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03
Nov

MTS Wins Net Additions in Moscow while Vimpelcom Takes Regions

For the past several years October and November cellular sales in Russia were slow with following significant rebound in December. October 2004 wasn't an exception. Net sales decreased 20% to 2.7 mln compared to September results. The present trend, whereas the net sales are expected to remain flat in November and almost double in December, will bring the total number of Russian cellular users to 70 mln by the end of 2004.

We estimate the cellular services penetration in Russia at 42.5% as of October 31, 2004 - 20.6% increase y-o-y and 17.6% since the beginning of 2004.

Russian Mobile Subscribers

Mobile Subscribers October 31, 2004 September 30, 2004
Total Russia 61,770,000 59,040,000
  Penetration 42.5% 40.7%
Moscow 15,105,908 14,852,613
  Penetration 88.9% 87.4%
St.Petersburg 5,170,722 5,028,259
  Penetration 81.6% 79.3%
Subscribers outside Moscow and St.Pete 41,493,370 39,159,128
  Penetration 34.1% 32.1%
Russian Cellular
Market Breakdown, October 2004
Russian Net Additions,
October 2004

Top 10 Mobile Operators

# Company October 31, 2004 September 30, 2004
1 MTS 28,835,000 27,600,000
Moscow
6,830,000 6,700,000
Ukraine (UMC)
5,894,000 5,530,000
Belarus
1,041,000 970,000
Uzbekistan
264,000 260,000
2 Vimpelcom 21,580,000 20,550,000
Moscow
6,695,000 6,645,000
Kazakhstan
702,000 676,500
3 MegaFon 12,155,280 11,487,353
Moscow
1,514,166 1,448,832
Tajikistan
34,700 28,000
4 Uralsvyazinform 1,867,200 1,778,000
5 SMARTS Group 1,647,000 1,600,400
6 Sibirtelecom 782,700 759,800
7 N.Novgorod Cellular 554,388 523,300
8 Ekaterinburg Cellular Communications 336,185 326,713
9 New Telephone Company 224,450 211,605
10 Skylink 186,600 182,000

Moscow and St.Petersburg

Moscow License Area

The number of cellular customers in Moscow passed 15 million milestone! MTS was the leader in the net sales race in the capital attracting more than 50% of net additions. MegaFon was runner-up, while Vimpelcom showed modest results, mainly due to the company's strict churn policy (4 months) aimed to "clean up" inactive subscribers. Cellular penetration in Moscow will break 90% already in November.

Moscow Market Breakdown
October 31, 2004

Net Additions in Moscow,
October 2004

St.Petersburg and Leningrad Region

MegaFon signed the largest number of subscribers in St.Petersburg among competition, while for the 3rd month in a row Vimpelcom was the leader in overall net additions

St. Petersburg Market Breakdown
October 31, 2004
Net Additions in St.Petersburg
October 2004
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07
Oct

Russia Reaches 40% Penetration

The total number of cellular subscribers in Russia reached 59 mln as of September 30, 2004, which is a record monthly increase of 3.4 mln users. Total of 22.8 mln subscribers joined Russian cellular networks this year. Current mobile services penetration in the country is at 41% while it was only 25% in December 2003 and 21% in September 2003.

Russian Mobile Subscribers

Mobile Subscribers September 30, 2004 August 31, 2004
Total Russia 59,040,000 55,630,000
  Penetration 40.7% 38.3%
Moscow 14,852,613 14,333,793
  Penetration 87.4% 84.4%
St.Petersburg 5,028,259 4,830,395
  Penetration 79.3% 76.2%
Subscribers outside Moscow and St.Pete 39,159,128 36,465,812
  Penetration 32.1% 29.9%

MTS has the largest market share in Russia, though Vimpelcom is catching up agressively, mainly thanks to successful sales in regions. Vimpelcom has the largest number of regional networks in operation - 72 compared to 63 of MTS (excluding CIS subsidiaries) and 69 of MegaFon.

Russian Cellular
Market Breakdown, September 2004
Russian Net Additions,
September 2004
Top 10 Mobile Operators
# Company September 30, 2004 August 31, 2004
1 MTS 27,600,000 26,440,000
Moscow
6,700,000 6,535,000
Ukraine (UMC)
5,530,000 5,267,000
Belarus
970,000 895,150
Uzbekistan
260,000 244,200
2 Vimpelcom 20,550,000 18,470,000
Moscow
6,645,000 6,430,000
Kazakhstan
676,500 647,000
3 MegaFon 11,487,353 10,508,263
Moscow
1,448,832 1,312,901
Tajikistan
28,000 26,593
4 Uralsvyazinform 1,778,000 1,709,000
5 SMARTS Group 1,600,400 1,555,000
6 Sibirtelecom 759,800 735,100
7 N.Novgorod Cellular 523,300 503,720
8 Ekaterinburg Cellular Communications 326,713 315,840
9 New Telephone Company 211,605 180,920
10 Skylink 182,000 180,100

Moscow and St.Petersburg

Moscow License Area

Despite the overall subscriber increase in Russia in September compared to August, net adds in Moscow, the Russia's largest market, decreased slightly. We believe one of the reasons for that is that more and more families purchase mobile phones for their children in August, before the start of the school year, thus accelerating August sales to a more than usual level.

Moscow Market Breakdown
September 30, 2004

Note: Skylink's (MCC) market share is less than 0.5% as of September 2004
Net Additions in Moscow,
September 2004

St.Petersburg and Leningrad Region

St.Petersburg market demonstrated impressive growth. In our view that was mainly thanks to the resolution of the Vimpelcom's numbering capacity problem which ceased the market development for the company in August. In September Vimpelcom outperformed competitors in St.Pete attracting more than 75 thsd new users.

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

Beyond Russia

Vimpelcom finalised the acquistion of KaR-Tel (K-mobile), 2nd largest operator in Kazakhstan. That brought 670,000 subscribers in to Vimpelcom portfolio.

MTS' unconsolidated subsidiary in Belarus became the market leader in September. The company started operations in the country in June 2002 while its major rival, GSM operator Velcom, works since April 1999. MTS was a leader in terms of net additions for last 17 months in a row (!) and finally won the largest market share.

Operations of MTS' daughter company in Ukraine (UMC) have also been quite impressive. Monthly net adds were above 200,000 for last 6 months and the company has been outperforming its major competitor, Telenor-controlled, Kyivstar for 9 months in terms of net adds.

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13
Sep

Mobile Sales Soar in August

Despite the traditional August slowdown in mobile sales observed in previous years, the last summer month of 2004 brought as many as 3.1 mln new subscribers, outperforming record July 2004 sales. The subscriber net additions were also 1.5 mln (!) higher than a year ago. Penetraton in the country is growing steadily. According to our estimates it has reached 38.3% as of August 31, 2004 (36.2% in July 2004 and 19.6% in August 2003).

Russian Mobile Subscribers

Mobile Subscribers August 31, 2004 July 31, 2004
Total Russia 55,630,000 52,520,000
  Penetration 38.3% 36.2%
Moscow 14,333,793 13,759,384
  Penetration 84.4% 81.0%
St.Petersburg 4,830,395 4,684,195
  Penetration 76.2% 73.9%
Subscribers outside Moscow and St.Pete 36,465,812 34,076,421
  Penetration 29.9% 28.0%

Vimpelcom revs up sales both in Moscow and in the regions encouraged by the resolution of the numbering capacity problem. MTS keeps leading positions in the Moscow License Area. Impressive net adds in Moscow demonstrated by MegaFon should be attributed to introduction of a new tariff whereby customers are being charged for connection only rather than actual air-time used.

Russian Cellular
Market Breakdown, August 2004
Russian Net Additions,
August 2004
Top 10 Mobile Operators
# Company August 31, 2004 July 31, 2004
1 MTS 26,440,000 24,937,500
Moscow
6,535,000 6,350,000
Ukraine (UMC)
5,267,000 4,960,000
Belarus
895,150 817,500
Uzbekistan
244,200 230,000
2 Vimpelcom 18,470,000 17,300,000
Moscow
6,430,000 6,204,000
3 MegaFon 10,508,263 9,758,995
Moscow
1,312,901 1,145,484
Tajikistan
26,593 25,300
4 Uralsvyazinform 1,709,000 1,617,500
5 SMARTS Group 1,555,000 1,491,000
6 Sibirtelecom 735,100 710,175
7 N.Novgorod Cellular 503,720 453,000
8 Ekaterinburg Cellular Communications 315,840 304,906
9 New Telephone Company 180,920 203,543
10 Skylink 180,100 178,100

Moscow and St.Petersburg

Moscow License Area

Moscow Market Breakdown
August 31, 2004
Net Additions in Moscow,
August 2004

St.Petersburg and Leningrad Region

So far Vimpelcom failed to fully capitalise on additional numbering capacity in St.Petersburg. The operator increased the churn in order to free numbers for new customers, while MTS and MegaFon performed quite well in the city, signing 45 thsd and 70 thsd net additional subscribers respectively.

St. Petersburg Market Breakdown
August 31, 2004
Net Additions in St.Petersburg
August 2004

Beyond Russia

Steady cellular growth is observed in the rest of CIS markets where cellular boom either just started or is to start within the next 6 to 12 months.

Vimpelcom has won the tender for the 2nd largest Kazakhstan operator KaR-Tel . The acquisition deal is to be closed shortly and probably already in September we will add KaR-Tel subscribers to Vimpelcom statistics. That will bring 600+ thsd users under Vimpelcom umbrella.

MTS is about to outnumber its major competitor Velcom in Belarus. MTS has been leading in net additions since April 2003 and finished August with 48% market share. The difference between the two market leaders is just 5,000 subscribers (Velcom had 900 thsd subscribers at the end of August according to Mforum.ru). The remaining 4% of the market is being held by BelCel - NMT/CDMA-450 operator in Belarus. The announcement of the tender results for the 3rd GSM national license may also give a new momentum to the cellular market development in the Republic.

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05
Aug

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
Moscow
6,350,000 6,120,000
Ukraine (UMC)
4,960,000 4,634,000
Belarus
817,500 744,700
2 Vimpelcom 17,300,000 16,300,000
Moscow
6,204,000 6,183,000
3 MegaFon 9,758,995 9,046,320
Moscow
1,145,484 1,035,405
Tajikistan
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
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07
Jul

50 mln Cellular Subscribers? Not yet...

Subscriber additions totaled 2.6 mln in June bringing the number of cellular users to 49.5 mln. The country's penetration stands at 34% - twice as high compared to June 2003.

Penetration in Moscow increased to 79% mainly thanks to aggressive sales by MTS that enlisted about 270,000 new subscribers. MegaFon signed up 23,000 customers in Moscow while Vimpelcom for the first time in its history recorded negative (!) subscriber additions in Moscow region due to the numbering capacity constraints well predicted by the company's management.

MTS also posted impressive growth in St.Petersburg getting the largest stake of net adds while Vimpelcom signed the largest number of customers in the regions outside Moscow and St.Pete.

Russian Mobile Subscribers

Mobile Subscribers June 30, 2004 May 31, 2004
Russia 49,470,000 46,890,000
  Penetration 34.1% 32.3%
Moscow 13,397,720 13,138,560
  Penetration 78.9% 77.4%
St.Petersburg 4,425,304 4,243,854
  Penetration 69.8% 66.9%
Russian Cellular
Market Breakdown, June 2004
Russian Net Additions,
June 2004

In June Vimpelcom entered Far Eastern market, the only Russian macro-region where it had no operations, after closing the long-anticipated acquisition of Dal Telecom International. We included DTI's subscribers (322,000 as of June 30, 2004) in Vimpelcom's numbers presented below. DTI acqusition combined with greenfield rollout made Vimpelcom the leader in terms of regional expansion - it has networks in 66 regions as of 7 June 2004 (MTS has 65 and MegaFon has 63).

The position of DTI in our Top 10 is now taken by Skylink - a new holding company with ambitious plans to build pan-Russian CDMA-2000 network in 450 MHz band. So far we have included Moscow (MCC) and St.Petersburg (Delta Telecom) NMT and CDMA operations in Skylink results but plan to expand the list as the holding consolidates other companies under Skylink umbrella. At the moment only MCC and Delta operate under Skylink brand; Uralwestcom (Ekaterinburg) and SONET (Moscow) are to be merged into Skylink shortly.

MTS signed an agreement with Dalsvyaz (PSTN incumbent operator) to purchase 50% of Primtelefon, GSM license holder for the Far East area where MTS already owns 50% stake. With this move MTS decreased its Russian unconsolidated subscribers from 200,000 to only 11,000. Remaining unconsolidated companies are Volgograd Mobile and Astrakhan Mobile. MTS holds 50% in both operators.

Top 10 Mobile Operators

# Company June 30, 2004 May 31, 2004
1 MTS 23,534,000 22,180,400
Moscow
6,120,000 5,850,000
Ukraine (UMC)
4,634,000 4,360,000
Belarus
744,700 688,800
2 Vimpelcom 16,300,000 15,053,000
Moscow
6,183,000 6,185,000
3 MegaFon 9,046,320 8,592,155
Moscow
1,035,405 1,012,560
Tajikistan
24,180 23,100
4 Uralsvyazinform 1,492,600 1,457,600
5 SMARTS Group 1,410,000 1,346,000
6 Sibirtelecom 677,800 662,800
7 N.Novgorod Cellular 451,834 445,636
8 Ekaterinburg Cellular Communications 294,231 285,052
9 Skylink 183,550 180,700
10 New Telephone Company 160,886 160,915

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
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03
Jun

May Heats Up Summer Sales

Total number of subscriber increased by 2.47 mln to 46.89 mln users as of May 31, 2004. Cellular penetration grew 1.7% in May to 32.3%. The results are slightly better than in April when total net sales accounted for 2.12 mln, which is hardly surprising as May is known for summer season wake-up sales.

One year ago (in May 2003) there was a 1.27 mln subscriber increase with penetration in Russia of 16.2%.

MTS was by far number one in the subscriber additions race in Moscow, while MegaFon managed to gain the net sales leadership in St.Petersburg. Vimpelcom was best seller in regions. As of May 31, 2004 cellular penetration in Moscow was at 77.4%, St.Petersburg - 66.9% and the rest of Russia - 24.2%.

Russian Mobile Subscribers

Mobile Subscribers May 31, 2004 Apr 30, 2004
Russia 46,890,000 44,420,000
  Penetration 32.3% 30.6%
Moscow 13,138,560 12,813,564
  Penetration 77.4% 75.4%
St.Petersburg 4,243,854 4,066,771
  Penetration 66.9% 64.1%
Russian Cellular
Market Breakdown, May 2004
Russian Net Additions,
May 2004
Top 10 Mobile Operators
# Company May 31, 2004 April 30, 2004
1 MTS 22,180,400 21,000,514
Moscow
5,850,000 5,605,849
Ukraine (UMC)
4,360,000 4,103,798
Belarus
688,800 636,000
2 Vimpelcom 15,053,000 14,125,000
Moscow
6,220,000 6,150,000
3 MegaFon 8,592,155 8,128,165
Moscow
1,012,560 1,002,315
Tajikistan
25,800 22,297
4 Uralsvyazinform 1,457,600 1,395,389
5 SMARTS Group 1,346,000 1,317,000
6 Sibirtelecom 662,800 604,700
7 N.Novgorod Cellular 445,636 437,798
8 Dal Telecom International 295,713 276,448
9 Ekaterinburg Cellular Communications 285,052 276,189
10 New Telephone Company 160,915 160,714

Moscow and St.Petersburg

Moscow License Area

Moscow Market Breakdown
May 31, 2004
Net Additions in Moscow,
May 2004

St.Petersburg and Leningrad Region

St. Petersburg Market Breakdown
May 31, 2004
Net Additions in St.Petersburg
May 2004