MR RUBEN AMARYAN General Director of CenterTelecom
Interview with

General Director of CenterTelecom

Moscow, 6th August 2002
Can you briefly outline the key points of Centre Telecom?

Centre Telecom is one of the seven selected Russian telecommunications companies, which emerged from the restructuring of a large telecommunications holding Svyazinvest The super-regional company CenterTelecom united 17 telecommunications companies of Russia's central part. Legally the consolidation is completed on December 1, 2002, and the first meeting of the consolidated company's shareholders will be held in the first quarter of next year. The company MGTS servicing Moscow did not join the consolidated company.

Why? This topic brings up many questions from potential investors. This was the case at the road show we organised in London and New York with JP Morgan earlier this year. The decision on this issue was taken by owners of the companies involved. In our opinion there is a positive point in the fact that MGTS did not join CenterTelecom. Should MGTS join the holding, all the income earned by it would be spent to reconstruct our network. I believe that this could bring changes in the telecommunication development in the regions, which joined the holding. Today, the new holding is relatively balanced with our company from the Moscow region being the largest one.

We plan to work with corporate clients in Moscow without the participation of MGTS. I see no problems in working with Moscow clients and we have certain agreements in this respect. I have worked for 20 years in MGTS until being the general director for three years and have kept good relations with them.

The Ministry of Telecommunications estimates that about 30 billion dollars are needed during the next ten years to develop telecommunications in Russia. What are you investing in your seventeen regions?

We have development plans until 2010 and the figures are impressive. Our company is the major telecom company in Russia and one of the largest ones in Eastern Europe: the annual revenues of our company are 500 million US dollars and the number of employees is about 75 000. On the other hand, the territory of the Central federal district where our company operates is rather small as compared with the vast expanses of Siberia where SibirTelecom operates; with the maximum distance of about 750 Km from one side of our region to the other. Furthermore our climate is more moderate, working conditions (meaning construction of new networks) are more comfortable, which facilitates efficient work. Lasts but not least, business is concentrated in the central region of Russia.

We are often told that we have a long waiting list for a simple service such as an ordinary telephone line, but we are working on improving this, as it is not acceptable that in the 21st century Russian people do not have a telephone line. On the other hand, this market is not saturated. It should be noted, that Russia underwent major political and economic reforms. Revolutions in any country of the world, be it the USA, Europe or Russia, bring a temporary worsening of the population's living standards. Russia is among the countries that have suffered most. This is why when presidents of large investment companies question me about when Russian tariffs will be brought in line with at least East European tariffs, I always answer that when the living standards will correspond, the tariffs will also. This question is crucial for investors as they are looking at return on investment.

One of the main goals of telecommunications companies' consolidation is exactly to improve investor attractiveness through dramatic improvement of the business efficiency. We need large investments to build out a modern infrastructure and to meet the public demand for traditional and advanced telecommunications services.

Last year, CenterTelecom entered international stock markets with Level 1 ADRs. We are also tapping domestic investment resources: we had two bond issues completed to the total value of over 1,100 million roubles. It should be stressed that both bond issues were hugely oversubscribed: the demand was three times higher than supply.

In 2002 Russian saving bank Sberbank invested over 4 billion roubles in the development of the 7 super-regional telecommunications companies, including CenterTelecom on very beneficial terms for the holding.

On the other hand, there is more business to service in Central Russia. How are you using new technologies to offer more services and become more attractive for businesses?

Just now we commissioned for operation a multi-service network based on the state-of-art technological solutions- ATM and IP. The equipment was supplied by Lucent Technologies. The network enables provisioning of most advanced services to the residential and business sectors, large enterprises. This should give momentum to further development of telecommunications in both the Moscow and the whole Central region. The company enters the market as a carriers' carrier, selling its network resources, and will be able to develop advanced value-aided services, the tariffs for which will be set by the company itself based on the market situation and economic viability. This is closely linked with the tariff policy, as virtually all our traditional telephony tariffs are regulated by the state, since by the definition of the Ministry of Antimonopoly Policy we are monopolists.

Concerning mobile business, we are almost out of it, though we do have some mobile business in some regions, because today there are three or four players on this market with whom we can't compete.

In addition to this, we have to work in some rural areas where we have no competition because rural communication is not profitable in normal conditions. However, for us, countryside communication is very prospective because we do not have any competition there and the market is very large. We cooperate with the other six super-regional companies of the holding Svyazinvest, and with Rostelecom under rules established by the Law of Telecommunications. We know our competitors, who are the alternative operators. Today is a consolidation phase and in a year or two things will have settled down: there will be eight major companies on the nationwide scale and four to five rather large players in each region.

What are you doing to maintain your position now that competition is entering the market?

First of all, we develop our business - build a modern infrastructure. We are also streamlining our marketing policy, using our competitive advantages.

We work seriously with securities to raise money for our investments. . We plan to go out to the NYSE again with depositary receipts of the second level. It is also easier for us to compete as we take joint decisions within Svyazinvest for important technical or financial issues.

You are looking at attracting international investors. Are you also looking at developing more partnerships with foreign companies?

Since I joined this company two years ago, we have pursued a policy of absolute information openness and business transparency - this is in effect a mandatory prerequisite of our activities. By quality of information disclosure S&P's included CenterTelecom in the list of Russia's most transparent companies. I believe this a very important point for international investors.

We now meet on a regular basis with domestic and foreign journalists and analysts, publish annual reports. We participate in international ratings. For the first time S&P's assigned an international credit rating to CenterTelecom. We also plan to take part ia corporate governance rating.

Our company's management has also changed: when I came here the top managers were mostly technical experts, but today there are appeared many highly qualified financial specialists, economists, professional managers and sales experts. Furthermore, the average age of our employees does not exceed 40 years.

We are still very much concerned with our technical base and have managed to improve considerably our network in the Central Region and 40% of it is digital and corresponds to Western standards versus an average of 29 to 32 % in other regions.

Moreover our collaboration with international equipment suppliers as Lucent Technologies, Siemens and Alcatel is the best promotion we can have.

For us it is now easier to work as we already have experience of digital networks and can base our work on these experiences rather than on intuition, as MGTS has to do. We can pick up the best and most advanced technologies and move forward. Considering all this, we offer new services in the Central Region: Internet access, video conferencing, broadband access, microwave television, call centres and network management centres. We now offer the whole scope of existing services.

Looking ahead, where will you bring Centre Telecom in ten years from now?

In ten years, I will already have retired, as I will be 63 years old. In ten years, Centre Telecom will be the leading player in the fixed communications market and the company will be absolutely transparent and attractive for domestic and foreign investors and the fact that you are interviewing me today is a step in the right direction.

Our financial indices prove this as well as the capitalisation of the company increased by 100%. The attitude of Western investors and our suppliers is also positive. Our last bond issue is the brightest example of this. If you visit us next year, you will see that things will have changed dramatically as our growth rate is very strong. We have sustained a growth rate of 30% during the last two years under my management. This is very interesting and attractive for investors because in the West the communication market is if not in a crisis then at least near to it, but in Russia this market is booming.

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