Turkey's Telecoms reform: Turnkey solutions for Turkey

Telecoms reform: Turnkey solutions for Turkey

By Andrea Renda, CEPS

A number of initiatives are required to bring Turkey's telecoms market into line with the rest of Europe. When it comes to telecoms, the EU and Turkey are still two worlds apart. While Brussels policymakers are debating the rules that will help operators invest €300 billion to bring high-speed broadband connections in every home, Turkey is about to approve a long-awaited telecommunications law, which is still unlikely to close the gap with the current EU framework. Like the turtle chasing Achilles, Turkey seems to move too slowly to catch up with an industry that moves at breakneck speed.

It's a huge missed opportunity, not only for Turkey, but also for the EU. As of today, Turkey represents one of the most important emerging telecommunications markets. With a population of 70 million, the lowest per capita GDP in OECD countries, a 27% penetration rate of fixed-line telephony (in terms of population), 88% penetration of 2G mobile at the end of 2007, and very low broadband penetration, it is fair to state that the potential for development in this country is remarkable.

The challenge is how to build a set of rules that would unleash, rather than inhibit, Turkey's potential. The current law, passed in 2001, has not helped so far, being closer to the 1998 "ONP" EU framework than to the current one, especially when it comes to licensing and fees. In particular, the legislation in force has not led to the expected degree of liberalisation, especially in the fixed-line broadband sector, where cable is almost absent and DSL is the almost exclusive realm of the incumbent operator.

But there's more than simply an obsolete set of rules.

A feature of Turkey is the substantial flow of resources from mobile operators to the wireline carrier, mostly through high mobile taxation, delay of mobile broadband services, universal service provisions and asymmetric termination rates.

Taxes on mobile services can reach 80% of the user's bill in the subscription year and 63% in the following years, significantly more than in the rest of the world.

Despite this obstacle, mobile penetration is expected to reach 100% by next year, whereas fixed-line penetration, partly due to Turkey's geographic conditions, is stuck at 27%. Prospects for universal access lie in wireless, not in wireline penetration.

100% mobile penetration is good news, of course. However, this will be 2G penetration, as Turkey is the only country in Europe still lacking 3G licences. An auction for four UMTS licenses that was set to take place in May 2007 was cancelled, reportedly due to insufficient interest. A subsequent tender for four UMTS licences attracted just one participant, Turkcell, which bid €311 million. Turkcell's licence was later cancelled by the regulator on the grounds that the tender process had not been sufficiently competitive.

The absence of mobile broadband services – 3G licence auctions are now planned for November 2008 - is bad news for Turkey. Developed and developing countries around the world are increasingly discovering that mobile broadband can be a cost-effective substitute for fixed-line broadband, which requires bigger investment and has no significant advantages in terms of cost and speed.

Furthermore, Turkey's mobile operators are already trialling LTE mobile technology, which will enhance the capability of mobile networks with a peak downlink data rate of up to 100 Mbps and the possibility of carrying digital broadcast services as well as high-speed Internet. Turkish consumers could get these services very soon, but spectrum is still unavailable and taxes may lead to very high prices in the first years.

In a nutshell, the digital era is knocking at Turkey's door, but so far, no answer has been given by policymakers.

But that's not the whole story.

Termination rates are still asymmetric. As noted several times also by the European Commission, the asymmetry between termination rates imposed on mobile operators has been there for more than seven years, and there is no sign of a "glide path" towards reducing this.

In particular, from April 2008 the termination rate for Turkcell and Telsim was reduced by 33%, to 4.33 Euro cents, but the rate for the incumbent's subsidiary Avea is still higher, at 5.33 cents. At the same time, fixed termination rates have been reduced by a mere 10%, and still remain quite high in Turkey compared to the EU27. The average mobile termination rate in the EU27 is 9.67 cents and the average fixed rate is 57 cents; the European Commission has recently called a consultation to achieve symmetry in mobile and fixed termination rates, with the aim of further reducing them in the near future.

Looking at the current regulatory landscape in Turkey, outstanding areas for reform include: fixed telephony services, where the incumbent Türk Telekom holds the only authorisation to provide local call service, and long-distance operators are struggling to gain market share; broadband Internet services, where the subsidiary of the incumbent holds 98% market share, and no local loop has been unbundled; and the leased line markets, where there is no alternative infrastructure provider.

A recipe for fast development would include a variety of ingredients.

First, competition must be stimulated in the provision of fixed-line services, where privatisation of the incumbent has not been followed by liberalisation of the market.

Secondly, the current emphasis on universal access, should be abandoned in favour of a more effective and neutral policy approach to fixed and mobile markets.

Thirdly, mobile broadband must be introduced as soon as possible, together with pro-competitive measures such as number portability. Fourthly, taxes must be drastically reduced and aligned with the rest of Europe, avoiding any undue transfer between mobile and fixed operators.

And finally, as in many other European countries, more spectrum should be made available to operators to test and market innovative services that would satisfy the growing demand coming from Turkey's young and lively population.

Andrea Renda is a senior research fellow at the Centre for European Policy Studies (CEPS).