M&A Transactions underTurkish Telecommunications Law

Senem İşmenPartner

Hergüner Bilgen ÖzekeAttorney Partnership

Outline of Presentation Outline of Presentation I. Overview of Telecommunications Legislation1.1 Primary Legislation1.2 Secondary Legislation1.3 Authorization ProcedureII. M & A Transactions in Telecommunications Sector2.1 Share Transfer Deals2.2 Asset Transfer Deals2.3 Transfer of LicencesIII. Role of Regulatory Actors in M&A Transactions in

Telecommunications Sector

I.I. Overview of Turkish Telecommunications Sector Overview of Turkish Telecommunications Sector 1.11.1 Primary Legislation Primary Legislation PTT – State Monopoly days Law No. 406 (dates back to 1924) Amending Law No. 4502 (2000)

* Separation of policy-making and regulatory functions* Establishment of an independent telecoms regulatory body* Making Turk Telekom subject to private law provisions* Ending Turk Telekom’s de juro monopoly (telephony and infrastructure) as of 31 December 2003* Official announcement of liberalization of telecommunications sector

Law No. 4673 (2001)* 100% privatization of Türk Telekom* Foreign ownership in Türk Telekom allowed but limited to 45%

I.I. Overview of Turkish Telecommunications Sector Overview of Turkish Telecommunications Sector 1.11.1 Primary Legislation Primary Legislation Law No. 5189 (Electronic Communications Law) (2008)

*Telecommunications Authority → Information Technology & Communications Authority* Regulate whole communications sector under framework law * Harmonize relevant Turkish regulations with EU requirements *Launched “authorization regime” → Notification /Right to Use*Second wave of liberalization* Annulment/total revision of various laws, regulations etc, i.e. Wireless Law /Law on Ministry of Transportation

I.I. Overview of Turkish Telecommunications SectorOverview of Turkish Telecommunications Sector1.2 Secondary Legislation1.2 Secondary Legislation Major changes in 2009/2010 in line with Law No 5189 Old Authorization Regulation

v. New Authorization RegulationAccess & Interconnection Regulation (2009) Operators with Significant Market Power & Determination of the Obligations Imposed on such Operators (2009) Regulation on Number Portability (2009) Numbering Regulation (2009)Regulation Determining the Principles and Procedures for Protection of Operators’ Confidential Information (2009)Tender Regulation on Authorization regarding the Electronic Communications Sector (2010) Regulation on Right of Way (2010)

I.I. Overview of Turkish Telecommunications SectorOverview of Turkish Telecommunications Sector 1.1.33 Authorization Procedure Authorization ProcedureNew Authorization Regulation Old Authorization Regulation

Authorization

Notification Right to Use

Limited Number of Operators

Unlimited Number of Operators

Authorization

Concession/ AuthorizationAgreements

General Authorization

Licensing•1. Type

•2. Type

I. Overview of Turkish Telecommunications SectorI. Overview of Turkish Telecommunications Sector 1.3 Authorization Procedure1.3 Authorization Procedure

Legal entities providing electronic communication services or laying down an electronic communication network or infrastructure are required;

A. To notify the ITC Authority in advance if there is no request for any resource allocation

B. To obtain right to use if there is request for “resource allocation” (e.g., number, frequency or satellite position);

(i) Scarce resources and number limitation for operators OR

(ii) No number limitation for operators

Term of Right to Use: Maximum 25 years

II.II. M & A M & A Transactions Transactions in Telecommunications Sectorin Telecommunications Sector2.1 Share Transfer Deals 2.1 Share Transfer Deals A. Concession Agreements Must review specific provisions of Concession Agreements and applicable provisions of Authorization RegulationAuthorization Regulation is recent and contains more detailed provisions compared to current Concession AgreementsFixed Voice Concession Agreement: Share transfers to be realized in compliance with the applicable regulations. GSM Concession Agreements: First 5 years, out of group share transfers exceeding 10% of Licensee shares, subject to approval of ITC Authority [5 years expired for all current GSM concessions]Authorization Regulation: * All share transfers → notification to ITC Authority * Share transfers triggering “change of control” → approval of ITC Authority.

II.II. M & A M & A Transactions Transactions in Telecommunications Sectorin Telecommunications Sector2.1 Share Transfer Deals 2.1 Share Transfer Deals B. Notification & Right to Use For direct share transfers at Licensee level, (i) Operators with “limited” right to use → any & all share transfers (i) Operators with “unlimited” right to use OR “notification” → only share

transfers triggering change of control

will be notified to ITC Authority within a maximum of two months.

For indirect share transfers (above Licensee shareholder level)

notification to ITC Authority is not necessary.

Mergers/Take Overs are subject to ITC Authority approval (Art. 19/ç)

II.II. M & A M & A Transactions Transactions in Telecommunications Sectorin Telecommunications Sector2.2.22 Asset Transfer Deals Asset Transfer Deals

A. Concession Agreements * Upon expiry or non-extension of concession:

Fixed Voice Concession Agreement: All equipment that operates relevant system and all immovable bearing all such equipment, shall be transferred to regulator.

GSM Concession Agreements: Network Management Center, Gateway switchboards and central subscription systems, all equipments and immovables shall be transferred to regulator.

*Confirmation WHETHER target asset subject to transfer is part of “Concession Infrastructure” ?If, target asset is NOT, part of concession infrastructure → transferable

is part of concession infrastructure → asset transfer is restricted. Concession assets cannot Concession assets cannot be transferred without associated concession.be transferred without associated concession. [BEWARE: transfer of concession, triggers transfer of right of way established on assets]

II.II. M & A M & A Transactions Transactions in Telecommunications Sectorin Telecommunications Sector2.2.22 Asset Transfer Deals Asset Transfer Deals

B. Notification* Asset transfer is not subject to any limitation

C. “Unlimited” Right to Use *Transfer of “allocated resources” (eg. frequency, number etc) → ITC approval

partial transfer OR total transfer (Article 20 Authorization Regulation)

* Transfer of assets other than those categorized as “allocated resources” → no restriction.

II.II. M & A Transactions in Telecommunications SectorM & A Transactions in Telecommunications Sector2.3 2.3 Transfer of LicensesTransfer of Licenses

A. Concession Agreement* Fixed Voice Concession Agreement: During term of agreement, TT is prohibited from transferring its concession, and its rights and liabilities thereunder.

*GSM Concession Agreements: Transfer of Concession Agreement is possible, subject to approval of ITC Authority + Council of State affirmative opinion (eg. Telsim GSM Concession Agreement’s transfer to Vodafone)

*Authorization Regulation Prohibition: Transfer of concession agreement to legal entity (or its group companies) engaged in the same services and infrastructure is not allowed.

B. Notification/ Right to Use * Transfer of Authorization: Possible, subject to approval of ITC Authority.

III.III. Role of Regulatory ActorsRole of Regulatory ActorsIn line with Law No 5189:

ITC Authority is entitled to review and/or investigate practices in breach of market competition upon complaints or on its own will (sua sponte) & take necessary precautions. For m&a’s, it should also take into account market conditions.Competition Board initially takes into consideration, opinion and practices of ITC Authority before decision making in telecoms sector (Article 7, Law No 5189)Council of State (Danıştay) reviews and opines on revised drafts of Concession Agreements reflecting relevant transfer

III.III. Role of Regulatory ActorsRole of Regulatory ActorsAs per Law on Protection of Competition; Competition Board approval required if market shares of legal entities

party to M&A deals exceeds 25% of relevant product market or total annual revenues of such exceeds 25,000,000 TL;

Competition Board examines and evaluates: * relevant product market: clarifying services provided (whether type of

services may replace each other in terms of demands & expectations, whether provision of services require separate licenses from ITC Authority, are taken into consideration)

* relevant geographical market : clarifying geographical region (existence of factor/s resulting regional differentiation in competition conditions in Turkey)

* relevant product market shares of companies party to M&A M&A transactions shall not result in; * creation or strengthening of a dominant position in the relevant market * strengthen dominant position in a way significantly decreasing

competition in the relevant market

III.III. Role of Regulatory ActorsRole of Regulatory ActorsCA Approval Date M&A Transaction CA Decision

27 March 2008 Acquisition of 100% shares of Borusan Telekom by Dhanus Technologies Limited

Approved

26 July 2007 Transfer of 50%shares of A-Tel Pazarlama held by Yapı Kredi Bankası to Turkcell

Approved

11 July 2007 Long term (10 years) leasing of Istanbul-Bulgaria fiber optic cables by Turk Telecom from TEİAŞ

Approved

24 August 2006 Alfa Telecom’s entitling common control rights in Çukurova Telecom and its subsidiaries, Turkcell Holding, Turkcell İletişim, Intercon Danışmanlık and Cukurova Telecom International

Conditional Approval

26 January 2006 Acquisition of Telsim by Vodafone through TMSF

Approved

18 December 2003 Merger of IŞTIM Telekomunikasyon and Aycell Haberleşme under TT İletişim

Approved

TeşekkürlerTeşekkürler

Senem İşmenTel: +90 (212) 310 18 18Fax: +90 (212) 310 18 99

E-mail: sismen@herguner.av.tr