Turkcell Iletisim Hizmetleri AS

IST:TCELL.E

Earnings Call Analysis

Turkcell's Q2 2024 Financial Performance Demonstrates Resilience

In Q2 2024, Turkcell showcased its financial resilience amid high inflation, reporting TRY 35 billion in revenue and a strong EBITDA margin of 42.6%. Despite economic pressures reducing equipment sales, the company achieved real ARPU growth and net income of TRY 2.9 billion. Strategic investment in fiber led to the addition of 42,000 subscribers and a record-low churn rate. Postpaid mobile subscribers grew, contributing to an 82% year-on-year increase in Mobile ARPU. The sale of assets in Ukraine is expected to support further value-creating investments, including the rollout of 5G in 2026【6:0†source】【6:1†source】【6:2†source】【6:5†source】【6:10†source】.

Celebrating 30 Years of Innovation

This year marks Turkcell's 30-year anniversary. Celebrations included a prestigious closing bell ceremony at the New York Stock Exchange. Over these three decades, Turkcell has consistently placed technology and innovation at the forefront of its business strategy, which has enabled resilience even during challenging economic times.

Strong Financial Performance Amidst Inflation

Despite the peak in annual inflation in May, Turkcell demonstrated strong financial resilience in Q2 2024. The company's revenue reached TRY 35 billion, with an EBITDA of TRY 15 billion and a robust EBITDA margin of 42.6%. This performance was largely driven by the Turkcell Türkiye segment through rational pricing strategies and upsell campaigns, despite macroeconomic pressures impacting equipment revenues.

Key Operational Highlights

Turkcell continued to focus on market rationalization amid aggressive pricing actions from competitors. Despite these challenges, the company saw significant growth in its postpaid subscriber base, which rose by 477,000 net new customers in the quarter. However, the widespread use of alternative data providers resulted in a loss of 232,000 prepaid subscribers. Mobile ARPU increased by 82% year-on-year, driven by sequential price adjustments and upsell efforts.

Fiber and Fixed Broadband Growth

Turkcell's fixed broadband segment remained strong, with a concerted focus on adding fiber subscribers. This segment saw 42,000 new fiber subscribers and a record low churn rate of 1.2%, the lowest in 18 years. Residential fiber ARPU grew 84% year-on-year, highlighting the strong demand for high-speed internet plans.

Digital Services and Techfin Contributions

Digital Services and Solutions saw steady performance with a 5% year-on-year revenue growth. Integration of services such as Lifebox and TV+ with Türkiye's national car brand TOGG showcased their evolving digital service ecosystem. The Techfin segment also performed well, with Paycell's revenues growing 16% and Financell's revenues rising by 34%.

Guidance and Strategic Focus

In light of rising monthly inflation, Turkcell plans to closely monitor its financial guidance and possibly provide updates in Q3 2024. The company intends to maintain a cautious approach, especially considering the significant macroeconomic factors and their impact on operations and revenue growth.

CapEx and Future Investments

Turkcell plans to increase its CapEx intensity to 23% for 2024, aiming to strengthen its infrastructure, particularly in mobile and fixed networks. The company is also awaiting regulatory approvals for solar energy investments which could further bolster their green energy initiatives. The net leverage ratio stands at a manageable 0.6x, supported by strong cash reserves of TRY 51 billion.

5G Rollout Plans

Turkcell is preparing for the transition to 5G, expected to commence around 2025-2026. Investments in compatible 4.5G equipment are underway to ensure a smooth transition. The company owns all its towers, eliminating the need for leasing, and shares them with competitors, generating additional revenue.

Outlook and Commitment to Growth

Turkcell expects better financial performance in the third and fourth quarters of 2024. The company remains committed to rationalizing the market and ensuring profitability through strategic pricing and investment decisions. Continued focus on digital services, fiber expansion, and techfin innovations positions Turkcell well for future growth amidst economic volatility.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. I am Mina, your Chorus Call operator. Welcome, and thank you for joining the Turkcell Conference Call and Live Webcast to present and discuss Turkcell's Second Quarter 2024 Financial Results. [Operator Instructions]

At this time, I would like to turn the conference over to Ms. Ozlem Yardim, Investor Relations and Corporate Finance Director. Ms. Yardim, you may now proceed.

[Ozlem Yardim, executive]

[indiscernible] second quarter 2024 earnings calls. Today, our CEO, Ali Taha Koc; and CFO, Kamil Kalyon, will be delivering a brief presentation covering operational and financial results, which will be followed by a Q&A session.

Before we begin, I would like to kindly remind you to review our safe harbor statements available at the end of our presentation.

Now I'm handing the meeting over to Mr. Ali Taha Koc.

[Ali Koç, executive]

Thank you, Ozlem. Good afternoon, everyone, and thank you for joining us today. This year marks a special milestone for us, our 30-year anniversary, which we proudly celebrated with all our stakeholders. On July 8, I had the honor of hosting a closing bell ceremony at New York Stock Exchange, the world's largest financial center, to commemorate this occasion.

What stands out over the past 30 years is what has remained constant, our core value of placing technology at the center of our business, leading innovation in Türkiye, and nurturing the expertise of our people. We are committed to growing our business and meeting the needs of our customers across all the sectors we serve.

Our commitment has made Turkcell resilient during extraordinary times. In the second quarter of 2024, annual inflation peaked in May, exerting pressure on the financial performance of leading Turkish companies. However, Turkcell, with its diversified business portfolio and disciplined management, demonstrated financial resilience.

Our top line reached TRY 35 billion, reflecting a strong focus on profitability, we delivered an EBITDA of TRY 15 billion and a solid 42.6% EBITDA margin. This is enabled by the Turkcell Türkiye segment, mainly due to our rational pricing strategy and successive upsell campaigns, which allow us to sustain real ARPU growth.

On the other hand, macroeconomic pressure impacted equipment revenues for both consumer and corporate segments. Our focus on value-generating postpaid and fiber customer acquisition resulted in 346,000 net additions. Supported by operational profitability and strategic financial risk management, we delivered a net income of TRY 2.9 billion.

Next slide, please. Let's take a look at our operational performance. On the mobile front, as the market leader, we focus on market rationalization. During the second quarter, we faced the aggressive pricing actions of peers, starting in May, which triggered mobile number portability market activity. Despite this, we implemented a 25% price adjustment in July.

Focusing on value-generating customers, we gained 477,000 postpaid subscribers. Over the last year, our postpaid base grew by 1.8 million net additions, with the postpaid customer share reaching 73%, marking a 3 point raise year-on-year.

The widespread use of alternative data providers resulted in a net loss of 232,000 prepaid subscribers. Despite this, through innovative campaigns like the Smart Control Service and the 30th year Double Up campaign, along with our retention strategy, we maintained a churn rate of 1.5%, the lowest of the past 6 years.

Driven by sequential price adjustment and upsell efforts, Mobile ARPU rose by 82% year-on-year, delivering 5% real growth, and continued to outpace CPI. The quarter-on-quarter weakening in ARPU growth was expected, as the earthquake disaster negatively impacted the first quarter's base.

Next slide, please. In the fixed broadband market, we remain focused on fiber, adding 42,000 subscribers. The share of 12-month contracted customers in the residential fiber customers reached 78%, raising 28% year-on-year. Complementing our fiber services, IPTV sold 34,000 net additions.

The fixed broadband market remained rational into Q2, allowing us to implement a price adjustment in August, following the incumbents move in June. In addition to market rationalization, with sports from TV+ and pure fiber technology, we achieved a record low churn rate of 1.2%, the lowest in 18 years.

Residential fiber ARPU grew 84% year-on-year, with a quarterly rise when excluding the earthquake's base effect. The take-up rate rose 2.2 points year-on-year as we continue to prioritize fiber subscriber net additions over home passes.

Lastly, we are pleased to see continued interest in high-speed plans. The weight of these packages in the total residential fiber portfolio has increased by 10 percent points year-on-year.

Next slide, please. Let's discuss our strategic focus areas, starting with Digital Services and Solutions. Our Digital Services and Solutions enable us to connect with our customers and meet their evolving needs. Our goal is to ensure these services reach the right audience, those who truly value them, with the right positioning.

In recent quarters, for profitable growth, we have focused on attracting customers who are genuinely engaged with our services. In line with this strategy, we saw a 4% decrease in our stand-alone paid user base, now at 5.3 million. However, revenue from stand-alone Digital Services and Solutions grew by 5% year-on-year, driven by our pricing actions.

Additionally, this quarter, we are pleased to see Lifebox and TV+ integrated into our national car brand TOGG, Türkiye's electrical vehicle, alongside with fizy.

Moving on to our next focus area. Digital Business Services generated TRY 2.6 billion in revenue this quarter. Recurring service revenues rose 8% year-on-year; however, hardware revenues were impacted by macroeconomic challenges, including reduced demand, particularly in the public sector, due to authority measures and the absence of one-off projects from Q2 of last year. We remain committed to maintain our leadership in the data center market combined with our cloud services. Revenue from these services grew by 57% to TRY 540 million.

Next slide, please. The last strategic focus area is Techfin. In the second quarter, Paycell revenues grew by 16%, driven primarily by increased commissions and transaction volumes from Pay Later and POS Solutions. The active users for Pay Later rose by 10%, thanks to wider usage in app stores and nationwide QR payment eligibility.

Meanwhile, Paycell's EBITDA increased by 14% year-on-year.

Financing the technological needs of customers, Financell's revenue rose by 34%, supported by a larger loan portfolio and higher average interest rates. However, the net interest margin declined by 1.6 percentage points due to higher funding costs. At the same time, our cost of risk stands at 2.2%.

Next slide, please. Lastly, our performance in the international markets. Turkcell international revenues, which account for 3% of group revenues, rose 2.7% to TRY 890 million. BeST revenues rose 22% on a yearly basis in local currency terms, primarily driven by a focus on high segment tariff exposure, enabling higher voice and data revenue. Better interconnection costs and lower energy expenses sustained the 1.5 percentage point improvement in EBITDA margin. We successfully finalized the share sale of our Ukraine operations this Monday. Moving forward, our primary focus will be on driving value creation within our domestic operations.

Before diving into financials, I would like to briefly touch on our 2024 guidance. With monthly inflation trending higher than expected recently, and the revised year-end projections announced in Türkiye's medium-term program last week, we are now in a period that we closely follow our guidance. We plan to provide an update along with our third quarter results, if needed.

I will now leave the floor to our CFO, Mr. Kamil Kalyon.

[Kamil Kalyon, executive]

Thank you very much, Ali Taha.

Now let's move on to our financial results. Despite the inflationary headwinds, our revenues have remained in line with last year, with only a modest decline, amounting to TRY 35 billion.

The Turkcell Türkiye and Techfin segments were supportive of the group top line growth. Turkcell Türkiye revenues rose 1.5% year-on-year, driven mainly by an expanding subscriber base, higher postpaid share in mobile segment and real ARPU growth. It's for noting that the segment's growth was also pressured by a decline in large projects, including hardware sales within the digital business services.

The Techfin segment contributed TRY 333 million to the top line, bolstered by the performances of Paycell and Financell, which grew by 34% and 16%, respectively. Conversely, the other segment faced challenges due to reduced demand in consumer electronics sales.

Next slide, please. EBITDA grew by 0.3% year-over-year, reaching TRY 14.9 million. Lower equipment sales costs more than compensates higher G&A and S&M expenses.

Our EBITDA margin reached 42.6%. While wage increases and higher funding costs in financial services put pressure on profitability, the stabilization of electricity prices, reduced demand for equipment and a decline in MTR had a positive impact on EBITDA margin.

As a reminder, we implemented a wage increase in the third quarter to mitigate inflationary pressures and ensure that our employees, who are invaluable assets to our business, are well supported. However, we expect the ongoing MTR decline support profitability through 2024.

Next slide, please. Let's take a close look at our CapEx management. The CapEx to sales ratio for the second quarter of 2024 increased to 22.5%, aligning with our plans. Investments in both mobile and fixed infrastructure were balanced, each representing 31%.

We anticipate an acceleration in tower fiberization during the second half of the year, aiming to achieve our 41% year-end target, as a significant portion of digging permits were secured in the first half after the elections.

The rise in data center investments this quarter is the ongoing investments of adding new modules to meet growing demand. By end of Q2, we had completed 45 megawatts of solar energy investments, but we are awaiting legal approvals from the relevant authorities. Once received, these investments will be reflected in our financials and Green Energy production will commence.

Given the seasonality of higher investments in the second half, we expect CapEx intensity to reach 23% for 2024.

Next slide, please. Now let's turn our attention to the balance sheet. In Q2 2024, our cash position stood at TRY 51 billion. Gross debt reached TRY 99 billion, leaving us with a net debt position of TRY 32 billion at the end of the quarter.

Our net debt leverage ratio slightly rose to 0.6x. We expect an improved position in Q3, supported by proceeds from the Ukraine asset sales.

Our FX debt service for the year stands at around USD 189 million, which is manageable given our strong cash reserves. We have sufficient cash to cover the reduction of the 10-year Eurobond in 2025, and are actively exploring funding options for the potential reissuance. A large portion of our cash is held in hard currencies. Excluding FX swaps, 41% is in U.S. dollars and 28% in euros. Next slide, please.

Lastly, the management of foreign currency risk. At the end of the second quarter, our balance sheet had around USD 1.9 billion equivalent in FX financial liabilities. Against this, we had USD 1.4 billion equivalent in FX-denominated financial assets, along with an effective hedging portfolio of USD 0.5 billion, primarily composed of features, forwards and NDFs.

As part of our strategic management of FX exposure during a more stable Turkish lira period, our derivative portfolio decreased quarterly, also contributing to lower finance costs. This resulted in a short FX position of USD 123 million, in line with our expectations. Our target remains to stay within a neutral FX range of minus and plus USD 200 million.

This concludes our presentation, and we can now open the floor for the questions.

[Operator]

[Operator Instructions] The first question comes from the line of Tiron, Cesar with Bank of America.

[Cesar Tiron, analyst]

I have 2, if that's okay. Just wanted to understand better what will drive a reacceleration of the top line growth in the second part of the year?

And then second, do you have an update on what you intend to do with the proceeds from the Ukrainian asset sale?

[Ali Koç, executive]

Yes. In real terms, our revenues remained flat at TRY 34.9 billion in the second quarter. Please keep in mind that last year, we had the earthquake in Southeastern Türkiye, which resulted in a positive base impact in the first quarter's growth. This positive base impacted is absent in the second quarter.

Moreover, the economic contractor is suppressing our equipment sales on the consumer and corporate segments. Accordingly, there were fewer large budget projects within our digital business services compared to last year. The negative impact of these large budget projects on our revenue growth in Q2 '24 is around 4 percentage points.

And for the second question regarding the sale of Ukraine assets, we expect the sales process to be fully completed within this year. The final sales value will be determined based on the closing adjustments to be made based on the level of net cash debt on financial statements to be prepared as of the closing date.

Although we do not have a Board decision regarding the proceeds we will obtain from the sale of our assets in Ukraine, prospectively, we might have important investments, some of them depending on regulatory authorities decisions to come such as 5G tender and it's rollout plan or any other big scale business initiatives creating value for our shareholders in the upcoming years.

Although we are diligently exploring a range of competitive and rational alternatives, we have the redemption of our Eurobond in 2025.

It should also be noted that the sales value will have an impact on our net income. Our company's dividend policy allows a payout of at least 50% of distributable net income as cash, once conditions contained in the sale policy are made.

[Operator]

The next question comes from the line of Mandaci ey ja with Unlu Securities.

[Ece Mandaci Baysal, analyst]

I was -- can I ask about your -- more about your revenue growth prospects for the rest of the year. For first half, we are seeing a 5% revenue growth and a 5% ARPU growth. So after your price adjustments in July, should we expect a better real ARPU growth performance on the mobile side? Or should it stay around 5% or single digit maybe?

And you have mentioned about your -- within your guidance that -- within your potential guidance to be that the macro assumptions had effect, but also we are seeing a decline in your corporate revenues. Maybe -- could that be also reason why you will review your revenue guidance for the rest of the year? So could that be a downside risk compared to your low double-digit real revenue growth estimate?

By the way, when even I look at your revenue growth of only 5%, there is a significant 10% growth as of first half in your EBITDA number. So could it be due to do better cost management and ARPU growth -- sustainable ARPU growth, real ARPU growth? And will this be sustainable also this EBITDA growth?

[Kamil Kalyon, executive]

Ey ja, thank you very much for your question. When we look at our first half performance, as you know, the inflation trend is going over the expectations. Therefore, the government, as you know, revised the year-end inflation rate in the midterm program of 2024. This actually affects our revenue growth in half 2.

But I would like to -- I would like to say that yes, inflation rates are going more than expected, but in 2023, we have a -- we have big mega projects, single one-off projects in -- as far as I remember, in April and May. Therefore, since these one-off projects are not done this year, this also affects the revenue growth in half 2.

Our real ARPU growth is going well, but I would like to remind you that we had the tragic earthquake issue, as you know, last year. Therefore, when you look at the base effect in the first quarter, our ARPU and the revenue growth are going very well. But in the second quarter, we see the base effect, therefore, is coming from this one.

From our perspective, we do not expect any erosion in the EBITDA level because, as I mentioned in my speech, when we look at the EBITDA side, the MTR prices are going in favor of our company. Also, the energy electricity prices are going very disciplined and stabilization, therefore, it really had a positive effect to our cost -- efficient cost base.

And the other one, the significant important EBITDA effect is -- as I said, last year, we had a lot of terminal sales and hardware sales in the corporate side. This year, due to the government policies, these such kind of projects are going very low level. Therefore, it affects our EBITDA level very positively in the EBITDA level side.

When we look at our ARPU side, in the half 2, yes, we are currently doing, as you know, inflation pricing we can easily apply. In Q2, we couldn't make any price increases, but in July, we had a price increase in the mobile side and August side in the fixed side. Therefore, we will see the effects of these increases in the remaining period of the 2024 in the remaining part.

As I would like to repeat that the one-off big projects of last year in Q2 affects our growth levels right now, but we will try to do our best to catch our guidance. We would like to be clear to mention or to declare a certain amount regarding the -- especially in the growth side, we will wait and see the results of Q3, most probably we will be giving, how can I say, exact picture or a good understanding at the end of the Q3 regarding the growth rate.

[Ece Mandaci Baysal, analyst]

Could you also please speak about the -- talk about the growth trend in your subscriber base as well, July and August?

[Kamil Kalyon, executive]

In July and August, our churn rates are going down since the competition had some aggressive campaigns. And lastly, when we look at -- we give some answer to -- response to the aggressive campaigns in August and July, when you look at July and August levels, we have net adds in both months. Therefore, the subscriber base going very well, especially in the July and August also.

[Operator]

The next question comes from the line of [indiscernible] with HSBC.

[Unknown Analyst]

I have a first question, actually on the revenue growth still. I mean, it is slightly confusing to me that you are having regular price increases. So year-on-year basis, your prices in second quarter should have been higher than last year, which is also reflected in your ARPU growth. But overall, revenue growth is still flat quarter-on-quarter.

I understand your point about 1Q '23 being a weak quarter because of earthquake. But second quarter '23 would also have been -- on a pricing perspective, much lower than where we are right now.

So just break it down for me, what really drove the revenues now? Your ARPU grew 6%. Your prepaid sorry postpaid subscriber base grew, but your prepaid subscriber base seems to have been lower. So is that the reason why you have some pressure on the revenues?

And I understand the part about your equipment side. So excluding that, if you could discuss.

And then with that, I was also wondering about if you could give us a base like the restated number for third quarter '23 and fourth quarter '23 quarterly revenue base because otherwise, it becomes quite a difficult guess work trying to get historical number as well as then forecasting next quarter.

[Kamil Kalyon, executive]

Yes. Thank you very much for your question. First of all, I would like to say that when you look at the results of the other best companies, for example, you will see the growth rates less than the inflation rates.

Currently, we have, for example, flat, we are not under the inflation rate. Therefore, we are keeping -- at least we make the pricing or we grant development in the growth side at the amount of the inflation.

But as you said that the hardware sales is very important because in the same period, if we do not have one-off projects, for example, in 2023, our growth rate would be around 4% or 5% right now. Therefore, since the economic tight monetary policies are tightening the market, if you do not make such kind of one-off projects or one-off hardware sales in 2024, it really affects our growth rate.

As I said, if you do not have one-off projects, for example, in 2023 in April and May, our growth rate would be around 4% level. Therefore, it seems that we are making a growth rate over the inflation. But I would like to remind you that our figures are not negative, at least we keep on the increase in the inflation rate.

On the other hand, as you know, we have some tight economic policies right now regarding or minimizing the consumption in Turkey. This also affects the consumer handset deals right now.

Also, when we compare the sales of handsets, for example, with last year, we have a significant decrease this year. This also affects our growth rate. But our main business for the recurrent income, we do not have any problem regarding the inflationary pricing mechanism.

Regarding the Q3, for Q3 '23 and Q4 '23 inflated base revenue, we cannot say anything as we do not know the monthly inflation rates for the upcoming months. Therefore, unfortunately, I cannot give any color about this issue. Sorry for this inconvenience.

[Unknown Analyst]

Okay. And just going back on the pricing part. I understand that you raised prices in July. Before that, I mean when was the previous price hike done? And how frequently do you actually undertake the price hikes?

[Kamil Kalyon, executive]

In February, we had a price increase right now, and we did it in the mobile side in July. And in the fixed side we made a price increase in the August side. We will chase the competition and the economical environment in the coming period. If we can do, we would like to -- if it is necessary, we may need a price increase in the coming period, but we do not have any plan about this issue right now.

[indiscernible] conditions because sometimes the competitors can be a little bit aggressive campaigns about this issue. We do not want to erode our base.

[Ali Koç, executive]

We are definitely closely following the market, and then we are closely following the competition. If they have a very huge campaign discounts. So we are just hesitant to do the price increases, but we are just very closely following the market. If there is a need and rationale, that's the reason that we are following with the rationalization of the market.

As Turkcell, we are trying to rationalize the market, and then we are trying to figure out the perfect time and perfect amount, if there's a need for the increase in the tariffs.

[Unknown Analyst]

That makes sense. And if you could just inform which is the operator being most aggressive right now?

[Kamil Kalyon, executive]

I think it would not be useful to provide such kind of name, a brand name in this call. We have 2 competitors.

[Ali Koç, executive]

In Türkiye, there are 3 operators, 1 of them is Turkcell and the other 2. So it is going to -- it's not going to be that hard for you to guess.

[Operator]

The next question comes from the line of [indiscernible] with [indiscernible]

[Unknown Analyst]

Hello, can you hear me?

[Kamil Kalyon, executive]

Yes. Thank you.

[Ali Koç, executive]

Yes, loud and clear.

[Unknown Analyst]

My question is if the Eurobond that you already mentioned on this call, I think the issuance window for Turkish corporates in the dollar market have been wide open throughout the year. So I was trying to understand what's keeping you from coming to market thus far? And what are the parameters that you're looking at?

[Kamil Kalyon, executive]

Yes. Thank you very much for your question. Now we have adequate cash reserves to fulfill our bond reduction. As I mentioned in my speech, we have around USD 1.5 billion equivalent cash in our hands. But as Ali Taha bey that we have some developments in the sector like 5G and the other big investment side, maybe we are looking for the alternatives to encompass potential solutions such as launching a fresh bond sort of offering or securing a bank loan. By closely monitoring economic condition and interest rates, we can proceed with issuance and Euro bond, for example, at an opportune time. We are looking at the windows for additions.

[Unknown Analyst]

Okay. Well, I hope the issuance window stay open while you consider all of these aspects.

Can you walk me a bit more through your 5G spending plans, both in terms of auctions and regular CapEx associated with the rollout? Let's say, for example, [ calling ] what kind of ballpark CapEx to sales are we talking about for 2025 and 2026?

[Ali Koç, executive]

Okay. thank you very much [indiscernible]. Just closely following the regulatory bodies, and we are just talking to them as well. And lately, we have lots of meetings with the Ministry of Transport as well. And then we are expecting that till 2025, there's going to be a tender in auction for the 5G frequency. And 2026, we're going to be live on 5G, that's what we heard from the government entities.

And there is no official timeline yet, but this is just a ballpark timelines in 2025 and 2026. However, the recent state indicated the 5G transition will be at some time in 2026.

And also, let me tell -- we are just still doing some investment on the 4.5G, but when we're doing this 4.5G investment, we are just closely getting the equipments, which is the latest equipment, which is comparable with 5G as well. So we are just doing an extra investment for our base stations and towers to the fiberization of our towers.

So as Turkcell, we are determined to establish our 5G infrastructure with local and national technologies as much as possible, and we will continue our ongoing efforts to support the development of these technologies.

But to say the truth that the auction, the amount and the preconstruction terms are not set yet, so it is going to be -- it's not going to be that clear for us right now because to 2025, when we discuss the auction terms, then we can tell you a little bit much more information because it's going to be totally different.

But we are expecting that this is going to be a full frequency auction, both 700 megahertz and 3.5 gigahertz. And then the amount that they're going to ask for is going to be different, but we are talking to them, and we are doing most of meetings with them to convince them to make it as much profitable and much better for the future investment. Because if you pay too much money for the frequencies, you're going to have less money for doing the infrastructure investments. So we are just talking to them. And hopefully, we are going to be fine on that respect and then government is going to understand that 5G infrastructure investment is much more valuable than getting a lump sum of money for the frequency.

[Unknown Analyst]

Okay. And remind me of one thing, you still own all the towers? Or would you have to pay for the lease amendments and upgrades to external tower operators?

[Ali Koç, executive]

In Turkcell, we own all of our towers, and then we don't need to do any lease and we're just going to put extra equipment, 5G equipment, and then they're just going to dig more fiber connections to our towers, but all towers are belong to us.

[Kamil Kalyon, executive]

Yes. But we are providing lease service to our competitors.

[Ali Koç, executive]

Yes. Also, we just share our towers with our competitors as well, though, and we are making money out of those tower leases.

[Operator]

The next question comes from the line of Campos Gustavo with Jefferies.

[Gustavo Campos, analyst]

Just very briefly on my side. Would you mind providing a quick review on your mobile contract structure in terms of like tenor, CPI adjustments that you may make? How is the situation looking as of this moment? That would be my first question.

[Ali Koç, executive]

So it's all -- all of our contracts are 12-month period. And then we are just -- on the CPI adjustments, like around 73% year-on-year. And then lately, we did some increments and the change in the price and tariffs. Last, 1 month ago, last July, 25% increase on the tariffs. So overall, we are closely following the CPI and year-on-year, it is 73%.

[Gustavo Campos, analyst]

Okay. So my understanding is that this is -- the 25% adjustment is a bit below the inflation rate during the year. Is that correct?

[Ali Koç, executive]

No, not at all because we just did it at a similar kind of increase in February. So this is the second time that we are increasing the tariffs.

So if you look at the year-on-year, -- so it's going to be -- we did it one in February and then one in July. So if you look at the year-on-year increase, it's around 90%.

[Gustavo Campos, analyst]

Okay. I see. So they're 12 months in tenor and then maybe like semiannually, you could make like a tariff adjustment. You have that option.

[Ali Koç, executive]

That is our postpaid customers. So about the strategies which move back to all of our postpaid customers to -- prepaid customers to postpaid. So we have a huge margin and then the percentage rate of our customers are postpaid customers. So because competition is a little bit different than prepaid, but postpaid customers are 12 months.

[Gustavo Campos, analyst]

Understood, 12 months for the postpaid. Great. That is very clear. I appreciate it.

And then secondly, the base case is for you to refinance the Eurobond. Is that -- would that be correct?

[Kamil Kalyon, executive]

I could not catch the question again, please?

[Gustavo Campos, analyst]

Refinance Eurobond in 2025.

[Ali Koç, executive]

Yes, we can hear you. Yes. Refinancing the Eurobond, you asked, right?

[Gustavo Campos, analyst]

Yes. If that's your base case coming back to the market.

[Kamil Kalyon, executive]

As I mentioned in the previous question, we are thinking to be in the market for the refinancing of the Eurobond, which will expire in October 2025. Most probably you will be seeing us in the market in the near future.

[Gustavo Campos, analyst]

Okay. Great. And last question for me. Where do you see net leverage going? Because you might increase some of your investments in 5G, as you mentioned. Would that provide you -- make some pressure in your capital structure? Or is that not something that will budge your credit profile?

[Kamil Kalyon, executive]

Our net leverage rate is around 0.66. When you compare it with the market level, it's under the market level. Therefore, as I said, we would have some, maybe reissuance and we would have some cash from Ukraine sales will come to our treasury.

Therefore, regarding the leverage rate, we are keeping our leverage rate in these levels because making operations in Turkey is a little bit, how can I say, makes us or force us to be careful about this issue.

We are confident about this issue, most probably at the end of year, we will be keeping these levels. But in next year, we will be looking at our financing -- how can I say, a financing structure. And the money, the cash that will come from the Ukraine sales will also help us to keep the leverage levels in the -- how can I say, logical levels.

[Operator]

[Operator Instructions] The next question comes from the line of [ Vistra Venia ] with Barclays.

[Unknown Analyst]

I just have one quick question regarding 5G. Do you already understand how it's going to be rolled out in terms of do you target to first roll it out for corporate clients? Or it will be immediately rolled to retail clients as well?

[Ali Koç, executive]

So if you look at around the world, there are different models, and it depends on how the auction is going to happen. But if you think about it, as you may know that the 4G is the last technology that's built for the human being, 5G is built for the things and for the industry. So we are expecting that the digitalization of the industry is going to be very a huge market for the 5G technologies.

But currently, it's going to be most probably a hybrid version of in Türkiye, that's what we are expecting. So we are just going to provide the 5G services for the customers as well as the industry. And then there are lots of big industry firms, and we are just keep on talking to about like private LTE, private 4G networks.

Most probably, they're going to have the similar kind of structure in when the 5G happens. But it's going to be -- easy answer is just going to be a hybrid model. Both of them.

[Unknown Analyst]

Okay. And also one quick follow-up on the cash position. You mentioned it's TRY 1.5 billion, that does not include Ukraine process, right?

[Kamil Kalyon, executive]

Yes, you're right.

[Operator]

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Turkcell management for any closing comments.

[Ali Koç, executive]

Thank you very much for listening to us, and it's a great pleasure. So it was a very strong quarter. And then we just grew close to the inflation rate. And then with the inflation, we are just following our management and then the cost structure, our EBITDA is growing very nicely. And our net cash is also growing nicely.

So overall, we are expecting that the third quarter and fourth quarter is going to be much, much better. And then hopefully, in the future, we are going to see the results, and we're going to share our results.

But overall, what I want to say is in Türkiye nowadays, as you may know that because of the inflationary pricing and inflationary regulations, the every month inflation ratios are so important, so that's the reason that even the government entities are changing their midyear plans. So that's the reason that we are closely following the future trends, and we will inform you when the time is needed.

[Ozlem Yardim, executive]

Thank you for your participation.

[Kamil Kalyon, executive]

Thank you very much for your valuable time. Have a good evening.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.