MOSCOW--(BUSINESS WIRE)--“COMSTAR – United TeleSystems” OJSC (“Comstar” or “the Group”) (LSE: CMST.L), the largest integrated telecommunications provider in Moscow and 69 Russian cities, today announced its unaudited consolidated US GAAP¹ financial results for the three months ended March 31, 2009.

FIRST QUARTER HIGHLIGHTS

• Consolidated revenues up 12% year on year in ruble terms to US$ 334.4 million²
• OIBDA³ up 4% year on year in ruble terms to US$ 126.4 million and OIBDA margin of 37.8%
• Underlying net income attributable to Comstar-UTS declined 8% year on year in ruble terms to US$ 38.8 million when excluding foreign exchange losses⁴
• Cash flow from operations of US$ 99.2 million
• Cash capital expenditure⁵ of US$ 59.7 million
• Total assets of US$ 3.4 billion
• Residential broadband ARPU in Moscow up 5% quarter on quarter to RUR 323

DELIVERY IN LINE WITH STRATEGIC GOALS

• Test launch of Mobile WiMAX network in Moscow & full commercial launch on May 1, 2009
• Rated number one broadband internet provider in Moscow in terms of customer loyalty⁶
• Commenced extensive restructuring of regional assets to be legally merged and consolidated under Comstar Regions CJSC
• Completion of acquisition of STREAM-TV Group of regional operators
• Anti-crisis broadband internet limited tariff plans launched in Moscow
• Average 8% increase in MGTS regulated ruble tariffs from March 1, 2009
• Average 12% increase in ruble tariffs for unregulated services in Moscow from March 1, 2009
• 40% increase in regulated per minute ruble charge for operators interconnected to Comstar network in Moscow from the second quarter of 2009

Sergey Pridantsev, President and Chief Executive Officer, commented: “The results for the first quarter again demonstrate the resilient nature of our business in challenging market conditions. The business performed well over the period and we have continued to deliver on the objectives set out in our five year “Five Angles of Attack” strategy. The investment case remains the same but the strategic priorities for this year have been modified to meet the challenges presented by the current environment – to ensure financial stability by maximizing cash flows and optimizing investments, in order to service and repay debt, and to focus on maintaining and developing the existing subscriber base and integrating the regional assets.”

Irina Matveeva, Chief Financial Officer, added: “Our primary focus in 2009 remains to increase the utilization of our existing capacity. We still expect total 2009 CAPEX to represent approximately 6% of Group revenues and to comprise maintenance CAPEX, investments in subscriber acquisition and up-selling, and selective regional development projects. The majority of these projects are planned for the first half of the year, with lower levels of investment currently planned for the second half of the year. CAPEX represented 18% of revenues in the first quarter and included the payments for the projects implemented during 2008.”

“We expect to generate low single digit percentage point organic ruble revenue growth in 2009. This growth will primarily be driven by the regulated and non-regulated tariff increases from the beginning of March. The normalised long-term OIBDA margin for our business is 35-40%. The 2009 Group OIBDA margin will be impacted by the consolidation of the lower margin STREAM-TV business and the economic downturn, which will be offset to an extent by the tariff increases, and continues to be subject to seasonal fluctuations.”

Consolidation and Combination of STREAM-TV

In accordance with the provisions of FASB Statement No. 141 “Business Combinations” and FASB Statement No. 154 “Accounting Changes and Error Corrections – A Replacement of APB Opinion No. 20 and FASB Statement No.3”, and given that Comstar and Sistema Mass Media are commonly controlled, the Group’s consolidated financial information for the periods prior to the acquisition of STREAM-TV Group shall be restated as if STREAM-TV had been owned and consolidated in the prior periods. Scrutiny and restatement of STREAM-TV quarterly financial information to conform it to Comstar accounting policies is currently underway, therefore, comparative financial information for the respective quarters of 2008 is presented in this report as it was reported in 2008, which is a departure from US GAAP. Management expects to eliminate this departure when reporting 2009 full year results.

Net income (Noncontrolling interests)

Until December 31, 2008, Comstar reported net income attributable to noncontrolling interest as a deduction in arriving at consolidated net income. With effect from January 1, 2009, Comstar has adopted the new mandatory provisions of FASB Statement No. 160 (As Amended) “Noncontrolling Interests in Consolidated Financial Statements”, which requires that consolidated net income be reported to include the amounts attributable both to the parent and to the noncontrolling interest. Comstar has therefore reported net income before the amounts attributable to the noncontrolling shareholders of its subsidiaries, and the latter amounts (previously referred to as “minority interests”) are separately disclosed. All comparative financial information has been restated in accordance with this new policy.

FINANCIAL SUMMARY

		(RUR millions, except where stated otherwise)										(US$ millions, except where stated otherwise)
		Q1 2009		Q1 2008		Growth		Q4 2008		Growth		Q1 2009		Q1 2008		Growth		Q4 2008		Growth
Revenues		11,343		10,114		12%		10,684		6%		334.4		417.0		(20%)		391.9		(15%)
OIBDA		4,291		4,134		4%		4,496		(5%)		126.4		170.2		(26%)		165.0		(23%)
Margin (%)		37.8%		40.9%		(7%)		42.1%				37.8%		40.8%				42.1%
Operating income		2,798		2,949		(5%)		3,357		(17%)		82.2		121.3		(32%)		123.1		(33%)
Margin (%)		24.7%		29.2%				31.4%				24.6%		29.1%				31.4%
Net income attributable to Comstar-UTS		494		1,312		(62%)		1,628		(70%)		12.6		54.1		(77%)		59.2		(79%)
Basic EPS		RUR 1.4		RUR 3.2		(57%)		RUR 4.2		(114%)		US$ 0.04		US$ 0.13		(74%)		US$ 0.15		(77%)
Basic weighted average number of shares outstanding (000s)		358,225		404,457		(11%)		386,366		(7%)		358,225		404,457		(11%)		386,366		(7%)
Cash flow from operations		3,460		3,598		(4%)		4,524		(24%)		99.2		148.4		(33%)		165.7		(40%)
Cash CAPEX		2,024		1,052		92%		3,074		(34%)		59.7		43.4		38%		112.8		(47%)
% of revenues		17.8%		10.4%				28.8%				17.8%		10.4%				28.8%
Total Assets		116,017		116,908		(1%)		123,152		(6%)		3,410.9		4,971.5		(31%)		4,191.7		(19%)

OPERATING REVIEW

Group Overview

Comstar generated 12% year on year ruble revenue growth in the first quarter, which reflected:

• the consolidation of STREAM-TV from the first quarter of 2009 and Interlink and UTC in the second and the third quarters of 2008, respectively, which contributed RUR 954 million of revenue in the first quarter of 2009
• growing ‘Calling Party Pays’ volumes
• the average 8% regulatory ruble price increase for MGTS residential and corporate voice services from March 1, 2009
• the average 12% ruble price increase for Comstar residential and corporate services from March 1, 2009
• the launch of direct sales of long distance voice services on Comstar’s proprietary network from October 2008

Revenues from fixed-to-mobile calls increased by 20% year on year to RUR 1,086 million in the first quarter and represented 10% of Group revenues. Traffic levels were up 18% year on year to 781 million minutes in the quarter.

The significant weakening of the Russian ruble currency against the US dollar since September 2008 adversely affected the Group’s US dollar reported results.

		(RUR millions)										(US$ millions)
Operating Expenses7		Q1 2009		Q1 2008		Growth		Q4 2008		Growth		Q1 2009		Q1 2008		Growth		Q4 2008		Growth
Employee costs		2,754		2,238		23%		2,110		31%		81.3		92.2		(12%)		77.3		5%
Network traffic		1,537		1,267		21%		1,571		(2%)		45.3		52.2		(13%)		57.5		(21%)
Selling & marketing		345		347		(0%)		379		(9%)		10.1		14.3		(29%)		14.0		(27%)
Repairs & maintenance		406		444		(9%)		424		(4%)		11.9		18.4		(35%)		15.6		(24%)
Taxes		328		296		11%		339		(3%)		9.7		12.2		(21%)		12.4		(22%)
Utilities		400		297		34%		317		26%		11.8		12.3		(4%)		11.6		1%
Other, net		1,282		1,090		18%		1,048		22%		37.9		45.0		(16%)		38.5		(2%)
Total		7,052		5,980		18%		6,188		14%		208.0		246.7		(16%)		226.8		(8%)
% of revenues		62.2%		59.1%				57.9%				62.2%		59.2%				57.9%

Total operating expenses, when excluding depreciation and amortisation costs, increased by 18% year on year in ruble terms. The consolidation of STREAM-TV, from January 1, 2009 and of Interlink and UTC from the second and the third quarters of 2008, respectively, contributed RUR 691 million of operating expenses (excluding depreciation and amortisation costs) in the first quarter of 2009. The organic increase in operating expenditure also reflected the increase in network traffic costs due to the higher volume of fixed-to-mobile calls, costs associated with the new long distance network, an increase in bad provisions by RUR 187 million and the increase in regulated utility prices.

Group OIBDA was up 4% year on year in ruble terms with an OIBDA margin of 37.8%. This reflected the consolidation of the lower margin STREAM-TV business, which was partially offset by the tariff increases and the ongoing cost optimization programme.

Group depreciation and amortisation charges increased by 26% year on year in ruble terms due to the increase in property, plant and equipment and intangible asset balances, which was in line with the organic growth of the Group and the consolidation of the acquired businesses.

Interest expenses tripled year on year in ruble terms following the increase in the interest rate payable on the Sberbank credit facility from 7.6% to 9.5% in July 2008 and to 13.35% in January 2009, the drawing down of the remaining RUR 4.5 billion from the Sberbank facility during the fourth quarter of 2008, and the interest payable on the remaining US$ 263.6 million of obligations paid to Access Telecommunications Cooperatief U.A. (“Access”) during the first quarter of 2009. The lower level of interest income reflected the decrease in the Group’s average cash balances and short term investments over the period.

The Group’s results for the first quarter included a RUR 799 million (US$ 26.2 million) currency transactions loss following the depreciation of the ruble against the dollar and primarily relating to the US dollar denominated promissory note issued by MGTS Finance S.A.⁸ to Access and fully redeemed in the first quarter of 2009. The Group also recorded a RUR 150 million (US$ 4.3 million) reversal of a portion of an impairment of long-term investments related to loans granted to Sky Link, which were partially written-off in 2007. The cash repayment of the respective loans occurred in April 2009.

The Group’s tax charges reflected the net impact of the reduction in the Russian corporate tax rate from 24% to 20% from the beginning of 2009, the non-deductible foreign exchange losses on the US dollar denominated promissory note, and the non-taxable gains from the revaluation of the put option held by Access in the first quarter of 2008. When excluding the latter two non-recurring effects, the Group’s underlying effective tax rate⁹ decreased year on year from 25% to 21% both in ruble and US dollar terms.

Net income attributable to minority interests, which primarily comprise the amounts attributable to the minority shareholders of MGTS, totalled RUR 101 million (US$ 1.3 million) in the quarter. The Group therefore reported underlying net income attributable to Comstar, when excluding the foreign currency transactions losses, of RUR 1,293 million (US$ 38.8 million) in the first quarter of 2009, compared to RUR 1,406 million (US$ 58.0 million) in the first quarter of 2008 and RUR 1,719 million (US$ 62.9 million) in the fourth quarter of 2008.

Overview of Broadband Internet & Pay-TV Business Potential in Moscow & the Regions

This section covers the Group’s development potential in the broadband internet and pay-TV markets in Russia. The operating and financial results for these broadband businesses are included in each of the three following reporting segments.

		Q1 2009		Q1 2008		Growth		Q4 2008		Growth
MOSCOW
Residential segment
MGTS Voice subscribers (000s)		3,595		3,569		1%		3,591		0%
ARPU (US$)		8.8		12.1		(27%)		10.7		(17%)
ARPU (RUR)		299		293		2%		291		3%
Broadband internet subscribers10 (000s)		795		750		6%		784		1%
ARPU (US$)		9.5		13.4		(29%)		11.2		(15%)
ARPU (RUR)		323		325		(1%)		307		5%
Premium subscribers11 (000s)		635		664		(4%)		664		(4%)
ARPU (US$)		10.1		14.6		(31%)		11.8		(14%)
ARPU (RUR)		342		355		(4%)		321		6%
Mass-market subscribers (000s)		160		87		85%		120		33%
ARPU (US$)		6.8		2.8		139%		7.8		(13%)
ARPU (RUR)		231		69		237%		214		8%
Pay-TV subscribers12 (000s)		137		135		2%		146		(6%)
ARPU (US$)		14.6		22.9		(36%)		17.1		(14%)
ARPU (RUR)		496		556		(11%)		466		6%
Corporate segment
Corporate broadband internet subscribers (000s)		51		49		5%		51		(1%)
ARPU (US$)		112.8		169.5		(33%)		154.7		(27%)
ARPU (RUR)		3,830		4,111		(7%)		4,211		(9%)
REGIONS
Residential segment
Households passed13 (000s)		3,718		129		2778%		137		2607%
Pay-TV subscribers (000s)		1,953		107		1720%		153		1174%
ARPU (US$)		3.0		2.9		5%		3.4		(10%)
ARPU (RUR)		103		70		47%		92		12%
Premium subscribers (000s)		1,575		107		1368%		153		927%
ARPU (US$)		3.7		2.9		28%		3.4		10%
ARPU (RUR)		126		70		78%		92		37%
Social subscribers (000s)		378		0		0%		0		0%
ARPU (US$)		0.4		0.0				0.0
ARPU (RUR)		12		0		0%		0		0%
Broadband internet subscribers14 (000s)		310		40		681%		73		328%
ARPU (US$)		9.0		22.5		(60%)		15.8		(43%)
ARPU (RUR)		306		547		(44%)		432		(29%)
Voice subscribers (000s)		261		215		22%		258		1%
ARPU (US$)		9.0		9.9		(9%)		11.0		(18%)
ARPU (RUR)		307		241		27%		300		2%
Corporate segment
Corporate broadband internet subscribers (000s)		18		12		51%		17		4%
ARPU (US$)		110.5		131.1		(16%)		133.4		(17%)
ARPU (RUR)		3,718		3,178		17%		3,632		2%
TOTAL NUMBER OF BROADBAND INTERNET SUBSCRIBERS (000s)		1,174		850		38%		925		27%

Broadband in Moscow

The Moscow broadband market is now close to saturation with household penetration levels of approximately 62%, and personal computer household penetration of over 70%. Comstar therefore moved into the second phase of its strategic development in September 2008 with the focus shifting to premium ARPU growth and mass market subscriber acquisition.

Comstar is targeting the promotion of its broadband internet services on MGTS’ 3.6 million residential fixed-line subscribers (97% of Moscow households). The Group aims to switch 33% of MGTS’ fixed-line telephony subscribers to double-play services by the end of 2011 and thereby secure an approximately 50% share of the Moscow broadband market. 22% of MGTS voice customers already subscribed for broadband internet services at the end of the first quarter.

The Group’s subscriber base has continued to migrate, with lower ARPU subscribers switching to more attractive MGTS package offerings in the current economic environment. This is reflected in the significant increase in the number of double-play subscribers in the mass market segment. Premium segment ARPU continued to increase in line with the focus on up-selling customers to additional services.

The number of triple-play subscribers (voice, broadband internet & pay-TV) decreased quarter on quarter due to customers optimizing their spending in the adverse economic climate.

Following the full commercial launch of mobile WiMAX services in May, Comstar’s subscribers now have access to a seamless telecommunications space. The WiMAX network of over 170 base stations currently provides coverage of around 80% of Moscow. The WiMAX services are provided on the Group’s own backbone network in Moscow.

Customers require a RUR 4,600 WiMAX-modem in order to access the service and residential subscribers are offered services in line with limited tariff plans, which are priced between RUR 300 and RUR 700 depending on the prepaid data transmission volume (from 1 to 5 Gigabits per month). The prepaid data transmission volume amounts to 1.5 – 7.5 Gigabits per month for STREAM’s existing subscribers, depending on the preferred tariff plan. The charge for data transmission volumes exceeding the prepaid level varies from RUR 0.5 to RUR 3.00 per additional Megabit for third party subscribers, and from RUR 0.5 to RUR 2.00 for STREAM subscribers.

Broadband in the Regions

Following the consolidation of STREAM-TV Group, the Group’s target residential audience for triple-play services in the regions increased from 137 thousand to 3.7 million homes passed.

Over 50% of the potential households, or 1.9 million active subscribers, were using pay-TV services by the end of the first quarter of 2009. This included 378 thousand subscribers to low-cost packages comprising 20 TV channels. Pay-TV subscribers using pay-TV packages are more likely to switch to extended offerings, which drives pay-TV premium ARPU growth.

The residential broadband subscriber base totaled 310 thousand at the end of the quarter. From January 1, 2009 till March 31, 2009 combined residential broadband subscriber base of Comstar-UTS and STREAM-TV in the regions grew by 12%. Over 30% of the households passed are able to receive broadband internet services and the Group is selectively upgrading STREAM-TV’s networks, in order to further enlarge the potential subscriber base. Demand for broadband internet access is only currently limited by the relatively low level of personal computer penetration in the regions. The Group is also offering local and long-distance telephony services to those households that do not have personal computers.

SEGMENTAL OPERATING REVIEW

1. Traditional Segment in Moscow

Comstar owns 56% of Moscow City Telephone Network (MGTS), which is Moscow’s incumbent fixed-line telecommunications operator and the infrastructure provider for the Group. MGTS is the owner of the ‘last mile’ access in Moscow, which is not unbundled and provides 4.4 million residential and corporate telephony lines. MGTS provides regulated voice services and unregulated mass market broadband internet services in Moscow.

Operating Highlights

		Q1 2009		Q1 2008		Growth		Q4 2008		Growth
Installed telephone lines (000s)		4,856		4,812		1%		4 851		0%
Residential
Number of subscribers / active lines (000s)		3,595		3,569		1%		3,591		0%
CPP traffic (millions of minutes)		464		398		16%		472		(2%)
ARPU (US$)		9.1		12.2		(25%)		10.9		(17%)
ARPU (RUR)		309		296		5%		298		4%
Corporates
Number of active lines (000s)		765		787		(3%)		769		(1%)
Number of subscribers (000s)		96		89		8%		96		0%
CPP traffic (millions of minutes)		194		167		16%		209		(7%)
ARPU (excl. revenue from points of interconnect) (US$)		179.2		188.1		(5%)		179.7		(0%)
ARPU (excl. revenue from points of interconnect) (RUR)		6,077		4,562		33%		4,900		24%
Number of points of interconnect (000s)		30		32		(7%)		29		0%
Average monthly revenue per point of interconnect (US$)		155.7		186.9		(17%)		195.4		(20%)
Average monthly revenue per point of interconnect (RUR)		5,271		4,532		16%		5,324		(1%)
Operators
Number of interconnected operators		247		243		2%		247		0%
Number of points of interconnect (000s)		222		230		(3%)		223		(0%)
Average monthly revenue per point of interconnect (US$)		33.3		67.3		(51%)		35.1		(5%)
Average monthly revenue per point of interconnect (RUR)		1,129		1,631		(31%)		950		19%
DLD/ILD traffic (millions of minutes)		390		359		8%		378		3%
DLD/ILD traffic charges per minute (US$)		0.012		0.013		(12%)		0.015		(23%)
DLD/ILD traffic charges per minute (RUR)		0.4		0.3		24%		0.4		(4%)

Financial Highlights

		(RUR millions)										(US$ millions)
		Q1 2009		Q1 2008		Growth		Q4 2008		Growth		Q1 2009		Q1 2008		Growth		Q4 2008		Growth
Revenues
Residential		3,374		3,234		4%		3,279		3%		99.5		133.3		(25%)		120.3		(17%)
Corporate		1,817		1,636		11%		1,888		(4%)		53.6		67.5		(21%)		69.2		(23%)
Operators		1,960		2,122		(8%)		2,099		(7%)		57.7		87.5		(34%)		77.1		(25%)
Total		7,152		6,992		2%		7,265		(2%)		210.8		288.3		(27%)		266.6		(21%)
Intersegment sales		(743)		(816)		(9%)		(882)		(16%)		(21.9)		(33.7)		(35%)		(32.5)		(33%)
Net Revenues		6,408		6,176		4%		6,383		0%		188.9		254.6		(26%)		234.1		(19%)
Operating Expenses15		3,971		3,706		7%		3,806		4%		117.1		152.8		(23%)		139.6		(16%)
OIBDA		3,180		3,286		(3%)		3,459		(8%)		93.8		135.4		(31%)		127.0		(26%)
Margin (%)		44.5%		47.0%				47.6%				44.5%		47.0%				47.6%

Ruble revenues were up 2% year on year, which reflected the growing level of CPP traffic, as well as the 8% average regulatory ruble price increase for MGTS residential and corporate voice services tariffs from the beginning of March 2009. Ruble revenues were down 2% quarter on quarter due to the reduction in traffic volumes from interconnected operators. Intersegment sales decreased by 9% year on year in ruble terms and 16% quarter on quarter, which was in line with the change in the interconnect regime from the beginning of March 2008 and the reduction in traffic from interconnected operators.

Operating expenses, excluding depreciation and amortisation charges, were up 7% year on year and 4% quarter on quarter, which was primarily due to the net effect of the reduction in headcount, increase in network traffic costs, an increase in bad provisions and the increase in regulated utility prices.

OIBDA therefore declined by 3% year on year in ruble terms and the OIBDA margin was lower at 44.5%.

2. Alternative Segment in Moscow

Comstar owns a group of leading alternative fixed-line telecommunications operators, which provide broadband internet and multi-service solutions to residential and corporate subscribers in Moscow and the surrounding region. The segment includes the Comstar-Direct and Comstar-Moscow operations.

Operating Highlights

		Q1 2009		Q1 2008		Growth		Q4 2008		Growth
Installed capacity / telephone lines (000s)		653		652		0%		653		0%
Residential subscribers
Number of subscribers (000s)		666		715		(7%)		699		(5%)
ARPU (US$)		10.8		15.2		(29%)		12.2		(11%)
ARPU (RUR)		367		369		(0%)		332		11%
Corporate subscribers
Number of subscribers (000s)		29		33		(11%)		30		(1%)
ARPU (US$)		358.9		392.3		(8%)		441.1		(19%)
ARPU (RUR)		12,199		9,513		28%		12,021		1%
DLD/ILD traffic (millions of minutes)		32		0		0%		19		71%
DLD/ILD traffic charges per minute (US$)		0.15		0		0%		0.18		(20%)
DLD/ILD traffic charges per minute (RUR)		4.9		0		0%		4.9		(0%)
Operators
Number of active lines (000s)		438		448		(2%)		437		0%
- of which, used by mobile operators (000s)		307		316		(3%)		307		0%
DLD/ILD traffic (millions of minutes)		5		41		(88%)		28		(82%)
DLD/ILD traffic charges per minute (US$)		0.06		0.10		(32%)		0.08		(23%)
DLD/ILD traffic charges per minute (RUR)		2.20		2.31		(5%)		2.30		(4%)

Financial Highlights

		(RUR millions)										(US$ millions)
		Q1 2009		Q1 2008		Growth		Q4 2008		Growth		Q1 2009		Q1 2008		Growth		Q4 2008		Growth
Revenues
Corporate		1,486		1,374		8%		1,493		(0%)		43.8		56.7		(23%)		54.8		(20%)
Operators		819		955		(14%)		1,040		(21%)		24.2		39.3		(39%)		38.1		(37%)
Residential		772		771		0%		715		8%		22.7		31.8		(28%)		26.2		(13%)
Total		3,077		3,100		(1%)		3,248		(5%)		90.7		127.8		(29%)		119.2		(24%)
Intersegment sales		(98)		(41)		139%		(164)		(40%)		(2.9)		(1.7)		72%		(6.0)		(52%)
Net Revenues		2,979		3,059		(3%)		3,084		(3%)		87.8		126.1		(30%)		113.2		(22%)
Operating Expenses16		2,495		2,488		0%		2,599		(4%)		73.5		102.8		(29%)		95.3		(23%)
OIBDA		582		611		(5%)		649		(10%)		17.2		25.0		(31%)		23.8		(28%)
Margin (%)		18.9%		19.7%				20.0%				19.0%		19.6%				20.0%

Ruble revenues were flat year on year and up quarter on quarter due to the net effect of increasing long-distance traffic volumes passing through Comstar’s proprietary long-distance network, and the decrease in revenues from operators due to the cancellation of monthly charges per point of interconnect from March 1, 2008. The year on year development also reflected the migration of residential subscribers to lower tariff plans in the prevailing economic environment.

Operating expenses, excluding depreciation and amortisation charges, were flat year on year and down quarter on quarter due to the ongoing cost optimization programme.

OIBDA was down 5% year on year in ruble terms and the OIBDA margin was lower at 18.9% in ruble terms.

3. Alternative segment in the Regions & CIS

Comstar’s regional and international business comprises the Group’s operations in 69 Russian cities with a combined population of more than 30 million people, and in Ukraine and Armenia.

Operating Highlights

		Q1 2009		Q1 2008		Growth		Q4 2008		Growth
Residential subscribers
Number of subscribers17 (000s)		2,532		414		512%		505		402%
ARPU (US$)		4.4		9.1		(51%)		9.48		(53%)
ARPU (RUR)		151		221		(32%)		259		(42%)
Corporate subscribers
Number of subscribers (000s)		46		35		30%		44		3%
ARPU (US$)		115.9		148.3		(22%)		155.3		(25%)
ARPU (RUR)		3,920		3,568		10%		4,229		(7%)
Operators
Number of active lines (000s)		2		2		(7%)		2		0%

Financial Highlights

		(RUR millions)										(US$ millions)
		Q1 2009		Q1 2008		Growth		Q4 2008		Growth		Q1 2009		Q1 2008		Growth		Q4 2008		Growth
Revenues
Residential		1,159		276		320%		398		191%		34.1		11.4		200%		14.6		134%
Corporate		539		378		43%		540		(0%)		15.9		15.6		2%		19.8		(20%)
Operators		286		226		27%		279		3%		8.4		9.3		(9%)		10.2		(18%)
Total		1,984		879		126%		1,217		63%		58.5		36.3		61%		44.7		31%
Intersegment sales		(29)		–				–				(0.8)		–				–
Net Revenues		1,955		879		122%		1,217		61%		57.7		36.3		59%		44.7		29%
Operating Expenses18		1,424		615		131%		828		72%		42.2		25.4		66%		30.4		39%
OIBDA		560		264		112%		389		44%		16.3		10.9		49%		14.3		14%
Margin (%)		28.2%		30.1%				31.9%				27.9%		30.1%				32.0%

Ruble revenues more than doubled year on year, which primarily reflected the consolidation of STREAM-TV, Interlink and UTC. Operating expenses, excluding depreciation and amortisation charges, more than doubled for the same reason and the OIBDA margin decreased year on year to 28.2% due to the lower prevailing margins in the acquired businesses.

FINANCIAL REVIEW

Net cash generated by operations decreased by 4% year on year to RUR 3.5 billion due to the net effect of the interest paid to Sberbank which increased due to increase both in loan principal and interest rate, and cash inflow from a reduction in net working capital.

Net cash provided by investing activities amounted to RUR 6.9 billion in the quarter and included the proceeds from the redemption of short-term investments. Group cash capital expenditure totaled RUR 2.0 billion and primarily comprised the final payments for the FTTx project, investments in subscriber acquisition and up-selling and investments in the WiMAX project in Moscow.

Free cash flow¹⁹ generation therefore decreased year on year to RUR 1.4 billion in the first quarter of 2009.

Net cash used in financing activities amounted to RUR 9.3 billion, and primarily comprised the US$ 263.6 million of final payments to Access, and the final payment of RUR 103 million for the acquisition of STREAM-TV Group.

The Group’s cash and cash equivalents and short term investments therefore amounted to RUR 4.0 billion at the end of the first quarter.

The Group’s total borrowings including capital lease obligations amounted to RUR 29.9 billion at the end of the first quarter, compared to RUR 37.5 billion at the end of 2008. The borrowings primarily comprised the RUR 26.0 billion Sberbank credit facility and STREAM-TV’s RUR 2.2 billion ruble debt to Sistema Mass Media.

The Group’s net debt²⁰ therefore decreased from RUR 26.2 billion to RUR 25.9 billion during the quarter. The interest rate payable on the Sberbank facility increased from 7.6% to 9.5% from July 2008 and to 13.35% per annum from the beginning of January 2009. Approximately 96% of the Group’s total debt was ruble denominated at the end of the first quarter of 2009 and the Group’s total debt stood at 1.7 times annualized quarterly OIBDA.

The Group owned 59,716,004 of its own shares, which are accounted for as treasury stock, at the end of the period. These comprised the 11,510,500 shares held by MGTS; the 46,232,000 shares acquired by MGTS Finance S.A. from Access; the 1,970,004 shares repurchased in November 2008 from the participants in the 2006 share option programme; and the 3,500 shares acquired from a shareholder who voted against the legal merger of certain Comstar subsidiaries in 2007.

OTHER INFORMATION

Conference call

Comstar will host a conference call today at 8.00 am (ET) / 1.00 pm (UK time) / 2.00 pm (CET) / 4.00 pm (Moscow Time). Participants may access the call by dialling the following numbers:

UK / International: + 44 20 8515 2302

US: +1 480 629 9692

A replay facility will also be made available for 7 days after the call and may be accessed by dialing the following numbers and using the following pin code:

UK / International: + 44 20 7154 2833

US: + 1 303 590 3030

PIN: 4079925#

The replay facility will also be made available at

http://www.comstar.ru/en/for_investors/finresults/2009/1q/ in due course.

For further information, please visit www.comstar-uts.com

Comstar-UTS is the leading fixed-line telecommunications company in Moscow. Comstar provides voice, data, television and other value-added services to residential and corporate subscribers and operators, using its extensive backbone network and exclusive last mile access to 97% of Moscow households. The Company also offers communications services in five Russian regions, Armenia and Ukraine. Comstar had 3.6 million residential subscribers and 795 thousand residential broadband internet subscribers in Moscow, as well as 310 thousand residential regional and international broadband internet subscribers and 1.9 million residential regional pay-TV subscribers at the end of March 2009. Comstar generated US$ 334.4 million of revenues and a 37.8% OIBDA margin for the three months ended March 31, 2009. Comstar’s Global Depositary Receipts are listed on the London Stock Exchange (ticker: CMST).

Some of the information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of Comstar-UTS. You can identify forward looking statements by terms such as “expect,” “believe,” “anticipate,” “estimate,” “intend,” “will,” “could,” “may” or “might”, the negative of such terms or other similar expressions. Comstar-UTS wishes to caution that these statements are only predictions, and that actual events or results may differ materially. Comstar-UTS does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of Comstar-UTS, including, among others, general economic conditions, the competitive environment, risks associated with operating in Russia, rapid technological and market change in the industries Comstar-UTS operates in, as well as many other risks specifically related to Comstar-UTS and its operations.

Attachment A

NON-GAAP FINANCIAL MEASURES

This results statement includes financial information prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP), as well as other non-GAAP financial information. The non-GAAP financial information should be considered as an addition to, but not as a substitute for, information prepared in accordance with US GAAP.

OIBDA is operating income before depreciation and amortisation, and the OIBDA margin is defined as OIBDA as a percentage of net revenues. These measures are included in this results statement in order to provide additional information regarding the Group’s ability to meet future debt service payments, capital expenditure and working capital requirements, and as a metric to evaluate profitability. OIBDA is not a measure of financial performance under US GAAP, and is not an alternative to operating income as a measure of operating performance, or to cash flows from operating activities as a measure of liquidity. While depreciation and amortisation are considered operating costs under US GAAP, these items primarily represent the non-cash current period allocation of costs arising from the acquisition or development of long-term assets in prior periods. OIBDA is commonly used as a criterion for evaluation of operating performance by credit and equity investors and analysts. The calculation of OIBDA may be different from the calculation used by other companies and comparability may therefore be limited. OIBDA can be reconciled to the Group’s consolidated statements as follows:

Reconciliation of OIBDA

		Q1 2009				Q1 2008				Q4 2008				Q1 2009				Q1 2008				Q4 2008
		RUR ‘mln		% of revs		RUR ‘mln		% of revs		RUR ‘mln		% of revs		US$ ‘mln		% of revs		US$ ‘mln		% of revs		US$ ‘mln		% of revs
Operating profit		2,798		24.7%		2,949		29.2%		3,357		31.4%		82.2		24.6%		121.3		29.1%		123.1		31.4%
Add: Depreciation and amortisation		1,493		13.2%		1,185		11.7%		1,139		10.7%		44.1		13.2%		48.9		11.7%		42.0		10.7%
OIBDA		4,291		37.8%		4,134		40.9%		4,496		42.1%		126.4		37.8%		170.2		40.8%		165.0		42.1%

Underlying net income attributable to Comstar-UTS is net income attributable to Comstar-UTS before foreign transactions losses. This measure is included in this results statement in order to provide additional information regarding the Group’s underlying performance. Underlying net income attributable to Comstar-UTS can be reconciled to the Group’s consolidated statements as follows:

		(RUR millions)										(US$ millions)
		Q1 2009		Q1 2008		Growth		Q4 2008		Growth		Q1 2009		Q1 2008		Growth		Q4 2008		Growth
Net income attributable to Comstar-UTS (reported)		494		1,312		(62%)		1,628		(70%)		12.6		54.1		(77%)		59.2		(79%)
Add back foreign currency transactions losses, net		799		94		750%		91		776%		26.2		3.9		570%		3.7		611%
Net income attributable to Comstar- UTS (underlying)		1,293		1,406		(8%)		1,719		(25%)		38.8		58.0		(33%)		62.9		(38%)

Underlying effective tax rate is income tax expense adjusted for the effect of change in statutory tax rate divided by income before taxes adjusted for the non-deductible effects of revaluation of put option and foreign currency transactions. This measure is included in this results statement in order to provide additional information regarding the Group’s effective tax rate without the effect of major items that comprise income before taxes but have no tax effect, or adjustments to income tax expense. Underlying effective tax rate can be reconciled to the Group’s consolidated statements as follows:

		(RUR millions)										(US$ millions)
		Q1 2009		Q1 2008		Growth		Q4 2008		Growth		Q1 2009		Q1 2008		Growth		Q4 2008		Growth
Income before taxes (reported)		1,113		3,097		(64%)		2,815		(60%)		29.0		127.4		(77%)		103.2		(72%)
Less change in fair value of put option		–		(349)				–				–		(14.4)				–
Add back non-deductible portion of foreign currency transactions losses, net		1,300		–				796		63%		41.6		–				28.8		45%
Income before taxes (adjusted)		2,413		2,748		(12%)		3,610		(33%)		70.6		113.1		(38%)		132.0		(47%)
Income tax expense (reported)		518		685				577		(10%)		15.1		27.9		(46%)		21.4		(29%)
Add back effect of change in statutory tax rate		–		–				442				–		–				15.7
Income tax expense (adjusted)		518		685				1,019		(49%)		15.1		27.9		(46%)		37.1		(59%)
Underlying effective tax rate		21%		25%				28%				21%		25%				28%

Attachment B

“COMSTAR – United TeleSystems” OJSC

UNAUDITED CONSOLIDATED INCOME STATEMENTS

		Three months ended March 31,				Three months ended March 31,
		2009		2008 (*)		2009		2008 (*)
		(RUR million, except for share and per share amounts)				(US$ thousand, except for share and per share amounts)
Operating revenues		11,343		10,114		$ 334,371		$ 416,955
Operating expenses, excluding depreciation and amortisation, net		(7,052)		(5,980)		(208,008)		(246,707)
Depreciation and amortisation		(1,493)		(1,185)		(44,132)		(48,915)
		__________		__________		__________		__________
Operating income		2,798		2,949		82,231		121,333
Interest income		246		258		7,381		10,670
Interest expense		(1,145)		(365)		(33,890)		(15,035)
Change in fair value of put option		–		349		–		14,369
Change in fair value of purchased call option		(137)		–		(4,810)		–
Reversal of impairment of long-term investments		150		–		4,329		–
Foreign currency transactions loss, net		(799)		(94)		(26,211)		(3,914)
		__________		__________		__________		__________
Income before income taxes		1,113		3,097		29,030		127,423
Income tax expense		(518)		(685)		(15,091)		(27,896)
		__________		__________		__________		__________
Net income		595		2,412		13,939		99,527
Less: net income attributable to the noncontrolling interest		(101)		(1,100)		(1,340)		(45,442)
		__________		__________		__________		__________
Net income attributable to Comstar-UTS		494		1,312		$ 12,599		$ 54,085
Weighted average number of common shares outstanding – basic		358,224,856		404,456,856		358,224,856		404,456,856
Earnings per common share – basic		RUR 1.4		RUR 3.2		US$ 0.04		US$ 0.13
Weighted average number of common shares outstanding – diluted		358,224,856		406,090,181		358,224,856		406,090,181
Earnings per common share – diluted		RUR 1.4		RUR 3.2		US$ 0.04		US$ 0.13

(*) As reported in 2008 without the effect of combination of Stream-TV entities. Net income attributable to the noncontrolling interest was reclassified pursuant to the provisions of SFAS No. 160 (As Amended), “Noncontrolling Interests in Consolidated Financial Statements”.

“COMSTAR – United TeleSystems” OJSC

UNAUDITED CONSOLIDATED AND COMBINED BALANCE SHEETS

		March 31,		December 31,		March 31,			December 31,
		2009		2008 (*)			2009		2008 (*)
Assets		(RUR million)				(US$ thousand)
Current assets:
Cash and cash equivalents		2,929		1,821		$	86,114		$	61,974
Short-term investments		1,046		9,478			30,754			322,606
Trade receivables, net		5,098		4,891			149,890			166,478
Other receivables, prepaid expenses and other current assets		2,645		2,327			77,764			79,197
Inventories and spare parts		1,088		966			31,983			32,952
Deferred tax assets, current portion		738		327			21,688			11,142
		_________		__________		__________			__________
Total current assets		13,544		19,810			398,193			674,349
Property, plant and equipment, net		53,836		54,532			1,582,777			1,856,064
Intangible assets, net		9,339		9,505			274,568			323,499
Investments in shares of Svyazinvest		36,460		36,460			1,071,942			1,240,977
Other long-term investments		2,792		2,660			82,083			90,509
Other long-term assets		46		185			1,340			6,308
		_________		__________		__________			__________
Total assets		116,017		123,152		$	3,410,903		$	4,191,706

(*) The amounts as of December 31, 2008 were restated due to combination of Stream-TV.

“COMSTAR – United TeleSystems” OJSC

UNAUDITED CONSOLIDATED AND COMBINED BALANCE SHEETS (continued)

		March 31,		December 31,		March 31,			December 31,
		2009		2008 (*)			2009		2008 (*)
		(RUR million)				(US$ thousand)
Liabilities and shareholders’ equity:
Current liabilities:
Trade accounts payable, accrued expenses and other current liabilities		7,515		7,940		$	220,939		$	270,243
Deferred connection fees, current portion		915		917			26,891			31,216
Subscriber prepayments		1,210		1,272			35,565			43,311
Debt, current portion		8,177		15,052			240,392			512,324
Capital lease obligations, current portion		137		163			4,022			5,563
		_________		__________		__________			__________
Total current liabilities		17,954		25,344			527,809			862,657
Long-term liabilities:
Deferred connection fees, net of current portion		2,971		3,019			87,349			102,764
Debt, net of current portion		21,559		22,214			633,847			756,099
Capital lease obligations, net of current portion		8		30			227			1,021
Post-retirement obligations		867		859			25,485			29,250
Property, plant and equipment contributions		2,726		2,738			80,148			93,197
Deferred tax liabilities, long-term portion		3,477		3,018			102,213			102,712
Payable to Sistema Hals		1,124		1,081			33,044			36,807
Other long-term liabilities		95		55			2,799			1,874
		_________		__________		__________			__________
Total long-term liabilities		32,827		33,014			965,112			1,123,724
		_________		__________		__________			__________
Total liabilities		50,781		58,358			1,492,921			1,986,381
Shareholders’ equity:
Comstar-UTS shareholders’ equity:
Common stock		418		443			23,900			24,728
Treasury stock		(60)		(60)			(2,545)			(2,545)
Additional paid-in capital		27,881		29,783			1,004,736			1,072,015
Prepayment for the acquisition of Stream-TV		–		(2,461)			–			(86,842)
Retained earnings		18,780		18,923			662,077			675,512
Accumulated other comprehensive loss		(2,569)		(2,515)			(381,310)			(181,434)
		_________		__________		__________			__________
Total Comstar-UTS shareholders’ equity		44,450		44,113			1,306,858			1,501,434
Noncontrolling interest		20,786		20,681			611,124			703,891
		_________		__________		__________			__________
Total shareholders’ equity		65,236		64,794			1,917,982			2,205,325
		_________		__________		__________			__________
Total liabilities and shareholders’ equity		116,017		123,152		$	3,410,903		$	4,191,706

(*) The amounts as of December 31, 2008 were restated due to combination of Stream-TV. Equity attributable to the noncontrolling interest was reclassified pursuant to the provisions of SFAS No. 160 (As Amended), “Noncontrolling Interests in Consolidated Financial Statements”.

“COMSTAR – United TeleSystems” OJSC

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Three months ended March 31,				Three months ended March 31,
		2009		2008 (*)			2009		2008 (*)
		(RUR million)				(US$ thousand)
Operating activities:
Net income		595		2,412		$	13,939		$	99,527
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortisation		1,493		1,185			44,132			48,915
Stock-based compensation		40		(44)			1,069			(1,794)
Change in fair value of put option		–		(349)			–			(14,369)
Change in fair value of purchased call option		137		–			4,810			–
Reversal of impairment of long-term investments		(150)		–			(4,329)			–
Loss from disposal of fixed assets and other non- cash items, net		29		13			858			531
Compensation of losses from third parties		(36)		(64)			(1,057)			(2,619)
Amortisation of deferred finance charges		3		2			80			100
Deferred taxes		39		(32)			1,026			(1,321)
Foreign currency transactions loss on non- operating activities, net		755		99			22,245			3,999
Postretirement benefits		16		23			484			937
Provision for doubtful debts		232		63			6,846			2,594
Inventory obsolescence charge		–		8			–			335
Changes in operating assets and liabilities:
Trade receivables		(439)		(410)			(12,949)			(16,910)
Other receivables, prepaid expenses and other current assets		(318)		(237)			(9,364)			(9,789)
Inventories and spare parts		(120)		(76)			(3,530)			(3,147)
Trade accounts payable, accrued expenses and other current liabilities		1,298		1,029			38,266			42,412
Deferred connection fees		(51)		(29)			(1,495)			(1,193)
Subscriber prepayments		(63)		5			(1,851)			199
		__________		__________		__________			__________
Net cash provided by operating activities		3,460		3,598		$	99,180		$	148,407

(*) As reported in 2008 without the effect of combination of Stream-TV entities. Presentation of the operating activities section has been adjusted to conform to new income statement presentation pursuant to the provisions of SFAS No. 160 (As Amended), “Noncontrolling Interests in Consolidated Financial Statements”.

“COMSTAR – United TeleSystems” OJSC

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

		Three months ended March 31,				Three months ended March 31,
		2009		2008 (*)			2009		2008 (*)
		(RUR million)				(US$ thousand)
Investing activities:
Purchases of property, plant and equipment		(1,840)		(968)		$	(54,234)		$	(39,910)
Proceeds from sale of property, plant and equipment		22		15			642			620
Purchases of intangible assets		(184)		(84)			(5,430)			(3,481)
Acquisition of minority interests in existing subsidiaries		(28)		–			(816)			–
Purchases of long-term investments		(14)		(39)			(413)			(1,617)
Proceeds from sale and redemption of long-term investments		–		2			–			91
Purchases of short-term investments		–		(1,495)			–			(61,616)
Proceeds from sale and redemption of short-term investments		8,915		849			261,945			35,016
Decrease in restricted cash		–		37			–			1,534
		__________		__________		__________			__________
Net cash provided by / (used in) investing activities		6,871		(1,683)			201,694			(69,363)
Financing activities:
Acquisition of Stream-TV		(103)		–			(3,044)			–
Proceeds from borrowings		56		13			1,641			553
Principal payments on borrowings		(9,153)		(179)			(266,964)			(7,385)
Principal payments on capital lease obligations		(61)		(61)			(1,810)			(2,510)
Dividends paid		(0)		(13)			(3)			(520)
		__________		__________		__________			__________
Net cash used in financing activities		(9,261)		(240)			(270,180)			(9,862)
Effects of foreign currency translation on cash and cash equivalents		38		–			(6,554)			9,930
		__________		__________		__________			__________
Net increase in cash and cash equivalents		1,108		1,675			24,140			79,112
Cash and cash equivalents, beginning of the period		1,821		4,413			61,974			179,794
		__________		__________		__________			__________
Cash and cash equivalents, end of the period		2,929		6,088		$	86,114		$	258,906

(*) As reported in 2008 without the effect of combination of Stream-TV entities.

¹ Except for presentation of comparative financial information which has not been restated to reflect retrospective combination of the financial statements of STREAM-TV, which is a departure from US GAAP (see detailed explanation below)

² The average exchange rate for the period was 33.93 Russian Rubles (RUR) per US$ 1 in the first quarter of 2009; RUR 27.27 per US$ 1 in the fourth quarter of 2008; and RUR 24.26 per US$ 1 in the first quarter of 2008

³ Here and below, please refer to Attachment A to this statement for a full definition of OIBDA

⁴ Here and below, please refer to Attachment A to this statement for a full definition of underlying net income attributable to Comstar-UTS

⁵ Here and below, cash capital expenditure comprises purchases of property, plant and equipment, and intangible assets

⁶ NPS, Net Promoters Score. According to Romir

⁷ Excluding depreciation and amortisation, net

⁸ MGTS Finance S.A. is a 100% owned subsidiary of ZAO UTS MGTS, which is a wholly-owned subsidiary of OJSC MGTS

⁹ Here and below, please refer to Attachment A to this statement for a full definition of underlying effective tax rate

¹⁰ Subscribers of Voice + Broadband Internet service

¹¹ Including Broadband Internet, Pay-TV (IPTV and HDTV), VOD and other value added services

¹² Including subscribers of Voice + Broadband Internet + Pay-TV service

¹³ Including STREAM-TV and Comstar branches

¹⁴ Including subscribers of Pay-TV + Broadband Internet service

¹⁵ Excluding depreciation and amortisation charges

¹⁶ Excluding depreciation and amortisation charges

¹⁷ Including all kinds of services

¹⁸ Excluding depreciation and amortisation charges

¹⁹ Calculated as net cash provided by operations less cash CAPEX

²⁰ Calculated as total debt less cash and cash equivalents and short term investments

Comstar-UTS
Masha Eliseeva
Tel: +7 985 997 08 52
ir@comstar-uts.ru
or
Shared Value Limited
Matthew Hooper
Tel. +44 (0) 20 7321 5010
comstar@sharedvalue.net