Krasnodar, May 4, 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 year 2005  in accordance with Russian Accounting Standards (RAS).

• 2005 revenue grew by 8.2% over 2004  to RUR 18.13 billion ( USD 640.5 million)[1];
• 2005 EBITDA [2] increased 27.8% over 2004 to RUR 5.4 billion (USD 191.5 million) representing an EBITDA margin of 29.9% (up 4.6 percentage points);
• Revenue from value-added services [3] increased 68.2% to RUR 1.48 billion (USD 52.38 million). The share of revenue from value-added services in total telecommunication services revenue increased by 2.9 percentage points over 2004 to 8.3%;
• The number of subscribers grew by  88.56 thousand in 2005.

1. KEY FINANCIAL HIGHLIGHTS:

* employees on payroll
** 2004 figures are adjusted according to PBU 4/1999 (reserves for annual leaves are included)

UTK generated 2005 total revenue of RUR 18,133.1 million, gaining a 8.2%-increase over 2004. Revenue from telecommunications services  increased 9.6 % to RUR 17,873.0 million. Revenue structure showed a stable trend in revenue share growths from local telephony and value-added services. Based on 2005 results revenue from local telecommunication services grew by 3 percentage points to 42%, from value-added services by 2.9 percentage points to 8.3% of the Company’s telecom revenue. Revenue from long-distance telecommunication services declined by 5.4 percentage points to 35.2%. The growth of the Company’s revenues from telecommunication services was due to a major increase in UTK’s subscriber base and the increase in local tariffs (from September 1, 2005) [4].

Revenues from local telecommunication services increased 17.8% over 2004 to RUR 7,513.6 million. 88.56 thousand new subscribers were added to the Company’s subscriber base in 2005, including 61.457 thousand  - in the urban telephone network (TN). As of December 31, 2005 the number of telephones operated by UTK amounted to 4,015.003 thousand.

Revenues from long-distance telecommunication servicesdecreased by 4.9% to RUR 6,305.2 million in the period.  In 2005 UTK’s outgoing long-distance traffic totaled 1,967.798 million minutes (- 6.2%),  of which  DLD traffic accounted for  1,855.943 million minutes (- 6.5%) and ILD traffic – for 111.855 million minutes (- 1.7%).

UTK revenues from value-added services rose 68.2% to RUR 1,482.8 million. Revenues from Internet services grew by 67.7%, from VPN (virtual private networks) services by 47%, from IP telephony services -  by 2.2 times. Internet services sales were supported by strong usage growth: Internet traffic rose 4.13 times to 172.6 Tbyte in 2005.

Revenues from the interconnected telecom operators(excluding revenues from value-added services) increased by 12.5% to RUR 1,962.9 million, including revenues from Rostelecom — by 2.1% to RUR 663.8 million. Other telecom services experienced a 9.5% decrease in revenues to RUR 608.5 million due to the termination of non-profitable services.

2. SEGMENTAL ANALYSIS OF REVENUES, RUR mln:

2005 operating expensesincreased 4.1% to RUR 13,952.4 million. Based on 2005 results, expenses on wages and salaries and other social payments to employees (31.5% ), depreciation charges (16.4%) and payments to other telecom operators (18.4%) including to Rostelecom (14.7%) accounted for major part of operating expenses. The reporting period saw the following material changes: share of expenses on social insurance decreased by 1.9 percentage points to 7.6%,  share of material expenses declined by 1.4 percentage points to 7.2%

The growth of depreciation charges by 36.5% to RUR 2,285.0 million was attributable to  completion of certain investment projects in 2005 and minor increase in fixed assets put into operation at the end of 2004.

Expenses on social insurance decreased by 16.9% to RUR 1,059.2 million due to tax rate reduction from 38% to 26%.

Material expensesdecreased by 13.8 % to RUR 998.4 million due to the growth of the digitization rate of the Company’s networks and costs reduction policy pursued by UTK.

3. SEGMENTAL ANALYSIS OF EXPENSES, RUR mln:

* 2004 figures are adjusted according to PBU 4/1999 (reserves for annual leaves are included)

Interest expensesincreased by 20.4% over 2004 to RUR 2,415.9  million. 2005 EBITDA increased 27.8% to RUR 5,420.4 million. EBITDA margin was up 4.6 percentage points to 29.9%. Operating profit grew by 24.9% over 2004 to RUR 4,180.7 million. Operating margin was up 3.1 percentage points in the period reaching 23.1%. The increase in operating margin was related to a positive trend in revenue growths compared to the operating costs (by 4.1 percentage points).  As a result, value indicator per every 100 rubles of gross revenue decreased by 3% to 77 rubles.

The Company’s policy aimed at business efficiency growth allowed to improve the following business efficiency indicators: total revenue per one average line grew by 1.9% to 4.541 thousand rubles, total revenue per 1 employee increased by 13.1% to 481.5 thousand rubles, number of lines per 1 employee was up 11% to 106 lines.

2005 capex decreased 74.3% to RUR 3,213.5 million compared to RUR 12,497.8 million in 2004. Fixed assets put into service decreased by 47.7%  to RUR 5,563.1 million.

In 2005  254.035 thousand telephone lines were put into operation in UTK networks including 85.905 thousand lines to replace analog equipment. As a result, UTK`s total installed capacity as of December 31, 2005 stood at 4,254.081  thousand lines.

Digitization rate of UTK local network rose 3.42 percentage points over 2004 and totaled 62.31%, of which the digitization rate in urban telephone networks was 66.9%. The digitization rate of the Company’s intrazonal network was 91.08% as of January 1, 2006, being the highest among Russian telecoms.

4. MAIN OPERATIONAL HIGHLIGHTS :

[1]  Figures are provided at the Central Bank of Russia average exchange rate of USD 1 for 2005 =  28.31 rubles.

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

[3]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); termination of IP traffic; 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.

[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]Figures of expenses for 2004 were adjusted in 2005 financial statements due to new accounting methodology for expenses introduced in 2005. In particular, accounting principles for expenses on land rent were changed (in 2004 the land rent were included in taxes, since 2005 it is to be included in expenses associated with the lease of property). Accounting for expenses reflected in the line «services of outsider organizations» changed regarding after-sale service. As a result of the abovementioned changes the line "other costs" was also adjusted.