ISTANBUL – Vodafone Group Plc’s entry into Turkey could trigger a round of bloodletting in an underdeveloped wireless market in which expansion is being hamstrung by high taxes. The world’s biggest mobile phone service-provider by revenues snapped up Turkey’s second-largest mobile operator Telsim for $4.55 billion (3.79 billion euros) in a keenly fought contest on Tuesday, the British firm overcoming fierce competition from cash-rich Middle Eastern rivals. Turkey represents a rare growth opportunity for Vodafone in Europe, where most people likely to want a mobile phone already have one. Growing market While many parts of Western Europe have nearly 100 percent mobile market penetration rates, only 53 percent of Turkey’s 72 million people use mobile phones, giving Vodafone access to a large, growing market on the borders of Europe. A growing economy with a young population and proximity to Europe may have drawn Vodafone to Turkey, but the road ahead is hardly easy. Analysts say Vodafone could struggle to raise Telsim’s market penetration rate, mainly because Turkey has one of the world’s highest taxes on phone usage – tax on mobile usage stands at 60 percent versus a European average of 20 percent. Muzaffer Akpinar, chief executive of Telsim’s larger rival Turkcell, has recently said that high taxes were a drag on the market despite an improving economy. Tax scare Akpinar said he expected mobile market penetration to grow at a slower pace in 2006 as high taxes scare off new users keen to own mobiles. As a result, operators will be forced to target each other’s customers, and Vodafone’s strength would mean a fight quite unlike any seen before in Turkey. Analysts say Vodafone’s entry could lead to Turkcell losing some of its lucrative post-paid – or contract – users. «It seems new subscriptions will come from stealing the post-paid users, who produce three to four times higher ARPUs (average revenue per user), off other operators,» said Basak Engin Dinckoc, telecoms analyst at Oyak Securities. Turkish-Scandinavian-Russian partnership Turkcell is the largest mobile player in Turkey with a 65 percent market share and 27 million customers. Telsim, which has 9.76 million customers, is the No.2 player, followed by Avea. Avea is owned by Telecom Italia Mobile, Isbank and fixed-line operator Turk Telekom, which was sold to a Saudi Oger Telecom-led consortium in July. Turkcell Turkcell’s third-quarter blended average revenue per user (ARPU) was $15.2 (12.7 euros). Investment bank Credit Suisse First Boston has forecast Telsim’s ARPU at $9.50 (7.90 euros) for 2005, compared with Vodafone’s first-half ARPUs of 25.70 euros in Germany, 30.10 euros in Italy and 24 pounds (35.47 euros) in Britain. Analysts said Vodafone, which has 171 million users in 27 countries, could bring its size and technological lead to bear against its Turkish rivals. Dinckoc of Oyak Securities said it could lure customers away from rivals by offering handsets cheap or free to contract customers. Handset subsidies, common in Europe, are non-existent in Turkey and could prompt customers at rivals to jump ship. The group could also bring its flagship Vodafone Live! multimedia service or its Vodafone Passport to Turkey. The passport service allows for cheaper calls when customers are abroad, and could be targeted at Turkish immigrants. Compared with neighboring European countries, Turkey has been slow to adopt new data and voice services partly because of high taxes but also as a result of underinvestment. Vodafone has pledged to invest $1 billion (833 million euros) in Telsim in the short term and is expected to plow $1.5 billion (1.25 billion euros) into its radio and core network, and in areas such as billing platforms, call centers and data centers over the next two to three years. «Telsim is one of the last significant growth prospects for Vodafone on its European back door… The purchase also puts a bit less pressure on (Vodafone’s) European assets to keep growing,» CSFB said in a research note.