Market Overview 2004

• Total retail revenues rose to 146 bln. USD in 2003 in Russia. In 2004 retail revenues grew approximately 15% year on year to 170 bln. USD.
• The Russian retail market is one of top 10 in the world and one of top 5 in Europe in terms of revenues.
• At the same time the home appliances, ERTV, PC and mobile market gained 10% share in total retail revenues in 2004, or 17 bln. USD.
• 4,59 bln. USD (27% share) of which related to mobile phones and accessories.

• Total subscribers base in Russia was 74 mln. people in 2004. The penetration level on the Russian mobile market was 51% at the end of 2004.
• Given that worldwide subscribers base grew to 1,62 bln. people in 2004, while worldwide penetration rate was 27%, the share of Russia in worldwide subscribers base reached 4,5%.
• The share of Russia in worldwide population is 2,4%. Thus the penetration rate in Russia was 1,9 times higher than worldwide penetration rate on the average.

The main increase in subscribers base comes from the regions of Russia

• The most intensive market development pertains to Ural, Siberian and Far Eastern federal areas.

• In 2004, the number of subscribers on the Far East and the Siberian federal area became 2,6 times higher compared to the prior year, and the subscribers base of the Ural federal area became 2,4 times higher.

• The Russian subscribers base continued to grow, with a further 38 mln. new subscribers added in 2004, representing year-on-year growth of 104%.

• Given that the increase in worldwide subscribers base was 240 mln. people in 2004, the share of Russia in worldwide increase in subscribers base reached 15%, or every 7th new subscriber was a Russian.

• Russia was a leader in subscribers base increase in 2004.

• On our estimates, mobile phones retail sales were 30,32 mln. units in 2004 in Russia.

• The year-on-year increase in sales volume of mobile phones was 76% growing to approximately 13 mln. units in 2004.

• Given that worldwide mobile phone sales were 671 mln. units in 2004, the share of Russian sales reached 4,5% in 2004, or every 22nd mobile phone was sold in Russia.

• Given that worldwide mobile phone sales were 194 mln. units in the forth quarter of 2004 and, on our estimates, mobile phone sales in Russia were 9,94 mln. units in 4Q04, the Russian share in worldwide sales gained 5,1%, or every 20th client bought a mobile phone in Russian shops.

The mobile phone sales in 2004 were as follows:

• Moscow – 6,1 mln. units,

• Saint Petersburg – 1.9 mln. units,

• Other regions – 22,3 mln. units.

According to our estimates, mobile phone replacement reached 11,9 mln. units, or approximately 40% of total mobile phone sales in Russia, gaining 60% of total sales in Moscow, 42% in Saint-Petersburg and 34% in the regions.

The average mobile phone retail price was 142 USD in 2004. The total revenues from mobile phones retail increased to 4,305 bln. USD in Russia in 2004.

The total annual retail gross margin was 383 mln. USD.

In Russia, the annual retail of accessories increased to 39,5 mln. pcs in 2004, the revenues from accessories retail grew to 280 mln. USD and the gross margin reached 123 mln. USD.

According to our estimates, the revenues generated from mobile phones and accessories sales accounted to 4,585 bln. USD in 2004, while the gross margin from mobile phones and accessories sales reached 506 mln. USD. Total mobile retail gross margin grew to 1,116 bln. USD in Russia in 2004.

According to our estimates, there were approximately 20 000 outlets working on the mobile retail market in Russia

• organized retail – 12 000

• network operators – 600

• unorganized retail – the rest

Euroset was the fastest growing company on the market during 2004. The number of Euroset outlets increased for more than 250% (3,4 fold growth y-o-y). Moreover, Euroset launched 2 outlets in Ukraine and 1 outlet in Kazakh Republic in 2004.

According to our estimates, mobile phones retail of 10 biggest mobile retailers reached 30% of total mobile phones retail in 2004, and 40% in December.

Euroset sold 1 030 000 mobile phones in December 2004, and gained 22,5% share in total sales in Russia, or 1,1% share in worldwide sales in the period. Every 90th mobile phone sold in the world in December was purchased in Euroset shops.

Euroset is one of the top 5 retail chains.

Having approximately 6% of the total number of mobile outlets in Russia, Euroset reached the market share of 22,5% in December.

2 of Top 15 Russian retailers operate on the mobile market and reached 30% market share in December, 2 retailers operate on the home appliances market and reached approximately 35% market share, 3 of them operate on the car market and had 12% market share, and the rest 8 operate on the food market and had approximately 8% market share.

Increase in Euroset shops was the most intensive, and reached 47% in the 4th quarter.

Forecast of Russian mobile market development for 2005

• Total subscribers base in Russia will reach 102,3 mln. people in 2005. Penetration level will gain 70,5% in Russia.

• The year-on-year increase in subscribers base will reach 28,3 mln. people, representing growth of 38,2% compared with the prior year.

• At the same time, the subscribers bases in Moscow, Saint Petersburg and other regions will respectively gain 18,5%, 6,6% and 74,9% shares in Russian subscribers base. For comparison, they gained 22,7%, 7,5% and 69,8% shares in 2004.

• Given that a dealer’s average profit for new subscription will drop down to 9 USD, dealers will get 394 mln. USD of commission in 2005 (136 mln. USD less than in 2004).

• According to our estimates, sales volumes of all retail chains will grow to 34,2 mln. mobile phones, or 5% of worldwide mobile phones sales.

• The average retail price of a mobile phone will rise to 150 USD in 2005.

• The mobile phones revenues will grow to 5,1 bln. USD in 2005, or 18,6% higher than in 2004.

• The mobile phones retail gross margin will reach 519 mln. USD.

• According to our estimates, the mobile phones replacement will grow to 21,96 mln. units in 2005, or 65% share in annual mobile phone sales, and 1,8 times higher than mobile phones replacement in 2004.

• The accessories sales will grow to 44,7 mln. pcs. At the same time, the accessories retail revenues will be 291 mln. USD, while the gross margin will reach 131 mln. USD, an increase of 7% to 2004.

• The mobile phones and accessories revenues will grow to 5,4 bln. USD in 2005. The total gross margin will rise to 1,265 bln. USD in 2005, 13% or 149 mln. USD higher than in 2004.

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