Comstar Financial Results For The Third Quarter And First Nine Months Of 2007

MOSCOW, Russia — “COMSTAR – United TeleSystems” OJSC (“Comstar” or “the Group”) (LSE: CMST), the leading integrated telecommunications operator in Russia and the CIS, today announced its unaudited consolidated US GAAP financial results for the third quarter and nine months ended September 30, 2007.

COMSTAR-DIRECT

Comstar-Direct is the largest broadband service provider in Moscow, and has 452,600 residential subscribers, including 106,000 double-play (broadband Internet + IPTV) customers. The subsidiary is 52% owned and fully consolidated by the Group, with Sistema Mass Media owning the remaining 48% minority stake. The Comstar-Direct brand is used for high speed broadband services to residential subscribers in Moscow.

Residential broadband revenues grew by 27% year on year to US$ 24.2 million following healthy subscriber growth, and despite the year on year decline in average revenue per ADSL line (ARPL) from US$ 19.2 to US$ 18.1. The lower ARPL reflected the extended five month churn period introduced during the summer period, as well as the changes made to the tariff structure from May 2007. Revised broadband tariffs were introduced in September 2007, at the same time as the launch of the new broadband strategy and, therefore, only had limited impact in the third quarter.

Corporate customer broadband revenues were up 19% year on year and quarter on quarter, following the increase in average revenue per ADSL user (ARPU) to US$ 230.4 in the third quarter, from US$ 175.9 in the third quarter of 2006 and US$ 192.5 in the second quarter. This development reflected the successful introduction of new tariffs for small and medium sized enterprises in May 2007.

Segment OIBDA was up 5% year on year but declined 20% quarter on quarter, with the margin for the period declining to 18.4% from 20.7% a year ago, and from 23.0% in the second quarter of 2007. The quarter on quarter decline in the OIBDA margin reflected the second quarter impact of the retrospective discounts applied to the rental of MGTS ADSL ports since the beginning of 2007.

Comstar’s key objectives remain to increase its market share to 50% share of the Moscow broadband market in 2011 and to drive up ARPU levels on a progressive basis. MGTS is playing an active role in facilitating this growth by providing the ‘last mile’ access to its residential customer base in Moscow, and by utilizing its highly qualified technical support teams to sell in the new double-play offerings to this customer base. Comstar has rebalanced its infrastructure investment plans to focus on the selective modernization of this ‘last mile’ access, in order to offer greater capacity, higher speeds and enhanced services.

Comstar launched an integrated programme of modernization of the Group companies’ networks in October, in order to simultaneously increase network capacity and reduce investment and operational costs associated with servicing the current infrastructure. The integration is intended to eliminate the duplication of investment in the development of two networks and generate cost savings over the coming years. The Group has already completed the upgrade of the MGTS and Comstar-Direct networks to 40 Gigabits per second, which provides a higher quality connection for customers and reduces the connection time for new subscribers to MGTS and STREAM services.

Following the launch of the new broadband development strategy, Comstar initiated the selective modernization of the ‘last mile’ access in September, in order to move the DSLAM from the switching center to the curb, using Fibre-to-the-Curb technology. Comstar-Direct expects to be able to provide 80% of MGTS residential subscribers with broadband Internet access at an average speed of 20 Megabits per second by the end of 2009. This will enable subscribers to watch High Definition Television more than two TV sets per household. The total capital expenditure for this project is expected to be approximately US$ 100 million over the next two years.