Turk Telekomunikasyon AS

IST:TTKOM.E

Earnings Call Transcript 2022-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. I am Maria, your Chorus Call operator. Welcome, and thank you for joining the Turk Telekom Conference Call and Live Webcast to present and discuss the Second Quarter 2022 Financial and Operational Results. [Operator Instructions] The conference is being recorded. [Operator Instructions]

We are here with the management team, and today's speakers are CEO, Ümit Onal; and CFO, Kaan Aktan. Before starting, I kindly remind you to review the disclaimer on the earnings presentation.

Now I would like to turn the conference over to Mr. Ümit Onal, CEO. Sir, you may now proceed.

[Ümit Önal, executive]

Hello, everyone. Welcome to our second quarter results conference call. Thank you for joining us today. While China has faced a new wave of COVID-19, Turkey finally entered into a measure free period in the second quarter. Climbing inflation expectations pushed central banks to severely tighten their monetary policies. Rising prices, especially in food and energy has become a shared grief for the consumers worldwide. Surpassing 78% as of June, inflation may be 24-year peak in Turkey. Meanwhile, government raised minimum wage for the second time this year by approximately 30% effective from July 1.

Demand for telco products remains seasonably sound, any post-pandemic normalization and continued pricing actions across the board. A measure free environment benefited the mobile segment, but it finally took its toll on fixed broadband additions, which has continuously enjoyed pandemic-supported growth rates for several quarters. Data usage was strong with slight decline in fixed broadband Q-on-Q owing to normalization, but still significantly above the pre-pandemic levels.

Mobile data consumption on the other hand continued an upward trend with increased mobility. We observed more caution this quarter in consumer preferences in both fixed and mobile, but we think this should be rather expected given the sizable inflationary pressures. Still, we managed a good performance in reconstructing and up-selling thanks to our customer-oriented strategies and our strong engagement with subscribers, both of which largely mitigated the impact of adversities. Macroeconomic challenges weighed on our financials, but operating performance has kept up with careful management of our diversified portfolio through our timely and balanced actions.

Starting with Slide #3 on our presentation, Net Subscriber Additions. Total number of subscribers remained flat at 52.2 million with 53,000 net additions in Q2. The increase in fixed broadband and mobile basis was largely offset by the decline in fixed voice. Net subscriber additions were 1.5 million during the last 12 months. Fixed broadband subscribers reached up to 14.6 million with slower quarterly net additions of 87,000, amid normalization and price revisions.

Mobile subscriber portfolio reached 24.6 million with 246,000 net additions, mobile segment maintained its strength thanks to higher mobility in addition to our effective strategies. Number of fixed voice subscribers declined by 264,000 during the quarter in line with our strategy focusing on naked DSL sales in new acquisitions.

Slide #4, Financial and Operational Overview. Revenue growth accelerated from last quarter as the re-pricing of our subscriber base continued progressively. Both consolidated and operational revenues increased by 31% year-on-year. Fixed broadband revenue rose by 26% along with the subscriber growth, but more so with the ongoing pricing actions. Mobile revenue growth reached a new peak close to 33% thanks to consecutive price revisions and our robust strategies driving the healthy expansion of subscriber list.

Consolidated EBITDA rose by 10% to TRY 4.4 billion with an EBITDA margin of 41% lower both Q-on-Q and year-on-year. As expected, EBITDA margin continued contracting annually from a high base, primarily on inflating costs. TRY 1.2 billion of tax income partly offset the increase in net financial costs. As a result, net income improved by 9% to TRY 1.4 billion. Finally, net debt to EBITDA increased to 1.54x.

Slide #5, Fixed Broadband Performance. As announced earlier, we adjusted our wholesale tariffs as per the regulator's approval of the 67% hike import prices effective from June 1. Simultaneously, we revised our retail tariffs, both for the new and existing customers. The other ISPs follow suit, but at different times within the quarter. Still, it would be safe to say that competition in the fixed broadband market remains elevated with other ISPs' widespread promotion. This combined with the impact of the post-pandemic normalization and demand for new connections has clearly limited our net add performance, particularly on the retail side. As such, we observed some limited pick-up in churn in line with our expectation and base management plans.

Demand for higher speed was intact both in new acquisitions and re-contracting. 24 megabits and above packages exceeded 55% of new acquisition. Q2 ARPA was 7% higher Q-on-Q. Up-sell performance stayed strong despite aforementioned conditions. As a result, annual ARPU growth climbed to 19% and lifted fixed broadband revenue increased to 26%.

As the company's fiber power house, we have been raising Turkey's fixed Internet speed through our country-wise investments and customer-oriented strategies. Average package speed of our subscriber base increased by 30% to 28 megabits just over the last 12 months. 53% of our subscribers are now on 24 megabits and above packages. Still, we believe demand for higher speed is a long-term theme with massive upside potential.

We grew our fiber network running across 81 cities in Turkey to 381,000 kilometers by the end of second quarter. According to European FTTH Council's reports published in May, Turkey ranks third in EU39 comparison in number of FTTH/B homes passed and fourth in 5 fastest growing markets. This clearly demonstrates Turk Telekom's leadership and passion for Turkey's fiberization.

Moving on to mobile performance, Slide #6. Similar to first quarter, tactical, short-lived campaigns were typically in and out to mobile sector, but operator's motivations stick to inflationary pricing remained intact. Following the adjustments in March, both prepaid and postpaid segments introduced revised tariffs in the quarter starting from mid-June. MNP market continued contracting both year-on-year and Q-on-Q albeit at a decelerated pace. We maintained our top rank in net acquisitions in the MNP market for the third quarter in a row.

In line with our expectation, churn rate moved slightly higher Q-on-Q, but remained at historically low levels. 338,000 net subscriber addition in postpaid beat our target. 92,000 net loss in prepaid also surpassed our forecast owing to an aggressive campaign launched in May and some quarterly pick-up in churn with seasonality. The share of postpaid subscribers in our mobile base touched a new high of 66%. Our Prime base reached 5.5 million subscribers with 37% year-on-year growth.

Annual blended ARPU growth moved up to 26% with 8.5 points jump Q-on-Q. Both postpaid and prepaid ARPU supported this acceleration with 21% and 36% annual growth rates respectively. Accordingly, mobile revenues grew beyond our projections by 33% this quarter.

Having completed the first half of the year, it is time we revisit the 2022 outlook on Slide #7. We recorded higher than expected top line growth and EBITDA in the first half of the year driven mostly by our dynamic pricing and customer-centric strategies. We are confident that the top line growth will be progressive in the remainder of the year. OpEx on the other side, still bears risks and urges us to maintain caution.

Most importantly, we have raised staff salaries following the latest 30% hike in minimum wage effective from July 1. Energy, network and commercial costs are the likely items to pursue a trend in tandem with the inflation in the coming periods. Therefore, we now expect operating revenues to grow 33% year-on-year, EBITDA to be TRY 18.5 billion and CapEx to be TRY 13 billion. While the change in EBITDA is driven by higher top line and OpEx outlook, the upward move in CapEx reflects the impact of continued lira weakness and higher inflation.

Before I move on to my closing remarks, I would like to share some good news. As announced earlier, we had entered an important market by signing an agreement with Net Insight on 5G synchronization solutions. 5G synchronization is a fast-growing market, expected to reach USD 1.5 billion in size by 2027. We are proud to share that mobile operator 3 Sweden has placed an order with Net Insight for the 5G synchronization solution developed by Turk Telekom and Net Insight. This is a remarkable validation of product's competitiveness and visibility in the market. More work is in progress to extend the product's use to other operators' networks across varying geographies.

Q2 '22 has clearly demonstrated a fresh set of adversities. In response, we implemented our plans to weather the storm with highest focus on mitigating risks while generating healthy growth on a sustainable basis. The second half of 2022 will continue to be tough we think. Therefore, we maintain caution and keep ourselves fit to remain resilient and financially sound. Our very goal to play our part perfectly in Turkey's transformation into a digital society stays intact. We are confident that path assures the fulfillment of our responsibility to all our stakeholders too.

Now I will hand over the call to Kaan to discuss our financial performance in detail. Thank you.

[Kaan Aktan, executive]

Well, thank you very much. Good morning, and good afternoon, everyone. We are now on Slide 9, which are Financial Performance. Our consolidated revenues is up by 31% year-over-year. Excluding the construction revenues impact, revenue increase is also at the same number of 31%. In this quarter, we have seen an accelerated growth performance in our major business lines. Fixed broadband markets remain competitive in this quarter despite margin pressures on other ISPs. And similar to the first quarter, our new acquisitions were skewed towards the wholesale segment as several players offered attractive campaigns or kept the oil prices opened for certain periods.

Churn was slightly higher quarter-over-quarter, but fully in line with our expectations and it's our proactive pricing behavior. We were once again reassured of our strategy by a healthy re-contracting and up-selling performance in this environment, thanks to our distinctive capabilities in the fixed Internet space. As such, annual ARPU growth climbed to 19% from 14.5% a quarter ago.

Fixed broadband revenue grew above 26% compared to '22 in the first quarter. The continued re-pricing of the contracted base supports the momentum. More visibly, revenue growth accelerated to 31% in June following the latest pricing actions at the beginning of the month. Dynamic pricing has ruled in the mobile segment, this time led by Turk Telekom around mid-June. In continuation to Q1 trend, we managed another healthy net debt performance despite a challenging consumer environment.

Driven by both pricing and base expansion, top line growth leads up to 33% with 26% ARPU increase in the quarter. 37% rise in June revenues following the latest tariff revision has been an even more encouraging signal for the coming periods.

Fixed voice revenue recorded 7% growth with a stable subscriber base quarter-over-quarter. TV revenues expanded 16% along with a 19% growth in Home TV ARPU. Growth in corporate data revenue accelerated further to 26%, while 92% increase in other revenue was largely driven by equipment sales, ICT project and call center revenues. Finally, international revenue increased by 36%.

We are now moving on to our operational performance. Consolidated EBITDA is up by 10% year-over-year to TRY 4.4 billion with a margin of 41%. This is down by 8 percentage point year-over-year, largely due to last year's high base and continued inflationary pressures on OpEx, but also to faster growth in lower-margin mobile business than compared to fixed broadband. Similarly, about 90% expansion in other revenues in second quarter, including the revenues generated by our subsidiaries ?nnova and AssisTT pulled consolidated EBITDA margin down.

Excluding the IFRIC 12 impact, EBITDA margin was 43.5%. In the second quarter, operating expenses increased by 50% year-over-year to TRY 6.3 billion. Annual increase was close to 42% in the first quarter. Excluding IFRIC 12 costs, growth in operating expenses was 54%. Looking at the main highlights in the OpEx item, Interconnection costs increased merely by 6%, along with our decision to minimize Turk Telekom international low-margin hubbing services in voice traffic going forward.

Provision for doubtful receivables declined by 28% with lower litigation activity in the second quarter, which is expected to pick up in the third quarter. Cost of equipment and technology sales grew by 111% along with the pick-up in the number of projects acquired and the revenues generated from them both by Turk Telekom and its subsidiary Innova. Other direct costs grew by 66% year-over-year, with the pick-up in commissions paid on prepaid loading, shared revenues and value-added services.

Network and technology expenses rose 96% mainly due to increased energy prices, maintenance works and weaker lira. Personnel expense increased by 57%, with the effect of minimum wage and inflation-adjusted salary increase at the beginning of the year. The renewed agreement signed with the labor union in March lifted the personnel cost base higher quarter-over-quarter, but this has been partly balanced by lower provisions for paid personnel leave.

As mentioned, the latest revision in personnel salaries effective from July 1 will be pushing our personnel cost base higher in the coming quarters. Taking into account the recent actions we have implemented, the first half performance and positive seasonality in our businesses in the third quarter, we now expect our 2022 full-year operating revenues to grow by 33% annually. OpEx on the other side still bears risks and urges us to maintain caution in our forward-looking statement. After incorporating these factors into our budget, we revised our EBITDA guidance to TRY 18.5 billion for the full year of 2022.

Coming to the bottom line, net income was TRY 1.4 billion, up 9% year-over-year and almost 150% up quarter-over-quarter despite another 10% average rise in dollar and euro fixed rate amid continued weakness in lira. On the positive side, we recorded TRY 1.2 billion of tax income as a result of revaluation of fixed assets and tax incentives. Net financial expense was at TRY 2.3 billion as implied by the sensitivity analysis in last quarter's financial statements, we incurred further FX losses at higher exchange rates quarter-over-quarter. The fluctuating interest environment throughout the quarter also effective [indiscernible] cost.

We are moving on to Slide 10 with debt profile. Net debt-to-EBITDA ratio increased to 1.54x in second quarter from 1.24 as a result of the currency fluctuations in the second quarter and payment of TRY 5 billion dividend out of our 2021 earnings in May. Cash and cash equivalents were TRY 5.2 billion, of which 61% is FX-based. This doesn't include the TRY 4.3 billion of FX-protected time deposits, a highly liquid asset that we book under financial investments according -- the investments according to the IFRS reporting growth.

The FX exposure included the other equivalents of TRY 2.1 billion of FX debt, TRY 2.4 billion of total hedge position, $200 million of FX cash. As you can see on the bottom right chart in this page, the hedge amount includes $240 million equivalent of dollar equivalent of FX-protected time deposit. This is up slightly from $220 million in the first quarter. Excluding the ineffective portion of the hedge portfolio, mainly the existing participating cross-currency contracts, the FX exposure was $640 million short position. The increased share of local currency borrowings in this quarter from 20 -- from 12% to 15%.

We are now on the last page of 11. The liquidity conditions in the long end of the FX hedging markets remained rather limited. Cost of engaging in these transactions was also similarly high compared to the previous quarter. Therefore, we kept meeting our FX risk management targets with short-term instruments. On the positive [indiscernible], we expect our FX exposure to shrink together with the continued deleveraging until year-end.

The FX sensitivity analysis we report regularly in our financial -- quarterly financials suggest assuming all as constant, a 10% increase in FX rates will have around TRY 1.2 billion negative impact on our pretax income. On the flip side, the sensitivity analysis produces close to TRY 1.1 billion positive impact in case of a similar depreciation in lira.

Finally, the unlevered free cash flow was TRY 1.5 million, significantly up from last quarter's negative TRY 0.5 billion with improving operating performance. We expect to see a healthy free cash flow generation in the second half, together with the revenue outlook we have just shared.

This concludes my presentation. We can now open up the Q&A session. Operator?

[Operator]

[Operator Instructions] The first question is from the line of [ Zacharis Daniel ] with Barclays.

[Unknown Analyst]

I just have a question on your short-term debt. So currently, your maturity profile is just over 1/3 of your gross debt is due over the next year, and this is both dollar to [indiscernible] I believe. And I just wondered what your plans are for refinancing of this debt and what the impact of recent government restrictions on layer borrowing might be on your decisions.

[Kaan Aktan, executive]

As I mentioned in my presentation, we are now increasing the share of lira borrowings within the total debt portfolio. Unfortunately, those borrowings comes with short-term maturities. Naturally, this is also pushing the -- up the percentage of debt that expires within the next 12 months period. Obviously, the -- mostly expected way to refinance those payments will be to extend the loans that we acquired from the local market, the lira borrowing I'm referring to.

We still have the unused portion of the supplier finance projects. We are also currently negotiating for further extension of those projects with our major suppliers. That part of financing seems to be running smoothly so far, and we hope that it will still continue, and that will be basically the main hard currency financing tool that we will be using for the -- during the next 12 months.

And as I said, other than this we will get the -- we will try to get access to the local currency borrowings under different instruments. Commercial loans is one instrument. We are also starting tapping the local bond markets with different instruments, and we will also continue doing so. And we are also using our hard currency cash and with swap contracts, we are trying to raise lira without hurting our dollars or hard currency exposure since we also promised to buy back our dollars that we send in order to raise the lira.

That was a legislation as you mentioned, which was amended few times. It's the legislator trying to limit the access to lira borrowings. So far, I mean, with the current definition of the legislation, so far, we don't see any limitation at the group level for accessing to lira credits. Does this answer your question? Did I miss anything?

[Unknown Analyst]

That's great. On the FX that we have coming due over the next year, you mainly plan to use the pilot financing and cash?

[Kaan Aktan, executive]

Yes, that may be some small amount of commercial loans from international banks. That's not the basic plan. If that comes with favorable terms, we will -- we can raise such financing, but other than that it will be supply financing.

[Unknown Analyst]

Okay. And just a quick question also on your hedging strategy. When conditions improve for putting hedges on, do you plan to move back to a net long FX position?

[Kaan Aktan, executive]

Yes, definitely. We like to see ourselves getting to a 0 exposure point. But again, as I mentioned, there are limitations in terms of the cost of doing that, especially for the long-term contracts, the cost is really excessive. And so we decided to partially hedge our exposure through short-term contract, different tools that we are using so that at least like offset the weakness that comes from this participating cost currency contract.

Naturally, we came down to around $600 million short position. And we will -- and there will be some natural deleveraging. There is still debt that will be paid in the next 12 months. And most of it is attached to a participating cross-currency contract, I'm referring to hard currency debt, which are not fully protecting us obviously when that happens. So the exposure will also come down on a regular basis. But other than that, we will keep the protection that we obtained with our short-term contracts and also the dollar cash as much as we can.

[Operator]

The next question is from the line of Annenkov Evgeny with Bank of America.

[Evgeny Annenkov, analyst]

I have 2 questions, please. Firstly, on your revised revenue guidance of 33% growth. I think that implies 37% growth for 2H while you have mentioned that in June, it was also around 37% growth. So why do you assume no acceleration for the remainder of the year from June? What do you see as a factor offsetting all your cumulative price hikes? Is it competition in fixed broadband or maybe user moving towards cheaper packages?

And secondly, on taxes. Cash tax expense you paid was down 17% year-on-year in H1. Is it reasonable to assume to age cash taxes to be also down year-on-year given the continued revaluation of fixed assets in your P&L?

[Kaan Aktan, executive]

Well, in terms of the revenue growth, if you look at the potential growth in the major -- in our major businesses, I'm referring to fixed broadband and mobile, you will -- we should expect to see an accelerated growth both in the third quarter and fourth quarter in terms of ARPU and more than that in terms of the total revenue that we will generate from those businesses. And that will also pull overall revenue growth up every quarter going forward. And this is what brings us that upgraded guidance in terms of the revenues.

You should also consider the fact that we will also -- starting from especially fourth quarter, we will also start having a better or stronger base that is the result of the pricing action that we took in the last quarter of 2021, so -- especially for mobile. Obviously, that would in a way limit the overall growth for the full year. That's the simple mathematics.

What was the second question? Taxes. Yes, you're right. I mean, we should expect a lower cash tax payment going forward. I mean, overall deterioration of the macroeconomic [indiscernible] that create -- and because of our exposure in FX that creates an FX loss, I mean, until the end of the maturity of the loans that brings that loss, obviously, these are noncash. And in return, because of this revaluation rules, which is highly impacted by the high inflation, we can generate a tax benefit, which will also turn into our cash in the coming quarters as we generate taxable income. So there will be both P&L and cash contribution going forward from those revaluations.

[Evgeny Annenkov, analyst]

And on the growth, may I ask, if you can comment on July trends? Has it accelerated from 37% in June?

[Kaan Aktan, executive]

I don't have the numbers right now with me. But I can say that we will also see -- let me add one thing as an additional information to our -- to what I said on the remaining part of the year. I think that we will also see the gap getting narrower between the growth rates of fixed broadband revenues and the growth rate of mobile revenues. There are a few factors affecting this, first, the pricing actions that we took in fixed broadband because of the nature of our contracts and the tenure of our contracts, they impacted overall revenue growth at later dates. So there is always a lag between the pricing action and the impact that we see on our revenues. Obviously, since we started moving in the year, and we also took pricing actions as early as possible, we will now see more impact coming from those pricing activities to the revenue growth of fixed broadband.

And as you know, we also increased the wholesale prices after the decision of the regulator that will also start impacting our third quarter fixed broadband revenues and that combined together so that the growth rate will get, maybe not at the same level, but getting -- fixed broadband will get closer to the mobile growth rate.

[Operator]

[Operator Instructions] The next question is from the line of Fedorov Egor with ING Bank.

[Egor Fedorov, analyst]

Actually, well, I -- just wondering how -- well, how do you see how long this situation we -- when your tariffs, your incomes growing much more slower level compared to inflation trends will be exist. So currently, as I understood that you are just subsidizing your customers. And well, just for us, how long it can be -- how long it can be exist in such an essential manner. Do you expect any changes, for example, in the second half of the year or even next year? Can you please elaborate on this a little bit?

[Kaan Aktan, executive]

I mean from the very early days when we saw that there will be an accelerated inflation in the country, which is the last quarter of last year, we started actions and the -- the price increases throughout the year in all business. And this includes mobile, fixed retail and wholesale. I think there is a very clear decision of the company to get the prices or the change at the prices to the level of the inflation. But there is one unknown in this equation is what will be the inflation in the next 6 months or 12 months period.

So -- but again then -- if and then we continue implementing those price increases on a periodical basis, obviously, there will be an accelerated revenue growth. And even we see a lower inflation in the country I think that momentum will carry us to a higher growth rate for several quarters. And obviously, this is the first requirement is really to be very decisive, very -- in a planned way to continue increasing the prices. I think that's what we are doing right now.

There are always commercial constraints or commercial parameters that we also take into account in different parts of our presentations, you mentioned that it saw a bit more different behavior, especially in the fixed line domain coming from the other ISPs. They followed us with a lack or some of them tried to stay at lower crisis or didn't implement a similar price increase to the services that generate from their own infrastructure.

But since there is now a wholesale price increase, which is really the result of the increased cost in our system. So there is nothing more in that. So ISPs we see that they have a higher -- better motivation for increasing their retail prices. I think as much as we can, we will continue building on that. And I think there will be a time when we will at least between the dates that's high inflation trend started and ended hopefully at some point, so we will be able to get as close as possible to that percentage, whatever it is in our retail prices. And that complexity that's coming from the loan contract period simply like for getting the right revenue number.

[Egor Fedorov, analyst]

Okay. Maybe just a little bit a follow-up question. Do you have any, well, government restrictions on or recommendations on your tariff policy in maybe for some particular areas, some particular businesses or everything is well determined by the market and by your, well, knowledge of the market.

[Kaan Aktan, executive]

In our retail businesses, we don't require any approval from any authority. I mean pure market driven decisions that we are taking. There is a smaller shares in our revenues that generated by -- through our wholesale business in fixed line, obviously, since we are the dominant market player in this domain, we require a decision from the regulator -- approval from the regulator. And as you would know that approval came for the fourth transmission pricing, which is the base for fixed broadband pricing that came at midyear and there was a 67% increase in the port prices.

So obviously, excluding that part, which is always -- which always require a certain negotiation and discussion with the regulator, no matter what the inflation level is. We are free to implement our decision in pricing. And there is also the -- you should also consider one fact here. I'm -- I know that you are referring to all those talking in the markets, people saying government is trying to implement those commercial decisions because they want to impact the inflation number. They represent a very small percentage of the overall inflation basket. So is the telecommunication industry. And when you look at the impact on overall inflation with...

[Operator]

The next question is from the line of Demirtas Cemal with Ata Invest.

[Cemal Demirtas, analyst]

My first question is about the contracts. Mostly those contracts are 3 to 4 months. And we see that Turk Telekom suffers from those contracts with long-term contracts. And it looks like to me that at least I realize that it's a big risk for a company, which we think is like the defensive company. And I would like to understand, did you have any chance to change the contracts, maybe when the inflation started increasing, we have the flexibility to shorten the contract period because we have understanding at 12 to 24 is the common contract, but it became a bit risk.

So at least for the future, do we have a chance to see shorter contract terms, considering the risk of inflation, which is part after many years. That's my first question. How flexible you could be because in this environment it's maybe the most vulnerable sector is this telecom sector when will we look at the Turkish companies overall. So I want to understand what could be the strategy ahead? Or are we going to live with it, wait for the inflation to come down? That's the strategic question I'm asking.

And the other question is about the deferred tax income. You have significant income. Could we assume that your dividends will be based on those numbers so then we make the calculation dividend payout? Could we take the bottom line as a reference for a possible dividend outflow for the following year?

[Unknown Executive]

[Foreign Language] Thank you very much for your question. Let me answer your question. I mean, this definitely requires a dynamic management of the process and 24-month contract is a long-standing tool in our fixed Internet business, and it's a very highly effective tool for customer-based management and experience. And our customers are also used to it and they particularly prefer it as well. [Foreign Language]

It wouldn't be wrong to say that the fixed Internet market has been extremely competitive since the last quarter of the last year. [Foreign Language] And we have also seen that despite the high inflation, other ISPs offered promotional sales and various attractive offers intensively. [Foreign Language]

I mean the macro environment has increased the price sensitivity on the subscribers. And also it made it difficult for us to manage the subscriber base. [Foreign Language] I mean we did not give up on our pricing and ARPU growth motivation in the macro environment and the competitive conditions and we supported the subscriber base with a 24-month contract option, thus maintaining a low level with a limited increase in the churn rate despite all the difficulties.

[Foreign Language] So we are managing this process dynamically. And of course, there is not a written rule that never changed. So we are following based on the condition.

[Ümit Önal, executive]

For the second question...

[Kaan Aktan, executive]

Yes, for the second question obviously net income that we are reporting as a result of our consolidated performance is the first reference for any dividends payments in the future that also include the deferred tax -- the benefits that we recorded from the deferred tax assets. But obviously, there are other factors that would impact the decision for distributing dividends. I mean, but on a technical level, yes, these are part of the decision. These are part of the dividend base.

[Operator]

[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Turk Telekom management for any closing comments. Thank you.

[Unknown Executive]

Well, thank you, everyone, for joining us today. We look forward to meeting you the next time. Have a nice day. Bye-bye.

[Operator]

Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.