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UTK

October 10, 2005

Development of new technologies and value-added services in 2005

Krasnodar, October 10, 2005– Southern Telecommunications Company (“UTK”) [(RTS: KUBN, KUBNP; ?ICEX: UTEL, UTELP; ADR OTC: STJSY, KUE FRA), the principal fixed-line telecommunications provider for Russia’s Southern Federal District, reported today its 1H2005 results and 2H2005 plans on development of new technologies and deployment of value-added services.  

1H2005 revenues from value-added services1 increased by 73.0 % to RUR 649.1 million.Revenues from Internet services grew by 70%, from VPN (virtual private networks) services - by 42.8%, from IP telephonyservices -  by 4.7 times. Share of revenues from value-added services increased to7.6% of total revenues from telecom services (versus 5.0% in 1H2004). Revenues from Internet services and VPN services accounted for major part of revenues from value-added services representing64.8% versus 65.9% in 1H2004 and 15.4% versus 18.6% in 1H2004, respectively.

 

Structure of UTK’s revenues from value-added services in 2004-2005

RUR mln

1H2005 (actually)

1H2004

(actually)

Growth rate, %

2005 (plan)

2004

(actually)

Growth rate, %

Revenue

8670

7816.4

110.9%

17616.9

16752.6

105.2%

revenues from telecom services, including

8550.1

7568.8

113.0%

17400.5

16303

106.7%

Revenues from value-added services, including:

649.1

375.3

173.0%

1379.1

881.7

156.4%

share in revenues from telecom services, %

7.6

5.0

-

7.9

5.4

-

Internet services*,  including

420.7

247.4

170.0%

912.3

566.2

161.1%

dial-up access

226.9

168.4

134.7%

464.5

356.2

130.4%

dedicated access

157.2

59.1

266.0%

364.6

164.2

222.0%

IP-telephony*

61.8

13.1

471.8%

113.8

48.7

233.7%

ISDN*

63.3

42.1

150.4%

123.3

103.6

119.0%

Virtual private corporate networks (VPNMPLS)

99.8

69.9

142.8%

223.2

155

144.0%

intelligent services*

3.5

2.8

125.0%

6.5

8.2

79.3%

other revenues from new technologies

60.9

43.7

139.4%

114.5

112.7

101.6%

* including revenues from interconnected telecom operators;

 

In 2005 demand for Internet services was still growing in the region. At the end of 1H2005 total number of Internet users in the Southern federal district reached 434 thousand subscribers, a 9.2 %-increase over 2004. In 1H2005 number of SFD Internet subscribers using dedicated access lines increased by 92.8% over 2004. Due to active development of new technologies and improvement of sales system, "Southern Telecommunications Company" PJSC occupies strong positions in the value-added regional market.According to 1H2005 results, Internet market share of "UTK" PJSC has made 50%, includingdedicated Internet access — 68.4% (increased by 2.2 percentage points), dial-up Internet access — 48.8 % (has not changed). Growth rate of the Company’s share in the dial-up Internet market has somewhat slowed down due to the Company’s focus on promotion of broadband access services.

Internetservicessales were supported by strong usage growth: Internet traffic for 1H2005 doubled to 260.9Tb, connection time via dial-up access to the Internet was up 52.9%  to  17.4 mln hours.

 

Operational highlights of VAS development, "UTK" PJSC, 2004-2005

 

1H2005 (actually)

1H2004

(actually)

Growth rate, %

2005 (plan)

2004

(actually)

Growth rate, %

Traffic performance

 

 

 

 

 

 

Volume of Internet-traffic, ?byte

260.9

132.7

196.6%

308.9

-

Time of Internet connections through dial-up ports, mln hours

17.4

11.4

152.9%

37.0

24.6

150.1%

IP telephony traffic, mln minutes

41.7

8.4

496.4%

80.1

31.3

255.9%

Number of subscribers

 

 

 

 

 

 

Total number of Internet subscribers using dedicated lines

21 385

3881

551.0

11 131

-

including xDSL subscribers

18 284

2219

824.0

34754

8 697

399.6

Total number of Internet subscribers using dial-up ports

208 780

198 089

105.4

 -

203 928

0.0

  including corporate customers

47 470

30 869

153.8

-

36 789

0.0

Number of ISDN subscribers

1430

392

364.8

6351

4 922

129.0

Number of Cable TV subscribers

91509

88139

103.8

98998

89892

110.1

Income rates* (monthly)

 

 

 

 

 

 

Average income from xDSL subscriber, RUR ths

1.007

0.926

108.7

1.140

0.778

161.1

Average income from dial-up subscriber, RUR ths

0.214

0.245

87.3

0.224

0.211

106.2

*calculated on the basis of the subscriber base dynamics taking into consideration types of subscribers

 

Under the business plan for 2005 the Company is to focus on rapid development of new technologies. Volume of capital investments in new technologies is to amount to RUR 466.3 mln in 2005 (representing 12.7 % of total capex volume).

According to the Company’s budget, 2005 revenues from value-added servicesare expected to reach RUR1,379.1 million, gaining 56.4% over 2004. Portion of VAS revenues in total revenues from telecom services is expected to increase from5.4%to7.9%. Revenues from Internet services are to increase by61.1% to RUR 912.3 million, from VPN services — by 44.0% to RUR 223.2 million, from IP telephony - by 133.7% to RUR 113,8 million.

The Company set the following priority tasks for 2005 in the most lucrative segments of the value-added regional market:                        

 

Internet services

In 2005 time of Internet connections through switched lines is expected to increase by 50.1% to 37 million hours. Number of dial-up ports equipped is expected to grow by 4.8% to 24.2 ths ports in 2005.

The Company continues active development and promotion to the market of broadband access technologies. The number of equipped XDSL ports is expected to increase by 130 % in 2005 to 49.4 thousand ports. In 1H2005 revenues from xDSL-based Internet services made RUR 130.2 million, that is up 8.7 times over a year-ago. The expected volume of newly-connected xDSL subscribers being 26 thousand users (4 times more over 2004), the Company  plans to increase total number of the equipped xDSL ports to 34.7 thousand ports.

In 1H2005 the Company put into operation “ADSL 2+” broadband access equipment permitting to transmit information via standard telephone lines at a speed of 25 Mbit/sec. From the first of October 2005 it is planned to add “DiSeL-TV” service to ADSL2+ - based services for users of «DiSeL» tariff plans providing them with  broad opportunities for multimedia content control. In 2005 the Company  plans to install 13.3 ths «ADSL 2+» ports, thus reaching the equipped capacity of 18.4 ths ports, which is up 3.6 times over 2004. The volume of transmitted information being increased, "UTK" PJSC plans to increase total carrying capacity of its external Internet-channels from 376 Mbit/sec to 616 Mbit/sec in 2005, in order to maintain the quality of services provided.

In June 2005 the Company launched the advertising campaign on promotion of tariff plans "DiSeL" (Internet access with a speed up to 8Mbit/sec) oriented for numerous target group - «individuals». As of 1st July 2005 728 users were subscribed to «DiSeL» tariff plans.

Alongside with active development of broadband access technologies, "UTK" PJSC is introducing wireless Internet access systems based on Wi-Fi technology. The introduction is based on deployment of hot-spots in public accommodations and installation of base stations. Wi-Fi system has been deployed in the cities of Krasnodar and Rostov-on-Don since July 2004.

 

Building of virtual private networks (VPN)

2005 revenues from building of corporate networks based on VPN technology are expected to increase by 44.0% to RUR 223.2 mln. The Company  plans to put 1,500 VPN ports into service in 2005 (a 36.7%-gain over 2004) due to growing demand of customers for reliable corporate networks.

 

Intelligent services (ISS)

Due to removal of the services provided on the basis of pre-paid service telephone card (STC) from the structure of intelligent services, 2005 revenues from intelligent services are expected to decrease by 20.7% over 2004 to RUR 6.5 mln. But due to intelligent network upgrade, the range of offered intelligent services will be broadened thus contributing to revenue increase. Removal of services provided on the basis of pre-paid service telephone card (STC) from the structure of intelligent services seems to be rather logical in view of introduction of unified automated billing system "Onyma” in all UTK’s branches and equipment of some automatic long-distance telephone exchanges with  SSP/IP intelligent network functions. In October 2005 universal service telephone cards (ESC) valid throughout the whole licensed territory of "UTK" PJSC will replace pre-paid service telephone cards (STC) used only in the Krasnodar kray.

 

Cable (CTV) and digital (IP-TV) TV.

Due to the expansion of multimedia and multi-service networks and introduction of broadband access based on Ethernet-to-home technology the Company started to provide a wide range of new services in 2004 including multi-channel digital TV (IP-TV). In 2005 the Company plans to offer the following MMS services to the connected subscribers in Krasnodar: video upon request, games upon request, video conferencing, home education, video control and monitoring, high-speed Internet. The most promising areas for introduction of MMS services on the basis of Ethernet-to-home technology are urban micro-districts with high population density. The Company  also plans to provide all spectrum of MMS services using ADSL 2+ technology, that will allow to expand the coverage area of the multimedia and multi-service network.

In 2004 the Company launched its pilot project on development of HFC-based cable TV networks in several new micro-districts of the cities of Volgograd, Volzhskiy and Zhirnovsk situated in the volgograd region (the branch “Volgogradelectrosvyaz”). RUR 345 mln have already been invested in the project, and the network having a capacity of 117 ths subscribers has  been constructed. In 1H2005 subscriber base of the Company’s cable TV network increased by 3.8% to 91.5 subscribers. In 2005 UTK plans to increase the number of cable TV subscribers in these cities by 10.1% to 98.9 ths users. At present the Company is developing new projects on digitization of the existing CTV networks in order to provide its customers with digital content services. Realization of these projects will make it possible to create a common multimedia zone in the Company’s network.

In November 2004 UTK’s branch “Kubanelectrosvyaz” launched the project "Navigator" designed for connection in 40 thousand users to the Krasnodar multimedia and multi-service network. At the end of 1H2005 the subscriber base of the Krasnodar multimedia and multi-service network exceeded 1.3 thousand users. By the end of the year the branch “Kubanelectrosvyaz” plans to increase the number of subscribers to 4.5 thousand.

 

IP telephony

Due to the development of IP-cards dealer network and growth of IP-connections 2005 revenues from IP telephony are expected to reach RUR 113.8 million, a 133.7%-increase over 2004.

 

Call Centers

By the end of the year the Company plans to integrate the existing call centers operating in the branches into UTK’s uniform platform, that will allow to improve call processing and reduce failures.

To ensure maximal return on investments, each of the Company’s branches carries out marketing research for definition of priority development trends of services rendered on the basis of call centers.

 

[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); termination of IP traffic; digital cable TV services (IPTV); 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.

 

 

 

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