Moscow - July 1, 2008:  Rostelecom (NYSE: ROS; RTS, MICEX: RTKM, RTKMP), Russia’s national telecommunications operator, today announced audited consolidated results for the full year ended December 31, 2007 in accordance with International Financial Reporting Standards (IFRS):

• Consolidated revenue for the full year 2007 increased by 4.9% to RUB 64,602.0 million;
• Domestic long-distance traffic rose 4.7% compared to 2006. Outgoing international traffic decreased by 5.8% year on year while incoming international traffic increased by 24.4%;
• Full year 2007 OIBDA* increased by 7.6% to RUB 11,110.0 million, representing an OIBDA margin of 17.2%;
• 2006 FY net profit amounted to RUB 2,806.0 million, representing a year-on-year increase of 92.7%.

Rostelecom’s General Director Konstantin Solodukhin commented: “In 2007 the Company continued its success, operating in what has become a highly competitive environment following the liberalization of the long-distance market. Our performance demonstrates Rostelecom’s solid position in the traditional telecom segments and reflects our increased presence in new service markets.

Proactive development and promotion of new products and services enabled the Company to deliver an impressive increase in revenues from data transmission services - one of the most promising growth segments for the Company. It has been a year since Rostelecom became actively engaged in the wholesale Internet services market, and during this time Rostelecom managed to attain 11% market share.  We plan to substantially increase our presence in this segment in the coming years.

By leveraging our competitive advantages, we were able to maintain our solid position in traditional long-distance services to end-customers while building on our strong position in the international operators’ market.

Effective collaboration with regional operators and the expansion of Rostelecom’s own nationwide network of Customer Care Centers contributed to improved operating efficiency compared to the previous year.

In 2008, our primary objectives are to further diversify the business through the active expansion of our range of services while maintaining the Company’s solid positions in traditional telecom segments.”

* OIBDA is a non-U.S. GAAP and non-IFRS financial measure, which the Company defines as operating income before depreciation, amortization, loss from impairment of PP&E, goodwill and other intangible assets as well as loss on disposal of PP&E. We believe that OIBDA provides useful information to investors because it is an indicator of the strength and performance of our business operations, including our ability to finance capital expenditures, acquisitions and other investments and our ability to incur and service debt.  OIBDA should not be considered in isolation as an alternative to net income, operating income or any other measure of performance under U.S. GAAP or IFRS.

Rostelecom’s consolidated revenue for the full year 2007 increased by 4.9% to RUB 64,602.0 million. Domestic long-distance traffic grew by 4.7% year on year, while incoming international traffic was up 24.4%. Outgoing international traffic decreased by 5.8% compared to the previous year. In 2007, Rostelecom delivered an 8.6% increase in revenues from leased line services to RUB 7,725.0 million resulting from growing overall demand and an optimized tariff policy. Top-line growth was also driven by increased revenues from other business segments, including value-added and new services. Revenues from other business segments rose by 29.2% compared to 2006 and totaled RUB 6,877.0 million. This growth was primarily supported by the successful development and promotion of the Company’s Internet access services for operators and corporates and intelligent network services coupled with rising customer demand for technical support & equipment servicing.

Operating expenses for the full year 2007 increased by 2.2% to 61,573.0 million.

2007 full year operating profit more than doubled from RUB 1,305.0 million in 2006 to RUB 3,029.0 million in 2007. This was mainly driven by an increase in overall revenues alongside a decrease in payments to Russian operators, supported by the development of direct business-to-client relationships with end-customers through Rostelecom’s expanding network of Customer Care Centers across the country. Lower depreciation charges also contributed to the growth in operating profit.

OIBDA rose by 7.6% year on year to RUB 11,110.0 million representing an OIBDA margin of 17.2%.

Consolidated net income for the full year 2007 totaled RUB 2,806.0 million – almost double the previous year's figure.
 
In 2007, Rostelecom continued to invest in the modernization and expansion of its nationwide network as well as in the development of technical and IT infrastructure for the provision of new services. Full year capital expenditures decreased by 1.4% year-on-year to USD 280 million. Investments are planned to increase to approximately USD 300 million in 2008. The key objective of Rostelecom’s investment program is to enable the Company to further diversify its business pursuing new avenues for growth while sustaining solid positions in major markets and in traditional segments.

Rostelecom’s continuous focus on business process improvement and optimization of the organizational structure resulted in a 3.0% reduction in headcount of the Company and its subsidiaries compared to 2006. As of December 31, 2007 headcount amounted to 22.5 thousand employees. Overall, headcount reduction in network maintenance was partly offset by increased staff to support marketing, sales and customer service.

Domestic Long-Distance (DLD) Services

Increase in Traffic and Revenue from Russian Clients Underscores the Company’s Solid Position in  the DLD Market Despite Growing Competition 

Rostelecom’s 2007 DLD revenues increased by 1.9% to RUB 31,973.0 million. Domestic long-distance traffic amounted to 10,174.8 million minutes - a year-on-year increase of 4.7%.
The growth in DLD revenues was influenced by changes in the traffic mix as well as by the decrease in  tariffs.

International Long-Distance (ILD) Services to Russian Subscribers and Operators

OILD Traffic and Revenues from International Long-Distance Services Impacted by Changes in Traffic Mix and Intensifying Competition

Outgoing ILD traffic for the full year 2007 totaled 1,820.1 million minutes – a year-on-year decrease of 5.8%, while revenues from ILD services to Russian subscribers and operators amounted to RUB 12,317.0 million, down 7.2% compared to the same period last year.
The decrease in traffic and revenues was primarily attributable to the increased competition for the most profitable destinations, mainly in the operators’ market, as well as the changes in the traffic mix.

Incoming ILD Traffic Transit and Termination Services to International Operators

Steady Growth in Incoming International Traffic Volumes Underscores the Strength of the Company’s Market Position

Successful cooperation with international operators along with the optimization of tariff policies enabled the Company to substantially increase incoming international traffic volumes. Incoming traffic from international operators rose 24.4% compared to 2006 to 3,062.2 million minutes.
Full year 2007 revenue from international operators for incoming ILD traffic transit and termination grew by 27.5% year on year to RUB 5,710.0 million.

Revenue from Leased Line Services 

Increase in Revenue from Leased Lines on the Back of Optimized Tariff Policy and Growing Demand
 
Rostelecom’s 2007 revenue from leased line services rose 8.6% year on year and totaled RUB 7,725.0 million.

Other Revenue 

Active Development and Promotion of New Services Boosts Revenue Growth and Creates Diversification

The Company’s revenue from other business segments increased by 29.2% year on year to RUB 6,877.0 million, reflecting the growth of value-added and new services. Rostelecom delivered solid increases in revenue from data transmission services for operators and corporate customers, intelligent network services (INS) and customer equipment servicing.

The Company’s revenue from Internet access services for operators and corporates surged to RUB 1,143.0 million – a year-on-year increase of 5.3 times, while revenue from intelligent network services (INS) rose by 48.9% to RUB 1,133.0 million. Rostelecom’s revenue from customer equipment servicing grew by 28.7% compared to 2006 to RUB 1,160.0 million.

Operating Expenses

Total operating expenses for the full year 2007 amounted to RUB 61,573.0 million, representing a year-on-year increase of 2.2% primarily attributable to the scheduled growth in staff costs, higher costs for implementation of marketing initiatives as well as other administration costs. However, the reduction in payments to Russian operators alongside lower depreciation charges and loss on the sale of PP&E slowed growth in Rostelecom’s operating expenses.

Payments to Russian operators decreased by 5.1% year on year to RUB 27,860.0 million mainly due to the expansion of the Company’s own Customer Care Centers, which enabled Rostelecom to save on agent fees. Payments to international operators rose 7.0% to RUB 7,817.0 million as a result of increase in volume of transit traffic.

Staff costs for the full year 2007 totaled RUB 8,763.0 million, a 22.6% increase year on year. This was a result of a scheduled increase in the salary budget as the Company retained the staff necessary to further support marketing, sales and customer service.  This was partially offset by a staffing reduction in network maintenance. As mentioned, due to continuing business process optimization and streamlining of the organizational structure, the Company and its subsidiaries’ headcount was reduced by 3.0% to 22.5 thousand employees as of December 31, 2007.

In 2007 the Company’s expenses for bad debt provision amounted to RUB 815.0 million, up by two times year on year. In addition, the Company recognized in the statement of income a RUB 271.0 million loss from the impairment of goodwill and other intangible assets.

OIBDA increased by 7.6% year on year to RUB 11,110.0 million, representing the OIBDA margin of 17.2%.

Depreciation charges for the full year 2007 amounted to RUB 7,613.0 million – down 9.6% year on year.

Thus, full year 2007 operating profit grew by 2.3 times to RUB 3,029.0 million from RUB 1,305.0 million in 2006. Operating margin improved to 4.7%.

Other Income/Loss 

Other income for the full year 2007 amounted to RUB 815.0 million, down 27.2% year on year. The decrease is due to higher interest expense in comparison with the previous year.

Income Tax

Income tax expense grew by 21.0% and amounted to RUB 1,194.0 million in 2007.

Consolidation

Full year 2007 consolidated financial statements include the results of operations of Rostelecom and its subsidiaries.

Net profit

In 2007 Rostelecom’s consolidated net profit increased by 92.7% and totaled RUB 2,806.0 million. Net margin amounted to 4.3%.

Rostelecom will host a webcast of the full year 2007 results conference call on July 1, 2007 beginning at 9.30 AM (Eastern US) / 2.30 PM (London) / 5.30 PM (Moscow).  The webcast will be available both live, and for replay purposes, on the Investor Center of Rostelecom’s website at www.rt.ru/en/icenter.