#1ROSTELECOM CAPITAL MARKETS DAY December 7, 2015 Rostelecom#2Disclaimer Rostelecom By attending any meeting where this presentation is made, or by reading any part of this presentation, you acknowledge and agree to be bound by the following: This presentation has been prepared by PJSC Rostelecom (the "Company"). This presentation is strictly confidential to the recipient, may not be distributed to the press or any other person, and may not be reproduced in any form, in whole or in part. The Company has included its own estimates, assessments, adjustments and judgments in preparing certain market information herein, which have not been verified by an independent third party. Market information included herein is, therefore, unless otherwise attributed exclusively to a third party source, to a certain degree subjective. While the Company believes that its own estimates, assessments, adjustments and judgments are reasonable and that the market information prepared by the Company appropriately reflects the industry and the markets in which it operates, there is no assurance that the Company's own estimates, assessments, adjustments and judgments are the most appropriate for making determinations relating to market information. Neither the Company nor any of its affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection with this presentation. This presentation is confidential and does not constitute or form part of, and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of the Company or any of its subsidiaries in any jurisdiction or an inducement to enter into investment activity in any jurisdiction. Neither this presentation nor any part thereof, nor the fact of its distribution, shall form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. This presentation is not intended for publication or circulation in the United States. This presentation does not constitute and should not be construed as an offer to sell or the solicitation of an offer to buy securities in the United States or to any U.S. person (as defined in Regulation S under the US Securities Act of 1933 (the "Securities Act")). No securities of the Company have been, nor will be, registered under the Securities Act or the securities laws of any state of the United States, and unless so registered may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. This presentation does not constitute a public offering or an advertisement of securities in the Russian Federation and does not constitute an offer or a proposal to make offers or to acquire any securities in the Russian Federation. In any member state of the European Economic Area, this Presentation is made to and directed only at persons who are qualified investors within the meaning of article 2(1)(e) of the Prospectus Directive (2003/71/EC) ("Qualified Investors"). In addition, in the United Kingdom, this Presentation is made to and directed at: (i) investment professionals falling within article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") and (ii) high net worth individuals, and other persons to whom it may lawfully be communicated, falling within article 49(2)(A) to (D) of the Order (such persons together with Qualified Investors, being "Relevant Persons"). In these jurisdictions, persons who are not Relevant Persons must not rely on or act upon the information contained in this presentation or any of its contents. Any investment or investment activity to which this Presentation relates is only available to Relevant Persons and will be engaged in only with Relevant Persons. The recipients of the information contained herein should not base any behavior that would amount to market abuse for the purposes of the Financial Services and Markets Act 2000 ("FSMA") and the Code of Market Conduct made pursuant to the FSMA on the information in this Presentation or any information provided or discussed in connection with it. This presentation is not directed at, or intended for distribution to or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction. Persons into whose possession this presentation comes should inform themselves about, and observe, any such restrictions 2#3Capital Markets Day 2015 8.30 AM 9.00 AM 9.00 AM -9.50 AM 9.50 AM 10.40 AM Agenda Registration On a Transformation Path (incl. Q&A) Product Development and Convergence Upside - Evolving to a Digital Service Provider (incl. Q&A) Speaker Rostelecom Sergey Kalugin, CEO Larisa Tkachuk, COO 10.40 AM-11.00 AM Coffee break 11.00 AM - 11.30 AM Network Evolution - Ensuring Superior Quality and Cost Efficiency (incl. Q&A) Alexander Tseytlin, CTO 11.30 AM - 12.00 PM Operating Efficiency - On the Right Track (incl. Q&A) Kai-Uwe Mehlhorn, CFO 12.00 PM - 12.10 PM Closing remarks Sergey Kalugin, CEO 12.30 PM 13.00 PM Refreshments and networking 3#4Rostelecom ON A TRANSFORMATION PATH Sergey Kalugin, CEO#5Key Messages Rostelecom We have accomplished a lot We are transforming to a digital service provider We are committed to sustainable shareholder returns LO 5#6Our Progress Technological leadership in IP networks Differentiated offerings Target 33 mln HH passed by fibre by 2016YE Results Multiplay Best-in-class customer service SLA improve- ment New products pipeline Self- service platforms 2 Rostelecom Organisational transformation Centralisa tion of functions Customer -oriented approach Efficiency improvement Procurement optimisation >RUB 2.5 mln of revenue per employee in 2018 29.5 mln HH passed by fibre as of 9M 2015 3Play & OTT launched MVNO with T2-RTK soon 2x decrease in repeated call share Share of distant channels: 15%/30% in sales/care Back-office function centralisation Transition to segment- based model RUB 35 bln procurement savings RUB 2.0 mln revenue per employee 6#7Value Creating Transactions TELE2 Mobile JV with Tele2 Russia ВГТРК Media JV with VGTRK Synergies/Rationale Nationwide operations with minimum overlap Leveraging mobile Capex Rostelecom Completed Dedicated management team and best in class cost management culture 2014 F2M convergence upside through MVNO Creation of #1 player on the Russian pay TV content production market . Attractive Russian Pay TV content market profile 2014 • Access to exclusive library of content International expansion opportunities Scaling up in Russian data storage market Leader in CDN & IX SAFEDATA iQ IQ'MEN SafeData Controlling Stake Acquisition IQMen - Business Intelligence Controlling Stake Acquisition . Complementary to our core business and easy to upsell B2B/B2G Acquisition of Data Intelligence expertise Product platform for banking and other retail businesses 1Q 2015 4Q 2015 7#8Key Telecom Trends CUSTOMER A TECHNOLOGY Chats, uses images & video Simplification Consumes heavy content Wants simple & customized services Wants everything to be done faster Virtualization (SDN) Time to market BUSINESS Rostelecom Readiness for exponential growth of data usage Fixed-mobile convergence New services: media, clouds, etc. Remote management Cost efficiency 8#9Our Vision 2020 Long-term drivers Medium-term drivers Rostelecom New businesses Increase in market share & ARPU (VAS) New business opportunities: digital content, services & platforms Development of proprietary expertise & acquisition of existing players MVNO with Tele2 Russia (convergence & bundling) "Smart home" & "Safe home" Geodata, data-centres & cloud solutions TV services The source of FCF for transformation & growth Sustainability of existing business & efficiency improvement Production System transformation (management system, business processes, corporate culture) Resources (people, network, technologies) Operational Efficiency Improvement Program Optimisation of network maintenance in rural areas and small towns Accelerated monetisation of real estate 6#10CAGR 2015-2020, % Transformation to a Digital Service Provider by 2020 to Offset Saturation in Traditional Segments Rostelecom Market Size, RUB bln 2015 2020 80% 70% 60% 50% 40% 30% 20% 16 10% 15 Cloud services Data- centres 0% -1% -10% -20% Broadband 80% 70% 126 60% 50% lloT 40% Data- centres 30% Cloud services 44 20% Telephony 16 3391 Geodata 10% Telephony Broadband 48 173 60 200 0% 4% 9% 14% 19% 24% 29% 16034% -1% 4% 9% 14% TV -10% OTT video 19% 121 24% TV services services -20% Share in Rostelecom's Revenue in 2015 & 2020, % Source: iKS Consulting, TMT-Consulting, Company estimates 10 10#11Transformation of Revenue Structure ■ Broadband 21% 28% ■ Pay TV ■ VPN ■ VAS&Clouds ■ Telephony ■ Other Content & Digital Services -40% 22% 25% 6% 7% 21% 6% 33% 2015E 7% 16% 10% Rostelecom -60% 2020F 11#12Video Products Leading Market Positions Pay TV #1 Solid Growth in Video-products IPTV (mln subs) +26% YoY organic 27% 3.1 2.9 3.0 2.7 18% 2.4 2.5 248 253 252 223 206 208 Rostelecom #2(1) IPTV #1 69% Rostelecom 18% #2(1) Source: TMT-Consulting (as of 30.09.2015). Notes: (1) Market Share by Revenue; Players #2 are: Tricolor TV for Pay TV; VimpelCom for IPTV. 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 Video-on-Demand Revenue (RUB min) +34% YoY 186 178 169 160 139 129 88 91 90 76 66 68 Rostelecom 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 12#13Leading Content Aggregator on the Russian Market Unique content proposition: >220 channels, incl. 43 in HD Packages Basic incl. HD TV channels Increase up to 25- 26 HD channels * ** Paramount Additional packages: Viasat Premium HD, Amedia Premium, Your Ideal HD, PLUS Football, Our Football, Your Cinema, Adult, Your Premiere The WALT DISNEY Studios 3 exclusive TV channels, incl. Paramount Channel Rostelecom Launch of fully HD package soon A VIACOM COMPANY SONY PICTURES Direct contracts with all major Hollywood studios LIONSGATE WARNER BROS PICTURES BBC 20 CENTURY EO TELEVISION Metro Goldwyn Mayer TRADE MARK UNIVERSAL MGM.COM STUDIO CANAL Direct contracts with the key international independent producers Hasbro Gaumont Aardman 13#14Best TV series proposition Breaking Bad 38167 Spigot ПРИГЛАШЕНИЕ НАСТОЯЩИЙ ДЕТЕКТИВ 17 ИЮНЯ / ЗА 5 ДНЕЙ ДО МИРОВОЙ ПРЕМЬЕРЫ HBO CE30H BIG BANG THEORY • Content production: Pilot project in theaters in spring 2016 >3 new projects to launch in 2016 КАРШРУТ ПОСТРОЕН BK ROUTE CREATED GNT 28:41:10:13 Unique VoD subscriptions HOMELAND#15Digital Television: Media JV with VGTRK TOP-11 Digital Holdings in Russia Monthly audience reach Rostelecom Rostelecom Mail.Ru Group 36 mln 67% Portfolio with 18 thematic owns 41% share in JV Yandex 35 mln 64% channels Google Sites 33 mln 62% Digital Television 28 mln 53% Expansion to Latin America, India & China Rambler&Co 20 mln 38% Wikimedia 19 mln 36% Facebook 17 mln 32% Avito 16 mln 29% Leading content provider in Russia with international presence Alibaba Group 14 mln 26% Gzprom Media 13 mln 25% Monthly Audience Reach in Pay TV, % (Russia 4+) 33,7 Gismeteo.ru 11 mln 20% 8,2 Source: TNS 01.2013 05.2013 09.2013 01.2014 05.2014 09.2014 01.2015 08.2015 15#16OTT Video: Interactive TV 2.0 Leading Offering in a Rapidly Growing Market Attractive for customers... Stable internet connection from any provider is enough ✓ Internet access at a minimum 1.6 Mb/s bandwidth from any provider Easy to acquire ✓ OTT Box available for purchase online and offline through various retail channels ...and Beneficial for Rostelecom Rostelecom Rapidly growing market (c.15% anticipated 2015- 2020 CAGR) Complements our wider TV services offering supporting Rostelecom leading position in Pay-TV Easy to install ✓ No technician required, easy self-instalment Diversified packages Three tiers of packages available (from 320 roubles /month) Premium content, best titles and free VOD library ✓ Free VoD library and best in class additional features 2 S Works with xDSL networks Low subscriber acquisition costs 16#17Games Portal Launched Open gaming platform Gaming without proprietary PC Cloud gaming service development Cybersport promotion Creation of a gamer community NETWORK INFRASTRUCTURE WEBSITE GAME BROADBAND SUBSCRIPTION Rostelecom CONTENT AGGREGATION CLOUD GAMING CYBERSPORT WINDOWS APPLICATION MOBILE APPLICATION MESSAGING SERVICE SET TOP BOX 17#18Data Centres Strong Position Providing Basis for Solid Growth Rostelecom's Portfolio: Infrastructure Overview International Segment London Stockholm Frankfurt ○ Kaliningrad Amsterdam Data Centre Points of Presence Juniper T640/1600 Node Nx40G Nx10G Rostelecom Rostelecom is the 2nd Largest Player in the Market By Revenue By Racks 20% #2 #2 15% 11% 10% Saint-Petersburg о Smolensk Moscow Tula O Krasnodar Restov Kazan O Samara Elista Ekaterinburg Novosibirsk Rostelecom's Portfolio: Number of racks 3 500 2 800 2 100 2013 2014 9M 2015 Khabarovsk Source: Company data, iKS-Consulting. Notes: Player #1 is DataLine. #1 #1 Rostelecom Rostelecom Data Centres Market Forecast in Russia (RUB bln) 17% CAGR 2015-2020 15 33 2015F 2020F 18#19Cloud Services Massive Opportunity Ahead Full Lineup of Cloud Solutions... SaaS PaaS Rostelecom National Cloud Platform laaS 20% market share in laaS market High Security of Data Processing Centres Physical Security Own DCPs and networks Detached zone, special for cloud platform Control and access management to server Security and fire alarms Automatic fire extinguishing CCTV ...Available under All Deployment Models... Private cloud ✓ Public cloud ✓ Community cloud ✓ Hybrid cloud ...Providing Unique Advantages to Users ✓ Self-service ✓ Available to access from different devices ✓ Measurability of IT services ✓ Multitenant pool of resources Source: Company data, iKS-Consulting. Information Security Virtual private or private clouds without internet access Registration and operations accounting Cryptographic protection Proactive intrusion prevention VPN, firewall Anti-virus DDoS protection Rostelecom Cloud Services Market Forecast in Russia (RUB bln) 16 22% CAGR 2015-2020 44 2015F 2020F 19#20Geodata Entering High Growth Potential Market Rostelecom Rostelecom is Strongly Positioned to Develop Leading Geodata Service Offering ... Geodata Market Forecast in Russia (RUB bln) 15% 2015-2020 CAGR 46 46 2015F 91 Geographic Information Systems and Geoservices Navigation Information GLONASS-based Services Geodata-based Marketing Services ...To Satisfy Growing Needs from Customers of Various Industries 2020F Forestry Launched in 2015 Market share captured - 2.5% Source: Company data, PJSC Roskartographia Transportation Telecom Agriculture H BOOB Retail / FI Utilities Public sector 20 20#2150% Industrial Internet of Things Rostelecom is at the Forefront of the Development lloT Market Forecast in Russia (RUB bln) 63% 2015-2020 CAGR lloT Infrastructure Rostelecom 11 2015F 2020F 126 Percentage of Manual Processes that May be Automated through the Use of lloT 40% Manufacturing Public sector Transportation Retail Oil & Gas Utilities Metals & Mining Source: Company estimates, Cisco, IDC, McKinsey Global Institute Data collection Connected equipment Sensors, meters, actuators, controllers Local networks (Ethernet, WiFi, ZigBee, Bluetooth) Switches & routers Rostelecom is well positioned to capture market opportunities Data transfer X lloT platform Applications Largest superfast network Data storage Data analytics Device management Data-centres & Big Data 21#22Rostelecom Data Analysis to Benefit Business & Customers Breakdown of Big Data Market in Russia Big Data Market Forecast in Russia (RUB bln) 43% 2015-2020 CAGR 22% 40% 38% ■Services ■Equipment Software 28 164 2015F 2020F iQ IQ'MEN 0 Спутник In 2015 Rostelecom acquired 75% of IQMen Business Intelligence - a developer of Big Data platform "Sputnik" search engine platform developer, Rostelecom subsidiary Source: Wikibon, IPOboard, Company estimates • Targeted product upsale & churn prevention IQ Platform based products for business and government (financial and industrial sectors) 22 22#23Ambitions for 2020: Fueling Shareholder Returns Revenue CAGR 1-2% Rostelecom OIBDA CAGR +3% FCF improve ment Dividends * Excluding Bridging Digital Divide project. 3-4 pp CAPEX/ Revenue* impro- vement 23 23#24Dividend Policy 2016-2018 ≥ 75% of Free Cash Flow ΛΙ & 45 RUB bln for 3 years $ Rostelecom Shareholder Returns 24 24#25PRODUCT DEVELOPMENT AND CONVERGENCE UPSIDE - EVOLVING TO A DIGITAL SERVICE PROVIDER Larisa Tkachuk, COO Rostelecom#26Well-positioned to Meet Customer Demand Home users Business users CUSTOMER DEMAND High-speed connectivity, content variety & personalisation Reliable & nationwide integrated solutions POSITIONING FUNDAMENTALS State-of-the-art Backbone Rostelecom Operators Growing capacity & cost reduction BUILDING DIGITAL RUSSIA $ Nationwide Coverage Innovative Solutions Entire Network Connectivity PRODUCTS MVNO with T2-RTK • OTT box & OTT communicator Smart Home, Gaming Clouds & Data- centres • New telephony • Geo-location • ΣΚ ㄡㄡˇ User-friendly Products Russia transit routes • Anti-fraud & traffic filtration 26#27Ambitious Targets in Customer Service Net Promoter Score Increase Broadband NPS NPS drivers -4 11 35 55 2014 2015 Target Pay TV NPS CO 2014 22 22 2015 38 Target Reliability Trusted brand Rostelecom Tailored Pricing Customer care 27 27#28B2C: Strengthening Market Positions Subscriber Base/ Growth Rostelecom Market Share by Revenue, % 3.1min/25% 10.7 mln /6% IP TV Unique content proposition 67% Up to 75% Today Target Broadband Up to Best 37% high-speed proposition 50% Today Target Telephony 19.0min/(10)% ➡ 74% Stable Value for money Today Target 28#29Our Target - to Become the Largest Provider of Digital Services in Russia 4 Play Share of Bundles, % MVNO VAS Full ECO systems Media content 29% 79% TV 2015 + Games Target Blended ARPU (BB+IPTV) Broadband 426 RUB 650 RUB 2015 Target 2015 Smart House / IoT eCommerce SAAS Contact Center Rostelecom Mabilly Teleshow Presence Iser Interfaces Voice Mall Messagg & Unified Messagg Contenacire Colinheraton Telephony 2016 2017 2020 Eco Communications loT: Smart House Security MVNO Public WiFi Big Data Systems SaaS 29 29 OTT TV 2.0 Games WEB portal OTT#30Evolution in B2C Communications: OTT (4) Аллё Manageable intellectual redirection Cloud voice mail Broadband ☐ Telephony Land line 8 499 xxx XXXX 0 Customisation Admin status User1 2 User2 SIP 1/ 3 Voice greeting Ростелеком Rostelecom Mobility/OTT/WEB IPTV Internet 00 Cellphone Notebook Tablet 1 Contact list in PC/MAC Launch in 2016 WEB-portal Cloud Multiscreen 30#31Smart Home / loT Security Management and control Utility meters 2016 158 2016 Target Launch in 2016 "Smart Home" penetration > 10% of BB subs loT Rostelecom belin 2017 E 2017-2020 Smart gread, Video monitoring, Security 2 Synergies between OTT and traditional services 3 Retention and loyalty increase 4 Grabbing competitor's BB subs ARPU growth 31#32B2B: Enhancing Our Leadership Subscriber Base Rostelecom Broadband Market Share by Revenue, % 34% >40% 0.7min -> Secured Connectivity Today Target Telephony 45% 3.6min -> Integrated Offerings Up to 50% Nationwide Today Target 32 32#33B2B Promising Areas SMB & SOHO B2B Large corporations B2G Developers of software & IT-solutions Rostelecom laaS GIS MDM Managed Services VideocomfoRT MVNO lloT Managed Security Services Location Intelligence XaaS 2015 2016 Security 2017 2020 33#34• • B2B & B2G Cloud Ecosystem 111 ECM Rostelecom My Office • ERP Office 365 • E-Doc Cloud antivirus & IT security New Telephony Virtual Data-centre ✓ Fast installation Cloud ECO system ✓ Access from all networks ✓ Full Service Portfolio ✓ Customer's CAPEX Optimization 34#35ИС ФОИВ E-Government Project E-Government Infrastructure почта РОССИИ Сервис по доставке кодов активации ЛК External Networks ИС РОИВ Enry СМФЦ CM3B MOD ипш ЕСИА LITO НПРОД ryu nrn ФРГУ ГАСУ УВИРИ Rostelecom Infrastructure laaS ronc СКИМ ЕНСИ CMOB ипш ТКМВ БО СПРФ МКГУ CMFC ΠΙΜΠ Enc ACY 3Ber -инфо National Cloud Platform Сервис ЅМЅ- оповещений Rostelecom 13 Eco systems Банки 2 Covers all population of Russia Available in all regions Information Security Provision Customer Support Centre Technical Support of infrastructure and software of Electronic Government Тестовый ЦОД (тестовые среды ЕПГУ, СМЭВ, ЕСИА, ИПШ. ПГП, РСМЭВ) АРМ УЦ РТК (АРМ ЦПОК) 106 T. Infrastructure of E-Government in regions ИС ОМСУ Data centre Data centre Data centre Data centre Data centre Data centre Distributed Data Centres Network Data centre Банки и КО 3 Provides electronic interaction between government authorities Full support and ensured reliability of the system Target 70% of connected population 2018 "Electronic Government" Program KPIs 90% Of population to have access to government related services via single window approach 70% of documentation exchange to be done digitally 55 35#36B20: Strengthening and Maintaining Positions on Key Markets 27% IP transit Unmatched direct resources at major international exchange points Rostelecom Market Share by Revenue, % Up to 35% Today 56% Today Voice Traffic Exchange The fastest and the most reliable connection between Europe and Asia Target Stable 44% Rent of Channels and VPN Unmatched infrastructure capacity Target Stable Today 36 Target#37B20 Product Development Rostelecom International projects (transit Europe-Asia, North-South, Russia-CIS) Capacity Upgrade more than 10 Times Long-term cooperation with guaranteed commitments Network Rent + Maintenance Technical Support 24/7 For Carriers in Russia Traffic Filter System Product Attractiveness Enhancement FRAUD $ $$ Antifraud system Profitability control system Service quality Improvement Cost Efficiency 37#38Building up Effective Sales and Client Support System Contact Centres Optimisation: Cost per Subscriber Share of Distant Channels (Web, Call centres) AS IS -35% Today Target 1 Number of Retail Outlets 28% 52% Today Target Sales increase through development of distant channels 2 IT System development 1,740 > 710 3 Headcount optimisation Today Target Target Rostelecom NPS increase Efficiency increase 38#39TELE2 © Rostelecom MVNO MVNO with Tele2 Russia © Rostelecom + 3 DEF Marketing Sales Service Network core VAS platforms RESERVED # Rostelecom 1 Available as bundle with any Rostelecom service 2 Attractive pricing for Rostelecom and Tele2's on-net connections 3 Single Customer Support centre 4 5 Unified service proposition for fixed and mobile subscribers Upselling opportunity for B2B and B2G clients Target 2020 Up to 2.5 mln subscribers 39#40NEW NATIONWIDE MOBILE OPERATOR TELE2#41Tele2 - new federal operator On 6 August 2014, Tele2 Russia and Rostelecom completed setting up a new nationwide operator. Consolidated subscriber base 35 million Commercial operations in over 60 Russian regions % Shareholders: Rostelecom - 45% VTB structures & other investors -55% --- Unique business model of discounter mobile operator 2G,3G LTE All geographical and technological range of licenses covers almost entire Russian territory including Moscow Tele2 corporate culture and values (Tele2 Way) TELE2 41 24#42Strategy 2016-2020 Vision We aim to be Russia's exceptional first choice in mobile communications Mission We never give up or stop improving, and we relentlessly challenge stereotypes in order to offer our customers simple and honest solutions for the best price #3 in Russia Client experience management Targets Forming an organization above Investment attractiveness customer expectations From voice to data Strategic focus areas Promoting subscriber devices Tele2 Way Values Open Challenge Cost- conscious 22 42 Differentiation Online Quality Flexibility Action#4343 Key drivers of market growth: data 21% the Big Three average revenue growth rate % from data (Y-o-Y) over 3Q15 >39% penetration of mobile Internet users The increasing demand for data still remains a key driver of market growth. A number of wireless Internet users is positively correlated to increasing revenue from data in the operators' top line. Sources: AC&M, companies' data TELE2#44Key drivers of Tele2 growth: 3G/4G rollout regions, where Tele2 has launched 3G/4G high- speed wireless Internet under its own brand since November 2014 59 Speed 37% the CAPEX to sales ratio over 3Q15 15% 76% active users of wireless Internet over 3Q15 traffic growth per user (Y-o-Y) over 3Q15 44 44 Source: Company's data. Tele2 is using a strict evaluation system for active users of wireless Internet - the term refers to subscribers downloading at least 10 Mb per month. TELE2#4545 Key drivers of Tele2 growth: Moscow launch in October 2015 base stations on a launch date: 384k subscribers over the first 20 days of operations in the region 7k 100 10k 5000 3G and 2000 LTE new base stations commissioned weekly after the launch in Moscow and Moscow Region partnership PoS offering Tele2 starter kits + over 400 monobrand stores Source: Company's data. TELE2#46Key drivers of Tele2 growth: market share on rise in greenfields Tele2 brand launches since May 2015 in the regions earlier 22 Tele2 brand launches since May 2013 operated 10% Tele2 market share in legacy regions Tele2 market shares in greenfields 46 46 67% 33% 90% Tele2 Tele2 ■Other operators ■Other operators Source: Company's data. TELE2#47NETWORK EVOLUTION ENSURING SUPERIOR QUALITY AND COST EFFICIENCY Alexander Tseytlin, CTO - Rostelecom#48N Largest Fixed-Line Network in Russia 5-level of SLA profile IP/MPLS P -12 Tb/s capacity ~ 1.5 Tb/s international uplinks 30 mln households 33 mln households Bridging Digital Divide(200k km fibre) Rostelecom Passed with fibre Upgraded to fibre by the end of 2016 4 000 km S W FRANKFURT GERMANY NARYAN MAR VORKUTA SALEKHARD LAND SWEDEN NOVI LIRENDY BELOMORSK ARKHANGELSK SWCTIVAR LOITA NADAN KHANTMANSYSK NOVABRSK SURGUT PAVDOSK LAPPEENRANTA SANT PETERBURG CHEREPOVETS NTAGIL EFTERANSK NCHNEWSTOVSK VOLODE OROV TYLMON Sociaim acs ESTONIA- poky KALININGRAD SMOLENSK STRONA YOKAR OLA TEA-2 SARY AB CELNY PERM ALTERINBURG TEA-3 scow TEA-4 KUREAN NOVOSIBIRSH KALUGA CHELYABINSK MAGNITEGORSK Pati POLAND CZECH REPUBLIC AUSTRIA HUNGARY PERA BELARD OREL KEY LSK SARAILY UKRAINE EPEC ROSTOVNA D ELISTA STAVROPOL TRACHAN MINERINDE VO TOMEK ACHINER KRAGNONARSK BARNALL BORNG-ALJAYSK Transit Europe-Asia-1/2/3 AUREOSTAN MARHACHKALA ARMENIA JOON MAD MAN KYRGYZSTAN TURKMENISTAN TAJIKISTAN AFGHANISTAN 10 000 km RUSSIA MYRNY LENSK LOAN ABAKAN ULAN-UDE CHIL NECK KOPV VAJOHTA BELIN MNDA YAKUTSK BLAGOVESCHENSKOOLS-ON-AMUR BROB VLADIVOSTON Naked RJCN YUZHIN SAKHAL MAGADAN Submarine cable Sakhalin-Magadan- Kamchatka E 48#49Fibre Evolution Close to the End Our networks are engineered for massive volumes to ensure our customers have the best network experience possible. Total CAPEX Fibre rollout for B2C 50 RUB bln invested in our network 2014-9M15 Fibre rollout for B2B Backbone enhanced up to 30m HH passed Rostelecom 5.2k business centres 1.5x increase 12Tb/s 49 49#50Balanced Approach to Last-Mile Upgrade Total HH in Russia Rostelecom Total HH Rostelecom We use different last-mile solutions to meet our customer needs and ensure efficiency of our investments. 33 53 46 >4 Dense area PON/FTTB Rural area XDSL + wireless Rural area sponsored under BDD project Fibre + Public WiFi Π 50#51Transformation Rationale Network Efficiency Increase Time to Market (Capex/Opex) SDN/NFV Transformation 54 51 Rostelecom#52Moving Towards Simple and Low Cost Network Management Model: SDN & NFV Today Future Cloud Infrastructure IT, OSS/BSS Cyber Security Cloud Infrastructure Rostelecom IT Telco Services IP/Optical Network OSS Private Clouds OSS Security Systems Public Cloud BSS Public and Private Clouds IP Network Service equipment Backbone Network Regional Network Telephony Infrastructure ATS/Soft Switch/STP VAS Platforms OSS Media Gateways Transport (DWDM/SDH) Network Backbone network OSS Regional Networks OSS • No possibility to organize end-to-end service automation; Low unification level and centralization of technical processes; No unification and centralization OSS/BSS-systems; No possibility to end-to-end traffic routing; Backbone and Regional Networks 52 52#53HIGH LEVEL NETWORK DESIGN Based on SDN/NFV Technologies I IP/Optical Backbone Network RGR RGR DWDM Mux CR CR Internet DWDM Mux CR CR DWDM Mux RGR RGR Virtual Network Functions (VNF) Services VPBX, Telco-Cloud VDLNA, VCPE vAntiVirus vStorage, IPTV/OTT VoIP Parental Control VFW, VRA-VPN, VPE VCDN, VIDS, VIPS vAnti- DDoS vBRAS, VCG-NAT, vDPI, vRR VIMS, VEPC, Рспд IoT Edge IP, SDN Optical Controller, SDN TR-069 ACS Controller Services VIMS, laaS VEPC, Macro-DC PaaS SaaS loT Core Oss/ BSS VIMS, VEPC (B20) -B2C- NFV-Platform Telco-Cloud Region X B2B/B2G IMEN I Cloud SDN- controller DR x86 Server Orchestrator SDN-enabled network equipment -B2B/B2G- -Infrastructure- Telco-Cloud x86 Servers | Region Y B2C MEN DR Cloud SDN- controller Orchestrator SDN-enabled network equipment B2B/B2G- -Infrastructure- Macro-DC Macro-Region X x86 Servers SD-Storage Orchestrator Cloud SDN- controller IoT/M2M MEN DR DR AR AR AR AR AR AR AR AR AR AR AR AR | CE Client 1. Client N x86-CE PON DSLAM OLT FTTB Switch пкд -Copper Copper Optics Access Network UTP cat 5 SDN-enabled network equipment 3G/4G/5G Base Stations Access Network ZigBee, Z-Wave, 6LOWPAN, 802.11g/n/ac, loT-sensors (telemetry, management) B20 2G/3G/4G/5G- networks Mobile devices#54Infrastructure Transformation Plan Public Cloud Infrastructure: Lab research and Pilot zones (Public Cloud SDN) Services: Lab research and Pilot zones (VCPE, vCG-NAT, vBRAS, vRouter, VFW, VRR) Public Cloud Infrastructure: Feasibility studies Telco Cloud and Macro DC Infrastructure: Lab research and Pilot zones (Telco Cloud SDN/NFV) IP/MPLS Backbone Network: Lab research and Pilot zones (based on SDN) Metro Networks: Metro Networks: Lab research and Pilot zones (Based on SDN) Telephony: VIMS Pilot zones Feasibility studies Telephony: Feasibility Rostelecom Services: Feasibility studies Services: Implementation Public Cloud Infrastructure Implementation Telco Cloud and Macro DC Infrastructure: Feasibility studies studies SDH/DWDM Networks: Lab research (SDN) TP/MPLS Backbone Network: Feasibility studies Telco Cloud and Macro DC Infrastructure: Implementation IP/MPLS Backbone Network: Implementation Metro Networks: Implementation Telephony: Implementation SDH/DWDM Networks: Feasibility studies SDH/DWDM Networks: Implementation 2014 2015 2016 Start Researching 2017 2018 2019 Transition to New Infrastructure#55Network Transformation KPIs Share of Monitored Equipment Network Maintenance Headcount Service Activation Few Few 42% 90% 80k 50k days minutes Today Target Today Target Today Target Number of Network Control Centres こ 67 7 Today Target Time to Market of New Services 14 mths 3 mths Today Rostelecom Target 55#56Transformation Targets Self-care portal Predictive network behavior in emergency scenarios End-to-end services for all network types OPEX -25% by 2020 Network/service management & monitoring automatisation * Excluding Bridging Digital Divide Project. Service order and management automatisation "Application store" Traffic routes and network load optimization Launch time and test time reduction CAPEX / Revenue* -3-4 p.p. by 2020 Rostelecom Virtualization of platform and standardization of hardware 56#57OPERATING EFFICIENCY ON THE RIGHT TRACK Kai-Uwe Mehlhorn, CFO Rostelecom#58We Have Already Improved a Lot... Rostelecom 6 RUB bln ~17k 35 RUB bln ~40 RUB bln 6 RUB bln of Cost Reduction - Effect of the Operational Efficiency Improvement Program in 9M 2015 Employees reduction in 2014-9M 2015 Of Procurement Savings in 2014-9M 2015 Of Net Debt reduction Income from Sale & Rent of Real Estate in 2014-9M 2015 58 50#5975 65 55 45 35 25 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Real GDP Growth, % 2% 1% 0% -1% -2% -3% -4% -5% Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Source: CBR, Capital IQ, Fedstat ...in a Challenging Macro Environment Exchange rate, RUB/USD Pressure on OPEX CAPEX & Inflation Rate, y-o-y % Rostelecom on OPEX Pressure Oct-14 Nov-14 Nov-14 Dec-14 Dec-14 Jan-15 Jan-15 Feb-15 Feb-15 Mar-15 Mar-15 Apr-15 Apr-15 May-15 May-15 Jun-15 Jun-15 Jul-15 Aug-15 Sep-15 Pressure on 18% revenue 17% 16% 15% 14% 13% 12% 11% 10% Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Average Loan Rate for Non-financial Organisations, % Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Jan-15 Feb-15 Mar-15 Apr-15 Pressure on interest costs Aug-15 59 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15#60Total Operational Efficiency Improvement Program Closing Cost Gap Cost Gap vs Peer group (RUB bln)* The project was extended to 2018 GCB Gap and optimization targets Economy potential: 30-40% *GCB results for Fixed-line Business in 2013 Drivers % RUB bln Network 49.1 49% 32.6 IT 16% 3.4 Support & Overhead 33% 6.9 Customer Service 31% 3.6 19.0 16.5 11.0 in 2018 7.6 Target: reduce Gap to 20-25% Sales 14% 1.0 Product & Marketing 38% 0.7 Gap 2013 2015 2016 2017 2018 Non-process related costs 12% 0.9 The Program Effect: increasing OIBDA & FCF 36% 49.1 Russian peers: ~17-20% gap European peers: ~10-15% gap Source: Company estimates OIBDA 2013 Macro effects Business model change Budget cuts Procurement Organisational transformation Operational Efficiency Program Real estate optimisation OIBDA 2020 60 60 Rostelecom#61Operational Efficiency Improvement Program Cumulative Effect in 2017 Total Effect 2017 (RUB bln) Effects of the Key Initiatives (RUB bln) ■Personnel expenses Materials, Utilities & Maintenance Other operating expenses Revenue 16.5 7.3 6.6 2.0 4.4 4.6 1.4 1.3 1.6 1.1 1.1 Rostelecom 1.0 0.8 0.6 1.4 1.2 0.6 0.4 0.4 0.3 0.2 0.2 0.1 0.10.10.1 0.040.1 0.0 Total Personnel efficiency - Total effect Modernisation of rural networks Points of sale optimisation of network Centralisation Contact centres optimisation controlling 61#62Key Initiatives: Increasing Personnel Efficiency Revenue per employee (RUB mln) & Number of employees (ths) 174 165 159 151 1.9 2.0 1.7 1.8 Focus on Technical & Administrative Staff Optimisation through: Delayering and lean organizational structure SDN/NFV network transformation 2012 2013 2014 9M2015 Personnel Breakdown by Function, FTE ths 165 159 150 16.0 13.7 16.4 15.2 14.2 -15% admin headcount 105.9 101.8 94.2 RUB3.6 bln reduction 26.3 2013A 28.1 2014A 30.0 2015E ■Commercial unit Techical unit Admin unit Other IT transformation Balanced approach to outsourcing Employee productivity increase through employee engagement Target number of employees 110-130k in 2020 Rostelecom 62 62#63Key Initiatives: Modernization of Rural Networks Rostelecom Replace Move equipment to outside containers Old switching systems and analogue stations MSAN, VOIP- gateway & SoftSwitch Copper lines within settlements Copper cables between settlements Reduce rent and building operation costs Effect: by 2023 Wireless solutions Reduce maintenance costs 9.5 RUB bln 1.6 3.2 RUB bln RUB bln CAPEX total Optical lines or Microwave Links Reduce number of accidents (3x in pilot zones) OPEX savings in Target OPEX 2017 savings per year 63 63#64Key Initiatives: Centralisation of Network Controlling Rostelecom 2015 2019 FTE 4 700 2 100 Control centres 67 7 Reduce personnel costs & overhead Effect: by 2019 3.3 RUB bln 1.3 1.8 RUB bln RUB bln Share of monitored 42% 90% equipment CAPEX total Unify network monitoring systems Improve SLA Create single service line for cross- regional B2B/B20/B2G customers (2 LTS) OPEX savings in Target OPEX 2017 savings per year 64 64#65Key Initiatives (Cont'd) Points of Sale Optimization Effect: by 2018 0.5 1.4 RUB bln RUB bln CAPEX total Target OPEX per year Contact-centres Optimization Effect: by 2018 0.3 0.8 RUB bln RUB bln CAPEX total Target OPEX per year Rostelecom 2015 2017 2013 2015 2017 Points of sale # 1 720 710 Contact centres # 48 22 7 FTE 7 300 3 600 1 Federal location for telemarketing services 65 55#66Procurement Efficiency Rostelecom ΚΡΙ 2012 2013 2014 2015 Share of Tenders with >4 Participants*, % Savings, RUB bln 50% 3,549 16,218 16,765 20,069 >18x of share increase (all purchases) Savings, % 4.7% 16.5% 13.1% 21.1% (tenders) Savings, % 3.5% 10.3% 9.8% 13.3% (all purchases, incl. single source) 27% 18% 14% Number of purchases/tenders 6,124 6,245 8,525 5,822 (total) 2% Tenders with more than 4 1.5% 14.2% 17.7% 27.8% 2012 (target) 2013 2014 2015 2016 participants, % *share by the number of tenders Centralisation of Control over Procurement Share of purchases controlled I centrally ■locally locally, centrally controlled 10% 13% 20% 48% • 31% 26% 15% 66% 59% 61% 65% 52% 34% 2012 2013 2014 2015 2017 target Consolidation of Procurement & Logistics • • transparent decision-making in the procurement strong control of segregation of duties implementation of procurement and logistic strategy as a unified supply chain management vertically integrated structure optimisation of logistics and storage space in accordance with the supply chain strategy unified logistics business processes 99 66#67Real Estate Portfolio: On The Road From P&L Pressure ... 15 of Real Estate related OPEX per year RUB bln 3k of people servicing Real Estate 30% of office space is excessive Rostelecom Surpass of Real Estate as % of total assets ratio compared to 2x global peers 67#68Real Estate Portfolio: To Opportunities Monetisation Approach Area in the Portfolio (sq.m mln) Total 9.1 Regional capitals 3.0 0.7 Rostelecom Cost generating and low end Real Estate Auction sale Longer term value unlocking Real Estate "Monetization" - able Real Estate Network optimization pipeline 2016-2020 Real Estate SPV 68 80#69Targets Going Further 19 RUB bln 25 RUB bln of Cost Reduction - Effect of the Operational Efficiency Improvement Program by 2019 110- 130k Of Income from Sale of Real Estate Target Headcount 69 69 Rostelecom#70CLOSING REMARKS Sergey Kalugin, CEO Rostelecom#71Ambitions for 2020: Fueling Shareholder Returns Revenue CAGR 1-2% Rostelecom OIBDA CAGR +3% FCF improve ment Dividends * Excluding Bridging Digital Divide project. 3-4 pp CAPEX/ Revenue* impro- vement 71#72Investment Highlights Exposure to attractive markets Rostelecom Fundamentals to capture market opportunities Operational efficiency upside Incentivised management Progressive dividend policy 72#73THANK YOU! Rostelecom