Svyazinvest

Open Joint Stock Company

Investment Telecommunications Company

(SVYAZINVEST)

Blgd. 2, Plyushchikha 55, Moscow, 119121;

www.svyazinvest.ru

INFORMATION DEPARTMENT

Telephone: (095) 727-0418, facsimile: (095) 727-0475;

pr@svyazinvest.ru

November  29, 2004                        Moscow

Committed to principles of transparency, Svyazinvest’s management held meetings (on October 28, 2994 and November 18, 2004) with minority shareholders who sit on boards of the telecom holding’s subsidiaries to discuss plans to phase in the billing system (BS) based on Amdocs Billing Suite.

During these meeting Svyazinvest executives clarified their position on (i) the need for subsidiaries to switch to the single billing platform, (ii) performance of the tender committee in charge of selecting the billing system supplier, integrator and consultant, as well as the main stages in installing the new system.

Minority shareholders were notified that Svyazinvest has been busy with this issue since October 2002 when a special working group was established to implement the project of elaborating the Target Performance Model and Billing Systems Evaluation Method to be compliant with the requirements of Svyazinvest’s telecom operators. On October 2, 2003the telecom holding’s management board reviewed the results of the working group and adopted decisions to hold a tender to choose the BS supplier, general consultant and project integrator. Svyazinvest issued an order on November 24, 2003to set up a tender committee that will consist of representatives of all super regional telecom operators and Rostelecom. Professionals at the holding’s super regional telecom operators and Rostelecom represented BS solutions from various leading companies, including those that participated in the BS tender, at the International Conference “Billing Systems - 2003” held in October 2003.

The tender committee reviewed more than 20 software solutions from domestic and foreign suppliers. Based on special criteria the committee at the final stage of the tender planned to select BS solutions from such companies as Amdocs, Convergys, CSG and appoint the general consultant and contractor from Accenture, A.T. Kearney, Ernst&Young, IBM and KPMG.

Based on a decision dated March 15, 2004 the tender committee announced Amdocs the successful bidder that offered the best BS solution to be phased in at Svyazinvest’s related subsidiaries. It is noteworthy that the BS solution from Amdocs fully meets all criteria set by the tender committee for the future billing system and, having the average price proposed by the bidders, was named the best as far as the quality/costs ratio is concerned.

In accordance with Amdocs’ bid, software will be supplied and the BS project will be implemented by the general contractor - IBM Business Consulting Services, the consulting arm of IBM.

IBM Business Consulting Service won the tender to act as the general consultant and BS installation contractor. The decision in favor of IBM BCS was adopted, as the company offered the most efficient project implementation scheme, has extensive experience and resources to successfully carry out the project and on the basis of a number of other positive factors:

·         proven global and domestic track record in managing large-scale projects to install and transform management systems and in working out IT strategies for major companies;

·         the ability to monitor several projects/systems at a time;

·         profound knowledge of conditions on the Russian telecom market and laws;

·         well-adjusted relations with regional partners;

·         previous experience of IBM BCS as the general contractor acting as the unified coordinator of all procedures for transforming, working out and supplying equipment within the project;

In addition, the tender committee also took into account the fact that IBM has some experience in cooperating with Amdocs. In particular, IBM phased in Amdocs’ technologies at such foreign telecom operators as Cegetel, Verizon, JapanTelecom, Telefonica. It’s also noteworthy that at present there is a joint solution center of IBM and Amdocs, IBM Amdocs EMEA Customer Solution Center (IAECSC), based in France. The center works out solutions for customers and performs appropriate load tests.

On August 12, 2004 Svyazinvest’s management board decided at its enlarged session to approve the proposal by the tender committee related to the unified BS supplier and general consultant and contractor for BS installation and endorsed Amdocs’ BS solution for installation by consulting firm IBM BCS at the telecom holding’s subsidiaries.

Minority shareholders were also informed that the new BS solution should be implemented as soon as possible as the defects and disparate nature of billing systems operated by the telecom holding’s subsidiaries produces a negative impact on its competitiveness and cut its share in the telecom sector’s aggregate revenues. Svyazinvest’s telecom carriers are losing their positions mainly in the sector’s higher value-added services for corporate customers. Moreover, the opacity of mutual settlements among the holding’s companies results in considerable traffic losses. It should also be noted that the unified BS will allow the company to lower costs related to implementation of the unified business management system at the holding’s subsidiaries.

Benefits of the terms proposed by the BS supplier to super-regional telecom operators and Rostelecom are plain to see. The value of unlimited and unrestricted licenses, including a 50% discount offered by the supplier, will be $5 per line. Technical support will be provided by the supplier in 2005 for free and later Svyazinvest’s operators will be charged a 50% discount. This means that all telecom operatorrs of the holding will pay $23 mln per year for technical support, while at present they have to spend over $40 mln a year to keep their systems running.

Thus, if according to international business practices BS licenses and BS implementation cost roughly $24 per line, all seven super regional telecom carriers and Rostelecom will pay only $12 per line, including taxes.

All expenses to be incurred were thoroughly calculated and payment schedules were compiled. Pursuant to the contract signed with the supplier, Svyazinvest’s entities will have an 18-month grace period to pay for the licenses. BS implementation will be on a pay-as-you-go-basis over a period of three years. Thanks to these terms, costs associated with BS implementation will have no substantial impact on the financial performance of the telecom holding’s operators. The project will be financed using loan facilities and loan terms are clearly set forth in respective contracts. According to professionals, Svyazinvest’s subsidiaries will be investing 3-4% of their revenues in the project. It should also be noted that at present the telecom holding’s telecom operators have been reviewing their investment programs for 2005 in order to optimize them and raise their efficiency. Successful implementation of the BS solutions will help Svyazinvest’s operators raise their market capitalization.