comstar-uts presentation at ubs 2007 annual investment conference moscow, russia november 15, 2007

Comstar-UTS

Presentation at UBS 2007 Annual Investment Conference

Moscow, Russia

November 15, 2007

UBS conference November 15, 2007

2

Combined Telecom Operator

ILEC in Moscow

3.6 million residential subscribers

More than 90% of lines are ADSL compatible

CLECs in Moscow and regions

0.6 mln active lines in Moscow

0.9 million subscribers outside Moscow

Multi-service solutions to corporate &developers

CLEC in Moscow

#1 broadband provider

33% marketshare

0.4 million residential subscribers

STATE HOLDING

Comstar owns 25%+1 share

7 ILECs, Rostelecom, Central Telegraph

32 million installed lines covering 90% of Russia

ILD/DLD OPERATOR

Cooperation with Comstar:

DLD/ILD services to Comstar clients

Comstar-UTS Sister companies

MOBILE OPERATOR

Cooperation with Comstar:

joint use of network infrastructure,

convergent projects,

joint sales efforts


3

Value drivers

STRUCTURE BROADBAND MGTS REGIONS SVYAZINVEST

Simplifying Organizational Structure

Unlocking Operational Potential

Increasing Broadband Market Share & ARPUSelective Modernisation of the “Last Mile”

Regulated tariff rebalancingCost optimizationIncrease in efficiency

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

Driving Regional Expansion


4

Simplifying Organizational Structure

51%

52%

48%

Other

14%

Free float 35%

Regionalbranches

56%

23%

17.3%

21%

Now

7.7%

Objective

• Elimination of cross ownership between MGTS and Comstar

• Integration of Comstar Direct

• Turning regional subsidiaries into affiliates



5

Unlocking Operational Potential● Management by processes

● Comstar focus:► Strategy► Regions (M&A, Greenfield)► SvyazInvest

● MGTS focus : ► Network modernization & maintenance► Mass market sales

● Comstar – Direct focus: ► High-value broadband sales

● Outsourcing of non-core functions

Lines / Employees

Source: Analysts reports


●Potential for Significant headcount reduction


6

Increasing Broadband Market Share

Objective of >50% market share in Moscow by 2011 from current 33%*

Revised broadband strategy

• Direct sales using MGTS technicians and brand

• Unique Post-paid tariffs, One Bill for all telecom services for residentials

• Selective Modernization of the “Last Mile”► Fiber to the Curb (FTTC)- started Sep. ’07► CAPEX of up to $100 million► 70-80% of the “last mile” is to be “Speed

Up” to 20-25 Mbps by 2010Source: Company data, Direct INFO, Pyramid Research. Penetration calculated as % of households, 1H2007


AKADO; 10%

Golden Telecom; 17%

Qwerty (Centel); 8%

Others; 32% Comstar UTS; 33%

Moscow Residential BB Market, 2Q’07

Total: 1.3 mn subs

426 thousand subs


Fiber

Copper

7

Modernization of the “Last mile”


Curb

1. Fiber to the curb

Curb

Apartment

Modem

Set-top-box

~1,5 кмbackbone

Box

~300 м.

11 000 curbs

35 000 apartment blocks

250 switching centers

Services

6 Mbps

Speed

• IPTV (1 TV set)• Internet (up to 2 Mbps)

DSLAM

20-25 Mbps

• HDTV (2-3 TV sets)• Internet (10-20 Mbps)

1 Gbps• HDTV• Internet (100+ Mbps)• Smart home• Video monitoring • etc

Fiber

Fiber

2. Moving DSLAM closer to the customer- to the curb

3. Selective installation of fiber to the home

Copper


8

Regulated tariff rebalancing

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%

Residential Subscriber Mix


1,1 1,9 2,3 2,73,0

4,2 4,85,3

6,57,6 7,6

10,2

0

2

4

6

8

10

12

'99 '00 '01 '01 '02 '02 '03 '03 '04 '05 '06 1H07

Growth in Regulated Tariffs (US$)


9

Driving Regional Expansion

*Source: Сomstar-UTS estimates


DLD/ILD/Transit

Regions ofpresence

CLEC

$1,3 BN

$4,4 BN Strategy

• Increasing market share in the regions of presence

• Expansion into the target regions

• Entering the DLD/ILD segment

Russian Fixed Line Market (2007E)

- Comstar presence (Current)

2

3

- Comstar target (Future)- $17,8 BN

100%

80%

0%

20%

60%

40%

$3,4 BN

ILEC

Moscow

1

$1,2 BN

CLEC

$1,3 BNILEC

$1,2 BN

CLEC

ILECILEC

CLEC$1 BN

$1,6 BN$2,3 BN

Targetregions

Otherregions

•Tyumen•Saratov•Volga•South•Saint Petersburg

•South•Volga•Ural•Siberia


10

Capitalizing on Svyazinvest Investment

• 25% +1 share acquired for US$ 1.3 billion in December 2006

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

• 2 seats on the Board of Directors

• Successful financial investment

• Upside option as Strategic Player in privatization process


Svyazinvest*, 78%

Golden telecom, 3%

Comstar, 0.4%MTT, 4%

Russian regional market, US$, 2006

* Including Rostelecom 16%


11

The Unique Investment Opportunity

Comstar Market Cap

21.6% of Svyazinvest

USD 5.17 billion

Comstar Market Cap ex

Svyazinvest

Comstar

EV

USD 1.92 billion

USD 3.26 billion

USD 3.93 billion

EV/EBITDA 20071 6.5x

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, UBS, Merrill Lynch, Veles capital, Credit Suisse, FIM, MDM Bank, JPMorgan). All data as at 29 October 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


12

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]


13

Appendix


14

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


15

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%


16

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


17

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


18

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

comstar-uts presentation at ubs 2007 annual investment conference moscow, russia november 15, 2007

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