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8. Company Results for 2010

8. Company Results
for 2010

Russia

Turkmenistan

Ukraine

Armenia

Uzbekistan

T

he mobile communications market in Russia has been developing at a very high rate for a long time. The rapid development was stimulated by the continuous expansion of target segments and by involvement of wider sections of population as well as by the decrease of price levels both for services and terminal equipment. A trend for a slower customer base growth in mobile networks was first revealed in 2005 and continued in the subsequent years.

The slowdown of customer base growth rates may be connected with gradual market saturation and operators' focus on the "quality" of the customer base. Therefore, marketing efforts of operators shift from the acquisition of new customers to ensuring customer loyalty, enhancing the profitability of existing customers and acquisition of customers from competitor companies.

According to 2010 results, the level of mobile penetration reached 151.0% and this places Russia among the most developed global telecommunication markets. As one of the leading players in the Russian and CIS telecommunications market MTS strives to use the existing growth potential in all industry segments that demonstrate the most dynamic development.

In mobile telephony that is the Company's traditional segment of business the most important growth factors are the growth of the total use of telecom services and a more active use of high-revenue VAS. As main instruments for leveraging the consumption MTS uses targeted tariff offers and a wide range of VAS. Some markets of the Company's presence still have a potential for organic growth due to the increase of customer base size and in this respect MTS concentrates on gaining leadership in the acquisition of new customers. MTS OJSC intends to strengthen its position by taking an advantage and through further consolidation of factors that define operator's competitiveness in the market. The following factors shall be specified as major factors of MTS OJSC competitiveness in the segment of mobile telephony: network coverage and internal network roaming, traditional high quality of communication services, competitive tariff offers that take into account customer needs, a wide range of VAS.

In 2009 MTS OJSC purchased the controlling stock of one of the leading fixed operators, COMSTAR-UTS OJSC, and backbone network provider Eurotel OJSC, thus having got an opportunity to provide data services based on wire and wireless technologies.

A high-quality growth in the use of mobile data services will be based on the further development of MTS 3G network which is in service in all federal districts of Russia, in Uzbekistan, Armenia, Belarus and Turkmenistan.

Moreover, MTS OJSC is actively extending its own chain of sales and customer care offices that continue to sell the Company's own unique products and services and provide high-quality customer care and this has a positive effect on the MTS brand awareness.

All these factors allow the Company to increase gradually its revenue both due the growth of customer base and due to more intensive use of services.

In addition to the above, the Company monitors opportunities of inorganic growth both in the markets of presence and beyond. MTS OJSC has an adequate experience in the integration of acquired companies that allows to incorporate them effectively into the business structure and to gain a positive economic effect in the quickest possible way.

Dynamics of the Group's Customer Base Growth






rus

Russia

T

he Russian telecommunications market is characterized by rapid growth of customer base and revenues. According to AC&M data, at the end of 2010 the penetration (in SIM cards) was 151.0% or 219.3 million customers. The highest penetration levels were observed in Moscow and St. Petersburg where they exceeded 201.1% and 203.3%, respectively.

According to AC&M data, MTS' share in customer base in Moscow is 38.6%, in St. Petersburgጠ31.0% and in Russia as a wholeጠ32.6%.

To retain its lead in the market the Company continuously strives to provide customers not only with high-quality services, but also with the cheapest tariff plans, to boost at the same time the quality of service, to extend the network coverage and upgrade the customer care level.

We also need to emphasize the prospects opened to the Company by its own monobrand retail network whose active deployment in Russia took place in 2009ľ2011. Availability of own distribution channels allows to increase the number of subscriptions, monitor their quality and reduce the churn.

Russia mobile operating indicators




Russia mobile operating indicators

* Does not include revenue from SMS and data bundles, which is included in airtime revenue.




uk

Ukraine

R

eduction of customer growth rates in the Ukrainian telecommunications market is related to the gradual saturation of the market and the operators' focus on the customer base "quality". According to ACM Consulting, at the end of 2010 the service penetration in the country was 118.1% or 54.1 million customers. MTS OJSC had 18.2 million customers or 33.7% of the market in the Ukraine as of the year end. The number of customers of Kievstar, MTS main competitor, at the end of the year was 24.4 million. It should be noted that MTS OJSC gap with the market leader in 2010 increased by 1,691 thousand customers due to the merger of Kievstar and Beeline. Retaining the leading positions in terms of customer acquisition is also a positive result of MTS OJSC operations in the Ukrainian market.

MTS OJSC provides and actively improves MTS Connect 3G services based on CDMA 2000 1x EVDO Rev. In April 2010, launched a service for subscribers of MTS Connect PrP. A technology and offers to its customers a high-speed Internet access. In addition to that, to improve its own position in the market, the Company continues the implementation of the program aimed at the regional customization of tariff plans that will be tailored as close as possible to customer profiles in certain territories.

The Company provides GSM 900/1800 and CDMA 450 services throughout the whole country.

Ukraine operating indicators

Ukraine operating indicators


Ukraine operating indicators

Ukraine operating indicators




uz

Uzbekistan

A

ccording to the Company's estimates, the service penetration during 2010 increased by 16.6 pp and reached 73.3% that is approximately 20.8 million customers.

MTS OJSC in Uzbekistan provides GSM 900/1800 and UMTS services. In addition to that the Company in July 2010 launched in Uzbekistan the first in CIS and the Central Asia commercial LTE network.

During the year the number of MTS OJSC customers increased by 1.7 million and by the end of the year reached 8.8 million, that is 42.3 % of the Uzbek market.

In spite of a tough competition in the Uzbek market the Company intends to retain its leading positions by providing innovative services including broadband access to Internet.

Uzbekistan operating indicators

Uzbekistan operating indicators


Uzbekistan operating indicators

Uzbekistan operating indicators




tur

Turkmenistan

According to the Company's estimates, the penetration during 2010 increased by 19.1 pp and reached 59.5% that is approximately 3.1 million customers. The number of MTS OJSC customers as of 21 December 2010* constituted 2.4 million, the market share was 78.5%.

MTS OJSC in Turkmenistan offers GSM 900/1800 services. In November 2010 MTS Turkmenistan launched into commercial operation a 3G network in Ashkhabad.

In 2010 MTS, in line with other services, began to offer customized equipment.

* Data as of 21 December 2010ጠthe date of suspension of MTS operations in Turkmenistan.

Turkmenistan financial highlights

Turkmenistan financial highlights

* Adjusted OIBDA represents operating income before depreciation & amortization, impairment of long-lived and other assets and acquisition related costs. For further information, please see the Appendix for definitions and reconciliations.





ar

Armenia

In

September 2007 the Company acquired the major Armenian operator that offered mobile GSM 900/1800 services under the VivaCell trade mark. In Q3 2008 VivaCell brand was changed to VivaCell-MTS co-brand. The change in the visual image of the brand was the first step in the complex process of K-Telecom re-branding which covered all aspects of customer relations: innovative tariffs and services as well as new user friendly formats of customer care that meet global standards applicable within MTS Group became available to VivaCell-MTS customers.

According to the Company's estimates the service penetration in the country during 2010 increased by 25.7 pp and reached 111.6% that constitutes approximately 3.6 million customers. The number of MTS OJSC customers in Armenia as of the year end was equal to 2.5 million (68.9% of the market).

VivaCellľMTS in Armenia offers GSM 900/1800 and UMTS services and in December 2010 launched LTE network.

VivaCell-MTS (MTS Armenia) and MTS Uzbekistan (both belonging to MTS Group) have carried out a successful testing of roaming services in their respective LTE networks and have signed the Memorandum of Understanding that sets targets for and responsibilities of operators in terms of implementation of reciprocal LTE roaming services.

In spite of the tough competition in the Armenian telecommunications market and the presence of Orange (international operator) K-Telecom (VivaCell-MTS) has retained its leadership.

Armenia operating indicators

Armenia operating indicators