Business Models Used Business Models Used inin CDMACDMA--450 Networks Deployment450 Networks Deployment

DELTA Telecom Experience: DELTA Telecom Experience: Launch and Commercial Operation of CDMALaunch and Commercial Operation of CDMA--450 450

network in North West region of Russianetwork in North West region of Russia

CDMA450 SeminarCDMA450 SeminarHongHong--KongKong

19 November 200419 November 2004

Gennady GolantGennady GolantDeputy CEO,Deputy CEO,

CTO,CTO,JSCJSC ««Delta TelecomDelta Telecom»»

22

Delta Telecom Delta Telecom the first cellular operator in Russiathe first cellular operator in Russia

l The first cellular call in Russia was made in Delta Telecom NMT 450 (1G analog network) in Sep.1991

l Delta has NMT 450 license in St.Petersburg and 50% of North-West region of Russia

l Nov. 2002 Delta got CDMA 450 license

l NMT license expire date 1.03.2005

33

CDMA450 Network Launch CDMA450 Network Launch

l Dec. 2002 The first CDMA450 network in Russia (SKYLINK ™) was launched in St. Petersburg

l Nov. 2003 CDMA450 was launched in Moscow

l Dec.2003 Licenses for all other regions were issued

l Year 2004Delta Telecom, Moscow Cellular and many other CDMA450 operators* in Russia are integrated under SKYLINK umbrella

44

Spectrum reuseSpectrum reuse

Carrier B465.225 MHz

Carrier C466.475 MHzGuard Band

3.75 MHz1.25 MHz

0.35MHz

0.4 MHz

Carrier A463.975 MHz

4.5 ? Hz 467.5 ? Hz

465.85 MHz 467.1 ? Hz

160 ch. 260 ch.

465.65 ? Hz 467.3 ? Hz

Guard Band

210 ch.

463 ? Hz

Only 2x4.5MHz are availableOnly 2x4.5MHz are available

55

CompetitiveCompetitive EnvironmentEnvironment

l CDMA is an unknown technology on Russian mobile market- GSM technology has >98% market share

l Strong competition in St. Petersburg :

– October 2002: lTwo national wide GSM operators(? egafon, ? ?S)lPenetration >50%

– October 2004:l4 GSM operators (? ?gafon, ? ?S, BeeLine, ??le-2)

lPenetration >80%

GSM; 98%

Other; 2%

Dec-02

Megafon; 54%

MTS; 38%

Delta/Skylink;

5%

?ele2; 2%

Oct-04Delta/

Skylink; 3%

?ele2; 3%BeeLine;

12 %

MTS; 35%

Megafon; 47%

66

Entering the market 2002Entering the market 2002--20032003

lTerminals Issue

– There are > 600 GSM brand name handsets

– ONLY TWO cdma450 terminals in 2002-2003!– Strong support from GSM terminal vendors

(brand service centers and brand advertising)– No «number portability» features in use

lCoverage– GSM coverage area >95% of population in

Russia – cdma450: St.Peterburg and Moscow only

(year2003)

77

Entering to the market 2002Entering to the market 2002--20032003

l Roaming– Worldwide GSM international roaming– No international CDMA450 roaming

l Advertising– Lots of advertising of GSM operators

(financial recourses)– Limited recourses from SKYLINK side

Are there any reasons for customers to change

subscription from GSM to CDMA?

88

Facing competition challenges.Facing competition challenges. Stage 1Stage 1

Stage I (2003-2004):l In less than 2 years SKYLINK trademark has

become well-known in St.Petersburg:l CDMA450 coverage in St.Petersburg and

region has become close to GSM coveragel CDMA450 Roaming was opened between

Petersburg, Moscow and several regions in Russia and CIS (Byelorussia)

l New terminal vendors and handset types appears

99

CDMA450 Terminals CDMA450 Terminals Commercially Available in St.Petersburg Commercially Available in St.Petersburg

Year Year YearYear2002 2002 --2003 2003 20042004

1010

Facing competition challengesFacing competition challenges Stage 2Stage 2

Stage 2A (tasks for year 2005) :l To increase the number of handsets type

up to 15 models l To have lower prices for Low-end

terminals ($100/unit)l To transfer handsets purchase to dealers

to release significant financial recourses (R-UIM - the first step has been already made)

1111

Facing competition challengesFacing competition challenges Stage 2Stage 2

Stage 2B (tasks for year 2005) :l Set up handset repair centers (outsourcing)

– Save Delta’s human resources and costs– Vendors have to compensate repair costs

l To set up national CDMA450 coveragel To implement Inter-standard

cdma450/GSM roaming– 1st step – plastic roaming; – 2nd step – dual mode handsets on the base of

Qualcomm MSM 6500)

1212

l HSPD with the data rate up to 153 kbit/s is the main advantage compared to GSM/GPRS, BUT it is necessary to IMPLEMENT it!

?) For internet access via ??/ PDA– Providing high quality DATA coverage (including

indoor) without «holes» for HSPD with the rate48/76/153 kbit/s

– Providing extra capacity (at least 30% BTS capacity for data)

– Providing the necessary range of data cables, PCMCI cards & CF modules

B) For content access directly from the handset– Implementation of BREW and development of

Russian language content

Implementation ofImplementation ofcdma2000 Competitive Advantagescdma2000 Competitive Advantages

1313

Main marketing strategy 2002-2004:• Orientation to heavy speaking business subscribers

and mobile internet users who can pay > $50/month

• The retail TERMINALS PRICES ($280 - $350 in 2003 and $180-$270 in year 2004) prevented entering the MASS MARKET

• Tariff packages:Voice+data at the fixed price $50-90/month

l RPLN «1000min+30Mb»l RPLN «1500 min+30Mb»l RPLN «unlimited voice+75Mb»(extra data costs: $0.30/? B )

Entering the marketEntering the marketwith special offer RPLNwith special offer RPLN

1414

Subscribers and traffic parametersSubscribers and traffic parameters

• Number of subscribers > 80 000 (St.Petersburg)• Average traffic per subscriber:

• MoU = 1500 min.Comparing current MoU with GSM figures in Russia (90-130 min.), it’s

equal to serving 1 mln. subscribers• ARPU = $66

Comparing current ARPU with GSM figures in Russia (10-12 USD), it’s equal to revenue from 350-500 thousand GSM subscribers

• Data = 15MB/sub/month (no data regarding the GSM HSPD figures)

ARPU, $

0

10

20

30

40

50

60

70

80

average inSkylink

average inGSM

MoU, min

0

200

400

600

800

1000

1200

1400

1600

average inSkylink

average inGSM

1515

Voice & Data Revenue.Voice & Data Revenue.Year growth (Oct.2004/Oct.2003)Year growth (Oct.2004/Oct.2003)

146%

201%

131%

153%

180% 186%

220% 218% 216%

241%249%

292%

326%

120%

125%132%

210%

175%185%

194%

113%

166%158%

407%

100%

140%

180%

220%

260%

300%

340%

380%

420%

Oct-03

Nov-03

Dec-03

Jan-0

4

Feb-0

4

Mar-04

Apr-04

May-04

Jun-0

4Ju

l-04

Aug-04

Sep-0

4Oct-

04

Local traffic

Data

1616

l January 2004: R-UIM technology was implemented:– R-UIM cards are used across SKYLINK network– Only R-UIM supported new handsets are

purchased from the vendors

l EV-DO trial was successfully finishedl 2.1GHz trial started with 3BTS in Petersburgl Inter standard roaming

– CDMA-450/GSM “plastic” inter standard roaming successful first call was made in October 2004 in St.Petersburg

New solutions tested by Delta New solutions tested by Delta Telecom in Telecom in St.PetersburgSt.Petersburg

1717

Russian CDMARussian CDMA--450 network status 450 network status and plans in 2004and plans in 2004--20052005

l Year 2004– More than 10 new regional networks under

SKYLINK umbrella launched by the end of year 2004

– Total number of subscribers expected>150 000

– More than 500 BTS were installed l Year 2005

– CDMA-450 coverage on significant part of Russian Federation expected (especially European part)

– Deployment of EV-DO in St.Petersburg and Moscow

– BREW technology implementation (1Q 2005)

1818

MAIN STRATEGIC RESULTSMAIN STRATEGIC RESULTSin in St.PetersburgSt.Petersburg

l Main result: Delta attracts significant investments

l Revenue from CDMA-450 network 16 times more than NMT revenue (Oct.2004)

l Company’s capitalization increased more than 20 times in 2 years

l Successful example of Delta Telecom’s development proved the CDMA-450 technology to be the right choice for:– NMT-450 Federal Network modernization

– Successful business activity.

1919

Thank you for your attention!Thank you for your attention!

Gennady GolantDeputy CEO and CTO JSC «Delta Telecom»St.PetersburgTel +7 812 312 9571fa[x +7 812 312 7173Mob.+7 812 970 6457ggolant@deltatel.ru