Krasnodar, May 5, 2006:Southern Telecommunications Company (“UTK”) (RTS: KUBN, KUBNP; MICEX: UTEL, UTELP; ADR OTC: STJSY, KUE FRA)], the principal telecommunications provider for Russia’s Southern Federal District, today announced its financial results for the first three months of 2006  in accordance with Russian Accounting Standards (RAS).

§  1Q2006 net profit was fixed at RUR 324.8 million (USD 11.99 million)[1];

§  Revenue from value-added services [2] increased 29.4% over 1Q2005 to RUR 396.5 million (USD 14.64 million). The share of revenue from value-added services in total telecommunication services revenue increased to 10.1% vs. 7.2% in 1Q2005;

§  1Q2006 EBITDA [3] increased 28.4% over 1Q2005 to RUR 1,623.4 million (USD 59.95 million);

§  The number of subscribers grew by  6.8 thousand in 1Q2006.

1. KEY FINANCIAL HIGHLIGHTS:

* employees on payroll

UTK generated 1Q2006 total revenue of RUR 4,117.6 million, gaining a 4%-decrease over 1Q2005. Revenue from telecommunications services decreased 7.4 % to RUR 3,915.7 million. Such reduction is related to coming into force of the new rules regulating interaction between zonal and long-distance operators***.

"Southern Telecommunications Company" PJSC does not provide DLD and ILD services (except for intra-zone telephone services) as they are rendered by Rostelecom and other telecom operators having  appropriate licenses. 

Based on 1Q2006 results revenue from local telecommunication services grew by 12.1 percentage points to 53.6%, from value-added services by 2.9 percentage points to 10.1% of the Company’s telecom revenue. The growth of the Company’s revenues from telecommunication services was due toincrease in UTK’s subscriber base and local tariffs growth (from September 1, 2005) [4].

Revenues from local telecommunication services increased 19.7% over 1Q2005 to RUR 2,099.4 million. 6.8 thousand new subscribers were added to the Company’s subscriber base in 1Q2006, including 5.9 thousand  - in the urban telephone network (TN). As of April 01, 2006 the number of telephones operated by UTK amounted to 4,021.82 thousand.

1Q2006 revenues from value-added servicesrose 29.4%to RUR 396.5 million. Revenues from Internet services grew by 56.7%, from VPN (virtual private networks) services by 53.7%. Internetservicessales were supported by strong usage growth: Internet traffic rose by 89.3% to 234.5 Tbyte.

Revenues from the interconnected telecom operators(excluding revenues from value-added services) increased by 44.4% to RUR 675.5 million. Other telecom services experienced a 1.1%-decrease in revenues to RUR 138 million due to the termination of non-profitable services.

2. SEGMENTAL ANALYSIS OF REVENUES, RUR mln:

1Q2006 operating expensesdecreased 11.4% over 1Q2005to RUR 2,877.1 million. The reduction  is related to changing the rules of provision of DLD and ILD services due to liberalization of the long-distance market.

Based on 1Q2006 results, expenses on wages and salaries and other social payments to employees (34.5%), depreciation charges (22.1%), payments to other telecom operators (19.1%) and other costs (21.1%)accounted for major part of operating expenses. The reporting period saw the following material changes: share of expenses on wages and salaries increased by 5.3 percentage points to 34.5%, share of depreciation charges grew by 4.8 percentage points to 22.1%,  share of material expenses, electricity & energy costsincreased by 1 percentage point to 7.4%

The growth of depreciation chargesby 13.5% to RUR 636.9 million was attributable to completion of certain investment projects in 2005.

Material expensesdecreased by 3.9 % to RUR 344.7 million due to costs reduction policy pursued by UTK.

Expenses onsocial insurance decreased by14% to RUR 276 million due to reduction of non-governmental pension payments and employee benefits under the Collective Agreement

.

3. SEGMENTAL ANALYSIS OF EXPENSES, RUR mln:

Measures on extension of periods to maturity and reduction of costs of the Company’s borrowings allowed it to reduce interest expense by 12.5% over 1Q2005 to RUR 543.2  million.

 EBITDA increased 28.4% over 1Q2005 to RUR 1,623.4 million. EBITDA margin was up 9.9 percentage points to 39.4%. Operating profit grew by 18.8% over 1Q2005 to RUR 1,240.5 million. Operating margin was up 5.8 percentage points in the period reaching 30.1%.

1Q2006 capex decreased 84% to RUR 117.7 million compared to RUR 693 million in 1Q2005. Fixed assets put into service decreased by 78%  to RUR 154.5 million.

During the first three months of 2006  8.85 thousand new telephone lines were put into operation in UTK networks including 4.6 thousand lines to replace analog equipment. As a result, UTK`s total installedcapacityas of April 1, 2006 stood at 4,258  thousand lines.

Digitization rate of UTK local network rose 5.1 percentage points over 1Q2005 and totaled 62.45%, of which the digitization rate in urban telephone networks was 67% and the digitization rate in rural TN was 48.05%.

4. MAIN OPERATIONAL HIGHLIGHTS :

*** According to the federal law «On Telecommunications»  UTK’s license for rendering long-distance services has ceased to be effective since January 1, 2006. Rules of interaction and settlements between telecom operators have also changed.

"UTK" PJSC continues to renderlocal and intra-zone telephone services while Rostelecom and other operators provide DLD and ILD communications.

"UTK" PJSC only provides traffic transit services to these operators being their agent  with regard to third parties: the Company bills customers for telecom services provided, collects payments, claims for debts receivable from customers for telecom services.

[1] Figures are provided at the Central Bank of Russia average exchange rate of USD 1 for the first quarter of 2006 =  27.078 rubles.

[2] Value-added services rendered by "UTK" PJSC include: VPN services on the basis of MPLS and other technologies; services of data transmission; Internet access services (hardwired IP-connection, dial-up access, xDSL-based broadband access, wireless access on the basis of Wi-Fi technology); services of multimedia and multi-service networks based on HFC, Ethernet to the home and other technologies; video telephony and  video conferencing; intelligent services (on the basis of SCP-SSP); content services (including on the basis of Call-centers); Hosting and Co-location services.

[3] EBITDA  includes Earnings Before Interest, Taxes, Depreciation and Amortization.

[4] Average subscriber monthly fee has been increased by 20.2% for individuals and by 15.3% - for business sector.

[5] Other telecom services rendered by "UTK" PJSC include: wired radio, radio communications, radio broadcasting, paging, satellite communications, wireless radio communications.

[6] Other costs included in operating expenses are overheads, administrative expenses, advertising expenses, expenditures on research engineering and experimental development, payments to Gossvyaznadzor, postal expenses.