“COMSTAR – United TeleSystems” OJSC (“Comstar UTS”) (LSE: CMST),  the leading provider of integrated communications services in Moscow, today announced its unaudited consolidated US GAAP financial results for the three months ended June 30, 2006.

HIGHLIGHTS

• Consolidated revenues for the second quarter of 2006 up by 33% year on year to US$ 286.6 million
• Net Alternative segment revenues for the second quarter of 2006 up 23% year on year to US$ 102.8 million
• Net Traditional segment revenues for the second quarter of 2006 up 40% year on year to US$ 183.8 million
• OIBDA for the second quarter of 2006 up 30% year on year to US$ 115.0 million
• Operating income for the second quarter of 2006 up 34% year on year to       US$ 88.1 million
• Net income for the second quarter of 2006 almost tripled year on year to US$ 58.2 million with net income margin expanding to 20.3% compared to 9.9% a year ago

Eric Franke, Chief Executive Officer of Comstar UTS, commented: “Our financial results for the second quarter of 2006 demonstrated sustainable top line revenue growth in both traditional and alternative business segments. Comstar is currently undergoing a major restructuring of the Moscow- based operations and existing relationships within the Group. Our strategic vision is focused on further growth of our top line by capitalizing on the synergies within the Group; cross selling to our existing and new customers of the whole range of our products and services; accelerating regional expansion and introducing of performance-based compensation systems”.

KEY FINANCIAL INDICATORS

Comstar UTS reported 33% year on year consolidated revenue growth to US$ 286.6 million for the second quarter of 2006, compared to US$ 214.9 million for the second quarter of 2005. Traditional segment delivered another quarter of solid performance, while Alternative business segment growth benefited from the expanding broadband offering to residential subscribers, which contributed strongly to the overall segment revenue growth. Regional operations added US$ 9.8 million to the Group revenue. Additionally MGTS received a compensation of US$ 17.8 million from the federal budget to MGTS for the reimbursement of discounts on installation and monthly fees to certain categories of residential subscribers, such as pensioners and military veterans, granted according to the applicable legislation prior to January 01, 2005. Thus the 33% revenue growth consisted of 21% organic growth, 4% growth from acquisitions and 8% growth from the abovementioned contribution.

Group OIBDA increased by 30% year on year to US$ 115.0 million for the three months ended June 30, 2006 with OIBDA margin decreasing year on year to 40.1%.

The Group’s operating income was up 34% year on year to US$ 88.1 million with operating margin up year on year to 30.8%. It included federal budget compensation as above and a net gain of US$ 7.6 million on the disposal of assets, held for sale, namely an MGTS switching center subsequently renovated in cooperation with the co-investor and sold to a third-party. This sale was executed in line with the Company’s strategy of divesting non-core assets.

Consolidated net income for the second quarter of 2006 has almost tripled year on year to US$ 58.2 million.

Net cash provided by operating activities during the second quarter of 2006 was US$ 80.1 million. This increase of 48% year on year was primarily related to compensation from the budget, organic business growth and acquisition of subsidiaries in the regions.

Total CAPEX grew by 36% year on year and by 56% quarter on quarter to US$ 82.2 million for the second quarter of 2006.

Alternative Segment (Moscow and regions)

*Revenue breakdown was reclassified for the quarters ended March 31, 2006 and June 30, 2005 for consistency with the current presentation. This reclassification has no impact on the total revenue of Alternative segment for the reported periods.

Alternative segment revenues including inter-segment sales were up 24% year on year to US$ 103.3 million. Revenue from the residential broadband internet services under the brand Stream doubled year on year to US$ 19.4 million. The Group’s regional businesses contributed US$ 9.8 million to total revenues, which represented a 390% growth year on year.

Revenues from residential subscribers grew by 57% year on year to US$ 23.4 million. This growth reflected continued increase in the residential subscriber base of broadband Internet under the Stream brand, which accounted for 83% of total residential revenues or US$ 19.4 million in the second quarter of 2006 compared to 64% or US$ 9.5 million a year ago. The introduction of the bundled tariff offer in May 2006 has stimulated the growth in new subscribers over a seasonally low summer period. The total number of broadband subscribers increased by 126,927 to 301,045 customers during the second quarter of 2006, which represented a 73% growth year on year. Average revenue per ADSL line excluding connection fee (ARPL) increased 29% year on year to US$ 21.6 in the second quarter of 2006 from US$ 16.7 for the same period last year. It had a positive contribution from the introduction of new tariff plans and additional services such as pay TV, bundled offer (broadband internet and pay TV) and the launch of multimedia services, including gaming portals and radio channels.

Revenues from corporate subscribers in the Alternative segment were up 10% year on year to US$ 40.5 million. Revenue from data and Internet services was up 21% as a result of growing demand for such services in Moscow.

Traditional Segment (Moscow)

Traditional segment revenues including inter-segment sales were up 31% year on year to US$ 209.6 million.

Residential subscriber revenues in the segment were up 46% year on year to US$ 88.9 million, including a compensation from the federal budget of US$ 17.8 million to MGTS for the discounts granted to certain categories of residential subscribers of MGTS prior to January 1, 2005. This payment was recognized as revenue upon cash collection.

Residential subscriber revenues in the traditional segment benefited from an increase in regulated tariffs. Monthly subscription fee for residential subscribers was raised in October 2005 from RUR 170 (or approximately US$ 6.3) to RUR 200 (or approximately US$ 7.43).

Corporate subscriber revenues were up 8% year on year to US$ 52.9 million primarily driven by the increase in rent of lines.

Revenues from operators grew by 35% year on year to US$ 67.8 million largely due to the increase in number of access nodes and increased unregulated tariffs for using MGTS infrastructure.

RECENT EVENTS FOLLOWING THE END OF THE REPORTING PERIOD

In August 2006, Eric Franke was appointed the Chief Executive Officer of Comstar UTS. He joined Comstar UTS to further strengthen the Company’s position in the regions, expand its brand portfolio, improve its operational efficiency and transparency and grow its shareholders’ value. Mr. Franke has previously held the position of the First Vice President and Chief Operating Officer of OJSC “Mobile TeleSystems”.

In September 2006, Wolfgang Breuer was appointed the Chief Technology Officer of Comstar UTS. Mr. Breuer heads the technology division of Comstar UTS’ corporate center, where he is responsible for standardizing of all technological resources of the Group, the development of the infrastructure of Comstar UTS’ subsidiaries and the support of regional acquisitions. Mr. Breuer was previously the President and CEO of the Croatian division of T-Mobile, a German mobile communications operator owned by Deutsche Telekom.

In September 2006, we announced the appointment of Vladimir Malyavin as General Director of MTU-Intel, subsidiary of Comstar UTS, providing broadband Internet services and pay-TV under the Stream brand. Mr. Malyavin has previously served as the General Director of CJSC Makomnet, Moscow telecom operator.

On September 15, 2006, the Extraordinary General Meeting of shareholders approved the share option program for the Board of Directors and the senior management of Comstar UTS.

On September 25, 2006, the Board of Directors of Comstar approved the share buyback of up to 4.5% of the total number of shares outstanding in the form of GDRs to be completed by the end of 2009.

In August 2006, MGTS submitted for approval to the Federal Service for Tariffs (FST) new tariff plans. These plans include a) an unlimited tariff; b) a time-based tariff, which consists of a subscription fee and per minute tariff; c) combined tariff, which includes a subscription fee, prepaid minutes and per minute tariff which is charged when the prepaid minutes limit is exceeded. Per minute tariff is applicable only to the outgoing calls. The Company is required to start offering time-based tariffs to its residential and corporate subscribers by the end of 2006.  The structure of new tariffs is defined by the Resolution #637 of the Government of the Russian Federation adopted on October 24, 2005.

CONFERENCE CALL INFORMATION

The Company's management will discuss its second quarter 2006 results during a conference call today at 5 PM (Moscow time). To participate in the conference call, please dial in on the following numbers:

UK:     +44 20 7806 1963     
US:      +1 718 354 1391       
International:    +44 20 7806 1963

A replay facility will also be made available and can be accessed using the numbers below:

UK:     +44 20 7806 1970     
US:      +1 718 354 1112       
International:    +44 20 7806 1970

The replay access pin code is 2415917#

The slide presentation will be available for download on Comstar UTS’ website https://www.comstar-uts.com/invest/presentations/ starting from 4.45 PM (Moscow time) today, on October 04, 2006.

Attachment A

NON-GAAP FINANCIAL MEASURES

This results statement includes financial information prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP), as well as other non-GAAP financial information. The non-GAAP financial information should be considered as an addition to, but not as a substitute for, information prepared in accordance with US GAAP. 

OIBDA is operating income before depreciation and amortisation, and the OIBDA margin is defined as OIBDA as a percentage of net revenues.  These measures are included in this results statement in order to provide additional information regarding the Group’s ability to meet future debt service payments, capital expenditure and working capital requirements, and as a metric to evaluate profitability.  OIBDA is not a measure of financial performance under US GAAP, and is not an alternative to net income as a measure of operating performance, or to cash flows from operating activities as a measure of liquidity.  While depreciation and amortisation are considered operating costs under US GAAP, these items primarily represent the non-cash current period allocation of costs arising from the acquisition or development of long-term assets in prior periods. OIBDA is commonly used as a criterion for evaluation of operating performance by credit and equity investors and analysts. The calculation of OIBDA may be different from the calculation used by other companies and comparability may therefore be limited.  OIBDA can be reconciled to the Group’s consolidated statements as follows:

ARPL (Monthly Average Revenue per Line), a non-US GAAP financial measure, is calculated for the relevant period by dividing Comstar UTS’ Stream service revenue, including broadband internet, pay TV and bundled offering excluding connection fee, for that period by the average monthly number of the Comstar UTS’ broadband subscribers during the period and by the number of months in the period. Reconciliation of ARPL to service revenues, the most directly comparable US GAAP financial measure, is presented below. We believe that ARPL provides useful information to investors because it is an indicator of the performance of the Company’s business operations and assists management in budgeting. The Company also believes that ARPL provides management with useful information concerning usage and acceptance of the Company’s services. ARPL should not be viewed in isolation or as an alternative to other figures reported under US GAAP.

Average revenue per ADSL line (Residential Segment)

CAPEX (Capital Expenditures) is cash expended for purchases of property, plant and equipment and intangible assets, and non-cash additions of property, plant and equipment and intangible assets. CAPEX can be reconciled to the Group’s consolidated statements as follows:

Attachment B

“COMSTAR – United TeleSystems” OJSC

CONSOLIDATED AND COMBINED INCOME STATEMENTS

“COMSTAR – United TeleSystems” OJSC

CONSOLIDATED BALANCE SHEETS

“COMSTAR – United TeleSystems” OJSC

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS