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National GSM footprint
National expansion: Building out our GSM footprint
Moscow: GSM-900 expansion
Although we received the first GSM-1800 license issued in Russia, it was only in August 1998 that we received the GSM-900 license amendment to allow the build out of a dual band GSM-900/1800 network in Moscow. As the late-comer to the Moscow
GSM-900 market, we began an intensive build out of GSM-900 in October 1998 and positioned GSM as our primary network, while continuing to operate our
D-AMPS network as a low cost alternative. In July 1999, we launched a "Bee Line GSM" sub-brand to better promote ourselves as a GSM provider and challenge our main competitor in Moscow — the "first-comer" GSM-900 operator. Our branding campaign helped us increase our GSM subscriber base from approximately 21,000 at the beginning of 1999 to 132,000 at year-end 1999.
In 1999, we placed great emphasis on building out the GSM-900 component of our Moscow-based network in order to expand our coverage area. Although we had previously covered the entire territory of the city of Moscow during the early
build out stages of our former single band
GSM-1800 network, it became necessary to provide full GSM-900 coverage throughout Moscow to compete on an image basis with the incumbent GSM-900 operator and to compete for international roaming revenues from cellular users travelling to Moscow. We were successful in increasing our roaming revenues sevenfold in 1999, largely as a result of our GSM-900 improvements. As of December 31, 1999, we had 123 international roaming agreements covering 61 countries. In addition to international roaming, we also increased the ability of our subscribers to roam domestically and we now have GSM roaming arrangements covering almost all major Russian cities.
Russia’s economy: Better than expected
Following 1998's ruble collapse, the Russian government's debt default and the significant weakening of the banking system, many predicted prolonged economic depression in Russia. This has not happened. The Primakov government, which came to power in September 1998, was able to demonstrate economic restraint which brought some stability to Russia. Subsequent Russian governments contributed to further progress in positive trends. The domestic industry benefited from ruble devaluation, as imported goods became much more expensive and less competitive in the Russian market. Although the default harmed Russia's reputation, Russia was left with a more serviceable level of debt. Rising world prices of oil (Russia's top export) improved Russia's trade surplus and provided an increase in government tax revenues, which helped Russia meet its debt payments obligations despite the lack of a new agreement with the IMF. The government's monetary policies slowed the ruble's decline and inflation was reduced from 84.4% in 1998 to 36.5% in 1999.  Russia's gross domestic product (GDP) also grew an estimated 1.9% in 1999, the best performance in the post-Soviet era. Reflecting these positive trends, the Russian Trading System (RTS) stock index increased 204% in 1999.
On March 26, 2000 Vladimir Putin was elected President of Russia and has promised to continue the course of economic reform. Despite the fact that much work remains to be done by the Putin government, we are optimistic that Russia will continue to make progress in 2000 and that the country is headed in the right direction.
  
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