Krasnodar, May 16, 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 1Q2007 financial results compiled in accordance with Russian Accounting Standards (RAS).

·  1Q2007 net income amounted to RUR 587.3 million;

·  Revenue from value-added services[1] increased 54.82% over 1Q2006 to RUR 613.4 million. Share of revenues from value-added services in total telecommunication services revenue increased to 13.6% versus 10.1% in 1Q2006;

·  1Q2007 EBITDA [2] increased 20.6% over 1Q2006 to RUR 1,949.7 million.

Key financial highlights, million rubles

Description	1Q2006	1Q2007	Growth rate, %
Operating revenue	4,117.6	4,731.8	14.9
Operating expenses	2,877.1	3,277.7	13.9
Operating income	1,240.5	1,454.1	17.2
Operating margin, %	30.1	30.7	0.6
EBITDA	1,617.0	1,949.7	20.6
EBITDA margin, %	39.3	41.2	1.9
Net income	324.8	587.3	80.8
Net income margin, %	11.3	17.9	6.6

UTK generated 1Q2007 revenue of RUR 4,731.8 million, representing a 14.9%-increase over 1Q2006. Revenue from telecommunications services increased by 15.5% to RUR 4,522.3 million.

Based on 1Q2007 results share of revenues from local telecommunication services decreased by 4.2% to 49.1%, share of value-added services revenue grew by 3.5 percentage points to 13.6% of the Company’s telecom revenue. Revenues from local telecommunication services increased by 6.4% over 1Q2006 to RUR 2,222.1 million. 1.206 thousand new subscribers were added to the Company’s subscriber base in 1Q2007, including 1.092 thousand telephone sets  - in urban telephone network (TN). As of April 1, 2007 number of basic telephones operated by UTK amounted to 4,065.212 thousand sets.

1Q2007 revenues from value-added services rose 54.8% over a year-ago to RUR 613.4 million. Revenues from Internet services grew by 67.0%, from VPN (virtual private networks) services by 4.2%. Internet services sales were supported by strong usage growth: Internet traffic rose by 115.7% to 481.0 Tbyte.

Broadband access subscriber base expanded to 92.702 thousand subscribers, 89.329 of them being xDSL subscribers.

Revenues from telecom operators were down 9.4% to 675.1 million rubles.

SEGMENTAL ANALYSIS OF REVENUES, RUR mln:

Description	1Q2006	1Q2007	Growth rate, %
1. Revenues from ordinary activities:
Operating revenue	4,117.6	4,731.8	14.9
Revenue from telecom services, including:	3,916.8	4,522.3	15.5
Intra-zonal telephony	611.1	902.2	47.6
Local telephony	2,087.5	2,222.1	6.4
Interconnection and traffic transit services	745.5	675.1	-9.4
Value-added services, including	396.2	613.4	54.8
Internet services	317.3	529.8	67.0
VPN	74.3	77.4	4.2
Other telecom services [3]	76.5	109.5	43.0
Other revenues from ordinary activities	200.8	209.5	4.3
Revenues from telecom services by customer segment:
Households	2,096.6	2,507.1	19.6
Business sector	1,820.2	2,015.2	10.7
2.  Other revenues, including	57.5	198.2	244.7
Interest receivable	5.8	6.3	8.6

1Q2007 operating expenses increased by 13.9% over 1Q2006 to RUR 3,277.7 million. Based on 1Q2007 results, expenses on wages and salaries and other social payments to employees (31.0%), depreciation charges (21.1%) and other costs (16.9%) accounted for major part of operating expenses.

There were following material changes versus 1Q2006: share of expenses for wages and salaries decreased by 3.7 percentage points to 31%, share of other costs was up 0.8% to 16,9 %.

The growth of depreciation charges by 8.8% to RUR 693.1million was attributable to increase in value of the Company’s fixed assets.

Increase of material expenses by 5.7% to RUR 380.3 million was due to growing expenditures for cables.

Amount of payments to telecom operators grew by 153.9% to RUR 354.2 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.

SEGMENTAL ANALYSIS OF EXPENSES, RUR mln:

Description	1Q2006	1Q2007	Growth rate, %
1. Operating expenses, including:	2,877.1	3,277.7	13.9
Salaries and wages	999.4	1,015.0	1.6
Social insurance	256.6	262.7	2.4
Amortization	636.8	693.1	8.8
Material expenses	359.8	380.3	5.7
Payments to telecom operators	139.5	354.2	153.9
Payments to Rostelecom	16.4	14.8	-9.8
Taxes	4.8	4.6	-4.2
Other operating costs	463.7	553.0	19.3
2. Other costs including	855.3	850.0	-0.6
Interest payable	543.2	460.6	-15.2

Certain financial measures to extend duration of UTK’s debt and reduce its value within the framework of the Company’s credit portfolio made it possible to cut down interest expenses by 15.2% over 1Q2006 to RUR 460.6  million.

1Q2007 EBITDA increased 20.6% over 1Q2006 to RUR 1,949.7 million. EBITDA margin was up 1.9 percentage points to 41.2%. Operating income grew by 17.2% over a year ago to RUR 1,454.1 million. Operating margin was up 0.6 percentage points reaching 30.7%.

1Q2007 capex increased by 110.2% over 1Q2006 to RUR 245.9 million. Fixed assets put into service increased by 153.7% to RUR 391.96 mln.

In 1Q2007  14.178 thousand telephone lines were put into operation in UTK networks including 7.152 thousand lines to replace analog equipment. As a result, total installed capacity of UTK’s local network stood at 4,349.113  thousand lines as of April 1, 2007.

Digitization rate of UTK local network rose 3.06 percentage points over 1Q2006 and totaled 65.51%, of which the digitization rate in urban telephone network (TN) was 70.14%, in rural TN – 50.59%.

MAIN OPERATIONAL HIGHLIGHTS:

Description	Measurement unit	1Q2006	1Q2007	Growth rate, %
Average number of employees on payroll (headcount, total)	Ths people	36.830	29.972	-18.6
Sales results:
Outgoing intra-zonal traffic	Mln minutes	231	402	74.0
dial-up Internet traffic	Mln minutes	760	1,092	43.7
Internet traffic	?byte	223	481	115.7
Increase in number of basic telephone sets (lines in use) installed in urban and rural telephone networks including	Ths lines	6.812	1.206	-82.3
Urban TN	Ths lines	3.737	1.092	-70.8
Total number of lines in use  in urban and rural telephone networks	Ths lines	4,021.815	4,065.212	1.1
Penetration rate in urban and rural telephone networks	Sets per 100 inhabitants	21.7	22.0	0.3
Investment program:
Capex	RUR mln	117.0	245.9	110.2
Fixed assets put into operation	RUR mln	154.5	391.96	153.7
Network development:
Total installed capacity of urban and rural telephone networks	ths  ??	4,258.36	4,349.113	2.1
Level of equipped capacity of urban and rural TNs	%	95.04	93.95	-1.09
Local network digitization rate (urban and rural TNs)	%	62.45	65.51	3.06
Including  urban TN digitization rate	%	67.0	70.14	4.7
Increase in length of fiber-optic communication lines	km	27.43	77.5	182.5
Business efficiency indicators:
Revenue per employee	RUR ths	111.8	157.9	41.2
Lines per employee	lines	109.6	136.2	24.3

 [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 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.
[2] EBITDA  includes Earnings Before Interest, Taxes, Depreciation and Amortization
[3] Other telecom services rendered by "UTK" PJSC include: wired radio, document communication, radio communications, radio broadcasting, wireless radio communications.