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Cablegate: 3g Auction Canceled; Vodafone Decries Unfair

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PP RUEHWEB

DE RUEHIT #0864 2680631
ZNR UUUUU ZZH
P 250631Z SEP 07
FM AMCONSUL ISTANBUL
TO RUEHC/SECSTATE WASHDC PRIORITY 7529
INFO RUEHAK/AMEMBASSY ANKARA PRIORITY 7123
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS ISTANBUL 000864

SIPDIS

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: EINV ECPS TU
SUBJECT: 3G AUCTION CANCELED; VODAFONE DECRIES UNFAIR
COMPETITION

SENSITIVE BUT UNCLASSIFIED, PLEASE PROTECT ACCORDINGLY

1. Summary: Atilla Vidai, Vodafone Turkey CEO, argued the
September 19 decision by the Turkish Telecommunications Board
to cancel the 3G auction in which only one of the three
wireless providers (Turkcell) currently operating in the
Turkish market chose to bid was proof that the Turkish mobile
phone market needed significant reform prior to the
introduction of 3G wireless service. Vidai explained that as
far as the technical requirements for 3G were concerned,
Turkey was completely ready; however market conditions were
still not ripe for the introduction of 3G. Vidai argued that
once reforms are complete Vodafone is prepared to make
significant investments to bring 3G to the small sector of
the Turkish market that could benefit from the new
technology. End Summary.

2. On September 19, the Turkish Telecommunications Board
announced that the September 7 3G wireless auction in which
only Turkcell had submitted a bid had been canceled.
Vodafone, the second largest mobile telephone service
provider in Turkey with 24% of the market, and Avea the third
largest service provider with 16% did not participate in the
auction. Vodafone CEO Atilla Vidai claimed that Turkcell's
consistent anti-competitive behavior was the reason for
Vodafone's deciding not to bid. According to Vidai ,
although Vodafone was not the initial 3G developer it was now
the world leader in the technology and was thus the logical
company to bring 3G to the Turkish market. (3G is a wide
area cellular telephone network incorporating high-speed
internet access and video telephony; 4G, also know as mobile
WiMAX, is a higher frequency data technology with scant
applicability for voice.) Vidai acknowledged that 3G's data
applications would hold little appeal for the mass market,
but argued that the small segment
of the Turkish market likely to sign on for 3G would be
profitable for his company.

3. Vidai agreed that later entrants generally find it
difficult to wrest market share away from the initial
technology provider in any wireless market and that neither
Vodafone (formerly Telsim) nor Avea was a strong competitor
until very recently. However, he argued that Turkcell's
approximately 60% share of the Turkish market despite two
other wireless providers actively in the market was
unprecedented worldwide. He ascribed Turkcell's ability to
retain market share to consistent anti-competitive behavior,
in particular Turkcell's unwillingness to negotiate number
portability. He implied Turkcell, which is partially
government-owned, benefited from the lack of action by
competition authorities against behavior which would be
unacceptable in the United States or Europe.

4. Vidai singled out the lack of number portability in the
Turkish mobile phone market as well as 'predatory pricing' by
Turkcell as reasons for why Vodafone (and Avea) were unable
to compete on a level playing field with Turkcell.
Describing Turkcell's tariff structure as an "abuse of market
power" Vidai alleged that Turkcell sold certain
within-network (i.e. Turkcell to Turkcell) calls below the 14
cents/minute cost of providing the service and recouped the
difference by setting the fee for out of network calls 800%
higher than within-network calls. Turkcell pre-paid cards
are sold in units called "kontors." A kontor costs
approximately 12 cents. In the cheapest Turkcell package,
which is marketed to students, one kontor buys 10 minutes of
within-network calling (equivalent to a fee of 1.2
cents/minute) while 8 kontors are required for each minute of
any out-of-network call (approximately 94 cents/minute.)

5. So far Vodafone has opted to attempt to negotiate with
Turkcell rather than bringing a case to the Competition
Board, however Vidai cautioned that time and options are
running out and that Vodafone will soon have no choice but to
seek redress through the regulatory authorities.
WIENER

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