«WE CAN ALWAYS FIND A LARGER NUMBER, AS IT IS POTENTIALLY INFINITE. THEREFORE, THE INFINITE IS POTENTIAL». Aristotle Information about the Company ................................................................................................................................................................................................. 3 General Director’s address ......................................................................................................................................................................................................... 7 I. Major corporate events in 2008 ............................................................................................................................................................................................... 9 II. The Company’s position in the industry .................................................................................................................................................................................. 15 III. The Company’s business priorities ........................................................................................................................................................................................ 21 IV. The results of the Company’s development in priority trends ................................................................................................................................................. 25 V. The Company’s expected future development ........................................................................................................................................................................ 37 VI. Risk management .................................................................................................................................................................................................................. 41 VII. HR management ................................................................................................................................................................................................................... 43 VIII. Corporate governance .......................................................................................................................................................................................................... 49 IX. Securities ............................................................................................................................................................................................................................... 59 X. Major corporate events after the balance-sheet date ............................................................................................................................................................... 63 XI. Enclosures ............................................................................................................................................................................................................................. 65 Information about the Company’s equity participation in other entities providing telecommunications services (the Company’s equity stake in their authorized capital is at least 25%) ........ 66 Accounting balance-sheet ..................................................................................................................................................................................................... 67 Audit opinion ......................................................................................................................................................................................................................... 78 Reference information for shareholders ....................................................................................................................................................................................... 81 Information about the Company 3 Nizhny Novgorod | Nizhny Novgorod regional subsidiary Kirov city | Kirov regional subsidiary Ioshkar Ola town | Mariy-El Republic regional subsidiary Izhevsk city | Udmurtia Republic regional subsidiary Cheboksary town | Chuvashia Republic regional subsidiary Ulyanovsk city | Ulyanovsk regional subsidiary Saransk town | Mordovia Republic regional subsidiary Penza city | Penza regional subsidiary Samara city | Samara regional subsidiary Saratov city | Saratov regional subsidiary Orenburg city | Orenburg regional subsidiary Aristotle is credited with dis- tinguishing between potential and actual infinite. He introduced the no- tions of potentiality in general and the actuality of the infinite. Aristotle suggests that the belief in infinity is derived from five sources: time, di- visibility of magnitude, perpetuity of generation in nature, anything limited has to be limited by something else, the fact that there is no limit to our power of thinking. 4 Full brand name: Open Joint Stock Company VolgaTelecom. Registered office: Dom Svyazi, Maxim Gorky Square, Nizhny Novgorod city, 603000, the Russian Federation. The date of the The certificate of legal entity state registration - series НРП-НН № 20362, the date of registration – December 15, 1993; state registration number 448 was issued on June 28, 2002. Company’s state registration and the OJSC VolgaTelecom was registered in the Uniform State Register of Legal Entities by the Inspection of Russia’s Ministry of Taxation for Nizhegorodskyi registration number: district of Nizhny Novgorod city on August 01, 2002 under the basic state registration number 1025203014781. The Company was registered by Order of the head of the Administration of Nizhny Novgorod city No 1605-р of December 15, 1993. By virtue of the resolution of general meeting of shareholders of OJSC “Nizhegorodsvyazinform” of November 09, 2001 the Company was reorganized by way of affiliation to it of: • OJSC “Kirovelectrosvyaz”, • OJSC “Electrosvyaz of Orenburg oblast”, • OJSC “Saratovelectrosvyaz”, • OJSC “Svyazinform” of Chuvashia Republic. • OJSC “Martelcom”, • OJSC “Svyazinform” of Penza oblast, • OJSC “Telecommunications network of Udmurtia Republic”, • OJSC “Svyazinform” of Samara oblast, • OJSC “Svyazinform” of Mordovia Republic, • OJSC “Ulyanovskelectrosvyaz”, On June 28, 2002 general meeting of shareholders of OJSC “Nizhegorodsvyazinform” passed the resolution to rename the Company into Open Joint Stock Company VolgaTelecom (OJSC VolgaTelecom). OJSC VolgaTelecom’s Mission OJSC VolgaTelecom’s Mission is to encourage the creation of modern society, the growth of regional economy and improvement of the quality of life of the Volga region residents through implementing advanced information technologies in day-to-day life. We aim at offering the people new challenges, at making their life easier and livelier. Meeting the demand for telecommunications services and developing advanced communications infrastructure at priority rates we are achieving the growth of operating efficiency thus increasing the equity value and creating jobs for the residents of the Volga Federal District. Ensuring sustained growth of business OJSC VolgaTelecom takes care of the employees’ welfare, their professional development and social security system. Relying on the principle of customer focus we are implementing new technologies, improving quality of services and subscribers’ servicing level by ap- plying innovation methods of marketing and sales in our activity. 5 Global objectives Integration of new technologies in 1 day-to-day life. Leadership position in telecommunications 2 market of the Volga region. Improvement of quality of rendered services through the development 3 and modernization of communications infrastructure, implementation of digital technologies, improvement of client servicing system. Arrangement of favorable conditions Development and efficient use of OJSC VolgaTelecom personnel potential for attraction of investments through to ensure priority trends of business development. capitalization growth and maintaining 4 established business reputation. 5 6 7 Improvement of corporate Achievement and maintaining governance system in accordance high profitability through the with the best world practices. enhancement of business efficiency and optimization of costs. 6 12:45 General Director’s address Dear shareholders, The past 2008 year was marked by a number of important events in VolgaTelecom’s life. We have completed the process of network upgrading, created the facilities for realization of services of high added value. Strategic vision of the Company’s future was rethought, and now the matters of economic efficiency and long-term financial results are making the corner-stone. Having performed in-depth analysis of market trends changes the Company has started to develop alternative business models capable in the future to ensure the growth of business in any environment. The trends characterizing general behavior of global and Russian telecommunications market, such as damping of demand for traditional telephony services resulted from mobile substitution, as well as rapid development of Internet market, have predetermined the Company’s selection in favor of intensive development of data transmission network and mobile services. Timely made decision to develop Internet broadband access services and to invest in mobile assets has made it possible for the Company to compensate for stagnation of traditional telephony revenues. In three years VolgaTelecom’s subscribers’ base of Internet broadband