Krasnodar, 20 August 2007:  Southern Telecommunications Company [(RTS: KUBN, KUBNP; MICEX: UTEL, UTELP; ADR OTC: STJSY, KUE FRA)], the principal fixed-line telecommunications provider for Russia’s Southern Federal District announces its 1H2007 results and 2H2007 plans on development of new value-added telecom services.  

1H2007 revenues from value-added services* increased by 53.4 % over 1H2006 to RUR 1,278.5 million. Revenues from Internet services grew by 64.9%, from VPN (virtual private networks) services - by 3.1%, from intelligent services -  by 10.7%. Share of revenues from value-added services increased to 13.9% of total revenues from telecom services versus 10.5% in 1H2006. Revenues from Internet services and VPN services accounted for major part of revenues from value-added services representing 86.6% versus 80.6% in 1H2006 and 12.3% versus 18.3% in 1H2006, respectively.

Breakdown of UTK’s revenues from value-added services in 2006-2007

Million rubles	1H2007 (actually)	1H2006 (actually)	y-o-y change, %	2007 (plan)	2006 (actually)	y-o-y change, %
Revenue	9.622.5	8.373.8	14.9	19.394.3	17.570.6	10.4
revenues from telecom services, including	9.202.7	7.926.9	16.1	18.626.7	16.561.5	12.5
Revenues from value-added services, including:	1.278.5	833.4	53.4	2.786.6	1.851.6	50.5
share in revenues from telecom services, %	13.9	10.5	3.4	15.0	11.2	3.8.?.?.
Internet services, including	1.107.8	671.6	64.9	2.407.3	1.500.0	60.5
dial-up access	441.9	276.2	60.0	950.6	603.5	57.5
dedicated access,  including	616.5	329.9	86.9	1.381.5	777.9	77.6
xDSL-based	574.3	297.2	93.2	1.305.1	710.1	83.8
Services of Virtual private corporate networks (VPN MPLS)	157.4	152.6	3.1	296.6	329.1	-9.9
Intelligent services	6.2	5.6	10.7	12.4	11.8	5.1

Due to active rollout of new technologies and improvements in sales system, "Southern Telecommunications Company" PJSC occupies strong positions in the regional value-added market.

In 2007 demand for Internet services was still growing in the region. At the end of 1H2007 total number of UTK’s dial-up users in the Southern federal district reached 349.8 thousand subscribers, representing a 28.4%-increase over 1H2006. In 1H2007 number of xDSL subscribers in the Southern federal district increased by 130% over the past year.

Internet services sales were supported by strong usage growth: Internet traffic for 1H2007 increased by 125.4% to 1,058 Tb, connection time via dial-up access to the Internet was up 35.1%  to  2,037.2 million minutes.  

Operational highlights of new technologies rollout, "UTK" PJSC, 2006-2007

Description	1H2007 (actually)	1H2006 (actually)	y-o-y change, %	2007 (plan)	2006 (actually)	y-o-y change, %
Traffic performance
Volume of Internet-traffic, ?byte	1,058.0	469.3	125.4	-	1,133	-
Time of dial-up Internet connections, mln minutes	2,037.2	1,507.7	35.1	4,164.8	3,278.0	27.1
Number of subscribers
Total number of Internet subscribers using dedicated lines	107,197	47,310	126.6	166,682	73,502	126.8
including xDSL subscribers	105,123	45,710	130.0	164,581	69,364	137.3
Total number of dial –up Internet subscribers	349,773	272,315	28.4	-	328,076	-
Number of VPN MPLS connections	3,429	2,137	60.5	4,641	3,062	51.6
Number of IP-TV subscribers	5,913	3,111	90.1	8,973	3,969	226.0

ARPU by kind of services

ARPU, thousand rubles	1H2007 (actually)	1H2006 (actually)	y-o-y change, %	2007 (plan)	2006 (actually)	y-o-y change, %
Broadband access	1.098	1.250	-12.2	0.985	1.169	-15.7
Dial-up access, rubles per hour	13.0	10.98	18.4	13.7	11.0	24.5

Under the business plan for 2007 the Company is to continue rapid rollout of new technologies. According to the Company’s budget, 2007 revenues from value-added services are expected to reach RUR 2,786.6 million, gaining 50.5% over 2006. Percentage of VAS revenues in total 2007 revenues from telecom services is expected to increase by 3.8 points from 11.2% to 15%. Revenues from Internet services are to grow by 56.2% to RUR 2,342.7 million, 1,305.1 mln rubles of them are expected to be revenues from xDSL  services (representing a 83.8%-increase).

The Company set the following priority tasks for 2007 in the most lucrative segments of the value-added regional market:

Internet services

According to 2007 estimates, dial-up Internet traffic is expected to increase by 27% over 2006  to 4,164.8 million minutes.

The Company continues active rollout and promotion to the market of broadband access technologies. In 1H2007 revenues from xDSL-based Internet services made RUR 574.33 million. In 2H2007 the Company  plans to increase them to 741.34 million rubles. The expected number of newly-connected xDSL subscribers being 57 thousand users in 2H2007, total number of the equipped xDSL ports is expected to reach 164.6 thousand ports.

Building of virtual private networks (VPN)

2H2007 revenues from building of corporate networks based on VPN technology are expected to approximate 160.8 million rubles which is up 2% over 1H2007. The Company  plans to put 529 new VPN ports into service in 2H2007. Total number of equipped VPN ports is expected to reach 4.6 thousand ports by the end of 2007.  Estimates of VPN revenue dynamics are based on expansion of business practices in respect of large corporate customers having geographically-distributed offices. These practices imply organization of target offers based on flexible tariff policy.

Intelligent services

2H2007 revenues from intelligent services are expected to increase by 5%  over 1H2007. Due to intelligent network upgrade the range of offered intelligent services will be broadened thus contributing to revenue increase.

Digital TV services (IP-TV)

According to 1H2007 estimates "Southern Telecommunications Company" PJSC had 5,913 IP-TV subscribers. By the end of 2007 the Company plans to expand the subscriber base of its multimedia and multi-service network to 8,900 users.

Call-centers

Call-centers operate in Krasnodar branch, Rostov branch, Volgograd branch, Astrakhan branch, Kabardino-Balkarian branch, Karachaevo-Cherkessian branch and Northern Ossetian branch of "Southern Telecommunications Company" PJSC.  In the first half of 2007 the Krasnodar branch put into operation the Call-center in the city of Sochi. The construction of one more Call-center will be soon completed in the Stavropol branch. The Adygeia branch will start the construction of a Call – center in the third quarter of 2007. Thus, the update of call processing system will be required only in the Kalmykia branch.

Hardware and software platform of Call-centers provide for optimal usage of available staff of operators that is especially important within the framework of the Company’s policy aimed at costs reduction.

It should be noted, that the number of mobile operators which subscribers get access to such services using special short service numbers, is gradually growing. At present MTS subscribers and Mobicom Kavkaz subscribers have access to information and inquiry services of "UTK" PJSC through special numbers 0513 and 0908, accordingly. "Southern Telecommunications Company" PJSC is negotiating similar agreements with other cellular operators.

The Company will continue to work on integration of the existing Call centers  into UTK’s single distribution platform that will allow to unite them into uniform information area and to distribute voice traffic in a most optimal way.

1H2007 proceeds from chargeable information and inquiry services amounted to 16,311 thousand rubles representing a 40% growth over a year ago. It should be noted, that according to the established forms of financial and accounting reporting, this indicator traditionally includes only chargeable inquiry services provided on the basis of incomplete data and does not fully reflect actual proceeds from all services of Call-centers (zonal long-distance calls (including additional services), reception of telegrams, commercial projects).

* 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, Ethernet to the home, wireless access on the basis of Wi-Fi technology); digital cable TV services (IPTV);  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.