Note 15: Related Parties

Related parties balances as of December 31, 2007 and 2006, comprised the following:

Transactions with major related parties are described below.

Moscow Bank of Reconstruction and Development (”MBRD”)—MTS maintains certain bank and deposit accounts with MBRD, whose major shareholder is Sistema. As of December 31, 2007 and 2006, MTS cash position at MBRD amounted to $321.7 million and $86.5 million in current accounts, respectively. Deposit accounts at MBRD amounted to $265.0 million as of December 31, 2007, and $55.0 million as of December 31, 2006. The related interest accrued and collected on the deposits for the years ended December 31, 2007, 2006 and 2005, amounted to $18.9 million, $4.8 million and $5.4 million, respectively, and was included as a component of interest income in the accompanying consolidated statements of operations.

TS-Retail—As discussed in Note 3, in November 2006, MTS established a wholly‑owned subsidiary, TS-Retail, with a registered capital of $1.1 million for further expansion of Group’s retail operations. In December 2007, following the execution of a business development plan, TS-Retail carried out an increase in charter capital up to $14.0 million which was bought out by MTS ($2.4 million) and other subsidiaries of Sistema ($11.6 million). As a result of the transaction, the Group’s share in TS-Retail decreased to 25%. MTS deconsolidated TS-Retail since that date and subsequently accounted for this investment under the equity method. During 2007, MTS granted a short-term loan to TS-Retail in the amount of $8.6 million.

Comstar UTS (”Comstar”)—MTS had interconnect, line and numbering capacity rental agreements with Comstar, Telmos and MTU-Inform, subsidiaries of Sistema. During 2007 Telmos and MTU-Inform merged with Comstar. Revenue under agreements with these entities for the years ended December 31, 2007, 2006 and 2005, amounted to $10.0 million, $1.7 million and $nil million, respectively. Interconnect and line rental expenses for 2007, 2006 and 2005 comprised $34.8 million, $25.9 million and $25.2 million.

Maxima Advertising Agency (”Maxima”)—In 2007, 2006 and 2005, MTS had agreements for advertising services with Maxima, a subsidiary of Sistema. Advertising costs related to Maxima for the years ended December 31, 2007, 2006 and 2005, amounted to $127.7 million, $117.8 million and $58.6 million, respectively.

MTT—In 2007, 2006 and 2005, MTS had interconnect and line rental agreements with MTT, a subsidiary of Sistema. Interconnect revenue for 2007, 2006 and 2005 amounted to $62.0 million, $29.4 million and $5.0 million, respectively. Interconnect expenses for 2007, 2006 and 2005 amounted to $83.1 million, $69.3 million and $41.1 million, respectively.

Moscow City Telephone Network (”MGTS”)—In 2007, 2006 and 2005, MTS had line rental agreements with MGTS, a subsidiary of Sistema, and rented a cable plant from MGTS for the installation of optic‑fiber cable. MTS also rented buildings for administrative offices as well as premises for switchboard and base station equipment. Rental expenses for the years 2007, 2006 and 2005 amounted to $16.3 million, $13.1 million and $8.3 million, respectively. Interconnect revenue for 2007, 2006 and 2005 amounted to $25.2 million, $7.9 million and $0.3 million, respectively.

Mediaplanning—During 2007, 2006 and 2005, MTS entered into a number of agreements to purchase advertising services with Mediaplanning, a subsidiary of Sistema. Related advertising costs recorded for the years ended December 31, 2007, 2006 and 2005 amounted to $48.8 million, $45.1 million and $21.5 million, respectively.

Rosno OJSC (”Rosno”)—MTS arranged medical insurance for its employees and property insurance with Rosno (a subsidiary of Sistema until February, 2007). Insurance premiums paid to Rosno for the years ended December 31, 2006 and 2005, amounted to $11.3 million and $12.6 million, respectively. Staring from February, 2007, Rosno is no longer a related party of the Group, as Sistema sold its controlling stake in Rosno to Allianz.

Sitronics—Sitronics Telecom Solutions Czech Republic and Russia, formerly Strom Telecom and Mediatel, are subsidiaries of Sistema. During 2007, 2006 and 2005, the Group acquired from these companies telecommunications equipment, billing systems (FORIS) and related services for approximately $67.1 million, $231.2 million and $179.2 million, respectively. FORIS implementation was substantially completed in 2007.

Kvazar‑Micro.ru (”Kvazar”)—In 2004, MTS signed agreements for software implementation services with Kvazar, a subsidiary of Sistema. Pursuant to these agreements, Kvazar provided to MTS systems integration services in respect to implementation of Oracle E-Business Suite (”OEBS”) in 2007, 2006 and 2005 of approximately $64.8 million, $52.1 million and $62.0 million, respectively. The implementation of OEBS was substantially completed at the end of 2007.

Sitronics Smart Technologies (former SmartCards)—In 2007 and 2006, MTS purchased SIM cards and prepaid phone cards from Sitronics Smart Technologies, a subsidiary of Sistema, for approximately $19.3 million and $37.0 million.

Sistema Telecom—In May 2006, Sistema introduced a universal brand featuring a new egg-shaped logo for each of the telecommunication companies operating within the Sistema group, including MTS. The brand is owned by Sistema Telecom, a subsidiary of Sistema. The expenses related to the use of the brand name incurred by MTS and paid for in 2007 and 2006, amounted to $14.5 million and $9.7 million, respectively.

City Hals—In 2007 and 2006, City Hals, a subsidiary of Sistema, provided rent, repair, maintenance and cleaning services to MTS of approximately $6.1 million and $5.2 million, respectively.

The Group does not have the intent and ability to offset the outstanding accounts payable and accounts receivable with related parties under the terms of existing agreements with them.