Corporate Strategy

Welcome

Dear Shareholders,

Welcome to our 2007 online annual review.

Corporate Strategy Continues to Yield Successful Results

As we look back on 2007, it is evident that we successfully executed upon our corporate strategy, as we continued to fulfill the commitments that we have made to you, our customers and our employees.

Having recently become President and CEO of MTS, I look forward to building upon our successful track record and delivering continued strong returns for our shareholders in the coming years; providing the best experience possible for all of our customers; and enabling our employees to develop and enhance their careers as part of one of the most dynamic companies in Russia and the CIS.

During 2007 we evolved the strategy that our new management team formulated in 2006 into the 3+2 strategy, which is focused on capturing the growth in our core markets, creating value in developing markets, developing mobile broadband in all markets where we are present, and maintaining cost efficiency while further enhancing our synergies, processes and capabilities across the Group.

The good progress we have made in executing this strategy has translated directly into strong financial results. In 2007, revenues rose by 29% year-on-year to $8.3 billion. Top line growth in the year was driven by a very strong performance in Russia and continued positive developments throughout our operations in the CIS.

We also maintained our target of an OIBDA margin of above 50%, with OIBDA of $4.2 billion for the year, with a 51.2% margin. It is interesting to note that OIBDA grew significantly faster than revenues in spite of increasing cost pressures in marketing and labor expenses in Russia and Ukraine, which was particularly visible in our second-half results for 2007.

Net income increased at an even faster rate, rising by 93% year-on-year to just over $2 billion. These results were driven by sound financial management and strong cash flow generation throughout the year. Our buoyant bottom line performance meant that we were able to deliver high shareholder returns, with our earnings per ADS up 94% year-on-year to $5.25 from $2.70 in 2006. Additionally, we will be paying our first billion dollar annual dividend this year, returning some $1.2 billion, or $3.12 per ADS, to shareholders on the back of our strong results.

MTS has continued expansion in the CIS. In September 2007, MTS announced the acquisition of a 80% stake in K-Telecom CJSC, Armenia’s largest mobile phone operator, as well as signing of a call and put option agreement for the remaining 20% stake to be exercised no earlier than July 2010.

During 2007, we continued to increase the recognition and value of the MTS brand throughout our markets, which is a key component of our corporate strategy. In the first half of 2008, we were honored to be recognized as the first Russian company to be included in the BRANDZ™ Top 100 Most Powerful Brands survey conducted by Millwood Brown in association with the Financial Times.