Moscow – December 22, 2009:  Rostelecom (NYSE: ROS; RTS, MICEX: RTKM, RTKMP), Russia’s national telecommunications operator, today announced its unaudited consolidated financial results for the first nine months of 2009 in accordance with International Financial Reporting Standards (IFRS).

Highlights

· Consolidated revenue for the fist nine months of 2009 remained stable compared to the corresponding period of 2008*  and amounted  to RUB 48.8 billion;

· Revenue from data transmission and intelligent network services (INS), resulting from the Company’s business diversification initiatives, increased by 1.8 times year on year to RUB 7.1 billion and accounted for 14.6% of Rostelecom’s consolidated revenue;

· OIBDA**  decreased by 19.5% year on year to RUB 9.5 billion, representing an OIBDA margin of 19.5%;

· Net profit amounted to RUB 3.3 billion representing a year-on-year decrease of 72.5%.

For the first nine months of 2009, Rostelecom and its subsidiaries (“the Company”) delivered financial and operating results as follows:

Revenue and Positioning in Major Markets

Rostelecom’s consolidated revenue for the first nine months of 2009 remained relatively stable compared to the corresponding period of 2008 and amounted to RUB 48,764.0 million, which represents a slight increase of 0.3% year on year.

Revenue from data and intelligent network services increased by 1.8 times year on year and accounted for 14.6% of the Company’s consolidated revenue. Data transmission services as a standalone (mainly Internet access services for operators (“wholesale Internet”) and corporate clients as well as VPN services) saw a substantial twofold increase to RUB 6,342.0 million, including the consolidation of RTComm.RU.

Revenue from intelligent network services (INS) for the first nine months of 2009 amounted to RUB 774.0 million representing a year-on-year decrease of 18.4%. In this segment the Company’s results were impacted by the drop in demand following the global economic crisis alongside the increased competition as other operators, including former agents, received their own intelligent numbers and entered the market independently.

Revenue from leased-line services decreased by 8.3% year on year to RUB 5,499.0 million. This decrease is mainly attributable to the fact that Russian operators (mobile and inter-regional) are nearing completion in constructing their own networks, thus reducing their demand in channels. In addition, this presented the operators with the opportunity to provide channels for rent leading to increased competition in the Russian leased line market. Alongside these developments is the ongoing process of transitioning from analogue to digital lines which are less expensive to rent.

Overall, the Company’s revenue for the first nine months of 2009 from new and value-added services, including data services, INS, leased lines and customer equipment services, among others, grew by 19.1% year on year to RUB 15,720.0 million, accounting for 32% of the Company’s consolidated revenue. Traditional voice domestic and international long-distance (DLD/ILD) services accounted for the remaining 68% of the Company’s consolidated revenue, compared to 73% of the total for the first nine months of 2008.

In the traditional voice telecom segments there were several key trends that impacted Rostelecom during the period of first nine months of 2009.

Incoming ILD traffic terminated in Russia decreased by 1.4% year on year for the period while transit traffic from international operators saw a substantial increase of 40.7%. In total, incoming ILD traffic amounted to 2,635.0 million minutes representing a year-on-year increase of 9.4%. Revenue from international operators for incoming ILD telephone traffic transit and termination rose by 10.6% year on year to RUB 4,927.0 million.

Domestic long-distance (DLD) traffic dropped by 7.5% year on year to 6,957.8 million minutes*** , while first nine months 2009 DLD revenues decreased by 10.8% to RUB 19,533.0 million.

Outgoing international long-distance (ILD) traffic decreased by 14.2% year on year totaling 1,297.2 million minutes. Revenue from ILD services to Russian end-customers and operators amounted to RUB 8,584.0 million, a decrease of 5.3% year on year.

The decrease in DLD and OILD traffic and revenue is primarily attributable to the global macroeconomic environment, the growing competition in the long-distance market as well as the continued migration of long-distance end-customer traffic from fixed-line to mobile networks. In addition, in order to provide clients (end-customers, residential & corporate, and Russian operators) with competitive tariffs the Company follows a flexible pricing policy which also impacted the DLD and outgoing ILD revenues.

Operating Expenses, OIBDA, Operating profit

Total operating expenses for the first nine months of 2009 amounted to RUB 44,834.0 million, representing an increase of 5.7% year on year. This was primarily attributable to the increase in payments to international operators and the consolidation of RTComm.RU for the full nine-month period in 2009 compared to 2008 when it was consolidated only in the third quarter.

Payments made to international operators increased by 22.9% year on year to RUB 7,367.0 million as a result of the Russian rouble devaluation and growth in international transit traffic. Payments to Russian operators decreased by 0.6% to 18,509.0 million as payments to Russian operators made by OJSC Rostelecom as a standalone decreased as a result of a drop in volumes of DLD and outgoing ILD traffic and thus – in termination and initiation payments.

Staff costs for the first nine months of 2009 totaled RUB 7,569.0 million, representing an increase of 10.9% year on year. This was primarily a result of the consolidation of RTComm.RU for the full nine-month period of 2009 as well as an increase in the salary budget.  It should be noted that the Company’s salary inflation indexing policy dating back to April 2008 yielded higher salaries and related payroll taxes in the first quarter 2009 compared to the first quarter of 2008.

In line with the Company’s business optimization initiatives and the streamlining of the organizational structure, the overall headcount for OJSC Rostelecom and its subsidiaries was reduced by 3.5% year on year to 21,803 employees as of September 30, 2009. With respect to OJSC Rostelecom as a standalone, the reduction was 3.6%, with a headcount as of September 30, 2009 20,318 employees.

In the first nine months of 2009, OIBDA dropped by 19.5% year on year to RUB 9,495.0 million representing an OIBDA margin of 19.5%.

Depreciation charges for the first nine months of 2009 amounted to RUB 5,583.0 million – a year-on-year
increase of 1.6%.

As a result of the growth in operating expenses of almost 6.0%, while the revenue remained at a stable level, the Company’s first nine months 2009 operating profit decreased by 36.6% year on year to RUB 3,930.0 million, with an operating margin of 8.1%.

Other Income/Loss

Other income for the first nine months of 2009 amounted to RUB 266.0 million (see Appendix II) compared to other income of RUB 9,587.0 million in the same period a year ago (see Appendix II). This difference is attributable to the significant additional income realized following the sale of investments in the period of first nine months of 2008.

In February 2008, OJSC Rostelecom sold its stake in Golden Telecom, Inc. and the profit from this transaction before tax amounted to RUB 8,666.0 million.

Consolidation

Consolidated numbers for the first nine months of 2009 include the results of operations of OJSC Rostelecom and its subsidiaries: GlobalTel, Globus-Telecom, Zebra Telecom, MTs NTT, RTComm.RU and its subsidiaries, Westelcom, among others.

Net profit

The Company’s first nine months 2009 consolidated net profit decreased by 72.5% and totaled RUB 3,261.0 million. Net margin amounted to 6.7%.

* This press release contains comparable IFRS figures for the first nine months of 2008, which have not been previously published.
** OIBDA is a non-U.S. GAAP and non-IFRS financial measure, which the Company defines as operating income before depreciation, amortization, loss from impairment of PP&E, goodwill and other intangible assets as well as loss on disposal of PP&E. We believe that OIBDA provides useful information to investors because it is an indicator of the strength and performance of our business operations, including our ability to finance capital expenditures, acquisitions and other investments and our ability to incur and service debt.  OIBDA should not be considered in isolation as an alternative to net income, operating income or any other measure of performance under U.S. GAAP or IFRS.
*** This press release contains verified DLD and outgoing ILD traffic data for the first nine months of 2009 compared to the traffic data in Rostelecom’s RAS results release for the fist nine months of 2009 issued on November 2, 2009.

Appendices:

- Traffic and revenue figures for the first nine months of 2009 versus the first nine months of 2008;

- Condensed consolidated interim statement of comprehensive income for the nine months ended
September 30, 2009 and September 30, 2008 in RUB million;

- Condensed consolidated interim statement of financial position as of September 30, 2009 and December 31, 2008 in RUB million. 

- Unaudited consolidated statements.