Rostelecom continued to actively diversify its business through the development of innovative services in the first half of 2008.  As a result, the Company delivered increases in the following key figures:

• First half 2008 OIBDA* increased by 14% year on year to RUB 7.8 billion, representing an OIBDA margin of 25%;
• Revenue from new and value-added services in the first half of 2008 grew by 45% year on year and totaled more than RUB 4 billion as the Company executed its business diversification;
• Rostelecom’s consolidated net profit increased by 4 times year on year to RUB 9.8 billion.
  

The strong growth in revenue from new and value-added services (RUB 4,157.0 million – a year-on-year increase of 45.1%) in the first half of 2008 was driven by:

• Revenue from Internet access services for operators and corporates, which surged by 3.9 times year on year to RUB 1,278.0 million;
• Revenue from intelligent network services (INS), which rose by 26.8% year on year to RUB 653.0 million;
• Revenue from technical support and customer equipment servicing, which increased by 53.3% year on year to RUB 627.0 million.

Rostelecom attracted additional incoming international traffic volume to the Companys network by successfully partnering with international operators. In the first half of 2008, incoming international traffic rose by 9.4% compared to the same period a year ago.

Rostelecom’s first half 2008 operating profit increased by 1.5 times year on year to 4,237.0 million. Operating margin improved to 13.5%. This was mainly driven by a decrease in operating expenses due to the elimination of a compensation surcharge as of January 1, 2008**, as well as other factors. Compared to the first half of 2007 the Company’s operating expenses amounted to RUB 27,162.0 million – a year-on-year decrease of 5.7%.

Consequently, OIBDA rose by 14.0% year on year to RUB 7,846.0 million representing an OIBDA margin of 25.0%.

Other income for the first half of 2008 amounted to RUB 9,030.0 million from RUB 406.0 million in the same period of 2007, up 22 times year on year. The increase is due to additional income from the sale of investments as well as higher net interest income that offset a foreign exchange loss.

Due to ongoing business process optimization and the streamlining of the Companys organizational structure, headcount for Rostelecom and its subsidiaries was reduced from approximately 22.9 thousand employees as of June 30, 2007 to approximately 22.4 thousand employees as of June 30, 2008 – a year-on year decrease of 2.6%.

First half 2008 consolidated financial statements include the results of operations of Rostelecom and its subsidiaries - Westelcom, GlobalTel, Globus-Telecom, Zebra Telecom, MTs NTT and others. Consolidated financial statements for the first six months of 2008 do not include assets, liabilities and operating results of RTComm.RU as Rostelecom only acquired full control over this company in July 2008.  RTComm.RUs assets, liabilities and results of operations will be included in the Rostelecom’s FY 2008 consolidated financial statements.