Investments and development · 2000 ANNU AL REPORT ROSTELECOM Dear Shareholders, We are bringing to your attention an Annual Report of OJSC Rostelecom for the year 2000. The year

2 0 0 0 A N N U A L R E P O R T R O S T E L E C O M

C O N T E N S

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25

28

32

Key events of the year 2000

Business andeconomic activity

Investments and development

Securities

Services and revenues

Employees

Development strategy and Rostelecom objectives for

2001

Financial statements as ofJanuary 1, 2001

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10

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29

Dear Shareholders,

The year 2000 was not easy for both Rostelecom, the

largest Company of the Svyazinvest holding and entire

telecommunications industry of the country.

Growing competition in the telecommunications market and

immature legal environment, which does not ensure a level

playing field for all market players � those features could not

but affect the activity of the Russian major long�distance carrier.

Nevertheless, Svyazinvest as Rostelecom majority shareholder

has no doubts that Rostelecom will successfully overcome the

current difficulties and become a stronger and even more

robust market player. And such confidence is well grounded.

Nowadays Rostelecom possesses one of the world largest

trunk networks and ensures Russia’s links with the rest of the

world, providing transmission of all types of messages. Far from

being complacent with these achievements the Company

constantly upgrades its facilities, deploying a digital network

based on the state�of�the�art technologies, installing new

Internet access nodes, implementing projects to create an

open multimedia network and introducing intelligent network

services.

Rostelecom comprehensive technical capabi l i t ies and

strategically advantageous geographic position of Russia

create tangible chances for the main international and

long�distance operator for entering international markets.

In particular, provision of transit routes between Europe and

South Asia across the Russian territory is viewed as an

extremely promising and attractive opportunity.

Mentioning Rostelecom perspectives it should be noted that

the Company possesses advanced management techniques

and is able to employ investments efficiently.

On its part Svyazinvest holding intends to maintain

Rostelecom’s monopoly in the market of long�distance

telecommunications, as its immediate liberalization would

prove to be extremely damaging for the whole country.

Additionally, we will further pursue our policy toward the

necessity to abolish cross�subsidizing and seek to ensure

reimbursement of social expenses to Rostelecom.

From the standpoint of the majority shareholder Svyazinvest

assures that Rostelecom can rely on the wholehearted

support of the parent Company in its activity and innovative

undertakings.

With wishes of further success,

V.N.Yashin,

Chairman of the Board of Directors of OJSC Rostelecom

General Director of OJSC Svyazinvest



Dear Shareholders,

We are bringing to your attention an Annual Report of OJSC

Rostelecom for the year 2000.

The year under review was a jubilee year for Rostelecom. Ten

years of intensive and creative work allowed the Company to

build a modern telecommunications infrastructure across the

territory of the whole country. The Russian digital core network

becomes a solid foundation for further development of advanced

telecommunications services and capturing new markets.

Another significant event of the previous year was the restructuring

of Merrill Lynch credit. Signing of this agreement between

Rostelecom and an International consortium of banks in March

2000 became an evidence of continuing trust of investors and

Western financial institutions toward the Company.

In 2000 the merger of Rostelecom and MMT was completed

that resulted in a powerful and highly profitable affiliate

integrated into Rostelecom structure providing a full range of

telecommunications services in metropolitan Moscow.

These events significantly consolidated Rostelecom standing,

strengthened its position as a national operator linking Russia

with the whole world. One of the primary tasks of Rostelecom

is to maintain and further consolidate its position in the

environment of market liberalization and growing competition.

For this purpose we should do our best to learn in a short

period of time to give a quick and flexible response to a

rapidly changing market situation, to forecast demand for new

technologies and services, and be ready to offer them in due time.

By optimizing costs and streamlining business management

we should establish ourselves in the most lucrative sectors of

the national telecommunications market; expand our exposure

in the international markets, where we have good opportunities

for providing transit traffic routes between Europe and Asia

on commercially beneficial terms.

In this period of critical changes in the telecommunications

industry Rostelecom management relizes responsibility to the

State, shareholders and investors. We are also confident,

that welfare and prosperity of the Company, and, to a great

extent, the future of telecommunications in Russia, depend on

the success of the results of our work.

Yours sincerely,

S.I. Kuznetsov

Acting General Director

OJSC Rostelecom

R O S T E L E C O M A N N U A L R E P O R T 2 0 0 0

COMPANY’S CHIF EXECUTIVES


ROSTELECOM’S MANAGEMENTCOMMITTEE IN 2000

Mr. Nikolay Mikhailovich Korolev Chairman of the Management Committee.

General Director of OJSC Rostelecom

Mr. Pavel Ivanovich AlpetianDeputy General Director of OJSC Rostelecom.

Mr. Victor Grigorievich BaklanovDeputy General Director of OJSC Rostelecom

Director of SOMES, a subsidiary of OJSC Rostelecom.

Mr. Vladislav Sergeevich Vasin First Deputy General Director of OJSC Svyazinvest.

Mr. Alexander Sergeevich Vyshlov Deputy General Director of OJSC Rostelecom.

Mr. Yuri Innokentievich Dubrovski First Deputy General Director of OJSC Rostelecom

Mrs. Natalia Fedorovna Kosharnaya Chief Accountant of OJSC Rostelecom.

Mr. Roman Borisovich Kreinin First Deputy General Director of OJSC Rostelecom.

Mr. Alexander Vladimirovich Lopatin Deputy General Director of OJSC Svyzinvest.

Mr. Vladimir Alexandrovich Petrov Deputy General Director of OJSC Rostelecom.

Mr. Kirill Vladimirovich SkokovDeputy General Director of OJSC Rostelecom.

Mr. Alexander Vladimirovich ShaparevDeputy General Director of OJSC Rostelecom.

Mrs. Nina Petrovna ShemetovaDeputy General Director of OJSC Rostelecom.


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9

KEY EVENTS of the YEAR 2000January

Rostelecom won an award in the nomination “TelecommunicationsOperators” at the annual contest for excellence in the quality oftelecommunications hardware manufacturing and service provisionconducted by the Ministry of Telecommunications and Informatizationof the Russian Federation.

February

Participation in the International show CeBIT2000in Hannover, Germany

March

A Credit Agreement between Rostelecom and an Internationalconsortium of banks on restructuring of the Company’s debt becameeffective.

July

The first operational phase of Rostelecom Satellite Communications Network based on the frequency resources of a new generation satellite LMI�1 was put into service.

August

Completion of the merger between Rostelecom and MMT.

A fiber optic cable link between Rostov�on�Don and Lugansk (Ukraine)was put into service.к

The second operational phase of Rostelecom SatelliteCommunications Network based on the frequency resources of a newgeneration satellite LMI�1 was put into service.

October

A fiber optic cable link Novorozhdestvenskaya � Stavropol �Makhachkala with spurs to cities in the NorthernCaucasus was put into service.

A joint project of Rostelecom and Guta�Bank to issue co�branding VISA cards was launched.

December

Participation in the international exhibition Asia Telecom 2000 in Hong�Kong.

The first operational phase of a fiber optic cable link Samara�Saratov�Volgograd with spurs to Rostov�on�Don, Elista, Budennovsk was putinto service.

A fiber optic cable link Perm � Izhevsk was put into service.

Аn analysis of the Company’s operations and

financial activity allows to draw a conclusion that the

Company’s tasks set for 2000 were basically fulfiled.

Gross income of the Company in 2000 reached Rbl

16,870 mln by 1.3% higher than planned and by

10.9% higher than in 1999.

Operation costs in 2000 amounted to Rbl 12,122

mln. During the whole year measures were taken

to cut down the analog network operation and

maintenance costs.

Considerable funds were allocated by the Company

to meet obligations under credit agreements resulting

in reduction of accounts payable from Rbl 406 mln

down to Rbl 328 mln. A significant event was

completion in March 2000 of the restructuring of

USD 100 mln Merrill Lunch’s credit facility.

Under the restructuring agreement 2/3 of the total

hard currency debt were converted in the rouble

debt, and the repayment term was set for four years

both for the hard currency and rouble components.

Last year the Company adopted a centralized

accounting system instead of decentralized

accounting effective previously. As from January

1st, 2001 the Company acts as a unified taxpayer

across the whole of Russia.

Meeting its tax obligations the Company paid Rbl

3,918 mln to budgets of various levels. Some Rbl

679.6 mln were paid to non�budget public funds.


Business and

economic activity

Basic parameters of Rostelecom

business operations in 2000

(according to the Russian Accounting

Standards)

R e v e n u e s f r o m s a l e s R b l i n t h o u s 1 , 2 0 7 , 0 6 5 1 6 , 8 7 0 , 2 1 5

C o s t s o f s a l e s R b l i n t h o u s 8 , 9 2 5 , 7 2 8 1 2 , 1 2 2 , 4 7 7

E a r n i n g s f r o m s a l e s R b l i n t h o u s 6 , 2 8 1 , 3 3 7 4 , 7 4 7 , 7 3 8

E a r n i n g s b e f o r e i n t e r e s t , d e p r e c i a t i o n a n d t a x R b l i n t h o u s 5 , 3 0 5 , 8 4 3 8 , 1 1 3 , 9 0 5

P r o f i t b e f o r e t a x R b l i n t h o u s 2 , 0 6 2 , 5 4 8 2 , 3 9 2 , 1 2 2

Description Unit 1 9 9 9 2 0 0 0

P r o f i t m a r g i n % 4 1 . 3 1 % 2 8 . 1 4 %

P r o f i t m a r g i n b e f o r e i n t e r e s t d e p r e c i a t i o n , a n d t a x % 3 4 . 8 9 % 4 8 . 1 0 %

N e t p r o f i t m a r g i n % 9 . 3 9 % 1 9 . 5 8 %

R e t u r n o n a s s e t s % 4 . 2 3 % 2 . 5 8 %

R e t u r n o n e q u i t y % 8 . 7 5 % 5 . 0 6 %

Q u i c k r a t i o 2 . 1 8 1 . 9 4

C u r r e n t r a t i o 0 . 3 8 0 . 1 9

A u t o n o m o u s r a t i o 0 . 3 6 0 . 3 5

E V / E B I T D A 1 2 . 4 9 5 . 1 6

10

In 2000 the Company continued to develop and

improve the national digital network of

Rostelecom.

Capital expenditures for construction of fiber optic

cable links (FOCL) reached Rbl 2,427 mln. Using

leasing scheme Rbl 2,139 mln worth of equipment

was procured.

Over the reported period 2,523 km of FOCL with

total capacity of 40.3 mln channels by km were put

into operation.

As of the end of 2000 the total length of lines

reached 198,680 km, including 35,080 km of

digital lines, which account for 17.7% of the total

length.

The overall capacity of the core trunk network of

Rostelecom reached 765.9 mln channels by km

(i.e. number of channels multiplied by length),

including 549.3 mln channels by km of digital

capacity, accounting for 71.7% of the total capacity

of Rostelecom network.


11

Investments and

development

Length of Rostelecom

transmission lines

thousand km

180

160

140

120

100

80

60

40

20

0 1996 1997 1998 1999 2000 2001(forecast)

analog lines

digital lines

Major Rostelecom projects carried

out in 2000

FOCL Novorozhdestvenskaya �

Stavropol � Makhachkala

The length of the section put into service in

2000 is 901 km.

Total length is 1629 km.

The FOCL is a segment of a digital ring in the

South of Russia.

Making the link operational provided connections

of southern cities: Stavropol, Pyatigorsk,

Kislovodsk, Mineralnye Vody, Cherkessk, Nalchik,

Vladikavkaz, Nazran, Makhachkala to the digital

core trunk network.

FOCL Perm � Izhevsk

The length of the section put into service in

2000 is 657 km.

The FOCL is a segment of a digital ring Moscow�

Kazan�Perm � Ekaterinburg � Chelyabinsk � Samara

� Moscow.

The construction of the link allowed for district

centers of Perm region to have an access to the

digital core trunk network.

A company OJSC Uralsvyazinform contributed to

the construction of the link.


12

I N V E S T M E N T S A N D D E V E L O P M E N T

Length of Rostelecom telecommunications channels

mln. channels by km

800

700

600

500

400

300

200

100

0 1996 1997 1998 1999 2000 2001(forecast)

analog lines

digital lines

FOCL Samara � Saratov � Volgograd

The length of the section put into service in 2000

(the first operational phase) is 928 km.

The FOCL is a segment of a digital ring Moscow �

Samara � Volgograd � Rostov�on�Don � Moscow

being created in the South of Russia.

The construction of the link allowed for long�

distance telephone exchanges in Saratov and

Volgograd to have an access to the digital trunk

distribution network.

A Volgograd company OJSC Electrosvyaz made a

contribution into the construction of the link.

FOCL Aksay � Lugansk

The length of the link is 36 km (up to the Russian�

Ukrainian border).

The FOCL is the second fiber optic cable link

between Russia and Ukraine.

Making the link operational will allow to complete

transition to international principles of inter�

connection between Russia and Ukraine, provide

transit routes to European countries and to

dismantle obsolete analog transmission paths

between the two countries.


13


Rostelecom switching capacity

thousand ports

250

200

150

100

50

0 1997 1998 1999 2000

analog circuits

digital circuits

In 2000 deployment of the integrated services net�

work using CCSS7 was basically completed. The

integrated services network is a modern network

which for the first time in Russia ensured provision

of not only high�quality telephone service, but the

whole range of applications: video telephony, data,

video conference calls. Provision of ISDN services

in 2000 was introduced in 51 Russian regions.

Intelligent Network is the most promising technology

ensuring provision of advanced value added net�

work services. The network will allow at modest

initial one�off expenditures to roll out a wide range

of telecommunications services and applications.

In 2000 Rostelecom installed and put into

operation a hardware�software platform to

provide intelligent network services.

Last year the construction of the second opera�

tional phase of an open multimedia network of

Rostelecom was completed, and customer offices

in 71 Russian regions and 9 public subscriber

centers were connected to it.

In 2000 the deployment of core network to access

the global Internet continued. As of January 1, 2001

the number of access nodes reached 76 (47 nodes

as of January 1, 2000).

The total international bandwidth to access global

Internet rose over the year from 126 Mbps up to

216 Mbps.

Development of the single united digital transport

media to ensure transmission of traffic flows of

regional carriers continues.


14


Rostelecom plans to complete

construction of the following

facilities in 2001:

і FOCL Samara � Saratov � Volgograd with spurs to

Rostov�on�Don, Elista, Budennovsk (the 2nd and

3rd operational phases);

і FOCL Vologda � Petrozavodsk � Murmansk

(the 1st operational phase);

і deployment of four long�distance exchanges in

Moscow at the sites of Trunk Exchanges MTS�5,

MTS�9, MTS�10, MTS�34;

і installation of an International Exchange in

Murmansk;

і deployment of a core Internet network of

Rostelecom.

Further development of its network the Company

envisages on the basis of packet switching technology

which will allow transmission of various types of

information. The packet switching technology

should smoothly fit into existing trunk network

architecture providing for high�speed transmission

of steadily growing volumes of traditional voice

traffic and data.


15



16

Legend:

North�West

Center

Northern Caucasus

Volga Region

Ural

Siberia

Far East

Digital Trunk Network of Rostelecom up to 2005

Existing digital exchanges

Existing analog exchanges

Existing metal lines with digital transmission systems

Analog microwave links with digital modems

Existing digital fiber�optic and microwave transmission lines

Planned digital fiber�optic and microwave transmission lines

Existing earth stations of the satellite communications network, project North�East

Planned earth stations based in satellite LMI�1

Existing earth stations based in satellite LMI�1

Automatic Switching Nodes (UAKs)

International Switching Centers (ISCs), International Exchanges (MNTS)

NovokuzneNovokuzne

TTomsoms

KKemeremerNovosibirskNovosibirsk

BarnaulBarnaul

OmskOmsk

Gorno�AGorno�A

SeveromorskSeveromorsk

MurmanskMurmansk

Whi

te S

ea

ArkhangelskArkhangelsk

PetrozavodskPetrozavodsk

S.PetersburgS.Petersburg

PskovPskov

KKaliningradaliningrad

Poland Baltic States

Belarus

Ukraine

Tu

rke

y

Ge

org

ia

AzerbaijanKazakhstan

ITUR

Denmark Finland

NovgorodNovgorod

TTverver CherepovetsCherepovets

YYaroslavlaroslavlVVologdaologda

KKostromaostroma SyktyvkarSyktyvkar

PermPerm

YYekaterinburgekaterinburg

UfaUfa

OrenburgOrenburg

ChelyabinskChelyabinsk

KurganKurgan

TTyumenyumen

SurgutSurgut

SalekhardSalekhard

KKamennyyamennyy

AmdermaAmderma

GydaGyda

CheboksarCheboksar yyUlyanovskUlyanovsk YYoshkar�Olaoshkar�Ola

IvanovoIvanovo

NizhnyNizhny

NovgorodNovgorodKirovKirov

IzhevskIzhevskKKazanazan

TTogliattiogliatti

NaberezhnyeNaberezhnye

ChelnyChelny

Pavlovsky Pavlovsky PosadPosad

VladimirVladimir

RyazanRyazan

SolnechnogorskSolnechnogorsk

SmolenskSmolensk

BrBr yanskyansk

KKalugaalugaChekhovChekhov

TTulaula

TTambovambovKurskKurskOrelOrel

BelgorodBelgorodLipetskLipetsk

VVoronezhoronezhSaranskSaransk

SaratovSaratov

VVolgogradolgograd

Rostov�on�DonRostov�on�Don

ElistaElista

StavropolStavropol

AstrakhanAstrakhan

GroznyyGroznyy

MakhachkalaMakhachkala

NazranNazran

VladikavkazVladikavkaz

NalchikNalchik

Mineralnye VMineralnye Vodyody

CherkesskCherkessk

MaykopMaykopSochiSochi

NovorossiyskNovorossiysk

Sea of Azov

KrasnodarKrasnodar

PenzaPenza

SamaraSamara

MoscowMoscow

Barents Sea

Baltic Sea

Bla

ck S

ea

Ca

sp

ian

Se

a


17

Statsionar�16 1400 East

Yamal�100 900 EastLMI��1 750 East

TTyndaynda

ChitaChita

Ulan�UdeUlan�UdeIrkutskIrkutsk

BirBir yusinskyusinsk

KyzylKyzyl

AbakanAbakanetsketsk

KrasnoyarskKrasnoyarsk

AchinskAchinskkk

rovorovo

AltayskAltaysk

YYakytskakytsk

Ust�KutUst�Kut

China

Korea

Japan

VVolochankaolochanka

VVolgochanolgochan

KhatangaKhatanga

TTaymylyraymylyr

ZhiganskZhigansk

Ust�KuygaUst�Kuyga

TiksiTiksi KKazachyeazachye

Sredne�KSredne�Kolymskolymsk

DeputatskiyDeputatskiy

ChokurdakhChokurdakh

PevekPevek

Mys ShmidtaMys ShmidtaEgvekinotEgvekinot

VVankaremankarem

AnadyrAnadyr

OkhotskOkhotsk

MagadanMagadan

Petropavlovsk�Petropavlovsk�

KKamchatskiyamchatskiy

CherskiyCherskiy

SelikhinoSelikhino

YYuzho�uzho�

SakhalinskSakhalinsk

NakhodkaNakhodka

Sea of J

apan

Sea of Okhotsk

Be

rin

g S

ea

Laptev SeaKara Sea

East�Sib

erian S

ea

VladivostokVladivostok

KhabarovskKhabarovsk

BirobidzhanBirobidzhan

BlagoveshchenskBlagoveshchensk

SkovorodinoSkovorodino

In 2000 Rostelecom revenues from sales of

telecommunications services reached Rbl 16,864.9

mln meaning a growth by 16.8% over 1999 revenues.

In the breakdown of revenues international and

domestic long�distance services account for the

bulk (93%) of the total revenues.

International Telecommunications

Outgoing international traffic in 2000 rose by 1.7%

as compared to 1999 and reached 944 mln minutes

of use.

The falling trend in the incoming international

traffic could not be reversed in 2000, and the

volume fell by 3.5% as compared to 1999 and

amounted to 896.1 mln minutes.

In 2000 the first in Rostelecom history agreement

on provision of direct (hard�patched) transit under

terms of Right�of�Way (DDP) for the term of 5

years was signed; a number of similar agreements

are under negotiations now. Sales of hard�patched

transit across the territory of Russia and submarine

cable capacity under the terms of administrative

lease and IRU continued.


18

Rostelecominternational traffic in 1997 � 2001

990

970

950

930

910

890

870

850

1997 1998 1999 2000 2001

(forecast)

mln. minutes

Services and

revenues

In order to improve competitiveness of Rostelecom

in the international telecommunications service

market in Moscow, and attract private customers

generating high volumes of international traffic,

discounted international tariffs for overseas countries

were introduced in 2000, effective for private customers

entering into advance payment arrangements for

international telecommunications services.

The sales of circuits provided for users of inter�

national private leased circuits increased; the total

number of permanently leased circuits grew by

15% over the reported period, resulting in revenues

growth of 7.3%. Due to the fall in the income from

account settlements for incoming international

traffic with correspondent carriers of other countries

the total revenues generated by international

services grew very slightly.

In 2000 the steady growth of domestic long�distance

traffic over Rostelecom network continued to be

sustainable (growth of 26.7% as compared to 1999)

driven by implementation of the Company’s

investment programs and by expansion of regional

operators’ local networks.


19

S E R V I C E S A N D R E V E N U E S

Rostelecom domestic long�distance traffic in 1997 � 2001

Breakdown of revenues on mainactivity areas

7000

6000

5000

4000

3000

2000

1000

1997 1998 1999 2000 2001

(forecast)

Revenues from

domestic

long�distance

traffic

38%

Revenues from

international

traffic

55%

Other 7%

mln. minutes

Domestic Long�Distance

Telecommunications

The volume of total outgoing long�distance traffic

amounted to 4,960.4 mln minutes, of which 67%

accounts for the traffic from regional public network

operators. This traffic brings to the Company only

44% of revenues from domestic long�distance services.

Bearing in mind that the state�regulated settlement

rates with regional operators have not been revised

since 1996, the international telecommunications

service which is a high�margin business for the

industry on the whole, turned out to be loss making

for the Company when provided in regions.

Indexation of settlement rates is a top priority task

of the Company in 2001.

In order to streamline tariffs for services rendered

in 2001 it is planned to develop and implement

guidelines to calculate costs of services based on

actual production costs.

International and domestic long�distance

telecommunications services to subscribers in

Moscow region are provided by an affiliate of

Rostelecom called MMT.


20


Revenues from international service

7000

6000

5000

4000

3000

2000

1000

0 1997 1998 1999 2000 2001

(forecast)

mln. Rbl

In August 2000 the merger of Rostelecom and MMT

was completed. Tariff revenues from provision of

telecommunications services in Moscow region

accounted for 40% of the total operating revenues

of Rostelecom.

In 2000 sales of prepaid telephone cards STK and

Abonement were quite successful, and total

revenues generated by sales of these cards exceeded

the last year volume by 31.5% reaching Rbl 29.4 mln.

International and domestic long�distance services

were rendered to customers in 33 public telephone

offices and service centers owned by MMT, as well

as at the post�offices of Moscow Metropolitan Post

Department, using Quant, Unit, Imatel hardware;

phone cards for MTA Urmet were also sold there.

The income from provision of long�distance

services at the public telephone offices in 2000

amounted to Rbl 135.2 mln, exceeding by 33.4%

the last year income.

Over the reported period in addition to its main

activity Rostelecom’s subsidiary MMT also provided

about 80 other services to corporate customers and

private subscribers. Revenue generated by

additional services amounted to Rbl 196 mln.


21


Revenues from domestic long�distance services

7000

6000

5000

4000

3000

2000

1000

0 1997 1998 1999 2000 2001

(forecast)

mln. Rbl

Sound and TV program broadcasting

Revenues from rendering TV and broadcast

services rose as compared to 1999 by 3.15

times and reached Rbl 315.4 mln.

The increase in revenues resulted from raising

tariffs and entering into new contracts with

commercial TV and radio companies.

Internet and data transmission

Despite stiff competition Rostelecom managed

to maintain its position on this segment of

telecommunications market

Revenues from sales of these services amounted

to Rbl 366.87 mln, exceeding by 125.5% the

revenues in 1999.


22


Growth rate of revenuesfrom Internet services

2 0 0 0

I Q II Q III Q IV QI Q II Q III Q IV Q

120

100

80

60

40

20

0

1 9 9 9

mln. Rbl.

The main growth of sales of Rostelecom Internet

services was observed in Russian regions; with

sales of Rostelecom Internet services in Moscow

and S.Petersburg in 2000 reaching USD4.5 mln,

while the sales of Internet in the regions amounted

to USD8.5 mln. In order to maintain in 2000 a

sustainable growth of revenue from provision of

access to the global Internet Rostelecom and

Svyazinvest signed an agreement to establish an

affiliate RTComm.ru � a national Internet Service

Provider, based on Rostelecom network.

Implementation of this project is planned for 2001.

Expansion and introduction

of new telecommunications services

New services offered to operators and private

customers on Rostelecom network were further

developed:

і commissioning for commercial operation of an

Intelligent Platform of Rostelecom was completed;

agreements with regional carriers were reached

regarding routing their traffic via the Platform

and account settlement arrangements;

і 71 customer offices and 9 public subscriber

centers were established based on the open

multimedia network of Rostelecom;

і multimedia calls were set up between multimedia

customers and public ISDN subscribers (both

international and domestic long�distance);

і 37 countries throughout the world are covered

with Home Country Direct Service and Russia

Direct Service;


23


і access to International Free Phone service is

provided to 274 international customers;

і connections to all Russian regions and majority

of countries in the world are provided using

Rostelecom prepaid phone cards.

Moving forward the Company continued to

develop innovative products. Jointly with Guta

Bank Rostelecom implemented a service whereby

Rostelecom customers are offered an opportunity

to pay for their domestic long�distance and

international calls using their credit cards.

Main objectives of the Company in

service provision for 2001

To ensure jointly with regional operators extended

range and increased volume of services being

rendered.

To increase revenues from sales of international

and domestic long�distance telecommunications

services through increase of volume and extending

the range of offered services.

To develop a comprehensive program in order to

attract interconnected network operators to

route their traffic via Rostelecom facilities.

To pursue a policy of further differentiation of

tariffs and settlement rates.


24


Over the reported period Rostelecom con�

tinued to meet in full its obligations with respect

to maintaining the listing of its shares on Russian

exchanges � RTS and MICE, and on the New�York

Stock Exchange. The Company’s shares as before

remained to be quite popular and highly liquid

instrument both on international and Russian

equity markets. Keeping a high luqidity of

Rostelecom shares was ensured by stable eco�

nomic results of the Company and transparency

policy pursued by it.

Rostelecom shares invariably captured top places

in rating lists, regularly issued by AK&M information

agency, based on such comparative parameters as

liquidity and risks. In December 2000 Rostelecom

was the fifth on the Liquidity rating and the sixth

on Risk rating list.

Honoring its shareholders’ rights Rostelecom

undertakes a range of measures to improve

financial transparency and information openness

of the Company, and as a consequence � to raise

liquidity of its securities:

provision to shareholders of financial statements

and other information about the Company;

regular meetings with investors and analysts;

presentations of significant events in the

Company’s activity;

publication of annual reports featuring data on

the results of the Company’s operations and

development prospects;

participation in international and national

exhibitions and fairs;

keeping a corporate Internet site.


25

Securities

In 2000 Rostelecom took part in a survey

conducted by the international rating agency

Standard&Poor’s on corporate governance

quality. In the first, so called pilot rating, no

quantitative marks were assigned to companies

being rated; nevertheless Standard&Poor’s on the

whole assessed highly the Company’s corporate

governance, observing the investors’ rights by the

Company in the first place, and by quality and


26

S E C U R I T I E S

Performance of ADR price on New York Stock

Exchange (NYSE), Berlin stock exchange

(Berliner Wertpapierborse) and in Russian

Trading System (RTS)

(1 ADR = 6 ordinary shares)

USD

NYSE

Berliner

RТS

Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec.

30

25

20

15

10

5

0

Preference shares

December

Foreign

shareholders

68,45%

Company’s

Employees

24,34%

Russian

shareholders

7,21%

Trading volumes on

International and

Russian stock

exchanges in 2000

(Source: АК&М)

I I I I I I I I I I I I

T R A D I N G F L O O R T r a d i n g v o l u m e ( U S D )

N e w Y o r k S t o c k E x c h a n g e 6 2 4 , 8 7 1 , 6 10

B e r l i n e r W e r t p a p i e r b o r s e 3 3 , 5 4 5 , 0 11

B a d e n � W u r t t e m b e r g W e r t p a p i e r ( S h t u t t g a r t ) 8 , 2 3 3 , 4 7 8

B a y e r i s c h e B o r s e ( M u n c h e n ) 7 , 8 3 4 , 1 0 3

F r a n k f u r t S . E . 1 1 5 , 0 6 9 , 0 7 9

R h e i n l a n d � W e s t p h a l i a n S . E . ( D u s s e l d o r f ) 3 , 7 7 1, 6 5 2

T O T A L 7 9 3 , 3 2 4 , 9 3 3

M o s c o w I n t e r b a n k C u r r e n c y E x c h a n g e ( M I C E ) 2 9 9 , 5 3 1 , 8 3 8

R u s s i a n T r a d i n g S y s t e m ( R T S ) 2 5 9 , 6 7 3 , 6 7 5

T O T A L 5 5 9 , 2 0 5 , 5 1 2

G r o s s t o t a l o v e r a l l e x c h a n g e s 1 , 3 5 2 , 5 3 0 , 4 4 5

timeliness of the disclosed information as well.

Variations of Rostelecom stock price as well as of

the price of ADR issued on the underlying

Rostelecom shares over the year followed

variations of stock price of other companies and

performance of basic stock indices.

The year high of the ordinary shares price was

USD4.00 in March, the year low was USD0.9 at the

end of the year.

Over the reported period a shift in the breakdown

of equity holding between various categories of

shareholders was revealed. It should be noted,

that the general trend of continuing increase of

the share of foreign capital in the Company’s

equity reversed to the opposite one: the share of

non�residents over the year slightly decreased.

Further concentration of shareholding capital

continued � the number of shareholders�legal

entities had fallen over the year from 410 to 272.


27

S E C U R I T I E S

Performance of average Rostelecom ordinary

share price (source: АК&М) and RTS

stock index in 2000

USD

Rostelecom share price

RTS stock index

Ordinary Shares

DECEMBER 2000

Foreign

shareholders 41,48%

Rostelecom Employees

2,36%Svyazinvest

50,67%

Russian

shareholders 5,49%

Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec.

I I I I I I I I I I I I

4,5

4,0

3,5

3,0

2,5

2,0

1,5

1,0

0,5

0

At the moment taking into account the merger

of MMT and Rostelecom the Company has a pay�roll

of 36,595. Over 21,500 Rostelecom’s employees

have a higher or technical college education.

Against the background of ever changing market

environment it is particularly vital to ensure in

advance the training of managers at all levels, and

high�skilled experts capable of operating modern

equipment.

In order to achieve this goal the Company

deployed a network of its own training centers

providing training and refreshment courses for

employees. On a regular basis the Company’s

experts are trained at training centers abroad. Over

the reported period 5,400 employees received

advanced training at courses and centers of

equipment suppliers’ abroad, at Rostelecom training

centers, training courses and seminars held by

Russian universities. One of the important component

of Rostelecom staff policy is to train future employees

for the Company.

Rostelecom entered into contracts with a number

of Russian higher education telecommunications

institutes in order to train experts to meet the

Company’s requirements.

Rostelecom provides support for telecommunications

education institutions. The Company established

35 Rostelecom scholarships for most gifted students.

In 2000 the Company continued to carry out a

program of private pensions.

For contribution into development of

telecommunications four employees were given

a title “Eminent person in telecommunications of

the Russian Federation”; for long�standing conscien�

tious efforts and contribution into construction,

a n d o p e r a t i o n a n d m a i n t e n a n c e o f

t e l e c o m m u n i c a t i o n s facilities 48 employees

were given a distinguished title “Master of

Telecommunications”; 27 employees were awarded

with a sign “Eminent Radio Engineer”.


28

Company’sEmployees

Over the past decade the Company faced an

uphill task of technical upgrade and development

of the Russian telecommunications infrastructure,

which already now became a single unified powerful

transport media for transmission of information

flows at the national scale.

In 2000 Rostelecom experts jointly with analysts

from international consulting companies developed

basic guidelines of the Company’s development

strategy for the forthcoming decade.

The strategic objectives of Rostelecom are:

maintaining and consolidation of the position of

the leading national carrier under the conditions of

telecommunications market liberalization and

growing competition; creation of efficient customer

focused business based on development and

implementation of advanced technologies and

enhancement of services.

In order to achieve these objectives, Rostelecom

faces the following primary tasks:

і improving efficiency of capital expenditures,

accelerating rates of return;

і improving efficiency of the Company management

by optimizing its structure and management

techniques;

і enhancement of exposure on the traditional and

new lucrative segments of telecommunications

market; entering the market of international traffic.

The primary technological task of the Company

for the near future is

deployment of a modern high�speed packet

switching multi�service network capable of

transmission of any type of traffic and based on

the digital core network created by Rostelecom.


29

Development strategyand Rostelecom objectives in 2001


30

Valeri NikolaevichYashin

General Director OJSC Svyazinvest

Chairman of the Board of Directorsof OJSC Rostelecom

Anton IgorevichOsipchuk

First Deputy General DirectorOJSC Svyazinvest»

Vladislav Sergeevich Vasin

First Deputy General Director OJSC Svyazinvest

Vadim EvguenievichBelov

Deputy General Director OJSC Svyazinvest

Alexander VladimirovichLopatin

Deputy General Director OJSC Svyazinvest

THE BOARD OF DIRECTORS OF OJSC ROSTELECOMELECTED AT THE MEETING OF SHAREHOLDERS ON NOVEMBER 18, 2000

Grigory Moiseevich Finger

authorized representative of Lindsell Enterprises Limited

Nikolay PavlovichEmelianov

General DirectorOJSC Novgorodtelecom

Roman BorisovichKreinin

First Deputy GeneralDirector OJSC Rostelecom

Nikolay MikhailovichKorolev

General DirectorOJSC Rostelecom

Victor AbramovichPolischuk

President OJSC RussianTelecommunications NetworkStanislav Nikolaevich

Panchenko

Deputy General DirectorOJSC Svyazinvest

31



32

OAO ROSTELECOMCONSOLIDATED

FINANCIAL STATEMENTS

PREPARED IN ACCORDANCE WITH INTERNATIONAL

ACCOUNTING STANDARDSFOR THE YEAR ENDED DECEMBER

31, 2000

CONTENS

Statement of Directors’ Responsibilities33

Report of Independent Accountants34

Consolidated Balance Sheets35

Consolidated Statements of Operations35

Consolidated Statements of Cash Flows36

Consolidated Statements of

Changes in Shareholders’ Equity37

Notes to the Consolidated

Financial Statements37

Documents

Investments and development · 2000 ANNU AL REPORT ROSTELECOM Dear Shareholders, We are bringing to your attention an Annual Report of OJSC Rostelecom for the year 2000. The year