Mobile TeleSystems
Financial and Operational Results
First Quarter Ended March 31, 2003
June 26, 2003
Internet site: www.mtsgsm.com/ir
email address: ir@mts.ru
1
2003: Implementing the strategy
Remaining a leader in Russia
Market share nation-wide remained at 37%*
Market share in Moscow increased from 43% at YE2002 to 46%*
Expanding the regional franchise
New GSM licence for Saratov region (population of 2.7 million) received
MTS acquired 51% of a leading operator in Tatarstan for $61 million
Consolidating of acquired operators
MTS brand and new tariffs were introduced to Dontelecom (Rostov) and
Kuban GSM (Krasnodar)
Exploiting opportunities in the CIS
countries
Acquired a 57.7% stake in UMC, a leading mobile operator in Ukraine. The
ownership was subsequently increased to 83.7% in June 2003.
Reducing the cost of capital
MTS placed a $400 mln bond in January 2003 to finance its expansion
*According to AC&M-Consulting as of May 31, 2003
Mobile TeleSystems, June 26, 2003
2
Income Statement Highlights
MTS reports strong top line and bottom line growth
Revenue
EBITDA
Net income
80%
82%
87%
446.1
224.8
80.2
123.5
247.6
42.8
Q1 02
Q1 03
Revenues were boosted
mainly by organic growth of
MTS business
Q1 02
Q1 03
MTS maintains EBITDA
margin of 50%
Q1 02 Q1 03
Strong net earnings growth
Note: See Attachment A for definitions of EBITDA and EBITDA margin and a reconciliation of both financial measures.
Mobile TeleSystems, June 26, 2003
Source: MTS
3
Strong Subscriber Growth
 MTS is a market leader in Russia and the CIS with over 11.23m subs as of
June 25, 2003
 MTS together with its subsidiaries currently operates in Russia (9.23m subs)
and Ukraine (1.99m subs)
 MTS’ 49%-owned joint venture in Belarus services around 165,000 customers
MTS Subscriber Base, 1998-2003 (mln)
12.0
UMC contributes
2 mln users to
MTS subs base
9.0
6.0
3.0
0.1
0.3
1.2
2.7
6.6
11.2
1998
1999
2000
2001
2002
25 June 2003
-
Source: MTS
Mobile TeleSystems, June 26, 2003
4
The Booming Market
 The mobile population in Russia grew by 10m in 2002 and by an additional
5.3m in the first five months of 2003 to 23.5m, fueled by a growing economy
and a greater demand for telecommunications services. Mobile penetration
is currently at 16%*
Russian Mobile Market Growth (mln subscribers)
and MTS Market Share
25.0
50%
20.0
37%
35%
37%
40%
33%
15.0
30%
23%
10.0
20%
16%
12%
5.0
0.5
10%
0.7
1.4
3.4
8.0
18.0
23.5
-
0%
1997
1998
1999
2000
2001
2002
Jun-03
Source: AC&M-Consulting
*According to AC&M-Consulting as of May 31, 2003
Mobile TeleSystems, June 26, 2003
5
#1 Provider in Russia
 MTS continues to be the market leader in the Russian market with a 37%*
market share
 MTS market share in the Moscow market has increased from 43% at yearend 2002 to 46% at the end of May 2003*
 The Company’s strategic objective is to remain as the leading mobile phone
operator in Russia both in terms of revenues and number of subscribers
*According to AC&M-Consulting as of May 31, 2003
Mobile TeleSystems, June 26, 2003
6
Tapping the market in Ukraine
 At the end of Q1 2003 UMC, MTS’ subsidiary in Ukraine, had 1.82 million
subscribers of which around 71% were using pre-paid services
 The company provided services to around 2 million subscribers as of June
25, 2003
 As of end of May 2003, UMC controlled around 45% of the cellular market in
Ukraine*
UMC Subscriber Base, 1998-2003 (mln)
2.0
1.5
1.0
0.5
0.1
0.3
0.4
0.9
1.7
2.0
1998
1999
2000
2001
2002
25 June
2003
-
*According to Ukrainian News as of May 31, 2003
Mobile TeleSystems, June 26, 2003
7
Building the footprint in Belarus
 MTS’ unconsolidated subsidiary started operations in Belarus in June 2002
and has so far built a market share of 21%* competing against the only
incumbent GSM operator
MTS LLC Subscriber Base in Belarus (in thousands)
180
165
139
150
120
106
83
90
60
43
30
22
18
14
11
8
4
64
53
25
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*According to AC&M-Consulting as of May 31, 2003
Mobile TeleSystems, June 26, 2003
8
Breakdown by Regions
Subscribers (thousands)
Region
Moscow License Area
December 31,
2001
March 31,
2002
June 30,
2002
September 30,
2002
December 31,
2002
March 31,
2003
2 035.4
2 084.6
2 351.2
2 688.2
3 082.3
3 540.4
2%
Growth
Central (ex. Moscow)
276.1
334.0
33.9
46.7
Growth
St Petersburg Licence Area
Growth
North-West (ex. St Petersburg)
Growth
South
Growth
Urals
Growth
Siberia
Growth
Far East
Growth
Total
46.4
28.4
na
52.6
151.1
26.3
2 650.3
Growth
420.8
21%
Growth
Volga
13%
38%
264.1
469%
36.0
27%
482.4
na
58.8
12%
189.9
26%
31.2
19%
3 527.8
26%
212.7
356%
400.5
52%
55.6
55%
541.7
12%
99.2
69%
244.8
29%
40.6
30%
29%
287.8
29%
35%
565.2
33%
41%
37%
64%
67%
34%
22%
66%
23%
26%
15%
442.2
26%
73.2
33%
13%
90.6
36%
6 644.7
24%
12%
232.9
390.3
54.0
46%
993.5
202.1
309.0
8%
223
885.7
164.3
17%
834.4
152.6
726.1
14%
446.1
775.5
91.1
15%
798.2
381.6
5 427.7
24%
15%
701.4
541.9
4 367.0
33%
14%
24%
7 601.3
22%
14%
Source: MTS
Mobile TeleSystems, June 26, 2003
9
Developing the Infrastructure
 At the end of Q1 2003, MTS together with its consolidated subsidiaries
operated 6,142 base stations and 72 switches
 In addition, MTS’ joint venture in Belarus operated 242 base stations and
one switch
Number of Base Stations
Number of Switches
8 000
80
UMC had 1,320
base stations
6 000
72
UMC had 8
switches
6142
60
48
4453
4 000
40
2125
2 000
709
163
347
1997
1998
31
20
1123
13
2
-
6
8
1998
1999
1999
2000
2001
2002
31 March
2003
Source: MTS
Mobile TeleSystems, June 26, 2003
1997
2000
2001
2002
31 March
2003
Source: MTS
10
Licences Coverage
As of June 25, 2003 MTS’ GSM licences covered a population of
169.2m, including 110.2m in Russia, 10m in Belarus
and 49m in Ukraine
Murmansk
Anadyr
Kaliningrad
#
St. Petersburg
Petrozavodsk
Arkhangelsk
Pskov
Novgorod
Naryan-Mar
Vologda
Tver
Minsk Smolensk
Yaroslavl
Syktyvkar
Moscow
Kostroma
Kaluga
Salekhard
Ivanovo
Bryansk
Kirov
Tula Vladimir
Кiev
Kudymkar
Kursk Orel Ryazan N. Novgorod
Khanty-Mansiysk
Lipetsk
Izhevsk
Belgorod
Tambov
Perm
Voronezh
Kazan
Ekaterinburg
Saratov
Ufa
Tumen
Rostov-on-Don
Samara
Chelyabinsk
Kurgan
Krasnodar
Omsk
Orenburg
Maikop
Elista
Novosibirsk
Barnaul
Gorno-Altaysk
Blagoveschensk
Kyzyl
Yuzhno-Sakhalinsk
Khabarovsk
Source: MTS
Mobile TeleSystems, June 26, 2003
11
Profitability of Regions
MTS operations in the regions of Russia added $18.9 million to the
Company’s bottom line in Q1 2003
Other Entities in
Russia
(Regional
Segment)
UMC
US$ mln
Total
Intercompany
Eliminations
MTS
(Moscow
Segment)
Revenues
446.1
-19.3
302.0
133.5
29.9
Depreciation and amortisation
75.2
44.0
25.5
5.7
Net operating income
149.6
-2.7
98.1
43.4
10.8
Net income
80.2
-2.7
62.5
18.9
1.5
Note: MTS has consolidated UMC from March 1, 2003
Source: MTS
MTS’ business is organized on a geographical operations basis. Performance is measured and reported based on operating income by legal entity. Currently, MTS reports operations
in Russia in two segments: MTS OJSC and Rosico (“Moscow Segment”) and all other legal entities in Russia combined. The Moscow Segment includes operations in the Moscow
license area in addition to operations in Ivanovo, Kirov, Kaluga, Kostroma, Komi Republic, Kurgan, Nizhny Novgorod, Orenburg, Perm, Ryazan, Pskov, Saratov, Smolensk, Tambov,
Tula, Tumen, Tver, Vladimir, Chelyabinsk, and Yaroslavl.
The second geographical segment includes all of our other Russian legal entities not included above, most notably our operation in the north-west of Russia, including St. Petersburg,
and southern Russia, including Krasnodar.
Mobile TeleSystems, June 26, 2003
12
Key Operating & Financial Data
MTS Operations in Russia
 MOU - Usage per subscriber decreased in Q1 2003 largely because of
seasonal factors
 ARPU - continued to decline partially as a result of decreased usage
but also as a result of an increase in the number of mass-market
subscribers in the subscriber mix
 Churn - the general market trend of growing churn continued during
Q1 2003. Today, programs aimed at encouraging customer loyalty
have become increasingly important for the Company
Q1 2002
Q2 2002
Q3 2002
Q4 2002
Q1 2003
$26.7
$25.0
$25.2
$21.2
$18.5
MOU (minutes)
142
167
175
175
148
Churn rate (%)
9.8
7.7
6.5
10.1
11.6
SAC per gross additional sub (US$)
$36
$39
$32
$34
$30
ARPU (US$)
Source: MTS
Mobile TeleSystems, June 26, 2003
13
SAC Breakdown
 SAC per gross subs addition in Russia continued to decline in 2003
reflecting the lower cost of attracting mass-market subscribers (in
particular, the lower commissions paid to dealers for Jeans
subscribers)
Subscriber Acquisition Cost per Gross
New Subscribers (US$)
50
Dealer commission
40
30
1.1
9
Avertising and promotion
Handset subsidy
1.0
0.4
1.0
8
9
0.1
11
8
20
27
27
24
24
22
Q1 2002
Q2 2002
Q3 2002
Q4 2002
Q1 2003
10
-
Source: MTS
Mobile TeleSystems, June 26, 2003
14
Key Operating & Financial Data
MTS Operations in Ukraine
Q1 2003
March 2003
$15.9
$16.3
MOU (minutes)
87
87
Churn rate (%)
8.9
3.1
SAC per gross additional sub (US$)
$51
$44
ARPU (US$)
Source: MTS
Mobile TeleSystems, June 26, 2003
15
Disclaimer
Some of the information in this presentation may contain projections or other forwardlooking statements regarding future events or the future financial performance of MTS, as
defined in the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of
1995. 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. We wish to caution you that these statements are only
predictions and that actual events or results may differ materially. We do not intend to
update these statements to reflect events and circumstances occurring after preliminary
offering memorandum dated as of January 28, 2003 and to reflect the occurrence of
unanticipated events. We refer you to the documents MTS files from time to time with the
U.S. Securities and Exchange Commission, specifically, the Company’s most recent Form
20-F. These documents contain and identify important factors, including those contained in
the section captioned "Risk Factors," that could cause the actual results to differ materially
from those contained in our projections or forward-looking statements, including, among
others, potential fluctuations in quarterly results, our competitive environment, dependence
on new service development and tariff structures; rapid technological and market change,
acquisition strategy, risks associated with telecommunications infrastructure, risks
associated with operating in Russia, volatility of stock price, financial risk management,
and future growth subject to risks.
Mobile TeleSystems, June 26, 2003
16
Attachment A
EBITDA should not be considered in isolation as an alternative to net income, operating income, net cash provided by
operating activity or any other measure of performance under U.S. GAAP. We believe that EBITDA is viewed as a relevant
supplemental measure of performance in the wireless telecommunications industry and we define EBITDA as operating
income excluding depreciation and amortization. EBITDA margin is defined as EBITDA as a percentage of our net
revenues. We believe EBITDA and EBITDA margin to be relevant and useful information as these are one of important
measurements used by our management to measure the operating profits or losses of our business. EBITDA is also one of
many factors used by the credit rating agencies to determine our credit ratings. EBITDA and EBITDA margin should be
considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with
accounting principles generally accepted in the United States of America. EBITDA and EBITDA margin, as we have
defined them, may not be comparable to similarly titled measures reported by other companies, who may refer to EBITDA
as Adjusted EBITDA. EBITDA is often calculated by adjusting net income to exclude only depreciation and amortization,
income taxes and interest. If EBITDA were so calculated it would have been: $211.5 million, $116.5 million, $172.0
million for Q1 2003, Q1, 2002 and Q4 2002, respectively.
The following table provides a reconciliation of EBITDA to operating income:
US$ million (unaudited)
Q1
2003
Q1
2002
Q4
2002
EBITDA
$224.8
$123.5
$182.7
Less: depreciation and
amortisation
($75.2)
($41.6)
($59.0)
Operating income
$149.6
$81.9
$123.7
Mobile TeleSystems, June 26, 2003
17
Attachment A (continued)
The following table provides a reconciliation of EBITDA margin to operating income as a percentage of net revenues:
As a percentage of net
revenues (unaudited)
Q1
2003
Q1
2002
Q4
2002
EBITDA margin
50.4%
49.9%
44.6%
-16.9%
-16.8%
-14.4%
33.5%
33.1%
30.2%
Less: depreciation and
amortization as a % of net
revenues
Operating income as a % of net
revenues
If the Company were to reconcile EBITDA to net income, following would be the reconciliation:
US$ million
Net income
Q1
2003
Q1
2002
Q4
2002
$80.2
$42.8
$85.2
Add: depreciation and
amortisation
$75.2
$41.6
$59.0
Add: income taxes
$40.5
$25.9
$16.3
Add: interest
$15.6
$6.2
$11.6
$13.8
$4.3
$14.8
($0.7)
$0.8
$1.0
$0.2
$1.9
($5.2)
$224.8
$123.5
$182.7
Add: minority interest
Add (less): currency exchange
and translation losses (gains)
Add (less): Other expenses
(income)
EBITDA as reported
Mobile TeleSystems, June 26, 2003
18