1. A Close Look on Mobile Number Portability in Turkey Yavuz Göktaylar and Mehmet Bilal Ünver October, 2014 Copanhagen, Denmark Information and Communication Technologies Authority (ICTA)

2. Contents Market Review From Mobile Communications Perspective Research Question Data and Method Results Conclusion

3. Market Review From Mobile Communications Perspective

4. Turkey Growth potential  Middle income country with large pool of potential customers 76 millions with slightly increasing trend  Young population with median age 30.1  Relatively low level spending wrt GDP on telecommunications services 2,1% of GDP in 2011. OECD Average: 2,95%  Substantial potential for catching up based on GDP per capita  Ability to access neighboring countries’ markets  Open telecommunications market for competition and foreign direct investment

5. ICTA - Established in 2000 - ICTA is independent regulatory authority for electronic communications sector in Turkey (Electronic Communications Law, 2008) - To create competitive electronic communications market - Protect consumers - Seeking efficient allocation of resources - Encourage investment

6. History Liberalization  Mobile Telephone Services - 1994 Income Sharing Agreements with Turk Telekom Liberalized in 1998  Long Distance Telephone Services – 2004  Partial Privatization of Türk Telekom - 2005  Infrastructure and Cable Platform – 2006  Directory Information Services - 2007 Electronic Communications Law: November 10, 2008  Change in Secondary Legislation (>50) Access and Interconnection Tariffs Authorization Spectrum and the others…

7. Market Leaders In total, there are 593 firms with 981 authorizations (June, 2014).

8. Net Sales

9. Total Investment Firms continue to invest roughly 2 billions Euro yearly.

10. Fixed Telephony Penetration

11. Mobile Telephony Penetration Mobile Number Portability came into force in 2008.

12. Total Telephone Traffic

13. Mobile Telephone Traffic - 2011 High competition - Low prices + young population Source: OECD

14. Broadband Subscriptions Note: Fixed and Mobile broadband subscriptions are included. Fixed: 11,2% Mobile: 37,1%

15. Performance - Given per capita gdp for Turkey - Fixed Tel. : Good - Mobile Tel.: Low (app. 5,3%) - Possible explanation may be high tax burden on mobile telephony services - Without general tax reform, decreasing tax burden seems unfeasible… - Broadband: - DSL : Good - Fiber : Good - Cable: Low (Not privatized, limited coverage – 21 districts of 81) - Mobile: Good

16. 2015 Agenda: 4G Growth opportunities are mostly exhausted  Except for fibre, fixed broadband seems to be mature  There is migration pattern towards fibre from DSL  3G is getting closer to saturation point  Intense rivalry: Stagnant and even declining ARPU at mobile Firms are searching new profitable areas  Machine to Machine subscriptions  Promote more heavy broadband/data usage particularly at mobile side that implies introduction of 4G; fibre at fixed side

17. 2015 Agenda: 4G 2025: 83 millions subs., 97% MTM ignored

18. 2015 Agenda: 4G Mobile networks require fixed backbone, too 4G/5G require extensive fibre deployment that implies high capital investment  In Turkish case, firms can access capital  Nevertheless, high competition-low profit margin limits their investment capacity Trade off between static efficiency and dynamic efficiency  They do not prefer to share infrastucture due to rivalry Another main concern from firms’ perspective is to rights of way which is necessary for widespread fibre deployment  Municipalities see telcos as cash cows

19. Research Question Mobile Number Portability came into force in 2008.

20. Research Question After introduction of MNP mobile penetration rate has started to decline Total ported numbers started to increase very rapidly  In 3 year appr. 10 millions, now more than 75 millions This decline has been attributed to the effect of mobile number portability due to elimination of multiple simcards So we have decided to test whether there is a regime change or structural break with introduction of MNP

21. Data and Method Adopted a simple approach: search ARMA models with good fit and then apply the Chow test whether there exists a structural break or not Chow test is a well known statistical test in economics. Test statistics following F distribution; [(SSR – SSR1 – SSR2)/n]/[(SSR1+SSR2)/(T-2n)] SSR shows sum of squared residuals of whole sample, SSR1 and SSR2 show sum of squared residuals of each subsample, n shows number of parameters estimated and T is the total number of observations. The null hypothesis is that there is no structural break.

22. Data and Method 153 observations - monthly data on number of mobile telephony subscriptions between January, 2002 and September, 2014 Substracted MTM subscriptions that becomes gradually important lately Calculated natural logarithm of mobile penetration rate De-trended lnmpen in order to make it stationary # of Observ.MeanStand. Dev.MinMax lnmpen1534.2230.3443.3494.518

23. Results Model 1 AR = 1 2 Model 2 AR = 1 2 3 Model 3 AR = 1 2 MA = 1 Model 4 AR = 1 MA = 1 2 3 Intercept 0.0198 (0.5) 0.0156 (0.46) 0.0135 (0.45) 0.02559 (0.51) Coef_ar1 1.5734* (22.97) 1.46* (17.59) 1.7812* (27.7) 0.9768* (43.02) Coef_ar2 -0.5876* (-8.61) -0.2862** (-2.1) -0.7937* (-12.67) Coef_ar3 -0.1907* (-2.62) Coef_ma1 -0.3331* (-3.97) 0.48* (5.61) Coef_ma2 0.3443* (3.65) Coef_ma3 0.1588** (1.99) SSR0.00902560.00929180.0095170.0085673 AIC-1106.526-1110.153-1110.625-1098.136 BIC-1094.404-1095.001-1095.473-1080.753 Note: * shows 1% significance level and ** shows 5% significance level.

24. Results Model 1Model 2Model 3Model 4 Test Statistics8.8066.0115.5604.262 F critical value (1%)3.9173.451 3.147 Reject H 0 The null hypothesis, there is no structural change, is rejected Caution  Assumed only one known structural break  There was a recession in 2009?  Close the saturation point?

25. Conclusion The results supports existence of structural break To confirm structural break, alternative methods can also be used Still MNP may not be source of that structural break…

26. A Close Look on Mobile Number Portability in Turkey Yavuz Göktaylar and Mehmet Bilal Ünver October, 2014 Copanhagen, Denmark Information and Communication Technologies Authority (ICTA)