Western Europe is full of emerging countries who are rapidly adopting free market governments and embracing commerce as a way of life. An incredible amount of opportunity has been created as products and services can now be offered to citizens who would not have had access or capital to spend on discretionary items previously. A common theme among emerging nations is a rapid build-out of cell phone networks which bypass antiquated or non-existent wireline alternatives.
Turkcell (NYSE:TKC) is on the cutting edge of this growth in Turkey, with a leading position in the Turkish wireless market. At last count, 75% of the population uses cell phones. And that is up from 60% only 2 years ago. The rapid adoption of cell phone use has attracted additional competitors including the UK based giant Vodafone (NASDAQ:VOD). While there are fierce competitors vying for subscribers, TKC has managed to retain a 60% market share, while at the same time charging a bit more per subscriber than its closest competitors. The company receives an average of $14.10 per customer per month, versus VOD’s $11.70 and the smaller Avea which receives $9.80. Analysts point to pricing power as the strength behind TKC’s strong margins and expect the company to be able to keep margins high throughout the next few reporting periods.
Although the company is doing well in competition against a larger foe, the issue of number portability could erode its strong position. While no official timetable has been set, the Turkish Telecommunications Board [TTB] is expected to mandate the ability to move phone numbers between carriers. This would make it much easier for clients to switch carriers without the hassle of receiving a new number. Portability would create a much more price sensitive environment, which could have a negative effect on margins. However, the company can also differentiate itself based on service provided and the quality of its network.