PROVISIONALLY APPROVED by the Board of Directors of OJSC

Transcription

PROVISIONALLY APPROVED
by the Board of Directors
of OJSC Rostelecom
May 19, 2014
Minutes No 01 dated May 22, 2014
APPROVED
by the Annual General Shareholders’ Meeting
of OJSC Rostelecom
June 30, 2014
Minutes No 02 dated July 03, 2014
ANNUAL REPORT
OPEN JOINT STOCK COMPANY LONG-DISTANCE AND INTERNATIONAL TELECOMMUNICATIONS
ROSTELECOM
BASED ON YEAR 2013 RESULTS
President of OJSC Rostelecom
s/s
S.B. Kalugin
Acting Chief Accountant of OJSC Rostelecom
s/s
N.V. Lukashin
May 22, 2014
Moscow, 2014
ANNUAL REPORT
TABLE OF CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS ....................................... 3
INFORMATION CONTAINED IN THIS ANNUAL REPORT .............................................................................. 4
ROSTELECOM AT A GLANCE ......................................................................................................................... 5
THE PRESIDENT’S MESSAGE......................................................................................................................... 6
2013 HIGHLIGHTS ............................................................................................................................................ 8
OPERATING AND FINANCIAL RESULTS ...................................................................................................... 10
COMPANY’S POSITION IN THE INDUSTRY ................................................................................................. 12
COMPANIES IN ROSTELECOM GROUP ....................................................................................................... 14
THE COMPANY AND THE BOARD OF DIRECTORS’ REVIEW OF THE YEAR 2013 .................................. 16
COMPLETION OF THE SECOND REORGANIZATION PHASE .................................................................... 16
PROJECT “OLYMPIC AND PARAOLIMPIC WINTER GAMES 2014 in SOCHI” ............................................ 17
INNOVATIVE DEVELOPMENT ....................................................................................................................... 18
ELECTRONIC GOVERNMENT ....................................................................................................................... 19
DEVELOPING RETAIL RELATIONSHIPS ...................................................................................................... 21
RUSSIAN OPERATORS’ MARKET ................................................................................................................. 22
TRADITIONAL TELEPHONY SERVICES ....................................................................................................... 22
MOBILE SERVICES ......................................................................................................................................... 23
BROADBAND INTERNET ACCESS ................................................................................................................ 23
PayTV SERVICES ........................................................................................................................................... 24
DATA SERVICES ............................................................................................................................................. 25
NETWORK INTERCONNECTION AND TRAFFIC ROUTING ........................................................................ 27
LEASED LINE SERVICES ............................................................................................................................... 27
INTELLIGENT NETWORK SERVICES............................................................................................................ 27
ENHANCING COOPERATION WITH GOVERNMENT ENTITIES .................................................................. 28
GUARANTEE OF HIGH QUALITY OF TELECOMMUNICATIONS SERVICES ............................................. 29
INVESTMENT PROGRAM IMPLEMENTATION ............................................................................................. 30
SOCIAL RESPONSIBILITY.............................................................................................................................. 34
THE COMPANY’S DEVELOPMENT PRIORITIES AND PLANS .................................................................... 39
THE COMPANY TELECOMMUNICATIONS INFRASTRUCTURE ................................................................. 41
RISK MANAGEMENT ...................................................................................................................................... 43
CORPORATE GOVERNANCE ........................................................................................................................ 56
SHARE CAPITAL ............................................................................................................................................. 58
GENERAL MEETING OF SHAREHOLDERS .................................................................................................. 62
THE BOARD OF DIRECTORS ........................................................................................................................ 63
THE PRESIDENT AND MANAGEMENT BOARD ........................................................................................... 68
THE AUDIT COMMISSION .............................................................................................................................. 71
THE COMPANY’S SIGNIFICANT TRANSACTIONS ....................................................................................... 71
INFORMATION ON THE ACTUAL EXECUTION RESULTS OF LAWS AND REGULATIONS OF THE
PRESIDENT OF THE RUSSIAN FEDERATION AND ORDERS OF THE GOVERNMENT OF THE RUSSIAN
FEDERATION .................................................................................................................................................. 72
GENERAL INFORMATION ABOUT THE COMPANY ..................................................................................... 77
ANNUAL REPORT
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report for Open Joint-Stock Company international and Long-Distance
Telecommunications Rostelecom (hereinafter to be referred to as “OJSC Rostelecom”, “Rostelecom” or the
“Company”) summarizing the results of 2013 (hereinafter to be referred to as the "Annual Report”) are socalled forward-looking statements.
Those forward-looking statements include, but are not limited to:

The management’s assessment of the Company’s future operation and financial results, as well as
forecasts of the present value of future cash flows and related factors;

The Company’s plans to participate in the charter capital of other organizations, associations of
organizations and holding entities;

The Company’s anticipated capital expenditures and plans to develop, construct and modernize its
network;

The Company’s expectations as to the growth of demand for its services and plans relating to the
development of its existing services and promotion of new services, as well as to expansion of its
range of services and their pricing;

The Company’s plans with respect to improving its corporate governance practices;

The Company’s expectations as to its position in the telecommunications market and the
development of the market segments within which the Company operates;

Economic outlook and expected industry trends;

The Company’s expectations as to the regulation of the Russian telecommunication industry and
assessment of the impact of regulatory initiatives on the Company’s activity;

Other Company’s plans and expectations regarding matters that are not historical facts.
Such forward-looking statements are subject to risks, uncertainties and other factors, which could cause
actual results to differ from those expressed or implied by these forward-looking statements. These risks,
uncertainties and other factors include:





Risks relating to changes in political, economic, and social conditions in the Russian Federation as
well as changes in global economic conditions;
Risks relating to Russian legislation, legal control, and taxation, including laws, regulations, decrees
and decisions governing the Russian telecommunication industry, securities industry, as well as
currency and exchange controls relating to Russian entities and their official interpretation by
regulatory bodies;
Risks relating to the Company’s operations, including the achievement of the anticipated results,
levels of profitability and growth, ability to create and meet demand for the Company’s services,
including their promotions, and the ability of the Company to remain competitive in a Russian
liberalized telecommunications market;
Technological risks associated with the functioning and development of telecommunication
infrastructure, technological innovations, and the convergence of technologies;
Other risks and uncertainties. For a more detailed discussion of these and other factors, see this
Annual Report and the Company’s other public documents.
Most of these factors are beyond the Company’s control or prediction. Therefore, given these and other
uncertainties, readers are cautioned not to place undue reliance on any of the forward-looking statements
contained herein or otherwise. The Company does not undertake any obligations to release publicly any
revisions to these forward-looking statements (which are made as of the date hereof) to reflect events or
circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as may be
required under applicable laws.
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ANNUAL REPORT
INFORMATION CONTAINED IN THIS ANNUAL REPORT
This Annual Report presents consolidated financial (accounting) statements according to the International
Financial Reporting Standards (the IFRS) unless it is expressly stated that financial (accounting) information
is presented according to other reporting standards.
Consolidated financial information is presented by Rostelecom and its subsidiaries registered in the Russian
Federation according to consolidation of financial accounts as described in Section 4 Principal Accounting
Policies of the Consolidated Financial Statements of the Company, prepared according to IFRS for the years
ended on December 31 of the years 2013, 2012 and 2011.
In order to ensure consistency and comparability of the information disclosure in this Annual Report,
operation and other non-financial results are also presented with respect to Rostelecom and its subsidiaries
for which the consolidated financial statements of the Company are prepared.
The Group of companies (or Rostelecom Group) in this Annual Report refers to OJSC Rostelecom and its
subsidiaries in accordance with section 9 "Subsidiaries" in the consolidated financial accounts of the
Company prepared according to IFRS for the years ended on December 31 of 2013, 2012 and 2011.
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ANNUAL REPORT
ROSTELECOM AT A GLANCE
Rostelecom is one of the largest telecom companies on a national scale in Europe and Russia, which is
present in all segments of the telecommunications services market, and covers more than 34 million
households in Russia.
The Company holds a leading position in the Russian market of broadband Internet access (BBA) and
payTV: the number of subscribers of broadband services exceeds 10.6 million, and that of Rostelecom
payTV is more than 7.5 million users, of which over 2.2 million subscribers watch unique federal product –
Interactive TV.
Consolidated revenue for the Group in 2013 amounted to 325.7 billion RUB, OIBDA reached 113.3 billion
RUB (34.8 % of revenues) and net profit amounted to 24.1 billion RUB.
Rostelecom is the undisputed market leader in telecommunications services to Russian government bodies
and corporate users at all levels. The Company is a recognized technology leader in innovative solutions in
the field of e-Government, cloud computing, health care, education, safety, housing and public utility
services.
Stable financial position of the Company is confirmed by credit ratings by Fitch Ratings at «BBB-», as well as
by Standard & Poor's at «BB+».
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ANNUAL REPORT
THE PRESIDENT’S MESSAGE
Dear shareholders, investors, customers, partners, and colleagues!
In 2013 Rostelecom celebrated important events that lay the foundation for a new phase in the history of our
Company, which is already more than 130 years from the time when Russia had launched the first telephone
exchange.
With the acquisition of Svyazinvest and a number of its subsidiaries in October 2013, Rostelecom completed
the consolidation process, which was started in 2002, when regional telecommunications companies started
to associate into macro-regional companies. Formation of a unified national telecommunication company
provides the basis for the full realization of the economic benefits of the business scale.
The Company has clearly defined its strategic benchmark for the coming years which is the fundamental
transformation of the united Rostelecom into modern dynamic world-class company. The key components of
the strategy are technology leadership in terms of network infrastructure, customer service at the best world
practice levels, differentiated product line based on the package options and unique content-based offers,
organizational transformation and maximum operating efficiency.
We are very pleased that at the end of 2013, we reached an agreement to merge the mobile business of
Rostelecom into a joint venture with Tele2 Russia. The merged assets complement each other, both in terms
of geographical coverage and in terms of combining a successful operating model of Tele2 Russia with an
extensive portfolio of Rostelecom frequencies. The transaction will allow the Company to significantly
strengthen its presence in the rapidly growing market of mobile data through its participation in the capital of
the large and rapidly growing operator.
Our Company is a carrier of the best traditions of the Russian engineering telecommunication industry. We
are proud of the role of telecommunications partner of the Olympic Games 2014 in Sochi. The preparation
for this global event began in 2009, and the major works were completed in 2013. For the first time in
Olympic history, the entire television signal transmission was performed via optical fibers. We have built the
infrastructure, including media centers, and organized the channels with a total capacity of 140 Gbps for
signal transmission worldwide.
We continue to update and expand our network infrastructure across the country. In 2013, the network
bandwidth of IP/MPLS data was expanded to 7.2 Tbps. We adopted the program of upgrading copper "last
mile" networks into optic fibers. According to this plan, in 2016, 33 million Russian households will be able to
access the Internet at a speed of 1 Gb per second. We also designed a project to address the digital divide –
the construction of optic fibers in small settlements at the expense of the universal service fund.
The efforts of the entire team to strengthen market positions in key segments for Rostelecom allowed
achieving stable operating and financial results for the year. Thus, the number of subscribers of broadband
access grew by 8% and amounted to 10.6 million subscribers by the end of 2013, while the number of the
subscribers connected via optic fibers was increased significantly faster by 30% to 4.0 million subscribers,
that is 38 % of the total subscriber base. The number of subscribers of payTV services was increased by 9%
and amounted to 7.5 million subscribers. Of these, the number of the subscribers of one of the most popular
and rapid-growing services, which is interactive TV, was increased by almost 38% amounting to 2.2 million
subscribers.
In 2013, the Company made its best efforts to enhance the attractiveness of its market offers. We extended
not only functional part, but also the range of services through new and unique services. In particular, we
have launched a separate line of optical tariffs Fast, which is fully compliant with the market and guarantees
high-speed broadband Internet access. As part of our payTV options, the subscribers can connect an
additional package «Amedia Premium HD»; our own promotional channel "All TV" appeared; we generally
increased the list of the provided digital and HD-channels. We also significantly improved functional features
of Interactive TV: 3D support, connection bandwidth control system, karaoke, content subscription, seasonal
sales of series and much more appeared. Due to launch of such Android application as Zabava and
SmartTV LG, we have expanded the OTT product line, as well as increased the number of channels for
OTT-products from 89 to 131. In 2013, Single personal cabinet service became available to our customers
throughout Russia. Starting from December, the subscribers of the retail segment obtained access to the
loyalty program that allows them to accumulate points for the consumed services and exchange them for
additional telecommunication services from Rostelecom.
By improving the efficiency of procurement and optimizing relationships with vendors and contractors from
April to December of the last year, the Company has saved more than 16 billion RUB. Taking part in a global
operating costs benchmarking study by AT-Kearny, Rostelecom has received a detailed picture of the main
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ANNUAL REPORT
areas to improve operational efficiency. The considerable potential is localized in this area, which will be
implemented by us, consistently moving through each of the available directions.
Rostelecom continues to change, moving away from the traditional telephone operator model, turning into a
modern service provider and a leading telecommunication company of the country. In this way, our main task
is to raise revenue through the provision of quality and modern services, to maximize operational efficiency
and, ultimately, to create additional value for all our shareholders.
Sincerely,
Sergey Kalugin
President
7
ANNUAL REPORT
2013 HIGHLIGHTS
January
•
Total bandwidth of client connections to the backbone IP/MPLS network of Rostelecom was 3.5 Tbit/s.
•
Rostelecom received a national award in the field of multi-channel digital television "Big Digit".
February
•
Rostelecom, the General Partner of the XXII Olympic Winter Games in 2014, together with the
Organizing Committee "Sochi 2014" completed the construction and equipment of the main
communication hub in the coastal cluster of the Olympic Sochi.
•
Rostelecom celebrated the 10th anniversary of the Transit Europe-Asia (TEA) and 1 year from the
beginning of the High-Speed Transit Cable Line – Transit Europe-Asia (HSTCL - TEA). The total
contracted capacity of these transit projects in early 2013 exceeded 210 Gbit/s, and the customers
included major global telecommunication operators.
March
•
The launch of the third generation network (3G) in the Ulyanovsk region
•
The Company opened Russia's largest area of geographically distributed Common service center in
Voronezh.
•
The number of households connected to "Interactive TV" from Rostelecom has reached 1.5 million.
Thus, this year’s customer base of this federal product has been doubled (102%).
•
The Board of Directors of Rostelecom agreed to appoint Sergei Kalugin as the President of the
Company.
April
•
Rostelecom launched new federal package "all inclusive", connecting to which the user receives the
most popular products: "Home Internet", "Interactive TV" and "Kaspersky Anti-Virus".
•
By the results of public procurement procedures, the Company has reduced the cost of TV-tuners for
"Interactive TV" by 24%
May
•
Rostelecom has introduced innovative technology of transaction routing when paying on a single
portal of public services (www.gosuslugi.ru). The result has been a significant reduction in
commissions involved in the conduct of all government payments on banks portal.
•
Within the second phase of reorganization, the transaction for the sale of 0.43 % Rostelecom stake to
Svyazinvest was completed.
June
•
Rostelecom placed bonds of series 16 worth 5 billion RUB with an interest coupon rate of 7.5% per
annum.
•
The international rating agency Standard & Poor's affirmed long-term corporate credit rating of
Rostelecom at “BB +” level with a stable outlook. Ratings of respective bond issues were also affirmed
at “BB +” level with a stable outlook.
•
Rostelecom shareholders supported the reorganization of the Company in the form of joining
Svyazinvest and a number of subsidiaries.
July
•
Rostelecom passed the procedure of public discussion of the Social report in the Council on nonfinancial reporting of the Russian Union of Industrialists and Entrepreneurs (RUIE) and received the
Certificate and Opinion on its public representation.
•
Rostelecom, the General Partner of the XXII Olympic Winter Games in 2014, signed a contract for the
provision of telecommunication services to the Olympic Broadcasting Service (OBS) to the host
broadcaster of the Games in Sochi. OBS provides television and radio broadcasting from Olympic
events.
August
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ANNUAL REPORT
•
Board of Directors approved additional issue of ordinary shares of Rostelecom within the second
phase of reorganization.
•
The Company completed the construction of powerful and extensive CDN network (Content Delivery
Network) and begins to provide services for the delivery and distribution of content. By means of CDN
content providers can – with high quality, speed and reliability – provide their content to end
consumers with high degree of reliability.
•
The international rating agency Fitch Ratings affirmed Issuer Default Rating ("IDR") to Rostelecom at
level “BBB-” with a stable outlook.
September
•
Rostelecom and Sberbank of Russia signed an agreement on strategic cooperation.
•
Video Surveillance System by the Company provided broadcast of election in a single day of voting in
5 regions.
•
An agreement on cooperation between Rossvyaz and Rostelecom was signed.
•
International cable system «Europe - Persia Express Gateway» (EPEG) was put into operation.
•
Rostelecom finalized and started commercial operation of the Unified System of payments. It simplifies
the procedure of payment of all added services anywhere in Russia.
October
•
Rostelecom completed the second stage of the reorganization. The record on termination of business
of Svyazinvest was entered to the Unified State Register of Legal Entities, as well as of another 20
joint-stock companies in connection with the merger with the Company, which took over all rights and
obligations of the associated companies in accordance with the transfer regulations.
•
Russian Direct Investment Fund (RDIF) and one of the leading international banks Deutsche Bank
have jointly invested in Rostelecom. The investments amounted to 7.674 billion RUB were parity
directed by the parties to the Company for the further development and strengthening of market
positions.
•
Rostelecom affirmed corporate social responsibility (CSR) at level AA (s). The opinion of the
independent Russian rating agency "REPUTATION" states that the Company has a high level of
social responsibility and effectively implements the strategy in this area.
November
•
Rostelecom completed the implementation of the Single personal account in all regions of the country.
December
•
The Board of Directors has approved the updated strategy of the Company up to 2018.
•
The Board of Directors of Rostelecom approved association of cellular assets with Tele2 Russia.
•
Ministry of Communications of Russia and Rostelecom signed the contracts for the operation of
eGovernment and development of SPSS in 2014.
•
The Company's shareholders supported the reorganization in the form of allocation of JSC "RTMobile".
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ANNUAL REPORT
OPERATING AND FINANCIAL RESULTS
In this section, the consolidated data for the Group companies are presented in accordance with
International Financial Reporting Standards, unless otherwise indicated.
Key operation indicators
Description
Revenue from sales of goods, products, works, services
Net operating expenses
Operating profit
Profit before taxes
Net profit
2012
RUB in millions
332,435
278,604
53,831
42,503
33,202
2013
RUB in millions
325,704
280,836
44,868
32,119
24,131
2013/2012
%
-2.1
0.8
-20.0
-32.3
-37.6
Revenue breakdown
Type of services
Local telephone service
Intra-NP area telephone service
Domestic and International Long-Distance telephone service
Interconnection and traffic routing services (except Internet)
Mobile telecommunications services
Circuit lease services
Broadband Internet access
PayTV services
Data services (VPN, data centers), supply of Internet traffic to
operators
Cloud services
Other services
Total
2012
RUB in millions
89, 504
19,634
20,562
21,991
41,161
11,433
51,619
9,208
2013
RUB in millions
87,436
17,171
17,101
24,864
38,902
9,486
55,938
11,906
20,872
23,025
6,004
40,447
332,435
5,422
34,453
325,704
Revenue breakdown by customer groups
2012
RUB in millions
Individuals
Entities
Budgetary organizations
Operators
167,330
70,794
54,159
40,152
2013
RUB in
millions
165,884
73,827
45,604
40,389
Operating expenses
2011
Item
Payroll, other compensations and social benefits
Amortization and loss from current asset depreciation
Expenses for operators services
Material, repair and maintenance, utility services
Loss from retirement of fixed assets and intangibles
Expenses on doubtful receivables
Other operating income
Other operating expenses
Net operating expenses, total
RUB in millions
88,815
66,511
48,858
28,483
752
1,389
-14,749
58,545
278,604
%
31.9%
23.9%
17.5%
10.2%
0.3%
0.5%
-5.3%
21.0%
100.0%
2012
RUB in
millions
91,002
68,414
49,746
28,495
344
2,140
-15,929
56,624
280,836
%
32.4%
24.4%
17.7%
10.1%
0.1%
0.8%
-5.7%
20.2%
100.0%
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ANNUAL REPORT
Efficiency Indicators
Indicator
Operating margin
Net margin
Costs per 100 rubles of revenue
OIBDA
OIBDA margin
Measurement unit
2012
2013
16.2%
10.0%
84
120,342
36.2%
%
%
RUB
RUB in millions
%
2013/2012
%
13.8%
7.4%
86
113,282
34.8%
2.8%
-6.2%
-
Net Assets
Description
2012
mln RUB
238,832
2,462
Net assets, total
Net assets to charter capital ratio
2013
mln RUB
199,756
2,059
Key figures for the principal activity of the Company *
Indicator
Number of subscribers
Local communication
Individuals
Entities
Mobile communication
Broadband access
Individuals
Entities
Subscribers connected via FTTx
PayTV
IP TV share
Traffic generated by individuals and entities
Intra-areal
IC
IN
ARPU
Via broadband access
Via fixed telephony
Via payTV
Via mobile communication
Measurement
unit
2012
2013
%
million
%
28,2
24,1
4,1
13,6
9,7
9,0
0,7
32
6,9
23
26,5
22,5
4,0
14,8
10,6
9,8
0,7
38
7,5
29
billion min
billion min
billion min
10,0
4,7
0,5
9,1
4,0
0,4
RUB
RUB
RUB
RUB
453
241
116
263
448
249
133
239
million
million
million
million
million
million
million
* Data are presented in terms of joining of Svyazinvest and its subsidiaries to Rostelecom on 01.10.2013.
Data for 2012 also reflect performance of listed companies.
Distribution of 2012 Net Profit
Figures in the table below are shown in accordance with the Russian Accounting Standards (RAS)
Net profit for 2012, RUB in thousands
Net profit allocation
Dividend payments, RUB in thousands,
of which:
to the federal budget
To finance the increase of the charter capital in terms of the
undistributed 2012 profit
Allocated to reserves
Allocations to other funds
Other net profit allocations
For reference only:
Allocations
to
investment
projects
(programs)
implementation*
RUB in thousands
32,674,394
as % of net profit
8,168,569
25%
532,757
1.63%
24,505,825
75%
0
0
0
0.00%
0.00%
0.00%
68 487 000
209.6%
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ANNUAL REPORT
Report on the investment project implementation is
presented in Investment Programs Implementation section
of this Annual Report
* Money outflow due to purchases, creation, upgrades, reconstruction and preparation for usage of non-current assets
Consumption of energy resources in 2013
Energy resources
Measurement
unit
Consumption volume
1. Fuels and process liquids
For boilers
3
Other
Coal
Diesel fuel/oil
Gas (including gas condensate)
Black oil fuel
Kerosene
For transport and mechanisms
Fuel
Oil and process liquids
thousand m
ton
ton
ton
3
thousand m
ton
ton
thousand
liters
thousand
liters
9
7,433
18,796
2,445
6,394
83
5
582
54,849
110,265
thousand
liters
thousand
liters
3,428
103,059
74
7,206
3,199
thousand
liters
thousand
liters
109
2,939
2
260
2. Utility services
Electric power supply
Gas supply
Heating
51,795
95,862
7,639
908
120
1,188,257
1,133,408
For floating craft
Fuel
16,401
46,611
For production equipment
Fuel
Cost, RUB in
thousands
(excluding VAT)
1 474 446
172,725
8,359,370
thousand
kW/h
3
m
gCal
886,092
6,180,195
39,950,453
1,345,566
179,689
1,999,486
COMPANY’S POSITION IN THE INDUSTRY
OJSC Rostelecom has been operating in the telecommunications industry since its state registration
on September 23, 1993.
Nowadays, the major players in the Russian telecommunications market are the “big four” operators:
Rostelecom, MTS, VimpelCom, and Megaphone. These are companies that provide a full range of basic
telecommunications services and account for over 80% of all revenue generated in the Russian
telecommunications market. Despite a potential for emerging of alternative operators, the four key players
occupy the major share of the earnings in the industry as a result of geographic expansion, growth in the
regions, and mergers and acquisitions transactions.
OJSC Rostelecom is the undisputed market leader in fixed-line services. As a result of the merger of InterRegional Companies into Rostelecom, the Company managed to expand the range of services it delivers
and enter new market segments. In this way, the Company significantly increased its market shares and
became the country’s largest universal telecom operator.
In the past year, the consolidated company remained the dominant provider of telecommunication services
in the traditional markets of local and long-distance communication. It also achieved sustainable growth and
prosperity in high technology sectors, developing broadband Internet access and data transmission services,
as well as interactive paid television, provisioning of VPNs, video conferencing, and intelligent network
services. In addition the Company started provision of mobile data services based on 3G+ (HSPA+)
technology, thus expanding its product line offered to existing and potential customers.
The Company managed to capture undisputed leader positions in the sector of telecommunication services
provided to Russian state authorities of all levels, public entities and institutions.
Local telephony
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ANNUAL REPORT
Rostelecom is the domineering player in the local telephony sector with a 69% market share by subscribers.
Local telephony services offered by Rostelecom are available to a vast majority of households in the country,
small and medium businesses, large corporations, and government agencies and entities. The number of
active subscriber lines exceeds 27 million lines.
Historically, local telephony services are traditionally provided by Rostelecom and account for a considerable
share of its business. Some key strengths like possession of a modern and widespread network, access to
the last mile connections, and support from the public sector, allow Rostelecom to dominate the market of
local telephony services. The table below illustrates Rostelecom positions in this market and market shares
of its major competitors as on December 31, 2012.
Local telephony operators
Rostelecom
MTS (including MGTS)
Others
Market share by revenues in 2013
63%
14%`
23%
Source: iKS-consulting, the Company’s data
The Company’s share in the local telephony market amounted to 66 and 65% by the end of 2011 and 2012
respectively.
Broadband Internet access
OJSC Rostelecom is both a traditional market leader in the local and long distance telephony markets and
an undisputed leader in the Russian Internet market, which is considered to be one of the most competitive
of all the markets where the Company operates. While the markets in Moscow and St. Petersburg have
already reached a point of saturation with over 80% of the market being controlled by five principle players,
the regional broadband Internet markets are in the most dynamic phase of their formation.
In order to further strengthen its position in rapidly developing regional markets, Rostelecom focused its
efforts on reinforcing its competitive advantages and consolidating regional assets. The Company’s
competitors in this market are both major mobile players which recently merged with alternative fixed-line
operators, and regional providers. Rostelecom, however, has a significant advantage: its share of the market
is nearly four times greater than that of its nearest competitor. The Company plans to further strengthen its
leadership position.
The table below illustrates Rostelecom’s position in the broadband Internet market as well as market shares
of its major competitors as of December 31, 2013.
Broadband Internet access providers
Rostelecom
ER-Telecom
VimpelCom
MTS
Others
Market share by subscribers in 2013
36.4%
9.4%
8.3%
8.2%
37.7%
Source: iKS-consulting, the Company’s data
As of the end of 2011, the Company’s share in the broadband Internet market in terms of number of
subscribers was 35.4%.
PayTV
PayTV segment is one of the key drivers of the telecommunications market growth. With a 22% market
share by the end of 2013, Rostelecom is among top three market leaders of PayTV services in terms of
number of subscribers. As of the end of 2012 and 2011, the Company’s share amounted to 22% and 23%,
respectively. The growth of Rostelecom market share in PayTV can be attributed to the acquisition of NTK
Group in February 2011 and their subsequent acquisition in October 2013. As a result of this acquisition,
Rostelecom gained a substantial subscriber base of interactive television services.
Rostelecom major competitors in the paid TV market are Tricolor and OJSC MTS. The following table
represents the principal competitors of Rostelecom in the PayTV market as of December 31, 2013.
PayTV operators
Tricolor
Rostelecom
MTS
ER-Telecom
Akado
VimpelCom
Market share by subscribers
30%
22%
10%
8%
3%
3%
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ANNUAL REPORT
Others
26%
Source: iKS-consulting, based on information about the number of cable, satellite, and IPTV subscribers
Mobile Communications services
During 2013, the Company, through its own subsidiaries and affiliated companies has been providing mobile
telephone service in GSM and CDMA in 59 regions of the Russian Federation. The Company’s mobile
business is concentrated mainly in the Urals, Siberia, the Volga region and the Far East. As of the end of
2011, 2012, and 2013, Rostelecom’s market share in the mobile communications market in terms of number
of subscribers amounted to 6%.
In 2013 it was decided to establish a joint venture with Tele2 Russia, thus allowing to form a federal mobile
operator which will bring significant benefits to both sides of the transaction and will be beneficial to both
consumers and the Russian telecommunications market. The joint venture plans significant investments in
network 3G/LTE and innovative mobile services of high quality in the interests of Russian consumers and
corporate clients.
The following table shows the shares of the main competitors of Rostelecom in the market of mobile
telecommunication services in Russia as of December 31, 2013.
Mobile operators
MTS
Megaphone
VimpelCom
Tele2
Rostelecom
Others
Market share by subscribers in 2013
29%
29%
24%
10%
6%
2%
Source: ACM-Consulting, the Company’s data
COMPANIES IN ROSTELECOM GROUP
At the beginning of 2013 Rostelecom was a member/shareholder of 75 economic entities, 48 of which are its
subsidiaries and 6 are its dependent entities. The book value of financial investments as on December 31,
2013 was over 53 billion rubles. Dividends received by the Company in 2013 from interest in other entities
totaled over 1.43 billion rubles.
In 2011 Rostelecom’s Board of Directors (according to Minutes No. 23 of 08.12.2011) approved the
Company’s non-core assets disposal program. Implementing measures aimed at terminating its interest in
non-core and non-operating assets Rostelecom during 2013 discontinued its participation in 13 companies, 8
of them were sold to third party as follows:
PSC "Rostelecom-security", excluded from the USRLE on 10.06.2013 in connection with the liquidation;
OJSC Central Company "Business Network", excluded from the USRLE on 17.06.2013 in connection with
the liquidation;
OJSC "Telecommunication Company "RINFOTELS", ceased its participation on 24.07.2013 in connection
with the sale of stake for 1,000.00 RUB by the decision of the Board of Directors (Minutes No 51 dated
10.06.2013);
LLC "Factorial- 99", ceased its participation on 01.08.2013 in connection with the sale of stake for 1,000.00
RUB by the decision of the Board of Directors (Minutes No 51 dated 10.06.2013);
LLC "UTK-Finance", ceased its participation on 01.08.2013 in connection with the sale of stake for 1,000.00
CJSC "Communication Trading House", excluded from the USRLE on 12.08.2013 in connection with the
liquidation;
CJSC " TV-Inform", excluded from the USRLE on 02.09.2013 in connection with the liquidation;
LLC "MobilCom" excluded from the USRLE on 30.09.2013 in connection with the liquidation;
CJSC "People's Telephone Saratov", ceased its participation on 23.10.2013 in connection with the sale of
stake for 1,000.00 RUB by the decision of the Board of Directors (Minutes No 51 dated 10.06.2013);
CJSC "STARTCOM", ceased its participation on 23.10.2013 in connection with the sale of stake for 1,000.00
CJSC "Vladimir Teleservice", ceased its participation on 15.11.2013 in connection with the sale of stake for
1,000.00 RUB by the decision of the Board of Directors (Minutes No 51 dated 10.06.2013 );
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ANNUAL REPORT
LLC "Kamalyaskom", ceased its participation on 25.11.2013 in connection with the sale of stake for 1000
LLC "Telecom-Terminal", ceased its participation on 25.11.2013 in connection with the sale of stake for
1,000.00 RUB by the decision of the Board of Directors (Minutes No 51 dated 10.06.2013).
On June 26, 2013 by a vote at the Extraordinary General Meeting of Shareholders of the Company it was
decided to reorganize the Company in the form of acquisition of Open Joint Stock Company "Investment
company of communication", Open Joint Stock Company "NATIONAL COMMUNICATIONS", Open Joint
Stock Company "National Cable Networks", Open Joint Stock Company “TV St. Petersburg cable TV",
Closed Joint Stock Company "ELKATEL" open Joint Stock Company "National Cable Networks – EuroAsia",
Closed Joint Stock Company "Novosibirsk antenna- cable television broadcasting", Closed Joint Stock
Company " Television Network Service", Closed Joint Stock Company "ELTELEKOR", Open Joint Stock
Company "Mosteleset", Open Joint Stock Company "Mostelecom", Closed Joint Stock Company
"TELESET", Closed Joint Stock Company "TELESET INVEST", Open Joint Stock Company "TNPKO",
Closed Joint Stock Company "Simbirsk telecommunication systems", Closed Joint Stock Company
"Svyazinvest", Open Joint Stock Company "Russian Telecommunication Network", Closed Joint Stock
Company "Novgorod Datacom", Closed Joint Stock Company "Parma- Inform", Closed Joint Stock Company
"Enter"and Open Joint Stock Company "Ingushelektrosvyaz". On 01.10.2013, the company's data were
excluded from the register due to the merger with Rostelecom as a result of the reorganization. In addition,
as a result of universal succession Rostelecom became a member of 14 business entities, among which are
the following main ones: OJSC "Central Telegraph", OJSC "Giprosvyaz , OJSC "Chukotkasvyazinform",
OJSC KGTS, LLC "NKS Media", CJSC "TKT-Story", LLC "ArtMedia Group", CJSC"Macomnet" and CJSC
"St. Petersburg payphones".
As a result of the above activities, as well as a series of transactions in shares and interests in other
companies by the end of the reporting year, the Company was a party/shareholder of 75 business entities,
including 47 subsidiaries and seven affiliates.
Information on all forms of Rostelecom participation in commercial and non-profit organizations is provided in
Appendix 4 of this Annual Report and is an integral part thereof.
The companies acquired in 2013
Acquisition of shares of CJSC "Sky Link" from a subsidiary of LLC “Mobitel"
On December 19, 2013 in accordance with the decision of the Board of Directors dated 12.12.2013
Rostelecom completed the acquisition of 50% (effective - 100%) of the authorized capital of CJSC "Sky Link"
from a subsidiary of LLC “Mobitel". The transaction price amounted to 9.4 billion RUB.
Sky Link Group provides high-speed mobile Internet access, voice and data communication (using 3G/EVDO third generation technology and 2G/GSM technology).
Currently, the territory of license coverage of Sky Link Group includes 76 regions of Russia, with more than
90 percent of the population, including Moscow, St. Petersburg and other major Russian cities; the territory
of 3G services under the brand name "Sky Link" includes more than 10,300 settlements in 36 regions of
Russia.
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ANNUAL REPORT
THE COMPANY AND THE BOARD OF DIRECTORS’ REVIEW OF THE YEAR 2013
During the last years, from the operator providing mainly fixed-line services, Rostelecom was transformed
into a modern service provider that meets the needs of all groups of consumers throughout the country.
Continuing to develop and improve the services provided, the Company also focused on improving corporate
governance practices and optimizing operational efficiency in 2013.
Acquisition of Svyazinvest and a number of its subsidiaries, which was held in October 1, 2013, was a
continuation of the reorganization in 2011. Elimination of cross-ownership of share capital between
Rostelecom and Svyazinvest contributed to simplification and increase of the transparency of corporate
governance of the Group companies, as well as an increase in direct proportion to the state capital of the
Company.
Improving operational efficiency during the year was carried out by optimizing multiple business processes,
eliminating duplication of functions, as well as applying the best domestic and foreign procurement practices.
For example, thanks to the public procurement procedures the Company was able to reduce the cost of TVtuners for "Interactive TV" by 24%, and due to centralization and effectiveness of procurement activities in
the second half of the year, the Company saved more than 16 billion RUB.
A striking example confirming the leadership of Rostelecom in the Russian telecommunications industry was
Sochi 2014 Project. The Company has completed the construction of a large-scale network infrastructure,
organized modern telecommunications services to the organizers, broadcasters, athletes and spectators of
Olympics and Paralympics Games. The basic infrastructure for the implementation of any international
projects, organization of television and video broadcasting was created in Sochi and the foundation for the
use of wireless technology and the active development of broadband access in the region was laid for the
next coming years.
In the past year, Rostelecom remained committed to maintain its leading position in the telecommunications
industry, using the competitive advantages of the combined operator and creating single strong brand.
Considerable efforts of Rostelecom have been directed to keep the subscribers in the mass segment and to
accumulate the customer base in the market of broadband services and payTV.
Furthermore, Rostelecom continued improvement of its backbone network, developing the potential of which,
the Company provides the basis for the growing demand for modern and high quality telecommunications
products and provides the users with the ability to access to Rostelecom services in all regions of the
country.
COMPLETION OF THE SECOND REORGANIZATION PHASE
On October 1, 2013 in accordance with Presidential Decree No 340 dated 24 March 2012 "Reorganization of
OJSC "Rostelecom", the entry on merger of Svyazinvest to Rostelecom and 20 subsidiaries and affiliates
was entered to the Unified State Register of Legal Entities. This reorganization was a logical and consistent
continuation of the reorganization of 2011, when seven regional telecommunications companies and
Dagsvyazinform were acquired by the Company.
Due to the completion of the second stage of the reorganization direct state share in the charter capital of the
Company was significantly increased and cross-shareholding between Rostelecom and Svyazinvest was
eliminated, which increased transparency and simplified control system within the Group. In addition,
Rostelecom obtained shares of telecommunications companies previously owned by Svyazinvest and
simultaneously the Company acquired 20 subsidiaries and affiliates held by 100% directly or through other
100%-owned subsidiaries by Rostelecom and Svyazinvest.
Most of the acquired companies were core operating companies, and a number of them, such as NTK Group
or Teleset group, represented a significant asset for Rostelecom and occupied leading positions in large and
strategically important regions of Russia.
Ownership and managing of such subsidiaries and affiliates and the distribution of business between
separate legal entities:
•
•
•
caused additional operating costs due to the existence of overlapping functions;
did not allow to fully realize the synergy potential from the reorganization of the Rostelecom Group of
companies and creation of value for the shareholder ;
created a significant undesirable load on the Company and management, as well as it led to the need
to enter into a significant amount of intercompany agreements;
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ANNUAL REPORT
•
•
significantly impeded implementation of the agreed investment, technical, commercial and marketing
policy;
created an emergency internal competition between different business units.
Thus, acquisition of the companies involved in the reorganization, represented the best way to integrate,
assuming the acquisition of subscribers, network infrastructure, property and equipment complex of the
companies merging by universal succession, as well as made it possible to eliminate duplicate functions, to
reduce expenditure component and to create the preconditions for profitable growth of the Company.
Completion of the second reorganization phase has brought the legal structure of the Group of companies
Rostelecom to a "target one" – with minimum of separate legal entities and maximum consolidation of
businesses and assets. In addition, it is expected that the acquisition will allow to more fully realize the
potential number of tactical advantages in the future, such as: the possibility of a common technical,
technological, contractual and procurement policy, the expected improvement in interaction with major
customers, suppliers of equipment and services, the possibility to enhance the capability of debt liabilities
service due to the consolidation of cash flow and the ability to concentrate resources on priority areas.
PROJECT “OLYMPIC AND PARAOLIMPIC WINTER GAMES 2014 IN SOCHI”
In January 2009 Rostelecom won a contest conducted by the Organizing Committee of the XXII Olympic
Winter Game 2014 in Sochi, and alongside MegaFon was announced a General Telecommunications
Partner of the XXII Olympic Winter Game 2014 in Sochi and holds an official right to use the designations of
Telecommunications Partner/Telecommunications Operator of the XXII Olympic Winter Game 2014 in Sochi.
It is not simply accidental that Telecommunications was the first category where General Partners were
designated. Organizing of the XXII Olympic Winter Game 2014 in Sochi pronounced the Games innovative,
and telecommunications is an infrastructural and innovative sector of the economy. For the Company as
Russia’s national telecom operator telecommunications is evidently the starting point for implementation of
huge scale projects. The primary strength of Rostelecom is its ability to deliver complete turn-key
technological implementation of the project. The Company’s unique capabilities enables it to deploy in south
of Russia a groundwork for offering state-of-art telecommunications services before, during and after the
Olympic Winter Games 2014.
On November 27, 2013, 100 days before the Paralympic Winter Games in Sochi, Rostelecom supported the
Paralympic movement and signed Memorandum of cooperation with the Organizing Committee "Sochi 2014"
in the "Telecommunications" category. The Company has prepared infrastructure and provided the
organizers, participants and guests of the XI Paralympic Winter Games of 2014 in Sochi with modern
telecommunications services.
The Company’s specialists have been performing huge amounts of work to prepare and construct the
infrastructure for the forthcoming Olympic and Paralympic Winter Games in Sochi’2014. The principal
investment policy goal in the Southern Federal Administrative District is deployment of the core network for
the Common Information and Telecommunications Infrastructure for Olympic Games 2014. Another primary
goal is upgrade and modernization of the existing digital backbone links to increase the network throughput
by tens times, improve the network resilience and optimize backbone performance.
Altogether within the Sochi’2014 Project Rostelecom will provide connection links to network infrastructure
and telecommunications services at 35 various Olympic sites, including the place of the medal ceremony at
the Paralympic Winter Games and television center OBS TV Tower.
In order to held the Games and to ensure TV-broadcasts, the bandwidth of Rostelecom backbone network
has been increased up to 140 Gbps and that of the multi service network – up to 40 Gbit/s, and in order to
ensure reliability of communication networks in the area of the Games laid 500 kilometers of fiber-optic lines
for geographically redundant spaced routes.
The key phase of "Sochi 2014" was the creation of the Olympic Center for Information Technologies (OCIT),
which is the largest IT-infrastructure facility of the Games in Sochi with an area of more than two thousand
square meters. OCIT is equipped with high-performance equipment: 329 servers with multi-core processors
(3372 cores), 6 storage systems (620 TB), 2 tape libraries (180 TB). About 50 different information and
technological systems has been implemented there. The main task of the center is the processing Olympics
information flows, the unified network management, the integration of special solutions for each sports event.
Within the agreement with the Olympic Broadcasting Service (OBS), the host broadcaster of the Games in
Sochi, Rostelecom has provided the data channels with a total capacity of 110 Gbit/s to all broadcasters
which were the holders of the Olympic content; the broadcast of the XXII Olympic Winter Games was
performed by 90 broadcasters in 159 countries. And international broadcasters received a total of 1112 optic
fibers for their use.
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ANNUAL REPORT
More than 20,000 hotel rooms and apartment buildings to house temporary staff, volunteers and security
forces were provided with broadband Internet access at speeds up to 100 Mbit/s, Rostelecom Interactive
IPTV and fixed telephony. The Company organized Internet cafes in the Olympic Village, the Main Media
Center and Media Center "Hills". Thus, free access to the Internet at these sites could be used by all
accredited journalists, athletes and team members from 85 countries.
Rostelecom assured production and broadcasting of unique video content on the screens installed in 13
venues Live Sites Sochi 2014 in 8 cities of Russia. Sports event broadcast program was formed in the
interests of the Russian audience. The project goal was to expand the territory of the Games, to involve
maximum number of spectators in the unique atmosphere, to give the opportunity to anyone to become a
part of the Games.
The amounts of the specialized communication services such as DLD/ILD telephony, local and intra-zone
telephony, dedicated Internet access, IP VPN services, ISS services, provided to the Organizing Committee
"Sochi 2014", have been increased significantly.
Communications infrastructure successfully passed the procedural tests TR1 and TR2 (Technical Rehearsal)
in October and December 2013. As part of these tests, real actions of every specialist were worked out
under different scenarios for a few days.
Together with the Organizing Committee "Sochi 2014", Rostelecom has created telecommunications
infrastructure for 47 international test events of the season 2012-2013; moreover, supported by the
Company, the Russian Cups and Championships were held in the Olympic Sochi in 2013; it is the most
extensive program over the entire history of the Games.
While creating the infrastructure the Company employed most advanced solutions paying due attention to
protection of environment and using state-of-the-art technologies preserving the ecological balance in the
region and the natural beauty and variety of Krasnodar region.
The motto of Rostelecom while preparing for the Games was "2014 Olympics to everyone!" and "It is you
who participate in the Games!”. In other words, thanks to the infrastructure created by Rostelecom every
citizen of our country and around the world could become a direct participant in this unique sporting event.
Humanitarian legacy of the Games in Sochi will be innovative system of remote Olympic education
developed in conjunction with the Organizing Committee "Sochi 2014” and the Russian Olympic Committee,
the first Olympic lesson was held in the Knowledge Day on September 1, 2012.
Based on the established infrastructure Rostelecom intends to provide a variety of advanced
telecommunications services for the residents of the city of Sochi, Krasnodar Region and the interests of
other regions of the country. The solutions developed in preparation for the Olympics will be used by the
Company throughout the Russian Federation. All this, of course, will give a new impetus to the development
of all domestic telecommunications industry.
The success of the project depends on the availability of single high-tech telecommunications infrastructure
covering the whole territory of Russia, and enhanced international cooperation and experience in providing
high-tech services of the Company leverage advanced technologies for high-quality implementation of such
projects on a national scale.
INNOVATIVE DEVELOPMENT
As part of the Innovation Development Program in 2013, the Company continued to implement a number of
research and development activities, in particular, the project to establish and develop a national cloud
platform O7. The aim of this work was to increase the quantitative characteristics of the platform, increasing
reliability and disaster recovery, as well as the development of its functionality for the Company's customers
– administrations of subjects of the Russian Federation (using the facilities for the placement of regional
cloud services of the Company: Regional Medical Information Systems, "Education", "Culture" services,
multifunctional centers , etc.), the Ministry of Communications (using the facilities of the platform for egovernment infrastructure information systems), the Information Democracy Fund (providing facilities for
placement of "Russian Public Initiative").
During the reporting year, the active work to expand the functionality of innovative services developed in the
previous year was carried on, such as GIS "Housing", "Education", "Distance learning", "Multiplex –TV
tuner". The number of regions of the country, where implementation and interface with existing regional
systems was performed, increased.
The project of interface of ERA- GLONASS system with call emergency services system on a single number
"112" and a unified software solution was developed for scheduling function of the sanitary vehicles,
appropriate test systems interface was implemented in several regions of the Russian Federation. The
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ANNUAL REPORT
above decision will automate the process of monitoring the use of sanitary vehicles, reduce waiting time of
arrival of ambulance crews, ensure the effectiveness of budget expenditures on fuel and vehicle use.
The development of new services has been initiated in the Company's Innovation Center and this will allow
the Company to expand into new markets. The first samples of promising services will be introduced into trial
operation in 2014-2015.
In 2013, cooperation with regional innovation clusters country was settled down. Several meetings were held
with representatives of the Novosibirsk cluster of information and biotechnologies, and the Company also
acquired the newly established IT cluster in the Kaluga region. The result of these activities was the
establishment of a stable channel of receipt of ideas and development of innovative companies of small and
medium business segment.
The result of the research work was an experimental piece of distributed university and research laboratory
(DURL) based on dedicated network of inter-university cooperation. The creation of DURL was conducted by
combining separate fragments of laboratory telecommunications networks of the specialized universities into
a single dedicated network with information virtualization, communication and control resources. The
combination of individual fragments of laboratory telecommunications networks into a single selected
geographically distributed network was aimed at solving the problem of full-fledged teaching of
telecommunications disciplines using the widest range of modern camera equipment, as well as research
using remote access. The created DURL will provide the possibility of adapting in the expansion of the
subjects of the educational process and/or the emergence of new areas of use.
During the implementation of the program of energy conservation and energy efficiency, the implementation
of previously developed energy management system at the Company was carried on. In order to collect the
data needed to predict the energy consumption, the works on the installation of accounting systems for heat,
water and energy in the pilot sites were performed. First results of forecasting and identification of best
practices in energy efficiency will be obtained in 2014.
ELECTRONIC GOVERNMENT
In order to improve performance of governmental and public authorities the Russian Government since 2002
has been implementing the Federal Special Purpose Program called The Electronic Russia. The EGovernment project within the framework of this program is aimed at ensuring the rights of people and
organization for access to public services, including the right to obtain information regarding the structure
and functions of public authorities and state institutions.
According to the Resolution of the Russian Government No 238-r of February 22, 2012 Rostelecom was
designated the sole contractor for E-Government project for 2012-2014.
In furtherance of the Electronic Russia Program the Russian Government Resolution 1815-r of October 20,
2010 established and approved another Federal Special Program called the Information Society. This
Program was developed for 2011-2020 and covers in particular development of a public services portal,
development of common trusted environment of digital signatures, enhancement of e-workflow between
authorities, common authentication system. Rostelecom is also engaged in development of tools enabling
usage of mobile devices to access e-government services and state e-mail to be employed for interactions
between citizens and state authorities.
The Company’s responsibilities and roles as the contractor additionally include creation of common
reference information/directories and classifiers for state information systems, and development of other
projects like electronic civil registration office, electronic region and electronic democracy. The Nationwide
cloud platform being designed and deployed by the Company became the framework for implementation of
the above systems.
In 2013 Rostelecom ensured completion of the following key federal level projects under the
Information Society Program:
•
State information system "Single Portal of State and Municipal Services" (hereinafter - SPSS, portal) is
successfully developing, within which the provision of 643 public services in electronic form is supplied
on the basis of the federal executive bodies, 6876 regional services, as well as 11,844 municipal
services for both individuals and legal entities.
•
Over 7 million users are registered (of which 3.5 million in 2013). Number of services rendered in 2013
exceeded 13 million, which is 2 times more than the same indicator in 2012. SPSS integration with
external eGovernment systems, modernization of subsystem "Personal account of SPSS user" was
assured in order to improve convenience for users to interact with public authorities. Information content
of SPSS was harmonized with the relevant legal acts.
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ANNUAL REPORT
•
The Company also provides information support to the users of the Single portal. 78 regions of Russia
are connected to the system, 125 points issuing activation codes and centers issuing digital signature
are opened, more than 800 eGovernment informants are installed.
•
Using public services portal, the users are able to pay utility bills and traffic police fines. In 2013,
527,620 successful payments totaling more than 500 million rubles were carried out.
•
Portal applications for mobile devices available for download in Google Play, App Store, Windows
Phone Store and Windows Store were released. The number of mobile version of the portal of public
services installed by the users in 2013 amounted to 508,204. The users ordered over 800,000 services
via mobile version of the portal of public services in 2013.
•
Single system of identification and authentication infrastructure has been further developed, providing
information technology interaction of information systems used for the provision of public and municipal
services in electronic form (hereinafter - SSIA). By the results of 2013 the number of the users
registered on SPSS using SSIA was 3.5 million, which is comparable to the total number of the users
registered in 2011 and 2012. Within the user registration in SSIA the possibility of registration via mobile
phone number and email address was implemented, technology of use of a simple electronic signature
was debugged, technology that allows authorized authorities (Russian Post, Rostelecom, hereinafter
MFC) to confirm the identity of the citizen on passport data was created .
•
As part of the research work on the topic: "Implementation of solutions for coordination of expenditures
of public authorities for the use of information technology", an examination of more than 500 documents
on informatization of the agencies and of the Government was performed, a concept for improving
coordination of informatization was developed.
•
In the event of the state program "Information Society" "Implementation of solutions for coordination of
expenditures of public authorities for the use of information technology" based on the RF Government
Decree dated 30.01.2013 No 62 "National fund of algorithms and programs for computers", the Federal
state information system "National Fund of algorithms and programs for computers" was created for the
collection, processing and storage of algorithms and programs for electronic computers, preparatory
(project ), technical, and procedural documentation accompanying programs for electronic computers,
created or acquired with funds from the federal budget and the budgets of state extra-budgetary funds.
"Guidance on the formation and use of information resource fund” was prepared, approved and
registered with the Ministry of Justice.
•
The functionality of the automated information system "Managing the departmental and regional
informatization" has been further developing including new system interfaces for a better user
experience which have been developed and implemented.
•
Single space of electronic signature trust is supported. Now it is possible to view and sign electronic
documents in accordance with Russian legislation.
•
During the reporting period Single system of interagency electronic interaction (SSIEI) has been actively
developing, which allows providing state and municipal services on a new level. Connecting to the
system, government institutions exchange information, as a result of which the citizens do not have to
bring additional documents from other departments – authorities send the requests by themselves. The
system is connected to all federal executive authorities of Russia, and the intensity of the system (the
peak load during the reporting period) amounts to 7 million requests per day. In 2013, the total number
of requests sent via SSIEI exceeded 1.5 billion requests.
•
In 2013, 718 banks were connected to SSIEI in order to transfer information about payments made in
Public information system for regional and local payments.
•
On the basis of the National cloud platform in which computer resources and capacities are available to
the user as an online service, more than 150 services for both public authorities and commercial
structures have been created and operated.
•
Web project "Russian community initiative" was deployed on the technical means of e-Government
infrastructure in 2013. The Company provides technical support for the expanded information system
and also handles calls from the citizens related to the work of the portal. In 2013, 2964 initiatives were
placed in the portal; over 4 thousand complaints of citizens were processed.
•
As part of the public contract for the creation of Data Center of the Single State Health Information
System (SSHIS), Rostelecom placed Basic, Reserve and Test platform of SHIS on its technical
resources of National cloud platform, providing a total of 1,200 vCPU, 2800 Gb vRAM, 150 000 Gb
vHDD to accommodate 7 information systems of the Russian Ministry of Health. 83 SSHIS links to
access nodes of Russian Ministry of Health infrastructure in the regions was created.
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ANNUAL REPORT
•
In August 2013 functioning e-government system was inspected, which resulted in the purchase of the
necessary licenses and equipment to build the network infrastructure and modernization of backup
systems amounting to 269 million RUB.
•
By order of the Ministry of Communications and Mass Communications of the Russian Federation, a
project on creation of a stand of e-Government Infrastructure Chief Designer was implemented within in
the activity on development of interagency electronic interaction.
•
In 2013, works on the development of single system of reference information (SSRI) were continued.
Due to the works conducted, the SSRI system represented a powerful tool for storing and organizing
information of its components. The performance of the system was increased, which allows the use of
the SSRI system not only to work with the basic state information resources , but also for the storage
and distribution of multiple internal reference (more than 800) information systems included in the
Information Society Program, which allows the systems to communicate in a single information field.
Moreover in 2013 Rostelecom completed the following regional projects of the Federal Special
Purpose Information Society Program:

The customers are provided with the service of process automation of interagency cooperation within
Process flow chart of interagency cooperation at the regional level. The system solves two main
functional tasks: providing the possibility of organizing single electronic interaction between the regional
authorities and enabling automated use in the processes of information resources interagency
cooperation of the regional authorities and web services of the federal bodies of executive power.

Development of software and hardware solution Electronic municipal government for automating
operations of local self-government authorities and provision of municipal services. This SW and HW
solution is incorporated into E-Government Project in the regions implementing it and enables
improvement of efficiency of execution of state and municipal tasks and functions

Development of a cloud-based solution for provision of library directory services and information about
large scale events. This is designed to alleviate the problem of significantly declining library attendance.
The primary function of this service for people is accessibility of information regarding the library stock,
while for authorities in the implementing regions it is automation of maintaining a single catalogue of
publications and cost cutting. In addition the service ensures accessibility of information about holding
large scale events.

Development of the regional segment of the E-Government Project infrastructure (Stage 3) related to
portal-based solutions for interactions with regional executive bodies and local municipal governments.
DEVELOPING RETAIL RELATIONSHIPS
In the reporting year, Rostelecom developed relations with corporate and residential customers through the
expansion of its offer portfolio, provision of a full range of telecommunication services, and introduction of
federal offers guaranteeing high parameters of services across the entirety of its network.
An extended network of sales and servicing that consists of about 2100 offices located in regions throughout
the Russian Federation allows the Company to sell services efficiently, to provide customers with assistance
in the use of services, as well as information on existing services. To deliver more comprehensive service
the Company works hard so as to perfect remote sales and service channels.
To simplify the procedure of negotiating contract conditions, the Company drew up a universal agreement
that permits subscribers to access information pertaining to all of the Company’s services within a single
contract.
In order to develop relations with individual customers the Company proceeded with operational
management of customer retention, developed measures aimed at reducing churn, at classification and
elimination of causes for customer contracts termination. Also, steps were initiated to standardize and
improve quality of connection of users – individual customers.
To enhance relations with corporate customers the Customer primarily focused its efforts on implementation
of common standards of sales and customer service in order to built-up sales volumes and reduce churn.
Earlier a unified segment-oriented system of sales and customer service was put in place alongside general
common standards of relations with corporate customers on the federal level based on this system, and
common principles of interactions with agents were developed in order to improve efficiency of the indirect
sales channel. In the reporting year the Company improved sales efficiency through diversification of product
portfolio, creation of service bundles, development of comprehensive services based on the National Cloud
Platform.
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Service federalization and unification was underway, and implementation of the complete service portfolio
throughout Russia continued, measure were undertaken to improve quality through distribution network
modernization. Streamlining relations with corporate federal customers the Company centralized interactions
with head companies from TOP-400 major companies list, introduced centralized billing for such customers
and single invoice issuing for all services being rendered in all Russian constituent entities. Structural
hierarchy and process management enabled prompt handling of centralized tasks in the field and ensured
implementation of “one-stop shopping” principle for corporate customers.
In order to improve customer service the Company extensively enhances channels of distant interactions
with customers.
The Company also continues to work for service and tool integration by enhancing bundled and packaged
solutions for all customer segments. Introduction of new services continued quite actively, while customized
and customer specific solutions were designed for key accounts.
RUSSIAN OPERATORS’ MARKET
Provision of telecommunication services to Russian and foreign operators is Rostelecom traditional specialty.
Long-standing operator experience, as well as the unique advantage of possessing its own digital transport
network with extensive geographic coverage enable the Company to provide high quality
telecommunications services both in the Russian Federation and abroad.
Today Rostelecom has direct connectivity with network operators in 70 countries. It provides
telecommunication services to over 2500 fixed-line and mobile operators and Internet and content providers.
Rostelecom products portfolio includes options for voice, data, and video transmission and offers service at
different levels corresponding to operators’ individual requirements.
In 2013 the Company continued to reinforce partner relations with international operators and
telecommunications service providers of other countries in order to maintain its position on the market of
international traffic, in particular, new routes were established with the purpose of penetrating new
geographic markets.
In particular, Transit Europe-Asia was upgrade up to 660 Gbps by line TEA-2 Khabarovsk - Stockholm power
rising up to 400Gbps and through the organization of a new line TEM -3 Khabarovsk – Ukraine – Frankfurt
with an initial capacity of 200Gbps with international output ports in Japan/China/Mongolia. Also in 2013, a
premium China-Europe transit TEM-4 was launched through Mongolia with the shortest signal delay among
all routes on the market. The initial capacity of TEM-4 through Mongolia, connected by trunks TEM-2 and
TEM-3 is 80Gbps. Total revenue from these projects in 2013 amounted to about 50 million USD.
In September 2013 FastLine project connecting Moscow to Frankfurt via Belarus was implemented. The total
capacity of the activated lines is 500GB.
TRADITIONAL TELEPHONY SERVICES
Fixed-line telephony services are also a traditional venue for Rostelecom and account for a considerable
share of its business.
Approximately 37% of the Company’s revenue in 2013 was generated by provision of fixed-line
telephone services:
Russian rubles in millions
Urban and rural telephone service
87,436
Domestic and international long-distance calls*
17,171
Intra-area telephone service *
Total
17,101
121,707
In order to maintain the subscriber base for long-distance telephony and localization of long-distance traffic,
in the 4th quarter on-net tariff plans were first introduced in all macro-regional branches relating to longdistance telephone service, allowing the subscribers of Rostelecom local telephone communication to
significantly save on long distance calls made to both fixed and mobile numbers of the Company regardless
of the direction of the call.
Rostelecom is actively developing new technology to replace the traditional services in the corporate
segment. In 2013, the legal entities (including for participation in tenders/bids/auctions) in Moscow, the
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Moscow Region, St. Petersburg, Novosibirsk and the Central Federal District had the opportunity to use a
new service "New Telephony" (Cloud PBX).
"New Telephony" is an innovative service of office telephone system, allowing access to corporate telephony
from anywhere where internet access is available. Order of service can be made from the Rostelecom site.
To get an idea about the quality of services and opportunities it is possible to arrange a free trial access to
the service on the Rostelecom site.
Introduction of the new service was accompanied by marketing activities aimed at creating an information
space around the service and attraction of potential customers.
In 2013, additional tariff plans for both legal entities and the public were approved at the federal level.
Special offers on tariff plans allow the customers to choose the most profitable option and optimize the cost
of long distance and international calls. During the past year about 80 thousand users of long-distance and
international telephone services were connected according to additional tariff plans.
In 2013, Rostelecom continued to develop federal package offers for small and medium-sized businesses
under a single brand.
Under this offer, in 2013, an updated package "Optimizer” was released, which includes an optimal set of
services and benefits on favorable terms. Service package "Optimizer" consists of basic services: landline
number with unlimited local traffic and access to the Internet. The offer allows connecting additional services:
long distance calls in Russia with included traffic of 300, 600, 2000 minutes, Interactive television, audio
conferencing, video conferencing, toll-free calling with code 8-800, office applications.
Advantage of package offers is a single contract and a single bill, the optimization time of services booking
online.
By the results of 2013, this package offer was connected by 42,000 subscribers.
MOBILE SERVICES
During 2013 Rostelecom independently provided mobile telephone service in 17 regions of the Russian
Federation and in 59 regions of the Russian Federation with regard to subsidiaries – HCC, BVK, ETK,
SkyLink Group of Companies, Volgograd GSM, AKOS, BIT. In the reporting year, the Company earned 38
902 mln RUB in the market of mobile services, which accounted for 12% of total revenue. By the end of 2013
mobile services of the Company were exploited by 14.8 million subscribers. Mobile business has been
mainly concentrated in the Urals, Siberia, the Volga region and the Far East.
On December 30, 2013 the shareholders of the Company approved a reorganization of Rostelecom in the
form of allocation to CJSC "RT-Mobile", which will receive Rostelecom mobile assets, as well as CJSC "RTMobile" should receive all licenses, frequencies and other authorizations necessary for provision of mobile
services. This reorganization has become one of the steps towards the creation of a joint venture with Tele2
Russia on the basis of "T2 RTC Holding".
Creation of the joint venture offers a unique opportunity to implement a strategy of Rostelecom in mobile
business while maintaining management focus on the development of fixed-line segment, and also
contributes to the optimization of related capital investments, which in combination with the potential to
produce substantial synergies can positively affect the financial position of the Company in both the short
and in the long run.
BROADBAND INTERNET ACCESS
Broadband Internet access services are traditionally offered by the Company to the residential and corporate
customers’ segments and account for a substantial part of the Company’s business.
The Company’s revenue generated by provision of broadband Internet access services in 2013
totaled 55,938 million RUB (VAT not included), accounting for 17% of Rostelecom total revenue.
In 2013 the Company continued to adhere to access network modernization plan in order to support
introduction of new services and a multiservice model. Over the entire year of 2012 the Company was
phasing out xDSL access technology and switching to FTTB and PON.
To improve grade of services in all points of presence and drive demand for the Company’s offerings among
general population Rostelecom in 2013 introduced a common federal offer “Home internet” (Unified
broadband Internet 2.) with a consistent structure and common charging policies. The revamped offer has 4
pricing plans with pre-set speeds and pricing enabling segmented offerings for different users’ groups
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depending on income brackets. Also, in order to increase demand for package offers, the Company
launched federal offer TVIn Fast (Home Internet + Interactive offer).
In addition, in order to increase the subscriber base, as well as to increase ARPU for broadband services, a
number of federal promotions were held in 2013:
•
"Broadband + TV Live" package which includes broadband Internet and TV Online;
•
"Summer Internet", which includes a package of broadband services and antivirus at the price
starting from 295 RUB;
•
"All Inclusive" package which includes broadband Internet, Interactive TV and antivirus at the price
starting from 395 RUB;
•
"Non Stop", which includes a package of broadband services and interactive TV at the price starting
from 390 RUB (xDSL) and 490 RUB (FTTx);
•
"Everything is real” which includes a package of broadband services and interactive TV with discount
for 12 months.
Thanks to all of the above events by the results of 2013, subscriber base of broadband services in the B2C
segment amounted to approximately 9.3 million subscribers (increase by 2012 is 20.2%), including 3.6
million on optical technologies (increase by 2012 is 81.2 %).
The quality of services of Rostelecom is confirmed by certificate of conformity of Internet access service with
the requirements of voluntary certification of communications services, communications systems and quality
management communication by "Svyaz-quality".
In the segment of corporate users and budgetary institutions, the Company continued to follow previously
adopted course of comprehensive satisfaction of demand, as well as the establishment of mechanisms to
provide flexible and unique tariff proposals and options. To implement the service delivery double- & tripleplay principally new package offers of "Basis" series were developed in August 2013.
As a part of meeting the needs of corporate clients at the federal level, as well as large government
customers in the consumption of high-quality and secure services, the Company developed a fundamentally
new products satisfying all the latest customer needs. In 2013, option «Cloud-signaling» for “Traffic
monitoring and protection from DDoS-attacks’ was commissioned. The service with additional option allows
the client to get immediate protection of its network from the most powerful DDoS-attacks.
For customers in the corporate segment "Doubling the speed" promotion started in 2013. The Company
offers the customers double increased speed access to the Internet at the fare increase by 20%. By the
results of the year about 11 thousand subscribers connected to the service.
Rostelecom continued to actively develop projects for connecting commercial real estate and public
authorities by GPON technology. Thus, over the past year, the share of commercial real estate facilities,
connected via optical cable, has increased to 36%.
Also in the corporate sector in 2013 Rostelecom started to deliver the services and content distribution on
the basis of the constructed CDN network. The services allow optimizing the delivery of content from the
client to the end users to the Internet.
PAY-TV SERVICES
In 2013 Rostelecom continued to develop pay-TV services based on a single technical solution. The federal
platform that delivers digital content to different types of screens available both for subscribers of its own
network, and for general Internet users, 90 % of subscribers of regional products were connected. In 2013
the new federal product "Interactive TV for legal entities" was introduced as well as functionality to support
interactive TV 3d, subtitles, poll services, media player, connections bandwidth control system was
expanded.
Upon results of 2013 the Company’s revenue from provision of PayTV services amounted to
11,906 million rubles or 4% of the total income.
Rostelecom continued development of OTT products: Zabava.ru portal is now available on Android
applications and Smart TV LG, authorization through social networks is introduced, the number of channels
is increased from 89 to 131, the regional anti-virus migrated to a single federal solution.
As part of the development of content promotional channels "All TV" within Interactive TV and DTV network
were launched as well as new TV-channels.
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In addition, implementing the concept of Double Play, Rostelecom offers its customers packaging interactive
TV services with broadband internet access. The result in 2013 was the growth of revenue of pay-TV
services by 132 % (IPTV by 88%).
DATA SERVICES
Widening its lines of business in 2013, OJSC Rostelecom assigned a special priority to the development of
data transmission and telematic services, including Internet access and data center services, as well as the
provision of virtual private networks (VPNs).
Easy access to the high-speed Rostelecom network in all regions of the Russian Federation, flexible tariff
options and guaranteed superior quality and reliability, all help maintain strong demand for data services.
In 2013 Rostelecom’s revenue from provision of data services amounted to 23,025 million rubles or
7% of Rostelecom’s total revenue.
Using huge capabilities of a powerful modern telecommunications network enables the Company to offer
data transmission services to various categories of customers, from residential consumers to large
operators, content providers and governmental authorities.
Network Interconnection and Internet traffic transit are among the Company’s top priority activities.
In 2013, compared with 2012, the Company increased its market share in the Internet backbone to 40%. The
factors of significant growth in demand for Rostelecom services are extensive high-speed data network and
high quality parameters, which are provided through direct connectivity to the world's leading Internet service
providers, the largest traffic exchange sites and content sites in Russia and abroad. One of the important
activities of the Company in 2013 was a further expansion of peering relationships with international and
Russian operators in order to improve the network connectivity, quality of Internet access services and to
reduce costs for the purchase of Internet traffic.
A key milestone in the development of both the international and Russian segment of Rostelecom-owned
MPLS network was the increase of the European network capacity up to 1.4 Tbps by the year end and
establishment of regional peer-to-peer connections with networks of most significant domestic Tier-2
providers for traffic localization, aimed at the optimal routing and saving backbone resources. By the end of
the year, the total capacity of peering connections with Russian and foreign operators and content providers
was increased up to 2.4 Tbps.
Nowadays, the Company is present at such traffic exchanges AMS-IX (Amsterdam, Netherlands), DE-CIX
(Frankfurt, Germany), LINX (London, UK), MSK-IX (Moscow) and Netnod (Stockholm, Sweden).
Google Global Cache (GGC) project was launched to install Google caching nodes on Rostelecom’s
network. At the moment the nodes are installed in all Macroregional Branches of Rostelecom. In total all
Google nodes provide to users 300 Gbps during peak hours, while consuming less that 50 Gbps. With
launch of the GGC project Rostelecom’s users experience significantly shorter response time to access
Google services and it became possible to view video content with the very best quality.
Provisioning of Virtual Private Networks (IP VPN) is an interesting option primarily mostly for
Rostelecom’s corporate customers. Rostelecom’s own IP/MPLS backbone network capabilities enables the
Company to offer services for provisioning of private virtual networks (IP VPN) uniting all geographically
distributed customer offices into a protected corporate network with a united information environment, full
range of communications services, and high reliability.
Data transmission security is ensured with the use of MPLS technologies, where each VPN- network of a
customer is separated from networks of other customers, thus providing full protection of the traffic from
unauthorized access. In addition, Rostelecom’s IP/MPLS network has been granted a certificate of
compliance of the packet switching network with information security requirements of FSTEC of Russia,
which guarantees a high degree of protection of the provided services.
High reliability and availability of services are ensured by ring protection on Rostelecom’s backbone network,
which is guaranteed by signing the Service Level Agreement (SLA), and also backed by round-the-clock
network monitoring and user support.
Rostelecom ensures provisioning of L3 VPNs of any topology and L2 VPNs/VPLS. Depending on customer’s
requirements the Company will provision VPNs of any scale: local, nationwide, and international.
Applying common IP-based standards enables integration of various company services and features VPN
services, such as International Free Call service (dial numbers 8-800), outbound domestic and international
long-distance telephony services over IP, Internet access services and server collocations services. These
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ANNUAL REPORT
universal standards permit Rostelecom to offer its clients comprehensive services, with convenient usage
and saving of time.
Excellent quality, superior performance and reliability characteristics of Rostelecom services to provision
virtual private networks are confirmed by a certificate of compliance of the INTERECOMS Voluntary
Certification system for services in the field of communications, information technologies and quality systems
of enterprises.
In 2013 Rostelecom continued to enhance the carrier-grade service “Interconnection and transmission
of traffic of virtual private networks (InterAS VPN)”. Using this service, operators are able to extend the
reach of their virtual private network services to the entire data transmission network of Rostelecom.
Such interactions between operators allows for creation of a virtual private network (VPN) between offices
located in the networks of different operators, with the networks possibly situated in different countries.
Regardless of the distance between the user networks, or its offices and regional sites, IP VPN ensures full
connectivity between them, security, operation and interactions of any business applications.
InterAS VPN service features all of the advantages of the IP VPN service, including support of Service
Quality Management (QoS), the possibility to implement VPN with any topology, provision of high security
data transmission, as well as reduced costs of equipment and network operation. The principles applied in
the provisioning of network-network interface, including agreement on Classes of Service (CoS) and carrier
service level (SLA), guarantee an excellent quality of IP VPN services of both parties involved.
The key competitive advantages of InterAS VPN service offered by the Company are considered to be wide
geographic coverage of its own backbone network, optimization of customer’s expenses and flexible tariff
plans, advanced technology and equipment, as well as a certificate of compliance for packet switching
networks with information security requirements of the FSTEC of the Russian Federation.
Rostelecom data-center services are currently actively adopted by corporate customers and
communications service and content providers. By the end of 2013, the Company has set-up 13 data
centers, located in Khabarovsk, Novosibirsk, Ekaterinburg, Kazan, Kaliningrad, Stavropol, Krasnodar,
Ryazan, Sochi and Moscow. Rostelecom’s service offered on the basis of data centers allow customers to
install their own server or telecommunications equipment or rent from Rostelecom a server with required
configuration and have a permanent high-speed access via Internet to information resources located on
servers.
Date Center services enable Rostelecom customers to have a high-speed access to data information
resources with confidence in security and integrity of the stored data, and in stable and uninterruptible
operation of the equipment and information systems. The Company was granted certificates of compliance
for its data center services from the INTERECOMS Voluntary Certification system for services in the field of
communications, information technologies and quality systems of enterprises. Additionally, committed quality
of service is supported though usage of state-of-the-art technologies and legally and financially ensured by
signing a Service Level Agreement (SLA).
Diversifying its business in 2013, Rostelecom aggressively advanced and promoted its data center services
among hosting and content providers. Now Rostelecom’s data center services, like placement of one’s own
equipment in a data-center or renting from the Company a dedicated server with a specific configuration are
already widely-used by major federal and regional content providers.
In 2013, Rostelecom introduced a new service for the business segment “WEB-video conferencing".
Service aims at organization and support of multi-user video conferencing standard on PCs and Internet
channels, without the use of videoconferencing equipment. To participate in the WEB-conference, a user
requires only a personal computer connected to the Internet, WEB-camera, the headset (speakers,
microphone).
Rostelecom continues to deploy VoIP-transit service specifically designed to meet the needs of
operators who offer IP-telephony services to end users, for the purposes of interconnection and voice traffic
routing over IP. Interconnection with Rostelecom’s network is provisioned in facilities or traffic exchange
points, as well as through public Internet. The service ensures reliable traffic transmission routes, and
required port speeds depending on the operators’ traffic volumes.
The Virtual Corporate Telephone Network service (Virtual Telephone Network - VTN) enables provision
of a corporate telephone network with a common uniform numbering plans with short numbers and
distribution of incoming calls on the basis of an IP-network, without the need to purchase a traditional PBX
switch, while using over 100 additional intelligent services of the Company’s IP-based softswitch. It is worth
noting that some of these services and features are impossible to implement using traditional digital
telephone switches.
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ANNUAL REPORT
Using the relevant web-interface a customer is able to manage settings of its corporate telephone network
and additional intelligent services, while technical administration of the corporate telephone network is
outsourced to Rostelecom.
NETWORK INTERCONNECTION AND TRAFFIC ROUTING
Provision of interconnection with its network and voice traffic routing services has been historically a key
Rostelecom designation. The Company offers interconnection and voice traffic routing services on the local,
area (NPA), long-distance and international levels of interconnect to over 2,300 Russian and foreign fixedline and mobile operators.
In 2013 the Company’s revenue derived from interconnection and traffic routing services amounted
to 24,864 million Rubles, accounting for 8% of the Company’s total revenue.
Network interconnection service consists of establishment of inter-operation between the Rostelecom
network and various operators’ communications networks in order to make it possible to transmit traffic
between them. Technical facilities of operators can be connected Rostelecom’s resources both by dedicated
channels and directly to ports of switching equipment. In order to perform interconnection, an operator is
allowed to install its equipment on Rostelecom’s technological platforms. It is also possible to interconnect
with Rostelecom’s network through the use of technical facilities of other operators, interconnected with the
Company’s network. The Company Points of Interconnection are located in all Russia’s constituent entities.
Rostelecom also offers call termination services to networks of Russian and foreign operators. These
services enable traffic delivery from points of interconnection with other operators’ networks to user
(terminal) equipment on Russian and foreign networks. Traffic delivery ensures quality transmission of voice
and facsimile messages, and ISDN and IN traffic. Additionally Rostelecom has facilities for provision of
switched transit for voice traffic across its own network situated between networks of Russian and foreign
operators.
LEASED LINE SERVICES
Realizing the potential of its main competitive advantage – the largest modern main telecommunication
network of the Russian Federation, in 2013 Rostelecom takes a leadership position in the market providing
for the use of digital leased lines throughout the Russian Federation and abroad. The main users of these
services are corporate clients and operators.
In 2013, revenues from leased lines totaled 9,486 million RUB or 3 % of the total revenues of the
Company (including the operating segment - 6288 million RUB or 2% of the Company's total
revenue).
Rostelecom offers for lease 10 Gbps circuits on any scale: local, intra-area, national, and international. The
service is provided on the basis of Rostelecom’s own high-speed backbone network and distributed local
networks in all regions of Russia.
Rent of digital channels from Rostelecom enables a customer to transmit huge volumes of information of any
type, including data, voice and video traffic, without any restrictions. Customers can also use leased
channels to set up corporate networks, thus uniting all regional offices in one common information
environment.
Leasing its digital circuits Rostelecom guarantees security of transmitted information. Any information
transmitted internally via communications circuits is protected against any external influence, as data is
exchanged directly and without any need for additional switching equipment. This is particularly important for
customers with strict information security requirements. Moreover, the Company ensures round-the-clock
use of a dedicated circuit with a guaranteed throughput, as well as the ability to promptly upgrade the circuit
capacity.
High reliability of the provided service is ensured by using dense wavelength-division multiplexing DWDM,
ring protection of network sections, and supported by signing a Service Level Agreement with the customer.
Rostelecom continues to deploy VoIP-transit service specifically designed to meet the needs of
operators who offer IP-telephony services to end users, for the purposes of interconnection and voice traffic
routing over IP. Interconnection with Rostelecom’s network is provisioned in facilities or traffic exchange
points, as well as through public Internet. The service ensures reliable traffic transmission routes, and
required port speeds depending on the operators’ traffic volumes.
INTELLIGENT NETWORK SERVICES
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ANNUAL REPORT
Rostelecom’s own telecommunications network and intelligent platform enable the Company to provide its
customers with intelligent network services on local, intra-area, federal, and international levels, offering high
quality communication at low prices and huge opportunities to gather and handle statistical information.
On the basis of License No. 29777 issued by the Ministry of Communications and Information Technologies
of the Russian Federation Rostelecom provides the following intelligent network services:





Freephone service, using 800 dialing code;
Televoting service using 803 dialing code;
Premium rate communication services with 809 dialing code (Premium Rate Service);
International Freephone Service;
and also additional services: web-click services for "freephone" and "pay additional fee", allowing the
users to access information, reference and entertainment content.
In the past year, using "Televoting" Rostelecom provided telephone voting during the International Song
Contest "Eurovision 2013" and "Children's Song Contest "Eurovision 2013".
Within the service "freephone" the client may be granted a large choice of intelligent numbers, including easy
ones, from the following pools of 8-800 numbers: 100, 200, 220, 303, 510, 707, 301.
ENHANCING COOPERATION WITH GOVERNMENT ENTITIES
Historically, Rostelecom has bee providing telecommunications services to state and governmental bodies in
defense, security and law enforcement sectors. High quality and security of services, as well as the
Company’s skills and care have made it a trusted partner for such respected state bodies of the Russian
Federation as the Federal Security Guard Service (to provide telecommunications services for the
Presidential and governmental communications), the Ministry of Internal Affairs, the Ministry of Defense, the
Ministry of Emergency Situations and Relief, the Federal Security Service, the Ministry of Telecom and Mass
Communications of the Russian Federation, the Russian Post the Federal Service for State Registration,
Cadaster and Cartography, the Federal Tax Service, the Pension Fund, the Federal Healthcare Institution
Center of Blood of the Federal Medical and Biology Agency, the Federal Customs Service, the Supreme
Court, Court Department of the Supreme Court, the Federal Center for IT implementation of the Central
Election Commission, Federal Technical Supervisory Service, Federal Communications Supervisory Service,
and many others.
Besides on the basis of Federal Law № 94-FZ of 21.07.2005 and relevant Ordinances of the President and
Government of the Russian Federation Rostelecom was designated as the sole contractor to provide
telecommunications services for Presidential and Governmental Communications (Specsvyaz of the Federal
Guard Service of Russia), telecommunications network of the Ministry of Defense, communications network
for New Generation of Passport and Visa Documents (covering networks and telecommunications nodes of
the Ministry of Internal Affairs, Federal Security Service, Ministry of Defense of Russia).
In the reporting year, the Company provided Ministry of Defense of Russia with communication services via
dedicated channels, VPN services and services to ensure operation of the equipment at the Company’s
facilities. A phased transition to modern communications technology is being performed as well as transition
of the facilities previously connected via satellite resources. Rostelecom provides local, intra-regional, long
distance, international telephone and telegraph communications in the interests of Ministry of Defense of
Russia subscribers located throughout the country. Large-scale military maneuvers "West-2013" are
provided, large preparatory works to provide communication services of a series of military ministries and
departments are carried out in connection with the XXII Winter Olympic Games "Sochi- 2014".
In addition, the structural units of Rostelecom provided Russian FGS with telecommunications services in the
interests of senior government officials. Some of these services include rental of digital communication,
creation of virtual private networks VPNs, as well as operations and maintenance and operation of customer
communication equipment. Network resources were provided by the Company for information and
telecommunications network of legislative initiative subjects of the Russian Federation for 86 regions.
Also in the framework of the state contract the Russian Defense Ministry units are granted permanent access
to the resources of the Internet, including the implementation of the provision of information services and
data center services of the Company. Official Russian Defense Ministry's media site is focused on the target
audience and reflects the new face of the doctrine of the Armed Forces, provides the main results of the
reforms and informs about the activities of the Armed Forces of the Russian Federation. In addition, the site
offers public electronic document bank "Feat of the people in the Great Patriotic War of 1941-1945".
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ANNUAL REPORT
Russian FMS signed a state contract with Rostelecom as the sole provider of services for the operation and
development in the second half of 2013 the state system of production, processing and control of passport
and visa documents of new generation (PVDNG). Within the framework of a state contract by the Company
the services are rendered to all objects of single information and telecommunications infrastructure of
PVDNG system designed for automated collection, storage, processing and transmission of personal
registration of citizens, as well as other service information required for registration, issuance and control of
new passport and visa documents. By the end of 2013 VPN network joined over 1,450 objects of the system.
Due to the optimal price/quality ratio in 2013 Rostelecom developed new projects implemented with federal
state authorities. The most significant projects include the provision of IP VPN services to over 2,500 objects
of the Federal Bailiff Service, IP VPN services and the Internet to the central office and all regional offices of
the Federal Service for Financial and budgetary supervision, IP VPN services for the headquarters and
departments of Investigative Committee in Moscow, as well as in the Southern and North Caucasus federal
districts.
Rostelecom pays great attention to not only the promotion of traditional services, but also to the development
of new ones. In 2013, the project on provision virtual servers for the operation of a central database ported
numbers was started with CSRIC. Furthermore, Rostelecom provided introduction and operation of the
second stage of the call center Russian Register located in Kazan. And in the interests of Russian Ministry of
Health in 2013 a project aimed at creating data centers required for the functioning of the unified state health
information system was also implemented.
In order to ensure the functioning and development of the Russian National Integrated Population
Notification and Warning System (OKSION) created within the framework of the Federal Target Program
"Risk Reduction and mitigation of natural and man-made disasters in the Russian Federation until 2015", the
Company provided services on data transmission over communication channels. Single network connected
terminal complexes of OKSION in 36 regional information centers across the country.
Thanks to the years of experience in the provision of telecommunications services, wide geographical
coverage and the use of modern protected communication channels Rostelecom guarantees high quality
and reliability of the services provided. This is a determining factor of trust that the Company obtains from the
government agencies and authorities.
In order to ensure transparent elections in the regions of the Russian Federation in a single day of voting on
08.09.2013, Rostelecom provided services for the provision of data transmission networks, signal broadcast
on the Internet, data collection and storage under the regional contracts entered between the Administration
of Krasnoyarsk, election commissions in the territory of the Republic of Khakassia and the Leningrad Region,
Department of Information Technology of Trans-Baikal Territory and the city of Moscow and taking into
account the requirements of CEC Regulation dated 26.09.2012 No 142/1076-6 “Order of application of video
surveillance and broadcast images in the premises in order to vote in elections and referendums held in the
Russian Federation".
In total, the services were provided in respect of 5065 of precinct election commissions. The project involved
the Company’s infrastructure network, two data centers, call centers; two portals are deployed
http://webvybory2013.ru and http://vybory.mos.ru.
GUARANTEE OF HIGH QUALITY OF TELECOMMUNICATIONS SERVICES
While offering its communications services to customers and developing new telecommunications services,
Rostelecom traditionally devotes a lot of attention to the quality of its products so as to ensure a competitive
advantage in the market. Since 2006 the Company has in place a Quality Management System in
compliance with ISO 9000 Standard requirements.
In 2011 for the first time after its reorganization Rostelecom was granted certificates of compliance of its
quality management system (QMS) not only with requirements of GOST R ISO 9001-2008 Standard, but
with requirements of the International ISO 9001:2008 Standard.
In 2013, the Company received new certificates for compliance with the updated standard GOST ISO 90012011 (ISO 9001:2008), the certification activities are added with software development and consulting in this
area. The inspection and validation were performed issued by a respected Russian certification body – ANO
Certification Center “Communication – Certificate” and international certification organization AFNOR
Certification.
According to the results of recertification, the following certificates are obtained:
•
Russian certificate of compliance with the national standard GOST ISO 9001-2011 (ISO 9001:2008);
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•
International Certificate of compliance with the standard ISO 9001:2008, issued by international
group of companies AFNOR Certification;
•
International Certificate of compliance with the standard ISO 9001:2008, issued by International
Certification Network IQNet.
The certificate applicability covers the quality management system of the entire Company, as applied to the
design, development, deployment and provision of telecommunications and broadcasting services.
The ISO 9000 family of standards are related not to the quality of provided services themselves but to the
quality of management system which should identify and ensure achievement of the targets related to
customers’ satisfaction with the quality of offered services. At present, the ISO standards of this series are
the most popular and widespread. They are recognized worldwide and adopted as national standards in
more than 140 countries.
The certificate GOST ISO 9001-2011 (ISO 9001:2008) indicates the ability of Rostelecom to provide services
relevant to ever-increasing demands of consumers, and to promote the effective and successful business
development, which is important for acquisition and maintenance of the leading positions in various market
segments.
Availability of certified services from Rostelecom is an additional assurance that the Company provides
telecommunication services with a guarantee of high quality meeting customer requirements and in
compliance with relevant technical performance norms and standards.
INVESTMENT PROGRAM IMPLEMENTATION
This section provides information according to the International Financial Reporting Standards.
Investment program
Measurement units
2013
Investments in fixed assets (CAPEX)
RUB mln.
68 487
Broadband access (B2C)
%
20,7
Broadband access (В2В)
%
5,7
Development of backbone IPMPLS
%
18,7
Development of federal mobile business
%
28,5
Development of traditional telephony
%
1,5
Digital TV, Internet services
%
2,8
Electronic government, innovations
%
2,6
Sochi-2014
%
1,4
Organization of sales points, call centers
%
1,3
Implementation of IT-solutions
%
10,5
Other
%
6,3
Areas of investments:
Major and strategically important investment projects of 2013
Protection of GSM 1800 Licenses
In 2013 the Company has protected GSM-1,800 licenses in 37 regions and set up 3,238 RBS Pico basic
stations in such regions. Core switches of mobile network have been installed and launched in 44 regions.
Positive expert conclusions of FGBU CENTRE MIR IT for UMTS networks have been received, and object
were put into operation in 31 regions.
Expansion of the mobile business within GSM and UMTS licenses, North-West macro-regional branch
According to the results of 2013, general construction works have been completed on 624 base stations, 470
stations have been put into broadcasting, Core switch of mobile network has been assembled and put into
operation, the network was commissioned for commercial exploitation.
Expansion of the mobile business within GSM, UMTS and CDMA licenses, Ural macro-regional branch
In 2013 construction has been completed and 3G network has been commissioned in 6 regions of Ural
macro-regional branch (in Perm krai, Sverdlovsk, Chelyabinsk, Kurgansk, and Tyumen oblasts, KhantyMansi Autonomous Okrug, Yamalo-Nenets Autonomous Okrug), 1554 UMTS base stations were launched,
438 GSM base stations and 78 CDMA stations were launched.
Expansion of the mobile business within GSM/UMTS/CDMA/LTE licenses, South macro-regional branch
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Contracts have been signed on planning and surveying, construction and installation, and precommissioning works for base stations of Soyuz-Telephonstroi OJSC (Sochi) and YUKS OJSC (Krasnodar
and coast from Novorossiysk to Tuapse);
LTE 800/2600 network in Sochi has been launched, including Olympic objects (Coastal and Mountain
clusters);
Works have been initiated for expansion of LTE in Krasnodar krai;
Works have been completed for construction and installation and pre-commissioning works of switches in
Krasnodar and Makhachkala, controlling units in Novorossiysk, Sochi and HLR backup in
Novorozhdestsvenskaya (УАК-6);
52 GSM-1800 stations have been launched and integrated in Krasnodar krai;
368 site lease agreements have been signed, works have been completed for construction of base stations:
UMTS - 210, GSM - 97, CDMA - 92, LTE – 77 pcs;
Works have been completed for integration of base stations: UMTS - 183, GSM - 15, LTE – 481 pcs.
Expansion of the mobile business within GSM, UMTS and CDMA licenses, Moscow macro-regional branch
1560 agreements have been signed for deployment of base stations equipment, 1543 stations have been
assembled;
Tenders have been conducted for supply of basic and ancillary equipment of base stations and Core
switches of the network in 2013;
Core switch has been assembled and put into technical operation on the site located at: 26, Suschevskiy Val
St., with geo-reservation of HLR at 30 Goncharnaya St.
Purchase procedures have been implemented and contracts have been signed with 10 new contractors for
planning and construction-installation works.
Expansion of the mobile business within GSM and UMTS licenses, Central technical projects of mobile
communications
Equipment for expansion of roaming testing system has been delivered, equipment has been integrated into
the network.
GTP-relay equipment has been delivered to all the macro-regional branches, equipment installation has
been initiated.
Due to a decision to establish joint venture with Tele2 Russia purchase of Systems of control and
management of DPI/PCRF (PCC) data transmission services for mobile subscribers and Systems of network
signalization monitoring have been suspended.
Expansion of IP/MPLS data transmission network, implementation of CDN solution
Additional channels have been arranged for TV broadcasting of the Olympic Games in the Russian
Federation;
100% reservation of traffic of objects participating in Olympics broadcasting has been ensured in order to
provide uninterrupted operation of the network at that time;
Construction of strong and diverse CDN (Content Delivery Network) has been completed enabling provision
of high-quality, speedy, and reliable services to content providers and end users;
367 sites of transport network and 87 nodes of multi-service network have been put into trial operation;
Technical preparedness of 509 nodes of 100G/40G transports network, 104 nodes of multi-server network
has been ensured in the territory of all macro-regional branches;
Planning and surveying works have been completed for 964 sites of all the macro-regional branches;
Construction and installation works have been done on 1,290 sites in the area of all macro-regional
branches, pre-commissioning works on 696 sites;
Existing binding units for connection of regional IP/MPLS nodes to the backbone network have been
arranged and expended;
ILD transmission to Belarus (Yartsevo, by 500 Gbps) has been additionally enhanced, new DWDM system
was built, and existing ones have been additionally equipped;
Extension of ILD channels to Finland has been arranged from Kingisepp (620 Gbps).
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121 regional nodes have been launched, 133 RU routers and 79 backbone network routers have been
launched, the backbone network has been extended by 9,967 Gbps.
Provisioning of High-Speed Transit Expressway Transit Europe-Asia (TEA Express)
In 2013 technical preparedness of ILD-transmission line Russia (Kyakhta) – Mongolia (Altanbulag) has been
provisioned with capacity of 80 GB/s with installation of a new DWDM system in the Kyakhta – Turuntaevo
area, national network has been additionally equipped with new DWDM systems with 200 GB/s capacity:
in ‘Kingisepp – Kochenevo’ area, without reservation;
in ‘Kochenevo - Knyaze-Volkonskoe’, with diversity receipt of 100 GB/s.
This project applied qualitatively new equipment allowing for traffic transmission with linear velocity up to 100
Gbps and supporting interfaces of OTN (a technology of optic traffic transmission using standardized speeds
hierarchy, frame structure and client signal mapping formats).
Construction of Fiber-Optic Cable Link Vologda-Arkhangelsk-Belomorsk to create a ring in North-Western
region
The project has been put into trial operation. In 2013 two last project stages were completed, within which
FOCL-FL (6 OF; 2 OF) were laid on Vonguda-Kem and Kem-Kandalaksha areas, 350 km long each, binding
nodes from FOCL Arkhangelsk-Kem and FOCL Kem-Murmansk were built to Rostelecom’s sites with lines
about 30 km long, digital transmission systems were provisioned (10G, STM-64) using DWDM equipment on
the Kem-Murmansk site along the geographically diverse route.
Construction of intrazone fabric-optic cable link Salekhard-Nadym:
In 2013 construction of high-speed digital transmission link Salekhard-Nadym was initiated using DWDM
technology at the site of backbone transport network which will enable:
significant reduction of costs for leased channels;
provision of up-to-date telecommunication services to population of such areas;
ensuring quality and reliability of telecommunication services;
ensuring communication services at the qualitatively new level for private companies and state authorities.
Innovative development of the Company
In 2013 final stages of works in the following areas were completed:
Development of the monitoring system for parameters and indicators of quality of fiber-optic lines in the
exploitation process;
Creation of the prototype of Unified Reporting System of Electronic government infrastructure;
Development of automated set of information analysis using the DPI technology;
Development of the prototype of unified multiplex add-on units allowing for receipt of convergent services
package 07. Smart home;
Establishing a pre-processing centre for receipt and processing of payments by bank cards;
Development of О7 services, creation of prototypes of platform services, development of complex services
for automation of organizational and technological processes of duty-dispatching services, fire protection
services, population warning, follow-up of 112 cloud service;
Purchase of IT equipment for cloud platform on industry services programs, development of components for
Rostelecom cloud platform in charge of display of specialized industry services, adaptation and follow-up of
the payment support system for calculation of payments at the cloud platform.
EMC data storage system has been delivered, and equipment for 1.5. (1.7.) national cloud platform
modernization has been partially delivered.
Works on О7. are expected to be done within the Education, Medicine, Housing and Public Utilities, and
Safety projects.
Development of cloud platform infrastructure will be continued in 2014.
Creation of the single national infrastructure operator for provision of the Electronic government services
In 2013 the Company made additional supply of the equipment for additional enhancement of the Electronic
government regional infrastructure, final stages were completed in the following areas:
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Development of regional segment of Electronic government infrastructure;
Development of technical and organizational solutions of Rostelecom’s cloud platform;
Development of components of infrastructure of execution, granting, and support of hardware for VPN
networks identification and attestation with regards to the Informational Society project and collective centers
of data processing for correspondence to requirements of information safety in the certification system of
FSTEK of Russia;
Design of a prototype of the mobile electronic signature services for the Single Portal of State Services
(EPGU);
Deployment of infrastructure of basic services of information safety of Electronic government systems;
Modernization of cloud service of electronic document flow;
Creation of the portal of the Authorization center and development of systems for automated working places
of issuance of activation codes for the personal room and digital signature of the Single Portal of State
Services (EPGU) user;
Modernization of the cloud service of multifunctional center automation: 1 stage of R&D works has been
implemented – Development of regional segment of electronic government infrastructure, 3 stages of
prototype creation for the complex service of functioning control and management system (FCMS) have
been completed.
Construction of the backbone network of Single Information and Telecommunication Infrastructure of 2014
Sochi Winter Olympic Games
In 2013 cables were laid between the mountain and coastal clusters along the basic and back-up routes,
equipment for the backbone network nodes was installed at all the competition spots and on non-competition
spots where technical requirements were finalized by the objects Investors/Developers.
Cables were also installed to ensure back-up routes in the Olympic park. Equipment was installed in the
Main Media Center for provision of channels services for the interests of the Olympic Broadcasting
Corporation.
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SOCIAL RESPONSIBILITY
The projects in the social sphere are the most important part of corporate social responsibility of Rostelecom
both the federal and regional levels. The company is engaged in social activities and contributes to the
solution of social problems and issues for over 10 years.
The Company’s mission is to not only provide high quality communication services to its clients, but also to
help in the development of local communities in the regions where it operates, to promote a stable social
environment and quality of life in the country.
Own infrastructure, telecommunication resources, a large range of services and relationships with regional
authorities allow Rostelecom to effectively solve the problems of individual groups, such as veterans or
people with disabilities as well as more global challenges in the areas of public life such as health, education,
sports, environment and culture.
Rostelecom provides long-term public interest projects in the whole territory of the Russian Federation – from
Kaliningrad Region in the west to Sakhalin in the east, helping to solve the most pressing social issues.
Support of professional education
In 2013, the Company assisted to specialized higher educational establishments and educational institutions
of secondary special education, namely to Moscow Technical University of Communications and Informatics,
Bonch -Bruevich Saint-Petersburg State University of Telecommunications, Siberian State University of
Telecommunications and Informatics (SIBSUTI), College of Telecommunications and Informatics SIBSUTI.
During 2013 on the basis of basic universities within the Rostelecom program of innovation development
own department of the Company continue to operate.
Support of professional education institutions means, first of all, improvement of the material and technical
base of educational institutions, support for student initiatives and student clubs, payment of scholarships,
internships to the students in business units of the Company.
Application of modern technologies for education and children's creativity
In February 2013 at the VI International Winter Arts Festival in Sochi Rostelecom organized a series of music
master class for young musicians in four cities of Russia – Sochi, Yekaterinburg, Novokuybishevsk (Samara
region) and Yaroslavl. This was made possible thanks to the organization of multi-channel video that
combined chamber music hall of Sochi and concert venues in these cities, equipped with special modern
systems for videoconferencing. As a result, the young musicians and their teachers had a unique opportunity
to "visit" the lessons of the great musicians – Yuri Bashmet and James Galway and to ask them questions
about the secrets of mastering musical instruments in real time.
Projects in the field of Internet security
To protect the children and adolescents from Internet content contrary to Russian law, all tariff plans of the
service offered to the clients include “Child at home”. The Company also manages the federal project to
provide content filtering services for secondary schools.
In addition to technical solution of Internet security, in 2013 the Company has implemented a series of
communication projects on safe Internet – parent meetings "Children in the Internet", "Internet security in
schools", "Children's video clips contest", "Social poster contest", National Russian competition of
pedagogical development "Safe Internet" - which are aimed at different audiences – children, teachers,
parents and the public. Complex of problems that raise these projects include work with malware, spam,
fraud, malicious content, etc.
Youth competitions and contests
Along with the support of specialized education in the region, the Company provides support to various
competitions, which aim to stimulate creative interest of pupils and students to modern computer technology,
their involvement in the activities of the practical use of Internet technology and computer graphics.
An example of this work in 2013 was the active support of the International Student Olympiad in Information
Technology “IT- Planet".
“Granma Online, Grandpa Online"
One of the most ambitious social projects for several years is the programs to increase the level of computer
literacy of older people.
Rostelecom, together with interregional public organization "Association of veterans, invalids and
pensioners" (IRPO "AVIP") and Intel, implements a project "Grandma – online, grandpa – online". Being
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Official Partner of the Program, Rostelecom provides Internet access services through its own network of
opening centers of learning the basics of computer literacy and information and communication technologies
(Centers) for the elderly in the regions of Russia.
The main goal of the program is to promote the development of information society in our country, and in
particular, the involvement of the elderly people in the informational and communications space. Training
courses and training programs are focused on addressing the psychological barrier of the older listeners to
new technologies, the formation of their computer and the Internet skills, including social networks, forums,
IP-services.
Program participants learn the basics of working with a personal computer, gain skills to find specific
information on the Internet and e-mail use, learn how to use popular apps for online communication (ICQ,
Skype), social networking, etc.
Social initiatives in partnership with the Organizing Committee “Sochi- 2014"
Starting from 2009, Rostelecom is the General Partner of the XXII Olympic Winter Games in Sochi and
participates in the Olympic project, the principle of which is "Olympics to everyone!".
Through this partnership, in 2013 the Company was a party in a number of social initiatives of the Organizing
Committee "Sochi- 2014", aimed at the promotion and popularization of Olympic values in the regions of
Russia.
Federal sports and educational activities for children and youth have already become a good tradition in
Rostelecom. Since 2011, especially in partnership with the Organizing Committee "Sochi 2014" in the
preparation of the XXII Winter Olympic Games, the Company is implementing a program of children's youth
sporting events and competitions. Events are held twice a year – in winter and late spring, and their
participants come from dozens of cities across Russia. Olympic athletes, medalists and winners of
competitions in different sports actively participate in the program, and the guests and spectators were
numerous local residents who attend these fun competitions.
With the assistance of Rostelecom in 2013 continued the implementation of the program of the Olympic
distance education through a memorandum of cooperation with the Organizing Committee of the XXII
Olympic Winter Games in Sochi in 2014 and the Russian Olympic Committee (ROC) to implement the
Olympic education program "Sochi 2014" at the federal level, which was designed for a year and a half and
covered all regions of our country. In accordance with the memorandum, Rostelecom as telecommunications
systems partner of the Olympic education "Sochi 2014" provided a platform equipped with videoconferencing
system in Moscow and other Russian regions to conduct training seminars for teachers from regional
schools, trainers, etc.
At the beginning of the new academic year 2013-2014 Rostelecom, Russian Olympic Committee (ROC) and
the Organizing Committee of the XXII Olympic Winter Games in Sochi in 2014 for the first time in Russia
held innovative Olympic Internet lesson "London 2012 - Sochi 2014” for schoolchildren. In Moscow, the
pupils came to the Olympic lesson to the building the Organizing Committee "Sochi 2014", their peers from
Sochi connected via a videoconferencing system. At the same time, anyone could see webcast tutorial sites
www.rostelecom.ru and www.soch2014.com. During the lesson, students learn firsthand about the Olympic
and Paralympic Games in London, as well as about the preparation of the Games in Sochi.
Cooperation with the Russian Figure Skating Federation
Starting from 2009 Rostelecom, is the General Partner of the Russian Figure Skating Federation (RFSF).
Annually, the Company directs financial assistance for organizing and holding events of the Federation, for
the preparation of the athletes of the Russian national team for the Olympic Games, European and world
championships, final stages and ISU Grand Prix, etc.
In December 2011, Rostelecom and RFSF have launched a joint program of master classes "Rostelecom
Star Track". During the master classes, big sports stars shared secrets of their professional skills with the
young skaters, and young athletes had a unique opportunity to demonstrate their abilities and skills to the
famous coaches. In 2013, the activities of the program were held in 8 major cities of Russia – Yekaterinburg,
Nizhny Novgorod, Tver, Sochi, Yuzhno-Sakhalinsk, Tomsk, Murmansk, Tyumen – and ended in November
with child training in Moscow.
Assistance to the sponsored child care institutions
Rostelecom is actively helping a variety of social institutions – hospitals and orphanages.
The Company buys medical equipment and pays for emergency medical operations, allocates funds to
repair buildings and purchase of basic necessities, helps to organize holidays for children from orphanages
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ANNUAL REPORT
and meeting of relevant professional psychologists with children, provides channels for distance learning for
children.
Assistance is produced by both single appeals of the institutions and on an ongoing basis. Many of these
institutions are the sponsored organizations for macro-regional branches of the Company.
Christmas charity program for the sponsored orphanages and boarding schools
Expecting 2014 Rostelecom has implemented a unique charity program at the national level for children in
orphanages and boarding schools in dozens of Russian regions.
Total participants in this program became 90 children's institutions of our country, which take care of about 7
thousand students. As New Year gifts the Company sent the money to buy clothes and shoes, furniture,
educational, sporting and developmental equipment.
Also in 15 cities of Russia Rostelecom branch employees took part in a large-scale New Year's volunteer
project "You Can Become Santa Claus". Holiday trees were set in the Company’s offices and they were
decorated with unusual toys – Christmas decorations and crafts made by children from orphanages. These
toys were attached with children's letters to Santa Claus. Thus, each Rostelecom employee could choose a
letter and buy an appropriate gift to fulfill a child’s dream.
Expecting New Year 2014, Rostelecom again opened the doors of the main theater house of the country for
the children from the orphanages and boarding schools, as well as large families of Moscow and Moscow
region – on December 25, 2013 the Company organized a charity show "Nutcracker" ballet at the Bolshoi
Theatre.
New opportunities for children with disabilities
Rostelecom traditionally helps in the social integration of the people with disabilities and, in particular,
disabled children. Rostelecom, implements a program for distance learning of disabled children both at the
level of the Corporate Center and at the level of macro-regional branches, at home and in the institutions.
Thus, in 2013, in many regions of its presence Rostelecom participated in programs for distance learning, in
which the Company provides disabled children with unlimited access to the Internet, and provides delivery
and installation of the necessary equipment.
Support for veterans
Traditionally, expecting Victory Day Rostelecom and its subsidiary "Zebra Telecom" held a traditional
meeting with the Russian Committee of War Veterans and military service (RK WVMS). In 2013, the
veterans received new universal card s from "Zebra Telecom" that allowed them to make free calls to other
cities, not only from a landline, but with cell phone.
During the year Rostelecom has also organized a number of multi-channel video conferencing for the Great
Patriotic War.
Preservation of ecosystems
In its activities, Rostelecom seeks not only to avoid negative effects on the environment, but also tries to
minimize any environmental impact.
Telecommunications infrastructure itself produces no harmful emissions and industrial waste into the
environment, but new construction can have short-term negative impact on the environment. Therefore, in
the construction of telecommunications infrastructure Rostelecom constantly performs a complex
environmental measures that minimize emissions, insures the preservation of soil, water bodies, performs
mandatory technical and biological reclamation of the land.
The volunteers of the Company also regularly participate in federal and regional vents aimed at creating a
respect for the environment – the so-called "environmental task forces" that clean the environment from
debris and waste.
Support of national art
Since 2008 Rostelecom representatives are working in the Board of Trustees of the State Academic Bolshoi
Theatre of Russia.
The priority tasks of the Board of Trustees are to attract outside funding, facilitating Bolshoi Theatre in the
implementation of the new productions, organization of tours attracting stars and talented young performers,
as well as assist in improving management, financial and operating activities of the theater.
Company personnel
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Priority of personnel management policies of the Company in 2013 was the solution of the problem of
increasing operating efficiency of Rostelecom by creating organizational conditions for the growth of
employee productivity, rational redistribution of resources and optimization of organizational structures. As
part of solving this problem, during 2013 the Company has implemented a range of initiatives aimed at
optimizing the size and composition of the staff.
Key activities undertaken during 2013 in these areas were:
Activities for the integration of subsidiaries and affiliates within the merger with Rostelecom of Svyazinvest
and 20 subsidiaries and affiliates, held in October 2013;
Project on optimization the number of administrative personnel in the macro-regions through standardization
and optimization of the organizational and functional structures;
Improving the efficiency of the functions of accounting and taxation, treasury functions for the collection of
receivables and management personnel by sending transactional in multifunctional shared service center in
Yaroslavl, Voronezh, Nizhny Novgorod and Novosibirsk;
Optimization of the branch structure and composition of the Company's subsidiaries;
Optimization of the organizational structure of the Company due to the exclusion of the two levels of
government (regional and inter-regional communication centers) and the transition to the functional chain of
command in the regional branches;
Start of development projects in active sales in B2B and B2C segments, associated with recruiting and
training professionals of the commercial units (active sellers) and technical unit (installers);
Provide human resource development projects in mobile networks based on UMTS technology in Moscow,
St. Petersburg, Krasnodar, Samara and Novosibirsk;
Development of federal projects "Sochi- 2014" and "Information Society".
All activities related to the optimization of headcount were planned, agreed and enforced in accordance with
applicable law, the decisions of the competent authorities of the Company and the Company's internal
regulations.
The average headcount of the Company in 2013 was 152,586 people, and the average monthly salary was
increased in comparison with 2012 by 7.2 % and amounted to 31,567 RUB.
Average headcount of the Company
Average monthly salary of the Company’s employees
2011
166 933
26 702
2012
159 984
29 444
2013
152 586
31 567
Data are given for Rostelecom, excluding subsidiaries
The need to implement a number of key business initiatives, in particular the development of new business
segments, shows a new benchmark in professionalism and skill level of the employees. In this regard, in
2013 in order to develop enterprise-wide and professional competences, the Company continued training of
the employees in full-time and distance forms. About 50 thousand employees have been trained and
retrained for the past year. In particular, based on the Institute of Internal trainers over 14,000 professionals
of the Company have been trained by different programs such as sales, public speaking and orator skills,
stress management, effective customer service, effective communication during negotiations and other.
An important aspect of working with the staff of the Company is the programs aimed at retention and social
provision of the employees. For the purposes of improving the principles of social partnership the conditions
for constructive dialogue of an employee and the Company as an employer were designed. These terms are
fixed in the Collective Agreement of Rostelecom, in accordance with which the Company's employees are
provided with a variety of social benefits and guarantees.
A system of private pension provision of the Company and voluntary health insurance program is offered for
the employees whose main job is in Rostelecom.
In 2013, the Company continued to implement a long-term project to create a single integrated corporate
culture. Projects, including a large-scale case study, complex focus groups, interviews and public
discussions moved to the active phase of translation of the approved corporate model of corporate values.
During the IVth quarter of 2013, complex of measures aimed at the presentation of corporate values in all
macro-regional branches of the Company has been consistently implemented: responsibility,
professionalism, innovation, openness and continuity. The participants in these sessions, representing all
regions of Rostelecom business presence, had an opportunity to rethink and analyze, organically accept a
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basic framework of corporate culture, in order to subsequently extend new value to its business environment:
colleagues, customers and partners.
As part of the translation process, the representatives of the branches were able to get acquainted with the
new values of the Company, defined target audience that these values should be translated at and, most
importantly, offered options for concrete action required today by Rostelecom for the transition to a new
organizational culture. All proposals voiced at the event were recorded in order to subsequently form the
basis for the Company’s developed Code of Corporate Behavior of employees.
The initiatives, including the development and enactment of the Code, as well as promotion of corporate
culture in the units of the Company at the regional level are planned for 2014 and have already begun to be
implemented. They were included in the comprehensive strategic program "Staff Transformation", developed
by the Company in 2013 and are planned to be implemented during 2014-2018.
In addition, professional competitions among professionals employed in key business jobs: Technical
(among cable jointers) and commercial (among specialists working with the mass segment) have been
organized and conducted in the macro-regional branches of the Company. In addition, other traditional public
events were held in the macro-regional branches: sports, creative and gala events to celebrate the
significant industry and corporate achievements. During 2013 the Company has conducted more than 630
cultural events at the local, macro-regional and corporate level. Total number of cultural and educational
activities was decreased by 14% against the same period in 2012 due to the consolidation and centralization
of a number of local events. The total number of the employees involved in corporate life remained at the
level of the previous year.
As part of the rehabilitation programs for children of the employees of the Company, summer holiday of
children was organized in the resorts of Russia.
Labor protection
Work on labor protection in the Company in 2013 was conducted in accordance with the Labor Code of the
Russian Federation, laws and other regulatory legal acts on labor protection.
The activities to improve conditions and labor protection in 2013 cost 677 559.4 thousand RUB (in 2012, 673
105 thousand RUB). As per 1 employee labor protection costs totaled 4,644 thousand, RUB which is 9.3 %
more than in 2012 (4.21 thousand RUB).
The employees are provided with necessary clothing and protective equipment in accordance with industry
standards, regular medical check-ups are conducted by professional workers in work with harmful and
dangerous production factors. Labor protection training, certification of workplaces according to working
conditions, measures to reduce workplace injuries were developed and implemented.
In the reporting year 6 cases of fatal injuries occurred which is 2 cases more than in 2012. Causes of fatal
injuries were traffic accidents and fall of the workers from a height.
As a result of ongoing work to ensure safe working conditions in 2013 occupational injury rate decreased
compared with 2012 by 3% (64 accidents in 2013 compared to 66 cases in 2012). Number of man-days of
disability due to injuries (calendar) in 2013 also was decreased by 22.2% compared with 2012 (3883 mandays in 2013 - 5125 man-days in 2012).
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THE COMPANY’S DEVELOPMENT PRIORITIES AND PLANS
In 2013 the Company initiated analysis of current operations, as well as key strategy elements. That resulted
in approval of an updated Company development strategy for the period of 2014-2018 by the Rostelecom
Board of Directors in December 2013. One of key principles of updated strategy is setting forth various
approaches to development of two basic segments of Company business: the fixed and mobile ones.
As for the mobile segment which is not crucial for the Issuer’s income, it has limited scale of operations and
requires significant amount of capital investment, so a decision was made on further development thereof
within partnership with Tele2 Russia.
Formation of a joint venture with Tele2 Russia (hereinafter – JV) is an essential point for implementation of
Rostelecom strategy in cellular communications and is expected to enhance the Company positions in this
segment. Mobile assets of Rostelecom and Tele2 Russia complement each other perfectly, both in terms of
territory coverage, and with regards to combination of the expertise Tele2 Russia has in implementation of
innovation solutions with vast range of Company’s licenses and band of frequencies of new generation.
Furthermore, Rostelecom can enhance its share in the dynamically developing Russian market of mobile
data transmission greatly due to strategic participation in a large and fast developing operator able to
succeed in competition with key market participants.
JV will enable formation of a federal mobile operator that will be of significant benefit for both parties to the
deal and be favorable for both users and Russian telecommunication market in general. Joint venture has
plans for significant investments in development of 3G/LTE network and innovative mobile services for the
best interests of Russian users and corporate customers.
Practicability of amalgamation of assets with Tele2 Russia is contingent upon the following strategic
considerations:

JV will get the geographic footprint extended by the federal level, as well as the scale sufficient for
successful competition with existing federal operators.

Amalgamation of mobile assets will enable JV to participate fully in growth of data transmission services
market in Russian telecommunication market due to combination of successful operational model of Tele2
Russia in mobile segment and Rostelecom vast band of frequencies of new generation.

JV will have great potential for cash flows generation, including that at cost of realization of synergetic
effect of assets amalgamation on a mid-time horizon, in particular, in networks deployment and support,
sales of services and subscribers support which would be achieved due to perfect compelementability of
assets and resources of both companies enabling nation-wide deployment of operations faster and with
greater economic efficiency.

JV may offer convergent services of fixed-line and mobile communications at the federal level.

Rostelecom will receive additional benefits at cost of significant reduction of direct capital investments in
the mobile communications area, as well as assignment of mobile operations related debts.
As for the fixed-line segment being essential for the Company in terms of the profit and available expertise,
Rostelecom aims providing high-quality and up-to-date communication services to customers and partners.
With view to that Rostelecom will focus on solving the following key tasks:
1.
Technological leadership in network infrastructure.
One of the Company’s key competitive advantages is powerful extensive telecommunication network
covering all the Russian Federation regions. As for today, the most up-to-date innovative solutions are
available on the market, it witnesses substitution of regular technological cycle, which is why under
circumstances of growing demand in high-quality and up-to-date communication services to preserve and
increase the technological advantage the Company has, servicing about 34 mln households is of extreme
importance. Rostelecom’s objective is to speed up the fixed-line network upgrade to the maximum which will
let us offer new services with improved quality to our customers. In particular, the Company will implement
the large-scale project for modernization of the ‘last mile’ aiming at achieving the fiber-optic network
coverage of access to 33 mln of Russian households by the end of 2016. This will provide an opportunity to
render complete range of up-to-date telecommunication services at the 1 GB/sec speed to Rostelecom
customers.
2.
Improvement of the customer support.
Development and improvement of customer service will be a pivotal point to concentrate Rostelecom efforts.
Simple usage and usability of services, a possibility to solve customer problems and receive information and
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advice any time and via any customer care channel (offices, contact centers, multimedia channels, selfservice functionality) – these are our priorities in this area.
Rostelecom constantly reviews best practices of customer service and plans implementation of advanced
customer servicing standards (SLA). In the first place this covers lead time for service activation, help-desk
time to response, etc. Modernization of Operation Support System / Business Support System (OSS/BSS) is
envisaged, allowing for optimal inventory, accounting and planning of telecommunications resources, for
instance, numbering ranges, traffic, service delivery management, service performance and quality control,
as well as fraud mitigation at the telecom data level, forecasting and driving service demand. The BSS
subsystem includes application software to support business processes of a telecom operator, Billing and
CRM first of all.
3.
Development of service packages unrivalled in terms of market characteristics, and an attractive
pricing range.
The Company possesses unique strengths for the Russian market in terms of infrastructure and regional
expertise in order to deploy and offer a range of telecom services with the best customer value to the market.
This would mean an optimal balance of the pricing and composition of packaged services with
communications services, Internet and digital TV. This concerns not only the service technical performance,
like data speed, but also quality and relevancy of the offered content and customer support. The sheer scale
of the Rostelecom operations enables it to design and offer unique and economically appealing products to
customers in collaboration with right-holders.
4.
Improvement of operational efficiency.
A challenging task for the upcoming tasks is optimization of operational costs in a fixed-line segment and
increase of investment activities efficiency. Costs reduction will be possible due to modernization and shift
away from overlay networks, from centralization and decrease of management levels of the Company,
release and reduction of costs for real estate operation. In terms of capital investments Rostelecom intends
to focus on increase of return of investment and decrease of investment projects payback periods.
Apart from this even now the first outcomes of extensive overhaul of procurement activities are visible, with
their efficiency improving through:
•
unification and standardization of procurement processes both on the level of the Corporate Center
and Macro-Regional Branches;
•
procurement centralization across key item groups to achieve the maximal economic effect;
•
increased competition due to enhancement of alternative/similar equipment base, and substitute
products;
•
monitoring and control over independent procurement by Marc-Regional Branches;
•
consumption standard formation and control.
Procurement centralization is one of the key areas of improving the Company operational efficiency.
Currently Rostelecom intends to streamline and coordinate procurement in all units to improve operational
efficiency and process transparency. Even now, through streamlined procurement commission activities,
transparent tender procedure the Company managed to achieve savings up to dozens percent.
For instance, in 2013, in the outcome of the tender procedures optimization and relations with contractors
the Company managed to save over 16 billion rubles. The Company intends to apply and develop the best
national and foreign purchase practices in its operations.
5.
Improvement of business administration.
Quality of administration practices is an essential resource to improve growth and efficiency. The Company
will seek to achieve a radical improvement of business processes, streamlined management structure, better
involvement of employees in solving the tasks the Company is facing. Particular attention is expected to be
paid to personnel development and hiring new highly skilled employees.
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THE COMPANY TELECOMMUNICATIONS INFRASTRUCTURE
Transport network
The total length of the Company’s communication network is about 500 thousand kilometers.
The main components of the backbone network are powerful fiber-optic communication lines connecting
Moscow and Novorossiysk, Moscow and St. Petersburg and Moscow and Khabarovsk. The basis of a
transport regional network is composed of communication lines connecting large settlements and regional
towns with access to the backbone network.
As for the international segment of the main transport network of the Company, a technological development
strategy is inseparable linked with implementation of the plan for the infrastructure technical and
technological development aimed at realization of various telecommunication projects related to
enhancement of Rostelecom’s positions on the international market, development of new services on the
international market, and provision of the Company’s international infrastructure for services development in
the Russian market.
The Company has set up international fiber-optic telecommunications lines providing access to Finland,
Sweden, Turkey, Italy, Bulgaria, Greece, Japan, South Korea, China, Estonia, Latvia, Lithuania, Kazakhstan,
Ukraine, Georgia, and Belarus. The Company has set up its international points of presence in Stockholm,
Frankfurt, Amsterdam, and London. The Company also offers high-speed transit services from Europe to
Asia via the territory of the Russian Federation.
In order to minimize the risk of traffic loss and the consequences of emergency traffic interruptions on
backbone and regional communication lines and for the purposes of improving the quality of service for
Russian and foreign customers, Rostelecom undertakes special measures to plan and offer protection
mechanisms for traffic transmission, both in terms of physical diversity and international cross-border links
and points of interconnections with two or three independent foreign operators on each international route.
All of Rostelecom’s backbone networks are 100% protected.
As new digital communication lines have been deployed, the Company phases out its analogue
communication links. For the period from 2001 to late 2013 about 156,450 kilometers of analogue
communications lines were decommissioned.
Multiservice network
Rostelecom as the national operator ensures provision of the following services:






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
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Local telephone service;
Intra area telephone service;
Domestic and international long-distance telecommunications;
Interconnection and traffic transmission on local, intra-area, national, and international levels;
Signaling traffic transmission;
Video conference;
Audio and video conferencing;
ISDN and intelligent network services;
Interconnection and Internet traffic transmission;
Dedicated broadband Internet access;
IPTV;
VPN (Virtual Private Network), including L2 VPN, L3 VPN, VPLS, and InterAS VPN;
Data-Center Services.
The international digital transit telephone network of the Company is based on 10 international Transit Nodes
(TN). The total installed capacity of the international network by the end of 2013 amounted to 202.2
thousand circuits, where the digitalization level of the international nodes is 100%.
Rostelecom long-distance digital transit telephone network is based on 16 Transit Long-Distance Nodes
(TLDN) and 6 combined Area/Long-Distance Nodes. The total installed capacity of the long-distance network
by the year end was 618.5 thousand circuits.
Digital intra-area transit telephone network functions on the basis of 132 Transit area nodes. The total
installed capacity of the Company’s area network by the end of 2013 amounted to 1,075.4 thousand circuits.
The digitalization level of the area transit nodes is 100%.
Rostelecom’s local digital transit telephone network functions on the basis of 27,055 automatic telephone
exchanges. The total installed capacity of the local network by the end of 2013 amounted to 34,978.1
thousand subscriber lines. The digitalization level of local nodes is 80%.
Currently, Rostelecom offers video conferencing services in the regions where there is a high demand for
them. Access to national and international videoconferencing is open to clients in 78 regions of the Russian
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Federation, while customers in 177 Russian cities have their audio and video terminals connected to the
videoconferencing network with 373 studios for providing video conferencing sessions.
The Toll Free call service, Televoting, Premium Rate services based on the Intelligent Platform are provided
to customers in all regions of Russia and in a number of networks owned by commercial communications
providers. The Company provides International ‘FreePhone service’ from the territory of foreign states, as
well as region-based services on intelligent platforms that are also provided to customers.
Rostelecom’s IP/MPLS data transmission network for provision of package switched services includes the
backbone data transmission network, regional data transmission networks, as well as the international
segment (international centers abroad located in Stockholm, Frankfurt, and Honk Kong).
As of the end of 2013, the total capacity of the IP/MPLS network exceeded 7.36 Tbps.
In order to lease out Nx64 kbps digital channels to clients, Rostelecom deployed networks of leased national
and international digital circuits using flexible multiplexer equipment:
 a network based on Luchezar-MartisDXX multiplexers, consisting of 168 network nodes located in
117 cities;
 a network based on UMUX multiplexers, consisting of 58 network nodes located in 52 cities.
Submarine cables
As part of its program to expand and upgrade its international telecommunications capacity Rostelecom uses
modern submarine cables to establish communication circuits between Russia and other countries. The
Company is both a terminal party and owner of major capacity in four international submarine fiber-optic
cable systems, namely: Italy-Turkey-Ukraine-Russia, Georgia-Russia, the Black Sea fiber-optic cable
system, and Russia-Japan, in which Rostelecom owns approximately 30%, 67%; 10%, and 50%
respectively. Remaining interests in cable systems are owned by various international providers.
To provide access to these systems and establish high-quality direct international circuits to remote areas of
the world Rostelecom participates in the construction of a number of international cable systems and
acquires capacity in them. As of the end of 2013, Rostelecom holds interest or indefeasible right of use in 14
cable systems, including such global cable systems projects as FLAG (Fiber Link Around the Globe), the UKMiddle East-Japan system, the Trans-Pacific cable system (China-USA), the South-East Asia – Middle East
– Western Europe and Trans-Atlantic systems.
Satellite communications
The united satellite communications network of the Company is based on two technologies: own and leased
circuits employing the space segment of the C-and Ku- frequency bands. Company owned channels are
provisioned using leased capacity with the use of 83 earth satellite stations. The leased circuits are
purchased on a turnkey basis from ‘RTComm.RU’ OJSC.
Company owned VSAT-networks are provisioned on the basis of leased capacity with the use of central
VSAT-stations located in Siberia, Ural, Far East macro-regional branches. Leased VSAT-networks (or
individual channels) are purchased as a general redistributed pool resource from such providers as
‘RTComm.RU’ OJSC and CB ‘Iskra’ OJSC.
In order to ensure operation of satellite communications network Rostelecom engages FSUE Satellite
Communications and OAO Gazprom Space Systemsfor the provision of services to the Company aimed at
leasing capacities for ‘Express’ and ‘Yamal’ satellites, respectively. The Company decided upon the structure
and location of satellite earth stations on the basis of secondary network needs, as well as the likelihood of
accessing the digital backbone network.
Lines and circuits of other operators used by the company
In the course of its business activity the Company engages other telecom operators for delivering line and
circuits for use thereof, mainly for the purposes of providing protection and back-up for the Company’s
existing technological network infrastructure and provision of services to end users in the event of shortages
of Rostelecom’s own resources. In the latter case network resources are purchased based upon the term of
the contract signed with the end user and taking into account margin requirements.
Cooperation with mobile network operators
Cooperation of the Company with Russian operators of the ground-based mobile network aims at extension
of range of high-quality network services, including the national and international roaming. As of the end of
2013, Rostelecom ensures international roaming routing for 642 mobile networks in 197 countries of the
world.
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RISK MANAGEMENT
Risk-oriented approach to business
Rostelecom’s business operations are exposed to various risks that may adversely affect the achievement of
the Company’s objectives.
In order to manage possible risks, the Company has implemented and continues to develop a risk-oriented
business management approach designed to ensure efficient adoption of the most effective decisions made
by the Company management under conditions of uncertainty, and to effectively identify opportunities for
achieving Company’s goals and objectives.
Every year the Board of Directors approves the risk management program, which involves regular risks
update and development and subsequent monitoring of any response measures taken to reduce any
negative consequences to an acceptable level. In the course of the development and implementation of
operational business decisions, the Company also assesses inherent risks through discussions at Board of
Directors, Auditing Committee, Management Committee, and Internal Control Committee meetings, as well
as various working groups and conferences.
Below are the most significant risks that can affect the Company’s operations, however other risks may exist
as well, including those that the Company currently is not aware of or that Rostelecom deems insignificant.
Industry risks
Risks connected with an increase in competition in the telecommunications industry.
Domestic market:
After its merger with IRCs (Inter-regional telecommunication companies) in 2011 Rostelecom became a
provider of services of Internet access, paid television, and mobile communications (in some federal districts)
where the level of competition is very high.
As a result of DLD and ILD market liberalization as of the end of 2013 44 companies were licensed to
provide DLD and ILD communication services. Among the operators licensed to render DLD and ILD
communication services, as of 31.12.2013 the following operators (other than OJSC Rostelecom) provide
long-distance communication services: MTT, VimpelCom, TransTelecom, MTS, and others.
Additionally, the fast growth of mobile communications facilities provides communication operators with a
wide access to end users of telecommunication services throughout the country. Mobile operators have the
technical capabilities to provide DLD and ILD services on the national, international, zonal, and local levels
using both their own networks and networks of competing operators. Ubiquitous construction by competitors
of broadband data networks using FTTx and PON technologies with roll-out from cities with over a million
population to cities with populations over 50 thousand people results in competition in technologies of
service provision and declining demand for services using xDSL technology used by Rostelecom. There is a
risk of declining market share of the Company in the regions with a shortage of the required volume of
FTTx/PON technology based networks.
Moreover, active development of IP-telephony may also significantly enhance competition in the Russian
voice services market. IP-technology allows to ensure existence of a more optimized cost structure
compared with the costs of operators of public telephone networks. Moreover, development of broadband
Internet in the Russian Federation and throughout the world makes IP-telephony services an attractive
alternative to the more expensive communication services offered by incumbent carriers and mobile
operators. The competition offered by operators, offering the IP-telephony services, can have an adverse
effect on Rostelecom’s capability to attract new clients and to preserve current clients. It can also lead to a
decrease in the operating profit margin and a decrease in the Company’s market share.
In 2012 a number of players including Rostelecom announced their plans to launch commercial operation of
wireless LTE networks; this will also results in tougher competition both on wireless service market, and with
traditional means of internet access. Today LTE services in Russia are offered by companies, like Skartel,
MegaFon, MTS, and Rostelecom.
By the end of 2013 Rostelecom, within protection of the LTE license, additionally to Krasnodar krai, built LTE
networks in Republics of Khakassia and North Ossetia – Alania, Sakhalin oblast, Chukotka and Nenets
Autonomous Okrugs, Jewish Autonomous Oblast. Lagging behind the competition in terms of LTE network
development may negatively affect the Company operations in mid-term.
Rostelecom pursues a sound policy of acquisitions and subsequent integration of the attractive assets
according to its strategic priorities. Possible mergers or takeovers or consolidation of larger players on the
Russian ICT market may potentially affect the Company operations.
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Intending to lower such risks, the company continuously monitors the operations of its competitors, including
the (non)compliance of their operations with legislation, undertakes efforts aimed at developing new services
and improving competitiveness of existing services and, if necessary, devising necessary countermeasures
External market:
Industry changes on the external market do not have a significant impact on Rostelecom’s business due to
the inconsiderable number of operations performed there.
Risks connected with possible alteration in the prices of raw materials and services used by the
Company in its activities.
Domestic market:
Growth of Rostelecom’s expenses for regulated communications services without corresponding tariffs
adjustments may lead to lower profitability, which could have a negative impact on the Company’s financial
results.
In order to mitigate this risk the Company is undertaking efforts to optimize costs of the provided services
and improve operational efficiency.
External market:
Tariffs for services used by Rostelecom on the external market (leasing of ILD-channels, ILD-traffic transfer)
remain generally stable, and the risks associated with their change, are estimated as minute.
Risks relating to possible changes in prices and tariffs for the Company’s products or services.
Domestic market:
Due to the fact that Rostelecom is included in the Register of Natural Monopolies, the Company’s operations
are subject to the regulation of the Federal Tariff Service (FTS). Presently, the FTS regulates the Company’s
tariffs for DLD communication services throughout entire Russian Federation, as well as for its local and
intra-area telecommunications services. In general, regulation of the Company’s tariffs allows to set
competitive and economically feasible and sustainable tariffs. There is a risk of declining profit margins of
regulated services in the event growing costs without corresponding adjustment of regulated tariffs.
Decreasing tariffs for interconnections and traffic transmission may significantly affect the Company
revenues.
To reduce this risk, the Company cooperates with regulating authorities on setting optimal tariffs.
External market:
The Company’s tariffs in the foreign markets (leasing of ILD-channels, ILD-traffic transfer), as well as tariffs
to similar services consumed by Rostelecom at the external market are generally stable and the risks related
to any fluctuations in this area are not fundamental.
Country and regional risks
The Company is a registered taxpayer in the city of Saint Petersburg, where the collective executive body,
i.e. the Management Board is sitting, while the sole person executive body of the Company – its President is
located in Moscow. The Company carries out its core activity in all federal districts of the Russian Federation
on the basis of eight macro-regional branches, namely, Center, Moscow, North-West, Volga, South, Ural,
Siberia, and the Far-East Macro-regional branches. Main activity in each of them (except for Moscow and
Far East macro-regional branches) generates more than 10 percent of the Company’s income. All of these
specified regions are characterized by risks associated with the political and economic situation in the
country as a whole.
The stability of the Russian economy depends mostly on economic reforms, development of legal, tax, and
administrative infrastructure, and the efficiency of measures taken by the Government of the Russian
Federation in the financial and monetary policy fields.
Presently the political situation in the country is relatively stable; nevertheless, the Russian economy is
subject to fluctuation in response to the world economy.
In many ways, the Russian economy is dependent on the oil prices leading to inflow or outflow of foreign
investments in Russia, as well as affecting manufacturing recovery, unemployment rate, growth of income
per household, and the replenishment of the country’s gold and currency reserves.
In spite of the stabilization measures taken by the government of the Russian Federation aimed at ensuring
the liquidity and refinancing of foreign loans to Russian banks and companies, some uncertainty remains
regarding the possibility of access to capital resources and the cost of capital for the Company and its
contractors. This may influence the Company’s financial position, as well as the outcomes of its operations
and its economic prospects. The instability of capital markets may lead to a significant worsening of liquidity
in banking sector and a subsequent stiffening of the terms of credit in the Russian Federation.
As a whole, Rostelecom cannot produce any significant impact on the economic situation in the country.
Nevertheless, the Company will take all possible measures to reduce the occurrence of negative results that
may compromise its ability to fulfill its security obligations, including portfolio diversification, should there be
any negative results in the country or in particular regions in which the Company is a registered taxpayer and
conducts its business.
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Risks relating to possible military conflicts, states of emergency, and strikes in the country and
regions, in which the Company carries out its core activity
The likelihood of military conflicts, introduction of national state of emergency and/or strikes in the country
and the regions in which Rostelecom is a registered taxpayer and conducts its business is evaluated as
insufficient for these risks to be treated as circumstances capable of significantly impacting the Company
business. To prevent strikes the Company on its part creates favorable working conditions and fulfills all of its
obligations toward the employees. To minimize the risk of terrorist attacks, the Company takes additional
security and protection measures.
Risks relating to specific geographical features of the country and the regions in which the Company
conducts its core activity, including increased danger of natural disasters, possible stoppages of
transport connections due to remoteness and difficult to access localities, etc.
Risks related to specific geographical features of regions in which the Company conducts its core activity,
including increased danger of natural disasters, possible stoppages of transport connections due to
remoteness and difficult to access localities are considered insignificant.
Financial risks
Risks related to interest rates changes at the financial market.
The Company’s debt finance portfolio has instruments whose value depends on the floating interest rates. In
this respect, a possible increase of interest rates in the market may potentially increase the Company’s
expenses related to its debt servicing obligations, as well as result in an increase in cost of new debt
financing. In order to mitigate this risk Rostelecom continuously monitors the money market situation and if
necessary is capable of refinancing its loan obligations with floating interest rates using debt financing with
fixed interest rates.
Such indicators of the Company’s financial performance as interest payable is most sensitive to this type of
risks and can grow in value in the event that this risk is materialized.
Due to changes in the situation on the money and loan market there is also a possibility of higher interest
rates of new borrowings.
Risks relating to changes in foreign currency exchange rates.
A share of the Company’s revenue, as well as costs and liabilities, including capital expenditures and
borrowings, are denominated in foreign currencies, whilst the major part of its operational earnings is in
rubles. As a result of 12 months of the year 2013 ruble appreciation against the US dollar was 7.8% (the
RUB/USD exchange rate as of December 31, 2012 was 30.3727 compared with 32.7292 ruble for US dollar
as on 31.12.2013). The ruble appreciation against the Euro was 11.8% (the RUB/Euro exchange rate as of
December 31, 2012 was 40.2286 RUB per EUR, compared with 44.9699 rubles for 1 Euro as on December
31, 2013).
Since the probability of further fluctuation of the national currency remains, Rostelecom’s expenditures and
liabilities may increase considerably in ruble terms, which, in turn, would adversely affect the profitability and
the results of the Company’s operations. Additionally, significant fluctuations in the ruble’s exchange rates
may lead to losses related to re-evaluation of the Company’s foreign currency assets and liabilities, which
may produce a negative effect on the Company’s financial results. At the same time, the currency risk should
not significantly impact liquidity and the Company’s sources of finance, taking into account the fact that the
major part of its assets and liabilities are denominated in rubles.
Foreign currency nominated debt liabilities are rather insignificant and carry no significant risk for the
Company operations.
Such indicators of the Company’s financial performance as cash funds, receivables and payables, loaning
and borrowing debts accrued, which may fall or rise in case the risk is realized, are most vulnerable to this
kind of risk. The risk is, above all, related to changes in global currency markets and in government
regulation relating to currency exchange rates.
Inflation related risks
Inflation risks remain at quite a high level with high probability, despite some stabilization of the inflation rate
for past few years: 2009 – 8.8%, 2010 – 8.8%, 2011 – 6.1%, 2012 – 6.6%. For the year 2013 the inflation
rate amounted to 6.5%, or 0.1 percentage points lower than the rate of 2012. As some of Rostelecom’s
expenses are subject to inflation, a rising general price level may increase the nominal value of the
Company’s costs, while the increasing competition between telecommunication operators and set thresholds
for regulated tariffs may prevent the Company from increasing, at its own discretion, its tariffs up to a level
sufficient to sustain the required minimum profitability of its core activity.
To reduce this risk, Rostelcom allocates available funds to income-bearing financial instruments, extends
income basis at cost of fast-growing services (mobile and fixed-line data transmission, paid interactive
television, cloud services) and optimizes the cost of the services it provides.
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Indicators of the Company’s financial performance such as funds that are subject to potential devaluation
and investment costs that may rise in case the risk is realized are most vulnerable to this kind of risk. The
probability of the risk is, above all, related to government regulation of money in circulation and of prices and
tariffs.
Risks relating to failure of the Company’s customers and other counterparties to meet their payment
obligations and their inability to recover the debt.
Occasionally, both in the past and presently, the Company has experienced delays in receiving payments
from organizations, individuals, government bodies, and some international operators. Delayed payments
may cause cash shortages that may force the Company to borrow funds to compensate for them and
consequently pay interest rates for the use of said borrowed funds.
In addition, Rostelecom allocates available cash to short-term promissory notes and other financial
instruments. Faced with the instability of the financial system in Russia, especially amid a possible ‘second
wave’ of the global financial crisis, the Company risks failing to retrieve the deposits or receiving repayments
of deposit certificates, as well as to repay its debt obligations.
To reduce this risk, the Company optimizes working procedures to recover receivables, including cases
when debt collection agencies are engaged.
Indicators of the Company’s financial performance such as the debts payable are most vulnerable to this
kind of risk since they can be reduced in case of increase of this risk evaluation (increase of doubtful debts
provisions). The probability of the risk is, above all, related to the solvency of the Issuer’s contractors and the
general economic climate in the country.
Risks relating to insufficient asset liquidity of the Company.
While the Company repays its own obligations in a timely manner, it may be exposed to liquidity risks; in the
event that the Company’s contractors demand due payments from the Company, it may face difficulties and
even incur losses due to the insufficiency or lack of funds required to repay such obligations and due to the
need to dispose of its liquid and other assets with a significant discount.
Nevertheless on 13.06.2013, the international rating agency Standard&Poor’s reiterated its BB+ credit rating
of the Company with a ‘stable’ outlook. Additionally, on 28.08.2013 an international credit rating agency Fitch
Ratings assigned a default rating of ВBB- to the Company with a stable outlook. The Fitch Ratings report
stressed that the Company is likely to keep its leading positions in the fixed line business, including the
Internet broadband access sector. According to Fitch Ratings analysts, one of key risks is increase of deflux
of fixed line telephony subscribers, the rate of which, however, is still lower than that for European analogous
companies.
Indicators of the Company’s financial performance such as financial investments, payables and loaning and
borrowing debts accrued, are most vulnerable to this kind of risk, as they are subject to increases, as are the
penalties, charges and forfeits, in case the risk is realized. The probability of the risk is, first above all, related
to the Company’s financial investments.
Currently, the said risk is not significant for the Company.
Legal Risks
Legal risks related to the Company’s activity.
Domestic market:
Presently, the Company’s main legal risks are connected with changes in legal regulation relating to specific
services and requirements of business operation in the telecommunications industry in view of the
amendments to the federal law No. 126-FL ‘On Telecommunication’ dated July 7, 2003, approving a series
of legal acts regulating different operational fields in rendering telecommunication services (Rules on
rendering local, intra-area, DLD and ILD telephone communication services, Rules on telecommunication
networks connection and their interaction, Rules on rendering telegraph communication services, Rules on
rendering mobile communication services, etc.) and bringing the existing relations in line with the
requirements of the legal acts in force.
External market:
Legal risks relating to activity on the external market do not have a substantial influence on the Company’s
activity because of the small volume of the Company’s corresponding operations.
Risks relating to changes in the exchange regulation:
Domestic market:
Risks related to possibility of changes in the exchange regulation are presently considered insignificant by
the Company. In view of carrying out a liberalization policy of the exchange regulations, the risks relating to
changes in the exchange legislation are decreasing.
The Russian legislation regulating foreign investments in no way forbids or limits foreign investment into the
telecommunication industry. However, there is no unanimity as to what means and level of government
regulation in the telecommunication industry are optimal. Since the telecommunication industry is deemed a
strategic industry for Russia, a governmental control of it may increase and foreign investment to it may be
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ANNUAL REPORT
limited. Any similar strengthening of governmental control or limitation on foreign investment volume may
prevent the access to additional capital.
External market:
Legal risks relating to changes in the exchange regulation on the external market do not have a substantial
influence on the Company’s activity because of the small volume of the Company’s operations on the
external market.
Risks relating to changes in tax legislation:
Domestic market:
Russian tax legislation is subject to variable interpretations and regular amendments. Rostelecom monitors
ongoing changes in tax legislation, paying attention to workshops and meetings with a participation of the
leading experts in this field.
Recent developments in the Russian Federation indicate that the tax authorities may take up a tougher
position on the interpretation of tax legislation and tax calculations. As a result, the tax authorities may lodge
claims to those transactions and accounting methods which were not subjects to said claims before.
Consequently, the tax authorities may charge significant additional taxes, penalties and fines. The tax
inspections may cover three calendar years of activity preceding the year of current inspection, and under
certain circumstances such inspections may cover even earlier periods.
External market:
Legal risks relating to changes in tax legislation on the external market do not have a substantial influence
on the Company’s activity because of the small volume of the Company’s corresponding operations.
Risks associated with changes in customs control regulations and customs duties regulations.
Part of the Company’s equipment required for construction of the communication lines and/or rendering of
telecommunication services is imported and/or manufactured from the components produced abroad. Any
changes in customs control regulations and custom duties regulations may bear the risks for the Company
associated with increases in the costs of acquired basic assets and an increased delivery period related to
necessary equipment and/or spare parts, which may in return inflict additional costs on the Company, as well
as increase the likelihood of network failures in technological infrastructure.
Risks associated with changes in licensing requirements of the Company’s main activity or licensing
of the rights to use objects with limited circulation.
Domestic market:
The main Company’s activity is subject to licensing according to the current legislation.
The list of licensing requirements according to the Federal Law No. 126-FL ‘On Telecommunications’ dated
July 7, 2003, is formed by the Government of the RF.
Changes in licensing requirements in the telecommunication industry may lead to delays in renewing the
Company’s main licenses for rendering telecommunication services or in a failure to obtain new licenses,
which may negatively affect the Company’s financial performance.
In addition, Rostelecom has no absolute guarantees that, by the expiration of its validity, the licenses will be
renewed and a subsequent growth in liabilities and/or a reduction in the rights granted under the terms of
prolonged licenses will not occur, which may result in increased costs and maybe a limitation in
telecommunication services rendering area. If the Company is unable to renew current licenses or obtain
new licenses that meets the current requirements, it will be forced to cut the range of services rendered,
which, in turn, will result in a decrease in the number of subscribers.
At the same time the Company takes all of the steps necessary to fully comply with the licensing
requirements, therefore the forecast concerning the licenses renewal for the delivery of certain types of the
services is positive and the risks associated with inability to prolong the Company’s license is considered to
be minimal.
External market:
Legal risks relating to changes in licensing requirements on the external market exert no material influence
on the Company’s activity because of the small volume of the Company’s corresponding operations.
Risks associated with changes in court practices regarding the issues inherent in the Company’s
activity (including licensing issues).
Domestic market:
Even though there is no case law in the Russian Federation, the court practices play an important role in the
system of law enforcement. Judicial acts, not being sources of the legal system in the proper sense, in
certain cases imply compulsory interpretation of legal norms subject to enforcement. In practice, the
following regulations are mandatory for legal agencies to refer to:
 Decrees of the Plenum of the Supreme Court;

Decrees of the Plenum and the Presidium of the Supreme Arbitration Court of the Russian
Federation;

Judgments of the Constitutional Court.
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ANNUAL REPORT
Rostelecom operates in exact accordance with current legislation. The negative consequences for the
Company of changes in the court practices are only possible in the event of changes in the stand of
regulatory authorities or if the Company exercises its operations in breach of the legal provisions.
External market:
Legal risks relating to changes in the court practices on the external market exert no material influence on
the Company’s activity because of the small volume of the Company’s corresponding operations.
Risks associated with the Company’s activity.
Risks associated with current legal proceedings in which the Company is involved
The legal proceedings in which the Company is involved as of December 31, 2013, are set forth below and
may dramatically affect the Company’s business operation and financial performance. In case if the
judgments on these cases are not in the Company’s favor, the Company will incur significant expenses,
which may negatively affect its financial statement.
1. In February 2010, the Interregional Inspectorate of the Federal Tax Service for Major Taxpayers No.7
completed a complex tax inspection of Rostelecom for 2007-2008 and produced a Resolution No. 3 dated
April 2, 2010, stating imposition of sanctions to the Company for the tax offence committed according to the
results of which the Company was charged additional taxes, penalties and fines in the aggregate amount of
714,727,286.03 rubles. The Company appealed against the Judgment at the Federal Tax Service. The
Federal Tax Service of Russia in its Resolution No. AC-37-9/11482@ as of September 17, 2010 (received by
the Company on September 28, 2010), partially disallowed Resolution no.3 of the Interregional Inspectorate
of the Federal Tax Service for Major Taxpayers No.7 as of April 2, 2010, that is – invalidated the following
charges: profit tax of 14,793,081.00 rubles with respective penalties and charges; VAT of 352,475,816.80
rubles with respective penalties; profit tax penalties of 4,983.59 rubles; land tax of 77,472.00 rubles; water
tax of 83,308.00 rubles with penalties of 14,838.4 rubles and charges of 10,850.00 rubles; charges on
personal income tax of 251.07 rubles. As for the rest, the Resolution of the Interregional Inspectorate of the
Federal Tax Service for Major Taxpayers No.7 dated April 2, 2010, left unaltered and was confirmed.
The Company applied to the Moscow Arbitration Court with a statement to declare the Resolution invalid to
the extent concerning the additional charges totaling 305,387,512.48 rubles (including 279,779,309.69 rubles
of taxes). The Moscow Arbitration Court initiated the proceedings on the case No. A40-100845/10-4-498.
The Judgment of the Moscow Arbitration Court dated June 10, 2011, completely satisfied the Company’s
claims.
Decree of the Ninth Arbitration Court of Appeal dated October 21, 2011 disallowed the judgment of the
Moscow Arbitration Court with regard to this matter. The Ninth Arbitration Court of Appeal reviewed this case
according to the rules established for cases to be considered by an arbitration court of primary jurisdiction
and adopted a new judicial act which:
 recognized the Company's waiver of the claim with regard to appealing against Clause 1.8 of the
disputed Resolution of the tax authority;

satisfied the Company's claims that Clauses 1.1, 1.10, 1.66 of the disputed Resolution should be
recognized invalid (with respect to additional tax charges for the total amount of 240,374,426,89 rubles);

declined the other part of the Company's claims (to the total additional tax charges of 39,404,882.79.
rubles.

The Decree of the Federal Anti-Monopoly Service of the Moscow District as of March 16, 2011 with
respect to Case No. A40-100845/10-4-498 disallowed Resolution of the Ninth Arbitration Court of Appeal
as of October 21, 2011 with respect to Case No. A40-100845/10-4-498 as regards satisfaction of the
Company's claims related to:

additional income tax charges according to the Clause 1.7.of the Resolution of the tax authority on the
indebtedness of Pacific Gateway Exchange Inc., which amounted to 11,578,166.96 rubles;

additional VAT charges according to the Clause 1.16 of the Resolution with regard to a failure to accept
the tax deduction, which amounted to 1,973,294.55 rubles;

bringing to tax liability for incomplete payment of income taxes, VAT and UST (Uniform Social Tax), as
well as accrual of penalties for late payment of the above mentioned taxes.
For this purpose the court recognized Resolution no. 3 of the Interregional Inspection of the Federal Tax
Service for Major Taxpayers No. 7 as of April 02, 2010, related to additional VAT charges according to the
Clause 1.16 of the Resolution with regard to a failure to accept the tax deduction amounting to 1,973,294.55
rubles.
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ANNUAL REPORT
As regards Clause 17 of the Resolution on Pacific Gateway Exchange Inc.’s debt amounting to
11,578,166.96 rubles, as well as bringing to tax liability for incomplete payment of income taxes, VAT, and
UST, as well as penalization, the case was sent for a new hearing by the Ninth Arbitration Court of Appeal.
Decree of the Ninth Arbitration Court of Appeal No. 09AП-9059/2012-АК as of June 01, 2012 declared
invalid the Resolution No. 3 of the Interregional Inspectorate of the Federal Tax Service for Major Taxpayers
No. 7 as of April 02, 2010 as regards additional income tax charges according to the Clause 1.7 of the
Resolution on Pacific Gateway Exchange Inc.’s debt amounting to 11,578,116.96 rubles (the amount of
additional income tax charges is 2,778,760.07 rubles) as well as related appropriate fines and penalties; and
with respect to bringing to the tax liability for incomplete payment of income taxes, VAT and UST payable to
the federal budget, and for a delay of payment of the said taxes.
The Decree of the Court of Appeal was not considered under cassation procedure.
2.On December 06, 2010 the Open Joint Stock Company Central Telecommunications Company applied to
the Moscow Arbitration Court with a statement to invalidate Resolution No. 11 of June 30, 2010 of the
Interregional Inspectorate of the Federal Tax Service for Major Taxpayers No. 7 concerning the Company's
bringing to liability for tax offence committed. The Resolution was made by the tax authority based on a field
tax inspection of the Company’s activities for the years 2007-2008. The Company disputes the additional
VAT charges amounting to 34,394,013.36 rubles, additional income tax charges of 3,872,772.15 rubles, as
well as fines and penalties of 69,044.00 rubles and 31,936.61 rubles, respectively. Taking this statement into
account the Moscow Arbitration Court filed a case A40-144303/10-90-850. In the course of proceedings due
to reorganization, the Moscow Arbitration Court replaced the applicant party OJSC CenterTelecom with
Rostelecom in the above-mentioned arbitration case.
According to a Judgment of the Moscow Arbitration Court dated November 24, 2011, the Company’s claims
were satisfied in their entirety.
According to a Decree of the Ninth Arbitration Court of Appeal on case No. 09AП-37096/2011-AK dated
February 2, 2012, the judgment of the arbitration court of primary jurisdiction was remained in force and the
appeal of the tax authority was not satisfied. The Interregional Inspectorate of the Federal Tax Service for
Major Taxpayers No. 7 filed a cassation appeal with the Federal Anti-Monopoly Service of the Moscow
District.
The Decree of the Federal Anti-Monopoly Service of the Moscow District as of May 11, 2012 left the court
judicial acts of the Arbitration Court of Moscow and the Ninth Arbitration Court of Appeal unchanged and did
not satisfy the cassation appeal of the tax authority.
3. On December 09, 2010 the Company applied to the Arbitration Court of Samara Region with a statement
to nullify the Order No. 480 dated September 9, 2010, issued by the Office of the Federal Anti-Monopoly
Service in Samara Region ‘On Introduction of Changes into the Register of Economic Entities with a Market
Share of Certain Goods of More than 35 Percent that are Dominant in a Market of a Certain Type of Goods,
if Cases of Recognition of a Dominant Position of Economic Entities with Respect to Such a Market are
Specified in the Federal Laws’ and to exclude the Company from this Register.
On June 14, 2011 Hearing on Case No. A55-25947/2010 was held which resulted in a judgment, completely
satisfying the asserted claims. This judgment has not been reviewed by a court of appeal or a cassation
court.
4. The Interregional Inspectorate of the Federal Tax Service of Russia for Major Taxpayers in the Republic of
Dagestan (hereinafter referred to as ‘Tax Authority’ or ‘Inspectorate’) conducted a field tax inspection of
Dagsvyazinform OJSC (currently Dagestan Branch of Rostelecom) in the matter of complying with legislation
concerning taxes and revenues with respect to all taxes and revenues collected from January 01, 2008
through December 31, 2009, and with respect to Personal Income Tax in a period from December 19, 2008
through June 23, 2010.
The results of the inspection performed by the tax authority were presented in Field Tax Inspection
Statement No. 10-55 dated August 04, 2011, which suggested that unpaid taxes should be collected from
the Company in the amount of 82,996,625.00 rubles including VAT in the amount of 78,983,177.00 rubles,
the income tax in the amount of 4,013,448.00 rubles and penalties for delayed payment or non-payment of
taxes (levies).
Upon consideration of the tax inspection materials some of the Company's arguments stated in Objections to
the Tax Inspection Statement were accepted by the Inspectorate, while the other conclusions of the
Inspectorate remained in force and presented in the Resolution No. 10-55Р dated September 29, 2011.
The Company lodged an appeal to Office of the Federal Tax Service of Russia for the Republic of Dagestan
(hereinafter referred to as Office of the FTS of Russia for the Republic of Dagestan) on the Resolution, which
did not come into force.
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ANNUAL REPORT
According to the results of the Resolution No. 15-08/091 made by the Office of the FTS of Russia for the
Republic of Dagestan on December 15, 2011 the arrears and penalties additionally charged by Inspectorate
amounting to 10,791,366.00 rubles were recognized unjustified. The Office of the FTS of Russia for the
Republic of Dagestan recognized the other arguments set forth in the Company’s appeal - unreasonable.
Resolution of the tax authority No. 10-55P dated September 29, 2011 with due consideration of amendments
made by the Office of the FTS of Russia for the Republic of Dagestan came into force on December 15,
2011.
On December 28, 2011 the Interregional Inspectorate of the FTS of Russia for Major Taxpayers No. 7 sent
to the Company a Request No. 95 demanding that the Company should pay a tax, levy, penalties and fines
amounting to 76,364,348.00 rubles, including arrears in the amount of 67,735,929.00 rubles and penalties of
8,628,419.00 rubles.
For the purpose of appealing against the Resolution of the Tax Authority No. 10-55P dated September 29,
2011 and Request No. 95 for payment of a tax, levy, penalties and fines dated December 28, 2011 the claim
papers were transferred to the Arbitration Court of Moscow. At a preliminary court hearing which took place
on April 20, 2012 the proceedings related to appeal against the Resolution No. 10-55P was detached into a
separate case and passed over to the Arbitration Court of the Republic of Dagestan. As for the other part of
the case hearings in the Arbitration Court of Moscow were suspended.
The case was taken over by the Arbitration Court of the Republic of Dagestan and at present time is
seriously investigated.
During investigation of the said case by the Arbitration Court of the Republic of Dagestan Rostelecom
appealed against another resolution of the Interregional Inspectorate of the FTS of Russia for Major
Taxpayers in the Republic of Dagestan, that is the Resolution No. 10-72P dated April 25, 2012 based on the
results of the field tax inspection of the Dagestan Branch of the Company for the years 2010-2011. The total
sum of additionally charged taxes amounted to 72,353,651.00 rubles.
As reasons for additional charge of taxes were the same, according to the opinion of the court, the
Arbitration Court of the Republic of Dagestan at its own initiative lumped these two cases into one case and
on December 12, 2012 produced a judgment to satisfy all claims of the Company except for VAT charges.
The Inspectorate lodged an appeal.
The Sixteenth Arbitration Appeal Court considered an appeal of the Interregional Inspectorate of the FTS of
Russia for Major Taxpayers in the Republic of Dagestan on March 11, 2013 and refused to satisfy it. Thus,
the Resolution of the Arbitration Court of the Republic of Dagestan dated December 12, 2012 came into
force.
The Interregional Inspectorate of the FTS of Russia for Major Taxpayers in the Republic of Dagestan lodged
a cassation appeal for these judicial acts to the Federal Anti-Monopoly Service of the North Caucasus
District.
By Decree of the Federal Anti-Monopoly Service of the North Caucasus District made on August 07, 2013
they were cancelled and the case was remanded for a new trial by the Arbitration Court of the Republic of
Dagestan.
By the Resolution of the Arbitration Court of the Republic of Dagestan made on December 05, 2013 the
resolutions of the tax authority were recognized invalid only in a part of additional Personal Income Tax
charges amounting to 124,551.00 rubles, the other demands were refused.
The Company lodged an appeal to the Sixteenth Arbitration Appeal Court.
5. In July 2010 the Interregional Inspectorate of the Federal Tax Service for Major Taxpayers No.7
completed a repeated field tax inspection on the updated declarations of income tax for 2006 and 2007.
Upon its results was produced a Resolution No.13 dated September 06, 2010 to dismiss prosecution for a
tax offence based on which the North-West Telecom JSC was requested to pay the income tax arrears in the
amount of 12,356,000.00 rubles, and income tax penalties equal to 388,000.00 rubles. The OJSC NorthWest Telecom in the appeal procedure established by the Art. 101.2. of the Tax Code of the RF disputed the
resolution of the Inspectorate in a superior authority - the Federal Tax Service.
By Resolution No. AC-37-9/14409@ on the appeal dated October 28, 2010 the Federal Tax Service
cancelled the Resolution of Inspectorate concerning the income tax penalty charges to the amount of
223,000.00 rubles, leaving the other part of the Inspectorate’s resolution unchanged, that is to the total
amount of 12,521,000.00 rubles. In 2011 the Company, being a legal successor of OJSC ‘North-West
Telecom’, filed a claim with the Moscow Arbitration Court to recognize the Resolution No. 13 dated
September 06, 2010 invalid in the disputed part.
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ANNUAL REPORT
According to the Resolution of Moscow Arbitration Court as of November 30, 2011, the stated claims were
satisfied, the resolution of Inspectorate was recognized invalid in the part related to additional charge of
income tax for 2007 amounting to 3,647,762.00 rubles (on the grounds specified in Clause 2 of the reasons
for judgment section), income tax amounting to 9,310,298.00 rubles (therefrom 4,919,412.00 for 2006 year
and 4,390,886.00 rubles for 2007 year (on the grounds specified in Clause 5 of the reasons for judgment
section).
According to the Resolution of the Ninth Arbitration Court of Appeal No. 09АP-810/2012 dated February 02,
2012 the resolution of the arbitration court of primary jurisdiction remained unchanged and the appeal of the
tax authority - unsatisfied.
The Interregional Federal Tax Authority for Major Taxpayers No. 7 lodged a cassation appeal to the Federal
Anti-Monopoly Service of Moscow District that has to be reviewed on April 23, 2012. Decree of the Federal
Anti-Monopoly Service of Moscow District dated April 27, 2012 remained unchanged the resolution of an
arbitration court of primary jurisdiction and the decree of an arbitration court of appellate instance.
6. According to the Resolution No. 10 of the Office of the Federal Anti-Monopoly Service of Novgorod Region
dated October 28, 2011 Rostelecom was brought to administrative liability under Article 14.31, Part 1 of the
Administrative Code of the Russian Federation in the form of penalty amounting to 8,248,150.00 rubles.
On November 16, 2011 to the Arbitration court of Novgorod Region was filed a statement disputing the
resolution of the administrative authority as regards bringing to administrative liability.
By a decree dated December 08, 2011 on the case No. A44-6048/2011 the statement was accepted for
handling. The case was established for court hearing on February 02, 2012. By a decree of the Arbitration
Court of Novgorod Region dated February 02, 2012, the proceedings on the case No. A44-6048/2011 was
suspended until case No. A44-230/2011 will be considered by courts of appeal and cassation.
7. Rostelecom is a respondent in a dispute with CJSC Telecom MTK (Moscow) which is currently under the
bankruptcy proceedings. A bankruptcy receiver of CJSC Telecom MTK disputed a statement of OJSC
Dalsvyaz, whose successor is the Company, as regards offset of the similar counterclaims, that both CJSC
Telecom MTK as well as OJSC Dalsvyaz had based on a number of construction contracts. CJSC Telecom
MTK’s bankruptcy manager believes that this offset violates the priority order for satisfaction of the creditors'
claims in re bankruptcy case, because the deal was entered into in so called ‘period of suspicion’.
On March 15, 2012, the Arbitration court of Moscow partially satisfied the statement of the bankruptcy
manager: Rostelecom's debt to CJSC Telecom MTK was restored in the amount of 6,877,307.00 rubles,
while CJSC ‘Telekom MTK's debt to the Company was restored in the amount of 35,390,876.00 rubles.
By the decree of the Ninth Arbitration Court of Appeal dated May 25, 2012, this judicial act remained
unchanged. By the decree of the Federal Anti-Monopoly Service of Moscow District No. Ф05-15141/2011
dated August 01, 2012 the judicial acts of the first and appellate instance remained unchanged and the
Company's cassation appeal – without satisfaction.
On October 19, 2012 the Company's statement for a supervisory review of the case was returned by the
Supreme Arbitration Court of the Russian Federation.
As a result of case examination to the Company may be raised a claim on the part of Gorsvyazstroy LLC
(Moscow) amounting to 28,513,569.00 rubles. Telecom MTK CJSC conceded the mentioned debt amount to
Gorsvyazstroy LLC in the process of bankruptcy.
8. Interregional Inspectorate of the Federal Tax Service of Russia for Major Taxpayers No. 7 carried out a
field tax inspection with respect to Rostelecom as a successor of Uralsvyazinform OJSC for the issues of
compliance by Uralsvyazinform OJSC with the tax and levy legislation of the RF within a period from
January 01, 2008 till December 31, 2009. The results of such inspection were posted by the Interregional
Inspectorate of the Federal Tax Service for Major Taxpayers No. 7 in the Resolution No. 1 dated
January 16, 2012. Being disagreed with the resolution made by the Interregional Inspectorate of the Federal
Tax Service for Major Taxpayers No. 7, the Company applied to the Arbitration Court of Moscow. Whereas
the Company disputes the additional VAT amounting to 34,394,013.36 rubles, additional income tax
amounting to 854,571.97 rubles, property tax amounting to 27,140,441.00 rubles, and the relevant fines and
penalties. The Arbitration Court of Moscow commenced a case No. А40-114401/12-99-596 on this
statement.
The resolution of the Arbitration Court of Moscow dated February 25, 2013 satisfied the Company’s claims in
the part of:

invalidation of the cl. 1.2 2.2 of the statement of reasons of the resolution No. 1 dated January 16, 2012
(additional charge of income tax amounting to 808,048.00 rubles and property tax amounting to
430,448.00 rubles);
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ANNUAL REPORT

additional charge of income tax, relevant fine and penalty amounts due to a failure to account for
additional charge by cl. 2.1 and 2.2 of the resolution No. 1 of the tax authority dated January 16, 2012 of
the property tax amounting to 26,709,933.00 rubles and 420,448 rubles as the expense decreasing a
taxable base for 2008-2009;

provisions of the cl. 2, 3.1 of an operative part of the resolution related to these clauses.
The Company as well as the Interregional Inspectorate of the FTS of Russia for Major Taxpayers No. 7
applied to the Ninth Arbitration Court with the appeals. By the decree No. 09АП-12767/2013 and No. 09АП13094/2013 of the Ninth Arbitration Court of Appeal dated May 21, 2013 the resolution of the arbitration court
of primary jurisdiction remained unchanged.
The Company as well as the Interregional Inspectorate of the FTS of Russia for Major Taxpayers No. 7
applied to the Federal Arbitration Court of Moscow District with the cassation appeals. By the decree of the
Federal Arbitration Court of Moscow District dated October 10, 2013 the Company’s appeal was satisfied,
the resolution of the Arbitration Court of Moscow concerning refusal to recognize invalid the cl. 2.1. of
disputed resolution was cancelled, as regards this part the case was sent for a new trial. As for the rest the
judicial act remained unchanged.
Being disagreed with the decree of the Federal Anti-Monopoly Service of Moscow District dated October 01,
2013 the Interregional Inspectorate of the FTS for Major Taxpayer No. 7 applied to the Supreme Arbitration
Court with a supervisory appeal. By a ruling No. ВАС-14828/13 of the Supreme Arbitration Court dated
October 29, 2013 submission of the case to the Presidium of the Supreme Arbitration Court of the Russian
Federation was refused.
By resolution of the Arbitration Court of Moscow dated December 24, 2013 re the case No. A40-114401/1299-596 the Company’s claims in the part, that was sent for a new trial, were satisfied to the full extent, the
resolution No. 1 of the Interregional Inspectorate of the FTS for Major Taxpayers No. 7 dated January 16,
2012 was recognized invalid in the part of clause 2.1 of the statement of reasons section about additional
charge of property tax amounting to 26,709,994.00 rubles. The tax authority, being disagreed with this
judicial act, applied to the Ninth Arbitration Court of Appeal with an appeal. The hearing will take place on
March 03, 2014.
9. The Interregional Inspectorate of the Federal Tax Service for Major Taxpayers No. 7 has carried out an
on-site tax audit pertaining to Rostelecom as a successor of OJSC SZT for the period from January 01, 2008
till December 31, 2009. As a result of that audit, it made a Resolution No. 2 as of January 16, 2011 on
bringing the Company to tax liability. The Company appealed against this resolution at the Federal Tax
Service of the Russian Federation. By Resolution of the Federal Tax Service of the Russian Federation No.
CА-4-9/9235@ as of June 06, 2012, the above mentioned resolution of the Interregional Inspectorate of the
Federal Tax Service for Major Taxpayers No. 7 was amended as follows: The Federal Tax Service of the
Russian Federation has quashed the resolution in so far as pertaining to additional charge of profit tax in the
amount of 21,328,354.00 rubles (clauses 1.1. and 1.5. of the Resolution) and pertaining to the fine for
personal income tax for failure to report, within the due term, about impossibility to withhold a tax in the
amount of 200.00 rubles (item 3.4. of the Resolution), and in so far as pertaining to the relevant amount of
penalties being due for the specified amounts of taxes. The rest of the Resolution remained unchanged, and
hence became final.
Being disagreed with the resolution made by the tax authority, the Company applied to the Arbitration court
of Moscow to adjudicate it as partially invalid. The resolution was appealed against in the part of additional
charge of profit tax and VAT for the total amount of 51,297,280.43 rubles, and in the part of the penalties
being due for this amount. The Arbitration Court of Moscow has accepted this application and has initiated
proceedings on case No. А40-120812/12-90-604. The regular session of the court pertaining to this case has
was scheduled on January 29, 2013.
By a resolution of the Arbitration Court of Moscow dated February 04, 2013 the Company’s claims were
satisfied only in part of additional charges of property tax amounting to 4,573,580.43 rubles, as for the rest
the satisfaction of claims was refused.
The Company and the tax authority applied with their appeals against this court decision. Consideration of
appeals is scheduled on August 18, 2013.
By the decree of the Ninth Arbitration Court dated June 17, 2013 a resolution of the court of primary
jurisdiction was partially cancelled and the Company’s claims satisfied to the full extent. The appeal of the
tax authority was refused.
The Interregional Inspectorate of the FTS for Major Taxpayers No. 7, being disagreed with said decree of the
court of primary jurisdiction, appealed against it under cassation procedure at the Federal Anti-Monopoly
Service of Moscow District.
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ANNUAL REPORT
By the decree of the Federal Anti-Monopoly Service of Moscow District dated November 14, 2013 the court
dismissed the cassation appeal of the tax authority and remained prior decree of the Ninth Arbitration Court
of Appeal without any changes.
10. By a ruling of the Arbitration court of Moscow dated November 19, 2012 on the case No. А4027560/2012, the Company's claims for the total amount of 1,042,853,668.85 rubles have been included into
the register of claims by creditors of GlobalStar-Kosmicheskiye Telecommunikatsii CJSC (into the third
priority order of the claims satisfaction). The regular session of the court concerning a report of the
GlobalTel's CJSC interim manager has been assigned for April 23, 2013. On July 06, 2013 in relation to
GlobalStar-Kosmicheskiye Telecommunikatsii CJSC was introduced a financial recovery procedure for 18
months period.
11. Limited Liability Company Imaklik Servis applied to the Arbitration Court of Saint Petersburg city and
Leningrad region with stated claims to bind the Company to accept and pay for the goods – technological
equipment Luchezar 150 in a number of 180 items for the total amount of 91,818,360.00 rubles. In support of
its stated claims the Plaintiff referred to an agreement achieved by both parties under all material terms of
the contract for supply of this equipment by sending an offer and its acceptance by the Respondent.
By a resolution of the Arbitration Court of Saint Petersburg city and Leningrad region dated June 29, 2012
under case No. A56-12712/2012 satisfaction of the stated claims to the Company was refused in full.
By a decree of the Thirteenth Arbitration Court of Appeal dated October 05, 2012 the court resolution made
in the case remained unchanged – the appeal of Imaklik Servis LLC - without satisfaction. By a decree of the
Federal Arbitration Court of North-Western Okrug dated December 13, 2012 the judicial acts made in the
case remained unchanged and a cassation appeal of Imaklik Servis LLC – without satisfaction.
12. Interregional Inspectorate of the FTS of Russia for Major Taxpayers No. 7 (hereinafter – Interregional
Inspectorate of the FTS for Major Taxpayers No. 7, tax authority) carried out a field tax inspection in relation
to Rostelecom OJSC with simultaneous inspection of reorganized companies consolidated to Rostelecom
OJSC (Sibirtelecom OJSC, VolgaTelecom OJSC, Dalnevostochnaya Kompaniya Elektrosvyazi OJSC,
Uralsvyazinform OJSC, Tsentralnaya Telekommunikatsionnaya Kompaniya OJSC, Yuzhnaya
Telekommunikatsionnaya Kompaniya OJSC, North-West Telecom OJSC) as to correctness of calculation
and opportuneness of all taxes and revenues payment (withholding, transfer) for a period from January 1,
2009 to December 31, 2010, as well as insurance contributions for mandatory pension insurance under art. 2
and cl. 1 of the art. 25 of the Federal law No. 167-ФЗ dated December 15, 2001 ‘Concerning Mandatory
Pension Insurance in the RF’ and the unified social tax for a period from January 01, 2009 till December 31,
2010. According to the results of tax inspection and consideration of the Company’s Objections to the Field
Tax Inspection Report of the Interregional Inspectorate of the FTS for Major Taxpayers No. 7 was made the
Resolution No. 2 about bringing the taxpayer to the tax liability as of March 28, 2013. The total amount of tax
claims amounts over 140 million rubles. The resolution of the Interregional Inspectorate of the FTS for Major
Taxpayers No.7 was challenged on appeal at the FTS of Russia, however the main claims of the
Interregional Inspectorate of the FTS for Major Taxpayers No. 7 remained. The Company applied to the
Arbitration Court of Moscow with a statement to invalidate the resolution No. 2 of the Interregional
Inspectorate of the FTS for Major Taxpayers No. 7 dated February 28, 2013 in a part of episodes to the
amount over 140 million rubles. By a ruling of the Arbitration Court of Moscow dated September 20, 2013
was initiated a case No. A40-130146/13-20-467. A regular court session on this case is scheduled on
January 22, 2014.
Risks associated with the Company’s possible liability for the third parties’ debts, including the
Company’s subsidiaries.
The Company occasionally bears a risks associated with possible liability for the third parties’ debts to the
amount of the securities provided by them.
In case of non-performance or improper performance by the debtors of the obligations secured by the
Company’s surety, Rostelecom shall be jointly and severally liable to their creditors.
Rostelecom’s Management does not expect arising of any significant obligations in respect of a security
provided. A probability for occurrence of the factors, that may lead to the non-performance or improper
performance of the obligations, is minimal.
Risks associated with possible loss of the consumers accounting for at least 10% of the total sales
revenue of the Company’s products (works, services).
At the present time such risks do not exist, because the Company has no consumers accounting for at least
10% of the Company’s total revenue.
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ANNUAL REPORT
Risks related to integration of newly acquired companies
In order to strengthen its market position on the Information and Communication Technologies Market the
Company makes a market analysis for probable acquisitions and acquires the companies in accordance with
its strategic priorities. Ineffective integration of newly acquired companies in the event of revealing the facts
unknown to the Company at the time of acquisition may result in additional expenses and failure to realize
the expected synergies.
In order to mitigate this risk the Company develops an integration plan for the newly acquired companies and
controls its implementation.
Risks associated with lack of demand for current and emerging Company’s products and services.
At the present time the Company’s revenue is primarily generated by traditional services, such as DLD and
ILD telecommunication and lease of line services. Lately, the Company has been developing and promoting
new advanced innovative products and services, including high speed Internet access based on fiber-optic
lines, provisioning of Virtual Private Networks (IP VPN), TV, etc.
In conditions of continued decrease in demand for traditional voice services which may not be compensated
for by consumption of new services offered by the Company, this risk may negatively affect the Company’s
financial performance and growth prospects.
In order to mitigate possible consequences the Company develops IT-based products. Also the Company is
involved in sales optimization, develops and applies new principles and approaches to voice service
packaging together with other services.
Risks associated with failure to fulfill or undue fulfillment of the obligations to customers and clients
on major projects:
At the present time Rostelecom is in the process of realizing a range of complicated projects (including
federal projects), involving the operation of high-tech equipment, significant costs, and long realization
periods. Success of such projects calls for a high level performance at all stages of realization, including
those of planning, cooperation with subcontractors and public authorities, financing, and execution. Poor
quality or delayed implementation of these projects by the Company, including failures not attributable to the
Company’s fault, like failure to perform on the part of associated contractors, unpredictable changes in the
customer’s requirements for the project outcome, may incur significant financial and reputation damage. In
some projects, such as Industry Specific Services, Sochi’2014 and Electronic Government, the realization of
a project is directly linked to issues of national or strategic importance and can have among others significant
social implications. To reduce this risk, the project management offices of the most important projects have
been made separate units within the Company, and continuously coordinate the Company and its
contractors’ operations according to the projects’ schedules.
Risks associated with a lack of capacity, insufficient network capabilities of the Company, and a
possible decrease in returns on investment in the communications network.
Active development of the data network-based services is becoming one of the main drivers of growth in the
telecommunications market. To guarantee this development, it is necessary to significantly expand the data
network capacity, functionality and features. In order to reduce this risk, Rostelecom OJSC invests a lot into
the development and upgrade of the existing data network. However, if the Company’s predictions on the
growth of demand for these services turn out to be incorrect, or if the Company fails to develop the data
network on time, the growth in revenue derived from these services may be limited.
Significant increases in the volume of data traffic in the network call for investment in the data network’s
development and are expected to naturally lead to falling rates per traffic volume unit for end users. In this
context, there is a risk of falling returns on investment made into the data network, as per traffic unit rates
decline further and the data service market becomes saturated.
In order to manage the risk of declining return on investment for investment project the Company is
implementing a program to improve investment efficiency including among others putting in place a perproject and per-site supervising and monitoring system of investment project implementation.
Risks associated with changes of existing and initiation of new technologies of services rendering in
communications industry.
A lot of the services offered by the Company (Internet access, IPTV, IP VPN, etc.) include a variety of
technological components subjected to rapid and substantial changes. The emergence of new technologies
or significant modifications of existing technologies can weaken the Company’s and render it noncompetitive
and requiring of additional investment for further improvement and a guarantee of marketability.
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ANNUAL REPORT
In addition, investment in new technologies in which the Company has neither implementation skills nor
experience can be commercially unreasonable. Such technologies can demand more time for their
introduction or additional expenditures that were not originally anticipated.
These changes may adversely affect the Company’s financial results and the introduction of new products
and services. To decrease this risk, the Company has established a special internal unit that continuously
monitors technological innovations. The Company also develops and implements plans of introducing new
products and services given best implementation practices in each corresponding area. The Company
consistently analyses opportunities to use new technologies and product offerings on their basis, including
cross-industry implementations.
Risks associated with possible claims by the Federal Antimonopoly Service against the Company.
Rostelecom is included in the register of natural monopoly entities. In addition, the range of the Company’s
activity continues to grow both through integration of interregional telecommunications operators and through
acquisitions, which requires preliminary coordination with the Federal Antimonopoly Service (FAS). In view of
obscure rules of antimonopoly regulation, unfair and disputable complaints against the Company to the FAS
by competitors, as well as the objective growth of the Company’s presence in some markets due to its
transition to the sphere of universal telecommunications provider, FAS proceedings against the Company
may occur unexpectedly and adversely affect both the Company’s market position and its financial
performance and reputation. To lower this risk, the Company does its best to meet the relevant antimonopoly requirements and, if necessary, to defend its position in court proceedings.
55
ANNUAL REPORT
CORPORATE GOVERNANCE
Development of corporate governance practice in the Company is one of the priority tasks for the Company’s
management. The efficiency of Rostelecom’s corporate governance is secured by keeping of a stable
system of relationships in the Company, allowing to achieve a balance between economic and social
objectives, between the interests of the Company, its shareholders, and other concerned parties.
In its everyday corporate governance practice Rostelecom adheres to recognized Russian and world
standards, recommendations of the independent rating agencies and consultants in the sphere of such
practice improvement. Following to the high standards of corporate governance and information disclosure in
the Company allows to create an atmosphere of confidence and assurance between all participants of
corporate governance, increases the efficiency of making the management decisions, that leads to
investment attractiveness of the Company in the long-term prospect.
Structure of Company Governance
Pursuant to the Rostelecom’s Charter, the Company shall be governed by:

the General meeting of shareholders – the highest governance body of the Company;

the Board of Directors, which shall be elected by the General meeting of shareholders of the Company
for strategic management of the Company;

the President and the Management Board, which shall be appointed by Rostelecom’s Board of
Directors for the purpose of ensuring everyday operating management of the Company.
Corporate Governance Standards
For securing transparent and easy-to-understand governance mechanisms of the Company for
Rostelecom’s shareholders, as well as for securing high ethic standards while doing business the Company
has the Corporate Governance Code and the Ethics Code, that strengthen the high standards of corporate
practices recognized in the whole world and regulate such matters as a conflict of interests, a ban on the use
of official position and insider information, an order for preparation and disclosure of performance
information.
The Corporate Governance Code and the Ethics Code were developed by the Company in accordance with
the requirements and recommendations of New York Stock Exchange, the US Securities and Exchange
Commission and recommendations of the Bank of Russia. Performance of the standards, set forth in these
Codes, is a necessary condition for maintaining a listing of the Company’s securities on the Russian and
foreign stock exchanges.
The Company’s Codes are based on the following corporate governance principles recognized in Russia and
worldwide:

observance of the shareholders’ rights and interests vested by the applicable legislation, norms and
requirements, as well as securing of the long-term increase in stock value owned by them through the
improvement of corporate practices and increase of information disclosure and transparency;

securing of transparent and efficient mechanisms of interaction between the Company governance
bodies, as well as faithful and competent discharging by them of their duties in accordance with the high
standards of corporate governance and business ethics;

maintenance of the efficient internal control and audit system of the Company;

active cooperation of the Company with the individuals concerned with ensuring of long-term and
stable development of Rostelecom.
Corporate Governance Rating
On December 2013 the Russian Institute of Directors (the RID) gave the Company a rating at the level of ‘7+’
– ‘Developed Corporate Governance Practice’ under the scale of the National Rating of Corporate
Governance (NRCG) according to the results of monitoring for corporate governance practice carried out
from August 2012 till November 2013.
Thus the RID considers that Rostelecom is among the leaders of the Russian companies as regards the
quality of corporate governance. The Company has low corporate governance risks. The Company complies
with the requirements of the Russian legislation in the sphere of corporate governance, follows to the main
part of recommendations of the Russian Corporate Code of Conduct and to the separate recommendations
of the international best practices of corporate governance.
Compliance with recommendations of the Corporate Code of Conduct of the FCSM of Russia
On November 28, 2001 the Government of the RF approved the Corporate Code of Conduct, whose
recommendations are used by the Company at the present time in the process of improvement of the
corporate governance practice. The mechanisms, securing their implementation in accordance with current
legislation of the RF, are established at the Company’s Charter and other internal documents.
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ANNUAL REPORT
Information concerning the Company’s compliance with the recommendations of the Corporate Code of
Conduct of the Federal Commission for the Securities Market (FCSM) of Russia is set forth in Annex No. 1 to
this Annual Report and is an integral part thereof.
The Company complies with the requirements of the Russian legislation concerning corporate governance,
follows the Russian Code of Corporate Conduct in most cases as well as the separate recommendations of
the international best practices in corporate governance.
Compliance with the Code of Corporate Conduct of FCSM of Russia
On November 28, 2001, the Russian Government approved the Code of Corporate Conduct. In the course of
improving its corporate governance standards, OJSC Rostelecom took the recommendations of the Code
and embedded them into its own Charter and other internal regulations of the Company in accordance with
the current legislation of the Russian Federation.
Information on Rostelecom compliance with recommendations of the Corporate Conduct Code of the
Federal Commission for Securities Market of the Russian Federation is provided in Appendix 1 to this Annual
Report and constitutes its integral part.
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ANNUAL REPORT
SHARE CAPITAL
As of December 31, 2013 the Charter Capital of Rostelecom 7 280 089 425,0 rubles, including 1
597 702 001 ordinary shares (state registration number issue 1-01-00124-А dated November 10, 1993),
1 071 502 300 ordinary shares (state registration number additional issue 1-01-00124-А-018D dated August
29, 2013) and 242,831,469 Type A preference shares (state registration number 2-01-00124-А dated
November 10, 1993), with par value of 0.0025 rubles each. By the decision of the Service on financial
,
markets of the Bank of Russia as of February 20, 2014 the additional security symbol 018D for issuing
ordinary Rostelecom shares was dismissed, as a result currently in circulation there are 2 669 204 301
ordinary shares (state registration number 1-01-00124-А dated November 10, 1993) and also hereabove
mentioned Type A preference shares.
According to OJSC Rostelecom’s Charter, effective as on December 31, 2013, the Company in addition to
already placed outstanding shares could issue announced shares totaling 2 613 935 751 ordinary shares
and 531 Type A preference shares, with a par value of 0.0025 rubles each.
Rostelecom’s Share Capital Structure as of December 31, 2013
The shareholders who own 2% or more of Charter Capital or ordinary (voting) shares of the Company
(including nominal holders):
Shareholders
The Russian Federation represented
Federal Property Management Agency
by
Share in Charter capital
Share
Ordinary
shares
RUB
%
%
in Share
in
Preference
shares
%
3 135 437.9100
43.07%
46.99%
0.00%
LLC Mobitel
702 218.4900
9.65%
9.38%
12.55%
Vnesheconombank
275 901.8950
3.79%
4.13%
0.00%
Rostelecom LLC (treasury account)
587 716.1850
8.07%
7.22%
17.50%
38.45%
54.42%
Nominal holders
NPO CJSC NRD
2 896 342 215.0
39.78%
As on December 31, 2013 the Russian Federation represented by the Federal Property Management
Agency owns 1254 189 564 ordinary shares of the Company. The Russian Federation does not have a
special right ("golden share") to participate in the management of the Company.
Breakdown of the Company shareholders by category:
Legal entities, including:
Resident companies
Non-resident companies
Individuals, including:
Residents
Non-residents
Number of
registered
shareholders
Share in Charter
capital
Percentage of
ordinary shares
Percentage of
Preference shares
736
93.58%
94.41%
84.52%
639
93.54%
94.36%
84.51%
97
0.04%
0.05%
0.01%
156,680
6.42%
5.59%
15.48%
156,431
6.40%
5.58%
15.43%
249
0.02%
0.01%
0.05%
The Dividend Policy
Rostelecom pays dividends in accordance with the Company Charter and in Regulations on the dividend
policy. In clause 10.3 of the Charter, and in par. 5.2 of the Regulation on Dividend Policy the minimal total
value payable as a dividend on preference shares is fixed at ten percent of the Company’s net profit, defined
in accordance with Russian legislation (Russian Accounting Standards) determined upon results of the last
accounting period to be divided by the total number of shares constituting twenty-five percent of the
Company’s Charter Capital.
In December 2011, the Board of Directors approved the new second edition of the Regulation on Dividend
Policy. According to accepted regulation, the minimal total value payable as a dividend on ordinary shares
should constitute no less than twenty percent of the Company’s total net profit
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ANNUAL REPORT
determined in accordance with International Accounting Standards (IAS). Earlier, the dividend policy defined
the minimal total value payable as a dividend on ordinary shares on the basis of the Company’s net profit
according to Russian Accounting Standards.
The Company’s Annual General Shareholders’ Meeting held on June 17, 2013, resolved to pay the following
dividends based on the 2012 year results:

dividends on Type A preference shares in the amount of 4 1022 rubles per share;

dividends on ordinary shares in the amount of 2 4369 per share.
Thus, the total amount of the dividends accrued on Type A preference shares totaled 996 143 thousand
rubles and accounted for 3.05% of the Company’s net profit for 2012. The total amount of dividends
payable on ordinary shares exceeded 7 172 426 thousand rubles, or 21.95% of the Company’s 2012 net
profit.
In the 2013 reporting year, the Company paid dividends to the federal budget totaling 532 billion rubles.
Therefore, the Company has no indebtedness on payments of dividends to the federal budget.
As on December 31, 2013 the Company’s debt to shareholders upon the results of dividend payments for
2012 amounted to approximately 0.74% of the total dividend amount payable in respect of the relevant
periods.
The main cause of dividends non-payments is the shareholders’ failure to submit information on certain
changes in their personal data to the register of the Company’s securities holders in accordance with the
payment method they had selected. These changes included:

Changes in the shareholder’s residential location, for those opting to receive dividends by mail
transfer;

A lack of details, indication of incorrect bank details and/or changes in bank details for those opting to
receive dividends by bank transfer;

Changes in shareholders’ passport details (this being applicable to any payment method)
Rostelecom complies with the resolutions of the Annual General Shareholders’ Meetings and fully performs
its obligations pertaining to the remittance of dividends to persons entitled to receive them.
Moreover, pursuant to par. 5 of Article 44 of the Federal law No. 208-FZ “On Joint-Stock Companies” of
October 31, 2002, and par. 13.3 of Article 13 of Rostelecom Charter, a shareholder shall advise the
Company’s Registrar in a timely manner on any changes in his/her personal details. In case of a
shareholder’s failure to provide information on changes in his/her details (on time), OJSC Rostelecom and
the Registrar shall not be held liable for his/her losses inflicted in connection therewith.
It is important to note that upon the expiry of the dividend payout period set by the General Meeting of
Shareholders, the Company, together with the Registrar, monitors the shareholder register on a monthly
basis and pays outstanding dividends to the shareholders which have made requisite changes to the register
of the Company.
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ANNUAL REPORT
The Company’s Shares on the Russian Market
As of December 31, 2013 the Company’s ordinary and preference shares (RTKM, and RTKMP tickers) are
currently listed as level A1 securities on the MICEX Stock Exchange. The listing on the MICEX as well as the
inclusion of OJSC Rostelecom’s securities in the calculation of exchanges’ indices demonstrates the ample
liquidity of the Company’s securities and ensures the observance of rights and interests of shareholders and
investors in accordance with listing requirements.
Performance of Rostelecom Shares prices, MICEX Index
* Prices of OJSC Rostelecom’s ordinary and preference shares and the MICEX index were assumed to be
equal to 100 base points as on December 31, 2012
** The MICEX weighted average prices for OJSC Rostelecom’s ordinary and preference shares are used.
Volume of OJSC Rostelecom’s Shares Traded on MICEX
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ANNUAL REPORT
Company’s Securities on Markets Abroad
Rostelecom ADRs were listed on the New York Stock Exchange (NYSE) from February 1998 to December
2009. In December 2009, the Board of Directors thoroughly reviewed the Level II ADR Program and decided
to delist the ADRs from the NYSE and to deregister them with the U.S. Securities and Exchange
Commission. The main reason for this decision compliance with reporting requirements under the U.S.
Exchange Act was associated with substantial expenses, while the major market for Rostelecom’s securities
was by far and large the Russian securities market.
After the delisting from the NYSE the ADR Program was transferred to Level I and Rostelecom’s ADRs had
begun trading in the U.S. over-the-counter (OTC) market by means of the ”Pink Sheets” electronic system. In
March 2010, to maintain a high level of transparency and disclosure in line with the best global practices,
OJSC Rostelecom’s ADRs were listed on the OTCQX International Premier – the highest tier of the U.S.
OTC market. The Company’s ADRs are also traded outside of listing at the London, Frankfurt and other
foreign stock exchanges. As of December 31, 2013, some 3.34% of the Company’s ordinary shares
circulated outside the Russian Federation in the form of ADRs.
Volume of OJSC Rostelecom’s Shares (ADR) Traded on Foreign Stock Exchanges
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ANNUAL REPORT
GENERAL MEETING OF SHAREHOLDERS
Pursuant to the Company’s Charter the General Shareholders’ Meeting is the Company’s supreme
governing body.
Annual Rostelecom Shareholders’ Meeting was held on June 17, 2013, and approved the annual report and
annual financial statements of the Company on results of 2012. The shareholders also approved distribution
of the profit and elected members of the Board of Directors. Also the said meeting approved ZAO KPMG as
the Company’s auditor for 2013 and endorsed the remuneration payable for performance of their duties to
members of the Board of Directors, who are not public servants. Also the Extraordinary Shareholders’
Meeting approved new issues of the Company’s Charter and regulations of on general meeting of
shareholders.
An extraordinary general meeting of Rostelecom shareholders was held on June 27, 2013 at which the
Company shareholders made a decision to reorganize the Company in shape of merger by absorption of
Svyazinvest and 20 more companies which directly or indirectly were wholly owned subsidiaries of
Rostelecom and/or Svyazinvest, which was the logical continuation of the first stage of reorganizing which
took place in April 2011. The shareholders who voted against or those who did not participate in decisionmaking concerning reorganizing could present their shares for reacquisition. After the review of shareholders
claims on reacquisition of their shares Rostelecom reacquired 6.5 % of ordinary and 17.5% of Type A
preference shares
th
Following the results of extraordinary general meeting which took place on December 30 the shareholders
decided to reorganize Rostelecom in shape of transfer of operator’s mobile assets to “RT-mobile” CJSC
affiliation. Reorganizing in shape of assets transfer to “RT-mobile” CJSC is an important stage of mobile
operations development implying conjunction of mobile assets of the company with Tele2 Russia through
creating a joint venture. As it was in case with the meeting held in June 27, 2013 the shareholders who voted
against or those who did not participate in the decision-making concerning reorganizing could present their
shares for reacquisition. After the review of shareholders claims on reacquisition of their shares Rostelecom
reacquired 6.1% of ordinary and 13.7% of Type A preference shares.
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ANNUAL REPORT
THE BOARD OF DIRECTORS
Pursuant to the Company’s Charter, the Board of Directors is a governing collective executive body
responsible for the general management of the Company in between the General Shareholders’
Meetings, and consists of 11 members. In its activity, the Board of Directors is guided by the Charter of
the Company and the Regulations on the Board of Directors of the Company. The new edition No. 11 of
the abovementioned Regulations was approved by the Annual General Shareholders’ Meeting of the
Company held on June 14, 2012, Minutes No. 1 dated June 16, 2012.
The persons listed below were members of the Board of Directors of the Company during 2013 as well as
in 2014 until the date of the Company’s Extraordinary Shareholders’ Meeting which was held on April 2
2014:
Name, patronymic letter, surname of BoD
Member
1.
Sergei A. Azatyan
2.
Ruben A. Agabengyan
3.
Mikhail Yu. Alekseev
4.
Vladimir N. Bondarik
5.
Mikhail M. Zadornov
6.
Anton A. Zlatopolsky
7.
Anton S. Inshutin
8.
Sergei B. Kalugin
9.
Yury A. Kudimov
17.06.2013
10. Sergei A. Kulikov
11. Sergei A. Kuznetsov
12. Mikhail A. Leschenko
13. Anatoly A. Milyukov
14. Alexander Yu. Provotorov
15. Alexander A. Pchelintsev
16. Ivan I. Rodionov
17. Vadim V. Semenov
Brief biographies of the members of Rostelecom’s Board of Directors are attached as Appendix No.2
“Company Management and Controlling Bodies” to this Annual Report and shall be its integral part.
Activities of the Board of Directors and its Committees in 2013
During 2013 the Company’s Board of Directors held 50 meetings, nine of which 6 meetings were held by
attendance in person and 44 meetings by written correspondence. This ratio of the number of meetings
by attendance and absentee meetings is based on the wish to make meetings as efficient as possible
given such requirements as to make prompt decisions on the agenda issues, volume of information to be
reviewed by members of the Board of Directors and the need for discussing the Company development
issues. Information on the meetings of the Board of Directors of the Company is attached as Appendix No
5 to this Annual Report and made its integral part.
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ANNUAL REPORT
Major Resolutions Adopted by the Board of Directors

In January – February 2013 the Board of Directors reviewed a number of questions related to
issue of bonds and optimizing of the affiliation structure of the Company in wide-scale concept “Regional
affiliations composition optimizing”.

In March 2013 the Board of Directors has made a decision to preliminarily relieve current
President from his duties and elect a new one, Sergei B. Kalugin.

In May a number of decisions were made for preparing reorganizing of the Company by means
merger by absorption of Svyazinvest and 20 more affiliations and dependent companies.

In June and July 2013 the Board of Directors approved more than 40 transactions within the
framework of MVNO GSM/UMT project implemented with Skylink group

In the beginning of August the Board of Directors reviewed a number of questions related to
creation of joint venture with Tele2 Russia: in November an extraordinary meeting of shareholders of the
company was held for making a decision concerning mobile assets transfer to separate affiliation in the
beginning of December, and in the beginning of December the Board of Directors made a decision on
participation of the Company in joint venture “T2 RTK Holding” LLC. Also during this meeting the strategy
of the company until 2018 was determined.

During fiscal year the Board of Directors approved Company’s Budget for 2014 and regularly
reviewed the questions on meeting budget indices and also on debts receivable management.

During the whole year the Board of the Directors applied significant efforts to refining risk
management, internal audit and management of the Company. Moreover, according to the competency of
the Board of Directors and according to Federal law “On Joint Stock Companies” they regularly reviewed
questions on approval of transactions of interest. Also in 2013 there were decisions made on preparation
and holding Annual general shareholders meeting on results of the year 2012, extraordinary general
meeting of shareholders in June 2013 due to reorganizing of the Company by means merger by
absorption of Svyazinvest and 20 more affiliations and dependent companies and extraordinary general
meeting of shareholders in December 2013 due to reorganizing of the Company in shape of “RT-mobile”
CJSC spin-out.
Committees of the Board of Directors
To improve the Company’s efficiency, the Board of Directors set up the Strategy Committee, the
Nominations and Remuneration Committee, the Audit Committee, and the Corporate Governance
Committee. These committees are elected on an annual basis. As initiatives are proposed, each
Committee carries out a detailed analysis from the perspective of its own area of expertise and presents
its recommendations to the Board. This ensures that each decision made by the Board of Directors is
well-researched and sufficiently informed. Information on the meetings of Committees of the Board of
Directors of the Company is presented in Appendix No 5 to this Annual Report and made its integral part.
The Strategy Committee
In its activity the Strategy Committee is guided by the Regulations on the Strategy Committee of the
Board of Directors of the Company. Its new second edition was approved by the Board of Directors in
2009 (Minutes No 5 dated June 24, 2009).
In 2013 the Strategy Committee focused significant efforts on reviewing matters related to elaboration of
a strategy of the Company development until 2018, and ensuring further growth and modernization of the
Company business on the whole.
Besides, the Strategy Committee traditionally pays a lot of attention to meeting budget targets and
approval of the budget for 2014.
Members of the Strategy Committee until June 17, 2013:
•
Sergei Azatyan;
•
Sergei Inshutin;
•
Sergei Kuznetsov;
•
Alexander Provotorov;
•
Vadim Semenov.
Members of the Strategy Committee as of August 29, 2013:
•
Anatoly Milyukov;
•
Ruben Agabengyan;
•
Mikhail Alekseev;
•
Mikhail Zadornov;
•
Sergei Kalugin;
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ANNUAL REPORT
•
•
•
•
Sergei Kulikov;
Vadim Semenov;
Kai Uve Melhorn;
Maria Florentieva.
The Nominations and Remuneration Committee
In its activities the Nominations and Remuneration Committee is guided by the Regulations on the
Nominations and Remuneration Committee of the Board of Directors. Its new edition No 1 was approved
by the Board of Directors in 2009 (Minutes No 11 dated September 21, 2009).
Members of the Nominations and Remuneration Committee until June 17, 2013:
•
Sergei Azatyan;
•
Anton Zlatopolsky;
•
Mikhail Leschenko;
•
Anatoly Milyukov.
Members of the Nominations and Remuneration Committee as of August 29, 2013:
•
Ruben Agabengyan;
•
Yury Kudimov;
•
Anton Zlatopolsky;
•
Alexander Pchelintsev;
•
Ivan Rodionov
The Audit Committee
In the course of its activities the Audit Committee is guided by the Regulations on the Audit Committee of
the Board of Directors. Its new second edition was approved by the Board of Directors in 2009 (Minutes
No 11, dated September 21, 2009).
In 2013 the Audit Committee was focused on controlling the quality and integrity of information included in
the Company’s financial (accounting) statements. The Committee regularly reviewed and evaluated the
statement of opinions of the Audit Commission and opinions of the independent external auditor,
monitored efficiency of the Company’s auditing practices and reviewed draft auditing services
agreements.
Particular attention in 2013 the Audit Committee paid to improvement of the Company’s risk management
program, and further improvements of the quality of internal audit and controls.
Members of the Auditing Committee until June 17, 2013:
•
Yury A. Kudimov;
•
Anton Inshutin;
•
Vadim Semenov;
•
Ivan Rodionov.
Members of the Auditing Committee as of August 29, 2013:
•
Yury A. Kudimov;
•
Anatoly Milyukov;
•
Vadim Semenov;
•
Ivan Rodionov.
The Corporate Governance Committee
In its activity, the Corporate Governance Committee is guided by the Regulations on the Corporate
Governance Committee of the Board of Directors of the Company, the revised second edition of which
was approved by the Board of Directors in 2009 (Minutes No 11 dated September 21, 2009).
In 2013 the Corporate Governance Committee focused primarily on improving corporate governance
practices of the Company; in particular, special efforts were aimed at drafting new revisions of key
corporate documents of the Company: the Charter, Regulations on the Board of Directors, Regulations on
the Audit Commission. The committee also reviewed matters related to preparation and adoption of the
agenda and materials for the Company’s Annual General Shareholders’ Meeting on 2012 results.
Members of the Corporate Governance Committee until June 17, 2013:
•
Vladimir Bondarik;
•
Anton Zlatopolsky;
•
Sergei Kuznetsov;
•
Mikhail Leschenko;
•
Alexander Provotorov.
Members of the Corporate Governance Committee as of August 29, 2013:
•
Anton Zlatopolsky;
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ANNUAL REPORT
•
•
•
•
Sergei Kulikov;
Ekaterina Mironova;
Alexander Pchelintsev;
Alexander Rogovoi.
Remuneration of the Board of Directors
Pursuant to par. 2 of Article 64 of the Federal law “On Joint Stock Companies”, the amount of
remuneration payable to the members of the Board of Directors shall be determined set by a resolution at
the General Shareholders’ Meeting. In compliance with the requirements of the Russian legislation, the
Annual General Shareholders’ Meeting held on June 17, 2013 made a decision “On remuneration of the
members of the Board of Directors who are not government workers in amount specified by internal
documents of the Community”.
The remuneration of the members of the Board of Directors consists of quarterly and annual payments.
The quarterly remuneration payable to each member of the Board of Directors shall be equal to 1,500,000
rubles. The Chairman of the Board of Directors shall receive remuneration 1.3 times as much as the
remuneration of individual board members. The quarterly remuneration of a member of Board of Directors
shall be reduced:

by 10%, in case of absence in 25 or less percent (inclusive) of the Board of Directors meetings and
absentee meetings held;

by 30%, in case of absence in more than 25 yet less than 50 percent (inclusive) of the Board of
Directors meetings and absentee meetings held;

by 100%, in case of absence in more than 50 percent of the Board of Directors meetings and
absentee meetings held.
If during a quarter, there were changes in the personal membership of the Board of Directors and/or
changes in the terms and conditions of performing the duties (for remuneration/on a complimentary basis)
by a member of the Board of Directors, the remuneration shall accrue and be payable pro rata to the
period of time during which the member of the Board of Directors performed their functions for a
remuneration.
The annual remuneration for all members of the Company’s Board of Directors shall be set by resolution
1
of the Annual General Shareholders’ Meeting as a percentage of OIBDA upon the completion of the
annual financial statements prepared according to IFRS.
At the Annual General Shareholders’ Meeting held on 2011 results, shareholders approved the
Regulations on the Board of Directors of the Company in a new edition No 11, according to which the
annual remuneration for the entire composition of Board of Directors is established by the resolution of
the Annual General Shareholders’ Meeting on results of the last full fiscal year as a percentage of OIBDA
calculated on the basis of consolidated financial statements prepared according to IFRS for the reporting
financial year, in which such resolution was passed. This percentage shall not exceed 0.13% and is used
to determine the remuneration of persons who performed the functions of members of the Board of
Directors as of the Annual General Shareholders’ Meeting on results of the last full financial year until the
next Annual General Shareholders’ Meeting.
Annual remuneration for a member of the Board of Directors shall be determined according to the
following calculation method: the value described above divided by the number of persons elected to the
Board of Directors. The annual remuneration of the Chairman shall be 1.3 times this amount. Annual
remuneration of a member of the Board of Directors shall be reduced by 50% in the event of his/her
participation in less than half of the Board of Directors meetings held over his/her term of office.
If during the period starting from the election of the Board of Directors by the Annual General
Shareholders’ Meeting until the next Annual General Shareholders’ Meeting, there were changes in the
personal membership of the Board of Directors and/or changes in the terms and conditions of performing
the duties (for remuneration/on a complimentary basis) by a member of the Board of Directors, the
remuneration shall accrue and be payable pro rata to the period of time during which the member of the
Board of Directors performed their functions for a remuneration.
The annual remuneration to each member of the Board of Directors shall be paid no later than 3 months
after its approval at the Annual General Shareholders’ Meeting.
Members of the Board of Directors of OJSC Rostelecom who are also members of the Auditing
Committee will receive an additional quarterly payment amounting to 150,000 rubles for fulfilling these
duties. The payment to the Chairman of the Audit Committee shall be 1.25 times this amount.
1
OIBDA is calculated as the amount of operational income less depreciation and loss from depreciation of noncurrent assets according to the consolidated income statement for the relevant period.
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ANNUAL REPORT
A member of the Board of Directors also serving as a member on other Board committees will receive an
additional quarterly payment amounting to 126,000 rubles for serving as a member of the Board
committee. The payment to the Chairman of each committee shall be 1.25 times this number (for
participation in each committee).
The quarterly remuneration of a member of a Committee of the Board of Directors may be reduced by:

10%, in case of absence in 25 or less percent (inclusive) of the Board of Directors meetings and
absentee meetings held;

30%, in case of absence in more than 25 yet less than 50 percent (inclusive) of the Board of
Directors meetings and absentee meetings held;

100%, in case of absence in more than 50 percent of the Board of Directors meetings and absentee
meetings held.
If during the quarter there were changes in the composition of the Committee, the remuneration to the
former or new Committee member shall accrue and be paid in proportion to the period of time during
which the member of the Committee performed his/her functions.
Members of the Board of Directors who are simultaneously employed by the state shall perform their
duties on an unpaid basis.
Members of the Board of Directors are not entitled to any additional remuneration or compensation in
whatever form or manner for any expenses incurred in the course of performing their duties in respect of
making any decisions by the Board of Directors or by the Company other bodies, as well as in respect of
exercising their rights and obligations as members of the Board of Directors, apart from those
remunerations and compensations to be received according to the Regulations on the Board of Directors
or pursuant a decision of the Annual General Shareholders’ Meeting expressed in other way.
Given all payments (including bonuses, commission fees, benefits and/or compensation for expenses, as
well as other property distributions) the total remuneration paid by the Company to the Board of Directors
in 2013 amounted to 488 982 362 rubles.
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ANNUAL REPORT
THE PRESIDENT AND MANAGEMENT BOARD
According to the Company’s Charter, the Management Board is a governing collective executive body
responsible for its day-to-day management. The number of members and the personnel composition of
the Management Board are determined by the Board of Directors. Management Board members are
elected by the Board of Directors excluding the Chairman of the management Board. According to the
Federal law “On Joint Stock Companies”, the authority of the Chairman of the Management Board is
vested with the President. The decision of the Board of Directors of the Company nominated Sergei
Kalugin to President post on March 27, 2014
During 2013 and in 2014 the following persons took part in the Company’s Management Board activities:
Name, patronymic letter and surname
of the Management Board member
Feb.18
2012
Mar.27
2012
Aug.1
2012
Feb.21
2013
1. Natalya A. Albrecht
2. Alexander E. Abramkov
3. Andrey V. Balatsenko
4. Pavel A. Zaitsev
5. Ivan I. Zima
6. Sergei B. Kalugin
7. Anton Yu. Kolpakov
8. Maxim G. Kudryavtsev
9. Sergei A. Lukash
10. Mikhail M. Magrilov
11. Alexander V. Maslow
12. Kai Uve Melhorn
13. Vladimir K. Mironov
14. Aleksey S. Nastchekin
15. Alexander Yu. Provotorov
16. Dmitry V. Proscura
17. Alexander M. Rogovoi
18. Galina V. Rysakova
19. Olga N. Rumyantseva
20. Dmitry V. Sadkov
21. Oleg I. Senkov
22. Victor V. Strelkov
23. Larisa S. Tkachuk
24. Maria V. Florentieva
25. Roman A. Frolov
26. Anton A. Khozyainov
27. Alexander M. Tseitlin
28. Andrei V. Cheglakov
Brief biographies of people that held the positions of President and members of the Company’s
Management Board in 2013 are presented in Appendix No 2 entitled “The Company Management and
Controlling Bodies” attached to this Annual Report and made its integral part.
Activities of the Management Board and its Committees in 2013
The Management Board of the Company held 50 meetings in 2013, 4 meetings by attendance in person
and 46 meetings by written correspondence.
In 2013, the Management Board reviewed the Company’s operational activities with particular focus on
development of current plans and decisions which will make possible ensuring achievement of the
declared goals. The Management Board also regularly reviewed budget performance reports and reports
on marketing and advertising plan implementation.
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ANNUAL REPORT
In order to improve operational efficiency, the Management Board adopted certain resolutions in 2013 on
the decommissioning of analogue communication lines and facilities and on optimizing the structure of
Rostelecom’s branches.
Furthermore, to ensure thorough study of matters and quality of decisions to be taken, the Management
Board made significant efforts to prepare materials and issues for the Board of Directors to pass
resolutions, including efforts devoted to preliminary review of related party transactions.
Constantly working on improvement of the Company’s corporate governance standards and internal
control procedures, in 2013 the Management Board paid particular attention to the risk management
program implemented by the Company. The Management Board realizes Companies’ social
responsibilities and enhances the Company’s social responsibility initiatives, undertaking numerous
charitable and sponsorship initiatives on behalf of the Company.
Committees of the Management Board
In 2013, several committees were in place to improve the efficiency and support general activities of the
Management Board: the Budget and Investment Committee, the Compensations Committee, the
Information Disclosure Committee, the Risk Management Committee, and the Charity Committee of the
Management Board.
The Budget and Investment Committee
In 2013 the Budget and Investment Committee analyzed, assessed, and made investment decisions
related to projects and programs planned for 2013 and 2014. In addition, the Committee completed a
thorough review of the 2014 budget for structural units and branches in order to produce a 2014
Consolidated Budget for the united Company.
The Compensations Committee
The Compensations Committee focused on making improvements to the Company’s efficiency by
ensuring the employees are highly-qualified personnel stimulated to achieve the common goals. The
Committee took decisions associated with compensation and motivation schemes for the Company’s
employees
The Information Disclosure Committee
During 2013 the Information Disclosure Committee ensured consistency and compliance with procedures
of disclosing information deemed important for the Company, before disclosure of this information to third
parties, in order to prevent the inconsistency and conflicts of information disclosed by the Company.
The Risk Management Committee
The objective of activities of the Internal Control Committee is to coordinate the development of
Company’s risk management system and to provide effective risk management at all levels which is done
for wise decision-making.
The Charity Committee
The Charity Committee is engaged in reviewing appropriate issues and making decisions on the
Company’s charitable donations and participation in socially significant projects.
Remuneration of the President and of the Management Board
Pursuant to the Regulations on the President of the Company, the remuneration of the President is
defined in a written contract the terms and conditions which are approved by the Board of Directors. In
addition, according to the resolution of the Board of Directors, the following amounts are payable to the
President:

A quarterly bonus based on diligent performance of duties and upon results of meeting quarterly
budget targets.

An annual bonus based diligent performance of duties and upon achievement of annual key
performance indicators as approved by the Board of Directors.
Decision on remunerations payable to members of the Company’s Management Board shall be taken by
the Board of Directors, according to an internal document approved by the Board of Directors. At present,
members of the Management Board receive a quarterly monetary remuneration for performing their
duties.
Quarterly bonus payable to an individual Management Board member shall not exceed 733,000 rubles
and 879,600 rubles payable to the Chairman. Quarterly bonus amounts payable to members of the
Management Board shall be determined by the Board of Directors based on meeting performance
targets.
Quarterly bonus amounts payable to members of the Management Board shall be determined by the
Board of Directors based on meeting the following performance targets:
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ANNUAL REPORT

The results of implementation of the main economic indices of Company’s budget as of the end of
the financial quarter;

The results of implementation of decisions previously made by the General Meeting of
Shareholders and the Board of Directors of the company and the quality of the materials prepared for the
meetings of the Board of Directors.
When evaluating the quality of materials prepared for the Board of Directors’ meetings, the Board of
Directors takes into account the due arrangement and timely delivery of materials and solutions, their
compliance with the current legislation, the Charter and the internal documents of the Company, as well
as accepted standards.
In 2013, the total remuneration amount paid to members of the Management Board members for their
duties pursuant to the Regulations on the Management Board amounted to 41,899,546 rubles. Other
payments to the persons acting as members of the Management Board in 2013, including the President,
(including salaries, bonuses, commissions, benefits and/or compensation of expenses, as well as other
payouts in the form of property under the Labor Code of the Russian Federation and relevant
employment contracts) amounted to 279,271,271 rubles in 2013.
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ANNUAL REPORT
THE AUDIT COMMISSION
Pursuant to the Company’s Charter the Audit Commission is established as an independent body within
the Company responsible for supervising the Company’s financial and operational activities during the
periods between the Annual General Shareholders’ Meetings.
On June 17, 2013, at the Annual General Shareholders’ Meeting on 2012 results, the currently effective
Audit Commission was elected, consisting of seven members as follows:
Svetlana N. Bocharova;
Valentina F. Veremyanina;
Vasiliy V. Garshin
Bogdan I. Golubitsky;
Olga G. Koroleva;
Vyacheslav G. Ulupov;
Alexander V. Shevchuk.
Brief biographies of the Company’s Audit Commission members are presented in Appendix No2 “The
Company Management and Controlling Bodies” attached to this Annual Report and made its integral part.
The Audit Commission Activities in 2013
During 2012, the Audit Commission conducted a review of the Company’s financial and operational
activities. The Audit Commission used selective inspection techniques of individual transactions. The
review was based on documents such as accounting and taxation records, as well as registers and
statements provided by the Company’s management.
Within the analysis framework the Audit Commission also reviewed the disclosure and accounting
procedures applied for reflection in the Company’s financial accounts of information regarding the
Company’s financial and business activities; as well as the Company’s accounting methods and
principles, and procedures used to prepare the Company’s financial statements and annual reports.
Remuneration of the Audit Commission members
The amounts of remuneration payable to members of the Auditing Commission and compensation for
expenses are set forth in the Regulations on the Audit Commission. Members of the Auditing Commission
are compensated for all proven expenses incurred while executing their duties.
Members of the Auditing Commission during their term in office shall receive quarterly remuneration
amounting to 350,000 rubles to each individual member. The quarterly remuneration to the Chairman of
the Audit Commission is 1.3 times as much as this amount.
During the quarter when the Auditing Commission is being reelected or in the event that a member of
Commission resigns as stipulated by paragraph 8 of the Regulations on the Audit Commission, quarterly
remuneration will be paid pro rata to the period when such member performed all applicable duties during
the relevant quarter.
The overall remuneration paid to the members of the Auditing Commission in 2013 amounted to
7,823,846 rubles.
THE COMPANY’S SIGNIFICANT TRANSACTIONS
Related Party Transactions
In 2013, the Company participated in a number of related party transactions. Information on these
transactions, as well as information on their preliminary approval by Rostelecom’s Board of Directors, is
provided in Annex No.3 of this Annual Report and is an integral part hereof.
Major Transactions
In 2013 the Company did not participate in transactions deemed significant by the federal law “On Joint
Stock Companies”.
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ANNUAL REPORT
INFORMATION ON THE ACTUAL EXECUTION RESULTS OF LAWS AND REGULATIONS OF THE
PRESIDENT OF THE RUSSIAN FEDERATION AND ORDERS OF THE GOVERNMENT OF THE
RUSSIAN FEDERATION
Information
regarding
the
establishment
of
specialized
committees
under
the
Company’s Board of Directors, approval of the KPI system, development and adoption of
regulations on remuneration of management members (based on the KPI system) and
remuneration of the Board members (according to Order of the Government of the Russian
Federation No. VZ-P13-6294 dated July 23, 2009, the letter of the Federal Property Management
Agency No. GN-13/20732 dated August 18, 2009).
Information regarding the establishment of specialized committees by Rostelecom Board of Directors, as
well as remuneration of the members of the Board is presented in the “Board of Directors” sub-section of
the “Corporate Governance” section of this Annual Report.
In 2012, the company will implement a new system of incentive and compensation. The basis of the
remuneration of employees is a balanced system of key performance indicators (hereafter referred to as
KPI), which motivate the staff to ensure a more effective fulfillment of the Company’s strategic objectives.
The KPI system represents a pyramid with corporate KPI indicators at the top characterizing general
performance of the Company and the strategies for future. Corporate KPIs can be broken down into
business KPIs defining the operation of departments and personnel at all levels of management. When
giving bonuses to employees of all levels, corporate KPIs and business KPIs are used. The value of
corporate KPIs goes down as management hierarchy narrows. Such a cascading mechanism guides
experts of different spheres, enables them to perform universal duties, and provides coherence and
coordination in implementation of cross-functional processes.
Information on realization of investment programs (Order of the First Deputy Chairman of the
Russian Federation No. ISH-P13-5361 dated September 18, 2009, fax message of the Federal
Property Management Agency No. GN-15/8808 dated April 1, 2011).
Information on realization of investment programs is presented in the “Investment Program
Implementation" ” section of this Annual Report.
Information on realization of the joint-stock company strategy in the field of energy saving and
efficiency (paragraph 8 of the Order of the Russian Federation Government No. ISh-P9-3772 dated
June 18, 2008 on implementation of the Decree of the President of the Russian Federation No. 889
dated June 04, 2008 “On certain measures aimed to increase the energetic and ecological
efficiency of the Russian economy”, Letter of the Federal Property Management Agency No. GN13/28934 dated November 27, 2008).
For the purpose of implementation of Federal law No. 261-FZ dated November 23, 2009 “On energy
saving and improvement of energy efficiency and making alterations to some legislation acts of the
Russian Federation” Rostelecom has become a member of self-regulatory organization in the field of
energy examinations “Non-profit partnership “Self-regulatory organization of energy examinations” and
thus gained the right to carry out activities in the field of energy examinations by the Company experts.
The measures are implemented in accordance with the Standards and Regulations of energy certificate
execution and the Requirements of Minenergo of Russia for the execution quality of energy certificates.
Information on procurement of products of Russian origin (Letter of the Federal Property
Management Agency No. GN-13/7796 dated April 03, 2009).
Products of Russian origin made a 15.31% share of all 2012 deliveries.
Information on working out the Company’s midterm development strategy and its innovative
development program (Minutes No. 4 of the meeting at the Russian Federation Prime Minister’s
Office dated August 3, 2010), Letters of the Federal Property Management Agency No. GN-15/9233
dated March 28, 2012 and No. 11/54024 dated November 20, 2013.
Program of innovative development of OJSC Rostelecom (Version 2) was approved by Rostelecom
Board of Directors on September 6, 2012 (Minutes No. 13 dated September 10, 2012).
Information on disposal of non-core assets pursuant to Decree of the President of the Russian
Federation No. 596 dated May 7, 2012 (Letters of the Federal Property Management Agency No.
GN-13/1359 dated January 24, 2011, No. GN-13/1472 dated January 25, 2011, No. GN-15/10587
dated April 9, 2012, No. GN-15/10588 dated April 09, 2012, No. EA-15/48093 dated October 25,
2012), No. 11/58630 dated December 12, 2013, No. 11/7029 dated February 21, 2014, and Letter of
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ANNUAL REPORT
the Ministry of Economic Development of Russia No. DO8i-314 dated February 25, 2014.
including information about consideration at meetings of the Board of Directors of issues of noncore asset disposition both of the parent organization as well as of the subsidiaries and affiliates
and approval of programs aimed at disposal of the said assets.
Information about disposition of shares in non-core companies is provided in the “Rostelecom Group of
Companies” section of this Annual Report.
As part of activities aimed at the sale of non-core property items in 2013, 375 items retired with the
residual cost of 152,949 thousand rubles. Revenue from their realization amounted to 884,497 thousand
rubles, excluding VAT.
Information on measures aimed at ensuring transparency of purchases and transition to making
e-purchases, including terms regulating procedures of goods, work and services procurement. It
is important to disclose the results of the meeting of the Board of Directors (Supervisory Board)
of the joint-stock company which considered the said issues (Order of the Government of the
Russian Federation No. ISh-P13-8685 dated December 17, 2010, Letter of the Federal Property
Management Agency No. GN-13/1416 dated January 25, 2011.
In 2013 measures aimed at ensuring information openness regarding procurement activities were
implemented in accordance with Rostelecom regulation on procurement of goods, work, and services
which had been considered and approved by the Board of Directors on February 29, 2012 (Minutes No.
39 dated March 5, 2012).
Procedure of purchases in Rostelecom is open and transparent for all suppliers of goods, works and
services. All purchases are made in strict compliance with the Federal Law No. 223-FZ ‘On purchase of
goods, works and services by special types of legal entities’ dated 18 July 2011 (hereinafter referred to as
223-FZ). Complete and detailed information about expected and current purchases is published and is
constantly available in the Internet-site www.zakupki.gov.ru and in the "Acquisitions" section the
Company corporate site www.rostelecom.ru Equal access to bidding - is one of the principles of
Rostelecom business which is supported by a constantly growing number of the Company suppliers. For
example in 2013 Rostelecom had more than 36 thousand suppliers. The share of acquisitions in
electronic form exceeded 80 %. The increase of the number of suppliers is goes hand in hand with fiercer
competition at bidding. In 2013 the average number of those taking part in such activities went up by 70%
as compared with the year 2012.
For the second year running Rostelecom activities in the field of information transparency with regard to
acquisitions were highly appraised. which was demonstrated by confirmation in 2013 of Rostelecom's
rating as a company with guaranteed acquisition transparency, The rating was organized by the National
Association of Participants of e-commerce. The rating is performed with the assistance of the Ministry of
Economic Development of the Russian Federation, the Federal Anti-Monopoly Service and the Audit
Chamber of the Russian Federation.
Information on decisions aimed at improving the compensation system for employees of the jointstock company (Order of the Government of the Russian Federation, dated December 4, 2010 No.
KA-P13-8297; Letter of the Federal Property Management Agency No. GN-13/3802 dated February
15, 2011.
In 2013, the following steps were undertaken as part of activities aimed at the establishment of a
universal system of motivation and remuneration of employees:



a common grading system for the whole Company was introduced which makes it possible to
evaluate the personal contribution of each employee in achievement of the common result. Each
position in the Company had been thoroughly evaluated in accordance with universal assessment
standards and a common scale of factors indicated by STRATA methodology;
ranges of remuneration for each “grade” based on the grade system were defined and approved on
the basis of common principles for the entire company, taking into account the Company’s economic
capacities and terms of payment for labor on the labor market;
a standard KPI reference book was prepared and approved as part of standardization of the system
of monetary incentives of the employees which considers all aspects of financial and business
operations of the Company as broken down according to functions. The reference book is a multilevel system of key indicators of efficiency with corporate KPI at the head which are mapped on KPI
of lower levels. This enables to link the results of the performance of each employee with the system
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ANNUAL REPORT
of monetary incentives depending both on the results of individual performance and the results of the
Company's activities in general;
 a standard regulation on remuneration for employees of Rostelecom was adopted. On its basis,
regulations on remuneration for employees of macroregional branches of Rostelecom were also
developed and approved;
 principles and ranges of bonuses to be paid to employees were elaborated and approved with
consideration of specific nature of employment duties. These principles and ranges of bonuses are
aimed at enhancement of motivation and interest of employees in proper performance of their
employment duties and achievement of high production results.
Information concerning activities aimed at the creation of innovative development programs in
joint stock companies on the list of organizations that produce such programs, as approved by
Resolution of the Government Commission for Advanced Technology and Innovation dated
August 3, 2010, Minutes no. 4 (Letter of the Federal Property Management Agency No. GN13/32160 dated October 29, 2010, No. GN-13/32156 dated October 29, 2010).
A number of key activities must be performed in order to realize innovative development programs. A list
of these activities, as well as their completion status as of the end of 2012 is provided below:
Activity
Creation of the Company’s innovative development unit
Setting up the Innovative Center
Budgeting innovative development
Introduction of the ideas management system
Creation of the KPI system for managers aimed at the achievement of goals regarding the innovative
development of the Company
Development of interaction patterns with universities and research institutions
Financing the target capital fund of the Skolkovo Institute of Science and Technology
Working out criteria of assessment of interaction with universities and research institutions
Working out /modernization of regulations for the Company innovations management
Development of partnerships with supporting universities and research institutions, venture capital
funds, technology parks, etc.
Development of partnerships with various participants of the innovation market, including innovative
small and medium businesses
Involvement of the Company employees in the process of innovative activities
Participation in the activity of technical committees and international communication institutions
Status
Done
Done
Done
Done
Done
Done
Done
Done
Done
Done
Done
Done
Done
Paragraph “E”, clause 1 of the List of regulations of the President of the Russian Federation on
the implementation of priority measures aimed at improving the investment climate in the Russian
Federation, No.Pr-846 dated April 2, 2011, according to which it is necessary to provide
information on the adoption of solutions to reduce the expenses on acquisition of goods (work,
services) per one unit of production by at least ten percent per year, within three years in real
terms in government-controlled companies (joint stock companies), where the share of the
Russian Federation in the charter capital constitutes more than 50% (hereafter - OJSC) (Letters of
the Federal Property Management Agency No. GN-15/27795 dated September 14, 2011, No. GN15/28326 dated September 16, 2011, No. GN-15/27797 dated September 14, 2011 as well as No. GN15/28327 dated September 16, 2011 and No. DP-15/20610 dated July 14, 2011.
The Company’s Board of Directors approved the value calculation methodology "Rate of change of
expenses on acquisition of goods (work, services) per one unit of production in the Company (Minutes no.
29 dated December 29, 2011), including for the purpose of defining the size of a reward to the President
of the Company). In 2013, the Company’s expenses on acquisition of goods (work, services) per one unit
of production decreased by 47.3% per one unit of production as compared with the year 2012 (in 2010
prices).
In 2013, with its system of incentive and remuneration, OJSC Rostelecom continued with introduction of
the system of key performance values (KPI) to assess the performance of the Company and the
Company staff, which contemplates inclusion in KPIs for managerial personnel some values pertaining to
achievement of the target of reducing expenses in acquisition of goods (work, services) per one unit of
production and achievement of the target level of acquisition budget saving.
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ANNUAL REPORT
Information on the liability insurance of independent directors – public interest representatives in
the management of joint stock companies (Order of the President No. Pr-2206 dated August 3,
2011, Letter of the Federal Property Management Agency No. GN-15/36784 dated November 29,
2011).
In November 2012, the liability insurance contract of officers and members of Rostelecom Board of
Directors was signed by the Company with a liability limit of USD 250 million. This contract had received a
preliminary approval by members of the Board of Directors (Minutes no. 19 dated November 26, 2012).
The term of validity of the contract is May 27, 2014 inclusively.
Information on proposals and recommendations aimed at promoting the development of
mechanisms for environmental liability according to international standards, including financial
statements and the system of voluntary certification and labeling, subject to independent
verification and certification (subparagraph "l" clause 1 of the List of regulations of the President
of the Russian Federation No. Pr-1640 dated June 6, 2010, Letter of the Federal Property
Management Agency No. GN-13/37524 dated December 5, 2011)
Activities aimed at development of Rostelecom’s environmental policy have been performed by the
Company. The Company's environmental policy includes environmental performance in dynamic
economic growth, which provides the most efficient use of natural resources and preservation of
favorable environmental conditions for future generations.
The goal shall be reached by implementing the following principles:
 reduction of the Company’s impact on the environment through implementation of the best
environmental management methods currently available and development of environmental
management system in accordance with international standards.
 a consistent improvement of the Company’s environmental management system with the help of the
timely development and updating of corporate regulations in the field of environmental protection and
ecological safety.
 compliance of Company activities with legislative and other requirements in the field of ecological
safety and environmental protection.
 continuous perfection of the Company’s image as an ecologically-oriented company.
 Support of available information regarding the Company’s activities in the fields of environmental
protection and ecological safety and efficient society outreach.
The environmental policy of Rostelecom is planned to be adopted in the first half of 2014. Within the
framework of the implementation of environmental policy provisions, “The regulation of environmental
control implementation in the field of waste management” was approved. The goals of this document are
following:
 compliance with the requirements of Russian Federation legislation in the field of environment
protection, waste management, industrial safety, sanitary-epidemiological well-being of the
population, licensing and other requirements associated with the processes of waste management;
 compliance with the requirements and regulations set in relation to Company by current authorization
documents;
 prevention of damage to the environment in the result of Company activities;
 improvement of waste transportation processes in Company, the optimization of such processes for
the reduction of costs, quantity and nomenclature of generated waste;
 minimization of Company’s risks (environmental, legal, financial etc.) connected with waste
management;
 compliance with the principles of effective use and restoration of natural resources, waste recycling;
 prevention of emergency situations in the process of waste management, timely identifying and
addressing their causes.
On practicability of core assets disposition in economy sectors with a sufficient level of
competition in compliance with subparagraph "B", Clause 1 of the List of Orders of the President
of the Russian Federation No. Pr-1092 dated April 27, 2012, (Letters of the Federal Property
Management Agency No. DP-15/26414 dated July 12, 2012, No. 15/34268 dated August 22, 2012,
No. OD-11/8539 dated February 27, 2013, No. OD-11/40116 dated August 29, 2013).
75
ANNUAL REPORT
Rostelecom telecommunication assets are involved in provision of a full range of telecommunication
services, as well as implementation of the Company development strategy as an integrated operator.
OJSC Rostelecom development strategies as approved by the Company Board of Directors (December
26, 2012 and November 19, 2013) (hereinafter referred to as the "Strategies") did not suggest
apportionment or sell-off of core assets in 2013. Equipment not involved in the production process which
is standing ready for use for back-up purposes and national security protection cannot be sold.
Equipment which is disposed of and put out of operation is out-of-date and cannot be efficiently used for
provision of communication services. Besides, the sale of some items of the range of telecommunication
equipment (assets) will not allow small and medium business enterprises to provide communication
services due to a specific nature of the communication systems organization as a unified industrial
complex, including equipment, networks and channels, software and professional human resources.
On March 28 2014 in execution of the approved Strategies and Decision of the Company's Board of
Directors of December 12, 2013 blocks of shares of companies owned by Rostelecom which provide
mobile telecommunication services were submitted for payment of Rostelecom share in the charter
capital of T2Rus Holding.
On expediency of the use of recommendations related to management of exclusive rights to the
results of intellectual activity pursuant to the Task of the Government of the Russian Federation
No. ISh-P8-800 dated February 04, 2014 (Letter of the Federal Property Management Agency No.
11/9288 dated March 07, 2014).
Rostelecom exercises management of exclusive rights to the results of intellectual activity in compliance
with the Russian Federation law. The internal regulatory documents of the Company comply with
recommendations elaborated by the Ministry of Economic Development of the Russian Federation
including the procedure of their registration, requirements to contractual activity work with items,
designation of divisions responsible for work with items, procedure of financing projects related to items,
etc. The Company takes additional steps to ensure the security of the most important items of intellectual
property, such as inventions, utility models, software by way of carrying out relative patenting/registration
procedures as required by law.
On adhering to the Anti-corruption Charter of Russian Business (Letter of the Federal Property
Management Agency No. 11/53971 dated November 20, 2013).
Rostelecom had adhered to the Anti-corruption Charter of Russian Business and on May 16, 2014 it was
entered in the Consolidated Register of participants under No. 129.
76
ANNUAL REPORT
GENERAL INFORMATION ABOUT THE COMPANY
OJSC ROSTELECOM
Full company name:
Open Joint Stock Company Long-Distance and International Telecommunications Rostelecom
Abbreviated company name:
OJSC Rostelecom
Registration number and date of issuance of State Registration Certificate:
Data on the original state registration: No.021.833 dated September 23, 1993
Data on the registration of the legal entity: the Certificate of Unified State Register of Legal Entities No.
004891969 Series 77 (OGRN No. 1027700198767) dated September 9, 2002
Legal address:
15 Dostoevskogo Street, Saint Petersburg, 191002, Russian Federation
Mailing address:
14 Pervaya Tverskaya-Yamskaya Street, Moscow, 125047, Russian Federation
Main activity:
The code ARCEA (All-Russia Classifier of Economic Activities) 64.20 - Activity in the field of
telecommunications
Information regarding shortlisting of strategic joint-stock companies:
OJSC Rostelecom is not included in the list of strategic joint-stock companies, approved by Decree of the
President of the Russian Federation No. 1009 as of August 04, 2009. However the Company is a
business entity of strategic importance for ensuring defense of the country and state security as it
performs activities specified in paragraphs 12-14 and 37 a) of Art. 6 of the Federal Law of 29.04.2008 №
57-FZ “On the Procedure for Foreign Investment in Business Companies which are of Strategic
Importance for National Defense and State Security":
 activity subject to licensing pursuant to the Russian Federation legislation related to distribution of
encryption (cryptographic) tools;
 activity subject to licensing pursuant to the Russian Federation legislation related to maintenance of
cryptographic equipment;

provision of services data encryption services;
 Activity of the economic entity listed in accordance with Article 23 of the Federal Law “On Protection
of Competition” register, and occupying the dominant position in the communication services market of
the geographic boundaries of the Russian Federation (excluding access to the Internet services).
Contact phone/fax:
Corporate Center: 8 800 200 00 33
Shareholder hotline: 8 800 100 16 66
Website:
www.rt.ru – for product and service descriptions
www.rostelecom.ru – for information disclosure
Director of External
Communication
Kira E. Kiryukhina
P: + 7 (499) 9998283
F: +7 (499) 9959877
[email protected]
Executive Director Director of Investors
Relations
Ekaterina N. Ustinova
P: +7 (499) 9998283
F: +7 (499) 9959877
[email protected]
Corporate Secretary
Ekaterina S. Mironova
P: +7 (499) 9959783
F: +7 (499) 9959854
[email protected]
Director of corporate
governance
Pavel A. Nezhutin
P: +7 (499) 9959840
F: +7 (499) 9959777
[email protected]
77
ANNUAL REPORT
Branches
Moscow Macroregional Branch
Center Macroregional Branch
North-West Macroregional Branch
Volga Macroregional Branch
South Macroregional Branch
Ural Macroregional Branch
Sibir Macroregional Branch
Far East Macroregional Branch
Addresses
30 Goncharnaya St., 115172, Moscow
17 3-ya Horoshevskaya St., 123298, bldg. 1
14/26 Gorokhovaya St., 191186, St. Petersburg
53 Maxim Gorky Sq., 603000, Nizhny Novgorod
59 Krasnaya St., 350000, Krasnodar
11 Moskovskaya St., 620014, Yekaterinburg
53 M. Gorkogo St., 630099, Novosibirsk
57 Svetlanskaya St., 690091, Vladivostok
Training and Production Center
(UPTs RT)
143380, Town of Bekasovo, Naro-Fominsk District,
Moscow region
Representative Offices
in Geneva
94 Rue de Lozanne, 1202 Geneva, Switzerland
THE REGISTRAR
Name:
Open Joint Stock Company “United Registration Company” (JSC URC)
Legal address:
30 Buzheninova St., Moscow, Russian Federation
Mailing address:
30 Buzheninova St., 107996 Moscow
Office:
30 Buzheninova St., Moscow, Russian Federation
Contact phones/fax:
+7 (495) 775 1820
License:
Russian FCSM perpetual License for exercising registrar’s activities No.10-000-1-00314 dated March 30,
2004
E-mail address:
[email protected]
Website:
www.ork-reestr.ru
THE INDEPENDENT AUDITOR
Name:
JSC KPMG
Legal address:
18/1 Olympiysky avenue, Room 3035, Moscow, Russian Federation, 129110
Mailing address:
10 Presnenskaya Embankment, Block C, floor 31, Moscow, Russian Federation, 123317
Contact phones/fax:
+7 (495) 937-44-77 / +7 (495) 937-44-00/99
Member of self-regulated auditor organization:
78
ANNUAL REPORT
Member of Non-profit partnership “Auditing Chamber of Russia”. The general registration number in the
state register of auditors and auditing organizations is 10301000804.
E-mail address:
[email protected]
Website:
www.kpmg.ru
79

PROVISIONALLY APPROVED by the Board of Directors of OJSC

Transcription

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