The number of MTS subscribers exceeds 3.5 million

The company shows a substantial growth in main financial and operational indicators and maintains leadership on the cellular market of Russia. As of today, the number of MTS subscribers exceeds 3.58 million. The company’s regional subscribers amount to 1.48 million, including subscribers of Kuban-GSM — the largest Russian regional operator, the acquisition of which MTS announces today.

Main 2001 highlights:

• Record growth of financial and operational indicators as compared to previous year: total revenues for the year of $893 million, an increase of 67%; EBITDA reached $424 million, an increase of 80%; net income for the year of $207 million, an increase of 120%.
• Strong subscriber growth with over 1.4 million new subscribers, resulting in a total of 2.65 million active subscribers at the year-end.
• Successful $250 million Eurobond issue in December.
• Establishment of MTS as the leading nationwide cellular provider with a footprint on the key regional markets of largest cities after Moscow — Saint-Petersburg and Nizhni Novgorod.

Commenting on the results, Mr Mikhail Smirnov, President of Mobile TeleSystems OJSC, said:

“The company’s results have once again shown a record of subscriber and revenue growth. MTS maintains leadership on the Russian mobile market. While we give special attention to Moscow as the most important segment of the national market, we continue to build our network and brand in the regions.”

“We’ve done a good job last year and expanded our business substantially. But we fully recognize that last year’s success does not give us time for rest. Moving on continuously is one of the conditions of operating in a dynamic cellular market in general, and in Russia specifically.”

“In 2002 we intend to continue our aggressive regional expansion strategy and to introduce additional data and information services to our subscribers. Simultaneously, we are planning to launch a series of initiatives and innovations in the marketing policy. All this is in line with our strategy of becoming Russia’s leading nation-wide mobile operator.”

FINANCIAL HIGHLIGHTS

Net revenue in 2001 increased by 67% to $893 million, from $536 million last year.

EBITDA was $424 million for 2001, an increase of 80% compared with last year.

EBITDA margin increased from 44% for the corresponding period to 47%.

Net income for the year 2001 increased by 120% as compared with 2000 and was $207 million.

In the fourth quarter 2001 revenues were $258.5 million. EBITDA for the fourth quarter of the year 2001 reached $125.4 million, which is a growth of 89% compared to fourth quarter of 2000, while EBITDA margin grew to 49% reflecting continued efficiency improvements. Net income grew by 223% compared to fourth quarter 2000 and was $62.7 million.

Such a strong financial performance is a reflection of continued strong demand for mobile services in Moscow and growth of demand in the regions, MTS’ successful expansion into new markets of Russia, focus on high-end users and effective management.

Operational Highlights

MTS’ capital expenditures were US$396.7 million in 2001 which is an increase of 103% compared to$195 million invested during 2000. Cumulative network investments amounted to $881 million.

During 2001, 1,002 new base stations were added to the MTS network, while current base stations were expanded. The number of base stations reached 2,125 in Russia, including 1,144 in the Moscow licence area. Eighteen new switches were installed in the MTS network during 2001, bringing the number of switches integrated into the MTS network at the end 2001 to a total of 31. Currently, the network integrates 34 switches; total capacity allows to service 5.7 million subscribers in the overall network, including 3.8 million in Moscow license area.

Churn rate for the year 2001 was 26.8% which is somewhat higher than 21.6% in 2000. This has resulted from a strict active subscriber accounting policy^*, high inflow of seasonal subscribers using the mobile phone for the summer season in May through October, (accordingly counted as churn subscribers in the period of November to January) and general increase of migrating subscribers.

At the same time, the company saw an increase in subscribers in the corporate sector, which is attributed to the quality of communications and services of the MTS network and the widest coverage in Russia.

The company’s comprehensive tariff policy on the mass market enabled it to maintain a high level of ARPU even though the subscriber base has more than doubled. ARPU was $36 over 2001, which is one of the highest among world operators.

^* Active subscriber in MTS network is a subscriber whose telephone is blocked for not more than 2 months.

The year 2001 stands out as the year of large-scale regional expansion in Russia and the commencement of the company’s first project in the CIS.

In September 2001, MTS won the tender for a GSM license in Belarus and became one of the first Russian operators to enter CIS markets. MTS plans to launch the network in Belarus in the year 2002.

Undoubtedly, 2001 saw an outstanding event — acquisition of Telecom XXI through which MTS gained access to the second largest market of Saint Petersburg and 9 North-West regions with a population of over 14 million people. This major market deal was closed in May 2001 and MTS managed to build the network and launch it into operations within shortest possible time limits. Faced by tight competition MTS has shown record subscriber growth rates. In less than five months MTS’s market share in the region exceeded 20%, 278,000 new customers joined the network.

2001 also saw the launch of MTS networks in the major Volga region industrial center — Nizhni Novgorod, as well as Kirov and Ivanovo regions. Having acquired Telecom-900, MTS implemented its strategy in entering the East of Russia, establishing a footprint in three key regions in the Urals, Siberia and the Far East.

In April 2002 MTS provided services for over a third of Russian mobile subscribers (with a market share of 35.2%). The company’s GSM market share was 41%. In most of the company’s operational regions MTS dominates the market with a share of over 50%. After acquisition of Kuban-GSM — the largest Russian regional operator with 495,000 subscribers — MTS regional subscriber base reached almost 1.5 million.

MTS condensed consolidated balance sheets at December 31, 2000 and 2001

MTS condensed consolidated balance sheets at December 31, 2000 AND 2001

MTS condensed consolidated statements of operations for the fourth quarter 2001 and 2000 and for the year 2000 and 2001