Krasnodar, February 3, 2005.  South Telecom Company (STC) [(RTS: KUBN, KUBNP; OTC USA: STJSY)], the largest fixed line operator in the South Federal District of Russia, hereby announces that on February 2, 2005 Standard & Poor’s downgraded the long-term credit rating of STC from B- to CCC+ with a negative outlook as a result of increased financial risk.  In addition, S&P downgraded the issuer’s rating and STC’s short-term unsecured obligations from ruBB?- to ruBB on the national rating scale. 

STC is to implement the following set of measures over the next few years to maintain its strategic leadership position on the regional telecom market: 

        § reduce the 2005-2007 investment program; 

        § downsize workforce;

        § stringent cost control; 

        § reorganize the subsidiary business.

STC’s 2005 investment program is fixed at Rub 3.3 bln and will be carried out within the limits of expenses which are necessary to complete the facilities previously commenced as well as the investments to expand and promote value-added services in the region.  According to the 2005 capital investment program, 73% will fall to in-house resources, whereas financing is expected to come entirely from in-house resources in 2006 and 2007.