Svyazinvest: New Growth Opportunities

1. Svyazinvest:New Growth Opportunities Deputy General Director of OAO SvyazinvestK.V.Belyaev June, 2005

2. Svyazinvest – new growth opportunities I. OAO Svyazinvest in the telecommunications sector II. VAS development III. Corporate reform and business optimization IV. Natural monopoly status and tariff regulation

3. Controlling stake State 75% - 1 share Mustcom 25% + 1 share Blocking stake JSC Svyazinvest JSC Rostelecom MGTS Other 7 mega-regionals JSC Svyazinvest: group structure • Company history: • Svyazinvest foundation – 18 September, 1995 • Sale of a 25% + 1 share stake to Mustcom – July 1997 • Regional consolidation of companies – 72 regional telecom operators were merged into 7 mega-regionals in 2000-2002

4. Svyazinvest Companies’ Geography JSC CenterTelecom 6.2 m lines in service market cap $813 mn JSC Uralsvyazinform 3.8 m lines in service market cap $1,568 mn JSC North West Telecom 3.6 m lines in service market cap $688 mn JSC South Telecom 3.8 m lines in service market cap $444 mn JSC VolgaTelecom 4.3 m lines in service market cap $1,274 mn JSC Sibirtelecom 3.8 m lines in service market cap $995 mn JSC Dalsvyaz 1.2 m lines in service market cap $171 mn JSC Rostelecom extensive backbone network covers virtually all Russia’s territory. Its total length approaches 200,000 km. The company’s market capitalization stands at $ 1,963 mn

5. Svyazinvest major economic indicators, 2004 Revenue and operating expense* Operating income* 7.6 6.4 USD, bn USD, bn 1.82 5.7 4.9 4.9 1.56 1.28 3.8 3.6 0.99 2.8 2002 2003 2004 2005 (estimate) 2003 2002 2004 2005 (estimate) RevenueExpense Installed capacity 36.0 34.9 Lines, mn 33.0 31.3 2002 2003 2004 2005 (estimate) * data include JSC MGTS figures

6. Svyazinvest – new growth opportunities I. OAO Svyazinvest in the telecommunications sector II. VAS development III. Corporate reform and business optimization IV. Natural monopoly status and tariff regulation

7. OAO Svyazinvest possesses substantial resources to expedite VAS development • Infrastructure of Svyazinvest companies is unique • Svyazinvest companies have significant subscriber bases and access to end users • Svyazinvest companies’ geography spans the entire territory of the Russian Federation • Svyazinvest companies’ marketing strategy sees the roll out of multi-service networks as a major priority • Svyazinvest companies’ test facilities serve as platforms to try out new equipment for multi-service networks Development of multi-service networks will boost electronic commerce, facilitate consolidation of branches and business partnersinto asingle information environment

8. Intelligent networks Pre-paid universal card Intelligent platforms of various levels are used by all mega-regional companies Televoting Services Extra-pay services OAO Rostelecom provides intelligent services Russiawide ‘Hot lines’ In 2004, companies’ revenue generated from intelligent servicesrose 50% y-on-y

9. Development of multi-media services Services for residential customers • broadband Internet access • video-on-demand (VOD) • Internet-Protocol TV(IPTV) Svyazinvest companies, running NGN are able to provide new intelligent multi-media services • virtual private networks (VPN) • virtual leased lines(VLL) • IPCentrex – • virtual private voice networks • video- and audio- conferences • IP-contact center Services for businesses OAO Uralsvyazinform was the first in Russia to build a commercial network based on NGN technology

10. Internet-Services and IP-Telephony Revenues from Internet-services and IP-telephony Internet traffic, TB 156 1 868 USD, mn 91 1018 61 597 2002 2003 2004 2002 2003 2004 2005 revenues from InternetandIP-telephonyguidelines are $260 mn

11. Svyazinvest holds a strong position in regional cellular market Subscriber base growth (GSM-standard): Regional subscriber bases (01.04.05): 2 367 1 908 subscribers, th subscribers, th 1 200 01.01.02 01.01.03 01.01.05 01.04.05 01.01.04 Urals Sibirea Volga • Svyazinvest provides cellular services in 20 regions of the Russian Federation. • Svyazinvest subsidiaries and affiliates pursue the policy of cellular business consolidation and its integration with the fixed-line business. • In 2004 revenues from cellular services amounted to $519 mn, up 40% against 2003.

12. Promotion of packet services • Designing new products • Unified marketing and sales strategy • Creation of unified brand Integration of products and services Integration of operational functions Integration of network infrastructure • Unified call centers • Consolidation of call centers • Integration of back offices Synergetic effect from fixed and mobile communications integration Enhancing competitiveness • Unified network development strategy • Software integration • Integration of billing and IT services • Single vendor equipment Integration of fixed and mobile communications – new development opportunities OAO Uralsvyazinform is consolidating its subsidiary GSM assets, aiming to converge traditional and value-added services

13. Growing investments in VAS development in 2005 Dynamics of investments in VAS Investment plan breakdown 464,0 USD mn USD 239 mn 298,6 USD 661 mn 159,6 USD 371 mn USD 464 mn 2004 2005, target 2003 Development of infrastructure Traditional telephony • Share of investments in development of VAS will double to reach 27% of the total investments. • Payback period will be 3-4 years. Other VAS and IT technologies

14. Svyazinvest – new growth opportunities I. OAO Svyazinvest in the telecommunications industry II. VAS development III. Corporate reform and business optimization IV. Natural monopoly status and tariff regulation

15. financial planning and data consolidation • implementation of separate accounting • drawing up tax and management reports • management of payables and receivables • management of fixed assets • cash flow control system • management of investments and various financial instruments personnel cost cutting • fully functional HR management(staff list, payroll, training) operational cost cutting equipment cost cutting ERP system – implementation results Comprehensive financial management Efficient human resources management Effective procurement management

16. Improved corporate governance standards • Higher revenue • Modernization of infrastructure IMPLEMENTATION RESULTS • Lower costs Higher quality customer service Unified billing system – implementation results The first phase of the billing system transformation is being successfully completed: Major results: - Existing billing systems and processes at all companies have been assessed - Terms of Reference for automated billing systems have been worked out - A 4-year high-level plan has been drawn up - An in-depth model implementation plan has been designed for all companies of the holding

17. Operating risk management Objective: • to establish an operating risk management system, allowing to forecast risks and reduce risk losses in RTO business processes Tasks: • to identify and estimate risks of a process at RTOs • to uncover and rectify defects in the internal control systems and to work out control procedures to confine, minimize or eliminate the outcome of risk events • to create a system to monitor business processes in order to detect risks of a process and to take the necessary measures Results: • Reduction of financial losses through minimization, localization and removal of risk events • Gaining additional financial benefits by improving management system OAO Sibirtelecom and OAO STC are implementing pilot projects: key approaches to risk management of a process have been developed, internal audit department structures have been modified

18. Headcount optimization Lines per employee and local network digitalization rate Number of employees Employees, th Lines/employee % 102 95 85 77 56.0 51.1 43.8 37.5 43,8 % The program of headcount optimization is under way in Svyazinvest Group of companies

19. Svyazinvest – new growth opportunities I. OAO Svyazinvest in the telecommunications sector II. VAS development III. Corporate reform and business optimization IV. Natural monopoly status and tariff regulation

20. The need has arisen to review ‘natural monopoly’ criteria ‘natural monopoly – is market situation where from the technological point of view demand is met more effectively in the absence of competition and there are no close substitutes for the goods produced by the natural monopoly holder…’* Criterion № 1 – absence of competition A drop in Svyazinvest revenue mix share points to a high level of competition on Russia’s telecom market Criterion № 2 – no close substitutes for goods Dynamics of mobile communications in Russia Dynamics of installed capacity at RTOs Mobile cannibalization can be observed on the telecom market – mobile communications ousts fixed-line one * Law ‘On Natural Monopolies’

21. Tariffs for local telephone services Average monthly rate, USD* 18.0 17.0 Average monthly rate for mega-regional companies is $6,9 per line 15.8 12.5 11.4 8.7 7.8 6.9 6.9 6.3 6.0 5.7 STC VolgaTelecom Centertelecom Sibirtelecom NWT Uralsvyazinform Dalsvyaz Cesky-Telecom Matav TPSA Lietuvos Telecomas Lattelekom Average monthly rate in Russia is still about 50% lower than in Central and Eastern Europe, and is 60% lower than in Western Europe. * CeskyTelecom, Matav, Lietuvos Telecomas, Lattelekom – Company estimates

22. The need to finetune regulatory policies • To enable the holding’s companiesto work out flexible tariff plansfor different customer categories (that will become possible after the RF Government adopts the resolution ‘On State Regulation of Tariffs for Public Telecommunications and Postal Services’ • To recognize competitionin the fixed-line sector in large Russian cities andto releasethese marketsfromtariff regulation

23. Thank you!