Krasnodar, July 26, 2007: Southern Telecommunications Company (RTS: KUBN, KUBNP; MICEX: UTEL, UTELP; ADR OTC: STJSY, KUE FRA)], the principal fixed-line telecommunications provider for Russia’s Southern Federal District releases FY2006 audited consolidated financial statements compiled under International Financial Reporting Standards (IFRS). The audit of 2006 financial statements was carried out by Ernst & Young LLC.

·  2006 consolidated revenue decreased by 4.3% over 2005 to RUR 17,959.1 mln;

·  2006 OIBDA [1] increased 29.7% year on year to RUR 6,240.3 mln representing an OIBDA margin of 34.7%;

·  Operating profitfor the reporting period grew 77.0% over 2005 to RUR 2,915.6 mln; 

·  2006 revenues from new value added services [2] rose 6.1% to RUR 1,547.3 mln; revenues from local telephone services increased 13.5% to RUR 7,375.2 mln.

1. KEY FINANCIAL HIGHLIGHTS:

Description	Million rubles
	2006	2005	y-o-y change, %
Revenue, including	17,959.1	18,764.3	-4.3
Telecom revenue	17,368.8	17,894.4	-2.9
OIBDA	6,240.3	4,811.5	29.7
OIBDA margin, %	34.7	25.6	9.1 p.p.
Operating expenses	15,043.3	17,116.7	-12.1
Depreciation and amortization	3,324.7	3,163.9	5.1
Operating profit	2,915.6	1,647.6	77.0
Operating margin, %	16.2	8.8	7.4 p.p.
Net profit/loss before tax	790.4	-1,003.0	-
Net profit/loss	347.0	-949.7	-

Revenues

The Company’s 2006 consolidated revenue decreased by 4.3% to RUR 17,959.1 mln. Revenues from telecom services decreased by 2.9% to RUR 17,368.8 mln (USD 622 mln). The revenue reduction was attributable to new regulations effective starting January 1, 2006. These regulations led to significant changes in rendering intrazone, domestic and international telephone services. Starting January 1, 2006 domestic and international long-distance telephone services are provided only by operators with respective licenses. According to the Company’s license terms it ceased provision of domestic and international long distance services and continued provision of intrazone telephone services.

2006 revenues from local telephone services grew by 13.5% to RUR 7,375.2 mln mainly due to the increase in local tariffs from September 1, 2005.

Following changes in procedure of settlements with telecom operators, from January 1, 2006 the Company ceased to receive revenues from DLD and ILD services which amounted to 4,367.7 million rubles in 2005. 2006 revenues from intrazone telephone services increased by 28.1% to 2,546.6 million rubles owing to coming into effect from January 1, 2006 of “Calling Party Pays” principle.

2006 revenues from value-added services (VAS) increased by 6.1% to RUR 1,547.3 mln. xDSL-based broadband access subscriber base grew by 117.9% to 69,364 subscribers.

Due to introduction of new procedure of settlements with long-distance operators revenues from services to national telecom operators more than doubled over 2005 to RUR 2,910.5 million.

Revenues from other telecom services [3[ increased by 4.7% to RUR 1,788.5 mln.

In 2006 share of revenues from intrazone telecom services increased by 3.6 percentage points from 11.1% to 14.7% while the share of revenues from local telecom services increased by 6.2 percentage points from 36.3% to 42.5%, the share of VAS revenues grew by 0.7 percentage points from 8.2% to 8.9% and the share of revenues from services to national telecom operators rose by 10.1 percentage points from 6.7% to 16.8%. Structure of 2006 revenues started to include revenues from provision of services under assistance agreements which accounted for 4.1% of telecom revenue.

In the period under report residential customers accounted for 50.2% of telecom services provided by the Company (vs.56.5% in 2005), corporate customers — for 41.4% (vs. 35.9% in 2005), government customers — for 8.4% (vs. 7.8% in 2005).

Other revenues from non-telecom services (revenues received from manufacturing of the telecommunication equipment and its technical support, transportation services, recreation services and sale of products and services provided by auxiliary units) decreased by 32.1% to RUR 590.3 mln.

2. The Company’s revenue breakdown and dynamics:

Description	Million rubles
	2006	2005	y-o-y change, %
Revenue, total	17,959.1	18,764.3	-4.3
Telecom revenue including	17,368.8	17,894.,4	-2.9
Domestic long-distance telephone calls	-	3,213.5	-
International long-distance telephone calls	-	1,154.2	-
Intrazone telephone calls	2,546.6	1,988.1	28.1
Local telephone calls	7,375.2	6,499.4	13.5
New (value-added) services	1,547.3	1,458.9	6.1
Services to national operators	2,910.5	1,206.3	141.3
Fees on assistance services	720.7	-	-
Installation and connection fees	479.9	665.1	-27.8
Other telecom services	1,788.5	1,708.9	4.7
Other revenues	590.3	869.9	-32.1

Operating expenses 

UTK’s operating expenses decreased by 12.1% to RUR 15,043.3 mln in 2006. In spite of 2006 revenue reduction the Company’s weighted policy on cost control allowed it, for every 1 ruble of revenues, to reduce costs by 8.1 %, from 0.912 to 0.838 rubles. Operating costs declined much quicker than revenues (by 7.8 percentage points).

A 1.6%-increase of wage and salary expenses was due to optimization of staff number and compensation payments.

Depreciation charges grew by 5.1% due to completion of earlier started investment projects.

Operating costs decrease was mainly attributable to a 59.5%-reduction of payments to telecom operators to 1,060.9 million rubles due to change of the methodology of settlements with long-distance operators.

In 2006 material expenses increased by 11.6% to RUR 2,274.6 million.

Recovery of provision for impairment of receivables in the amount of 400.5 million rubles was attributable to compensation from the state budget of the expenses incurred by the Company  in connection with the provision of telecom services to privileged customers as well as due to changes in the scheme of interaction with Rostelecom.

Other 2006 operating expenses of the Company declined by 8.5% to RUR 1,899.8 mln. But the amount of payments to Universal service fund grew by 22.1% to RUR 167.5 mln.

3. The Company’s operating expenses breakdown and dynamics: 

Description	Million rubles
	2006	2005	y-o-y change, %
Operating expenses	(15,043.3)	(17,116.7)	-12.1
Wages, salaries, other employee benefits and payroll taxes	(6,105.0)	(6,006.3)	1.6
Depreciation and amortization	(3,324.7)	(3,163.9)	5.1
Interconnection charges	(1,060.9)	(2,622.2)	-59.5
Materials, repairs and maintenance, utilities	(2,274.6)	(2,037.4)	11.6
Taxes other than income tax	(775.1)	(748.5)	3.6
Recovery of provision for impairment of receivables	400.5	(294.2)	-
Loss on disposal of property, plant and equipment	(3.7)	(167.4)	-97.8
Other operating expenses	(1,899.8)	(2,076.8)	-8.5

2006 OIBDA amounted to RUR 6,240.3 mln, OIBDA margin increased by 9.1 percentage points to 34.7%.

2006 operating profit of UTK grew 77% to RUR 2,915.6 million. As a result the 2006 operating margin of the Company rose by 7.4 percentage points to 16.2%.

Interest expenses in the reporting period decreased by 20% to 2,293.2 million rubles.

Net financial result 

Income tax expenses stood at RUR 429.7 mln. 2006 net profit of the Company  was 347 million rubles.

Interest payable

According to the Financial Strategy approved in 2006 "UTK" PJSC continues to improve the structure of its credit portfolio. During the reporting period the Company  cut down interest payable by 11%.

4. Interest payable dynamics

Description	Million rubles
	2006	2005	y-o-y change, %
Credits and loans	19,192.7	20,823.5	-7.8
Finance lease	2,041.1	3,028.9	-32.6
Total interest payable	21,233.8	23,852.4	-11.0
Cash and cash equivalents	331.1	772.1	-57.1
Net interest payable	20,902.7	23,080.3	-9.4
Net interest payable / OIBDA,%	3.4	4.8	-1.4 p.p.

Full version of FY 2006 IFRS consolidated financial statements of UTK with notes to them may be viewed on the  corporate web site in “IR section/Financial reports”section.

 [1] OIBDA is calculated as the sum of operating profit and depreciation.
[2] Value-added telecom services provided by UTK contain intelligent network services (conferences, voting, mail box, etc.) Internet and IP-telephony services, Internet and data transit services from national operators, other new value added services.

[3] For the purposes of this press release other telecommunication services provided by "UTK" PJSC include rent of telephone channels, cellular services, radio and TV broadcasting, data transfer and telemetric services, documentary services, other telecom services. The latter services primarily consist of revenues received by public switched telephone network (PSTN) exchanges from the rent of direct lines and local junctions as well as from the rent of radio subscriber sets.