Krasnodar, 22 August 2006: Southern Telecommunications Company (“UTK”) [(RTS: KUBN, KUBNP; ?ICEX: UTEL, UTELP; ADR OTC: STJSY, KUE FRA)], the principal telecommunications provider for Russia’s Southern Federal District announces basic guidelines for drafting the Company’s 2006 investment plan and 2007 investment priorities.

Among the chief cornerstones of UTK’s 2006 investment plan were:

• minimization of investments in loss-making and low-yield projects, including rural telephony, provided the law “On Communications” requirements are met;
• investments in traditional telephony within the scope needed to finalize the projects launched in 2003-2004;
• boosting of investments in advanced technologies;
• raising of investment efficiency through the reduction of payback period.

To solidify the Company’s financial position, its 2006 investment plan provides for cutting capital expenditures by 46% year-on-year to Rub 1.7 bln. The operator intends to make investments within amounts required to retain the leadership status on the market for fixed-line services and reinforce positions on the VAS market.

2006 investment plan’s structure

Rub 1,699.851 bln are scheduled to be invested in the year 2006 under UTK’s investment plan, including

	IQ	IIQ	IIIQ	IVQ
Total volume of investments (Rub, th), including in:	338,262	588,713	577,243	195,633
equipment	177,501	314,520	374,459	129,629
Construction and design works	110,402	228,307	163,187	51,617
other	50,359	45,886	39,597	14,387

Analysis of 2006 investment plan by investment category

Category	Amount, Rub,    th	Share, %
Traditional telephony	503,413	29.6
Value-added services	210,564	12.4
Channels for service provision	43,789	2.6
Renovation and construction of buildings and facilities	22,398	1.3
IT	248,081	14.6
ERP included	90,000	-
Data transmission networks and infrastructure	372,859	21.9
Other infrastructure	297,610	17.5
Specific	1,137	0.1
TOTAL:	1,699.851	100.0

The bulk of investments in the Company’s investment mix fall to traditional telephony – 29.6%, followed by investments in the development of data transmission networks and infrastructure. On the whole, the projects on the rollout of advanced technologies and value-added services dominate the Company’s 2006 investment plan.

Analysis of 2006 investment plan by investments return category

Type of investment[1]	Amount, Rub, mln	Ratio	Share of investments
with financial return	1,121,9	from 80%	66%
with high financial return	730.9	from 50%	43%
with qualitative return	509.96	to 15%	30%
in social and specific projects	67.99	to 5%	4%

The share of investments in projects with financial and qualitative return does not meet the targets set by the Board of Directors. The domination of projects with qualitative return results from inability to slash investments in this area. Considerable number of such projects in UTK’s investment plan stems from the low investment volume at the Company on the whole.

2006 investment plan’s efficiency indicators

Investment profitability	2006	2005
Average index of investment plan’s profitability	108%	75%
Average profitability index of investments with financial return	139%	94.4%
- traditional telephony	72%	59.2%
- value-added services	493%	236.1%
- data transmission network and telecom facilities	334%	242.5%

The upswing of the plan’s profitability index (including investments with financial return) against the 2005 figure was driven by the optimization of the investment program and redistribution of investments in high-yield and promising projects.

The 2006 investment plan is 100% financed from the Company’s own funds.

Telecom network capacity and digitalization

Branch/Company	Installed capacity, numbers	Growth in main telephone sets, telephone set	Digitalization rate, %
Electrosvyaz of Adygeia Republic	98,119	1,000	47.71
Svyazinform of Astrakhan region	267,580	3,000	78.41
Volgogradelectrosvyaz	690,684	6,200	60.94
KabBalktelecom	176,602	1,400	66.65
Electrosvyaz of Kalmykia Republic	71,066	500	50.22
Karachaevo-Cherkesskelectrosvyaz	102,350	1,000	47.55
Kubanelectrosvyaz	1,229.953	9,296	78.07
Rostovelectrosvyaz	833,104	8,600	51.18
Sevosetinelectrosvyaz	192,981	6,000	73.82
Electrosvyaz of Stavropol krai	685,020	6,500	61.67
Total "UTK" PJSC	4,347.459	43,496	65.12

Implementation of the Company’s investment plan will bring the operator’s installed capacity to 4,347.5 lines as of 01.01.2007, while the number of main telephone sets will surge by 43,500, digitalization rate will amount to 65.12%.

Implementation of UTK’s investment plan will enable it to solidify the Company’s positions on the fixed-line market and ensure by 2006 at least an 82% share in the telecom market revenues, as well as to raise the carrier’s presence on the VAS market to at least 50%.

Basic criteria for 2007 investment activity:

• utmost economy of capital assets;
• completion of earlier launched investment projects given their viability and effectiveness;
• making new investments in high-yield projects and projects with short payback period alone;
• investing in projects with qualitative return, facilitating the Company’s business activity and promoting implementation of the new requirements under the Federal Law “On Telecommunications”.

Key priorities of 2007 investment program:

In terms of technical policy:

• to expand the operator’s subscriber base;
• to raise digitalization rate of local and intra-zonal network;
• to rollout of high-speed data networks;
• to speed up development of value-added services and technologies.

In terms of traditional telecom services:

• to roll out local voice services and make a whole range of services affordable to average- and high-yield consumer categories;
• to phase in universal payment cards for telecom services, cooperating with other entities on outsourcing principle;
• to seek ways to cut losses from non-profitable (but socially important) services;

In terms of value-added services:

• to focus on the rollout and expansion of broadband xDSL access;
• to phase in advanced technologies and scale up the scope of high-yield services;
• to raise VAS competitiveness;
• to develop multi-service networks in the Southern federal district;
• to implement inter-regional service roaming;
• to offer packet services;
• to introduce and develop universal payment cards for communications services, allowing to pay for various services by one card.

Financial sources for Company’s 2007 investment plan

To improve liquidity of balance and other 2007 financial metrics of the Company, "UTK" PJSC intends to finance its investment program by means of in-house funds alone (depreciation charges and profit). Rejection from supplementary borrowings exerts positive impact on the balance of own and borrowed funds, which shows on the gradual growth of equity ratio – in the period from 01.01.05 to 01.01.07 this indicator is expected to go up from 28% to 30%.