Corporate presentation September 2007. Corporate presentation September 2007 2 Comstar at a Glance ...

Corporatepresentation

September 2007

2

Corporate presentation September 2007

Comstar at a Glance The leading combined fixed-line telecommunications company in Moscow - MGTS incumbent & Moscow AltNet with >5 million active lines & > 11,000 km fiber-optic network

Owner of “last mile” access to 3.6 million Moscow households & 98% market share - Last mile is not unbundled and > 90% ADSL compatible

Number 1 residential broadband provider in Moscow - > 426k subscribers & 33% market share

Integrated operator providing full spectrum of fixed-line services - local, long distance through sister company MTT, broadband Internet, WiFi, WiMax, VPN etc

Owner of 25% + 1 share in state-owned Svyazinvest national fixed line incumbent - Financial investment with upside as strategic player in privatization process

Regional expansion - Focus on priority regions with expansion through selective M&A & cooperation with Sistema companies

3


Combined Telecom Operator

52% ownership

Broadband Moscow

100% subsidiary

Fixed Line Moscow

Regions & International

56% economic interest

Moscow City telephone

(MGTS)

Svyazinvest

25% +1 share

100% subsidiaries

ILECMoscow fixed line incumbent4.3 million active linesProvider of basic services to mass market

CLEC0.6 mln active linesProvider of multi-service solutions to corporate &developers

CLEC#1 broadband provider inMoscow with 33% marketshare 426,400 residential subscribers23% double-play penetration(data & pay-TV)

CLEC92,000 subscribersProvider of voice services to corporate &developers

STATE HOLDING7 ILECs, Rostelecom, Central Telegraph32 million installed lines covering 90% of Russia

Multiregional Transit

Telecom

50% owned by Sistema

ILD/DLD OPERATOROwner and operator of a digital multi-service national-scale network whose nodes are installed in all 88 subjects of RFCooperation with Comstar-UTS: DLD/ILD services to Comstar-UTS clients

Comstar-UTS Sister companies

Mobile Tele- Systems

MOBILE OPERATORThe largest mobile operator in Russia and the CISCooperation with Comstar-UTS: joint use of network infrastructure, convergent projects, joint sales efforts

52.8% owned by Sistema

4


122,6 147,2 167,1

266,8

354,968,3

89,584,6

94,8

77,1

-3,4-2,7-1,8-1-1

-50

0

50

100

150

200

250

300

350

400

450

500

2002 2003 2004 2005 2006

US

$ m

ln.

303 385.7480.8

639.7801.0164.4

249282.4

372.8

426.3

-28.7 -45.5 -68.1 -104.9 -107-200

0

200

400

600

800

1000

1200

1400

2002 2003 2004 2005 2006

US

$ m

ln.

Proven Track Record

Revenues

438.8

589.2695.1

907.6

1,120.2

189.9235.7 249.9

358.8

428.6 *CAGR = 26%

CAGR = 23%

MGTS Alternative operators Inter-company eliminations* Excluding US$ 62.1 million non-recurring stock bonus awards

OIBDA

By 2011 revenue growth will be driven by the development of broadband fixed-line services to residential and corporate users

5


Markets with Still Low Penetration Levels

94,6%86,3%

78,3% 75,8%

57,6% 54,3%58,7%

Moscow WEAverage

Hungary Poland Ukraine Russia CzechRepublic

39,4%

25,6%

16,7% 16,7% 15,2%

0,8%3,5%

WEAverage

Moscow Hungary Poland CzechRepublic

Russia Ukraine

Fixed Voice Penetration (2006)

Broadband Penetration (2006)

PC Penetration (2006)

Source: Company data, Pyramid Research, stats agencies, Direct INFONote: Penetration in all charts calculated as % of households

Internet Penetration (2006)

74,6% 69,0%

43,7%35,0%

16,4%7,8%

21,1%

WEAverage

Moscow CzechRepublic

Hungary Poland Russia Ukraine

59,6%54,6% 51,3%

41,1% 40,6%

6,2%12,8%

CzechRepublic

WEAverage

Poland Hungary Moscow Russia Ukraine

6


Strategic Objectives

“Creating a World Class Integrated Full Service Telecommunications Provider& the Pan-Russian Wire-line Champion”

● Leveraging incumbent infrastructure & unique last mile access through network upgrade & co-marketing

● Increasing broadband market share & ARPU through subscriber acquisition & expanded service offering

● Driving regional and CIS expansion through cooperation and acquisition

● Unlocking operational potential by enhancing efficiency levels through integration, restructuring & extracting synergies

● Simplifying structure by streamlining management & eliminating cross holdings & minority interests

● Capitalising on Svyazinvest stake as a financial investment and through participation in privatization

7


Leveraging Incumbent Infrastructure & ‘Last Mile’ Access

0

1

2

3

4

5

6

7

8

1999 2000 2001 2001 2002 2002 2003 2003 2004 2005 2006

June 30, 2007

Time-based tariff plan

(RU 125 + RU 0.28 per minute) 26%

Combined tariff plan

(RU 229 for 370 minutes then RU 0.23 per minute)

22%

Unlimited time tariff plan

(RU 380 per month)52%

Growth in Regulated Tariffs (US$)• MGTS IS the infrastructure provider:

• network development & modernization

• network support

• Management by processes

• Strategic activities will be transferred to Comstar

• Significant headcount reduction

• Growing number of lines per employee and productivity

• Control over the split of subscriber base between three tariff plans- client oriented approach

• Refocused investment program

• Selective modernization of the last mile (FTTx) will lead to increased speeds for premium clients and increased capacity

• Digitalization: 45% of lines are digital at the end of the 1H2007 - transition to Next Generation Network, financed by disposal of freed up real estate, is a technological necessity, will decrease opex & capex per line

8


Moscow’s Leading Alternative Network Solution Provider for Corporate Clients

• Services to large and medium-sized clients

•Individual approach

•Introduction of standards for VIP clients

•Addition of long-distance services to provide full-scale of integrated services

•VPNs for clients with regional branches

•Cross sell of Comstar-Moscow services to MGTS corporate client special tariffs

• Services to Small and Medium Enterprizes

•Bundled products

•Development of sales channels

•Active promotion

• Services to developers

•Multi-service solutions for business-centers

•Segmentation of client base (Comstar-Moscow- premium & business segment, MGTS & Comstar-Direct- low segment, large-scale development

Rostelecom, 11%

Golden Telecom, 19%

Comstar-UTS, 19%

Sinterra, 5%

Equant, 3%

Other (>400), 44%

Moscow Corporate Market, 2006 (US$)

Bundle of services, coordination of tariff policy and marketing initiatives will lead to an increase in ARPU & client base, decrease in churn outside the Group

Source: Direct INFO, in terms of sales

9


16%26%

73%

8% 12%

44%

0%

20%

40%

60%

80%

2005 2006 2011E

Broadband Penetration Pay-TV Penetration

Increasing Broadband Market Share & ARPU

493.2

343.7

11004.4

102.5249.5

360426

70

182.4

1500

-100

100

300

500

700

900

1100

1300

1500

2003 2004 2005 2006 2Q2007 2011

• #1 provider with 33% market share in Moscow• Objective of >50% market share in Moscow by 2011 • > 90% of MGTS lines are ADSL compatible• 42% year on year growth in customer base• 23% double play penetration

• Measures to boost broadband net adds

• Enhancing sales channels:•Optimization of sales channels•Direct marketing/sales to MGTS subscribers

• Investing into future development:•‘Fibre to the Curb/Home’, WiFi, WiMax initiatives

• Client orientation•Call center capacity > doubled, IVR

(‘000s)

Source: Company data, Direct INFO, Pyramid ResearchNote: CAGR represents growth in projected users. Penetration calculated as % of households

Moscow Broadband & Pay-TV Penetration

Comstar Direct Residential Subscribers

Moscow Residential Broadband Market, 2Q2007

Total: 1.3 mn subs

426 thousand subs

Broadband

Dial up

AKADO; 10%

Golden Telecom; 17%

Qwerty (Centel); 8%

Others; 32% Comstar UTS; 33%

10


Driving Regional Expansion

Comstar- UTS34%

SCTN12%

Renet Com10%

Others24%

Volgatrans telecom

20%

• Development of operating clusters around regional branches through

• M&A targeting leading regional CLECs to complement Svyazinvest presence and increase footprint

• Cooperation with sister companies

• Upside of engagement in Svyazinvest privatisation process

Saratov region alternative fixed-line market**

Ygratel-Surguttel18%

Others44%

RTC9%

Seversvyaz3%

Comstar- UTS24%

Komintel2%

Tyumen region alternative fixed-line market**

**Source: Direct INFO, in terms of sales, 2006

Sochi alternative fixed-line market*

Comstar-UTS, 68%

Golden Telecom, 31%

Other, 1%

*Source: Сomstar-UTS estimates, in terms of sales, 2007. excl. ILECs and Transtelecom

Current presence of Comstar-UTS

• Tyumen region

• Saratov region

• Volga region

• South region

• Saint Petersburg

• Armenia

• Ukraine

11


Unlocking Operational Potential● Digitalization of MGTS network - transition to Next Generation Network, financed by disposal

of freed up real estate, is a technological necessity, will decrease opex & capex per line● Optimization of the Group’s structure- separating core functions from non-telecom-related,

reduction in headcount ● Outsourcing of non-core functions● Management by processes● Integration of newly acquired operations & expansion of margins

161719

3

100%

41%31%22%0

5

10

15

20

31/12/04 31/12/05 31/12/06 31/12/11

0%20%40%60%80%100%

employees % of lines digitalized

Number of MGTS Employees

(‘000s)

Lines / Employees

Source: Deutsche UFG

12


Simplifying Organizational Structure

JSC Sistema• Setting KPIs & overseeing execution

• Assisting with M&A / negotiations

Board of Directors

9 Members

3 non-executive independent Directors

Audit Committee

Remuneration & Nomination Committee

Strategy Committee

Corporate Governance Committee

Management Board

MGTS

Budget & Investment Committee

Technical 띸mmitteeٲ

Tariffs CommitteePurchasing Committee

51% Ownership

Free Float incl. GDRs

14% Ownership35% Ownership

Shareholder Meeting

13


Simplifying Ownership Structure

51%

52%

48%

Other

14%

Free float

35%

Regional branches & subsidiaries

56%

23%

17.3%

21%

Now

7.7%

Objective

• Elimination of cross ownership between MGTS and Comstar

• Consolidation of MGTS minorities

• Integration of Comstar Direct

• Participation in restructuring / privatization of Svyazinvest

14


Capitalizing on Svyazinvest Investment

Svyazinvest companies: Center Telecom North-West Telecom Uralsvyazinform VolgaTelecom SibirTelecom South Telecom Far East Telecom Rostelecom

• 25% plus one share stake acquired for US$ 1.3 billion in December 2006

- Comstar acquired 17.3% & MGTS Finance acquired 7.7%

• Call (by December 2007) and put (2 year) option agreement with seller for 11% of Comstar shares currently held by MGTS Finance

• Represented by 2 seats on Board of Directors

• Successful financial investment with >50% increase in combined market cap of listed assets from US$ 5.8 billion in December 2006 to US$ 8.8 billion in July 2007

• Upside option as Strategic Player in privatization process

+28% economic interest / 23% voting interest in MGTS

2006 highlights

•Revenue US$ 7.7 billion

•EBITDA US$ 2.3 billion

•Net income US$ 0.2 billion

•Employees 273.4 thousand

15


Combining Growth & Profitability

Source: Company reports

Comstar

Magyar

FastwebLiberty Global

Telenet

Tele2

Telefonica O2 CZOTE

Golden Telecom

TP

Comcast

Cable & Wireless

Eesti Telecom

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

2006 Sales Growth

20

06

EB

ITD

A M

arg

in

16


The Investment Opportunity

Comstar Market Cap

21.6% of Svyazinvest

USD 4.26 billion

Comstar Market Cap ex

Svyazinvest

Comstar

EV

USD 1.79 billion

USD 2.48 billion

USD 3.15 billion

EV/EBITDA 20071 5.2x

Valuation at ILEC

Multiples

USD 3.66 billion

EV/EBITDA 2007 6.0x

¹Source: Consensus (Morgan Stanley, URALSIB, Goldman Sachs, Deutsche UFG, Troika Dialog, Aton Capital, Alfa Bank, ING, Renaissance Capital, DrKW, Credit Suisse, FIM)

All data as at 07 September 2007

Valuation at BroadbandMultiples

USD 5.36 billion

EV/EBITDA 2007 8.8x

Valuation at Altnet

Multiples

USD 5.18 billion

EV/EBITDA 2007 8.5x

17


Investment Case

● Scale player with market leading positions & track record of balancing growth & profitability - > US$ 1.1 billion revenue fixed-line operator with > 20% revenue growth & ~ 40% OIBDA margin

● Well positioned convergence play on incumbent infrastructure, alt net development & increasing broadband penetration in high growth markets

● Expanding service offering & geographical footprint

● Substantial synergies and efficiency gains to be extracted from integration of the companies of the Group

● Simplification of structure unlocks significant value

● Upside potential from:

- Buying out minorities in key assets (MGTS, Comstar Direct)

- Svyazinvest privatisation

- Addition of LD service to corporate service package

- Realisation of property portfolio

18


Summary Financials

19


Income Statement

Half Year Highlights● 32% year on year revenue growth ● 42.9% OIBDA margin● US$ 14.5 million change in fair value of call and put option

(US$ Million) 2004 2005 2006 1H2006 1H2007

Revenues 695,1 907,6 1 120,2 536,4 708,0Y-o-Y Growth 18,0% 30,6% 23,4% 27,9% 32,0%

OIBDA (excl. Stock Bonus Awards) 249,9 358,8 428,6 217,3 303,6Margin 35,9% 39,5% 38,3% 40,5% 42,9%

Operating Income (excl. Stock Bonus Awards) 173,7 268,4 297,7 163,5 228,5Margin 25,0% 29,6% 26,6% 30,5% 32,3%

Net Income (excl. Stock Bonus Awards and change in fair value of call and put option less minority share)

76,1 105,9 178,1 97,4 75,3

Margin 11,0% 11,7% 15,9% 18,2% 10,6%

Capex 228,5 232,3 316,1 135,0 148,1% of Revenues 32,9% 25,6% 28,2% 25,2% 20,9%

20


Q2 2007 Results

(US$ Million)Q2 2007 Q2 2006

Growth (Year on Year)

Q1 2007Growth

(Quarter on Quarter)

1H 2007 1H 2006Growth

(Year on Year)

Revenues 379,2 286,6 32% 328,9 15% 708,0 536,4 32%

OIBDA 173,2 115,0 51% 130,4 33% 303,6 217,3 40%

Margin 45,7% 40,1% 39,6% 42,9% 40,5%

Operating Profit 135,7 88,1 54% 92,8 46% 228,5 163,5 40%

Margin 35,8% 30,8% 28,2% 32,3% 30,5%

Net income before non-comparable items

39,2 58,2 -33% 36,1 8% 75,3 97,4 -23%

Margin 10,3% 20,3% 11,0% 10,6% 18,2%

Change in fair value of call and put option less minority share

-22,0 - 7,5 -14,5 -

Net income 17,2 58,2 -71% 43,7 -61% 60,8 97,4 -38%Earnings per share - basic and diluted (US$)

$0,05 $0,16 $0,12 $0,17 $0,29

Cash flow from operations 112,4 79,6 41% 89,1 26% 201,5 158,8 27%

Total CAPEX 68,5 82,2 -17% 79,6 -14% 148,1 135 10%

CAPEX as % of revenue 18,1% 28,7% 24,2% 20,9% 25,2%

Total Assets 3 762,5 2 745,9 37% 3 671,5 2% 3 762,5 2 745,9 37%

21


Segmental Breakdown

* Excluding US$ 62.1 million Stock Bonus Awards

Revenue (US$ Million) Q1 2006 Q2 2006 Q3 2006 Q4 2006* FY 2006 Q1 2007 Q2 2007

MGTS 175,6 209,7 208,4 208,4 802,2 247,3 291,4

Comstar Moscow 62,4 67,9 68,6 64,6 263,4 65,0 70,1

Comstar Direct 30,4 32,4 32,9 34,3 130,0 37,2 38,9

Comstar Regions & International 7,5 7,0 8,2 16,6 39,2 11,6 11,6

Intersegment Sales -26,1 -30,4 -26,3 -31,8 -114,6 -32,2 -32,8

Total Revenue, net of intersegment transactions

249,8 286,6 291,8 292,1 1120,2 328,9 379,2

OIBDA (US$ Million)

MGTS 82,9 101,8 87,3 84,1 356,0 114,4 151,1

Comstar - Moscow 14,2 13,0 19,1 9,2 55,5 12,5 13,5

Comstar - Direct 4,9 1,0 6,8 6,5 19,2 4,6 9,0

Comstar - Regions & International 1,3 1,4 1,7 -0,4 4,0 0,7 1,4

Effect of eliminations and other consolidations adjustments

-1,0 -2,1 -1,0 -2,0 -6,1 -1,8 -1,8

Total OIBDA 102,3 115,0 113,9 97,4 428,6 130,4 173,2

22


Cash Flow Statement

(US$ Million) 2004 2005 2006 1H2007

Net cash provided by operations 225,2 271,2 288,7 201,5

Net cash used in investing activities -187,2 -255,2 -1 767,0 -165,6

Net cash provided by / (used in) financing activities -19,5 -20,3 1 550,9 -24,9

Effects of foreign currency translation of cash and cash equivalents

2,0 -1,0 2,0 0,6

Cash and cash equivalents at the beginning of the period 47,0 67,4 62,0 136,6

Cash and cash equivalents at the end of the period 67,4 62,0 136,6 148,2

23


Balance Sheet

Half Year Highlights

● US$ 675 million 6 month loan facility arranged in December 2006 with ABN AMRO Bank N.V.● Refinanced in June 2007 with 5 year RUR 26 billion credit facility from Sberbank● Total debt of US$ 823.5 million● Net debt of US$ 675.3 million

(US$ Million) 2004 2005 2006 1H2007

Assets 1 418,4 1 641,4 3 537,6 3 762,5

Current Assets 335,6 405,2 445,1 574,2

Long-term assets 1 082,8 1 236,2 3 092,5 3 188,3

Liabilities 586,4 645,8 1 470,6 1 573,1

Current Liabilities 223,2 274,4 1 140,9 543,6

Long-term liabilities 363,2 371,4 329,7 1 029,5

Minority Interests 450,6 516,1 496,7 530,0

Shareholder's equity 381,4 479,5 1 570,2 1 659,5

24


Contacts

For additional information please visit

www.comstar-uts.com

or contact Masha Eliseeva

Head of Investor Relations

Phone: +7 985 997 08 52

E-mail: [email protected]

Corporate presentation September 2007. Corporate presentation September 2007 2 Comstar at a Glance ...

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