Rostelecom OJSC: Rostelecom Meets the New Year of 2013 with Actualized Strategy, Approved Budget and New Risk Management System

  Rostelecom OJSC: Rostelecom Meets the New Year of 2013 with Actualized
  Strategy, Approved Budget and New Risk Management System

UK Regulatory Announcement


27 December 2012. OJSC Rostelecom (the “Company” or “Group”) (MICEX-RTS: RTKM,
RTKMP; OTCQX: ROSYY) announces that at its meeting on December 26, 2012, the
Company’s Board of Directors approved an updated strategy blueprint of the
Company development for 2013-2017, prepared pursuant to requirements of the
Federal Agency for the State Property Management (Rosimuschestvo).

Ivan Rodionov, Chairman of the Board of Directors, said: “We have actualized
the Strategy taking into account the market dynamics and focusing on growth
segments like fixed and mobile data, Pay TV and innovative services. In legacy
segments we are more focused on cost optimization.”

The newly approved strategy takes into account market trends and updated
launch dates of the Company’s UMTS networks, including those in Moscow and St.

The updated strategy emphasizes the difference between managing Rostelecom
fixed-line business (fixed-line communications, as well as fixed broadband
access, IPTV, VPN) and the Company’s key growth drivers (innovative cloud
services and mobile business, primarily Wireless Broadband (WBB). The
fixed-line business currently accounting for significantly more than half of
the Company revenues is expected to decline over the five year term, as well
as its profitability. Fixed-line telephony revenues dynamics are expected to
be offset by revenue from broadband and IPTV.

According to the strategy, growth in innovative cloud services and WBB will
enable Rostelecom to growth in line with the Russian telecom market (CAGR over
the period 2013-2017 is expected to be around 6%^1) or slightly over the
market. This forecast is in line with the previous high single digit revenue
growth guidance.

The business growth will be facilitated by focusing CAPEX on developing
broadband access, Pay TV and transport network (accounting for 60% of the
total CAPEX over 2013-2017), and on the mobile segment (24% of the total CAPEX
over the same period). The remaining CAPEX will be spent on innovations etc.
The average over 2013-2017 CAPEX to revenue ratio is expected around 14%,
mainly due to the finalization of roll-out of IT systems and passing the
investments pick in innovations segment after 2014.

The second ambitious goal for the years to come is cost cutting in the
fixed-line segment. The ultimate goal for 2017 is Group OIBDA margin at level
of 39%.

The cost cutting will be achieved by modernization of networks and avoiding
overlaps, centralization and reduction of management levels in the Company,
releasing real estate and cutting its maintenance costs.

Earlier the actualized strategy was discussed at a meeting of an extended
Strategy Committee of the Board, attended by the Strategy Committee’s members,
other Board members, and representatives of Rosimuschestvo and the Ministry of
Communications and Mass Media of Russia.

The Board of Directors at its meeting today also approved the Risk Management
Programme (RMP) for 2013.

Currently the RPM is focused on the most significant risks, primarily
commercial risks and risks of changes in regulation. The identified risks were
evaluated in details down to business segment level, services, and also across
regions, down to specific cities in some instances. An essential component of
the RMP is pragmatic measures put in place to mitigate risks, while the RPM
for 2013 contains primarily project measures. Management responsibility for
risk management system is reflected in motivation programme. These initiatives
were supported by the Board of Directors. Risk management reports are to be
submitted quarterly to the Board of Directors for review.

The Board of Director also approved Rostelecom budget for 2013.

                                    * * *

For more information please visit or contact:

Investor Relations Department
Tel. +7 (499) 995 97 80

                                    * * *

Rostelecom ( is Russia’s largest national telecommunications
operator with presence in all Russian regions. The Group is a universal
operator and undisputable leader of broadband and pay-TV markets in Russia
with over 9 million fixed-line broadband subscribers and over 6 million pay-TV
subscribers. As Rostelecom develops its mobile data networks, its position as
a major mobile operator is growing with over 13 million currently subscribed
to Rostelecom’s mobile voice services. The Company currently has approximately
28 million local fixed-line voice subscribers and it is the leader in the
corporate and government services segment. The Group is also an important
innovator that provides solutions in the field of medicine, E-Government,
cloud computing and education.

Rostelecom was assigned a ‘BBB-’ and ‘BB+’ international credit ratings by
Fitch Ratings and Standard & Poor’s respectively, both with a ‘Stable’
outlook. The Group generated RUB 238.7 billion of consolidated revenues, RUB
94.0 billion of OIBDA (39.4% of revenues) and RUB 30.6 billion of net income
for the nine months ended September 30, 2012.

                                    * * *

Certain statements in this press release are forward-looking statements within
the meaning of the U.S. federal securities laws and are intended to be covered
by the safe harbors created thereby.

Those forward-looking statements include, but are not limited to:

  *Management’s assessment of the Company’s future operating and financial
    results as well as forecasts of the present value of future cash flows and
    related factors;
  *the Company’s anticipated capital expenditures and plans to construct and
    modernize its network;
  *the Company’s expectations as to the growth in demand for its services,
    plans relating to the expansion of the range of its services and their
  *the Company’s plans with respect to improving its corporate governance
  *the Company’s expectations as to its position in the telecommunications
    market and the development of the market segments within which the Company
  *economic outlook and industry trends;
  *the Company’s expectations as to the regulation of the Russian
    telecommunications industry and assessment of impact of regulatory
    initiatives on the Company’s activity;
  *other statements regarding matters that are not historical facts.

Such forward-looking statements are subject to risks, uncertainties and other
factors, which could cause actual results to differ materially from those
expressed or implied by these forward-looking statements. These risks,
uncertainties and other factors include:

  *risks relating to changes in political, economic and social conditions in
    Russia as well as changes in global economic conditions;
  *risks relating to Russian legislation, regulation and taxation, including
    laws, regulations, decrees and decisions governing the Russian
    telecommunications industry, securities industry as well as currency and
    exchange controls relating to Russian entities and their official
    interpretation by regulatory bodies;
  *risks relating to the Company, including the achievement of the
    anticipated results, levels of profitability and growth, ability to create
    and meet demand for the Company’s services including their promotions, and
    the ability of the Company to remain competitive in a liberalized
    telecommunications market;
  *technological risks associated with the functioning and development of the
    telecommunications infrastructure, technological innovations as well as
    the convergence of technologies;
  *other risks and uncertainties. For a more detailed discussion of these and
    other factors, see the Company’s Annual Report and the Company’s other
    public filings.

Many of these factors are beyond the Company’s ability to control or predict.
Given these and other uncertainties, readers are cautioned not to place undue
reliance on any of the forward-looking statements contained herein or
otherwise. The Company does not undertake any obligation to release publicly
any revisions to these forward-looking statements (which are made as of the
date hereof) to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events, except as may be required
under applicable laws.

^1 Source: iKS – Consulting, J’son & Partners, IDC, OVUM, Company data


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