Krasnodar, May 11, 2007: Southern Telecommunications Company (“UTK”) (RTS: KUBN, KUBNP; MICEX: UTEL, UTELP; ADR OTC: STJSY, KUE FRA), the principal fixed-line telecommunications provider for Russia’s Southern Federal District, today announced its audited financial results for the year 2006 compiled in accordance with Russian Accounting Standards (RAS).

• 2006 revenue is down 3.1% over 2005  to RUR 17.57 billion;
• 2006 EBITDA [1] increased 17.1% over 2005 to RUR 6.3 billion representing an EBITDA margin of 35.9% (up 6.2 percentage points);
• Revenue from value-added services [2] increased 56.0% to RUR 1.85 billion. Share of revenues from value-added services in total telecommunication services revenue increased by 4.6 percentage points over 2005 to 11.2%.

Key financial highlights, million rubles

UTK generated 2006 total revenue of RUR 17,570.6 million, representing a 3.1%-decrease over 2005. Revenue from telecommunications services decreased 7.3% to RUR 16,561.5 million. Revenue structure showed a stable trend in revenue share growths from local telephony and value-added services. Based on 2006 results revenue from local telecommunication services grew by 7.2% to 50.8%, from value-added services by 4.6 percentage points to 11.2% of the Company’s telecom revenue. The growth of the Company’s revenues from telecommunication services was due to the increase in local tariffs from September 1, 2005.

Revenues from local telecommunication services increased 7.92% over 2005 to RUR 8,406.2 million. 49.003 thousand new subscribers were added to the Company’s subscriber base in 2006. As of December 31, 2006 number of basic telephones operated by UTK amounted to 4,064.006 thousand sets.

UTK revenues from value-added services rose 56.0% to RUR 1,851.6 million. Revenues from Internet services grew by 58.0%, from VPN (virtual private networks) services by 44.4%. Internet services sales were supported by strong usage growth: Internet traffic rose by 86.2% to 1,133 Tbyte in 2006.

Dial-up subscriber base increased by 32.9% reaching 328.3 thousand users. DSL-based broadband access subscriber base grew by 117.9% to 69.364 thousand subscribers. Revenues from interconnection and traffic transit services were up 122.5% to 2,652.8 million rubles.

Segmental analysis of revenues, rur mln:

2006 operating expenses declined by 8.4% to RUR 12,785.5 million. Based on 2006 results, expenses on wages and salaries and other social payments to employees (33.2%), depreciation charges (20.4%) and material expenses (11.5%) accounted for major part of operating expenses. 2006 expenses of the Company decreased mainly due to changes in settlement system with long-distance operators under conditions of liberalization of the long-distance market.

Amount of payments to telecom operators grew by 79.6% due to change of the methodology of settlements between telecom operators (introduction of “Calling Party Pays” principle), as well as due to growing payments to ??? «R??comm.RU» for increasing Internet traffic caused by connection of new subscribers resulted from active advertising campaign, broadening the range of available Mediazone resources and necessity of its further actualization for  DISEL subscribers.

The growth of depreciation charges by 14.1% to RUR 2,608.0 million was attributable to increase in value of the Company’s fixed assets. 

Segmental analysis of expenses, rur mln:

Interest expenses decreased by 13.8% over 2005 to RUR 2,083.4  million. 2006 EBITDA increased 17.1% to RUR 6,304.3 million. EBITDA margin was up 6.2 percentage points to 35.9%. Operating income grew by 14.5% over 2005 to RUR 4,785.0 million. Operating margin was up 4.1 percentage points in the period reaching 27.2%. Value indicator per every 100 rubles of gross revenue decreased by 4.17% to 72.77rubles.

The Company’s policy aimed at business efficiency growth allowed it to improve the following business efficiency indicators: total revenue per 1 employee increased by 6.4% to 501.44 thousand rubles, number of lines per 1 employee was up 11.5% to 115.7 lines.

2006 capex decreased 36.1% over 2005 to RUR 2,053.9 million. In 2006  214.5 thousand telephone lines were put into operation in UTK networks including 117.2 thousand lines to replace analog equipment. As a result, UTK`s total installed capacity as of January 1, 2007 stood at 4,343.184  thousand lines. Digitization rate of UTK local network rose 2.97 percentage points over 2005 and totaled 65.28%, of which the digitization rate in urban telephone networks was 69.91%.

Main operational highlights:

[1] EBITDA  includes Earnings Before Interest, Taxes, Depreciation and Amortization
[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] Other telecom services rendered by "UTK" PJSC include: mobile radio communication, radio broadcasting, TV broadcasting, wired radio  and other telecom services (core businesses).
[4] Other revenues from ordinary activities include revenues from provision of services under interconnection agreements and revenues from other sales (non-core businesses).