Why Vodafone Needs 3G in Turkey

October 5, 2009

As operators in Turkey shift their efforts from organic growth to customer retention and churn reduction, 3G becomes a strategic necessity. What could be better than locking a customer into an 18- or 24-month contract with a nice top-of-the-line phone and monthly fee?

For one player in particular, Vodafone, 3G is an important tool for improving its position in the market. As the number two player behind the mighty Turkcell, Vodafone saw its position come under strain in 2008 after mobile number portability (MNP) was implemented. In 2008, Vodafone managed to gain only 13.6% of mobile net adds (see Exhibit), resulting in its share of subscriptions falling to 25.4% in 2008, from 26.2% in 2007 (For our estimates of subscriber growth by operator, see Pyramid Research’s Mobile KPI Forecasts, Q3 2009).

Net additions by operators, Turkey, Q1 2008 to Q2 2009

Source: Operators, Pyramid Research Mobile KPI Forecasts, Q3 2009

Given its experience with the 16 3G networks it already runs globally, Vodafone seems confident that its 3G strategy in Turkey will pay off. Its offering includes prepaid and postpaid mobile broadband, mobile TV, video calls and attractive 3G handsets, including the newest iPhone 3GS and an array of other smartphones.

There are a number of reasons why 3G is so valuable in Turkey. The timing of 3G’s introduction in the midst of the economic crisis ironically came in handy for operators. It was much easier for them to negotiate discounts both from vendors and handset manufacturers, thus reducing their capex and lowering access costs for their clients. Plus, in the name of cost reduction, Turkish mobile players are considering sharing 3G infrastructure, reducing capex even more. Given that MNP forced operators to increase their marketing budgets and to devise novel ways to lure new customers, they are well aware that savings will be beneficial to their budgets. That would allow the operators to reduce the investment and gain wider 3G coverage.

Consumers are also ready for 3G: A substantial number already possess 3G-capable phones, making them a ready market for all the fancy new data applications. The introductory discounts and promotional offers are intended to hook them on data services and make them an inseparable part of their lives.

In addition, we project that demand for data services will keep growing for a long time, making up for the maturity and low margins of the mobile voice market. However, operators would jeopardize the return on their investment if they try to differentiate on price alone, as they did with a recent bout of voice tariff cuts and “all you can eat” plans.

— Sylwia Boguszewska, Analyst

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