Alfa-Bank - Alfa Group

TelecommunicationsOur telecommunications segment is representedby Altimo (primarily comprisingstakes in integrated telecommunicationsand internet provider GoldenTelecom, Inc. and cellular providersVimpelCom, MegaFon, Kyivstar) and theGroup’s investment in Turkcell. In absoluteterms, the telecoms segment in 2006contributed nearly four and one halftimes more profit (excluding the effect ofredeemable capital) than in 2005. Whileall of our cellular companies are experiencingrapid subscriber and revenuegrowth on the markets where they operate(mainly Russia, Ukraine, Kazakhstan(USD)60and Turkey), they are also securingfuture growth by continuing to expandinto the most attractive markets of theCIS and Europe. Notably, in early 2005Altimo purchased Bakrie UzbekistanTelecom (“Buztel”), the fourth largestGSM operator in Uzbekistan and thensold it to VimpelCom in early 2006 for US$60 million plus the assumption of debt.Additionally, in early 2006 VimpelComacquired Unitel, the second largest GSMoperator in Uzbekistan for US $200 millionplus the assumption of debt. In mid-2006 VimpelCom purchased a 51% stakein Georgian GSM-operator Mobitel forUS $12.6 million plus an option to purchasethe remaining 49% of the company.In late 2006 VimpelCom purchased a90% stake in Armenia’s integrated telecomprovider Armentel for US $445 millionand the remaining 10% stake in2007 for EURO $38.6 million. GoldenTelecom, Inc. was busy completing anumber of acquisitions of alternativetelecommunications and internetproviders during 2006 in Russia’s regions(Ekaterinburg, Nizhniy Novgorod, theRepublic of Tatarstan and theKrasnodarsky region of Russia) as well asinto Ukraine. In early 2007 GoldenTelecom, Inc. acquired a 65% interest inFortland Limited which holds Kolangon-Optim LLC which holds licenses to offerdigital television services in several ofthe largest cities of Russia. Also in May2007 Golden Telecom, Inc. purchased a51% stake in Corbina Telecom Group, afacilities based alternative telecommunicationsprovider of broadband Internet,voice and data services in Moscow and24 regions of Russia.Altimo itself made a number of acquisitionsduring 2006. During 2006 Altimoincreased its voting stake inVimpelCom by 3.4% from the end of2005 until the end of 2006 to 36.3%.Altimo made additional purchases in2007 of 7.7% of the common sharesincreasing their voting control to44.0% through 30 June 2007. Also, inmid-2006 Altimo entered the Kyrgyzmarket through acquiring control overSky Mobile.As investors, we view emerging marketstelecommunications assets as an attractivemarket segment. We are certainthat in the years to come that telecommunicationswill play a growing role inthe development of the Group and willcontribute on an increasingly largescale to Group profits.Since having made our first investments into the telecoms sector in mid-2001 through purchase of significant stakes in USNASDAQ-listed Golden Telecom, Inc. and US NYSE-listed VimpelCom, their share prices have risen 437% and 2007% respectivelythrough 30 June 2007. Additionally, since having made investment into NYSE-listed Turkcell, in November 2005, itsshare price has risen 22% through 30 June 2007.Golden Telecom, Inc.(USD)120VimpelCom(USD)20TurkcellINVESTMENTGROUPProprietary and For Client InvestmentDuring 2006 A1 established a jointventure with Diageo, the world’slargest alcoholic drinks maker toact as exclusive distributor of Diageo spiritbrands as well as A1’s Smirnov vodkabrand in Russia. Diageo paid A1 US $50million and A1 remained a blocking minorityshareholder. Additionally, A1 participatedin a number of opportunistic transactionsincluding the acquisition and saleof an oil field located in the Tomsk regionof Russia to TNK-BP, the acquisition andsale of a stake in a warehouse complex toits joint venture partner and the purchaseand sale of a controlling stake in a commercialbank to its minority shareholder.After posting modest net profits in 2005,A1 posted similarly modest profits in2006. During the past few years A1 hasmade a number of longer term investmentsfor which it expects to realize significantprofits in the ensuing years. Suchinvestments include the development of adomestic Russian low-cost airline, thedevelopment of a national chain of cinemas,investment into an interregionalmunicipal water operator and others.Venture Investment in TechnologyRussian Technologies, which also forms part of the Group’s investment segment, did not impact significantly onprofit in 2006 as it only began to make its first investments during 2004. Russian Technologies has been seededwith US $50 million in initial capital. Noteworthy projects which have already received initial funding include:4836241296724824161284Ultra Motor Company Ltd. PLT Electro-Com Ltd. Yutec Technologies Ltd. PBC Lasers Ltd. Wostec Inc. SJ Labs Inc. UHT Inc.Patented, rechargeableelectric propulsionsystem forlight vehiclesincluding bicycles.Aimed at high-populationcountriessuch as India andother regions ofAsiaUse of existingpower supply networksto enablehigh-speed andhigh- quality communicationsfor useon the Russian market.Intel Corporationis a co-investor inthe projectDisk crystallizertechnology providessignificantimprovements inprocessing oil andparaffin in thepetrochemicalindustryDevelopment ofnew laser diodetechnology for CDand DVD readersand writers, scannersand otherapplicationsSelf-forming waveordered-structurednanostructures.Potential for a widerange of applicationsincludingadvanced LCD displays,integratedcircuits and opticalcomponentsVoIP technologyadd-on to existingsoftware and businessapplicationsWi-Max technologyfor use with wirelessinternet accessand telecommunicationsin Ukraine.Intel Corporation isa co-investor in theproject2001 2002 2003 2004 2005 2006 2007 20082001 2002 2003 2004 2005 2006 2007 2008Beginning of YearBeginning of YearCommon SharesADS2005 2006 2007 2008Beginning of YearADS18 / ALFA GROUP / ANNUAL REPORT 2006ALFA GROUP / ANNUAL REPORT 2006 / 19