CONFIDENTIAL

Competition CongressGrowth and Competitiveness Trends

Cahit PaksoyAvea CEO and Board Member

November 8, 2005

2CONFIDENTIAL

Many criteria which are related with being an information society are included in the country competitiveness evaluations.

Countries’ competitiveness is directly linked with

the level of development in the

knowledge economy

According to World Economic Forum, Finland was the most competitive economy in the world in 2004. Finland was ranked first in growth competitiveness and second in

business competitiveness after USA.

In 2005 International management Development Institute ranks USA, Hong Kong and Singapore as the

most competitive three countries in overall competitiveness.

Based on the Lisbon Review, Finland was the most competitive country in the EU in 2004, followed by Denmark and Sweden.

The dimensions of the Lisbon diamond are information society, innovation and R&D, liberalization, networked industries, financial

services, enterprise environment, social inclusion and sustainable development.

Based on the comparison of the European Commission, Finland wasamong the leading countries in investing into knowledge-based

economy and performance of the economy.

Sources: WEF, The Global Competitiveness Report 2004-2005 and The Lisbon Review 2004; IMD, The WorldCompetitiveness Yearbook 2005; EU, Key Figures 2005 on Science, Technology and Innovation and

The European Innovation Scoreboard 2004; United Nations University

3CONFIDENTIAL

Comparing USA and EU

The Lisbon scoresThe Lisbon scoresUS score

5.9

6.1

5.15.74.5

5.85.66.1

5.8

5.75.85.6

5.05.65.34.2

5.0

5.6

EU average

4.6

4.4

4.75.14.2

5.86.05.6

5.5

4.74.55.0

4.85.15.04.4

5.2

5.0

An information society for all

Innovation, research and development

LiberalizationCompleting the single marketState aid and competition policy

Network industriesTelecommunicationsUtilities and transportation

Efficient and integrated financial services

Enterprise environmentBusiness start-up environmentRegulatory environment

Social inclusionReturning people to the workforceUpgrading skillsModernizing social protection

Sustainable development

Overall Lisbon score

Source: WEF, The Lisbon Review 2004

4CONFIDENTIAL

Turkey’s growth competition position

20012001 20032003

20052005 Turkey 48 56 48Czech Republic 36Hungary 37Spain 38Slovakia 40Portugal 45Romania 55Poland 57

Turkey’s Improvement Areas Turkey’s Improvement Areas

- Education and HR Qualification- Education and HR Qualification- Investments in technology and internet infrastructure- Investments in technology and internet infrastructure- R&D investments- R&D investments

Sources: International Management Development, The World Competitiveness Yearbook

5CONFIDENTIAL

Some factors affecting Turkey’s Competitiveness

Turkey Poland Czech Rep. Hungary

% of advanced technology exports 2,06 3,07 13,23 25,63

% of illiterate population (age 15+) 13,50 1 1 1

Student/Teacher ration in primary education 27,5 12,5 18,9 10,8

Telecommunication investments (%GDP) 0,10 0,16 1,66 0,59

Number of internet users (among 1000 people) 105,5 270,3 344,7 293,6

Cost of electricity in production ($/kwh) 0,082 0,037 0,043 0,05

Number of PC per person (among 1000) 53 122 179 176

Life expectancy at birth 70 75 75 73

R&D investments (US$/ person) 17,6 29,1 112,4 77,4

Sources: International Management Development Institute, The World Competitiveness Yearbook

6CONFIDENTIAL

Ranking of EU countries

Denmark

Sweden

UK

Netherlands

Germany

Luxembourg

France

Austria

Belgium

Ireland

Spain

Italy

Portugal

Greece

Info

rmat

ion

soci

ety

Inno

vatio

n

and

R&D

Liber

aliz

atio

n

Finan

cial

ser

vice

sEnte

rpris

eSoci

alin

clusi

onSust

aina

ble

devel

opm

ent

Netw

ork

indu

strie

s

1

3

2

6

4

7

5

9

8

11

10

14

12

13

15

1

4

2

6

7

3

13

5

9

8

10

11

12

14

15

1

2

6

3

5

8

4

7

10

9

12

11

13

14

15

4

1

2

8

7

3

5

6

9

10

15

12

13

11

14

1

3

4

2

7

8

5

6

10

11

9

12

13

14

15

3

2

5

1

7

10

6

9

12

8

4

11

15

13

14

2

1

2

8

4

12

5

9

7

6

10

11

13

14

15

1

4

3

7

6

2

8

9

5

10

13

12

11

14

15

The Lisbon reviewThe Lisbon review

Source: WEF, The Lisbon Review 2004

FinlandFinland

Totalrank

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

7CONFIDENTIAL

Competitiveness 2002-2005

Sources: IMD, The World Competitiveness Yearbook 2005 andWEF, The Global Competitiveness Report 2004-2005

IMDTotal compe-

titiveness

2004 20052214

177

2010

58

19693

13

WEFBusiness

competitiveness2003 2002

112354967

118

15121310

22153

10946

1312111514

7

2004

1123456789

1011121314

WEFGrowth

competitiveness

Total rankingTotal ranking

USASwedenTaiwanDenmarkNorwaySingaporeSwitzerlandJapanIcelandGreat BritainNetherlandsGermanyAustralia

FinlandFinland 661

1411

715

38

214

221323

9

8CONFIDENTIAL

Growth competitiveness by country

Ranking by WEFRanking by WEF

Source: WEF, The Global Competitiveness Report 2004-2005.

9CONFIDENTIAL

Competitiveness in technology and science2002-2005

Sources: WEF The Global Competitiveness Report 2004-2005 andIMD The World Competitiveness Yearbook 2005

2003 20022004

USATaiwan

SwedenJapanDenmarkSwitzerlandIsraelNorwayGermanyCanadaEstoniaAustraliaGreat Britain

FinlandFinland

12

45678

101213151718

22

13

45879

131411101916

12

45

1167

1012

814

915

33

WEFTechnology

IMDTechnology Science

20052005

33

15

139

1114101216

6312018

110

42

135

1424

317422612

1515 77

10CONFIDENTIAL

EIS 2004 - Summary Innovation Index

Source: European Innovation Scoreboard 2004

11CONFIDENTIAL

Total R&D funding in 2003

Source: Eurostat

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

LatviaSlovakia

PolandGreece

LithuaniaEstonia

PortugalHungary

SpainIrelandItaly 2)

CzechiaSlovenia

Netherlands 1)EU 25 3)EU 15 3)FranceAustria

BelgiumGermanyDenmark

USAJapan 2)Finland

Sweden 1)Percentage of GDP

1) 20012) 20023) Est.

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 %

Great Britain 2)

12CONFIDENTIAL

Public grants and alleviation of taxes for corporate R&D in OECD countries

Taxation practices according to funding of large-company R&D, public grantscover all companies. Estimation by Tekes based on OECD statistics.

Share of corporate R&D spending in 2001

13CONFIDENTIAL

Size and growth of the ICT sector

%

Share of ICT value added in business sector value added in 2000

* 1999** 2001

Source: OECD, Technology and Industry Scoreboard 2003

ICT manufacturing ICT services

14CONFIDENTIAL

Overall maturity scores of eGovernment

Source: Accenture 2004, eGovernment Leadership:High Performance, Maximum Value

15CONFIDENTIAL

The eEurope 2005 index

Source: Insead/SAP 2004, eEurope 2005

The eEurope 2005 index is calculated from indicators on Internet usage, public on-line services,eCommerce activities, information security and broadband usage.

16CONFIDENTIAL

Competition in the Turkish Telecommunications Sector

Integrated market

Competitive market

First phases of

competition

Monopolistic

Price

Service Quality

La

ws

an

d R

egu

lation

s

Se

rvic

e

Service

Bundled Services

High Low

HighLow

Competition

Regulation

17CONFIDENTIAL

Over the last decade the industry has witnessed many important achievements.

1994

Licensing of Cable TV services based on revenue sharing system

Privatization efforts of Türk Telekom has started

1997

With other 68 countries, Turkey committed to liberalize its basic telecommunications services market till 2006

2000 Türk Telekom became a

joint-stock company, dependent on special law provisions.

Telecommunications Authority became operational.

GSM license, at 1800MHz, awarded to the Telecom Italia/IS Bank Consortium Turkcell listed on the New York and Istanbul stock markets

2004

Turkey's National Internet Backbone Network (TURNET) was put into service

Frame Relay service which enables data transfer at high speed was put into service

1996

On March, Aria has started operations

Ay-Cell started operations soon after Aria

2001 1999 The coalition

government committed the abolishment of TT exclusivity on fixed lines

Split of the old model of the Post, Telephone and Telegraph monopoly

Two 900MHz licenses were awarded to Telsim and Turkcell in 1993 to provide GSM cellular services under a revenue-sharing basis with Türk Telekom

Turkey's first international Internet connection established by METU and TUBITAK (a 64 Kbps line to NSFNet in the United States)

1993

Türk Telekom privatization will be concluded.

2005

2003 Aycell and Aria

merged.

1998

GSM network was transferred to the firms Turkcell and Telsim for 25 years by giving license at $500 million.

Alternative operators began to provide services.

Nr of GSM

subscribers: (-) 68K 620K 1.406K 3.053K

Nr of GSM

subscribers: 41.000K(*) 34.708K 27.888K 18.593K 15.183K 7.500K

(*) as of September 2005

18CONFIDENTIAL

Turkish Wired Communication Market is 29th in terms of total revenue but it is 229th worldwide in terms of ARPU.

Room for improvement of Türk Telekom’s services and efficiency.

Turkish telecommunications market is not mature yet, there are important opportunities.

- Mobile - - Fixed - - Broadband -

Low mobile penetration compared to Europe.

The market has a total of 39.7 million subscribers.

Competition became more tough and price wars have started. This trend will continue until the sale of Telsim

Mobile internet has not achieved a success yet, because of technological constraints, current user preferences and more importantly cost issues.

xDSL services are only provided by Türk Telekom until the market’s full liberalization.

Satellite Digital TV has developed and spread rapidly in the last years, with two companies (DigiTurk, StarDigital) jointly sharing the market.

Tod

ay

Near

Fu

ture Mobile penetration increases.

Prices tend to decrease, customer satisfaction and service differentiation become more and more important.

Mobile internet penetration starts to increase and mobile Internet services evolve fast.

Market’s full liberalization. Competition in the market,

alternate operators start to emerge. Türk Telekom starts to take

necessary actions in order to increase its efficiency in services and processes.

Market size increases with additional data and voice services.

Broadband market size continuously increases.

xDSL services become more spread by Türk Telekom and other carriers (after full liberalization).

Cable DTV operators start to emerge with additional value added interactive services.

19CONFIDENTIAL

The market has not saturated yet, however purchasing power and the high tax rates are important barriers for full realization of the market potential.

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

9.000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 E 2005E

-10,0%

-8,0%

-6,0%

-4,0%

-2,0%

0,0%

2,0%

4,0%

6,0%

8,0%

000 # of subsriber addedReal GDP growth percentage

0102030405060708090

100110

Source: ITU Statistics, 2004

GSM ownership per 100 inhabitants

Turkey’s mobile telecommunications market is directly correlated with domestic growth as most revenue comes from domestic operations.

MoU and ARPU directly depend on growth in GDP per capita income.

Turkey has the largest population and GDP of any market in the Middle East and Africa (MEA) but it has very modest GDP per capita.

The country is the largest market for telecommunications services as well, accounting for an estimated 34.6% of all MEA telecom retail services revenue in 2005 (24% of fixed retail and 44% of mobile services revenue)

The analysts expect the telecom market to display a sustainable trend, in line with decreasing country risk and growing economic recovery linked to the EU accession process.

On the road to EU membership Turkey will be aligning its telecommunications law to EU regulations.

Source: TA and Ata Invest Estimations

20CONFIDENTIAL

The market is unique in the way that both fixed and mobile markets are of monopolistic nature.

• Turkish mobile market indicate a monopolistic market structure. The extraordinary on-net advantage is difficult to compete.

• The Authority is working on important subjects which critically affect the market dynamics.• Number Portability

• A Committee is formed with the participation of GSM operators. The draft regulation regarding Number portability is expected to be finalized by the end of this year.

• Draft Law Amending Wireless Law• The ground behind this draft is to prevent the theft and illicit usage of the handsets. The operators will be

responsible to establish their own CEIR system in addition to the central database to be established by TA. All the handsets not registered to TA’s database will be blocked by the operators.

• Draft Electronic Communications Law• Abolishes the license and usage fees• Describes a new framework for authorization• Draws a framework for the designation of SMP• Brings a new financial obligation for the participation to the Universal Service Fund.

• Draft Law Amending Environmental Law• Brings a new fee to be collected from the subscribers (1YTL per month) and will be transferred to TA as

environmental contribution fee. Describes the procedure to be followed for the activities that may have a negative impact on the environment.

• Regulation Regarding the Protection of Public From the Electromagnetic Fields • Caused by Non-Ionized Radiation Based on the Law regarding Organization and Duties of Ministry of

Environment and Forestry: Brings new authorizations regarding electromagnetic areas and abolished TA’s authority in related fields.

• Study Regarding Market Analysis• Since TA is the authorized body to conduct studies regarding the SMP and give the final decision for the

designation of SMP operators; TA is trying to describe the market structures in which SMPs will be designated.

21CONFIDENTIAL

There has been a steady growth in the number of mobile subscribers

Government took a big step in the privatization of Türk Telekom. Next step will be the sale of Telsim

Telsim’s sale will significantly increase the competition However changes in the rules of competition are not expected before 2006.

Delay in the regulation of number portability is one of the growth barriers.

High tax rates: another factor hindering growth. Although mobile phone growth is impressive, MoU and ARPU are still very low compared to the EU because of heavy taxation. (exceeding 60% of the invoice amount). On top of the existing rates government will introduce a new fee (1YTL/month) as environmental contribution fee.

Due to high tax rates average call duration dropped from 103min/ month in 2000 to 67min/ month in 2005.

The market is highly dependent on prepaid cards, which represent around 75% of the total. Postpaid growth is flat. Prepaid subscription is also expected to compromise 95% of net additional subscription in the coming periods.

Growth is expected to continue at a slower pace in 2005, carrying a total number of mobile subscribers to around 40millions.

As of Q3 2004 average net monthly churn rate is 0,7%.

- Wireless Market Development in Turkey -

Source: Avea estimation based on Merrill Lynch growth forecasts.

Source: Merrill Lynch

22CONFIDENTIAL

Conclusion: Turkey needs to invest in advanced technologies to improve its competitiveness.

Increase the share of R&D in

GDP

Increase internet usage and improve

electronic integration in the economy

Policy, strategy

and action plan to increase competitiveness

Integrate public and private industries’

processes, improve coordination among public and private

institutions