US embassy cable - 05ANKARA1209

UNCLAS SECTION 01 OF 03 ANKARA 001209 
 
SIPDIS 
 
USDOC FOR 4212/ITA/MAC/CPD/DDEFALCO 
FCC FOR A THOMAS AND A WEINSCHENK 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EINT, ECPS, TU 
SUBJECT:  TURKEY: LOW INTERNET PENETRATION DUE TO 
MARKET BARRIERS 
 
REF: A. Ankara 94 
B. 2004 Ankara 6480 
 
Sensitive But Unclassified.  Please handle accordingly. 
 
1. (SBU) Summary: Internet penetration in Turkey 
remains low, due mainly to high cost of hardware and 
relatively high subscription fees.  Although the state 
telecom firm, Turk Telekom (TT), has launched higher- 
speed and more affordable broad-band internet service, 
Internet Service Providers (ISPs) in Turkey complain 
about unfair competition from the former monopoly, 
which is currently slotted for privatization.  The 
still relatively new Telecommunications Authority (TA) 
is still establishing its competence and independence 
and has not been able to carry out decisions in favor 
of ISP's.  End Summary. 
 
--------------------------- 
Low Penetration, High Costs 
--------------------------- 
 
2.  (SBU) Turkey's information technology sector has 
been enjoying steady growth, albeit from a relatively 
undeveloped base.  The GOT has made steps to facilitate 
competition and investment in the sector.  There are 95 
licensed Internet Service Providers (ISPs), but all 
must interconnect and compete with Turk Telekom (TT), 
which is the sole provider of internet connections to 
the telecom infrastructure, as well as broad-band (ADSL 
via telephone or cable).  Internet cafes have become 
more common throughout Turkey, but computer penetration 
in homes remains around 5 %, about one-tenth the 
average for Europe. 
 
3. (SBU) Estimates of internet users range from 6 
million to double that amount (about 8-15 % population 
penetration, about one-half the average for Europe). 
On the high end, a State Institute of Statistics survey 
from June 2004 estimated that there are 13.3 million 
internet users in Turkey, out of a population of 70 
million.  According to Transport Ministry 
Communications Department Director General Ali Zor, 
home subscribers account for a small part of this 
number (3-4 million), since a large segment of the 
population cannot afford to buy PCs and uses internet 
cafes for internet access (constituting relatively 
unsophisticated use, limited to e-mails).  In a meeting 
with Econoff and Econ Specialist, State Planning 
Organization Information Society Department Head Recep 
Cakal confirmed the low internet penetration in Turkey 
and attributed this not only to the high cost of PCs 
but also to the relatively high internet service fees, 
relative to Turkey's $4,300 per capita income.  Basic 
broad-band service (256 kbs/sec) from Turk Telekom, for 
example, costs approximately $30 per month.  Cakal said 
that technical infrastructure in Turkey was not 
reliable and that establishment of a truly competitive 
market was key to better service quality and lower 
internet service fees. 
 
4. (SBU) Cakal said the GOT was trying to increase 
internet penetration through a number of "e- 
transformation" projects, primarily targeting 
education.  One of these projects is a joint project 
conducted by the Education Ministry and Turk Telekom 
(TT), through which TT has provided computer and broad- 
band connection to 12,000 schools as of the end of 
November 2004.  The project target is to increase this 
to 42,500 schools by the end of 2005.  In separate 
projects conducted with World Bank and EBRD assistance, 
computer labs were established in 2,800 schools in 
2004, aiming to reach 4,000 more schools in 2005. 
These projects ultimately target providing a total of 
8,300 schools with IT facilities by the end of 2005. 
 
--------- 
ISP Blues 
--------- 
 
5. (SBU) While Internet Service Providers (ISP) have 
proliferated in Turkey, they complain that TT practices 
active and unfair resistance to competition and 
innovative services.  In a February 23 meeting with 
Econoff and Econ Specialist, Tayfun Okter, the General 
Manager of Turkey's leading private ISP, Superonline, 
described difficulties his and similar companies face 
in Turkey.  Superonline, the first private sector ISP 
established in 1994, has been a market leader since 
then.  Responding to sectoral and economic crises over 
the years, Superonline changed its specialization from 
personal accounts to corporate wide area network 
solutions.  Superonline currently has 1,000 corporate 
subscribers, in addition to 300,000 personal 
subscribers.  Okter told us ISPs have not faced 
legislative barriers to free market functioning since 
their inception in the 1990s.  However, Okter said 
there was always an "unseen barrier" -- the sole 
backbone infrastructure provider.  Okter asserted that 
TT abused its control of the backbone infrastructure to 
compete unfairly against ISP companies, at times even 
arbitrarily cutting some ISPs' connections. 
6. (SBU) ISP's assert that TT has limited their access 
to both basic internet and to broad-band service. 
Okter observed that in order to increase its market 
value on its way to privatization, TT had recently 
become an even more aggressive competitor.  According 
to Okter, TT had at times offered lower leased line 
internet service fees to end users than to ISPs.  Okter 
said TT currently had 300,000 ADSL subscribers, most of 
which suffer from poor customer support from TT.  Okter 
claimed Superonline had 2,000 ADSL customers in line, 
who would be willing to pay an additional 20 percent to 
receive a better quality service from Superonline. 
According to Okter, TT had been reluctant to provide 
new ADSL portals to ISPs -- and for the limited number 
of portals it provides -- TT requires the ISPs to 
register the customers in TT's database. 
 
-------------------- 
Skirmishes Over VOIP 
-------------------- 
 
7. (SBU) Voice over Internet Protocol (VOIP) service is 
another source of conflict between TT and the ISPs.  A 
licensing regulation issued by the Telecommunications 
Authority (TA) in August 2004 appears to enable long 
distance telephone service license holders to provide 
voice transmission through all kinds of infrastructure, 
including the Internet.  However, TT asserts that ISP 
companies providing VoIP services need to sign a 
special interconnection agreement with TT, and pay high 
origination and termination fees.  The companies have 
argued against this on both a technical and competition 
basis.  Superonline is one of the companies TT recently 
sued in the courts for allegedly illegally providing 
VOIP service. 
 
8. (SBU) Okter said they have appealed several times to 
the TA about problems they have with TT, but felt it is 
hard for the TA to remain unbiased and independent, 
given fears it could be blamed for reducing the market 
value of TT, a critical state-owned entity, currently 
in the privatization process.  Despite this, TA has 
announced some decisions against TT, which TT in turn 
has appealed in the courts.  Subsequent court rulings 
went mostly against private companies, according to 
Okter, both due to the Turkish judiciary's "statist" 
stance and to the lack of specialized courts.  Okter 
said the relevant Ministry of Transport was aware of 
the ISPs' problems, and was trying to resolve the 
dispute they had with TT.  Okter complained that the 
ISPs were fighting in many fronts, given an ineffective 
TA, a biased judiciary, and unfair competition from TT. 
Okter feared that the companies might continue to 
suffer from these uncertainties even after TT's pending 
privatization. 
 
9. (SBU) Dogan Online, another major independent ISP, 
echoed to EconOff many of the concerns raised by 
Superonline.  While recognizing some uncertainty in the 
timing of the TT privatization, he expressed patience 
and confidence in the GOT and the regulatory 
authority's capacity to slowly but steadily foster 
greater liberalization and competition in the Turkish 
communication realm.  He expected further fall-out in 
dial-up ISPs as Turk Telekom expands its ADSL service. 
 
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Comment 
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10. (SBU) Liberalization of the telecom and information 
technology market in the presence of a dominant state 
firm is a big challenge for the GOT, with success 
ultimately dependent on the effectiveness of a strong, 
unbiased regulator.  The Telecommunications Authority 
aims to rise to the challenge, but still lacks the 
independence and competence to effectively play this 
role.  As a result, Turkish citizens' and companies' 
access to low-cost and reliable high quality internet 
service is still hampered by the position of TT as sole 
provider of access to the underlying infrastructure. 
The GOT will have to plan beyond TT's privatization and 
assure that this shortcoming does not continue to 
impact the investment and business environment 
negatively. 
 
Edelman