Krasnodar, October 31, 2007 – Southern Telecommunications Company (“UTK”) (RTS: KUBN, KUBNP; MICEX: UTEL, UTELP; ADR OTC: STJSY, KUE FRA)], the principal fixed-line telecommunications provider for Russia’s Southern Federal District, today announced its unaudited financial results for the first nine months of 2007 in accordance with Russian Accounting Standards (RAS).

·  9m2007 net income was up 23.2% to RUR 1,727.7 million.

·  Revenuefor the nine months of 2007 was up 13.4% over the comparable period in 2006 to RUR 14,584.9 million.

·  Revenue from new value-added services[1] increased to RUR 1,992.8 million representing a year-on-year increase of 54.1%, and now accounts for 14.3% of total telecom revenues (versus 10.7% for the same period of 2006).

·  9m2007 EBITDA [2] increased  7.6% year on year to RUR 5,831.4 million.

Key financial highlights, RUR mln

During the first nine months of  2007 UTK generated a total revenue of RUR 14,584.9 million representing a 13.4%-increase over the nine months of 2006. Revenue from telecommunications services grew by 15.2% to RUR 13,958.7 mln.  

During the first nine months of 2007 revenues from local voice increased by 7.4% to RUR 6,760.2 million. 6,866 main telephone units were added to the Company’s subscriber base, including 8,814 units  - in the urban telephone network (TN). As of 1 October 2007 the number of main telephone units operated by UTK amounted to 4,070.872 thousand.

Revenues from intra-zonal telecommunication services rose 31.9% to RUR 2,768.6 mln in the period.

9m 2007 revenues from new services increased by 54.1% over 9m 2006 to RUR 1,992.8 mln. Revenues from Internet services climbed 63.6%, from VPN (virtual private networks) services by 11.8%. Internet services sales were supported by strong usage growth: Internet traffic for the reporting period increased by 153.5% to 1,906.0 Tb, connection time via dial-up access to the Internet was up 26.6%  to 2,906.0  million minutes. Broadband subscribers’ base enhanced to 132,053 users, including 129,989 xDSL subscribers.

Based on 9m2007 results, share of local voice revenues decreased by 3.6 percentage points to 48.4% while the share of revenues from new services increased by 3.6 percentage points to 14.3% and the share of revenues from intra-zone telecom services rose by 2.5 percentage points to 19.8%. Share of revenues from interconnection and traffic transit services decreased by 2.7% to 15.2%.

Revenues from interconnection and traffic transit services decreased by 1.9% to RUR 2,122.9 million.

Revenue breakdown, RUR mln:

9m 2007 operating expenses rose 13.8% year-on-year to RUR 10,184.5 mln. Expenses on wages and salaries and other social payments to employees (29.5%), depreciation charges (21.0%) and other expenses (18.6%) accounted for major part of operating expenses. There were following material changes versus 9m2006: share of expenses for wages and salaries decreased by 3.4 percentage points and share of payments to telecom operators grew 5.7%.

The growth of depreciation charges by 9.9% to RUR 2,134.2 million was attributable to increase in value of the Company’s fixed assets.

Increase of material expenses by 10.4% to RUR 1.187.7 million was due to growing expenditures for cables.

Amount of payments to telecom operators grew by 135.2% to RUR 1,118.6 million due to change of the methodology of settlements with mobile operators and introduction of “Calling Party Pays” principle, as well as due to growing payments to telecom operators for Internet access services. 

 Expenses breakdown, RUR mln:

Implementation of certain financial measures to extend the term and reduce the cost of UTK’s borrowings as a part of the Company’s credit portfolio made it possible to cut down interest expenses by 13.0% over 9m2006 to RUR 1,394.5  million.

9m2007 EBITDA increased 7.6% to RUR 5,831.4 million. EBITDA margin was down 2.1 percentage points to 40.0%. Operating income grew by 12.3% over a year ago to RUR 4,400.4 million. Operating margin was down 0.3 percentage points reaching 30.2%.

The Company’s stronger business efficiency made it possible to achieve the following relative efficiency indicators: gross revenue per employee rose by 39% to 494.9 thousand rubles, the number of lines per employee rose 23.8% to 138.6 lines.

9m2007 capex increased by 129.1% over 9m2006 to RUR 2,174.9 million. Fixed assets grew 9.7% to RUR 1,612.6 mln.

During the period under report  47,609 telephone lines were put into operation in UTK’s network including 23,632 lines to replace analog equipment. As a result, total installed capacity of UTK’s local network stood at 4,344.892  thousand lines in use as of October 31, 2007.

Digitization rate of UTK local network rose 2.4 percentage points over 9m2006 and totaled 66.6%, of which the digitization rate in urban telephone network (TN) was 71.0%.

Main operational highlights:

Full version of 9m2007 financial statements of "UTK" PJSC can be viewed on the  corporate web site in “Financial reports”section.

[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); services of multimedia and multi-service networks based on HFC, Ethernet to the home and other technologies;  video conferencing; intelligent services (on the basis of SCP-SSP); content services (including on the basis of Call-centers); Hosting and Co-location services.

[2] EBITDA  includes Earnings Before Interest Payable, Taxes, Depreciation and Amortization, Lease Payments  minus Interest Receivable.

[3] Other telecom services rendered by "UTK" PJSC include: wired radio, document communication, radio communications, radio broadcasting, wireless radio communications, telematic and data transfer services, services under assistance  agreements, other telecom services (core activities).