Rostelecom (ROS)

We are subject to the regulation and control of the FST and Federal Anti-Monopoly Service, or the FAS, and our failure to comply with these regulations could have a material adverse effect on us.

        Under Russian law, the state has the authority to regulate, to a certain extent, activities of natural monopolies. As we are considered to be a natural monopoly, we are subject to regulation by the FST. In addition, as an entity controlling more than 35% of the DLD and ILD telecommunications market in Russia, we are also subject to regulation by the FAS.

        The Natural Monopolies Law provides for state control over the setting of tariffs for publicly-accessible telecommunications services, mail services and other activities. This law significantly impacts our ability to set tariffs independently. The Natural Monopolies Law and the Law on Protection of Competition govern the types of transactions into which a regulated entity, such as us, may enter. Any failure to comply with these laws could materially adversely affect our business. The Russian government, through the FST, regulates end-user DLD tariffs and may require us to enter into specified contracts with state-owned entities. Although we are permitted to petition the FST to change the tariffs based on such criteria as inflation and increased costs, such requests may not be granted. In addition, as a regulated entity, we are not permitted to refuse to enter into contracts with particular consumers if the FAS so requires. Our business, financial condition and results of operations could be

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materially adversely affected in the event that tariffs are set at an insufficient level or we are forced to enter into contracts on unfavorable commercial terms.