It has been an interesting few months in terms of economic stability in the Turkish market. But mobile communications provider Turkcell's (NYSE: TKC) robust second-quarter results showed its ability to withstand the political turmoil.
The company increased its subscriber base by 13% from the previous year's quarter to 33.8 million and now holds about 60% of the Turkish market. While Turkcell maintains a leading position in the GSM market in Turkey, it is feeling the pressure from rising competition from Vodafone (NYSE: VOD) and the state-owned Turk Telecom. As a result, the churn rate increased to 4.7%, and management said it expects this metric to rise to 20% by the end of 2007. We have to wonder how Turkcell is going to fare against the competition.
Turkcell's revenue increased 29% to $1.5 billion for the quarter and earnings soared 215% to $273.6 million. While the increased subscriber base contributed to the increases, both figures benefited from Turkey's appreciating currency, the lira. And after revising its exchange-rate expectations, management anticipates 20% revenue growth for the full year.
Turkcell has a stake in numerous subsidiaries, giving it access to other markets such as Cyprus, Kazakhstan, Georgia, and Ukraine. To continue to grow outside of its base country, the company has decided to take part in a pre-qualification for a tender offer for a 26% stake in Kuwait's third-largest mobile carrier. Also, it is considering taking part in tenders for three mobile phone licenses in Iraq.
So despite the rising competition, Turkcell remains a fairly dominant player in its market. I also think it's positioned to continue growing, what with its expansion outside of Turkey. Further, it's close to being granted access to a 3G license, which should be determined in early September. My biggest concern about this company, then, is the overall risk of the economies in which it operates, given that they're some of the most volatile markets in the world.
Besides political tension, Turkey is fighting high inflationary pressure and is suffering from a rising trade deficit. But Turkey's central bank is working hard to curb inflation, keeping its policy rate at 17.5%. The presidential election in July was completed without any significant volatility, so, all told, I believe this emerging country has a lot of potential. And if Turkey can make its way into the European Union, as it's trying to do, I think it will have a positive impact on both the country itself and Turkcell.
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Kristin Graham does not have any financial interest in any of the companies mentioned. Vodafone is an Inside Value recommendation. The Fool has a disclosure policy.
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