Krasnodar, August 8, 2005– Southern Telecommunications Company (“UTK”) (RTS: KUBN, KUBNP; MICEX: UTEL, UTELP; ADR OTC: STJSY, KUE FRA)], the principal telecommunications provider for Russia’s Southern Federal District, today announced its financial results for the first half of 2005 under Russian Accounting Standards (RAS).

• Revenue for the first half of 2003 amounted to RUR 8,670 mln (USD 311.3 mln)[1], an increase of 10.9% over the comparable period in 2004;
• Revenue from value-added services[2] increased to RUR 649.1 million representing a year-on-year increase of 73%, and now accounts for 7.6% of total telecom revenues (versus 5.0% in the first half of 2004);
• EBITDA[3] for the first half of 2005 increased 45.6% year on year to RUR 2,610.9 million (USD 93.7 million);
• The number of basic telephone sets grew by 43.8 thousand in the first half of 2005.

KEY FINANCIAL HIGHLIGHTS:

*Planned net financial result for the period was “–124” million rubles
** employees on payroll

In the first half of 2005 UTK generated total revenue of RUR 8 670 million, an increase of 10.9% over the first half of 2004. Revenue from telecommunications services increased 13.0% to RUR 8 550.1 mln. Revenue structure showed a stable trend in revenue share growths from local telephony and value-added services. Based on 1H2005 results long-distance and local telephony accounted for 36.6% and 41.5% of the Company’s telecom revenues, respectively.

The growth of the Company’s revenues from telecommunication services was due to a major increase in UTK’s subscriber base and network development as well as the increase in local tariffs (from October 1, 2004).

Revenues from local telephone services increased 25.4% over 1H2004 to RUR 3,548.6 million. In the first half of 2005 43.8 thousand basic telephone sets were added to the Company’s subscriber base, including 23.3 thousand  - in the urban telephone network (TN). As of July 1, 2005 the number of telephones operated by UTK amounted to 3,971.9 thousand, 2,949 thousand of which are part of the urban TN, the rural TN subscribers` base accounts for 1,022.9 thousand telephone sets.

Revenues from long-distance telephone services decreased 2.5% to RUR 3,130.7 mln in the period. The volume of outgoing long-distance traffic in H1 2005 stood at 936.1 mln minutes (-3%), including 881.3 mln minutes of DLD traffic (-3%) and 54.8 mln minutes of ILD traffic (-2%).

H1 2005 revenues from value-added services increased 73% to 649.1 RUR mln and accounted for 7.6% of total telecom revenues compared to 5.0% in 1H 2004. Revenues from Internet services grew by 70%, from VPN (virtual private networks) services by 48.6%, from IP telepnony services - by 3 times. Internet services sales were supported by strong usage growth: Internet traffic for the reporting period increased by 2 times to 260.9 Tb, connection time via dial-up access to the Internet was up 52.9% to 17.4 mln hours.

Revenues from the interconnected telecom operators (excluding revenues from value-added services) increased by 14.8%, including revenues from Rostelecom — by 7.2%. Other telecom services experienced a 16.2% decrease in revenues as a result of the phasing out of unpromising activities.

SEGMENTAL ANALYSIS OF REVENUES:

1H 2005 operating expenses increased 3.8% to RUR 6.570.7 mln. Cost composition has changed slightly. Traditionally, expenses on wages and salaries and other social payments to employees (30.8%), depreciation charges (17.2%) and payments to Rostelecom (15.2%) as well as material expenses (7.2%) accounted for major part of operating expenses.

The main contributors to the growth in operating cost in the period were the growth of depreciation charges due to active 2004 investment program, increase in cost of materials and spare parts as well as increases in the electricity and public utilities tariffs.

The growth of depreciation by 51.5% to RUR 1,128.8 mln was attributable to a major increase in fixed assets in operation as a result of the rapid expansion of UTK’s subscriber base, the process of network digitization, construction of Internet access nodes.

The increase of wage and salary expenses (by 0.9% to RUR 2,025.1 mln) was rather slight due mainly to optimization of organizational structure and staff cuts as a result of network digitization.

The growth of expenses on services of outsider organizations (by 1.0% to RUR 503.0 million) and electricity & energy costs (by 15.1% to RUR  190.1 million) was due to the growth of expenses for maintenance and repairs of the Company’s buildings and facilities as well as the increase in the public utilities tariffs.

The increase in interest expenses (by 48.8% to RUR 1,214.3 million) was due to attraction of external funding for realization of the Company’s active investment program in 2003-2004.

SEGMENTAL ANALYSIS OF EXPENSES:

Figures for the first half of 2005 were changed in 1H 2005 financial statements in comparison with 1H 2005 financial reports due to new accounting methodology for expenses introduced in 2005. In particular, accounting principles for expenses on land rent were changed (in 2004 the land rent were included in taxes, since 2005 it is included in expenses associated with the lease of property). Accounting for expenses reflected in the line «services of outsider organizations» changed regarding after-sale service. As a result of the above mentioned changes the line "other costs" was also corrected.

EBITDA for 1H 2005 increased 45.6% year on year to RUR 2,610.9 mln. Operating profit grew 41.3% over 1H 2005 to RUR 2,099.3 mln. Operating margin was up 5.2 percentage points in the period reaching 24.2%. The increase in operating margin was related to a positive trend in revenue growths compared to the operating costs (by 7.1 percentage points).  Value indicator per every 100 rubles of gross revenue decreased by 6.2% to 76 rubles.

The Company’s policy aimed at business efficiency growth allowed to improve the following business efficiency indicators: total revenue per one average line grew 2.2% to 2,183.5 rubles, total revenue per 1 pay-roll employee increased 14.3% to 266.4 thousand rubles, number of lines per 1 employee was up 12% to 103.7 lines.

1H 2005 UTK`s capital expenditures decreased by 1.6 times to RUR 3,144 mln.  Fixed assets put into operation decreased by   56.3% to RUR 1,734.7 mln.

During 1H 2005 81.3 ths telephone lines were put into operation in UTK networks, 25.7 ths of them  - for replacement of analog equipment. As a result, UTK`s total installed capacity as of July 1, 2005 stood at 4,175.1 ths lines.

Digitization level of UTK local network rose by 7.3 percentage points reaching 60%, including 66.7% in urban telephone network. Digitization level of the Company’s intrazonal network was 89.7% as of July 1, 2005, being the highest among Russian mega-regional telecoms.

MAIN OPERATIONAL HIGHLIGHTS :

Full text of UTK’s financial statements for the first half of 2005 may be viewed on the corporate web site in the section “Financial reports”.

[1]  Figures are provided at the Central Bank of Russia exchange rate of USD 1 for the 1st quarter of 2005 = 27.85 rubles.

[2] 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; 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.

[3] EBITDA is calculated as a sum of PBT, Depreciation and Amortization and interest to payment.

[4] Other telecom services rendered by "UTK" PJSC include: wired radio, radio communications, radio broadcasting, paging, satellite communications, wireless radio communications.

[5]  Other costs included in operating expenses are overheads, administrative expenses, advertising expenses, expenditures on research engineering and experimental development, payments to Gossvyaznadzor, postal expenses.