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Turkey 2012 | TELECOMS & IT | REVIEW: ICT

The public and private sectors are racing to make ICT investments for the future as a new generation of mobile and internet users come of age in an increasingly sophisticated technological environment.

Comprising a robust telecommunications sector and a rapidly growing IT sector, information and communications technology (ICT) is an increasingly dynamic component of Turkey's economy. In 2010, ICT added more than $27.3 billion to Turkey's economy, with the telecommunications and IT sectors contributing approximately $20 billion and $7.3 billion respectively, according to figures from Interpro Media. In step with the rapid growth of Turkey's economy during the past decade, the ICT market has demonstrated an impressive compound annual growth rate (CAGR) of 14% over the period from 2002-2010.

As offerings of ICT products and services continue to expand in Turkey, the country's youthful population is increasingly driving development in this sector and represents enormous potential for future growth. Turkey's young urban populations are extremely connected to each other and the world through internet and mobile technology, which can be seen in Turkey's high Facebook and social media participation, as well as total telecommunication usage figures. At the same time, telephone and internet service providers are aggressively expanding coverage in rural areas and making progress in raising phone, internet, and PC penetration rates countrywide. Turkish consumers are also hungry for new tech products like smartphones and tablet PCs, and these devices are in turn dramatically shifting not only the way businesses operate, but also consumer behavior.

In an interview with TBY, K. Gökhan Bozkurt, CEO of Türk Telekom, discussed the broader trends in Turkey's ICT sector. Bozkurt said that the major ICT players, such as Türk Telekom, which has the largest market share in the sector, aim to employ technology to improve the quality of people's lives. The focus in the ICT sector at the moment is on the convergence of technologies and integration of services, which will allow people to use mobile devices for communication, entertainment, and news. Integrated products and services will be the future of ICT, and Turkey aims to adopt these new technologies to keep pace with technological advancement in Europe and the US.

TELECOMMUNICATIONS

The largest segment of the ICT sector in Turkey is telecommunications. Market analysis from İş Investment indicates that telecoms revenues in Turkey measured TL27.6 billion in 2011, a y-o-y increase of 8% over the TL22.8 billion in 2010. From 2006-2011 telecoms experienced a 7% CAGR, and per capita revenue increased to $199. While these numbers represent substantial growth in the short term, Turkey still spends less on ICT compared to most European countries, utilizing only 1.8% of GDP on telecommunications as opposed to the Europe-wide average of 2.7%. However, Turkey is poised for growth and expansion in the telecommunications sector following a renewed focus on investment. In 2011, telecommunications companies invested TL4 billion, or 17% of the industry's total turnover in comparison to Europe's 13% investment/revenue ratio in telecoms. Türk Telekom is the biggest player in telecommunications with a 38% combined fixed and mobile market share. Turkcell followed with 29%, and then Vodafone and Avea come in third and fourth, with 19% and 13%, respectively.

The relationship between mobile and fixed telephony in Turkey largely follows the worldwide trend of decreasing fixed telephone use and increasing mobile usage. While total fixed telephone traffic decreased from 65.2 billion minutes in 2004 to 21.8 billion minutes in 2011 in Turkey, mobile phone traffic exploded from 20.3 billion minutes to 147.1 billion minutes over the same period. Despite the decrease in fixed-line usage, Turkey's 16.2 million subscribers represent the 18th largest fixed-line market in the world. At 22.3%, fixed-line penetration in Turkey falls above the world average of 17%, but well below Europe's 44% penetration rate. Coinciding with declining usage, revenues in the fixed-line segment have fallen substantially in recent years and now make up only 27% of Turkey's total telecommunications market.

Unlike the fixed-line segment, which is dominated by Türk Telekom, the mobile subsector has considerable competition. In 2011 Turkcell was the mobile leader in Turkey, with approximately 53% of the market. Vodafone came in second with a 28% market share, and Avea had 20%, according to figures from the Information and Communications Institute (BTK). Despite its third place position, Avea has demonstrated the largest expansion in market share over the past four years, increasing from 16% to 20%. Between 2007 and 2011, mobile subscribers in Turkey increased from 61 million to 65 million. Analysts at İş Investment predict that total subscription numbers will grow further to 66.6 million users in 2012. Despite this growth, the mobile penetration rate in Turkey remains below EU averages. Figures from BTK show that Turkey's 89% mobile penetration rate falls well below the EU average of 126%. However, reductions in tariffs between competing carriers as well as special initiatives, such as the Mobile Number Portability (MNP) program, have decreased the demand in Turkey for individuals to use two or more SIM cards or mobile phones. Due to shifting demographic usage, analysts predict that the shift between fixed-line use and mobile use will continue in the years ahead.

INTERNET

With approximately 14 million subscribers, broadband internet is another key component of Turkey's ICT sector. The major service providers are TTnet, a subsidiary of Türk Telekom, and Superonline, which is a member of the Turkcell group. While the xDSL service still has the most users at 6.78 million, mobile internet has been the fastest growing segment over the 2008-2011 period. With Turkey's 2009 launch of 3G services, mobile internet users have surged from less than 1 million to 6.45 million. Cable and fiber-optic services have much lower penetration rates in Turkey, with only 0.27 and 0.16 million users, respectively. Overall, broadband internet has experienced an impressive 109% CAGR over the period from 2003 to 2011, making it the fastest growing subsector in Turkey's ICT industry. As in telephony, however, internet penetration in Turkey lags behind European rates. BTK estimates that internet penetration in Turkey is 41.2%, putting it ahead of Bulgaria, Romania, and Poland, but well behind the EU average, which is about 60%.

Murat Erkan, General Manager of Superonline, indicated to TBY that Superonline, which provides fiber and cable fixed internet services, has made significant strides in network infrastructure development over the past few years. Superonline aims to develop Istanbul as a regional hub for internet infrastructure by pursuing projects such as establishing a company to lay a 7,750-kilometer fiber-optic cable between Fujairah in the UAE and Istanbul. As investments in fiber-optic and cable internet infrastructure continue to increase, analysts expect that these technologies will gain substantial market share in the fixed-internet segment as xDSL is replaced by faster fiber technology. Erkan argues that Turkey has already realized more than 30,000 kilometers of cable countrywide, covering 75 cities. In 10 cities, customers will soon be able to utilize fiber internet services for personal use at home, representing a potential market of over 1 million users.

IT

Turkey's IT market consists of hardware, software, and services, and IT market volume totaled $5.9 billion in 2011. The hardware segment dominates the IT sector, with approximately $4 billion in turnover, as reported by International Data Corporation (IDC). Software volume was $784 million, and IT services totaled $1.12 billion. IDC's analysts predict that the IT sector will maintain high levels of growth over the next few years, experiencing 12% CAGR from 2009 to 2015, expanding to over $9 billion in revenue. The consumers of IT products and services in Turkey have evolved greatly over the past 20 years. In 1995, government spending made up a majority of the IT market, and individual users contributed only 7% overall. However, figures from IDC demonstrate that by 2011 the market has shifted substantially, resulting in nearly an inverted market share in comparison to 1995. In 2012, 42% of the IT market is made up of individual consumers followed by the public sector (18%), private sector/corporate (15%), private sector/SMEs (14%), and the financial sector (11%). Turkey has also experienced an increasing percentage of PC penetration, rising from 12% in 2000 to 32% in 2011. This growth mirrors internet penetration over the same period.

Despite the long-term shift in IT market share to individual consumers, the government is continuing to make substantial investments in information technology. Nihat Ergün, Minister for Science, Industry, and Technology recently announced a number of substantial government investments in IT, focusing on subsidies for domestic producers of hardware and software. According to Turkey's daily Today's Zaman, the government will provide substantial incentives to Turkish companies in a move to help reduce the country's dependency on foreign IT imports and reduce the country's current account deficit.

Another major government initiative is the FATİH Project, an ambitious program aimed at expanding the role of technology in Turkey's classrooms. Announced in fall 2011, the FATİH project aims to supply smart board technology and tablet PCs to Turkey's teachers and students in order to transform and modernize classrooms countrywide. Ergün indicated that the project will not only benefit Turkish students, but also jumpstart new IT segments in the Turkish market, and help technology producers ramp up production scale for new products. The Ministry of Education committed TL700 million in IT investment in 2011, with more than TL496 million going to the FATİH Project, and the government plans to invest a total of TL3 billion in IT products and services for education over the next few years. Today's Zaman points out that this is the single largest education expenditure in the history of the country.

FUTURE OUTLOOK

The government has ambitious objectives for the growth and development of the ICT industry in the coming years. According to the 2023 development plan, the government aims for 50% of the ICT sector to be supplied with domestic parts and services. In addition, the authorities hope to increase the number of broadband fixed-internet subscribers to 30 million and grow ICT to 8% of GDP by 2023 as well as provide all government services electronically by 2019. With the expanded incentives to domestic IT manufacturers and service providers, and massive IT investment in the education field, Turkey is making strides toward these strategic targets. Private sector firms also have big plans for the development of the ICT sector. Semih İncedayı, General Manager of Turkcell Technology, indicated to TBY that mobile internet technology is one of the most promising areas for ICT growth in the coming years. İncedayı explained that as mobile internet continues to gain market share and expand usage, the opportunities for mobile internet businesses grow exponentially. ICT firms are also looking to regional markets in North Africa, the Middle East, and the Balkans to expand their businesses and find areas for growth. By focusing on network infrastructure and investment in new IT production, Turkey is positioning itself to be a regional hub for ICT in the coming years.