Turkcell Iletisim (TKC) Risk Factors

The Turkcell Group has investments in several emerging or developing markets, including Ukraine, Belarus and the Turkish Republic of Northern Cyprus and has activities that involve other emerging or developing markets. Legal systems, institutions, commercial practices and economies in those markets tend to be relatively underdeveloped and some may also suffer from relatively high rates of fraud and corruption. Were we to be affected by fraud or corruption, we could incur significant penalties under applicable anti-corruption legislation, including the FCPA, as well as reputational harm. The Turkcell Group also retains potential liability with regards to its divested businesses in such countries. There can be no assurance that political, legal, economic, social or other actions or developments in these countries or involving such companies will not have an adverse impact on our investments and businesses in these countries. In particular, Ukraine has been in conflict with Russian military forces since 2022, while Belarus has been the subject of sanctions over the last three years. Recent issues in our international operations include the following: - Our company decided to sell all of its operations in Ukraine (Lifecell LLC, LLC Global Bilgi and LLC UkrTower) to NJJ Capital and signed a share transfer agreement on December 29, 2023 ("Share Transfer Agreement"). See "Item 4. Information on the Company-B. Business Overview-IX. International and Domestic Subsidiaries-Ukraine-lifecell" below. The sale remains subject to the approval of the Ukrainian authorities and satisfaction of conditions to closing, and there is no guarantee that it will be completed in the time frame anticipated, or at all. Although we believe that the sale of our Ukrainian businesses will provide financial, operational and other benefits to us and our stockholders, we cannot provide assurance that we will achieve the full strategic and financial benefits expected from the sale. Further, such benefits, if ultimately achieved, may be delayed. The actions undertaken by Russian military forces against Ukraine since the beginning of 2022 have put our Ukrainian businesses (lifecell, UkrTower, Global LLC and Paycell LLC) at risk and are creating and are likely to continue to create substantial disruptions in the region. A number of our BTS sites have been damaged and our control over our BTS sites and business may be compromised by any further degradation in Ukraine's territorial integrity, whether as a result of military action or any ensuing situation. Occupation by Russia of the territories in Luhansk, Donetsk, Kherson, Kharkiv and Zaporizhzhia regions and so-called referendums to join Russia, led to impairment of lifecell and Ukrtower assets. Due to the lack of access to sites on the occupied territories, it is impossible to reliably establish their loss or damage. In total, a reversal of impairment loss of TRY 25.9 million (not restated for IAS 29) has been recognized in 2023 in relation to the assets on Ukraine liberated territories or assets whose operational activity was restored. However, the ongoing war may lead to an impairment of the value of our assets in Ukraine. Russian missile attacks on energy and other critical infrastructure have led and may continue to lead to country-wide electricity cuts, which in turn result in lower lifecell network availability. Although we are unable to predict the likely course or duration of these continuing events, the war in Ukraine could materially disrupt our Ukrainian operations, including our financial and banking transactions, lead to a decrease in revenue and subscriber base, increase our costs through, inter alia, increased costs of compliance, impact cash flows, cause harm to our team members and otherwise impair their ability to work for extended periods of time, as well as disrupting banks and other critical infrastructure necessary to conduct business in Ukraine. In addition, under conditions of martial law, mobile operators are likely to attract increased interest from criminals, including politically motivated actors, increasing the risks of system failure or cyber security breaches. Ukraine's largest mobile operator was targeted in a powerful cyberattack in December 2023, causing a technical failure that temporarily disrupted communication services and internet access for Ukrainians over a period of several days. As of the end of December 2023, 97% of the daily average stores across the country are open. The continuation of the war might increase the shop destructions. We also face a risk of loss of control or expropriation of our assets. In Ukraine, the National Bank of Ukraine ("NBU") fixed the official UAH/USD exchange rate at 36.5686 as of July 21, 2022, and NBU shifted to the regime of managed flexibility of the exchange rate on October 3, 2023. As of 2023-year end, UAH/USD was at 37.9824. In 2023, inflation fell faster than expected, closing the year at 5.1%, due to higher harvests and thus more food supply, as well as due to further reduction of pressure on business costs. As of March 2024, the inflation figure was announced at 3.2%. In view of the current situation, it is not possible to make any reliable assessment of the outlook for the Ukrainian economy. Weaknesses of state institutions, civil unrest and economic turbulence have also adversely affected the overall economic situation in Ukraine. In addition to the political risks in relation to the military actions underway and the risks of economic instability, our operations in Ukraine could also expose us to operational, competitive, regulatory and legal risks, as well as the political risk of nationalization of some or all of our assets, or the risk of restrictions on our ability to upstream cash, in particular if the sale of such operations is not successfully completed. - We also carry out business in Belarus through 100% stake in BeST. See "Item 4. Information on the Company-B. Business Overview-IX. International and Domestic Subsidiaries-BeST." After the controversial presidential election held in 2020, which caused protests and strikes, the US, the UK, Canada and the EU imposed a broad range of sanctions against Belarus and certain Belarussian entities and persons and certain sectors in Belarus. In 2022 and 2023, the EU, US, UK and certain other countries broadened this scope, imposing significant sanctions on Belarusian persons and entities, visa restrictions, import bans and wide-ranging export controls, stemming from both the presidential election and Belarus's ongoing involvement in Russia's invasion of Ukraine and targeting a wide range of industries and goods. We may face risks of violations in cases where domestic regulations conflict with these sanctions' restrictions. The imposed sanctions and limitations affect the economic climate in Belarus, and also affect our access to, and the cost of, imported equipment and software, notably our base station and office software. These factors may lead to a decline in our operating performance, our ability to make investments and an impairment of the value of our assets there. In particular, due to these sanctions and the limitations thereof, we face difficulties in making the investments required under the Investment Agreement between Turkcell and Belarus (See "Item 4 Information on the Company-B. Business Overview-IX. International and Domestic Subsidiaries-BeST") due to both the lack of imported hardware and software (and vendor support) and the challenges with banking operations or international transactions resulting from the sanctions placed by the aforementioned countries on some Belarusian banks. We may also face difficulties in making the required USD 100 million installment payment pursuant to the Investment Agreement. Our failure to implement the investment project within the agreed timeline and/or comply with the investment amount may result in penalties, termination of the Investment Agreement and/or compensation to Belarus for the benefits granted under the Investment Agreement, any of which could have an adverse effect on our business and results of operations in the mid-to-long term. In Belarus, annual inflation for 2023 was 5.8%, while for the first quarter of 2024 inflation was reported as 2.2%. The National Bank gradually decreased the refinancing rate from 12% to 9.5%, effective from June 2023. As of December 31, 2023, the local currency had devaluated by 16.1%, based on the National Bank of Republic of Belarus, as compared to closing rates on December 31, 2022. Macroeconomic stability is currently fragile due to the country's reliance on the Russian economy and domestic political instability. There can be no assurance that such economic, political, regulatory and operational difficulties will evolve favorably in the future. These risks have affected and could adversely affect our reputation and results of operations. - In the Turkish Republic of Northern Cyprus (the "Turkish Republic of Northern Cyprus" or "TRNC"), our subsidiary Kibris Telekom holds 247 MHz bandwidth on 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2600 MHz and 3600 MHz frequencies. If Kibris Telekom fails to comply with the terms and conditions of its license agreements, we may incur penalties, which could have an adverse effect on our business and results of operations. Additionally, the incumbent telecom operator, TRNC Telecommunications Office, may be restructured as a public-private partnership. If the restructuring were to be awarded to one of our main competitors, or to include the issuance of a third mobile license, this would adversely affect our growth and our competitiveness in the region. Furthermore, due to its designation as an operator having significant market power in the mobile access and call origination markets, Kibris Telekom is obliged to provide access and call origination services to MVNOs. Any of these factors may increase competition in the market and adversely affect our business and financial condition. In the past, there have been political discussions regarding the reunification of Cyprus, which, if resumed, may bring growth opportunities for our subsidiary, but may also lead to risks including unfavorable changes in applicable regulations, an increase in competition, an increase in capital expenditure requirements and loss of revenues. Our international subsidiaries may not benefit us in the way we expect for the reasons cited above, as well as for other reasons, including general macroeconomic conditions, poor management and legal, regulatory or political obstacles, all of which may be further impacted by war or other conflict. For example, foreign exchange controls in Ukraine have included, for example, a ban on the purchase and cross-border transfer of currency for the purpose of paying dividends. Although such restrictions are being lifted, they are being replaced by monthly limitations on dividend payments. Such restrictions may be further expanded in these countries, or other restrictions may be imposed on the ability of our subsidiaries to pay dividends or to make distributions to us, or on our ability to repatriate funds, any of which could restrict Turkcell's ability to receive funds from those operations. For some of these subsidiaries, we do not expect to achieve desired levels of profitability in the near or mid-term. We may also in response to such conditions consider increasing, restructuring or exiting certain of our investments and we may be required to establish new legal entities or engage in new business lines due to our business needs or recently introduced regulations. In addition, if an asset in which we have invested does not provide the expected returns, we may choose to dispose of it at a sale price that may be below its carrying or liquidation value. These factors could have an adverse effect on the implementation of our strategy, our financial condition and the demand for and the price of our shares. In this regard, we have and are likely to continue to experience issues in some of our international businesses that adversely affect our Company. In addition to investing in our international operations, we also engage in business through roaming agreements in a number of countries. In international markets in which monopoly or duopoly markets exist, such as Monaco, the United Arab Emirates or the Maldives, operators tend to increase their roaming prices despite the overall global trend of declining roaming prices, which could increase our roaming costs. Moreover, the terms on which we enter into roaming agreements may change over time, adversely affecting our ability to sustain or enter into such agreements on commercially viable terms.

Our performance depends, to a significant extent, on the abilities and continued service of our key personnel. Competition for qualified and highly skilled telecommunications and technology personnel in Turkiye and elsewhere is intense, in particular in the areas of software development, cyber security and techfin. Additionally, the global trend toward remote working practices has increased the flexibility of changing jobs. In particular, the market for qualified technical roles is not only highly competitive, but also suffers from the scarcity of personnel, which impacts our ability to replace our personnel with qualified and capable successors. Moreover, the current macroeconomic conditions in Turkiye, in particular, the depreciation and inflation in the Turkish Lira, have impacted and may continue to impact our ability to retain our employees. In 2023, a number of organizational changes occurred in the management of our company, including two changes at the level of the CEO and several changes to the C level executives. Further changes might be made in the future. Although we have taken measures to prevent major disruptions to our operations as a result of the transition in management and the related organizational changes, no assurance can be given that the changes being implemented will achieve their objectives, or that they will not have an adverse effect on our business or the continued pursuit of our strategy, or lead to further retention issues among other key personnel. The loss of the service or loyalty of key personnel or management teams, due to any of the aforementioned conditions, or any influx of such personnel to our competitors, could adversely affect our business and financial condition and could lead to breaches of confidentiality, particularly if such persons were to join a competitor.

- Competition in the Turkish telecommunications market may adversely affect the growth of our business and our financial condition, and the competition that we face may evolve with our business strategy. - Our growth strategy is partly dependent on making investments in new opportunities, in particular outside of our core telecommunications activities, which may not be successful and which could affect our business and financial condition. - Changes in the regulatory environment in the sectors in which we operate could adversely affect our business and financial condition. - We hold interests in several companies outside of Turkiye that expose us to various local economic, business, political, social, financial, liquidity, regulatory and legal risks of doing business in such countries. These investments may not provide the benefits that we expect, and our pursuit of acquisition opportunities may increase these risks and we may be unable to divest such investments successfully. - 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. - Our business is subject to risks arising from natural disasters and catastrophic accidents. - Environmental risks and climate change could significantly impact our businesses. - Our business is heavily dependent on the continuity and security of our information technology and network technology services, which are subject to physical and cybersecurity threats. - We are dependent on a small number of suppliers for network equipment, information systems and handsets and for the provision of data and services. We also rely on a small number of distributors. The failure of any of our suppliers or distributors may have an adverse effect on our business and financial condition. - We have become active in providing products and services for industries other than telecommunications, or for new telecommunications services and products, many of which are developed and/or maintained by third party providers. Our reliance on these third-party providers may adversely affect our business. - If we, our local partners or any of our key suppliers fail to comply with laws and regulations regarding unethical business practices, including bribery and corruption, or were to be subject to international sanctions, this could adversely affect our business and financial condition. - 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 have a material amount of deferred tax assets which is subject to significant judgement by our management, and we face risks with regard to the recognition and recoverability of these assets. - Although we maintain and regularly review our internal control over financial reporting, there are inherent limitations on the effectiveness of our controls, particularly as our Company grows and enters into new businesses. - Our consolidated financial results and/or operational performance could be adversely affected if we are unable to retain our key personnel and employees.

Our ability to conduct our business depends on the availability and security of our information technology ("IT") and network technology ("NT") systems and services. As part of our ongoing development and initiatives, more equipment and systems have been connected to IT systems. We also rely on digital technology, including information systems, to process financial and operational information. Although we devote significant resources to the development and improvement of IT and NT and to our security, backup and continuity systems, we could still experience IT and NT failures and outages due to physical incidents and threats, such as system deficiencies, human error, natural disasters such as earthquakes and floods, energy blackouts, fire, power losses, pandemic measures, facility access issues, unsuccessful migration to alternative or improved IT and NT systems, or other factors, including but not limited to unintentional third-party interruptions or theft and vandalism. Our commercial success is heavily dependent upon the security of our services, and maintaining the security of the personal and financial data, intellectual property, and other confidential and sensitive data of our customers, employees and suppliers is essential to our business. Mobile networks are migrating towards internet protocol ("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. Threats to the mobile network can originate from external sources, such as the public internet, or internal sources, such as terminals connected to our mobile network. Despite the systems and infrastructure which we have put in place to address these security concerns, we could encounter successful attacks on our infrastructure, which could have an adverse effect on our operations, damage our reputation and affect our relationships with our customers. Cyberattacks may be conducted by sophisticated and organized groups and individuals with a wide range of motives and expertise, including organized criminal groups, "hacktivists," terrorists, nation-states, nation state-supported actors, and others. Successful cyberattacks could prevent the effective provision, operation and commercialization of our services, in addition to affecting their use by customers. Therefore, it is necessary to continue to identify and remedy any technical vulnerabilities and weaknesses in our operating processes, as well as to continue to strengthen our ability to detect, react and recover from incidents. In particular, this includes the need to strengthen security controls in the supply chain, which may include a high number of participants spread across different countries, by focusing on the security measures adopted by our providers, and other third parties, and, in particular, by ensuring the security of cloud services provided by third parties. However, we cannot ensure that our efforts will be successful. In common with other high-profile businesses which are targeted for cyber-attacks, including telecommunications operators in particular, our networks and systems are constantly exposed to a variety of different cyber threats and we have experienced an increased number of sabotage incidents, as well as attempted cyber-attacks of varying degrees of sophistication by unauthorized parties attempting to obtain access to our computer systems and networks. Globally, actors in the telecommunications and other industries were subject to destructive cyberattacks at the end of 2023. In addition, our operations in Ukraine and elsewhere may be at heightened risk of such attacks due to the war between Russia and Ukraine. Another telecommunications company in Ukraine was subject to a cyberattack that led to large scale communications outages on their systems for several days in December 2023. We believe that no such attacks have succeeded in obtaining access to our critical systems, although in practice such attacks may develop over long periods of time during which they can remain undetected. Through our Cyber Defense Center practices, we have observed many privilege theft and escalation attempts which we believe have been stopped before causing any harm to our services and products. Also, many phishing and malware activities were detected, and we assessed that stopped, including those which aimed at taking control over our clients and servers. So far, none of these attacks are regarded as material incidents. A successful hack could disrupt our network and our ability to provide services and/or could result in, for example, unauthorized access to, misuse, loss, or destruction of our data or systems and theft of sensitive or confidential data, including personal information of our employees and customers, and theft of services and/or funds. Many phishing and malware activities have been detected, and we believe stopped, including ransomware attacks that targeted several technology companies, including Turkcell, that were aimed at taking control over our clients and servers. DDoS mitigation capability is important to maintaining our market reputation. A compromise of our security systems or those of our business associates, including joint venture partners or our third party service providers, that results in the information we hold being accessed by unauthorized persons, could adversely affect our reputation with our customers and other stakeholders, as well as our operations, results of operations, financial condition and liquidity, and could result in litigation against us or the imposition of penalties. In addition, a breach could require that we expend significant additional resources related to the security of information systems and could disrupt our operations. Our data and systems are currently particularly vulnerable to cyber-attacks due to the fact that a significant proportion of our employees work remotely. Remote work without virtual private network ("VPN") makes it difficult to monitor cyber security threats and take necessary actions. Although we implement and update patches on an ongoing basis, it is difficult to instantly monitor computers of the employees when not connected with VPN. Any of the factors above could materially adversely affect our business, reputation and results of operations.

We are subject to investigations and regular audits by governmental authorities in Turkiye, including the Competition Board, the ICTA, the Ministry of Commerce, 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 some of these authorities, as discussed below. We are also from time to time involved in disputes with private parties, including suppliers, distributors and other business partners. We set aside provisions on an as-needed basis with regard to our ongoing disputes in line with applicable accounting standards. However, no assurance can be given that the provisions we set aside will be sufficient to cover any actual losses under these matters, or that new disputes will not arise under which we would face additional liabilities and reputational risk. We face a risk of tax audits and claims in many different areas of our business that are subject to taxation, such as corporate tax, value added taxes, special communication tax and others. Such audits and claims have led to significant tax assessments and penalties in the past and may again do so in the future. In addition, changes in tax laws and non-tax regulations, may lead to increases in our tax burden and may, as a result, materially adversely affect our financial condition and results of operations. Disputes related to taxation have been particularly significant and major penalties have resulted. Under our licenses (2G and 3G) and Authorization Certificate (4.5G) as part of our license, we pay a monthly treasury share equal to 15% of our gross revenue subject to some exemptions. We are currently subject to ongoing audits in relation to the periods through 2021, and the Undersecretariat of the Treasury (the "Turkish Treasury") may change its views based on its interpretations of treasury share calculations. Therefore, if these interpretations differ from the Company's calculations, unanticipated treasury share liabilities and fines may be levied. Investigations have been made for years 2021- 2022 and the first nine months of 2023 without assessment, however we cannot rule out the possibility that disputes will arise in respect of subsequent periods. Operators must pay license and annual utilization fees for wireless equipment to the ICTA. The wireless equipment fee (TRx) is calculated as 5% of the Company's monthly net sales. We believe that content services are provided without any infrastructure requirements and, therefore, that content service income should not be considered as mobile electronic communication services. The ICTA does not agree with us and is contesting our request to recover approximately TRY 142 million (not restated for IAS 29) of TRx fee paid. The lawsuits regarding the dispute are currently ongoing and in the appeals stage. The Turkish Competition Board has, for several years, alleged that we have abused our dominant position in the Turkish mobile market through our exclusive practices directed at our dealers. While there is no ongoing investigation of Turkcell regarding such allegations, we cannot ensure that we will not be subject to such investigations in the future. Such investigations and any similar actions may have financial consequences and hinder our ability to effectively respond to competition. For a more detailed discussion of disputes that we presently believe to be significant, see "Item 8. Financial Information-A. Consolidated Statements and Other Financial Information-I. Legal Proceedings" and Note 37 to our audited Consolidated Financial Statements included elsewhere in this annual report.

The majority of our revenue comes from our operations in Turkiye, which is a highly competitive market. Competition in this market and regulatory actions that limit our ability to respond effectively to competitive pressures may adversely affect the growth of our business and our financial condition. Regulatory actions, in large part from the ICTA, have been a significant factor in shaping the development of the Turkish telecommunications market and have adversely affected our ability to price our services and to respond to changes in the market. Regulatory actions have often favored our competitors. The ICTA may in the future act to regulate other areas of our business, including data and digital services, and we cannot predict the impact that such regulation would have on our ability to execute our strategy and on our competitive position. To the extent that inflation in the Turkish market requires us to make increasingly frequent price adjustments, any regulatory impediments to such adjustments could have an adverse effect on our profitability and financial condition. Moreover, in the current highly inflationary environment, irrational or delayed price movements by other operators, including price decreases, could have an adverse effect on our growth. If the competition we face intensifies or the market slows or develops in unexpected ways, this could harm our business and financial condition. The competition that we face includes price-driven competition from other major telecom operators (in particular Vodafone Turkiye and Turk Telekom) and from potential new entrants. We expect to experience continued price-driven competition. If we do not respond effectively to this competition, the growth of our business and our financial condition may be negatively affected. Our competitors for mobile telecommunication services also include an mobile virtual network operator ("MVNO") that leases our network. Generally, MVNOs provide offers that are relatively cheaper than similar offerings of the operators from whom they lease their networks, including us. Even though this MVNO currently has a very limited number of subscribers, in the future, it or other MVNOs may become increasingly competitive in the telecommunications sector, causing a downward pricing pressure on the fees that we charge for our services, which, in turn, may have an adverse effect on our business. In some businesses, we are dependent on our competitors for certain services that we provide. For example, we are reselling xDSL from the incumbent operator Turk Telekom and we are dependent on their service quality in this business. Therefore, any delay or negligence of Turk Telekom could result in dissatisfaction of our customers and lead to churn of our xDSL subscribers. Also, any price increase in Turk Telekom's wholesale tariffs may not be fully reflected in the consumer prices charged by Turk Telekom's retail brand TTNET A.S., which may lead to margin squeeze for our services, reducing our ability to effectively compete and eventually causing churn of our xDSL subscribers. Furthermore, where we rely on networks of other operators, network changes by such operators may make it more difficult for us to offer our products that use such networks. For example, the ICTA has approved Turk Telekom's copper switch-off plans in 2024, which may lead to the termination of our subscribers served via copper network in certain areas, which in turn could materially and adversely affect our business, especially if existing copper subscribers cannot be migrated to alternative fixed broadband solutions. We also face intense competition (both in the Turkish and international markets) with respect to product and service areas outside of our core telecommunications activities. - As we increase our offering of digital services, we find ourselves increasingly in competition not only with local digital services developers but also with major international companies (WhatsApp, YouTube, Spotify, Netflix, etc.) that specialize in the development of internet applications and services (namely "over-the-top," or "OTT" services). Several of these global players' platforms are offering local Turkish content in addition to their market-leading international content offerings, thereby improving their competitiveness. They also sometimes enter into partnerships with local operators in Turkiye. In addition, newer applications from both established developers and operators and less well-known ones are constantly being introduced and may disrupt areas of the digital services industry in which we compete or seek to compete. These established and newer applications and services make use of the internet as a substitute for some of our more traditional services, such as messaging and voice. Reduced demand for these telecommunications services has had and is expected to continue to have an adverse impact on our revenues. - We also face increasing local and global competition in the wholesale market and operations and information technologies sector, which affects our pricing and our collaborations with global and international partners. - Our mobile payment business, Paycell, faces intensifying competition and aggressive pricing from existing competitors, emerging new businesses (with 27 new companies having obtained licenses from the regulator in 2022 and 2023), and well-established companies from industries other than telecommunications (such as banking and fintech) entering the payments and e-money businesses, all of which could adversely affect Paycell in the future.

- Spectrum limitations and the costs of obtaining additional capacity, particularly 5G, may adversely affect our ability to provide services to our subscribers and the cost to us of providing such services. - Our 4.5G and 3G license agreements contain certain coverage and/or service quality and local procurement obligations that we may not always be able to achieve. Any regulatory changes increasing our coverage and/or service quality requirements, or our failure to abide by existing requirements, may have an adverse effect on our business and financial condition. - There are alleged health risks and zoning limitations related to our base transceiver stations which may adversely affect our ability to provide services at certain areas. - Our fiber business may be adversely affected by required permission procedures and local limitations, as well as by lease arrangements relating to our fiber infrastructure backbone. - Although we closely follow general technological trends in communications and technology, we may be unable to adapt to rapid technological changes in communications and information technology, which could result in higher capital expenditures and a greater possibility of commercial failure.