“Turkey's Turkcell”

“Turkey's Turkcell”

“Turkey’s Turkcell” ANNUAL REPORT 2008 CONTENTS 01 Our Vision / Strategic Priorities / Our Values / Operational and Financial Data Summary 02 Letter From The Chairman 04 Board of Directors 06 Message from the CEO 08 The Management Team 10 Managers of Turkcell Affiliates 12 Our Contribution to the Economy and Employment in Turkey Is Widely Appreciated 18 We Respond to Your Confidence With Strong Value Propositions 26 We Continue to Offer the Most Recent Technologies in Turkey 36 We Carry Out Projects That Add Value to Society, Reflecting Our Commitment to Social Responsibility 50 By Removing Barriers to Communication, We are Now the World's Turkcell Too 66 Mobile Communication Sector, Operational and Financial Review 2008 81 Investor Information, Compliance with Corporate Governance Principles 97 Consolidated Financial Statement and Independent Audit Report 164 Dematerialization of the Share Certificates of the Companies That are Traded on the Stock Exchange 166 The Board's Dividend Distribution Proposal 168 Abstract of Auditor's Report to General Assembly of Turkcell İletişim Hizmetleri A.Ş. 01 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 profitability in the long-term, • 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 promote open communication. • We are passionate for making a difference. • We value people. OPERATIONAL AND FINANCIAL DATA SUMMARY 2007 2008 Change (%) Subscribers (million) 35.4 37.0 4.5% Post-paid Subscribers (million) 6.4 7.5 17.2% Pre-paid Subscribers (million) 29.0 29.5 1.7% Average Revenue per User (ARPU) blended (TRY) 18.5 18.4 (0.5%) Churn Rate (%) 19.9 23.8 3.9 pp Average Minutes of Usage (MoU) per Sub. Blended 76.3 95.9 25.7% Revenue (million US$) 6,329 6,970 10.1% EBITDA (million US$) 2,627 2,580 (1.8%) Net Income (million US$) 1,350 1,837 36.0% LETTER FROM THE CHAIRMAN In a world beset by financial woes and an In 2008, in addition to its GSM networks in economic slowdown, Turkcell Group gained Ukraine, Northern Cyprus, Azerbaijan, six million subscribers in 2008, posted US$7.0 Kazakhstan, Georgia and Moldova, Turkcell billion in net revenues and US$1.8 billion in acquired an 80% share of Belarusian net income to become an even more forceful Telecommunications Network (BeST) in competitor in the local as well as in the Belarus. Operating in an attractive and regional telecom market. Fortified by a strong growing market with a young population, cash position and driven by a strategic growth BeST will draw on the experience gained plan that emphasizes new businesses and from our successful operation in Ukraine and technologies in addition to its core activity capitalize on Turkcell's strong eco-system. of mobile communications, Turkcell is well- positioned to continue to do well in 2009 Threat of Recession despite the bleak economic outlook. The economic and financial shockwaves of the collapse of mortgage-based securities in As the second biggest GSM operator in the United States reverberated throughout Europe and the 13th largest in the world, the world in 2008, leading to a credit crunch Turkcell from the beginning has sought to and posing a serious threat of recession and grow through international ventures while high unemployment in countries throughout building its market position in Turkey. At the the region. end of 2008, Turkcell's subscriber base totaled 62 million people in eight countries, including In Turkey, the negative effects of the global 37 million in our home market, Turkey, and turmoil were felt from the second half of touching a population of 160 million. 2008. After seven years of uninterrupted growth, economic activity contracted sharply in the fourth quarter of 2008 and GNP is expected to decline further in 2009. The forecast for Central Asia and the Caucasus - where Turkcell through Fintur has operations in Azerbaijan, Kazakhstan and Georgia - is grim; the IMF foresees growth slowing to less than 2% in 2009 for a region that experienced a growth rate of 6% in 2008 and 12% in 2007. In Eastern Europe - where we are active in Moldova, Belarus and Ukraine - there was a precipitous collapse of industrial production in the first quarter of 2009. The unstable political and macro environment in Ukraine, which caused a steep depreciation of the local currency in 2008, is a matter of concern. We are monitoring the potential impact of global volatility on our businesses in Turkey as well as in other regions and the effect this may have on our financial performance and adjusting our business plans accordingly. 02 03 MEHMET EMİN KARAMEHMET, CHAIRMAN OF THE BOARD OF DIRECTORS "BY INTRODUCING THE MOST UP-TO-DATE TECHNOLOGIES IN TURKEY, TURKCELL HAS CREATED ROOM FOR GROWTH IN THE CONVERGENCE OF COMMUNICATIONS AND INFORMATION TECHNOLOGIES. WE WILL REMAIN FOCUSED ON THIS AREA AND EMPLOY IT TO OUR ADVANTAGE FOR FUTURE BUSINESS LINES, ONE OF WHICH WILL CERTAINLY BE FIXED BROADBAND." Going forward, the Turkcell Group remains By introducing the most up-to-date Turkcell has made tremendous progress keen to grow internationally, either technologies to Turkey, Turkcell has in meeting the rigorous requirements of through new operations or by forming created room for growth in the this legislation and indeed is a model in alliances that contribute to our economies convergence of communications and Turkey for its effective internal control of scale and create synergies. We are also information technologies. We will remain structure and transparent financial looking at possible mergers and focused on this area and turn it to reporting procedures. Good corporate acquisitions. advantage for our future business, one of governance is essential to generating which will certainly be fixed broadband. value for investors and other stakeholders. A Vibrant and Resilient Sector The progress in fiber roll out started by We are proud to have won the The telecommunication industry in Turkey our subsidiary Tellcom is creating pleasing International Public Relations Association's and around the world shows encouraging synergies, which will increase further with 2008 Golden World Award in the financial signs of resilience to the recent economic 3G implementation. services and investor relations category downturn. Specifically, the mobile for translating performance into value. telecommunications sector remains We are looking at new business vibrant, reflecting its position as a necessity opportunities in communications and We are also proud of our contribution to rather than a luxury. With mobile line technology that offer the potential for high the Turkish national budget. In 2008, penetration in Turkey verging on 92% returns or are critical for sustaining our Turkcell paid TRY5.6 billion in taxes to the overall, Turkcell's challenge in its home competitive advantage. The Turkcell Turkish Treasury on revenue of TRY8.8 market is to retain its customers and Technology R&D Center, which was billion, a vital 3.3% of Turkey's total tax increase usage, particularly of Value founded in 2007, represents a critical step revenues. Added Services, and to become one of the forward in our creation of new major fixed broadband providers servicing technologies and it promises to become We are also proud of the role we have high premium individual and corporate the core of a thriving Turkish Silicon Valley. played in educating girls from segments. disadvantaged families in the less Investing in People and Corporate developed eastern provinces, sponsoring The acquisition of a third-generation (3G) Governance student exchanges and supporting sports license in late November means that Turkcell's eco-system includes 235 in Turkey. Turkcell is in a position to do exactly that. business partners and 18,000 sales 3G technologies enable network operators channels. Turkcell Group itself provides Turkcell's shareholders stand united to offer users a wider range of more direct employment opportunities to behind the company and take an active advanced services while achieving greater approximately 10,355 people. role in its development. I would like to network capacity through improved thank my fellow board members for their spectral efficiency. Turkcell intends to As our business grows, we invest even involvement and dedication. On behalf of launch Turkey's first commercial 3G more in people. We are particularly proud the Board, I would like to express our networks in mid-2009. to have created jobs in the developing appreciation for the very successful cities of Eastern Turkey by establishing performance of Turkcell's management Turkcell has invested $9.2 billion since its call centers in Erzurum and Diyarbakır. team in a rapidly changing economic inception - $7.6 billion of this in Turkey environment. We believe that Turkcell will - making it one of the most significant At Turkcell, we take our responsibilities go from strength to strength in the year investors in the Turkish economy. We are to all our stakeholders very seriously. As ahead as it continues to expand its range eager to invest further in the future of the only Turkish company listed on the of products and to serve an ever larger Turkey to introduce the latest technologies New York Stock Exchange, Turkcell is subscriber base in Turkey and the Eurasia and create employment.

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