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Risk Management

Türk Telekom, in line with its operations, is exposed to Financial, Regulatory-Compliance, Strategic and Operational risks as these are closely monitored, managed and methodologies to identify their magnitudes are being constantly developed. These risks as well as their Group-wide holistic management are explained in detail below.

Financial Risks

Türk Telekom holds a strong balance sheet with its sound leverage ratio (1,26x at the end of 2014), ability to generate cash and secure sources of funding with relatively lower interest rates. As of 2015, the average borrowing maturity of the

Company is over four years and its current ratio progresses over the 1.5 rate; ensuring a strong level of protection against liquidity risk.

Türk Telekom secures its long-term funding through a diversified and international pool of sources in line with its financing diversification strategy, resulting in the Company holding liabilities in foreign currencies. Net liabilities denominated in foreign currencies and fluctuating exchange rates result in the Company being exposed to Foreign Exchange Risk often, if not more.

For the effective management of foreign exchange and interest rate risks; a range of financial instruments are utilized through the approval of the Treasury Committee, in light of the market assessments of the Treasury Department.

Regulatory and Compliance Risks

Türk Telekom is subject to the market-regulating activities of various bodies due to holding a significant market power. Since these regulations substantially influence Türk Telekom’s competitiveness, profitability and market share; the Company closely monitors all sector-based and legal regulations and manages those through conducting the necessary communicative activities and consultations with related bodies. Regulations’ possible effects on the Company’s operations, competitiveness and profit-generating ability are analyzed and risk management strategies per each issue are developed with the related business units and Regulations Department.Türk Telekom aims to increase its profitability in nonregulated markets where it does not hold a significant market share to compensate for the unfavorable impacts of regulations on its competitiveness in the markets it dominates. Along with the aforementioned practices, activities regarded all governing regulations and legislations (e.g. information security, tax-related issues, telecoms sector regulations and Capital Markets Board requirements) are carried out rigorously through the coordination of the Regulations Department. For the effective mitigation of reputational risks that might arise from non-compliance, a robust control mechanism within corporate governance has been structured and continuously developed.

Strategic Risks

Türk Telekom operates in an increasingly competitive (e.g. strong and numerous entrants, pressures on profit margins and prices of products/services, etc.) and regulated market with significant technological innovations. Being aware of this, Türk Telekom rigorously analyses the market positioning of its competitors, technological developments and consumer trends. Taking into account these advanced assessments, proactive risk management activities for best customer experience and higher revenues are being carried out within the Company’s strategic priorities.

In line with changing customer expectations, new products and services are being developed through systematic risk analyses, where necessary infrastructure and technology investments/ deployments are conducted for facilitating the best customer experience. Moreover, the Company compensates for its market share loss in the regulated areas through new and innovative products and services; as well as carefully seizing opportunities for smart acquisitions in both domestic and foreign markets.

Operational Risks

Operational risks can be briefly listed as; infrastructure and technology systems outages, leakage of customer information due to cyber-attacks; and inability to maintain the high quality in services and products due to various technical problems. These risks may result in lower customer satisfaction, regulatory penalties and as a result, reputational damage and decreasing revenues.

Türk Telekom, to minimize these risks; periodically and systematically performs risk assessment activities for and constantly monitors the critical systems in all its IT and network infrastructure. Moreover, all IT and network operations are carried out in line with security policies and disaster recovery plans; and compliance to regulations and international standards are monitored and audited in a stringent manner. Periodic improvements are made to the infrastructure and technology systems that might result in outages/ lower quality; and possible cyber-attacks and interruptions due to external reasons are controlled via early warning mechanisms.

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