Competition on the Telecommunication Seector

Sinem GÃœL
ESC Consulting

1. Introduction:

The developments in the telecommunications and information technologies have improved and increased the connectivity between and within countries thereby remaining barriers of time and spatial separation. This in turn has resulted in increased integration of markets, improved commerce and geo-political relations.

At global and regional level, a number of initiatives aimed at increasing the development and use of information and communication, technology (ICT) have been developed.The major drivers include the United Nations, the World Trade Organisation, the International Telecommunications Union, the Universal Postal Union.Turkey`s membership to the European Union is still pending and it is expected that once admitted to the EU telecom regulations shall apply.On the other hand, Turkey is a member of the OECD. Hence, the European practises in the telecom sector are being adopted in Turkey.

Turkey has participated in a number of global events that are focusing on ICTs as a tool for sustainable growth and development. The country is fully committed to Millenium Development Goals and it is envisaged that ICTs can be harnessed to the achievement of these goals namely;

i) The eradication of extreme poverty and hunger
ii) Achievement of universal primary education
iii) Promotion of gender equality and empowerment of woman.
iv) Reduction of child mortality
v) Improvement of material health
vi) To combat HIV/AID, malacia and other diseases
vii) Ensuring environmental sustainability
viii) Development of global partnership for the attaintment of a peaceful and just and prosperous world.

It has become evident that one of the fundamental difference between the developed and the developing countries is that the former are also rich in information and have a well informed citizenry which is able to adopt quickly to changing social and economic environments, hence utilizing opportunities to overcome development challenges. In this regard, information is treated as a product a commodity which has potential to make significant changes in many aspects of our social and economic development.

It has on many occasions on various forums emphasized that ICTs can be used to bridge the digital divide within the context of globalization. The digital divide presents barriers to international, regional and local trade, by denying business the vital information and knowledge.

Turkey has an opportunity to make a difference by adopting and using ICT as a total available to reduce the development divide thereby increasing the chances of improving the quality of life of the citizens. A well ICT Policy provides for an opportunity to build an information centred society where everyone can create, access, utilize and share information and knowledge leading to greater productivity, competitiveness and sustainable economic growth.

The ICT sector in Turkey can be generally categorized into four main subsectors namely; Telecommunications, information, technology, electronic media and postal communication system. In this paper, we limit the discussion to the current status of the Telecommunication Sector and the challenges being faced by the sector.

 

1.1The importance of Telecommunication Sector;

• Telecommunication Sector is subject to universal service.

• Telecommunications Sector supports other industry branches, in other words a company lacking in modern telecommunications systems can not effectively participate in the global economy so the sector supports the competitiveness of business world as well.

• Telecommunications in the modern global economy offers a new dawn of economic opportunity for developing countries.

• Telecommunications provides the infrastructure for the information society,improved technological and knowledge economy.

• As the telecommunications sector is developed, thus the new derived sectors are created in this sector which contributes to development of the country in terms of employment, revenue to the public budget.

1.2.Free market Economy and Competition:

A free market economy can bring about benefits if it succeeds to create a competitive environment. The major elements of sustaining competition in the market;

1.Enterpreneurs have to have competition power.
2.There has to be a legal framework in which there is no legal restriction regarding entry and exit conditions.
3.Contunity of the Rules and Legislations regarding competition and sectoral regulation.
4.The role of Competition Authority and the Sectoral Regulatory.

1.3.Natural Monopoly
Natural monopoly refers to an industry in which one firm can produce a desired output at a lower social cost than two or more firms, which means there are economies of scale. A natural monopoly doesn’t mean that only one firm is providing a particular kind of good and service, rather it’s the assertion about an industry, that multiple firms providing a good or service is less efficient(more costly to a national economy) . And it doesn’t always refer to a statutory monopolies, which means a government prohibits competition by law.

Natural monopoly is an industry in which

• 1.consumer can benefit maximum which means to obtain maximum utility or in other words to benefit with the lowest price,
• 2.and in which resources could be allocated most efficiently which results as an increased welfare in the society.

That’s because of the characteristics of the service and the technology constraint in the market.

The basic example of natural monopolies are the infrastructure services.

The major aspects of infrastructure service:

• Infrastructure Services are utilities that maintains the infrastructure for public service
• Infrastructure Services generally are network industries and has the characteristics of network externalities which means a consumer`s demand is affected by the other consumers` demand . For.ex. in telecommunication sector, the more the number of the existing subscriber on a telephone network then the more the new subscribers prefer the same network.

• In infrastructure services, the payment for usage the service is generally paid by consumers which means there is an externality in these sectors so the service is not for free.

• Infrastructure services are subject to public interest so the government should provide the basic service need of the society as a means of the responsibility.

• In some infrastructure services, the quality of service and the effectiveness increases as the number of users increases as its current for telecommunications services.

• Infrastructure Services are generally required high fixed costs at the beginning of the investment. Thats because of the capital-incentive characteristics of the infrastructure services. In short term, fixed costs are Sunk Costs.

• Infrastructure Services utilites are for long-period.

• Infrastructure Services has the characteristics of Economies of Scale and Economies of Scope.

Due to improvements in the technology, anymore its able to create and develop a competitive in some areas at the market which were accepted to be a natural monopoly before. One of the theory called “Contestable Market� that explain one of the methods of creating a competitive environment.

Natural monopolies don’t have the characteristics of the competitive markets by reason of initial investment costs in other words sunk costs and because of the fact that they are infrastructure services which means there is a fixed plant. Despite of the high investment costs at the market, its possible to create competition with access regulations at the different levels of market.

Today, the development in technology;
• has reduced the scale of economics in many infrastructure services
• has provided the possibility of some operations in the natural monopoly market to be divided into some subsections where can be created a competitive era.
• Widened the market so that it could be able to provide services more efficiently.

That is why it is possible to create competition with access regulations at the different levels of market.

The reason why there is a need for the regulation of the natural monopolies is the dilemma between the efficiency of production and the efficiency allocation in the markets.In spite of it’s the most efficient way to produce by only one firm in the market, its not an efficient way to allocate these production by a monopoly.

 

1.4. Deregulation:

Deregulation is a subset of regulatory reform and refers to complete or partial elimination of regulation in a sector to improve economic performance.

The reason of a deregulation is there are exempted areas which can not be subject to competition and to open these areas up to competition are economically inefficient because of economies of scale, economies of scope, network externalities.As is the exempted areas are not subject to competition, they are not subject to competition law as well. In such a case,the major problem can be faced are; monopolistic pricing of the incumbent and bad quality of services. Deregulation process brought institutions that deal with sector-specific regulation which has sector-specific knowledge.

The basic goals of the regulation is to sustain;

1. Price Efficiency
a)The efficiency of production
b)The best allocation of services
2. Cost Efficiency
The cost minimization under a given quality.

Secondary goals of the Regulation are as follows;

-Provision of Universal Service.
-To prevent the rant, to limit the overprofit in the sector that may occur by monopoly prices. So to maintain the services at an affordable, competitive price in the benefit of users.
-To create a competitive environment for the investors so they could predict a competitive profit and enter the market.
-To make institutional commitments relating to the legislations and rules not to be changed against the entrepreneurs in an unfair way so to create confidence in the market and create incentives of the investors.

Deregulation has sets of solutions to achieve a competitive environment in the sector. Currently, the major solutions that were brought up to today,

-Giving access to the new entrants.
-Sharing lines
-Setting competitive, fair tariffs that increase the incentives of the entrants.

1.5 The Role of Sectoral Regulator and the Competition Authority:

Sectoral Regulator has a role to increase the efficiency in the related sector. The basic tools;

There are two basic roles of Sectoral Regulator;

1. To prevent the monopolistics pricing in the areas of the market which has natural monopolistic characteristics. These are the areas in which an intervention is compulsory.
2. To regulate the relationship between the incumbent that owns the infrastructure and the operators.

The main purpose of the Competition Authorities is to prevent abuse of dominance and anti-competitive conducts in the competitive market.

2. General Overview of Turkish Telecommunications Sector: Historical, Legal, Economic Development

2.1. Historical Overview:
Communication services in Turkey has a history of a century that goes back to the establishment of the Republic of Turkey in 1923, with the establishment of the first Postal Organization on 23 October 1840.

Box 1:

A Brief History of Prior Years before the establishment of the Republic of Turkey in 1923

1840 The Ministry of Postal was established
1855 Directorate of Telegraph was established
1871 The Ministry of Post and the Directorate of Telegraph where merged
1901 Money order transactions were started to be accepted
1909 After the commencement of the telephone services, the institution was turned into the Ministry of Post, Telegraph and Telephone.

After the establishment of Turkish Republic in 1923, the first law regarding communications services was the law no. 406, Telegram and Telephone Law 4/2/1924. In 1936, the General Directorate of Post was established in order to provide the communications services. In the period of 1923-1934, telephone and telegram services were operated by foreign firms. With an amendement to law no.406, rights to provide the related services were transferred from foreign firms to public administration. And in 1939, the General Directorate of Post was bound to the Ministry of Transportation.General Directorate of PTT, which became a State Economic Enterprises(SEE) in 1954, was transformed to the status of the State Economic Establishment(SEE).by the Decree Law No. 233 on Reorganization of the State Enterprises in 1984.

By the Law dated 18.06.1994 and no.4000, the General Directorate of PTT was restructured and divided into entities, namely; the General Directorate of Posts and Turk Telecom Coop. Pursuant to Act. No. 4000 amended on law no.406 in 1994 , telecommunication services has been carried out by Turk Telekom Co.

2.2 Legal and Regulatory Framework:

2.2.1 Legal Framework

The responsibility for development of the Legal framework for the sector lies in the Ministry in charge of the ICT portfolio supported by the Ministry responsible for the jusuce portfolio and legislature. However, another important component in the process is the regulatory function in the sector. Currently, Telecommunication Authority of Turkey and the Ministry of Transport carry the regulatory function in the telecommunication sector.

There are two basic laws regulating the telecommunications sector in Turkey, the Telegram and Telephone Law no.406 and Law no. 4502 amending the basic laws and regulating the sector.The provision of telecommunication infrastructure is subject to these laws. According to this law, services related to post and telegram facilities and operation were to be carried out by the General Directorate of Postal Administration of Republic of Turkey(P.I), and telecommunication services were to be carried out by Turk Telekom.

The most structural transformation in Turkey`s telecommunication sector come with the amending Law no. 4502 which introduced the regulatory mechanisms in the telecom sector. The Law.No.4502 which amended the basic laws and introduced the regulatory mechanism in the telecom sector.Turk Telecom was excluded from the scope of Public Tenders Authority(KIK) statute and has become a joint stock company subject to the provisions of this law and private law.And provided that as being the provisions of the law reserved, the legislation applicable to public institutions,establishments and partnerships, including the public economic enterprises, with a public share exceeding 50% in their capital shall not be applicable to Turk Telekom.

The general legal rationale for was described as; “In the world, the major change in telecommunications is the division of the duties regarding the policy-making, public administration and management of the service sector and every division of duty is to be operated by the specific rules applicable to the related function.In this perspective, developed countries has been regulating the sector;
-government as of its political responsibility, is responsible for policy-making political responsibility and determines the objectives and general principles to be applied.
- an autonomous regulatory authority shall be responsible for technical regulations,
- firms operating in the market in compliance with the principles of economics.�

As we understand by the legal rationale, the law aims to deregulate the sector. In parallel with the developed countries` practises and under this law, the
Authority was established to regulate the sector as an autonomous institution and policy and strategy establishment and regulation as well as administrative functions were separated. This law gives a framework of regulation of telecommunication sector.

2.2.2Institutional Framework:

In accordance with Law no. 4502; the institutions established to regulate the sector included responsibilities are distinguished as follows;

The Ministry

According to the amended law on Law no.2813, the Authority is directly associated with the Ministry of Transport whose responsibilities are as follows;
• to determine the general policy regarding telecommunications sector.
• To install and extend lines and wires and to construct telegram centres where deems necessary; to determine the period and type of the operations to be performed therein and to rent such wires to third parties.
• To authorize to install and regulate its telegram connections with foreign countries and to this end, to implement international or special treaties,and to determine, amend and collect the communication and call fees based on such treaties.
• Ministry has no role in the technical and economic regulation but the agreements must be approved by the Ministry of Transport before taking into force.

Telecommunications Authority

The Telecommunications Authority of Turkey is responsible for regulating the provision of telecommunications products and services in the country. Its specific functions include issuing licences and promoting competition amongst providers of telecommunications services and products, promoting the interests of consumers and other uses of ICT services, as well as ensuring that the benefits of the sector accrue to the nation at large.

The main purpose of the Telecommunication Authority is to ensure a complete liberalization in the sector. So the establishment of a sustainable competition will enable new enterprises and investors to participate in the sector, resulting in an increase the employment rates and contributions to the national budget.

The establishment of the Authority is important for ensuring continuity, order, reliability and transparency in the sector.

The main responsibilities of the authority is stated in law as below; 4673/art2 dated 12. 05.2001;

• Issuing licences, authorizing the operators which require to provide a telecommunication service or infrastructure.
• To take necessary measures in order to ensure compliance with the conditions of general authorizations and telecommunications licences issued and contracts concluded with operators including Turk Telekom
• To monitor and control undertaking of activities in accordance with the legislation and the authorization and concession agreements, telecommunication license or general authorization conditions,
• To implement administrative fine of up to 3% of the annual turnover of the previous calendar year in case of dispute.
• To take necessary measures in order to undertake national security, public order or public services as necessary in return of compensation when necessary or to abolish the concession agreement, telecommunication license or general authorization in case of heavy negligence.

It is important to figure out that while the Authority has a regulation-focused function in the liberalization process; this function will be kept to minimum at the end of the process and it will focus more on the inspection and arbitration functions in an efficient way to ensure sustainable competition in the sector. (the functions of the Authority will be discussed in the later chapter)

Turk Telekom

One of the major change that the law no. 4502 brings about is the statute of the Turk Telekom. Turk Telekom was excluded from the scope of Public Tenders Authority(KIK) statute and has become a joint stock company subject to the law no. 4502 and private law provisions and the legislation applicable to public institutions, establishments and partnerships, including public economic enterprises, with capitals in which public share exceeds fifty percent is not applicable to Turk Telekom.

Pursuant to the Law,

• Turk Telekom is authorized to provide all kinds of telecommunications services and operate telecommunication infrastructure within the law no 4502.
• Turk Telekom has the ownership of and usage right on the core network.
• It is important to noteworthy that the monopoly period of Turk Telekom was defined as follows; “Turk Telekom will carry out telephone services which are provided through telecommunications networks and including national and international voice telephony as a monopoly, until 31.12.2003.(And additionally, Turk Telekom has the legal monopoly right to establish and operate of all telecommunication infrastructure, other than private telecommunications networks and telecommunication infrastructure which are to be established by the relevant operators pursuant to concession agreements or telecommunication licences or general authorizations.
• According to the relevant law, requests by other operators and individuals using private telecommunication networks to interconnect to the public telecommunications networks to benefit from telecommunication infrastructure facilitiates shall be met by Turk Telekom during the monopoly period.
• Turk Telekom is under the obligation and duty to provide interconnection.
• The ownership right of Turk Telekom on the telecommunications core network is implemented to be continued after the expiration of the term of authorization agreement.

Competition Authority

Competition Authority was established as per Article 20 of the Act No. 4054 , in order to ensure the formation and development of markets for goods and services in a free and sound competitive environment. Within that competition act, the main duty of the Competition Authority is to prevent any threats to the competitive process in the markets for goods and services through the use of the powers granted by law. Ensuring the fair allocation of resources and increasing social welfare by the protection of the competitive process constitutes the basic foundation of the mission of the Competition Authority.

The purpose of the Act no.4054(Turkish Competition Act adopted on 1994) is to prevent agreements,decisions and practises preventing,distorting or restricting competition in markets for goods and services, and to abuse of dominance by the undertakings dominant in the market, and to ensure the protection of competition by performing the necessary regulations and supervisions to this end.Accordingly, the transactions under the scope of the Turkish Competition Act. Are listed under three headings:
-Agreements, practices and decisions between all kinds of undertakings operating in or effecting markets for goods and services within the borders of the Republic of Turkey which may prevent, distort or restrict competition
-Abuse of dominant power by undertakings which hold dominant position in a market
-All legal transactions and behaviour in the nature of mergers and acquisitions which aim to create dominant position or strengthen existing dominant position and which will significantly decrease competition as a result.

Pursuant to Act no.4054, Agreements and concerted practices between undertakings, and decisions and practices of associations of undertakings which have as their object or effect or likely effect the prevention, distortion or restriction of competition directly or indirectly in a particular market for goods or services are illegal and prohibited.

The major definitions of anti-competitive practises are stated in law as follows ;

1) Abuse of dominance

• Preventing,directly or indirectly, another undertaking from entering into the area of commercial activity, or actions aimed at complicating the activities of competitors in the market,
• Making direct or indirect discrimination by offering different terms to purchasers with equal status for the same and equal rights, obligations and acts,
• Purchasing another good or service together with a good or service, or tying a good or service demanded by purchasers acting as intermediary undertakings to the condition of displaying another good or service by the purchaser, or imposing limitations with regard to the terms of purchase and sale in case of resale, such as not selling a purchased good below a particular price,
• Actions which aim at distorting competitive conditions in another market for goods or services by means of exploiting financial, technological and commercial advantages created by dominance in a particular market,
• Restricting production, marketing or technical development to the prejudice of consumers.

2) Mergers and Acquisition:

Merger of two or more undertakings, aimed at creating a dominant position or strengthening their dominant position, as a result of which, competition is significantly decreased in any market for goods or services within the whole or a part of the country, or acquisition, except acquisition by way of inheritance, by any undertaking or person, of another undertaking, either by acquisition of its assets or all or a part of its partnership shares, or of other means which confer it/him the power to hold a managerial right, is illegal and prohibited.

3) Exemption:

The Board, may decide to exempt agreements, concerted practices between undertakings, and decisions of associations of undertakings from the application of the provisions of article 4:

a)Ensuring new developments and improvements, or economic or technical development in the production or distribution of goods and in the provision of services,
b)Benefitting the consumer from the above-mentioned,
c)Not eliminating competition in a significant part of the relevant market,
d)Not limiting competition more than what is compulsory for achieving the goals set out in sub-paragraphs (a) and (b).

The Competition Act is applied for both public and private undertakings and across all without exception of sectors. The Competition Authority, has the mandate to take action against anti-competitive practices in all sectors of the economy. Also, the mergers or acquisitions exceeding TRL 25.000.000 and/or 25% market share require the approval of the Competition Authority.

Operators and Consumers:

At the operator level, the major players can be classified as follows;

a) Telecommunication Services:
The telecommunication sub-sector is composed of traditional fixed telephony and mobile communication based on the Global System of Mobile(GSM) communication standart.Another category in this area includes internet service providers.Equipmental installation and other services constitute of a small component of the sub-sector.

b) Information Technology:

This category comprises businesses involved in office automation and networking solution such as supply and installation of computers and networks, system including and user training and distributorship. Over the years the number of projects in this category is dominated by multinational companies, leaving local companies to provide limited services to clients.

c) Postal Services:

The PTT (Turk Postal) is the major player in this category. However, a number of private sector competitors have entered the market especially in the courier services business. Due to the introduction of technologies such as Internet on the market, the letter based system has continued to register downward trend over time. However, given the potential of e-commerce in the country due to increased internet use, there is now great potential for the postal system to contribute significantly to e-commerce penetration in the country. Hence, re-engineering of the sub-sector is required to fit the new business environment.

c) Broadcasting Services:

Radio and Tv form a key component of the sub-sector. The traditional approach to broadcasting has changed significantly over the years, satellite and internet technologies have created new opportunities and challenges for policy workers, broadcasters and regulators. This requires a lot of un ungenvity given the not-so-clear separation of radio/television and telecommunication services in the current scenario where technology and market convergence are driving diverse industries to merge. Currently, electronic content can be carried irrespective of the technology whethert it is radio/TV a telecommunication transmission networks. Therefore, the innovations in the sector is changing the legal and regulatory framework required to administer the sub-sector.

2.3 The Provisions of the Telecommunication Act.

Regulation of Entry:

2.3.1 Service Provisions:

According to Law no. 4502 art. 10 “All telecommunication services, including the value added telecommunication services, services, and telecommunication services within the scope of monopoly rights after the expiration of such monopoly period can only be provided through an authorization agreement, a concession agreement, telecommunication license or general authorization as the relevant service requires.�
Its noteworthy that in 2000, there were four types of licensing and the licenses were being issued by the Ministry of Transportation; authorization agreement , concession agreement, telecommunications license, general authorization.An authorization agreement would set out the authorities, rights and obligations of Türk Telekom in respect of the provision of telecommunication services and the operation of telecommunication infrastructure. After the expiration of the monopoly rights of Turk Telekom, authorization agreements continued for a year and the after the privatization with a the block sale of Turk Telekom`s 55% shares, the authorization type of agreements have been transformed into concession agreements.
Currently, telecommunication services are provided upon request of operators through concession agreement, a telecommunication license or general authorisation issued by the Telecommunications Authority. These types of authorisations are distinguished in law as;

Concession Agreement: a contract between The Telecommunications Authority which authorises the operators to provide telecommunications services and/or to establishing and operating telecommunication infrastructures.
Telecommunications License: permission given by the Telecommunications Authority for the provision of telecommunications services and/or establishing and operating telecommunication infrastructures.
General Authorisation: permission given by the Telecommunications Authority which authorises the operators to provide telecommunication services and/or to establish and operate telecommunication infrastructures other than above.
Telecommunication Authority authorises the operator. Licences aren’t needed to be approved by the Ministry to take into force.But the minimum value of the licences must be approved by the Council of Ministers.
A concession agreement is differentiated from a license in that the former is used when 1) authorization involves the allocation of scarce resources such as frequency, satellite position and numbering; 2)when granting particular or special rights and obligations to each operator is necessary; or 3) when the service is in question has to be offered by a limited number of operators for some reasons. Also a concession prepurposes a nation-wide network.
Telecommunication License has two sub-categories.The first type is for the services and/or infrastructures that require limitation in the number of operators for local markets. The other type of is do not require such limitation. The telecommunications authority determines which of the forms a specific authorisation should take.
Pursuant to Law no 4502 art.3, there are activities which are not subject to a concession agreement, a telecommunication license or a general authorization, these are distinguished in law as;
“1)Personal telecommunication networks of an individual or a legal entity which are within immovables in its use and do not exceed the borders of each of these immovables, and which are used exclusively for personal or institutional needs and which do not involve the provision to third parties of any telecommunication services.
2)telecommunication facilities established exclusively for the purposes of the services entrusted to public entities and organisations pursuant to special laws relating to such entities and organisations.
The Authority is empowered to inspect such facilities in respect of them being compliant with the principles under this article to determine the applicable terms and procedures and to detect the compatibility of the equipment to the standards if and when interconnection is requested, the equipment used in respect of compliance with
the standards, and to cause the removal of non-compliant facilities and equipment�.

Telecommunication Authority delivers opinion to the Ministry on whether the authorization will be made through concession contract, telecommunication license or general permission and how and on which terms it will be made as well as the application and authorization procedures and principles.

2.3.2Regulation of Interconnection:

Interconnection is connection of two networks for the realization of telecommunications traffic between two separate telecommunications networks.

Its because between two separate networks, these two operators have to agree on to interconnect. The guarantee to interconnect is an important factor for the entry into market. In order to create a competitive environment, Telecommunication Authority has guaranteed the interconnection under the law no.4502 and the conditions are determined under the Ordinance on Access and Interconnection. According to the Ordinance on Access and Regulation (entered into force as of 23/05/2003)

Pursuant to Law no.4502, art. 10, “Interconnection requests of all the operators and users of private telecommunication networks shall be provided by the operators who are responsible to provide interconnection, …The operators which are responsible to interconnect shall be determined by the Authority�

According to the same article, Turk Telekom(in all circumstances) and the operators with significant market power are obliged to respond to all interconnection requests of all the operators.The operators with significant market power are determined by Telecommunications Authority. Significant Market power is referred to “..any position enjoyed in a related telecommunications market by one or more enterprises by virtue of which, those enterprises have the power to affect economic parameters such as the price of services supplied to other operators and users, the amount of supply and demand, the market conditions, the main telecommunications networks elements used for supplying telecommunications�. The methods of determining the Significant Market Power is under the SMP communiqué which is issued by the Telecommunications Authority.

The guarantee to interconnect is not valuable to achieve the goal of competitive market by itself without the determination of the principles of interconnection services. Because the purpose of this ordinance says;� the ordinance on access and interconnection was implemented in order….that encourages the applications ensuring that the users draw maximum benefit from the telecommunications services and networks� The maximum benefit is referred to “a reasonable price, the provision of efficiency and sustainable competition in telecommunications sector and incentives for investment in infrastructures to constitute competitive environment in so far it serves the long-term benefit of end-users.� The conditions of interconnection is also a significant factor for entry.The conditions of interconnection may impose barriers to entry. In order to avoid that, the principles of interconnection are subjected in the Ordinance as;

“Interconnection requests must be provided based on the principles of equality, non-discrimination, transparency, cost-orientation, reasonable profit, non-discrimination,transparency, cost-orientation, reasonable profit, and under the same conditions and quality as interconnection providers or their shareholders, affliates or partnerships provide for their own services. As is it is important to subject the guarantee of providing interconnection for all requests�

Interconnection is provided through the interconnection agreement which includes;

o Tariffs
o Technical Provisions and Conditions

Pursuant to the law, a certified copy of all of such agreements, their annexes and amendments shall be submitted to the Authority. All interconnection agreements executed and maintained at the Authority shall be publicly available provided that the Authority shall take various precautions to protect commercial secrets of the parties.
The tariffs and the technical provision and conditions are executed between operators and they are submitted to the Authority before taking into force.
If the interconnection agreement can not be agreed within maximum of three months from the date of the initial request, the requesting party can request the intervention of the Authority. If the parties still fail to reach an agreement with the Authority`s arbitration within six weeks(extendable to ten weeks), then the Authority sets the terms,conditions and tariffs of the interconnection.
Pursuant to the same article, mobile telecommunication, data services operators and operators of other services are also under the obligation and duty to satisfy the roaming requests.

Telecommunications Authority is obliged to publish and amend standard reference interconnection tariffs based on cost efficient service provision in order to protect the free competition environment.

2.3.3 Pricing Policy:

Price Regulation in telecommunication services in Turkey is currently a responsibility of the Telecommunications Authority based on Law 4502 dated 27.1.2000.

The law clearly states that operators are free to determine tariffs that they charge to customers.

The Authority is empowered to determine and set the methods of calculation and caps of tariffs, including line and circuit rentals under reasonable and non-discriminatory terms in the following instances;

a) In cases where Turk Telekom or other operators need to meet the costs of certain services including the universal services required to be provided, from the tariffs for tother In cases where Türk Telekom or other operators
b) In cases where where Türk Telekom or other operators need to meet the costs of certain services including the universal services required to be provided,from the tariffs for other services,
b) In cases where one operator enjoys a legal or practical dominant position in a relevant service or geographic market as determined by the Authority,
c) In cases where the tariffs are determined through means or actions which are in breach of the regulations of the Authority,
d) In such other cases as may be provided for by the Authority in the regulations to be
enacted.

For the moment Turk Telekom is the only operator designated as having dominance and price approval is only needed for the prices set by the Turk Telekom and its subject to Price Cap Comminiqué.

Principles for Tariff Approval:

All tariffs are based on cost of efficient service. The costs must include the long-run incremental cost of providing the service, an appropriate amount of volume-neutral common costs, both inclusive of an appropriate return on capital employed. Long run Incremental Cost(LRIC) includes Additional cost including the fixed and variable costs depending on the volume in the long-run in case new service or element is included to current production program.

The tariffs which are approved by the Board must;

o Be based on the cost of efficient service provision,
o Correspond to the tariffs under effective competition,
o Be fair and non-discriminative among similar users,
o Shall not give the possibility for financing the cost of some services by the tariffs
o Take into account the prevailing prices of telecommunication services which are the basic inputs for telecommunication services demanded by competitors from the operator, which has dominant or significant market power, to provide their own users with.

One of the most important criteria is the one which says; “ ..shall not give the possibility for financing the cost of some services by the tariffs�. That forbids cross-subsidisation.

The principles to be taken into account for the tariffs approval are;

o Tariffs can not ( unless there is objective justification);
1. contain excessive charges which could prevail solely as a result of the operator’s significant market power,
2. Contain discounts which could aim to restrict the competition,
3.Create any discrimination among users in relation to other users of identical or similar telecommunication services.

Methods of Price Regulation:

There are two types of methods to determine the tariffs

1)Price Cap
2) Reference Offer

Price Cap is a more flexible method than the reference offer method. And the Auhtority doesn’t need to change the price each time when Turk Telekom changes the prices and its flexible to change the prices within the price cap.

Price Cap method is applied for the tariffs paid by the consumers. It’s a method for the retail level; domestic calls, local calls, international calls. The method used by the regulator to approve Turk Telekom`s tariffs has been through a Consumer Price Index- Productivity Factor formula. Each service was being considered as a separate basket.

Reference Offer (Single Tariff Approval) is the tariff which is applied the whole sale level. Single Tariff has to be approved by the Telecommunication Board each time Turk Telekom changes the prices. Reference offer is for the whole sale level; interconnection, unbundled local loop and leased lines.The reference tariff is determined by the Authority. It should comply with the reasonable and non-discriminator terms, through regulations, communiqués and other rules.

2.3.4 Regulation of Local Loop Unbundling:

Unbundled Access to the Local Loop is referred by the comminiqué to the full unbundled access and shared access to the local loop without a change in the ownership of the local loop.

Pursuant to the Comminiqué, “Turk Telekom is obliged to provide unbundled access to the local loop..under non-discriminant, fair, transparent, conditions as it provides for itself.�

The reference offer prepared by Turk Telekom for unbundling local loop is approved by the Authority.

The law also states that; “..while granting an access to the operators who provide services under the same conditions, Turk Telekom is obliged to services and information under the same conditions and of the same quality as it provides to its own shareholders, partnerships, affliates and itself reference offer.�

3. The privatization of Turkish Telecom:

Privatization of Turk Telekom has been subject to discussions as all the other privatization processes in Turkey before, on different levels of political approaches.

Pro-privatization propositions can be summarized as;

1.Turkey liberalization process has started with transition from a closed economy to an open economy in 1980. Turkey has chosen to integrate the global economy and liberalization is the way to integrate the global world. Due to that liberalization process, government involvement in the economy has to be minimized in the economy.Privatisation is a step for a fully liberalized market which brings competition into market.

2.The experience in Turkey and international practices demonstrate where resources are left to the Government for reallocation, the management of such resources has been inefficient.Consequently it was reduced and accepted that for the management of Turk Telekom to be efficient,there was need to attract the private enterpreneurships by way of privatizing it.

3. Innovations in telecommunication which develops telecommunication service could be more easily adapted to in the case of private entrepreneurship.

4.Because Turk Telekom market value is higher comparing to the other state-owned and private-owned companies, so that privatization revenue will impact as a considerable plus on the public finance.

5. Turk Telekom`s market value will lower in the future due to the fully liberalization in mobile sector in Turkey in parallel with the process in the international markets so Turk Telekom has to be privatized as soon as possible for a considerable privatization revenue to the benefit of public finance. Or in other words, there`ll be an opportunity cost of the delaying of privatization to a further time which is not certain.

6. Privatisation as a step for fully liberalization of market will have a positive effect to maintain a well-functioning, competitive market so privatization has to be implemented to open up the market to competition which means in other words, in this ideology, privatization is a pro-competition policy.

 

Although there had been many supporters leaning different hypotheticals for privatization of Turk Telekom, there have been much more opinions against privatization with different thesisses as well.

Propositions against privatization can be summarized as follows;

1. Telecommunications service is public utility so that privatization has been a subject to public concerns in terms of service`s contuinity, quality and costs to users.

2. After privatization, Turk Telekom as a private monopoly will have the power on price regulation and the prices will raise due to monopolistic behaviour of the private owned company on the harm/deficit of users.

3. In terms of national security, it is no more good of a private ownership of that kind of strategic sector which is very important for public gains.
4.Turk Telecom as being one of the two highest tax-payer in terms of corporate tax and a considerable revenue share of its operation revenues are being transferred to the benefit of public finance as has been efficiently functioning on the benefit of users and the whole public as a state-owned company so there is no need to privatize and open up the market to competition.

Privatisation of Turk Telecom (From “Turk Telekom� to Turk Telecom Co.):

Turk Telecom has been the dominant telecommunications provider and leader in the telecommunications sector from the past to the present. Turk Telecom was established in a public tender in 1994 and functioned as a monopoly on all the services until the establishment of telecommunications authority.

Based on Law 4000 that allowed up to 49% of Turk Telekom to be privatized, a new law(law 4107) was enacted to provide further frameworks for the privatization of the company in May 1995,. The main reason for Law 4107 was to provide a break-down of how the 49% was to be privatized:10% to the General Directorate of Posts for free, 34% to strategic and institutional investors,and 5% to Turk Telekom`s employees and small investors. However, some of the articles that granted the Privatisation Administration the authority to undertake the privatization of Turk Telekom were invalidated by the Constitutional Court,which necessitiated the enactment of another law( Law 4161 of August 1996) As a result the mandate of the Privatisation Administration was limited to making a proposal regarding the sale strategy,and the authority for the approval of the sales strategy was granted to the Counsil of Ministers.

Following Law 4161, the government proceeded with two phased privatization strategy: the first phase was called “Sector Reform and Company Valuation� and the second “ Actual Execution of the Sale�. The first phase consisted of a detailed analyses of the telecommunications sector and the value of Turk Telekom, including a developing strategy.A value Assesment Committee was established for this purpose,and the Committee submitted its proposal to the Counsil of Ministers for its approval in February 1998. According to this plan, 20% of the shares were to be privatized via block sale to a strategic partner, followed by a public offering of 19%.

The process then shifted to the second phase to sell the shares under the responsibility of the Tender Committee. The first tender for the 20% block was offered on 13 June 2000. The attached conditions specified that the block would be sold to a strategic core investor consortium that had to have one or more international basic telecommunications operators representing the majority within the expertise and experiences of a global telecommunications operator.Although interest was expressed by domestic institutions for this block, there was no bid from the international telecommunications operators by the closing date of 15 September 2000, and the Tender Committee had to open a second tender on 14 December 2000. This time 33.5% of the shares with increased management rights were offered, but again despite interest from Turkish conglomerates international interest was not sufficient to attract bids.

After the unsuccessful attempts on privatization, and compounded by further pressure from the IMF, a new legislation was enacted in 2001.This law revised the sale strategy of Turk Telekom`s shares, according to which 5% of the shares were to be sold to small domestic investors and employees of Turk Telekom and the Postal Administration through a domestic public offering instead of free offer of 10% to them after a successful sale to a strategic consortium.For the remainder of the shares, the sales strategy was determined by the Counsil of Ministers by April 2002 together with clarification on the scope of the golden shares. Pursuant to the act No. 4673, the golden share has the right to vote and approve on issues like amendements in the articles of association for protection of national interests, establishment of new companies or participation to existing companies, participation to international telecommunication unions or being a party to international agreements, transfer of registered shares that shall have an impact on control of management and registration of transfer of registered shares in the share register. And it has been mentioned in law as the Undersecretariat of Treasury shall have a member in the Board of Directors of Turk Telekom that represents the golden share. The possessor of golden share shall not be involved in capital increases and shall not have profit share.

To attract the world-class partners for Turk Telekom with a view of increasing efficiency and service quality as well as executing the privatization process on a timely basis responding to market conditions.In search of an interactive process, a market testing study has been undertaken during September and October 2003, in order to design the most pertinent privatization strategy for Turk Telekom. Following the market testing strategy, the Counsil of Ministers Decree encompassing feedback received during the afore mentioned market testing study was issued on November 13, 2003. Accordingly, minimum 51% of Turk Telekom shares were to be offered as a block sale of company shares, while following the block sale the remaining shares could be privatized under various privatization methods including the public offering. Turkey has secured an investment friendly environment for privatizations with regulations matching European standards. With the enactment of Law 5189, the foreign ownership restriction on the part of foreing investors has been lifted, the scope of the golden share has been restructured and the satellite business has been taken out of Turk Telekom to function as a separate public entity.

In this framework, an Informatory Process was launched prior to the official tender announcement whereby, the Privatization Administration has informed the interested parties about the forthcoming process and delivered information about Turk Telekom. 11 National and International companies registered to the Process and they were provided with operational, legal and technological data of Turk Telekom as well as the upcoming privatization process. Participation to the Informatory Process was not a pre-requisite for participating the official block sale tender.

The Council of Ministers Decree dated October 15, 2004 number 7931 resolved for the sale of 55% of Turk Telekom Tender Commission for the application of pre-qualification criteria during the tender process.
The formal tender process for the block sale of 55% of Türk Telekom commenced with the tender announcements on November 25, 2004. Accordingly to be able to submit bids, bidders
were required to satisfy the pre-qualification criteria determined by the Tender Committee. Applications for pre-qualification were delivered to the Privatization Administration until January 11, 2005 where 13 national and international bidders qualified. The due diligence and
data room process was conducted in February, March, and April 2005. Four bids were submitted on the bidding deadline for the privatization of 55% of Türk Telekom shares. The Tender Committee first evaluated the business plans and all four bidders who received scores over 75 points from such evaluation, were invited to the opening of the financial bids on July 1, 2005. After the joint bargaining process, Oger Telecoms Joint Venture Group submitted the highest bid, with 6.550.000.000 US Dollars and the Etisalat Joint Venture Group submitted the second highest bid with 6.500.000.000 US Dollars for the block sale of 55% of Türk telekom shares. The result of the tender has been approved by the Council of Ministers and has been published in the Official Gazette dated 02.08.2005 and has become effective.
The Share Sale Agreement, the Shareholders Agreement, the Share Pledge Agreement and the Concession Agreement were signed on November 14, 2005. With the signing of these agreements, 55% of Türk Telekom shares were transferred to Ojer Telekomünikasyon A.Ş. (Consortium led by Saudi Oger and Telecom Italia) and consequently, Türk Telekom ceased to be a public company.
The Concession Agreement was signed on the same day between Türk Telekom and the Telecommunications Authority.
Finally, the Council of Ministers Decree dated November 13, 2003 number 2003/6403 stipulated that the percentage and the timing of the public offering would be determined following the block sale. Following the completion of the block sale, preliminary studies regarding the privatization of the some of the remaining shares owned by the Treasury commenced. Within this framework, the Council of Ministers Decree dated December 10, 2007 number 12973 stipualted that; 15% of Türk Telekom shares would be privatized through public offering until December 31, 2008.
As per the provisions of Law 406, which requires that 5% of Türk Telekom shares must be allocated to the employees of Türk Telekom as well to those of the General Directorate of Postal and Telegram Services as well as small retail investors, the Council of Ministers Decree dated December 10, 2007 stipulates that 3% of Türk Telekom shares will be allocated to the aforementioned employees and small retail investors.
40 % of Türk Telekom shares were offered to domestic investors, while 60% of the shares were allocated to foreign institutional investors. 210.000.000 shares out of 525.000.000 shares were sold to domestic investors, while 315.000.000 shares were sold to foreign institutional investors.

Turk Telecom by being privatized could be subject to private law in some areas as a private company and currently;

• The Current Shareholding Structure of Turk Telekom;

Oger Telekomunikasyon Kurumu 55%
Undersecretariat of Treasury 31.66%
Free float at ISE 13.4%

• Turk Telekom is functioning as a private firm and as a monopoly.

• Turk Telekom has the ownership and usage right on the only fixed line network.

• Turk Telekom subsidiary companies ;

• 81% shares of the mobile operator, AVEA, which is one of the mobile operator in internal market of Turk mobile telecommunications.

• 100% shares of TTNET

• 100% of ARGELA

• 100% of Innova

• 100% of ASSISTT

Political background of Privatisation :

Privatization process of Turk Telecommunications has been discussed for 12-13 years since 1994 and are based on different political justifications, because in this period, five different political power governed Turkey.

The most remarkable legal arrangements that comments most relevant reforms in the field of telecommunications is structured in the 57th political power governing Turkey which is in 1999-2001. In this period , a coalition of three parties; DSP, MHP and ANAP governed Turkey.

This coalition government signed the 18th Stand-By Agreement with IMF.And it’s a reality that this government formed their policy action plan according to the negotiations with IMF.

Privatisation of Turk Telekom and telecommunications sector liberalization process are a part of the conditions that IMF imposed for release of its remaining finance and the overall economic reform of Turkey.

But, it was not only a decision taken by the 57th government itself and/or neither just only an IMF imposition.It can be concluded that, There were draftings for an establishment of a framework regarding telecommunications before the 57th government.Due to these draftings ,it can be emerged that Turkey had always a will for regulatory, so regulation has always been as a part of political culture of Turkish public administration and in Turkey. In every public administration in Turkey, there is a regulatory(control) unit.

From the foregoing , we can say that Turkish privatization policy is more than under pressure of international policies, it was also shaped by international organizations decisions, such as TUSIAD and TUSIAD`s relationships with multinational corporations and negotiations with EU.

Following the liberalization process, Turk Telecom has been privatized during the period of one party governance in 2005.

It is evident that , Turkish society is not much ready for the liberalization process. After years of lots of economic crisis and living in an inflationary environment, the involvement of the international organizations on the policy decisions of the national policies Due to these concerns of society and society`s reaction across liberalization process, government has made some amendements on the basic law by taking into consideration of society and the army forces concerns

This political will has made amendements on act. No.406, short time before privatization due to public concerns on communications guarantee and national security.

“According to this amendment, 5071/1 (21.04.2004), there has to be a member representing the privileged share in management board of Turk Telekom. This member is appointed to the management board by the ministry of transportation.And this member has the right to participate the meetings of the management board and to give opinions to the Board and the member can not take share from the profit.�

4.Telecommunication Authority

4.1Basic Functions of the Authority

• Telecommunication Authority gives opinions on the concession contracts to be signed for telecommunication services and/or infrastructure concerning the capital companies established in Turkey and on telecommunication licenses to be issued by the Ministry of Transportation; making proposals to the Ministry on the preparation of general permissions; inspecting the implementation of provisions and conditions of the said concession agreement and telecommunication licenses and their conformity with the general permissions; taking the required measures;

• It defines the general criteria on price tariffs, contract provisions and technical issues to be implemented for the users of the telecommunication services and infrastructure, and other operators for their use of interconnections between the telecommunication networks; examining, evaluating the tariffs.

• Telecommunication Authority ensures that the commercial in the provision of services, in the operation of infrastructure and in the manufacture and sales of various telecommunication equipment and tools can carry out their services and activities in conformity with the laws in a fully competitive environment and taking encouraging measures to protect consumer rights as well. In parallel with the aim, it issues regulations on issues related with its area of telecommunication services and infrastructure operation.

• Telecommunication Authority examines the issues concerning the provision of telecommunications services and operation of infrastructure; the conducts, plans and practises contradicting with competition in these services and telecommunications sector in its own capacity or upon complaints it has the authority to demand the information and documents in its area of authority. It provides opinions on all decisions of the Competition Authority, including the decisions concerning the examinations and inspections to be made on the telecommunications sector as well as company mergers and take overs,before they are made.

• Telecommunication Authority takes the required measures to ensure that the terms of the contracts signed between the Ministry and operators, including Turkish Telecom, as well as the terms of the telecommunication licenses are applied; observing and inspecting whether the activities are carried out in accordance with the related legislation and concession contract, telecommunications license and general permission terms; and imposing an administrative fine reaching the 3% of the previous year’s turnover of the operator in case of non-conformity.

• Telecommunication Authority provides opinion to the Ministry on whether the authorization will be made through concession contract, telecommunication license or general permission and how and on which terms it will be made as well as the application and authorization procedures and principles.

• Taking measures to ensure that agreements, concerning the standard reference tariffs, network interconnections and roaming, do not have results that prevent free competition in the provision of telecommunication services and operation of infrastructure; and to refer to the Competition Authority within the scope of the provisions of Law No. 4054 dated 7.12.1994, if required.

• Making the arrangements concerning the operators’ provision of telecommunication services and/or charges that they may take in return for infrastructure operation;

• Telecommunication Authority defines the calculation methods and upper limits of the charges, including the line and circuit rentals in the following cases:

· In case there is an obligation to cover the costs of some services with the costs of other services of Turkish Telecom or another operator, including the minimum services that it is obliged to provide as per the principles of public service;
· In case it is determined by the Authority that an operator is a legal or actual monopoly or it has a dominancy in the related service or regional market;
· In case it is determined that the charges are defined by procedures and actions contradicting the regulations of the Authority;

4.2 Jurisdiction between Competition Authority and the Telecommunications Authority

Liberalisation of the telecommunications market has been increasing the involvement of the Competition Authority in the sector, and necessitates close co-operation and coordination between the Competition Authority and the telecommunications regulator. This becomes more important when the sector opens to competition.

With respect to the relationship between the Competition Authority and the Telecommunications Authority, the Protocol on Cooperation between the Competition Authority and the Telecommunication Auhtority and the Law 4502 provides a framework.

The Protocol on Cooperation between Competition Authority and Telecommunications Authority provided for under the Telegram and Telephone Law on Competition Law lays down the procedure of cooperation when dealing with the competition cases under this protocol. Its mandatory for either the Telecommunications Authority to seek each other opinion regarding competition cases.

The major purpose of this law is to draw the principles in regard with the telecommunications sector under the authorities of the institutions in order to take effective decisions which serves to competition in the market.With the law, it was aimed to prevent decisions which both are under the responsibility of both institutions.

The most notable requirement is that when carrying out investigations and analysis in the telecommunications sector, the Competition Authority must initially take into consideration the opinion of the Telecommunications Authority.It also has to consider the Telecommunication Authority`s opinion before taking any decisions consider the Telecommunication`s opinion before taking any decisions on mergers and acquisitions.On the other hand, the telecommunication regulator may request the Competition Authority to provide its opinion in order to ensure that the standart reference tariffs or the agreements for interconnection of networks and roaming do not impede free competition.

4.3Review of Telecommunications Authority Decisions:

Turkey has an administrative court system and parties contesting the Authority`s decisions could turn to it only for review of procedural aspects of the decisions but also for review of substance. More specifically, there are two levels within the administrative court called the High Administrative Court. A decision of the Authority has a possibility to be challenged up to the latter level. Appealing to the Court does not automatically stop implementation of the original decision and instead the question of suspension or implementation while the matter is in the court is decided for each case.

5. Development of Competition:

Competition in the market of fixed telephony market in practise has begun as the expiration of the monopoly period of the Turk Telekom as of 01.01.2004. Currently;

• In fixed telephony market, 32 telecommunication licences were given to the long-distance telephony call operators. Despite the fact that, there are many operators obtained the licences, in actual there are 5 players in long distance telephony services in the market. And licences regarding local calls hasn’t been started to be issued yet so local calls market has not been open up to competition yet.
• In GSM market, mobile service has started by granting licenses to two companies in 1994. Currently, there are 3 operators in the market; AVEA, TURKCELL and VODAFONE.Since 2000-2007 subscriber number has increased from 14.970.000 to 61.975.807 with 23% average increase per year.The penetration rate has also increased from 11.3 to 87.8.
• In Internet services subscriber number has increased from 2.999 to 4.346.054 from 2002 to 2007.
While internet and GSM sector has been partially liberalised and competition in these markets brought about benefits for consumers in terms of low prices and a variety of consumer choices, local calls market is still dominated by a single provider, Turk Telekom.

The current major companies providing service in fixed line services are;

Internet Operators Fixed Line Operators
TTNET(Turk Telekom) Turk Telekom
Dogan Net (Smile) Turk Net ( LDTS)
Turk Net Koc Net (LDTS)
Koc Net Tellcom (LDTS)

 

Since the privatisation of the Turk Telekom in 2005, the fixed telephony market structure has not changed. Turk Telekom is still the dominant market player with 99% of the market share.Therefore, neither the privatisation of Turk Telekom nor the regulation by the Authority has prompted a competitive environment in fixed telephony market in Turkey. The table below shows the interplay the market between operators in fixed telephony and internet service providers.

Operators in Fixed Telephony Subscriber Number Market Share
a) Turk Telekom 17.800.000 %99
b) New Entrant 50.000 %1
Internet Service Providers
a) Turk Telekom (ttnet) 5.200.000 %97
b) Others 50.000 %3

The reason is telecommunication licences weren’t authorized to provide local call services.

Since 2003, after the monopoly privilege of Turk Telekom had still a majority of 17.800.000 subscriber and 50.000 subscriber of the other companies.

Ex./ Competition Practise:

The Case of Cross-Subsidization Practise of Turk Telekom:

In 2007, Turk Telekom due to its authorization regarding tariffs announced to the public the new tariffs, enforceable as of 01.03.2007.According to the recognization of the new tariffs, it was announced as the tariffs of fixed fee and local call services were to be increased due to the increase in inflation and the LDTS services and in the Mobile Services the tariffs were to be decreased. After the approval of the tariffs by the Telecommunication Board,TELKODER brought a lawsuit against Telecommunication Authority. The case was resulted with some ignorable adjustifications in the tariffs. Currently, the tariffs which has been subject to the Court are being executed.

Looking through the related laws as a general overview regarding this Case:

In order to provide a service in Long Distance Telephony Services market, the LDTS operators has to use some services provided by the Turk Telekom. As is Turk Telekom which has the ownership right on the landline( sabit hat), it also has the dominant position in the sector, is authorized to provide;

1. Access
2. Interconnection
3. Service to rent to the local loop.

Pursuant to the Telegram and Telephone Act/ article 4;

“ a) Promotion of practices which shall provide access by every person to telecommunication services and infrastructure at affordable prices.�

The purpose of this act is to enforce the Authority to make regulations which creates incentive to access the telecommunication services. Additionaly, the provision of the service has to maintain and protect the free competition environment and its reflected in law as;

“ı) Attaining and maintaining a competitive environment in authorising….generally in all telecommunication fields, provided that the provisions of Law No. 4054 dated 7.12.1994 on the Protection of Competition are reserved and without prejudice to Türk Telekom’s monopoly rights as set out herein.â€�

In this frame, Turk Telekom`s obligation to provide interconnection and other services are distinguished in law as;

“Türk Telekom is under the obligation and duty to provide interconnection in all circumstances…
Interconnection providers are required to satisfy the interconnection requests…based on the principles of equality, non-disrimination, transparency, cost-orientation, reasonable profit and under the same conditions and quality as interconnection providers or their shareholders and under the same conditions and quality as interconnection providers or their shareholders, affiliates or partnerships provide for their own services.�

So that on one hand, LDTS providers are the providers of the Overseas and the Internal telephony services, on the other hand they are the companies that buys the service through interconnection, access and renting the local loops provided by Turk Telekom.

7. Conclusion and Policy Recommendations:

Turkey has adopted a series of laws and regulations in conformity with EU Directives on telecommunications and sectoral regulations since the Telecommunication Authority in the year 2000. The responsibility of regulating the telecommunications sector was transferred to the Telecommunications Authority from the government, thus broadening the role of the Telecommunications Authority. The mandate to take the necessary measures to ensure national security, public order and public service was transferred to the Authority one year after the establishment of the Telecommunications Authority.

Until 2004, the privilege monopoly right of Turk Telecom on telephony services prevented the benefits accruing to the liberalization of the sector. Practically, the liberalisation of the Telecommunication sector took effect in.2004 with the expiration of the monopoly right of Turk Telekom on fixed telephony. Despite the removal of legal barriers to fixed telephony market, in practical terms, the barriers to entry still existed. Structural barriers through government regulatory procedures including, issuing of licenses to service providers propagated the situation.

The licenses given were only to provide international and domestic calls. Telecommunication Authority did not authorize the local calls.

As already mentioned earlier, the privatization of Turk Telekom, didn’t change the situation in the market.The Telecommunications Authority has not yet started to license operators who are willing to provide local call services.

Turk Telekom, responsible of providing all the telecommunication and infrastructure services, is functioning as a private monopoly at the moment. Turkey is committed to the WTO and EU Action Plan, however, the market has not yet been fully liberalized.
Therefore, unless the Telecommunications Authority opens the market for local call service, the competition will be successfully introduced in the market. The whole service package must be liberalized and open to new entrants to enable effective competition to develop in the market.

Turkish Telecommunication Authority has to take decision to open the local call market to competition as immediately as possible.In addition to this, it has to take into consideration the switching costs to create incentive to switch off in the benefit of consumers.Turkish society has not assimilated a competition culture in the market yet, in this context the Authority has assume to a lead role in awareness creation on the needs of competition creating in the market.

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