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As filed with the Securities and Exchange Commission on March 20, 2014

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

Date of event requiring this shell company report . . . . . . . . . . . . . . . . . . .

Commission File Number: 1-15092

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

*                 Not for trading on the NYSE, but only in connection with the registration of ADSs representing such ordinary shares pursuant to the requirements of the Securities and Exchange Commission.

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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

x Yes   o No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

o Yes   x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes   o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes   o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

o Item 17   o Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes   x No

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INTRODUCTION

This is the 2013 annual report for Turkcell Iletisim Hizmetleri A.S. (“Turkcell”), a joint stock company organized and existing under the laws of the Republic of Turkey.  The terms “Company,” “we”, “us”, “our”, and similar ones refer to Turkcell, its predecessors, and its consolidated subsidiaries, except as the context otherwise requires.

Our audited consolidated financial statements as of December 31, 2013 and 2012 and for each of the years in the three-year period ended December 31, 2013 included in this annual report have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

The Securities and Exchange Commission (“SEC”) has adopted rules accepting filings from foreign private issuers that include financial statements prepared in accordance with IFRS as issued by the IASB without reconciliation to accounting principles generally accepted in the United States, or U.S. GAAP, as was previously required.  As we believe that we meet the relevant criteria to avail ourselves of this SEC rule, we have ceased providing such reconciliation as part of our consolidated financial statements.

Certain figures included in this annual report have been subject to rounding adjustments.  Accordingly, figures shown for the same category presented in different tables may vary slightly, and figures shown as totals in certain tables may not total exactly.  In this annual report, references to “TL”, “TRY” and “Turkish Lira” are to the Turkish Lira, and references to “$”, “U.S. Dollars”, “USD”, “U.S. $” and “cents” are to U.S. Dollars and, except as otherwise noted, all interest rates are on a per annum basis.  In this annual report, references to “Turkey” or the “Republic” are to the Republic of Turkey.  “Counters” are the units we used with our subscribers until April 2010 to measure airtime.  As of April 2010, we measure our airtime in TRY rather than counters.

Statements regarding our market share and total market size are based on the Information and Communication Technologies Authority’s (“ICTA”) or operators’ announcements, and statements regarding penetration are based on the Turkish Statistical Institute’s (“TUIK”) announcements pertaining to the Turkish population.  Furthermore, statements regarding our 2G coverage are based on the ICTA’s specifications as well as the TUIK’s announcements, and statements regarding our 3G coverage are based on the ICTA’s 3G coverage calculation specifications issued on April 25, 2012.

References to the Information and Communication Technologies Authority or the ICTA include its predecessor entity, the Telecommunications Authority.

FORWARD-LOOKING STATEMENTS

This annual report includes forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, Section 21E of the U.S. Securities Exchange Act of 1934, as amended, and the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.  All statements other than statements of historical facts included in this annual report, including, without limitation, certain statements regarding our operations, financial position, and business strategy, may constitute forward-looking statements.  In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “continue”, or similar statements.

Although we believe that the expectations reflected in such forward-looking statements are reasonable at this time, we can give no assurance that such expectations will prove to be correct.  Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.  Important factors that could cause actual results to differ materially from our expectations are contained in cautionary statements in this annual report, including, without limitation, in conjunction with the forward-looking statements listed below, and include, among others, the following:

·                                          competition in our main market;

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·                                          increased competition and/or the entrance of new direct and indirect competitors in the market due to new applications and regulatory changes in Turkey with respect to certain technologies;

·                                          failure to successfully integrate and manage the opportunities we pursue, particularly related to our current mobile communications business and 3G business, new business models, new technologies and international activities;

·                                          regulatory decisions and changes in the regulatory environment, in particular the ICTA’s decisions in 2013 and 2014;

·                                          failure to abide by the requirements of our licenses or applicable regulations;

·                                          economic and political developments in Turkey and internationally;

·                                          exposure to certain risks through our interests in associated companies, especially due to recent political instability in Ukraine;

·                                          foreign exchange rate risks;

·                                          reduction in cash generated from operations and increased capital needs, which may increase our borrowing requirements, and consequently, our finance costs and exposure to the risks associated with borrowing;

·                                          our ability to deal with spectrum limitations;

·                                          zoning limitations related to our Base Transceiver Stations (“BTS”) and potential increase in coverage requirements;

·                                          potential liability and possible reduced usage of mobile phones as a result of alleged health risks related to BTSs and the use of handsets;

·                                          our dependence on certain suppliers for network equipment and the provision of data services;

·                                          Turkcell’s complex ownership structure and ongoing disagreements among our main shareholders;

·                                          our dependence on certain systems and suppliers for IT services and our exposure to potential natural disasters, regular or severe IT and network failures, human error, security breaches and other cybersecurity incidents and IT migration risk;

·                                          technological changes in the telecommunications market;

·                                          our dependence on third party providers to help us navigate the regulatory, security and business risks of industries where we traditionally do not compete;

·                                          our ability to retain key personnel and distributors;

·                                          legal actions and claims to which we are a party; and

·                                          effective internal control over financial reporting.

All subsequent written and oral forward-looking statements attributable to us are expressly qualified in their entirety by reference to these cautionary statements.

ITEM 1.                                                IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable.

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ITEM 2.                                                OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

ITEM 3.                                                KEY INFORMATION

3.A                             Selected Financial Data

Our audited consolidated financial statements as of December 31, 2013 and 2012 and for each of the years in the three-year period ended December 31, 2013 included in this annual report have been prepared in accordance with IFRS as issued by the IASB.

The following information should be read in conjunction with “Item 5.  Operating and Financial Review and Prospects”, our audited consolidated financial statements as of December 31, 2013 and 2012 and the related consolidated statements of profit or loss, comprehensive income, changes in equity, and cash flows for the years ended December 31, 2013, 2012 and 2011, and the related notes appearing elsewhere in this annual report.

The following table presents our selected consolidated statements of operations, statement of financial position and cash flows data as of and for each of the years in the five-year period ended December 31, 2013, presented in accordance with IFRS as issued by the IASB which have been derived from our audited consolidated financial statements as of and for the years ended December 31, 2013, 2012, 2011, 2010 and 2009.

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(1)         Direct cost of revenues includes payments for our treasury share (the amount paid to the government under our license) and universal service fund, transmission fees, base station rent and energy expenses, billing costs, depreciation and amortization charges, technical, repair and maintenance expenses, roaming charges, interconnection fees, costs of simcards sold, handset costs offered as part of our loyalty programs and handset sales and personnel expenses related to our technicians.

(2)         See Note 2 (Basis of preparation) to our consolidated financial statements in this Form 20-F for information regarding monetary gain.

(3)         Share of profit of equity accounted investees primarily includes the income related to our stake in Fintur Holdings B.V. (“Fintur”) and A-Tel Pazarlama ve Servis Hizmetleri A.S. (“A-Tel”), which is 41.45% and 50.00%, respectively.  Fintur currently holds all of our international mobile communications investments other than those related to our operations in Northern Cyprus, Ukraine, Belarus and Germany. The service provider and distribution agreement with A-Tel was annulled via notification dated January 31, 2012, which was effective from August 1, 2012. See Note 16 and 34 to our audited consolidated financial statements included in “Item 18. Financial Statements” of this annual report on Form 20 F.

(4)         Long-term debt consists of long-term loans and borrowings as well as long-term lease obligations.

(5)         Total debt consists of long-term and short-term loans and borrowings as well as lease obligations excluding option contracts.

(6)         On March 23, 2011, the Company’s Board of Directors proposed a dividend distribution for the year ended December 31, 2010 amounting to TRY 1,328.7 million ($622.5 million computed using the Central Bank of the Republic of Turkey’s (CBRT) TRY/U.S. Dollar exchange rate on December 31, 2013), which corresponds to 75% of our distributable net income for the year.  This dividend proposal was discussed but not approved at the General Assembly Meetings held in 2011.  There were no Board of Directors’ resolutions for the dividend distribution for the years 2011 and 2012.  The General Assembly Meetings, on June 29, 2012, May 22, 2013 and June 24, 2013 could not be held since the quorum required had not been reached and the dividend payment could not be discussed.

(7)         The U.S. Dollar equivalent of the dividend for the year ended December 31, 2010 was computed by using the CBRT’s TRY/USD exchange rate on December 31, 2013, whereas the U.S. Dollar equivalents of the dividend for the year ended December 31, 2009 were computed by using the CBRT’s TRY/USD exchange rate on the dates that the General Assembly of Shareholders approved the dividend distribution.

(8)         Dividends per share for the years ended December 31, 2010, and 2009 were computed over 2,200,000,000 shares.  For the years ended December 31, 2010 and 2009, the dividend per share was TRY 0.60 and TRY 0.39, respectively.

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(9)         Gross margin is calculated as gross profit divided by total revenues.

(10)  Adjusted EBITDA is a non-GAAP financial measure that equals profit for the period attributable to the equity holders of the Company before finance income, finance costs, income tax expense, other income, other expense, monetary gain, share of profit of equity accounted investees and depreciation and amortization.

Adjusted EBITDA is a non-GAAP financial measure that equals profit for the period attributable to the equity holders of the Company before finance income, finance costs, income tax expense, other income, other expense, monetary gain, share of profit of equity accounted investees and depreciation and amortization.  Our management reviews Adjusted EBITDA as a key indicator each month to monitor our cash generation ability and liquidity position.  Net income is generally considered by our management as the main indicator for our operating performance.  Adjusted EBITDA is not a measurement of liquidity under IFRS as issued by the IASB and should not be construed as a substitute for profit for the period as a measure of performance or cash flow from operations as a measure of liquidity.

We believe Adjusted EBITDA, among other measures, facilitates liquidity comparisons from period to period and management decision making.  It also facilitates liquidity comparisons from company to company.  Adjusted EBITDA as a liquidity measure eliminates potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact of changes in effective tax rates on periods or companies) and the age and book depreciation of tangible assets (affecting relative depreciation expense).  We also present Adjusted EBITDA because we believe it is frequently used by securities analysts, investors and other interested parties in evaluating the liquidity of other mobile operators in the telecommunications industry in Europe, many of which present Adjusted EBITDA when reporting their results.

Nevertheless, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation from, or as a substitute for analysis of, our results of operations, as reported under IFRS as issued by the IASB.

Some of these limitations are:

·                                          it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

·                                          it does not reflect changes in, or cash requirements for, our working capital needs;

·                                          it does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

·                                          although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

·                                          it is not adjusted for all non-cash income or expense items that are reflected in our consolidated statement of cash flows; and

·                                          other companies in our industry may calculate this measure differently than we do, which may limit its usefulness as a comparative measure.

We compensate for these limitations by relying primarily on our results under IFRS as issued by the IASB and using Adjusted EBITDA measures only supplementally.  See “Item 5.  Operating and Financial Review and Prospects” and the consolidated financial statements contained elsewhere in this annual report.

The following table provides a reconciliation of Adjusted EBITDA, as calculated using financial data prepared in accordance with IFRS as issued by the IASB, to net cash from operating activities, which we believe is the most directly comparable financial measure calculated and presented in accordance with IFRS as issued by the IASB.

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The following table presents selected operational data:

I. Operating Results

(1)         The population of Turkey for 2013, 2012 and 2011 is based on TUIK’s announcements.

(2)   For a discussion of how these metrics affect our revenues, please see “Item 5A. Operating Results, – VI. Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012 — a. Revenues”.

(3)         Subscriber numbers do not include subscribers in Ukraine, Belarus, Northern Cyprus and Germany or those of Fintur subsidiaries.

(4)         We calculate average revenue per user (“ARPU”) using the weighted average number of our subscribers during the period.  ARPU does not include the results of our operations in Ukraine, Belarus, Northern Cyprus and Germany or those of Fintur subsidiaries.

(5)         Average monthly minutes of use per subscriber is calculated by dividing the total number of incoming and outgoing airtime minutes of use by the average monthly sum of postpaid and prepaid subscribers for the year divided by twelve.  Our Minutes of Usage (“MoU”) calculation does not include our operations in Ukraine, Belarus, Northern Cyprus and Germany or those of Fintur subsidiaries.

(6)         Churn rate is the percentage calculated by dividing the total number of subscriber disconnections during a certain period by the average number of subscribers for the same period.  For these purposes, we define “average number of subscribers” as the number of subscribers at the beginning of the period plus one half of the total number of gross subscribers acquired during the period.  Churn refers to subscribers that are both voluntarily and involuntarily disconnected from our network.  Our churn calculations do not include our operations in Ukraine, Belarus, Northern Cyprus and Germany or those of Fintur subsidiaries.

(7)         See “Item 6.D. Employees” for information concerning our consolidated subsidiaries.

II. Exchange Rate Data

The Federal Reserve Bank of New York does not report, and historically has not reported, a noon buying rate for the Turkish Lira.  For the convenience of the reader, this annual report presents translations of certain Turkish Lira amounts into U.S. Dollars at the relevant Turkish Lira exchange rate for purchases of U.S. Dollars at the $/TRY exchange rate announced by the CBRT.  As of January 1, 2006, any balance sheet data (monetary or non-monetary), except for equity items in U.S. Dollars derived from our consolidated financial statements, are translated from Turkish Lira into U.S. Dollars at exchange rates at the balance sheet date. 

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Income and expenses for each income statement except foreign operations in hyperinflationary economies (including comparatives) are translated to U.S. Dollars at monthly average exchange rates.

The income and expenses of foreign operations in hyperinflationary economies are translated into USD at the exchange rate as of the reporting date.  Prior to translating the financial statements of foreign operations in hyperinflationary economies (Republic of Belarus), their financial statements for the current period are restated to account for changes in the general purchasing power of the local currency.  The restatement is based on relevant price indices at the reporting date.  Unless otherwise indicated, the $/TRY exchange rate used in this annual report is the $/TRY exchange rate in respect of the date of the financial information being referred to.  As stated in the annual monetary and exchange rate policy announcements of the CBRT, which have been published since 2002, the foreign exchange rate is not a policy tool or target; it is determined by the supply and demand conditions in the market.  Along with inflation targeting, the CBRT announced that it will continue the implementation of the floating exchange rate regime in 2014.

The following table sets forth, for the periods and the dates indicated, the CBRT’s buying rates for U.S. Dollars. These rates may differ from the actual rates used in preparation of our consolidated financial statements and other information appearing herein. The $/TRY exchange rate on March 14, 2014 was TRY 2.2244 = $1.00.

Source:  CBRT

(1)         Calculated based on the average of the daily exchange rates of each month during the relevant period.

(2)         These columns set forth the CBRT’s buying rates for U.S. Dollars expressed in Turkish Lira.

(3)         Through March 14, 2014.

Source:  CBRT

(1) Through March 14, 2014.

No representation is made that Turkish Lira or the U.S. Dollar amounts as presented in this annual report could have been or could be converted into U.S. Dollars or Turkish Lira, as the case may be, at any particular rate.  Changes in the exchange rate between Turkish Lira and U.S. Dollars could affect our financial results.  For a discussion of the effects of fluctuating exchange rates on our business, see “Item 5A.  Operating Results”.

3.B                             Capitalization and Indebtedness

Not applicable.

3.C                             Reasons for the Offer and Use of Proceeds

Not applicable.

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3.D                             Risk Factors

The following is a discussion of those risks that we believe are the principal material risks faced by our Company and its subsidiaries.  No assurance can be given that risks that we do not believe to be material today will not prove to be material in the future.  Consequently, the risks described below should not be considered to be exhaustive.

The majority of our revenue comes from our operations in Turkey.  Competition in this market may adversely affect the growth of our business and our financial condition.

The majority of our revenue comes from our operations in Turkey and, thus, the growth and development of our business is mainly dependent on the development of the Turkish mobile telecommunications market.  In this market, we currently face intensifying competition from two other mobile operators, Vodafone Telekomunikasyon A.S. (“Vodafone”) and Avea Iletisim Hizmetleri A.S. (“Avea”), and from the incumbent fixed line telecommunications operator, Turk Telekomunikasyon A.S. (“Turk Telekom”).  Continued price and higher incentive-driven competition has, and will continue to, put pressure on our prices, market shares and profitability, as well as our liquidity.  If the competition further intensifies, or the market slows or develops in unexpected ways, this could harm our business and financial condition.

Turkey’s principal telecommunications regulator, the ICTA, has interfered, and may continue to interfere, with our ability to price our services and respond to competitive pressures.  Regulatory actions such as the introduction of mobile number portability in 2008, the ICTA’s regulations on our retail pricing and the ICTA’s ongoing pressure on interconnection rates and maximum prices have also been, and will likely continue to be, a significant factor in shaping the development of the Turkish market and in our ability to respond to changes in the market.  In addition, regulatory interventions, which have often favored our competitors, have increased competition.  Furthermore, sub-brand initiatives of the existing mobile operators, and new licenses and authorizations issued by the regulator such as Fixed Telephony Service (“FTS”) and Mobile Virtual Network Operator (“MVNO”) licenses have made it easier and/or more attractive for new direct and indirect competitors to enter the market. Competition in the mobile market may also be affected by regulatory actions in other areas, such as banking and tax.  For example, new regulations limiting the use of credit card installments to purchase terminals may have a negative impact on the ability of customers to acquire new terminals.  The promotion of smart phones is an important part of our strategy, and thus such regulations may adversely affect the execution of this strategy and our financial condition.

In addition, competition may be affected by the increasing use of applications and services which make use of the internet as a substitute (namely “over the top” or “OTT” services) for some of our more traditional services, such as messaging and voice, competition from new technologies such as wi fi, and converged offers.  These have had an impact on our revenues which may in the future be material.  Reduced demand for our core services of voice, messaging and data could significantly impact our growth and profitability.

With respect to terminals, there is an increasing emphasis in the Turkish market on terminal bundled offers, and device subsidies have also been used at times. Increases in incentives and subsidies by our competitors may lead us to increase the incentives we provide our customers, thus impacting our profitability.  Increased demand for terminal bundled offers has led and may continue to lead to higher working capital requirements and bad debt expense.  In addition, our competitive position is dependent on certain distributors for products, such as terminals, and the failure of any of our distributors to supply products to our distribution channel, and at the level of quality we require, may adversely affect our business and financial condition.

These factors together with macroeconomic factors are likely to continue to result in changes in consumer behavior that have and may continue to adversely affect our revenues and expenses.

Our growth strategy is partly dependent on new investment opportunities, which could affect our business and financial condition, and the return on our investments cannot be guaranteed.

In addition to growing our existing business as a leading communications and technology company, our strategy for growth involves selectively seeking and evaluating new investment opportunities and participating in those meeting our criteria. 

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We may consider launching greenfield operations, as well as forming alliances, which may include management service agreements and marketing partnerships, and conducting mergers and/or acquisitions, both inside and outside of Turkey.  These opportunities may be in the area of mobile or fixed telecommunications and services, including as an MVNO or in a marketing partnership with a local operator.  In addition, we may provide services in related areas and also consider investing or increasing our investments in business areas outside of the scope of our core business.

New investments may not achieve expected returns or returns that are in line with those of our core business, which may cause high value erosion. In many of the markets and businesses in which we have invested or may invest, it may take several years and significant investments to achieve desired profitability, if at all.  In addition, if an asset in which we have invested does not provide the expected returns, we may need to make further investment or we may consider disposal at a sale price that may be below carrying value or liquidation.

In the context of our evaluation of potential investments in the regions we target for international expansion, Turkcell has, from time to time, considered opportunities in countries in Eastern Europe, the Balkans, and the Middle East and Africa (“MEA”), and may consider such opportunities in the future. As further described below, operations in many of these countries are subject to economic, political and other risks.  Furthermore, for acquisitions outside of Turkey, current and future U.S. and international laws and regulations, as well as legal and regulatory actions, targeting certain countries, local companies and individuals may curtail our ability to do business in affected countries and may impede our exercise of control.  Turkcell itself, as well as certain of its key employees (notably those who are U.S. citizens), could be subject to sanctions under such laws and regulations.  Some of the countries and companies in which we have contemplated making investments and in which we may from time to time consider opportunities, such as Iran, Libya and Syria, and certain individuals involved in such companies, have been the specific targets of such laws and regulations.  Investors may be reticent to invest in a company doing business in such countries or other countries that may be at risk due to the political instability.  These factors could have an adverse effect on the demand for our shares.

Regulatory decisions and changes in the regulatory environment could adversely affect our business and financial condition.

We operate in an industry that is subject to extensive regulation, in Turkey and the other countries in which we operate.  Compliance with new and existing laws and regulations has had and is likely to continue to have a significant impact on the ways in which we do business.  This may include but is not limited to the impact on our ability to set our pricing and offer new and existing services, on customer use of our services, the way we handle, process and store customer data, the terms of our subscriber contracts and the way we can communicate with customers.  Furthermore, the laws, regulations, regulatory orders and licenses under which we operate are subject to interpretation and enforcement by regulators with which we are not always in agreement.  Complying with regulations may be costly, and failure to comply may lead to significant penalties, adverse publicity and the loss of licenses and could adversely affect our business and financial condition.  For more information on regulation and how it may impact our business, see “Item 4.B. Business Overview—Regulation of the Turkish Telecommunications Industry”.

Pricing is one of the key areas in which we are subject to regulation.  The actions of the ICTA and the Ministry of Transport, Maritime Affairs and Communications in our voice, SMS, data, value added services, roaming and interconnection pricing have, and will continue to, negatively affect our pricing and our ability to design and launch campaigns and offers.  Consequently, these actions have and will continue to adversely affect our business and financial condition.  For instance, the ICTA recently decided to increase the minimum tariff to be applied by Turkcell and to set the minimum price for SMS, applicable to both tariffs and campaigns, as well as to reduce voice and SMS mobile termination rates, which adversely affected and is likely to continue to adversely affect our competitive position and our financial condition.  For more information, see “Item 4.B. Business Overview—Regulation of the Turkish Telecommunications Industry”. In addition, the ICTA may determine the operators that have significant market power in the relevant market as a result of its market analysis.  The ICTA may change the market definitions and definitions regarding the operators that have significant market power.  This may result in additional or similar liabilities for Turkcell, and less for the other mobile and fixed telecom players in the market, both of which may adversely affect our business and financial condition.

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In addition, regulations regarding quality of service, the sharing of our infrastructure, the protection of personal data and electronic commerce are among those regulations which may have an adverse effect on various aspects of our business.  For example, the new Metropolitan Law increased the number of metropolitan municipalities and extends some of their borders, which may have the effect of increasing our coverage obligations and require material capital expenditures.  We may also be required to share infrastructure or operate through a common infrastructure with our competitors, and to offer national roaming to their subscribers, which could adversely affect our ability to use our network to maintain a competitive edge.

Any downturn in the economy and instability in the political environment in Turkey and internationally may have an adverse effect on our business and our financial condition.

With a substantial portion of our revenues, assets and business derived from and located in Turkey, and denominated in Turkish Lira, adverse developments in the Turkish market are likely to have a material adverse effect on our business and financial condition.  In our view, the biggest threats to the global economy, including Turkey, in 2014, are sustainability of economic growth, high debt levels in developed and emerging countries, U.S. monetary policy uncertainty, continuing of the Eurozone recession and deflation risks, geopolitical risks in Ukraine and the Middle East region and unwinding accommodative policy by major central banks.

The Turkish economy grew uninterruptedly for sixteen quarters in a row and grew by 4.0% in the first nine months of 2013.  If the Turkish economy slows or develops in unexpected ways, this may have an adverse impact on our operations and financial condition. The performance of the Turkish economy may be affected by domestic and regional political developments. Turkey will enter an extended electoral period, with municipal and presidential elections in 2014, and parliamentary elections in 2015. On a regional level, potential or further instability in the CIS, Balkans, Middle East, North Africa and Caucasian regions may impact the development of the Turkish economy.

We hold interests in several companies that may expose us to various economic, business, political, social, financial, liquidity, regulatory and legal risks and may not provide the benefits that we expect, and our pursuit of acquisition opportunities may increase these risks.

Our investments in subsidiaries and associated companies within Turkey and internationally could expose us to economic, political, social, financial, regulatory and legal risks.  These risks have and could adversely affect our result of operations and the value of these companies in our financial statements.  The Turkcell Group has investments in Azerbaijan, Georgia, Kazakhstan, Moldova, the Turkish Republic of Northern Cyprus, Ukraine, Belarus and Germany and has operations or business activities that involve other emerging markets.  We are also exploring new investment opportunities, primarily in emerging markets.  Our current and potential future activities in these countries include operating mobile communications networks and routing cables. We may also transfer data through such countries. Legal systems, including telecommunications regulations, institutions, commercial practices and economies in emerging markets tend to be relatively underdeveloped and some of these countries may also suffer from relatively high rates of fraud and corruption.  Furthermore, through our subsidiaries in Turkey and internationally, we engage in businesses outside of the scope of our core mobile business.  These other businesses are subject to risks that are in some respects different from those of our mobile business.

In some countries, we hold our investments with another shareholder and in some cases we are a minority shareholder.  Should there be a disagreement between us and other shareholders in the future, the ability of the invested company’s management to move forward with its business plan may be affected and no assurance can be given that it will be able to take the course of action we believe is appropriate.  Furthermore, some of the countries in which we have businesses or would consider investing, and the companies and individuals that we come into contact with, may be the target of U.S. and international sanctions.  There can be no assurance that political, legal, economic, social or other actions or developments in these countries or involving such companies and individuals will not have an adverse impact on our investments and businesses in these countries.

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In this regard, we have and are likely to continue to experience issues in some of our international businesses that adversely affect our Company.  Recent issues include the following:

·                                          Our operations in Ukraine may be adversely affected by military actions, political instability, civil unrest and economic problems in that country in 2014.  Specifically, political instability in the Crimea region accelerated recently. These factors may lead to a decline in operating results and, as further described below, a further devaluation of the local currency.  The National Bank of Ukraine, among other measures, has imposed certain restrictions on processing client payments by banks and on purchase of foreign currency on the inter-bank market. In February 2014, Ukraine’s sovereign rating has been further downgraded to CCC with a negative outlook. In addition, the U.S. recently issued an executive order to impose Ukraine-related sanctions. The final resolution and impact of the current military and political crisis are difficult to predict and the ongoing crisis may further adversely affect the Ukrainian economy and our results of operations in Ukraine and/or the value of our operations there.  We are unable to predict the likely course or duration of these events, or the extent of the adverse impact that they have had and are likely to have on the telecommunications market dynamics and composition, our investment in Ukraine and our operations there.

·                                          In Ukraine, the local currency, Ukrainian Hryvnia (“UAH”), has depreciated against the U.S. Dollar by 19% as of March 14, 2014 and there is a further currency devaluation risk as the country is suffering from continuing instability as noted above, and has a large current account deficit and high external funding needs. Our subsidiary in Ukraine, Astelit, had as of December 31, 2013, a foreign currency debt of approximately $650 million. In addition, there is a significant gap between Astelit’s foreign currency revenues and operational expenses, with Astelit’s foreign currency revenues estimated at 13% of revenues and its foreign currency operational expenses estimated at 25% of total in 2013. The depreciation of the UAH will lead to a foreign exchange loss. We have been unable to hedge this exposure to the UAH.

·                                          Prior to the current wave of instability in Ukraine, 3G and/or LTE licensing was expected, although no timetable had been set.  Currently, there is only one 3G license (UMTS/WCDMA) in Ukraine, granted without tender to Ukrtelekom, which in 2013 was acquired by SCM Group (which also owns 45% of Astelit).  If new or existing licenses were to be made available and current instability were eased, we would be interested in examining these opportunities.  If successful, the associated costs would increase our Ukrainian financing needs, which could in turn require us to consider new sources of funding or the extension of existing sources.  If we are not successful in the pursuit of such a license, or if one were to be owned or operated by a competitor, we could find ourselves at a competitive disadvantage in this market. This could have an adverse effect on the value of our investment there.

·                                          Stability remains fragile in Belarus.  Belarus has moved back into recession with elevated inflation risks. The country remains vulnerable to global shocks which may trigger renewed weakness in the country’s ability to service its external debt and further depreciation of the local currency, Belarusian Rubles (“BYR”), which could in turn lead to a further reduction in the value of our investment in this country. BYR depreciated against the U.S. Dollar by 11% in 2013 and there is a further currency devaluation risk as limited currency reserves, high debt repayments and the current account deficit puts the recent BYR stabilization at risk and creates inflationary and devaluation pressure. Our subsidiary in Belarus, Best, had foreign currency debt of $597 million as of December 31, 2013.

·                                          Allegations have been made regarding improper payments relating to the operations of KCell, a mobile operator in Kazakhstan and 51% subsidiary of Fintur Holdings B.V., in which we hold a 41.45% stake and TeliaSonera holds the remainder.  These allegations have been investigated in the past and the Turkcell board was informed that they were not substantiated.  We monitor this issue through the Fintur board and remain vigilant, as there can be no assurance that such issues will not affect the operations of KCell or other Fintur operations, which may in turn adversely affect the return on our investment in this company. Turkcell is aware that other telecommunications companies, including TeliaSonera (which, as noted above, is the majority owner of Fintur and also has a separate subsidiary in Uzbekistan), have disclosed investigations regarding transactions in the telecommunications sector in Uzbekistan.  Turkcell has received a request from the U.S. Securities and Exchange Commission (“SEC”) to submit documents and information related to Uzbekistan and is in the process of cooperating with this request.

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In addition to the foregoing, the new Turkish Commercial Code and related legislation may require us to provide new capital or other financial support to certain of our controlled subsidiaries, which may divert resources from other needs.  Our international and Turkish subsidiaries may not benefit us in the way we expect for the reasons cited above, as well as other reasons, including general macroeconomic conditions, poor management and legal, regulatory or political obstacles.  For many of these subsidiaries, we do not expect to achieve desired levels of profitability in the near or mid term, and we may be required to record impairments. We may also in response to such conditions consider increasing, restructuring or exiting certain of our investments.

We are exposed to foreign exchange rate risks and risks relating to our cash balance management that could significantly affect our results of operation and financial position.

We are exposed to foreign exchange rate risks because our income, expenses, assets and liabilities are denominated in a number of different currencies, primarily Turkish Lira, U.S. Dollars, Euros, Ukrainian Hryvnia, Belarusian Rubles and Azerbaijani Manat.  In particular, a substantial majority of our debt obligations and equipment expenditures are currently, and are expected to continue to be, denominated in U.S. Dollars, while the revenues generated by our activities are denominated in other currencies, in particular the Turkish Lira, Ukrainian Hryvnia, Belarusian Ruble, Azerbaijani Manat and Euro.  In addition, we are exposed to such currency mismatches with respect to certain capital expenditures and off-balance sheet obligations, in particular our obligations in respect of universal service for the installation of infrastructure in uncovered areas of Turkey, a service that we have contracted to provide for an amount in TRY, but which requires expenditures in foreign currencies.  See “Item 8. Financial Information” and Note 34 to our audited consolidated financial statements included in “Item 18. Financial Statements” of this annual report on Form 20 F.

The TRY depreciated by 20% against the U.S. Dollar in 2013, driven mainly by expectations regarding the Federal Reserve’s tapering resulting in a withdrawal of foreign capital, and there is a possibility of further devaluation. The Belarusian Ruble depreciated against the U.S. Dollar by 11%.  There was no major change in Ukrainian Hryvnia and the Azerbaijani Manat against the U.S. Dollar in 2013. However, as of March 14, 2014, the Ukrainian Hryvnia depreciated against the U.S. Dollar by 19%.

Sudden increases in inflation or the devaluation of these currencies or other currencies in which we generate revenue, have had, and may continue to have, an adverse effect on our consolidated financial condition or liquidity.  In the current economic environment and considering the fragile economic conditions in Belarus and the current situation in Ukraine, there is a possibility of further devaluation. There are no tools to hedge foreign exchange rate risks effectively due to restricted and undeveloped financial markets in these countries.

Fluctuations between Turkish Lira, Ukrainian Hryvnia, Belarusian Rubles and Azerbaijani Manat, on the one hand, and U.S. Dollars and Euros, on the other, have had and may have an unfavorable impact on us.  We may enter into derivative transactions to manage the risk with respect to the Turkish Lira; however, these transactions have a cost and do not fully cover all of our risks.  As of December 31, 2013, our consolidated debt was $1,561.4 million and around 90% of this amount was in foreign currency.

When we translate our results of operations and financial position into U.S. Dollars for the purpose of preparing our financial statements that are expressed in U.S. Dollars, the dollar amounts will vary in accordance with applicable exchange rates.  We do not hedge this so called “translation risk”.

Reduction in cash generated from operations and increased capital needs may increase our borrowing requirements, which may increase our financing costs and our exposure to the risks associated with borrowing.

We continue to experience challenging macroeconomic, regulatory and competitive conditions in our markets that may reduce cash generated from operations, and we may continue to face increased capital needs to finance our technological and geographic expansion. In addition, an increase in the volume of contracted smartphone sales has resulted in and may continue to result in higher working capital requirements. These pressures have in the past reduced, and may continue to reduce, our liquidity.  Reduced liquidity may lead to an increase in our borrowing requirements. 

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Borrowing by Turkcell group companies exposes us to interest rate risk and possibly increases interest expense, obligates us to meet certain covenants and exposes us to financial risks if covenants are not satisfied or if additional financing is required, each of which could have a material adverse effect on our consolidated financial condition and results of operations.  Furthermore, no assurance can be given that we will continue to have access to financing on terms that are satisfactory to us.

As of December 31, 2013, our consolidated debt was $1,561.4 million.  $404.1 million of our debt portfolio consisted of financing obligations paying interest at fixed rates.  The remainder of our debt portfolio pays interest at floating rates, which has been favorable in the current interest rate environment, but would expose us to increased costs if rates increase further.

In June 2011, we engaged in a forward start collar agreement for some portion of our debt which is due in 2015 and exposed to interest rate risk.  The collar hedges variable interest rate risk for the period between 2013 and 2015.

Some of the borrowing agreements entered into or guaranteed by Turkcell have financial covenants that the borrower is required to observe.  Although we are not presently concerned with Turkcell’s ability to meet its financial covenants, no assurance can be given that the covenants in borrowings entered into or guaranteed by Turkcell will at all times be met.  Furthermore some of our borrowing agreements contain cross default clauses under which a default by a group company could constitute an event of default under certain of our borrowings.

Some companies in our Group have defaulted, and may in the future default on their financial covenants and payment obligations.  For example, since June 2011, Astelit has not met certain payment obligations, which were waived until February 1, 2012.  Since that date, our Board of Directors has not acted to approve or reached a consensus for the extension of repayment dates. As a result, Astelit was unable to meet its repayment obligations to its parent company, Euroasia Telecommunications Holdings BV (“Euroasia”) (55% owned by Turkcell) and Financell BV (100% owned by Turkcell) totaling $323 million and defaulted on its loan agreements (As of December 31, 2013, Astelit’s unmet obligations under its loans to Financell and Euroasia reached a total of $598 million).  In addition to the Euroasia Loan and Financell Loans, as given above, Astelit has defaulted on one SCM loan agreement currently totaling $39 million (the “SCM Loan”).

As a consequence of Astelit’s default, cross default clauses have been triggered on five loan agreements totaling $554 million (currently decreased to $176 million, following the Company’s $150 million guarantee payment and other principal payment) and waivers were obtained for the aforementioned loans before December 31, 2013.  In the same vein, Euroasia, a Group company that is a 100% shareholder of Astelit, which had previously borrowed $150 million to finance Astelit, also defaulted on its loan on March 30, 2012.  As a guarantor, the Company paid $150 million to related banks on April 6, 2012.  As a consequence of Euroasia’s default, cross default clauses have been triggered on four loan agreements (the same ones referenced above) currently totaling $176 million and waivers have also been obtained for the aforementioned loans.  As no waiver has been received for the SCM Loan from SCM, this loan has been classified in current liabilities.  Accordingly, as a result of the event of default, SCM has the right to demand immediate loan repayment, although it has not perfected any pledges in connection with this loan.

There can be no assurance that we will not have to make similar payments in the future, which could adversely affect our business and results of operation.  Furthermore, if Astelit cannot obtain new financing and if our Board or shareholders fail to achieve consensus on Astelit related issues, Astelit’s and our own financial results and condition would be adversely affected.

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Limitations on spectrum as a scarce resource in mobile telecommunication systems, alleged health risks with BTS and dependence on suppliers for network equipment may adversely affect our ability to maintain operational excellence.

Spectrum limitations and frequency costs may adversely affect our ability to provide services to our subscribers and the cost to us of providing such services.

Our GSM and UMTS licenses have specified terms and are subject to renewal upon a payment of a fee, but renewal is not assured.  The loss of, or failure to renew, our licenses could have a material adverse effect on our business and financial condition.  Those licenses have also specified radio spectrum.  The spectrum is a continuous range of frequencies within which the waves have certain specific characteristics.  The number of subscribers that can be accommodated on a mobile network is constrained by the limited amount of spectrum allocated to the operator of the network and is also affected by subscriber usage patterns and network infrastructure.  We have 2x11 MHz of FDD spectrum in 900 MHz band for GSM and 2x20 MHz from 2100 MHz FDD band for UMTS services.  As our subscriber base and their demand for mobile services such as voice and data grow and we offer a greater number of services, we will require additional capacity.  We may face capacity problems, which may in turn lead to deterioration in our network’s quality and may negatively impact our operational results.

In addition, if we fail to obtain additional frequencies at a reasonable cost, the competitive coverage advantage of our Company may be adversely impacted.  The cost of obtaining new frequencies has increased significantly in recent years and is expected to continue to increase.  This has had and is likely to continue to have an adverse impact on our cost of providing service and results of operations.

In July 2011, the ICTA proposed to the Ministry of Transport, Maritime Affairs and Communications, on the subject of GSM frequencies, to be permitted to serve 3G services and the spectrum award of 2x8.6 MHz E-GSM band to the operator that has less than 10 MHz spectrum in 900 MHz and 2x15 MHz of 1800 MHz to each operator that does not have the spectrum.  The ICTA decision implies that only Avea will be eligible for the E-GSM auction, while Vodafone and Turkcell will be eligible for the 1800 auction, which may enable Avea to be the sole beneficiary of the E-GSM band.  In that case, Avea would be able to begin UMTS900 services immediately from the E-GSM band, whereas Turkcell and Vodafone would only begin after extensive technical works regarding spectrum clearance are done.  Consequently, the competitive coverage advantage of Turkcell may be adversely impacted.

Consistent with the nature of terminal technology development, traffic on the 2G network is expected to shift to the 3G network.  However, 3G terminal penetration is the key factor in providing the expected shift in traffic from 2G to 3G.  Penetration may stay low or our subscribers may choose to stay on the 2G network for reasons such as the 2G network’s lower battery power consumption.  In addition, 3G coverage depends on the deployment of the 3G network, which will certainly take time to achieve, compared to the coverage level of the 2G network.  As a result, Turkcell may have difficulties in releasing 900 MHz band for future technologies.

There are alleged health risks, zoning limitations and certification requirements associated with our Base Transceiver Stations (“BTS”), which make it difficult to build and maintain BTS.

We are aware of allegations that there may be health risks associated with the effects of electromagnetic signals from BTS and from mobile handsets.  While we believe that there is currently no substantiated link between exposure to electromagnetic signals at the level transmitted by our BTS and mobile handsets and long term damage to health, the actual or perceived health risks of mobile communications devices could adversely affect us through a reduction in subscribers, reduced usage per subscriber, increased difficulty in obtaining sites for base stations and exposure to potential liability.  Furthermore, we may not be able to obtain insurance with respect to such liability on commercially reasonable terms.

In recent years, legal proceedings have been brought against mobile operators seeking the removal of base station sites for health reasons.  In addition, the Turkish Supreme Court overruled the decisions of some local courts, finding that a base station in question could have negative effects on human health over the long term.  If the number of those cases increases or if new regulations were to result, these could have a material adverse effect on our operations and financial results.  Such legal proceedings may make it more difficult for us to establish and maintain such sites.  Furthermore, there are conflicting and confusing reports in the media about the health effects of BTS.  These reports have even caused local residents in certain regions to form large protests in strong objection to the BTS sites.  Such obstacles have made it increasingly difficult to build new BTS sites and maintain our existing sites.

Furthermore, there are zoning limitations related to our BTS that require operators to obtain construction permits and certificates, which may be costly and may have an adverse effect on our operating results. 

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A draft zoning law in Turkey may require mobile operators to obtain certifications for all existing and new BTS, which may result in significant compliance costs and closing of BTS for which certification cannot be obtained, negatively impacting our financial condition.  Any difficulty in maintaining or building BTS due to health concerns and our inability to obtain the required permission and certificates, may negatively impact the quality of our network, including our ability to expand and upgrade it, and affect our operational performance.

In addition, with the new Metropolitan law, municipalities have the right to regulate the choice of operators’ BTS locations. In addition, this law has increased the number of metropolitan municipalities and in some cases, the size of their territory was increased, which may have the effect of increasing our coverage obligations and the number of BTS required to meet them.  Related regulatory actions in the future are likely to increase our costs and affect results of operations, in many cases, adversely.

We are dependent on certain suppliers for network equipment and for the provision of data and services.  The failure of any of our suppliers to supply equipment to us, and at the level of quality we require, may have an adverse effect on our business and financial condition.

Like all operators, we purchase our mobile communications network equipment, from a limited number of major suppliers.  There can be no assurance that we will be able to obtain equipment from one or more alternative suppliers on a timely basis in the event that any current supplier for any reason, including that the technological requirements for our increasingly advanced infrastructure are too complex, is unable or unwilling to satisfy our demands.  This could also affect our competitive position, if our suppliers stay behind technological developments compared to the suppliers of our competitors.

Adverse economic conditions have negatively affected and may continue to affect our domestic and international suppliers, leading to a contraction in their business, which in turn may lead to a decrease in the quality of the services that they render to us and adversely affect timely delivery of such services, negatively impacting our business and operations.  In addition, our existing and new license agreements or new regulations may require us to purchase network equipment from specified suppliers or bring certain specifications regarding our existing suppliers.  Equipment from these suppliers may not always be compatible with our existing equipment or the supplier may fail to integrate it, and our employees may not be familiar with the technical specifications and maintenance requirements of equipment from these suppliers.  Furthermore, if our suppliers fail to meet the requirements, we may end up violating the terms of our license agreements.  These factors could also have a material adverse effect on our business and financial condition.

Turkcell’s complex ownership structure and ongoing disagreements among our main shareholders have adversely impacted and may continue to impact decision making on important matters.  These ongoing disputes may lead to further regulatory or legal actions, and affect the ownership and control of our shares.

Our principal shareholders are Sonera Holding B.V. and Turkcell Holding A.S., which hold 13.07% and 51.00%, respectively, of Turkcell’s shares.  TeliaSonera has informed us that they own additional shares totaling approximately 0.94%. Turkcell Holding A.S. is 52.91% owned by Cukurova Telecom Holdings Limited and 47.09% by Sonera Holding B.V. Cukurova Telecom Holdings Limited is 51% owned by Cukurova Finance International Limited and 49% by Alfa Telecom Turkey Limited.  Additionally, according to public filings (a Schedule 13D filed in November 2009), Alfa Telecom and TeliaSonera entered into an agreement regarding a possible consolidation of their holdings in Turkcell in a new company.  According to the information available to the general public, we understand that the agreement expired in May 2012.  It should be noted, however, that the agreement contains provisions allowing its prolongation.  Our Company is unable to assess if the agreement was indeed prolonged or not and cannot predict whether the parties will go forward with this consolidation or the form that it might take.

Cukurova and Alfa have been involved in a long running dispute regarding, in summary, amounts due by Cukurova to Alfa and Alfa’s claim to take ownership of Cukurova’s indirect 13.8% interest in our Company in settlement of such amounts.  This and other disputes have effectively blocked shareholder decision making on important corporate matters, and could have an adverse effect on the ability of our management to execute business decisions and take other actions.  We cannot predict when and how these disputes will be resolved and whether our shareholders will be able to achieve agreement on matters regarding the operation of our Company.

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The shareholding structure and the ongoing disputes have adversely affected our company in a number of ways and present a number of risks, including in particular:

·                                         Our Articles of Association contain quorum and majority requirements, at various levels, for shareholder meetings and decisions.  Failure to achieve a quorum or the required majority vote can block decisions that require shareholder approval.  We have had difficulty convening shareholder meetings and numerous items submitted to our shareholders have not been approved, including the distribution of dividends, the approval of our dividend policy, election of independent board members, the release of directors for actions taken and the approval of financial statements for 2010 and 2011.  In 2012 and 2013, due to lack of quorum, the annual general assemblies could not convene and none has been called yet in 2014.

·                                          A number of new corporate governance requirements were enacted under Turkish regulations by the Capital Markets Board of Turkey (“the CMB”) with mandatory effect from June 30, 2012.  We were unable to comply with some of these requirements because of a lack of consensus among our main shareholders, including a requirement that one third of our Board members and that all of our Audit Committee members be “independent”.

Under the new Capital Markets Law the CMB has the power to take action against the Company, our Board members and our main shareholders in respect of the various governance issues that have arisen or to amend the Articles of Association without general assembly approval.

Due to the failure of our Company to comply with the new corporate governance requirements, the CMB directly appointed three “independent” directors and four board members who satisfy its independence criteria, replacing those members of the Board whose terms had expired and whose successors could not be elected at the general assembly meetings. The CMB appointed members’ terms of office will last until new appointments are made in accordance with applicable legislation.

A new “Investor Compensation Center” was formed in 2013 which has the power to take action in place of the general assembly for companies that have failed to convene their general assembly meetings in two consecutive years and have CMB appointed directors.

No assurance may be given regarding the impact of past or future CMB actions, future Investor Compensation Center actions, or any future legal actions against our Company, on the overall company strategy, convening general assembly or the distribution of dividends.

Compliance with our home country governance rules is an important element of our compliance with the listing requirements of the New York Stock Exchange (“NYSE”).  Failure to comply with such rules could jeopardize the continued listing and trading of our ADRs on the NYSE.

·                                          Under the new Turkish Commercial Code, an “independent auditor” for our Company should have been approved by the general assembly by March 31, 2013.  This action has not yet been taken although our Board has agreed to present DRT Bagimsiz Denetim ve Serbest Muhasebeci Mali Musavirlik A.S. (Deloitte) for approval of the general assembly.  Since we were not able to comply with this requirement, an auditor may be appointed for us by court order upon request of any shareholder or board member.

For so long as our main shareholders are in dispute and unable to achieve consensus, we are likely to continue to experience difficulties obtaining corporate decisions, including with respect to the matters discussed above, and we may have difficulty obtaining decisions regarding our business and operations.  This situation may also lead to further regulatory and legal actions being taken in respect of our Company, the nature and effects of which we cannot predict.  Ongoing disputes among the shareholders may affect the ownership and control of our shares, the demand for our shares and our ability to manage our business, and no assurance can be given that the interests of these shareholders will be aligned with those of our other shareholders.

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We face risks related to our dependence on IT systems and the products and services we provide through third party suppliers as well as our exposure to technological changes in the communications market, including in industries where we traditionally do not compete.

We are dependent on certain systems and suppliers for information technology (“IT”) services and our business continuity is at risk due to our exposure to potential natural disasters, regular or severe IT and network failures, human error, security breaches and other cyber security incidents and IT migration risk.

We are heavily dependent on IT systems, suppliers of IT services and our IT employees for the continuity of our business and we are continually upgrading and converting our IT systems.  Although we devote significant resources to the development and improvement of IT and of security, back up and continuity systems, we could still experience IT and network failures and outages due to system deficiencies, human error, security breaches, terrorist or other destructive acts, natural disasters such as earthquakes and floods, unsuccessful migration to alternative or improved IT systems, or other factors.  We have and may, from time to time, experience cyber-attacks of varying degrees, and as a result, unauthorized parties may have obtained, and may in the future obtain, access to our computer systems and networks. Such cyber-attacks could result in the misappropriation of our proprietary information and technology, the compromise of personal and confidential information of our employees, customers or suppliers or interrupt our business.  We may incur significant costs in order to implement, maintain and/or update security systems that we feel are necessary to protect our computer systems. If we are not able to maintain adequate IT and network systems, or fully recover our IT and network systems in the event of an outage, disruption, or cyber-attack, the continuity of our operations could be affected, which could have a material adverse effect on our reputation, business, results of operations and we may also be subject to regulatory penalties.

2G and 3G networks are migrating towards IP technology to transport information.  These networks open up the possibility for IP based services.  However, once these services are introduced into the IP domain, the mobile network may be harmed by potential attacks.  The threats on the mobile network can originate from external sources, such as public internet, or internal sources, such as terminals connected to our mobile network.  Despite our efforts in taking security issues very seriously, we could encounter attacks on our infrastructure, which could have an adverse effect on our operations.

Although we closely follow general technological trends in communications and technology, we may be unable to adapt to technological changes in the communications market which could result in higher capital expenditures and a greater possibility of commercial failure.

The telecommunications industry is characterized by rapidly changing technology with related changes in customer demands for new products and services at competitive prices.  Technological developments are also shortening product life cycles and facilitating convergence of various segments in the telecommunications industry, including in our core mobile communications business and the 3G business.  Our future success will largely depend on our ability to anticipate, invest in and implement new convergent technologies with the levels of service and prices that customers demand.  Technological advances may also affect our level of earnings and financial condition by shortening the useful life of some of our assets, requiring us to record asset impairments.

The operation of our business depends in part upon the successful deployment of continually evolving mobile communications technologies, which requires significant capital expenditures.  There can be no assurance that such technologies will be developed according to anticipated schedules, that they will perform according to expectations or that they will achieve commercial acceptance.

The effects of technological changes on our business cannot be predicted.  In addition, it is impossible to predict with any certainty whether the technology selected by us will be the most economical, efficient or capable of attracting customer usage.  Although we are following general technological trends in communications and technology, there can be no assurance that we will be able to develop new products and services that will enable us to compete efficiently.

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We have become active in providing products and services for industries other than telecommunications, many of which are developed and/or maintained by third party providers.  Our dependence on these third party providers to help us navigate the regulatory, security and business risks of industries where we traditionally do not compete adversely affects our business.

The operation of our business depends, in part, upon the successful deployment of continually evolving products and services, including for applications in industries other than telecommunications, such as mobile financial services, mobile health and mobile education solutions, authentication solutions and entertainment and community services.  We are reliant upon third party providers to help us navigate risks relating to security, regulations and business in the industries where we do not traditionally compete.  Changes in such industries may impair our partners’ business and/or negatively impact the content we are developing, such as for entertainment, which, in turn, could have a material adverse effect on our business and financial condition.

Our business, consolidated financial results and/or operational performance could be adversely affected unless we retain our key personnel, our partners and their employees.

Our performance depends, to a significant extent, on the abilities and continued service of our key personnel.  Competition for qualified telecommunications and technology personnel in Turkey and elsewhere is intense. In addition, we are dependent on our dealers and distributors, as well as their ecosystem and personnel, in the growth and maintenance of our customer base.  The loss of the services or loyalty of key personnel could adversely affect our business and financial condition, as well as breaches of confidentiality regarding our customer, operation and business plan details, particularly if a number of such persons were to join a competitor.

We are involved in various claims and legal actions arising in connection with our business, which could have a material effect on our financial condition.

We are subject to investigations and regular audits by governmental authorities in Turkey, including the Competition Board, the ICTA, tax authorities and certain other parties, and governmental authorities in other countries in which we have operations.  We are currently involved in various claims and legal actions with such authorities.  We have set aside provisions for ongoing disputes based on applicable accounting standards.  However, no assurance can be given that the provisions we set aside will be sufficient to cover our actual losses under these matters, and that new disputes will not arise under which we would face additional liabilities and reputational risk.  For a more detailed discussion of all of our significant disputes, see “Item 8. Financial Information” and Note 34 to our audited consolidated financial statements included in “Item 18. Financial Statements” of this annual report on Form 20 F.

In particular, we note a dispute regarding the application of the Turkish Special Communication Tax.  The tax authority has assessed significant special communcation tax and a related penalty against our company as a result of a tax investigation regarding the years 2008 to 2012. The tax amount assessed on the Company is TRY 211.1 million (approximately $94.9 as of March 14, 2014) and the tax penalty imposed is TRY 316.6 million (approximately $142.3 as of March 14, 2014) as of December 31, 2013. This assessment is based on the tax authority’s claim that the Company should pay the Special Communication Tax on prepaid card sales made by distributors.  Turkcell has filed a lawsuit before the tax court for the cancellation of that aforementioned tax and tax penalty demand. After the lawsuit is filed, the Company applied for a settlement procedure.  While we intend to vigorously defend our rights and our position in this case, no assurance can be given regarding the outcome. If decided against us, this case could have a material and adverse effect on our results of operations and our financial condition.

In addition to the aforementioned risks, we note a dispute regarding radio utilization and usage fees. As a result of an investigation, the ICTA imposed an administrative fine to Turkcell amounting TRY 2.6 million (approximately $1.2 as of March 14, 2014) for providing misleading information to the ICTA and initiated an in-depth investigation to further inspect the correctness of the radio utilization and usage fee payments of the company regarding terms (years) which do not fall under the scope of this investigation. The ICTA Board also stated that the company underpaid a total of TRY 66.9 million (approximately $30.1 as of March 14, 2014) radio utilisation and usage fee for the years 2010 and 2011. According to the ICTA Board decision, TRY 4.5 million (approximately $2.0 as of March 14, 2014) of this underpaid amount derived from miscalculation and TRY 62.4 million (approximately $28.1 as of March 14, 2014) of the underpayment is a result of calculating the subscription numbers for 2010 and 2011 using the number of sales of the pre-paid SIM cards to the distributors, but not the actual activation numbers.

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We maintain and regularly review our internal controls over financial reporting, but these controls cannot eliminate the risk of errors or omissions in such reporting.

We maintain and regularly review internal controls over our financial reporting.  However, internal control over financial reporting has inherent limitations.  It is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures.  In addition, it can be circumvented by collusion or improper management override.  Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal controls over financial reporting.  It is possible to design safeguards to reduce, though not eliminate, this risk.  Our latest review has revealed certain deficiencies in our controls, although none that we believe constitute “material weaknesses”.  However, our controls have in the past suffered from these and lesser deficiencies and no assurance can be given that others will not emerge in the future.  A failure to detect or correct deficiencies and weaknesses in a timely manner could have an adverse effect on the accuracy of financial reporting.  Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes Oxley Act of 2002 could also adversely impact investor confidence and the market price of our common shares or ADSs.

ITEM 4.                                                INFORMATION ON THE COMPANY

4.A                             History and Development of the Company

Turkcell Iletisim Hizmetleri A.S. (“Turkcell”), a joint stock company organized and existing under the laws of the Republic of Turkey, was formed in 1993 and commenced operations in 1994.  Our principal shareholders are Sonera Holding B.V. and Turkcell Holding A.S., which hold 13.07% (does not include additional shares totaling approximately 0.94% that TeliaSonera has informed us they own) and 51.00%, respectively, of Turkcell’s shares.  Turkcell Holding A.S. is 52.91% owned by Cukurova Telecom Holdings Limited and 47.09% by Sonera Holding B.V.  Cukurova Telecom Holdings Limited is 51% owned by Cukurova Finance International Limited and 49% by Alfa Telecom Turkey Limited.  The address of our principal office is Turkcell Iletisim Hizmetleri A.S., Turkcell Plaza, Mesrutiyet Caddesi, No. 71, 34430 Tepebasi, Istanbul, Turkey.  Our telephone number is +90 (212) 313 10 00.  Our website address is www.turkcell.com.tr.  In July 2000, we completed our initial public offering with the listing of our ordinary shares on the Borsa Istanbul and our ADSs on NYSE.

We operate under a 25-year GSM license, which we were granted in April 1998 upon payment of an upfront license fee of $500 million.  Under our license, we pay the Undersecretariat of the Treasury (the “Turkish Treasury”) a monthly treasury share equal to 15% of our gross revenue.  Of such fee, 10% is paid to the Ministry of Transport, Maritime Affairs and Communications of Turkey (“Turkish Ministry”) for a universal service fund.  We also operate under interconnection agreements with other operators that allow us to connect our networks with those operators to enable the transmission of calls to and from our GSM system.

In early 2009, we were granted the 20-year type A 3G license, which provides the widest frequency band, for a consideration of EUR 358 million (excluding VAT), and we signed the related 3G license agreement on April 30, 2009. The 3G license agreement has similar provisions to the aforementioned 2G license agreement.

In 2013, we won an auction held by the Turkish Ministry related to universal service, which requires installing sufficient infrastructure to uncovered areas with a population of less than 500 and its operations for 3 years.  We started the service in August 2013 and as of the end of 2013, infrastructure covering 550 settlements has been installed (out of the three year target of 1,799) within the scope of the project, with network-sharing technology.

Our subscriber base has grown substantially since we began operations in 1994.  At year-end 1994, we had 63,500 subscribers.  By year-end 2013, that number for the Group had grown to 71.3 million.

In 2013, we had total revenues of $5,975.4 million, our adjusted EBITDA totaled $1,858.0 million and we reported a net income attributable to the owners of Turkcell amounting to $1,228.2 million.

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For the year ended December 31, 2013, we spent approximately $853.8 million on capital expenditures, compared to $975.5 million and $866.0 million in 2012 and 2011, respectively.

In addition to our operations in Turkey, we have various international operations.  For more information, see “Item 4.B. Business Overview—International and Domestic Subsidiaries”.

4.B                            Business Overview

Based on operator announcements, we are the leading provider of mobile services in Turkey in terms of the number of subscribers, with 51% of the Turkish subscriber market as of December 31, 2013, compared to 52% as of December 31, 2012.  We provide high-quality mobile voice, broadband and other services over our mobile communications network and have developed the premier mobile brand in Turkey by differentiating ourselves from our competitors with our value offers, which include:  superior and innovative technologies, more advantages, outstanding and extensive service quality, and being a leader in social responsibility. We maintain our strong position in the market due to our customer-oriented approach and our ability to provide quick and differentiated solutions to meet customers’ needs through lifestyle segments. We are in compliance with all of our license requirements in all material respects.

I. Industry

a. Overview

GSM, one of the digital standards for mobile communications, was developed in 1987 to facilitate unification and integration of mobile communications worldwide.

As a digital standard, GSM offers a wide range of services that include voice, circuit switched data, packet data and fax, in addition to standard service offerings such as call barring, call forwarding, call waiting and roaming into areas serviced by other GSM carriers.  A key component of the GSM network is the simcard, which enables the user of a mobile phone to be identified.  Simcards, also known as “smart cards”, are placed inside each handset and function as its digital brain.  The simcard’s digital memory allows for storage of the subscribers’ personal information, such as the rate plan, phone number and service features.  Both postpaid and prepaid subscribers are required to purchase a simcard in order to use the telecommunications service offered by Turkcell.

GSM networks have traditionally been used exclusively as personal voice communications networks.  Data communication in GSM networks has started with speeds of 9.6 kilobits per second and continued to improve with High Speed Circuit Switched Data (“HSCSD”), General Packet Radio Service (“GPRS”) and Enhanced Data rates for GSM Evolution (“EDGE”) technologies.  Today, GSM networks can provide high-speed wireless data services of up to 300 kbps.

The mobile telecommunications industry has increasingly provided mobile data services and used 3G/HSPA+as a technology platform that is more suitable for data transmission.  Currently, many advanced technology platforms are being developed to enable the provision of more sophisticated data services.

In the early 3G networks, the platform was only able to provide network speeds up to 384 kbps.  By using the new radio access technology, High Speed Downlink Packet Access (“HSDPA”) in UMTS networks, operators gain increased capacity and improved downlink speeds up to 14.4 megabits per second (“Mbps”).  High Speed Packet Access Evolution (“HSPA+”) further enhanced the mobile broadband experience and increased the data capacity of HSPA.  HSPA+ enhances mobile broadband with peak rates of 42 Mbps and more.

In 2013, we installed a 4G (LTE-Advanced) trial network and tested LTE-Advanced with Carrier Aggregation.  The speed of the Carrier Aggregation technique combines different frequency bands making it possible to reach very high speeds.  During the tests, we reached speeds of up to 900 Mbps in a lab environment (a record speed of Turkey on a mobile network) and up to 300 Mbps, with prototype LTE-A modems.  We continue to work on 4G technology as it is the next step in the network evolution path of mobile broadband services we started with 3G. Turkcell became a member of the NGMN (Next Generation Mobile Networks) and also a member of the NGMN Board in 2013. Although no details have been provided by the ICTA, it is expected that 4G technology may begin to be used in 2015.

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b. The Turkish Mobile Market

According to a TUIK announcement, the Turkish population is young, with an estimated median age of 30, which is lower than elsewhere in Western Europe, and the majority of the population lives in urban areas.  In addition, there were 76.7 million people living in Turkey as of December 31, 2013.

Penetration level increased to 91% in 2013 (based on the operators’ announcement).  There is good potential for growth opportunities in the Turkish mobile communications market in the areas of broadband and 3G services, as well as from Turkey’s youth segment due to the aforementioned demographics.  According to the operators’ announcements, there are currently three mobile communication operators in Turkey — Turkcell, Vodafone and Avea — with a total of 69.4 million GSM lines as of December 31, 2013.  Vodafone entered the Turkish GSM market by acquiring Telsim on May 24, 2006.  Telsim, which had received a 25-year license at the same time as us and on what we believe to be identical terms, including the $500 million upfront license fee, had been put up for sale by the Savings Deposit Insurance Fund (“SDIF”) in August 2005.  The auction for Telsim was held on December 13, 2005, with Vodafone submitting the winning bid of $4.55 billion.  Avea is an operator majority-owned by Turk Telekom.  Turk Telekom is 55% owned by Oger Telecom, a multinational GSM operator owned 35% by Saudi Telecom Company.  In September 2006, Turk Telekom acquired Telecom Italia SpA’s shares of 40.6% in Avea for $500 million.  Turk Telekom now holds 89.99% of the shares in Avea.  The remaining 10.01% belongs to Is Bankasi.

II. Strategy

Our vision is to ease and enrich the lives of our customers with leading communications and technology solutions.  We strive to build value for our customers, shareholders and employees.

As a leading communications and technology company, our goal is to continue organic growth while selectively seeking and evaluating new investment opportunities.  Building on our strength in brand, people, infrastructure and scale, we have identified six strategic priorities in which we intend to pursue opportunities for profitable business growth:

·                                          Deliver superior customer experience;

·                                          Grow voice revenues;

·                                          Grow our mobile internet business;

·                                          Drive adoption of mobile services;

·                                          Drive operations excellence and productivity; and

·                                          Invest in future growth businesses.

III. Customer Segmentation & Services

a. Customer Segmentation

Through our increased focus on customers, all loyalty actions are designed in line with the targeted segments’ lifestyles, needs, priorities, and expectations.

The aims of the segmentation are:

·                                          to increase the loyalty of existing Turkcell customers;

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·                                          to ensure behavioral and emotional brand loyalty; and

·                                          to ensure a seamless series of positive brand experiences throughout all customer touch points, as well as to attract new customers.

We focus on segments, which are youth, professionals (white collar, self-employed, blue collar, governmental workers subsegments), households (disabled, farmers, housewives, retired, unemployed subsegments) and premium, with differentiated GSM and non-GSM offers, as well as campaigns and co-branded activities with selected companies from other sectors to create added values to targeted segments.

The youth segment management includes the loyalty program called “gnctrkcll” which is the largest youth club in Turkey, and ensures customer retention by presenting campaigns and advantages that fit the trends of young people.  Gnctrkcll aims to reinforce Turkcell’s brand recognition as a young, dynamic, popular and intimate brand.

We also diversified the offers and packages for our prepaid customers, which include monthly fee-based packages that include voice, SMS, MMS and data advantages.  We launched such packages to increase the retention of prepaid subscribers and the revenue generated from them.

b. Services

We currently provide high quality mobile voice, broadband and other services to subscribers throughout Turkey.  Subscribers can choose between our postpaid and prepaid services.  Currently, postpaid subscribers sign a subscription contract and receive monthly bills for services.  Prepaid subscribers must purchase a starter pack, which consists of a simcard with balance of TRY 5 or TRY 20, or airtime of weekly or monthly 400 minutes, while the top-up cards can be purchased in amounts ranging from TRY 15 to TRY 180.

As of December 31, 2013, we had approximately 21.2 million prepaid subscribers and 14.0 million postpaid subscribers, compared to approximately 21.9 million prepaid subscribers and 13.2 million postpaid subscribers as of December 31, 2012.

(i) Voice Services

Voice services are the main services that we provide to our customers.  Voice services consist of high quality GSM services on a prepaid and postpaid basis.  Throughout 2013, we simplified our tariff structure so that it is easy to use and can be tailored to our customers’ needs.

(ii) Mobile Broadband

We commercially launched 3G simultaneously in 81 province centers and major cities in Turkey at the end of July 2009 and reached 86.2% population coverage as of December 31, 2013.  There are approximately 28 million registered 3G subscribers and 12 million 3G-enabled handsets in our network. Smartphones are an important component for the growth of our mobile broadband business. Through offering a wide product portfolio including Turkcell branded smartphones, the smartphone penetration on our network reached 30% by the end of 2013, up from 19% penetration a year ago.

A wide variety of data offers are made available as part of our voice and terminal bundled offers to increase 3G device penetration, create a unique terminal experience and enhance the broadband internet experience.  Terminal offers contain a variety of 3G enabled terminal devices such as feature phones, smartphones, 3G modems and tablets.

Throughout 2013, we sustained our position as leader of handset offerings through our dealer channel and we delivered attractive campaigns with “top of the class” models of brands in high demand such as Apple, Nokia and Samsung.

Turkcell launched its first Turkcell-branded handset, T10, the affordable Android smartphone, to widen access to mobile broadband in 2010.  Since then, Turkcell introduced 5 additional T-series smartphone models and 1 tablet. Specifically in 2013, Turkcell launched the first domestically designed and produced smartphone T40.  Turkcell-branded smartphones reached over 1 million sales units in total as at the end of December 2013.  In February 2013, we also launched our own branded Turkcell Tablet, bringing dynamism to the tablet market with its thin and light design, as well as attractive performance with TV, music, magazine and book content.

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In addition to constant communication emphasizing 3G’s coverage, penetration and speed, Turkcell has launched many offers and applications to increase smartphone penetration and mobile broadband usage.

(iii) Other Mobile Services

By providing a wide range of services, Turkcell enables users to remain connected wherever they are, via their mobile devices.  From basic telecommunications services to social community services, Turkcell responds to the diverse needs of subscribers to help them connect to life.

Consumer Products and Services

Consumer Product Management is focused on developing and managing products and services to address the diverse needs of both consumers and corporate customers, thereby enriching their lives.  These services are designed around three pillars:  enhancing the communication experience of our customers via better call management and messaging services, enriching their “on the go” experience by using mobile technologies, especially in the areas of entertainment, i.e. TV, music, sports, gaming, and enabling our customers to access information according to their needs.

Turkcell seeks to differentiate itself by providing innovative and pioneering solutions in collaboration with its strong solution providers and various partnerships.  Consumer Product Management offers various products and services, including bill payment reminders via SMS, call management and messaging options, mobile payment systems, security and information packages tailored to customers’ preferences, government-related applications that provide information on schooling and justice, financial transactions, cloud services and entertainment options (such as sports, gaming and music).

In addition, Turkcell has developed a number of Turkcell-branded mobile applications in-house.  Turkcell T Market is a localized application store for users to download both free and paid mobile applications to their supported handsets.  It enables people to download more than 10,000 applications including Turkcell-branded applications and third party applications such as news, games and sports.  As of December 31, 2013, Turkcell has 32 active Turkcell-branded mobile applications that were downloaded over 6 million times in 2013.  The most popular downloads among Turkcell applications relate to online transactions (a multi-platform application for Turkcell subscribers, which allows them to keep track of mobile usage, change user settings and which also enable top-up activities), phone back-up, music (the legal music platform to stream and download music), video (provides access to various local video portals from tablets or smartphones) and TV (a total of 58 channels broadcasting a variety of series and hundreds of the most popular HD-quality movies through mobile and web platforms).

Corporate Products and Services

Corporate Product Management provides corporate customers with a competitive advantage by providing non-core industrial solutions, thereby delivering a new category of revenue sets for customers.  Spanning from frozen food chains to farming, many types of solutions are available to streamline customer processes and provide operational efficiency through new revenue streaming channels, better consumer reach and experience.

Turkcell Smart Enablers Services

Turkcell Smart Enablers is a network of mobile-based and innovative technological services that offers companies the opportunity to know their customers better, reach the right customer in the right place, and increase security measures.  These services are provided through a web service that is easy to integrate into companies’ own systems.  Eighteen services have been launched within this service group.

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As of the date of this annual report, more than 100 companies evaluate their business processes and provide new technological services to their customers by using Turkcell Smart Enablers web services (APIs).

Turkcell Smart Map:  The Turkcell Smart Map service, which is another first for Turkey, makes it possible for companies who want to target specific customers to analyze large scale data.  Turkcell Smart Map is working on a website in which companies can analyze masses in 21 different sub-demographic profile combinations and reach the real target audience density in 5 million grids and 12,500 districts.  Turkcell’s corporate customers can analyze Turkcell’s mobile activity concentration at a point and time where an activity is being planned, or analyze where their own customers are concentrated at a specific time of day.  Turkcell Smart Map transforms this concentration into user-friendly language.  Through this application, companies may have access to important data that will help them conduct marketing activities, develop growth strategies, decide on new investment and design campaigns.

Location Based Services:  Corporate customers can monitor and manage their sales forces and fleets with Ekip Mobil.  Ekip Mobil is a management console that allows customers to view their field teams/vehicles on a map, define alarms for specific regions and create direct communication channels to the field.  Ekip Mobil can be used on any mobile device.  For companies, the investment costs are minimal.

By using the Turkcell Smart Enablers Nearest Where service, customers who visit a company’s website from their mobile phones can learn about the closest ATMs, stores, campaigns and technical services from their location with a single click or an SMS.

Turkcell Smart Education:  The aim of the Turkcell Smart Education program is to provide an interactive education platform for corporate customers.  Classrooms with interactive whiteboards, document cameras and lecture capture systems will support active-learning environments.  Telepresence systems, video and web conferencing enables online education or distance learning for participants around the world.

Authentication Services

Mobile Signature, which was launched in February 2007, enables mobile subscribers to sign electronic documents and transactions with a legally accepted digital signature using GSM SIM cards.  Mobile signature subscribers can easily verify their personal identity in a digital environment and complete transactions remotely, without needing to be physically present.  There are currently 80 application providers in the market, representing industries as diverse as banking, e-government, insurance, healthcare and e-commerce.  One Time Password is widely used by corporate customers for two level authentication controls on transactions.  The service allows corporate customers to send a single use password via SMS to consumers when providing authentication on transactions.  It is widely used for online banking processes and login transactions.

Machine to Machine (“M2M”) Communications

Since 2009, Turkcell has focused on its M2M business, whose principal markets in Turkey are car telematics, team tracking, fleet management, POS terminals, security alarms, smart metering, mobile health management, smart agriculture and sales force automation applications.  Turkcell launched Turkey’s first M2M Platform in March 2012.  With the M2M Platform, customers can manage their devices more effectively.  As of December 31, 2013, the number of M2M subscribers reached 1.4 million.

Turkcell’s Smart Fleet offers logistics companies new opportunities in many aspects of their work, ensuring increased productivity.  Also, the system greatly contributes to the environment by preventing wasteful fuel consumption.

Turkcell also offers telemetry solutions to its corporate customers.  In partnership with specialized third parties, Turkcell telemetry solutions allow customers to remotely access and collect metering data without utilizing a field force.  Some examples of where telemetry services may be used include alarm systems, gauge metering, reactive energy, transformer stations, pipeline metering controls, and meteorology stations, among others.

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Turkcell Smart Health Solution effectively enables patients with chronic diseases, such as diabetes, hypertension, asthma and heart arrhythmia, to automatically record and send their test results to hospitals in a secure way, providing a reliable remote healthcare monitoring solution.  This project was developed in collaboration with Istanbul University.

Mobile Marketing

Turkcell continues to grow its mobile marketing business as consumers move from a desktop to a computing environment to computing “on-the-go”.  As the use of mobiles increases, mobile marketing is becoming a necessary part of every brand’s marketing strategy.  Turkcell utilizes mobile marketing and advertising channels to create additional value for customers.  This value is ensured by one of the largest opt-in (customer permission) databases in Turkey, a variety of innovative marketing products and channels, and high response rates in comparison with traditional media.  Through this database, advertisers can concentrate on their target market, segment their target groups and send specific messages to their recent and potential customers via different advertising channels.

Turkcell Partner Services

The Turkcell Partner Network is a business ecosystem which expands across international markets such as Ukraine, the United Kingdom, the United Arab Emirates and China.  It comprises more than 200 registered business partners and a community of 7,000 individual developers functioning as application service providers, content providers, service provider system integrators, independent service vendors, and OEM business partners, as well as many other establishments or individuals, which have the potential to develop innovative mobile services and products.  In its broadest sense, Turkcell Partner Program is a versatile business, including a toolset used by this Ecosystem to define, regulate and operate partnership schemes and business models.

Since 2002, Turkcell has been developing new products and services with its partners.  Since 2004, these partnerships have been executed through the Turkcell Partner Program.  More than 10,000 partner applications exist in T-Market as of 2013.  Turkcell Partner Ecosystem comprises a business network of over 10,000 professionals recruited by our partners and their distribution channels.

Turkcellpartner.com serves as a primary digital communication channel for the Turkcell Partner Program and comprises various interactive components:  a portal, blog, wiki, newsletters, RSS, and social media feeds.  The portal also acts as a virtual professional networking platform, wherein partners and individual professionals can expose their skill sets and areas of interest, follow and message each other, and blog about the trends of mobile technologies.

c. New Technology Businesses

We are looking beyond our current value-added offerings and focusing our efforts on continuously developing innovative products, services and solutions to meet our consumer and corporate customer needs and expectations.  We have built a strong innovation partner network consisting of both internal and external innovation resources to extend to new business areas and to provide advanced customer experience with unique value propositions delivered through cutting-edge technology.  We are partnering with various adjacent industry players and startup ventures in verticals such as finance, media and connected living to launch competitive offerings and build new businesses that will both differentiate us in the market and contribute to our growth.  We are also connected to leading global innovation hubs, such as Silicon Valley and Boston in the U.S. and the Far East, to closely follow global market trends and identify new business opportunities.  We are now one of the main local stakeholders for organizations such as Endeavor and the U.S. State Department-lead Global Entrepreneurship Program.  In addition, one of the major activities has been to take an active role in the local entrepreneurial network, since 2002.  We collaborate with key stakeholders such as entrepreneurs, institutional investors, universities, business incubation and acceleration centers, non-governmental organizations, as well as angel investors.

We continuously support initiatives such as acceleration program partnerships, business plan generation competitions, events such as “the Global Entrepreneurship Weekend”, university roadshows, seminars and many others.  In addition to these activities, we recently launched our ‘‘Developers of the Future’’ project which guides the youth population towards becoming mobile application developers and provides them an open innovation platform while they are building their collaborative software projects.

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Within the organization, all employees are encouraged to join the innovation process with their voluntary efforts on creating and evaluating new business ideas.  Furthermore, Turkcell has created a team dedicated to corporate entrepreneurship.  Events promoting the sharing of ideas and encouraging brainstorming are organized regularly.

(i) Mobile Finance Business

Turkcell Mobile Payment is a SMS-based operator billing service, which was launched in 2009.  After introducing two new mobile financial services in 2011, Turkcell formed a new strategy in order to increase the penetration of financial services and launched Turkcell Wallet in October 2012, which combined Turkcell’s NFC-based mobile wallet service “Cep-T Cuzdan” and SIM banking platform “Cep-T Para” under a single platform.

The basic principle behind the service, which operates in co-operation with Mastercard, is to link debit, credit or prepaid card numbers with the customer’s GSM number, so that customers can use their GSM numbers to fulfill their daily transactional needs, such as payments (including contactless payment through NFC technology), money transfers with complementary value-added services such as loyalty card advantages.  In addition, Turkcell’s mobile payment capabilities can also be used in public transportation at participating locations.

Turkcell Wallet is a platform open to all banks operating in Turkey.  Since January 2013, six major Turkish banks have participated in Turkcell Wallet (Akbank, Denizbank, Garanti Bank, Is Bank, Vakif Bank and Yapi Kredi) with varying levels of integration; some of the banks support the NFC-function, while others support NFC, as well as other functions.

As of March 2014, Turkcell Wallet had almost 1 million customers, 130 thousand of these customers had activated their wallet by linking at least one card and fifty of the top 100 e-commerce merchants in Turkey accept payment with Turkcell Wallet.

(ii) Digital Media Services

By streaming technology at 3G speed, Turkcell introduced MobilTV service in 2009 which enabled Turkcell subscribers to watch live television channels and on-demand video content on their mobile phones.

On April 18, 2012, Turkcell re-launched MobilTV service and introduced Turkcell TV with an enhanced multiscreen “personal” user experience and a rich content library.  With Turkcell TV, Turkcell and Turkcell Superonline, subscribers can access all of the content from their phones, tablets, computers and connected TVs with both 3G and broadband internet connections.  Subscribers also enjoy social connectivity, sharing, personalization and content discovery in real time with Facebook and Twitter integration.

Turkcell Magazine Kiosk is an application that gives users free access to the highest quality magazines published in Turkey on their iOS/Android tablets and smartphones.  The magazines available through this application are enriched with additional videos, photographs and music and provide a unique experience to users with 3D animations.

Turkcell Library is an e-book platform that has over 6,000 e-books.  After choosing and purchasing e-books from the Turkcell Library website, users may immediately begin reading using Turkcell Library iOS/Android applications.  Users can synchronize the last page they have read across their Turkcell Library applications so they can continue where they left off and can also access their bookmarks or notes.  In addition, users can share e-book titles on social media with friends.

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(iii) Digital Life Services

Travel Services

Turkcell Travel is a mobile application designed specially for the purpose of responding to the travel-related needs of Turkcell subscribers.  The application can be used for several purposes:  checking-in for flights, tracking changes on planned departure or arrival times of flights, city guides which consist of more than 80 cities around the world to gather information, travel suggestions, explore and event schedule sections have rich and updated contents in order to inspire users with travel locations.  It is also possible for users to buy roaming packages in the application.  Other features of the application are:  Packing List, which help users to pack before traveling, Visa information for Turkish citizens, Currency Converter and Dictionary. The application can be used both online and offline.  Turkcell Travel is available for iOS and Android devices.

Tourist Guide is a travel guide application designed for travelers visiting Turkey for all purposes.  Users can search all local interest points such as hotels, restaurants, banks, etc. and view directions on a map.  There are about 200 additional recommended attraction points with special content and photographs.  The application is available on both iOS and Android devices.

Ticketing

SMS Ticket is a service provided by Turkcell that can substitute any kind of ticket (transportation, live events, movies, conferences, etc.) with a SMS.  SMS Ticket contains encoded alpha numeric text which enables the SMS ticket to be used by any kind of phone whether smart or not.  With the extension of a partnership with the Turkish Football Federation, SMS Ticket has been used for the Turkish national football team matches instead of conventional paper tickets.  SMS Ticket gave access to more than 17,000 people to events in 2013.  We anticipate that the use of SMS Ticket will increase in 2014. We expect new opportunities and the expansion of our existing partnerships to keep the ticketing business growing, making Turkcell a ticket aggregator between different platforms.

Music

Music, being a very strong engagement tool for a brand with its customers, is one of the main focuses of Turkcell. We reach more than 20 million people each year via music content, based on their preferences. A 360 degree music experience with a rich catalogue of local and international content is the ultimate target in this area.  In 2014, we enriched and enhanced music offerings of Turkcell for its large consumer base.

Education

In January 2014, the Turkcell Academy, which was founded in 2006 to train Turkcell’s employees, went digital in collaboration with leading educational institutions. This initiative will make digital learning available to Turkcell customers and to the general public with more than 2,000 videos that span a wide range of subjects in 5 categories: Innovation-Entrepreneurship, Leadership, Business World, Technology and Learn with Khan Academy, which provides courses on the basics of sciences and finance.

d. Other Services

(i) International Roaming

Our coverage extends to many countries in the world.  As of December 31, 2013, we have further enhanced our position as the leading mobile operator of international roaming services by expanding our partnership in 207 destinations throughout the world, pursuant to commercial roaming agreements with 686 operators.

Since July 2002, we have provided roaming services for prepaid subscribers of foreign mobile operators visiting Turkey.  We were the first operator to provide such a service in Turkey.  This service, called Passive Customized Applications for Mobile Network Enhanced Logic (“passive CAMEL”), can only be enabled if both operators have installed the CAMEL system on their networks.  As of December 31, 2013, we offered prepaid roaming to the prepaid subscribers of 369 operators in 144 destinations.

Since October 2004, we have offered roaming services for Turkcell prepaid subscribers traveling abroad.  This service, called Active Customized Applications for Mobile Network Enhanced Logic (“active CAMEL”), can only be enabled if both operators have installed the CAMEL system on their networks.  As of December 31, 2013, we offered prepaid roaming to Turkcell prepaid subscribers through 409 operators in 166 destinations.

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Since October 2002, we have offered GPRS roaming.  As of December 31, 2013, we allowed our subscribers to access the internet and reach their email accounts while traveling, through 539 GPRS roaming partners across 185 destinations.

In order to balance international SMS traffic, we began signing international SMS Interworking Agreements with other mobile operators in April 2002 and as of December 31, 2013, we have signed 147 International SMS Interworking Agreements.  As of December 31, 2013, our subscribers can send SMS to more than 686 mobile operators located in 207 destinations, including North America and China.

Since December 2005, our subscribers have been able to send and receive MMS to and from subscribers of foreign operators.  As of December 31, 2013, our subscribers were able to send MMS to 149 mobile operators in 78 destinations.

On July 30, 2009, we became the first operator in Turkey to launch 3G Roaming services in many different locations around the world. As of December 31, 2013, our subscribers enjoyed high speed mobile internet connections with 374 operators in 148 destinations.

We have entered into direct international roaming agreements with GSM operators around the world, including in Cuba, Iran, Sudan, Libya and Syria.  These arrangements have been entered into in the ordinary course of business and on arm’s-length terms that we believe to be in line with industry standards.  Under the roaming arrangements in the listed countries, our net revenues for roaming on our Turkish network totaled less than $2.1 million and our net expense for our subscribers roaming on the networks of operators in the listed countries was less than $1.7 million.  In financial terms, we do not believe that our roaming arrangements with operators in Cuba, Iran, Sudan, Libya and Syria are material.

IV. Tariffs

Our charges for voice, messaging and data consist of monthly fees, usage prices, bundles and volume discount schemes and options under various tariff schemes.  Our license agreement regulates our tariffs for GSM services.  The license agreement provides that, after consultation with us and consideration of tariffs applied abroad for similar services, the ICTA sets the initial maximum tariffs in Turkish Lira and U.S. Dollars.  Thereafter, our license agreement provides that the maximum tariffs shall be adjusted at least every six months.  The license agreement provides a formula for adjusting the existing maximum tariffs.  For the maximum tariffs established in Turkish Lira, the formula is:  the Turkish Consumer Price Index announced by the Ministry of Industry and Trade for Turkey minus 3% of the Turkish Consumer Price Index announced by the Ministry of Industry and Trade.  For the maximum tariffs established in U.S. Dollars, the same method is applied to the USA Consumer Price All Item Index Numbers.

Although the Concession Agreement includes a provision regarding the increase of the maximum tariffs, the ICTA has decreased the maximum tariff since 2007, which has negatively affected our tariff structure.  The Company initiated lawsuits for the annulment of such decisions.  Some of the lawsuits were rejected by the courts and we appealed these decisions.  The other lawsuits are pending.

For more information on how our maximum and minimum price levels are established, see also “Item 4.B. Business Overview—Regulation of the Turkish Telecommunications Industry”.

There are various tariffs based on the subscriber segment (postpaid or prepaid, corporate or consumer).

a. Main Tariffs

We have segmented tariff plans that target specific subscriber groups.  In the postpaid segment, pay as you go tariffs offer flat and on-net (Turkcell subscriber to Turkcell subscriber) usage advantages.  A majority of our customers prefer packages which include minutes to Turkcell, intra-company calls (for corporate segment) and all national directions.  Turkcell also offers all-inclusive packages which are offered with annual fixed price plans that include price discounts and/or extra minutes. In the prepaid segment, the main tariffs offering advantageous prices that are based on a refill amount are “Super Tariff” and “Youth Tariff”.  In addition, we provide fee-based optional minute packages/TRY cards for calls to PSTN (Public Switched Telephone Network).

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(i) Consumer Data and Terminal Offers

We have different tariff bundled terminal offers in which minutes, SMS and data services can be bundled with handsets, which could lead to the use of 3G services and mobile broadband.

We also have many mobile Internet data bundled offers based on different customer needs according to their usage patterns, such as lifestyle segments, data amount, usage hours, and seasonal usage.  Examples include shared data packages, throttling data packages, short-term contracted Vinn (dongle) offers, Kamu Vinn, Need-based Vinn offers, monthly Facebook, and Twitter packages.

(ii) Corporate Tariffs and Loyalty Programs

We offer a variety of voice packages to our corporate customers to meet their communication needs.  These packages include company, on-net and/or flat minutes.  We also offer bundled versions of these packages including data and flat SMS.

We also address and provide solutions to our corporate customers’ different telecommunication needs with the Total Telecom Solutions Provider (“TTSP”) approach. We collaborate with our subsidiary, Superonline Iletisim Hizmetleri A.S. (“Turkcell Superonline”), to serve TTSP products like data center, cloud, VOIP, MPLS/VPN, mobile and fixed bundle offers to our customers from a single source.

We realized that our customers require the optimization and fulfillment of their telecom needs. In order to meet their expectations, for our corporate customers, we launched a new initiative named “Technology Initiative for Corporates”, aiming to match our products and services with the vertical and situational needs of the companies.  With this initiative, we aimed to fulfill their needs as a one-stop shopping experience with the “applicable & affordable Turkcell high quality technological solutions” and let them focus on growing their business.

The initiative falls under five major areas which encompass various mobile and fixed technologies that Turkcell and Turkcell Superonline offer.  These five areas are the primary business areas in which companies in Turkey can benefit the most from our services and improve their businesses in many difference ways.  These areas are Marketing, Management, Network, Cloud & IT and Collaboration.  Within the framework of this initiative, which differentiates us from competitors, we also focus on the situational conditions of the companies, such as “starting a new business”, “opening a new branch”, “cost cutting” and “institutionalization”.

For small and micro businesses, we have dedicated voice and non-voice offers, and provide different benefits for craftsmen, sole traders and professionals such as doctors and lawyers.

We launched our business to business (“B2B”) loyalty program, IsteKazan, in March 2010, for Turkcell corporate customers.  IsteKazan is the first loyalty program focused on the B2B segment, where we have worked with more than 60 different brands across the country.  The main focus of IsteKazan is to offer advantages to our corporate customers and provide them with cost advantages on their non-GSM costs.  Depending on the customer preferences and requirements, the most appropriate solution package is designed, such as discount bundles, cost level alternatives, etc.  With this program, Turkcell corporate customers get discounts in several areas such as market, gas, transportation, technology, car rentals, dry cleaning services, etc.

(iii) Roaming Tariffs

Turkcell intends to provide advantageous price schemes to customers when abroad. With a customer-oriented focus, Turkcell offers products to subscribers with high and low roaming usage.  For subscribers preferring low usage, Turkcell offers a linear roaming tariff known as the “Turkcell World Tariff”.  The subscribers, unless they apply for a specific roaming package, are subject to the Turkcell World Tariff when traveling abroad. In 2013, the new “smart roaming tariff” was launched.  With this tariff, voice/SMS bundle packages and data-only packages are offered.  The smart roaming packages reactivate automatically when the package is over and whenever the customer goes abroad.  Additionally, platinum customers enjoy “super roaming scheme” which enables them to use their domestic tariff while abroad by paying a daily fee.  Other than the smart and super roaming options, Turkcell offers advantageous voice, internet and SMS packages for high usage levels.  Overall, Turkcell aims to provide better roaming experiences with various pricing schemes that fit different usage patterns.

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Based on Turkcell’s roaming agreements, Turkcell hosts the subscribers of foreign operators on its network.  When a subscriber of a foreign operator makes a call using Turkcell’s network, that subscriber’s operator pays us our inter-operator tariff (“IOT”) for the specific call type.  IOT is a wholesale tariff applied between mobile operators having roaming agreements.

V. Churn

Churn rate is the percentage calculated by dividing the total number of subscriber disconnections during a period by the average number of subscribers for the same period.  For these purposes, we define “average number of subscribers” as the number of subscribers at the beginning of the period plus one half of the total number of gross subscribers acquired during the period.  Churn refers to subscribers that are both voluntarily and involuntarily disconnected from our network.  Under our disconnection process, postpaid subscribers who do not pay their bills are disconnected and included in churn upon the commencement of a legal process to disconnect them, which commences approximately 180 days from the due date of the unpaid bill.  Pending disconnection, non-paying subscribers are suspended from service (but are still considered subscribers) and receive a suspension warning, which in some cases results in payment and reinstatement of service.  Prepaid subscribers who do not reload TRY for a period of 270 days are disconnected (this was changed in 2010 from 210 days).

In 2013, the churn rate slightly increased to 27.4%, primarily due to the impact of Turkcell’s compliance with the ICTA decision, dated September 26, 2012, enabling users of mobile lines without subscription to register those lines under their names at no charge.  Each registered mobile line has to be recorded as a churn and also as an acquisition in operators’ records.  Excluding the impact of this decision, our churn rate would have been 26.4%.  We have what we believe to be an adequate allowance for doubtful receivables in our consolidated financial statements for non-payments and disconnections amounting to $324.0 million and $392.9 million as of December 31, 2013 and 2012, respectively.

VI. Seasonality

The Turkish mobile communications market is affected by seasonal peaks and troughs.  Historically, the effects of seasonality on mobile communications usage has positively influenced our results in the second and third quarters of the fiscal year and negatively influenced our results in the first and fourth quarters of the fiscal year.  Recently, however, due to changing market dynamics, such as the ICTA’s intervention in our tariffs and increasing competition in the Turkish telecommunications market, the effects of seasonality from our customers’ mobile communications usage has decreased.  Local and religious holidays in Turkey have also generally affected our operational results.

VII. Mobile Network

a. Coverage

Statements regarding our 2G coverage are based on the ICTA’s specifications as well as TUIK’s announcements regarding the population, and statements regarding our 3G coverage are based on the ICTA’s 3G coverage calculation specifications issued on April 25, 2012.  Our mobile communications network is designed to provide high-quality coverage to the majority of Turkey’s population throughout the areas in which they live, work and travel.  As of December 31, 2013, Turkcell covered 92.2% of Turkey and 99.5% of its population, including 100% of cities with a population of 1,000 or more.  Coverage also includes a substantial part of the Mediterranean and Aegean coastline, and during 2013, we enhanced coverage in low populated areas (populations of less than 1,000 people) as well.  We have significantly exceeded the minimum coverage requirements of our license.

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We have also expanded our mobile communications network to add capacity to existing service areas and to offer service to new areas, including the improvement of existing urban, suburban and intercity road coverage.  In 2014, we will continue to expand our coverage and further enhance capacity in populated areas.  During 2014, Turkcell will continue with the roll out of 2G coverage to 1,799 settlements of populations of less than 500 (total population is around 258 thousand) within the scope of the Ministry of Transport, Maritime Affairs and Communications’ Rural Coverage Project as part of Universal services.  We started the service in August 2013 and as of the end of 2013, infrastructure covering 550 settlements has been installed within the scope of the project, with network sharing technology, which enables all operators to use the same BTS, BSC and IP Transmission lines.

We commercially launched 3G simultaneously in 81 province centers and major cities in Turkey in July 2009.  As of December 31, 2013, we had covered 86.2% of Turkey’s population and more than 99.5% of all metropolitan municipalities’ population.  With the advantage of higher quality communications provided by the widest spectrum in 3G, Turkcell will continue to offer seamless communications services to its customers with by far the most extensive coverage amongst its peers.

b. Quality of Service

The ICTA published a “Regulation on Quality of Service in the Electronic Communication Sector” on September 12, 2010, effective as of December 31, 2011 (see “—Regulation of the Turkish Telecommunications Industry” for further details).  Turkcell Network is currently above the standards set by the statement.  As usual, “Call Drop” was one of the major Quality of Service figures that we focused on during 2013.

Dropped calls are calls that are terminated involuntarily and are measured by using the ratio of total dropped calls during the most congested hour of network traffic during the relevant time period to the traffic intensity in that congested hour.  Using such industry standard for dropped calls, our dropped call rate for our 2G network has further decreased to far below 1%.

Turkcell also provides high quality services through its 3G network.  In a short time, we have succeeded in reducing the 3G dropped call rate to the same level as the 2G network.  The rate of service quality is being enhanced all the time due to investments in our 2G and 3G network to improve the quality and capacity of the network.

Turkcell has been awarded the ISO 9001 certificate since 1999 and renews its ISO 9001 certification every two years in the scope of design, installation, operation, sales, after sales services of global mobile communications within Turkcell Functions.  The latest certification Turkcell was awarded is the ISO 9001:2008 Quality Management System Certificate in 2011.  In addition, Turkcell received the ISO/IEC 20000-1:2005 IT Service Management System Certificate in January 2011. As the first telecommunications company with the ISO 20000-1:2005 certificate in Turkey, Turkcell has promoted the adoption of an integrated process approach to effectively deliver managed services to meet business requirements.

c. Network Evolution

(i) Access Network

In 2013, we continued to develop and improve the quality and capacity of our network.  In urban areas, we increased coverage and capacity by placing network infrastructure in commercial sites such as shopping malls, business complexes and entertainment centers.  We began using Pico BTS and Femto (Small Cell) solutions to further enhance our coverage at some places where signal penetration problems may exist due to thick concrete walls, coated glass windows, basement floors, etc.  We also focused on Special Distributed Antenna Solutions and customization of parameter settings in major stadiums to maximize the capacity of our 2G/3G Access Network and together with Turkcell Superonline we have also implemented WiFi offload integrated with Turkcell 3G network to further enhance the customer experience.  We are the only operator in Turkey that can increase its carrier number up to 4, due to our A-type license agreement.  We use this feature to increase our capacity and provide services to a larger number of subscribers.  In 2013, we continued to increase the number of carriers with the advantage of A-type license (2x20 MHz) and we believe that we have sufficient bandwidth to serve our current and projected short-term subscriber base and that we currently meet the capacity requirements of both our 2G and 3G subscribers.

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We have achieved a speed of 43.2 Mbps through dual carrier technology in 99% of the coverage area across the country.  We have also implemented HSUPA 5.76 Mbps in our entire 3G network.  In the GSM network, EDGE is used as a complementary technology to UMTS/HSPA.  EDGE is an evolution of the GSM technology which allows consumers to use cellular handsets, PC cards and other wireless devices at faster data rates up to 300 Kbps.  Today, all of our base stations are supporting EDGE technology.  To enhance our 2G network capacity where congestion is a possibility, we intend to construct additional network sub-infrastructure, or implement technological advances that will permit bandwidths to be used more efficiently.

(ii) Transmission Network

Turkcell is the first operator in Turkey to start deploying All-IP NodeBs throughout its network.  We are not only expanding our 3G network but also migrating legacy TDM GSM sites to IP through the deployment of Abis over IP technologies.  Thus, we currently have an All-IP mobile backhaul of more than 20,000 BTSs and Node-Bs that provides resiliency, ease of operation and operational expense advantages.  In addition to this, we have also invested in topology redundancy projects due to our IP/MPLS backhaul for better service availability.  Backhaul bandwidth capacities were increased for wide coverage of 42 Mbps dual-carrier applications and the Microwave Radio Link network was modernized for Native Ethernet and Adaptive Modulation support to increase availability and reduce outages due to severe rain conditions.  Usage of fiber connectivity is moving deeper from High RAN aggregation points towards Low RAN aggregation points.  Also fiber to the site applications have been started for LTE readiness of sites with very high traffic.

(iii) Core Network

The whole Turkcell Core Network is currently composed of new layered structure Next Generation Network (“NGN”) nodes.  By using MIP structure, we get (i) full redundant MSC-Ss, (ii) redundant physical interfaces to MGWs, (iii) CAPEX efficiency, and (iv) improvement in radio network KPIs.

We have deployed and continue to develop our GPRS network to provide the speed and reliability to meet the demand of our businesses and consumers.

(iv) Services and Platforms

We have an intelligent network and other service platforms enabling our services and we also provide secure and controlled access to the network for the content and service providers to provide messaging and data services.  This infrastructure is being improved to open up more capabilities on the network for the application and content providers. New infrastructure also contains a portal where subscribers buy services, receive promotions and enroll for campaigns easily.

d. Network Operations

We have primarily employed experienced internal personnel for network engineering and other design activities while employing suppliers for our network infrastructure and as our partners in product/service development. Our suppliers install the base station cell site equipment and switches on a turn-key basis, while subcontractors employed by our suppliers perform the actual site preparation.

e. Network Maintenance

We have entered into several system service agreements. Under these agreements, our mobile communications network, including hardware repair and replacement, software and system support services, consultation services and emergency services are serviced by local providers. Our subcontractors perform corrective and preventative maintenance on our radio network in the field, although providers repair all the network equipment. We have regional operation units with qualified Turkcell staff that operate and maintain our network in 16 main regions.

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In addition, the Turkcell Network Control Center located in Istanbul monitors our entire network 24 hours a day, 365 days a year, and ensures that necessary maintenance is performed in response to any problems.

f. Site Leasing

Once a new coverage area has been identified, our technical staff determines the optimal base station location and the required coverage characteristics. The area is then surveyed to identify BTS sites.  In urban areas, typical sites are building faces and rooftops.  In rural areas, masts and towers are usually constructed.  Our technical staff also identifies the best means of connecting the base station to the network.  Once a preferred site has been identified and the exact equipment configuration for that site determined, we start the process of site leasing and obtaining necessary regulatory permits.  Site leasing processes and construction of the masts or towers is performed by Kule Hizmet ve Isletmecilik A.S. (“Global Tower”), a company 100% indirectly owned by us.  We lease the sites and towers based on the agreed tariffs and also buy antenna space and provide maintenance and management services from Global Tower.

g. Business Continuity Management (“BCM”)

Turkcell Business Continuity Management identifies potential threats, their impact and provides a framework for building resilience with the ability to create an effective response that safeguards the interests of our key stakeholders, their reputation, brand and value-creating activities.  We established Business Continuity Management System (“BCMS”) to implement, operate, monitor, review, maintain and improve the business continuity.

Turkcell BCMS is assisted by the coordinators and business continuity virtual team.  Regular BCM training and awareness programs are carried out throughout the organization.  The effectiveness of BCMS is monitored every year through internal/external audits, and integrated exercises, the results of which are reviewed in management review meetings.  In 2013, we exercised and tested our business continuity plans, communication and warning procedures to ensure that they are consistent with the business continuity objectives.

Turkcell’s BCM will be able to cover the majority of Turkcell’s operations through potential environmental events and natural disasters.  Our aim is to ensure the continuity of the call, messaging, internet and societal security services at acceptable predefined levels following disruptive incidents.  Business continuity plans are prepared by taking into consideration the customer’s expectations, company policies and legal obligations.  They are regularly exercised to guarantee the operation in case of an emergency.  We are continuously improving our business continuity capacity in accordance with the “ISO 22301 Societal Security, Business Continuity Management System” international standards and continue to work with our group companies while preserving our image as a reputable and solid GSM operator.

In 2013, Turkcell was awarded its ISO 22301 certification which demonstrates our commitment to provide reliable services to our customers.  Turkcell aims to ensure both employee safety and the continuity of its call, messaging, internet and societal security services.

VIII. Sales and Marketing

We design our sales and marketing strategy around subscriber needs and expectations.  We try to ensure the loyalty of our subscribers by providing offers, campaigns and our advanced service delivery platforms.

a. Sales Channel

Our nationwide distribution channel is an important asset that helps us differentiate ourselves from our competitors and achieve our sales targets.  Our strong and extensive distribution network consists of distributors, Turkcell Distribution Centers (“TDC”), Corporate Solution Centers, non-exclusive dealers, Turkcell Communication Centers (“TIMs”), Turkcell Stores and Consumer Electronic Chains, as well as points of sale for scratch cards and prepaid airtime, including digital channels, ATMs, POSs, web, call centers, supermarkets, gas stations and kiosks.  We sell postpaid and prepaid services to subscribers through our distribution network.  The number of exclusive and non-exclusive dealers totaled approximately 15,200 sales points as of December 31, 2013.

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Our exclusive retail network consists of powerful retail dealers with good locations, modern designs and superior after-sales service.  TIMs lead the market with their user friendly atmosphere, new products and services and dedicated employees.  In 2009, TIMs were relaunched with the motto “We aim to ease your life with technology” in order to enhance our customer service oriented image under the “TIM” brand.  As of December 31, 2013, Turkcell had 1,190 exclusive sales points.  Every year, 25 million customers are served by our specialized sales force, which consists of 8,878 people in TIMs.  In addition, the six flagship Turkcell Stores, fully operated by Turkcell, continue to enhance Turkcell’s brand image in the retail world by providing what we believe to be the best customer experience and introducing top-of-the-line new products and services to our customers.  Moreover, we have 278 Technology Specialists in TIMs who coach the entire sales force, help customers experience technology and spread the latest technological information.

Our non-exclusive dealer network provides us with a high penetration of Turkcell products and services in Turkey.  Our 41 TDCs are aimed at enhancing our distribution effectiveness in the non-exclusive channel and ensure the timely and efficient distribution of Turkcell products and merchandising materials.  They also facilitate the Turkcell brand and offer awareness in this competitive channel.

Alternative sales channels are re-designed under five main branches:  Telesales, New Sales Channels, Electronic Market Chains, Online Sales and Self-Service Channels.

We are working on attracting our customers to all of our channels through digital channels and by co-branding.  We offer our customers fast and safe access to our products and services 7/24 via turkcellmagaza.com, our online sales channel.  Another channel is our Self-Service Channel (which consists of ATMs, Call Centres, internet branches of banks, Kiosks, turkcell.com.tr and in other channels, over 10 thousand national and local markets and post office branches) where we give our customers the opportunity to access Turkcell’s products easily and quickly.

All dealers are compensated based on the number of new subscribers who they sign up and the level of such subscribers’ usage, as well as additional incentives based on their performance.

Sales Management develops strong relationships with and promotes brand loyalty among dealers through a variety of support and incentive programs.  Training programs aim to educate dealers’ personnel on the technical aspects of our products and services, as well as sales techniques to increase sales and enhance customer relations.  The technological development projects commenced in 2007, coupled with merchandising services, point-of-purchase (“POP”) materials and channel specific campaigns, help to support the sales efforts in all of our sales channels.

We address strategic enterprises, large enterprises and medium businesses through three channels, which are account managers and small businesses with indirect sales channels, corporate focused dealer organizations and telesales operations.  With the objective of coordinating all sales processes, working closely with more customers and improving effectiveness and efficiency, corporate customers are managed directly by these sales channels.  The main aim of this activity is to provide mobile services to large and medium enterprises and small and medium businesses in order to meet their communication requirements and also to support these solutions with retention and acquisition programs and tariffs.  We work closely with solution partners and application providers to integrate mobility into companies’ operations through tailor-made total solutions packages.

b. Advertising

We have continued to bring innovations in the mobile communications world, and thus, we believe we have improved the lives of our subscribers with time-saving solutions and products that ease and enrich their lives.

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Our goal is to become one of the strongest brands in Turkey.  Being one of Turkey’s most beloved brands, we are helping our customers reach anything, anywhere and anytime by providing them with innovative technology solutions.  In 2013, we focused on understanding the needs of each consumer segment thoroughly and offered to them tailored solutions comprising our value offers:  superior coverage, 3G speed and mobile technologies, more advantages, outstanding and extensive service quality, and leadership in social responsibility.  With our renewed vision, we lend our power to our customers by enabling them to be more connected to life with simple communications solutions ready at their fingertips.

In 2013, brand communications remained focused on strengthening Turkcell’s brand image.  Along with that, Turkcell Group companies’ branding principles were also reviewed in order to build a clearer link with Turkcell and to create a more powerful and unified Turkcell brand.  Turkcell brand communications continued to be harmonized in different forms of media, such as television, internet, outdoor events, etc., in order to deliver more consistent messages.  In 2014, our goal is to have the highest level of brand awareness and to maintain our image as the leader among competitors, as we have been doing for nearly 20 years now.

c. Customer Services

The key part of our strategy is to provide basic and premium services by thinking and acting in a customer-focused manner.  Our goal is to sustain a continuous relationship with the customer through customer satisfaction.  We aim to achieve operational excellence throughout all customer touch points by continuously improving processes and services.  We design our processes and service structure based on customer feedback.  In 2013, we expanded this practice and started to implement segmented customer experience, focusing on consumer’s lifestyles, consumption habits, jobs, etc., and offering services accordingly.

We mainly work with two companies, Global Bilgi Pazarlama Danisma ve Cagri Servisi Hizmetleri A.S. (“Turkcell Global Bilgi”) and Hobim Bilgi Islem Hizmetleri A.S. (“Hobim”).  Hobim handles printing services of scratch cards and invoices as well as archives subscription documents for us.  Turkcell Global Bilgi offers 24 hours-a-day, 7 days-a-week contact center services at several sites and manages more than 200 million contracts annually.  Turkcell’s customer service strategies for contact centers are implemented by Turkcell Global Bilgi and we ensure that customer services and customer satisfaction programs, which are also provided by Turkcell Global Bilgi, are executed in line with Turkcell’s strategies.  Turkcell Global Bilgi’s success has been verified by a number of domestic and international awards in 2013.  Among these were “The Bronze Medal winner for Best Outsourcing Partnership” in the world, “The Gold Medal winner for Best Outsourcing Partnership” in the EMEA region and “The Silver Medal for Best Customer Services Facility” in Europe at the Europe Call Center Awards.  With regard to Turkcell’s customer satisfaction, we received “The Customer Satisfaction Sustainability Award” at the National Quality Awards organized by the Turkish Quality Association (“KalDer”) for sustaining our number one ranking in the Turkish Customer Satisfaction Index for the past seven years.

We also offer customer service at face-to-face centers.  Our centers are established all around Turkey in order to meet our customers’ technological needs and demands.

Furthermore, meeting the service needs of our customers online is crucial for us.  We have a self-service application for customer service called My Account which is available on web, mobile and smartphone platforms.  We also respond to customer requests on social platforms, both proactively and reactively.  Services through web chat, e-mail and SMS chat were recently launched for specific customer segments, according to their service needs.

For corporate customers, account managers are assigned for exclusive service.  An account manager is the single point of contact and provides proper solutions in response to customer needs.  While managing our corporate customers through four sales segments, we also support our customers through e-mails, calls and back office, under the umbrella of our Contact Center. We have Corporate Customer Representatives to support direct requests from our strategic enterprises and large enterprises and/or to support indirect requests received through our account managers. In addition, for small and medium businesses, we aim to meet faster and higher quality service standards by providing online solutions to satisfy the demands of our sales teams regarding their customers’ demands with our “Field Support Desk”.

In order to provide segmented customer service, we design and make improvements for all of the customer processes throughout all channels for different customer segments as well as monitor the quality of service provided.

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In addition to the operational targets, we aim to achieve excellent customer satisfaction.  We evaluate the performance of our service providers with the help of satisfaction surveys and make our service providers aware of any deficiencies and offer suggestions as to how to improve their service to our customers.

Turkcell has been awarded the ISO 10002 certificate since 2011 and continuously renews its ISO 10002 certification every year in the scope of design, installation, operation, sales, after sales services of global mobile communications within Turkcell Functions. The latest certification is ISO 10002:2004 Quality Management-Customer Satisfaction-Complaints Handling Certificate, which was awarded in 2012.

IX. International and Domestic Subsidiaries

A component of our strategy has been to grow or improve our business in both international and domestic markets.  International expansion and, in particular, continued strong operations in the countries in which we are currently present is important for us.  We believe these operations will provide additional value to us in the future and will continue to serve an important role in our goal to be a leader in communications and technology.

While continued improvement of our current operations is a key priority, we may further expand and increase our presence in key emerging markets in the region, such as the C.I.S. region, Eastern Europe, the Middle East, Africa and the Balkans, in addition to our current investments in Ukraine and Belarus.  Through such investments, we intend not only to transfer our technological know-how and marketing expertise, but also to maximize economies of scale and group synergy.

In line with our business strategy, in 2010 we signed a wholesale traffic purchase agreement to provide voice and data services in Germany targeting the local Turkish population and other mobile users with close ties to Turkey.

Our international and domestic endeavors will continue in 2014.  We will continue to selectively seek and evaluate new investment opportunities both in our main and adjacent communication and technology business areas as well as the businesses outside of the scope of our core business.

Ukraine—Life:)

We acquired our interest in our subsidiary Astelit on April 2, 2004, by purchasing the entire share capital of Astelit’s parent, CJSC Digital Cellular Communications (“DCC”), from its shareholders.  Astelit, 99% owned by DCC, held a nationwide GSM1800 license.  On April 4, 2006, Astelit announced a merger of DCC and Astelit, which was completed on August 1, 2006.  Our interest in Astelit is held through our wholly-owned subsidiary, Turktell Uluslararasi Yatirim Holding A.S. (“Turktell Uluslararasi”), which holds 55% of Euroasia, which is the 100% owner of Astelit.  System Capital Management Limited (“SCM”) indirectly holds 45% of Astelit.

Astelit began its operations in the Ukrainian market in February 2005 with its new brand “life:)”.  As of December 31, 2013, Astelit had 12.6 million subscribers, a 13.5% annual increase from 11.1 million subscribers as of December 31, 2012.  The majority of subscribers are prepaid subscribers as of December 31, 2013. Astelit’s three-month active subscribers reached 9.2 million as of December 31, 2013 from 8.0 million subscribers as of December 31, 2012. During the third quarter of 2010, the definition of active subscriber was modified to churn out any subscriber whose only activity was the receipt of bulk SMSs or call forwarding.

The life:) brand has become one of the best known in the country and reached 99% recognition in the market due to its strong differentiation from existing mobile brands and focus on innovation, transparency and youthful spirit.  The company has been known in the market as one of the most dynamic and innovative ever since life:) was the first to introduce a number of new technologies and products that had previously been unavailable to Ukrainian subscribers.  The company is highly targeted to keep its innovation leadership in marketing and sales.  In 2011, Astelit adopted its new regional strategy, which divides the country into three major regions and focuses on each region with tailored marketing and sales activities.  As a result, Astelit expands and improves its sales network to bring its products and services to the most remote parts of the country.  By the end of 2013, Astelit had 49,554 non-exclusive sales points throughout Ukraine, 197 life:) exclusive sales points, 167 branded life:) partners’ sales points and 80 customer service centers operating in 59 cities in the country.  As of December 2013, Astelit provided roaming opportunities in 185 countries via 633 roaming partners.

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As of December 31, 2013, Astelit operated in 100% of the cities of Ukraine with a population of more than 10,000 inhabitants and more than 29,775 settlements, and all principal intercity highways and roads, which corresponds to coverage of approximately 98.4% of the whole population of Ukraine or 93.9% geographical coverage with 11,222 base stations.  Cumulative capital expenditure for the development of Astelit’s coverage amounted to $1,503 million as of December 31, 2013.  In 2014, Astelit will continue investing to increase capacity of its network.

Astelit is strongly dedicated to further developing innovations in the market and if a 3G and/or LTE license were to be made available, we would consider submitting a bid, but no timetable has been announced.  If successful, the associated costs would increase our Ukrainian financing needs, which could in turn require us to consider new sources of funding or the extension of existing sources.  If we are not successful in the pursuit of such a license, because, for example, the cost is prohibitive and/or the number of licenses available is limited, we could find ourselves at a competitive disadvantage in this market.  Currently, there is only one 3G license (UMTS/WCDMA) that has been granted in Ukraine.  This license has been granted, without tender, to the state-owned company, Ukrtelecom, which was privatized in 2011 and was acquired by SCM in 2013.  Ukrtelecom had completed the spin-off procedure of its mobile communication division and established a separate legal entity, “TriMob LLC”.  Currently, Ukrtelecom has transferred its 3G license (30 MHz in each region), network infrastructure and subscribers base to “TriMob LLC”.

The Ukrainian telecommunications market is regulated by the Cabinet of Ministers of Ukraine (main state policy), the State Service of Special Communication Administration (technical policy aspects) and by the National Commission for the State Regulation of Communications and Informatization (“NCRCI”) controlled by the President of Ukraine and which carries out general telecommunication market regulation and inspection.

The technical specifications for the MNP call routing model have been adopted by the State Service of Special Communication Administration and came into force on December 7, 2012.  The launch of MNP service has been officially delayed by NCRCI until July 1, 2014.

Since the acquisition of Astelit in the second quarter of 2004, the results of our operations in Ukraine have been consolidated in our consolidated financial statements.

As of February 1, 2012, Astelit had debt repayments due to Euroasia in the amount of $150 million and to Financell in the amount of $173 million.  Since June 2011, Astelit has not met the payment obligations, which were waived until February 1, 2012.  Since that date, our Board of Directors has not acted to approve or reached a consensus for the extension of repayment dates. As a result, Astelit was unable to meet its repayment obligations to Euroasia and Financell totaling $323 million and defaulted on its loan agreements (As of December 31, 2013, Astelit’s unmet obligations under its loan to Financell and Euroasia reached a total of $598 million). As a consequence of Astelit’s default, cross default clauses have been triggered on five loan agreements totaling $554 million (currently decreased to $176 million, following our $150 million guarantee payment and other principal payment) and waivers were obtained for the aforementioned loans before December 31, 2013. In the context of guarantees, Financell has pledges on shares and all assets of Astelit including bank accounts.  Additionally, Financell has a second priority pledge on Euroasia shares held by the SCM together with a guarantee and indemnity given by SCM.  Financell has rights to commence enforcement of pledges and guarantee under certain conditions.  In addition to the Euroasia Loan and Financell Loans, as described above, Astelit has defaulted on one SCM loan agreement currently totaling $39 million (“SCM Loan”).

In the same vein, Euroasia, which had previously borrowed $150 million to finance Astelit, also defaulted on its loan on March 30, 2012.  As a guarantor, we paid $150 million to related banks on April 6, 2012.  In relation to the guarantee agreement, a first priority pledge on Euroasia shares held by SCM has been established in favor of Turkcell.  Upon payment of the guaranteed amount, Turkcell has the right to commence enforcement of this pledge on the Euroasia shares under certain conditions. As a consequence of Euroasia’s default, cross default clauses have been triggered on four loan agreements (the same ones referenced above) totaling $176 million and waivers have also been obtained for the aforementioned loans.  As no waiver has been received for the SCM Loan from SCM, this loan has been classified in current liabilities.  Accordingly, as a result of the event of default, SCM has the right to demand immediate loan repayment, although it has not perfected any pledges in connection with this loan.

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With respect to the amounts due to Financell, our Board of Directors decided to extend a guarantee to Financell in order for it to perform its obligations with respect to the loans granted by the banks for providing Group financing.  The guarantee will be up to $410.7 million principal amount plus the sum of interest, any other costs, expenses and fees that may accrue in connection with the credit line agreements.  This guarantee includes the debt repayments of $173 million due under the loan agreements signed between Astelit and Financell, and of the loans that Financell granted to Astelit which have not yet fallen due.  Astelit’s debts are denominated in foreign currencies which expose Astelit to foreign exchange and convertibility risks.

Belarusian Telecom

On July 29, 2008, Beltel Telekomunikasyon Hizmetleri A.S. (“Beltel”) signed a share purchase agreement to acquire an 80% stake in Belarusian Telecom, which is specialized in providing services using GSM and UMTS technologies, for consideration of $500 million.  On August 26, 2008, control of Belarusian Telecom was acquired from Belarus’ State Committee on Property and $300 million of the total consideration was paid.  An additional $100 million was paid in December 2009 and another $100 million was paid in December 2010.  An additional payment of $100 million will be made to the seller when Belarusian Telecom records full-year positive net income for the first time.

At December 31, 2013, Belarusian Telecom had 1,238 thousand registered subscribers, the majority of whom were prepaid, and had 135 exclusive and 829 non-exclusive sales points.  In the third quarter of 2013, the churn policy was revised pursuant to a management decision.  With this change, the lifecycle methodology is in line with the market practice of “180 days after any refill plus 90 days quarantine period”, previously exercised as “180 days after any refill plus 15 days quarantine period”.  It is estimated that Belarusian Telecom’s total registered subscribers would have been approximately 85 thousand less in 2013 should the churn policy have remained unchanged.

At December 31, 2013, Belarusian Telecom operated 2G services in all, and 3G services in 98.8%, of the cities with a population of more than 10,000, and provided 2G services on all principal intercity highways and roads of Republic of Belarus (total length of all Belarus highways and roads is 15,476 km), which corresponds to coverage of approximately 99.98% of the entire population of Belarus, or 97.9% geographical coverage.

As of February 1, 2012, mobile number portability was launched with a donor initiated mechanism where subscribers who want to port their numbers had to apply to their existing operator, which is in favor of the dominant market players.  Recently, the mobile number portability model has been revised with a recipient-initiated mechanism and is expected to be effective as of April 3, 2014.

Turkcell Kuzey Kibris

Turkcell Kuzey Kibris, a 100% owned subsidiary of Turkcell, was established in 1999.  As of December 31, 2013, Turkcell Kuzey Kibris had 0.43 million subscribers.

On April 27, 2007, Turkcell Kuzey Kibris signed a license agreement for installation and operation of a digital, cellular and mobile telecommunication system with the Ministry of Communications and Public Works of the Turkish Republic of Northern Cyprus.  The license agreement became effective on August 1, 2007 and replaced the previous GSM-Mobile Telephony System Agreement dated March 25, 1999, which was based on revenue-sharing terms.  The new license agreement granted a GSM 900, GSM 1800 and IMT 2000/UMTS license, for GSM 900 and GSM 1800 frequencies, while the usage of IMT 2000/UMTS frequency bands is subject to the fulfillment of certain conditions.  The license agreement is valid for 18 years from the date of signing. The license fee was set at $30 million including VAT.  The license fee was financed by Turkcell Kuzey Kibris through internal and external funds.

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On March 14, 2008, Turkcell Kuzey Kibris was awarded a 3G infrastructure license at a cost of $10 million including VAT, which was paid at the end of March 2008.

In the third quarter of 2010, Turkcell Kuzey Kibris completed and began operating the radio transmission (airlink) project providing direct international voice and data connection to the mainland.  The project is the only direct connection in the Turkish Republic of Northern Cyprus, aside from the Telecommunication Authority.

On October 1, 2012, Turkcell Kuzey Kibris was authorized by National Regulatory Authority (“NRA”) as Internet Service Provider and Infrastructure Provider for establishment and maintenance.  Turkcell Kuzey Kibris applied for a right of way to major municipalities and the Ministry of Transportation in order to establish a national fiber optic infrastructure. On January 24, 2014, a protocol between Turkcell Kuzey Kibris and the Ministry of Transportation was signed for the right of the way for highway sides.  The project will be completed only after the signing of a similar agreement with the municipalities for the right of way within the city borders.

Authorities in Northern Cyprus have been working on certain regulatory changes, after the enactment of the framework law, including call termination rates, quality of services, consumer rights and data privacy.  These regulatory changes may have an adverse affect on our business in Northern Cyprus.

The National Regulatory Authority started the consultation for termination market analysis and benchmark study for termination rates for both mobile and fixed markets in March 2014. Their intention is to regulate the termination rates in 2014.

Turkcell Europe

Turkcell Europe was founded by Turkcell in 2010 as a mobile virtual network provider (MVNO) providing service over the T-Mobile (Deutsche Telekom AG) network.  Headquartered in Cologne, Germany, Turkcell Europe commenced activity in March 2011.

Turkcell Europe offers Turkcell’s service quality across both Germany and Turkey not only to the people of Turkish origin living in Germany but also those who have close commercial contact with Turkey.

Besides providing advantageous offers to those who call Turkey from Germany, Turkcell Europe, which offers the advantages of using Turkcell also in Turkey, aims to provide its customers in Turkey and Germany with a unique user experience.  Furthermore, Turkcell Europe subscribers can access the products and services offered exclusively to Turkcell users via T-Mobile, Germany’s premier mobile communications network operator.

With its extensive distribution network, Turkcell Europe offers services to its customers at over 2,500 locations spread across Germany, with a membership base of around 0.4 million subscribers as of December 31, 2013.

In order to increase the efficiency of our operations in Germany, we may consider a change in our business model prior to the termination of the contract with Deutsche Telekom AG.

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Financell

Financell is incorporated under the laws of The Netherlands and has its registered address in The Netherlands.  It is established as an intermediate financing company that is wholly owned by Turkcell.  Financell will borrow funds from third-party lenders with or without a Turkcell guarantee to fund other Turkcell subsidiaries.

Turkcell Global Bilgi

On October 1, 1999, we established Turkcell Global Bilgi in order to provide telemarketing, telesales, and call center services, particularly for us.  In 2005, Turkcell Global Bilgi completed its transition from call center to contact center as Turkcell Global Bilgi started to manage customer contacts at every channel.  As of December 31, 2013, Turkcell Global Bilgi employed 6,549 employees, of which approximately 52% provide us with customer care and retention services, around 41% serve customers of other clients while the remainder work as administrative personnel.  We own 100% of Turkcell Global Bilgi.

Turkcell Global Bilgi has owned a 100% share of Global-Bilgi LLC since 2008, which operates in Ukraine and provides telemarketing and telesales.  Global Bilgi LLC launched a branch office in Russia in April 2013, in order to maintain a presence in the Russian market by increasing business relations and development activities with current and potential customers.

Turkcell Global Bilgi has owned a 99% share of Global Bilgi FLLC since 2009, which was operating in Belarus to provide call center services.  In 2013, a liquidation process began for Global Bilgi FLLC, which solely served our subsidiary Belarusian Telecom.  Belarusian Telecom will continue to perform call center operations in house.

Inteltek

Inteltek Internet Teknoloji Yatirim ve Danismanlik Ticaret A.S. (“Inteltek”) operates fixed-odds betting and pool games on sports games.  Currently, Turkcell holds 55% of Inteltek through its wholly owned subsidiary Turktell Bilisim Servisleri A.S. (“Turktell”), while Intralot, a Greek gaming company, holds 20% and Intralot Iberia Holding, a Spanish company, holds 25%.

Inteltek’s business is currently operated under a contract entered into on August 29, 2008 with Spor Toto Teskilati A.S. (“Spor Toto”).  The current contract is based on specific Turkish legislation relating to gaming enacted in 2008 and was entered into following numerous legal challenges to prior contracts.  Under the current contract, Inteltek runs the sport betting business, iddaa, for a period of 10 years, effective as of March 1, 2009 and superseding a prior agreement.  Under this contract, Inteltek guaranteed TRY 1,500 million (equivalent to $674 million as of March 14, 2014) turnover for the first year of the contract and has given similar guarantees for future years.  The guaranteed turnover for the following years will be computed using producer price indices.  Inteltek shall pay the guaranteed turnover difference (after deducting commission income) to Spor Toto if actual turnover is below guaranteed turnover.  To date, actual turnover has exceeded that amount.  In addition to the foregoing, Inteltek signed a mobile betting dealer agreement with Spor Toto on January 12, 2010, which gives it the right to operate 1,000 mobile terminals.

In the context of evaluating investment opportunities in neighboring countries, Azerinteltek Closed Joint Stock Company (“Azerinteltek”) was incorporated on January 19, 2010 in Azerbaijan and is 51% owned by Inteltek.  Azerinteltek received authorization from the Ministry of Youth and Sport of the Republic of Azerbaijan and signed the Agreement with Azeridmanservis Limited Liability Company set under the Ministry of Youth and Sport of the Republic of Azerbaijan to organize, operate, manage and develop the fixed-odds and parimutuel sports betting business in Azerbaijan for a period of 10 years.  Azerinteltek started its operations, with the brand name “Topaz”, on January 18, 2011 and reached 522 agents as of December 31, 2013.  As of January 1, 2013, Azerinteltek has been authorized to engage in the operation of lottery games by Azerlotereya for a period of 3 years.

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Inteltek is the domestic market leader and is ranked among the most prominent operators in the international gaming sector.  Inteltek intends to continue to explore business opportunities both in Turkey and abroad in betting or adjacent businesses.

Turkcell Superonline

Turkcell Superonline has a Fixed Telephone Services right, which allows the company to provide call origination and termination for consumers and corporations, as well as wholesale voice carrying services.  It also has authorization to provide satellite communication services, infrastructure operating services, internet services and wired broadcasting services, mobile virtual network operating services.  Currently, the company carries the majority of Turkcell’s traffic, previously carried by Turk Telekom (the incumbent operator).  Turkcell Superonline was created in 2009 through the merger of our subsidiary Tellcom with the Superonline business acquired from the Cukurova Group.

Established to be an innovative telecom service operator and with its extensive international connectivity, Turkcell Superonline offers its international and national clients wholesale voice termination international leased data lines, internet access, telehouse and infrastructure services.  Furthermore, Turkcell Superonline is in the retail broadband market, bringing fiber optics to residences.  Turkcell Superonline provides fast communication technology with its own fiber optic infrastructure in Turkey and provides telecommunication solutions to individuals and corporations in the areas of voice, data and videos.

We believe that Turkcell Superonline differentiates itself through its steadfast commitment to the quality of after-sale services.  Turkcell Superonline supplies corporations with industry-leading service level agreements utilizing its professional technical support personnel and highly qualified team of consultants.  Turkcell Superonline has been awarded the ISO 9001:2000 Quality Management System Certificate.  Turkcell Superonline aims to become one of the “leading innovative telecommunications operators” in Turkey and it intends to continue to seize opportunities in the internet and telecommunications markets.

Turkcell Superonline won the tender of BOTAS, Turkey’s state-owned pipeline company, for the indefeasible right to use the capacity of the fiber optic cables already installed by BOTAS for 15 years, including the right to install additional fiber optic cables and the right to use the capacity of these fiber optic cables during the same period.  This transaction has been considered as a finance lease as the lease term is for the major part of the remaining useful life of the fiber optic cables already installed by BOTAS and Turkcell Superonline made a significant investment during the initial period of the lease agreement which is an indicator that the transaction is a finance lease.  The recognized cost of the indefeasible right of use as of December 31, 2013 is $18.5 million (December 31, 2012:  $19.5 million).

Turkcell Superonline began to provide 1000 Mbps service to homes in May 2011 for the first time in Turkey in line with the Turkcell Group’s strategy to provide state-of-the-art technology for its customers with top quality service.  Turkcell Superonline has rendered Turkey one of the first five countries in the world where a 1000 Mbps connection is provided to homes thanks to this service option.

On August 12, 2011, Turkcell Superonline signed a Share Purchase Agreement to acquire a 100% stake in Global Iletisim, which is specialized in providing internet and telecommunications services. In November 2011, the control over Global Iletisim was acquired from Yildiz Holding AS for a consideration of $(0.5) million.  Turkcell Superonline and Global Iletisim merged on March 30, 2012.

On March 7, 2013, Turkcell Superonline signed a Share Purchase Agreement to acquire a 100% stake in Deksarnet Telekomunikasyon A.S. (“Deksarnet”) which is an affiliate of Vestel Elektronik San. ve Tic. A.S. Group.  In July 2013, the control over Deksarnet was acquired from Vestel Elektronik San. ve Tic. A.S. Group for a consideration of $1.8 million.  Turkcell Superonline and Deksarnet merged on December 3, 2013.

On January 31, 2014, Turkcell Superonline signed a share purchase agreement to acquire a 100% stake in Metronet İletişim Teknoloji A.S. (“Metronet”).  The enterprise value is determined as TRY 29 million based on the studies undertaken by our Company.  The transfer of shares should take place following the approvals received from related authorities.  As per the share purchase agreement, the purchase price will be paid on the closing date.

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Metronet provides communication services including internet, voice and digital services in Turkey.  With this acquisition, Turkcell Superonline’s fiber in-city coverage will increase to 14 cities, up from the existing twelve.  Furthermore, Turkcell Superonline’s home pass will increase by approximately 100 thousand once Metronet’s infrastructure integration is completed.

In 2013, Turkcell Superonline continued to invest in its transmission network by expanding the intercity and in-city fiber optic backbone along with establishing new fiber-based access points in selected residential and industrial areas for end-users and commercial account-holders.  As of December 31, 2013, Turkcell Superonline’s installed backbone was approximately 32,300 km long and its services reached 12 cities, including Istanbul, Ankara, Izmir, Bursa, Kocaeli, Adana, Gaziantep, Antalya, Mersin, Samsun, Trabzon and Kayseri in Turkey. Turkcell Superonline increased its home passes to around 1.7 million as of December 31, 2013 from around 1.3 million a year ago. The total number of fiber subscribers rose to 570 thousand as of December 31, 2013 from 425 thousand  a year ago.

Turkcell Superonline aims to turn Istanbul into an internet hub, lifting the boundaries between countries and initiating the “internet without a visa” era through direct access agreements.  Turkcell Superonline has nine international gateways, which enable fast and seamless internet access via connections with Europe’s most important internet traffic exchange points in Sofia, London, and Amsterdam, as well as through the Frankfurt POP in Germany.  It also raises internet access speed and quality in residential, corporate, and wholesale segments via peering connections.  In 2012, collaborating with Tier-1 telecom operators such as Tata Communications, Deutsche Telekom, Inteliquent, KPN, Turkcell Superonline enabled access to globally renowned networks directly from Istanbul, adding value not only for its business and partners, but also for the Turkish economy.  Turkcell Superonline plays a major role in delivering transit data traffic and telecommunications services between Europe, CIS, Asia and the Middle East.  It provides internet access in Iran, Iraq, Georgia, and Northern Cyprus.

Turkcell Superonline aims to continue to invest in and expand its own fiber optic network and further utilize the group synergy created with Turkcell.  The Company intends to continue to take advantage of business opportunities within the broadband industry in 2014.

Global Tower

Global Tower, founded in 2006, is a wholly owned subsidiary of Turkcell and the leading technology infrastructure operator in Turkey.  Its Ukraine branch, UkrTower, was founded in 2009.  With the vision of “Carrying Communication Everywhere”, Global Tower rented, built and leased more than 7.500 towers for Telecom Operators and TV & Radio Broadcasters in Turkey and Ukraine.  Today, Global Tower’s core business consists of renting from landlords, selling electronic equipment, installation, implementation, maintenance, tower and rooftop site leasing.  Global Tower serves diverse markets including telecommunications, TV & radio broadcasting and providing technology services.  The main goal of Global Tower in targeted markets is to increase cost efficiency by sharing sites and services.  Global Tower’s site sharing business model eliminates the initial investment costs of its clients, decreases environmental impacts and promotes efficient use of resources.  Global Tower manages 7,663 tower and 14,500 rooftop contracts for Turkcell and installs more than 1,000 sites each year for Turkcell and other operators.  Many of the most famous radio and TV channels of Turkey have located their transmitters in Global Tower sites.  Besides Telecom Networks, SCADA/Telemetry Networks implementation and maintenance are in Global Tower’s scope.  From the day it was established, Global Tower has achieved a rapid and persistent growth and aims to continue its growth by providing high quality and efficient services.

Turkcell Teknoloji

Turkcell Teknoloji, a wholly owned subsidiary of Turkcell, commenced operations in 2007 in the TUBITAK Marmara Research Center Technological Free Zone in Kocaeli, Turkey.  In 2013, Turkcell Teknoloji consolidated its operations in Teknoloji Plaza, Maltepe, İstanbul Turkey.  Turkcell Teknoloji’s new R&D center, which accommodates more than 700 researchers, has been accredited by the Ministry of Science, Technology and Industry.  Turkcell Teknoloji’s established team of experts develops a wide range of convenient and reliable solutions with innovative roadmaps.  Through integrated intelligence and high performance capabilities, Turkcell Teknoloji’s comprehensive portfolio addresses the following domains:  SIM asset and services management, location-based services, value-added services, roaming solutions, big data processing, business intelligence applications, CRM solutions, network management, mobile finance, terminal applications, cloud solutions, mobile marketing machine-to-machine communication technologies and revenue management solutions.

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Turkcell Teknoloji’s innovative solutions have been recognized internationally.  Turkcell Teknoloji won the following awards in 2013:

·                                          Turkcell Wallet, Best Technological Innovation in Payment Systems — Best NFC Solution, Emerging Payment Awards, 2013;

·                                          Fraud Management System with Enhanced Holistic Approach, Global Telecom Business Innovation Award, 2013;

·                                          Single Rating Engine, Global Telecom Business Innovation Award, 2013;  and

·                                          Realtime-Charging, Global Telecom Business Innovation Award, 2013.

To ensure a permanent competitive edge and value for its solutions, Turkcell Teknoloji cooperates with a wide network of national and international R&D companies, universities and research centers and plays an active role in international R&D programs.  With the goal of being Turkey’s leading R&D and innovation base, Turkcell Teknoloji demonstrates the value it attaches to innovation with its increasing number of patents each year.  Turkcell Teknoloji placed in total 277 national and 43 international applications for patents, of which 79 have been granted to date.

Equity Accounted Investments

(i) Fintur

We hold a 41.45% stake in Fintur, which holds interests in international mobile communications operations.  Below is a description of the businesses currently held by Fintur.

Azercell

Fintur indirectly owns 51.3% of Azercell Telekom B.M. (“Azercell”), which offers GSM services on both a prepaid and a postpaid basis in Azerbaijan.  As of December 31, 2013, Azercell had approximately 4.4 million subscribers, of which approximately 0.4 million were postpaid and approximately 4.0 million were prepaid.

The agreement for the privatization of the Republic of Azerbaijan’s 35.7% ownership in Azercell was signed in February 2008 and Azertel A.S., the parent company of Azercell, acquired the Republic of Azerbaijan’s entire stake.  Azertel’s ownership in Azercell increased to 100%; however, Fintur’s effective ownership in Azercell remains at 51.3%.  Azercell was granted a 3G license in the fourth quarter of 2011 and 4G license in the second quarter of 2012.

Geocell

At December 31, 2013, Fintur indirectly owned 100% of Geocell Ltd. (“Geocell”), which operates a GSM network and offers mobile telephony services in Georgia.  As of December 31, 2013, Geocell had approximately 1.8 million subscribers, of which approximately 0.03 million were postpaid, approximately 0.16 million were paid-in-advance subscribers that had postpaid services but paid-in-advance and approximately 1.61 million were prepaid.

Kcell

Kcell is 51% owned by Fintur.  In 2012, the remaining 49% was acquired by TeliaSonera from Kazakhtelecom JSC, the Kazakh incumbent fixed line telecom provider.  TeliaSonera sold 25% of the shares minus one share in Kcell in an Initial Public Offering (“IPO”) on the London and Kazakhstan Stock Exchanges, which was completed in December 2012. Following the completion of the IPO, TeliaSonera’s effective ownership in Kcell is 61.74%.  Kcell offers mobile telephony services in Kazakhstan and had approximately 14.3 million subscribers as of December 31, 2013, of which approximately 0.2 million were postpaid, approximately 1.5 million were paid-in-advance subscribers and approximately 12.6 million were prepaid.

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Moldcell

At December 31, 2013, Fintur directly and indirectly owned 100% of Moldcell S.A. (“Moldcell”), which offers GSM services in Moldova.  As of December 31, 2013, Moldcell had 1.0 million subscribers, of which approximately 0.1 million were postpaid, approximately 0.2 million were paid-in-advance subscribers and approximately 0.7 million were prepaid.  Moldcell was granted a 4G license in the fourth quarter of 2012.

(ii) A-Tel

On August 9, 2006, Turkcell acquired 50% of A-Tel’s shares. A-Tel is a joint venture and the remaining 50% of its shares are held by Bilgin Holding A.S. Bilgin Holding’s 50% shares were acquired by the Savings Deposit Insurance Fund (SDIF) on October 18, 2004 in return to the debts of Bilgin Holding against the SDIF. Further, pursuant to the decision dated April 25, 2013, the SDIF resolved to reassign the shares in its possession to Bilgin. A-Tel was involved in marketing, selling and distributing our prepaid systems.  It acted as our only dealer for Muhabbet Kart (a prepaid card), and received dealer activation fees and simcard subsidies for the sale of Muhabbet Kart.  In addition to the sales of simcards and scratch cards through an extensive network of newspaper kiosks located throughout Turkey, we had entered into several agreements with A-Tel for the sale of campaigns and for subscriber activations.  Since 1999, the business cooperation between us and A-Tel provided important support to our sales and marketing activities.  However, the service provider and distribution agreement with A-Tel was annulled through a notification dated January 31, 2012, effective August 1, 2012.

X. Potential Investments

Our efforts to selectively seek and evaluate new investment opportunities continue. These opportunities may include the purchase of new licenses and the acquisition of existing companies as well as alternative business models such as management contracts, marketing partnerships or other forms of cooperation both inside and outside of Turkey, focusing on communications, technology and adjacent and new business opportunities.  In addition, we may provide services in related areas and also consider investing or increasing our investments in business areas outside of the scope of our core business.  Our international expansion strategy focuses on key emerging markets, mainly in Eastern Europe, the Balkans, the Middle East and Africa.

We will continue to selectively seek and evaluate new international investment opportunities.  In the context of our evaluation of potential investment opportunities within the regions we target for international expansion strategy, Turkcell has, from time to time, considered opportunities in countries in the C.I.S. Region, Eastern Europe, the Middle East, Africa and the Balkans and may consider such opportunities in the future.  We may participate in additional public tenders for new licenses or the privatization of public telecom companies as well as in private sale transactions in emerging markets to pursue investment opportunities in line with our growth strategy.

Furthermore,  we may evaluate expanding into other Western European countries where there is a sizeable Turkish community through wholesale partnerships or alternative cooperative business models.

XI. Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRA)

Based on our information and information provided to us by our affiliates, as of the date of this annual report, we believe that certain of our business activities in Iran in 2013, and the business activities of certain of our affiliates, are subject to disclosure pursuant to ITRA Section 219.  During the year ended December 31, 2013, Turkcell and Astelit provided direct international roaming services in Iran through agreements with the following GSM operators:  TCI Mobile Company of Iran, Telecommunication Kish Co., MTN Irancell, and Taliya Iran. Gross revenues and net profits during the year ended December 31, 2013, attributable to these agreements were TRY 0.6 million (equivalent to $0.3 million as of March 14, 2014) and TRY (1.2) million (equivalent to $(0.6) million as of March 14, 2014), respectively. TeliaSonera has informed us that Azercell, a Fintur company, had revenues under roaming agreements in Iran in 2013 of approximately €0.3 million, and that other Fintur companies have entered into roaming agreements in Iran as well.

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In addition, Turkcell Superonline provided Transit IP and leased line services through network interface agreements with Telecom Infrastructure Company of Iran (“TIC”).  During the year ended December 31, 2013, gross revenues and net profits attributable to these agreements were TRY 3.0 million (equivalent to $1.3 million as of March 14, 2014) and TRY 1.3 million (equivalent to $0.6 million as of March 14, 2014), respectively. In 2013, Turkcell Superonline received an order to provide leased line services to the Islamic Republic of Iran Broadcasting (“IRIB”), which will be delivered through our TIC interconnection.  Services and revenues have yet to commence. A previous service provided to PressTV (affiliated with IRIB) ended at the beginning of 2013 and no operational revenue was recognized in the year 2013.

Although it is difficult to do with a reasonable degree of certainty, we have concluded that our Iranian business partners described in this section may be owned or controlled indirectly by the Government of Iran.  However, to our knowledge, none of the services provided by Turkcell and our affiliates in Iran described in this section have been used by the Government of Iran to commit serious human rights abuses against the people of Iran.  Furthermore, we understand that the U.S. Department of the Treasury’s Office of Foreign Assets Control has issued a general license authorizing U.S. persons to engage in certain of the activities described in this section.  We, and our affiliates, intend to continue the activities described in this section in 2014.

XII. Regulation of the Turkish Telecommunications Industry

a. Overview

All telecommunications activity in Turkey is regulated by the ICTA.  Electronic Communications Law No. 5809 (the “Electronic Communications Law”), which came into force on November 10, 2008, is the principal law governing telecommunications activity in Turkey.  The Electronic Communications Law was published to correspond to the rapidly evolving Turkish telecommunications industry, and all secondary regulations have been updated to be in accordance with this law.  The duties of the ICTA, which may be exercised in a manner that is adverse to our operations and our financial results, include those described below.

b. ICTA

The ICTA has the authority to grant licenses and set fees in the electronic telecommunications industry.

According to Article 8 of the Electronic Communications Law, electronic communications services are rendered and/or established (as in the case of an electronic communications network or infrastructure) and operated following the authorization made by the ICTA.  Authorization is granted either through notification made in accordance with the principles and procedures determined by the ICTA, in cases where scarce resource allocation is not necessary, or by granting of usage rights, in cases where scarce resource allocation is necessary (allocation of frequency, satellite position, etc.).  Under the Electronic Communications Law, usage rights may be granted for up to 25 years; however, there is no clause relating to the term of notification.  According to the Electronic Communications Law, principles and procedures relating to the notification and granting of usage rights shall be determined by the ICTA through secondary regulations.

On the other hand, in cases where the quantity of rights of use is limited, Section 9-6(a) of the Electronic Communications Law allows the Ministry of Transport, Maritime Affairs and Communications to determine the criteria, such as (i) the authorization policy regarding electronic communications services which cover the assignment of satellite position and frequency band on a national scale and which need to be operated by a limited number of operators, (ii) the starting date of the service, (iii) the duration of the authorization and the number of operators to serve.  While the criteria are determined by the Ministry of Transport, Maritime Affairs and Communications, the authorization is still granted by the ICTA.

Under the Electronic Communications Law, the ICTA is authorized to determine the principles and procedures related to the process of personal data and protection of privacy.

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The Electronic Communications Law establishes legal principles and broad policy lines that the ICTA must follow, some of which are stated below:

·                                          Creation and protection of a free and efficient competitive environment.

·                                          Protection of consumer rights and interests.

·                                          Protection of the objectives of development plans and Government programs as well as the strategies and policies set by the Ministry.

·                                          Promotion of implementations that ensure that everyone can benefit from electronic communications networks and services.

·                                          Ensuring non-discrimination among subscribers, users and operators under fair conditions.

·                                          Ensuring the conformity of electronic communications systems to international norms.

·                                          Protection of information safety and communication confidentiality.

The Electronic Communications Law also specifies general rules and principles relating to interconnection between operators.  Agreements for interconnection are publicly available, but precautions are taken by the ICTA to protect commercial secrets of the parties.

Universal Services and Amending Some Laws, Law No. 5369, determines the procedures and principles governing the provision and execution of universal service and the procedures and the rules relating to fulfillment of universal services in the electronic communication sector, a universal public service that is financially difficult for operators to provide (and performance of a universal service obligation in the electronic communication sector).  In accordance with Law No. 5369, the scope of universal services is determined periodically by the Council of Ministers, which will not exceed three years.

The legislation designates the following as universal services:  fixed-line telephony services, public pay telephones, telephone directory services to be provided in printed or electronic environments, emergency call services, internet services, passenger services to residential areas where access is provided by sea and sea communication and sailing safety communication services.

This law mandates that designated operators must provide universal services and the General Directorate of Communication can demand that operators provide universal services on a national and/or geographical basis.  Turk Telekomunikasyon A.S. and the GSM operators are currently designated as universal services providers.

The Cabinet of Ministers Decision No. 27984 and dated July 4, 2011, allowed the use of the universal service fund to extend the mobile GSM network coverage listed in the annex of the decision to uncovered areas with a population of 500 or less.  On February 13, 2013, we were appointed as universal service provider after a tender process and the related contract was signed on February 20, 2013.  Turkcell will be responsible for installing sufficient infrastructure to cover 1,799 rural locations and the investment and operating expenses to be made will be compensated by the universal service fund of the Ministry of Transport, Maritime Affairs and Communications.

The Electronic Communications Law also specifies general rules and principles relating to tariffs.  Pursuant to the Electronic Communications Law, operators may freely determine the tariffs they apply in compliance with the relevant legislation and the ICTA arrangements.  In the event of determination of the significant market power of the operator, the ICTA may determine the method of the approval, tracking and auditing of the tariffs.  It may also determine the lower and upper limit of the tariffs and principles and procedures of the application of the same.

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The Electronic Communications Law provides basic guidelines for the tariffs and pricing and thus leaves the detailed rules and enforcement to the ICTA.  According to the law:

(1) The tariff may be determined as one or more subscription fees, fixed fees, call charges, line rentals, and similar fee items.

(2) Tariffs to be imposed in return for providing any kind of electronic communications services shall be subject to the following provisions:

(a) Operators shall freely determine the tariffs under their possession, provided that they comply with the regulations of the ICTA and the relevant legislation.

(b) If an operator is designated as having significant market power in the relevant market, the ICTA shall be entitled to determine the procedures regarding the approval, monitoring and supervision of tariffs as well as the highest and lowest limits of the tariffs and the procedures and principles for the implementation thereof.

(c) If an operator is designated as having significant market power in the relevant market, the ICTA shall be entitled to make the necessary arrangements to prevent anti-competitive tariffs such as price squeezing and predatory pricing and to supervise the implementation thereof.

(3) Procedures and principles pertaining to the implementation of this article, submission of tariffs to the ICTA and publishing and announcing them to the public shall be determined by the ICTA.

According to this regulation, the ICTA may intervene in the structure of our tariffs or may impose certain criteria relating to the revision of our tariffs.  Pursuant to its decision dated December 8, 2009, the ICTA determined Turkcell, individually, to be an operator holding a significant market power in the “Access to Mobile Networks and Call Originating Markets” and, together with Avea and Vodafone, to be an operator holding significant market power in the “Mobile Call Termination Market”.  As a result of the significant market power designation in the “Access to GSM Mobile Networks and Call Originating Markets”, our Company may be required to provide access and call origination services to other operators such as MVNOs and Directory Services Operators on a cost-based basis, while operators not designated as operators “holding significant market power” can set their prices more freely.  Being designated as an “operator holding significant market power” in the “Access to GSM Mobile Networks and Call Originating Markets” is likely to have the effect of reducing the rates we can charge other operators, such as MVNOs, which would have a material adverse effect on our business and results of operations.  The ICTA completed the market analysis for the 2012-2015 term.  Turkcell has been recognized as the only operator holding significant power in “Access to GSM Mobile Networks and Call Originating Markets”.

c. Regulation on Quality of Service in the Electronic Communication Sector

The ICTA abolished the Regulation On Quality of Service (issued in 2005), and published a new Regulation On Quality of Service in the Electronic Communications Sector, effective as of December 31, 2011 and applicable to all operators that provide service to end users, which sets out the procedures and principles to control the conformity of the services of operators.  Mobile telephone operators are required to meet new service quality requirements and submit a report based on these requirements every three months to the ICTA.  Additional requirements for service quality must be fulfilled.  If the operators fail to reach these requirements more than once, this may result in the imposition of penalties.  The results of quality measurements can also be publicly available.

d. Regulation on Administrative Fines, Sanctions and Precautions in the Electronic Communication Sector

The ICTA abolished the Regulation on Administrative Fines to be imposed on the operators (issued in 2002) and published a new Regulation on Administrative Fines, Sanctions and Precautions to be imposed on operators.  The ICTA retains the right to impose fines in the event an operator:  submits incorrect or misleading documents or fails to submit documents as requested by the ICTA; does not timely submit such documents; does not permit inspection or audits to be made by the ICTA; uses unpermitted equipment or equipment not complying with standards or alters technical features of equipment; or does not pay fees arising from its use of licenses and frequencies or does not comply with the provisions of license agreements, telecommunications licenses and general authorizations or the legislation. The ICTA is authorized to impose sanctions and precautions as well as administrative fines.

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e. Regulation on Authorization regarding the Electronic Communication Sector

In 2009, the ICTA published the “Regulation on Authorization regarding the Electronic Communications Sector”, which determines the principles and procedures for the authorization of the companies that seek to provide electronic communication services and/or to install or operate electronic communications networks or infrastructure.

(i) Wireless Interoperability for Microwave Access (“WIMAX”) License

Regulatory changes in Turkey to introduce and promote WIMAX nationwide could have a material adverse effect on our business and results of operations.  Specifically, they may result in increased competition and/or the entry of new direct or indirect competitors, which may have a negative impact on our ability to attract and retain customers, the competitiveness of our products and services, our distribution channels, our brand and visibility and our infrastructure investments.

(ii) Fixed Line Telephone Services

The ICTA issued Fixed Telephony Service (“FTS”) licenses pursuant to the Regulation on Authorization regarding the Electronic Communication Sector, which enables existing long distance telephony services (“LDTS”) operators, such as our subsidiary Turkcell Superonline, to provide call origination and termination.  LDTS and, consequently, FTS providers, have not yet had a significant effect on our operations.  In the long term they could have the effect of driving down prices and shifting traffic patterns for in-city as well as long distance calls in Turkey, potentially having an adverse effect on our mobile telecommunications business.

On February 3, 2010, the ICTA published a new Regulation entitled “The Right of Way in Execution of the Electronic Communications Services”.  This Regulation aims to determine the principles and procedures for the right of way for the establishment and usage of all kinds of electronic communications networks and/or infrastructure facilities, which is required for the execution of electronic communications services.

f. Regulation on Mobile Number Portability (“MNP”)

Pursuant to Article 32 of the Electronic Communications Law, operators are required to supply operator number portability.

MNP allows subscribers to keep their existing telephone number when changing their telephone operator, their physical location or current service plan.  These regulations became operational in the fourth quarter of 2008.  Since we believe the MNP regulations conflict with our rights under our license agreement, without due compensation, we initiated a lawsuit in 2007 for the annulment of the MNP regulation.  While we do not object to the substance of mobile number portability, we do, however, believe that our rights under our license agreement should remain protected or, if they are violated, we should be justly compensated.  The Court rejected the case in June 2009 and we appealed the decision.  The Plenary Session of the Chambers for Administrative Divisions approved the court decision.  We applied for a correction of the decision.  See “Item 8.A Consolidated Statements and Other Financial Information—Legal Proceedings”.  In 2009, the ICTA issued a new Regulation on MNP, abolishing the 2007 regulation.  For new subscriptions, subscribers cannot port out to another operator in the first three months.

g. Regulation on Security of Electronic Communication

In 2008, the ICTA published the “Regulation on Security of Electronic Communication”, which determines the principles and procedures for precautions to be taken by the operators for eliminating or derogating the risks caused by threads or weaknesses of (i) the physical area of the operators, data, hardware/software security and reliability, and (ii) sustaining the reliability of human resources. In accordance with the regulation, our Company is required to comply with TS ISO/IEC 27001 or ISO/IEC 27001 standards.  Turkcell was the first mobile operator in Turkey to receive the ISO/IEC 27001:2005 certification for its Network Operations function in 2008 covering all operations throughout Turkey.  In 2011, Turkcell’s IT function was also certified for ISO/IEC 27001:2005 and Turkcell’s ISO/IEC 27001:2005 scope became one of the largest among telecommunication operators in Europe.  By having an ISO/IEC 27001:2005 certificate covering telecom infrastructure operations, Turkcell fullfills its regulatory obligations and offers its customers the benefits of an internationally-recognized secure management of operations and services.

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