Turk Telekomunikasyon AS

IST:TTKOM.E

Earnings Call Transcript 2019-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. I'm Gellie, your Chorus Call operator. Welcome, and thank you for joining the Türk Telekom Conference Call for the Third Quarter 2019 Financial and Operational Results. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Gozde Kulas, Head of Investor Relations; Mr. Ümit Önal, CEO; and Mr. Kaan Aktan, CFO of Türk Telekom. Madame and gentlemen, you may now proceed.

[Sabriye Çullas, executive]

Hello, welcome to Turk Telekom 2019 Third Quarter Results Conference. We are here with the management team, and today's speakers are our CEO, Ümit Önal; and our CFO, Kaan Aktan. Before we start, I kindly remind you to review the notice on our earnings presentation. Mr. Ümit, please?

[Ümit Önal, executive]

Hello, everybody, and have a good day. First of all, I would like to thank you for joining us today. Before we move forward to the Q&A part, I would like to briefly discuss our third quarter results and our focus area for the coming period. As you know, I have been working in Türk Telekom since 2016, responsible for the commercial operations of the company. And today, as the new CEO of Türk Telekom, I'm quite happy to be with you.

Today, with more than 30,000 employees and 47.6 million subscribers through our successful operational performance, effective balance sheet management, support for new ventures and our technology investments, we continue to add value to Turkey by contributing to employment and the economy.

In the third quarter, we continued with our successful performance. We delivered 15.1% revenue increase in the third quarter compared to the same quarter of the last year. EBITDA surpassed TRY 3 billion with 32.6% year-on-year increase and EBITDA margin reached 48.4%.

Upon the successful results we achieved during the first 9 months, we have revised our 2019 EBITDA guidance upwards for the second time during the year and the increase it to TRY 11 billion level from the TRY 10.5 billion to TRY 10.8 billion range. Our first objective is to end the year 2019 within our guidance, the aim to share our new strategic plan when we announce our 2019 year-end results, together with the guidance for 2020.

Our focus area in the new period are increasing internet penetration, better customer experience, accelerating our digitalization journey and healthier ARPU growth along with a sustainable subscriber growth. To elevate more on our focus area, as a company, aiming to improve customer experience every field by developing products and services, facilitating the lives of our customers, we continue to work with the an aim to carry this customer experience in digital areas as well.

Within this scope, we are working to offer our customer-oriented SaaS service application Online Islemler channel to our customers in a way to provide end-to-end and integrated services. Moreover, with the project started, aiming to develop all services, applications and processes touching upon our customers to strengthen the customer experience, we recorded significant improvements on installation, transfer and fault solution durations, and we aim to reach higher targets on this regard.

As Türk Telekom, one of our most important targets is to enable as many people as possible to access Internet and to increase the level of internet usage in all parts of Turkey to the level in the developed countries, reducing the digital divide.

Broadband household penetration in Turkey increased from 47% to 57% during the last 2 years with the support of our initiatives, and we are working hard to reach 70% household penetration levels as Türk Telekom.

We have increased our mobile market share from 22% to 28% in the last 5 years. During this period, while continuing with our mobile investments, we have also increased our mobile EBITDA margin to sustainable levels. With 2 million mobile subscriber additions over the last 12 months, we are now 1 step closer to our target of profitably increasing our market share above 30%.

While strengthening our position through mere subscriber additions as the leader integrated operator of Turkey, we also focus on the technology and digital transformation of our company as we continue to work on 5G and increase the fiber infrastructure footprint to support it.

In the third quarter of the year, in line with our fiber transformation focus, we increased the number of our Fiber Homepass to 20.3 million. With our 295,000 kilometers of fiber network, as Türk Telekom, we have put our signature on more than 80% of the fiber infrastructures of our country.

Apart from the fiber infrastructure that we own, we are readiest operator to 5G in Turkey with the products and technologies we've developed on 5G area. Within the framework of 2023 vision of Turkey, on one side, we are preparing our 5G network test infrastructure. On the other side, we are developing local and nation next-generation mobile communication technologies as our 5G Center of Excellence. Our endeavors on 5G technologies and infrastructure continue at full speed through our subsidiaries, such as Argela and Innova, which are generating value in the information technologies area.

Apart from all these efforts, we continue working on fixed and mobile infrastructure sharing models for which we have completed the pilot projects. Considering expected network density increase with 5G, use of infrastructure sharing models will both reduce the investment costs and pave the way to provide high-quality and affordable service to the end user.

As a last note, I have no doubt Türk Telekom family, which has achieved major success as a big team by meeting around 20 joint targets so far. We'll carry our company to the [eras] with even better operational and financial performance. Now I will hand over to Kaan to share through performance details.

[Kaan Aktan, executive]

Thank you, Mr. Ümit. Thank you all for joining the call. I'm very pleased on also our strong operational and financial results. We are now moving to Slide 3. After success of first half, we continued our strong performance in the third quarter. We had 600,000-plus net subscriber additions in all segments, with a number of new telecom subscribers reaching to 47.6 million.

Over the last 12 months, net adds were, in total, 2.9 million. This quarter, we had one-off impact on our subscriber numbers. We have a new term policy based on our new regulation. According to this, the subscription of customers without Turkish or foreigner IDs needs to be canceled until 1st of December of this year.

In third quarter, in order to comply with regulation, we started canceling services of mobile customers with no or low ARPU generation. We will continue this process by completing the missing information. However, considering telecom services are a necessity, we expect customers with missing ID numbers to come back to the system, and we expect to get our fair share from them.

In broadband, we had 206,000 net subscriber additions with the support of our focus on increasing household penetration and start of high season due to back-to-school period.

In mobile, we had 393,000 net adds in the quarter and 2 million over the last 12 months. The number of mobile subscribers increased by 9% year-on-year and reached 22.8 million. Then we exclude the one-off impact that I just mentioned. Net additions in mobile business were close to 700,000 in the third quarter.

In fixed voice, number of subscriber additions was 75,000 in the quarter, which is supported by accelerated growth in broadband. Subscriber additions in the third quarter, we affirmed that we are on the right track with regard to our cross-sell and synergy offers. Our focus on increasing the penetration in broadband and increasing mobile market share. The ratio of our subscribers who provided consent for sharing and allowing us to use their information within the group reached 79% in this quarter.

We are now on Slide 4 with the summary of the financial performance. I will briefly discuss the financial figures as I will go over the details in the next slide. Our revenues grew by 15.1% year-on-year to TRY 6.2 billion. Underlying revenue growth, excluding IFRIC 12, the construction revenues, project-based equipment sales and one-off gain in mobile revenue in the third quarter of last year, was 16.9% year-on-year.

We recorded 48.4% EBITDA margin in the quarter. Excluding IFRS 16 capitalization of leases impact, margin was again strong at 45.3%, which shows 3.3 percentage points improvements versus the same quarter of last year. We reported TRY 1.1 billion net income in the third quarter, which compares to TRY 2.8 billion loss in the same quarter of last year.

We are now on Slide 5, with fixed broadband performance. In third quarter, and especially in September, in addition to the impact of seasonality with the back-to-school period, there has been the acceleration in the underlying trend in broadband additions as customers start to getting used to the new unlimited offers and our self-rebalancing in the quarter also supported the performance.

In the quarter, we increased the entry-level speed of our net offers from 6 megabits to 8 megabit, and we also increased the capacity of these limited offer keeping the prices unchanged to provide better value to customers.

We recorded more than 200,000 net additions in the quarter and accelerated pace compared to first half. And the number of our fixed broadband subscriber exceeded 11.3 million.

The number of fiber subscribers reached 4 million, which means 36% of our broadband base is now on fiber compared to 32% a year ago. We also increased our broadband ARPU by 12.8%, which is the highest growth rate since 2011, preference towards the unlimited packages, price increases and offsets are the main drivers of the strong ARPU performance.

On the back of strong subscriber and ARPU growth, we recorded 21% year-on-year growth in broadband service revenues. Our strategy to increase fixed broadband penetration continues to deliver results. We have almost now 1.1 million Internet Bizden, which is the entry-level offer for broadband. In our subscriber base, also penetration increased to 57% compared to 47% just 2 years ago, when we started our penetration drive and launched entry-level broadband product.

In line with our strategies to drive penetration via diverse distribution channels, which includes partnerships with electricity companies, our access on this channel has reached 43 cities of Turkey. The subscriber additions in this channel in this quarter increased more than 30% compared to the previous quarter.

From the speed perspective, excluding the Internet Bizden subscribers, the share of the subscribers with above 20 megabits speed increased to 40% from 38% of last year. The target to increase the share of higher speeds further via the rebalancing for high speeds carried in the quarter and our up-sell effort.

We are confident that there's still plenty of room for growth in the broadband segment. We continue our target to move to 70% rate in terms of household penetration. We are now on Slide 6 to cover mobile performance. Overall, markets was more competitive in the third quarter in mobile. Despite that, we kept a healthy growth in both subscriber numbers and ARPU. During the quarter, we had a close to 400,000 net mobile subscribers. When we exclude the effects of the new ID regulation, net additions in the mobile segment would be close to 700,000. The blended ARPU increased by 9.1% year-on-year in the third quarter, driven by annual ARPU lift in both prepaid and postpaid segments.

We are keeping our target to increase our mobile market share in a cost-effective way to above 30% with the support of our cross-selling activities and synergy offerings.

We are now on Slide 7 with mobile data. Data revenues now accounts for 60% of our mobile service revenues compared to 56% in the last year, same quarter. Our postpaid ratio is at 59%. Our smartphone penetration is at 85%. An ongoing shift of customers to LTE continued to drive data consumption. Share of LTE subscriber increased to 54% from 44% a year ago. At the same time, penetration of LTE-compatible devices among our smartphone users also increased to 81%. Average monthly data usage of LTE users increased to 7.3 gigabytes in this quarter.

In addition to normal trends of growth, we believe our recent loyalty program offering incremental data, our subscribers will get used to consume more data, and these will support data consumption and data revenues going forward.

We are now on Slide 8 with fixed voice performance. We continue to increase our fixed voice subscribers thanks to our synergy offers as well as our entry-level package Internet Bizden and brand partnerships.

Fixed voice subscribers increased by 75,000 in the quarter. Meanwhile, the number of total fixed lines, which include both fixed voice and naked DSL lines, increased to 14.6 million, which is the highest levels since 2012. It's all these initiatives. Our fixed voice revenues increased by 1.8% year-on-year.

We are now moving to Slide 10 with our financial performance. This was exceptionally successful quarter with strong financial figures. 15.1% year-on-year revenue growth in the third quarter was driven by both broadband and mobile business, which grew 21% and 16.6%, respectively. The service revenue growth in mobile was 21%. Revenue growth in both mobile and broadband came with the balance combination of subscribers and ARPU growth, which is in line with our strategy.

Fixed voice segments registered revenue growth in the fifth consecutive quarter and continues to support the consolidated revenue growth. Excluding IFRIC 12 revenues, revenue growth was 13%. In the same quarter of last year, we had close to TRY 7 million one-off impact in mobile revenues due to VAT return and high base in other revenues due to sizable project-based equipment sales. When we exclude those 2 factors and the fixed voice revenues, underlying annual growth will be 16.9%. Consolidated EBITDA continued its strong annual growth at 32.6% year-on-year, and we reached to a TRY 3 billion level in one quarter with a margin of 48.4%, which is supported by revenue growth and efficiencies in fixed management. Excluding IFRS 16 impact, EBITDA margin in this quarter was 45.3%, and this is still higher by 3.3 percentage points compared to last year. Strong turnaround in mobile EBITDA margin continued and mobile EBITDA margin now increased to 34%, which was 15% 2 years ago. The improvement was driven mainly by strong revenue growth, efficiencies in commercial spending, improvement in receivable management and group synergies.

Mobile business is also delivering positive net income in the past 4 quarters. Operating expenses increased by 2.4% year-on-year, excluding the impact of IFRS 16 and IFRIC 12, the operating expenses increased by 4.7%. OpEx management is a clear contributor to our margin improvement.

Then we look at OpEx components. The positive impact of device focused risk management policy and segmented approach in the receivable management successfully continued and provisions for doubtful receivables declined by more than 30% year-on-year. As I mentioned in the revenue part, cost of equipment sales decreased by 38% year-on-year with a high base of last year due to project-based equipment sales. We expect to see a similar impact on both revenues and OpEx in the fourth quarter, but the impact on EBITDA should be limited.

Network & Technology expenses decreased by 18.1%. Excluding the positive impact of other IFRS 16, the annual growth is still at below 7%. Commercial cost increased by 4.4% year-on-year, which is supported by efficiency measures undertaking, including optimized sales, channel structure, which -- with location-based store optimization program, utilization of company-owned stores more effectively and increased utilization of digital platforms.

When we plan our commercial activities, we aim to maintain the momentum in subscriber growth. In the meantime, we also consider market dynamics. Accordingly, we had less marketing activity and seasonality was also another driver of lower expense quarter-on-quarter. On the other hand, when we compared to the first half of the year, we saw acceleration of the annual growth in this quarter, and we are expecting this to further increase in the last quarter of this year. This quarter, despite the inflationary wage increases implemented across the year, increase in personnel expense was only 8.1%, which is supported by a more streamlined organizational structure. Additionally, personnel expense declined by 8.8% compared to last quarter. Wage increases was already in the base of second quarter. And additionally, we reached an agreement with our unionized personnel at the beginning of August, for which the provision's starting from March. There were some reversal based on the actual numbers in the third quarter, and that was decline indication provisions due to seasonality, explaining the change from quarter-to-quarter in terms of total headcount-related cost.

CapEx was slightly above TRY 1.2 billion. Net income was slightly above TRY 1.1 billion, which is a significant improvement from the loss of TRY 2.8 billion of same quarter of last year, thanks to stronger operational performance and lower financial expenses. We are now on Slide 11, and I will take you through the debt profile.

Our net debt decreased by 6% quarter-on-quarter to TRY 16.5 billion. Net debt-to-EBITDA ratio decreased to 1.55 from 1.76 of the previous quarter, excluding IFRS 16 impact, the same ratio is 1.51. This is lowest levels since 2015. Cash and cash equivalents increased to TRY 4.8 billion from TRY 4 billion of last quarter. We maintained our strong cash flow generation along with a muted net financing outflow in the quarter.

We are now on Slide 12, which provides highlights on our FX position. We executed additional participating cross-currency swaps transaction of around $190 million during the third quarter. At the end of the quarter, net FX exposure decreased to $446 million, with $2.1 billion in cross-currency swaps position and total EBITDA -- and total FX-based cash of close to $750 million.

We target to keep our net FX exposure around and below both its current levels. Our hedging contracts covers both principal and interest payments of designated loans. With all these initiatives, the sensitivity of our P&L statements to FX movements continued to decrease with 10% depreciation having now less than TRY 600 million impact on the P&L with the same number being TRY 1.5 billion as of the end of September last year.

Moreover, we continue to our strategy to use cash as a total managed total FX exposure. FX-based cash is at around $700 million, which is 89% of our total cash. We generated TRY 4.5 billion as unlevered free cash flow during the first 9 months of this year, which compares to TRY 3 billion of the same period of last year. We expect to maintain our strong cash flow generation in this quarter, strong EBITDA generation along with the discipline CapEx that continues to support our cash flow.

In October, we signed EUR 440 million long-term loan agreement with BNP Paribas under the insurance coverage of Finnish exports credit agency Finnvera to finance our capital expenditures. The average maturity was 4.3 years, all included cost was -- near about plus 224 bps.

We are now on Slide 13 with our revised guidance. We revise our 2019 EBITDA guidance based on strong operational profitability of the first 9 months, since we are approaching the year-end, and we are also -- we also narrow the band for revenue and CapEx guidance for better visibility. Our revenue growth guidance, excluding IFRIC 12 revenues, they will be at around 15%. CapEx will be around TRY 4.8 billion. For the EBITDA part, we reflected the improvement in gross margin and impact for efficiency measures on our OpEx base. We are now upgrading our EBITDA guidance to around TRY 11 billion, up from the previous TRY 10.3 billion to TRY 10.5 billion range. As you remember, our initial guidance for EBITDA, at start of the year, was TRY 10 billion to TRY 10.2 billion. Overall, we expect this year to be an exceptionally strong year in Türk Telekom's history. Thank you for listening, and I'll now hand over the call to Ms. Gozde for the Q&A session.

[Sabriye Çullas, executive]

We can now open the Q&A session. Before that, I would like to inform you that we have translation during the Q&A session.

[Operator]

[Operator Instructions] The first question is from the line of Degtyarev Slava with Goldman Sachs.

[Vyacheslav Degtyarev, analyst]

Do you feel comfortable with the current leverage share to restore the dividends payout already for the next year? And secondly, looking into 2020, do you think there will be certain factors that will prevent you from growth in revenues that will exceed inflation and also the margins to sort of expand compared to the levels of 2019?

[Sabriye Çullas, executive]

No, No, could you please repeat the question? There has been an issue with your line. Thank you.

[Vyacheslav Degtyarev, analyst]

So the first question, do you feel comfortable with the current leverage, basically, to restore dividend payout already next year? And the second question was with regard to the outlook for 2020, do you think there would be certain factors that will prevent you from growth in revenues above inflation levels and margins to expand the share compared to the levels of 2019?

[Kaan Aktan, executive]

Yes, this is Kaan. Well, obviously, we're in a comfortable position in terms of leverage. But not only that, there's an ongoing performance -- strong performance in terms of being able to create real cash from the operations. So that gives us the probability, possibility for a dividend payment for next year. But obviously, it's a shareholder decision. If you look at the insurance governance in terms of the dividends, we say these needed to be distributed based also -- based on the net income of the year, but subject to the decision of the shareholder. For us, which was critical is to show that we're a company capable of paying and also affording any dividend going forward. In terms of the margin question, well, we definitely have a continuous trend for an improved EBITDA margin which started towards the end -- from the end of 2016. As of this quarter and also for the full year expectations, we will be at a very healthy level. So our target for next year will definitely be to be around or close to that level, but we should also remember that we can translate a sizable portion of that margin -- EBITDA margin to real cash, which is critical for a telecom operator. And also, we will have a very strong cash flow of debt-to-EBITDA to net income. The obvious reasons are we're now deleveraging the balance sheet, which will provide us lower financial expenses. We've also restructured the balance sheet in terms of lowering the exposure to FX. That means less volatility in terms of FX loss and gains. So I hope that would answer your questions.

[Operator]

And next question is from the line of Annenkov, Evgeny with Bank of America Merrill Lynch.

[Evgeny Annenkov, analyst]

Congratulations on the strong results. I have 2 questions please. Firstly, you mentioned that due to the new ICT regulation, you started canceling prepaid accounts, there's no ARPU generation. So what impact on subscribers count and revenue would you expect cancellation of the remaining non-compliant accounts in October and November? And secondly, you said you contain personnel cost growth only at 8%. Given it was impacted by some provision reversals, what is the normalized growth you would expect for the next quarters?

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] In the coming 3 months, we will be churning less number of subscribers than the ones that we have churned already in line with ICT regulation.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] And it is not the

[Audio Gap]

Okay. It is also important to note that most of these subscribers were silent subscribers, so they were not generating any ARPU, or if they were generating, they were generating very minor ARPU. So they not had an effect on the ARPU levels of the company.

[Kaan Aktan, executive]

In terms of personnel expenses, so we should start seeing some type of approximation to the adjustments, which is normally in line with the inflations starting from next year or first quarters of -- first 2 quarters of next year. But for this year, the total growth for the full year should be low double-digit numbers.

[Operator]

The next question is from the line of Ahmed, Rishad with GoldenTree Asset Management.

[S. Rishad Ahmed, analyst]

Congratulations for another great set of results. Couple of quick questions. On dividends, assuming that you do pay them, what sort of payout ratio should we expect? Or what would -- is anything that you can guide to as a sustainable sort of payout ratio? That's the first question. And then, in terms of the personnel costs, I note that this was actually lower in Q3 than it was in Q2, could you just help us understand what -- why that was? And then, finally, I know that you said that the impact from on -- of subscribers from these forced disconnects is low -- well, the impact on revenues has been low because the forced disconnects have had negligible ARPU so far. But in terms of all the -- any of the others that you're going to have to disconnect between now and December 1st, would there be any impact of revenues -- on revenues from those?

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] I like to give an answer broader on for dividends.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] The dividend distribution ratio is proposed by Board of Directors and the ultimate decision for a dividend distribution is undertaken by shareholders at a general assembly by considering commercial plan, financial situation of the company and ensuring the maximum value for the company to be provided by the dividend distribution plan.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] From the management perspective, we're focusing on growth and operational efficiency to increase the value for all stakeholders.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] In this context, as the management, we believe we will be in a position to start distributing dividends in 2020.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] And also, theres' no change in our dividends policy, which is written in article about association of the company and to distribute maximum amount of distributable net income.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] So all in all, as Türk Telekom, we are generating strong cash flow. We don't have any change in the dividend payout policy. But this decision will be given by the shareholders in the general assembly.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] About ID regulation of ICT, and the regulator, I can only say, again, that the revenue impact will be very limited on the fourth quarter compared to the third quarter.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] So we don't expect any negativity which can affect our ratios or guidance.

[Kaan Aktan, executive]

This is Kaan. Let me take the question on personnel expense. Well, there are few factors here in terms of the explanation of the change or decrease from second quarter to the third one. First, we completed all the inflationary adjustments in the second quarter, meaning second quarter was already the balance base for the new levels of the salaries. But the difference with the unionized group, the agreements has been actually result at the end of August. So until that date, we were sitting at accruals based on assumed wage increases. And when we had the actual number after the agreement with the union, we just adjusted our accruals based on the actual numbers, and that gave us a positive numbers in terms of the adjustments that we had to take. And secondly, the third quarter is the season that our employees are using the vacation days, and this is creating an income or decrease in the liability of the vacation-paid liability. Those 2 factors combined together gave us a reduction in the people-related cost for second quarter to the third quarter.

[Operator]

[Operator Instructions] The next question is from the line of Vengranovich, Alexander with Renaissance Capital.

[Alexander Vengranovich, analyst]

My question is on your fixed-line broadband business. So, obviously, it was pretty solid over the last couple of quarters. I'm just wondering whether you see any changes in the competitive situation of the market. Do you feel that there are any threats, theoretically coming into this business segment, which might impair your growth outlook in the future? So if you can share your view that might be helpful.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] In the first 2 quarters of this year, customers were getting used to the unlimited growth. And in the third quarter, with the FX coming from the backs of [indiscernible] as well, the customers get used to this unlimited growth, and we also offer some measures and some rebalancing in terms of our price structure. This also help us. So in the end, customers are now enjoying good speeds at good prices. This all has accelerated our customer service portfolio. We don't expect any negativity in terms of competition, and you also not expect any negative impact on our ARPU. We have a balanced and healthy structure within our ARPU generation and subscriber additions.

[Operator]

The next question is from the line of Kazaryan, Anna with VTB Capital.

[Anna Kazaryan, analyst]

The first question is about cost of lending. So could you please provide an update? What has been happening with the average cost of lending, including hedging during the last month? And what's your outlook for the financial expenses dynamics in the coming quarters? And the second question is, could you please give us an update, is there any clarity whether Türk Telekom will be able to prolong its fixed-line concession and at which terms?

[Kaan Aktan, executive]

Let me take the question on cost of lending. Obviously, we still have part of our debt portfolio which is not hedged. I've got a larger part of it is not protected with hedges. Obviously, hedging brings additional cost. Then you combine everything together with weighted average cost of the debt is now around 11%. And I wouldn't expect a major change, especially going forward in the next few quarters even during the full year of 2020. But still you should also take into account that the level of debt is also coming down.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] I would like to see a couple of words related to the concession as an answer to your question.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] And maybe, we should call them concessions, and they are the effects of telco sector in Turkey.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] The fixed concession of Türk Telekom is no different from what is called licensing in the Turkish mobile sector in terms of conditions.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] For instance, 2G licensing will expire in 2023 for Turkcell and Vodafone and in 2026 for us.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] And 3G, 4G licenses and authorization will expire in 2029 for all players.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] So let's say, if the licenses and authorizations are not renewed upon expiry, all operators are required to return infrastructure to the regulator as in fixed.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] And moreover, at the same time, 900 megahertz 2G license, which is highly critical for the other operators will also expire in 2023.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] So we always consider this concession as a subject related to the telecom only, but this is subject relevant to all sectors, and we expect this to continue depending on the condition.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] We opened subject to public debate proactively. The renewals should be advanced via a sector-wide approach, including mobile, and these decisions are critical for the visibility of the sector.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] And it is also important to highlight that LYY is interested in any initiative that will improve the overall value for Türk Telekom stakeholders as a whole.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] And we also understand the Board of Directors will work on concession situation at the board level in conjunction with the management.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] Even if we consider the extreme scenario, Türk Telekom has the right to apply to ICTA for renewal of concession agreement at most 1 year before the expiry of the term.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] And any such renewals to be granted is at the discretion of ICTA.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] Again, if you assume the extreme scenario, if there is no renewal, Türk Telekom can also operate like any other ISP with an asset-light model.

[Operator]

[Operator Instructions] Your next question is from the line of Mandaci, Ece with Unlu & Co.

[Ece Mandaci Baysal, analyst]

Could you please provide some insights regarding the possible subscriber additions or subscriber terms -- growth trends in the fourth quarter? Because you mentioned that there were some disconnections regarding this regulation in the third quarter. This effect will be less -- at a lessor amount in the fourth quarter. So considering that and considering the increase in the postpaid subscribers in the last few quarters, how should we expect for the fourth quarter to grow in total subscribers in the mobile segment?

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] To be honest, we expect to continue as we have shared our guidance with you like that. And we expect to end the year with the similar performance just like the third quarter.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] And it is better to reiterate that the ICTA regulations have had a very limited effect on us. And it will not have any adverse effect in terms of our subscribers' additions or the revenue that we shared in our guidance.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

[Interpreted] And I would like to end my words by saying that Turk Telekom will, of course, cover the healthy sustainable balance between ARPU generation and subscriber addition.

[Operator]

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

[Sabriye Çullas, executive]

Thank you for joining the call, have a good evening.

[Ümit Önal, executive]

[Foreign Language]

[Sabriye Çullas, executive]

Thank you very much.

[Operator]

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