Krasnodar, August 2, 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 financial results for the first six months of 2007 in accordance with Russian Accounting Standards (RAS).

• 1H2007 net income increased by 62.3% to RUR 1,066.7 million.
• Revenue for the first half of 2007 amounted to RUR 9,622.5 mln, a 14.9%- growth over the comparable period in 2006.
• Revenues from new services [1] increased to RUR 1,278.5 million representing a year-on-year increase of 53.4%, and now account for 13.9% of total telecom revenue (versus 10.5% in the first half of 2006).
• 1H2007 EBITDA [2] rose 14.7% over 1H2006 to RUR 3,757.4 million.

KEY FINANCIAL HIGHLIGHTS, million rubles

In the first half of  2007 UTK generated a total revenue of RUR 9,622.5 million representing a 14.9%-increase over the first half of 2006. Revenue from telecommunications services grew by 16.1% to RUR 9,202.7 mln.

Revenues from local telephone services increased by 7.2% over 1H2006 to RUR 4,501.5 million. In the first half of  2007 2.756 thousand main telephone units were added to  the Company’s subscriber base, including 3.609 thousand units  - in the urban telephone network (TN). As of June 30, 2007 the number of main telephone units operated by UTK amounted to 4,066.762 thousand.

Revenues from intra-zone telecommunication services rose 48.4% to RUR 1,816.4 mln in the period.

H1 2007 revenues from new services increased by 53.4% over 1H2006 to RUR 1,278.5 mln. Revenues from Internet services grew by 64.9%, from VPN (virtual private networks) services by 3.1%. Internet services sales were supported by strong usage growth: Internet traffic for the reporting period increased by 125.4% to 1,058 Tb, connection time via dial-up access to the Internet was up 35%  to 2,037.2  million minutes. Broadband subscribers’ base (“net subscribers”) grew to 106.868 thousand users, including 105.123 thousand xDSL subscribers.

Based on 1H2007 results, share of revenues from local telecom services decreased by 4.1 percentage points to 48.9% while the share of revenues from new services increased by 3.4 percentage points to 13.9% and the share of revenues from intra-zone telecom services rose by 4.3 percentage points to 19.7%.

Revenues from interconnection and traffic transit services decreased by 7.5% to RUR 1,394.7 million.

SEGMENTAL ANALYSIS OF REVENUES, million rubles:

1H 2007 operating expenses rose 13.5% to RUR 6,766.4 mln. Expenses on wages and salaries and other social payments to employees (30.7%), depreciation charges (20.8%) and other expenses (17.8%) accounted for major part of operating expenses. There were following material changes versus 1H2006: share of expenses for wages and salaries decreased by 3.9 percentage points and share of depreciation charges was down 0.8%.

The growth of depreciation charges by 9.5% to RUR 1,407.6 million was attributable to increase in value of the Company’s fixed assets.

Increase of material expenses by 8.2% to RUR 773.9 million was due to growing expenditures for cables.

Amount of payments to telecom operators grew by 164.4% to RUR 735.1 million due to change of the methodology of settlements with mobile operators and introduction of “Calling Party Pays” principle, as well as due to growing payments to telecom operators for Internet access services.

      SEGMENTAL ANALYSIS OF EXPENSES, RUR mln:

Certain financial measures to extend duration of UTK’s debt and reduce its value within the framework of the Company’s credit portfolio made it possible to cut down interest expenses by 13.9% over 1H2006 to RUR 933.6  million.

1H2007 EBITDA increased 14.7% over 1H2006 to RUR 3,757.4 million. EBITDA margin was down 0.1 percentage points to 39.0%. Operating income grew by 18.5% over a year ago to RUR 2,856.1 million. Operating margin was up 0.9 percentage points reaching 29.7%.

The Company’s stronger business efficiency made it possible to achieve the following relative efficiency indicators: gross revenue per employee rose by 41.1% to 323.6 thousand rubles, the number of lines per employee rose 24.0% to 137.3 lines.

1H2007 capex increased by 97.3% over 1H2006 to RUR 1,063.4 million. Fixed assets put into service increased by 29.5% to RUR 879.3 mln.

In 1H2007  28.174 thousand telephone lines were put into operation in UTK networks including 16.404 thousand lines to replace analog equipment. As a result, total installed capacity of UTK’s local network stood at 4,347.082  thousand lines in use as of June 30, 2007.

Digitization rate of UTK local network rose 2.9 percentage points over 1H2006 and totaled 66.04%, of which the digitization rate in urban telephone network (TN) was 70.41%, in rural TN – 52.3%.

MAIN OPERATIONAL HIGHLIGHTS:

 [1] 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..

[2] EBITDA  includes Earnings Before Interest Payable, Taxes, Depreciation and Amortization minus Interest Receivable.

[3] Other telecom services rendered by "UTK" PJSC include: wired radio, document communication, radio communications, radio broadcasting, wireless radio communications, telematic and data transfer services, services under assistance  agreements, other telecom services (core activities).