• MTS reports revenues of $606.0 million for Q2 2003, up 92% year-on-year.
• Operating income increase of 100% year-on-year to $225.4 million for Q2 2003; operating margin was 37%.
• Net income rose by 98% year on year to $128.5 million.
• In Q2 2003, UMC, MTS’ Ukraine subsidiary, contributed $99.1 million to MTS’ revenues and $16.3 million to net income.
• As of August 25, 2003, MTS’ consolidated subscriber base was over 12.76 million customers, of which 10.47 million were in Russia and 2.29 million were in the Ukraine.

Moscow, Russian Federation — August 26, 2003 — Mobile TeleSystems OJSC (“MTS” — NYSE: MBT), the largest mobile phone operator in Russia and Eastern Europe¹, today announces its financial results for the second quarter ended June 30, 2003.

Revenues for the second quarter of 2003 were $606.0 million, a 92% increase on the same quarter in 2002 and a 36% increase on the previous quarter.

Second quarter 2003 operating income was $225.4 million, a 100% increase on the same quarter in 2002, and a 51% increase on the previous quarter. Operating margin in the second quarter of 2003 was 37%.

Net income for the second quarter of 2003 was $128.5 million, a 98% increase on the same quarter in 2002 and a 60% increase compared to the previous quarter.

Note: The Company’s depreciation and amortization charges were $99.6 million for Q2 2003, $75.2 million for Q1 2003, and $49.1 million for Q2 2002.

As of June 30, 2003, MTS’ consolidated subscriber base was approximately 11.34 million. During the second quarter of 2003, the subscriber base increased by approximately 1.92 million, of which approximately 1.68 million users were added through organic growth of the Company’s business in Russia and 240,000 were added by the acquisition in April 2003 of a majority stake in Taif-Telcom, a local mobile operator in Tatarstan. Mobile TeleSystems LLC, a mobile operator in Belarus in which we have a 49.0% stake, serviced approximately 170,200 users as of June 30, 2003.

As of August 25, 2003, MTS’ consolidated subscriber base was comprised of 12.76 million customers, of which 10.47 million were in Russia and 2.29 million were in the Ukraine. In addition, Mobile TeleSystems LLC serviced 241,000 subscribers in Belarus as of August 25, 2003.

Revenues and net income from MTS’ operations in Russia during the second quarter of 2003 were $506.9 million and $112.2 million, respectively, compared to $416.2 million and $78.7 million, respectively in the first quarter of 2003. MTS’ operations in the Ukraine² contributed $99.1 million to the Company’s revenues and $16.3 million to net income during the second quarter of 2003³.

Taif-Telcom, in which the Company acquired a 52.7% stake during the second quarter of 2003⁴, contributed $6.4 million to the Company’s revenues and net losses of $1.6 million in the second quarter of 2003.

The Company’s operating margin increased from 36% in the second quarter of 2002 and 34% in the first quarter of 2003 to 37% in the second quarter of 2003. This increase was partially due to seasonal increases in minutes of usage during spring and summer months, continued increases in our subscriber base, and lower operating expenses as a percentage of revenues.

In the second quarter of 2003, MTS’ bad debt provisions decreased to $8.3 million compared to $14.6 million in the first quarter of 2003. This decrease resulted from a number of measures taken by MTS management during the second quarter to reduce customer and dealer fraud.

MTS’ capital expenditures on property, plant and equipment during the second quarter of 2003 totaled $227.2 million (of which $42.2 million was spent in the Ukraine), increasing total capital expenditures for the first six months of 2003 to $325.8 million. In addition, MTS spent $43.1 million on purchases of intangible assets during the second quarter of 2003 (of which $9.3 million was spent in the Ukraine), increasing total expenditures on intangible assets during the first six months of 2003 to $57.4 million.

MTS made advances of $6.1 million to its unconsolidated subsidiary in Belarus, Mobile TeleSystems LLC, in the second quarter of 2003 and $16.1 million in the first six months of 2003.

MTS’ total debt⁵ at the end of the second quarter of 2003 was $917.3 million, while net debt was at $773.7 million. Subsequent to the end of the second quarter of 2003, MTS completed a placement of $300 million, 1-year unsecured 144A/Regulation S Floating Rate Notes in the international debt capital markets.

Commenting on the results, Nikolay Tsekhomsky, MTS’ Chief Financial Officer, said: “Our strategy of expansion into new geographic markets has delivered significant results in terms of growth in revenues and net income. Improving our cost efficiency has also helped us to report improved operating margins”.

Note: See Attachment A for definitions of ARPU, MOU, Churn and SAC.

As of June 30, 2003, MTS serviced 9.32 million subscribers in Russia, of which 1.2 million were enrolled in the Company’s pre-paid Jeans tariff plans. According to AC&M-Consulting, an independent market research company, MTS’ share of the mobile communication market in Russia was 37% at the end of the second quarter of 2003. The Company’s average monthly revenue per user (ARPU) in Russia increased in the second quarter of 2003 to $18.7, compared to $18.5 reported for the first quarter of 2003.

Average monthly minutes of usage per subscriber (MOU) in the second quarter of 2003 increased to 162 minutes from 148 minutes in the first quarter of 2003. Management believes that the increase is largely attributable to the higher seasonal usage of mobile phones in Russia during the spring and summer periods as well as increased roaming traffic.

The Company’s churn rate in Russia declined from 11.6% in the first quarter of 2003 to 11.0% in the second quarter of 2003.

The Company’s subscriber acquisition cost (SAC) per gross additional subscriber in Russia continued to decline in the second quarter of 2003 reflecting the lower cost of attracting mass-market subscribers (and, in particular, the lower commissions that we pay to dealers for Jeans subscribers) and increased economies of scale. SAC per gross additional subscriber for the second quarter of 2003 was at $27 compared to $30 in the first quarter of 2003.

MTS operates in the Ukraine through Ukrainian Mobile Communications (UMC). MTS acquired a 57.7% stake in UMC in March 2003, and began to consolidate UMC into its financial statements from March 1, 2003. During the second quarter of 2003, MTS acquired an additional 26.0% stake in UMC, increasing its total stake in UMC to 83.7%. MTS acquired the remaining 16.3% stake in July 2003. The total price paid by MTS for UMC (including acquisition costs) was $374.9 million. In addition, in connection with MTS’ agreement to acquire UMC, MTS agreed to restructure and guarantee UMC’s indebtedness totaling $58.1 million.

As of June 30, 2003 MTS in the Ukraine provided services to 2.02 million subscribers compared to 1.82 million as of March 31, 2003 and 1.70 million serviced by UMC as of December 31, 2002. As of June 30, 2003, 72% of MTS subscribers in the Ukraine were enrolled in the Company’s pre-paid tariff plan. According to an independent publication, Ukrainian News, MTS’ market share in the Ukraine as of June 30, 2003 was at 46%.

MTS’ ARPU in the Ukraine in the second quarter of 2003 was $17.2, compared to $15.9 in the first quarter of 2003. The increase in ARPU resulted from a seasonal growth in usage which increased from 87 minutes in the first quarter of 2003 to 97 minutes in the second quarter of 2003.

MTS’ SAC per gross additional subscriber in the Ukraine in the second quarter of 2003 was at $37, which is a decrease from $51 reported in the first quarter of 2003. Similar to the trends experienced by MTS in Russia, the decrease in the subscriber acquisition costs in the Ukraine was largely attributable to the lower cost of acquiring of mass market subscribers.

In April and May 2003, MTS acquired 51% and 1.7% stakes in Taif-Telcom, the largest cellular operator in Tatarstan, for $61.0 million and $2.3 million, respectively. Taif-Telcom provides GSM mobile services in the Republic of Tatarstan in the Volga region of Russia, which has a population of approximately 3.8 million. Its subscriber base as of the date of MTS’ acquisition in April 2003 was approximately 240,000 people. MTS had no licenses to provide services in Tatarstan prior to acquisition of Taif-Telcom.

MTS has signed and/or completed a number of other transactions subsequent to the end of the second quarter aimed at increasing the scale of the Company’s operations, including the following:

On August 12, 2003, MTS announced that it had reached agreements to acquire, in a series of related transactions:

• A 46% stake in a Uraltel, the largest GSM operator in the Sverdlovsk region of Russia with the total population of 4.5 million. MTS already held a 53.2% stake in Uraltel through its 100%-owned subsidiary, Telecom-900. Uraltel provided services to approximately 244,000 subscribers as of June 30, 2003. This transaction was completed on August 14, 2003, giving Telecom-900 a 99.85% stake in Uraltel.
• A 50% stake in Primtelefon, which holds a GSM license for the entire Far East region of Russia and certain parts of Siberia with a combined population of approximately 11.4 million⁷ covered by the license. Primtelefon’s subscriber base as of July 1, 2003 was around 74,000 (69,000 on GSM networks and 5,000 on NMT networks).
• A 50% stake in Volgograd Mobile, a GSM operator in the Volgograd region of Russia. The region’s population is approximately 2.7 million and Volgograd Mobile’s subscriber base as of July 1, 2003 was around 4,600.
• A 50% stake in Astrakhan Mobile, a GSM operator in the Astrakhan region (Volga part of Russia) with a population of approximately 1 million. Astrakhan Mobile’s subscriber base as of July 1, 2003 was around 7,100.
• A 100% stake in Mar Mobile, a GSM-license holder in the Mari El Republic in the Volga part of Russia, with a population of 730,000. Mar Mobile is not yet operational.

The total purchase price for these stakes is approximately $71 million. The total net debt of all the companies listed is approximately $25 million⁸.

On August 22, 2003, MTS completed the purchase of 100% of Sibchallenge, a cellular operator in the Krasnoyarsk region, for $45.4 million. Sibchallenge holds licenses to provide GSM and DAMPS mobile services in the Krasnoyarsk region of Siberia, the Republic of Hakasiya, and in the Taimyr Autonomous region, all which are located in the Siberian part of Russia. The Krasnoyarsk region has a combined population of approximately 3 million. MTS was not licensed to provide mobile services in the Krasnoyarsk region prior to the acquisition of Sibchallenge. Sibchallenge’s subscriber base as of the date of purchase was approximately 130,000 customers, of which 123,000 were serviced by its GSM network and 7,000 — by its DAMPS network.

MTS’ management continues to focus on the integration of acquired GSM operators into the Company’s unified network. As a part of this effort, in the second quarter of 2003 MTS introduced the MTS brand and MTS unified tariff plans to Kuban GSM and Dontelecom, the Company’s subsidiaries in the Krasnodar and Rostov regions of Russia, respectively. MTS’ Jeans brand was introduced in the Ukraine in August 2003, and approximately 36,000 MTS’ subscribers in the Ukraine use Jeans as of today. MTS plans to introduce the MTS brand and MTS unified tariff plans to Taif-Telcom in September 2003.

As reported earlier, Mikhail Smirnov, the Company’s current President, will step down as the head of MTS to join Moscow City Telephone Network (MGTS), one of the largest fixed-line operators in Russia, as the new General Director. MGTS is majority owned by AFK Sistema, the majority shareholder in MTS. Vassiliy Sidorov was nominated as the new President of MTS at a meeting of the Company’s Board of Directors held on August 11, 2003. Mr. Sidorov’s candidacy will be voted upon at an Extraordinary Shareholders meeting to be held on October 25, 2003. The Board also named Mr. Sidorov as acting President of MTS from September 1, 2003. Mr. Sidorov is currently the First Deputy General Director of Sistema-Telecom, the telecoms arm of AFK Sistema, where he has been responsible for financial issues and investment policy. He has been an MTS Board member since 2002.

Also, as reported earlier, Nikolay Tsekhomsky was appointed as MTS’ Vice President of Finance (Chief Financial Officer) in July 2003. Mr. Tsekhomsky, who formerly held the post of Financial Director of MTS, replaced Willem van Bommel.

¹ In terms of numbers of subscribers.

² At the date of this press release MTS has not finalized the purchase price allocation for the acquisition of UMC. Amounts reported herein are based on preliminary purchase price allocation and are subject to change.

³ MTS began to consolidate Ukrainian Mobile Communications (UMC), its Ukrainian subsidiary, into its financial statements effective March 1, 2003.

 In April and May 2003, MTS acquired 51% and 1.7% stakes, respectively, in Taif-Telcom for $61.0 million and $2.3 million, respectively, giving MTS a 52.7% total stake in Taif-Telcom.

 Total debt is comprised of the current portion of long-term debt, current capital lease and finance obligations, long-term debt, and long-term capital lease and finance obligations. Net debt is the difference between total debt and cash and cash equivalents and short-term investments.

⁶ MTS owns a 49% stake in Belarus operator Mobile TeleSystems LLC, which is not consolidated.

⁷ The Russian regions under the license are: Sakha (Yakutia), Khabarovsk, Primorye, Amur, Magadan, Sakhalin, Irkutsk, Chita regions, Evreysky, Chukotka, Kamchatka, Ust-Ordynsky, Aginsky Buryatsky, and Koryaksky autonomous regions as well as the Republic of Buryatiya.

⁸ MTS does not believe that it will have the ability to exercise the control and therefore will not consolidate the results of operations of Primtelefon, Astrakhan Mobile and Volgograd Mobile.

Mobile TeleSystems, Moscow
Andrey Braginski, Investor and Public Relations
tel: +7 (095) 911-65-53e-mail: ir@mts.ru

Definitions

Subscriber. We define a “subscriber” as an individual or organization whose account does not have a negative balance for more than sixty-one days, or one hundred and eighty three days in the case of our Jeans brand tariff launched in November 2002.

Average monthly service revenue per subscriber (ARPU). We calculate our average monthly service revenue per subscriber by dividing our service revenues for a given period, including guest roaming fees, by the average number of our subscribers during that period and dividing by the number of months in that period.

Average monthly minutes of usage per subscriber (MOU). MOU is calculated by dividing the total number of minutes of usage during a given period by the average number of our subscribers during the period and dividing by the number of months in that period.

Churn. We define our “churn” as the total number of subscribers who cease to be a “subscriber” as defined above during the period (whether involuntarily due to non-payment or voluntarily, at such subscriber’s request), expressed as a percentage of the average number of our subscribers during that period.

Subscriber acquisition cost (SAC). We define SAC as total sales, marketing expenses, and handset subsidies for a given period. Sales and marketing expenses include advertising expenses and commissions to dealers. SAC per gross additional subscriber is calculated by dividing SAC during a given period by the total number of gross subscribers added by us during the period.

Condensed unaudited consolidated statements of operations for the three months ended june 30, 2002 & 2003 & six months ended june 30, 2002 & 2003

Condensed unaudited consolidated balance sheets at december 31, 2002 and june 30, 2003

Condenced unaudited consolidated statements of cash flows for the six months ended june 30 2002 & june 30, 2003