Telecommunications Market Development in Russia

1. Telecommunications Market Development in Russia April 2002

2. Svyazinvest is the Russia’s Leading Telecommunications Group 75% - 1 share 25% + 1 share Mustcom OJSC Svyazinvest State Over 50% Over 25% 51% 74 regional operators MGTS Kostroma GTS Komisvyaz Sakhalinsvyaz Rostelecom (LD and international traffic) Государство • Services: • Local traffic • LD and international traffic • Radio & TV broadcasting • Data transmission & Internet • Wireless communication Telecom companies not incorporated in the holding company: Chechnya Ingushetia Tyva Tatarstan Bashkiria Chukotka Yakutia

3. The Holding Company’s Performance Improved in 2001 $, bn Lines, mln

4. Concept’s Guidelines Results are achieved by: Objectives • To ensure satisfaction of growing demand in telecoms services and advanced development of the national telecoms infrastructure • To ensure provision of generally accessible telecoms services to every urban and rural community in Russia • To improve the infrastructure efficiency and investment attractiveness of the telecoms sector, to create conditions for a fair competition • Creating conditions for balanced dynamic development of the telecoms market • Involving all market players in the solution of state social tasks • Improving state regulation methods Target indicators for 2010: Increase in telephone lines from 31.2 mln to 47.7 mln Growth of mobile subscribers from 8.3 mln to 22.2 mln Growth of the Internet users from 2.5 mln to 26.1 mln Increase in digitalisation of networks in Russia from 26% to 94% Volume of non-governmental investments - $33 bn

5. Svyazinvest Structural Problems Disintegration of the holding company – 78 regional operators (after completion of intra-regional mergers) Svyazinvest average regional operatorversus American companies • high costs • poor marketing • inefficient management • low degree of transparency • low market capitalization and liquidity of shares • difficulty in implementing large-scale projects • inconvenience for customers • …. Increase in efficiency and investment attractiveness OBJECTIVE

6. Formal Svyazinvest Restructuring Central region «CenterTelecom» Number of line in service: 5,3 mln Ural «Uralsvyazinform» Number of line in service: 2,8mln North-West region «North-West Telecom» Number of line in service: 3,2 mln Far East «Dalsvyaz» Number of lines in service:1.0mln Southern region «Southern Telecom Company» Number of line in service: 3,1mln Volga region Nizhegorodsvyazinform Number of lines in service: 3.6 mln Siberia «SiberiaTelecom» Number of lines in service: 3.2mln

7. Comparison with European Operators Main telephone lines (million) Market capitalization ($, bn) Average market capitalization in 2001

8. Average Monthly Charges for Local Calls ($ in month) 8

9. North-West Restructuring: Distribution of Shareholders’ Votes 97 % 95 % 93 % 3 % 7 % 5 % Center Siberia 97 % 95 % 97 % 98 % 3 % 5 % 3 % Urals 2 % South Far East Volga • In favour of the restructuring • Against the restructuring

10. Corporate Restructuring Is a Natural Follow-Up to the Merger Process OJSC Svyazinvest Corporate restructuring Financial and economic policy HR policy Technical policy Marketing policy • TTransition to the economically feasible cost calculation of telecoms services • IIntroducing advanced corporate governance methods • RReporting under IAS • UUnification of accounting policies • Recruiting and training qualified personnel • Improving the system of incentives • Providing mega- • regional companies • with a marketing • policy • Technical audit of regional operators • Guidelines of development of a mega-regional company • Drafting a general strategic development plan for the period ending 2007

11. Tasks Unification of accounting policies Elaboration of an economically feasible cost calculation methodology Working out budgeting procedures IAS Svyazinvest Intends to Create an Effective System of Business Planning and Control in Mega-Regional Companies • Creating a tariff policy for a mega-regional company • Phasing in and broadscale application of tools used in business planning, budgeting and control • Ensuring transparency of a mega-regional company’s activity

12. Svyazinvest is Striving to Provide Mega-Regional Companies with a Strong Marketing Strategy Main tasks at the current stage: Regional market valuation to identify its major development trends Working out guidelines of a marketing strategy for a mega-regional company and elaboration of methodological recommendations on market research and identifying marketing strategies Identifying a medium-term marketing strategy for mega-regional companies Advanced training of marketing personnel

13. Svyazinvest is Taking Steps to Integrate Telecom Networks within Mega-Regional Companies Main tasks: • WWorking out a general development plan for mega-regional companies and Rostelecom as integral parts of the interconsistent communications network of the Russian Federation for the period ending 2007 on the basis of two research papers: • system network solutions concerning the development of infocommunications networks of mega-regional companies and Rostelecom as integral parts of the interconsistent communications network of the Russian Federation for the period ending 2007; • working out guidelines for the development of infocommunications networks of mega-regional companies and Rostelecom.

14. Change in Capitalization Growth of capitalization in 2001 - 70%. 3-5-fold increase in capitalization should the restructuring be completed and telecoms tariffs in Russia reach the level of Eastern European tariffs.

15. Results of Investment 2.4 million new telephone lines Cost saving due to the restructuring ~$ 200 mln Additional investment opportunities ~$ 1 bn Or about 60 000 km of trunk cable

16. Thank you! April 2002