New Record Set in July 2004

Cellular subscriptions soared in July setting new net additions record. Subscriber additions totaled 3.05 mln, 16.3 mln YTD increase or 25.64 mln growth (95%) from July 2003. Total number of cellular customers in the country reached almost 53 mln. Russian cellular penetration stood at 36.2% as of 31 July 2004 (18.5% in July 2003).

Moscow alone brought 360k new customers or 12% of the overall Russian additions. Vimpelcom adopted a stricter churn policy in the Moscow License Area. The company reduced deactivation period of inactive (with zero balance) subscribers from 5 to 4 months, which resulted in modest net additions for the second month in a row. MTS attracted over 230k new customers in July and returned the leadership in Moscow that was lost to Vimpelcom back in January 2002. MegaFon signed up more than 110k net new users - record high result for the company on the Moscow market.

Vimpelcom was the leader in St Petersburg net sales, and attracted the largest number of subscribers in other regions (outside Moscow and St.Petersburg). MegaFon outperfomed our expectations and is to reach 10 mln subscribers already in August.

Russian Mobile Subscribers

Mobile Subscribers July 31, 2004 June 30, 2004
Russia 52,520,000 49,470,000
  Penetration 36.2% 34.1%
Moscow 13,759,384 13,397,720
  Penetration 81.0% 78.9%
St.Petersburg 4,684,195 4,425,304
  Penetration 73.9% 69.8%
Russian Cellular
Market Breakdown, July 2004
Russian Net Additions,
July 2004

Beyond Russia

On 16 July 2004 MTS announced an acquisition of Uzdunrobita - leading GSM/AMPS operator of Uzbekistan. The deal was closed on August 2, 2004 and we plan to start consolidation of Uzdunrobita's subsciber numbers in MTS starting August 2004. Currently Uzdunrobita serves around 224,000 subscribers.

Very tough net additions race has been observed in Ukraine. So far MTS (UMC) leads the market with Kyivstar following it closely. The competition may intensify further as DCC and WellCOM roll-out nation-wide networks and get into the hunt for low-budget customers.

In Belarus MTS is close to win the leadership from the incumbent GSM operator - Velcom. MTS started providing service in Belarus in June 2002. Acceleration of cellular development in the country is also expected after the 3rd GSM player comes into arena (based on the tender that is currently under way). However, the majority of CIS contries are still lagging far behind Russia both in terms of the growth rates and penetration levels.

Put together all CIS cellular players had ~65 mln (including Russia) customers as of 30 June 2004 with Russia and Ukraine serving 76% and 13% subscribers respectively.

Top 10 Mobile Operators

# Company July 31, 2004 June 30, 2004
1 MTS 24,937,500 23,534,000
6,350,000 6,120,000
Ukraine (UMC)
4,960,000 4,634,000
817,500 744,700
2 Vimpelcom 17,300,000 16,300,000
6,204,000 6,183,000
3 MegaFon 9,758,995 9,046,320
1,145,484 1,035,405
25,300 24,180
4 Uralsvyazinform 1,617,500 1,492,600
5 SMARTS Group 1,491,000 1,410,000
6 Sibirtelecom 710,175 677,800
7 N.Novgorod Cellular 453,000 451,834
8 Ekaterinburg Cellular Communications 304,906 294,231
9 Skylink 184,000 183,550
10 New Telephone Company 180,920 160,886

Moscow and St.Petersburg

Moscow License Area

Moscow Market Breakdown
June 30, 2004
Net Additions in Moscow,
June 2004

St.Petersburg and Leningrad Region

St. Petersburg Market Breakdown
June 30, 2004
Net Additions in St.Petersburg
June 2004