~~Table~~UNITED ofSTATES SECURITIES ~~Contents~~AND EXCHANGE COMMISSION

~~UNITED~~Washington, ~~STATES SECURITIES~~D.C. ~~AND EXCHANGE COMMISSION~~20549

~~Washington,~~FORM ~~D.C. 20549~~10-Q

~~Form 10-Q~~(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2005~~2007

~~(Commission file number: 0-27423)~~OR

~~Golden~~o ~~Telecom,~~TRANSITION ~~Inc.~~ REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~(Exact~~For ~~name~~the oftransition ~~registrant~~period ~~as specified in its charter)~~from to

~~Delaware~~Commission ~~(State~~file ofnumber: ~~incorporation) 51~~0-~~0391303 (I.R.S. Employer Identification No.)~~27423

~~Representation Office~~ Golden ~~TeleServices~~Telecom, Inc. ~~1 Kozhevnichesky Proezd Moscow, Russia 115114 (Address of principal executive office)~~

(~~011-7-501)~~Exact ~~797-9300 (Registrant’s~~name ~~telephone~~of ~~number,~~registrant ~~including~~as ~~area~~specified ~~code~~in its charter)

~~Indicate~~DELAWARE ~~by check mark whether the registrant~~ (~~1) has~~State ~~filed all reports required to be filed by Section 13~~ or ~~15(d)~~other ofjurisdiction ~~the Securities Exchange Act~~ of ~~1934~~incorporation ~~during the preceding 12 months (~~or ~~for~~ ~~such shorter period that the registrants were required to file such reports~~organization), ~~and~~51-0391303 (~~2) has been subject to such filing requirements for the past 90 days~~I.R.S. ~~Yes~~Employer þIdentification No o .)

~~Indicate~~Representative byOffice ~~checkmark~~Golden ~~whether~~TeleServices, ~~the~~Inc. ~~registrant~~1 isKozhevnichesky anProezd ~~accelerated~~Moscow, ~~filer~~Russia (asAddress ~~defined~~of inprincipal ~~Exchange Act~~executive ~~Rule 12b-2~~office). ~~Yes~~115114 þ(Zip ~~No o~~ Code)

At(011-7-495) ~~August 3,~~797-9300 (Registrant’s ~~2005,~~telephone ~~there were 36~~number,~~393,990~~ ~~outstanding~~including ~~shares~~area ~~of common stock of the registrant.~~ code)

~~TABLE~~ Indicate OFby ~~CONTENTS~~check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

		Page
PART I.	FINANCIAL INFORMATION
Item 1	Condensed Consolidated Financial Statements of Golden Telecom, Inc. (unaudited)		3
	Condensed Consolidated Balance Sheets as of December 31, 2004, and June 30, 2005		3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004, and 2005		5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004, and 2005		6
	Notes to Condensed Consolidated Financial Statements		7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations *		16
Item 3	Quantitative and Qualitative Disclosures About Market Risk		33
Item 4	Controls and Procedures		33
Item 5	Other information		33
PART II.	OTHER INFORMATION
Item 6	Exhibits		34
Signatures			34
Certification of Principal Executive Officer pursuant to Section 302
Certification of Principal Financial Officer pursuant to Section 302
Certification of CEO pursuant to Section 906
Certification of CFO pursuant to Section 906

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:

*Large ~~Please~~Accelerated ~~refer~~Filer toþ ~~the~~Accelerated ~~special~~Filer ~~note~~o ~~regarding forward~~Non-~~looking~~accelerated ~~statements~~Filer ~~in this section.~~o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

~~Table~~ At August 9, 2007, there were 40,308,222 outstanding shares of ~~Contents~~common stock of the registrant.

~~PART~~TABLE I.OF ~~FINANCIAL INFORMATION~~CONTENTS

Item 1. Condensed Consolidated Financial Statements of Golden Telecom, Inc.


		Page
PART I.	FINANCIAL INFORMATION

Item 1	Financial Statements (Unaudited)		3

	Condensed Consolidated Balance Sheets as of December 31, 2006 and June 30, 2007 (Unaudited)		3

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2006 and 2007 (Unaudited)		5

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2007 (Unaudited)		6

	Notes to Unaudited Condensed Consolidated Financial Statements		7

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations *		23

Item 3	Quantitative and Qualitative Disclosures About Market Risk		46

Item 4	Controls and Procedures		46

PART II.	OTHER INFORMATION

Item 1	Legal Proceedings		47

Item 1A	Risk Factors		47

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		47

Item 3	Defaults Upon Senior Securities		47

Item 4	Submission of Matters to a Vote of Security Holders		48

Item 5	Other information		48

Item 6	Exhibits		48

Signatures			49

~~GOLDEN~~* ~~TELECOM,~~Please ~~INC~~refer to the special note regarding forward-looking statements in this section.

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~2

~~(In~~PART ~~Thousands~~I. ofFINANCIAL ~~US$, Except Share Data)~~INFORMATION

	December 31,		June 30,
	2004		2005
	(audited)		(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	53,699	$	81,222
Accounts receivable, net of allowance for doubtful accounts of $23,205 and $27,259 at December 31, 2004 and June 30, 2005, respectively		89,177		95,536
VAT receivable		19,022		18,464
Prepaid expenses and advances to suppliers		13,793		10,354
Deferred tax asset		7,863		9,622
Other current assets		16,738		18,910
TOTAL CURRENT ASSETS		200,292		234,108
Property and equipment, net of accumulated depreciation of $185,781 and $214,563 at December 31, 2004 and June 30, 2005, respectively		347,891		358,258
Goodwill and intangible assets:
Goodwill		146,254		146,254
Intangible assets, net of accumulated amortization of $41,999 and $50,943 at December 31, 2004 and June 30, 2005, respectively		101,316		93,961
Net goodwill and intangible assets		247,570		240,215
Restricted cash		1,012		560
Other non-current assets		9,003		9,252
TOTAL ASSETS	$	805,768	$	842,393

Item 1. Financial Statements

~~See~~GOLDEN ~~notes~~TELECOM, ~~to condensed consolidated financial statements~~INC.

3CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data) (Unaudited)


	December 31,		June 30,
	2006		2007
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	18,413	$	96,124
Cash held in escrow		—		10,000
Accounts receivable, net of allowance for doubtful accounts of $25,224 and $30,054 at December 31, 2006 and June 30, 2007, respectively		147,719		198,829
VAT receivable		21,486		34,220
Prepaid expenses		11,371		12,528
Taxes receivable, excluding VAT		6,466		9,000
Notes receivable		379		1,715
Deferred tax asset		11,098		14,467
Inventory		7,682		10,262
Due from affiliates and related parties		1,227		2,806
Restricted cash		—		235
Other current assets		5,564		7,714


TOTAL CURRENT ASSETS		231,405		397,900

Property and equipment, net of accumulated depreciation of $352,765 and $409,661 at December 31, 2006 and June 30, 2007, respectively		552,341		799,530

Goodwill and intangible assets:
Goodwill		180,539		290,219
Intangible assets, net of accumulated amortization of $90,314 and $103,702 at December 31, 2006 and June 30, 2007, respectively		116,545		236,993

Net goodwill and intangible assets		297,084		527,212
Investments in and advances to ventures		11,886		12,152
Notes receivable		2,500		20,973
Restricted cash		233		—
Other non-current assets		11,741		15,779


TOTAL ASSETS	$	1,107,190	$	1,773,546

~~GOLDEN~~See ~~TELECOM,~~notes ~~INC~~to unaudited condensed consolidated financial statements.

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~3 ~~(In Thousands of US$, Except Share Data)~~

	December 31,			June 30,
	2004			2005
	(audited)			(unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	81,474		$	86,522
VAT payable		14,235			16,468
Current capital lease obligation		2,301			2,361
Deferred revenue		11,761			14,161
Due to affiliates and related parties		3,199			3,013
Other current liabilities		3,572			3,228
TOTAL CURRENT LIABILITIES		116,542			125,753
Long-term debt, less current portion		200			253
Long-term deferred tax liability		24,244			23,493
Long-term deferred revenue		23,124			27,170
Long-term capital lease obligations		1,538			393
Other non-current liabilities		2,001			—
TOTAL LIABILITIES		167,649			177,062
Minority interest		11,738			13,003
SHAREHOLDERS’ EQUITY
Preferred stock, $0.01 par value (10,000,000 shares authorized; none issued and outstanding at December 31, 2004 and June 30, 2005)		—			—
Common stock, $0.01 par value (100,000,000 shares authorized; 36,322,490 and 36,376,990 shares issued and outstanding at December 31, 2004 and June 30, 2005, respectively)		363			364
Additional paid-in capital		669,777			670,472
Accumulated deficit		(43,759	)		(18,508	)
TOTAL SHAREHOLDERS’ EQUITY		626,381			652,328
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	805,768		$	842,393

GOLDEN TELECOM, INC.

~~See~~CONDENSED ~~notes~~CONSOLIDATED toBALANCE ~~condensed~~SHEETS (In ~~consolidated~~Thousands, ~~financial~~Except ~~statements.~~Share Data) (Unaudited)


	December 31,		June 30,
	2006		2007
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	146,058	$	257,530
VAT payable		2,725		13,412
Debt maturing within one year		12,305		11,728
Current capital lease obligation		753		5,072
Deferred revenue		21,634		25,104
Due to affiliates and related parties		4,505		5,533
Liability for acquisition		378		8,205
Other current liabilities		233		193


TOTAL CURRENT LIABILITIES		188,591		326,777

Long-term debt, less current portion		29		225,149
Long-term deferred tax liability		29,268		72,339
Long-term deferred revenue		36,951		44,847
Long-term capital lease obligations		1,591		9,496
Other non-current liabilities		2,321		2,510


TOTAL LIABILITIES		258,751		681,118

Minority interest		31,263		72,208

SHAREHOLDERS’ EQUITY
Preferred stock, $0.01 par value (10,000,000 shares authorized; none issued and outstanding at December 31, 2006 and June 30, 2007)		—		—
Common stock, $0.01 par value (100,000,000 shares authorized; 36,673,015 and 39,915,234 shares issued and outstanding at December 31, 2006 and June 30, 2007, respectively)		367		399
Additional paid-in capital		674,993		822,124
Retained earnings		66,744		107,238
Accumulated other comprehensive income		75,072		90,459


TOTAL SHAREHOLDERS’ EQUITY		817,176		1,020,220


TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,107,190	$	1,773,546

~~Table~~See ofnotes ~~Contents~~to unaudited condensed consolidated financial statements.

~~GOLDEN TELECOM, INC.~~4

~~CONDENSED~~GOLDEN ~~CONSOLIDATED~~TELECOM, ~~STATEMENTS OF OPERATIONS~~INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands ~~of US$~~, Except Per Share Data) (~~unaudited~~Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2005			2004			2005
	2006			2007			2006			2007
REVENUE:
Telecommunication services	$	~~138~~195,~~336~~242		$	~~164~~295,~~392~~263		$	~~270~~371,~~916~~889		$	~~319~~548,~~990~~460
Revenue from affiliates and related parties		~~537~~1,726			12,~~117~~406			13,~~131~~219			14,~~984~~948
TOTAL REVENUE		~~138~~196,~~873~~968			~~165~~297,~~509~~669			~~272~~375,~~047~~108			~~321~~553,~~974~~408
OPERATING COSTS AND EXPENSES:
Access and network services (excluding depreciation and amortization)		70105,~~215~~608			86171,~~191~~633			~~138~~199,~~494~~001			~~166~~321,~~188~~728
Selling, general and administrative (excluding depreciation and amortization)		2533,~~118~~569			2844,~~828~~797			5167,~~511~~450			5693,~~414~~783
Depreciation and amortization		1823,~~312~~923			2032,~~150~~413			3546,~~680~~572			3960,~~871~~970
TOTAL OPERATING COSTS AND EXPENSES		~~113~~163,~~645~~100			~~135~~248,~~169~~843			~~225~~313,~~685~~023			~~262~~476,~~473~~481
INCOME FROM OPERATIONS		2533,~~228~~868			3048,~~340~~826			4662,~~362~~085			5976,~~501~~927
OTHER INCOME (EXPENSE):
Equity in earnings (losses) of ventures		~~243~~347			~~(70~~107	)		~~243~~671			(~~168~~268	)
Interest income		~~271~~156			~~524~~1,160			~~540~~803			~~900~~1,428
Interest expense		(~~155~~74	)		(~~350~~3,065	)		(~~350~~150	)		(~~437~~3,065	)
Foreign currency losses		(1,051	)		(603	)		(224	)		(239	)
Foreign currency gains (losses)		669			1,326			1,575			1,593
TOTAL OTHER INCOME (EXPENSE)		~~(692~~1,098	)		(~~499~~472	)		~~209~~2,899			56(312)
Income before minority interest and income taxes		24,536			29,841			46,571			59,557
Income before income taxes and minority interest		34,966			48,354			64,984			76,615
Minority interest		224			719			539			1,265
Income taxes		11,356			14,706			20,770			24,836
Income taxes		7,403			9,355			14,472			18,498
Minority interest		965			1,385			2,103			2,797
NET INCOME	$	16,909		$	19,767		$	31,560		$	39,794
Income before cumulative effect of a change in accounting principle		22,645			32,263			42,111			48,982
Cumulative effect of a change in accounting principle, net of tax of $52		—			—			681			—
NET INCOME	$	22,645		$	32,263		$	41,430		$	48,982
Basic earnings per share of common stock:
Net income per share — basic	$	0.47		$	0.54		$	0.87		$	1.10
Income before cumulative effect of a change in accounting principle		0.62			0.85			1.15			1.31
Weighted average common shares — basic		36,243			36,334			36,144			36,329
Cumulative effect of a change in accounting principle		—			—			0.02			—
Net income per share — basic	$	0.62		$	0.85		$	1.13		$	1.31
Weighted average common shares — basic		36,600			37,872			36,537			37,277
Diluted earnings per share of common stock:
Net income per share — diluted	$	0.46		$	0.54		$	0.86		$	1.09
Income before cumulative effect of a change in accounting principle	$	0.62		$	0.85			1.15			1.31
Weighted average common shares — diluted		36,539			36,571			36,523			36,573
Cumulative effect of a change in accounting principle		—			—			0.02			—
Cash dividends per common share	$	0.20		$	0.20		$	0.40		$	0.40
Net income per share — diluted	$	0.62		$	0.85		$	1.13		$	1.31
Weighted average common shares — diluted		36,716			37,983			36,687			37,400
Cash dividends per common share	$	0.20		$	—		$	0.40		$	—

See notes to unaudited condensed consolidated financial statements.

~~Table~~GOLDEN ofTELECOM, ~~Contents~~INC.

~~GOLDEN~~CONDENSED ~~TELECOM,~~CONSOLIDATED ~~INC.~~STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six Months Ended
	June 30,
	2006			2007
OPERATING ACTIVITIES:
Net income	$	41,430		$	48,982
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:

Depreciation		36,545			49,395
Amortization		10,027			11,575
Equity in (earnings) losses of ventures		(671	)		268
Foreign currency gain		(1,575	)		(1,593	)
Bad debt expense		4,555			3,394
Stock based compensation expense		2,273			11,223
Cumulative effect of a change in accounting principle, net of tax of $52		681			—
Other		452			534
Changes in assets and liabilities:
Accounts receivable		(27,855	)		(36,659	)
Accounts payable and accrued expenses		22,916			19,505
VAT, net		(6,552	)		(925	)
Other changes in assets and liabilities		(1,055	)		3,978


NET CASH PROVIDED BY OPERATING ACTIVITIES		81,171			109,677

INVESTING ACTIVITIES:
Purchases of property and equipment and intangible assets		(81,206	)		(110,162	)
Acquisitions, net of cash acquired		(16,486	)		(106,066	)
Restricted cash		337			(2	)
Cash held in escrow		—			(10,000	)
Loans made		(3,000	)		(19,815	)
Other investing		1,206			596


NET CASH USED IN INVESTING ACTIVITIES		(99,149	)		(245,449	)

FINANCING ACTIVITIES:
Net proceeds from exercise of employee stock options		2,306			756
Cash dividends paid		(14,622	)		—
Proceeds from debt		—			281,706
Repayment of debt		—			(69,203	)
Other financing		(1,062	)		(697	)


NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(13,378	)		212,562

Effect of exchange rate changes on cash and cash equivalents		591			921

Net increase (decrease) in cash and cash equivalents		(30,765	)		77,711
Cash and cash equivalents at beginning of period		67,176			18,413


CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	36,411		$	96,124

~~(In~~See ~~Thousands~~notes ofto ~~US$) (~~unaudited) condensed consolidated financial statements.

	Six Months Ended June 30,
	2004			2005
OPERATING ACTIVITIES
Net income	$	31,560		$	39,794
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation		26,735			30,908
Amortization		8,945			8,963
Equity in (earnings) losses of ventures		(243	)		168
Foreign currency losses		224			239
Bad debt expense		4,320			4,681
Other		(1,052	)		(1,445	)
Changes in assets and liabilities:
Accounts receivable		(13,662	)		(11,126	)
Accounts payable and accrued expenses		3,402			4,887
VAT, net		(78	)		2,796
Other changes in assets and liabilities		2,163			6,367
NET CASH PROVIDED BY OPERATING ACTIVITIES		62,314			86,232
INVESTING ACTIVITIES
Purchases of property and equipment and intangible assets		(54,368	)		(44,362	)
Acquisitions, net of cash acquired		(14,782	)		(946	)
Restricted cash		(3	)		452
Other investing		260			1,300
NET CASH USED IN INVESTING ACTIVITIES		(68,893	)		(43,556	)
FINANCING ACTIVITIES
Repayments of debt		(525	)		—
Net proceeds from exercise of employee stock options		4,168			565
Cash dividends paid		(14,478	)		(14,543	)
Other financing		(1,866	)		(1,085	)
NET CASH USED IN FINANCING ACTIVITIES		(12,701	)		(15,063	)
Effect of exchange rate changes on cash and cash equivalents		(96	)		(90	)
Net increase (decrease) in cash and cash equivalents		(19,376	)		27,523
Cash and cash equivalents at beginning of period		65,180			53,699
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	45,804		$	81,222

~~See~~GOLDEN ~~notes~~TELECOM, ~~to condensed consolidated financial statements~~INC.

6NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~Table~~Note 1: Basis of ~~Contents~~Presentation

~~GOLDEN~~ Golden ~~TELECOM~~Telecom, ~~INC~~Inc. (the “Company” or “GTI”) is a provider of a broad range of telecommunications services to businesses, other telecommunications service providers and consumers. The Company provides these services through its operation of voice, Internet and data networks, international gateways, local access and various value-added services in the Commonwealth of Independent States (“CIS”), primarily in Russia, and through its fixed line and mobile operations in Ukraine.

~~NOTES~~ The TOfinancial ~~CONDENSED~~statements ~~CONSOLIDATED~~included ~~FINANCIAL~~herein ~~STATEMENTS~~are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial reporting and United States Securities and Exchange Commission (“SEC”) regulations. Certain information and footnote disclosures normally included in complete financial statements prepared in accordance with US GAAP and SEC rules and regulations have been condensed or omitted pursuant to such US GAAP and SEC rules and regulations. In the opinion of management, the financial statements reflect all adjustments of a normal and recurring nature necessary to present fairly the Company’s financial position, results of operations and cash flows for the interim periods. These financial statements should be read in conjunction with the Company’s 2006 audited consolidated financial statements and the notes related thereto. The results of operations for the three and six months ended June 30, 2007 may not be indicative of the operating results for the full year.

Note 12: ~~Basis~~Summary of ~~Presentation~~Significant Accounting Policies and Recent Accounting Pronouncements

~~Golden~~Summary ~~Telecom, Inc. (the “Company”) is a provider~~ of aSignificant ~~broad~~Accounting ~~range of telecommunication~~Policies ~~services to businesses, other telecommunications service providers and consumers. The Company~~ provides these services through its operation of voice, Internet and data networks, international gateways, local access and various value-added services in the Commonwealth of Independent States (“CIS”), primarily in Russia, and through its fixed line and mobile operations in Ukraine.

The ~~financial~~accompanying ~~statements included herein are~~ unaudited ~~and~~condensed ~~have~~consolidated ~~been~~financial ~~prepared~~statements infor ~~accordance with generally accepted accounting principles in~~ the ~~United~~three ~~States of America (“US GAAP”) for interim financial reporting~~ and ~~United States Securities and Exchange Commission (“SEC”)~~six ~~regulations.~~months ~~Certain~~ended ~~information~~June 30, ~~and~~2007 ~~footnote~~should ~~disclosures~~be ~~normally~~read ~~included~~ in ~~complete~~conjunction ~~financial statements prepared in accordance~~ with ~~US GAAP and SEC rules and regulations have been condensed or omitted pursuant to such US GAAP and SEC rules and regulations. In~~ the ~~opinion~~consolidated ~~of management, the~~ financial statements ~~reflect all adjustments of a normal and recurring nature necessary to present~~ ~~fairly~~contained in the Company’s ~~financial~~annual ~~position,~~report ~~results~~on ofForm ~~operations~~10-K ~~and~~filed ~~cash~~with ~~flows for~~ the ~~interim periods.~~SEC ~~These~~on ~~financial~~March 16, ~~statements~~2007. ~~should be read in conjunction with the~~ The Company’s ~~2004~~significant ~~audited consolidated~~accounting ~~financial~~policies ~~statements~~have ~~and~~not ~~the~~changed ~~notes~~since ~~related thereto. The results of operations for the three and six months ended June~~December 3031, ~~2005~~2006, ~~may~~except ~~not be indicative of the operating results for the~~as ~~full~~outlined ~~year~~below.

~~Note 2: Summary of Significant~~ Accounting ~~Policies~~from ~~and~~Uncertainty ~~New~~in ~~Accounting~~Income ~~Pronouncements~~Taxes

~~Summary~~ On January 1, 2007, the Company adopted the provisions of ~~Significant~~Financial Accounting ~~Policies~~Standards Board (‘‘FASB’’) Interpretation No. 48 (‘‘FIN No. 48’’), “Accounting for Uncertainty in Income Taxes — an interpretation of SFAS No. 109”. FIN No. 48 creates a single model to address uncertainty in tax positions and clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN No. 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The adoption of FIN No. 48 resulted in the cumulative effect adjustment to the opening balance of retained earnings as of January 1, 2007, of approximately $8.5 million. As of June 30, 2007, the Company included accruals for unrecognized income tax benefits totaling approximately $20.1 million as a component of accrued liabilities.

~~Goodwill~~ A reconciliation of the beginning and ~~Intangible~~ending ~~Assets~~amount of unrecognized tax benefit is as follows:

The total gross carrying value and accumulated amortization of the Company’s intangible assets by major intangible asset class is as follows:


	(in thousands)
Balance at January 1, 2007	$	8,555
Additions based on tax positions related to the current year (including additions related to the acquisition of ZAO Cortec in May 2007 of $10,221)		10,457
Additions of tax positions of prior years		1,044
Reductions of tax positions of prior years		—
Settlements		—

Balance at June 30, 2007	$	20,056

	As of December 31, 2004					As of June 30, 2005
			(in thousands)
			Accumulated					Accumulated
	Cost		Amortization			Cost		Amortization
Amortized intangible assets:
Telecommunications service contracts	$	92,250	$	(21,917	)	$	93,008	$	(26,417	)
Contract-based customer relationships		36,849		(10,883	)		36,849		(14,609	)
Licenses		4,358		(2,515	)		5,170		(2,835	)
Other intangible assets		9,858		(6,684	)		9,877		(7,082	)
Total	$	143,315	$	(41,999	)	$	144,904	$	(50,943	)

Approximately $9.9 million of unrecognized tax benefits, if recognized, would affect the effective tax rate. The Company considers it reasonably possible that approximately $5.3 million of the unrecognized income tax benefit will be reversed within the next twelve months, due to expiration of the statute of limitations. It is also reasonably possible that the total amounts of unrecognized tax benefits will decrease by approximately $6.5 million due to the potential deconsolidation of a variable interest entity in the period ending September 30, 2007.

~~Other intangible assets include software, Internet software and related content, as well~~7 ~~as other intangible assets.~~

~~Comprehensive~~GOLDEN ~~Income~~TELECOM, INC.

~~Comprehensive~~NOTES ~~income~~TO isCONDENSED ~~defined~~CONSOLIDATED asFINANCIAL ~~the~~STATEMENTS ~~change~~— ~~in equity of a business enterprise during a~~(Continued) ~~period from non-owner sources. For the three and six months ended June 30, 2004, and 2005,~~(Unaudited) ~~respectively, comprehensive income for the Company is equal to net income.~~

7 Although the Company believes it is more likely than not that all recognized income tax benefits would be sustained upon examination, the Company has recognized some income tax benefits that have a reasonable possibility of successfully being challenged by the tax authorities. These income tax positions could result in total unrecognized tax benefits increasing by up to approximately $13.2 million if the Company’s position was successfully challenged. However, the Company believes that it is reasonably possible that such an increase in total unrecognized tax benefits will be recognized as certain tax position due to a favorable outcome of the litigation with tax authorities in the amount of approximately $8.0 million before the end of 2007.

~~Table~~ The Company recognizes accrued interest related to unrecognized tax benefits and penalties in income tax expenses. During the three and six months ended June 30, 2007, the Company recognized approximately $0.4 million and $0.6 million, respectively, in interest and penalties. At January 1, 2007 and June 30, 2007, the Company had accrued for approximately $3.2 million and $7.0 million, respectively, for the payment of ~~Contents~~interest and penalties.

~~GOLDEN~~ As ~~TELECOM~~of the adoption of FIN No. 48, ~~INC~~the tax years ended December 31, 2003, 2004, 2005 and 2006 remained subject to examination by United States tax authorities. As of the adoption date of FIN No.48, the tax years ended December 31, 2004, 2005 and 2006 remained subject to examination by Russian and Ukrainian tax authorities.

~~NOTES~~Income ~~TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~Taxes

~~Stock~~ The Company accounts for income taxes using the liability method required by Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” For interim reporting purposes, the Company also follows the provisions of Accounting Principles Board No. 28, “Interim Financial Reporting,” which requires the Company to account for income taxes based on the Company’s best estimate of the effective tax rate expected to be applicable for the full fiscal year on a current year-~~Based~~to-date ~~Compensation~~basis. The rate so determined is based on the tax rates currently applicable to the Company in the United States and to the Company’s subsidiaries in Russia and other CIS countries and includes the Company’s best estimate of the annual tax effect of non-deductible expenses, primarily related to amortization of intangible assets, foreign exchange and other permanent differences as well as estimates as to the realization of certain deferred tax assets. Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and the basis as reported in the consolidated financial statements. The Company does not provide for deferred taxes on the undistributed earnings of its foreign subsidiaries, as such earnings are generally intended to be reinvested in those operations permanently. In the case of non-consolidated entities, where the Company’s partner requests that a dividend be paid, the amounts are not expected to have a material impact on the Company’s income tax liability. It is not practical to determine the amount of unrecognized deferred tax liability for such reinvested earnings.

~~The~~Comparative ~~Company follows the provisions of Statement of Financial Accounting Standard (“SFAS”) No.~~Figures 123, “Accounting for Stock-Based Compensation,” for its Equity Participation Plan. SFAS No. 123 establishes a fair value method of accounting for employee stock options and similar equity instruments. The fair value method requires compensation cost to be measured at the grant date based on the value of the award and to be recognized over the service period. SFAS No. 123 generally allows companies to either account for stock-based compensation under the fair value method of SFAS No. 123 or under the intrinsic value method of Accounting Principles Board (“APB”) No. 25, “Accounting for Stock Issued to Employees.” The Company has elected to account for its stock-based compensation in accordance with the provisions of APB No. 25 and to present pro forma disclosures of results of operations as if the fair value method had been adopted.

~~The~~Certain ~~effect~~prior ofyear ~~applying~~amounts ~~SFAS~~have ~~No. 123~~been onreclassified ~~the~~to ~~reported~~conform ~~net~~to ~~income,~~the aspresentation ~~disclosed~~adopted ~~below is not~~in ~~representative of~~ the ~~effect~~current onyear. ~~net~~Such ~~income~~reclassifications indid ~~future~~not ~~periods~~affect ~~due to~~ the ~~vesting~~consolidated ~~period~~statements of ~~the stock options and the fair value of additional stock options in future periods~~operations.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2004		2005		2004		2005
	(in thousands, except per share data)
Net income, as reported	$	16,909	$	19,767	$	31,560	$	39,794
Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		463		149		903		330
Pro forma net income	$	16,446	$	19,618	$	30,657	$	39,464
Net income per share:
Basic — as reported	$	0.47	$	0.54	$	0.87	$	1.10
Basic — pro forma		0.45		0.54		0.85		1.09
Diluted — as reported		0.46		0.54		0.86		1.09
Diluted — pro forma		0.45		0.54		0.84		1.08

Recent Accounting Pronouncements

Income Statement Presentation of Taxes Collected from Customers and Remitted to Government Authorities

~~The~~In ~~Company~~June 2006, ~~accounts for income taxes using~~ the ~~liability~~Emerging ~~method~~Issues ~~required~~Task byForce ~~SFAS~~reached ~~No. 109,~~ (“~~Accounting for Income Taxes.~~EITF”) ~~For~~a ~~interim~~consensus ~~reporting~~on ~~purposes,~~EITF ~~the~~Issue ~~Company also follows the~~No. ~~provisions~~06-03 of(“EITF ~~APB~~ No. 2806-03”), “~~Interim~~How ~~Financial~~Taxes ~~Reporting,”~~Collected ~~which~~from ~~requires~~Customers ~~the~~and ~~Company~~Remitted to ~~account for~~Governmental ~~income~~Authorities ~~taxes~~Should ~~based~~Be onPresented in the ~~Company’s~~Income ~~best~~Statement ~~estimate~~(That ofIs, ~~the~~Gross ~~effective~~versus ~~tax~~Net ~~rate~~Presentation)”. EITF ~~expected~~No. 06-03 toprovides ~~be applicable~~that ~~for~~ the ~~full~~presentation ~~fiscal~~of ~~year~~taxes onassessed by a ~~current~~governmental ~~year-to-date~~authority ~~basis.~~that ~~The rate so determined~~ is ~~based~~directly imposed on ~~the~~a ~~tax~~revenue-producing ~~rates~~transaction ~~currently~~between ~~applicable~~a toseller ~~the~~and ~~Company~~a incustomer ~~the~~on ~~United~~either ~~States and to the~~a ~~Company’s~~gross ~~subsidiaries~~basis (included in ~~Russia~~revenues and ~~other~~costs) ~~CIS~~or ~~countries~~on ~~and~~a ~~includes~~net ~~the~~basis ~~Company’s~~(excluded ~~best~~from ~~estimate of~~revenues) ~~the~~is ~~annual tax effect of non-deductible expenses, primarily related to amortization of~~an ~~intangible~~accounting ~~assets,~~policy ~~foreign~~decision ~~exchange~~that ~~and~~should ~~other~~be ~~permanent~~disclosed. ~~differences~~The asprovisions ~~well as estimates as to the realization~~ of ~~certain~~EITF ~~deferred tax assets~~No. 06-03 ~~Deferred income taxes result from temporary~~became ~~differences~~effective ~~between~~for ~~the~~fiscal ~~tax~~years ~~basis~~beginning ofafter ~~assets~~December 15, ~~and liabilities and the basis as reported in the consolidated financial statements~~2006. The Company ~~does~~continues ~~not~~to ~~provide~~present such ~~for deferred~~ taxes on ~~the undistributed~~a ~~earnings~~net ofbasis ~~its foreign subsidiaries, as such earnings are generally intended to be reinvested~~ in ~~those operations permanently. In~~ the ~~case~~consolidated statement of ~~non-consolidated entities~~operations, ~~where~~and ~~our partner requests that a dividend be paid~~therefore, the ~~amounts~~adoption of ~~are~~EITF ~~not~~No. 06-03 ~~expected~~had tono ~~have~~effect ~~a material impact~~ on the Company’s ~~income~~consolidated ~~tax~~financial ~~liability.~~position Itor isresults ~~not practical to determine the amount~~ of ~~unrecognized~~ ~~deferred tax liability for such reinvested earnings~~operations.

~~Use of Estimates in Preparation of Financial Statements~~8

~~The~~GOLDEN ~~preparation of these consolidated financial statements~~TELECOM, in conformity with US GAAP, requires management to make estimates and assumptions that affect amounts in the financial statements and accompanying notes and the reported amounts of revenues and expenses during the reporting periodINC. ~~Actual results could differ from those estimates.~~

8NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)

~~Table~~Fair ofValue ~~Contents~~Measurements

~~GOLDEN~~ In September 2006, ~~TELECOM~~the FASB issued SFAS No. 157, ~~INC~~Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. SFAS No. 157 creates a fair value hierarchy, which prioritizes the inputs that should be used in determining fair value. Under this pronouncement, companies must provide disclosures containing relevant information in the financial statements, allowing users to assess inputs used to measure fair value, as well as the effect of those measurements on earnings for the periods presented, including a reconciliation of the beginning and ending balances separately for each major category of assets and liabilities. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the provisions of SFAS No. 157 to determine the potential impact, if any, the adoption will have on the Company’s financial statements.

~~NOTES~~Fair TOValue ~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~Option

~~Comparative~~ In February 2007, ~~Figures~~the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financials Liabilities — Including an Amendment of FASB Statement No. 115”. This standard permits measurement of certain financial assets and financial liabilities at fair value. If the fair value option is elected, the unrealized gains and losses are reported in earnings at each reporting date. Generally, the fair value option may be elected on an instrument-by-instrument basis, as long as it is applied to the instrument in its entirety. The fair value option election is irrevocable, unless a new election date occurs. SFAS No. 159 requires prospective application and also establishes certain additional presentation and disclosure requirements. The standard is effective as of the beginning of the fiscal year that begins after November 15, 2007. The Company is currently evaluating the provisions of SFAS No. 159 to determine the potential impact, if any, the adoption will have on the Company’s financial statements.

~~Certain~~Note ~~2004~~3: ~~amounts~~Comprehensive ~~have been reclassified to conform to the presentation adopted in the~~Income ~~current year.~~

~~Recent~~ SFAS ~~Accounting~~No. 130, “Reporting ~~Pronouncements~~Comprehensive Income”, requires the reporting of comprehensive income in addition to net income. Accumulated other comprehensive income includes foreign currency translation adjustments. For the three and six months ended June 30, 2007, total comprehensive income included, in addition to net income, the effect of translating foreign currency denominated financial statements of the Company’s foreign subsidiaries domiciled in Russia and Ukraine into the Company’s reporting currency, in accordance with SFAS No. 52, “Foreign Currency Translation”.

InComprehensive December 2004, Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share Based Payment”, which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” SFAS No. 123R supersedes APB No. 25, “Accounting for Stock Issued to Employees” and amends SFAS No. 95, “Statement of Cash Flows”. Under SFAS No. 123R, companies must calculate and record the cost of equity instruments, such as stock options or restricted stock, awarded to employees for services received in the income ~~statement;~~comprises ~~pro forma disclosure is no longer permitted. The cost of~~ the ~~equity~~ ~~instruments is to be measured based on the fair value of the instruments on the date they~~following: are granted (with certain exceptions) and is required to be recognized over the period during which the employees are required to provide services in exchange for the equity instruments. SFAS No. 123R is effective in the first annual reporting period beginning after June 15, 2005.

SFAS No. 123R provides two alternatives for adoption: (1) a “modified prospective” method in which compensation cost is recognized for all awards granted subsequent to the effective date of this statement as well as for the unvested portion of awards outstanding as of the effective date and (2) a “modified retrospective” method which follows the approach in the “modified prospective” method, but also permits entities to restate prior periods to reflect compensation cost calculated under SFAS No. 123 for pro forma amounts disclosure. The Company plans to adopt SFAS No. 123R using the modified prospective method. As the Company currently accounts for share based payments to employees in accordance with the intrinsic value method permitted under APB No. 25, no compensation expense is recognized. On March 30, 2005, the SEC released Staff Accounting Bulletin No. 107, “Share Based Payments,” (“SAB 107”), which expresses the views of the SEC staff regarding the application of SFAS No. 123R. The impact of adopting SFAS No. 123R and SAB 107 cannot be accurately estimated at this time, as it will depend on the amount of share based awards granted in future periods. However, had the Company adopted SFAS No. 123R and SAB 107 in a prior period, the impact would approximate the impact of SFAS No. 123 as described in the disclosure of pro forma net income and earnings per share. SFAS No. 123R also requires that tax benefits received in excess of compensation cost be reclassified from an operating cash flow to a financing cash flow in the Consolidated Statement of Cash Flows. This change in classification will reduce net operating cash flows and increase net financing cash flows in the periods after adoption.


	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2007		2006		2007
	(in thousands)

Net income	$	22,645	$	32,263	$	41,430	$	48,982
Foreign currency translation adjustment		—		7,493		—		15,387

Comprehensive income	$	22,645	$	39,756	$	41,430	$	64,369

InNote ~~March 2005,~~4: ~~the~~Intangible ~~FASB issued FASB Interpretation No. 47 (“FIN No. 47”), “Accounting for Conditional~~ Assets ~~Retirement Obligations”. FIN No. 47 clarifies that an entity must record a~~ liability for a “conditional” asset retirement obligation if the fair value of the obligation can be reasonably estimated. FIN No. 47 is effective no later than the end of the fiscal year ending after December 15, 2005. The Company does not expect that the adoption of FIN No. 47 will have a material effect on the financial position, results of operations, or cash flow.

InThe ~~May 2005,~~total ~~the~~gross ~~FASB~~carrying ~~issued~~value ~~SFAS No. 154, “Accounting Changes~~ and ~~Error~~accumulated ~~Corrections”,~~amortization ~~which is a replacement~~ of APB Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Changes in Interim Financial Statements”. SFAS No. 154 applies to all voluntary changes in accounting principle and changes the ~~accounting for and reporting of a change in accounting principle. SFAS No. 154 requires retrospective application to prior periods~~Company’s ~~financial~~intangible statements of a voluntary change in accounting principle unless it is impracticable. In addition, SFAS No. 154 requires that a change in method of depreciation, amortization, or depletion for long-lived, nonfinancial assets ~~be accounted for as a change in accounting estimate that is effected~~ by amajor ~~change~~asset inclass ~~accounting principle. SFAS No. 154~~ is ~~effective~~as ~~for accounting changes and corrections of errors made in~~follows: fiscal years beginning after December 15, 2005. The Company does not expect that the adoption of SFAS No. 154 will have a material effect on the financial position, results of operations, or cash flow.


		As of December 31, 2006					As of June 30, 2007
		(in thousands)
	Weighted Average			Accumulated					Accumulated
	Amortization Lives	Cost		Amortization			Cost		Amortization
Intangible assets:
Telecommunications service contracts	10 years	$	119,433	$	(49,450	)	$	132,215	$	(54,163	)
Contract-based customer relationships	5 years		42,104		(28,578	)		51,263		(33,878	)
Licenses	10 years		26,948		(4,295	)		102,083		(4,469	)
Brand name	10 years		—		—			32,800		(2,269	)
Other intangible assets	6 years		18,374		(7,991	)		22,334		(8,923	)

Total		$	206,859	$	(90,314	)	$	340,695	$	(103,702	)

~~Table~~ Approximately $85.5 million of ~~Contents~~licenses are not being amortized because they are not ready for their intended use.

~~GOLDEN TELECOM, INC.~~9

~~NOTES~~GOLDEN TOTELECOM, ~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~INC.

~~Note~~NOTES 3:TO ~~Net~~CONDENSED ~~Earnings~~CONSOLIDATED ~~Per~~FINANCIAL ~~Share~~STATEMENTS — (Continued) (Unaudited)

~~Basic~~Note ~~earnings~~5: ~~per~~Net ~~share~~Income atPer ~~June 30, 2004, and 2005 are computed on the basis of the weighted~~Share average number of common shares outstanding. Diluted earnings per share at June 30, 2004, and 2005 are computed on the basis of the weighted average number of common shares outstanding plus the effect of outstanding employee stock options using the “treasury stock” method. The number of stock options excluded from the diluted earnings per share computation, because their effect was antidilutive for the three and six months ended June 30, 2004, and 2005, was 10,000 stock options.

~~The~~Basic ~~components~~earnings per share at June 30, 2006 and 2007 are computed on the basis of ~~basic~~the weighted average number of common shares outstanding. Diluted earnings per share at June 30, 2006 and 2007 are computed on the basis of the weighted average number of common shares outstanding plus the effect of outstanding employee stock options using the “treasury stock” method. The number of stock options excluded from the diluted earnings per share ~~were~~computation, asbecause ~~follows:~~their effect was antidilutive for the three and six months ended June 30, 2006 and 2007 was 10,000 and 1,456,020 stock options, respectively.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2004		2005		2004		2005
			(in thousands, except per share data)
Net income	$	16,909	$	19,767	$	31,560	$	39,794
Weighted average outstanding of:
Common stock shares		36,243		36,334		36,144		36,329
Dilutive effect of:
Employee stock options		296		237		379		244
Common stock and common stock equivalents		36,539		36,571		36,523		36,573
Earnings per share:
Basic	$	0.47	$	0.54	$	0.87	$	1.10
Diluted	$	0.46	$	0.54	$	0.86	$	1.09

The components of basic and diluted earnings per share were as follows:

Note 4: Business Combinations


	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2007		2006		2007
	(in thousands, except per share data)

Income before cumulative effect of a change in accounting principle	$	22,645	$	32,263	$	42,111	$	48,982


Weighted average outstanding of:
Common stock shares		36,600		37,872		36,537		37,277

Dilutive effect of:
Employee stock options		116		111		150		123

Common stock and common stock equivalents		36,716		37,983		36,687		37,400


Net income per share before cumulative effect of a change in accounting principle:
Basic	$	0.62	$	0.85	$	1.15	$	1.31

Diluted	$	0.62	$	0.85	$	1.15	$	1.31

InNote ~~March 2005,~~6: ~~the~~Business ~~Company~~Combinations ~~completed~~and ~~the~~Investment ~~acquisition of 75% ownership interest in OOO Diacom~~Transactions (“Diacom”), an early stage wireless broadband enterprise, for approximately $0.5 million in cash. In conjunction with the acquisition, the Company entered into a participants’ agreement whereby the Company agreed to provide a secured loan to finance Diacom’s initial working capital requirements. The participants’ agreement also provided the seller with a put option that, if exercised, would require the Company to purchase the seller’s remaining 25% interest at fair market value. In addition, the participants’ agreement provided the Company with a call option that, if exercised, would require the seller to sell after February 1, 2008, the seller’s 25% interest in Diacom at any time beginning after February 1, 2008, if Diacom’s valuation exceeds targeted levels by February 1, 2008.

In ~~March~~February ~~2005~~2007, the Company ~~expensed~~completed the acquisition of 65% ownership interest in Fortland Limited (“Fortland”) from an entity, the principal shareholder of which is also a shareholder in three of the Company’s other subsidiaries. Fortland owns Kolangon-Optim LLC (“Kolangon”), an early-stage digital video broadcast enterprise in Russia. The Company acquired Fortland for approximately $149.07 million consisting of cash consideration of approximately $38.6 million paid in April 2007, ~~external~~and ~~legal~~a deferred payment of $11.1 million due in October 2007, ~~financial~~approximately $0.2 million ~~and~~of ~~consulting~~direct ~~fees~~transaction ~~related~~costs toplus anthe assumption of approximately $1.8 million debt. The acquisition ~~opportunity~~of Fortland was accounted for as an asset purchase of television license through a variable interest entity. The Company has consolidated the financial position and results of operations of Fortland from February 1, 2007. On acquisition, the Company ~~decided~~allocated ~~not~~approximately $72.1 million to ~~pursue~~licenses, approximately $17.2 million to deferred tax liability, and approximately ~~including~~$15.0 million ~~advisory~~to ~~fees~~noncontrolling interest. In conjunction with this transaction, the Company also entered into an agreement whereby the Company agreed to provide a secured loan of approximately $012.1 million ~~paid~~ to anthe ~~affiliate~~seller. ofThe ~~Alfa~~loan, ~~Telecom~~issued ~~Limited~~in April 2007, is secured by a pledge of a 15% interest in Fortland owned by the seller and matures in April 2011. In conjunction with this transaction, the Company also entered into a ~~significant~~put ~~shareholder~~option ofagreement that, if exercised, would require the Company to purchase the seller’s remaining 35% interest in Fortland at fair market value. In conjunction with this transaction, the Company also entered into a call option agreement that, if exercised, would require the seller to sell the seller’s remaining 35% interest in Fortland at fair market value. The put and call options are exercisable on and after September 30, 2010.

~~Note~~ In April 2007, the Company completed the acquisition of 100% ownership interest in ZAO Telecommunications Agency (“Atel”), a fixed line alternative telecommunications operator in Perm, for approximately $4.5: million ~~Shareholders’~~in ~~Equity~~cash consideration. The Company has consolidated the financial position and results of operations of Atel from April 1, 2007.

~~Common Stock~~10

~~The~~GOLDEN ~~Company’s outstanding shares of common stock increased by 328~~TELECOM,~~485~~ ~~shares and 54,500 shares in the six months ended June 30, 2004, and 2005, respectively, which were issued in connection with the exercise of employee stock options~~INC.

10NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)

~~Table~~ The Company’s consolidated financial statements reflect the preliminary allocation of ~~Contents~~the purchase price based on a preliminary fair value assessment of the assets acquired and liabilities assumed, and as such, the Company has assigned approximately $2.7 million to fixed assets which will be depreciated over a weighted average period of approximately 7 years. The excess of the purchase price over the fair value of the net assets acquired of approximately $1.8 million has been assigned to goodwill and is not deductible for tax purposes. The purchase price allocation will be finalized upon completion of the valuation of the acquired fixed and intangible assets. The goodwill has been assigned to Business and Corporate Services reportable segment. In accordance with SFAS No. 141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets”, the Company will not amortize the goodwill recorded in connection with the above acquisitions. The goodwill will be tested for impairment at least annually.

~~GOLDEN~~ In ~~TELECOM~~May 2007, ~~INC~~the Company completed the acquisition of 100% ownership interest in OOO ICA Center of Commercial Real Estate (“CKN”), which owns 6,181 square meters of a building in Moscow. The Company acquired CKN for approximately $9.8 million of cash consideration. The acquisition of CKN was accounted for as an asset purchase of a building through a variable interest entity. On acquisition, the Company allocated $12.0 million to fixed assets and approximately $2.3 million to deferred tax liability. The Company has consolidated the financial position and the results of operations of CKN from May 1, 2007.

~~NOTES~~ In TOMay 2007, ~~CONDENSED~~the ~~CONSOLIDATED~~Company ~~FINANCIAL~~completed ~~STATEMENTS~~the —acquisition of a 51% ownership interest in ZAO Cortec and its subsidiaries (~~Continued~~together “Corbina”) from Inure Enterprises Ltd. and Rambert Management Limited, pursuant to a Stock Purchase Agreement. The total purchase price of approximately $196.8 million consisted of approximately $142.1 million of GTI’s common stock, representing 3,193,219 shares, cash consideration of approximately $8.2 million, and direct transaction costs of approximately $1.4 million. At June 30, 2007, the Company had $10.0 million held in escrow out of which the $8.2 million of cash consideration was paid in August 2007. In addition, as part of the purchase price, the Company refinanced $45.0 million of debt that the seller owed to OAO Vneshtorgbank. The refinancing was effected through a loan to Corbina from the Company. The purchase consideration of GTI’s common stock, which was issued on May 25, 2007, was determined based on the closing price of the Company’s common stock on December 20, 2006, when the Company announced that it had entered into a binding Memorandum of Understanding with Dawn Key Limited to acquire a 51% ownership interest in Corbina. Accordingly, the GTI shares issued in consideration are valued based on the average closing price of the Company’s common stock for the five consecutive trading days between December 18, 2006 and December 22, 2006, which was $44.51 per share. Management believes the acquisition of 51% of Corbina further strengthens the Company’s position in the Company’s broadband strategy and positions the Company to realize future operating and cost synergies. Corbina is an integrated telecommunications provider of telecommunications and Internet services in Russia. The Company has consolidated the financial position of Corbina from May 31, 2007 and the results of operations of Corbina from June 1, 2007. Corbina holds a variable interest and is the primary beneficiary of Mircom Trading, Inc. (“Mircom”), a British Virgin Islands registered wholesale telecommunications operator providing a range of carrier and operator services to foreign telecommunications operators. Mircom is owned by a member of the Board of Directors of Corbina. As of June 30, 2007, Mircom had net liabilities of approximately $14.8 million. For the month ended June 30, 2007, Mircom had revenues of approximately $0.7 million and net loss of approximately $0.3 million. The creditors of Mircom have no recourse to the Company’s general credit.

~~Dividends~~ The acquisition of 51% ownership interest in Corbina was accounted for as a purchase business combination in accordance with SFAS No. 141, “Business Combinations”. The following is the condensed balance sheet of Corbina as of May 31, 2007 reflecting the preliminary purchase price allocation to the net assets acquired:

~~In February 2005, the Board of Directors of the Company declared a cash dividend of $0.20 per~~11 ~~common share to shareholders of record as of March 17, 2005. The Company paid the total amount payable of approximately $7.3 million to shareholders on March 31, 2005.~~

InGOLDEN ~~May 2005~~TELECOM, ~~the Board of Directors of the Company declared a cash dividend of $0~~INC.~~20 per~~ ~~common share to shareholders of record as of June 16, 2005. The Company paid the total amount payable of approximately $7.3 million to shareholders on June 30, 2005.~~

~~Note~~NOTES 6:TO ~~Commitments,~~CONDENSED ~~Contingencies~~CONSOLIDATED ~~and~~FINANCIAL ~~Other~~STATEMENTS ~~Matters~~— (Continued) (Unaudited)

Tax Matters


	May 31, 2007
	(in thousands)
ASSETS:
Current assets	$	31,743
Property and equipment		150,327
Intangible assets		51,591
Goodwill		103,698
Other assets		23

Total assets	$	337,382


LIABILITES:
Current liabilities	$	94,100
Non-current liabilities		25,307

Net assets	$	217,975


Less: Minority interest in net assets acquired		(21,194	)

Total purchase consideration and transaction costs	$	196,781


Consideration and transaction costs:
GTI shares consideration		142,130
Cash consideration		8,205
Loan refinancing		45,000
Direct transaction costs		1,446

Total purchase consideration and transaction costs	$	196,781

The Company’s ~~wholly-owned~~financial ~~subsidiary,~~statements ~~EDN~~reflect ~~Sovintel,~~the ispreliminary ~~engaged~~allocation inof ~~litigation with~~ the ~~Russian~~purchase price ~~tax~~based ~~inspectorate~~on ina ~~regard~~preliminary tofair ~~claims~~value ~~against~~assessment ~~OAO~~of ~~Comincom~~the ~~(“Comincom”)~~assets acquired and ~~OAO~~liabilities ~~Combellga (“Combellga”)~~assumed, ~~both~~and ofas such, ~~which~~the ~~merged~~Company ~~into~~has ~~Sovintel~~assigned onapproximately ~~December~~$32.8 1,million ~~2004,~~to ~~issued~~brand bywhich ~~the~~will ~~tax inspectorate~~be onamortized ~~July 8,~~over ~~2004,~~a period ~~and~~of ~~September~~10 1years, ~~2004,~~approximately ~~respectively~~$10.5 million ~~The~~to ~~Russian~~telecommunications ~~tax~~service ~~inspectorate~~contracts intangible ~~claimed~~assets ~~that~~which ~~Sovintel~~will ~~owes~~be ~~taxes~~amortized over a weighted average period of approximately 6 years, approximately ~~fines~~$7.6 million ~~and~~to ~~penalties~~contract-based incustomer ~~connection~~relationship ~~with~~intangible ~~Comincom~~assets ~~and~~which ~~Combellga~~will inbe ~~the~~amortized ~~amounts~~over a weighted average period of ~~$0.8~~approximately 9 ~~million~~years, ~~and~~approximately $40.71 million, ~~respectively,~~to licenses ~~for~~which ~~the~~will ~~years~~be ~~ended~~amortized ~~December~~over a weighted average period of 5 31years, ~~2001~~ and ~~2002~~approximately $0.6 million ~~Comincom~~to ~~and~~other ~~Combellga~~intangible ~~filed~~assets ~~lawsuits~~which ~~against~~will ~~the~~be ~~tax~~amortized ~~inspectorate~~over ~~disputing~~a ~~the~~weighted ~~claims,~~average period of 5 ~~and~~years. ~~the~~The ~~court~~Company ~~ruled~~has inrecorded ~~favor~~approximately $10.3 million of tax contingencies related to the ~~Company~~acquisition inof ~~both~~Corbina. ~~cases~~The bypurchase price ~~dismissing~~allocation will be finalized upon the ~~tax~~completion ~~inspectorate’s claims~~of onthe ~~January 21,~~valuation ~~2005,~~of the acquired fixed and intangible ~~December 20,~~assets ~~2004,~~and ~~respectively~~resolving tax contingencies. OnThe ~~July 11,~~excess ~~2005,~~purchase price over the ~~third~~fair value ~~instance~~of ~~court~~the ~~decided~~net ~~that~~tangible ~~the~~and ~~case~~intangible ~~against~~assets ~~Comincom~~acquired ~~shall~~of beapproximately ~~reverted~~$103.7 million has been assigned to ~~the~~goodwill ~~first~~and ~~instance~~is ~~court~~ not deductible for ~~new~~tax ~~consideration~~purposes. ~~With~~Approximately ~~respect~~$23.0 million toof ~~the~~this goodwill ~~claim~~has ~~against~~been ~~Combellga,~~assigned to the ~~deadline~~Business ~~for~~and ~~appeal expired~~Corporate onServices ~~June 27,~~reportable ~~2005~~segment, ~~and~~approximately $5.0 million ~~the~~of ~~Company~~this goodwill has ~~not~~been ~~received~~assigned ~~any~~to ~~evidence~~the ~~that~~Carrier ~~the~~and ~~tax~~Operator ~~inspectorate~~Services reportable ~~filed~~segment, anapproximately ~~appeal~~$66.8 million ~~The~~of ~~Company~~this ~~does~~goodwill ~~not~~has ~~consider~~been anassigned ~~unfavorable~~to ~~outcome~~the ~~probable~~Consumer ~~for~~Internet Services ~~these~~reportable ~~claims. Since~~segment, ~~the~~and ~~tax~~approximately ~~claims~~$8.9 million ~~relate~~of tothis ~~periods~~goodwill ~~before~~has been assigned to the ~~Company~~Mobile ~~acquired~~Services ~~100%~~reportable ofsegment. ~~shares~~In ofaccordance ~~Comincom~~with SFAS No. 141, ~~they~~“Business Combinations”, ~~are~~and ~~covered~~SFAS byNo. 142 ~~the~~“Goodwill ~~indemnification~~and ~~provisions~~Other ofIntangible Assets”, the ~~Share~~Company ~~Exchange~~will ~~Agreement~~not ~~between~~amortize the ~~Company~~goodwill ~~and~~recorded ~~Nye~~in ~~Telenor~~connection ~~East~~with ~~Invest~~the ~~(“Telenor”).~~acquisition ~~Therefore,~~of in51% ~~case~~ownership ofinterest anin ~~unfavorable~~Corbina. ~~outcome~~The ~~of this~~goodwill ~~litigation,~~will ~~the~~be ~~Company~~tested ~~intends~~for toimpairment ~~seek~~at ~~indemnification~~least ~~from Telenor~~annually.

InThe ~~March 2005,~~following ~~the~~unaudited ~~Company~~pro ~~reversed~~forma aconsolidated ~~$2.0 million~~results ~~accrued~~of ~~liability~~operations ~~related~~for tothe ~~estimated~~Company give ~~taxes,~~effect ~~including~~to ~~$0.6 million~~the ~~related~~Corbina tobusiness ~~income~~combination ~~taxes.~~as ~~This~~if ~~accrued~~it ~~liability~~had ~~was~~occurred ~~recorded~~at ~~upon~~ the ~~acquisition~~beginning of ~~one~~2006 ofand ~~the~~to give ~~Company’s~~effect ~~Russian~~to ~~subsidiaries. Management has concluded that~~ the ~~probability~~ ofCorbina ~~this~~business ~~accrued~~combination ~~liability~~as ~~arising~~if init ~~the~~had ~~future~~occurred isat ~~remote due to~~ the ~~expiry~~beginning of ~~Russian~~2007. ~~regulatory~~These ~~statutes~~unaudited ofpro ~~limitations~~forma ~~for~~amounts ~~any~~are ~~potential~~provided ~~tax~~for ~~claims~~informational ~~from~~purposes ~~the~~only ~~Russian~~and ~~tax~~do ~~inspectorate.~~not purport ~~The~~to ~~net~~present ~~effect~~the results of ~~the~~operations ~~reversal~~ of ~~this~~the ~~accrued~~Company ~~liability~~had ~~was~~the ~~$1.4 million~~transactions ~~reduction~~assumed intherein ~~selling,~~occurred ~~general~~on ~~and~~or ~~administrative~~as ~~expenses~~of in the ~~six~~date ~~months~~indicated, ~~ended~~nor ~~June 30,~~is ~~2005,~~it ~~and~~necessarily ~~$0.6 million reduction~~indicative inof ~~intangible~~the ~~assets~~results ~~for~~of ~~the~~operations ~~portion~~which may ~~associated~~be ~~with~~achieved ~~income~~in ~~tax~~the future.

~~The Company’s policy is to accrue for contingencies in the accounting period in which a~~12 liability is deemed probable and the amount is reasonably determinable. In this regard, because of uncertainties associated with Commonwealth of Independent States taxes (“CIS Taxes”), the Company’s final CIS Taxes may be in excess of the estimated amount expensed to date and accrued at June 30, 2005. It is the opinion of management that the ultimate resolution of the Company’s CIS Tax liability, to the extent not previously provided for, will not have a material effect on the financial condition of the Company. However, depending on the amount and timing of an unfavorable resolution of any contingencies associated with CIS Taxes, it is possible that the Company’s future results of operations or cash flows could be materially affected in a particular period.

~~Russian~~GOLDEN ~~Environment~~TELECOM, ~~and Current Economic Situation~~INC.

~~The~~NOTES ~~Russian~~TO ~~economy,~~CONDENSED ~~while~~CONSOLIDATED ~~deemed~~FINANCIAL toSTATEMENTS be— ~~of market status beginning in 2002, continues to~~(Continued) ~~display certain traits consistent with that of a market in transition. These characteristics have~~(Unaudited) in the past included higher than normal historic inflation, lack of liquidity in the capital markets, and the existence of currency controls which cause the national currency to be illiquid outside of Russia. The continued success and stability of the Russian economy will be significantly impacted by the government’s continued actions with regard to supervisory, legal, and economic reforms.


	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2007		2006			2007
	(unaudited)
	(in thousands, except per share data)

Revenue	$	217,059	$	320,363	$	414,166		$	604,968
Income before cumulative effect of a change in accounting principle		22,395		33,654		41,840			50,320
Cumulative effect of a change in accounting principle		—		—		(681	)		—

Net income	$	22,395	$	33,654	$	41,159		$	50,320


Basic earnings per share of common stock:
Income before cumulative effect of a change in accounting principle	$	0.56	$	0.82	$	1.05		$	1.24
Cumulative effect of a change in accounting principle		—		—		0.02			—

Net income per share — basic
Weighted average common shares — basic	$	0.56	$	0.82	$	1.03		$	1.24


Diluted earnings per share of common stock:
Income before cumulative effect of a change in accounting principle	$	0.56	$	0.82	$	1.05		$	1.24
Cumulative effect of a change in accounting principle		—		—		0.02			—

Net income per share — diluted	$	0.56	$	0.82	$	1.03		$	1.24

~~Table~~ In June 2007, the Company completed the acquisition of ~~Contents~~100% ownership interest in ZAO Direct Net Telecommunications (“DirectNet”) and ZAO Satcom Tel (“Satcomtel”), fixed line alternative telecommunications operators in Moscow and the assets of NDNT, Inc. and NDNT (UK) Limited, for approximately $1.4 million in cash consideration, including the assignment of approximately $0.7 of intercompany debt from the seller to the Company. The Company has consolidated the financial position and the results of operations of DirectNet and Satcomtel from June 1, 2007.

~~GOLDEN~~ The ~~TELECOM~~Company’s consolidated financial statements reflect the preliminary allocation of the purchase price based on a preliminary fair value assessment of the assets acquired and liabilities assumed, ~~INC~~and as such, the Company has assigned approximately $0.1 million to telecommunications services contracts intangible assets which will be amortized over a weighted average period of approximately 10 years and approximately $0.1 million to other intangible assets which will be amortized over a weighted average period of approximately 10 years. The excess of the purchase price over the fair value of the net assets acquired of approximately $1.9 million has been assigned to goodwill and is not deductible for tax purposes. The purchase price allocation will be finalized upon completion of the valuation of the acquired fixed and intangible assets. The goodwill has been assigned to Business and Corporate Services reportable segment. In accordance with SFAS No. 141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets”, the Company will not amortize the goodwill recorded in connection with the above acquisitions. The goodwill will be tested for impairment at least annually.

~~NOTES~~ In TOJune 2007, ~~CONDENSED~~the ~~CONSOLIDATED~~Company ~~FINANCIAL~~completed ~~STATEMENTS~~the —acquisition of 75% ownership interest in OOO Alcar (~~Continued~~“Alcar”), an early-stage WiFi enterprise in Russia from an entity, the principal shareholder of which is also a shareholder in three of the Company’s other subsidiaries. The Company acquired Alcar for approximately $1.9 million of cash consideration. The acquisition of Alcar was accounted for as an asset purchase of WiFi frequencies through a variable interest entity. On acquisition, the Company allocated approximately $3.1 million to licenses, approximately $0.7 million to deferred tax liability, and approximately $0.8 million to noncontrolling interest. The Company has consolidated the financial position and the results of operations of Alcar from June 1, 2007.

OnNote ~~January 1,~~7: 2004, the new law “On Telecommunications” (the “New Law”) came into effect in Russia. While some of the supporting regulations to implement the New Law have not been enacted, the Russian government approved in March 2005 new rules for interconnection (“Interconnection Rules”) that will take effect on January 1, 2006. The Company believes that the Interconnection Rules will impact the CompanyShareholders’s ~~operations in the areas of numbering capacity, licenses for~~Equity international long distance traffic, voice over Internet Protocol traffic, and interconnect pricing. In addition, the New Law creates a universal service charge, which became effective May 3, 2005, calculated as 1.2% of revenue from services provided to customers, excluding interconnection and other operators’ traffic routing revenue. To date, the Company has accrued approximately $0.6 million in universal service fund expense for May and June 2005.

~~The~~Common ~~comprehensive interpretation and implementation of the Interconnection Rules are subject~~Stock ~~to and dependent upon pending regulations yet to be released by the Russian government. These~~ include Rules of Price Establishment for Interconnection and Traffic Routing, Regulations of Network Design, Rules of Non-Discriminatory access to Infrastructure, and Calling Party Pays Regulations. Until these regulations are finalized, the Company cannot predict with any certainty how the New Law will affect the Company. The Company continues to have regular dialogue about these current regulatory issues with the Russian Ministry of Telecommunications.

OnThe ~~May 31, 2005, the~~ Company’s ~~received~~outstanding ashares ~~national~~of ~~intercity~~common ~~and~~stock ~~international~~increased ~~telephone~~by ~~license in Russia valid until May 31~~167,358 ~~2012.~~shares Ifand ~~the Company decides to utilize the license~~49,000 ~~the Company~~shares ~~must begin providing services and fulfil certain network requirements specified~~ in the ~~Interconnection~~ ~~Rules~~six ~~not~~months ~~later~~ended ~~than May~~June 3130, ~~2007.~~2006 ~~There are still unknown~~ and ~~yet~~2007, torespectively, bewhich ~~clarified portions~~shares ofwere ~~the~~issued ~~laws and regulations that will affect both the timing and cost of the long distance~~in ~~license~~connection ~~implementation.~~with ~~The Company is currently evaluating~~ the ~~capital~~exercise ~~and operating costs~~ of ~~implementing~~ ~~the~~employee ~~known~~stock ~~requirements for the long distance license~~options.

~~Other Commitments and Contingencies~~13

InGOLDEN ~~the ordinary course of business~~TELECOM, ~~the Company has issued financial guarantees of debt for the benefit of certain of the Company’s equity investees, which is all collateralized by cash~~INC. ~~The~~ ~~Company expects that all the collateralized debt will be repaid by the equity investees.~~

~~The~~NOTES ~~Company~~TO ~~has~~CONDENSED ~~future~~CONSOLIDATED ~~purchase~~FINANCIAL ~~commitments~~STATEMENTS of— ~~$73.4 million and $81.3 million as of June 30,~~(Continued) ~~2004, and 2005, respectively. These purchase commitments primarily include the Company’s~~(Unaudited) ~~contractual legal obligations for the future purchase of equipment, interconnect, and satellite transponder capacity.~~

In ~~the ordinary course of business~~May 2007, the Company ~~may~~issued ~~be party to various legal and tax proceedings~~3, ~~and subject to claims~~193,219 ~~certain~~shares of ~~which relate to~~ the ~~developing markets and evolving fiscal and regulatory environments in which the~~ Company ~~operates. In the opinion of management, the Company~~’s ~~liability,~~common ifstock ~~any,~~ in ~~all pending litigation, other legal proceeding or other matters,~~connection ~~will~~with ~~not have a material effect upon~~ the ~~financial~~acquisition ~~condition, results~~ of ~~operations~~51% orownership ~~liquidity~~interest ~~of the~~in ~~Company~~Corbina.

~~Change~~ At June 30, 2007, there were 5,597 unvested restricted shares of the Company’s common stock outstanding with a value of $0.3 million. Unvested restricted shares of 497 relate to restricted shares issued to senior management of the Company in ~~Accounting~~August 2005 ~~Estimate~~and vest gradually over approximately two years. The remaining 5,100 unvested restricted shares relate to restricted shares issued to certain members of the Board of Directors of the Company in May 2007 and vest after one year.

~~Prior~~Note to8: ~~the~~Stock ~~second~~Option ~~quarter of 2005, the Company recorded estimates for unused vacation based on the average salary levels for the Company’s employees~~ and ~~total~~Stock ~~days~~Appreciation ofRights ~~unused vacation of~~Plans employees. During the second quarter of 2005, the Company revised estimates for unused vacation based on the actual daily salary and unused vacation of each employee. Management determined that this methodology results in a more accurate estimate of the amount of the Company’s obligation for unused vacation. The change in accounting estimate decreased net income for the three and six months ended June 30, 2005 by approximately $1.3 million, including the associated payroll taxes, (equivalent to $0.04 per common share — basic and $0.04 per common share — diluted) for the three and six months ended June 30, 2005.

12 During the six months ended June 30, 2006 and 2007, the Company recorded pretax stock-based compensation expense of approximately $2.2 million and $11.2 million, respectively, related to the expensing of the Company’s Stock Appreciation Rights (“SARs”), non-qualified stock options and restricted shares.

~~Table~~ The Company has established the 1999 Equity Participation Plan of ~~Contents~~Golden Telecom, Inc. (the “Equity Plan”) and granted stock options to key employees and members of the Board of Directors of the Company. In April 2007, the Compensation Committee of the Board of Directors recommended and the Board of Directors approved an amendment to the Equity Plan to increase the number of shares available under the Equity Plan by 1,000,000. The decision of the Board of Directors was ratified by the Company’s shareholders on May 17, 2007. Under the Equity Plan not more than 5,320,000 shares of common stock (subject to anti-dilution and other adjustment provisions) are authorized for issuance upon exercise of options or upon vesting of restricted or deferred stock awards. There are 1,959,019 securities remaining available for future issuance under the Company’s Equity Plan.

~~GOLDEN~~ The ~~TELECOM~~Company has established the Golden Telecom, ~~INC~~Inc. 2005 Stock Appreciation Rights Plan (“SARs Plan”) and the EDN Sovintel 2005 Stock Appreciation Rights Bonus Plan (“Sovintel SARs Bonus Plan”). On June 27, 2007, the terms of the outstanding SARs issued under the SARs plan and the Sovintel SARs Bonus Plan were modified to cap the maximum of payout to the employee at the closing sales price per share of the Company’s common stock on the NASDAQ Global Select Market on June 27, 2007, or $53.80. On June 27, 2007, the participants of the SARs Plan, the Sovintel SARs Bonus Plan, and the SARs granted to the Chief Executive Officer (“CEO”) outside of these plans, were granted 849,150 stock options (one stock option for every capped SAR) with essentially the same terms as the capped SARs with the exercise price of $53.80.

~~NOTES~~ On June 28, TO2007, ~~CONDENSED~~the ~~CONSOLIDATED~~Company’s ~~FINANCIAL~~Board ~~STATEMENTS~~of —Directors approved and the Company granted 606,870 options to senior management and key employees. Under the terms of the Company’s Equity Plan the options were granted at a share price which was the closing sales price per share of the Company’s common stock on the NASDAQ Global Select Market on the date immediately preceding the date of grant, which was $53.80 (~~Continued~~“Option Granting Share Price”). Seventy-five percent of the options grant shall be subject to time vesting, one-third of which shall be and become vested and nonforfeitable on each of the first three anniversary dates from the grant date, provided that the employee remains continuously employed by the Company until each such relevant date. The Option Granting Share Price shall increase by five percent on each anniversary date after the grant date in association with the options that shall be and become vested and nonforfeitable on each such anniversary date. Twenty-five percent of the options granted are subject to market condition vesting upon the Company’s common stock achieving an average closing trading price of at least $82.15 per share for thirty consecutive days as determined in the sole discretion of the Company. If the Company’s stock does not achieve an average closing trading price of at least $82.15 per share for thirty consecutive days within three years of the date of grant, such portion of the options shall expire by its own terms and shall not be exercisable. The options have a contractual term of 5 years and are settled in stock only .

~~Other Matters~~14

~~The~~GOLDEN ~~Company confirmed in March 2005~~TELECOM, ~~that its 22~~INC.~~8% investment in MCT Corp. (“MCT”) no longer~~ qualifies for accounting under the equity method since the majority ownership of MCT is concentrated among a small group of shareholders who operate MCT without regard to the views of GTI and since GTI has attempted to obtain more financial information than is currently available to MCT’s other shareholders and is unable to obtain that information.

~~Note~~NOTES 7:TO ~~Segment~~CONDENSED ~~Information~~CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)

~~Line~~ A Ofsummary ~~Business~~of ~~Data~~activity under the SARs Plan, the Sovintel SARs Bonus Plan, and the SARs granted to the CEO outside of these plans, as of June 30, 2006 and 2007, and changes during the six months then ended are presented below:

The Company operates in four segments within the telecommunications industry. The four segments are: (1) Business and Corporate Services; (2) Carrier and Operator Services; (3) Consumer Internet Services; and (4) Mobile Services. The following tables present financial information for both consolidated subsidiaries and equity investee ventures, segmented by the Company’s lines of businesses for the three and six months ended June 30, 2004, and 2005, respectively. Transfers between lines of businesses are included in the adjustments to reconcile segment to consolidated results. The Company evaluates performance based on the operating income (loss) of each strategic business unit, among other performance measures. In accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”, the Company has presented the following four segments consistent with the information used by the chief operating decision maker to manage the operations for purposes of making operating decisions and allocating resources.


				Weighted
				Average
				Exercise		Aggregate
	SARs			Price		Intrinsic Value
						(in thousands)
Outstanding at January 1, 2006		1,251,800		$	29.19
SARs granted		60,000			31.46
SARs exercised		—			—
SARs expired		—			—
SARs forfeited		(42,400	)		28.95

Outstanding at June 30, 2006		1,269,400			29.30	$	—


Exercisable at June 30, 2006		—		$	—	$	—

																	Adjustments to Reconcile
				Weighted
																	Business Segment to
				Average
																	Consolidated Results
				Exercise		Aggregate
	Business			Carrier									Business				Equity
	SARs			Price		Intrinsic Value
	and			and		Consumer		Mobile		Corporate &			Segment		Consolidated		Method			Affiliate
						(in thousands)
	Corporate			Operator		Internet		Services		Eliminations			Total		Results		Ventures			Adjustments
Outstanding at January 1, 2007		1,293,800		$	29.05
	(in thousands)
SARs granted		—			—
Three Months Ended June 30, 2004
SARs exercised		(648,117	)		28.43
Revenue from external customers	$	78,941		$	44,575	$	11,432	$	3,993	$	—		$	138,941	$	138,873	$	(1,492	)	$	1,424
SARs expired		—			—
Intersegment revenue		—			219		—		—		(219	)		—		—		—			—
SARs forfeited		(33,900	)		29.88
Operating income (loss)		18,744			7,983		627		1,218		(2,949	)		25,623		25,228		(395	)		—
Outstanding at June 30, 2007		611,783			29.67	$	15,500
Identifiable assets		429,728			259,492		57,743		5,280		28,978			781,221		777,083		(4,138	)		—
Exercisable at June 30, 2007		21,100		$	26.19	$	608
Capital expenditures		20,956			8,552		1,490		221		5			31,224		30,839		(385	)		—

																	Adjustments to Reconcile
																	Business Segment to
																	Consolidated Results
	Business		Carrier										Business				Equity
	and		and		Consumer			Mobile		Corporate &			Segment		Consolidated		Method			Affiliate
	Corporate		Operator		Internet			Services		Eliminations			Total		Results		Ventures			Adjustments
	(in thousands)
Three Months Ended June 30, 2005
Revenue from external customers	$	96,432	$	54,455	$	10,728		$	3,905	$	—		$	165,520	$	165,509	$	(615	)	$	604
Intersegment revenue		—		14		—			—		(14	)		—		—		—			—
Operating income (loss)		26,148		7,116		(553	)		1,019		(3,340	)		30,390		30,340		(50	)		—
Identifiable assets		459,911		288,345		58,375			4,048		35,050			845,729		842,393		(3,336	)		—
Capital expenditures		14,992		5,983		1,355			83		18			22,431		22,338		(93	)		—

The weighted-average fair value of SARs outstanding as of June 30, 2007 was $19.19 per SAR. As of June 30, 2007, there was approximately $3.3 million of total unrecognized compensation cost related to non-vested SARs awards. That cost is expected to be recognized over a weighted-average requisite service period of 0.9 years.

13 A summary of activity under the Equity Plan as of June 30, 2006 and 2007, and changes during the six months then ended is presented below:


				Weighted
				Average
				Exercise		Aggregate
	Stock options			Price		Intrinsic Value
						(in thousands)
Outstanding at January 1, 2006		373,012		$	14.31
Stock options granted		—			—
Stock options exercised		(167,358	)		13.81
Stock options expired		—			—
Stock options forfeited		—			—

Outstanding at June 30, 2006		205,654			14.71	$	2,272


Exercisable at June 30, 2006		205,654		$	14.71	$	2,272

~~GOLDEN TELECOM, INC.~~15

~~NOTES~~GOLDEN TOTELECOM, ~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~INC.

																Adjustments to Reconcile
																Business Segment to
																Consolidated Results
	Business		Carrier									Business				Equity
	and		and		Consumer		Mobile		Corporate &			Segment		Consolidated		Method			Affiliate
	Corporate		Operator		Internet		Services		Eliminations			Total		Results		Ventures			Adjustments
	(in thousands)
Six Months Ended June 30, 2004
Revenue from external customers	$	151,884	$	90,097	$	22,570	$	7,607	$	—		$	272,158	$	272,047	$	(2,730	)	$	2,619
Intersegment revenue		—		363		—		—		(363	)		—		—		—			—
Operating income (loss)		35,177		14,132		1,580		2,042		(6,124	)		46,807		46,362		(445	)		—
Identifiable assets		429,728		259,492		57,743		5,280		28,978			781,221		777,083		(4,138	)		—
Capital expenditures		41,697		17,412		2,390		534		21			62,054		61,434		(620	)		—

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

																	Adjustments to Reconcile
				Weighted
																	Business Segment to
				Average
																	Consolidated Results
				Exercise		Aggregate
	Business			Carrier									Business				Equity
	Stock options			Price		Intrinsic Value
	and			and		Consumer		Mobile		Corporate &			Segment		Consolidated		Method			Affiliate
						(in thousands)
	Corporate			Operator		Internet		Services		Eliminations			Total		Results		Ventures			Adjustments
Outstanding at January 1, 2007		157,915		$	13.82
	(in thousands)
Stock options granted		1,456,020			55.58
Six Months Ended June 30, 2005
Stock options exercised		(49,000	)		15.07
Revenue from external customers	$	184,519		$	107,434	$	22,512	$	7,528	$	—		$	321,993	$	321,974	$	(1,166	)	$	1,147
Stock options expired		—			—
Intersegment revenue		—			22		—		—		(22	)		—		—		—			—
Stock options forfeited		—			—
Operating income (loss)		49,342			14,861		1,163		2,110		(7,972	)		59,504		59,501		(3	)		—
Outstanding at June 30, 2007		1,564,935			55.34	$	5,574
Identifiable assets		459,911			288,345		58,375		4,048		35,050			845,729		842,393		(3,336	)		—
Exercisable at June 30, 2007		367,382		$	41.78	$	4,860
Capital expenditures		29,103			11,370		2,301		180		107			43,061		42,963		(98	)		—

~~Included~~The inweighted-average ~~Consumer~~fair ~~Internet~~value ~~operating~~of ~~income~~stock isoptions ~~the~~outstanding ~~impact~~as of ~~the~~June 30, ~~reversal~~2007 was $18.80 per stock option. As of anJune 30, 2007, there was approximately $23.3 million of total ~~accrued~~unrecognized ~~liability~~compensation cost related to ~~estimated~~non-vested ~~taxes,~~stock asoption ~~discussed~~awards. inThat ~~note~~cost 6is expected to be recognized over a weighted-average requisite service period of 1.5 years.

~~Geographic Data~~16

~~Revenues~~GOLDEN ~~from~~TELECOM, ~~external customers are based on the location of the operating company providing the service~~INC.

~~The~~NOTES ~~Company~~TO ~~operated~~CONDENSED ~~within~~CONSOLIDATED ~~two~~FINANCIAL ~~main~~STATEMENTS ~~geographic~~— ~~regions of the CIS: Russia and Ukraine.~~(Continued) ~~Geographic information as of June 30, 2004, and 2005 is as follows:~~(Unaudited)

14Note 9: Commitments and Contingencies

~~Table~~Tax ~~of Contents~~Matters

~~GOLDEN~~ The ~~TELECOM~~Company’s policy is to accrue for contingencies in the accounting period in which a liability is deemed probable and the amount is reasonably determinable. In this regard, ~~INC~~because of the uncertainties associated with taxes in the Commonwealth of Independent States Taxes (“CIS Taxes”), the Company’s final CIS Taxes may be in excess of the estimated amount expensed to date and accrued at December 31, 2006 and June 30, 2007. It is the opinion of management that the ultimate resolution of the Company’s CIS Tax liability, to the extent not previously provided for, will not have a material effect on the financial condition of the Company. However, depending on the amount and timing of an unfavorable resolution of any contingencies associated with CIS Taxes, it is possible that the Company’s future results of operations or cash flows could be materially affected in a particular period.

~~NOTES~~ The TOCompany’s ~~CONDENSED~~wholly-owned ~~CONSOLIDATED~~Russian ~~FINANCIAL~~subsidiary, ~~STATEMENTS~~EDN —Sovintel LLC (~~Continued~~“Sovintel”) is engaged in litigation with the Russian tax inspectorate in regard to claims issued by the tax inspectorate on September 25, 2006. The Russian tax inspectorate claimed that Sovintel owes taxes, fines and penalties in the amount of approximately $21.9 million for the years ended December 31, 2004 and 2005. On October 4, 2006, Sovintel filed a lawsuit against the tax inspectorate disputing the claims. Court hearings were held between November 8, 2006 and March 19, 2007. The first instance court ruled in favor of Sovintel by dismissing the tax inspectorate’s claim on April 3, 2007. On April 28, 2007 the tax inspectorate appealed this decision. The second instance court ruled in favor of Sovintel by dismissing the tax inspectorate’s claim on July 16, 2007. The Company expects that the tax inspectorate will appeal this decision in the third instance court. The term for appeal will expire on September 26, 2007. Currently, the Company does not consider an unfavorable outcome probable for this claim. In October 2006, ZAO International Moscow Bank, a related party, provided a bank guarantee for up to 518,000,000 Russian Rubles, equivalent to approximately $20.1 million, for Sovintel’s obligation in connection with this claim.

					Corporate,
					Other
					Countries &			Consolidated
	Russia		Ukraine		Eliminations			Results
	(in thousands)
Three months ended June 30, 2004
Revenue	$	124,148	$	15,464	$	(739	)	$	138,873
Long-lived assets		548,273		26,709		10,028			585,010

Starting in 2006, the Russian tax inspectorate, in the course of tax audits of Russian long-distance telecom operators, started to challenge the offset of Value Added Taxes (“VAT”) relating to the cost of international telecommunication services. Therefore, there is a risk that the Company may be assessed additional VAT, fines and penalties on similar issues. The amount of such risk relating to the years ended December 31, 2004 and 2005 is included in the approximately $21.9 million tax claim currently disputed, as disclosed above. The amount of similar risk relating to the year ended December 31, 2006 is assessed as being up to approximately $13.0 million. The amount of risk relating the six months ended June 30, 2007 is assessed as being up to approximately $7.3 million. Should the Russian tax inspectorate assert such claim, the Company believes it has meritorious defenses to successfully dispute such claim and defend its position in court. However, due to the fact that court cases on such matters are appearing for the first time, the expected outcome of such cases is currently unclear.

					Corporate,
					Other
					Countries &			Consolidated
	Russia		Ukraine		Eliminations			Results
	(in thousands)
Three months ended June 30, 2005
Revenue	$	146,921	$	19,033	$	(445	)	$	165,509
Long-lived assets		566,945		28,992		11,403			607,340

Taxes Other Than Income Tax

					Corporate,
					Other
					Countries &			Consolidated
	Russia		Ukraine		Eliminations			Results
	(in thousands)
Six months ended June 30, 2004
Revenue	$	244,730	$	28,885	$	(1,568	)	$	272,047
Long-lived assets		548,273		26,709		10,028			585,010

The Company has also identified contingencies related to taxes other than income tax. Such possible tax contingencies could materialize and require the Company to pay additional amounts of tax. As of June 30, 2007 management estimates such contingencies related to taxes on other than income tax to be up to approximately $3.0 million. The Company believes the estimated loss related to these contingencies is not probable and, as such, it is not accrued at June 30, 2007.

					Corporate,
					Other
					Countries &			Consolidated
	Russia		Ukraine		Eliminations			Results
	(in thousands)
Six months ended June 30, 2005
Revenue	$	286,414	$	36,586	$	(1,026	)	$	321,974
Long-lived assets		566,945		28,992		11,403			607,340

Russian Environment and Current Economic Situation

15 While there have been improvements in the Russian economic situation, such as an increase in gross domestic product and a reduced rate of inflation, Russia continues economic reform and development of its legal, tax and regulatory frameworks as required by a market economy. The future stability of the Russian economy is largely dependent on these reforms and developments and the effectiveness of economic, financial and monetary measures undertaken by the Russian government.

~~Table~~ In a letter dated December 20, 2006, several deputies of ~~Contents~~the State Duma wrote to the Russian General Prosecutor alleging that Sovintel was illegally providing domestic and international services prior to receipt of access codes. The letter states that because Sovintel had not yet received access codes to offer such services in the first, second and third quarter of 2006, then Sovintel was operating illegally in this respect. Further, the letter requests that the Prosecutor General’s office conduct an investigation of Sovintel’s activities and, if appropriate, charge those Sovintel officials responsible for the activities. Sovintel received the access codes in December 2006 and prior to construction of its Federal Transit Network was operating under its previous licenses. The Company believes that it was acting in accordance with Russian regulations and legislation and our licenses.

~~ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~17

~~The~~GOLDEN ~~following discussion and analysis relates to our financial condition and results of operations for each of the three and six months ended June 30~~TELECOM, ~~2005, and 2004~~INC. ~~This discussion~~ ~~should be read in conjunction with our Condensed Consolidated Financial Statements and the notes related thereto appearing elsewhere in this Report.~~

~~Overview~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)

WeNet ~~are~~Assets aPosition ~~leading facilities-based provider of integrated telecommunication and Internet services~~ in ~~major~~Accordance ~~population~~with ~~centers~~Statutory ~~throughout Russia and other countries of the Commonwealth of~~Requirements Independent States (“CIS”). We offer voice, data and Internet services to corporations, operators and consumers using our metropolitan overlay network in major cities including Moscow, Kiev, St. Petersburg, Nizhny Novgorod, Samara, Kaliningrad, Krasnoyarsk, Almaty, and Tashkent, and via leased channels and intercity fiber optic and satellite-based networks, including approximately 233 access points in Russia and other countries of the CIS. In addition, we offer mobile services in Kiev and Odessa.

WeIn ~~organize~~accordance ~~our~~with ~~operations~~Russian ~~into~~legislation, ~~four~~joint ~~business~~stock ~~segments,~~companies must maintain a level of equity (net assets) that is greater than the charter capital. In the event that a company’s net assets, as ~~follows:~~determined under Russian accounting legislation, fall below certain minimum levels, specifically below zero, the company can be forced to liquidate.

• Kolangon ~~Business~~ and ~~Corporate~~some ~~Services (“BCS”). Using leased channels and our fiber optic and satellite-based networks in and between major metropolitan areas~~ of ~~Russia,~~the ~~Ukraine~~Company’s ~~and~~ other ~~countries~~regional ofentities ~~the~~have ~~CIS~~had, ~~we provide business~~ and ~~corporate~~continue ~~services including voice and data services~~ to ~~corporate clients across all geographical markets and all industry segments~~have, negative ~~other~~equity ~~than~~as ~~telecommunications~~reported ~~operators; • Carrier and Operator Services. Using leased channels and our fiber optic and satellite-based networks~~ in ~~and~~each ~~between~~of ~~major~~their ~~metropolitan~~Russian ~~areas~~statutory offinancial ~~Russia,~~statements. ~~Ukraine~~Management believes ~~and~~that ~~other~~the ~~countries~~risk of the ~~CIS,~~initiation ~~we provide a range~~ of ~~carrier~~statutory ~~and~~liquidation ~~operator~~procedures ~~services~~or ~~including~~other ~~voice~~material adverse ~~and~~actions ~~data~~is ~~services~~remote. toHowever, ~~foreign~~if ~~and~~such ~~Russian~~actions ~~telecommunications~~were ~~and~~taken, ~~mobile~~it ~~operators;~~could •have ~~Consumer~~a ~~Internet~~material ~~Services.~~adverse effect Weon ~~provide dial-up Internet access to~~ the ~~consumer~~Company’s ~~market~~results ~~and web content offered through a family~~ of ~~Internet portals throughout Russia~~operations, ~~Ukraine,~~financial ~~Kazakhstan,~~position and ~~Uzbekistan;~~operating ~~and • Mobile Services~~plans. ~~Using~~The Company ~~our~~is ~~mobile~~currently ~~networks~~ in ~~Kiev~~the ~~and~~process ~~Odessa,~~of ~~Ukraine,~~remediating wethis ~~provide mobile services with value-added features, such as voicemail, roaming and messaging services on a subscription and prepaid basis~~situation.

WeOther ~~intend,~~Commitments wherever possible, to offer all of our integrated telecommunication services under the Golden Telecom brand name, although, some services still carry local brand names because of recent acquisitions. Our dial-up Internet services are distributed under the ROL brand name in Russia, Kazakhstan and ~~Uzbekistan and under the Svit-On-Line brand name in Ukraine.~~Contingencies

~~Most~~The ofCompany ~~our~~has ~~revenue~~future ispurchase ~~derived~~commitments ~~from~~of ~~high-volume~~approximately ~~business customers and carriers~~$95.2 million ~~Our~~as ~~business customers~~of ~~include large multi-national companies~~June 30, ~~local enterprises, financial institutions, hotels~~ ~~and government agencies. We believe that the carriers~~2007, ~~including mobile operators,~~ which ~~contribute a~~primarily ~~substantial~~includes ~~portion of our revenues~~equipment, ininterconnection ~~turn derive a portion of their business from high-volume business customers. Thus, we believe that the majority of our ultimate end-users are businesses that require access to highly reliable~~ and ~~advanced~~satellite ~~telecommunications~~transponder ~~facilities to sustain their operations~~capacity.

~~Traditionally~~In January 2007, wethe ~~have~~Company ~~competed~~entered ~~for~~into ~~customers~~a onfive-year ~~the~~term ~~basis~~Facility ofAgreement ~~network~~(the ~~quality~~“Facility Agreement”) with banks, ~~customer service~~financial institutions and ~~range~~other ofinstitutional ~~services~~lenders, ~~offered~~Citibank, N.A. London InBranch ~~the~~and ~~past~~ING ~~several~~Bank ~~years~~N.V. as mandated lead arrangers, ~~other~~and ~~telecommunications operators~~Citibank ~~have~~International ~~also~~plc ~~introduced~~as agent. ~~high~~The ~~quality~~Facility ~~services~~Agreement toestablished ~~the~~an ~~segments~~unsecured ofcredit ~~the~~facility ~~business~~under ~~market~~which, inthe Company, ~~which~~GTS weFinance, ~~operate~~Inc., ~~Competition~~a ~~with~~wholly-owned ~~these~~subsidiary ~~operators~~of isthe ~~intense~~Company, and ~~frequently~~Sovintel ~~results~~may inborrow ~~declining prices~~up ~~for~~to ~~some~~an aggregate of ~~our~~$275.0 million. ~~services,~~The ~~which~~credit ~~adversely~~facility ~~affects~~carries ~~our~~interest ~~revenues.~~at Ina ~~addition,~~rate ~~some~~equal ofto ~~our~~London ~~competitors~~Interbank doOffered ~~not~~Rate ~~link~~(“LIBOR”) ~~their~~plus ~~prices~~1.5% toper annum for the ~~United~~first ~~States~~twenty-four ~~dollar~~months ~~(“USD”)~~and toLIBOR plus ~~ruble~~2% ~~exchange~~per ~~rate,~~annum ~~so when~~thereafter. ~~the~~Funds ~~ruble~~borrowed ~~devalues,~~may ~~their~~be ~~prices~~used ~~effectively~~for ~~become~~general ~~lower~~corporate inpurposes, ~~relation~~including acquisitions, tothe ~~our~~payment ~~prices~~of dividends and capital expenditures. The ~~ruble~~Facility Agreement places ~~exchange~~various ~~rate~~restrictions ~~with~~on the ~~USD~~Company ~~has~~related ~~become~~to ~~relatively~~incurrence ~~stable~~of ~~since~~debt, ~~early~~asset ~~2000~~disposals, mergers and acquisitions, ~~appreciated~~and innegative ~~2004~~pledges. The Facility Agreement also requires the Company to meet various financial and ~~slightly~~non-financial ~~declined~~covenants, ~~during~~including ~~the~~several ~~six~~restrictions ~~months~~related ~~ended~~to financial condition. As of June 30, ~~2005~~2007, sothe ~~price~~Company’s ~~pressures~~has ~~associated~~$225.0 million ~~with devaluation~~outstanding ~~have~~under ~~eased~~the ~~considerably~~Facility Agreement. WeThe ~~cannot~~Company bepaid ~~certain~~approximately ~~that~~$3.9 million ~~the~~of ~~exchange~~arrangement ~~rate~~fees ~~will~~to ~~remain stable in~~ the ~~future~~lead ~~and~~arrangers which ~~therefore~~are werecorded ~~may~~in ~~experience~~other ~~additional~~non-current ~~price pressures~~assets.

16 In January 2007, the Company entered into a five year lease agreement with ZAO Rascom, the Company’s equity method investee, for the right to use eight STM-64 fiber optic cable systems between Moscow and Stockholm. The Company had the right to take possession of two STM-64 fiber optic cable systems as of January 1, 2007 and the option to increase to six STM-64 fiber optic cable systems in the future. In connection with this lease, the Company has recorded a capitalized leased asset and a related capital lease obligation, which were approximately $1.6 million and $1.4 million, respectively as of June 30, 2007.

~~Table~~ In February 2007, the Company entered into a five year lease agreement for the right to use STM-1 fiber optic capacity on major routes within Russia. The Company had the right to take possession of ~~Contents~~this STM-1 fiber optic capacity beginning April 1, 2007. In March 2007, the Company issued a $2.0 million loan to the same company that has provided the lease and in May 2007 the Company issued an additional approximately $5.9 million loan to the same company that has provided the lease. The loan has payment terms of 59 months, which start in May 2007, and carries interest at the rate of 9 percent per annum. In connection with this lease, the Company has recorded a capitalized leased asset and a related capital lease obligation, which were approximately $9.8 million and $9.8 million, respectively as of June 30, 2007.

~~Recent~~Other ~~Acquisitions~~Matters

In ~~March 2005, we completed~~ the ~~acquisition~~ordinary course of ~~75% ownership interest in OOO Daicom (“Daicom”)~~business, anthe ~~early-stage~~Company ~~wireless~~may ~~broadband~~be ~~enterprise,~~party ~~for~~to ~~approximately~~various ~~$0.5 million~~legal inand ~~cash.~~tax Inproceedings, ~~conjunction~~and ~~with~~subject ~~this~~to ~~acquisition~~claims, wecertain ~~also~~of ~~entered~~which ~~into~~relate ato ~~participants’~~the ~~agreement~~developing ~~whereby~~markets weand evolving ~~agreed~~fiscal toand ~~provide~~regulatory aenvironments ~~secured~~in ~~loan~~which tothe ~~finance~~Company ~~Diacom’s initial working capital requirements~~operates. In ~~addition,~~ the ~~participants’~~opinion ~~agreement~~of ~~also~~management, ~~provided~~ the Company’s ~~seller with a put option that~~liability, if ~~exercised~~ any, ~~would~~in ~~require~~all uspending tolitigation, ~~purchase~~other ~~the~~legal ~~seller’s~~proceeding ~~25%~~or ~~interest~~other ~~at fair market value. The~~matters, ~~participants’~~will ~~agreement~~not ~~provided~~have ~~us with~~ a ~~call~~material ~~option~~effect ~~that,~~upon ~~if exercised, would require~~ the ~~seller to~~financial ~~sell after February 1~~condition, ~~2008~~results ~~its~~of ~~25%~~operations ~~interest~~or inliquidity ~~Daicom at any time beginning after February 1,~~of ~~2008,~~the ~~if Diacom’s valuation exceeds targeted levels by February 1, 2008~~Company.

~~We continue to take advantage of consolidation opportunities through selective acquisitions.~~18 In March 2005, we expensed approximately $1.0 million in external legal, financial and consulting fees related to an acquisition opportunity that we decided not to pursue, including advisory fees of approximately $0.1 million paid to an affiliate of Alfa Telecom Limited, one of our significant shareholders.

~~Other~~GOLDEN ~~Developments~~TELECOM, INC.

OnNOTES ~~January 1,~~TO ~~2004,~~CONDENSED ~~the~~CONSOLIDATED ~~new~~FINANCIAL ~~law~~STATEMENTS ~~“On~~— ~~Telecommunications”~~ (~~the “New Law”~~Continued) ~~came into effect in~~ ~~Russia. While some of the supporting regulations to implement the New Law have not been enacted, the Russian government approved in March 2005 new rules for interconnection~~ (~~“Interconnection Rules”~~Unaudited) ~~that will take effect on January 1, 2006. We believe that the Interconnection Rules will~~ impact our operations in the areas of numbering capacity, licenses for international long distance traffic, voice over Internet Protocol (“VoIP”) traffic, and interconnect pricing. In addition, the New Law created a universal service charge, which became effective May 3, 2005, calculated as 1.2% of revenue from services provided to customers, excluding interconnection and other operators’ traffic routing revenue. To date, we have accrued approximately $0.6 million in universal service fund expense for May and June 2005.

~~The~~Sovintel ~~comprehensive~~is ~~interpretation~~currently ~~and~~engaged ~~implementation~~in litigation with a minority shareholder of Kubtelecom LLC (“Kubtelecom”), a 74% owned subsidiary of the ~~Interconnection~~Company, ~~Rules~~in ~~are~~regard ~~subject~~ to ~~and~~the ~~dependent~~shareholder’s ~~upon~~claim ~~pending~~that the ~~regulations~~shareholder’s ~~yet~~pre-emptive right to beacquire ~~released~~74% byownership ~~the~~in ~~Russian~~Kubtelecom ~~government~~was breached. ~~These~~The first ~~include~~instance ~~Rules~~court ofruled ~~Price~~in ~~Establishment~~favor ~~for~~of ~~Interconnection~~the ~~and~~minority ~~Traffic~~shareholders ~~Routing~~on December 4, ~~Regulations~~2006. ofThe second instance ~~Network~~court ~~Design,~~ruled ~~Rules~~in favor of ~~Non-Discriminatory~~Sovintel ~~Access~~by todismissing ~~Infrastructure~~the minority shareholder’s claim on March 14, 2007. The minority shareholder appealed this ruling and ~~Calling~~on ~~Party~~April 18, ~~Pays~~2007, the third instance court ruled ~~Regulations.~~in ~~Until~~favor ~~these~~of ~~regulations~~Sovintel. ~~are~~The ~~finalized,~~shareholder weappealed ~~cannot~~to ~~predict~~the ~~with~~Supreme ~~any~~Arbitration ~~certainty~~Court ~~how~~of the Russian ~~New~~Federation ~~Law~~and ~~will~~on ~~affect~~July 11, us2007, the court turned down the claim. WeThe ~~continue~~shareholder tomay ~~have~~file ~~regular~~a ~~dialogue~~new claim ~~about~~based ~~these~~on ~~current~~other ~~regulatory~~grounds. ~~issues~~The Company does not consider an unfavorable outcome probable for ~~with~~this ~~the~~claim. ~~Russian~~However, ~~Ministry~~in case of ~~Telecommunications~~an unfavorable outcome of this litigation, the Company may be forced to unwind the Kubtelecom acquisition.

On ~~May~~March 316, ~~2005~~2007, weRossvyaznadzor, ~~received~~ a ~~national~~governmental ~~intercity~~body ~~and~~that ~~international~~reports ~~telephone~~to ~~license~~the inMinistry of ~~Russia~~Information ~~valid~~Technologies ~~until~~and ~~May 31~~Communications of the Russian Federation, ~~2012~~warned Sovintel that it should remedy certain alleged violations in traffic routing. IfThe weallegation ~~decide~~followed toan ~~utilize~~inspection by ~~the~~Rossvyaznadzor ~~license~~of an independent operator, weOAO ~~must~~Arctel ~~begin~~(“Arctel”). ~~providing~~Rossvyaznadzor believes that ~~services~~Sovintel inappropriately converted telephone traffic of Arctel into IP-telephone traffic and ~~fulfill~~then incorrectly ~~certain~~routed ~~network~~this ~~requirements~~traffic ~~specified~~abroad. inSovintel carried out a full analysis of the ~~Interconnection~~routing ~~Rules~~of these calls. Following Sovintel’s review, the Company notified Rossvyaznadzor that the Company believes that Sovintel has not ~~later~~violated its licenses. Sovintel filed a lawsuit against ~~than~~Rossvyaznadzor and on May 3117, 2007., ~~There~~the ~~are~~court ~~still~~turned ~~unknown~~down ~~and~~Sovintel’s ~~yet~~lawsuit tofor beprocedural ~~clarified~~reasons that ~~portions~~the oflicense ~~the~~in ~~laws~~question had been annulled and ~~regulations~~ that ~~will~~there ~~affect~~were ~~both~~no ~~the~~grounds ~~timing~~for ~~and~~dispute. ~~cost~~On ofMay 29, ~~the~~2007, ~~long~~Sovintel ~~distance~~appealed ~~license~~this ~~implementation.~~court decision and on June 26, 2007, Sovintel withdrew its Welawsuit. ~~are~~On ~~currently~~June 29, ~~evaluating~~2007, the ~~capital~~court ~~and~~accepted ~~operating~~Sovintel’s ~~costs~~withdrawal of ~~implementing~~ the ~~known~~lawsuit ~~requirements~~and revoked the ~~for~~decision of the ~~long~~first ~~distance~~instance ~~license~~court.

InThe ~~February 2005,~~Company weis ~~received~~currently engaged ~~notice~~in ~~from~~a ~~Vimpelcom,~~regulatory ~~our~~dispute ~~largest~~with ~~customer,~~the ~~that~~National itCommission isof ~~diverting~~Communication’s aRegulation ~~volume~~of Ukraine (“NCCR”) over re-registration of ~~traffic~~the ~~away~~license, ~~from~~recorded usat ~~pursuant~~approximately $13.3 million, for wireless broadband radio frequencies issued to ~~the~~S-Line ~~telephone~~LLC ~~traffic~~(“S-Line”), ~~routing~~a ~~provisions~~75% ofowned ~~the~~Ukrainian ~~Law~~subsidiary Onof ~~Communications~~the ~~and~~Company. ~~the~~The ~~General~~first ~~Scheme~~instance ~~for~~court ~~operation~~ruled ofin ~~the~~favor ~~Russian~~of ~~GSM~~S-Line ~~Network~~on April ~~promulgated~~18, by2007 obliging the ~~Russian~~NCCR ~~Ministry~~to ofre-register ~~Telecommunications~~the license. ~~Average~~NCCR ~~monthly~~appealed ~~international~~this decision and ~~long-distance~~ ~~revenue~~on ~~from~~August 3, 2007 ~~Vimpelcom~~the ~~fell~~second byinstance ~~approximately~~court ~~$0.2 million~~ruled ~~when~~in ~~comparing~~favor ~~the~~of ~~six months~~NCCR. ~~ended~~On ~~June~~August 308, ~~2005~~2007, ~~with~~S-Line ~~fiscal~~filed ~~year~~an ~~2004.~~appeal of Asthis adecision ~~result~~to the Supreme Administrative Court of ~~our~~Ukraine. ~~discussions~~The ~~with~~Company ~~Vimpelcom~~considers the ~~and~~re-registration ~~regulatory~~of ~~agencies~~this welicense ~~have~~probable. ~~been~~While ~~able~~the toCompany ~~agree~~awaits formal onre-registration, the ~~future~~license ~~reinstatement~~continues ofto ~~traffic~~be ~~volumes in St~~valid. ~~Petersburg.~~

InDuring ~~June 2005,~~the ~~another~~six ~~carrier~~months ~~expressed~~ended ~~its~~June 30, ~~intentions~~2007, tothe ~~divert~~Company apurchased ~~portion~~services of ~~its traffic from~~approximately ~~our network~~$1.6 million Wefrom ~~anticipate that such~~ a ~~diversion~~minority ~~would~~shareholder ~~result~~ in afour ~~decrease~~of inthe ~~revenues~~Company’s ~~from this carrier by approximately $1~~subsidiaries.~~0 million per month.~~

~~Prior~~Note to10: ~~the~~Investments second quarter of 2005, we recorded estimates for unused vacation based on the average salary levels for our employees and total days of unused vacation of employees. During the second quarter of 2005, we revised estimates for unused vacation based on the actual daily salary and unused vacation of each employee. Management determined that this methodology results in ~~a more accurate estimate of the amount of our obligation for unused vacation. The change in accounting estimate decreased net income for the three~~ and ~~six~~Advances ~~months ended June 30, 2005 by approximately $1.3 million, including the associated payroll taxes, (equivalent~~ to ~~$0.04 per common~~Ventures ~~share — basic and $0.04 per common share — diluted) for the three and six months ended June 30, 2005.~~

17 The Company has various investments in ventures that are accounted for by the equity method. The Company’s ownership percentages in its equity method investments range from approximately 50% to 54%.

~~Table~~ The components of ~~Contents~~the Company’s investments in and advances to ventures are as follows:

Highlights and Outlook


	As of December 31, 2006			As of June 30, 2007
	(in thousands)
Equity in net assets acquired	$	13,448		$	13,022
Goodwill as part of investment		1,313			1,313
Difference between fair value and historical value of assets acquired		(1,355	)		(1,485	)
Cash advances and other		(1,520	)		(698	)

Total investments in and advances to ventures	$	11,886		$	12,152

~~Since~~The ~~early~~Company ~~2000~~has wefinanced ~~have~~the ~~witnessed~~operating aand ~~recovery~~investing incash ~~the~~flow ~~Russian~~requirements ~~market,~~of ~~but~~several ~~downward pricing~~of ~~pressures~~the ~~persist~~Company’s ~~from~~ventures ~~increased~~in ~~competition and~~ the ~~global~~form ~~trend~~of ~~toward~~cash ~~lower~~advances ~~telecommunications tariffs. In 2004~~ and ~~during~~loans. ~~2005,~~The ~~our~~Company ~~traffic~~aggregates ~~volume~~all ~~increases exceeded the reduction in tariffs on certain types~~ of ~~voice traffic. This is a contributing factor to~~ the ~~increases in our revenue in~~ ~~2004~~receivable and ~~during~~payable ~~2005.~~balances Wewith ~~expect~~the ~~that~~ventures ~~this trend of year over year increases~~ in ~~traffic volume will continue as long as~~ the ~~Russian~~Company’s ~~economy~~investments ~~continues~~in toand ~~develop~~cash ~~at its current pace. Although our~~advances ~~revenue growth is strong, our overall margins continue~~ to bethe ~~impacted by price increases for services received from monopolistic incumbent operators~~ventures.

~~In order to handle additional traffic volumes, we have expanded and will continue to expand~~19 our fiber optic capacity along our heavy traffic and high cost routes to mitigate declines in traffic margins, reduce our unit transmission costs and ensure sufficient capacity to meet the growing demand for data and Internet services. We expect to continue to add additional transmission capacity, which due to its fixed cost nature can initially depress margins, but will over time allow us to improve or maintain our margins.

WeGOLDEN continue to follow our strategy of regional expansion. The project for the construction of the inter-city fiber optic link which we launched in the middle of 2004 will be continued into the second half of 2005. At presentTELECOM, ~~we are constructing an inter-city fiber optic link from Moscow to Ufa through Nizhny Novgorod and Kazan~~INC. ~~Subject to weather conditions, we expect that this~~ inter-city fiber optic link will be operational in early 2006. To date, this inter-city fiber optic link has been completed from Moscow to Noginsk and from Ufa to Almetyevsk. We intend to connect our operations in the European part of Russia to this backbone network and plan to invest a total of approximately $40.0 million to $50.0 million in this and related backbone projects through 2007. To date, we have invested approximately $10.9 million in these projects.

ANOTES ~~significant~~TO ~~portion~~CONDENSED ofCONSOLIDATED ~~our~~FINANCIAL ~~carrier~~STATEMENTS ~~revenue~~— ~~in Ukraine is generated from the Ukrainian~~(Continued) cellular operators’ large volumes of international and long distance traffic. Price and quality of services are the primary factors in their purchase decision. In 2004, several Ukrainian cellular operators, including Ukrainian Mobile Communications (~~“UMC”~~Unaudited)~~, received international~~ telecommunications licenses. Nevertheless, UMC, one of our largest customers, continued sending a large volume of outgoing international traffic through our network in 2004 and during the first quarter of 2005. However, in April 2005, UMC significantly decreased the volume of such traffic it routes through our network and began directly terminating such traffic with international carriers. This decrease in outgoing international traffic resulted in a $0.1 million decrease in revenue for the second quarter of 2005. We do not anticipate that this UMC traffic will be restored in future periods.

~~The~~Note ~~rapid~~11: ~~growth~~Segment ~~of the telecommunications market in Russia, Ukraine, and the CIS is fueled by~~Information macroeconomic growth and the inflow of direct foreign investment. We anticipate that the economic growth in these markets will create additional demand for telecommunications services. Additionally, in line with worldwide trends, we are starting to observe new customer demands for more sophisticated telecommunications and Internet services as well as other new technologies. We are responding to these customer demands by testing and implementing new technologies such as VoIP, wireless local loop and high-speed consumer Internet. Such new technologies will remove some of the barriers to access that some of our customers currently face. For example, with wireless local loop, we can connect remote customers to our network by bypassing the incumbents’ wire network in order to provide higher quality access. Our customers are willing to pay a premium for this type of technology and customer service.

InLine ~~2005, we continue to see growth opportunities organically, through select acquisitions, and through the development~~ of ~~new~~Business ~~product lines. While our research indicates the telecommunications~~Data ~~services sector in business segments in Moscow and St. Petersburg markets of fixed~~ telecommunications services will continue to grow, we believe that the bulk of our growth will come from the key regions of Rostov-On-Don, Nizhny Novgorod, Samara, Ufa, Krasnoyarsk, Vladivostok, Khabarovsk, and Ekaterinburg.

WeThe ~~will~~Company ~~continue~~operates toin ~~align~~four ~~the strategy of each of our business~~ segments ~~with~~within ~~market forces in~~ the ~~countries~~telecommunications ~~where we operate~~industry. InThe ~~BCS, our strategy is to defend and grow our market-share~~four ~~through~~segments ~~attractive service offerings supported by excellent customer care. We~~ are: ~~focused~~(1) Business ~~on expanding~~and ~~into~~Corporate ~~the~~Services; ~~regions~~(2) Carrier ~~as well as the fast growing small~~ and ~~medium-sized~~Operator ~~business~~Services; or (~~“SMB”~~3) Consumer ~~and~~Internet ~~the~~Services; ~~small~~and ~~office / home office~~ (~~“SOHO”~~4) Mobile ~~markets~~Services. InThe ~~those~~following ~~cases~~tables ~~where~~present ~~the~~financial ~~potential~~information ~~SMB and~~for ~~SOHO~~both ~~customer~~consolidated issubsidiaries ~~not~~and onequity ~~our~~investee ~~network~~ventures, ~~our~~segmented ~~ability~~by tothe ~~fully~~Company’s ~~benefit~~lines ~~from growth in these market~~of ~~segments~~businesses ~~largely~~for ~~depends on~~ the ~~regulatory~~three ~~situation~~ and ~~our~~six ~~ability~~months toended ~~get~~June 30, ~~access~~2006 ~~to the copper~~ and ~~other~~2007, ~~infrastructure of the incumbent operators under reasonable terms and conditions~~respectively. InTransfers ~~Carrier~~between ~~and~~lines ~~Operator~~of ~~Services,~~businesses ~~our~~are ~~strategy~~included ~~focuses~~in onthe ~~partnering~~adjustments ~~with~~to ~~more~~reconcile ~~mobile~~segment ~~operators~~to ~~in the~~consolidated ~~regions~~results. WeThe ~~aim~~Company toevaluates ~~provide~~performance ~~mobile~~based ~~operators~~on ~~with~~ the ~~right~~operating ~~solutions~~income ~~for~~(loss) of ~~their~~each ~~needs and thereby~~strategic ~~benefit~~business ~~from~~unit, ~~mobile~~among ~~operator~~other ~~expansion~~performance ~~and growth~~measures. WeIn ~~have~~accordance ~~also~~with ~~launched~~SFAS ~~additional~~No. 131, ~~value-added~~“Disclosures ~~products~~about ~~for~~Segments ~~our~~of ~~carrier~~an ~~partners~~Enterprise ~~that~~and ~~strengthen~~Related ~~our~~Information”, ~~leading~~the ~~position~~Company inhas presented the ~~Russian and CIS~~following ~~markets.~~four ~~These~~segments ~~new~~consistent ~~products~~with ~~are~~the ~~designed~~information toused ~~offer~~by ~~“best~~the ~~quality”~~chief ~~voice~~operating ~~and~~decision ~~data~~maker ~~transport~~ to manage ~~ensure~~the ~~greater~~operations ~~customer~~for ~~loyalty~~purposes ~~while~~of ~~protecting~~making ~~margins.~~operating Indecisions ~~Consumer~~and allocating resources.


																Adjustments to Reconcile
																Business Segment to
																Consolidated Results
	Business		Carrier									Business				Equity
	and		and		Consumer		Mobile		Corporate &			Segment		Consolidated		Method			Affiliate
	Corporate		Operator		Internet		Services		Eliminations			Total		Results		Ventures			Adjustments
	(in thousands)

Three Months Ended June 30, 2006
Revenue from external customers	$	113,073	$	71,398	$	12,243	$	2,621	$	—		$	199,335	$	196,968	$	(4,210	)	$	1,843
Intersegment revenue		—		9		—		—		(9	)		—		—		—			—
Operating income (loss)		30,787		7,399		667		501		(4,468	)		34,886		33,868		(1,018	)		—
Identifiable assets		520,706		364,875		73,136		9,145		(2.968	)		964,894		935,924		(28,970	)		—
Capital expenditures		22,318		9,365		5,067		5,614		24			42,388		41,873		(515	)		—


																		Adjustments to Reconcile
																		Business Segment to
																		Consolidated Results
	Business		Carrier											Business				Equity
	and		and		Consumer			Mobile			Corporate &			Segment		Consolidated		Method			Affiliate
	Corporate		Operator		Internet			Services			Eliminations			Total		Results		Ventures			Adjustments
	(in thousands)
Three Months Ended June 30, 2007
Revenue from external customers	$	167,466	$	116,883	$	13,445		$	3,666		$	—		$	301,460	$	297,669	$	(5,602	)	$	1,811
Intersegment revenue		—		—		—			—			—			—		—		—			—
Operating income (loss)		47,578		12,790		(4,528	)		(275	)		(5,971	)		49,594		48,826		(768	)		—
Identifiable assets		809,745		540,818		357,770			48,342			53,959			1,810,634		1,773,546		(37,088	)		—
Capital expenditures		42,450		14,883		14,364			2,950			754			75,401		76,000		599			—

~~Internet Services, we~~20 recognize that new technologies are making their way into Russia, Ukraine, and CIS. We expect that broadband competition and substitution will increase in the future, and that dial-up margins will continue to decline over time as the average revenue per subscriber continues to decline. In response to a decline in our dial-up subscriber base in Moscow, we are currently exploring opportunities to enter the broadband market in major cities via wireless delivery mechanisms. We are continuing to “beta” test new technologies that will benefit consumers and allow us to strengthen our market position as well as to up-sell to our existing dial-up customer base. A recent example of this is our pilot implementation of WiFi in selected areas of Russia. Also, with low penetration of dial-up services throughout the regions, we continue to see potential in the consumer Internet market.

~~Critical~~GOLDEN ~~Accounting~~TELECOM, ~~Policies~~INC.

~~The~~NOTES ~~fundamental~~TO ~~objective~~CONDENSED ofCONSOLIDATED ~~financial~~FINANCIAL ~~reporting~~STATEMENTS is— ~~to provide useful information that allows~~(Continued) ~~a reader to comprehend our business activities. To assist that understanding, management has~~(Unaudited) identified our “critical accounting policies”. These policies have the potential to have a significant impact on our financial statements, either because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events which are continuous in nature.

Revenue recognition policies; we recognize operating revenues as services are rendered or as products are delivered to customers and installed. Under multiple-delivery contracts, involving a combination of product delivery, installation and maintenance, connection and service fees, revenues are recognized based on the relative fair value of the respective amounts. Elements are grouped if they are inseparable or objective evidence of fair value does not exist. Certain revenues, such as connection and installation fees, are deferred. We also defer direct incremental costs related to connection fees, not exceeding the revenue deferred. Deferred revenues are subsequently recognized over the estimated average customer lives, which are periodically reassessed by us, and such reassessment may impact our future operating results. In determining the recording of revenue, estimates and assumptions are required in assessing the expected conversion of the revenue streams to cash collected.


																Adjustments to Reconcile
																Business Segment to
																Consolidated Results
	Business		Carrier									Business				Equity
	and		and		Consumer		Mobile		Corporate &			Segment		Consolidated		Method			Affiliate
	Corporate		Operator		Internet		Services		Eliminations			Total		Results		Ventures			Adjustments
	(in thousands)

Six Months Ended June 30, 2006
Revenue from external customers	$	216,432	$	133,821	$	24,502	$	5,211	$	—		$	379,966	$	375,108	$	(8,089	)	$	3,231
Intersegment revenue		—		21		—		—		(21	)		—		—		—			—
Operating income (loss)		57,016		14,432		304		1,035		(8,922	)		63,865		62,085		(1,780	)		—
Identifiable assets		520,706		364,875		73,136		9,145		(2.968	)		964,894		935,924		(28,970	)		—
Capital expenditures		43,123		17,400		7,962		5,661		29			74,175		73,460		(715	)		—

Allowance for doubtful accounts policies; the allowance estimation process requires management to make assumptions based on historical results, future expectations, the economic and competitive environment, changes in the creditworthiness of our customers, and other relevant factors. Changes in the underlying assumptions may have a significant impact on the results of our operations. In particular, we have certain amounts due to and from subsidiaries of a European telecommunications operator who is currently subject to bankruptcy proceedings. The ultimate resolution of this matter will be affected by a number of factors including the determination of legal obligations of each party, the course of the bankruptcy proceedings, and the enforceability of any determinations. We have recognized provisions based on our preliminary estimate of net exposure on the resolution of these receivables and payables. If our assessment proves to be incorrect we may have to recognize an additional provision of up to $1.9 million, net of tax, although management believes that the possibility of such an adverse outcome is remote.


																		Adjustments to Reconcile
																		Business Segment to
																		Consolidated Results
	Business		Carrier											Business				Equity
	and		and		Consumer			Mobile			Corporate &			Segment		Consolidated		Method			Affiliate
	Corporate		Operator		Internet			Services			Eliminations			Total		Results		Ventures			Adjustments
	(in thousands)
Six Months Ended June 30, 2007
Revenue from external customers	$	315,474	$	216,015	$	23,718		$	5,503		$	—		$	560,710	$	553,408	$	(9,749	)	$	2,447
Intersegment revenue		—		4		—			—			(4	)		—		—		—			—
Operating income (loss)		81,023		18,416		(9,658	)		(656	)		(12,088	)		77,037		76,927		(110	)		—
Identifiable assets		809,745		540,818		357,770			48,342			53,959			1,810,634		1,773,546		(37,088	)		—
Capital expenditures		72,091		32,213		21,511			3,624			760			130,199		124,390		(5,809	)		—

~~Long-lived~~Geographic ~~asset recovery policies; this policy is in relation to long-lived assets,~~Data consisting primarily of property and equipment and intangibles, which comprise a significant portion of our total assets. Changes in technology or changes in our intended use of these assets may cause the estimated period of use or the value of these assets to change. We perform periodic internal studies to confirm the appropriateness of estimated economic useful lives for each category of current property and equipment. Additionally, long-lived assets, including intangibles, are reviewed for impairment whenever events or changes in circumstances have indicated that their carrying amounts may not be recoverable. Estimates and assumptions used in both setting useful lives and testing for recoverability of our long-lived assets require the exercise of management’s judgment and estimation based on certain assumptions concerning the expected life of any asset and expected future cash flows from the use of an asset.

~~Goodwill~~Revenues ~~and assessment of impairment; Commencing~~ from ~~the~~external ~~adoption~~customers ofare ~~Statement~~based on Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”, on January 1, 2002, we perform goodwill impairment testing annually as of October 1 or whenever impairment indicators exist. This test requires a significant degree of judgment about the ~~future~~location ~~events and it includes determination~~ of the ~~reporting~~operating ~~units,~~company ~~allocation of goodwill to the reporting units and comparison~~providing of the ~~fair value with the carrying amount of each reporting unit~~service. ~~Based on the discounted cash~~ ~~flow valuations performed in 2004, we concluded that for all reporting units the fair value is in excess of the respective carrying amounts.~~

~~Valuation~~The ~~allowance~~Company ~~for~~operated ~~deferred~~within ~~tax~~two ~~asset;~~main wegeographic ~~record~~regions ~~valuation allowances related to tax effects~~ of ~~deductible~~the ~~temporary~~CIS: ~~differences~~Russia and ~~loss carryforwards when, in the opinion of management, it is more likely than not that the respective tax assets will not be realized~~Ukraine. ~~Changes~~Geographic ininformation ~~our~~as ~~assessment~~ of ~~probability~~three ofand ~~realization~~six ofmonths ~~deferred~~ended ~~tax~~June 30, ~~assets~~2006 ~~may~~and ~~impact~~2007, ~~our effective~~respectively ~~income~~is ~~tax rate.~~as follows:


					Corporate,
					Other
					Countries &		Consolidated
	Russia		Ukraine		Eliminations		Results
	(in thousands)
Three months ended June 30, 2006
Revenue	$	175,430	$	19,359	$	2,179	$	196,968
Long-lived assets		654,249		57,659		12,736		724,644


					Corporate,
					Other
					Countries &			Consolidated
	Russia		Ukraine		Eliminations			Results
	(in thousands)
Three months ended June 30, 2007
Revenue	$	272,939	$	25,188	$	(458	)	$	297,669
Long-lived assets		1,243,696		95,197		36,753			1,375,646

~~Business segment information; we report four segments within the telecommunications industry~~21 designed around customer characteristics: Business and Corporate Services, Carrier and Operator Services, Consumer Internet Services and Mobile Services. A significant portion of our cost structure, including our investment in infrastructure, benefits multiple segments. As a result, we perform allocations of certain costs in order to report business segment information for management and financial reporting purposes. Applying different allocation techniques and parameters could impact the reported results of individual business segments.

~~Functional~~GOLDEN ~~currency; We have determined in accordance with the functional currency criteria of SFAS No. 52~~TELECOM, ~~“Foreign Currency Translation”, that the USD should be considered the functional currency of all foreign subsidiaries~~INC. ~~There are subjective elements in this determination,~~ including a weight given to each specific criteria established by SFAS No. 52. Changes in the underlying business transactions could lead to different functional currency determination for a particular subsidiary, which would have an impact on its reported financial position and results of operations.

~~Critical~~NOTES ~~Accounting~~TO ~~Estimates~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (Unaudited)

Accounting estimates are an integral part of the financial statements prepared by management and are based upon management’s current judgments. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management’s current judgment. We believe the following items represent such particularly sensitive accounting estimates:


					Corporate,
					Other
					Countries &		Consolidated
	Russia		Ukraine		Eliminations		Results
	(in thousands)
Six months ended June 30, 2006
Revenue	$	334,480	$	37,054	$	3,574	$	375,108
Long-lived assets		654,249		57,659		12,736		724,644

Allowance for doubtful accounts; any changes in the underlying assumptions of recoverability of accounts receivable by respective aging group or certain specific accounts that are excluded from the specific and general allowances could have a material effect on our current and future results of operations. We believe that the allowance for doubtful accounts is adequate to cover estimated losses in our accounts receivable balances under current conditions.


					Corporate,
					Other
					Countries &			Consolidated
	Russia		Ukraine		Eliminations			Results
	(in thousands)
Six months ended June 30, 2007
Revenue	$	505,338	$	48,177	$	(107	)	$	553,408
Long-lived assets		1,243,696		95,197		36,753			1,375,646

~~Tax~~Note ~~provisions;~~12: inSupplemental ~~the~~Cash ~~course~~Flow ~~of preparing financial statements in accordance with United~~Information States generally accepted accounting principles, we record potential tax loss provisions under the guidelines of SFAS No. 5, “Accounting for Contingencies”. In general SFAS No. 5 requires loss contingencies to be recorded when they are both probable and reasonably estimable. In addition, we record other deferred tax provisions under the guidelines of SFAS No. 109, “Accounting for Income Taxes”. Significant judgment is required to determine when such provisions should be recorded, and when facts and circumstances change, when such provisions should be released.

~~Useful~~The ~~lives~~following oftable ~~property~~summarizes ~~and~~significant ~~equipment~~non-cash ~~and~~investing ~~certain intangible assets; our network assets~~ and ~~amortizable~~ ~~intangible~~financing ~~assets~~activities ~~are depreciated and amortized over periods generally ranging from five to ten years. Any reduction or increase in the estimated useful lives~~ for ~~a particular~~the ~~category of fixed assets or intangible assets could have a material effect on our future results of operations~~Company.

Business combinations; SFAS No. 141, “Business Combinations”, requires us to recognize the share in the assets of businesses acquired and respective liabilities assumed based on their fair values. Our estimates of the fair value of the identified intangible assets of businesses acquired are based on our expectations of future results of operations of such businesses.


	Six months ended June 30,
	2006		2007
	(in thousands)
Amounts payable in connection with business acquisitions	$	378	$	8,205
Capitalized leased assets		—		11,477
Issuance of common stock in connection with an acquisition		—		142,130

~~Recent~~Note ~~Accounting~~13: ~~Pronouncements~~Subsequent Events

In ~~December~~July ~~2004~~2007, the ~~Financial~~Company ~~Accounting Standards Board (“FASB”)~~ issued ~~SFAS No. 123R~~392,988 ~~“Share~~unregistered ~~Based~~shares ~~Payment”, which is a revision~~ of ~~SFAS~~GTI’s ~~No. 123~~common stock, ~~“Accounting~~par ~~for Stock-Based~~value ~~Compensation”~~$0.01, ~~SFAS~~to ~~No. 123R~~OAO ~~supersedes~~Rostelecom ~~Accounting Principles Board Opinion~~ (“~~APB~~Rostelecom”) ~~No. 25, “Accounting~~ for ~~Stock~~cash ~~Issued~~consideration toof ~~Employees”~~approximately ~~and amends SFAS No~~$20.4 95million, ~~“Statement~~or $51.95 ofper ~~Cash~~share ~~Flows”. Under~~of ~~SFAS~~common ~~No. 123R~~stock, ~~companies~~the ~~must~~closing ~~calculate~~price ~~and~~on ~~record~~ the ~~cost~~NASDAQ ofGlobal ~~equity~~Select ~~instruments,~~Market ~~such~~on asMay 25, ~~stock~~2007. ~~options~~Rostelecom orhad ~~restricted~~the ~~stock,~~right ~~awarded~~ to ~~employees~~acquire ~~for~~these ~~services~~shares ~~received~~under in the ~~income statement;~~Shareholders ~~pro~~Agreement ~~forma~~dated ~~disclosure~~as ~~is no longer permitted. The cost~~ of ~~the equity instruments is to~~ beAugust 19, ~~measured~~2003. ~~based~~This onright ~~the~~became ~~fair~~exercisable ~~value~~because of the ~~instruments~~shares onissued ~~the~~as ~~date~~part ~~they~~of ~~are granted (with certain~~the ~~exceptions)~~acquisition ~~and~~of isCorbina. ~~required~~No tounderwriter beor ~~recognized~~underwriting ~~over~~discount ~~the~~was ~~period~~involved ~~during~~in ~~which~~ the ~~employees~~offering. ~~are~~The ~~required~~shares toof ~~provide~~common ~~services~~stock inwere ~~exchange~~not ~~for~~registered under the ~~equity~~Securities ~~instruments.~~Act ~~SFAS~~in ~~No. 123R~~reliance ison ~~effective~~an inexemption ~~the~~under ~~first annual reporting period beginning after June~~Section ~~15,~~4(2) ~~2005~~thereof.

~~SFAS~~In ~~No.~~July ~~123R~~2007, ~~provides~~TeliaSonera ~~two~~Acquisition ~~alternatives~~Corp. ~~for~~acquired ~~adoption:~~MCT Corp. (1“MCT”) in a ~~“modified~~merger transaction. ~~prospective~~GTS Mobile Services, Inc. (“GMS”), ~~method~~a inwholly-owned subsidiary of the Company, owned ~~which~~approximately ~~compensation~~22.8% ~~cost~~of isMCT. ~~recognized~~GMS ~~for~~tendered ~~all~~its ~~awards~~shares ~~granted~~in ~~subsequent~~MCT toand ~~the~~received ~~effective~~cash ~~date~~consideration of ~~this~~approximately ~~statement~~$38.6 million. asGMS ~~well~~may asreceive ~~for~~up ~~the~~to ~~unvested~~an ~~portion~~additional $9.9 million upon the satisfaction of ~~awards~~certain ~~outstanding~~conditions. asThe ofCompany’s ~~the~~investment ~~effective~~in ~~date and~~MCT ~~(2)~~ had a ~~“modified~~carrying ~~retrospective”~~value ~~method~~of ~~which~~zero, ~~follows~~therefore the ~~approach~~amount received will be recorded as a gain in the ~~“modified~~consolidated statement of operations.

2022

~~Table~~ITEM 2. Management’s Discussion and Analysis of ~~Contents~~Financial Condition and Results of Operations

~~prospective” method,~~ The ~~but~~following ~~also~~discussion ~~permits~~and ~~entities~~analysis torelates ~~restate prior periods~~ to ~~reflect~~our ~~compensation~~financial ~~cost~~condition ~~calculated under~~and ~~SFAS~~results ~~No. 123 for pro forma amounts disclosure. We plan to adopt SFAS No. 123R using the~~of ~~modified~~operations ~~prospective method. As we currently account~~ for ~~share~~each ~~based~~of ~~payments to employees in accordance with~~ the ~~intrinsic~~three ~~value~~and ~~method~~six ~~permitted~~months ~~under~~ended ~~APB No.~~June ~~25, no compensation expense is recognized. On March~~ 30, ~~2005~~2006, ~~the United States Securities~~ and ~~Exchange Commission (“SEC”) released Staff Accounting Bulletin No~~2007. ~~107,~~ ~~“Share~~This ~~Based Payments,” (“SAB 107”), which expresses~~discussion ~~the~~should ~~views of the SEC staff regarding the application of SFAS No. 123R. The impact of adopting SFAS No. 123R and SAB 107 cannot~~ be ~~accurately~~read ~~estimated at this time, as it will depend on the amount of share based awards granted~~ in ~~future~~conjunction ~~periods.~~with ~~However,~~our ~~had~~Condensed weConsolidated ~~adopted~~Financial ~~SFAS~~Statements ~~No. 123R~~ and ~~SAB 107 in a prior period,~~ the ~~impact would approximate the impact of SFAS No. 123 as described in the~~notes ~~disclosure~~related ofthereto ~~pro~~appearing ~~forma~~elsewhere ~~net income and earnings per share. SFAS No. 123R also requires that tax benefits received~~ in ~~excess~~this ~~of compensation cost be reclassified from an operating cash flow to a financing cash flow in the Consolidated Statement of Cash Flows~~Report. ~~This change in classification will~~ ~~reduce net operating cash flows and increase net financing cash flows in the periods after adoption.~~

~~In March 2005, the FASB issued FASB Interpretation No. 47 (“FIN No. 47”), “Accounting for~~Overview Conditional Assets Retirement Obligations”. FIN No. 47 clarifies that an entity must record a liability for a “conditional” asset retirement obligation if the fair value of the obligation can be reasonably estimated. FIN No. 47 is effective no later than the end of the fiscal year ending after December 15, 2005. We do not expect that the adoption of FIN No. 47 will have a material effect on our financial position, results of operations, or cash flow.

InWe ~~May 2005,~~are ~~the~~a ~~FASB~~leading ~~issued~~facilities-based ~~SFAS~~provider ~~No. 154,~~of ~~“Accounting~~integrated ~~Changes~~telecommunication and ~~Error Corrections”, which~~Internet isservices ain ~~replacement~~major ofpopulation ~~APB~~centers ~~Opinion~~throughout ~~No. 20,~~Russia ~~“Accounting Changes”~~ and ~~SFAS~~other ~~No. 3,~~countries ~~“Reporting~~of ~~Changes~~the inCommonwealth of ~~Interim~~Independent ~~Financial~~States ~~Statements~~(“CIS”). ~~SFAS~~We ~~No. 154~~offer ~~applies~~voice, todata ~~all~~and ~~voluntary~~Internet ~~changes~~services into ~~accounting principle~~corporations, operators and ~~changes~~consumers ~~the~~using ~~accounting~~our ~~for~~metropolitan ~~and~~overlay ~~reporting~~network ~~of a change~~ in ~~accounting~~major ~~principle.~~cities ~~SFAS No. 154~~throughout ~~requires~~Russia, ~~retrospective application to prior periods’ financial statements of a voluntary~~Ukraine, ~~change~~Kazakhstan, inand ~~accounting principle unless it is impracticable. In addition~~Uzbekistan, ~~SFAS~~and ~~No. 154~~via ~~requires~~leased ~~that a~~channels ~~change~~and ininter-city ~~method~~fiber ofoptic ~~depreciation,~~and ~~amortization, or depletion for long~~satellite-~~lived~~based networks, ~~nonfinancial~~including ~~assets be~~approximately ~~accounted~~295 ~~for~~access aspoints ~~a change~~ in ~~accounting~~Russia ~~estimate~~and ~~that~~other iscountries ~~effected~~of bythe aCIS ~~change~~as ~~in accounting~~of ~~principle.~~June 30, ~~SFAS~~2007, ~~No. 154~~a is3% ~~effective~~increase ~~for~~from ~~accounting~~287 ~~changes~~access ~~and~~points ~~corrections~~as of ~~errors made in fiscal years beginning after December~~June 1530, ~~2005~~2006. WeIn doaddition, ~~not~~we ~~expect~~offer mobile ~~that~~services ~~the~~in ~~adoption~~Moscow ofand ~~SFAS~~the ~~No. 154 will~~Moscow ~~have~~region, aand ~~material effect on~~ the ~~financial~~Ukrainian ~~position,~~cities ~~results~~ of ~~operations,~~Kiev orand ~~cash flow~~Odessa.

~~Results~~ We oforganize ~~Operations~~our operations into four business segments, as follows:

~~The~~• ~~results~~Business ofand Corporate Services (“BCS”) Using our ~~four~~fiber ~~business~~optic ~~segments~~and ~~from~~satellite-based ~~the~~networks ~~operations~~in and between major metropolitan areas of ~~our~~Russia, ~~consolidated~~Ukraine ~~entities combined~~and ~~with~~other ~~the~~countries ~~non-consolidated~~of ~~entities~~the ~~where~~CIS, we ~~are~~provide ~~actively~~business ~~involved~~and incorporate ~~the~~services ~~day-~~including voice and data services to~~-day management~~ corporate clients across all geographical markets and all industry segments, ~~are~~other ~~shown~~than telecommunications operators; • Carrier and Operator Services. Using our fiber optic and satellite-based networks in ~~note~~and 7between ~~“Segment~~major ~~Information~~metropolitan —areas ~~Line~~of Russia, Ukraine and other countries of ~~Business~~the ~~Data”~~CIS, we provide a range of carrier and operator services including voice and data services to ~~our~~foreign ~~consolidated financial~~and ~~statements.~~Russian Intelecommunications ~~accordance~~and ~~with~~mobile ~~SFAS~~operators; No• Consumer Internet Services. ~~131~~ Using our fiber optic and satellite-based networks, ~~“Disclosures~~we ~~about~~provide ~~Segments~~Internet ofaccess ~~an Enterprise~~to the consumer market and ~~Related~~web ~~Information”~~content offered through a family of Internet portals throughout Russia, weUkraine, ~~have~~Kazakhstan, ~~aligned~~and Uzbekistan; and • Mobile Services. Using our ~~operating~~mobile ~~segments~~networks in ~~the~~Moscow, ~~manner~~Kiev ~~that~~and ~~the chief~~Odessa ~~operating~~we ~~decision~~provide ~~maker~~mobile ~~manages~~services ~~the~~with ~~operations~~value-added ~~for~~features, ~~purposes~~such ofas ~~making~~voicemail, ~~operating~~roaming ~~decisions~~ and ~~allocating~~messaging ~~resources~~services on a subscription and prepaid basis.

~~According~~We tointend, ~~Russian~~wherever ~~government estimates~~possible, ~~inflation~~to inoffer ~~Russia~~all ~~was~~of ~~14%~~our inintegrated ~~2003,~~telecommunication ~~12%~~services ~~in 2004~~under ~~and 8% for~~ the ~~six~~Golden ~~months~~Telecom ~~ended~~brand, ~~June 30~~although, ~~2005.~~some ~~The~~services ~~Russian~~still ~~government~~carry ~~expects~~local ~~inflation~~brands tobecause beof recent ~~approximately~~acquisitions. ~~10%~~Our ~~for~~dial-up Internet services are distributed under the ~~year~~ROL brand in ~~2005.~~Russia, Kazakhstan ~~Although~~and Uzbekistan and under the ~~rate~~Svit-On-Line ofbrand ~~inflation~~in ~~has~~Ukraine. ~~been~~In ~~declining~~addition, ~~any~~we offer WiFi ~~return~~services toin ~~heavy~~Moscow ~~and~~under ~~sustained~~the ~~inflation~~Golden ~~could~~WiFi ~~lead~~brand. toWe ~~market~~also ~~instability,~~offer ~~new~~broadband ~~financial~~Internet ~~crises, reduction~~access in ~~consumer~~Moscow, St. ~~buying~~Petersburg, ~~power~~Yaroslavl, Tula, and ~~erosion~~Kaluga ofunder ~~consumer~~the ~~confidence~~Corbina Telecom brand.

~~The~~Most ~~discussion~~ of our ~~results~~revenue is derived from high-volume business customers and carriers. Our business customers include large multi-national companies, local enterprises, financial institutions, hotels and government agencies. We also believe that carriers derive a portion of ~~operations~~their isbusiness ~~organized~~from high-volume asbusiness ~~follows:~~customers. Thus, we believe that the majority of our ultimate end-users are businesses that require access to highly reliable and advanced telecommunications facilities to sustain their operations.

• Traditionally, ~~Consolidated~~we ~~Results.~~have ~~Consolidated~~competed ~~Results~~for ofcustomers ~~Operations~~on ~~for~~ the ~~Three~~basis ~~Months~~of ~~Ended~~network ~~June 30~~quality, ~~2005~~customer service ~~compared~~and torange ~~the Consolidated Results~~ of ~~Operations~~services ~~for~~offered. During the ~~Three~~past ~~Months~~several ~~Ended June 30~~years, ~~2004~~other •telecommunications operators ~~Consolidated~~have ~~Results.~~also ~~Consolidated~~introduced ~~Results~~high-quality ofservices ~~Operations~~to ~~for~~ the ~~Six~~segments ~~Months~~of ~~Ended June 30, 2005 compared to~~ the ~~Consolidated~~business ~~Results~~market ofin which ~~Operations~~we ~~for~~operate. ~~the~~Competition ~~Six~~with ~~Months~~these ~~Ended~~operators ~~June~~is 30intense, ~~2004~~and •frequently ~~Consolidated~~results ~~Financial~~in ~~Position.~~declining prices ~~Consolidated~~for ~~Financial~~some ~~Position~~of atour ~~June 30~~services, ~~2005~~which ~~compared~~adversely toaffect ~~Consolidated~~our ~~Financial Position at December 31, 2004~~revenues.

21 In the first half of 2007, we continued to experience growth in our main lines of business and benefited from strong macro-economic growth in the markets where we operate. Despite being faced with challenges of continued changes in the regulatory and telecommunications environment in Russia and Ukraine, we remained focused on developing our business through organic growth, acquisitions, and the expansion of our services.

~~Table of Contents~~23

~~Consolidated~~Recent ~~Results — Consolidated Results of Operations for the Three Months Ended June 30, 2005~~Acquisitions ~~Compared to the Consolidated Results of Operations for the Three Months Ended June 30, 2004~~

~~Revenue~~ We continue to pursue consolidation opportunities through selective acquisitions that will allow us to expand our geographical reach, add to our service offerings, and improve our market share while maintaining operational control.

~~Our~~In ~~revenue~~February 2007, ~~increased~~we bycompleted 19the acquisition of 65% toownership interest in Fortland Limited (“Fortland”) from an entity, the principal shareholder of which is also a shareholder in two of our other subsidiaries. Fortland owns Kolangon-Optim LLC (“Kolangon”), an early-stage digital video broadcast enterprise in Russia. We acquired Fortland for approximately $~~165~~49.57 million consisting of cash consideration of $38.6 million, and a deferred payment of $11.1 million due in October 2007, $0.2 million of direct transaction costs plus the assumption of a $1.8 million debt. The acquisition of Fortland was accounted for as an asset purchase of television licenses through a variable interest entity. We have consolidated the ~~three~~financial ~~months~~position ~~ended~~and ~~June~~results of operations of Fortland from February 301, ~~2005~~2007. On acquisition, ~~from~~we allocated approximately $72.1 million to licenses, approximately $~~138~~17.82 million ~~for~~to ~~the~~deferred ~~three~~tax ~~months~~liability, ~~ended~~and ~~June~~approximately $15.0 30million to noncontrolling interest. The allocation of the purchase price is preliminary and will be finalized upon completion of the valuation of the acquired intangible assets and minority interest. In conjunction with this transaction, ~~2004~~we also entered into agreement whereby we agreed to provide a secured loan of $12.1 million to the seller. The ~~overall~~loan, ~~increase~~issued in ~~revenue~~April 1007, ~~was~~is ~~due~~secured by toa pledge anof ~~increase~~a 15% interest in ~~customer~~Fortland ~~base~~owned by the seller and ~~services~~matures ~~provided~~in toApril 2011. ~~existing~~In ~~customers~~conjunction with this transaction, ~~partially~~we ~~offset~~also byentered ~~lower~~into a put option agreement that, if exercised, would require us ~~prices~~to ~~for~~purchase ~~certain~~the ~~services~~seller’s remaining 35% interest in Fortland at fair market value. In conjunction with this transaction, we also entered into a call option agreement that, if exercised, would require the seller to sell the seller’s remaining 35% interest in Fortland at fair market value. The ~~breakdown~~put ofand ~~revenue~~call byoptions ~~business~~are ~~group~~exercisable ~~was~~on asand ~~follows:~~after September 30, 2010.

	Consolidated Revenue			Consolidated Revenue
	For the Three Months			For the Three Months
	Ended June 30, 2004			Ended June 30, 2005
	(in millions)
REVENUE
Business and Corporate Services	$	78.9		$	96.4
Carrier and Operator Services		44.7			54.5
Consumer Internet Services		11.4			10.7
Mobile Services		4.0			3.9
Eliminations		(0.2	)		—
TOTAL REVENUE	$	138.8		$	165.5

In April 2007, we completed the acquisition of 100% ownership interest in ZAO Telecommunications Agency (“Atel”), a fixed line alternative telecommunications operator in Perm, Russia for approximately $4.5 million in cash consideration. We have consolidated the financial position and results of operations of Atel from April 1, 2007. On acquisition, we allocated $2.7 million to fixed assets and $1.8 million to goodwill. The allocation of the purchase price is preliminary and will be finalized upon completion of the valuation of the acquired fixed and intangible assets.

~~Business~~In ~~and Corporate Services. Revenue from BCS services increased by 22% to $96.4 million for the three months ended June~~May 302007, ~~2005,~~we ~~from~~completed ~~$78.9 million for~~ the ~~three~~acquisition ~~months~~of ~~ended June 30,~~100% ~~2004.~~ownership Ininterest ~~our largest market, Moscow, we had increases~~ in ~~our~~OOO ~~revenues~~ICA ~~due~~Center ~~to adding~~of ~~approximately~~Commercial ~~1,890~~Real ~~new~~Estate ~~corporate customers~~(“CKN”), 28which ~~new~~owns ~~multi-tenant business centers, and~~ 6 ~~new trade centers in the three months ended June 30~~,181 ~~2005,~~square ~~along~~meters ~~with~~of ~~actively~~a ~~promoting~~building ~~new~~in ~~services among our client base~~Moscow. ~~BCS~~We ~~Moscow~~acquired CKN ~~recognized~~for approximately $69.18 million inof ~~revenue~~cash ~~from~~consideration. ~~new~~The ~~contracts~~acquisition ~~in the three months ended June 30, 2005, and grew the number~~ of ~~its~~CKN ~~Direct~~was ~~Inward~~accounted ~~Dialing lines from~~for ~~110,600~~ as ofan ~~June 30,~~asset ~~2004,~~purchase toof ~~approximately~~a ~~122,500~~building asthrough ofa ~~June 30,~~variable ~~2005~~interest entity. ~~During~~On ~~the quarter~~acquisition, we ~~also~~allocated ~~increased~~$12.0 million ~~our revenue by continuing~~ to ~~assist~~fixed ~~our~~assets ~~customers develop their businesses as they expanded regionally. The macro-economic growth in Russia, Ukraine,~~ and ~~the CIS continues to help us to expand our client base. Additionally, BCS revenue increased by approximately~~ $1.2.3 million ~~due~~ to ~~the~~ ~~acquisitions~~deferred ~~OAO~~tax ~~Balticom~~liability. ~~Mobile~~We ~~(“Balticom”)~~have consolidated ~~and~~the SPfinancial ~~Buzton~~position ~~(“Buzton”)~~and inthe ~~2004.~~results Weof ~~began consolidating~~operations ~~Balticom~~of inCKN ~~April 2004~~from ~~and Buzton in~~ May ~~2004~~1, 2007.

~~Revenue~~In ~~from~~May 2007, ~~the~~we ~~BCS~~completed ~~division~~the acquisition of ~~GTU~~a ~~increased~~51% byownership ~~42%~~interest in ZAO Cortec and its subsidiaries (together “Corbina”) from Inure Enterprises Ltd. and Rambert Management Limited, pursuant to a Stock Purchase Agreement. The total purchase price of approximately $9196.58 million consisted ~~for~~of ~~the~~approximately ~~three~~$142.1 million ~~months~~of our common stock, representing 3,193,219 shares, cash ~~ended~~consideration ~~June~~of $8.2 30million, ~~2005,~~and ~~from~~direct transaction costs of approximately $61.74 million. ~~for~~In addition, as part of the ~~three~~purchase ~~months~~price, ~~ended~~we ~~June~~refinanced $45.0 ~~30,~~million ~~2004~~of debt that the seller owes to OAO Vneshtorgbank. ~~This~~The ~~increase~~refinancing inwas effected through our loan to Corbina. The purchase ~~revenues~~consideration of our common stock, which was ~~due~~issued on May 25, 2007, was determined based on the closing price of our common stock on December 20, 2006, when we announced that it had entered into a binding Memorandum of Understanding with Dawn Key Limited to acquire a 5751% ~~increase~~ownership interest in Corbina. Accordingly, our shares issued in consideration are valued based on the ~~number~~average closing price of our ~~serviced~~common ~~voice~~stock ~~lines~~for the five consecutive trading days between December 18, 2006 and aDecember 22, 2006, 7which was $44.51 per share. Management believes the acquisition of 51% ~~increase~~of Corbina further strengthens our position in the broadband strategy and positions us to realize future operating and ~~average~~cost ~~rate~~synergies. ~~per~~Corbina ~~minute~~is ofan ~~use~~integrated ~~resulting~~telecommunications ~~from~~provider aof ~~change~~telecommunications and Internet services in ~~traffic~~Russia. ~~mix~~We inhave ~~favor~~consolidated the financial position of ~~higher~~Corbina from May 31, 2007 and the results of operations of Corbina from June 1, 2007. On acquisition, we allocated approximately $32.8 million to brand, $10.5 million to telecommunications service contracts intangible assets, $7.6 million to contract-~~rated~~based customer relationship intangible assets, $0.1 ~~traffic~~million to ~~mobile~~licenses, ~~networks~~and $0.4 million ~~Offsetting~~to ~~these~~other ~~increasing~~intangible assets. ~~factors~~We ~~was~~have recorded approximately $10.3 million of tax contingencies related to the acquisition of Corbina. The allocation of the purchase price is preliminary and will be finalized upon completion of the valuation of the acquired fixed and intangible assets and resolving tax related contingencies. Corbina holds a variable ~~16%~~interest ~~decrease~~and inis ~~average~~the primary beneficiary of Mircom Trading, Inc. (“Mircom”), a British ~~minutes~~Virgin Islands registered wholesale telecommunications operator providing a range of ~~use~~carrier ~~per~~and operator ~~line~~services ~~per~~to foreign telecommunications operators. Mircom is owned by a member of the Board of Directors of Corbina. As of June 30, 2007, Mircom had net liabilities of approximately $14.8 million. For the month ended June 30, 2007, Mircom had revenues of approximately $0.7 million and net loss of approximately $0.3 million. The creditors of Mircom have no recourse to our general credit.

~~Carrier~~In ~~and~~June 2007, ~~Operator~~we ~~Services.~~completed ~~Revenue~~the ~~from~~acquisition ~~Carrier~~of ~~and~~100% ~~Operator~~ownership ~~Services~~interest ~~increased~~in byZAO ~~22%~~Direct toNet ~~$54.5 million~~Telecommunications ~~for~~(“DirectNet”) ~~the~~and ~~three~~ZAO ~~months~~Satcom ~~ended~~Tel ~~June 30~~(“Satcomtel”), ~~2005,~~fixed ~~from~~line ~~$44.7 million for the three months~~alternative ~~ended~~telecommunications ~~June 30,~~operators ~~2004.~~in WeMoscow ~~have~~and ~~expanded~~the ~~our~~assets ~~operations~~of ~~with~~NDNT, ~~existing~~Inc. ~~partners~~ and ~~added~~NDT a(UK) limited, ~~number of~~for ~~new~~approximately ~~carriers~~$1.4 million ~~specifically~~ in ~~the~~cash ~~regions~~consideration, ~~with~~including ~~increased~~the ~~volumes~~assignment of ~~traffic~~approximately $0.7 million Inof ~~addition,~~intercompany ~~we continue~~debt tofrom ~~expand~~the ~~our~~seller ~~business~~to ~~with~~us. ~~major~~We ~~cellular~~have ~~providers~~consolidated ~~both~~the infinancial ~~Moscow~~ position and inthe ~~regions,~~results ~~which helped~~of ~~offset~~operations ~~general~~of ~~tariff~~DirectNet ~~decline,~~and ~~although~~Satcomtel ~~pricing~~from ~~pressures~~July 1, ~~still exist~~2007. WeOn ~~continue~~acquisition, towe ~~observe~~allocated ~~competitive~~$0.1 million ~~pressure~~to ontelecommunications ~~revenues~~services incontracts ~~the~~intangible ~~major cities and in the regions from established~~assets, ~~and new local competitors.~~

~~Revenue for the Carrier and Operator Services division of GTU increased by 17% to $5.6 million~~24 for the three months ended June 30, 2005, from $4.8 million for the three months ended June 30, 2004. $0.2 million of this increase in revenue was due to a 7% increase in incoming international traffic which we are able to terminate in a number of cities in Ukraine. $0.4 million of the increase in revenue was due to a 19% increase in carrier minutes of use coupled with a 5% increase in average carrier revenue per minute of use.

~~Consumer Internet Services. Revenue from Consumer Internet Services decreased by 6% to~~ $100.7 1 million ~~for~~to ~~the~~other ~~three~~intangible ~~months ended June 30~~assets, ~~2005,~~and ~~from~~approximately $111.49 million ~~for~~to ~~the three months ended June 30, 2004~~goodwill. The allocation ~~change~~of ~~is primarily due to a decrease in~~ the ~~average~~purchase ~~revenue~~price ~~per~~is ~~dial-up Internet~~preliminary ~~subscriber~~and ~~from~~will ~~$7.47~~be ~~per~~finalized ~~month~~upon ~~for~~completion ~~the second quarter~~ of ~~2004 to approximately $6.84 per~~the ~~month~~valuation ~~for the second quarter~~ of ~~2005. Partly offsetting this decreasing factor was an increase in~~ the ~~number~~acquired offixed ~~dial-up~~and ~~Internet~~intangible ~~subscribers from 385,451 at June 30, 2004, to 394,250 at June 30, 2005~~assets. ~~Our dial-up subscriber counts continue to increase as regional subscriber~~

22 In June 2007, we completed the acquisition of 75% ownership interest in OOO Alcar (“Alcar”), an early stage WiFi enterprise in the Moscow region of Russia, from an entity, the principal shareholder of which is also a shareholder in three of our other subsidiaries. We acquired Alcar for approximately $1.9 million of cash consideration. The acquisition of Alcar was accounted for as an asset purchase of WiFi and WiMAX frequencies through a variable interest entity. We have consolidated the financial position and results of operations of Alcar from June 1, 2007. On acquisition, we allocated approximately $3.1 million to licenses, approximately $0.7 million to deferred tax liability, and approximately $0.8 million to noncontrolling interest. The allocation of the purchase price is preliminary and will be finalized upon completion of the valuation of the intangible assets and minority interest.

~~Table~~ These ofacquisitions ~~Contents~~have enabled us to realize new opportunities in Russia by increasing our customer base, increasing our access to critical infrastructure including last mile infrastructure and digital video broadcast technology, and furthering our consumer markets strategy.

~~growth~~Regulatory ~~offsets~~Developments subscriber loss in Moscow. The consumer Internet market in Moscow has become more competitive due to the increasing availability of new Internet access technologies such as digital subscriber line (“DSL”).

~~Mobile~~On ~~Services~~January 29, 2007, we launched domestic long distance / international long distance (“DLD/ILD”) services using our Federal Transit Network (“FTN”). ~~Revenue~~We ~~from~~believe ~~Mobile~~that ~~Services~~provision ~~decreased~~of DLD/ILD byservices 3%will allow us to $3preserve margins and to gain additional revenues from our international and domestic long distance operations.~~9 million~~ ~~for~~We ~~the~~believe ~~three~~that our DLD/ILD license will ~~months~~enable ~~ended~~us ~~June 30~~to protect our relationship with our corporate clients and, ~~2005~~in the long term, ~~from~~expand ~~$4.0 million~~our business ~~for~~into the ~~three~~residential ~~months~~long ~~ended~~distance ~~June 30~~market. Under the previous regulation, ~~2004.~~the ~~Active~~local ~~subscribers~~operators ~~increased~~collected ~~from~~full ~~50,975~~tariffs atfor ~~June 30,~~DLD/ILD ~~2004,~~calls and passed only a portion of the revenue to ~~55,074~~the DLD/ILD atoperator. ~~June 30~~However, ~~2005~~in the near term, ~~due~~we do not expect significant growth in our DLD/ILD gross margins since we will incur additional costs payable to anthe incumbent OAO Svyazinvest ~~increasing~~(“Svyazinvest”) ~~number~~companies in the form of ~~prepaid~~compensatory ~~subscribers~~fees and other surcharges. ~~The~~DLD/ILD ~~average~~carriers will ~~revenue~~continue ~~per~~to ~~active~~pay ~~subscriber~~this ~~has~~compensatory ~~decreased by~~fee ~~13%~~until local tariffs are raised to ~~approximately~~an ~~$23~~economically viable level.82 ~~per~~This ~~month~~increase ~~mainly~~in ~~due~~local tariffs is expected to ~~the~~be ~~decrease~~completed inby the ~~subscription~~end ~~fee~~of ~~for~~2008. Under the new ~~tariff~~system, ~~plan~~the ~~which~~local ~~allows~~operators may also act as agents for ~~unlimited~~DLD/ILD ~~local~~carriers, ~~calls~~billing clients for along distance ~~fixed~~calls ~~payment~~and ascollecting ~~well~~payments on behalf of the DLD/ILD operators. We incur additional costs payable to the local operators acting as aour ~~decrease~~agents in the ~~number~~ form of ~~subscribers~~commission ~~using~~fees. ~~the~~We currently anticipate that ~~tariff~~our ~~plan~~new ~~and~~license ~~due~~will toresult in an increase of DLD/ILD revenues since we will begin to earn long distance revenue directly from end-users. However, the impact on our DLD/ILD revenues is dependent on the contractual arrangements with the end-users. Historically, local operators established the end-user tariffs for our DLD/ILD services within the limits we set for local operators. However, in the ~~share~~future we may change this tariff setting policy and fix end-user tariffs. We are still analyzing these future DLD/ILD revenues to determine the impact on our business and how these will be classified for segment reporting purposes. We continue to report DLD/ILD revenues from local operators net of ~~prepaid~~payments to these operators for ~~subscribers~~interconnection and agency fees, since the economic substance of our settlements with ~~lower~~local operators ~~activity~~has not changed following the introduction of the new Interconnection Rules, and noother conditions ~~fixed~~that ~~charge~~might otherwise require us to present those same revenues and costs on a gross basis have not yet been fulfilled.

~~Expenses~~ On March 6, 2007, Rossvyaznadzor, a governmental body that reports to the Ministry of Information Technologies and Communications of the Russian Federation, warned EDN Sovintel LLC (“Sovintel”) that it should remedy certain alleged violations in traffic routing. The allegation followed an inspection by Rossvyaznadzor of an independent operator, OAO Arctel (“Arctel”). Rossvyaznadzor believes that Sovintel inappropriately converted telephone traffic of Arctel into IP-telephone traffic and then incorrectly routed this traffic abroad. Sovintel carried out a full analysis of the routing of these calls. Following Sovintel’s review, the Company notified Rossvyaznadzor that the Company believes that Sovintel has not violated its licenses. Sovintel filed a lawsuit against Rossvyaznadzor and on May 17, 2007, the court turned down Sovintel’s lawsuit for procedural reasons that the license in question had been annulled and that there were no grounds for dispute. On May 29, 2007, Sovintel appealed this court decision and on June 26, 2007, Sovintel withdrew its appeal. On June 29, 2007, the court accepted Sovintel’s withdrawal of the appeal and the case is now closed. We no longer use the license in question.

In a letter dated December 20, 2006, several deputies of the State Duma wrote to the Russian General Prosecutor alleging that Sovintel was illegally providing domestic and international services prior to receipt of access codes. The ~~following~~letter ~~table~~stated ~~shows~~that ~~our~~because ~~principal~~Sovintel ~~expenses~~had ~~for~~not yet received access codes to offer such services in the ~~three~~first, ~~months~~second ~~ended~~and ~~June 30~~third quarter of 2006, ~~2004~~then Sovintel was operating illegally in this respect. Further, the letter requested that the Prosecutor General’s office conduct an investigation of Sovintel’s activities and, if appropriate, charge ~~June~~those Sovintel officials responsible for the activities. Sovintel received the access codes in December ~~30,~~2006 ~~2005:~~and prior to construction of its FTN was operating under its previous licenses. We believe that we were acting in accordance with Russian regulations and legislation and our licenses.

	Consolidated Expenses			Consolidated Expenses
	For the Three Months Ended			For the Three Months Ended
	June 30, 2004			June 30, 2005
	(in millions)
COST OF REVENUE
Business and Corporate Services	$	34.3		$	41.3
Carrier and Operator Services		27.8			35.8
Consumer Internet Services		6.8			7.3
Mobile Services		1.5			1.8
Eliminations		(0.2	)		—
TOTAL COST OF REVENUE		70.2			86.2
Selling, general and administrative		25.1			28.8
Depreciation and amortization		18.3			20.2
Equity in (earnings) losses of ventures		(0.2	)		0.1
Interest income		(0.3	)		(0.5	)
Interest expense		0.1			0.3
Foreign currency loss		1.0			0.5
Minority interest		0.3			0.7
Provision for income taxes	$	7.4		$	9.4

In the third quarter of 2006, incumbent Svyazinvest operators started introducing new settlement rules for local traffic. Prior to July 1, 2006, we paid fixed monthly fees for interconnection lines with these operators. Under the new rules, the settlements will be based on the actual volume of traffic. The switch to the new rules was not completed in the first half of 2007. As a result of these changes,

~~Cost of Revenue~~25

~~Our~~we ~~cost~~expect ofan ~~revenue~~increase ~~increased by 23% to $86.2 million for the three months ended June 30, 2005, from $70.2 million for the three months ended June 30, 2004. Included~~ in ~~the~~cost ~~increase~~ of ~~cost of~~ revenue iswhich acould ~~$0.7 million~~be ~~charge~~partially ~~recorded~~offset inby ~~the~~additional ~~second~~revenue ~~quarter of 2005~~ for the ~~revision~~traffic oftermination to our ~~estimate~~ ~~for unused vacation~~network.

~~Business~~On ~~and~~March 4, ~~Corporate~~2006, ~~Services.~~the ~~Cost~~Russian ofPresident ~~revenue~~approved ~~from~~amendments ~~BCS~~to ~~increased~~the byRussian ~~20%~~Telecommunications Law tothat ~~$41~~introduced calling party pays rules (“CPP Rules”).3 Effective July ~~million~~1, 2006, under the CPP ~~for~~Rules, generally all incoming calls on fixed and mobile lines in Russia are free of charge and only the ~~three~~fixed ~~months~~line ~~ended~~or ~~June 30,~~mobile ~~2005,~~operators ~~from~~originating ~~$34.3 million~~the call may charge the customer for the ~~three~~call. Subscribers ~~months~~of ~~ended~~fixed ~~June 30~~line telephones did not pay for incoming calls and, therefore, the CPP Rules ~~2004.~~will ~~Cost~~not ofhave ~~revenue~~an asimpact aon ~~percentage~~fixed-to-fixed ofline ~~revenue~~calls, ~~remained~~but ~~consistent~~the atCPP ~~43%~~Rules impact the fixed-to-mobile calls as mobile companies traditionally charged for incoming calls in Russia. For the ~~three~~six months ended June 30, ~~2005~~2007, ~~and~~we ~~2004~~have recorded approximately $42.9 million ~~Additionally,~~in ~~BCS~~additional ~~cost~~revenue. ofHowever, this increase in revenue ~~includes~~was partially offset by approximately $030.61 million ofin additional cost of revenue ~~from~~due ~~Balticom~~to ~~and~~the ~~Buzton~~introduction of termination charges to mobile networks.

~~Cost~~Effective July 15, 2006, the Ukrainian National Commission of ~~revenue~~Communication’s Regulation (“NCCR”) introduced new tariffs for ~~the~~provision ~~BCS~~of ~~division~~voice services to fixed line subscribers. As a result of ~~GTU~~the tariff re-balancing policy, the tariffs for local calls and monthly fees increased and bytariffs ~~47%~~for toDLD/ILD $5calls decreased.0 Effective November ~~million~~1, or2006, ~~53%~~the ofNCCR continued the tariff ~~revenue,~~re-balancing process by increasing the tariffs for local calls and monthly fees and by decreasing the ~~three~~tariffs ~~months~~for ~~ended~~fixed-to-mobile ~~June~~calls. On October 3028, ~~2005~~2006, ~~from~~the ~~$3.4 million,~~Verkhovna orRada ~~51%~~approved ofthe amendments ~~revenue,~~to ~~for~~the Ukrainian Law on Telecommunications which changed the list of the ~~three~~telecommunication ~~months~~service ~~ended~~tariffs ~~June 30~~subject to the public regulation. Under new regulation, ~~2004~~tariffs for DLD/ILD calls were excluded from the public regulation. ~~Cost~~The ofamendments ~~revenue~~also ~~increased~~exclude fixed-to-mobile ascalls from the public tariff regulation. As a ~~percentage~~result of ~~revenue~~these ~~due~~changes, towe ~~the~~expect increased ~~volume~~competition offrom ~~lower~~the ~~margin~~incumbent ~~traffic~~operators toin ~~mobile~~DLD/ILD ~~networks~~services market.

~~Carrier~~Effective ~~and Operator Services. Cost of revenue from Carrier and Operator Services increased by 29% to $35.8~~January ~~million~~1, ~~or 66% of revenue~~2007, ~~for~~ the ~~three~~NCCR ~~months~~introduced ~~ended~~new ~~June 30,~~interconnection ~~2005,~~settlement ~~from $27~~rules.8 During ~~million~~2006, orwe ~~62%~~paid offixed ~~revenue,~~monthly fees for ~~the~~interconnection ~~three~~lines ~~months~~with ~~ended~~other ~~June 30, 2004~~operators. ~~The~~However, ~~increase~~under ~~in cost of~~the ~~revenue~~new asrules athe ~~percentage~~settlements ofwill ~~revenue~~be isbased ~~primarily~~on ~~due~~the toactual avolume ~~change~~of ~~in our~~ traffic. ~~mix~~As toa ~~favor~~result ~~traffic terminated~~of ~~in CIS countries~~these changes, ~~which~~we ~~have~~experienced ~~higher settlement rates, and due to~~ an increase in ~~traffic terminated~~cost toof ~~mobile~~revenue ~~networks,~~ which ~~typically~~was ~~have~~partially ~~higher~~offset ~~settlement~~by ~~rates than fixed networks.~~additional ~~Also, the cost of~~ revenue ~~as a percentage of revenue in this line of business~~ for the ~~three months ended June 30, 2004, was unusually low due to high margin~~ traffic ~~carried~~termination ~~during that quarter. We continue~~ to ~~experience significant pressure on~~ our ~~margins in this line of business, but we have~~network. ~~been able to slow margin decline by focusing our business on~~

23Other Developments

~~Table~~ In April 2007, the Compensation Committee of ~~Contents~~our Board of Directors recommended and the Board of Directors approved an amendment to the 1999 Equity Participation Plan of Golden Telecom, Inc. (“the Equity Plan”) to increase the number of shares available under the Equity Plan by 1,000,000. The decision of the Board of Directors was ratified by our shareholders on May 17, 2007. Under the Equity Plan not more than 5,320,000 shares of common stock (subject to anti-dilution and other adjustment provisions) are authorized for issuance upon exercise of options or upon vesting of restricted or deferred stock awards. There are 1,959,019 securities remaining available for future issuance under the Company’s Equity Plan.

~~higher~~ On ~~margin~~June 27, ~~traffic~~2007, ~~from~~the ~~reputable~~terms of the outstanding Stock Appreciation Rights (“SARs”) issued under ~~partners.~~the ~~Also~~Golden Telecom, weInc. ~~continue~~2005 SAR Plan (“SARs Plan”) and the EDN Sovintel 2005 SAR Bonus Plan (“Sovintel SARs Bonus Plan”) were modified to ~~balance~~cap the maximum of payout to the employee at the closing sales per share of our ~~pricing~~common ~~strategy~~stock on the NASDAQ Global Select Market on June 27, 2007, or $53.80. On June 27, 2007, the participants of the SARs Plan, the Sovintel SARs Bonus Plan, and the SARs granted to beour ~~more~~Chief inExecutive ~~line~~Officer outside of these plans, were granted 849,150 stock options (one stock option for every capped SAR) with essentially the ~~settlement rates~~same weterms ~~are~~as ~~charged~~the bycapped ~~other~~SARs with ~~operators~~the exercise price of $53.80.

~~Cost~~On June 28, 2007, our Board of ~~revenue for~~Directors ~~the~~approved ~~Carrier~~and we granted 606,870 options to senior management and ~~Operator~~key ~~Services~~employees. ~~division~~Under the terms of ~~GTU~~our ~~increased~~Equity byPlan ~~13%~~the tooptions ~~$4.4~~were granted at a ~~million,~~share orprice ~~79%~~which was the closing sales price per share of ~~revenue,~~our ~~for~~common stock on the ~~three~~NASDAQ ~~months~~Global Select ~~ended~~Market ~~June 30,~~on ~~2005~~the date immediately preceding the date of grant, ~~from~~which was $353.~~9 million,~~80 or(“Option Granting ~~81%~~Share Price”). Seventy-five percent of the options grant shall be subject to time ~~revenue~~vesting, ~~for~~one-third of which shall be and become vested and nonforfeitable on each of the first three ~~months~~anniversary ~~ended~~dates ~~June 30~~from the grant date, ~~2004~~provided that the employee remains continuously employed by us until each such relevant date. ~~Cost~~The Option Granting Share Price shall increase by five percent on each anniversary date after the grant date in association with the options that shall be and become vested and nonforfeitable on each such anniversary date. Twenty-five percent of ~~revenue~~the ~~decreased~~options asgranted are subject to market condition vesting upon our common stock achieving a ~~percentage~~an average closing trading price of at least $82.15 per share for thirty consecutive days as ~~revenue~~determined ~~primarily~~in ~~due~~our tosole ~~lower~~discretion ~~transmission~~of ~~costs~~the Company. ~~These~~If ~~lower~~the ~~transmission~~Company’s ~~costs~~stock ~~resulted~~does ~~from~~not aachieve an ~~new~~average ~~lease~~closing ~~signed~~trading inprice ~~January 2005~~of ~~that~~at ~~provides~~least ~~cheaper~~$82.15 ~~capacity~~per ~~between~~share ~~Kiev~~for thirty consecutive days within three years of the date of grant, such portion of the options shall expire buy its own terms and ~~Frankfurt~~shall not ~~via~~be ~~two~~exercisable. The options have a contractual term of 5 years and are settled in stock ~~VC3~~only ~~channels~~.

~~Consumer Internet~~We ~~Services.~~are ~~Cost~~currently ofengaged ~~revenue~~in ~~from~~litigation ~~Consumer~~with ~~Internet~~a ~~Services~~minority ~~increased~~shareholder byof 7%Kubtelecom toLLC ~~$7.3 million,~~(“Kubtelecom”) orin ~~68%~~regard ofto ~~revenue, for~~ the ~~three~~shareholder’s ~~months~~claim ~~ended~~that ~~June 30,~~the ~~2005,~~shareholder’s ~~from~~pre-emptive ~~$6.8 million,~~right orto 60acquire 74% ofownership ~~revenue,~~in ~~for~~Kubtelecom ~~the~~was ~~three~~breached. ~~months~~The ~~ended~~first ~~June 30,~~instance ~~2004.~~court ~~The~~ruled ~~increase~~ in ~~cost~~favor of ~~revenue as a~~the ~~percentage~~minority ofshareholder ~~revenue~~on ~~was~~December 4, ~~mainly~~2006. ~~the~~The ~~result~~second ofinstance ~~network~~court ~~costs~~ruled ~~not decreasing~~ in ~~line~~favor ~~with~~of ~~revenue~~Sovintel by ~~declines~~dismissing ~~from~~the ~~dial-up~~minority ~~Internet.~~shareholder’s Asclaim ~~regional~~on ~~subscribers~~March 14, ~~account~~2007. ~~for~~The aminority ~~larger~~shareholder ~~portion~~appealed this ofruling ~~our total~~and ~~subscriber~~on ~~base~~April 18, ~~margins~~2007, inthe ~~this~~third ~~line~~instance ofcourt ~~business~~ruled ~~have~~in ~~decreased~~favor ~~due~~of toSovintel. ~~incremental network~~The ~~costs~~shareholder ~~incurred~~appealed to ~~provide~~the ~~access~~Supreme toArbitration ~~regional~~Court ~~customers.~~of ~~Furthermore,~~ the ~~impact~~Russian ofFederation aand ~~decline~~on inJuly 11, ~~subscribers~~2007, inthe ~~Moscow~~court ~~has~~turned ~~not~~down ~~resulted~~the inclaim. anThe ~~immediate~~shareholder ~~decline~~may offile ~~network~~a ~~costs,~~new ~~which~~claim ~~are~~based ~~more fixed~~on ~~in nature~~other grounds. We

~~Mobile~~26 Services. Cost of revenue from Mobile Services increased by 20% to $1.8 million, or 46% of revenue for the three months ended June 30, 2005, from $1.5 million, or 38% of revenue for the three months ended June 30, 2004. The increase in cost of revenue as a percentage of revenue is mainly due to the decline in average revenue per active subscriber, as mentioned previously. Additionally, cost or revenue increased due to an increase in traffic to other mobile networks with higher settlement rates.

~~Selling~~do not consider an unfavorable outcome probable for this claim. However, ~~General~~in ~~and~~case ~~Administrative~~of an unfavorable outcome of this litigation, we may be forced to unwind the Kubtelecom acquisition.

~~Our~~We ~~selling,~~are ~~general~~currently ~~and~~engaged ~~administrative~~in ~~expenses~~a ~~increased~~regulatory bydispute ~~15%~~with tothe NCCR over re-registration of the license, recorded at approximately $2813.83 million, orfor ~~17%~~wireless ~~of revenue,~~broadband ~~for~~radio ~~the~~frequencies ~~three~~issued ~~months~~to ~~ended~~S-Line ~~June 30~~LLC (“S-Line”), ~~2005,~~our ~~from~~75% ~~$25~~owned Ukrainian subsidiary.~~1 million,~~ orThe ~~18%~~first ofinstance ~~revenue,~~court ~~for~~ruled ~~the three~~in ~~months~~favor ~~ended~~of ~~June~~S-Line on April 3018, ~~2004.~~2007 ~~This~~obliging ~~increase~~the inNCCR ~~selling,~~to ~~general~~re-registered ~~and~~the ~~administrative~~license. ~~expenses~~NCCR ~~was~~appealed this decision and ~~mainly~~on ~~due~~August 3, to2007 anthe ~~increase~~second ininstance ~~employee~~court ~~related~~ruled ~~costs~~in ~~and~~favor ~~asset~~of ~~obsolescence~~NCCR. ~~Included~~On inAugust 8, ~~the~~2007, S-Line ~~increase~~filed inan ~~employee~~appeal ~~related~~of ~~costs~~this isdecision ato ~~$1.1 million~~the ~~charge~~Supreme ~~recorded~~Administrative inCourt ~~the~~of ~~second~~Ukraine. ~~quarter~~We ofconsider ~~2005~~the ~~for~~re-registration ~~the~~of ~~revision~~this oflicense ~~our~~probable. ~~estimate~~While ~~for~~we ~~unused~~await ~~vacation~~formal re-registration, the license continues to be valid.

~~Depreciation~~ We are currently engaged in litigation with the Russian tax inspectorate in regard to claims issued by the tax inspectorate on September 25, 2006. The Russian tax inspectorate claimed that Sovintel owes taxes, fines and ~~Amortization~~penalties in the amount of $21.9 million for the years ended December 31, 2004 and 2005. On October 4, 2006, Sovintel filed a lawsuit against the tax inspectorate disputing the claims. Court hearings were held between November 8, 2006 and March 19, 2007. The first instance court ruled in favor of Sovintel by dismissing the tax inspectorate’s claim on April 3, 2007. On April 28, 2007 the tax inspectorate appealed this decision. The second instance court ruled in favor of Sovintel by dismissing the tax inspectorate’s claim on July 16, 2007. We expect that the tax inspectorate will appeal this decision in the third instance court. The term for appeal will expire on September 26, 2007. Currently, we do not consider an unfavorable outcome probable for this claim. In October 2006, ZAO International Moscow Bank, a related party, provided a bank guarantee for up to 518,000,000 Russian Rubles (“RUR”), equivalent to $19.9 million, for Sovintel’s obligation in connection with this claim.

~~Our~~In ~~depreciation and~~July 2007, ~~amortization~~we ~~expenses~~issued ~~increased~~392,988 byunregistered ~~10%~~shares of common stock, par value $0.01, to OAO Rostelecom (“Rostelecom”) for cash consideration of approximately $20.24 million, ~~for~~or ~~the~~$51.95 ~~three~~per ~~months~~share ~~ended~~of ~~June 30,~~common ~~2005~~stock, ~~from~~the ~~$18.3 million~~closing ~~for~~price on the ~~three~~NASDAQ ~~months~~Global ~~ended~~Select ~~June~~Market on May 3025, ~~2004~~2007. ~~The~~ ~~increase~~Rostelecom ~~was~~had ~~due~~the right to ~~depreciation~~acquire onthese ~~continuing~~shares ~~capital~~under ~~expenditures~~the Shareholders Agreement dated as of August 19, 2003. This right became exercisable because of the ~~consolidated~~shares ~~entities~~issued as part of the acquisition of Corbina.

~~Equity~~ In July 2007, TeliaSonera Acquisition Corp. acquired MCT Corp. (“MCT”) in a merger transaction. GTS Mobile Services, Inc. (~~Earning~~“GMS”), ~~Losses~~a wholly-owned subsidiary, owned approximately 22.8% of ~~Ventures~~MCT. GMS has tendered its shares in MCT and received cash consideration of approximately $38.6 million. GMS may receive up to an additional $9.9 million upon the satisfaction of certain conditions. Our investment in MCT had a carrying value of zero, therefore the amount received will be recorded as a gain in the consolidated statement of operations.

~~The~~Highlights ~~earnings after interest~~ and ~~tax charges from our investments in non-consolidated ventures~~Outlook ~~decreased to losses of $0.1 million for the three months ended June 30, 2005, from a $0.2 million of earnings for the three months ended June 30, 2004.~~

~~Interest~~ Since ~~Income~~early 2000 we have witnessed a recovery in the Russian market, but downward pricing pressures persist from increased competition and the global trend toward lower telecommunications tariffs. In 2006 and during the first half of 2007, our traffic volume increases exceeded the reduction in tariffs on certain types of voice traffic. This is a contributing factor to the increases in our revenue in 2006 and during the first half of 2007. We expect that this trend of year over year increases in traffic volume will continue as long as the Russian economy continues to develop at its current pace. Although our revenue growth is strong, our overall margins continue to be impacted by price increases for services received from monopolistic incumbent operators and competition from other carriers.

~~Our~~In ~~interest~~order to handle additional traffic volumes, we have expanded and will continue to expand ~~income~~our ~~increased~~fiber optic capacity along our heavy traffic and high cost routes to ~~$0.5 million~~mitigate ~~for~~declines in traffic margins, reduce our unit transmission costs and ensure sufficient capacity to meet the growing ~~three~~demand ~~months~~for ~~ended~~data ~~June 30~~and Internet services. We expect to continue to add additional transmission capacity, ~~2005~~which due to its fixed cost nature can initially depress margins, ~~from~~but will over time ~~$0.3 million~~allow ~~for~~us ~~the~~to ~~three~~improve ~~months~~or ~~ended~~maintain ~~June 30,~~our ~~2004~~margins.

~~Interest~~ We ~~Expense~~continue to follow our strategy of regional expansion. The project for the construction of the Russian inter-city fiber optic link that we launched in the middle of 2004 has continued into the second quarter of 2007. To date, we have completed construction of the inter-city fiber optic cable line from Moscow to Ufa through Nizhny Novgorod and Kazan under a commercial agreement with OAO Vimpel-Communications (“Vimpelcom”). In addition, we have completed construction of the Oktyabrsky to Samara through Togliatti, and from Samara to Saratov inter-city fiber optic links. We have completed construction of the fiber optic link between Kamensk-Shakhtinsky in the southern part of Russia and Lugansk in the eastern part of Ukraine. To date, we have invested approximately $32.9 million in these projects. In September 2006, we entered into an agreement with Vimpelcom which allows us to use the fiber optic cable line from Moscow to Krasnodar through Voronezh and Rostov-on-Don constructed by Vimpelcom. In addition, in 2007 we started construction of the fiber optic link from Ufa to Perm, and from Samara to Uralsk in the northern part of Kazakhstan. We intend to connect our operations in the European part of Russia to this backbone network and plan to invest a total of approximately $55.0 million in this and related backbone projects by the end of 2007. In February 2007, we entered into a lease agreement for STM-1 fiber optic capacity from Ufa to Krasnoyarsk through Ekaterinburg, Chelyabinsk, Tyumen, Omsk and Novosibirsk with an option to upgrade this line to STM-4 capacity. We have taken the possession of this fiber optic capacity on April 1, 2007. This agreement will enable us to connect our operations in the European part of Russia with our operations in Siberia.

~~Our interest~~27 ~~expense increased to $0.3 million for the three months ended June 30, 2005, from $0.1 million for the three months ended June 30, 2004.~~

~~Foreign~~ In ~~Currency~~Ukraine, ~~Loss~~we have completed the construction of a national fiber optic STM-16 capacity network connecting 16 regional centers with cross border connections to Hungary and Poland. We have completed construction of the fiber optic links from Uzhgorod to Lvov with connection to the Hungarian border, from Lvov to Kiev through Lutsk, Rovno and Zhitomir, and from Kiev to Kharkov through Chernigov and Sumy with connection to the Russian border. This network became operational in the second quarter of 2007.

~~Our~~The ~~foreign currency~~fiber ~~loss~~optic ~~was~~communication ~~$0.5 million~~lines ~~for~~consist ~~the~~of ~~three~~new ~~months~~generation ~~ended~~networks ~~June 30,~~that ~~2005,~~will ~~down~~enable ~~from~~us to ~~$1.0 million~~provide ~~for~~high ~~the~~quality ~~three~~Internet ~~months~~access, ~~ended~~data ~~June 30,~~and ~~2004~~voice services. ~~The~~Development ~~decrease~~of in our ~~foreign~~fiber ~~currency loss~~optic network is ~~mainly~~part ~~due~~of our broadband access rollout strategy. In addition, it allows us to enter the long ~~combination~~distance communication market and take advantage of ~~movements~~our inDLD/ILD ~~exchange~~license. ~~rates~~By launching our own fiber optic communication lines, we will be able to optimize and ~~changes~~reduce inour expenditures associated with the ~~amount~~lease of ~~net~~trunk channels from other operators, offer competitive rates on Internet and ~~monetary~~voice ~~assets~~services ~~that~~to wethe ~~have~~end ~~denominated~~users in ~~foreign~~the ~~currencies~~regions, while maintaining traditionally high quality of the services offered.

24 The rapid growth of the telecommunications market in Russia, Ukraine, and the CIS is fueled by macroeconomic growth and the inflow of direct foreign investment. We anticipate that the economic growth in these markets will create additional demand for telecommunications services. Additionally, in line with worldwide trends, we are starting to observe new customer demands for more sophisticated telecommunications and Internet services as well as for other new technologies. We are responding to these customer demands by testing and implementing new technologies such as WiFi, voice over Internet protocol (“VoIP”), Digital Video Broadcast-Terrestrial (“DVB-T”) wireless local loop and high-speed consumer Internet. Such new technologies will remove some of the barriers to access that some of our customers currently face. For example, with wireless local loop, we can connect remote customers to our network by bypassing the incumbents’ wire network in order to provide higher quality access.

~~Table~~ We continue to seek growth opportunities organically, through selective acquisitions, and through the development of ~~Contents~~new product lines. While our research indicates the telecommunications services sector in business segments in the Moscow and St. Petersburg markets of fixed telecommunications services will continue to grow, we believe that the bulk of our growth will come from key regional cities. Following the acquisition of Atel, we currently have a commercial presence in more than 80 cities including 18 out of the 20 largest Russian cities, representing approximately half of the total fixed-line telecom market in Russia.

~~Minority~~ To ~~Interest~~minimize the impact of payments to the incumbent operators, we have received licenses to provide zonal services in all the regions of the Russian Federation. During 2006 and the first half of 2007, we started construction of zonal networks in 28 regions of the Russian Federation. To date, we have completed construction of zonal networks in 16 regions, including among others Moscow, St. Petersburg, Nizhny Novgorod, Kaliningrad, Samara, Sakhalin, Voronezh, Krasnodar, and Krasnoyarsk. In total, we are planning to construct zonal networks in 28 to 30 regions by the end of 2008. We expect to start generating revenues and cost savings from the operations of our zonal networks in the second half of 2007.

~~Our~~We ~~minority~~will ~~interest~~continue ~~was~~to ~~$0.7 million~~align ~~for~~the strategy of each of our business segments with market forces in the ~~three~~countries ~~months~~where ~~ended~~we ~~June 30,~~operate. ~~2005~~In BCS, ~~compared~~our strategy is to adefend and grow our market share ~~$0.3 million~~through ~~for~~attractive ~~the~~service ~~three~~offerings ~~months~~supported ~~ended~~by ~~June 30,~~excellent ~~2004~~customer care. ~~The~~We ~~increase~~are ~~was~~focused on expanding into the ~~result~~regions ofas ~~minority interests~~well inas the ~~earnings~~fast ofgrowing ~~GTU,~~small ~~ZAO~~and ~~Samara~~medium-sized ~~Telecom,~~businesses ~~ZAO~~(“SMB”) and ~~WestBalt~~the ~~Telecom~~small ~~and~~office ~~Buzton~~/ home office (“SOHO”) markets. ~~Except~~In ~~for~~those cases where the potential SMB and ~~GTU,~~SOHO ~~each~~customer ofis ~~these~~not ~~consolidated~~on ~~subsidiaries~~our ~~was~~network, ~~acquired~~our ~~during~~ability ~~the~~to ~~first~~fully ~~half~~benefit offrom ~~2004.~~growth ~~Minority~~in these market ~~interests~~segments inlargely depends on the ~~earnings~~regulatory ofsituation ~~GTU~~and ~~arose~~our inability ~~August 2004~~to ~~due~~get access to the ~~sale~~copper and other infrastructure of athe ~~non-controlling~~incumbent ~~interest~~operators under reasonable terms and conditions. The toacquisition ~~our~~of ~~local~~Corbina ~~partners~~significantly increases our presence in ~~Ukraine~~the Moscow SMB/SOHO telecommunications market.

~~Provision~~ Our recently constructed FTN and receipt of access codes will also present new opportunities for ~~Income~~growth. ~~Taxes~~Our FTN provides us with a potential customer base across all geographic zones in the Russian Federation of up to 2.2 million businesses, 143 million people, of which there are 32 million residential customers, in the 88 Russian regions. This is an increase from our previous breadth of coverage which only allowed us to reach 25 regions in Russia with up to 0.3 million businesses and a population of 77.1 million people. We launched our FTN-based DLD/ILD services in January 2007, targeting mainly wholesale customers. We also started to offer DLD/ILD services to corporate customers not directly connected to our network. In March 2007, we started offering DLD/ILD services on a pre-paid basis to residential customers in several regions of Russia. Due to existing client base, an effective marketing campaign and a highly-skilled and experienced direct and indirect sales force, we have captured approximately 20% market share of the total DLD/ILD market in Russia.

~~Our~~In ~~charge~~Carrier ~~for~~and ~~income~~Operator ~~taxes~~Services, ~~was~~our ~~$9.4 million~~strategy ~~for~~focuses ~~the~~on ~~three~~partnering ~~months~~with ~~ended~~more ~~June 30,~~operators ~~2005,~~in ~~compared~~the regions to $7enhance our traffic termination capabilities.~~4 million~~ ~~for~~We ~~the~~have ~~three~~also ~~months~~launched ~~ended~~additional value-added ~~June 30,~~products ~~2004.~~for ~~Our~~our ~~effective~~carrier ~~tax~~partners ~~rate~~that ~~was~~strengthen ~~31% for~~our leading position in the ~~three~~Russian and ~~months~~CIS ~~ended~~markets. ~~June 30,~~These ~~2005,~~new ~~compared~~products are designed to ~~30%~~offer ~~for~~“best ~~the~~quality” ~~three~~voice ~~months~~and ~~ended~~data ~~June 30,~~transport to ~~2004~~ensure greater customer loyalty while protecting margins.

~~Net~~ In ~~Income~~Consumer Internet Services, we recognize that new technologies are making their way into Russia, Ukraine, and ~~Net~~the ~~Income~~CIS. We expect that broadband competition and substitution will increase in the future, and that dial-up margins will continue to decline over time as the average revenue per ~~Share~~subscriber continues to decline and as a result of the introduction of origination fees. Broadband rollout is a cornerstone of our strategy in Consumer Internet Services segment. We have continued to develop our broadband service

~~Our net income for the three months ended June 30, 2005, was $19.8 million, compared to a net~~28 ~~income of $16.9 million for the three months ended June 30, 2004.~~

~~Our~~offerings ~~net~~by ~~income~~deploying ~~per~~broadband ~~share~~solutions ofin ~~common~~major ~~stock~~cities ~~increased~~of toRussia, ~~$0.54 for the three months ended June 30~~Ukraine, ~~2005~~Kazakhstan, ~~compared~~and Uzbekistan. toWe aprovide ~~net~~broadband ~~income~~services ~~per~~through ~~share~~our ofbroadband ~~$0.47~~networks ~~for~~based ~~the~~on ~~three~~such ~~months~~approaches as, ~~ended June 30~~WiFi, ~~2004.~~Digital ~~The increase~~Subscriber inLine ~~net~~(“DSL”), ~~income~~and ~~per share of common stock was due~~ fiber-to -the-building ~~increase~~(“FTTB”). inThe ~~net income partly~~broadband ~~offset~~development byenables anus ~~increase~~to inoffer ~~the~~high ~~number~~quality ofservices ~~weighted~~such ~~average~~as ~~shares~~broadband toInternet 36access,~~333,521~~ invoice ~~the three months~~over ~~ended~~broadband ~~June 30,~~packaged ~~2005,~~with ~~compared~~our toAport ~~36,243,352~~Internet insearch ~~the~~engine ~~three~~to ~~months~~offer ~~ended~~location-based ~~June 30,~~search ~~2004~~services. ~~The increase~~ ~~in outstanding shares was a direct result of employee stock option exercises.~~

~~Our~~As ~~net~~part ~~income~~of ~~per~~our ~~share~~broadband ofaccess ~~common~~strategy, ~~stock~~we ondeployed aone ~~fully~~of ~~diluted~~the ~~basis~~largest ~~increased~~commercial toWiFi metropolitan ~~$0.54~~networks ~~for~~in the world. Our WiFi network in Moscow consists of more than 7,630 indoor ~~three~~and ~~months~~outdoor ~~ended~~WiFi ~~June~~nodes. On March 301, ~~2005~~2007, ~~compared~~we tolaunched acommercial ~~net~~operations ~~income~~of ~~per~~our ~~common~~WiFi ~~share~~network ~~of $0~~in Moscow.46 ~~for~~To ~~the~~date, ~~three months~~we ~~ended~~have ~~June 30~~approximately 29,200 ~~2004.~~customers ~~The~~who ~~increase~~use inour ~~net~~paid ~~income~~WiFi ~~per~~services ~~share~~in ofMoscow. On ~~common~~June 22, ~~stock~~2007, onwe alaunched ~~fully~~commercial ~~diluted~~operations of ~~basis~~our ~~was~~WiFi ~~due~~network toin St. Petersburg. Following the ~~increase~~acquisition of S-Line in ~~net~~October 2006, ~~income~~we ~~partly~~intend to ~~offset~~deploy bywireless anbroadband ~~increase~~networks in ~~the~~Kiev ~~number~~and other regions of ~~weighted average~~Ukraine. ~~shares~~In ~~assuming~~addition, ~~dilution~~we plan to provide ~~36,571,294~~wireless ~~for~~broadband coverage in the ~~three~~biggest ~~months~~cities ~~ended~~and ~~June 30,~~areas ~~2005,~~such ~~compared to~~as 36Nizhny Novgorod,~~538~~ Ekaterinburg,~~901~~ ~~for~~Krasnoyarsk, ~~the~~Sochi, ~~three~~Kazan, ~~months ended June 30~~Krasnodar, ~~2004~~and Tashkent.

~~The~~We ~~change~~also incontinued ~~accounting~~the ~~estimate~~deployment ~~for~~of ~~unused~~DSL ~~vacation~~in ~~decreased~~selected ~~net~~regions ~~income~~of ~~for~~Russia and the ~~three months~~CIS ~~ended~~where ~~June 30,~~we acquired ~~2005,~~copper by“last ~~approximately~~mile” $1network.~~3 million,~~ ~~including~~To ~~the~~date, ~~associated~~we ~~payroll~~have approximately ~~taxes~~45, ~~(equivalent~~200 tocustomers ~~$0.04~~using ~~per~~our ~~common~~DSL services ~~share~~in —Russia ~~basic~~ and ~~$0.04~~in ~~per common share — diluted) for~~ the ~~three months ended June 30, 2005~~CIS.

~~Consolidated~~ In ~~Results~~order —to ~~Consolidated~~meet ~~Results~~the ofgrowing ~~Operations~~demand for broadband services we plan to construct FTTB networks in the ~~Six~~top ~~Months~~65 ~~Ended~~cities ~~June~~of Russia with a combined population of 65 30million people of which we will target approximately 15.6 million households. The acquisition of Corbina strengthened our position in the Moscow broadband Internet market. To date, ~~2005~~Corbina’s FTTB network covers ~~Compared~~approximately to2.8 million households in Moscow, St. Petersburg, Yaroslavl, Tula, and Kaluga. In the second ~~Consolidated~~quarter ~~Results~~of 2007, Corbina started construction of ~~Operations~~FTTB ~~for~~networks in Rostov, Saratov and Volgograd. By the ~~Six~~end ~~Months~~of ~~Ended~~2007, ~~June 30~~we plan to complete deployment of FTTB networks in 12 cities of Russia. To date, ~~2004~~Corbina has approximately 218,108 active broadband Internet subscribers. By the end of 2008, Corbina plans to achieve a subscriber base of more than 600,000 broadband subscribers.

~~Revenue~~ The Corbina acquisition enables us to offer quadric-play products to the mass market as we bundle broadband Internet access, VoIP, internet protocol television, and mobile virtual network based services. In April 2007, we started to offer WiFi access to the FTTB customers of Corbina at a special rate. In June 2007, we started to offer Voice-over-WiFi services in Moscow. In July 2007, Corbina launched the IPTV service in trial mode. The IPTV technology is based on a Microsoft platform and allows greater flexibility and interactivity enabling video-on-demand, pay-per-view and other value added services. We estimate that approximately 10,000 customers will sign up for IPTV services by the end of 2007. Bundling of products will help to attract new users, and provide new solutions to existing customers.

Our ~~revenue~~Mobile ~~increased~~Services byline ~~18%~~of business allows us to ~~$322~~provide additional services to our wireline customers in Moscow and Ukraine.~~0 million~~ In the future, we expect to follow a marketing strategy aimed at providing fixed-mobile convergent (“FMC”) services to our existing corporate customers. In April 2006, the NCCR issued a license for GSM-1800 radio frequency to GTU for an additional 22 out of the remaining ~~six~~25 ~~months~~regions ~~ended~~of ~~June~~Ukraine we did not cover. This license provides us with a potential customer base of 38.1 30million people, ~~2005~~or approximately 81% of the Ukrainian population, ~~from~~compared with our previous coverage of 5.1 million people. Payment of the $~~272~~5.05 million license fee was made on May 10, 2006. In May 2006, we began using the frequencies and submitted registration documents to UkrChastotNadzor, a Ukrainian governmental body that is responsible for the ~~six~~control ~~months~~and ~~ended~~the supervision ~~June~~of the radio frequencies. To date, we have complied with the license requirements related to the use of allocated radio frequencies by launching operations in 4 out of 22 regions. On July 3013, ~~2004~~2006, we entered into an agreement with ZAO Ukrainian Radio Systems (“URS”), a subsidiary of Vimpelcom, for the provision of roaming services. This agreement enables our mobile customers to use the national roaming services of URS nationwide network. In addition, we plan to provide mobile over broadband services in Ukraine. On October 5, 2006, we announced the commencement of construction of our FMC network in Ukraine. The ~~overall~~FMC ~~increase~~network combines the advantages of fixed-line and mobile communications and will be the first converging communications network in Ukraine. ~~revenue~~To ~~was~~date, ~~due~~we have deployed the FMC network in Kiev and Odessa based on our existing GSM-1800 networks and wireless segments of the FMC network in the Kiev region, Donetsk, Zaporozhye, and Ivano-Frankovsk. In the second half of 2007, we plan to complete network testing and launch commercial operations. By the end of 2007, we plan to deploy the FMC network in an ~~increase~~additional 19 regions of Ukraine. However, we do not expect significant growth in ~~customer~~mobile ~~base~~revenue ~~and~~from the roaming agreement with URS until our FMC network is fully deployed. Corbina also provides mobile services ~~provided~~in Moscow using its DAMPS network. In August 2007, Corbina announced plans to ~~existing~~migrate its DAMPS customers, ~~partially~~onto ~~offset~~GSM network by ~~lower~~the end of October 2007. Corbina uses the network of Vimpelcom ~~prices~~to ~~for~~provide ~~certain~~GSM services to its customers. ~~The~~To ~~breakdown~~date, ofCorbina ~~revenue~~has byapproximately ~~business~~20,800 ~~group~~DAMPS ~~was~~and 10,050 asGSM ~~follows:~~active high-usage customers.

	Consolidated Revenue			Consolidated Revenue
	For the Six Months			For the Six Months
	Ended June 30, 2004			Ended June 30, 2005
	(in millions)
REVENUE
Business and Corporate Services	$	151.8		$	184.5
Carrier and Operator Services		90.4			107.5
Consumer Internet Services		22.5			22.5
Mobile Services		7.6			7.5
Eliminations		(0.3	)		—
TOTAL REVENUE	$	272.0		$	322.0

The acquisition of Fortland enhances our broadband expansion strategy and will enable us to expand into the media market. Kolangon holds licenses and frequencies to provide digital television services in Moscow and St. Petersburg. We also applied for the licenses in other major cities of Russia. These licenses will be used to broadcast digital television channels with a higher quality of picture and to provide pay-per-view services using the DVB-T standard in MPEG-4 coding. The combination of access to DVB-T

2529

~~Table~~technology with our wide geographical presence across Russia will provide us with a potential market of ~~Contents~~up to 11 million households in 22 major Russian cities with a population of 35 million people. The Fortland acquisition will enable us to deliver a “Triple Play” service package, including high speed Internet access, digital television with about 50 channels, and VoIP. In June 2007, we started testing the DVB-T transmitter in Moscow. We plan to begin deployment of DVB-T transmitters in the second half of 2007 in order to start broadcasting in the first quarter of 2008. We plan to consider cooperation with on of the leading Russian media companies to ensure availability of the high quality content for our television services.

~~Business~~Critical ~~and~~Accounting ~~Corporate Services. Revenue from BCS increased by 22% to $184.5 million for~~Policies the six months ended June 30, 2005, from $151.8 million for the six months ended June 30, 2004. In our largest market, Moscow, we had increases in our revenues due to adding approximately 3,900 new corporate customers, 49 new multi-tenant business centers, 11 new trade centers and 2 hotels in the six months ended June 30, 2005, along with actively promoting new services among our client base. BCS Moscow recognized approximately $8.8 million in revenue from new contracts in the six months ended June 30, 2005, and grew the number of its Direct Inward Dialing lines from 110,660 as of June 30, 2004, to approximately 122,500 as of June 30, 2005. During the first half of the year, we also increased our revenue by continuing to assist our customers develop their businesses as they expanded regionally. The macro-economic growth in Russia, Ukraine, and the CIS continues to help us to expand our client base. Additionally, BCS revenue increased by approximately $3.8 million due to the acquisitions of ST-HOLDING s.r.o. (“ST-HOLDING”), Balticom, and Buzton in 2004. We began consolidating ST-HOLDING in February 2004, Balticom in April 2004, and Buzton in May 2004.

~~Revenue~~The ~~from~~fundamental ~~the~~objective ~~BCS division~~ of ~~GTU~~financial ~~increased~~reporting byis ~~41%~~ to ~~$18.0 million~~provide ~~for~~useful ~~the~~information ~~six~~that ~~months~~allows ~~ended~~a ~~June 30,~~reader ~~2005,~~to ~~from~~comprehend ~~$12.8 million~~our ~~for~~business ~~the~~activities. ~~six~~To ~~months~~assist ~~ended~~that ~~June 30~~understanding, ~~2004.~~management ~~This increase in~~has ~~revenues~~identified ~~was~~our ~~due~~“critical toaccounting apolicies”. ~~57%~~These ~~increase~~policies inhave the ~~number~~potential ofto ~~serviced~~have ~~voice~~a significant ~~lines~~impact ~~and~~on aour 6%financial ~~increase~~statements, ineither ~~the average~~because ~~rate~~of ~~per~~the ~~minute~~significance of ~~use~~the ~~resulting~~financial statement ~~from~~item ato ~~change~~which inthey ~~traffic~~relate, ~~mix~~or inbecause ~~favor~~they ofrequire ~~higher-rated traffic~~judgment toand ~~mobile~~estimation ~~networks.~~due ~~Offsetting~~to ~~these~~the uncertainty ~~increasing~~involved ~~factors~~in ~~was~~measuring, at a ~~17%~~specific ~~decrease~~point in ~~average minutes~~time, ofevents ~~use~~which ~~per~~are ~~line~~continuous ~~per month~~in nature.

~~Carrier~~Revenue ~~and~~recognition ~~Operator~~policies; ~~Services.~~we ~~Revenue~~recognize ~~from~~operating ~~Carrier~~revenues ~~and~~as ~~Operator~~services ~~Services~~are ~~increased~~rendered byor ~~19%~~as products are delivered to ~~$107~~ customers and installed.~~5 million~~ ~~for~~Under ~~the~~multiple-delivery ~~six~~contracts, ~~months~~involving ~~ended~~a combination ~~June 30~~of product delivery, ~~2005~~installation and maintenance, ~~from~~connection ~~$90.4 million~~and ~~for~~service fees, revenues are recognized based on the ~~six~~relative ~~months~~fair ~~ended~~value of the respective amounts. Elements are ~~June 30~~grouped if they are inseparable or objective evidence of fair value does not exist. Certain revenues, ~~2004~~such as connection and installation fees, are deferred. We ~~have~~also ~~expanded~~defer ~~our~~direct ~~operations~~incremental costs ~~with~~related ~~existing~~to ~~partners~~connection ~~and~~fees, ~~added~~not aexceeding ~~number~~the ofrevenue ~~new~~deferred. Deferred revenues are ~~carriers~~subsequently ~~specifically~~recognized inover the ~~regions~~estimated ~~with~~average ~~increased~~customer ~~volumes~~lives, ofwhich ~~traffic.~~are Inperiodically reassessed ~~addition~~by us, weand ~~continue to~~such ~~expand~~reassessment may impact our ~~business~~future ~~with~~operating ~~major~~results. ~~cellular~~In ~~providers~~determining ~~both~~the recording inof ~~Moscow~~revenue, estimates and assumptions are required in ~~regions,~~assessing ~~which~~the ~~helped~~expected conversion ~~offset~~of ~~general~~the ~~tariff~~revenue ~~decline,~~streams ~~although~~to ~~pricing~~cash ~~pressures~~collected. ~~still~~DLD/ILD ~~exist.~~and Wezonal ~~continue~~revenues toare ~~observe competitive~~recorded ~~pressure~~gross onor ~~revenues~~net depending inon the ~~major~~economic ~~cities~~substance ~~and~~of inthe relationship with the ~~regions~~end-users. ~~from~~We ~~established~~recognize DLD/ILD and ~~new~~ zonal revenues from local ~~competitors.~~operators ~~Additionally,~~net ~~Carrier~~of ~~and~~payments ~~Operator~~to ~~Services~~these ~~revenue~~operators ~~increased~~for byinterconnection ~~approximately~~and ~~$0.7 million~~agency ~~due~~fees towhen ~~the~~local ~~acquisitions~~operators ofestablish STend-~~HOLDING,~~user ~~Balticom,~~tariffs and ~~Buzton~~assume credit risk.

~~Revenue~~Allowance for doubtful accounts policies; the ~~Carrier~~allowance ~~and~~estimation ~~Operator~~process ~~Services~~requires ~~division~~management to ofmake ~~GTU~~assumptions ~~increased~~based byon ~~31%~~historical toresults, ~~$11.1~~future expectations, the economic and competitive ~~million~~environment, ~~for~~changes in the ~~six~~creditworthiness ~~months~~of ~~ended~~our ~~June 30~~customers, ~~2005,~~and ~~from~~other $8relevant factors.~~5 million~~ ~~for~~Changes in the ~~six~~underlying ~~months~~assumptions ~~ended~~may ~~June 30, 2004.~~have ~~$1.3 million~~a significant impact on the results of ~~this~~our ~~increase~~operations. inIn particular, ~~revenue~~we ~~was~~have certain amounts due to aand ~~17%~~from ~~increase~~subsidiaries inof ~~incoming~~a ~~international~~European telecommunications ~~traffic~~operator ~~which~~who weis ~~are~~currently ~~able~~subject to ~~terminate~~bankruptcy inproceedings. The ultimate resolution of this matter will be affected by a number of ~~cities~~factors inincluding ~~Ukraine~~the ~~coupled~~determination ~~with~~of alegal ~~10%~~obligations ~~increase~~of each inparty, ~~average~~the ~~international~~course ~~revenue~~of ~~per~~the ~~minute~~bankruptcy proceedings, and the enforceability of ~~use.~~any $0determinations.~~9 million~~ We have recognized provisions based on our preliminary estimate of ~~the~~net ~~increase~~exposure inon ~~revenue~~the ~~was~~resolution ~~due~~of these receivables and payables. If our assessment proves to abe ~~29%~~incorrect ~~increase~~we inmay ~~carrier~~have ~~minutes~~to recognize an additional provision of ~~use~~up ~~and~~to a$1.9 million, 2%net ~~increase~~of intax, ~~average~~although ~~carrier~~management ~~revenue~~believes ~~per~~that ~~minute~~the possibility of ~~use~~such an adverse outcome is remote.

~~Consumer~~Long-lived ~~Internet~~asset ~~Services.~~recovery ~~Revenue~~policies; ~~from~~this ~~Consumer~~policy ~~Internet~~is ~~Services~~in ~~was~~relation ~~$22.5 million~~to ~~for~~long-lived ~~the~~assets, ~~six~~consisting ~~months~~primarily ~~ended~~of ~~June 30,~~property ~~2005~~and equipment and intangibles, ~~unchanged~~which ~~from~~comprise ~~the~~a ~~six~~significant portion ~~months~~of ~~ended~~our ~~June 30,~~total ~~2004~~assets. ~~Although~~Changes ~~the average~~in ~~revenue~~technology ~~per~~or ~~dial-up~~changes ~~Internet~~in ~~subscriber~~our ~~decreased~~intended ~~from~~use ~~$8.12~~of ~~per~~these ~~month~~assets may ~~for~~cause the ~~six~~estimated ~~months ended~~period ~~June 30,~~of ~~2004,~~use toor ~~approximately~~the ~~$7.40~~value ~~per~~of ~~month~~these ~~for~~assets ~~the~~to ~~six~~change. ~~months~~We ~~ended~~perform ~~June 30,~~periodic internal ~~2005,~~studies to confirm the ~~number~~ appropriateness of ~~dial-up~~estimated ~~Internet~~economic ~~subscribers~~useful ~~increased~~lives ~~from~~for ~~385,451~~each category atof ~~June 30,~~current ~~2004~~property and equipment. Additionally, tolong-lived ~~394~~assets,~~250~~ atincluding ~~June 30~~intangibles, are ~~2005.~~reviewed ~~Our~~for ~~subscriber~~impairment ~~counts~~whenever ~~continue~~events toor ~~increase~~changes asin ~~regional~~circumstances ~~subscriber~~have ~~growth~~indicated ~~offsets~~that their ~~subscriber~~carrying ~~loss~~amounts inmay ~~Moscow~~not be recoverable. ~~The~~Estimates ~~consumer~~and ~~Internet~~assumptions ~~market~~used in ~~Moscow~~both ~~has~~setting ~~become~~useful lives ~~more~~and ~~competitive~~testing ~~due~~for recoverability of our long-lived assets require the exercise of management’s tojudgment and estimation based on certain assumptions concerning the ~~increasing~~expected ~~availability~~life of ~~new~~any ~~Internet~~asset ~~access~~and expected ~~technologies~~future ~~such~~cash asflows ~~DSL~~from the use of an asset.

~~Mobile~~Goodwill ~~Services.~~and ~~Revenue~~assessment ~~from~~of ~~Mobile~~impairment; ~~Services~~commencing ~~decreased~~from bythe 1%adoption toof ~~$7.5 million~~Statement ~~for~~on ~~the six~~Financial ~~months~~Accounting ~~ended~~Standard ~~June 30,~~(“SFAS”) ~~2005, from $7~~No.6 ~~million for the six months ended June 30~~142, ~~2004.~~“Goodwill ~~Active subscribers~~and ~~increased~~Other ~~from~~Intangible 50Assets”,~~975~~ aton ~~June~~January 301, ~~2004~~2002, we toperform ~~55,074~~goodwill atimpairment ~~June 30,~~testing ~~2005,~~annually ~~due~~as toof ~~an increasing~~October ~~number~~1 ofor ~~prepaid~~whenever ~~subscribers~~impairment indicators exist. ~~The~~This ~~average~~test ~~revenue~~requires ~~per~~a ~~active~~significant ~~subscriber~~degree ~~has~~of ~~decreased by~~judgment ~~20%~~about tothe ~~approximately~~future ~~$22.53~~events ~~per~~and ~~month~~it ~~mainly~~includes determination ~~due~~of to the ~~decrease~~reporting inunits, ~~the~~allocation ~~subscription~~of ~~fee~~goodwill ~~for~~to the ~~tariff~~ ~~plan~~reporting ~~which~~units ~~allows~~and ~~for~~comparison of ~~unlimited~~the ~~local~~fair ~~calls~~value ~~for~~with athe ~~fixed~~carrying ~~payment~~amount asof ~~well~~each asreporting aunit. ~~decrease~~Based inon the ~~number~~ ofdiscounted ~~subscribers~~cash flow ~~using~~valuations ~~that~~performed ~~tariff~~in ~~plan~~2006, ~~and~~we ~~due~~concluded tothat anfor ~~increase~~all inreporting units the ~~share~~fair ofvalue ~~prepaid~~is in ~~subscribers~~excess ~~with~~of ~~lower~~the ~~activity~~respective ~~and~~carrying ~~no fixed charge~~amounts.

26 Valuation allowance for deferred tax asset; we record valuation allowances related to tax effects of deductible temporary differences and loss carry forwards when, in the opinion of management, it is more likely than not that the respective tax assets will not be realized. Changes in our assessment of probability of realization of deferred tax assets may impact our effective income tax rate.

~~Table~~ Business segment information; we report four segments within the telecommunications industry: Business and Corporate Services, Carrier and Operator Services, Consumer Internet Services and Mobile Services. A significant portion of ~~Contents~~our cost structure, including

~~Expenses~~30

~~The~~our ~~following~~investment ~~table~~in ~~shows~~infrastructure, ~~our~~benefits ~~principal~~multiple ~~expenses~~segments. As a result, we perform allocations of certain costs in order to report business segment information for ~~the~~management ~~six~~and ~~months~~financial reporting ~~ended~~purposes. ~~June 30,~~Applying ~~2004,~~different allocation techniques and parameters could impact the ~~June 30,~~reported ~~2005:~~results of individual business segments.

	Consolidated Expenses			Consolidated Expenses
	For the Six Months Ended			For the Six Months Ended
	June 30, 2004			June 30, 2005
	(in millions)
COST OF REVENUE
Business and Corporate Services	$	64.9		$	78.9
Carrier and Operator Services		57.7			69.4
Consumer Internet Services		13.2			14.6
Mobile Services		3.0			3.3
Eliminations		(0.3	)		—
TOTAL COST OF REVENUE		138.5			166.2
Selling, general and administrative		51.5			56.4
Depreciation and amortization		35.7			39.9
Equity in (earnings) losses of ventures		(0.2	)		0.2
Interest income		(0.6	)		(0.9	)
Interest expense		0.3			0.4
Foreign currency loss		0.2			0.2
Minority interest		0.5			1.3
Provision for income taxes	$	14.5		$	18.5

Functional currency; prior to the third quarter of 2006, the functional currency for all of our foreign subsidiaries was the United States dollar (“USD”). In the second and the third quarters of 2006, Sovintel introduced a semi-fixed USD — RUR exchange rate for settlements with a majority of its customers. This rate is applicable if the official USD exchange rate set by the Central Bank of Russia (“CBR”) is below the fixed level. If the RUR depreciates against the USD so that the CBR exchange rate exceeds the fixed level, Sovintel will resume applying the CBR exchange rate, or floating rate, for settlements with its customers. As a result of these changes, we re-evaluated the functional currency criteria under SFAS No. 52, “Foreign Currency Translation”, and determined that, beginning July 1, 2006, the functional currency of our subsidiaries domiciled in Russia is the RUR. The change was adopted prospectively beginning July 1, 2006 in accordance with SFAS No. 52. No restatement of comparative amounts was made for the change in functional currency. Therefore, the financial statements of our subsidiaries domiciled in Russia and Ukraine on June 30, 2007 were translated into USD using the current rate method. Assets and liabilities were translated at the rate of exchange prevailing at the balance sheet date. Stockholders’ equity was translated at the applicable historical rate. Revenue and expenses were translated at the monthly average rates of exchange. Translation gains and losses were included as part of accumulated other comprehensive income.

~~Cost~~ Stock-based compensation; effective January 1, 2006, we adopted SFAS No. 123R to account for Share Based Payments. Under SFAS No. 123R, we are required to calculate and record the cost of equity ~~Revenue~~instruments, such as stock options or restricted stock, awarded to employees for services received in the income statement. The cost of the equity instruments is to be measured based on the fair value of the instruments on the date they are granted or, if the number of shares to be issued or the exercise price is unknown, re-measured at each reporting date and is required to be recognized over the period during which the employees are required to provide services in exchange for the equity instruments. The fair value of a SAR and stock options is estimated using the Monte Carlo simulation-based valuation model that incorporates the assumptions of the stock volatility, risk-free interest rates, dividend yield, employee exercise patterns and forfeiture rates.

~~Our~~Critical ~~cost~~Accounting ~~of revenue increased by 20% to $166.2 million for the six months ended June 30, 2005,~~Estimates from $138.5 million for the six months ended June 30, 2004. Included in the increase of cost of revenue is a $0.7 million charge recorded in the second quarter of 2005 for the revision of our estimate for unused vacation.

~~Business~~Accounting ~~and~~estimates ~~Corporate~~are ~~Services.~~an ~~Cost~~integral part of ~~revenue~~the ~~from~~financial ~~BCS~~statements ~~increased~~prepared by ~~22% to $78.9 million~~management ~~for~~and ~~the~~are ~~six~~based ~~months~~upon ~~ended~~management’s ~~June 30,~~current ~~2005, from $64~~judgments.~~9 million~~ ~~for~~Certain ~~the~~accounting ~~six~~estimates ~~months~~are ~~ended June 30, 2004.~~particularly ~~Cost~~sensitive because of ~~revenue~~their assignificance ato ~~percentage~~the offinancial ~~revenue~~statements ~~remained~~and ~~consistent~~because atof ~~43%~~the inpossibility that ~~2005~~future ~~and~~events ~~2004. Additionally,~~affecting ~~BCS~~them ~~cost~~may ofdiffer ~~revenue~~markedly ~~increased~~from bymanagement’s ~~approximately~~current $1judgment.~~5 million~~ ~~due~~We believe to the ~~acquisitions of~~following ~~ST-HOLDING,~~items ~~Balticom,~~represent ~~and~~such ~~Buzton.~~particularly sensitive accounting estimates:

~~Cost~~Allowance offor ~~revenue~~doubtful ~~for~~accounts; any changes in the ~~BCS~~underlying ~~division~~assumptions of ~~GTU~~recoverability of ~~increased~~accounts receivable by 46respective %aging togroup ~~$9.5 million,~~ or ~~53%~~certain ~~of revenue,~~specific ~~for~~accounts that are excluded from the ~~six~~specific ~~months~~and ~~ended~~general ~~June 30,~~allowances ~~2005,~~could ~~from~~have ~~$6.5 million,~~a ormaterial ~~51%~~effect ofon ~~revenue,~~our ~~for~~current ~~the~~and ~~six~~future ~~months~~results ~~ended~~of ~~June 30, 2004~~operations. ~~Cost~~We ofbelieve ~~revenue~~that ~~increased~~the asallowance afor ~~percentage~~doubtful ofaccounts ~~revenue~~is ~~due~~adequate to ~~the~~cover ~~increased~~estimated ~~volume~~losses ofin ~~lower~~our ~~margin~~accounts ~~traffic~~receivable tobalances ~~mobile~~under ~~networks~~current conditions.

~~Carrier~~Tax ~~and~~provisions; ~~Operator~~in ~~Services.~~the ~~Cost~~course of ~~revenue~~preparing ~~from~~financial ~~Carrier~~statements ~~and~~in ~~Operator~~accordance ~~Services~~with ~~increased~~US byGAAP, we ~~20%~~record topotential ~~$69.4 million,~~taxes orother ~~65%~~than ofincome ~~revenue,~~tax ~~for~~loss ~~the~~provisions ~~six~~under ~~months~~the ~~ended~~guidelines ~~June 30,~~of ~~2005,~~SFAS ~~from $57~~No.~~7 million~~ 5, “Accounting ~~or 64% of revenue,~~ for ~~the~~Contingencies”. ~~six~~In ~~months~~general ~~ended~~SFAS ~~June~~No. ~~30,~~5 ~~2004.~~requires ~~The~~loss ~~increase~~contingencies into ~~cost~~be ~~of revenue~~recorded aswhen athey ~~percentage~~are ofboth ~~revenue~~probable isand ~~primarily~~reasonably ~~due~~estimable. toOn aJanuary 1, ~~change~~2007, inwe ~~our traffic mix to favor traffic~~adopted ~~terminated~~Interpretation inNo. 48 ~~CIS~~(“FIN ~~countries~~No. 48”), ~~which~~“Accounting ~~have~~for ~~higher~~Uncertainty ~~settlement~~in ~~rates,~~Income ~~and~~Taxes ~~due~~— to an ~~increase in traffic~~ ~~terminated~~interpretation toof ~~mobile~~FASB ~~networks,~~Statement ~~which~~No. 109”. ~~typically~~FIN ~~have~~No. 48 ~~higher~~carves ~~settlement~~out ~~rates~~income ~~than~~taxes ~~fixed~~from ~~networks~~SFAS No. 5. The Weadoption ~~continue~~of toFIN ~~experience~~No. 48 ~~significant~~resulted ~~pressure on our margins~~ in ~~this~~the ~~line~~cumulative-effect ofadjustment ~~business, but we have been able~~ to ~~slow~~the ~~margin~~opening ~~decline~~balance byof retained ~~focusing~~earnings ~~our~~as ~~business~~of onJanuary 1, ~~higher~~2007, ~~margin~~of ~~traffic from reputable partners~~$8.5 million. ~~Also~~In addition, we ~~continue~~record toother ~~balance~~deferred ~~our~~tax provisions ~~pricing~~under ~~strategy~~the toguidelines beof ~~more~~SFAS inNo. 109, ~~line~~“Accounting ~~with~~for ~~the~~Income ~~settlement~~Taxes”. Significant ~~rates~~judgment weis ~~are~~required ~~charged~~to bydetermine ~~other~~when ~~operators.~~such ~~Additionally,~~provisions ~~cost~~should ofbe ~~revenue~~recorded, ~~from~~and ~~Carrier~~when ~~and~~facts ~~Operator~~and ~~Services~~circumstances ~~increased~~change, bywhen ~~approximately~~such ~~$0.3 million~~provisions ~~due~~should tobe ~~the acquisitions of ST-HOLDING, Balticom, and Buzton~~released.

~~Cost~~Useful lives of ~~revenue~~property ~~for~~and ~~the~~equipment ~~Carrier~~ and ~~Operator~~certain ~~Services~~intangible ~~division~~assets; ofour ~~GTU~~network ~~increased~~assets ~~by 33% to $8.9~~and ~~million,~~amortizable orintangible ~~80%~~assets ofare ~~revenue~~depreciated ~~for~~and ~~the~~amortized ~~six~~over ~~months~~periods ~~ended~~generally ~~June 30,~~ranging ~~2005,~~ from ~~$6.7 million, or 79% of~~ ~~revenue~~five ~~for~~to ~~the~~ten ~~six~~years. ~~months~~Any ~~ended~~reduction ~~June 30,~~or ~~2004. The~~ increase in ~~cost~~the ofestimated ~~revenue~~useful aslives for a ~~percentage~~particular category of ~~revenue~~ isfixed ~~mainly~~assets ~~due~~or tointangible aassets ~~substantial~~could ~~rise~~have ina ~~settlement~~material ~~rates~~effect ~~for~~on ~~traffic~~our ~~terminated~~future toresults ~~mobile~~of ~~networks~~operations.

27 Business combinations; SFAS No. 141, “Business Combinations”, requires us to recognize the share in the assets of businesses acquired and respective liabilities assumed based on their fair values. Our estimates of the fair value of the identified intangible assets of businesses acquired are based on our expectations of future results of operations of such businesses.

~~Table of Contents~~31

~~Consumer~~Results ~~Internet Services. Cost~~ of ~~revenue from Consumer Internet Services increased by 11%~~Operations to $14.6 million, or 65% of revenue, for the six months ended June 30, 2005, from $13.2 million, or 59% of revenue, for the six months ended June 30, 2004. The increase in cost of revenue as a percentage of revenue was mainly the result of network costs not decreasing in line with revenue declines from dial-up Internet. As regional subscribers account for a larger portion of our total subscriber base, margins in this line of business have decreased due to incremental network costs incurred to provide access to regional customers. Furthermore, the impact of a decline in subscribers in Moscow has not resulted in an immediate decline of network costs, which are more fixed in nature.

~~Mobile Services.~~The ~~Cost~~results of ~~revenue~~our ~~from~~four ~~Mobile~~business ~~Services~~segments ~~increased~~from bythe ~~10%~~operations toof ~~$3.3 million,~~our orconsolidated ~~44%~~entities ofcombined ~~revenue~~with ~~for~~ the ~~six~~non-consolidated ~~months~~entities ~~ended~~where ~~June 30,~~we ~~2005,~~are ~~from~~actively ~~$3.0 million,~~involved orin ~~39% of revenue for~~ the ~~six~~day-to-day ~~months ended June 30~~management, ~~2004.~~are ~~The~~shown ~~increase~~ in ~~cost~~Note of11 ~~revenue~~“Segment asInformation a— ~~percentage~~Line of ~~revenue~~Business isData” ~~mainly due~~ to ~~the~~our consolidated ~~decline~~financial ~~in average revenue per active subscriber, as mentioned above~~statements. ~~Additionally,~~ ~~cost or revenue increased due to an increase in traffic to other mobile networks with higher settlement rates~~

~~Selling~~ According to Russian government estimates, ~~General~~inflation in Russia was 9% in 2006, and ~~Administrative~~6% for the six months ended June 30, 2007. The Russian government expects inflation to be approximately 7% to 8% in 2007. Although the rate of inflation has been declining, any return to heavy and sustained inflation could lead to market instability, new financial crises, reduction in consumer buying power and erosion of consumer confidence.

~~Our~~The ~~selling, general~~discussion ~~and administrative expenses increased by 10% to $56.4 million, or 18%~~ of ~~revenue,~~ ~~for~~our ~~the~~results ~~six months ended June 30, 2005, from $51.5 million, or 19%~~ of ~~revenue,~~operations for the six months ended June 30, 2004. This increase in selling, general and administrative expenses was due to expensing $1.0 million of capitalized acquisition costs in March 2005 related to an acquisition opportunity that we decided not to pursue. Offsetting this increase when comparing the six months ended June 30, 2005, with the same period in 2004 were a $1.4 million decrease in severance costs and a $1.4 million decrease in payroll and other taxes related to the reversal of a tax contingency accrual. The remaining $6.7 million net increase was primarily the result of increases in employee related costs, asset obsolescence, audit and accounting fees, office rent, and bad debt expense. Included in the increase in employee related costs is aorganized ~~$1.1 million~~as ~~charge recorded in the second~~follows: ~~quarter of 2005 for the revision of our estimate for unused vacation.~~

~~Depreciation~~• ~~and~~Consolidated ~~Amortization~~ Results. Consolidated Results of Operations for the Three Months Ended June 30, 2007, compared to the Consolidated Results of Operations for the Three Months Ended June 30, 2006 • Consolidated Results. Consolidated Results of Operations for the Six Months Ended June 30, 2007, compared to the Consolidated Results of Operations for the Six Months Ended June 30, 2006 • Consolidated Financial Position. Consolidated Financial Position at June 30, 2007, compared to Consolidated Financial Position at December 31, 2006

~~Our~~Consolidated ~~depreciation and~~Results ~~amortization~~— ~~expenses~~Consolidated ~~increased~~Results byof ~~12%~~Operations ~~to $39.9 million~~ for the ~~six months~~Three ~~ended~~Months Ended June 30, ~~2005~~ 2007, ~~from~~Compared ~~$35.7 million~~to the Consolidated Results of Operations for the ~~six~~Three ~~months~~Months ~~ended~~Ended June 30, ~~2004. The~~2006 ~~increase was due to depreciation on continuing capital expenditures of the consolidated entities.~~

~~Equity in (Earning) Losses of Ventures~~Revenue

~~The~~Our ~~earnings~~revenue ~~after interest~~increased ~~and~~by ~~tax~~51% ~~charges from our investments in non-consolidated ventures decreased~~ to ~~losses of~~ $0297.27 million for the ~~six~~three months ended June 30, ~~2005,~~2007 from $0197.20 million ~~of earnings~~ for the ~~six~~three months ended June 30, ~~2004~~2006. The breakdown of revenue by business group was as follows:

Interest Income


	Consolidated Revenue		Consolidated Revenue
	For the Three Months		For the Three Months
	Ended June 30, 2006		Ended June 30, 2007
	(in millions)
REVENUE
Business and Corporate Services	$	113.0	$	167.2
Carrier and Operator Services		69.2		113.3
Consumer Internet Services		12.2		13.5
Mobile Services		2.6		3.7

TOTAL REVENUE	$	197.0	$	297.7

~~Our~~The ~~interest~~breakdown ~~income increased~~of torevenue ~~$0.9 million~~by ~~for~~geographic ~~the~~regions ~~six~~was ~~months~~as ~~ended June 30, 2005, from~~follows: ~~$0.6 million for the six months ended June 30, 2004.~~

Interest Expense


	Consolidated Revenue			Consolidated Revenue
	For the Three Months			For the Three Months
	Ended June 30, 2006			Ended June 30, 2007
	(in millions)
REVENUE
Moscow	$	121.7		$	194.3
Northwest region of Russia		18.0			26.8
Other regions of Russia and CIS		42.3			64.2
Ukraine		19.4			25.2
Eliminations		(4.4	)		(12.8	)

TOTAL REVENUE	$	197.0		$	297.7

~~Our~~Business ~~interest~~and ~~expense~~ Corporate Services. Revenue from Business and Corporate Services increased by 48% to $0167.42 million for the ~~six~~three months ended June 30, ~~2005,~~2007 from $0113.30 million for the ~~six~~ three months ended June 30, ~~2004~~2006. Macro-economic growth in Russia, Ukraine, and the CIS and continuing demand for our telecommunications solutions as well as the introduction of CPP, have continued to help us increase revenue in this line of business. Our total number of contracts in this line of business increased from 192,689 on June 30, 2006, to 319,595 on June 30, 2007, an increase of 66%.

~~Foreign Currency Loss~~32

~~Our~~Revenue ~~foreign currency~~from ~~loss~~the ~~was~~BCS division of Sovintel increased by 47% to $0134.20 million for the ~~six~~ three months ended June 30, ~~2005~~2007, ~~unchanged~~ from $90.9 million for the ~~six~~three months ended June 30, ~~2004~~2006. In the second quarter of 2007, Sovintel recorded approximately $12.7 million of additional revenue related to the introduction of CPP.

~~Minority~~ BCS revenue ~~Interest~~in Moscow, our largest market, increased by $27.3 million, or 40%, to $95.2 million in the second quarter of 2007 from $67.9 million in the second quarter of 2006. However, as a percentage of total Sovintel BCS revenue, Moscow decreased from approximately 75% in the second quarter of 2006 to approximately 71% of Sovintel’s total BCS revenue in the second quarter of 2007. This decrease is the result of the expansion of Sovintel’s BCS business in the Russian regions. Our BCS Moscow voice revenue continues to grow as we expand our client base and comprises over half of our total BCS revenue in that market. In the second quarter of 2007, BCS Moscow revenue from data and Internet services grew significantly not only due to an increase in our customer base, but also due to increased business from existing customers. We expect our revenue from BCS Moscow to continue to grow as the Moscow commercial real-estate market continues to experience significant investment. Our ongoing relationships with Moscow real-estate developers should enable us to continue to grow the number of trade and business centers where we provide services to end users. Furthermore, we have implemented a key account program in Moscow to protect our relationships with our largest clients and to foster cross selling. Additionally, we expect demand for call center and data center services to continue to demonstrate strong growth in Moscow. Our revenue from call centers and data centers increased by approximately $1.5 million, or 91%, in between the second quarter of 2006 and 2007. These services now account for approximately $3.1 million in revenue in BCS Sovintel. Refer to the table below for key operating statistics for BCS Moscow.

Our minority interest was $1.3 million for the six months ended June 30, 2005, compared to $0.5 million for the six months ended June 30, 2004. The increase was the result of minority interests in the earnings of GTU, ZAO Samara Telecom, ZAO WestBalt


(in whole numbers)	2006		2007		% Change

BCS Moscow customer statistics on June 30:
Total clients		23,559		23,799		1	%
Business centers		855		1,002		17	%
Trade centers		78		118		51	%
Hotels		51		55		8	%
Direct inward dialing lines		131,250		145,000		10	%
Ethernet / Metropolitan Ethernet Network connections		2,172		2,865		32	%
High speed Internet active contracts		694		1,378		99	%

28 Sovintel regional BCS revenue increased by 69% to $38.8 million in the second quarter of 2007 from $23.0 million in the second quarter of 2006. As a percentage of total Sovintel BCS revenue, regional BCS revenue increased from approximately 25% in the second quarter of 2006 to approximately 29% of Sovintel’s total BCS revenue in the second quarter of 2007. Sovintel regional BCS business continues to grow as we assist our customers in developing their businesses in Russian regions outside of Moscow.

~~Table~~ Revenue from the BCS division of ~~Contents~~GTU increased by 17% to $14.1 million for the three months ended June 30, 2007, from $12.1 million for the three months ended June 30, 2006. This increase in revenue was due to a 20% increase in the minutes of use resulting from a 43% increase in the number of serviced voice lines, including a significant increase in the number of residential customers. As of June 30, 2007, GTU had approximately 12,634 residential customers compared to approximately 6,837 residential customers as of June 30, 2006. Revenue from the local voice services increased by 18% following the introduction of regulated tariffs by the NCCR from July 2006 and tariff increases effective from November 1, 2006. Partly offsetting these increasing factors was a decrease of the newly regulated DLD/ILD tariffs due to the continuing tariff re-balancing process. Additionally, data and Internet revenue increased by approximately $0.8 million due to increase in the number of ports in service.

~~Telecom~~ Our ~~and~~acquisition ~~Buzton.~~strategy ~~Except~~also ~~for GTU,~~contributed ~~each~~to ofthe ~~these~~overall ~~consolidated~~BCS ~~subsidiaries~~growth ~~was~~in ~~acquired during~~ the ~~first~~second ~~half~~quarter of 2007. ~~2004~~Our revenue increased by approximately $5.3 million ~~Minority interests~~due into the ~~earnings~~acquisitions of ~~GTU~~Kubtelecom ~~arose~~in 2006, and Atel, Corbina, and DirectNet in ~~August 2004~~2007. ~~due~~Our toregional ~~the~~acquisition ~~sale~~strategy ofhas aenabled ~~non-controlling~~us ~~interest~~ to increase our ~~local~~access ~~partners~~to inlast ~~Ukraine~~mile infrastructure, thus enabling us to expand our corporate client base.

~~Provision~~ Carrier and Operator Services. Revenue from Carrier and Operator Services increased by 64% to $113.3 million for ~~Income~~the ~~Taxes~~three months ended June 30, 2007, from $69.2 million for the three months ended June 30, 2006. Our total number of contracts in this line of business grew by 40% to 2,942 as of June 30, 2007, from 2,101 as of June 30, 2006.

~~Our~~Carrier ~~charge~~and ~~for~~Operator ~~income~~Services ~~taxes~~revenue ~~was~~from Sovintel increased by 64% to $18102.54 million for the three ~~six~~ months ended June 30, ~~2005~~2007, ~~compared to~~from $1462.5 million for the ~~six~~three months ended June 30, ~~2004~~2006. ~~Our~~In Sovintel, ~~effective~~we ~~tax~~expanded ~~rate~~our ~~was~~operations ~~31%~~with ~~for~~existing ~~the~~partners ~~six~~and added a number of new carriers in ~~months~~the ~~ended~~regions ~~June 30,~~with ~~2005~~high volumes of traffic. Additionally, ~~unchanged~~our revenue from international traffic increased as ~~compared~~we carried larger volumes of lower-margin traffic destined to CIS countries. We also observed a significant increase in Internet traffic. In the ~~six~~second ~~months~~quarter ~~ended~~of ~~June 30~~2007, ~~2004~~Sovintel recorded approximately $10.3 million of additional revenue related to the introduction of CPP. We expect that our revenues in this line of business will continue to increase in future periods as we expand our

~~Net Income and Net Income per Share~~33

~~Our~~termination ~~net~~capabilities ~~income~~and ~~for~~continue ~~the~~to ~~six~~develop ~~months~~our ~~ended June 30, 2005, was $39~~network.~~8 million,~~ ~~compared~~Following tothe aintroduction ~~net~~of ~~income~~the ofnew ~~$31.6 million~~Interconnection ~~for~~Rules, ~~the~~we ~~six~~observed ~~months~~less ~~ended~~competitive ~~June 30,~~pressure ~~2004~~on revenues.

~~Our~~Revenue ~~net~~for ~~income~~the ~~per~~Carrier ~~share~~and ofOperator ~~common~~Services ~~stock~~division of GTU increased by 100% to $18.108 million for the ~~six~~three months ended June 30, ~~2005~~ 2007, ~~compared~~from ~~to a net income per share of~~ $04.874 million for the ~~six~~three months ended June 30, ~~2004~~2006. ~~The increase~~Carrier’s incarrier ~~net~~revenue ~~income~~increased ~~per share of common stock was~~ due to ~~the~~a 201% increase in ~~net~~transit ~~income~~traffic ~~partly~~from local ~~offset~~operators byfollowing anintroduction ~~increase~~of in the ~~number~~new ofinterconnection ~~weighted~~rules ~~average~~effective ~~shares to 36,328,676 in the six months ended June~~January 301, ~~2005~~2007, ~~compared~~and toa 527% ~~36,144,270~~increase in the ~~six~~incoming ~~months~~international ~~ended~~minutes ~~June 30, 2004. The increase in outstanding shares was a direct result~~ of ~~employee stock option exercises~~use.

~~Our~~Carrier and ~~net~~Operator ~~income~~Services ~~per~~revenue ~~share of common stock on a fully diluted basis~~ increased toby approximately $12.~~09 for the six months ended June~~5 ~~30,~~million ~~2005,~~due ~~compared~~ to ~~a net income per common share of $0.86 for~~ the ~~six~~ ~~months~~acquisition ~~ended June 30, 2004. The increase in net income per share~~ of ~~common~~Kubtelecom ~~stock on a fully diluted basis was due to the increase~~ in ~~net~~2006 ~~income~~and ~~partly~~Corbina ~~offset by an increase~~ in ~~the number of weighted average shares assuming dilution to 36,572,961 for the six months ended June 30, 2005, compared to 36,523,118 for the six months ended June 30, 2004~~2007.

~~The~~Consumer ~~change~~Internet inServices. ~~accounting~~Revenue ~~estimate~~from ~~for~~Consumer ~~unused~~Internet ~~vacation~~Services ~~decreased~~increased ~~net~~by ~~income~~11% to $13.5 million for the ~~six~~three months ended June 30, ~~2005~~2007, from $12.2 million for the three months ended June 30, 2006. Consumer Internet Services revenue increased by approximately $14.34 million, ~~including~~due to the ~~associated~~acquisitions ~~payroll~~of ~~taxes~~Kubtelecom and Corus in 2006, and Atel and Corbina in 2007. Our revenue from ~~(equivalent~~consumer todial-up Internet decreased by approximately $02.048 million ~~per~~between ~~common~~the ~~share~~second —quarter ~~basic~~of 2007 and $02006.04 The average revenue per ~~common~~dial-up ~~share~~Internet —subscriber ~~diluted)~~decreased from $6.87 per month for the ~~six~~ three months ended June 30, ~~2005~~2006, to approximately $6.37 per month for the three months ended June 30, 2007, and the number of dial-up Internet subscribers decreased from 400,721 at June 30, 2006, to 268,659 at June 30, 2007. The demographics of our dial-up subscriber base continue to change as we lose subscribers both in Moscow and in the regions. The consumer Internet market in Russia has become more competitive due to the increasing availability of other Internet access technologies, especially DSL-based services from incumbent Svyazinvest operators. We anticipate that our revenue from consumer broadband will increase as we embark on our broadband access rollout. Our current and past base of dial-up Internet subscribers in Moscow and throughout Russia allows us to specifically target subscribers that currently use or have previously used our Internet services. As of June 30, 2007, we had 267,131 broadband Internet subscribers, of which 203,984 are connected by Corbina with average revenue per subscriber of approximately $15.65 per month. As of June 30, 2007, we had 23,722 subscribers of our newly launched WiFi services in Moscow with average revenue per subscriber of approximately $12.91 per month.

~~Consolidated~~ Mobile ~~Financial~~Services. ~~Position~~Revenue —from ~~Significant~~Mobile ~~Changes~~Services inincreased ~~Consolidated~~by ~~Financial~~42% ~~Position~~to at$3.7 million for the three months ended June 30, 2007, from $2.6 million for the three months ended June 30, 2006. The revenue increased by approximately $1.9 million due to the acquisition of Corbina in 2007. As of June 30, ~~2005~~2007, ~~compared~~Corbina had 33,456 active mobile subscribers with the average revenue per active subscriber of approximately $69.50 per month. This increase was partly offset by the decline in mobile revenue of GTU due to ~~Consolidated~~increased ~~Financial~~competition ~~Position~~in the Ukrainian mobile market, and the lack of network coverage, which has led to significant churn of high usage contract subscribers. Active subscribers in Ukraine decreased from 50,602 at ~~December~~June 3130, ~~2004~~2006, to 42,363 at June 30, 2007. The average revenue per active subscriber in Ukraine decreased by 20% from approximately $17.66 per month to approximately $14.06 per month primarily due to a decrease in the average subscription fee and traffic revenue due to higher share of prepaid subscribers with lower usage compared to contract subscribers.

~~Accounts Receivable~~Expenses

~~Accounts~~The ~~receivable~~following ~~increased~~table ~~from~~shows ~~December 31,~~our ~~2004,~~principal toexpenses ~~June 30,~~for ~~2005, as a result of seasonally slower collections from customers during~~ the ~~period~~three months ended June 30, ~~2005,~~2007 and ~~increased~~ ~~revenues when comparing the month of~~ June ~~2005~~30, ~~to the month of December 2004.~~2006:

Intangible Assets


	Consolidated Expenses			Consolidated Expenses
	For the Three Months			For the Three Months
	Ended June 30, 2006			Ended June 30, 2007
	(in millions)
COST OF REVENUE
Business and Corporate Services	$	48.0		$	75.2
Carrier and Operator Services		48.4			83.1
Consumer Internet Services		7.9			11.2
Mobile Services		1.3			2.3
Corporate		—			(0.2	)

TOTAL COST OF REVENUE		105.6			171.6
Selling, general and administrative		33.5			44.8
Depreciation and amortization		24.0			32.4
Equity in earnings of ventures		(0.4	)		(0.1	)
Interest income		(0.1	)		(1.2	)
Interest expense		0.1			3.1
Foreign currency gain		(0.7	)		(1.3	)
Minority interest		1.0			1.4
Provision for income taxes		11.4			14.7

~~Our intangible assets decreased at June 30, 2005, as compared to December 31, 2004, mostly as~~34 a result of amortization on continuing intangible assets of the consolidated entities. Also contributing to the decrease was the reversal of an income tax contingent liability related to an acquisition as discussed in more detail below.

~~Other~~Cost ~~Non-current~~of ~~Liabilities~~Revenue

Our ~~other~~cost ~~non-current~~of ~~liabilities~~revenue ~~decreased~~increased atby ~~June 30,~~63% ~~2005, as compared~~ to ~~December~~$171.6 ~~31, 2004,~~million asfor ~~a result of~~ the ~~reversal~~three ofmonths anended ~~accrued liability related to a tax contingency. This~~June 30, ~~accrued~~2007 ~~liability~~from ~~was recorded upon the acquisition of one of our Russian subsidiaries~~$105.6 million ~~Management has~~for ~~concluded that~~ the ~~probability~~three ofmonths ~~this~~ended ~~accrued~~June 30, ~~liability arising in the future is remote due to the expiry of Russian regulatory statutes of limitations for any potential tax claims from the Russian tax inspectorate~~2006.

29 Business and Corporate Services. Cost of revenue from BCS increased by 57% to $75.2 million, or 45% of revenue, for the three months ended June 30, 2007 from $48.0 million, or 42% of revenue, for the three months ended June 30, 2006. The increase in cost of revenue as a percentage of revenue was mainly due to the switch to our new FTN, deployment of the zonal networks and replacement of the existing rented intercity capacity.

~~Table~~ Cost of revenue for the BCS division of ~~Contents~~Sovintel increased by 56% to $60.2 million, or 45% of revenue, for the three months ended June 30, 2007, from $38.7 million, or 43% of revenue, for the three months ended June 30, 2006. The increase in cost of revenue as a percentage of revenue is primarily due to an increased volume of lower margin products and continuing pressure on our margins in this line of business from our existing customers. In addition, in the first quarter of 2007, we began utilizing our FTN thus bearing operational costs for two network structures while phasing out redundant costs. We also incurred additional costs related to the deployment of the zonal networks and implementation of the new capital lease agreements to replace existing rented intercity channels. In the second quarter of 2007, Sovintel recorded approximately $6.1 million of additional costs related to the introduction of CPP.

~~Minority~~ Cost of ~~Interest~~revenue for the BCS division of GTU increased by 17% to $6.1 million, or 43% of revenue, for the three months ended June 30, 2007, from $5.2 million, or 43% of revenue, for the three months ended June 30, 2006. Cost of revenue remained unchanged as a percentage of revenue.

~~Our~~BCS cost ~~minority~~of ~~interest~~revenue increased atby ~~June~~approximately $3.1 ~~30,~~million ~~2005,~~due ~~as compared~~ to ~~December 31,~~the ~~2004,~~acquisitions ~~as a~~of ~~result~~Kubtelecom ~~of minority interests~~ in ~~the~~2006, ~~equity~~and ~~of GTU~~Atel, ~~ZAO Samara Telecom~~Corbina, ~~ZAO WestBalt Telecom~~ and ~~Buzton.~~ ~~Except~~DirectNet ~~for GTU, each of these consolidated subsidiaries was acquired during the first half of 2004. Minority interests~~ in ~~the earnings of GTU arose in August 2004 due to the sale of a non-controlling interest to our local partners in Ukraine~~2007.

~~Stockholders’~~ Carrier ~~Equity~~and Operator Services. Cost of revenue from Carrier and Operator Services increased by 72% to $83.1 million, or 73% of revenue, for the three months ended June 30, 2007, from $48.4 million, or 70% of revenue, for the three months ended June 30, 2006. We continue to observe pressure on our operating margins in this line of business, attributable to competition and to a change in our traffic mix.

~~Shareholders’~~Cost ~~equity~~of revenue for the Carrier and Operator Services division of Sovintel increased ~~from~~by ~~December~~76% to $79.4 31million, ~~2004~~or 76% of revenue, tofor the three months ended June 30, ~~2005~~2007, from $45.2 million, or 72% of revenue, for the three months ended June 30, 2006. The increase in cost of revenue as a percentage ~~result~~of revenue is primarily due to an increased volume of lower margin products and continuing pressure on our margins in this line of business from our existing customers. In ~~net~~addition, ~~income~~in the first half of ~~$39~~2007, we began utilizing our FTN thus bearing operational costs for two network structures while phasing out redundant costs.~~8 million~~ ~~and~~We ~~offset~~also byincurred ~~declaring~~additional costs related to the deployment of the zonal networks and ~~paying~~implementation of the new capital lease agreements to replace existing rented intercity channels. In the second quarter of 2007, Sovintel recorded approximately $1410.52 million inof ~~dividends~~additional incosts related to the ~~first~~ ~~half~~introduction of ~~2005~~CPP.

~~Income~~ Cost ~~Taxes~~of revenue for the Carrier and Operator Services division of GTU increased to $6.7 million, or 76% of revenue for the three months ended June 30, 2007, from $3.0 million, or 68% of revenue for the three months ended June 30, 2006. Cost of revenue increased as a percentage of revenue primarily due to introduction of the new interconnection rules effective January 1, 2007, lower margin local transit and incoming international traffic accounting for a larger portion of our total wholesale traffic in the second quarter of 2007.

~~Our effective rate of income tax differs from the US statutory rate due to the impact of the~~Carrier ~~following factors: (1) different income tax rates~~ and ~~regulations~~Operator ~~apply~~Services incost ~~the countries where we operate; (2) amortization~~ of ~~certain~~revenue ~~acquired~~increased ~~intangible~~by ~~assets~~approximately ~~is not deductible for income tax purposes; and (3)~~$0.8 ~~write-offs~~million ofdue ~~certain assets are not deductible for tax purposes. We currently have deferred tax assets arising from deductible temporary differences in our non-US subsidiaries. Due~~ to ~~the continued profitability of these subsidiaries, we fully anticipate that these deferred~~ ~~tax assets will be realized through~~ the ~~generation~~acquisitions of ~~future~~Kubtelecom taxable income. We also have a deferred tax asset related to net operating loss carry-forwards for US federal income tax purposes. We have concluded that these US loss carry-forwards will be realizable as we anticipate generating future taxable income in ~~the~~2006 ~~US by earning interest income on intercompany loans to our foreign subsidiaries~~ and byCorbina ~~undertaking other planned transactions~~ in ~~2005~~2007. ~~We have also recorded a~~ deferred tax asset related to net operating loss carry-forwards for Cyprus tax purposes. However, we have recorded a full valuation allowance since we do not anticipate recognizing taxable income in our Cyprus entity in the foreseeable future since it has generated tax losses since 2003.

~~Liquidity~~ Consumer ~~and~~Internet ~~Capital~~Services. ~~Resources~~Cost of revenue from Consumer Internet Services increased by 42% to $11.2 million, or 83% of revenue, for the three months ended June 30, 2007, from $7.9 million, or 70% of revenue, for the three months ended June 30, 2006. The increase in cost of revenue as a percentage of revenue was mainly the result of the new settlement rules for interconnection with other operators. As regional subscribers account for a larger portion of our total subscriber base, margins in this line of business have decreased due to incremental network costs incurred to provide access to regional customers. Furthermore, the impact of a decline in subscribers in Moscow has not resulted in an immediate decline of network costs, which are more fixed in nature. In addition, we incurred additional costs related to our WiFi network in Moscow which became commercially operational only from March 1, 2007. We also incurred additional costs related to the Corbina’s deployment of the FTTB network which is not fully operational.

~~Our cash and cash equivalents were $81.2 million and $53.7 million as of June 30, 2005, and~~35 December 31, 2004, respectively. Our total restricted cash was $0.6 million as of June 30, 2005, and $1.0 million as of December 31, 2004. The restricted cash is maintained in connection with certain of our debt obligations as described below.

~~During~~ Consumer ~~the~~Internet ~~six~~Services ~~months~~cost ~~ended~~of ~~June 30,~~revenue ~~2005,~~increased weby ~~had~~approximately ~~net cash inflows of~~ $~~86.~~2 ~~million from our operating activities~~. ~~During the six months ended June~~5 ~~30, 2004, we had net cash inflows of $62.3~~ million ~~from our operating activities. This increase in net cash inflows from operating activities at June 30, 2005, is mainly~~ due to the acquisitions ~~increase~~ of ~~net~~Kubtelecom ~~income~~and asCorus ain ~~result~~2006, ofand ~~increased~~Corbina ~~revenues~~in 2007.

~~During~~Mobile ~~the~~Services. ~~six~~Cost ~~months~~of ~~ended~~revenue ~~June 30,~~from ~~2005,~~Mobile weServices ~~received~~increased ~~approximately~~by 77% to $~~316~~2.3 million, inor ~~cash~~62% ~~from~~of ~~our~~revenue ~~customers~~ for ~~services~~the ~~and~~three wemonths ~~paid~~ended ~~approximately~~June 30, 2007, from $~~209~~1.63 million, toor ~~suppliers~~50% ~~and employees.~~of ~~During~~revenue for the three ~~six~~ months ended June 30, ~~2004,~~2006. weMobile ~~received~~cost of revenue increased by approximately $~~260~~1.20 million due to the acquisition of Corbina in ~~cash~~ ~~from~~2007. ~~our~~The ~~customers~~increase ~~for~~in ~~services~~cost ~~and~~of werevenue ~~paid~~as ~~approximately~~a ~~$185.7 million~~percentage of revenue is mainly due to ~~suppliers~~the lower margin products of Corbina’s mobile offerings and increased ~~employees~~network costs related to the FMC network development in Ukraine.

~~We used cash of $43.6 million and $68.9 million for investing activities for the six months ended June 30~~Selling, ~~2005,~~General and ~~June 30, 2004, respectively, which were principally attributable to~~Administrative building our telecommunications networks and acquisitions. Network investing activities totaled $44.4 million for the six months ended June 30, 2005. The majority of network investing activities related to construction of last mile access and network upgrades as a result of increased customer connections. Network investing activities totaled $54.4 million for the six months ended June 30, 2004. We used cash of $0.9 million for the six months ended June 30, 2005, for our acquisition of Daicom and a payment of a holdback amount related to the 2004 Buzton acquisition.

~~For~~Our selling, general and administrative expenses increased by 34% to $44.8 million, or 15% of revenue, for the ~~six~~three months ended June 30, ~~2005~~2007, wefrom ~~received~~ $033.65 million, ~~net~~or ~~proceeds~~17% ~~from~~of revenue, for the ~~exercise~~three ofmonths ended June 30, 2006. Ongoing employee ~~stock~~related ~~options~~costs such as salaries, bonuses, insurance and ~~for~~other ~~the~~benefits ~~six~~increased ~~months~~by ~~ended~~approximately ~~June~~$9.0 30million, ~~2004~~or 50%, weof ~~received~~which $4.2.1 million, or 23%, was stock-based compensation costs, primarily due to increased executive officer costs, ongoing salary increases, and a 93% increase in consolidated headcount. Taxes, other than income taxes, increased by $1.1 million ~~net~~between ~~proceeds~~years ~~from~~due to an increase in property taxes and non-recoverable VAT. Our rent expenses increased by $1.4 million, of which $0.7 million was due to the ~~exercise~~acquisitions of ~~employee~~Kolangon ~~stock~~and ~~options~~Corbina in 2007.

30Depreciation and Amortization

~~Table~~ Our depreciation and amortization expenses increased by 35% to $32.4 million for the three months ended June 30, 2007, from $24.0 million for the three months ended June 30, 2006. Depreciation expense increased by $7.4 million, or 39%, primarily due to depreciation on capital expenditures to further develop our network. Amortization expense also increased by $1.0 million, or 19%, primarily due to amortization on intangible assets arising from acquisitions consummated in the second half of ~~Contents~~2006 and first half of 2007.

InEquity ~~February 2005,~~in ~~our~~Earnings ~~Board~~ of ~~Directors declared a cash dividend of $0.20 per common share to~~Ventures ~~shareholders of record as of March 17, 2005. We paid the total amount payable of approximately $7.3 million to shareholders on March 31, 2005.~~

InThe ~~May 2005,~~earnings after interest and tax charges from our ~~Board~~investments ofin ~~Directors~~non-consolidated ~~declared~~ventures decreased ato ~~cash~~$0.1 million ~~dividend~~for ofthe three months ended June 30, 2007, from $0.204 million ~~per~~for ~~common~~the ~~share~~three months ended June 30, 2006. The decrease in earnings is mainly due to ~~shareholders~~ the operations of ~~record~~ZAO asRascom (“Rascom”). We acquired 54% of ~~June 16,~~Rascom in the fourth quarter of 2005. We ~~paid~~account for our investments in Rascom under the ~~total~~equity ~~amount~~method ~~payable~~because the rights of ~~approximately~~the ~~$7.3~~minority shareholder represent ~~million~~substantive toparticipating ~~shareholders~~rights, onand ~~June 30~~as result, ~~2005~~such rights overcome the presumption that we control Rascom.

WeInterest ~~had working capital of $108.4 million as of June 30, 2005, and $83.8 million as of December~~Income 31, 2004. At June 30, 2005, and December 31, 2004, we had total debt, excluding capital lease obligations, of approximately $0.3 million and $0.2 million, respectively, none of which was current maturity. Total debt included amounts that were fully collateralized by restricted cash.

InOur ~~the~~interest ~~first~~income ~~quarter of 2000, we entered into a lease~~ for the ~~right~~three tomonths ~~use~~ended ~~fiber optic capacity~~June 30, ~~including facilities and maintenance~~2007, ~~from~~increased ~~Moscow~~ to ~~Stockholm~~$1.2 million ~~The lease has an initial~~from ~~term of ten years with an option to renew for an additional five years~~$0. ~~The lease required full prepayments as the capacity increased from an STM-~~1 million tofor ~~an STM-4 to full capacity of STM-16. Full prepayments were made to~~ the ~~lessor~~three inmonths ~~April~~ended June ~~2000~~30, ~~August 2000 and February 2001~~2006. ~~These~~The ~~prepayments have~~increase ~~been offset against the lease obligation~~ in ~~our~~interest ~~financial~~income ~~statements.~~is Wedue ~~will continue~~ to ~~make~~ ~~payments~~increased ~~for~~cash ~~maintenance~~balances ~~for~~held ~~the~~in ~~term~~interest ofbearing ~~the lease~~accounts.

AsInterest ~~part of our drive to increase our network capacity, reduce costs and improve the quality of~~Expense our service, we have leased additional fiber optic and satellite-based network capacity; the terms of these leases are generally five years or more and can involve significant advance payments. As demand for our telecommunication services increases we expect to enter into additional capacity agreements and may make significant financial commitments, in addition to our existing commitments.

~~In order~~Our tointerest ~~comply~~expense ~~with~~for the ~~known~~three ~~long~~months ~~distance~~ended ~~license~~June 30, ~~requirements and to be operational in 2006~~2007, weincreased ~~estimate that we will need~~ to ~~incur approximately~~ $103.01 million ~~in capital expenditures and~~from ~~approximately~~ $3.0.1 million infor ~~operational~~the ~~expenditures~~three inmonths ~~2005. In~~ended ~~total~~June 30, ~~we estimate that we will need make capital expenditures of approximately $50~~2006.~~0 million~~ inThe ~~order~~increase ~~to fulfill the network requirements specified~~ in ~~the~~interest ~~Interconnection~~expense ~~Rules~~is ~~and~~due to ~~successfully~~increased ~~implement~~borrowings ~~our long distance license. However, there are still unknown and yet~~ to befinance ~~clarified~~acquisitions ~~portions~~ of ~~the~~Kolangon ~~laws~~ and ~~regulations~~ ~~that will affect both the timing and cost of the long distance license implementation~~Corbina.

~~Some~~Foreign ofCurrency ~~our operating companies have received debt financing through direct loans from~~Gain affiliated companies. In addition, certain operating companies have borrowed funds under a back-to-back, seven-year credit facility for up to $22.7 million from a Russian subsidiary of Citibank. Under this facility, we provide full cash collateral, held in London, and recorded on our balance sheet as restricted cash, for onshore loans made by the bank to our Russian registered joint ventures. In a second, similar facility, we provide full cash collateral for a short term back-to-back, revolving, credit facility for up to $10.0 million from the same bank for two of our larger Russian operating companies. The funding level as of June 30, 2005, for all of these facilities totaled $0.6 million, of which $0.2 million was funded to our consolidated subsidiaries and $0.4 million was funded to our non-consolidated entities.

InOur ~~the~~foreign ~~future,~~currency wegain ~~may~~for ~~execute~~the ~~large~~three ormonths ~~numerous~~ended ~~acquisitions~~June 30, ~~which~~2007, ~~may~~increased ~~require us~~ to ~~raise~~$1.3 million ~~additional~~from ~~funds~~$0.7 million ~~through~~for ~~a dilutive equity issuance, through additional borrowings with collateralization or through~~ the ~~divestment~~three ofmonths ~~non-core~~ended ~~assets~~June 30, ~~or combinations of the above~~2006. ~~In case large or numerous acquisitions do not materialize; we expect our current sources of funding to finance our capital requirements.~~ The ~~actual~~increase ~~amount~~in ~~and~~foreign ~~timing~~currency ~~of our future capital requirements~~gain ~~may~~is ~~differ~~due ~~materially~~to ~~from~~the ~~our~~combination ~~current estimates because~~ of ~~changes~~movements ~~or fluctuations~~ in ~~our anticipated~~exchange ~~acquisitions,~~rates ~~investments, revenue, operating costs~~ and ~~network~~changes ~~expansion plans and access to alternative sources of financing on favorable terms. Further,~~ in ~~order for us to compete successfully, we may require substantial capital to continue to develop our networks and meet~~ the ~~funding~~ ~~requirements~~amount of ~~our~~net ~~operations and ventures, including losses from operations. We will also~~monetary ~~require~~assets ~~capital~~of ~~for~~the ~~other~~Russian ~~acquisition~~subsidiaries ~~and~~that ~~business~~we ~~development~~have ~~initiatives.~~denominated Wein ~~expect to fund these requirements through cash on hand, cash flow from operations, proceeds from additional equity and debt offerings, and debt financing facilities~~USD.

WeMinority ~~may not be able to obtain additional financing on favorable terms. As a result, we may~~Interest become subject to additional or more restrictive financial covenants, our interest obligations may increase significantly and our shareholders may be adversely diluted. Our failure to generate sufficient funds in the future, whether from operations or by raising additional debt or equity capital, may require us to delay or abandon some or all of our anticipated expenditures, to sell assets, or both, which could have a material adverse effect on our operations.

WeOur ~~expect~~minority tointerest ~~complete~~was $1.4 million for the ~~acquisition~~three ofmonths ~~Hudson~~ended ~~Telecom~~June 30, ~~Inc~~2007, compared to $1.0 million infor the ~~second~~three ~~half~~months ofended ~~2005~~June 30, 2006. ~~We expect~~Minority tointerest ~~fund~~in ~~this~~our ~~acquisition,~~earnings increased due to an increase in ~~principle~~earnings ~~part,~~and ~~through~~consolidation aof ~~$45.0 million~~recently ~~unsecured~~acquired ~~credit~~entities where our ownership ~~facility~~interest ~~and~~is ~~the~~less ~~remainder~~than of100%. ~~the~~In ~~purchase~~2006, ~~price~~we ~~with~~acquired ~~our~~less ~~available~~than ~~cash.~~100% ~~Such~~of ~~facility~~ZAO isTatar Intellectual ~~expected~~Communications toand ~~contain~~Kubtelecom. ~~restrictive~~In ~~covenants~~2007, ~~that~~we ~~will~~acquired ~~limit~~less ~~the~~than ~~flexibility~~100% of ~~our~~Kolangon ~~operations~~and Corbina.

~~Contractual Obligations~~36

~~The~~Provision ~~amounts disclosed in our Annual Report on Form 10-K~~ for ~~the~~Income ~~fiscal year ended December 31,~~Taxes 2004, include our contractual cash obligations. Contractual cash obligations include short- and long-term debt arrangements, capital lease obligations, commitments for future payments under non-cancelable lease arrangements and purchase obligations. During the six months ended June 30, 2005, no material changes occurred in our contractual cash obligations.

Our charge for income taxes was $14.7 million for the three months ended June 30, 2007, compared to $11.4 million for the three months ended June 30, 2006. Our effective tax rate was 31% for the three months ended June 30, 2007, down from 33% for the three months ended June 30, 2006. The decrease is primarily due to decreased levels of tax losses incurred in our US subsidiaries. We have recorded a full valuation allowance against the deferred tax assets related to these net operating loss carry-forwards.

~~Table~~Net ofIncome ~~Contents~~and Net Income per Share

~~Special~~ Our ~~Note~~net ~~Regarding~~income ~~Forward~~for ~~Looking~~the ~~Statements~~three months ended June 30, 2007 was $32.3 million, compared to a net income of $22.6 million for the three months ended June 30, 2006.

~~Certain~~Our ~~statements~~net ~~contained~~income inper ~~“Management’s~~share ~~Discussion and Analysis~~ of ~~Financial~~common ~~Condition and~~stock ~~Results~~increased ofto ~~Operations”~~$0.85 ~~and~~for ~~other~~the ~~parts~~three ofmonths ~~this~~ended ~~document, including, without limitation, those~~June ~~concerning (i) future acquisitions and capital expenditures; (ii) potential tax claims~~30, ~~(iii) the effects of potential litigation~~2007, ~~(iv) projected~~compared traffic volumes and other growth indicators; (v) anticipated revenues and expenses; (vi) the Company’s competitive environment; (vii) the future performance of consolidated and equity method investments; (viii) our intention to ~~offer~~a ~~our services~~net ~~under~~income ~~the~~per ~~Golden~~share ~~Telecom brand; (ix) our intentions to expand our fiber optic capacity and add transmission capacity; (x) our intention to continue to use the assets~~ of ~~recently~~$0.62 ~~acquired companies~~for in the ~~manner~~three ~~such~~months ~~assets~~ended ~~were previously used; (xi)~~June ~~the impact of critical accounting policies and estimates; (xii) the growth of our operations in key regions of Russia; (xiii) our growth strategy in our business segments; (xiv) the political~~30, ~~regulatory~~2006. ~~and financial situation~~The inincrease ~~the markets~~ in ~~which~~net weincome ~~operate,~~per ~~including~~share ~~the effect~~ of ~~the~~common ~~new~~stock ~~law~~was ~~“On~~due ~~Telecommunications”~~to ~~and~~ the ~~interconnection~~increase ~~rules;~~in ~~and~~net ~~(xv) the effect of utilizing our anticipated intercity and international license~~income, ~~are~~offset ~~forward-looking and concern the Company’s projected operations, economic~~by ~~performance~~an ~~and~~increase ~~financial~~in ~~condition. These forward-looking statements are made pursuant to~~ the ~~safe harbor~~number ~~provisions~~ of ~~the~~weighted ~~Securities~~average ~~Litigation~~shares ~~Reform Act of 1995. It is important~~ to note that such statements involve risks and uncertainties and that actual results may differ materially from those expressed or implied by such forward-looking statements. Among the key factors that have a direct bearing on the Company’s results of operations37, ~~economic performance and financial condition are the commercial and execution risks associated with implementing the Company’s business plan~~872, ~~use~~413 ofin ~~debt for possible future acquisitions,~~ the ~~potential~~three ~~effect~~months ofended ~~the new law “On~~June ~~Telecommunications and the related interconnection rules~~30, ~~our receipt of a new intercity and international license and the utilization of such license~~2007, ~~our~~compared ~~ability~~ to ~~integrate recently acquired companies into our operations~~36, ~~the possibility that we do not complete the acquisition of Hudson Telecom~~599,704 ~~the political, economic and legal environment~~ in the ~~markets~~three inmonths ~~which~~ended ~~the Company operates~~June 30, ~~increasing~~2006. ~~competitiveness~~The inincrease ~~the telecommunications and Internet-related businesses that~~in ~~may~~outstanding ~~limit~~shares ~~growth~~was ~~opportunities,~~a ~~and~~direct ~~increased~~result ~~and intense downward price pressures on some~~ of the ~~services~~ ~~that~~issuance weof ~~offer.~~shares ~~These~~as ~~and~~a ~~other~~consideration ~~factors~~for ~~are~~the ~~discussed herein under “Management’s Discussion~~Corbina ~~and~~acquisition ~~Analysis of Financial Condition~~ and ~~Results~~the ofemployee ~~Operations”~~stock ~~and~~option ~~elsewhere in this Report~~exercises.

~~Additional~~Our ~~information~~net ~~concerning~~income ~~factors~~per ~~that~~share ~~could~~of ~~cause~~common ~~results~~stock on a fully diluted basis increased to ~~differ~~$0.85 ~~materially~~for ~~from~~the ~~those~~three inmonths ~~the~~ended ~~forward-looking~~June 30, ~~statements~~2007, ~~are~~compared ~~contained~~to ina ~~the~~net ~~Company’s~~income ~~filings~~per ~~with~~common share of $0.62 for the ~~United~~three ~~States~~months ~~Securities~~ended ~~and~~June 30, ~~Exchange~~2006. ~~Commission~~The ~~and~~increase ~~especially~~ in net income per share of common stock on a fully diluted basis was due to the ~~Risks~~increase ~~Factor~~in ~~Sections~~net ~~therein~~income, offset by an increase in the number of weighted ~~including,~~average ~~but~~shares ~~not~~assuming ~~limited~~dilution to 37,983,412 in the ~~Company’s~~three ~~report~~months onended ~~Form~~June 30, ~~10-K~~2007, ~~for~~compared to 36,716,196 in the ~~year~~three months ended ~~December 31~~June 30,~~2004~~ 2006.

InConsolidated ~~addition,~~Results ~~any~~— ~~statements~~Consolidated ~~that~~Results ~~express,~~of orOperations ~~involve~~for ~~discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through~~ the ~~use~~ ofSix ~~words~~Months orEnded ~~phrases such as “will likely result~~June 30,” ~~“are expected to~~2007,~~” “estimated,” “intends,”~~ ~~“plans,”~~compared “projection” and “outlook”) are not historical facts and may be forward-looking and, accordingly, such statements involve estimates, assumptions and uncertainties which could cause actual results to ~~differ materially from those expressed in~~ the ~~forward-looking~~Consolidated ~~statements. Accordingly,~~Results ~~any~~of ~~such~~Operations ~~statements~~for ~~are qualified in their entirety by reference to, and are accompanied by,~~ the ~~factors~~Six ~~discussed~~Months ~~throughout~~Ended ~~this Report and investors~~June 30, ~~therefore, should not~~2006 ~~place undue reliance on any such forward-looking statements.~~

~~Further, any forward-looking statement speaks only as of the date on which such statement is~~Revenue made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors may emerge from time to time, and it is not possible for management to predict all of such factors. Further, management cannot assess the impact of each such factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

32 Our revenue increased by 48% to $553.4 million for the six months ended June 30, 2007 from $375.1 million for the six months ended June 30, 2006. The breakdown of revenue by business group was as follows:


	Consolidated Revenue		Consolidated Revenue
	For the Six Months		For the Six Months
	Ended June 30, 2006		Ended June 30, 2007U
	(in millions)
REVENUE
Business and Corporate Services	$	216.2	$	315.0
Carrier and Operator Services		129.3		209.1
Consumer Internet Services		24.4		23.8
Mobile Services		5.2		5.5

TOTAL REVENUE	$	375.1	$	553.4

~~ITEM~~ The 3.breakdown ~~Quantitative~~of ~~and~~revenue ~~Qualitative~~by ~~disclosures~~geographic ~~About~~regions ~~Market~~was ~~Risk~~as follows:

There have been no material changes in the information provided in Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004.


	Consolidated Revenue			Consolidated Revenue
	For the Six Months			For the Six Months
	Ended June 30, 2006			Ended June 30, 2007
	(in millions)
REVENUE
Moscow	$	233.8		$	353.5
Northwest region of Russia		34.5			52.5
Other regions of Russia and CIS		80.6			120.9
Ukraine		37.1			48.2
Eliminations		(10.9	)		(21.7	)

TOTAL REVENUE	$	375.1		$	553.4

~~ITEM~~ Business 4and Corporate Services. ~~Controls~~Revenue from BCS increased by 46% to $315.0 million for the six months ended June 30, 2007, from $216.2 million for the six months ended June 30, 2006. Macro-economic growth in Russia, Ukraine, and ~~Procedures~~the CIS and continuing demand for our telecommunications solutions as well as the introduction of CPP, have continued to help us increase revenue in this line of business.

~~Under~~Revenue ~~the~~from ~~supervision and with~~ the ~~participation~~BCS division of ~~our~~Sovintel ~~management,~~increased ~~including~~by ~~the~~46% ~~Chief Executive~~to ~~Officer~~$255.3 million ~~and~~for ~~Chief Financial Officer,~~ the ~~Company has evaluated the effectiveness of the~~six ~~Company’s~~months ~~disclosure~~ended ~~controls~~June 30, ~~and~~2007, ~~procedures~~from ~~as required by Exchange Act Rule~~$175.4 ~~13a-15(b)~~million asfor of the ~~end~~ ofsix ~~the~~months ~~period~~ended ~~covered~~June 30, ~~by this report~~2006. ~~Based~~In ~~on that evaluation,~~ the ~~Chief Executive Officer and~~ ~~Chief~~first ~~Financial~~half ~~Officer~~of ~~have~~2007, ~~concluded~~Sovintel ~~that~~recorded ~~these~~approximately ~~disclosure controls and procedures are effective to provide reasonable assurance that material information relating to Golden Telecom, Inc~~$22.1 million ~~and~~of ~~its consolidated~~additional ~~subsidiaries~~revenue isrelated ~~made known~~ to ~~them, particularly during~~ the ~~period~~introduction inof ~~which this report is being prepared~~CPP. ~~There~~BCS ~~were~~revenue ~~no changes~~ in ~~the Company’s internal control over financial reporting during the quarter ended June 30~~Moscow, ~~2005,~~our ~~that~~largest ~~have materially affected~~market, orincreased ~~are~~by ~~reasonably likely~~39% to ~~materially affect, our internal control over financial reporting~~$181.1

~~ITEM 5. Other Information~~37

~~None~~million in the first half of 2007 from $130.7 million in the firsthalf of 2006. However, as a percentage of total Sovintel BCS revenue, Moscow decreased from approximately 75% in the first half 2006 to approximately 71% of Sovintel’s total BCS revenue in the first half of 2007. This decrease is the result of the expansion of Sovintel’s BCS business in the Russian regions. Our BCS Moscow voice revenue continues to grow as we expand our client base. In the first half of 2007, BCS Moscow revenue from data and Internet services grew significantly not only due to an increase in our customer base, but also due to increased business from existing customers. In the first half of 2007, we experienced significant growth in our data and Internet service offerings.

33 Sovintel regional BCS revenue increased by 66% to $74.2 million in the first half of 2007 from $44.7 million in the first half of 2006. As a percentage of total Sovintel BCS revenue, regional BCS revenue increased from approximately 25% in the first half 2006 to approximately 29% of Sovintel’s total BCS revenue in the first half of 2007. Sovintel regional BCS business continues to grow as we assist our customers in developing their businesses in Russian regions outside of Moscow.

~~Table~~ Revenue from the BCS division of ~~Contents~~GTU increased by 16% to $27.6 million for the six months ended June 30, 2007, from $23.7 million for the six months ended June 30, 2006. This increase in revenue was due to a 20% increase in the minutes of use resulting from a 43% increase in the number of serviced voice lines. Partly offsetting these increasing factors was a 21% decrease in the average minutes of use per line per month due to more residential, SMB, and regional customers in the client base. Additionally, data and Internet revenue increased by approximately $1.7 million due to an increase in the number of ports in service and higher customers’ activity.

~~PART~~ BCS IIrevenue increased by approximately $6.2 million ~~OTHER~~due ~~INFORMATION~~to the acquisitions Kubtelecom in 2006, and Atel, Corbina, and DirectNet in 2007.

~~ITEM~~ Carrier 6and Operator Services. ~~Exhibits~~Revenue from Carrier and Operator Services increased by 62% to $209.1 million for the six months ended June 30, 2007, from $129.3 million for the six months ended June 30, 2006.

Designation		Description
31.1		Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Carrier and Operator Services revenue from Sovintel increased by 59% to $188.6 million for the six months ended June 30, 2007, from $118.5 million for the six months ended June 30, 2006. In the first half of 2007, Sovintel recorded approximately $17.1 million of additional revenue related to the introduction of CPP. At Sovintel, we have expanded our operations with existing partners and added a number of new carriers in the regions with increased volumes of traffic. Additionally, our revenue from international traffic increased as we carried larger volumes of lower margin traffic destined to CIS countries.

34 Revenue for the Carrier and Operator Services division of GTU increased by 105% to $16.0 million for the six months ended June 30, 2007, from $7.8 million for the six months ended June 30, 2006. Incoming international revenue increased by $4.1 million resulting from a 332% increase in the incoming international minutes of use. Incoming international minutes of use increased due to an increase in transit traffic from various international operators. In addition, carrier’s carrier revenue increased by a $3.8 million due to a 240% increase in carrier’s carrier minutes of use resulting from a rise in low margin transit traffic on mobile networks.

~~Table~~ Carrier and Operator Services revenue increased by approximately $3.8 million due to the acquisitions of ~~Contents~~Kubtelecom in 2006, and Corbina in 2007.

~~SIGNATURES~~ Consumer Internet Services. Revenue from Consumer Internet Services decreased by 2% to $23.8 million for the six months ended June 30, 2007, from $24.4 million for the six months ended June 30, 2006. Consumer Internet Services revenue increased by approximately $4.8 million due to the acquisitions of Kubtelecom and Corus in 2006, and Atel and Corbina in 2007. Offsetting this increase was a decrease in revenue from dial-up Internet.

~~Pursuant~~Mobile Services. Revenue from Mobile Services increased by 6% to $5.5 million for the ~~requirements~~six months ofended June 30, 2007, from $5.2 million for the ~~Securities~~six ~~Exchange~~months ~~Act~~ended ~~1934~~June 30, 2006. The revenue increased by approximately $1.9 million due to the ~~registrant~~acquisition ~~has~~of ~~duly~~Corbina in 2007. The increase in ~~caused~~revenue ~~this~~was ~~report~~partly tooffset beby ~~signed~~decline in mobile revenue of GTU primarily due to increased competition on ~~its~~the ~~behalf~~Ukrainian bymobile market, and the ~~undersigned~~lack of network coverage, ~~thereunto~~which ~~duly~~has ~~authorized~~led to significant churn of subscribers.

~~GOLDEN TELECOM, INC. (Registrant) By: /s/ BRIAN A. RICH Name: Brian A. Rich Title: Senior Vice-President, Chief Financial Officer and Treasurer (Principal Financial Officer)~~38

~~By: /s/ MICHAEL D. WILSON Name: Michael D. Wilson Title: Vice-President and Corporate Controller (Principal Accounting Officer)~~Expenses

~~Date:~~ The ~~August~~following table shows our principal expenses for the six months ended June 530, ~~2005~~2007 and June 30, 2006:


	Consolidated Expenses			Consolidated Expenses
	For the Six Months			For the Six Months
	Ended June 30, 2006			Ended June 30, 2007
	(in millions)
COST OF REVENUE
Business and Corporate Services	$	92.0		$	142.4
Carrier and Operator Services		88.5			154.7
Consumer Internet Services		16.0			21.0
Mobile Services		2.5			3.6

TOTAL COST OF REVENUE		199.0			321.7
Selling, general and administrative		67.4			93.8
Depreciation and amortization		46.6			61.0
Equity in (earnings)/ losses of ventures		(0.7	)		0.3
Interest income		(0.8	)		(1.4	)
Interest expense		0.2			3.1
Foreign currency gain		(1.6	)		(1.6	)
Minority interest		2.1			2.8
Provision for income taxes		20.8			24.8
Cumulative effect of a change in accounting principle, net of tax	$	0.7		$	—

~~Table~~Cost of ~~Contents~~Revenue

~~EXHIBIT~~ Our ~~INDEX~~cost of revenue increased by 62% to $321.7 million for the six months ended June 30, 2007 from $199.0 million for the six months ended June 30, 2006.

Designation		Description
31.1		Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Business and Corporate Services. Cost of revenue from BCS increased by 55% to $142.4 million, or 45% of revenue, for the six months ended June 30, 2007 from $92.0 million, or 43% of revenue, for the six months ended June 30, 2006. The increase in cost of revenue as a percentage of revenue was mainly due to the switch to our new FTN, deployment of the zonal networks and replacement of the existing rented intercity capacity.

36 Cost of revenue for the BCS division of Sovintel increased by 54% to $116.3 million, or 46% of revenue, for the six months ended June 30, 2007, from $75.3 million, or 43% of revenue, for the six months ended June 30, 2006. The increase in cost of revenue as a percentage of revenue is primarily due to increased volume of lower margin products and continuing pressure on our margins in this line of business from our existing customers. In the first half of 2007, Sovintel recorded approximately $10.4 million of additional costs related to the introduction of CPP.

Cost of revenue for the BCS division of GTU increased by 13% to $11.8 million, or 43% of revenue, for the six months ended June 30, 2007, from $10.4 million, or 44% of revenue, for the six months ended June 30, 2006. Cost of revenue decreased as a percentage of revenue remained unchanged.

BCS cost of revenue increased by approximately $3.3 million due to the acquisitions of Kubtelecom in 2006, and Atel, Corbina and DirectNet in 2007.

Carrier and Operator Services. Cost of revenue from Carrier and Operator Services increased by 75% to $154.7 million, or 74% of revenue, for the six months ended June 30, 2007, from $88.5 million, or 68% of revenue, for the six months ended June 30, 2006. We continue to observe pressure on our operating margins in this line of business, attributable to competition and to a change in our traffic mix.

Cost of revenue for the Carrier and Operator Services division of Sovintel increased by 73% to $146.8 million, or 78% of revenue, for the six months ended June 30, 2007, from $85.0 million, or 72% of revenue, for the six months ended June 30, 2006. The increase in cost of revenue as a percentage of revenue is primarily due to a change in our traffic mix in favor of traffic terminated in CIS countries, which have higher settlement rates, due to an increase in traffic terminated to mobile networks, which typically have higher settlement rates than fixed networks. In the first half of 2007, Sovintel recorded approximately $17.0 million of additional costs related to the introduction of CPP.

Cost of revenue for the Carrier and Operator Services division of GTU increased by 130% to $12.2 million, or 76% of revenue for the six months ended June 30, 2007, from $5.3 million, or 68% of revenue for the six months ended June 30, 2006. Cost of revenue increased as a percentage of revenue primarily due to lower margin incoming international traffic accounting for a larger portion of our total wholesale traffic in the first half of 2007.

Carrier and Operator Services cost of revenue increased by approximately $1.6 million due to the acquisitions of Kubtelecom in 2006, and Corbina in 2007.

Consumer Internet Services. Cost of revenue from Consumer Internet Services increased by 31% to $21.0 million, or 88% of revenue, for the six months ended June 30, 2007, from $16.0 million, or 68% of revenue, for the six months ended June 30, 2006. The increase in cost of revenue as a percentage of revenue was mainly the result of the new settlement rules for interconnection with other operators. As regional subscribers account for a larger portion of our total subscriber base, margins in this line of business have decreased due to incremental network costs incurred to provide access to regional customers. Furthermore, the impact of a decline in subscribers in Moscow has not resulted in an immediate decline of network costs, which are more fixed in nature. In addition, we incurred additional costs related to our WiFi network in Moscow which became commercially operational only from March 1, 2007. We also incurred additional costs related to the Corbina’s deployment of the FTTB network which is not fully operational.

Consumer Internet Services cost of revenue increased by approximately $2.7 million due to the acquisitions of Kubtelecom and Corus in 2006, and Atel and Corbina in 2007.

Mobile Services. Cost of revenue from Mobile Services increased by 44% to $3.6 million, or 65% of revenue for the six months ended June 30, 2007, from $2.5 million, or 48% of revenue for the six months ended June 30, 2006. The increase in cost of revenue as a percentage of revenue is mainly due to the lower margin products of Corbina’s mobile offerings and increased network costs related to the FMC network development in Ukraine.

Selling, General and Administrative

Our selling, general and administrative expenses increased by 39% to $93.8 million, or 17% of revenue, for the six months ended June 30, 2007, from $67.4 million, or 18% of revenue, for the six months ended June 30, 2006. Ongoing employee related costs such as salaries, bonuses, insurance and other benefits increased by approximately $21.3 million, or 63%, of which $9.1 million or 43%, was stock-based compensation costs, primarily due to an increase in consolidated headcount, increased executive officer costs, ongoing salary and other compensation increases. Our rent expenses increased by $2.0 million mainly due to the acquisitions of Kolangon and Corbina in 2007. Bad debt expense decreased by approximately $1.2 million compared to the six months ended June 30, 2006, mainly due to the change in the cash collection trends. Taxes, other than income taxes, increased by $1.9 million compared to the first half of 2006, due to an increase in property taxes and provision for non-recoverable VAT receivables. Our advertising costs increased by $1.3 million due to intensified marketing campaign of our new products. The remaining $1.1 million net increase is the result of other selling, general and administrative expenses increasing in line with the growth in our business.

Depreciation and Amortization

Our depreciation and amortization expenses increased by 31% to $61.0 million for the six months ended June 30, 2007, from $46.6 million for the six months ended June 30, 2006. Depreciation expense increased by $12.9 million, or 35%, primarily due to depreciation on capital expenditures to further develop our network. Amortization expense also increased by $1.5 million, or 15%, due to amortization on intangible assets arising from acquisitions consummated in 2006 and 2007.

Equity in Earnings (Losses) of Ventures

The losses after interest and tax charges from our investments in non-consolidated ventures increased to $0.3 million for the six months ended June, 2007 from earnings of $0.7 million for the six months ended June 30, 2006. The increase is mainly due to an increase in losses of Rascom.

Interest Income

Our interest income for the six months ended June 30, 2007, increased to $1.4 million, from $0.8 million for the six months ended June 30, 2006. The increase in interest income is due to increased cash balances held in interest bearing accounts.

Interest Expense

Our interest expense for the six months ended June 30, 2007, increased to $3.1 million, from $0.2 million for the six months ended June 30, 2006. The increase in interest expense is due to increased borrowings to finance acquisitions of Kolangon and Corbina.

Foreign Currency Gain

Our foreign currency gain for the six months ended June 30, 2007, remained unchanged at $1.6 million.

Minority Interest

Our minority interest was $2.8 million for the six months ended June 30, 2007, compared to $2.1 million for the six months ended June 30, 2006. Minority interest in our earnings increased due to an increase in earnings and consolidation of recently acquired entities where our ownership interest is less than 100%. In 2006, we acquired less than a 100% ownership in Tatintelcom and Kubtelecom. In 2007, we acquired less than a 100% ownership in Kolangon and Corbina.

Provision for Income Taxes

Our charge for income taxes was $24.8 million for the six months ended June 30, 2007, compared to $20.8 million for the six months ended June 30, 2006. Our effective tax rate increased to 33% for the six months ended June 30, 2007, compared to 32% for the six months ended June 30, 2006.

Cumulative Effect of a Change in Accounting Principle

In the first half of 2006, we recognized $0.7 million, net of tax, cumulative effect of a change in accounting principle related to accounting for share-based payments upon adoption of SFAS No. 123R on January 1, 2007.

Net Income and Net Income per Share

Our net income for the six months ended June 30, 2007, was $49.0 million, compared to a net income of $41.4 million for the six months ended June 30, 2006.

Our net income per share of common stock increased to $1.31 for the six months ended June 30, 2007, compared to a net income per share of $1.13 for the six months ended June 30, 2006. The increase in net income per share of common stock was due to the increase in net income, offset by an increase in the number of weighted average shares to 37,276,862 in the six months ended June 30, 2007, compared to 36,537,163 in the six months ended June 30, 2006. The increase in outstanding shares was a direct result of the issuance of shares as a consideration for the Corbina acquisition, and the employee stock option exercises. In addition, during the six months ended June 30, 2006, we recorded the cumulative effect of a change in accounting principle related to accounting for share-based payments of $0.02 per share of common stock.

Our net income per share of common stock on a fully diluted basis increased to $1.31 for the six months ended June 30, 2007, compared to a net income per common share of $1.13 for the six months ended June 30, 2006. The increase in net income per share of common stock on a fully diluted basis was due to the increase in net income, offset by an increase in the number of weighted average shares assuming dilution to 37,400,440 in the six months ended June 30, 2007, compared to 36,687,101 in the six months ended June 30, 2006.

Consolidated Financial Position — Significant Changes in Consolidated Financial Position at June 30, 2007, compared to Consolidated Financial Position at December 31, 2006

Accounts Receivable

Accounts receivable increased by $51.1 million from $147.7 million at December 31, 2006, to $198.8 million at June 30, 2007, as a result of increased revenue when comparing the month of June 2007 with the month of June 2006, and due to the changes in the settlements with local operators following the introduction of the new Interconnection Rules and acquisitions.

Notes Receivable

Our notes receivable increased by $19.8 million from $2.8 million at December 31, 2006, to $22.6 million at June 30, 2007, due to loans made to the minority shareholder of Fortland and to the entity from which we lease STM-1 fiber optic capacity.

Intangible Assets

Our intangible assets increased by $120.5 million from $116.5 million at December 31, 2006, to $237.0 million at June 30, 2007, as a result of additional intangible assets recorded upon the acquisition of Kolangon and Corbina, and the purchase of additional numbering capacity, partly offset by amortization on continuing intangible assets of the consolidated subsidiaries.

Liability for Acquisition

Liability for acquisition increased by $7.8 million from $0.4 million at December 31, 2006, to $8.2 million at June 30, 2007 due to the Corbina acquisition.

Minority Interest

Our minority interest increased by $40.9 million from $31.3 million at December 31, 2006, to $72.2 million at June 30, 2007, due to a $2.8 million minority interest in earnings for the six months ended June 30, 2007, and consolidation of Kolangon and Corbina, which were acquired in the first half of 2007, where our ownership interest is 65% and 51%, respectively.

Stockholders’ Equity

Shareholders’ equity increased by $203.0 million from $817.2 million at December 31, 2006, to $1,020.2 million at June 30, 2007, as a result of a $142.1 million share issuance for the Corbina acquisition, our net income of $49.0 million in the six months ended June 30, 2007, and a $15.4 million increase in accumulated other comprehensive income, partly offset by an $8.5 million impact of adoption of FIN No. 48 recorded as the cumulative-effect adjustment to the opening balance of retained earnings as of January 1, 2007. Also, shareholders’ equity increased by $4.1 million due to accounting for stock options granted to employees, $0.7 million due to stock option exercises and $0.1 million due to vesting of restricted shares.

Income Taxes

Our effective rate of income tax differs from the US statutory rate due to the impact of the following factors: (1) different income tax rates and regulations apply in the countries where we operate; (2) expenses that are non-deductible on the income tax return; (3) write-offs of certain assets that are not deductible for tax purposes; and (4) changes in the valuation allowance for deferred tax assets. We currently have deferred tax assets arising from deductible temporary differences in our non-US subsidiaries. Due to the continued profitability of these subsidiaries, we anticipate that these deferred tax assets will be realized through deduction against future taxable income. We also have deferred tax assets related to net operating loss carry-forwards and deductible temporary differences for US federal income tax purposes. We have recorded a full valuation allowance against these deferred tax assets due to our assessment of sources of future taxable income in the United States. We have also recorded a deferred tax asset related to net operating loss carry-forwards for Cyprus tax purposes. However, we have recorded a full valuation allowance since we do not anticipate recognizing taxable income in our Cyprus entity in the foreseeable future.

Liquidity and Capital Resources

The following table shows our cash flows for the six months ended June 30, 2006 and 2007, respectively:


	Consolidated Cash Flows			Consolidated Cash Flows
	For the Six Months			For the Six Months
	Ended June 30, 2006			Ended June 30, 2007
	(in millions)
CASH FLOWS
Provided by operating activities	$	81.2		$	109.7
Used in investing activities		(99.2	)		(245.4	)
(Used in) provided by financing activities		(13.4	)		212.5
Effect of exchange rate changes		0.6			0.9

Net (decrease) increase in cash and cash equivalents	$	(30.8	)	$	77.7

Our cash and cash equivalents was $96.1 million and $18.4 million as of June 30, 2007, and December 31, 2006, respectively. Our total restricted cash was $0.2 million as of June 30, 2007 and December 31, 2006, which was released in July 2007.

Net cash provided by our operating activities increased by $28.5 million to $109.7 million for the six months ended June 30, 2007, from $81.2 million for the six months ended June 30, 2006. This increase in net cash inflows from operating activities at June 30, 2007, is mainly due to the faster collections from customers partly offset by the effects of changes in the settlements with local operators following the introduction of the new interconnection rules effective January 1, 2006.

During the six months ended June 30, 2007, we received approximately $514.0 million in cash from our customers for services and we paid approximately $400.9 million to suppliers and employees. During the six months ended June 30, 2006, we received approximately $354.7 million in cash from our customers for services and we paid approximately $251.5 million to suppliers and employees.

We used cash of $245.4 million and $99.2 million for investing activities for the six months ended June 30, 2007, and 2006, respectively, which were principally attributable to building our telecommunications networks and acquisitions. Network investing activities totaled $110.2 million for the six months ended June 30, 2007 and

included cash paid for capital expenditures principally attributable to building out our telecommunications network. The majority of network investing activities related to the construction of last mile access, the inter-city fiber optic network and network upgrades as a result of increased customer connections. Network investing activities totaled $81.2 million for the six months ended June 30, 2006.

We used cash of $106.1 million for the six months ended June 30, 2007 for the acquisition of Kolangon, Atel, CKN, Corbina, DirectNet, Satcomtel and Alcar. We used cash of $16.5 million for the six months ended June 30, 2006, for the acquisition of Tatintelcom, TTK and Kubtelecom. We used cash of $19.8 million during the six month ended June 30, 2007 for loans made. In addition, we placed $10.0 million in escrow in association with the Corbina acquisition.

We paid no dividends during the six months ended June 30, 2007. We paid dividends of $14.6 million to shareholders during the six months ended June 30, 2006.

We had working capital of $71.1 million as of June 30, 2007 and $42.8 million as of December 31, 2006. Our working capital ratio (current assets divided by current liabilities) was 1.22 as of June 30, 2007 and 1.23 as of December 31, 2006.

As part of our drive to increase our network capacity, reduce costs and improve the quality of our service, we have leased fiber optic and satellite-based network capacity; the terms of these leases are generally five years or more and can involve significant advance payments. As demand for our telecommunication services increases we expect to enter into additional capacity agreements and may make significant financial commitments, in addition to our existing commitments.

Approximately half of the capital expenditures, or approximately 10-12% of our revenues, is necessary to sustain growth in line with the market growth rates and maintain, upgrade and develop existing infrastructure. To gain additional market share we expect to invest additional 9-10% of our revenues in new projects. We estimate that between 2007 and 2010 we will invest approximately 20% of our revenues in business development and construction of broadband networks. We expect capital expenditures to decline as percentage of revenues once the deployment of broadband networks is completed.

In February 2007, we entered into a lease agreement for STM-1 fiber optic capacity from Ufa to Krasnoyarsk. The lease has a term of five years and total payments of $9.8 million. We took possession of this STM-1 fiber optic capacity beginning April 1, 2007. In conjunction with this transaction, we also entered into agreement whereby we agreed to provide a loan of $9.8 million to the lessor. During the six months ended June 30, 2007, we disbursed $7.9 million to the lessor under the loan agreement. The loan matures in 2012 and carries interest at a rate of 9% per annum.

Some of our operating companies have received debt financing through direct loans from affiliated companies. In addition, certain operating companies have borrowed funds under a back-to-back, seven-year credit facility for up to $22.7 million from ZAO Citibank (“Citibank”), a Russian subsidiary of Citibank. Under this facility, we provide full cash collateral, held in London, and recorded on our balance sheet as restricted cash, for onshore loans made by the bank to our Russian registered joint ventures. In a second, similar facility, we provide full cash collateral for a short term back-to-back, revolving, credit facility for up to $10.0 million from the same bank for Sovintel. At June 30, 2007, there were no amounts outstanding under these facilities.

In July 2006, GTU entered into one-year revolving, credit facility for up to $3.5 million plus a cash coverage facility of up to $2.0 million with Calyon Bank Ukraine (“Calyon”). As of June 30, 2007, GTU had borrowed $3.7 under this credit facility. The credit facility carries interest at a rate equal to the between LIBOR plus 2% to 8.5%. The credit facility requires GTU to maintain accounts with Calyon in the currencies of the loan and ensure that the aggregate amount of incoming payments credited to GTU’s accounts with Calyon in any calendar month is equal to, or greater than 30% of the aggregate amount of the loans outstanding as of the last day of such month.

In October 2006, Sovintel entered into short term, revolving, credit facility for up to 518,000,000 RUR, equivalent to $20.1 million, with ZAO International Moscow Bank (“IMB”), a related party. As of June 30, 2007, Sovintel had not borrowed funds under this facility. The credit facility carries interest at a rate equal to the Moscow Prime Offered Rate plus 3%. The credit facility requires Sovintel to maintain accounts with IMB in the currencies of the loan and ensure that the aggregate amount of deposits credited to Sovintel’s accounts with IMB is at least 150,000,000 RUR, equivalent to $5.8 million, for each interest period during the term of the credit facility.

In January 2007, we entered into a five-year term Facility Agreement (the “Facility Agreement”) with banks, financial institutions and other institutional lenders, Citibank, N.A. London Branch and ING Bank N.V. as mandated lead arrangers, and Citibank International plc as agent. The Facility Agreement established an unsecured credit facility under which we, GTS Finance, Inc., our wholly-owned subsidiary, and Sovintel may borrow up to an aggregate of $275.0 million. The credit facility carries interest at a rate equal to LIBOR plus 1.5% per annum for the first twenty-four months and LIBOR plus 2% per annum thereafter. Funds borrowed may be used for general corporate purposes, including acquisitions, the payment of dividends and capital expenditures. The Facility Agreement places various restrictions on us related to incurrence of debt, asset disposals, mergers and acquisitions, and negative

pledges. The Facility Agreement also requires us to meet various financial and non-financial covenants, including several restrictions related to financial condition. As of June 30, 2007, we had $225.0 million outstanding under the Facility Agreement. During the six months ended June 30, 2007, we paid approximately $3.9 million of origination fees to the lead arrangers.

In the future, we may execute large or numerous acquisitions, which may require external financing, most likely to be raised through secured or unsecured borrowings. However, we may also raise the required funding through a dilutive equity issuance, through the divestment of non-core assets, or combinations of the above. In case large or numerous acquisitions do not materialize, we expect our current sources of funding to finance our capital requirements. The actual amount and timing of our future capital requirements may differ materially from our current estimates because of changes or fluctuations in our anticipated acquisitions, investments, revenue, operating costs, technology and network expansion plans and access to alternative sources of financing on favorable terms. Further, in order for us to compete successfully, we may require substantial capital to continue to develop our networks and meet the funding requirements of our operations. We will also require capital for other acquisition and business development initiatives. We expect to fund these requirements through cash on hand, cash flow from operations, proceeds from additional equity and debt offerings, and debt financing facilities.

As of June 30, 2007, our credit ratings were as follows:


Credit Rating Agency	Rating	Outlook
Standard & Poor’s	BB	Stable
Moody’s	Ba3	Stable

The cost of our borrowings is affected by our credit ratings. If our credit ratings were downgraded, we could be required to pay higher interest rates on secured or unsecured borrowings and could be subject to more restrictive financial covenants. We may not be able to obtain additional financing on favorable terms. As a result, we may become subject to additional or more restrictive financial covenants, our interest obligations may increase significantly and our shareholders may be adversely diluted. Our failure to generate sufficient funds in the future, whether from operations or by raising additional debt or equity capital, may require us to delay or abandon some or all of our anticipated expenditures, to sell assets, or both, which could have a material adverse effect on our operations.

For the six months ended June 30, 2007, we paid $16.8 million to our CEO, senior management, and other employees to settle SARs granted in 2005 and 2006. In late 2007 and subsequent years, we may incur significant cash outlays to settle SARs outstanding at June 30, 2007.

Contractual Obligations

As of June 30, 2007, we had the following contractual obligations, including long-term debt arrangements, capital leases, commitments for future payments under non-cancelable lease arrangements and purchase obligations:


	Payments Due by Period (3)(4)
	(in thousands)
			Less		1-3		4-5
	Total		than 1 year		years		years		Thereafter
Long-term debt	$	274,043	$	17,464	$	255,637	$	942	$	—
Capital lease obligations		14,739		5,127		9,612		—		—
Non-cancelable lease obligations		43,078		12,702		24,174		5,491		711
Purchase obligations (1)		95,155		31,210		38,864		17,100		7,981
Other long-term liabilities (2)		2,510		—		2,510		—		—

Total	$	429,525	$	66,503	$	330,797	$	23,533	$	8,692


(1)		Purchase obligations primarily include our contractual legal obligations for the future purchase of equipment, interconnect, and satellite transponder capacity.

(2)		Other long-term liabilities primarily include obligations related to the SARs we have granted.

(3)		Amounts include interest.

(4)		FIN No. 48 liabilities of $20.1 million are excluded from the Contractual Obligations table because we are not able to make a reasonable reliable estimate of the period of cash settlement with the respective taxing authority.

Special Note Regarding Forward Looking Statements

Certain statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other parts of this document, including, without limitation, those concerning (i) future acquisitions and capital expenditures for such acquisitions, (ii) our plans to enter the media market, (iii) allocation of purchase price on acquisitions, (iv) our views on the validity of our licenses, including the re-registration of our S-Line license, (v) the expected benefits from our DLD/ILD service offerings, including preserving margins and gaining additional revenues, protecting our relationships with corporate clients and expansion of our business, (vi) the effect of the CPP rules in Russia, (vii) existing and potential tax claims, (viii) the effects of existing and potential litigation, including our belief that Sovintel has not violated its licenses over traffic routing and the provision of domestic and international services, (ix) projected traffic volumes, customer numbers, revenues and other growth indicators; (x) anticipated revenues and expenses, including capital expenditures to implement our long distance licenses, and federal transit network, (xi) our plans to provide new, more technologically advanced services to customers, (xii) our competitive environment; (xiii) our intention to offer our services under the Golden Telecom brand; (xiv) our plans to roll-out of our fixed-mobile convergent network in Ukraine; (xv) our intentions to expand our fiber optic capacity in Russia, Ukraine and Kazakhstan and add transmission capacity; (xiv) our expectations regarding revenues and cost savings from our zonal networks, (xvi) the impact of critical accounting policies and estimates; (xvii) the growth and development of our operations in key regions of Russia, (xviii) our growth strategy in our business segments; (xix) the political, regulatory and economic situation in the markets in which we operate and our expectations regarding the markets in which we operate, (xx) the effect, cost and expected benefits of utilizing our intercity and international licenses, including the implementation of our federal transit network, (xxi) expectations regarding deferred taxation, and (xxii) the development and deployment of our broadband and related WiFi technology strategies including the roll-out of our FTTB networks, are forward-looking and concern our projected operations, economic performance and financial condition. These forward-looking statements are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. It is important to note that such statements involve risks and uncertainties and that actual results may differ materially from those expressed or implied by such forward-looking statements. Among the key factors that have a direct bearing on the Company’s results of operations, economic performance and financial condition are the commercial and execution risks associated with implementing the Company’s business plan, our ability to enter the media market, the potential cost for possible future acquisitions, the potential effect of the regulatory regime on our operations, the utilization of our intercity and international licenses including development of our federal transit network and the cost of such development, our ability to effectively operate our zonal networks or interconnect with zonal operators, our ability to integrate recently acquired companies into our operations, any adverse court rulings regarding licenses or other matters, the development of our broadband and related WiFi technology strategies including the development of our FTTB networks, our ability to roll out our fixed-mobile convergent network in Ukraine, our ability to implement new technology, the political, economic and legal environment in the markets in which the Company operates, increasing competitiveness in the telecommunications and Internet-related businesses that may limit growth opportunities, and increased and intense downward price pressures on some of the services that we offer. These and other factors are discussed herein under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Report.

Additional information concerning factors that could cause results to differ materially from those in the forward-looking statements are contained in the Company’s filings with the United States Securities and Exchange Commission and especially in the Risks Factor Sections therein, including, but not limited to, the Company’s report on Form 10-K, for the year ended December 31, 2006.

In addition, any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as “will likely result,” “are expected to,” “estimated,” “intends,” “plans,” “projection” and “outlook”) are not historical facts and may be forward-looking and, accordingly, such statements involve estimates, assumptions and uncertainties which could cause actual results to differ materially from those expressed in the forward-looking statements. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the factors discussed throughout this Report and investors, therefore, should not place undue reliance on any such forward-looking statements.

Further, any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors may emerge from time to time, and it is not possible for management to predict all of such factors. Further, management cannot assess the impact of each such factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the information provided in Item 7A of Part II of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures.

On May 28, 2007, the Company completed the acquisition of ZAO Cortec and its subsidiaries (together “Corbina”). As permitted by the rules of the SEC, the Company has decided to exclude the Corbina businesses from its assessment of the effectiveness of its internal control over financial reporting for the year ended December 31, 2007, the year of acquisition. The results of operations of Corbina have been included in the consolidated financial statements of Golden Telecom for the period from June 1, 2007 through June 30, 2007. Management continues to evaluate the acquired companies’ internal controls over financial reporting and has so far identified the following weaknesses in Corbina’s internal control that it believes rise to the level of material weaknesses in the Company’s internal control:

	•		Revenue recognition;

	•		Financial statement close process;

	•		Inventory and fixed asset management; and

	•		Lack of qualified US GAAP finance personnel.

The Company has also determined that there was a mathematical mistake made in the calculation of the compensation expense for stock appreciation rights (“SARs”) for the three months ended March 31, 2007, which resulted in a $2.8 million overstatement of such expense for that three-month period. The Company has filed with the SEC Amendment No. 1 to Form 10-Q/A to restate the unaudited financial statements of the Company as of and for the three months ended March 31, 2007. Management has concluded that this error reflected a material weakness in the controls over the clerical accuracy of Golden Telecom’s SARs stock-based compensation computations at March 31, 2007.

Under the supervision, and with the participation, of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the Company’s disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are not effective to provide reasonable assurance that material information relating to Golden Telecom, Inc. and its consolidated subsidiaries is made known to them as of June 30, 2007 because of the material weaknesses described above.

To address the material weaknesses described above, the Company has:


	•		commenced a review of the revenue reporting, financial statement close and inventory and fixed asset management practices followed at Corbina; and

	•		engaged independent consultants to assist management in identifying and resolving issues.

The Company is in the process of recruiting and hiring additional qualified staff. The Company has also deployed Golden Telecom employees in the performance of more extensive procedures in connection with the June 30, 2007 consolidated Golden Telecom financial statement close process in response to the identified Corbina control weaknesses and to ensure the accuracy of Golden Telecom’s consolidated financial reporting. The Company also plans to increase its training efforts for certain of its personnel. In addition, the Company has also implemented additional manual controls and procedures over the computations made and recorded for its SAR compensation expense.

Changes in internal controls over financial reporting.

Other than the matters described in this Item 4, there have been no significant changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. At the time of filing this Quarterly Report on Form 10-Q, management is in the process of remediating the material weaknesses surrounding Corbina and the process for recording of compensation expense for SARs as described above.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of the date of this report, the Company is not currently involved in any legal proceeding that the Company believes will have a material adverse effect on the Company’s business, financial condition or operating results.

Item 1A. Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the SEC on March 16, 2007 before purchasing our common stock. The risks and uncertainties described below are not the only ones that we face. Additional risks and uncertainties of which we are unaware, or that we currently deem immaterial, may also become important factors that affect us. Any of the following risks could adversely affect our business, financial condition and results of operations. In such case, the trading price of our common stock could decline, and you could lose some or all of your investment.

Failure to install our transmitter on Ostankino television tower in Moscow could disrupt our television and media business plans

Russian Television and Radio Broadcasting Network (“RTRS”) is the Russian agency responsible for regulating the operations of television towers in the Russian Federation. We are currently negotiating with RTRS to install a transmitter on the Ostankino television tower. If we are unable to successfully negotiate with RTRS to allow us to install the transmitter on the Ostankino tower then we will need to search for alternative towers on which to install our transmitter. Such searches may be time consuming and may force us to revise our business case for our television and media business. Any such revision of our business plans for television and media could disrupt our current business and future development plans for offering media and television services and could have a negative impact on our future performance].

We may encounter difficulties in integrating Corbina into our operations and in further developing the business

We recently completed the Corbina transaction. The Company views Corbina as a key factor in the development of its broadband strategy. Our ability to successfully develop our broadband strategy will depend on our ability to successfully integrate Corbina’s business into our business and to further develop fiber to the building services. The development of Corbina’s business will continue to depend on obtaining the necessary permits to install, upgrade and operate equipment and to commission networks. Any difficulty or inability to fulfill such tasks could seriously disrupt our broadband business and our ability to develop our broadband strategy. Our competitors may also attempt to disrupt such activities through regulatory action or connections with regulatory agencies. Further, we may have to make significant capital expenditures to develop Corbina’s networks and to integrate such networks with our own.

Our significant shareholders may have other interests which conflict with our own interests

Although we own 51% of Corbina we cannot assure you that the other shareholders in Corbina may not have interests which conflict with ours. Further, some of our major shareholders have commercial interests with other shareholders, including shareholders in Corbina. Although we structure transactions so that they are at “arm’s length”, we cannot assure you that these shareholders will not apply pressure on us to enter into transactions which may not be commercially favorable to us.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

On May 17, 2007, the Company held its annual meeting of shareholders. In connection with the meeting, the Company solicited proxies pursuant to Regulation 14 under the Securities Exchange Act of 1934 from holders of record of its common stock as of April 11, 2006. Each of the Company’s ten nominees for election to its Board of Directors was elected to a term ending at the Company’s annual meeting of shareholders to be held in 2008. A shareholder of the Company, OAO Rostelecom, submitted a proposal under Rule 14(a)-8 of the SEC proxy rules and introduced Mr. Andrey Gaiduk to serve as a director of the Company. Mr. Gaiduk was not elected to the Company’s Board of Directors. Two additional proposals were submitted to shareholders for approval and were approved.


(1)		The votes cast for each of the Company’s ten nominees for election to the Company’s Board of Directors and the shareholder nominee were as follows:


Nominee	For		Withheld
Petr Aven		28,874,506		499,111
Vladimir Bulgak		28,971,026		352,591
Patrick Gallagher		28,971,026		352,591
Thor Halvorsen		28,874,336		449,281
David Herman		28,874,506		449,111
Kjell Johnson		28,874,506		449,111
Oleg Malis		27,484,102		1,839,515
Alexey Reznikovich		28,696,906		626,711
David Smyth		24,946,959		352,591
Jean-Pierre Vandromme		28,796,426		527,191
Andrey Gaiduk		5,844,093		23,454,005


(2)		Ratification of selection of Ernst & Young LLC as the Company’s independent auditors for 2007 — FOR 29,151,733 shares; AGAINST 2,279 shares; ABSTAIN 169,505 shares.

(3)		To approve amendment to the Company’s 1999 Equity Participation Plan — FOR 28,802,465 shares; AGAINST 250,947 shares; ABSTAIN 170,205 shares.

Item 5. Other Information

None

Item 6. Exhibits


Designation		Description
31.1		Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		GOLDEN TELECOM, INC. (Registrant)

		By:		/s/ BORIS SVETLICHNY

		Name:		Boris Svetlichny
		Title:		Senior Vice-President, Chief Financial Officer and Treasurer (Principal Financial Officer)

		By:		/s/ MICHAEL D. WILSON

		Name:		Michael D. Wilson
		Title:		Vice-President and Corporate Controller (Principal Accounting Officer)

Date: August 14, 2007

EXHIBIT INDEX


Designation		Description
31.1		Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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