This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 ANKARA 001256 
 
SIPDIS 
 
USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK 
FCC FOR A THOMAS AND A WEINSCHENK 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECPS EINT EINV TU
SUBJECT:  TURKEY: TELECOM/IT SECTOR CLAMORING FOR MORE 
COMPETITION 
 
REF: A: ISTANBUL 124 
 
B: 05 ANKARA 6701 AND PREVIOUS 
 
Sensitive But Unclassified.  Please handle accordingly. 
 
¶1. (SBU) Summary: Following the privatization last July of 
Turkey's fixed line telecom company Turk Telekom, operators 
are urging the Telecommunications Regulatory Board to move 
more quickly in licensing cable and new technologies and to 
augment competition.  Still dominant Turk Telekom's new 
management promises to embrace fair competition, but this 
promise has not clearly permeated through its traditional 
bureaucratic mind set.  Despite still low internet 
penetration, there are significant growth opportunities in 
the telecom/IT sectors in Turkey, and sector participants 
are eager to learn from U.S. market and FCC regulatory 
experience.  End Summary. 
 
--------------------------- 
Still Dominant Turk Telekom 
--------------------------- 
 
¶2.  (SBU) Representing the 55% majority interest led by Oger 
Group, Turk Telekom's (TT) new President and CEO Paul Doany 
said all the right things at a recent "STEAM" telecom sector 
conference in Istanbul March 1-2.  Doany stressed that TT 
was fully committed to acting as a fair competitor and good 
business partner within the telecom regulatory framework and 
given a fair return for investment.  He noted that TT's 
competitors were customers, too.  Doany emphasized that the 
company was moving from order taking to marketing, but 
admitted that it was hard to effect change overnight.  While 
claiming unflagging commitment to all stakeholders, he 
argued that the incumbent TT could not be solely burdened 
with capital costs, allowing newcomers to cherry pick 
business.  Doany said that PC penetration of 5 million PCs 
in Turkey was still too low, but he expected this to double 
in 2 years to 10 million PCs.  Conference participants gave 
TT credit for many successes, achieving majority 
privatization to foreign capital, for one.  In addition, 
multiple, redundant international cable connections have 
been established (two Mediterranean submarine and five 
European terrestrial), mitigating risky over-dependence on a 
single connection.  Finally, TT has ramped up its ADSL wide- 
band internet portals to over 1.8 million and subscriptions 
to over 1.6 million. 
 
¶3.  (SBU) Minister of Transportation and Communication 
Binali Yildirim - by teleconference - told the conference he 
is committed to moving forward on funding universal access, 
R&D, PC provision to schools, and e-transformation in 
government.  He said the government was formulating a new 
communications law to improve the business environment.  He 
said that the tax burden on GSM services is rather high. 
This problem would be overcome partly in 2007, he claimed. 
The Minister said that GOT, TT, and Microsoft were committed 
to increasing PC's in schools (Ref A).  Telecommunications 
Authority President Tayfun Arcarer outlined an ambitious 
work program, which included moving forward on wide-band 
provision via cable, wireless, and 3G platforms. 
 
--------------------------------------------- ----- 
Convergence, Taxation, Customers - not Subscribers 
--------------------------------------------- ----- 
 
¶4.  (SBU) Industry participants made the following points: 
High taxation: mobile and other operators lamented that 
Turkey faced among the highest taxation rates on telecom 
services in the world (just ahead of Uganda), at around 60%, 
severely hurting the sector's ability to expand and 
innovate.  One participant told EconOff that the 
government's position was that this was a lucrative sector 
that was easy to tax, so it was unapologetic in locking in 
an important revenue source.  Turkcell is the dominant 
mobile provider, but the sector enjoys competition from 
Telsim (recently acquired by Vodafone) and Avea (TT minority 
interest). 
 
¶5.  (SBU) Low internet penetration: According to EU 
statistics overall internet usage in Turkey stands at 15%, 
versus an EU average of 40%.  Participants noted that low 
internet penetration was a function of low computer 
penetration (5 million in Turkey) and to some extent low 
fixed line penetration. 
 
¶6.  (SBU) Broad-band is not Broad: Turk Telekom is still the 
sole provider of wide-band internet through its ADSL 
service.  While it has ramped up subscriptions at a fairly 
reasonable price, there is no competition for services.  One 
media participant lamented that Turkey's wide-band was 
mostly 256 and 512 bp, while in parts of Europe and Asia 
customers used 2 MB and above.   He said Turkish customers 
were eager for new services and products, but needed more 
band-width.  He claimed that one-half of Europe's high speed 
ADSL was provided by new competitors. 
 
¶7.  (SBU) Interconnection and Legal Woes: A Turkcell rep 
told EconOff that TT's interconnection and leased line 
pricing was still exorbitant.  He said that Turkcell is able 
to mitigate this cost somewhat by using competing 
international providers (who still have to connect through 
the Turk Telekom infrastructure; out of forty licenses, 25 
licensees have signed an interconnection agreement with TT, 
but only a handful of long-distance license-holders 
operate).  One participant noted that Turkcell's audit 
report was filled with pages of descriptions of legal cases 
filed against it by TT.  The industry still perceives that 
rather than embracing competition in new technology, TT 
resorts too quickly to legal action (because it often wins). 
One participant told EconOff that TT had filed well over 200 
cases against individuals who were providing competing 
services.  One Vice President of the Telecommunications 
Authority mentioned that TT's new DG Doany told them that 
TT's new management would drop most of these court cases in 
the near future. ISP's still struggle with expensive 
interconnection with TT as both provider and competitor. 
 
¶8.  (SBU) Cable: Industry is eager for cable licenses to be 
issued, heretofore held up by legal and regulatory cases, 
hoping that - like in the U.S. and elsewhere - this could 
provide effective wide-band internet competition. 
Currently, there is limited internet provision under an 
existing cable license.  Once the licenses are issued, 
licensees are planning to provide digital cable connections 
which will enable wide-band interconnection.  The current 
cable-TV network is analog type.  Prospective cable-TV 
licensees would like to provide their services free from 
Turksat, but the new draft law states that they have to go 
through Turksat satellite services, which is still 100% 
owned by the GOT (it was separated from TT prior to 
privatization). 
 
¶9.  (SBU) VOIP: Under Turkish regulations, Voice Over 
Internet Protocol (VOIP) can be provided under voice 
licenses for international service or intra-company.  Long 
distance service providers are mostly using VoIP.  Turks are 
also taking advantage of Skype, Vonage, and other similar 
providers.  For this kind of service, the regulator noted 
the challenge of the lack of a telephone number, which 
causes a problem for emergency services.  Currently, the 
regulator does not have a separate regulation for VoIP. 
 
¶10.  (SBU) There was lots of buzz about local loop 
unbundling, wireless, 3G and more to catalyze competition in 
internet and telecom provision.  The regulator stated that 
it was closely studying new technology to bring in new 
licensing. 
 
¶11.  (SBU) Comment: Both the Telecom and Energy Regulatory 
Boards in Turkey have struggled to gain competence and 
safeguard independence in their respective sectors.  While 
the energy board's challenge has been that the sector is 
still dominated by government actors - so it does not yet 
have a dynamic market to regulate, the telecom market is 
majority privatized and market participants are tearing at 
the bit.  The STEAM telecom conference was striking in the 
significant participation by the regulator and extensive and 
spirited dialogue with industry.  However, industry is 
intensely frustrated with slow progress on licensing new 
technologies and imperfect competition in many areas. 
Industry is speaking loudly, and the regulator is listening, 
so there is great hope in this critical sector. 
 
¶12.  (SBU) Many participants expressed to EconOff the desire 
to learn from U.S. and FCC experiences; for example, there 
was interest in the recent FCC ruling that cable provided 
sustained competition to telephone fixed line DSL provision 
in the U.S. market.  Turkey inevitably looks first to the 
EU, but realizes that its own specific approach can benefit 
from American lessons learned, especially in the dynamic 
telecom/IT sectors. 
 
Wilson