Türk Telekom Group’s risks are determined by annual Risk Identification and Assessment surveys. The 41 risk topics identified in 2017 were divided into the categories of Financial, Strategic and Operational Risk. These risks are then prioritized according to evaluations by Türk Telekom senior management, risk responsibilities are duly distributed and actions plans are drawn up to either manage, or else completely eradicate them. Detailed root cause analyses were performed for these 41 risks in order to provide a basis for action planning, and joint efforts were expended under the guidance of the Corporate Risk Management Department. The general evaluations concerning these risks are presented below.
Türk Telekom Group is exposed to financial risks such as liquidity risk, foreign exchange risk, interest rate risk and counterparty risk.
To minimize liquidity risk, the Group obtains long-term financing from different regions of the world (The United States, Europe, the Gulf Region, Japan, China, and Turkey) and different investment groups (commercial banks, international financial institutions such as EIB and EBRD, officially supported export credit agencies and bond).
This strategy enables the Group to secure long-term financing at lower costs and also eliminates the Group’s dependency on a single region or investor group. Long-term financing and diversified sources result in the Group carrying liabilities in foreign currencies. Due to net liabilities denominated in foreign currencies and fluctuating exchange rates, the Group is often exposed to foreign exchange risk, which may have an impact on cash flow and the balance sheet.
Türk Telekom minimizes the negative impact of foreign exchange risk on its cash flow by carefully planning foreign currency cash flow. Firstly, the Group holds a balanced portfolio of foreign currencies (US Dollar and Euro) to avoid adverse impacts on the balance sheet. Additionally, in the face of exchange rate fluctuations between the Turkish Lira and these foreign currencies, the Group initiated a long-term hedging strategy in 2015, and realized a hedging transaction of USD 1 billion, details of which are provided in the footnotes to the financial statement. Furthermore, in order to create a natural hedge against foreign exchange risk, Türk Telekom keeps a significant portion of its liquid assets in the form of foreign exchange cash.
To avoid interest rate risk, Türk Telekom has entered a USD 1,050 million equivalent interest-rate swap, details of which are provided in the footnotes in the financial statements. Together with the use of fixed-cost funds such as bonds, Türk Telekom reduces its exposure to the risk of a floating interest rate.
With regard to its financial assets, Türk Telekom maintains its strategy of minimizing exposure to counterparty risks by implementing limits and a diversification policy. Türk Telekom carries the transactions to manage the financial risks based on the evaluations and approval of the Treasury Committee, which is appointed by the Board of Directors.
Türk Telekom operates in a competitive (e.g. numerous entrants, pressure on prices of products/services) and regulated market with significant technological innovations. In awareness of this, Türk Telekom rigorously analyzes the market positioning of competitors, technological developments and consumer trends. Taking into account these factors, proactive risk management activities for achieving higher customer satisfaction and higher revenues are carried out within the Company’s strategic priorities.
In line with changing customer expectations, new products and services are developed through systematic risk analyses, where necessary infrastructure and technology investments/deployments are conducted to facilitate the “best customer experience”.
Moreover, the Company compensates for market share loss due to regulations or other market developments through new and innovative products and services; while at the same time evaluating opportunities for smart acquisitions in both domestic and foreign markets.
Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Some examples include infrastructure and technology systems outages, leakage of customer information due to cyber-attacks and inability to maintain high quality service due to various technical problems. These problems may result in lower customer satisfaction, regulatory penalties and, as a result, reputational damage and decreasing revenues.
As part of Operational Risk Management efforts, Türk Telekom meticulously implements a Business Continuity Management plan. Business Continuity Management (BCM) might be defined as a holistic management process that identifies potential threats to an organization and the impact of those threats if they occur on key business operations, and which provides a framework for building organizational resilience that safeguards the organization’s internal and external stakeholders’ interests, reputation, brand value, and value creating activities. Accordingly, Türk Telekom performs Business Impact Analysis and Risk Assessment activities on critical products and services, monitors performance in line with business continuity objectives, and undertakes the necessary improvements. Moreover, all IT and Network operations are carried out in line with security policies; potential problems are constantly analyzed and controlled via early warning mechanisms.
Regulations, as well as international best practices and standards, are closely monitored; compliance with these regulations and standards is strictly monitored. In 2017, important measures were taken for the efficient management of human resources, a crucial subcategory of operational risks. Detailed root cause analyses were performed for various risks falling under this subcategory, such as Effective Talent and Employment Management, Talent Retention and Preservation of Corporate Memory. Areas demanding solutions were identified and work commenced for the development of necessary actions.
The above-mentioned risks are identified, assessed, monitored and reported through periodic consultation with business units and the necessary actions are worked on to reduce the risks. Meanwhile, the interactions between these risks are also evaluated and a monitoring system is developed for risks that affect each other.
Furthermore, in another project initiated in 2017, studies to determine risk appetite in Türk Telekom and all Group companies started. This study targets to determine the Risk Appetite for the 13 main risk categories identified, to ensure that managers can act flexibly within set limits, thus avoiding time loss due to unnecessary approval mechanisms, and preventing senior managers from acting based upon their personal risk appetite.