Krasnodar, November 9, 2006 – 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 development forecast and financial strategy for 2007-2009.

The Board of Directors of "UTK" PJSC approved the Company’s development forecast and financial strategy for 2007-2009 at the session held on 2 November 2006 (Minutes ? 15 ?f 2 November 2006).

Commenting on the approval of the Company’s development forecast and financial strategy for 2007-2009, UTK’s General Director Alexander Andreev said:  «Approval of such important and interrelated documents is a significant event for the Company which determines the guidelines of its activity for the next three years. 

Numerous subscriber base and infrastructural resources of "UTK" PJSC, segmentation of services’ offer to the market as well as reorganization of business processes according to market priorities will allow to increase revenues from value-added services four times in 2009 over 2005. Due to positive operating cash flows, 2007-2009 investment programs will be financed by means of in-house funds alone.

Implementation of the approved financial strategy will allow to reduce the Company’s debt burden and to improve key business efficiency indicators that will be one more step to increase the investment appeal and capitalization of "Southern Telecommunications Company" PJSC".

 In order to achieve the target parameters of 2007-2009, the documents set the following priority tasks:  

• Optimization of 2007-2009 investment programs,
• Staff cuts,
• Strict cost control,
• Reorganization of subsidiaries.

"UTK" PJSC plans its revenues in 2007-2009 budgets (see table 1) on the basis of the approved marketing strategy adjusted in compliance with the changed business environment and introduction of new settlement system with long-distance, zonal and local operators, taking into consideration the projected changes in regulated tariffs and further local tariffs growth (bringing local tariffs to the economically justified level by the first of January 2008).

Table 1

Description, RUR mln	2006 budget	2007 forecast	2008 forecast	2009 forecast
Revenue	16,910.6	18,440.1	19,779.4	21,514.8
y-o-y change, %		109.0	107.3	108.8
Telecom revenue, RUR mln, including:	15,903.4	17,465.1	18,848.8	20,605.5
y-o-y change, %		109.8	107.9	109.3
Intra-zonal calls	2,472.1	2,506.5	2,456.0	2,407.0
y-o-y change, %		101.4	98.0	98.0
Local calls	8,489.9	9,179.7	9,820.2	10,590.5
y-o-y change, %		108.1	107.0	107.8
Interconnection and traffic transit services	2,627.2	2,240.3	1,775.2	1,775.2
y-o-y change, %		85.3	79.2	100
Value-added services	1,751.6	2,972.3	4,201.6	5,199.0
y-o-y change, %		169.7	141.4	123.7
TV and radio broadcasting, satellite and wireless communication services	37.5	60.9	103.8	156.2
y-o-y change, %		162.4	170.4	150.5
Other telecom services	525.1	505.4	492.0	477.5
y-o-y change, %		96.3	97.4	97.1

Due to liberalization of the long-distance services market the Company’s revenue and telecom revenue are expected to decrease in 2006, but the Company believes that by the end of 2009 these parameters will demonstrate a stable growth. Total revenue is expected to increase by 16.7% from 18,440.1 million rubles in 2007 to 21,514.8 million rubles in 2009. 

In 2006 the Company expects to generate a telecom revenue of 15,903.4 million rubles supported by adding 43.6 thousand new subscribers to the Company’s subscriber base. 

"UTK" PJSC plans its expenses in 2007-2009 budgets (see table 2) to ensure a positive trend in revenue growth compared to the Company’s operating costs and to further improve operating efficiency.

Table 2

Description	2006 budget	2007 forecast	2008 forecast	2009 forecast
Operating expenses, RUR mln	12,471.1	13,581.0	14,531.0	15,706.8
y-o-y change, %		108.9	107.0	108.1
Wages, salaries, other employee benefits	4,082.1	4,219.0	4,548.9	4,893.3
y-o-y change, %		103.4	107.8	107.6
Social insurance and contributions to pension fund	1,018.0	1,062.0	1,105.6	1,166.9
y-o-y change, %		104.3	104.1	105.5
Depreciation and amortization	2,631.1	2,976.0	3,158.0	3,445.6
y-o-y change, %		113.1	106.1	109.1
Material expenses, electricity & energy costs, utilities	1,468.3	1,475.0	1,524.7	1,605.7
y-o-y change, %		100.46	103.4	105.3
Payments to national operators	909.5	1,475.3	1,792.4	2,045.0
y-o-y change, %		162.2	121.5	114.1
Contribution to universal service reserve	160.4	173.8	181.0	189.9
y-o-y change, %		108.4	104.1	104.9
Other operating expenses*	2,201.7	2,199.9	2,220.4	2,360.4
y-o-y change, %		99.9	100.93	106.3

*other operating expenses include: services of outsider organizations on minor repairs, lease of premises, insurance of property, other services of outsider organizations, other operating costs.

Investment program

The Company’s investment program in the Development Forecast for 2007 – 2009 provides for limited investments in projects with qualitative return and in social projects, completion of earlier launched investment projects given their viability and effectiveness, making new investments in high-yield projects and projects with short payback period, namely, promotion of information and telecommunication services based on new technologies such as Internet, xDSL, IP-TV.

The projected volumes of the Company’s investment programs are 3 billion rubles in 2007, 2.5 billion rubles in 2008 and 3.5 billion rubles in 2009. The planned growth of investments in 2009 is based on the expected improvements in the Company’s financial standing and on the need to make new investments in order to retain the Company’s market positions.

Finance plan

The Company’s management believes that in 2007-2009 UTK’s revenue will increase by 27% while its operating expenses will grow by 26%, thus allowing to surpass the recommended EBITDA margin by 4%. The positive trend in revenue growth will be mainly attributable to the projected 197%-increase in revenues from value-added services (Internet access, data transmission and intelligent services) during the three years. Deregulated services will ensure further diversification of the Company’s business, their share in total revenue is expected to increase from 10% in 2006 to 24% in 2009 ????.

In 2007-2009 70 % of funds from operations will be directed to finance the Company’s investment program. The remaining part is to be used for debt repayment that will allow to reduce total debt from 24 billion rubles as at the end of 2006 to 20.9 billion rubles by the end of 2009. Thus, during 2007-2009 total debt is expected to decrease by 13% or 3 billion rubles.

In the second quarter of 2007 the Company plans to place a bond issue worth 2 billion rubles to be redeemed in 2010-2011. The coupon yield will be paid every half a year. The coupon rate will be set on the day of placement.

In the fourth quarter of 2009 "UTK" PJSC plans to place another bond issue worth 4.4 billion rubles. Funds to be obtained from the bond issue will be directed to refinancing of the Company’s 03-series bond issue with maturity in October 2009 as well as to scheduled repayments of credits.

In 2008 the Company plans to obtain 140 million US dollars in the form credit derivatives (for example, CLN, TRS) from the international capital markets, with maturity in 3 years. The equivalent ruble interest rate under the loan is estimated at 9.0 – 9.2 % per annum.

Other necessary funds for 2007-2009 will be attracted in the form of medium-term bank credits. The interest rate under such credits is estimated at 9.5-10.3% and is expected to go down by the year 2009.

In 2007-2009 the Company  plans to  reach the following business efficiency results (see table 3):

Table 3

Business efficiency indicator	Measure unit	2006 budget	2007 forecast	2008 forecast	2009 forecast
Operating efficiency indicators
EBITDA	RUR mln	5,889.0	6,515	6,737	7,313
EBITDA margin, %	%	34.8	35.3	34.1	34.0
Net income	RUR mln	789.6	881.1	947.3	1,219.1
Net income margin	%	6.3	6.5	6.5	7.8
Natural indicators
Average number of lines	lines	4,052,945	4,058,605	4,058,605	4,058,605
Increase in number of basic telephone sets	sets	43,603	0	0	0
Digitization rate of local telephone network	%	65.5	66.4	67.1	67.7
Revenue per one employee	RUR ths	465	584	681	805
Revenue per one line	RUR ths	4	5	5	5
Cost of 100 rubles of revenue	RUR	74	74	73	73
Number of lines per one employee	Lines per employee	111.6	128.5	139.7	151.8

Average number of lines in use per one employee is one of the main indicators of operating efficiency and investment appeal of telecom companies. In 2006 "UTK" PJSC plans to reach 111.6 lines per employee gaining 10.8 % over a year ago. In 2009 it is planned to increase the indicator value to 151.8 lines in use per one employee.

In 2006-2009 revenue per one employee is expected to increase due to staff cuts and a positive trend in revenue growth rate. In 2007-2009 this indicator is expected to increase considerably, namely, by 25.6% in 2007, 16.6% in 2008 and 18.2% in 2009.

The Company  plans to launch a pilot program of business processes reengineering in order to improve the indicators of revenue per one employee and number of lines in use per one employee.