will continue to
support ARPUs. The share of post-paid subscribers has reached 33% of total mobile
subscriptions in Turkey from 20% in 2008, driven by targeted up-sell efforts of mobile
operators with more affordable post-paid packages. We believe this trend will continue, albeit
at a slower pace, considering the EU average of 49% post-paid share of the total. We forecast
the post-paid share to increase to 40% of the total mobile subscriber base by the end of 2013.
Turkcell indicates that the company sees an ARPU uplift of 70% on average when a
subscriber switches from a pre-paid to a post-paid plan.

COMPARISON OF MOBILE SUBSCRIBER MIX
20% 25% 31% 35% 38% 40%
0%
25%
50%
75%
100%
2008 2009 2010 2011E 2012E 2013E
Post-paid mix Pre-paid mix
48.8%
0%
25%
50%
75%
100%
Finland
Austria
France
Denmark
Spain
Sweden
Holland
Belgium
Germany
UK
Portugal
Greece
Post-paid mix EU average - post-paid
Regulatory outlook
Stable regulatory outlook: We believe regulatory risks are significantly reduced in the near
term, based on our discussions with the Telecom Authority. We do not expect any cuts in
MTRs or price caps. The MTR for Turkcell has come down 78% since 2005, while price caps
were cut by 50%, leading to current MTRs that are 70% below the EU average. Note that the
regulator admits that it has been ahead of the curve, considering the regulator in the UK
(OFCOM) is planning to bring down rates by 84% by the end of 2015 to GBp 0.69, which will
be essentially in-line with the current rate in Turkey, adjusted for currency. Inflationary upward
adjustments to price caps at the beginning of this year suggest that the chances for another
round of cuts are slim.
HISTORICAL PROGRESSION OF MTR (TURKCELL) AND PRICE CAPS
-10.3%
0.0%
-2.9%
-33.1%
-28.0%
-52.2%
0.0%
0.0
4.0
8.0
12.0
16.0
2005 2006 2007 2008 2009 2010 2011
-60%
-40%
-20%
0%
20%
MTR MTR cut
0.0% 0.0%
-20.0%
-38.0%
3.8%
0.00
0.20
0.40
0.60
0.80
1.00
2007 2008 2009 2010 2011
-45.0%
-30.0%
-15.0%
0.0%
15.0%
Price cap yoy decline

There is one important item on the Telecom Authority's agenda for 2011, which we deem is
most relevant for the fixed line incumbent Turk Telekom:
Wholesale line rental decision: The decision will enable alternative operators to take control
of the connections made through a telephone line, allowing them to offer bundled and more
value-added fixed line services, instead of simply re-selling the TT product. However, the
decision is postponed to 4Q11 from the initial target of June 2011. TT has submitted its tariff
proposal to the Telecom Authority (refer to the table below), however, we believe the final rate
could be lower as evidenced by the naked ADSL decision. Depending on the final tariff rate,
this could have negative ramifications for the incumbent in terms of PSTN ARPU and churn.
However, the latter would be limited as naked ADSL has already been in place since the end
of last year. Turk Telekom's TRY 18.96 offer, which includes PSTN and data (most likely to be
the preferred choice by ISPs) corresponds to a total cost of TRY 25 (including taxes) for ISPs,
compared to the TRY 39 offer from Turk Telekom (4GB ADSL package + approx TRY 11
naked ADSL) for retail customers, which leaves a decent margin for ISPs and allows them to
bundle packages.
TURK TELEKOM WHOLESALE LINE RENTAL PROPOSAL
Excluding tax (TRY) Activation fee Monthly fee
PSTN 5.64 9.48
ISDN BA 11.28 18.96
ISDN PA 1,629 284.4
However, we note that the regulator's naked ADSL decision (effective since November 2010)
has achieved little in terms of lowering the cost of ADSL service for customers. The naked
ADSL rate was set at TRY 8.13 (TRY 10.8 including taxes) which left little incentive for PSTN
subscribers to churn as the lowest tariff rate of Turk Telekom was TRY 13.9. Turk Telekom
claims to have the biggest market share in naked ADSL, which it offers for TRY 15 (90K
naked ADSL access lines), marginally below its cheapest PSTN tariff open to new subscribers
(TRY 16). In this regard, we would not expect the wholesale line rental decision to have a
major impact on the company.
The recent elimination of the asymmetry in domestic and international interconnect
rates: The Telecom Authority removed the limit on interconnect rates applied for international
calls on 27 September. The decision aims to eliminate the asymmetry between incoming
international interconnect rates and interconnect rates from outgoing calls to abroad, for which
mobile operators had been charging the domestic interconnect rate which stands at
TRY 0.0313 for Turkcell and TRY 0.037 for Avea. This will enable mobile operators to charge
the same rates as their foreign peers. While it is difficult to assess the financial impact on
companies, as the savings could also be passed on to consumers in the form of incentives,
the positive impact is not likely to be material as international calls made up only ~1% of total
mobile traffic in 1H11, according to ICTA's report. Turkcell posted a net loss of TRY 40mn
from interconnect in 1H11, so the Telekom Authority's measure will help lower the loss, but
the extent depends on how much of these will be reflected in consumer incentives.
Stabilizing mobile penetration with the slowdown in consolidation of dual SIM card
usage. Mobile market penetration stands at 87% as of 2Q11, compared to the EU average of
126%. However, adjusting for the 0-9 year-old population, mobile penetration is at 103.9%,
according to the Telecom Authority's last quarterly report. After peaking at 92% in 2008,
mobile penetration has come down with declining dual SIM card usage thanks to the launch of
all-direction offers. Dual SIM card penetration is estimated to come down to 10% compared to
17%-18% levels at the end of 2008 and has been stable in the past four months. We forecast
mobile penetration to reach 92% in 2015, implying 5.5mn newcomers to the market.

MOBILE MARKET PENETRATION
0%
40%
80%
120%
160%
200%
Greece
Portugal
Finland
Italy
Austria
Denmark
Germany
Sweden
UK
EUaverage
Ireland
Switzerland
Spain
Holland
Belgium
Norway
France
Turkey
0%
30%
60%
90%
120%
150%
2004 2005 2006 2007 2008 2009 2010 1Q11 2Q11
Turkey EU average
High tax burden on mobile likely to persist: Turkey has the highest tax on mobile
telecommunications, and we do not believe this will change in the near future. Instead, there
could possibly be a convergence of fixed line SCT (15%) with mobile SCT (25%), which would
be revenue neutral for the government (but this is not likely to happen before the SPO of
TTKOM). Another cost factor is the TRY 56 cost burden for mobile operators during the initial
SIM card activation, which is not reflected to new subscribers. The one-time fee includes a
new subscription SCT of TRY 31.8, a wireless license fee of TRY 12.3, and a wireless usage
fee of TRY 12.3. Considering the Vodafone CEO's comments about approx 30mn SIM cards
sold annually, mainly due to frequent churning of customers taking advantage of campaigns,
this would amount to approx TRY 1.5bn in revenues for the government per year, which
would be hard to relinquish, in our view. It is worthwhile to note that smaller operators were
disadvantaged more because of the higher churn, and to our knowledge, Vodafone has been
actively lobbying for the removal of this tax item.
TAXES ON MOBILE AND FIXED VOICE
Mobile voice Fixed voice
Special communication tax (SCT) 25% 15%
VAT 18% 18%
Treasury share 15% 1.0%
Contribution share to ICTA 0.35% 0.35%
Communication tax - 1.0%
One-time SCT on first subscription (TRY) 34 -
Wireless usage fee (TRY) 13.2 -
Wireless license fee (TRY) 13.2 -
Source: Finance Ministry, UniCredit Research

Mobile internet
Turkcell maintains its network lead: As of 2Q11, Turkcell continues to hold the lead in the
number of base stations, especially on the 2G network. Vodafone has been able to catch up
with Turkcell in 3G base stations but it is lagging significantly in 2G due to the complexity of its
network architecture creating compatibility issues between the equipment sourced from three
different vendors. Turkcell indicates that the capacity utilization on 3G base stations is around
55%-60% despite close to 90% of data traffic being carried on its 3G network as voice traffic
stays mostly on the 2G network. This is partly due to Telecom Authority's requirement for
subscribers to send an SMS to be able to use the 3G network, an issue which Turkcell is
currently trying to resolve with the Telecom Authority.
BASE STATION NETWORK AND CAPEX COMPARISON
17,500
14,000 14,300
8,000
7,000 5,000
0
10,000
20,000
30,000
2G 3G
0
400
800
1,200
1,600
2,000
2006 2007 2008 2009 2010 1H11
TRYmn
VODAFONE TURKCELL AVEA
*2009 capex figures include 3G license payments. Source: Company data
A next generation network auction does not seem likely in the medium term: While
many countries in Europe (Italy, France, Spain) have already auctioned or are getting ready to
auction (UK) their next generation networks, the situation is quite different in Turkey. We do
not forecast any capex expenditure related to a next generation network auction (4G, LTE) in
the medium term. Mobile operators in Turkey currently use the HSPA+ technology. According
to many studies, HSPA+ coupled with dual-carrier technology could reach a speed of 42mbps
and the performance on unit frequency is higher than the currently available commercial
version of LTE (long-term evolution).
Strong mobile data uptake helps bridge the gap from declining mobile voice usage:
Mobile operators still very much depend on mobile voice revenues, which accounted for 78%
of mobile revenues in 2010. Mobile internet revenues have reached 4.4% of total revenues in
2010 on the back of the strong penetration of 3G modems (nearly reaching 2mn units or
approx 22% of total broadband subscriptions) as of 2Q11, as well as increased data usage
through handsets. About 70% of mobile internet revenues are derived through handset usage
thanks to increasing smartphone penetration, which has reached 25% of total mobile phone
sales in Turkey with approx 7% penetration. Data contracts for handsets reached 1.5mn, but
handset data users tend to have low ARPUs (approx TRY 4 on average based on total 3G
subscribers) compared to mobile modems (TRY 25-28). On the other hand, margins from
handsets are higher due to higher unit prices. In contrast to some other markets (i.e. Russia),
mobile data margins are lower than voice margins in Turkey, which stands at around 20%.
The data margins are expected to converge with voice, primarily due to economies of scale
with increasing user base. One positive characteristic that differentiates Turkey from other
markets is that the operators do not have ''all you can eat'' type data packages which have
caused significant burdens on operators' networks in developed markets. Furthermore, as
one would expect from an early stage market, the operators have not engaged in a price war
in data, and operators focus on growing the market.

It is worthwhile to note that mobile operators have not seen any cannibalization of voice and
SMS revenues from increasing smartphone penetration unlike in some other markets in
Europe, where smartphones and communications applications are driving the substitution of
SMS and voice by data (i.e. instant messaging, WhatsApp). SMS revenues comprise approx
10% of mobile operators' revenues in Turkey, thus they have limited room for cannibalization,
and SMS volumes have grown steadily since the launch of 3G, reaching 40.1bn from 36.8bn
in 4Q09.
MOBILE REVENUE MIX MOBILE INTERNET REVENUE MIX
81% 81% 78%
1% 2% 4%
9% 10%
9% 8% 7%
9%
40%
55%
70%
85%
100%
2008 2009 2010
Voice Data SMS+MMS VAS
Data revenue
from 3G
modems 30%
Data revenue
from handsets
70%
COMPARISON OF DATA TARIFFS
TRY TCELL VODAFONE AVEA
Handset
100MB 10 9 8
250MB 14 14 15
3G modems
1GB 29 29 29
4GB 39 39 39
8GB 69 69 59
Source: Companies, UniCredit Research

Broadband market
Low broadband penetration; ADSL likely to remain the main choice: Household fixed line
broadband penetration in Turkey stands at approx 39% as of 2Q11, which we expect to reach
43% by the end of 2013. Including 3G dongles, which are viewed as a partial substitute for
fixed broadband, total broadband penetration is 49%. However, given the capacity constraints
of mobile internet, we do not believe it will be a viable substitute for fixed broadband in the
medium term.
While TT's 100% subsidiary, TTNet's, market share has declined to 81.8% in 2Q11 (from
92.9% in 2008), it remains the dominant player in fixed broadband. Alternative operators
(ISPs), which are essentially re-sellers of TT's ADSL product, were unable to gain meaningful
traction until this year with a market share of 6.3% (5.6% in 2008). ISPs, which do not have
any meaningful differentiation other than price, have started to gain traction (220bp market
share gain in 1H11) thanks to the Telecom Authority's decision in 1Q11, which reduced
switching costs for existing ADSL subscribers, and the regulator ordering TT to share its
customer database with ISPs, which enabled it to target TTNet's subscribers with customized
offers. We expect the ISPs to reach a 14.1% market share in 2013 at the expense of TT.
However, the impact on TT's ADSL ARPUs would be limited, as TT has reduced the positive
price discrimination applied to alternative operators, decreasing the discount to 5% from 10%.
Fixed line broadband penetration has been stagnant over the past year despite TT's efforts to
expand into the market, which was partly cannibalized by the significant growth in 3G dongle
penetration. Low computer penetration is cited as one of the main barriers for broadband
penetration, which caused TT to start offering attractive computer campaigns bundled in the
ADSL bill (in fact, TT became the largest computer distributor in the country). Turk Telekom's
management indicates that ~1mn households use fixed broadband illegally (approx 5%
penetration). These users are mainly located in the Eastern part of Turkey, and these
activities are unlikely to change, according to the management.
TURKEY - ADSL PENETRATION
ADSL Penetration %
Source: TTNet, UniCredit Research

COMPARISON OF FIXED-LINE BROADBAND PENETRATION FIXED BROADBAND MARKET SHARE OF INCUMBENT
0%
15%
30%
45%
60%
75%
90%
Bulgaria
Romania
Greece
Slovakia
Poland
Hungary
CzechRepublic
Slovenia
Italy
Spain
EUaverage
France
Germany
UK
Austria
Holland
Sweden
Denmark
Turkey
28%
28%
32%
33%
35%
38%
41%
44%
44%
45%
46%
50%
52%
53%
62%
84%
0% 20% 40% 60% 80% 100%
Romania
UK
Bulgaria
Czech Republic
Poland
Sweden
Hungary
EU Average
France
Slovenia
Germany
Italy
Greece
Spain
Denmark
Turkey
Incumbent Alternative operators
We believe Turkcell's Superonline, which has a fiber network of 26K km (expected to reach
28K by year-end), could pose a more viable threat to TT in the medium term. Its current
market share is 2.5%, serving 718K households (expected to reach 1mn by year-end) with an
indicated uptake of 25%-30%. Access to this fiber network, which could be considered a
superior product with an average download speed of 15.8Mbps vs. the average download
speed of 6.1Mbps in Turkey, is offered at highly competitive prices (please refer to the table
below).
ADSL has not faced significant pressure from cable unlike most of the incumbents in Europe.
Since its spin-off during TT's privatization process in 2004, the cable company (Turksat) had
been underinvested and mismanaged under government ownership, despite its valuable
cable infrastructure. Total cable TV subscribers stand at 1.29mn, which we view as the
addressable market for cable broadband, which had 368K subscribers as of 2Q11.
Mobile broadband, which has been viewed as a complement to fixed broadband, has gained
significant momentum and even cannibalized fixed broadband to some extent. Since their
launch in 3Q09, mobile modems have reached about 2mn subscribers as of 2Q11,
corresponding to 21.5% of total broadband subscribers. Overall, we believe that mobile
broadband will unlikely be a substitute to fixed broadband due to the inherent capacity
advantages of the latter.
FIXED BROADBAND PENETRATION AND MARKET SHARES TOTAL BROADBAND MARKET SHARES
0%
20%
40%
60%
80%
100%
2008 2009 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
TTNET ISPs (TT wholesale)
Cable Fiber
Other Fixed Broadband penetration
0%
20%
40%
60%
80%
100%
2008 2009 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
TTNET Wholesale ADSL Cable Mobile Fiber Other
Source: Telecom Authority

Notes

17 October 2011
Equity Research
Telecommunications TurkeySector Update
Turkcell
Pick up the phone
We initiate coverage of Turkcell (TCELL) with a Buy rating and a 12M
target price of TRY 10.54 per share, which offers 20% upside
potential. We believe the improving operational earnings profile, as
well as better cash return potential, will likely help narrow the
valuation discount against its wireless peers, trading at 18% discount
on 2012E EV/EBITDA multiple.
■ Underlying service revenues to return to growth despite
aggressive competition: In our base case scenario, we expect
aggressive competition to continue and forecast Turkcell-Turkey to
register an ARPU CAGR of 4% in 2010-2015E on the back of an
average annual outgoing APPM contraction of 6%, while incoming
revenues and strong uptake in mobile internet will be the main drivers
for ARPU expansion. Smaller operators will likely have a tough time to
match the growth rates they posted in the past six quarters due to the
higher base effect and the more balanced structure of the mobile
market caused by: 1) the narrower APPM premium of Turkcell to
Vodafone (25% from 103% two years ago); and 2) higher penetration of
long term contracts within Turkcell’s subscriber base. The stabilization
in the monthly MNP data over the past five months also suggests that it
will be tougher for smaller operators to capture subscriber market share
without further eroding their profitability.
■ Slight improvement in EBITDA margins for Turkcell-Turkey: We
forecast moderate improvement in consolidated EBITDA margins,
reaching 32.5% in 2013 from the expected 31% in 2011, driven by
Turkcell-Turkey (100bps), thanks to a structural improvement in opex
(wireless usage fees), as well as lower pressure from interconnect.
■ Next catalyst: Good 3Q11 operational results with improving KPIs (net
subscriber adds for two quarters in a row and yoy increase in ARPUs).
IFRS 2009 2010 2011E 2012E 2013E
Sales (TRY mn) 8,936 9,004 9,298 9,935 10,508
EBITDA (TRY mn) 2,979 2,948 2,885 3,191 3,418
EBIT (TRY mn) 2,086 1,818 1,629 1,899 2,057
Net income (TRY mn) 1,717 1,772 1,062 1,856 2,077
EPS reported (TRY) 0.78 0.81 0.48 0.84 0.94
DPS (TRY) 0.50 0.39 - 0.97 0.63
ROE (%) 19% 19% 17% 18% 19%
P/E (x) 11.6 10.7 18.3 10.5 9.3
P/BV (x) 2.4 2.1 1.8 1.9 1.8
Net debt/equity (%) n.a n.a n.a n.a n.a
EV/EBITDA (x) 5.4 5.7 4.8 4.4 4.1
Dividend yield 6% 4% - 11% 7%
Source: Turk Telekom, UniCredit Research estimates
Buy (Initiation of Coverage)
Price on 14 October 2011 TRY 8.82
Target price TRY 10.54
Upside to TP 20%
Cost of equity 13.3%
12M High/Low (TRY) 11.20/7.18
INVESTMENT HIGHLIGHTS
Underlying service revenues resuming growth
Initial signs of stabilization in outgoing voice revenues
High dividend yield potential
STOCK TRIGGERS
Good 3Q11 results with improving KPIs
Resolution of ongoing shareholder disputes
STOCK DATA
Reuters/Bloomberg TKC.N/TKC US
Average daily volumes ('000) 2,740
Free float (%) 34,0
Market capitalization (USD mn) 10,395
No. of shares in issue (mn) 2,200
Shareholders Teliasonera 37.1%,
Cukurova 13.8%,
Alfa 13.2%,
UPCOMING EVENTS
3Q11 results 2 November 2011
3Q11 teleconference 3 November 2011
2009 2010 2011
4
5
6
7
8
9
10
11
12
13
14
TURKCELL ILETISIM HZM.
MSCI EM EUROPE U$ - PRICE INDEX
Source: Thomson Datastream
STOCK PERFORMANCE (CHG. %) IN USD TERMS
1M 3M 6M
Absolute -2.3 -7.9 -18.8
Rel. to MSCI EME 4.5 20.1 14.1
Rel. to MSCI Turkey -0.1 7.0 10.5
(UniCredit Menkul)
+90 212 385 9527

Investment thesis
We initiate coverage on TCELL with a Buy rating and a 12M target price of TRY 10.54 per
share, offering 20% upside potential. We believe the improving operational earnings profile,
as well as better cash return potential, will likely help narrow the valuation discount against its
wireless peers, trading at 18% discount on 2012E EV/EBITDA multiple.
We expect Turkcell-Turkey to register 4% ARPU CAGR in 2010-2015E driven by decelerating
contraction in Turkcell-Turkey's outgoing APPMs (thanks to narrower premiums against the
competition) which is likely to be offset by growth in mobile internet and incoming revenues.
While smaller operators will likely maintain their aggressive stance, they will have a tougher
time to post similar growth rates as in the past due to: i) declining price sensitivity of demand
which should underline the importance of traffic yields; ii) tougher comps; iii) a much narrower
price premium of Turkcell against Vodafone (down to 25% from 107% pre-MNP), which will
make it harder to capture subscriber market share without further deterioration in smaller
operators’ profitability. The stabilization in MNP data for Turkcell over the past five months
supports this, in our view.
We believe Turkcell’s unique value proposition, powered by its fiber subsidiary and strong
technology portfolio, positions the company well to generate additional revenue streams
through bundling and VAS (value-added services) in the medium term.
We conservatively forecast moderate improvement in consolidated EBITDA margins,
reaching 32.5% in 2013 from the expected 31% in 2011E partly driven by Turkcell-Turkey
(100bps) thanks to a structural improvement in opex (reflecting wireless usage fees), as well
as lower pressure from interconnect costs as we expect higher growth from incoming traffic to
offset the continued increase in off-net traffic. The improving performance of subsidiaries will
be supportive for the overall improvement in consolidated EBITDA margins.
While the outstanding shareholder dispute may continue to create short term volatility in the
stock, we view this weakness as a buying opportunity. However, we believe the dividend
prospects have improved notably based on the changes in legislation, which will likely result
in an increase in the number of independent board members of the company in the upcoming
months. We believe this will weaken the bargaining power of foreign partners, who have cited
this issue for the main reason for blocking dividends in the past. Coupled with the expected
dividend for next year, Turkcell could potentially distribute TRY 0.97 per share in total
dividends in 2012, corresponding to 11% dividend yield. Furthermore, in the event of a
change in controlling shareholder as a result of the outstanding case between Cukurova
Group and Alfa in London, the prospects of a tender call will provide support on the downside,
in our view.

Scenario analysis
Our scenario analysis is based on Turkcell-Turkey, which comprises 78% of our SOTP
valuation.
TURKCELL-TURKEY SCENARIO ANALYSIS
Case 12M TP (TRY) Upside (%) Scenario
Base case 10.54 20%
We do not foresee a meaningful improvement in mobile market in the near-term. We
forecast Turkcell-Turkey to register 4% ARPU CAGR in the 2010-2015E period on the
back of outgoing APPMs declining at a CAGR of 6% during this period. We forecast
Turkcell-Turkey EBITDA margins to reach 32.7% in 2015E from 32.1% in 2Q10.
Best case 12.95 47%
Under the assumption of a mobile market recovery in, Turkcell-Turkey would register
7% ARPU CAGR in the 2010-2015E period on the back of stable outgoing APPMs.
EBITDA margins could reach 36% in 2015.
Worst case 7.60 -14%
The competitive environment deteriorates further, resulting in Turkcell-Turkey's ARPUs
registering flat growth in 2010-2015E, on the back of 10% annual decline in outgoing
APPMs. Under this scenario, SAC (subscriber acquisition costs and marketing expenses)
remain elevated and further pressure EBITDA margins, which reach 27% by 2015.

Valuation
We derive a 12M target value of TRY 10.54 per share for TCELL based on the blended
average of our SOTP and relative valuation.
TURKCELL – VALUATION SUMMARY
(TRY mn) Value Weight Weighted
SOTP 21,161 50% 10,581
Peer comparison 20,573 50% 10,287
Blended target EV 20,867
Net cash 2011E 2,717
Litigations 389
Target equity value 23,195
Target share price (TRY) 10.54
Current price (TRY) 8.82
Upside potential 20%
Source: UniCredit Research
TURKCELL – SOTP VALUATION
Valuation method EV (TRY mn) TCELL share Value to TCELL
Turkcell - Turkey DCF 16,530 100% 16,530
Astelit Ukraine DCF 1,281 55% 702
Belarus EV/sales 137 80% 110
Superonline EV/sales 469 100% 469
Turkcell - Europe (Germany) DCF 327 100% 327
Total consolidated 18,744 18,138
Participations
Fintur P/E 7,294 41.5% 3,023
Total equity value 21,161

Turkcell-Turkey: We have employed a DCF valuation for Turkcell's domestic operations,
which yields a target 12-month EV of TRY 16.5bn for the core business. We apply a WACC of
12% and a terminal growth rate of 3%.
DCF – TURKCELL (TURKEY)
TRY mn 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E
Revenues 8,071 8,498 8,890 9,316 9,757 10,213 10,660 11,140 11,613 12,059 12,503
Growth rate 1.3% 5.3% 4.6% 4.8% 4.7% 4.7% 4.4% 4.5% 4.2% 3.8% 3.7%
EBITDA 2,524 2,732 2,873 3,056 3,188 3,326 3,474 3,651 3,812 3,939 4,051
EBITDA margin 31.3% 32.1% 32.3% 32.8% 32.7% 32.6% 32.6% 32.8% 32.8% 32.7% 32.4%
(-) Taxes (on EBIT) 363 441 461 490 509 528 560 597 631 658 683
Effective tax rate -20% -20% -20% -20% -20% -20% -20% -20% -20% -20% -20%
(-) Capex 1350 1,371 1,345 1,356 1,401 1,438 1,476 1,511 1,543 1,570 1,596
% of revenues 16.7% 16.1% 15.1% 14.6% 14.4% 14.1% 13.8% 13.6% 13.3% 13.0% 12.8%
FCF 811 920 1,067 1,209 1,278 1,359 1,439 1,544 1,639 1,710 1,772
Discount rate 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%
Discount factor 1.02 1.14 1.28 1.43 1.60 1.79 2.01 2.25 2.52 2.82 3.15
Discounted FCFs 796 806 835 845 798 758 717 687 651 607 562
Turkcell (Turkey) valuation
PV of FCFs (2011-2021) 8,063
Terminal value (end of 2021) 21,134
PV of terminal value 6,702
Core business value 14,765
12M target value 16,530
Astelit: We value Turkcell's 54.8% stake in Astelit at TRY 702mn, based on our DCF
analysis. We assume ARPUs to reach USD 4 by 2015, from USD 3.4 with Astelit's focus on
value subscribers (market average of USD 5) and forecast sustained improvements in
EBITDA margins, reaching 32% by 2015E (26.8% in 2Q11) on the back of on-net pricing
increases and tariff adjustments for more chargeable MOUs, supported by MTR cut in
Ukraine.
Fintur: We value Turkcell's 41.5% stake in Fintur (the mobile operator in CIS) at TRY 2.8bn
(USD 1.67bn) based on 9.1x P/E multiple, corresponding to a 20% discount to peers. Note
that Fintur is accounted for via equity pick-up.
FINTUR VALUATION (USD MN)
FY 2011E earnings 442
Peers' P/E 2012E 11.4
Size, country, transparency discount 20%
Target 11E P/E 9.1
Fair value 4,035
Turkcell's stake in Fintur 41.5%
To Turkcell 1,673

Belarus: We value Turkcell’s 80% stake in its Belarusian subsidiary at TRY 110mn based on
1.5x forward EV/Sales multiple.
Turkcell-Superonline: We value Turkcell's wholly owned subsidiary, Superonline, at
TRY 469mn on a 1x forward EV/sales multiple for the non-group revenues, which equates to
60% of its total revenues as of 2Q11.
Turkcell-Europe: We derive a 12M EV of TRY 327mn for Turkcell-Europe, which started
operations in Germany as an MVNO in cooperation with Deutsche Telecom in 2Q11.
Although management stated that it plans to expand into other European countries with large
Turkish minorities, we do not currently factor in this potential.
TURKCELL-EUROPE VALUATION
(TRY mn) 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E
No. of subscribers (mn) 0.20 0.40 0.55 0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00
Net adds (mn) 0.20 0.15 0.10 0.05 0.05 0.05 0.05 0.05 0.05 0.05
ARPU (EUR) 11.0 13.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0 14.0
Revenues (EUR) 11.6 46.8 79.8 100.8 113.4 121.8 130.2 138.6 147.0 155.4 163.8
Revenues (TRY) 26.0 113.8 195.3 249.4 283.1 304.7 342.1 382.3 423.7 468.1 515.6
Growth yoy 337% 72% 28% 14% 8% 12% 12% 11% 10% 10%
EBITDA -9.2 0.0 13.7 29.9 34.0 36.6 41.0 45.9 50.8 56.2 61.9
EBITDA margin -35% 0% 7% 12% 12% 12% 12% 12% 12% 12% 12%
Taxes -1.6 0.0 2.3 5.1 5.8 6.2 7.0 7.8 8.6 9.5 10.5
Capex 0 0 0 0 0 0 0 0 0 0 0
Free cash flow -7.7 0.0 11.3 24.8 28.2 30.4 34.1 38.1 42.2 46.6 51.4
0.17 1.17 2.17 3.17 4.17 5.17 6.17 7.17 8.17 9.17 10.17
Discount rate 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5%
Discount factor 1.02 1.15 1.29 1.45 1.63 1.84 2.07 2.33 2.62 2.94 3.31
Discounted FCFs -7.5 0.0 8.8 17.1 17.3 16.5 16.5 16.4 16.1 15.8 15.5
Turkcell (Europe) valuation
PV of FCFs (2011-2021E) 132
Terminal value 524
PV of terminal value 158
Core business value 291
Target 12M value 327

Relative valuation
TCELL is trading at 4.4x 2012E adj. EV/EBITDA and 10.5x 2012E P/E multiples,
corresponding to 18% and 11% discounts to its international wireless peers, respectively.
Note that we use an adjusted EV for Turkcell by treating its 41.5% stake in Fintur as cash
(USD 1.67bn).
WIRELESS – RELATIVE VALUATION
Company Country MCAP
(USD mn)
EV (USD mn) EV/EBITDA P/E
2011E 2012E 2013E 2011E 2012E 2013E
VIMPELCOM LTD- NETHERLANDS 16,003 43,066 5.0 4.6 4.4 8.2 6.9 6.1
MOBILE TELESYSTEMS RUSSIA 14,475 20,784 4.1 3.8 3.6 9.5 8.2 7.0
VODACOM GROUP S. AFRICA 16,569 18,018 6.1 6.3 5.9 12.2 12.4 11.3
MTN GROUP LTD S.AFRICA 31,344 37,052 5.5 5.0 4.6 11.8 10.4 9.5
AMERICA MOVIL MEXICO 90,087 110,954 6.0 5.6 5.3 12.7 11.6 10.4
BHARTI AIRTEL LTD INDIA 29,483 43,608 9.7 8.5 7.0 20.2 20.7 13.9
INDOSAT TBK PT INDONESIA 3,044 5,370 4.8 4.4 4.1 22.3 15.6 12.2
PARTNER COMMUNICATIONS ISRAEL 1,795 2,459 4.0 4.4 4.1 7.6 8.1 7.0
TURKCELL 10,411 7,263 4.8 4.4 4.1 18.3 10.5 9.3
Premium/(discount) -14% -18% -16% 40% -11% -4%
Average 5.6 5.3 4.9 13.1 11.7 9.7
* Turkcell’s EV is adjusted for its stake in Fintur (USD 1.67bn) Source: Bloomberg, UniCredit Research estimates

Investment highlights
While competitive pressures are here to stay, KPIs have started to move up: We do not
expect any meaningful market rationalization in 2012 considering Vodafone's 30%-35%
revenue market share target (from approx 28% as of 2Q11) as well as Avea's aggressive
stance to catch up with Vodafone as evidenced by its aggressive investment in distribution
channels. Avea is planning to reach 1,000 exclusive dealers by year-end from currently 900
(which almost doubled in the past 12 months), which suggests that it continues to build a
platform to support a higher subscriber base considering the fact that Turkcell has slightly
more than 1,000 exclusive dealers and ~2.5x of Avea's revenue market share.
We expect Turkcell to post net subscriber adds in 3Q11, following the net adds in 2Q11
despite the aggressive competition. We believe this is partly due to a more balanced structure
of the mobile market compared to two years ago in terms of pricing, as well as revenue
market share, which we explain in more detail below. The declining price elasticity of demand
suggests that the smaller operators may need to focus on traffic yields rather than pricing for
growth, in our view. The subscriber addition momentum through MNP is essential for smaller
players to maintain their aggressive stance.
APPM premium to Vodafone has narrowed to a more sustainable level: Turkcell-Turkey's
APPM has declined by approx 59% since the beginning of 2008, and now stands at TRY 0.09
as of 2Q11. The decline in voice APPM was more drastic (approx 65%) considering the
TRY 0.01 contribution from mobile data, by our estimate. As a result, Turkcell's APPM
premium to Vodafone and Avea has narrowed to 25% and 34%, down from 102% and 138%,
respectively, which we view as more manageable, going forward. We expect Turkcell's APPM
to continue to slide, albeit at a much lower pace, and to reach TRY 0.08 in 2013 from the
current TRY 0.09.
Moreover, the bundle package penetration in Turkcell's post-paid base has increased
significantly compared to a year ago, which is positive for churn as it reduces the sensitivity of
these subscribers to aggressive pricing. Turkcell has been making a deliberate effort to
increase the package penetration since 2H10, and the uptake of its offers is indicated to be
strong. The company has been offering discounts or free on-net minutes to existing
subscribers in exchange for 12-24 month contracts. The increase in contract penetration also
partly explains the stabilization in MNP figures. After reaching a sizable share in quarterly
port-ins, the focus of the company has shifted to limiting port-outs by offering incentives to
existing subscribers, as evidenced by its recent campaign for its existing subscribers that offer
1,800 free on-net minutes in exchange for 12-month contracts. We believe this is a wise
move, as it will result in further reductions of its APPM premium to peers, essentially dis-
incentivizing subscribers to churn.

TURKCELL'S APPM PREMIUM VS. VODAFONE
0.00
0.05
0.10
0.15
0.20
0.25
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
0%
25%
50%
75%
100%
125%
Turkcell Vodafone premium to VOD
Down by 77%
A closer look at Turkcell-Turkey: While the subsidiaries' contribution to Turkcell's financials
has been increasing, Turkcell-Turkey will continue to be the main driver of its financial
performance. We expect Turkcell-Turkey to generate 84% of Turkcell's consolidated revenues
and EBITDA in 2013E compared to 89% and 91% in 2010, respectively. We note that the
subsidiaries contribution does not include Fintur, which is accounted for via equity pick-up in
Turkcell's P&L. Turkcell-Turkey's revenues are comprised of outgoing voice, incoming voice,
mobile internet, SMS and VAS (value-added services) and other revenues which includes
roaming, monthly fees and SIM card sales.
TURKCELL CONSOLIDATED REVENUE MIX TURKCELL CONSOLIDATED EBITDA MIX
89% 90% 89% 87% 85% 84%
11% 10% 11% 13% 15% 16%
25%
50%
75%
100%
2008 2009 2010 2011E 2012E 2013E
Turkcell-Turkey Subsidiaries
92% 95% 91% 87% 86% 84%
8% 5% 9% 13% 14% 16%
25%
50%
75%
100%
2008 2009 2010 2011E 2012E 2013E
Turkcell-Turkey Subsidiaries
*Subsidiaries exclude Fintur Source: Company data, UniCredit Research

TURKCELL-TURKEY VOICE REVENUE WORKSHEET
2009 2010 2011E 2012E 2013E
Outgoing revenues (TRY mn) 5,274 5,061 5,015 5,079 5,105
Growth yoy -1% -4% -1% 1% 1%
Outgoing MOU 108.4 140.0 166.9 186.9 198.6
Growth yoy 28% 29% 19% 12% 6%
On-net MOU 89.2 103.9 102.3 117.8 124.6
Growth yoy 17% 17% -2% 15% 6%
% of outgoing MOU 82% 75% 61% 63% 63%
Off-net MOU 19.3 34.3 64.6 69.2 74.0
Growth yoy 141% 78% 88% 7% 7%
% of outgoing MOU 18% 25% 39% 37% 37%
Outgoing voice ARPU (TRY) 12.2 12.4 12.3 12.3 12.3
Growth yoy -1% 2% 0% 0% 0%
Outgoing voice APPM (TRY) 0.11 0.09 0.07 0.07 0.06
Growth yoy -23% -21% -16% -11% -6%
-11%
Incoming revenues (TRY mn) 808 638 727 798 855
Growth yoy 61% -21% 14% 10% 7%
Incoming MOU 25.9 39.1 55.2 61.8 65.6
Growth yoy 127% 51% 41% 12% 6%
Incoming voice ARPU (TRY) 1.9 1.6 1.7 1.9 2.1
Growth yoy 60% -16% 11% 12% 6%
Incoming voice APPM (TRY) 0.07 0.04 0.03 0.03 0.03
Growth yoy -30% -45% -21% 0% 0%
Source: Turkcell, UniCredit Research estimates
Outgoing revenues: Turkcell-Turkey's outgoing revenues have declined at a 5% CAGR in
2008-2010, down to 63% of Turkcell-Turkey's revenues, compared to 68% in 2008. We
calculate that this was mainly driven by outgoing APPMs declining by 22% annually during
this period thanks to aggressive competition as well as an approx 50% cut in price caps. The
decline in APPMs was partially offset by a 29% CAGR in outgoing MOUs, which reached 140
minutes, according to our estimate.
We expect outgoing voice revenues to be flattish in 2010-2013E despite our expectation of
11% CAGR decline in outgoing voice APPMs, reaching TRY 0.06 from TRY 0.09 in 2010,
offset by the continued growth in outgoing MOUs (12% CAGR) and subscriber growth. As a
result, outgoing ARPUs should remain stable during this period.
Incoming revenues: Incoming revenues have increased with a CAGR of approx 13% in
2008-2010, reaching 8% of Turkcell-Turkey's revenues compared to 7% in 2008. This was
achieved despite a 66% cut in Turkcell's MTR (which is essentially the APPM for incoming
traffic) thanks to a surge in incoming off-net MOUs increasing with a 85% CAGR to 39
minutes during this period, which was also enabled by lower MTRs, based on our calculation.
We expect incoming revenues to continue to grow thanks to stable MTRs, albeit at a lower
pace, at 10% CAGR in 2010-2013, reaching 10% of Turkcell-Turkey's revenues in 2013E. We
expect incoming off-net MOUs to grow in parallel with the outgoing off-net MOUs, thereby
easing pressure on the EBITDA margin of Turkcell-Turkey as a result of a steady spread in
interconnect revenues vs. interconnect costs.
In 2008-2010, the growth in incoming revenues has failed to offset the decline in outgoing
revenues, resulting in voice revenue declining at a CAGR of 2% in the same period. As a
result, we estimate that voice revenues represent approx 72% of Turkcell-Turkey's revenues
as of 2010, compared to approx 75% in 2008. We expect the contribution of voice revenues
to Turkcell-Turkey to decline to 68% in 2013.

Thanks to strong uptake in data, mobile internet revenues have fully offset the decline in voice
revenues (-TRY 396mn), reaching TRY 454mn in 2010, representing approx 6% of Turkcell-
Turkey's revenues. We expect the strong growth in mobile internet to continue and register
45% revenue CAGR in 2010-2013E, reaching 15% of Turkcell Turkey's revenues in 2013E.
We estimate SMS and VAS revenues to have reached 15% of Turkcell-Turkey's revenues in
2010 from 14% in 2008, registering 5.5% revenue CAGR during this period. SMS volumes
have grown with a CAGR of 16% while Turkcell has a broader portfolio of Turkcell-branded
applications which derives data as well as VAS revenues. We expect flat growth outlook in
SMS and VAS, mainly due to a moderate decline in SMS revenues as increasing smartphone
penetration will likely cannibalize SMS volumes to some extent, through use of other
applications (i.e. instant messaging) as evidenced by some of the developed markets in
Europe (most notably KPN in Holland).
ARPU BREAKDOWN – TURKCELL TURKEY WESTERN EUROPE
68% 66% 64% 62% 60% 58%
6% 10%
8% 9% 9% 10%
16% 13% 15% 12% 11% 11%
0% 3% 6% 9% 13% 15%
10% 8% 8% 7% 7% 7%
0%
25%
50%
75%
100%
2008 2009 2010 2011E 2012E 2013E
Outgoing revenues Incoming revenues SMS+VAS Mobile internet Other
A closer look at tariffs: A detailed analysis of tariff packages of both operators reveals that
the APPM premium of Turkcell is mainly due to mid-stream post-paid packages as Vodafone
has failed to penetrate meaningfully into Turkcell's premium subscriber base (approx 20%
Turkcell-Turkey's revenues by our estimate). Actually, Turkcell's APPM premium in this
segment is much higher than the average premium (please refer to the table below), which
could be partly explained by lower price sensitivity of these subscribers. Although Vodafone
has increased incentives in premium packages, while making 3%-4% upward price
adjustments YTD, it still has not been able to penetrate into Turkcell's premium subscriber
base, based on our checks.
PREMIUM POST-PAID TARIFF COMPARISON OF VODAFONE AND TURKCELL
Vodafone premium tariffs Turkcell premium tariffs
Red Mini Red Red+ Gold Plus Platinum Platinum+
Monthly fee (TRY) 79 99 149 119 149 199
On-net (min) Unlimited Unlimited Unlimited 5,000 5,000 5,000
Fixed line (min) Unlimited Unlimited Unlimited
Off-net (min) 2,000 3,000 5,000
2,000 2,000 2,500
SMS 2,000 3,000 5,000 2,000 2,000 2,500
Mobile internet 2GB 3GB 5GB 2GB 4GB 4GB

Expect lower pressure on post-paid ARPUs; YTD upwards price/incentive adjustments
are accretive to EBITDA: According to our proprietary database, Turkcell has implemented
7%-29% price increases in some of its mainstream post-paid packages while increasing
incentives at the same time. While this brings down the overall APPMs, the actions are
EBITDA accretive, offsetting the higher interconnect and network costs from increased all-
direction minutes. The incentives offered to premium subscribers for 12-24 month contracts
(approx 25% discounts) have more than offset the increases in mid-stream packages as
evidenced by the slide in post-paid ARPU (down 5.6% yoy) in 2Q11, which is more reflective
on a like-for-like basis without the impact of MTR cuts. Switches from pre-paid to post-paid
had a dilutive impact on post-paid ARPUs as well, however, we believe the pressure on post-
paid ARPUs will be lower as the pace of up-sells and contract penetration is likely to
decelerate, going forward.
TURKCELL PRICE ADJUSTMENTS IN LOW/MEDIUM ARPU POST-PAID PACKAGES
Main post-paid packages Price increase (YTD) Incentives
Alo tariff 28% Trebled the all-direction minutes to 180, 2-days free on-net min. between 6am-6pm
Alo advantage tariff 22% Trebled the all-direction minutes to 360, 2-days free on-net min. between 6am-6pm
Super tariff 7% 2 days free on-net minutes
Civil servants' tariff 29% n.a
Source: Turkcell, UniCredit Research
According to our checks, Vodafone maintains its aggressive stance in mid-stream post-paid
packages (its main focus), despite making some upward price adjustments (11%-12%)
coupled with increased incentives toward the end of 2Q11. This is the area where Turkcell
has realized the most APPM erosion as shown in the chart above.
VODAFONE MAIN POST-PAID PACKAGES (ADVANTAGE PACKAGES)
Mini All-direction Mini Mini Super Midi On-net All-direction All-direction
Extra
Monthly fee (TRY) 15 20 29 39 39 55 59
On-net 150min 250min 500min 750min Unlimited Unlimited
Off-net (landline) TRY 0.3/min Unlimited
Off-net (mobile) TRY 0.3/min 750min
1,000min
SMS TRY 0.415/sms TRY 0.415/sms TRY 0.415/sms TRY 0.415/sms 10,000 on-net TRY 0.415/sms 1,000
Mobile internet 1GB
International All-direction offers could be used for international fixed line and Vodafone lines
Source: Vodafone, UniCredit Research

No slowdown in up-sells, which supports ARPUs: Post-paid subscribers have reached
32.2% of Turkcell's total subscribers in 2Q11 from 20.2% in 2008 thanks to targeted efforts by
the company (i.e. mainly via SMS with price incentives for the initial 3-6 month period). We
expect post-paid subscribers to reach approx 37% of total Turkcell subscribers by the end of
2013, which is still below the EU average of 49%. While the shift to post-paid is dilutive to
post-paid ARPUs, it is accretive to blended ARPU, as the average incremental ARPU is
indicated to be approx 60%-70% of the subscriber's previous ARPU under pre-paid. We note
that a higher post-paid share would have negative ramifications for the operating cash flow
(i.e. upfront payments in pre-paid).
Post-paid subscriptions comprise 61% of Turkcell-Turkey's revenues, up from 49% in 2008
and we expect post-paid revenues to generate 67% of the revenue base of Turkcell-Turkey in
2013E.
TURKCELL-TURKEY ARPU TRENDS
45.2
51.1
47.7
44.5
46.7
50.1
45.2
41.4 41.8 41.8
39.0 40.4 40.5 41.0
38.2 37.9 38.2
10.7 11.7 13.0 11.9
9.2
11.8 13.4 11.9 10.6 11.8 12.5 11.5 11.2 12.0 10.8 11.4 11.2 11.9
17.0
18.8 19.9 18.4
15.8
18.6
20.7
18.6 18.6 19.7 18.6 19.4 20.4 18.9 19.5 19.6 20.5
50.9
17.1
-5
10
25
40
55
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
Postpaid (TRL) Prepaid (TRL) Blended (TRL)
10%
20%
30%
40%
50%
2008 2009 2010 2011E 2012E 2013E
post-paidsubscribermix
10%
20%
30%
40%
50%
60%
70%
post-paidrevenuemix
Post-paid sub mix Post-paid revenue mix
Source: Company data
HISTORICAL MNP DATA (NET PORT-OUTS) TURKCELL SUBSCRIBER MIX
-800
-600
-400
-200
0
200
400
600
800
4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
TCELL VOD AVEA
26.3 27.7 28.5 29.0 28.6 28.5 29.1 29.5 28.6 27.7 26.9 26.0 24.9 24.2 24.0 23.3 22.7 23.3
5.9
6.1
6.3 6.4 6.6 6.9 7.2 7.5 7.8 8.6 9.1 9.4
9.3 9.8 9.9 10.1 10.4 10.7
0
10
20
30
40
1Q
07
2Q
07
3Q
07
4Q
07
1Q
08
2Q
08
3Q
08
4Q
08
1Q
09
2Q
09
3Q
09
4Q
09
1Q
10
2Q
10
3Q
10
4Q
10
1Q
11
2Q
11
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
Prepaid subs (mn.) Postpaid subs (mn.) Net Prepaid adds (RHS) Net Postpaid adds (RHS)
Source: Company data, Telecom Authority

We expect mobile internet revenues to register approx 45% CAGR in 2010-2013E:
Mobile internet revenues comprised 5.7% of Turkcell Turkey's revenues in 2010 and we
expect mobile internet to reach 15% of its revenues in 2013E on the back of 40% CAGR
within this period. Since the launch of 3G services in mid-2009, mobile broadband
subscriptions have grown rapidly with Turkcell reaching 850K as of 2Q11.
The bulk of the data revenues are generated by mobile internet usage through handsets
(70%) while the remainder is from 3G dongles thanks to increasing smartphone penetration.
Smartphone sales reached approx 25% of mobile phone sales in the domestic market.
Turkcell has 2.8mn smartphones on its network, corresponding to an 8.4% penetration
(1.4mn in 2Q10) which is expected to reach 3.5mn by year-end. Smartphone users generate
close to 3x of Turkcell's blended ARPU at around TRY 55. For approx 1mn high-end users
(iPhone and Blackberry), the ARPU is close to TRY 100 which implies a total revenue
contribution of 15% for Turkcell-Turkey.
We expect 3G modem revenues to register a marginally higher growth of 51% CAGR in 2010-
2013E, driven by flat ARPUs and the subscriber base reaching 1.8mn by 2014. We expect
data revenues through handsets to post 47% CAGR during this period with a slight increase
in ARPUs due to up-sells, as the average data usage is indicated to be about 100MB per
month through handsets. The most widely used package in 3G dongles is the 4GB tariff plan
for Turkcell, with average monthly data usage of 2.2GB. Thus, the growth in 3G dongle
revenues will be mainly driven by increasing penetration as the usage increase will likely not
have any impact on revenue growth due to low utilization in the existing packages. This also
shows that dongle revenues will likely not benefit from up-sells, unlike ADSL.
The good news is that mobile operators have not engaged in a price war in data and do not
offer "all you can eat" packages unlike their Western peers, most likely due to the early growth
stage of the market. Thus our flat ARPU assumption may prove conservative, in our view.
EBITDA margins in data are indicated to be lower than those of voice at around 20%
(contrary to Russia, where data is indicated to have 20% higher EBITDA margins than voice).
We estimate mobile internet through handset has higher margins than 3G modems, as we
estimate unit prices through handsets are 20%-30% higher than those of modems (please
refer to the table below).
TURKCELL – MOBILE INTERNET REVENUE MODEL
TRY mn 2010 2011E 2012E 2013E 2014E
Turkcell - mobile internet subs via handsets (mn) 9.3 11.8 14.3 16.4 18.9
Turkcell - modem/netbook subs (mn) 0.6 1.1 1.5 1.8 2.0
Handset data users ARPU (TRY) 3.8 3.9 4.3 4.6 4.9
Modem/netbook ARPU (TRY) 29 26 26 27 28
3G modem revenues (TRY) 153 263 406 530 625
% of data revenues 34% 35% 38% 39% 38%
3G handset revenues (TRY) 264 494 670 842 1,030
% of data revenues 66% 65% 62% 61% 62%
Total mobile data revenues (TRY) 454 757 1,076 1,372 1,655
Growth yoy 1,072% 67% 42% 28% 21%
ARPU contribution from mobile internet 1.1 1.9 2.7 3.3 4.0
Source: Turkcell, UniCredit Research estimates

TURKCELL – MAINSTREAM DATA TARIFFS THROUGH HANDSET AND 3G MODEMS
Handset 3G modem
100MB TRY 10 1GB TRY 29
250MB TRY 14 4GB TRY 39
1GB TRY 29 8GB TRY 69
The reflection of frequency usage fees will be margin supportive next year: Mobile
operators pay TRY 13.2 in wireless usage fees per subscriber to the government annually.
They reflect this cost to their post-paid subscribers, although they incurred these costs from
their pre-paid subscribers. Turkcell has started to reflect this fee to its pre-paid subscribers in
June 2011, and we expect the impact of this to become more visible in 2012. This will be a
sustainable improvement in the company's cost structure with smaller operators having to
follow suit. The wireless usage fee corresponded to TRY 330mn in 2010 for Turkcell with
370bp annualized impact on its consolidated EBITDA margin. Based on our discussions with
the company, we understand about half of this amount is related with unpaid post-paid bills
and new campaigns, thus we believe it provides a decent cushion on margins (approx
TRY 160mn savings), going forward.
Shareholder disputes – light at the end of the tunnel: CMB was given an authorization by
the government that could require companies in the ISE30 index (excluding banks) to comply
with corporate governance principles. Accordingly, one-third of the board members must be
independent (at least two independent members), and figures higher than two are to be
rounded to the next figure. The implication for Turkcell would be as follows: There should be
three independent board members under the current structure of the board (which has seven
members), while the remaining four members would be the representatives of Cukurova
Group, and foreign partners. Considering that the approval of five board members is needed
for a board decision, no single entity would be able to control Turkcell. We believe the
increase in independent members weakens foreign partners’ hand for blocking dividends as
they have cited the lack of independent members at the Board as the main reason for
blocking the dividends.
The dispute between Alfa Group and Cukurova is at the final stage at the Judicial Committee
of the Privy Council in the UK, and the final decision is expected to take about a year,
according to the lawyers of Cukurova Group. If Altimo succeeds, Cukurova would lose control
in Turkcell as the group controls the company through its 51% stake in Cukurova Telecom
Holding, which corresponds to a 13.8% effective stake in Turkcell (please refer to the chart
below). This would potentially pave the way for a tender call, as the controlling shareholder
changes, according to CMB. In case of a tender call, the price would be set based on either:
1) the implied value in the debt deal between Cukurova and Alfa in 2005; 2) the average stock
price in the past 6-month period; or 3) an independent appraisal. Regarding the first option,
we understand Cukurova and Alfa have reached a deal for a total consideration of USD 3.3bn
in 2005, which includes USD 1.6bn for the 13.2% equity stake in Turkcell, and USD 1.7bn in
debt collateralized by a 13.8% stake of Cukurova in Turkcell.

TURKCELL SHAREHOLDER STRUCTURE
Cukurova Finance
International Limited
Alfa Telecom Turkey
Limited (Altimo)
Cukurova Telecom
Holdings
Turkcell Iletisim
(TCELL)
Teliasonera
Turkcell Holding AS
13.1%51.0%
51.0% 49.0%
47.1%52.9%
We do not expect any regulatory cut next year: We do not expect an MTR or price cap cut
next year, based on our discussions with the Telecom Authority. The recent cautionary
statements by the Head of the Telecom Authority regarding the declining profitability of the
sector support our view. He explicitly stated that, "Infrastructure costs are escalating. I see
this as a great risk for the future growth of the sector."
We believe that the initial direct financial impact of an MTR cut would be positive for Turkcell
as the company is a net payer of interconnect (TRY 40mn loss in 1H11), however, the
medium term effect would likely be negative with smaller operators gaining lower cost access
to the company's network. In fact, after having cut Turkcell's MTRs and price caps by 77%
and 50% between 2008 and 2010, respectively, the regulator made an inflationary price
adjustment to price caps, increasing them by 3.8% in 2011, which also indicates that we have
come to the end of drastic cuts. The regulator acknowledges it has been ahead of the curve
regarding MTR cuts (approx 70% lower than the EU average), and according to its cost
analysis, current rates leave decent room for profitability.
Fintur – The crown jewel: Turkcell owns 41.5% of Fintur, which has mobile operations in the
CIS region, including Kazakhstan (Kcell, 51% stake), Azerbaijan (Azercell, 51% stake),
Moldova (Moldcell, 51% stake) and Georgia (Geocell, 51% stake). Fintur's contribution is
accounted for via equity pick-up in Turkcell's P&L with a USD 153mn contribution in 2010 (up
28% yoy), corresponding to approx 14% of Turkcell's bottom line. Mobile penetration in CIS
stands at 93%, meaning that subscriber growth potential is limited, in our view. Teliasonera,
which owns the remainder, has explicitly stated it intends to buy Turkcell's Fintur stake. While
Fintur is viewed as a core asset by management, in case of a controlling shareholder change
in Turkcell, we believe acquiring the rest of the company would be a priority for Telisonera,
which may be viewed positively by investors in terms of unlocking value (we value Turkcell's
stake at USD 1.67bn and treat it as cash) assuming the deal is done at a fair value. However,
we believe that the sale would not fetch a sizable premium as Teliasonera already owns a
controlling stake in the company.

FINTUR – SUBSCRIBERS AND REVENUE
Subscribers - 2Q11 (mn) Revenue – 2010 (USD mn) Growth yoy
Kazakhstan 9.7 1,013 17.4%
Azerbaijan 4.1 504 0.6%
Moldova 2.1 67 6.3%
Georgia 1 152 -13.1%
Turnaround of Astelit (Ukraine) is on track, but the Belarusian subsidiary is facing
headwinds due to macro turmoil: With approx 12% subscriber market share, Turkcell's
55%-owned subsidiary, Astelit, is a distant third among the four mobile operators in the
Ukrainian mobile market, which is close to saturation at approx 104% SIM card penetration as
of 2Q11. Astelit's revenues have been on the decline over the past four quarters due to the
company's new strategy of moving away from subscribers which have very low ARPUs. The
total number of subscribers has come down 26% since 2008, while the number of subscribers
which have been active for three months (which is the better metric due to high dual SIM card
usage) was down 18% due to changes in subscriber definition and churn during this period.
Due to its lackluster profitability, the company has implemented a restructuring program in
2Q10 which incorporated tariff rebalancing, essentially limiting free off-net minutes to reduce
termination costs (also aided by the MTR cut this year) and aligning dealer commissions.
These efforts have paid off: The EBITDA margin improved to 26.8% in 2Q11 from 5.8% in
2009. We expect this trend to continue and Astelit to reach a 32% EBITDA margin by 2015.
Meanwhile, Turkcell's 80%-owned Belarusian subsidiary (BeST) is facing headwinds due to
the macroeconomic turmoil in the country. Turkcell acquired the third largest operator in
Belarus in August 2008 for USD 500mn. Turkcell will make an additional USD 100mn
payment when the company posts positive results. The devaluation of the Belarusian ruble
against foreign currencies has reached about 95% YTD. In 2Q11, the depreciation was 73%
and Turkcell recognized TRY 188mn goodwill impairment and an FX loss of TRY 255mn in
2Q11, stemming from TRY 631mn FX-denominated liabilities of the subsidiary. The further
devaluation will likely cause additional FX losses (approx TRY 100mn in 3Q11) for the
company while there is no goodwill left on its balance sheet regarding Belarus. The country's
2012 prospects appear grim, given the current macroeconomic environment, which will likely
prolong the process of reaching breakeven on EBITDA level (TRY -11mn in 1H11) However,
we do not expect BeST to have a material impact on Turkcell's operational performance in the
foreseeable future. Its subscribers stand at 1.6mn as of 2Q11, corresponding to 2.6% of
Turkcell Group's total subscribers.
ASTELIT ACTIVE SUBSCRIBERS AND ARPUS
0.0
2.0
4.0
6.0
8.0
10.0
2006 2007 2008 2009 2010 1Q11 2Q11
0%
20%
40%
60%
80%
3-month active subscribers % of total subscribers
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2007 2008 2009 2010 1Q11 2Q11
ARPU (total subscribers) ARPU (active subscribers)

ASTELIT REVENUE AND EBITDA MARGIN UKRAINE - MOBILE SUBSCRIBER MARKET SHARE
4.6%
2.7%
7.9% 7.4% 7.0%
22.7%
25.3%
20.7%
24.0%
26.8%
70
75
80
85
90
95
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
0%
5%
10%
15%
20%
25%
30%
Revenues EBITDA margin
MTS
35.5%
Kyivstar
46.7%
Astelit
13.1%
Other
4.7%
Promising fiber broadband business in the medium term: In addition to yielding notable
synergies with Turkcell through lowering transmission costs, Superonline offers a promising
broadband business with a growing subscriber base. Non-group revenues have reached 60%
of Superonline's revenues as of 2Q11.
Superonline has reached 192K subscribers as of 2Q11 since its launch at the beginning of
2010, while its network has 718K home passes which is expected to reach 1mn by year-end.
Considering the average uptake rate of 26%, we assume fiber subscriptions to reach 250K by
year-end. The pace of subscriber adds in fiber has increased with the increased network roll-
out. This is also supported by competitive prices of fiber against ADSL despite its higher
speeds on average. Average download speed for Superonline is 15.6Mbps vs. 6.1Mbps
broadband speed on average in Turkey. Retail ARPU for fiber offering stands at TRY 35-40,
with an annualized run-rate of TRY 115mn in revenues.
Approvals from local municipalities seem to be the major bottleneck for the expansion of the
fiber network. Moreover, Superonline's fiber network of 28K km provides a competitive
advantage against Vodafone, as Vodafone's recently acquired fixed line subsidiary is
relatively small and makes the company to a large extent dependent on TT for transmission.
TURKCELL TRANSMISSION COSTS FIBER SUBSCRIBERS, HOME PASSES AND UPTAKE
58%
51%
46%
33%
37%
44%
0
20
40
60
80
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
0%
20%
40%
60%
80%
Turkcell's tranmission costs
Superonline's share in Turkcell's transmission costs
0.00
0.20
0.40
0.60
0.80
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Fiber subscribers Home passes take-up rate

MVNO agreement in Germany positive in terms of reducing dependence on domestic
market, but is unlikely to be a major value driver: Turkcell reached an MVNO (mobile
virtual network operator) agreement with Deutsche Telekom, which became operational on
April 2011, mainly targeting the 3mn Turks in Germany. We expect Turkcell-Europe to reach
an annual turnover of TRY 283mn by the end of 2015, based on an average ARPU of EUR 15
and 1mn subscribers. The subscriber figure as of August stands at 132K. MVNOs command
approx 35% market share in Germany while ARPU is indicated to be around EUR 14-15.
While we expect Turkcell-Europe to have a dilutive impact on EBITDA this year and reach
breakeven only in 2012 due to heavy marketing and SAC, margins on a sustainable basis
tend to be low due to the MVNO agreement (approx 10%-15% EBITDA margin). We would
also note that the agreement could cannibalize high-margin roaming revenues to some extent
as one of the key differentiations of Turkcell-Europe is to offer on-net prices on mobile calls
between Germany and Turkey. However, it is difficult to assess the impact at this point as we
do not have a breakdown of roaming traffic. Management also stated it is evaluating further
MVNO deals in other European countries with large Turkish minorities.
3Q11 preview: Turkcell will report its 3Q11 results on 2 November, with a conference call
following the next day. We forecast the company to report TRY 2.5bn in revenues (7% yoy
growth), TRY 858mn in EBITDA (down 1% yoy) with a 34.3% EBITDA margin; down 280bps
yoy due to normalization of Opex and TRY 402mn in net income (down 28% yoy, mainly due
to FX losses at is Belarusian subsidiary).
TURKCELL - INCOME STATEMENT
TRY mn 2009 2010 2011E 2012E 2013E
Revenues 8,936 9,004 9,298 9,935 10,508
Growth yoy 1.0% 0.8% 3.3% 6.9% 5.8%
Turkcell-Turkey 7,989 7,969 8,071 8,498 8,890
Growth yoy 2.0% -0.2% 1.3% 5.3% 4.6%
% of revenues 89% 89% 87% 86% 85%
Others 947 1,035 1,227 1,437 1,618
Growth yoy -6.7% 9.2% 18.6% 17.2% 12.5%
% of revenues 11% 11% 13% 14% 15%
Depreciation and amortization 893 1,131 1,255 1,292 1,361
EBITDA 2,979 2,948 2,885 3,191 3,418
Growth yoy -8.5% -1.0% -2.2% 10.6% 7.1%
Turkcell-Turkey 2,816 2,681 2,524 2,732 2,873
Growth yoy -6% -5% -6% 8% 5%
Others 163 268 360 459 544
Growth yoy -35% 64% 35% 27% 19%
EBITDA margin 33.3% 32.7% 31.0% 32.1% 32.5%
Other income (expense) -162 -74 -275 0 0
Financial income (expense) 224 264 -87 226 320
Share of profit associates 119 185 245 287 309
Pre-tax profit 2,267 2,192 1,512 2,412 2,685
Pre-tax margin 25.4% 24.3% 16.3% 24.3% 25.6%
Taxes -533 -485 -381 -482 -537
Tax rate 24% 22% 25% 20% 20%
Minority 17 -65 -70 -73 -71
Net profit 1,717 1,772 1,062 1,856 2,077
Growth yoy -24.7% 3.2% -40.1% 74.9% 11.9%
Net margin 19.2% 19.7% 11.4% 18.7% 19.8%

TURKCELL - BALANCE SHEET
TRY mn 2009 2010 2011E 2012E 2013E
Cash and marketable securities 4,755 5,118 6,723 6,114 6,564
Trade receivables 700 724 1,241 1,236 1,288
Others 950 1,019 578 1,879 1,942
Current assets 6,405 6,860 8,542 9,229 9,794
PPE 3,976 4,729 5,515 5,782 5,999
Intangibles 2,550 2,399 2,571 2,328 2,108
Investment in associates 572 612 740 841 960
Others 476 495 338 282 210
TOTAL ASSETS 13,979 15,096 17,705 18,462 19,071
Financial loans 1,048 674 1,199 1,329 1,338
Trade payables 756 812 1,496 1,556 1,626
Provisions 309 238 282 314 297
Others 1,345 1,079 916 1,701 1,533
Current liabilities 3,458 2,803 3,893 4,900 4,794
Financial loans 1,236 2,176 2,529 2,544 2,560
Others 452 519 623 637 653
Long-term liabilities 1,689 2,695 3,151 3,181 3,213
TOTAL LIABILITIES 5,147 5,497 7,045 8,082 8,006
Shareholders equity 8,832 9,599 10,660 10,380 11,065
Total liabilities and shareholder equity 13,979 15,096 17,705 18,462 19,071

17 October 2011
Equity Research
Telecommunications TurkeySector Update
Turk Telekom
The line is busy
We initiate coverage of Turk Telekom (TTKOM) with a Hold rating and
a 12M target price of TRY 8.03 per share, which offers 6% upside
potential. We believe the main positives of the company are well
understood with the re-rating of the stock, which now trades at
sizable premiums to its peers.
■ Strong execution but rich valuation: Turk Telekom has benefited
from stabilization in its core PSTN business while offering decent
growth, which is driven by its ADSL segment thanks to its pricing power
and low fixed broadband penetration in Turkey. However, we believe
these positives are mostly reflected in the stock, which is trading at 6.2x
and 10.1x 2012E EV/EBITDA and P/E multiples, respectively, implying
15% premium and 7% discount to its international wireline peers,
respectively. Excluding the value of the mobile business (7% of EV), the
current implied 2012E EV/EBITDA multiple for its fixed-line business is
6x, corresponding to a 12% premium to its wireline peers.
■ Likely de-rating on the back of deterioration in dividend yield: We
expect TT's 2012E dividend yield to deteriorate due to sizable FX
losses this year from its short FX position of TRY 4.5bn as of 2Q11. Our
DPS estimate of TRY 0.56 implies 7.4% dividend yield vs. its historical
average of 11.6%. We believe consensus EPS estimates do not yet
fully factor in the FX losses that the company should post in 3Q11 and
deterioration will likely hurt the sentiment.
IFRS 2009 2010 2011E 2012E 2013E
Sales (TRY mn) 10,568 10,852 11,888 12,630 13,350
EBITDA (TRY mn) 4,093 4,372 4,834 5,032 5,238
EBITDA (TTKOM format) 4,249 4,836 5,167 5,398 5,625
EBIT (TRY mn) 2,388 2,847 3,254 3,363 3,495
Net income (TRY mn) 1,832 2,451 2,096 2,618 2,766
EPS reported (TRY) 0.52 0.70 0.60 0.75 0.79
DPS (TRY) 0.43 0.45 0.64 0.56 0.69
ROE (%) 34.7% 42.1% 42.7% 40.2% 39.9%
P/E (x) 8.1 9.4 12.6 10.1 9.6
P/BV (x) 3.0 4.1 4.4 3.9 3.7
Net debt/equity (%) 61% 54% 69% 58% 55%
EV/EBITDA (x) 4.3 5.3 6.5 6.2 6.0
Dividend yield 12.6% 11.1% 8.5% 7.4% 9.1%
Source: Turk Telekom, UniCredit Research estimates
Hold (Initiation of Coverage)
Price on 14 October 2011 TRY 7.56
Target price TRY 8.03
Upside to TP 6%
Cost of equity 12.9%
12M High/Low (TRY) 9,38/6,24
INVESTMENT HIGHLIGHTS
ADSL remains the growth driver
Uphill battle to defend PSTN
Likely deterioration in dividend yield
STOCK TRIGGERS
Stabilization in PSTN subscribers
Mobile margin recovery
Strengthening of TRY
STOCK DATA
Reuters/Bloomberg TTKOM.IS/TTKOM TI
Average daily volumes ('000) 2,406
Free float (%) 15,0
Market capitalization (TRY bn) 26.5
No. of shares in issue (mn) 3,500,0
Shareholders Oger Telekom 55%,
Turkish Treasury 30%
UPCOMING EVENTS
3Q11 results 18 October 2011
3Q11 conference call 19 October 2011
2009 2010 2011
1
2
3
4
5
6
7
8
9
TURK TELEKOMUNIKASYON
MSCI EM EUROPE U$ - PRICE INDEX
Source: Thomson Datastream
STOCK PERFORMANCE (CHG. %)
1M 3M 6M
Absolute -8.3 -13.5 -12.2
Rel. to MSCI EME -6.3 12.7 23.4
Rel. to MSCI Turkey -10.5 0.4 19.5
(UniCredit Menkul)
+90 212 385 9527

Investment thesis
We initiate coverage on Turk Telekom with a Hold rating and a 12M target price of TRY 8.03
per share, offering 6% upside potential. Our cautious view on the stock is primarily due to our
valuation concerns, as the shares trade at sizable premiums to international peers, but there
are downside risks to its historical average dividend yield.
We believe TT offers decent operational earnings visibility on the back of the resiliency of the
main value driver, the fixed line business, and the stabilization in PSTN revenues thanks to
higher recurring revenues (approx 67%) and growth potential in ADSL, which benefits from its
pricing power due to its strong position and good penetration potential over the coming years.
The mobile business profitability is likely to continue to suffer thanks to the revenue market
share focus of Avea with its contribution to the consolidated financials is likely to remain
limited at approx 6%.
The main operational risks include acceleration in PSTN subscriber erosion on the back of
widening APPMs against mobile, as well as lower than expected ARPU expansion in ADSL
due to stronger competition.
Investment highlights
Pricing power in ADSL with low broadband penetration will be the main growth driver:
We expect the ADSL business to remain TT's main growth engine, with ADSL revenues to
register a top line CAGR of 16% in 2010-2013E. This will be driven by 9% ARPU and 6%
subscriber CAGRs. TTNet increased its ADSL tariff prices by 8%-10% for unlimited packages
at the beginning of this year (followed by the competition) thanks to its dominant position in
the fixed broadband market (85% market share compared to 45% average for the incumbent
in the EU). We expect ARPU growth to be partly diluted by a larger wholesale share (to ISPs)
at 16.2% from 9.4% as of 2Q11, and expect ISPs to sustain their strong subscriber addition
momentum YTD. However, the impact would be limited as TT has lowered the price
discrimination for ISPs to a 5% discount in 1Q11 from 10%.
Uphill battle to defend core PSTN business: Turk Telekom has managed to slow down the
revenue erosion in its fixed voice business (making it unique among its peers) thanks to the
increasing penetration of bundle packages with higher fixed fees. Recurring revenues, which
have reached 67% of the PSTN business, enable TT to reduce its exposure to declining fixed
voice usage, which is down to 13% of the total voice traffic in Turkey. However, we believe TT
continues to face an uphill battle to stop the erosion in its subscriber base as evidenced by
the accelerating line losses YTD driven by F2M substitution with widening APPMs against
mobile. We believe TT would need to offer higher incentives (off-net minutes) that may apply
pressure on fixed line margins through higher interconnect costs, to defend its subscriber
base. According to its 2011 business plan, a decision regarding wholesale line rental is on the
Telecom Authority's agenda, which may have a moderately negative impact on TT's PSTN
business in 2012, as this will improve the value proposition of alternative operators by
enabling them to offer bundled and more value-added fixed line services instead of simply re-
selling TT's product.

Lackluster margin outlook for the maverick mobile discounter, with limited contribution
to profitability: Meaningful margin recovery does not seem likely for mobile business
considering recent commentary from Avea, which increases competition by its continued
investment in distribution channels. Avea is expected to reach 1,000 exclusive dealers by
year-end (Turkcell has a slim lead with slightly above 1,000 dealers, but 2.5x revenue market
share). We forecast Avea's EBITDA margin to reach 13.3% in 2012E (from 10.5% in 2011E)
which will be mainly driven by the reflection of wireless usage fees, however, this will likely be
partially offset by higher interconnect costs due to wider penetration of all-direction offers.
Avea has shifted its focus to building scale from profitability in 2009 after having lagged
Vodafone in terms of revenue market share. The revenue market share gap between
Vodafone and Avea has widened to approx 8% from approx 1% at the end of 2009. Avea's
contribution to TT's consolidated EBITDA stands at a mere 6% and we believe that TT aims
to disrupt the mobile market without expecting any meaningful financial contribution from this
division.
De-rating likely on the back of deterioration in dividend yield: We estimate TT's 2012E
dividend yield at 7.4%, compared to the 11.6% average over the past three years. We believe
consensus expectations do not fully reflect the potential FX losses from its short FX position
of TRY 4.5bn as of 2Q11. TT recorded TRY 355mn in financial expenses in 1H11 (TRY 7mn
in 1H10) and we forecast TRY 564mn in financial expenses in 2H11. Our DPS estimate of
TRY 0.56 is 21% lower than consensus. This would temporarily hurt the positive sentiment on
the stock, in our view.
TT DIVIDEND YIELD AND DPS
14.4%
12.6%
10.8% 11.2%
12.0%
10.4% 10.0%
7.4%
0%
3%
6%
9%
12%
15%
2008 2009 1Q10 2Q10 3Q10 4Q10 1Q11 UCI
estimate
0.43 0.45
0.64
0.56
0
0.2
0.4
0.6
0.8
2009 2010 2011 2012E
TRY
Source: Company data, UniCredit Research estimates
Uncertainty regarding Avea's recapitalization: In July, Turk Telekom announced its
intention to restructure Avea's capital by converting its shareholder loan into equity. However,
the EGM was postponed for two months to give Isbank more time to evaluate its options.
Isbank would need to invest a further TRY 672mn based on its 18.6% stake to avoid dilution,
while TT's stake would increase to 90.8% by our estimate. It is highly likely that Isbank will not
participate in the capital increase and get diluted as it did in 2005. At that time it had to pay
TRY 77mn to participate in the rights issue. Technically, there should not be a cash outflow
from TT but management indicates that a small amount might be paid to Isbank due to tax
issues as the shareholder loans could not be fully converted into equity. The essential point is
that while TT has no other option than funding the core business, we believe it would be
paying a approx. 25% premium to the fair value if Isbank's stake is diluted.

The other option, which we do not believe is likely, is that Isbank could force TT for an IPO
which TT could turn down and buy Isbank's stake at approx 5% discount to the value
determined by an independent third party. According to CMB regulations, Avea could only be
floated under watch list market as it is loss making, however, this would not be a viable option
for Isbank to maximize value, in our view.
Potential SPO is a double-edged sword: We believe an SPO of part of the government's
approx 30% stake in TT (likely in 2012) presents a double-edged sword for investors. For
investors who are seeking to buy the stock at a discount in the SPO; Turk Telekom may
become a riskier asset given the potential change in the current benign regulatory
environment post-SPO, as we believe the regulation may not be as accommodating following
the government's stake sale. The potential areas that could be on the agenda could be
adjusting fixed termination rates, which stand well above the EU average (contrary to MTRs)
or potential measures to curb TT's dominant standing in fixed broadband.

Valuation
Our 12M target price of TRY 8.03 per share for TTKOM offers 6% upside potential. We value
the stock based on our SOTP valuation. We apply DCF and relative valuation to value mobile
and fixed line businesses separately.
TT VALUATION SUMMARY
SOTP Valuation (TRY mn except per share data) EV Weighting Weighted
Fixed-line valuation 27,909
DCF 28,328 50% 14,164
Mobile business valuation 2,211
DCF 1,976 50% 988
TOTAL EV 30,120
Put option liability* 411
Net debt 4,917
Potential cash inflow from Millenicom case 279
Current target Mcap 25,071
12M target equity value 28,091
No. of shares 3,500
12M price target 8.03
Current price 7.56
Upside potential 6%
Valuation of fixed line business
Our equally weighted average of DCF and relative valuation for the fixed line business yields
an enterprise value of TRY 27.9bn.
Our DCF valuation for the fixed line business yields an enterprise value of TRY 28.3bn based
on a WACC of 12.1% and terminal growth rate of 0%. This implies a 5.8x 2012E EV/EBITDA
multiple for the fixed line business, representing 10% premium to international wireline peers.

FIXED LINE DCF
2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E
Revenues 9,246 9,533 9,848 10,067 10,396 10,803 11,199 11,563 11,973 12,390 12,835
Growth yoy 7.2% 3.1% 3.3% 2.2% 3.3% 3.9% 3.7% 3.2% 3.5% 3.5% 3.6%
EBITDA 4,838 4,909 4,994 5,114 5,224 5,358 5,482 5,585 5,717 5,848 5,987
EBITDA margin 52.3% 51.5% 50.7% 50.8% 50.3% 49.6% 49.0% 48.3% 47.8% 47.2% 46.7%
(-) Taxes (on EBIT) 778 790 804 826 846 869 887 900 919 938 957
Effective tax rate 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20%
(-) Capex 1,370 1,276 1,272 1,309 1,352 1,404 1,456 1,503 1,556 1,611 1,669
% of revenues 15% 13% 13% 13% 13% 13% 13% 13% 13% 13% 13%
FCF 2,689 2,844 2,918 2,979 3,027 3,085 3,139 3,181 3,241 3,300 3,362
Discount year count 0.17 1.17 2.17 3.17 4.17 5.17 6.17 7.17 8.17 9.17 10.17
Discount rate 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%
Discount factor 1.02 1.14 1.28 1.43 1.61 1.80 2.02 2.26 2.53 2.84 3.18
Discounted FCFs 2,639 2,490 2,280 2,078 1,884 1,714 1,557 1,408 1,280 1,163 1,058
PV of FCFs (2011E-2021E) 19,550 WACC
Terminal value (end of 2020) 27,903 RFR 8.5%
PV of terminal value 8,778 ERM 5.0%
Core business value 28,328 Beta 1.0
D/(D+E) 20%
Tax rate 20%
COE 13.5%
COD
(after-
tax)
6.4%
WACC 12.0%
DCF for mobile business
Our equally weighted average of DCF and relative valuation for the mobile business yields an
enterprise value of TRY 2.23bn. Our DCF valuation for mobile business yields a fair value of
TRY 1.97bn. Our valuation assumptions include a WACC of 13.1% and a terminal growth rate
of 3%. We value mobile business at 5.5x 2012E EV/EBITDA multiple in our relative valuation,
slight premium to the peer median of 5.1x, considering the depressed profitability of Avea.

DCF FOR MOBILE BUSINESS
TRY bn 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E
Revenues 3,091 3,540 3,939 4,229 4,531 4,850 5,188 5,545 5,920 6,315 6,731
Growth yoy 16.8% 14.5% 11.3% 7.4% 7.1% 7.0% 7.0% 6.9% 6.8% 6.7% 6.6%
EBITDA 329 489 632 771 922 1,071 1,237 1,419 1,607 1,758 1,914
EBITDA margin 10.7% 13.8% 16.0% 18.2% 20.3% 22.1% 23.8% 25.6% 27.1% 27.8% 28.4%
(-) Taxes (on EBIT) -61 -44 -27 2 30 59 92 129 167 200 235
Effective tax rate 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20%
(-) Capex 878 814 788 719 702 727 778 821 835 853 875
% of revenues 28% 23% 20% 17% 16% 15% 15% 15% 14% 14% 13%
FCF -488 -281 -129 50 189 285 367 470 605 706 804
Discount rate 12.8% 12.8% 12.8% 12.8% 12.8% 12.8% 12.8% 12.8% 12.8% 12.8% 12.8%
Discount factor 1.02 1.15 1.30 1.46 1.65 1.86 2.10 2.37 2.67 3.01 3.40
Discounted FCFs -478 -244 -99 34 115 153 175 198 226 234 237
WACC
PV of FCFs (2011E-2021E) 551 RFR 9%
Terminal value 6,374 ERM 5%
PV of terminal value 1,877 Beta 1.45
(-) Avea put option 452 D/(D+E) 35%
Core business value 1,976 Tax 20%
COE 16.0%
COD (after-tax) 6.8%
WACC 12.8%

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