Life with Turkcell ANNUAL REPORT 2009 CONTENTS Operational and Financial Data Summary 01 Our Vision / Strategic Priorities / Our Values 02 Message from the Chairman 06 Board of Directors 08 Message from the CEO 12 Management Team 14 Managers of Turkcell Group Companies 16 First in Technology 24 First in Advantages 36 First in Service 64 Mobile Communications Sector 68 2009 Operational and Financial Review 77 Investor Relations 81 Corporate Governance Compliance 97 Independent Auditors’ Report and Consolidated Financial Statement 168 Dematerialization of the Share Certificates of the Companies that are Traded on the Stock Exchange 170 The Board of Directors’ Dividend Distribution Proposal 172 Abstract of Auditor's Report to General Assembly of Turkcell İletişim Hizmetleri A.Ş. OPERATIONAL AND FINANCIAL DATA SUMMARY 2008 2009 Change % Turkcell Turkey Total Subscribers (Million) 37.0 35.4 (4.3) Post-paid Subscribers 7.5 9.4 25.3 Pre-paid Subscribers 29.5 26.0 (11.9) Average Revenue per User (ARPU) Blended (TRY) 18.4 18.5 0.5 Churn Rate (%) 23.8 32.6 8.8 pp Average Minutes of Usage (MoU) per Sub. Blended 95.9 134.3 40.0 Turkcell Group (TRY Million) Revenue 8,845 8,936 1.0 EBITDA 3,255 2,978 (8.5) Net Profit 2,297 1,702 (25.9) Note: The financial figures in this report are based on Consolidated IFRS financial statements in TRY. TURKCELL ANNUAL REPORT 2009 1 OUR VISION To ease and enrich the lives of our customers with leading communication and technological solutions. STRATEGIC PRIORITIES As a Leading Communication and Technology Company: • To grow in our core mobile communication business through increased use of voice and data, • To grow our existing international subsidiaries with a focus on long-term profitability, • To grow in the fixed broadband business by creating synergy among Turkcell Group companies through our fiber optic infrastructure, • To grow in the area of mobility, internet and convergence through new business opportunities, • To grow in domestic and international markets through communications, technology and new business opportunities, • To develop new service platforms that will enrich our relationship with our customers through our technical capabilities. OUR VALUES • We believe that customers come first • We are an agile team • We believe in open communication • We are passionate about making a difference • We value people 2 TURKCELL ANNUAL REPORT 2009 MESSAGE FROM THE CHAIRMAN MEHMET EMİN KARAMEHMET, CHAIRMAN TURKCELL ANNUAL REPORT 2009 3 THE LAUNCH OF 3G SERVICES IN JULY 2009 PROVIDED A FRESH IMPETUS TO THE MOBILE MARKET IN TURKEY. WE ARE VERY PLEASED AND PROUD OF PROVIDING THE BEST QUALITY 3G SERVICES, WHICH ARE WELL RECEIVED Despite the prolonged ripple effects of the worldwide IN TURKEY. BASED ON OUR economic downturn which gave rise to a sharp GDP PERFORMANCE IN THE FIRST contraction in Turkey, Turkcell has emerged unscathed from the crisis and concluded the year 6 MONTHS SINCE THE LAUNCH with net revenues of TRY8.9 billion, a modest 1% OF 3G, WE BELIEVE THAT THE year-on-year increase, EBITDA of TRY3.0 billion and REMARKABLE RESULTS a net income of TRY1.7 billion. ACHIEVED VALIDATE OUR COMMITMENT TO THIS In this challenging environment, Turkcell confronted UNIQUE TECHNOLOGICAL the competitive pressure by adopting fast-track managerial steps, which helped in successfully INNOVATION. strengthening our brand recognition in the Turkish market. As Turkey’s leading communications and technology company, we demonstrated our commitment to advanced technology, introducing 3G to Turkey following exhaustive, strenuous efforts and enabled more people to experience Turkcell quality and exclusivity in the era of Mobile Number A TOUGH YEAR FOR THE TELECOMS SECTOR; Portability. Our efforts have been instrumental in TURKCELL MAINTAINS ITS LEADING POSITION sustaining Turkcell’s subscriber and revenue share. While the macroeconomic conditions presented a 2009: MARKED BY THE ECONOMIC CRISIS significant challenge for the sector, the irrational competitive behavior and the Authority’s decisions Following the turmoil in the global markets which to reduce mobile termination rates and to intervene began in the last quarter of 2008, the global economy in pricing in April 2009 resulted in a contraction in has at last started to show signs of positive growth profitability across the sector. since the second half of 2009, in response to the bailout measures that have been implemented. Throughout 2009, our Turkish mobile operations Although the recovery is expected to occur at a slow experienced an erosion in profitability. This was pace, a better macroeconomic and operational mainly attributable to the fiercest-ever competition, environment is expected in 2010. The IMF expects accelerated by the launch of unlimited flat rate offers real economic activity to rebound and the world following the implementation of Mobile Number output growth rate to be at 4% in 2010. Portability, which also led to a decline in multiple SIM Card usage, decreasing the mobile line In the CIS region, where Turkcell operates, the global penetration rate to 88% from 92% a year ago. economic crisis prompted a rapid deterioration in economic conditions. However a modest growth is expected despite the difficult market conditions in 2010. Classified as being the world’s 16th biggest economy, Turkey, which has seen GDP contraction by 4.7% in 2009, is still considered by investors as a country with superior growth potential amongst the emerging economies. 4 TURKCELL ANNUAL REPORT 2009 INNOVATION, DIVERSITY AND SUCCESS The launch of 3G services in July 2009 provided a fresh impetus to the mobile market in Turkey. We are very pleased and proud of providing the best quality 3G services, which are well received in Turkey. AT TURKCELL, AWARENESS OF OUR SOCIAL RESPONSIBILITY AND Based on our performance in the first 6 months CONCERN FOR THE SOCIAL, ECONOMIC AND ENVIRONMENTAL IMPACT since the launch of 3G, we believe that the OF OUR DIVERSE ACTIVITIES IS A KEY FACTOR IN ALL OUR DECISIONS. remarkable results achieved validate our commitment to this unique technological innovation. We also WE SUPPORT OUR COMMUNITY THROUGH THE EMPLOYMENT WE strongly believe that the initial reactions of Turkish CREATE, INVESTMENT IN RESEARCH AND TECHNOLOGY, AND mobile subscribers clearly demonstrate 3G’s COOPERATION WITH UNIVERSITIES. capability to drive growth for our Company. As always, we are committed to introducing the latest technological applications in Turkey and continue to invest in innovation and technology, reflecting our belief in the future of Turkish market. SOCIAL RESPONSIBILITY: A KEY PILLAR OF OUR INTERNATIONAL EXPANSION REMAINS A KEY CORPORATE PHILOSOPHY PART OF OUR STRATEGY At Turkcell, awareness of our social responsibility Growing or improving our international operations and concern for the social, economic and has been an important part of our strategy environmental impact of our diverse activities is a throughout 2009. While continued development of key factor in all our decisions. We support our our current operations is a key priority, we would community through the employment we create, like to further expand and increase our presence in investment in research and technology, and key emerging markets in the region, such as the CIS cooperation with universities. In 2009, we continued region, Eastern Europe, the Middle East, North Africa to support social initiatives such as “Snowdrops”, and the Balkans. Our international endeavors to which provides scholarships to girls from selectively seek and evaluate new investment disadvantaged families, and “Bridge of Hearts”, a opportunities will continue in 2010. nationwide student exchange program, in addition to our sponsorships of sports, cultural and art CONTINUOUSLY INVESTING IN INFRASTRUCTURE programs. At the same time, we have created jobs in the developing cities of Eastern Turkey with the In 2009, despite the weak global economic call centers we opened in Erzurum in 2006 and in environment, we continued to invest in our Diyarbakır in 2008, which also gained recognition infrastructure, which clearly reflects Turkcell’s strong from the United Nations as a model project. commitment to sustaining its differentiating service quality. Our capital expenditure totaled approximately TRY2.7 billion, of which TRY2.1 billion (including the 3G license fee) was related to Turkcell’s operations in Turkey. TURKCELL ANNUAL REPORT 2009 5 BUILDING ON OUR HIGH CORPORATE SETTING THE STANDARDS IN MOBILE GOVERNANCE STANDARDS COMMUNICATIONS Turkcell is the only Turkish company with a dual Looking at our performance in 2009, I am delighted listing on the New York and Istanbul Stock Exchanges, with the way all our employees responded to the operating in line with the best practice in both capital operational challenges we faced and defended our markets. In addition to being a model for corporate market position and operational profitability through governance and investor relations in Turkey, Turkcell their hard work, innovation, and managerial also stands out as the highest rated, investment excellence. On behalf of Turkcell’s Board of Directors, grade Turkish company by the S&P in Turkey. I would like to take this opportunity to thank the management team for their continued efforts, vision Managing one of the most valuable companies in and intelligent judgment, and our employees, terms of market capitalization in Turkey, Turkcell’s retailers, suppliers and associates for making sure Board of Directors is determined to ensure we