GOLDEN TELECOM INC - 10-K Annual Report

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

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

[ ] TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITY EXCHANGE
ACT OF 1934

COMMISSION FILE NUMBER: 0-27423

GOLDEN TELECOM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 51-0391303
(State of incorporation) (I.R.S. Employer Identification Nos.)

REPRESENTATION OFFICE GOLDEN TELESERVICES, INC.
1 KOZHEVNICHESKY PROEZD
MOSCOW, RUSSIA 115114
(Address of principal executive offices)

(011-7-501) 797-9300
(Registrant's telephone number)

Securities registered pursuant to Section 12(b) of the Act:
NONE

Securities registered pursuant to Section 12(g)
of the Act:
Common Stock, par value $0.01 per share

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained in this Form 10-K, and will not be
contained, to the best of the registrants' knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]

Indicate by checkmark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

The aggregate market value of Golden Telecom, Inc. voting and non-voting
common equity held by non-affiliates as of June 30, 2002 (the last business day
of the registrant's most recently completed second fiscal quarter) was
$210,158,098 based upon the closing price on the Nasdaq National Market as of
such date.

On March 20, 2003, there were outstanding approximately 27,126,470 shares of
Common Stock of Golden Telecom, Inc.

ITEM OF FORM 10-K DOCUMENTS INCORPORATED BY REFERENCE
----------------- -----------------------------------

Part III, Items 10-13 Portions of the Registrant's proxy statement for
the 2003 annual meeting of shareholders to be held
in May 2002.

Part IV, Items 14(c) Exhibits.

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GOLDEN TELECOM, INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 2002

TABLE OF CONTENTS

PART I

ITEM 1. BUSINESS

INTRODUCTION

We are a leading facilities-based provider of integrated telecommunications
and Internet services to businesses and other high-usage customers and
telecommunications operators in Moscow, Kiev, St. Petersburg, Nizhny Novgorod
and other major population centers throughout Russia and other countries of the
Commonwealth of Independent States ("CIS"). We organize our operations into the
four business groups below:

o Competitive Local Exchange Carrier ("CLEC") Services. Using our local
access overlay networks in Moscow, Kiev, St. Petersburg and Nizhny
Novgorod, we provide a range of services including local exchange and
access services, international and domestic long distance services, data
communications, Internet access and the design of corporate networks;

o Data and Internet Services. Using our fiber optic and satellite-based
networks, including 149 combined points of presence in Russia, Ukraine
and other countries of the Commonwealth of Independent States, we
provide data and Internet services including: (a) Business to Business
services, such as data communications, dedicated Internet access, web
design, web hosting, co-location and data-warehousing: and (b) Business
to Consumer services, such as dial-up Internet access and web content
offered through a family of Internet portals;

o Long Distance Services. Using our fiber optic and satellite-based
network, we provide long distance voice services in Russia; and

o Mobile Services. Using our mobile networks in Kiev and Odessa, Ukraine,
we provide mobile services with value-added features, such as voicemail,
roaming and messaging services on a subscription and prepaid basis.

We offer all of our integrated telecommunication services under the Golden
Telecom brand and our Internet services under the ROL brand in Russia.

BUSINESS SECTION OVERVIEW

The following sub sections within the Business section describe our business
strategy, our current position in the markets in which we operate, our corporate
history and development, our customer base, and a detailed review of our service
groups by operating division. Additionally, we describe our licenses and our
network facilities. Finally, we provide a summary of the principal environments
in which we operate; the telecommunications markets, the political and economic
environments, and the legal, tax and regulatory regimes in Russia and Ukraine.

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BUSINESS STRATEGY

Our objective is to be the leading independent voice, data and Internet
services company in Russia and the CIS. To achieve this objective, we intend to:

o Pursue Consolidation Opportunities

We intend to pursue consolidation opportunities through acquisitions that
will allow us to improve and expand our service offerings and maintain
operational control. We will target complementary opportunities that will
enable us to achieve synergies and economies of scale.

o Increase Market Share by Offering Bundled Data and Voice Services Over
an Integrated Network

Corporate customers increasingly demand integrated telecommunications
solutions from one-stop providers that are able to deliver a full service
offering in the geographical areas in which these corporate customers
operate. As a result, we plan to continue to develop and combine our
businesses to create a unified service platform for local access, local
exchange, domestic and international long distance, data, Internet access
and services with turn-key solution.

o Extend Our Leading Position in High Growth Data and Internet Markets

We plan to build on our position as a leading provider of data and Internet
communication services in Russia and other countries of the CIS by
increasing the number of network access points in our network to facilitate
the growing demand for data and Internet communications.

o Reduce Operating Costs and Satisfy Capacity Needs through Network
Planning and Optimization

Our network strategy includes building and owning our local exchange and
customer access networks. We have entered into long term leases for
long-distance and international fiber optic cable systems to provide our
regional and global connectivity, supplementing these leased land-based
channels with satellite circuits for redundancy and remote connectivity. We
intend to incrementally expand the fiber optic capacity along our heavy
traffic and high cost routes to reduce our unit transmission costs and
ensure sufficient capacity to meet the growing demand for data and Internet
services. Wherever possible, we target customers and products to fully
utilize existing fixed cost network infrastructure.

o Focus Operating Activities and Capital Investments in Major Metropolitan
Areas

We plan to deploy our capital investments primarily in Moscow, Kiev, St.
Petersburg, Nizhny Novgorod and other major population centers in the CIS,
where demand for our services is most heavily concentrated. We also intend
to expand our operations in regional cities with sufficiently strong local
economies and where we believe potential exists to grow businesses which
complement our current operations.

OUR POSITION IN THE RUSSIAN AND CIS MARKETS

We believe that we are well positioned to maintain and consolidate our
strong presence in the Russian and CIS telecommunications markets for the
following reasons:

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o our early market entry and local market experience;

o our focus on service, quality and reliability;

o our strong infrastructure position in Moscow, Kiev, St. Petersburg and
Nizhny Novgorod;

o our extensive customer base;

o our extensive range of international, domestic and data
telecommunications services;

o our influential shareholder base; and

o our strong balance sheet position.

CORPORATE HISTORY AND DEVELOPMENT

Golden Telecom, Inc. Golden Telecom, Inc., initially a majority owned
subsidiary of Global TeleSystems, Inc. ("GTS"), was incorporated in Delaware in
June 1999 in preparation for our Initial Public Offering ("IPO") which took
place in September 1999. GTS was founded in 1983 as a not-for-profit company
under the name San Francisco/Moscow Teleport, Inc. and was among the first
foreign telecommunications operators in the former Soviet Union, where it began
offering data links to the United States in 1986, international long distance
services in 1992, local access to its networks in 1994 and cellular services in
1995. In most cases, GTS's businesses in Russia and other countries of the
Commonwealth of Independent States were developed through the establishment of
joint ventures with local and foreign partners, with GTS progressively
increasing its ownership. At the time of our IPO, GTS contributed substantially
all of the assets that constituted Golden Telecom, Inc. and retained an
ownership interest of approximately 67%, or 15.1 million shares of our common
stock.

In May 2001 GTS completed the sale of approximately 12.2 million shares of
our common stock to a group of investors led by Alfa Group, a leading
Russia-based financial and industrial concern ("Alfa"), and two of our then
current shareholders, Capital International Global Emerging Markets Private
Equity Fund L.P. ("Capital") and investment funds managed by Barings Vostok
Capital Partners ("Baring Vostok").

In July 2001, we completed the buy-back of $25.0 million of our common
stock from GTS. In November 2001, GTS sold its remaining ownership in our common
stock to Barings Vostok in a private placement transaction. In connection with
the Sovintel acquisition completed in September 2002, we issued 4,024,067 shares
of our common stock to Rostelecom. Currently, Alfa and its controlled affiliates
own approximately 40% of our common stock, Rostelecom owns approximately 15% of
our common stock, EBRD owns approximately 11% of our common stock, Barings
Vostok owns approximately 10% and Capital owns approximately 8% of our common
stock.

TeleRoss. TeleRoss was established in 1994 as a provider of domestic long
distance services and offers CLEC, Long Distance, and Data and Internet
Services. To facilitate this full service offering, in November 1999, we
completed the legal merger of our wholly owned CLEC Services business in Moscow,
TCM, and our wholly owned Data and Internet Services business, Sovam Teleport,
into TeleRoss. This merger allowed us to achieve operational and financial
synergies, particularly with

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regard to taxation. Prior to their merger into TeleRoss on November 1, 1999, TCM
and Sovam Teleport were distinct legal entities.

The ownership and operational history of the individual divisions of
TeleRoss, Sovintel, Golden Telecom (Ukraine), and MCT are as follows:

CLEC Services division of TeleRoss (formerly TCM). TCM was established
in 1994 and prior to its merger into TeleRoss, constituted our CLEC
Services division in Moscow. Prior to July 1998, we owned 52.64% of the
holding company, GTS-Vox that controlled 95% of TCM. In July 1998, we
acquired the remaining outstanding interests in GTS-Vox and as a result
owned 95% of TCM. We acquired the remaining 5% of TCM on August 16, 1999.
TCM was dissolved upon its merger into TeleRoss in November 1999. In June
2001, we acquired 100% of infrastructure company First Telecommunications
Company ("PTK") as part of a larger acquisition. PTK interconnects to the
Moscow network to provide numbering capacity and access lines. The
numbering capacity and access lines were placed into service in the third
quarter of 2002 and we allocated all of the numbering capacity and part of
the access lines to our CLEC Services division. In September 2001, we
acquired 51% of Agentstvo Delovoi Svyazi ("ADS"), which owns network
infrastructure in Russia's third largest city, Nizhny Novgorod.

In August 2002, we merged the existing operations of ADS, Commercial
Information Systems ("KIS"), our ISP in Nizhny Novgorod and TeleRoss Nizhny
Novgorod to create the leading corporate telecommunications provider in
Russia's third largest city, Nizhny Novgorod. We previously owned 51% of
ADS, 56% of KIS and 95% of TeleRoss Nizhny Novgorod. After completing the
merger, we currently own 58% of the merged operations. The merged divisions
of ADS are subdivided along our normal business lines.

Data and Internet Services division of TeleRoss (formerly Sovam
Teleport). Sovam Teleport was established in 1990 and was the subsidiary
through which we conducted our Data and Internet activities in Russia and
other Commonwealth of Independent States countries, except Ukraine. In
February 1998, we acquired the ownership interest of our former partner,
thereby making Sovam Teleport a wholly owned subsidiary. Sovam Teleport was
dissolved upon its merger into TeleRoss in November 1999. The Data and
Internet Services division of TeleRoss has absorbed our acquisitions of
Internet Service Providers in Russia. In April 2000, we acquired 51% of
KIS, an ISP in Nizhny Novgorod, which is part of our Data and Internet
Services division. In April 2002, we increased our ownership in KIS to 56%
and in August 2002, KIS, along with Teleross Nizhny Novgorod were merged
into the operations of ADS.

In June 2001, we completed the purchase of 100% of a leading ISP, ZAO
Cityline ("Cityline"), together with 51% of Ekaterinburg-based ISP, OOO
Uralrelcom ("Uralrelcom"), and 100% of PTK. Cityline's subscribers in
Moscow, St. Petersburg, Nizhny Novgorod, Tyumen and Kaliningrad are in the
process of being absorbed into the Data and Internet division of TeleRoss
operations. These acquisitions allowed us to increase our regional dial-up
Internet presence and increase our access to dial-up capacity in Moscow, as
well as provide numbering capacity and access lines for our CLEC Services
division. These acquisitions have been integrated into our Data and
Internet Services division, under the ROL brand.

Long Distance Services division of TeleRoss (formerly TeleRoss
operating company). Our wholly owned TeleRoss operating company and our
TeleRoss regional ventures historically constituted our Long Distances

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Services Division. Prior to January 1998 we held 50% ownership interests in
fourteen regional joint ventures that offered domestic long distance
services. The TeleRoss operating company holds the applicable operating
licenses to offer pan-Russian domestic long distance services and thereby
controls rates and tariffs, billing and collections for all regional
ventures. Since January 1998 we have been acquiring our partners' ownership
interests with the goal of transforming the joint ventures into branches of
TeleRoss. In 2001, TeleRoss converted four of its regional ventures into
branches and added a branch in one new region. While we have significant
influence within those that are 50:50 joint ventures, decisions, including
the decision to declare and pay dividends, are generally subject to our
partners' approvals. TeleRoss also directly controls the activities related
to remotely-located very small aperture terminal (VSAT) satellite
customers.

Golden Telecom (Ukraine). We owned 69% of Golden Telecom LLC, Ukraine
("Golden Telecom (Ukraine)"), which consists of two business units, Golden
Telecom BTS and Golden Telecom GSM until August 2002 when we purchased the
remaining 31%. After this purchase, we now own 100% of Golden Telecom (Ukraine)
and have full operational and management control over the Ukrainian operations.
Prior to our IPO, we owned 75% of GTS Ukrainian TeleSystems LLC which in turn
owned 49% of Golden Telecom (Ukraine). At that time we also owned an additional
20% interest in Golden Telecom (Ukraine) through two wholly owned subsidiaries.
As part of the IPO, an affiliate of ING Barings contributed its 25% interest in
GTS Ukrainian TeleSystems LLC to a wholly owned subsidiary of Golden Telecom,
Inc. and received as partial consideration 420,000 newly issued shares of our
common stock. An additional 30,000 shares of our common stock were issued as
final settlement to the affiliate of ING Barings on March 1, 2000. In February
2000, Golden Telecom Ukraine acquired 99% of Sovam Teleport Ukraine, which has
been integrated into the Data and Internet Services division within Golden
Telecom BTS. The remaining 1% of Sovam Teleport Ukraine is owned by SFMT-Rusnet,
Inc., a wholly owned subsidiary of Golden Telecom, Inc. Issues concerning the
operations of Golden Telecom (Ukraine) are discussed in Item 3 Legal
Proceedings.

Sovintel. Sovintel was established in 1990 as a provider of international
voice services in Moscow. We owned 50% of Sovintel, and Rostelecom, the national
long distance carrier, owned the remaining 50% until September 2002 when we
purchased the remaining 50% of Sovintel. As a result of this purchase of the
remaining 50% of Sovintel previously owned by Rostelecom, we now own 100% of
Sovintel and have full operational and management control over Sovintel's
operations. We plan to merge the existing operations of TeleRoss into Sovintel
in 2003.

MCT Corp. In December 2000 we contributed Vostok Mobile B.V., the entity
that holds our Russian mobile properties, to MCT in exchange for an equity
interest of approximately 24% in MCT. MCT has ownership interests in 18 mobile
operations throughout Russia and in Uzbekistan and Tajikistan. We treat our
ownership interest in MCT as an investment and are not actively involved in the
day-to-day management of the operations of Vostok Mobile or MCT, although we
have one seat on the Board of Directors of MCT. At December 31, 2002 we owned
approximately 23% of MCT. In the second quarter of 2002, we recorded a write-off
of an amount corresponding to our equity in MCT's losses, not exceeding the
carrying value of our investment in MCT.

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The following table summarizes the four service groups through which we
currently conduct our operations:

CUSTOMER BASE

We compete primarily for high-volume business customers and carriers who
require access to highly reliable and advanced telecommunications facilities to
operate their business. Together, our top five customers accounted for
approximately 19% of our consolidated revenues for the year ended December 31,
2002. Our largest customer, Vimpelcom, together with its affiliate KB Impulse,
accounted for approximately 12% of our consolidated revenues for the year ended
December 31, 2002. No other customer accounted for over 5% of our consolidated
revenues for the year ended December 31, 2002. We provide services to our
largest customer, Vimpelcom, pursuant to agreements which specify the service
levels for this customer and the tariffs that we charge for these services.

Our principal customer segments are:

Corporate Network Customers. Corporate network customers are typically large
multinational or Russian and Ukrainian companies which require the full range of
voice and data and Internet services in several cities across Russia, Ukraine
and other countries of the Commonwealth of Independent States. While pricing is
always a factor, this segment places more value on network coverage, reliability
as defined by service level agreements, and the ability to design, install and
maintain local area and wide area networks. These customers are willing to make
longer-term commitments to integrated one-stop providers in exchange for higher
levels of service.

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Corporate End-Users. Corporate end-users are foreign and Russian enterprises
with centralized operations, either in Moscow, Kiev or in the regions. These
corporate end-users also require a full range of voice and data and Internet
services, but are more likely to purchase distinct services from separate
suppliers based on price. We attempt to acquire business from corporate
customers by providing superior technology and service levels at competitive
pricing.

Small and Medium Enterprises ("SME"). We define small and medium enterprises
as those business customers that require a full range of voice, data and
Internet services and generally have monthly billings of less than $2,000.

Fixed-Line Operators. Fixed-line operators are other telecommunications
providers, including other Moscow overlay operators, alternative regional
fixed-line operators and the local operators, which we refer to as the local
telcos. Price is the primary factor in their purchase decision, and although
long-term contracts are rare, traffic volumes can be large. Voice telephony is a
commodity for customers in this segment.

Cellular Operators. Cellular operators purchase large quantities of local
numbering capacity in Moscow to resell to their customer's. Price and
availability are the primary factors in their purchase decision.

Mass Market. We define the mass market as those customers who utilize
calling cards or dial-up Internet access. This market segment is
price-sensitive, but quality of service is also important, particularly in the
Internet access market. Such services are predominately provided on a prepaid
basis. In Kiev and Odessa, Ukraine, we also offer mobile services to the mass
market, targeting individuals with above average disposable income, where price
and quality are also primary decision factors.

PRICING

Generally, our customers make payments to us in the local currency, as
appropriate, however the majority of our tariffs are denominated in US dollars
and are indexed to the US dollar for settlement purposes. Also, the majority of
our operating costs are denominated in US dollars, but settled in local
currency, as appropriate.

OUR SERVICE GROUPS

This section provides a detailed review of our business on a service group
basis and by operating division. We provide additional information on the
services and customers, marketing and pricing, and competition within each
division.

CLEC SERVICES:

CLEC SERVICES DIVISION OF TELEROSS

The CLEC Services division of TeleRoss operates an integral part of our
competitive local exchange carrier services in Moscow. Its infrastructure is
integrated into the Moscow city incumbent telephone network at 78 transit and
local exchanges allowing it to deliver traffic within the local public network.
Our network also interconnects directly with other fixed-line and cellular
operators in Moscow and with Rostelecom. We have constructed the infrastructure
necessary to support 150,000 ports, each corresponding to a unique telephone
number. In June 2001, we completed the acquisition of PTK which provided us with
a further 9,999 Moscow numbers and 1,800 access lines for a period of ten years.
This numbering capacity and access lines became

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fully operational early in the third quarter of 2002. We allocated the numbering
capacity and 800 access lines to our CLEC Services division. The balance of the
access lines was allocated to dial-up Internet.

The CLEC Services division of ADS constructed network infrastructure to
support 17,000 city telephone numbers registered to ADS in Nizhny Novgorod,
Russia's third largest city.

Services and Customers

Local Access Services. This division of TeleRoss provides carriers with
ports and interconnectivity to the Moscow city telephone network through our
local gateway. Access to the Moscow city telephone network through our network
provides customers with a high-quality network that supports a broad range of
offerings. CLEC services are complemented by additional value added services
such as conference call facilities, unified messaging and call forwarding.

The division's customers primarily consist of cellular operators, including
Vimpelcom, and fixed-line operators, including MacOmnet.

Marketing and Pricing

For each port, customers generally have paid a one-time port fee, a flat
monthly fee and per minute charges based on usage. However, recent pricing
trends are reflected in an increased emphasis on per minute charges based on
usage, rather than on port fees.

Competition

The division's main competitor is MTU-Inform, a Moscow City Telephone
Network affiliate, which is controlled by Sistema Telecom.

CLEC SERVICES DIVISION OF GOLDEN TELECOM BTS

The CLEC Services division of Golden Telecom BTS, our largely Kiev-based
competitive local exchange carrier, has constructed and owns a 205 kilometer
fiber optic network that is interconnected to the local public telephone network
in Kiev and to our international gateway. Since the opening of our mobile
service operation in Odessa in 2001, we have expanded our CLEC service offerings
into Odessa, targeting business clients. In the third quarter of 2002 Golden
Telecom Ukraine ("GTU") started to offer CLEC and pre-paid voice over IP
services in Dnepropetrovsk and plans to launch its operations in additional
major metropolitan areas in Ukraine. As of December 31, 2002, Golden Telecom BTS
serviced over 10,000 telephone lines for business customers.

Services and Customers

Local Access Services. Local access services are provided to business
customers through the connection of the customers' premises to Golden Telecom
BTS's fiber network, which interconnects to the local public switched telephone
network ("PSTN") in Kiev.

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International and Domestic Long Distance Services. Golden Telecom BTS
terminates incoming traffic for foreign operators destined for Golden Telecom
BTS's customers in Kiev, Odessa, and most other major metropolitan areas in
Ukraine, through its gateway switch in Kiev. Our incoming international traffic
is also terminated into other operator networks, with which settlement
agreements have been entered into. These other operators are limited to national
cellular operator networks and networks belonging to Ukrtelecom, the state
monopoly operator. At the end of 2002 GTU signed a new settlement agreement
allowing incoming international traffic termination to Ukrainian PSTNs via
Ukrtelecom's network. Outgoing international traffic is routed through Golden
Telecom BTS's international gateway to international operators using least-cost
routing.

Golden Telecom BTS offers domestic long distance services throughout Ukraine
through interconnection with Utel and through its own channels leased between
major Ukrainian cities. Golden Telecom BTS holds an intercity operator's license
allowing it to offer domestic long distance services directly and is
interconnected in major Ukrainian metropolitan areas to facilitate this
offering.

The customers for this division primarily consist of corporate network
customers, corporate end-users, fixed-line operators and cellular operators.

Marketing and Pricing

While emphasizing the quality and reliability of its services, Golden
Telecom BTS positions itself as a price competitive service provider to
businesses. Sales to our customers are made directly through our sales force and
indirectly through alternative distribution channels. The sales organizations
are also utilized by our Data and Internet Services division and consist of
fifteen account managers in Kiev, four in the regions of Ukraine and five
indirect sales managers. Alternative distribution channels are primarily built
through agent networks comprising IT system integrators, telecom and computer
equipment distributors, and mobile services retail dealers, as well as through
agent contracts with business centers. Additionally, two sales managers are
responsible for sales to domestic carriers and one for sales to international
carriers.

We have recently adopted a more aggressive pricing policy for corporate end
users in order to stimulate higher revenue growth. As a carrier for other
telecommunications operators, Golden Telecom BTS also offers a more attractive
pricing structure than the incumbent operators in order to attract cellular and
smaller CLEC's.

Competition

In Kiev, Golden Telecom BTS competes with Ukrtelecom, the incumbent
operator, Utel, and a number of other CLEC's including, Citius, Optima, Citel.
Golden Telecom BTS believes that because of its early market entry and its
ability to provide international, domestic and local access, it has a leading
position in the high-end segments of the corporate market.

In other major metropolitan cities in Ukraine, Golden Telecom BTS competes
with several other CLEC's, the most significant are Optima, Velton, Farlep and
CSS. Golden Telecom BTS is entering regional markets based on its advantage of
integrated voice, Data and Internet offerings and providing high quality
services to the business clients.

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In Ukraine, the carriers carrier market is dominated by Utel, with Kyivstar,
Farlep and Optima emerging as competitors in 2002. Golden Telecom BTS is seeking
to increase its share of this market by further development of relationships
with existing carrier clients by providing them with Internet, Data and value
added services, and by interconnecting emerging CLEC's.

SOVINTEL

Sovintel is a competitive local exchange carrier that owns and operates a
fully-digital overlay network in and around Moscow. Sovintel has a growing
network in St. Petersburg that is interconnected to Sovintel's and TeleRoss'
Moscow network to support new business customers and Sovintel's Moscow clients.
Sovintel services over 208,000 telephone numbers for business customers and
cellular providers.

Services and Customers

Local Access Services. Local telephone services are provided through the
interconnection of Sovintel's fiber optic ring with the switches of the CLEC
Services division of TeleRoss, MTU-Inform and other competitive local exchange
carriers that operate in Moscow. These switches provide access to local
telephone services through interconnections with the local public telephone
network and with the principal Moscow cellular providers.

International and Domestic Long Distance Services. Sovintel provides
domestic long distance services primarily through Rostelecom's network and the
TeleRoss long distance network. Sovintel provides international services
primarily through its international gateway, which transmits international
traffic through dedicated channels leased from Rostelecom.

When an international call is placed to one of Sovintel's customers which
has been assigned a number acquired from and serviced by the independent local
exchange providers, such as the CLEC Services division of TeleRoss or
MTU-Inform, the calling party has the option of dialing through either the
public city code (095) or Sovintel's exclusive non-geographical area code (501).
A non-geographical area code is an access code to a telephone network which is
not bound to a geographical area. When a caller chooses to dial through the
(501) non-geographical area code, the call is connected directly to Sovintel's
dedicated network and can thereby avoid the frequently congested public
international and domestic long distance networks. Sovintel receives a
settlement from international carriers for calls routed through its (501)
non-geographical area code. International outbound switched voice traffic is
routed by destination based on either anticipated return traffic from the
foreign operator through Sovintel's (501) non-geographical area code, or through
least-cost routing. Sovintel attempts to direct international traffic through
particular foreign operators so as to balance Sovintel's settlements paid to and
received from foreign operators. Thereafter, Sovintel directs all international
outbound, switched voice traffic in excess of that required to achieve the
balance of the bilateral relationships to the lowest cost route.

Data Services. Sovintel provides high-speed data services through an
interconnect agreement with the Data and Internet Services division of TeleRoss
and through its own city data network. These services include a private line
service, a voice and data integrated services digital network (ISDN) connection,
Internet, frame relay and asynchronous transfer mode service. Private line
channels, which are provided over dedicated leased lines, are principally used
by customers with high-volume data traffic needs, including financial
institutions, large multinational companies and data service providers.

Equipment Sales. As part of its integrated service offering, Sovintel
distributes equipment manufactured by Nortel Networks, Cisco Systems, Siemens,
Avaya and Ericsson. Sovintel installs and maintains Nortel Meridian One
products, Norstar key system, Mercator PBXs and the Magellan DPN and the
Passport lines of data equipment. Sovintel's technicians have been trained to

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install, configure and maintain all the products that it sells to its customers.
These services enable Sovintel to maintain close customer contact, helping
Sovintel to market additional services and enhance customer retention.

Sovintel's customers primarily consist of corporate network customers,
corporate end-users, fixed-line operators and cellular operators.

Marketing and Pricing

Sales to customers are made through a direct sales force consisting of 57
account managers in Moscow and St. Petersburg, supervised by an expatriate
commercial director. Each of these account managers targets specific customer
groups and industry segments, and is supported by specialists in technical sales
support, marketing, customer service and user training. Sovintel offers one of
the broadest ranges of products among independent providers, and releases new
products and enhancements to existing products in order to strengthen its market
position. In addition, Sovintel trains its employees to provide customer service
at a level which is comparable to that provided by Western telecommunications
companies. As a result, we believe Sovintel has earned a reputation for
providing high-quality telecommunications services through an experienced and
professional customer service staff.

Sovintel prices its services at a premium to those offered by the incumbent
local operator and competitively with other alternative service providers within
the market. Sovintel offers volume discounts to its customers for exceeding
certain defined revenue thresholds. Although Sovintel publishes standard
tariffs, currently it does not require regulatory approval to change its
tariffs.

Competition

Sovintel competes principally on the basis of price, network quality,
customer service and range of services offered. While Sovintel has a leading
position in the corporate market, it faces significant competition from other
service providers, including:

o Comstar, a joint venture between Metromedia International Group, Inc.
and Sistema Telecom;

o Combelga, a joint venture between Telenor and Comincom;

o Moscow City Telephone Network, the incumbent operator in Moscow;

o MTU-Inform, an affiliate of Moscow City Telephone Network, both
currently controlled by Sistema Telecom;

o TelMos, a joint venture among Moscow City Telephone Network, Rostelecom
and Sistema Telecom;

o Petersburg Telephone Network, the incumbent local operator in St.
Petersburg; and

o Peterstar, an affiliate of PLD Telekom; a subsidiary of Metromedia
International Group, Inc.

In addition to CLEC services, all the companies listed above provide Internet
solutions, and some also offer limited data transmission.

13

DATA AND INTERNET SERVICES:

DATA AND INTERNET SERVICES DIVISION OF TELEROSS

The Data and Internet Services division of TeleRoss provides data
transmission services, dedicated and dial-up Internet access, news and
information services. We use leased capacity on land and satellite-based
networks to provide these data services in 149 points of presence to create wide
area networks. International connectivity outside the CIS is provided through
agreements with operators such as AT&T, Infonet, WorldCom, Sprint, and Cable &
Wireless. Through reciprocal cooperation agreements with these international
operators, the division provides end-to-end, international connectivity to its
Russia and Commonwealth of Independent States-based customers. This division
targets appropriate services to customers through Business Services initiatives
and Consumer Services initiatives, as follows:

Business Services and Customers

Data Transmission Services. The Data Services division of TeleRoss offers
traditional and high-speed data communications services, using frame relay,
X.25, asynchronous transfer mode and Internet protocol technologies, to business
customers who require wide area networks to link computer networks in
geographically dispersed offices. Its major customers are large multinational
corporations, financial institutions and small and medium-sized Russian
enterprises. These customers require an integrated product offering, including
network access and hardware and software solutions featuring installation,
configuration and maintenance.

Private Line Services. This division provides private line channels to
customers who require high-capacity and high-quality domestic and international
point-to-point connections. Private lines can be used for voice and data
applications.

Information Services. We offer a variety of information services addressing
the needs of professional markets. Today, these services address primarily the
banking and financial industries with products providing access to S.W.I.F.T.,
Reuters, Bloomberg and MICEX (Moscow Inter-bank Currency Exchange).

Dedicated Internet Services. We offer a dedicated Internet access service
through our access and backbone networks. We provide our business customers with
dedicated access to the global Internet.

Value-Added Services. We offer an increasing range of value-added services
such as web hosting and Internet Protocol, or IP, based Virtual Private Networks
and we intend to increase our market position in these services to other
Internet related products and services. Our Managed Data Center continues to be
the leading hosting center in Russia. We enjoy strong sales synergies between
our Managed Data Center products and our IP transit sales efforts.

Voice over Data Services. The markets where we operate are experiencing a
continuing significant trend toward routing voice traffic over the Internet
using IP technology, known as "Voice over IP" or "VoIP". TeleRoss is a leading
provider of this service. In addition to using TeleRoss' data networking
services for typical Local Area Network to Local Area Network interconnections,
many customers will also route their voice traffic over TeleRoss' frame relay
data network in an effort to reduce overall telecommunications expenses. Voice
over frame relay involves "packetizing" voice calls using frame relay, a data
transmission protocol, and transporting the voice call over our data network to
be "de-packetized" at the terminating end. The call is finally

14

terminated through normal circuit switching. Packet switching offers greater
cost efficiencies over circuit switching, and offers this division an
opportunity to leverage its data network investment across a greater number of
services and geographic areas. This product offering complements TeleRoss' other
value-added data service offerings and allows us to further leverage our data
network infrastructure investment.

Equipment Sales. As part of our integrated service offering, we distribute,
install, configure and maintain the equipment and software necessary to support
the data requirements of our customers. We have distributor agreements with
Cisco, Motorola and Nortel.

We are well positioned to offer other value-added Internet services by
targeting our existing large base of corporate networking clients and dedicated
Internet access customers. We also provide dial-up Internet access to corporate
end-users.

Customers primarily consist of corporate network and corporate end-user
customers.

Consumer Services and Customers

Dial-up Internet Services. We offer dial-up Internet services through our
ROL (formerly Russia-On-Line) Internet service, which commenced Internet
services in 1995. At that time it was branded under the name Russia-On-Line, but
during 2002 and as a result of the integration of acquired ISPs who operated
under different brand names, we have begun to use the brand ROL. ROL was the
first Russian-English language, online service for accessing the Internet
through either dedicated private lines or dial-up servers. In addition, the
company has added vertical Internet portals covering many topics, including
entertainment, education, computer-gaming and communications specifically for
the Russian mass-market.

Our dial-up access services are delivered in the regions through our
domestic long distance infrastructure, which provides customers with access to
the Internet and an array of proprietary Russian language information services.
We have discontinued our support for an English language based portal as the
Russian language based market has expanded. Also, our ongoing expansion into the
regions of Russia, has created further openings for Russian language based web
services. ROL is the only nationwide dial-up ISP in Russia.

The consumer dial-up access market continued its dramatic growth during
2002, not only in Moscow, but also in the regions of Russia. As of December 31,
2002 Golden Telecom, Inc. had a subscriber base of over 242,000 active
subscribers. In addition, ROL continued its expansion into the regions of Russia
and into the CIS countries, now covering 63 cities with its dial-up access. ROL
currently utilizes three STM-1 fiber optic connection's to the international
world-wide-web and multiple one-gigabit ethernet fiber optic connections to the
Russian telecommunications network. These multiple one-gigabit ethernet
connections were the first to be added by an ISP to the Russian Internet and
were deployed to greatly improve the quality of services generally available in
the Russian market, through significant capacity and corresponding redundancy.
The consumer dial-up Internet access service has seen decreased utilization
rates over the last year as subscribers have decreased the number of hours spent
online from approximately 30 hours to approximately 25 hours per month.

We will continue to strengthen our dial-up Internet access service in the
main metropolitan areas we serve and augment with further expansion into the
Russian regions.

15

Marketing and Pricing

The Data and Internet Services division of TeleRoss and the Long Distance
Services division of TeleRoss, share a dedicated sales force in Moscow and St.
Petersburg, consisting of approximately 50 sales and account managers. In
addition to direct sales, our dial up Internet access packages are distributed
in Moscow through large retailers. In the Russian regions, TeleRoss and its
venture partners market the Data and Internet Services division's data product
portfolio to help build cooperation with our local joint venture partners, who
do not have the capability to offer a comparable range of data services, and to
increase the customer base of both the Data and Internet Services and Long
Distance Services divisions of TeleRoss.

We price data services on a two-tier structure with high-volume users
generally negotiating a monthly flat-rate fee and lower volume users paying a
volume-based fee. Dial-up and dedicated Internet access customers pay a fixed
monthly access charge plus an additional volume-based fee in an increasingly
competitive market. We offer a series of prepaid cards, which entitle the holder
to utilize a certain amount of hours of dial-up Internet access. We continue to
distribute these cards nationwide in Russia through a two-tiered distribution
network of large distribution services and dealers. In some regions of Russia a
number of the larger distributors are TeleRoss regional ventures. In addition,
we maintain a partner network in regions where TeleRoss services are not
directly available or do not complement the local environment.

In 2002, we entered into a peering agreement with two other tier 1 Russian
ISP's. According to the terms of this agreement, all Russian ISP's requiring
access to these networks will have to pay traffic charges whereas previously all
peering was free. As a result, we will be able to earn additional revenue from
our infrastructure investments in Russia while improving our competitive
position via other IP access providers.

Competition

Equant and RTKom, a subsidiary of Rostelecom, are our primary competitors in
the data services market. MTU-Intel, a subsidiary of MTU-Inform, is the
division's primary competitor in the Internet service provider market in Moscow.

DATA AND INTERNET SERVICES DIVISION OF GOLDEN TELECOM BTS

Services and Customers

Corporate Data and Internet Services. The Data and Internet Services
division of Golden Telecom BTS provides a private line service, an integrated
voice and data ISDN connection, frame relay, asynchronous transfer mode, X.25,
and dial-up and dedicated Internet services. Private line channels, which are
provided over dedicated leased lines, are principally used by customers with
high-volume data traffic needs.

Information Services. We offer access to a variety of information services
addressing the needs of key professional markets. The Data and Internet Services
division of Golden Telecom BTS provides conduits to airline reservations
systems, as well as, financial and banking services (S.W.I.F.T) and news
services (Reuters) in Ukraine. A data center provides server co-location
services for news and financial service providers.

Voice over Data Services. This division intends to be a leading provider of
voice over data services in Ukraine. Despite introduction of State regulated
prices in 2002 our pre-paid cards and our VoIP product introduced under the
brand "Allo!" maintained its market share in Kiev and Odessa providing an
alternative international calling solution for corporate and mass

16

market customers. This service has proved to be popular in the Ukrainian market
and will continue to offer growth opportunities, especially as Golden Telecom
BTS fulfills its expansion plans launching the service in two additional
metropolitan cities in Ukraine.

Dial-up Internet services. This division offers dial-up Internet access to
customers under the "SvitOnline" brand. Currently the division has in excess of
15,000 active subscribers, which includes some corporate customers.

Customers of Data and Internet Services division primarily consist of
corporate network customers, corporate end-users, fixed-line operators and
cellular operators. Internet services under the SvitOnline brand are also
provided as a mass marketing offering with dial-up and pre-paid cards.

Marketing and Pricing

While emphasizing the quality and reliability of its services, this division
positions itself as a price competitive service provider to businesses. Sales to
our customers are made directly through our sales force and indirectly through
alternative distribution channels. Additionally, we have four account managers,
who handle mass-market service offerings, although this segment will become less
significant over time as the primary strategy is towards the business customer.

Golden Telecom BTS has adopted an aggressive pricing policy for corporate
end users in order to stimulate higher growth. Golden Telecom BTS is a fast
growing Internet service provider for businesses in Ukraine in terms of both
market share and sales revenues due to highly competitive offers for bundles of
voice and Internet services. As a carrier for other Internet service providers,
Golden Telecom BTS offers an attractive pricing structure combined with certain
distinctive access products and, therefore, expects to hold to its significant
market share in this segment, especially in the regions of Ukraine. An increase
in market share in data services is expected through the continued sale of
international private line connections, international frame relay connections,
and national corporate networks.

Competition

In Kiev, this division competes with Infocom, a majority state-owned
operator, a new aggressive entrant, Datacom, two other large Internet service
providers, IP Telecom and Lucky Net, and several smaller Internet service
providers. Golden Telecom BTS ensures its competitiveness on the corporate
networks market by providing excellent geographical coverage, high quality
circuits and professional service. It also links with certain IT system
integrators to offer complete solutions for corporate networks. Golden Telecom
BTS' competitiveness in the Internet market is being defended by focusing on a
strategy to provide the best value and quality Internet services for business.

LONG DISTANCE SERVICES:

LONG DISTANCE SERVICES DIVISION OF TELEROSS

The Long Distance Services division of TeleRoss operates a pan-Russian,
domestic long distance network and, in cooperation with sixteen regional joint
ventures and branches, is a provider of local access, international and domestic
long distance services in the cities where the joint ventures and branches are
located. The network is comprised of leased intercity fiber optic cable and

17

leased satellite capacity, regional earth stations and VSATs supporting our long
distance activities, with termination through our own last-mile networks. Joint
venture partners provide local access in the cities where regional joint
ventures operate.

Services and Customers

Public Switched Voice Telephony Services. The division provides switched
voice services to its customers through local city switches connected to its
earth stations and leased intercity fiber optic lines. When a customer in one of
the sixteen operating regions makes a domestic long distance or an international
call, it is typically transmitted first to our Moscow hub by fiber or satellite
transmission facilities. The call is then connected to the customer's
destination through a terrestrial line that TeleRoss operates, through the
Rostelecom network, or, for international calls, through our Sovintel
international gateway.

VSAT Satellite Services. We offer VSAT satellite services to customers
located in remote areas that cannot be physically connected through terrestrial
cables to our regional long distance switches, as well as to large
infrastructure projects in need of sophisticated and reliable communications
systems. TeleRoss's satellite transmission facilities connect these customers
directly to TeleRoss's Moscow-based hub through a VSAT antenna installed at the
customer's location.

The division's customers primarily consist of corporate network customers,
corporate end-users, fixed-line operators and cellular operators.

Marketing and Pricing

The Long Distance Services division of TeleRoss and its regional ventures
typically employ a direct sales force to market to corporate end-users. This
sales force is combined with the Data and Internet Services division and
consists of approximately 48 sales and account managers. In addition, a team of
three regional sales managers is responsible for supporting the regional sales
force and maintaining relations with our regional partners. We have introduced
sales incentive plans to the regional joint ventures, but TeleRoss depends on
these ventures to implement these plans.

TeleRoss' regional ventures are increasingly driven by their corporate
network customers, who require uniform solutions for their wide area networks.
While pricing remains a factor, this customer segment places more value on
network coverage, reliability and ability to design, install and maintain local
area and wide area networks. These customers often require integrated solutions,
including data services to connect different offices. Local telcos often cannot
provide the required solutions.

Competition

Rostelecom and Equant are the principal competitors to the Long Distance
Services division of TeleRoss. Rostelecom provides similar services in all
regions where we operate. Equant provides integrated voice and data services in
a limited number of regions. The local telcos are also competitors however they
are not strong competitors in the markets we target.

18

MOBILE SERVICES:

GOLDEN TELECOM GSM

Golden Telecom GSM operates a cellular network using GSM-1800 cellular
technology in Kiev and Odessa, where its network covers an area with a
population of approximately 3.9 million people. Golden Telecom GSM began
cellular operations with a license allowing it to offer services in Kiev and the
Kiev region and later obtained a national operating license and commenced
operations in Odessa. However, during 2001 our mobile operations in Ukraine were
under strong competitive pressure leading to the overall decline in our mobile
revenues. In 2002, we reassessed alternative strategies for our mobile
operations, and currently we are working towards refocusing our mobile
operations as an additional service offered by business services operations to
corporate clients.

Services and Customers

Mobile Services. Golden Telecom GSM provides two types of mobile services to
its clients: a basic service for clients who utilize prepaid calling cards and
an expanded service for subscription clients, including international access and
value-added services such as voicemail, call forwarding, and conferencing.
International roaming services with 86 operators in 51 countries are available
to customers who subscribe to the expanded service offering.

Golden Telecom GSM's customers consist of a broad spectrum of private and
corporate users representing primarily the high-end mass market and business
customer segments.

Marketing and Pricing

Golden Telecom GSM's network has the widest frequency bandwidth allocated to
any cellular operator in Kiev, allowing it to deploy a high quality network
throughout the city and thus market itself as a quality service provider. Due to
the highly competitive nature of the cellular market in Kiev, Golden Telecom GSM
focuses on providing a flexible and competitive tariff structure. Golden Telecom
GSM targets two markets for its services. The subscription service is marketed
as a high-quality service to private and business users providing clients with
flexible tariff plans and a variety of value-added services. Golden Telecom GSMs
main marketing initiatives in 2002 included offering two new tariff plans. The
first plan offers an unlimited amount of local calls for a relatively high
monthly subscription fee, while the other plan is a price per minute for local
calls depending upon the total volume of calls. These initiatives were
undertaken in the second quarter of 2002 and allowed Golden Telecom GSM to
achieve a substantial increase in contract subscribers, and to utilize existing
network resources more efficiently. Our intention is to gradually reduce the
pre-paid services offering targeted at younger, entry-level users and to offer
them mobile services without fixed contracts or monthly bills.

Competition

The Ukrainian cellular market is highly competitive. Ukrainian Mobile
Communications ("UMC"), Kyivstar GSM ("Kyivstar") and Ukraine Radio Systems
("URS") operate GSM-900 networks in Kiev. UMC and Kyivstar offer nationwide
coverage in major metropolitan cities within Ukraine and have recently begun
deployment of GSM-1800 services. UMC also operates a NMT-450 network throughout
Ukraine. DCC operates an AMPS-800 network in Kiev, Donetsk and other regions in
Ukraine. By the end of 2002 the Ukrainian mobile market reached 3.7 million
subscribers with UMC and Kyivstar together holding more than 95% of the market.

At the end of 2001, we reassessed our plans for our mobile business and as a
result we recorded an impairment charge of $10.4 million on the carrying value
of the long-lived assets of this division. Additionally we commenced the
implementation of a

19

cost reducing program and started refocusing our mobile operations as an
additional service offered by business services operations to corporate clients.
In line with the reassessed business strategy in 2002, Golden Telecom GSM
experienced a 13% decline in active subscribers followed by an 8% decline in
ARPU. At the same time, our minutes of use per active subscriber increased by
46% due to the repositioning of the high-end and corporate subscriber base.

This completes our discussion of our operating divisions.

We also hold a minority interest in MCT Corp. ("MCT"), which in turn has
ownership interests in 18 mobile operations located throughout Russia and in
Uzbekistan and Tajikistan. We treat our ownership interest in MCT as an
investment and are not actively involved in the day-to-day management of the
operations.

ACCESS TO PUBLIC FILINGS

Golden Telecom, Inc. provides public access to its annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on For 8-K, and amendments
to these reports filed with the Securities and Exchange Commission ("SEC") under
the 1934 Act. These documents may be accessed free of charge on the Golden
Telecom, Inc.'s website at the following address: http://www.goldentelecom.com.
These documents are provided as soon as is practicable after filing with the
SEC, although not generally on the same day. These documents may also be found
at the SEC's website at http://www.sec.gov.

EMPLOYEES

On December 31, 2002, we and our consolidated subsidiaries employed a total
of 1,708 full-time employees and our joint ventures, excluding MCT, employed 104
full-time employees. On December 31, 2001, we and our consolidated subsidiaries
employed a total of 1,243 employees and our joint ventures employed 536
full-time employees. Included in the number of full-time employees were 12 and
16 expatriates as of December 31, 2002 and 2001, respectively.

We do not have any collective bargaining agreements with our employees, and
we believe that our relations with our employees are good. We believe our future
success will depend on our continued ability to attract and retain highly
skilled and qualified employees.

20

OUR LICENSES AND NETWORK FACILITIES

SIGNIFICANT LICENSES.

Our subsidiaries and ventures hold the following licenses in Russia and Ukraine,
which are materially significant to their operations:

Switched Voice Services. In Russia, we hold several licenses for switched
services. Sovintel holds five such licenses. One license was issued to Sovintel
by the Ministry of Communications and authorizes Sovintel to provide local,
intra-zonal, intercity and international telephone services in a number of
cities, including Moscow and St. Petersburg. This license expires on March 17,
2008. Another license authorizes the provision of the same services in different
regions and expires on July 20, 2005. Three other licenses authorize the
provision of the same services in other Russian regions and expire on February
15, 2006, October 4, 2006, and October 4, 2007, respectively. On April 27, 2000,
a five-year license was reissued to TeleRoss for provision of local and
intercity services in forty-four regions including the cities of Moscow and St.
Petersburg. This license allows our networks in these regions to interconnect
with the local public network.

In Kiev, Ukraine, we hold four licenses for provision of overlay network
services, including local, domestic long distance and international long
distance services, in the name of Golden Telecom LLC Ukraine. One license
authorizes the provision of intercity telephone services to all regions of
Ukraine and international telephone services in several regions of Ukraine,
including Kiev and Odessa. It expires on December 31, 2013. Another license
authorizes the provision of local and long distance services nationwide. This
license expires on December 31, 2007. Two more licenses authorize the provision
of intercity and local telephone services in several Ukrainian cities. These
licenses expire on January 28, 2014 and January 28, 2009, respectively.

Leased Circuits. On April 9, 1999 TeleRoss was issued a five-year license to
lease local, intercity and international circuits in forty-two regions of
Russia, including Moscow and St. Petersburg. On April 27, 2000 TeleRoss was
issued a five-year license to lease local and intercity circuits in forty-three
regions of Russia, including Moscow. Sovintel holds six licenses to provide
local, intercity and international circuits in a number of regions of Russia,
including Moscow and St. Petersburg which expire on April 16, 2004, July 20,
2005, February 15, 2006, July 5, 2006, October 4, 2006, and October 4, 2007,
respectively.

Data Services. On April 9, 1999 TeleRoss was granted a five-year license to
provide data transmission services via a dedicated network to seventy-four
regions covering a large portion of Russia. The license permits TeleRoss to
interconnect with other data transfer networks in Russia. Six similar licenses
were issued to Sovintel for a large number of regions including Moscow and St.
Petersburg. The licenses are through June 26, 2003, April 16, 2004, July 20,
2005, February 15, 2006, October 4, 2006, and October 4, 2007, respectively. PTK
was granted a five-year data transmission license for Moscow and the Moscow
region. This license expires on May 18, 2006.

Local Access Services. The five-year license issued to TeleRoss on April 27,
2000 authorizes TeleRoss to provide local telephone service to 150,000
subscriber local access lines in Moscow and 22,100 subscriber local access lines
in various regions of Russia. On April 2, 1999 TeleRoss was granted a five-year
license to provide local telephone services to 100,000 subscriber local access
lines in Moscow and the Moscow region. PTK was issued a license to provide local
telephone services to 10,000 subscriber local access lines in Moscow. This
license expires on November 10, 2010.

21

Telematics Services. A five-year license was granted to TeleRoss on April 9,
1999 to provide telematics services for subscribers in Moscow. A similar
five-year license was granted to TeleRoss on April 7, 2000 for subscribers in
seventy-three regions of Russia. Six similar licenses were issued to Sovintel
for a large number of regions including Moscow and St. Petersburg. The licenses
are valid through June 26, 2003, April 16, 2004, July 20, 2005, February 15,
2006, October 4, 2006, and October 4, 2007, respectively. Cityline holds a
five-year license to provide telematics services in Moscow, St. Petersburg and
in the Moscow, Leningrad and Kaliningrad regions. This license expires September
18, 2003. PTK was granted a five-year license to provide telematics services for
subscribers in Moscow and the Moscow region. This license expires on March 15,
2006.

Following the merger of TeleRoss into Sovintel, TeleRoss will cease to
exist as a legal entity and its licenses will be cancelled. Sovintel has
received licenses on substantially the same terms as those which are currently
held by TeleRoss.

Mobile Services. Golden Telecom (Ukraine) holds an operating license for mobile
services in Kiev and the Kiev region, which expires on December 31, 2007. The
associated frequency licenses expire on July 31, 2013 and July 7, 2014. In
addition, Golden Telecom (Ukraine) received a national operating license for
provision of GSM-1800 mobile services within the remaining territory of Ukraine
valid until January 28, 2009, as well as a frequency license for Odessa and the
Odessa region valid until January 19, 2010. Golden Telecom (Ukraine) also holds
a relay license for Kiev and the Kiev region, which expires on January 25, 2005
and for the Odessa region, which expires on August 2, 2015.

NETWORK FACILITIES

Our telecommunication networks reflect the licensing regime adopted by the
Ministry of Communications and consist of technologically advanced systems
designed for businesses and other high usage customers. We own the electronic
hardware and software elements of the network, including transmission equipment,
and depending upon economic and strategic criteria, we own or lease the network
transport elements.

Metropolitan Area Networks

In Moscow, St. Petersburg, Nizhny Novgorod and Kiev we operate metropolitan
area networks ("MAN"s) through the CLEC Services Division of TeleRoss, Sovintel,
PTK, ADS and Golden Telecom (Ukraine). In each of these locations, we own or
lease local access lines and private branch exchanges ("PBX"s), local exchange
switches, local numbering capacity, fiber optic transmission rings and a fiber
optic backbone.

Our facilities in Moscow are fully integrated with our domestic and
international networks, as well as with the networks of Rostelecom and the
Moscow city public telephone network. The elements of this Moscow MAN operated
by the CLEC Services division of TeleRoss and Sovintel include the following
facilities:

o Access lines supporting over 210,000 local numbers and 50,000 '501'
non-geographical are code numbers connecting more than 2,500 buildings
to more than 550 PBXs. These PBXs are often located on customer premises
to distribute advanced telephony services in those premises to the
end-users. These PBXs function as switches that permit users to receive
incoming calls, to dial any other telephones on the premises that are
connected to the PBX, to access a line leading to another PBX or to
access an outside line to the public switched telephone network;

22

o A network consisting of 2 Nortel DMS100, 2 Siemens EWSD, 1 Nokia DX200
and 1 Ericsson AXE10 local and local-combined switches together with 16
major Nokia Meridian 1 hub represent the backbone of our local and long
distance switching network. The hub PBXs act as traffic aggregators for
our 550 PBXs located in customer premises. One Siemens EWSD switch and
the Nokia DX200, with 150,000 operational local numbers, are
interconnected to the local public switched telephone network via our
backbone fiber optic network and leased channels;

o Approximately 2,200 kilometers of fiber optic backbone and access
network using Synchronous Digital Hierarchy rings and Plesiosynchronous
Digital Hierarchy tails. This fiber optic network carries our traffic
between all our network elements in Moscow. This network connects us to
major office buildings, hotels, business centers, and factories and is
co-located with 22 central offices of Moscow City Telephone Network,
where we have access to copper wire facilities. The copper wire
facilities are used in circumstances where a customer's requirements do
not justify the immediate investment in fiber optic facilities.

Of this fiber optic backbone and access network, approximately 850
kilometers connects our network switches with over 78 local/tandem
switches of the Moscow public telephone network and Rostelecom's long
distance and international network to provide full interconnectivity;
and

Sovintel and the Data and Internet Services Division of TeleRoss provide
local access for its data service offering in Moscow generally using the same
intra-city transport and customer access network as described above. This
network is complemented by access lines leased from other Moscow-based operators
that possess their own local access networks in cases where our data customers
are not otherwise on our network. In these circumstances, involving
approximately 25% of our Moscow data customers, we lease local access from
Moscow City Telephone Network, Combelga, Macomnet, Golden Line and other
competitors. Thus, our customers for data services may use the same local access
as provided by their voice service providers.

Sovintel's and TeleRoss' St. Petersburg network consists of a Siemens EWSD
tandem, local and long distance switch, interconnected to the St. Petersburg
public telephone network through St. Petersburg City Telephone Network and
Petersburg Transit Telecom Network, with capacity for 10,000 local numbers, and
more than 65 PBXs that are installed on customer premises and within business
centers. We have constructed approximately 570 kilometers of fiber optic cable
in and around St. Petersburg, which is used to connect office buildings and
business centers to our network. This is also used by TeleRoss's data and IP
network and complemented with STM-4 capacity on our international cable system.
We also provide Internet access in St. Petersburg over a dial-up access network
with approximately 2,000 access lines for residential users, and an Asymetric
Digital Subscriber Loop (ADSL) services in cooperation with another local ISP
for high speed access.

ADS' Nizhny Novgorod network has an installed capacity of 22,000 local city
numbers, of which more than 17,000 are activated, residing on two NEC NAEX
switches. This is complemented on the long distance side by a SI2000 long
distance switch from Iskratel, and by 15 PBXs on the customer premises and
business centers as traffic concentrators. The local transport network consists
of approximately 100 kilometers of fiber interconnecting the switches and also
serving as the backbone for the date and IP network. Fiber and copper is used
for last mile access. Copper is either leased from the local incumbent (Volga
Telecom) or constructed by ADS and operated in full ownership (more than 50% of
business customers). ADS also provides Internet access over dial-up lines (more
than 500) and high speed ADSL services from 13 nodes of the Nizhny Novgorod city
network, covering more than 75% of the population of the city.

23

In Ukraine, Golden Telecom (Ukraine) operates a voice and data network with
65,000 local numbers in Kiev on a combined local/international and long distance
Siemens EWSD exchange, and 10,000 numbers in Odessa, also on an EWSD exchange.
The backbone and access network in Kiev is constructed similarly to Sovintel's
and TeleRoss's network in Moscow: 4 major hub PBXs concentrate the traffic
collected by numerous PBXs at customer premises. All these concentrators are
interconnected with a fiber optic network with more than 200 kilometers of
fiber, which is also used to access major customers, business centers and other
operators. Golden Telecom (Ukraine) also constructed its own copper access
network in Kiev which currently has approximately 380 kilometers of 100 pair
copper cable, for access to smaller customers. In Kiev and Odessa, Golden
Telecom (Ukraine) also uses EWSD technology to supports is GSM customer base,
for a total of approximately 40,000 customers. Golden Telecom (Ukraine) also
operates a domestic data and IP network, interconnecting more than 25 cities to
Kiev. For this, Golden Telecom (Ukraine) leases transport capacity from
Ukrtelecom. Golden Telecom (Ukraine)'s network is fully integrated with those of
Sovintel and TeleRoss to be able to service customers located in both countries
(Corporate Networking Customers). Interconnection to Moscow is provided through
international capacity leased from Ukrtelecom and Rostelecom for the direct
route (20 mbps) and through Ukrtelecom and various international operators for
the route interconnecting Kiev to Moscow via our network in Stockholm (STM-1
capacity). Internet access services are provided to end users in Kiev, Odessa
and other major cities through dial-up as well as dedicated access lines.

Golden Telecom (Ukraine) has received additional local numbering capacity
for 8 additional regional cities, including Dneprpetrovsk, Lviv, Kharkov) for a
total of 25,000 numbers which will allow Golden Telecom (Ukraine) to expand its
activities to these regions. Additional capacity of approximately 100,000
numbers for Kiev and 10,000 numbers for Odessa is also expected.

We offer combined voice and data services with access to the local public
switched telecommunications network (PSTN) in 16 different major metropolitan
areas in Russia through our Data and Internet and Long Distance Services
divisions of TeleRoss. Depending on the region, we have between 300 to 3,000
local lines in service, for a total combined capacity of more than 10,000 lines.
Last mile access to the customers is usually provided through leased copper or
fiber optic lines.

The Data and Internet Services division of TeleRoss also employs dial-up
Internet access servers using more than 15,000 dial-up lines in 63 cities in
Russia, Ukraine, Kazakhstan and Uzbekistan, allowing our customers Internet
access through a local call. This dial-up roaming service is also available in
over 80 countries through the international data-roaming entity, GRIC Dial.
Through these dial-up access servers, we offer local roaming for Internet
access, whereby an Internet customer normally residing in Moscow may travel to
other regions in Russia and internationally, call a local access number, and
access the Internet. This service may further expand with the development of our
network.

We are continuing to review alternative access technologies with technology
providers, our partners, and other providers in the Russian Internet market. We
are building a premium Internet network for our subscribers, and to this end we
were the first to order Gigabit Switch Routers (GSR) from Cisco for the Russian
market. Currently we have two of these routers in major traffic points in our
network, and we will be expanding, as necessary, with similar or other
large-scale technologies in the future. As of December 2002 there were almost
8,000 modems available for access in Moscow, and more than 15,000 modems
throughout the ROL network. We are continuing to expand our modem pools as
necessary to meet market demands, subject to the limitations of the
infrastructures that are currently in place. In all cases, our major backbone
links are 100% redundant and provide immediate backup and recovery facilities.

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The hub of our Internet Protocol network is our Managed Data Center in
Moscow. This location has redundant power supplies as well as high level
security and fire systems. The center was built taking world class standards
into consideration. In addition, during 2000, our Network Monitoring Center was
completely refurbished to aid in preventative and reactive maintenance of the
backbone.

International Networks

Sovintel and the Long Distance Services division of TeleRoss provide
international switched voice, data and IP services in Russia using leased
transmission capacity that they obtain from Rostelecom and Transtelecom within
Russia, and international carriers beyond the Russian borders. Similarly, in
Ukraine, Golden Telecom (Ukraine) leases capacity from Ukrtelecom for domestic
segments and international operators for international segments. We operate two
international gateway switches. One switch, Sovintel's Nortel DMS 300, is
located in Moscow, and the other international gateway switch, Golden Telecom
(Ukraine)'s Siemens EWSD, is in Kiev. These international gateway switches carry
our international switched voice traffic to international operators with which
we have interconnect and settlement agreements.

The Data and Internet Services division of TeleRoss uses Nortel asynchronous
transfer mode Passport technology for its core data network to provide certain
international private line circuits and international data transmission
services, such as X.25, asynchronous transfer mode and frame relay and Cisco
routers for Internet access. The Data and Internet Services Divisions of
TeleRoss and Golden Telecom BTS lease domestic fiber optic capacity necessary to
implement these service offerings from Rostelecom, Transtelecom, Ukrtelecom,
Rascom and TeliaSonera. International segments of these offerings are provided
in cooperation with international operators such as TeliaSonera, Cable &
Wireless, AT&T and Infonet. In Ukraine, international outgoing and incoming
traffic is similarly routed by Golden Telecom (Ukraine) via fiber optic cable to
Cable & Wireless, Utel and Sovintel in Moscow and several other international
operators. In addition to their land-based network, the Data and Internet
Services and the Long Distance Services divisions of TeleRoss also use satellite
transmission to offer the same services between Moscow and other major
Commonwealth of Independent States cities such as Almaty, Tashkent, Tbilisi and
Baku.

Additionally we lease STM-16 capacity (2.4 Gbps) from Moscow to Stockholm
from TeliaSonera and its subsidiary companies. In Stockholm, this capacity
connects directly to a number of complementary broadband Internet and data
networks in Europe and the United States of America. The capacity on the
TeliaSonera fiber optic network was acquired on February 7, 2000, through a
10-year lease agreement with an option to renew for 5 years. Initially the
equivalent of an STM-1 (155 Mbps) was activated in March 2000 and the capacity
was incrementally upgraded to STM-4 (622 Mbps) in August 2000 and to STM-16 (2.4
Gbps) in the first quarter of 2001.

Domestic Long Distance Networks

TeleRoss developed a land and satellite-based regional network to provide
domestic long distance and data services in Russia. Our land-based domestic long
distance network consists primarily of fiber optic capacity leased from
Rostelecom and Transtelecom. We use this land-based network primarily to serve
our regional Data and Internet businesses. This network together with our
satellite-based network currently accesses 149 different points of presence
across Russia and in certain other large cities in the Commonwealth of
Independent States. We may further develop our land-based network to meet the
demands of our customers, especially customers in our Data Service division.

25

TeleRoss also leases capacity on a satellite transponder (72 MHZ) from
Intelsat in accordance with the terms of a five-year lease, which expires in
March 2004. The coverage area of this satellite, or "footprint", includes the
full territory of Russia and other countries of the Commonwealth of Independent
States. Using this leased satellite transponder, TeleRoss serves fourteen
Regional Earth Stations (RESs) and 50 VSAT stations across the country. A VSAT
is a relatively small satellite antenna, typically 1.5 to 5 meters in diameter,
used primarily for satellite-based point-to-point applications. These RESs and
VSATs interconnect with our central hub in Moscow and with local facilities in
the areas where the RESs and VSATs are located. TeleRoss's central hub in Moscow
interconnects with the Moscow-based international, domestic long distance and
local facilities of TeleRoss and Sovintel. TeleRoss also leases 36MHz Ku-band
capacity from Intelsat under a five-year lease which expires in 2007. The
coverage of this satellite includes the area between Moscow and the eastern-most
point of Kazakhstan. This capacity is used by the company primarily in Western
Russia, Kazakhstan and Uzbekistan.

TeleRoss developed land-based technology in parallel with a satellite
network for a number of reasons, including the following:

o Fiber transmission is more suitable for data applications than satellite
transmission because of fewer transmission delays;

o VSAT technology is expensive for customers with high capacity
requirements; and

o There is no "public data network", so we need to establish land-based
points of presence in each location where customers require data
services.

Our network utilizes both fiber optic and satellite media depending on the
cost effectiveness of a given media. The same technology (i.e. IP, Frame Relay,
ATM) can be carried over either media with no discernible difference in quality
for the end-user. Combining a satellite and fiber-based network with IP, Frame
Relay, and ATM protocols benefits us because they:

o Create a possibility to carry voice "on net" between multiple locations.
This application was not possible with a satellite-only network because
the time delays in consecutive satellite "hops" are impractical for
efficient communications at multiple locations;

o Create a possibility to terminate traffic in significantly more points
of presence. Points of presence established originally for data services
may be extended to carry voice over an interface to a local voice
operator, allowing us to extend our service offering to other customers;

o Improve network resilience both for voice and data networks through the
optimal combination of land-based fiber and satellite transport
capacity; and

o Enable us to operate an integrated network over which we could offer
voice, data and Internet services.

We are continually updating our points of presence to carry packet voice in
order to carry as much of our intercity voice on our own network rather using
those of other carriers, thereby reducing our settlement costs.

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Mobile Network

Golden Telecom (Ukraine) operates a GSM-1800 network in Kiev, Ukraine and
the immediately surrounding areas with a mobile switching center and 60 base
stations. In August 2000 we commenced operations in Odessa, Ukraine and now have
a mobile switching center and 29 base stations. The networks also include
various value-added service platforms offering voicemail, short message service,
and prepaid cellular administration.

27

THE ENVIRONMENTS IN WHICH WE OPERATE

To facilitate a more complete understanding of our business and our
operations, this section provides an overview of some of the key features of the
markets where we operate and derive substantially all of our revenue. These
overviews focus on our two largest markets, Russia and Ukraine and include:

o An overview of the telecommunications markets;

o An overview of the political and economic environment; and

o An overview of the legal, tax and regulatory regimes.

OVERVIEW OF TELECOMMUNICATIONS' MARKETS IN RUSSIA AND UKRAINE

The Telecommunications' Market in Russia. Prior to the early 1990s, the
telecommunications network in the former Soviet Union was inefficient,
unreliable and underdeveloped relative to the networks in more-developed
countries. In the early 1990s, the Ministry of Communications, which had
formerly controlled the Soviet telecommunications infrastructure, ceded
operational control to a single long distance and international carrier,
Rostelecom, and 80 incumbent regional operators, including four independent city
networks in Moscow, St. Petersburg and two other cities. The local telcos
provide local exchange services for customers within their regions, but starting
in February 2003 they are obligated to provide access to the international and
domestic long distance services. In the incumbent network domestic long distance
calls to and from areas outside the local telcos' service area, as well as
international calls, are switched through Rostelecom, which interconnects with
the local telcos to complete domestic long distance calls and with foreign
carriers to complete international calls.

The dissolution of the Soviet Union and the collapse of the centrally
planned economy reduced the funding available to the local telcos at a time when
demand for telecommunications was increasing. The growth in the Russian
telecommunications industry since the early 1990s has been principally driven by
businesses in Moscow requiring international and domestic long distance voice
and data services and by mobile telephony users. The growth in Moscow
accelerated as multinational corporations established a presence in the capital
and Russian businesses expanded. The formerly state-owned local telcos, however,
which generally employed an outdated, dilapidated analog infrastructure, could
not support the requirements of high-volume consumers of sophisticated
telecommunications services. As a result, the inadequacies of the existing
legacy networks constructed during the Soviet era became more apparent. Further,
the proceeds received by the Russian government from the privatization of state
telecommunications assets were not used for the infrastructure improvements
required to meet increased demand. As a result, the Ministry of Communications
issued licenses to domestic and foreign funded companies to encourage investment
in the telecommunications infrastructure. The licensing structure adopted by the
Ministry of Communications directly reflected the areas of the legacy networks
in most urgent need of investment. Generally, voice and telephony licenses were
issued to provide local access, local exchange, international and domestic long
distance services.

Although it remains subject to certain restrictions, significant progress
in privatization of the telecommunications industry in Russia has occurred. At
present, virtually all the former state telecommunications enterprises have been
privatized and, subject to the above restrictions,

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shares of the newly formed joint stock companies have been sold to the public.
Also, a significant number of private operators provide a wide variety of
telecommunications services pursuant to licenses issued by the Ministry of
Communications.

In September 1995, the Russian government established Svyazinvest as a
holding company for the state's telecommunications assets. Svyazinvest now holds
the Russian government's equity interests in all the incumbent local telcos, as
well as Rostelecom. In July 1997, a 25% plus one share interest in Svyazinvest
was sold to a private consortium, Mustcom Limited, for approximately $1.9
billion. The Russian government repeatedly stated that it intends to sell a
further 25% minus two shares but has not completed any tenders. In 2000 the
government announced a plan to restructure and consolidate Svyazinvest's
holdings and in 2002 the reorganization was completed by merging all regional
incumbent operators into 7 large interregional companies. Svyazinvest currently
owns controlling voting interests in all 7 interregional companies and
Rostelecom and owns substantial equity interests in four other local telcos,
including Moscow City Telephone Network.

In 2000, traffic volumes surpassed the levels carried by our network prior
to the August 1998 financial crisis in Russia and continued to increase during
2001 and 2002. In 2002, the Russian telecommunications sector demonstrated
marked increases in volume and it is estimated that overall sector revenues in
Russia in 2002 reached over $6 billion. Alternative service providers, including
cellular operators, accounted for over 50% of these revenues.

The Telecommunications Market in Ukraine. The evolution of the
telecommunications sector in Ukraine is similar to that in Russia. The
infrastructure is outdated, the industry is inefficient and provides low-quality
services, and many tariffs are set as a result of political considerations.

In contrast to Russia, there has been no privatization of the state-owned
telecommunications sector in Ukraine. Whereas privatization of Ukrtelecom, the
state monopoly, was considered crucial for raising funds for the state in 2000,
several changes in priorities and political positioning has resulted in further
delay. To date, only about 7% of the monopoly have been privatized to employees
and managers.

The State Committee of Communications is the regulatory body that oversees
the Ukrainian telecommunications industry. In 2001, the Committee also became
the 100% owner of Ukrtelecom, the State monopoly. The Committee is responsible
for the management of state telecommunications holdings, licensing, and setting
tariff regulations. Tariffs for local calls and calls between and within regions
are set at levels far below those which would prevail in a deregulated market.
Inter-operator tariffs, however, are often set at levels which challenge the
ability of competing operators to effectively position themselves against the
monopoly operator.

Ukrtelecom, the Ukrainian incumbent public operator, is the main provider of
telecommunications services in the country. Utel, a venture in which Ukrtelecom
in 2001 acquired total control from foreign shareholders, is the dominant
national and long

29

distance operator. Golden Telecom LLC Ukraine is the primary competitor to Utel
in the capital city of Kiev. Ukrtelecom is the holding company for the state's
telecommunications interests, including 24 regional local telcos, two municipal
telecommunications operators, and the national transmission networks, along with
broadcasting, research and satellite assets. The State Committee of
Communications has made public statements to the effect that it considers
competition a threat to the future privatization of Ukrtelecom, which the
Committee owns, and that effective legislation must be introduced and enforced
to limit and control the activities of competing operators.

Public switched voice telephony in Kiev is delivered through a layered
hierarchy similar to that used in Moscow. We connect our customers using our
local access network with fiber optic and copper-based facilities, which provide
direct interconnection with the Kiev city telephone network.

The Ukrainian mobile telecoms market is currently served by five operating
companies. Golden Telecom LLC Ukraine commenced operations in accordance with
its GSM-1800 license in late 1996.

OVERVIEW OF THE POLITICAL AND ECONOMIC ENVIRONMENT IN RUSSIA AND UKRAINE

Russia's Political Environment. Since the dissolution of the Soviet Union in
December 1991, Russia has been in the process of a substantial political
transformation. The Russian Constitution, ratified in 1993, establishes a
three-branch governing system that replaced the Communist dominated Soviet
system. The three-branch system consists of a powerful executive branch led by
the President, a bicameral legislative branch with an upper assembly, the
Federation Council, and a lower assembly, the State Duma, and an underdeveloped
judicial branch. Boris Yeltsin was elected to a second term as President in July
1996 but shortly thereafter lost popular support on account of political and
economic dislocations, disaffection with economic reform, institutionalized
corruption and his erratic stewardship of the country. On December 31, 1999
Yeltsin resigned the presidency, thereby enabling the Prime Minister, Vladimir
Putin, to be elevated to the role of acting president and to emerge as the
winning candidate in the presidential election which was held on an accelerated
basis on March 26, 2000.

Prior to his election to the presidency, President Putin was appointed Prime
Minister by former President Yeltsin and confirmed by the Duma on August 16,
1999. Prior to his appointment as Prime Minister, President Putin served as the
Head of the Russian Federal Counter-Intelligence Agency and as the Head of the
Internal Controls Department of the President's Administration. President Putin
has stated that he intends to follow his predecessors' policies but with an
increasing emphasis on the fight against corruption and the effective exercise
of the power of the state. Mr. Putin has also pursued a policy emphasizing
increased cooperation with European powers and the United States.

With the frequent changes of government in Russia and the other countries of
the Commonwealth of Independent States in the 1990's government policies are
subject to rapid and potentially radical change. The political and economic
changes in Russia over the last twelve years have resulted in significant
dislocations of authority. As a result of the frequent turnover at the federal
government level, the continuing absence of an effective central government and
direct elections at the local level, certain regions of Russia are exercising
more independence in both political and economic policies. Significant organized
criminal elements have taken advantage of these dislocations. High levels of
corruption exist among government officials and among commercial

30

enterprises in which the state has an ownership interest. In an attempt to
increase the influence of federal authorities in the regions, President Putin
organized the Russian regions into seven administrative regions and appointed
special presidential representatives to coordinate and enforce federal policies
in each of these regions. These policies appear to be leading to a reassertion
of federal power in the regions but corruption on the local and federal levels
remains problematic.

Russia's Economic Environment. In the immediate aftermath of the 1998
financial crisis, the ruble's value declined substantially below the 9.5
rubles/US dollar floor set on that date, but in the last year has settled at
approximately 31.5 rubles/US dollar. World oil prices have contributed to the
recent relative stability of the ruble as the Russian Central Bank has reported
hard currency reserves of over $53.1 billion, as of March 24, 2003. According to
government figures, inflation has come under relative control since the crises
with annual inflation numbers of 84% for 1998, 36% for 1999, 20% for 2000, 19%
for 2001 and 14% for the year 2002. Inflation is expected to be in the 12-14
percent range for 2003. Officials estimate that there will be US$ 31.8 billion
trade surplus in 2003 and gross domestic product increase of over 4.5% in 2003
as compared to 2002. Further, there has been a steady decline in capital flight
since 1998 and this trend is predicted to continue in 2003. These positive
economic indicators must be considered in the context of Russia's status as a
major exporter of oil and other natural resources and any decline in world oil
prices could negatively impact the value of the ruble and the continued
development of Russia's economy.

Ukraine's Political Environment. Ukraine declared independence from the
Soviet Union in 1991. Since that time, Ukraine has established a three-branch
system of government similar to that in Russia. Following a period of
significant political debate, the new Ukrainian Constitution was ratified in
June 1996. Independent Ukraine's first President Leonid Kravchuk led the country
through a period of significant economic and social decline. Following the 1995
presidential elections, Leonid Kuchma succeeded him. Ukraine is one of the few
former Soviet republics to smoothly and peaceably transfer executive power.
President Kuchma was re-elected for another five-year term in November 1999.

Although President Kuchma has been able to maintain a fair amount of
control over policy, power is fairly evenly divided between the president and
parliament and consequently major policy decisions are frequently blocked by
parties exercising influence or control over the presidential administration or
the parliament. Political reform efforts have progressed somewhat during
Ukraine's first eleven years as an independent country, but the judicial system
lacks independence and its decisions are often influenced or controlled by
political considerations.

Ukraine's Economic Environment. In September 1996, a new currency, the
hryvna, was introduced, replacing the temporary karbovanets (coupons) that were
in circulation following the country's independence from the Soviet Union. The
National Bank of Ukraine, the nation's central bank, has steadfastly refused to
permit wholesale printing of the currency despite much pressure from Parliament.
The hryvna is now subject to a floating exchange rate whereas it was previously
kept within a fixed range. In 2002, Ukraine's currency was stable, moving from
UAH 5.2985 per US dollar at December 31, 2001 to UAH 5.3324 at December 31,
2002. The hryvna's stability was due in large part to the significant increase
in Ukraine's trade surplus in 2002 over 2001. In 2002, the National Bank of
Ukraine actively intervened in the market through purchases of hard currency and
increased its hard currency reserves to US $4.4 billion by the end of 2002, a
43% increase on 2001. Ukraine achieved GDP growth of approximately 4.3% in 2002
following 9% growth in 2001. The tight monetary policy of the National Bank of
Ukraine in 2002 and the stable currency resulted in annual deflation of 0.6% in
2002.

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OVERVIEW OF THE LEGAL, TAX AND REGULATORY REGIMES IN RUSSIA AND UKRAINE

Russia's Legal, Tax and Regulatory Regime. After the dissolution of the
Soviet Union in December 1991, former President Yeltsin and the Duma enacted
piecemeal legislation in an attempt to develop a legal framework to guide the
transition from a centralized command economy to a more market-oriented economy.
While the rudimentary legal framework continues to develop, legislation is often
inconsistent, contradictory, poorly drafted and unclear. This general
characterization is particularly applicable to corporate governance regulations
and tax legislation. During 2000, at the urging of President Putin's government,
the State Duma approved the first two parts of the revised and reportedly
simplified Russian Tax Code. The second part entered into effect as of January
1, 2001 and additional provisions came into effect as of January 1, 2002.
Similarly, under pressure from the executive branch, the Duma finally enacted a
new Labor Code, which entered into effect in February 2002 and replaced the
antiquated Labor Code left over from the Soviet era. Still, ambiguities in the
law are exploited by bureaucrats struggling to increase state budgetary
resources. Administrative regulations and decrees are frequently not published
and are not available for review. The judiciary lacks the power necessary to
enforce its judgments and judges are frequently underpaid, inexperienced and
commercially unsophisticated. In addition, judges are subject to intimidation,
and corruption in the judiciary is not unusual. Hence, in such an environment,
contracts are frequently unenforceable in courts of law.

The State Duma has enacted legislation to protect foreign investment and
other property against expropriation and nationalization. In the event that such
property is expropriated or nationalized, legislation provides for reimbursement
of the value of the property and damages. However, due to the lack of state
budgetary resources, experience and political will to enforce these provisions,
and due to potential political changes, it is uncertain whether such protections
could be enforced.

In addition to telecommunications legislation, the Russian
telecommunications industry is also shaped by privatization legislation and the
resulting privatization of state-owned telecommunications enterprises over the
last several years.

Generally, taxes payable by Russian companies are numerous and substantial.
They include taxes on profits, assets and payroll, as well as value-added tax.
The recently enacted Tax Code represents an attempt to rationalize the federal
tax system. The effect of the new Tax Code on our operations has and should
become increasingly evident as the new Tax Code continues to be implemented. We
expect an overall reduction in our Russian tax burden and have experienced such
reductions over the past two years. For example, from January 1, 2003, under the
new Tax Code, taxes calculated on the basis of revenue have been abolished. The
maximum unified payroll tax rate which decreased from 38.5% to 35.6% in 2001
remains at 35.6%. From January 1, 2002, the rate of corporate profit tax
decreased from 35% to 24%.

Russian companies within the same ownership group cannot be consolidated,
and therefore, each company must pay its own Russian taxes. Because there is no
consolidation provision, dividends are subject to Russian taxes at each level
that they are paid. Currently, dividends are taxed at 15% and the payor is
required to withhold such tax when paying dividends, except with respect to
dividends paid to foreign entities that qualify for an exemption under treaties
on the avoidance of double taxation. Until recently, the system of tax
collection has been ineffective, resulting in the continual imposition of new
taxes in an attempt to raise government revenues. Although collection efforts
seem to be improving year after year, the continuing possibility of large
government budget deficits raises the risk of a sudden imposition of arbitrary
or onerous taxes, which could adversely affect us.

32

In various jurisdictions, we are obligated to pay value-added tax on the
purchase or importation of assets, and for certain other transactions. In many
instances, value-added tax paid on purchases can be offset against value-added
tax which we collect and otherwise would remit to the tax authorities, or may be
refundable. Because the law in some jurisdictions is unclear, the local tax
authorities could assert that we are obligated to pay additional amounts of
value-added tax. In our opinion, any additional value-added tax which we may be
obligated to pay would be immaterial.

In addition, the new Tax Code authorizes Russia's regional legislative
authorities to impose a local tax on the sale of goods and services on their
territories. A number of such subdivisions have exercised this authority,
including Moscow and St. Petersburg which have each established a local sales
tax rate of 5 percent.

Pursuant to the Communications Law and subsequent governmental decrees, the
Ministry of Communications is assigned the authority to regulate and control the
development of the communications industry in Russia. Additional legislation
defines the roles of other communications regulatory organs, with the Ministry
exercising responsibility over the issuance of operator's licenses and the
supervision of each of those organs. The State Service for the Supervision of
Communications (Gossvyaznadzor), which is now a department of the Ministry of
Communications, is empowered to issue certain permits required for network
operation and for the importation and use of telecommunications equipment.
Gossvyaznadzor conducts periodic inspections to determine an operator's
compliance with the terms and conditions of its licenses and is authorized to
issue orders and instructions requiring operators to bring their network into
compliance with their licenses or to face fines and/or to recommend to the
Ministry that a license should be suspended or revoked. In addition, entities
such as Svyazinvest at the federal level, as well as other entities in Moscow
and St. Petersburg and other administrative regions within Russia exercise
significant control over their respective local telephone networks and may
therefore affect the licensing process.

The State Commission for Radio Frequencies (GKRCh) is responsible for
administering the utilization of the radio spectrum. This government agency
assigns and oversees the operation of radio frequencies. The State Commission
for Information is charged to coordinate the development and integration of
governmental and private telecommunications projects and networks. The State
Commission for Electrosvyaz (GKES) is responsible for improving the legislative
and regulatory base governing the telecommunication industry and for
coordinating the development of different telecommunications networks.

Legislation and normative acts specific to the telecommunications industry
provide the regulatory framework that guides our operations. Although a new
draft law "On Communications" is circulating through the Duma as of this
writing, Russian Federation Law No. 15-FZ of February 16, 1995, "On
Communications" currently outlines the regulatory framework for the
telecommunications industry. It sets forth general principles for the right to
carry on telecommunications activities, describes government involvement in
telecommunications regulation and operation, establishes the institutional
framework involved in regulation and administration of telecommunications, and
deals with various operational matters, such as ownership of networks,
protection of fair competition, interconnection, privacy and liability. Separate
legislation and administrative regulations implement this institutional
framework.

Pursuant to Article 15 of the Communications Law, any entity that offers any
communications service must obtain the appropriate license from the Ministry of
Communications in accordance with the Communications Law and relevant licensing
regulations. In fact, neither the Communications Law nor such regulations
provide clear guidelines or base standards for the issuance or extension of a
license and the Ministry exercises broad discretion when determining whether to
approve a license application and when setting the terms and conditions of the
license. Telecommunications licenses are typically issued for terms between
three and ten years, and are not transferable.

33

Article 17 of the Communications Law provides that communications networks
and facilities in Russia may be owned by legal entities and individuals acting
as communications operators, including foreign organizations and individuals.
Article 18 of the Communications Law states that foreign investors may
participate in the privatization of state-owned communications enterprises
within limits established by relevant privatization legislation. Contrary to
this provision, recent pronouncements from the Ministry indicate that the
government is reconsidering the efficacy of foreign controlled
telecommunications operators.

It can be difficult and expensive to comply with applicable Russian
telecommunications regulations. For example, the Communications Law provides
that telecommunications in Russia are confidential and may only be intercepted
by a court order. Nevertheless, we are subject to SORM, the Russian acronym for
the surveillance system operated partly by the Federal Security Service, a
government agency that is responsible for electronic surveillance. SORM requires
telecommunications networks to facilitate monitoring of electronic traffic. Many
operators and commentators consider that SORM, as applied, is inconsistent with
the privacy provisions of the Russian constitution. Full compliance with SORM
may be expensive, burdensome and unconstitutional, yet noncompliance with SORM
may lead to the administration of fines, penalties or the revocation of our
operating licenses.

A new draft law "On Communications" was provided to the Duma by the
government in July 2002. In November 2002, the draft law passed first reading
and a working group was established to receive comments. On January 1, 2003,
President Putin sent a letter to the Duma with critical comments on the draft
law. The second reading of the draft law is expected in April 2003.

Ukraine's Legal, Tax, and Regulatory Regime. A primary contributor to the
relatively slow pace of reform in Ukraine has been the absence of a coherent and
enforceable legal framework to facilitate widespread privatization of government
assets. As an example, the privatization of Ukrtelecom, the State
telecommunications monopoly, has been repeatedly delayed because of the absence
of key laws required to enable such privatization.

As with other former Soviet Republics, Ukraine is plagued with widespread
corruption and criminal activity. Until recently, organized criminal groups were
very active throughout Ukraine. High levels of corruption exist among government
officials and among commercial enterprises in which the state has an ownership
interest. Although we do not believe we have been adversely affected by these
activities to date, organized or other crime could in the future have a material
adverse effect on our operations and the market price of our common stock.

After significant legislative changes over the last few years in Ukraine and
Russia, the Ukrainian tax regime differs more significantly from the Russian tax
regime. The Ukrainian tax regime includes taxes on profits, on payroll, VAT, and
special fees and taxes levied against telecommunications operators. In order
to stimulate economic growth and broaden the tax base, in 1999 the Government
introduced a significant reduction in payroll taxes followed by a subsequent
abolition of revenue-based taxes in 2001. At the beginning of 2003, the
Ukrainian Parliament adopted amendments to the Profit Tax Law that, among other
changes, reduce the profits tax rate from 30% to 25%. The major components of
these amendments will come into force in 2004. Further, the government intends
to introduce the new Tax Code in 2003 that is expected to generally reduce the
existing tax burden on enterprises and individuals. Despite these recent
positive changes, Ukrainian tax legislation still remains unstable and unclear
and, therefore, is open to broad interpretation and enforcement by tax
authorities.

The regulatory framework governing the telecommunications industry in
Ukraine, while relatively less developed and less comprehensive, is generally
similar to the Russian regulatory framework. In the Ukrainian framework, the
Ministry of Communications and the position of Minister of Communications is
supplanted by the State Committee for Communications

34

headed by the Chairman of the Committee. A new draft of the telecommunications
law has been prepared and is being reviewed by the government. The law is
expected to provide clearer guidelines about the relationship between the state
monopoly and independent operators than exist today.

A faction within the Parliament introduced a bill which would have prevented
telecommunications operators from charging for incoming calls of any kind.
Although the sponsors of the bill were attempting to expedite the calling party
pays concept common in other countries, they overlooked the basic requirements
needed to fully support the concept in Ukraine, namely legislation governing
inter-operator settlements and billing functionality enhancements within the
local infrastructure. The bill was defeated in early 2002 after successful
lobbying by the major players in the market, however, in February 2003, the
Parliament passed a bill which prohibits operators from collecting payment for
incoming calls for all types of telephonic communications. Following signature
by the President, the bill will come into force six months after its
publication. Because we expect that interconnect tariffs for calls from the PSTN
to mobile networks to be lower than current tariffs that mobile operators charge
customers for incoming calls, it is expected that mobile operators will have to
increase tariffs for outgoing calls and/or set higher monthly fees to compensate
for the expected decrease in revenues.

35

FACTORS THAT MAY ADVERSELY AFFECT FUTURE RESULTS

RISKS ASSOCIATED WITH DOING BUSINESS IN RUSSIA, UKRAINE AND
OTHER COUNTRIES OF THE COMMONWEALTH OF INDEPENDENT STATES

We generate substantially all our revenues from operations in Russia,
Ukraine and other countries of the Commonwealth of Independent States. All
companies operating in the Commonwealth of Independent States, including our
company, face significant political, economic, regulatory, legal and tax risks,
some of which are described below.

POLITICAL INSTABILITY IN THE COUNTRIES IN WHICH WE OPERATE COULD DEPRESS FOREIGN
AND LOCAL INVESTMENT AND SPENDING, WHICH COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS

Since the dissolution of the Soviet Union in December 1991, Russia, Ukraine
and the other countries in which we operate have, to varying degrees, been
undergoing significant political and economic transformation. A generally stable
political climate emerged ten years after this transformation but economic
development remains hampered by the absence of a consistent and comprehensive
legislative framework necessary to implement and enforce market oriented reforms
and by widespread corruption among government officials. A re-occurrence of the
political instability that characterized the first several years of the
transformation could disrupt the direction and the pace of economic development.
Such a disruption could discourage foreign and local investment and spending, in
which case demand for our services could decrease and our results of operations
could deteriorate. If this were to occur, then the market price of our stock
could decrease.

RECENT TERRORIST ACTIVITY IN THE UNITED STATES AND THE POLITICAL SITUATION IN
THE MIDDLE EAST MAY AFFECT THE RUSSIAN POLITICAL AND ECONOMIC SITUATION AND
DEMAND FOR OUR SERVICES

The September 11, 2001 terrorist attacks in the United States caused
widespread worldwide economic disruption and uncertainty, threatening recession
in many countries. If major national economies experience economic recession,
there could be negative spillover effects on the Russian economy. Further, the
war in Iraq could lead to global political and economic instability. As a result
of such instability, there could be less investment and less development in the
markets where we operate and therefore less demand for our services.

Russia is a traditional ally of Iraq. The war between the United States,
United Kingdom and Iraq could lead to increased Russian nationalism that could
negatively impact Russian attitudes to foreign direct investment and to business
relationships with suppliers like us. These factors could lead to decreased
demand for our services. Any perceived Russian public support of American policy
in Iraq during or after the war could cause Russia to become a target of
terrorist actions. If widespread terrorist acts are committed in Russia and
other markets where we operate, our operations and financial results could be
adversely effected. Further, terrorist attacks, threats of future terrorist
actions, and the threat of war in the Middle East have created volatility on
world stock markets. If such volatility continues, it could negatively affect
our share price.

ECONOMIC INSTABILITY IN RUSSIA AND UKRAINE COULD ADVERSELY AFFECT THE DEMAND FOR
OUR SERVICES AND OUR ABILITY TO COLLECT ON OUR INVOICES

Although the Russian and Ukrainian economies have experienced periods of
economic downturn in the past five years, the political and economic situation
in Russia and Ukraine appears to have stabilized, but any future instability or
lack of economic

36

growth in the countries in which we operate could mean that demand for our
services will remain depressed. The failure and subsequent stagnation of the
Russian and Ukrainian economies in 1998 weakened the financial condition and the
results of operations of many of our customers. As a result, some of these
customers were unable to pay our invoices or maintain their telecommunication
services, and our revenues suffered accordingly. The demand for our services
could again become depressed if the Russian and Ukrainian political and economic
situations deteriorate to a degree that may precipitate the reoccurrence of
financial crises.

MONOPOLIZATION OF THE ECONOMY BY LARGE BUSINESS COULD ADVERSELY AFFECT THE
DEMAND FOR OUR SERVICES

The development of a market economy in Russia has been characterized by the
concentration of economic power in a small number of large enterprises centered
for the most part in the natural resources industries. Unlike in other countries
of eastern Europe, the development of small and medium-sized enterprises
("SME's") in Russia has been slow, due in part to the lack of financial
resources for SME's, administrative restraints on SME development and inadequate
support from a poorly functioning banking system. The SME sector is one from
which we anticipate demand for our services. The Russian government has made
statements expressing the need to develop SME participation in the economy, but
the legislative framework necessary for the development of the SME sector is not
consistently implemented and enforced. If the SME sector does not develop as
expected, the potential market for our services may be limited.

THE RUSSIAN MONETARY AND CURRENCY CONTROL SYSTEM COULD ADVERSELY AFFECT OUR
ABILITY TO CONVERT RUBLES TO HARD CURRENCY AND MANAGE CASH FLOWS

The ruble is generally non-convertible outside Russia, so our ability to
hedge against devaluation by converting to other currencies is significantly
limited. Within Russia, our ability to convert rubles into other currencies is
subject to rules that restrict the purposes for which conversion and payment in
foreign currencies are allowed. We manage intercompany liquidity through a
cash-collateralized credit facility offered through a Western bank operating
under a Russian banking license. We also have a $30 million credit facility with
this bank. If we lose access to these facilities, our ability to manage our
liquidity position and foreign exchange risk may suffer.

FLUCTUATIONS IN THE GLOBAL ECONOMY MAY ADVERSELY EFFECT RUSSIA'S ECONOMY AND OUR
BUSINESS

Russia's economy is vulnerable to market downturns, volatile currency
fluctuations and economic recessions in other parts of the world. As has
happened in the past, financial problems or an increase in the perceived risks
associated with investing in emerging economies could dampen foreign investment
in Russia and adversely affect the Russian economy. Additionally, because Russia
produces and exports large amounts of natural resource commodities in the world
market for hard currency, the Russian economy is especially vulnerable to world
oil prices and other commodity prices; a steep decline in world commodity
prices, especially oil, could disrupt the Russian economy or cause significant
state budgetary shortfalls. A dramatic decline in world oil prices could cause
severe budgetary shortfalls leading to increased social and political
instability. Further, certain economic indicators suggest that some large
economies are in the midst of economic recession. These developments could
severely limit our access to capital, and could adversely affect the purchasing
power of our customer base.

37

CONTINUED RUSSIAN INFLATION COULD REDUCE DEMAND FOR OUR SERVICES

According to government estimates, inflation in Russia was 20% in 2000, 19%
in 2001 and 14% in 2002. The Russian government expects inflation to be in the
12-14% range for 2003. Although the rate of inflation has been declining, any
return to heavy and sustained inflation could lead to market instability, new
financial crises, reductions in consumer buying power and erosion of consumer
confidence. Any one of these events could lead to a decreased demand for our
services.

REORGANIZATIONS IN THE UKRAINIAN TELECOMMUNICATIONS SECTOR MAY HAVE STRENGTHENED
THE POSITION OF THE MONOPOLY INCUMBENT AND ENCOURAGED UNFAIR COMPETITION

In preparation for a large-scale privatization of the telecommunications
industry, the Ukrainian government reorganized the state telecommunications
sector so that Ukrtelecom, the state telecommunications operator, holds all the
government's interests in the telecommunications industry. The ownership of
Ukrtelecom has been transferred from the State Property Fund to the State
Committee for Communications (effectively the Ministry of Communications). Thus,
the committee responsible for regulating telecommunications in Ukraine now owns
and theoretically regulates the incumbent monopoly. Although it is planned that
a portion of Ukrtelecom shares will be sold into the market during the
privatization process, it is expected that the Ukrainian government will
continue to control 51% of the Ukrtelecom shares. This will allow the Ukrainian
government to control Ukrtelecom and will afford the Ukrainian government the
opportunity to further control the telecommunications industry through
Ukrtelecom.

The emergence of a single self-regulating Ukrainian telecommunications
monopoly may have adverse financial consequences for us because:

o We have no effective recourse against the state monopoly carrier since
the state regulator controls and manages the monopoly carrier and the
judiciary system is severely underdeveloped and unreliable;

o A single Ukrainian self-regulating monopoly is able to create favorable
market conditions for itself and cause unfavorable conditions for us;

o Our ability to negotiate reasonable interconnection rates may suffer;
and

o Any subsequent privatization of Ukrtelecom may bring in strong
management and resources from a major telecommunications operator,
increasing its competitive strengths.

INVESTIGATION BY THE KIEV CITY PROSECUTOR'S OFFICE MAY NOT BE CLOSED

Golden Telecom LLC Ukraine was the subject of an investigation initiated by
the officer of the Prosecutor in Kiev, Ukraine and connected with a commercial
dispute between Golden Telecom (Ukraine) and Ukrtelecom, the state owned
telecommunications monopoly. The investigation concerns alleged improprieties in
the manner which Golden Telecom (Ukraine) routed certain traffic through the
state owned monopoly carrier, Ukrtelecom. Golden Telecom received a letter in
July 2002 from the General Prosecutor of Ukraine stating that the Prosecutor's
Office had withdrawn all charges against Golden Telecom (Ukraine) due to the
absence of grounds on which to prosecute. In October 2002, the Kiev City
Prosecutor's Office notified Golden Telecom (Ukraine) that the previous decision
to close the investigation was revoked. In subsequent discussions with the Kiev
City Prosecutor's Office, the investigators advised Golden Telecom (Ukraine)
that the Kiev City Prosecutor's

38

Office is reviewing internal procedural requirements with the intent to close
the investigation again. We cannot guarantee that this investigation will be
closed.

DISPUTES BETWEEN GOLDEN TELECOM (UKRAINE) AND UKRTELECOM MAY NOT BE RESOLVED IN
OUR FAVOR

During 2002, Golden Telecom (Ukraine) was involved in a number of
commercial disputes with Ukrtelecom and Ukrainian regulatory authorities. The
most significant disputes include routing of traffic and Golden Telecom
(Ukraine)'s lease rights of Ukrtelecom's technical premises. By the end of the
fourth quarter of 2002, Golden Telecom (Ukraine) resolved most of these issues
with Ukrtelecom. We continue to work with Ukrtelecom to resolve the remaining
outstanding issues. If the remaining disputes are not resolved amicably in the
near term, they may have an adverse impact on the financial condition, results
of operations and liquidity of Golden Telecom (Ukraine).

RUSSIAN AND UKRAINIAN TELECOMMUNICATIONS POLICIES COULD AFFECT OUR COMPETITIVE
POSITION

Russian and Ukrainian telecommunications regulations govern the procurement
and continuing validity of our licenses and the terms and conditions under which
we provide services. Adverse changes to these regulations may make it
prohibitively expensive for us to provide services or otherwise frustrate the
implementation of our business plans causing a material adverse effect on our
results of operations.

Russia's parliament recently adopted legislation that could restrict
foreign ownership of telecommunications operators if necessary to protect the
social order and national security. A new draft law "On Telecommunications"
("Draft Law") has been tabled with the Russian Duma. We cannot be certain that
the Draft Law will be passed into law and, if passed into law, what form the
draft law will take. Consequently we cannot predict with any certainty how the
Draft Law will affect our company. Any strengthening of incumbent operators such
as Rostelecom under the Draft Law or the large interregional companies could
adversely affect our business. We cannot assure you that passage of the Draft
Law will not increase the regulation of our operations and that during such time
as appropriate regulations consistent with the Draft Law are promulgated, there
will not be a period of confusion and ambiguity as regulators interpret the
legislation. We cannot guarantee that such confusion and ambiguity will not
adversely affect the functioning of our business.

It may be difficult and prohibitively expensive for us to comply with
applicable Russian telecommunications regulations related to state surveillance
of communications traffic. Full compliance with these regulations that allow the
state to monitor voice and data traffic may be overly burdensome and expensive.
Noncompliance may lead to the administration of fines, penalties, or the
revocation of our operating licenses. Further, some customers may decline to
utilize the services of a telecommunications provider whose networks facilitate
state surveillance of communications traffic.

In 2001, the Ukrainian government attempted to regulate the provision of
voice traffic over the Internet ("VoIP") through the introduction of VoIP
licenses. Although this license process has not been formalized, we cannot be
sure that any resulting licensing and related fees will not adversely affect our
business should they be implemented. In addition, Ukrtelecom enforced obligatory
VoIP traffic settlements payments for VoIP traffic routed through its network in
2001 and 2002.

39

OUR OPERATING LICENSES MAY NOT AUTHORIZE US TO PROVIDE ALL OF THE SERVICES THAT
WE OFFER

The licensing and regulatory regime in Russia, Ukraine, and the markets in
which we operate frequently do not keep pace with the technological advances in
the telecommunications industry. Further, a great deal of ambiguity exists in
regard to the interpretation of licenses and the application of rules and
regulations in regard to new services enabled by technological developments in
telecommunications infrastructure and software. Although our operating companies
possess a wide range of licenses issued by the Russian and Ukrainian ministries
of communications, it is possible that the technical means by which we deliver
some of our service offerings, or the service offerings themselves, may be
subject to licensing requirements or restrictions and that our existing licenses
do not satisfy these requirements. In such events, we could be subject to fines,
penalties or suspension of licenses. The suspension, limitation in scope or
revocation of a significant license or the levying of substantial fines could
have a significant adverse effect on our operations and our financial results.

RUSSIAN ANTI-TRUST POLICIES MAY LIMIT OUR ABILITY TO EXPAND OUR BUSINESSES AND
TO ESTABLISH MARKET RATES FOR OUR SERVICE OFFERINGS

Recently, the Russian Ministry for Anti-Monopoly Policy (MAP), the state
agency responsible for establishing and enforcing the state's anti-trust
policies, adopted a policy decision whereby each licensed telecommunications
operator, including our operating companies, may be classified as a
"monopolist". The policy was declared to be without effect by the Russian
courts, however, if the policy were to be successfully enforced, our operating
companies could be subject to increased state regulation. Since our product
offerings are frequently priced at a premium in comparison with the state-owned
incumbent offerings, it is possible that we could be required to reduce our
tariffs. Further, as the company continues to expand its operations, we may be
subject to increasing restrictions imposed by MAP. Any such regulation of our
pricing or restriction in operations could be detrimental to our financial
results.

SPECIAL FEES AND TAXES LEVIED AGAINST TELECOMMUNICATIONS OPERATORS SUCH AS A
UNIVERSAL SERVICES FUND COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS

From time to time, Ukrainian and Russian government officials seek to
offset budgetary shortfalls by increasing levies extracted from the cellular
phone industry. In Russian, provisions of the Draft Law require that all
operators pay to the Universal Services Fund 3% of their revenues. The enactment
of this provision or other similar industry-specific legislation may have a
material adverse effect on demand for our services and on our results of
operations. Similarly, the results of our operations could deteriorate if the
government introduces any new frequency or licensing fees substantially in
excess of the amounts previously budgeted for such fees.

RUSSIAN AND UKRAINIAN LEGISLATION MAY NOT ADEQUATELY PROTECT AGAINST
EXPROPRIATION AND NATIONALIZATION

The governments of Russia and Ukraine have enacted legislation to protect
foreign investment and other property against expropriation and nationalization.
In the event that our property is expropriated or nationalized, legislation
provides for fair compensation. However, we cannot assure you that such
protections would be enforced. This uncertainty is due to several factors,
including:

o the lack of state budgetary resources;

40

o the lack of an independent judiciary and sufficient mechanisms to
enforce judgments; and

o widespread corruption among government officials.

Expropriation or nationalization of our business would obviously be
detrimental to our operations.

BROAD DISCRETION OF RUSSIAN AND UKRAINIAN REGULATORS RESULTS IN INCONSISTENT
LEGISLATION AND UNPREDICTABLE ENFORCEMENT

The dispersion of regulatory powers among a number of government agencies in
Russia and Ukraine has resulted in inconsistent or contradictory regulations and
unpredictable enforcement. This situation has made it difficult for us to comply
with all laws and regulations that appear to apply to us and has resulted in
unpredictable regulatory enforcement. For example, pursuant to the Russian
Communications Law, the Ministry of Communications, has authority to regulate
and control the development of the communications industry in Russia. However,
there is additional legislation that recognizes and defines the roles of other
regulatory organs and jurisdictional boundaries are unclear.

The Russian Communications Law requires any entity that offers any
communications service to obtain the appropriate license in accordance with the
Communications Law and other applicable licensing regulations. A similar
licensing regime exists in Ukraine. However, neither the Communications Law, nor
applicable regulations in Russia or Ukraine, provide clear guidelines for the
issuance or extension of a license, and state agencies exercise broad discretion
when determining whether to approve a license application, as well as the terms
and conditions of any license. Similarly, our licenses may not be renewed on the
same terms and conditions as preexisting licenses. Such broad discretion in the
issuance of licenses may result in arbitrary decision making and may also give
rise to opportunities for corruption.

The Ukrainian regulatory agency requires that the terms of international
licenses include provisions requiring licensees to pay unspecified annual
amounts into local network development. The required amount of investment has
yet to be defined but may be substantial, and we cannot predict whether failure
to comply will lead to the revocation of our license or whether the financial
burden associated with compliance may be so burdensome as to cause a
deterioration of our financial results.

WE MAY BE UNABLE TO ENFORCE OUR RIGHTS DUE TO CONFUSION IN THE LAWS AND LEGAL
STRUCTURES OF THE COUNTRIES WHERE WE OPERATE

The current confusion with the Russian and CIS legal structure makes it
difficult to know if we would be able to enforce our rights in disputes with our
joint venture partners or other parties. Furthermore, the dispersion of
regulatory power among a number of government agencies in Russia and the other
independent countries of the CIS has resulted in inconsistent or contradictory
regulations and unpredictable enforcement. The Russian and other CIS governments
have rapidly introduced laws and regulations and have changed their legal
structures in an effort to make their economies more market-oriented, resulting
in considerable legal confusion, especially in areas of the law that directly
affect our operations. We cannot assure you that local laws and regulations will
become stable in the future. Our ability to provide services in Russia and the
other independent countries of the CIS could be adversely affected by
difficulties in protecting and enforcing our rights and by future changes to
local laws and regulations. Further, our ability to protect and enforce such
rights is dependent on the Russian, Ukrainian and CIS courts which are
underdeveloped, inefficient and, in places, corrupt.

41

OUR RUSSIAN AND UKRAINIAN TAX BURDENS MAY BE SIGNIFICANTLY GREATER THAN
CURRENTLY ANTICIPATED

Russia

It is possible that our Russian taxes may be greater than the estimated
amount that we have expensed to date and paid or accrued on our balance sheets.
Because of the need for additional sources of budgetary finance, Russian tax
authorities are often arbitrary and aggressive in their interpretation of tax
laws and their many ambiguities, as well as in their enforcement and collection
activities. Foreign companies are often forced to negotiate their tax bills with
tax inspectors who demand higher taxes than applicable law appears to provide.
Any additional tax liability, as well as any unforeseen changes in the tax law,
could have a material adverse effect on our future results of operations or cash
flows in a particular period. Under Russian accounting and tax norms, financial
statements of Russian companies are not consolidated for tax purposes. As a
result, each Russian-registered entity in our group pays its own Russian taxes
and we cannot offset the profits or losses in any single entity against the
profits and losses in any other entity. Our overall effective tax rates may
increase or our financial results may worsen as we expand our operations and if
we are unable to implement an effective corporate structure that minimizes the
effect of these accounting and tax norms.

Ukraine

Like the situation in Russia, Ukrainian tax law is unpredictable and tax
authorities are often arbitrary and aggressive in their interpretation of tax
laws and their many ambiguities, as well as in their enforcement and collection
activities. The constitution prohibits retroactive legislation, and the tax code
requires new tax laws to be adopted no later than six months prior to the
beginning of the next fiscal year. Nevertheless, sudden shifts in tax law and
policy and retroactive legislation are common. For example, in January 2003, the
Ukrainian Parliament adopted amendments to the Profits Tax Law which, in part,
enters into effect from January 1, 2003. The law substantially changes the tax
treatment of exchange rate differences, dividends, transfer pricing and other
transactions. The impact of the law on our operations is uncertain because of
ambiguities and inconsistencies in the law which could allow for differing
interpretations by the tax authorities. If our interpretation of the amendments
differs from those of the local tax authorities, we might be subject to higher
than expected tax liability and/ or additional fees and penalties.

THE IMPLEMENTATION OF RUSSIA'S NEW TAX CODE MAY INCREASE OUR EFFECTIVE TAX
BURDEN AND ADVERSELY AFFECT OUR RESULTS OF OPERATIONS

Russia introduced the first part of its new Tax Code in 1999. The second
part of the new Tax Code entered into effect as of January 1, 2001 and
additional provisions came into effect as of January 1, 2002. We cannot assure
you that the new Tax Code will not result in a greater tax burden for our
Russian operations or that our tax planning to date will not be frustrated by
provisions of the new code, either of which could cause a material adverse
effect in our operating results and cash flows.

Tax authorities are beginning to implement the new code but during the
transition period and until appropriate regulations consistent with the new code
are promulgated, there is likely to be a period of confusion and ambiguity as
tax inspectors and taxpayers become acquainted with the new code and the
regulations that will guide its implementation and interpretation. Aggressive
tax collectors may exploit any ambiguities in an attempt to collect additional
tax revenue. In addition, as Russian tax legislation becomes increasingly
sophisticated and as issues connected with capital flight remain unresolved,
state bodies may introduce new legislation designed to minimize tax-avoidance
schemes, such as transfer pricing, that have been abused in the past

42

by Russian-registered companies. Additionally, Russian legislators may attempt
to collect revenue generated from outside of Russia, but with a strong nexus to
Russian nationals or Russian-registered entities, by introducing into the Tax
Code concepts such as "controlled foreign company." As a result of these
measures, our tax burden could increase and our financial results may suffer.

WE MAY BE AT A COMPETITIVE DISADVANTAGE BECAUSE OF RESTRICTIONS IN THE FOREIGN
CORRUPT PRACTICES ACT

It is widely reported that Russia, Ukraine, and the other markets where we
operate are plagued with widespread corruption and criminal activity. It is
alleged that high levels of corruption exist among governmental officials and
among quasi-commercial enterprises in which the state has an ownership interest.
Commercial bribery is likewise believed to be widespread.

The anti-bribery restrictions of the US Foreign Corrupt Practices Act make
it illegal for us to give anything of value to foreign officials in order to
obtain or retain any business or other advantage. Some of our current and
potential competitors are not subject to these anti-bribery restrictions. As a
result, we may be subject to competitive disadvantages to the extent that our
competitors are able to secure business, licenses or other preferential
treatment by making payments to corrupt government officials or commercial
purchasing agents. We believe that bribery is commonplace in Russia and the
other countries of the Commonwealth of Independent States where we operate, and
we cannot ensure that we will be able to compete effectively with companies that
are free from such limitations.

RISKS ASSOCIATED WITH OUR BUSINESS

WE MUST MANAGE OUR GROWTH, INCLUDING THE INTEGRATION OF RECENTLY ACQUIRED
COMPANIES, SUCCESSFULLY IN ORDER TO ACHIEVE OUR DESIRED RESULTS

We have experienced significant growth in personnel in the short and medium
term as the result of acquisitions and expect such growth to continue. As the
number of our employees grows, it will become increasingly difficult and more
costly to manage our personnel. As part of our business strategy, we have
completed several acquisitions, including the purchase in September 2002 of the
remaining 50% ownership interest in LLC EDN Sovintel. Acquisition transactions
are accompanied by a number of risks, including:

o the difficulty of assimilating the operations and personnel of the
acquired companies;

o the potential disruption of our ongoing business and distraction of
management;

o the difficulty of incorporating acquired technology or content and
rights into our products and unanticipated expenses related to such
integration;

o the potential negative impact on reported earnings;

o the possibility that revenues from acquired businesses may not
materialize as anticipated;

o the impairment of relationships with employees and customers as a
result of any integration of new management personnel; and

43

o the contingent liabilities associated with acquired businesses,
especially in the markets where we operate.

We may not be successful in addressing these risks or any other problems
encountered in connection with our completed and future acquisitions and our
operating results may suffer as a result of any failure to integrate these
businesses with our existing operations.

WE ARE IN A HIGHLY COMPETITIVE INDUSTRY AND OUR COMPETITORS MAY BE MORE
SUCCESSFUL IN ATTRACTING AND RETAINING CUSTOMERS

The market for our products and services is highly competitive and we
expect that competition, especially in underdeveloped markets, will continue to
intensify. As we expand the scope of our offerings, we will compete directly
with a greater number of competitors providing business services in the same
markets. Negative competitive developments could have a material adverse effect
on our business and the trading price of our stock.

Specifically, the reorganization of all regional incumbent operators into
seven interregional companies could affect our ability to expand into the
various regions of Russia. In order to effectively compete, we may need to
expend significant internal resources or acquire other technologies and
companies to provide or enhance such capabilities. Any of these efforts could
have a material adverse effect on our business, operating results and financial
condition and be dilutive to our stockholders.

REORGANIZATION OF THE RUSSIAN TELECOMMUNICATIONS INDUSTRY MAY AFFECT OUR
COMPETITIVE POSITION

Prior to 2002, the Russian government structured the telecommunications
industry so that one entity, Svyazinvest, controlled Rostelecom and most of our
other principal wire-line joint venture partners. During 2002, the
telecommunications industry was restructured by merging all regional incumbent
operators into seven interregional operating companies. With this consolidation,
we may face stronger competition from these new entities. Further, with the
consummation of the Sovintel transaction in 2002, we are not sure that we may
rely on continued strong commercial relations with Rostelecom, given that they
are no longer our partner in Sovintel.

FAILURE TO LEASE SUFFICIENT AND RELIABLE TRANSMISSION CAPACITY AT REASONABLE
COSTS COULD CAUSE US TO INCUR LOSSES

Historically, we have leased a substantial portion of our network
transmission capacity under agreements that generally have twelve- to
thirty-six-month fixed terms. In addition to this capacity, in 2001, we leased
significant additional domestic and international capacity that we intend to
utilize for data transmission under long-term lease agreements that may be
extended up to fifteen years. We rely on third parties' ability to provide
capacity to us. These third parties themselves may be receiving capacity from
others. If our lease arrangements deteriorate or terminate and we are unable to
enter into new arrangements or if the entities from whom we lease such capacity
are unable to perform their obligations under such arrangements, our cost
structure, service quality and network coverage could be adversely affected.

We currently provide international switched voice, data and IP services in
Russia by relying on Rostelecom and Transtelecom to provide leased transmission
capacity within Russia. We rely on local operators for last-mile access to
end-users. These companies may be subject to political and economic pressures
not to lease capacity to foreign operators or competitors. Further, given that
we consummated the Sovintel transaction to purchase the remaining 50% ownership
interest of Sovintel from

44

Rostelecom, there may be less commercial incentive for Rostelecom to provide
telecommunication services to us. Any changes in regulation or policies that
restrict us from leasing adequate capacity could have an adverse effect on our
business. Local telecommunications operators may, for business reasons or
otherwise, resist giving us access to the last mile.

MARKET CHANGE MAY IMPACT OUR ABILITY TO SUSTAIN GROWTH LEVELS

Because of the uncertain nature of the rapidly changing market for the
products and services we offer, period-to-period comparisons of operating
results are not likely to be meaningful. We cannot be certain that the market
for our services in our CLEC, Data and Internet, Long Distance and Mobile
Services will not change significantly and, in so doing, adversely affect our
financial results. We cannot be certain that subscriber growth in our businesses
will be sustained in future periods. In addition, we currently expect that our
operating expenses will continue to increase as we expand infrastructure
necessary for our sales and marketing operations, continue to develop and extend
the ROL brand, fund greater levels of product development, and acquire
complementary businesses and technologies. If we are unable to achieve long-term
revenue growth in the markets in which we operate, our financial results will be
adversely affected.

OUR NETWORK MAY NOT BE ABLE TO SUPPORT THE GROWING DEMANDS OF OUR CUSTOMERS

The uninterrupted operation of our network is vital to our success. The
stability of our systems depends on our ability to provide sufficient capacity
to meet the needs of our customers, and that, in turn, depends on the
integration of suitable technology into our networks. As we continue to increase
both the capacity and the reach of our network, and as traffic volume continues
to increase, we will face increasing demands and challenges in managing our
circuit capacity and traffic management systems. Any prolonged failure of our
communications network or other systems or hardware that causes significant
interruptions to our operations could seriously damage our reputation and result
in customer attrition and financial losses.

It is possible that the current economic difficulties and historical
circumstances in Russia may create difficulties in maintaining our network. We
rely to a significant degree on the Russian network being able to deliver our
services, and the Russian network's underdevelopment may hinder our ability to
obtain sufficient capacity for our traffic volumes, especially as we expand our
Internet access business. Moreover, it is increasingly difficult to expand
within Moscow because the existing city network does not have sufficient
capacity, and we may be unable to procure enough telephone numbers and
connection lines for our customers utilizing our services. These factors may
have a material adverse effect on our expansion plans and our ability to provide
services to new customers.

In addition, the telecommunications industry is subject to rapid and
significant changes in technology. We cannot predict the effect of technological
changes on our business, even though our operations depend on our ability to
integrate new and emerging technologies successfully.

WE MAY HAVE DIFFICULTY SCALING AND ADAPTING OUR EXISTING ARCHITECTURE TO
ACCOMMODATE INCREASED TRAFFIC AND TECHNOLOGY ADVANCES

Much of the telecommunication network architecture that we employ and the
architecture of local public networks were not originally designed to
accommodate levels or types of use that we hope to experience in our operations
and it is unclear whether current or future anticipated levels of traffic will
result in delays or interruptions in our service. In the future, we may be
required to make significant changes to our architecture, including moving to a
completely new architecture, or we may be required to

45

invest in upgrades to the local public networks. If we are required to switch
architectures, we may incur substantial costs and experience delays or
interruptions in our service. If we experience delays or interruptions in our
service due to inadequacies in our current architecture or as a result of a
change in architectures, users may become dissatisfied with our service and move
to competing providers of online services. Any loss of traffic, increased costs,
inefficiencies or failures to adapt to new technologies and the associated
adjustments to our architecture would have a material adverse effect on our
business.

WE RELY ON A SMALL NUMBER OF MAJOR CUSTOMERS FOR A SUBSTANTIAL PORTION OF OUR
REVENUES

Revenues from our five largest customers represented approximately 19% of
our revenue for the year ended December 31, 2002, 28% for the year ended
December 31, 2001, and 32% of our revenue for the year ended December 31, 2000.
Accordingly, the loss of business from any of our key customers, or a reduction
in tariffs charged to these customers could have a material adverse effect on
our financial condition and results of operations.

Vimpelcom, a Moscow cellular provider and our largest customer, has its
prices regularly reviewed in the light of market conditions, which generally
leads to a reduction in the fees paid to the company's CLEC Services division.
Revenues from Vimpelcom and its affiliates represented approximately 12% of our
revenue for the year ended December 31, 2002, 14% of our revenue for the year
ended December 31, 2001 and 16% of our consolidated revenues for the year ended
December 31, 2000. We agreed to reductions in Vimpelcom's fees through 2000,
2001 and 2002 and we may agree to further reductions in the future. Further
negotiations may lead to a significant additional reduction in payments by
Vimpelcom and may have a material adverse effect on our consolidated revenues.
In addition, although we are currently unaware of any plans on the part of our
key customers to move their business to other carriers, we cannot assure you
that they will not reduce their reliance on us by developing relationships with
other service providers.

FALLING PRICES FOR OUR SERVICES MAY LEAD TO A DECLINE IN REVENUES

Prices for international and domestic long distance calls, as well as
Internet access and wireless services, have fallen substantially over the last
few years in most of our current and potential markets. The prices for our
services may continue to decrease for the foreseeable future as competitive
pressures increase. These reductions may be attributable, in part, to increased
competition and the creeping devaluation of the currencies in the markets where
we operate. Unlike us, most local carriers do not link their prices to the
dollar exchange rate, so as the local currency devalues, their prices become
relatively cheaper than our prices. In order to compete with these local
operators, we may be required to lower our tariffs, which may result in
declining margins.

WE MAY BE SUBJECT TO LEGAL LIABILITY FOR OUR ONLINE SERVICES

We host a wide variety of services that enable individuals to exchange
information, generate content and engage in various online activities. The law
in the jurisdictions in which we operate and in most other jurisdictions
relating to the liability of providers of these online services for activities
of their users is currently unsettled. Claims in some jurisdictions have been
threatened and brought against other service providers for defamation,
negligence, copyright or trademark infringement, unlawful activity, and tort.
Due to the unsettled nature of the law in this area, we may be subject to these
and other actions in the jurisdictions in which we conduct our business. Our
defense of any such actions could be costly and could distract our management
and other resources.

46

FURTHER DECLINES IN VALUATIONS OF OUR PROPERTIES COULD LEAD TO FURTHER
IMPAIRMENT CHARGES

We have acquired several website and internet-based companies. A
significant portion of the value of these companies has been booked on our
balance sheet as intangible assets. Due to downturns in the telecommunications
markets and changing expectations concerning the value of these assets, we have
had to take impairment charges associated with some of our properties. If the
market for our internet-based services does not increase as expected, we may be
required to take further impairment charges on these assets.

Our mobile operations in Ukraine continue to be under strong competitive
pressure and we foresee that average revenue per subscriber will continue to
decline. This, coupled with regulatory issues, both in our mobile and our fixed
line businesses, and the need to commit significant investment to continue to
grow, has led us to reassess our plans for this business and we recorded
impairment charges of $10.4 million in the fourth quarter of 2001. In the event
that revenues continue to decline faster than expected, we may be required to
take further impairment charges on these assets.

OUR INTELLECTUAL PROPERTY RIGHTS ARE COSTLY AND DIFFICULT TO PROTECT

We regard our copyrights, trademarks, trade dress, trade secrets, and
similar intellectual property, including our rights to certain domain names, as
important to our continued success. We rely upon trademark and copyright law,
trade secret protection and confidentiality or license agreements with our
employees, customers, partners and others to protect our proprietary rights.
Still, intellectual property rights are especially difficult to protect in the
markets where we operate. In these markets the regulatory agencies charged to
protect intellectual property rights are inadequately funded, legislation is
underdeveloped, piracy is commonplace and enforcement of court decisions is
difficult. We cannot guarantee that the steps we have taken to protect our
proprietary rights will be adequate.

WE COMPETE WITH ESTABLISHED COMPETITORS WHO MAY HAVE GREATER RESOURCES THAN WE
DO

Our competitors include incumbent Russian and Ukrainian operators and other
large international telecommunications providers doing business in the
Commonwealth of Independent States. Our competitors may have substantially
greater resources, closer ties to governmental authorities and longer operating
histories. These advantages may give them a competitive edge over alternative
providers like us. This competition may result in a loss of customers, falling
prices and a decline in revenues.

We compete with large established national carriers, some of which are
powerful companies with political connections, as well as joint ventures of
large international operators doing business in Russia and Ukraine. Such
ventures include Equant and Combelga in Russia and Ukrtelecom and Utel in
Ukraine. Other competitors are alliances among telecommunications companies,
companies that own equipment and networks, companies that purchase and resell
the services of other carriers, Internet service providers and other providers
of bundled services. We may also face increasing competition from wireless
telephone companies and satellite companies. Many of these competitors,
including the Russian incumbent operators, have established customer bases and
extensive brand name recognition and possess greater financial, management and
other resources. Our results of operation would suffer if we are unable to keep
up with the increasing levels of competition in the countries in which we
operate.

47

OUR RELATIONSHIPS WITH OUR JOINT VENTURE PARTNERS LIMIT OUR INDEPENDENCE AND OUR
FLEXIBILITY

We depend to a significant degree on local partners in our joint ventures
to provide us with interconnection with local networks, regulatory and marketing
expertise and familiarity with the local business environment. They also help to
facilitate the acquisition of necessary licenses and permits. As a result, any
significant disruption in our relationship with these parties could make it more
difficult for us to expand our operations and to maintain our existing services.
As we expand further into regions of Russia outside of Moscow, we will have to
rely more on local partners, thereby increasing our reliance on local partners
in these regions and decreasing management control from our head office.

Under the terms of some of our joint venture agreements, we have the right
to nominate key employees, direct operations and determine strategies for these
joint ventures. However, our partners in some ventures have the ability to
frustrate our exercise of these rights. Significant corporate decisions by most
ventures, such as approving budgets and business plans, declaring and paying
dividends, and entering into substantial transactions, effectively require the
consent of our local partners. Moreover, we would prefer not to take significant
actions without the consent and support of our partners. Accordingly, we do not
have unilateral control over the operations of our joint ventures.

In addition, until recently Ukrainian legislation restricted the level of
foreign ownership in the telecommunications industry. These regulations, if
revived, may restrict our ability to increase our holdings in ventures and
increase our reliance on local partners who may lack significant financial
resources and may be unable to meet capital calls at the level of their
ownership interests.

OUR PARTNERS ARE OFTEN ALSO OUR COMPETITORS

Notwithstanding our agreements with our joint venture partners, they
sometimes compete directly with our joint ventures. Competition with our joint
venture partners in the same markets may create conflicts of interest and may
result in a loss of customers. For example, our shareholder, Rostelecom, is the
dominant international and domestic long distance carrier in Russia. Similarly,
most of our regional partners across Russia offer local and long distance
services in competition with our local joint ventures and TeleRoss.

We recently purchased the remaining 50% ownership interest of Sovintel from
Rostelecom, the national long distance carrier. As a result of this transaction,
we are now directly competing with Rostelecom, a powerful, formerly state-owned
enterprise that had previously been our partner in Sovintel. In some
circumstances, we have to rely on this partner-turned-competitor to gain access
from our networks to customer sites along the so-called "last mile". It is
possible that this competitor will attempt to create adverse operating
conditions for our business leading to a worsening of our operating results.

OUR TARGETED CUSTOMERS MAY NOT SELECT A PRIVATELY OWNED, FOREIGN ENTITY FOR
THEIR COMMUNICATIONS NEEDS

Before 1991, the telecommunications industry in the countries where we
operate was wholly owned and controlled by the state. After 1991, private
companies, including foreign companies, entered these markets as
telecommunications service providers. Many potential customers may be unwilling
to entrust their communications systems to non-state-controlled companies, and,
in particular, to foreign companies. Furthermore, state entities that require
the types of services that we offer may refuse to select a service provider that
is registered in other jurisdictions. Because we are a foreign company, some of
our targeted customers may decide not to utilize our telecommunications
offerings.

48

THE SATELLITES WE USE TO TRANSMIT LONG DISTANCE SIGNALS MAY MALFUNCTION

Our domestic long distance business throughout Russia and other countries
of the Commonwealth of Independent States relies on satellites to receive and
transmit caller signals. Satellites are subject to significant risks that may
prevent or impair proper commercial operation, including satellite defects, loss
of power, loss of orbit, or damage from passing objects. The operation of the
satellites that we use to transmit caller signals is beyond our control, and,
although we have backup capacity on other satellites, a disruption of
transmission on these satellites could adversely affect our domestic long
distance operations.

WE MAY BECOME VICTIMS OF "HACKING" INTO OUR COMPUTER NETWORKS

Our ability to operate our business depends on our ability to protect the
computer systems on which we operate from the intrusion of "hackers" who may
attempt to enter our computer networks through the Internet. Hackers regularly
attempt to gain access to our computer systems and we cannot be sure that we
will be able to protect our computer systems from such attacks. Further, if such
hacking occurs, some of the problems we may encounter include theft or
destruction of our data, including commercial, financial and product
information. Further, disgruntled employees may cause similar damage to, or take
similar actions with respect to our company computer networks to which they have
access or to which they gain unauthorized access. If customers do not think that
their confidential information is secure, they may discontinue using our
services and our business would suffer.

WE MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL NECESSARY TO IMPLEMENT OUR BUSINESS
STRATEGY

We may need additional capital to maintain and expand our networks. Our
ability to raise additional funding to pursue our strategies depends on our
access to capital markets. At the present time, we feel that our current cash
reserves and cash flows from operations should be sufficient to finance our
capital requirements for the next 12 to 18 months. However, market conditions
and other factors, especially large transactions, or numerous acquisitions, may
cause us to seek additional financing sooner. Significant elements of our
business strategy that may require substantial capital expenditures include the
following:

o the construction or the acquisition of fiber optic links between heavy
traffic routes;

o expanding our existing network infrastructure to other parts of
Russia, Ukraine and other countries of the Commonwealth of Independent
States;

o developing additional Internet capability and acquiring other Internet
service providers; and

o pursuing consolidation opportunities through acquisitions.

In addition, we will need to maintain our existing infrastructure. The
costs for expanding and maintaining our infrastructure may exceed projected
costs and result in unforeseen deficits.

The current slump in the worldwide telecommunications sector has diminished
the ability of telecommunication companies to borrow money from banks and other
lenders. Should it be necessary for us to borrow money, we may find it difficult
to borrow or that the cost of borrowing is prohibitively expensive due to the
perceived risk in the sector as a whole.

49

If we fail to generate sufficient funds from a combination of operating
cash flow and additional debt or equity financing, we may have to delay or
abandon our expansion plans or fall behind in our maintenance obligations. Any
of these events could have a material adverse effect on our operations.

DEBT RAISED TO CLOSE THE SOVINTEL TRANSACTION IS RESTRICTIVE

As part of the Sovintel transaction, we opened a loan facility with a
Russian subsidiary of a major international bank. To obtain the loan, we pledged
significant assets as security. Restrictive covenants in the loan facility limit
our flexibility to operate. Further, the heavy collateral package limits our
ability to borrow further. Should our business suffer and our cash flow
decrease, we may not be able to service the debt. This situation could lead to
the bank calling in the loan or taking action to extract value from any pledged
assets. If Russia suffers another banking crisis similar in nature to that
experienced after the August 1998 financial crisis, another moratorium on
repayment of loans could be implemented which could put our pledged assets at
risk of seizure by the bank for defaulting on loan payment.

OUR BILLING AND MANAGEMENT INFORMATION SYSTEMS MAY NOT BE ABLE TO MEET OUR NEEDS

We encounter difficulties in using and enhancing our billing and management
information systems and in integrating new technology into such systems. We have
historically operated through distinct companies, but we are in the process of
integrating our billing and management information systems so that we will be
able to bill our customers and to manage other administrative tasks through a
single system. If we are unable to integrate and upgrade our billing and
management information systems to support our integrated operations, we may not
be able to record accurate call details or bill our customers promptly and
accurately.

Additionally, any damage to our network management center or our major
switching centers could harm our ability to monitor and manage network
operations and generate accurate call detail reports from which we derive our
billing information.

In our operations outside Moscow, Kiev and St. Petersburg, we rely on our
ventures' switches to provide information necessary to generate invoices. We
cannot ensure that their systems will meet our needs or the needs of our
customers.

WE ARE EXPOSED TO RISKS OF BAD DEBT AND FRAUD

We have experienced problems relating to the failure of some customers to
make full payment for services rendered and to the fraudulent use of our access
codes to Internet and cellular services. Furthermore, it is difficult for us to
gauge the creditworthiness of most of our customers because there are no
reliable mechanisms for evaluating their financial condition and because
credible credit reports on Russian and Commonwealth of Independent States
companies and individuals are usually not available. We expect that the credit
risk of our customer base will increase as the share of our revenue derived from
small- to medium-sized enterprises and from service provider/reseller customers'
increases.

WE MAY BE UNABLE TO FULLY COMPLY WITH APPLICABLE LAWS DUE TO CONFUSION IN THE
LAWS AND LEGAL STRUCTURES OF THE COUNTRIES WHERE WE OPERATE

The application of the laws of any particular country is not always clear
or consistent. This is particularly so in Russia, Ukraine and the Commonwealth
of Independent States where the pace of legislative drafting has not always kept
pace with the

50

demands of the marketplace. These countries often have commercial practices and
legal and regulatory frameworks that differ significantly from practices in the
United States and other Western countries. As a result, it is often difficult to
hire qualified management and accounting staff who can ensure compliance with
changing legal requirements. If we or any of our ventures are found to be
involved in practices that do not comply with local laws or regulations, then we
may be exposed, among other things, to significant fines, the risk of
prosecution or the loss of our licenses.

In light of these circumstances, in the second half of 1996, we increased
our efforts to improve our management and financial controls and business
practices. In early 1997, we retained special outside counsel to conduct a
thorough review of our business practices in the emerging markets in which we
operate. In addition, in June 1999, our special counsel completed an update of
the 1997 review in Russia and Ukraine. In 2002, we hired an internal auditor to
review our internal controls and procedures. Neither the review nor the update
identified any violations of law that we believe would have a material adverse
effect on our financial condition. However, we cannot ensure that all potential
deficiencies have been properly identified or that governmental authorities will
not disagree with our assessment. If our control procedures and compliance
programs are not effective or the government authorities determine that we have
violated any law, depending on the penalties assessed and the timing of any
unfavorable resolution, our future results of operations and cash flows could be
materially adversely affected.

LOSS OF KEY PERSONNEL COULD AFFECT OUR GROWTH AND FUTURE SUCCESS

We believe that our growth and our future success will depend in large part
upon a small number of key executive officers, as well as on our ability to
attract and retain highly skilled personnel to work in Russia and other parts of
the Commonwealth of Independent States, including senior management and
technical personnel. The competition for qualified technical personnel who are
familiar with the telecommunications industry in the Commonwealth of Independent
States is intense, particularly outside the major urban centers. We cannot
assure you that we will be able to hire and retain qualified personnel.

ANY US AND OTHER WESTERN JUDGMENTS OBTAINED AGAINST US MAY NOT BE ENFORCEABLE IN
OTHER COUNTRIES

Substantially all of our assets are located in Russia and Ukraine. Although
arbitration awards are generally enforceable in Russia and Ukraine, judgments
obtained in the US or other Western courts, including those with respect to
federal securities law claims, may not be enforceable. Therefore, any US or
other Western court judgment obtained against us or any of our operating
companies may not be enforceable in Russia or Ukraine.

RISKS ASSOCIATED WITH OUR POSITION AS A RECENTLY ESTABLISHED COMPANY

ADDITIONAL FINANCING

We have a limited operating history as a stand-alone company. Prior to the
IPO, our working capital requirements were satisfied pursuant to the
corporate-wide cash management policies of our former parent, GTS. We do not
have any agreements with our major shareholders to provide financial assistance
and cash injections to us. We believe that our cash flows from operations will
be sufficient to finance our capital requirements for the next 12 to 18 months.
Should market conditions change or we decide to make especially large or
numerous acquisitions, we may need to seek additional financing and we cannot
ensure that we will be able to obtain financing on favorable terms. In this
case, our cost of capital would be higher than that reflected in our historical
financial statements. In addition, we may need to issue additional equity. Any
additional sales of our equity interests

51

could dilute existing shareholders and any new debt instruments may add further
restrictive covenants, interest and other obligations.

WE HAVE INCURRED NET LOSSES

If considered as a stand-along entity, we have incurred net losses for the
past five years prior to fiscal year 2002. We do not expect to incur net losses
in the future, however, as we spend substantial resources on expanding our
network, maintaining our existing network, participating in the consolidation of
the communications industry in Russia and other countries of the Commonwealth of
Independent States, and marketing, we cannot assure you that we will sustain
profitability.

WE HAVE NOT IDENTIFIED SPECIFIC USES OF OUR CASH RESOURCES

We intend to use the funds we have now for potential acquisitions and
business development, network expansion, working capital and general corporate
purposes. We may, when an appropriate opportunity arises, use a portion, or all,
of the funds to acquire or invest in businesses, products or new technologies.
Our management's failure to apply these funds effectively could cause our
business to suffer.

RISKS ASSOCIATED WITH OUR SHAREHOLDING STRUCTURE

OUR SIGNIFICANT SHAREHOLDERS HAVE ENTERED INTO A SHAREHOLDERS AGREEMENT WHEREBY
THESE SHAREHOLDERS EXERCISE EFFECTIVE CONTROL OVER OUR BOARD OF DIRECTORS

In September 2002, the company purchased the remaining 50% ownership
interest in Sovintel from Rostelecom. As part of this transaction, Rostelecom
received 15% of the company's issued and outstanding shares. In September 2002,
our major shareholders entered a Shareholders' Agreement. In accordance with the
terms of the Shareholders Agreement, Alfa Telecom Limited ("Alfa"), Rostelecom,
Capital International Global Emerging Markets Private Equity Fund, L.P.
("Capital"), Cavendish Nominees Limited ("Cavendish") and First NIS Regional
Fund SICAV (together with Cavendish, "Barings") are able to exercise effective
control over the company's Board of Directors. The Shareholders' Agreement
provides that three directors to the Board will be designated by Alfa, one
director will be designated by Capital, one director will be nominated by
Barings, two directors would be nominated by Rostelecom, one of whom must be
independent as defined by NASDAQ, and two directors will be designated by the
Board of Directors. Alfa, Rostelecom, Capital and Barings together appoint seven
of the directors on the company's nine member Board of Directors. These
relationships create the potential for conflicts of interest. Although the
Shareholders Agreements and other agreements among the shareholders reduce the
chance for conflicts of interest, we cannot assure that any conflicts of
interest will be resolved in our favor. Further, we cannot assure you that any
group of directors will not take any actions that may adversely affect the
interests of minority shareholders.

OUR SIGNIFICANT SHAREHOLDERS HAVE OTHER INTERESTS WHICH MAY CONFLICT WITH THE
COMPANY'S INTERESTS

Two of our significant shareholders, Alfa and Rostelecom, have ownership
interests in, or are affiliated with, companies that directly compete with our
companies. Although we structure transactions so that they are at "arm's
length", we cannot assure you that these shareholders shall not apply pressure
on the company at the Board of Director level to enter transactions which may
not be the most commercially favorable to the company.

52

THE CURRENT GOVERNMENT'S WELL-PUBLICIZED CAMPAIGN AGAINST RUSSIA'S SO-CALLED
"OLIGARCHS" COULD HAVE ADVERSE EFFECTS ON OUR COMPANY

It has been widely reported in Russian and foreign media that the Russian
government is exerting pressure on the so-called "oligarchs" to cause them to
divest their commercial interests in certain economic areas of activity. The
media has reported also that the government has exerted significant influence on
companies owned or controlled by the oligarchs through tax inspections,
management changes, threats of and actual prosecution of management and key
officials, and other means. Real and perceived pressure on the oligarchs and
their businesses has seriously affected the economic activities of these
enterprises and their management.

If the current or future governments in Russia were to apply significant
pressure on Alfa Telecom and its affiliated companies, it could have serious
adverse effects on the operations and financial results of our company. Such
effects could include, but would not be limited to, the inability of the Board
of Directors to act independently from external pressure and the distraction of
management from the day-to-day operations of the company.

RISKS ASSOCIATED WITH OUR SHARES OF COMMON STOCK

OUR ABILITY TO PAY DIVIDENDS ON OUR COMMON STOCK MAY BE LIMITED

The Board of Directors reviews the Company's policy on dividends annually.
Although the Company had significant cash flows for 2002, the Board of Directors
decided not to declare and pay a dividend for 2002. We expect to generate
significant cash flows again in 2003 and our board of directors may again elect
to retain earnings for the future development of the Company or for other
reasons. If we raise any capital in the future, we may be restricted from paying
dividends under the terms of such financings. In addition, the governments in
the countries where we operate may further devalue their currencies and take
other actions that may restrict the ability of our subsidiaries to declare and
pay dividends to our shareholders. Thus we cannot assure our shareholders that
the Company will declare and pay dividends.

OUR SHARE PRICE HAS BEEN AND MAY CONTINUE TO BE HIGHLY VOLATILE

The price of our shares has been subject to significant volatility since
our initial public offering. In addition, a number of particular factors may
adversely affect the market price of our shares or cause the market price to
fluctuate and decline materially. These factors include:

o issues concerning the perceived risks of investing in Russia and the
CIS, including significant ownership of our shares by a company that
is part of a large Russia-based financial and industrial concern;

o the limited number of our shares available for trading in public
markets;

o the potential sale of any large blocks of our shares by our management
or large shareholders;

o mergers and strategic alliances in the telecommunications industry;
and

o inconsistent or restrictive government regulation in the Russian and
Ukrainian telecommunications industries.

53

In recent years, the market for stock in technology, telecommunications and
computer companies has been highly volatile. This is particularly true for
companies with relatively small capitalization, such as ours.

ITEM 2. PROPERTIES

We possess the right to occupy and utilize three floors, 3,900 square
meters, of a building in Moscow which serves as the principal office for
TeleRoss and Sovintel and which houses our representative office. The right to
occupy and utilize this space is through a ten-year lease. We believe that our
facilities are adequate for our current needs. This lease expires in July 2012.

We possess the right to occupy and utilize six floors of a building in
eastern Moscow, which serve as an office for the Data and Internet Services
division of TeleRoss. The right to occupy and utilize the space is through a
fifty-five year lease, which expires in 2050.

Golden Telecom (Ukraine) occupies office and technical premises located in
Kiev under long-term leases which expire in 2006. Additionally they lease a
dealer-center and shop premises. Golden Telecom (Ukraine) also occupies an
office and technical premises in Odessa under a lease which expires in 2003.

We lease various buildings and space in buildings throughout the
Commonwealth of Independent States that we use for our offices. Beside these
office spaces, our principal facilities consist of telecommunications
installations, including switches of various sizes, cables and VSAT and other
transmission devices located throughout the Commonwealth of Independent States.

ITEM 3. LEGAL PROCEEDINGS

During the past year, Golden Telecom (Ukraine) ("GTU") was involved in a
number of commercial disputes with Ukrtelecom and Ukrainian regulatory
authorities. The most significant disputes include routing of traffic and GTU's
lease rights of Ukrtelecom's technical premises. At the end of the fourth
quarter of 2002, most of these issues with Ukrtelecom were resolved. We continue
to work with Ukrtelecom to resolve the remaining outstanding issues.

On March 1, 2002 we became aware that the Kiev City Prosecutor's Office had
initiated an investigation into the activities of our former partners in GTU.
The investigation appeared to concern alleged improprieties in the manner in
which GTU routed certain traffic through the state owned monopoly carrier,
Ukrtelecom. GTU received a letter dated July 17, 2002 from the General
Prosecutor of Ukraine stating that effective July 9, 2002 the Prosecutor's
Office withdrew all charges against GTU due to the absence of grounds on which
to prosecute. On October 7, 2002, the Kiev City Prosecutor's Office notified GTU
that the previous decision to close the investigation had been revoked. In
subsequent discussions with the Kiev City Prosecutor's Office, the investigators
advised the management of GTU that the Prosecutor's Office is reviewing internal
procedural requirements with the intent to close the investigation again.

We are currently involved in litigation with the Russian Ministry of
Property Relations, which claims that our lease on our office which houses
TeleRoss' Data and Internet Services division is invalid. We believe that the
litigation will be resolved in our favor.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None

54

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock has traded on the Nasdaq National Market since September
30, 1999 under the symbol "GLDN". The following table sets forth, for the
periods indicated, the high and low closing prices per share for our common
stock, as reported on the Nasdaq National Market. We have not paid any cash
dividends on our common stock. The Board of Directors reviews the Company's
policy on dividends annually. Although the Company had significant cash flows
for 2002, the Board of Directors did not declare and pay a dividend for 2002.
Although we expect strong cash flows in 2003, we cannot assure you that the
Company will pay dividends in 2003 or the foreseeable future.

As of March 21, 2003, there were approximately 17 holders of record of our
common stock.

Equity Compensation Plan Information

The following table provides information on securities that were authorized
for issuance under The 1999 GTI Equity Participation Plan as of December 31,
2002:

55

ITEM 6. SELECTED FINANCIAL DATA

The following selected historical consolidated financial data at December
31, 1998, 1999, 2000, 2001 and 2002, and for all of the years presented are
derived from consolidated financial statements of Golden Telecom, Inc. which
have been audited by Ernst & Young (CIS) Limited, independent auditors.

The data should be read in conjunction with the consolidated financial
statements, related notes, and other financial information included in this
document.

- ----------

(1) Per share amounts in this table were calculated based upon the assumption
that the 10,600,000 common shares issued in connection with the formation
of the Company are outstanding for all periods prior to September 30, 1999.

Refer to Note 3 to the Consolidated Financial Statements for descriptions
of recent acquisitions that impact the comparability of financial information.
Other business combinations not disclosed in the footnotes were as follows:

In February 1998, the Company acquired the remaining interest in Sovam
Teleport for cash consideration of $5.0 million. In July 1998, the Company
acquired the remaining interest in GTS Vox Ltd., the holding company for TCM,
for cash consideration of $37.0 million. In June 1998, the Company increased its
beneficial interest in Golden Telecom (Ukraine) to 56.75% for cash consideration
of approximately $9.8 million. The Company began consolidating Sovam in February
1998 and TCM and Golden Telecom (Ukraine) in July 1998.

In August 1999, the Company increased its beneficial ownership in TCM from
95% to 100%. Goodwill in the amount of $3.2 million was recorded by the Company.

An affiliate of ING Barings which indirectly owned 12.25% of Golden Telecom
(Ukraine), contributed its indirect interest in Golden Telecom (Ukraine) to a
wholly owned subsidiary of Golden Telecom, Inc., upon the consummation of the
offering on September 30, 1999 in exchange for 420,000 newly issued shares of
common stock of the Company. In accordance with the subscription agreement filed
with the SEC at the time of the Initial Public Offering, an additional 30,000
shares of common stock in the Company were issued in full and final settlement
to the affiliate of ING Barings. Our beneficial interest in Golden Telecom
(Ukraine) increased from 56.75% to 69% as the result of this transaction.

In June 1999, the Company acquired the assets of Glasnet, a Moscow based
Internet Services Provider ("ISP"). In July 1999, the Company acquired a 75%
interest in SA Telcom LLP, a telecommunications and data services provider in
Kazakhstan. In December 1999, the company acquired the assets of Nevalink, an
ISP, and of full-equity ownership of NevaTelecom. Both Nevalink and NevaTelecom
provide telecom and Internet services to the St. Petersburg market. These
acquisitions were purchased for approximately $2.5 million in cash.

Refer to Note 2 to the Consolidated Financial Statements for a description
of the change in method of accounting for goodwill in 2002.

57

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis relates to our financial condition and
results of operations of the Company for each of the years ended December 31,
2002, 2001 and 2000. This discussion should be read in conjunction with the
"Selected Historical Consolidated Financial Data" and the Company's Consolidated
Financial Statements and the notes related thereto appearing elsewhere in this
Report.

OVERVIEW

We are a leading facilities-based provider of integrated telecommunications
and Internet services to businesses and other high-usage customers and
telecommunications operators in Moscow, Kiev, St. Petersburg, Nizhny Novgorod
and other major population centers throughout Russia and other countries of the
Commonwealth of Independent States ("CIS"). We organize our operations into the
four business groups, as follows:

o Competitive Local Exchange Carrier ("CLEC") Services. Using our local
access overlay networks in Moscow, Kiev, St. Petersburg and Nizhny
Novgorod, we provide a range of services including local exchange and
access services, international and domestic long distance services,
data communications, Internet access and the design of corporate
networks;

o Data and Internet Services. Using our fiber optic and satellite-based
networks, including 149 combined points of presence in Russia, Ukraine
and other countries of the Commonwealth of Independent States, we
provide data and Internet services including: (a) Business to Business
services, such as data communications, dedicated Internet access, web
design, web hosting, co-location and data-warehousing: and (b)
Business to Consumer services, such as dial-up Internet access and web
content offered through a family of Internet portals;

o Long Distance Services. Using our fiber optic and satellite-based
network, we provide long distance voice services in Russia; and

o Mobile Services. Using our mobile networks in Kiev and Odessa,
Ukraine, we provide mobile services with value-added features, such as
voicemail, roaming and messaging services on a subscription and
prepaid basis.

We offer all of our integrated telecommunication services under the Golden
Telecom brand and our Internet services under the ROL brand in Russia.

Additionally, we hold a minority interest in MCT Corp. ("MCT"), which in
turn has ownership interests in 18 mobile operations located throughout Russia
and in Uzbekistan and Tajikistan. We treat our ownership interest in MCT as an
equity method investment and are not actively involved in the day-to-day
management of the operations.

In July 2002, we merged the existing operations of Agentstvo Delovoi Svyazi
("ADS"), Commercial Information Network ("KIS") and TeleRoss Nizhny Novgorod to
create the leading corporate telecommunications provider in Russia's third
largest city, Nizhny Novgorod. This market is significantly less developed than
the Moscow market and we anticipate significant growth next year from this
entity. We previously owned 51% of ADS, 56% of KIS and 95% of TeleRoss Nizhny
Novgorod. As a result of the merger, we currently own 58% of the merged
operations.

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Most of our revenue is derived from high-volume business customers and
carriers. Our business customers include large multi-national companies, local
enterprises, financial institutions, hotels and government agencies. We believe
that the carriers, including mobile operators, which contribute a substantial
portion of our revenues, in turn derive a portion of their business from
high-volume business customers. Thus, we believe that the majority of our
ultimate end-users are businesses that require access to highly reliable and
advanced telecommunications facilities to sustain their operations.

We have traditionally competed for customers on the basis of network
quality, customer service and range of service offered. In the past several
years, other telecommunications operators have also introduced high-quality
services to the segments of the business market in which we operate. Competition
with these operators is intense, and frequently results in declining prices for
some of our services, which adversely affect our revenues. In addition, some of
our competitors do not link their prices to the dollar/ruble exchange rate, so
when the ruble devalues, their prices effectively become relatively cheaper than
our prices. The ruble exchange rate with the dollar has become relatively stable
since early 2000 and price pressures associated with devaluation have eased
considerably. We cannot be certain that the exchange rate will remain stable in
the future and therefore we may experience additional price pressures.

Since early 2000, we have witnessed a recovery in the Russian market, but
with downward pricing pressures persisting. The downward pricing pressures
result from increased competition in Russia and the global trend toward lower
telecommunications tariffs. In 2001 and 2002 our traffic volume increases
exceeded the reduction in tariffs on certain types of voice traffic. This is a
contributory factor to the increases in our revenue in 2001 and 2002. We expect
that this trend of year over year increases in traffic volume will continue as
long as the Russian economy continues to develop at its current pace.

Although we expect competition to continue to force the general level of
tariffs downward, we expect to mitigate partially the effects of this pressure
by seeking, where possible, further reductions in the settlement and
interconnection rates that we pay to other telecommunications operators. In
general, over time we expect settlement and interconnection rates to continue to
decline broadly in line with tariffs.

In order to handle additional traffic volumes, we have expanded and will
continue to expand our fiber optic capacity along our heavy traffic and high
cost routes to mitigate declines in traffic margins, reduce our unit
transmission costs and ensure sufficient capacity to meet the growing demand for
data and Internet services. As part of this strategy, we have acquired the
rights to use STM-16 fiber optic capacity on a Moscow to Stockholm route,
significantly reducing our unit cost per E-1 fiber optic link on this route. In
September 2001, we acquired rights to use up to VC-3 fiber optic capacity on
major routes within Russia to support the increase in our interregional traffic
and our regional expansion strategy. We expect to continue to add additional
transmission capacity, which due to its fixed cost nature can initially depress
margins, but will ultimately allow us to improve or maintain our margins.

During 2001, our mobile operations in Ukraine were under strong competitive
pressure and average revenue per subscriber declined. In the fourth quarter of
2001 we reassessed our plans for this business and as a result we recorded an
impairment charge of $10.4 million. In line with our expectations revenues have
generally continued to decline, although, at the same time, we have commenced
the implementation of a cost reduction program. We currently are working towards
refocusing our mobile operations as an additional service offered by business
services operations to corporate clients. Further significant declines are not
expected through the end of 2003.

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In Kiev, Ukraine we continue to experience issues relating to obtaining
sufficient numbering capacity for our business services operations. In this
regard, we are continuing negotiations with Ukrtelecom, the state-owned
operator, for performance of obligations related to the provision of numbering
capacity and entered into an agreement for additional numbering capacity in the
third quarter of 2002. Our ability to grow our business services operations in
Kiev will be limited if we do not have access to numbering capacity.

During the past year, Golden Telecom (Ukraine) ("GTU") was involved in a
number of commercial disputes with Ukrtelecom and Ukrainian regulatory
authorities. The most significant disputes include routing of traffic and GTU's
lease rights of Ukrtelecom's technical premises. At the end of the fourth
quarter of 2002, most of these issues with Ukrtelecom were resolved. We continue
to work with Ukrtelecom to resolve the remaining outstanding issues.

We reassessed and suspended our incoming international traffic off-network
termination activities, pending the resolution of certain regulatory issues and
as a result we estimate a reduction of approximately $1.6 million in revenue in
the fourth quarter of 2001 and approximately $6.4 million in revenue for the
year ended December 31, 2002. On March 1, 2002 we became aware that the Kiev
City Prosecutor's Office had initiated an investigation into the activities of
our partners in GTU. The investigation appeared to concern alleged improprieties
in the manner in which GTU routed certain traffic through the state owned
monopoly carrier, Ukrtelecom. GTU received a letter dated July 17, 2002 from the
General Prosecutor of Ukraine stating that effective July 9, 2002 the
Prosecutor's Office withdrew all charges against GTU due to the absence of
grounds on which to prosecute. On October 7, 2002, the Kiev City Prosecutor's
Office notified GTU that the previous decision to close the investigation had
been revoked. In subsequent discussions with the Kiev City Prosecutor's Office,
the investigators advised the management of GTU that the Prosecutor's Office is
reviewing internal procedural requirements with the intent to close the
investigation again.

In February 2003, the Ukrainian Parliament overrode the President's veto and
adopted changes to existing regulations relating to mobile telecommunication
services in Ukraine. The new regulations stipulate the cancellation of
end-customer charges for incoming calls. These changes will come into force in
six-months time, unless superseded by a new Law on Communications or over-ruled
by a Constitutional Court decision. Because we expect that interconnect tariffs
for calls from the PSTN to mobile networks to be lower than current tariffs that
mobile operators charge customers for incoming calls, it is expected that mobile
operators will have to increase tariffs for outgoing calls and/or set higher
monthly fees to compensate for the expected decrease in revenue.

In addition to our traditional voice and data service provision, prior to
2002, we were actively pursuing a strategy of developing non-traditional telecom
service offerings including those related to the Internet, such as web-hosting,
web design, and vertical and horizontal Internet portal development. In line
with experience outside of Russia, we did not see the rapid development of
Internet based services that were expected. Internet based advertising and
e-commerce revenues did not develop to significant levels and we reviewed our
long term strategy for Internet based products. As a result of this review, we
evaluated the future cash flows for this business, and we recorded an impairment
charge of $20.9 million in the fourth quarter of 2001. We expect to see some
growth in Internet based advertising and will continue to offer this service to
support our dial-up Internet service and be in a position to capitalize on any
upturn in demand for this service.

We have seen a significant year over year increase in our dial-up Internet
subscriber numbers and we expect the increase to continue, as our base of
regional subscribers expands. As additional dial-up capacity becomes available
in Moscow, we expect to increase our market share in the capital as well. In
June 2001 we completed the purchase of a leading Russian internet service
provider, Cityline, together with Uralrelcom, another internet service provider
and an infrastructure company, PTK, and together, these entities allowed us to
increase our regional dial-up Internet presence and increase our numbering
capacity and access lines in Moscow. The new Moscow capacity was initially
placed into service in July 2002. The Moscow numbering capacity and some of the
access lines provided by PTK are intended to support incremental CLEC Services
division end-user customers, with the majority of the access lines being
allocated to support planned increases in dial-up Internet subscribers in our
data and Internet Services division.

We have continued to integrate our acquisitions and improve operational
efficiency while at the same time controlling costs. We expect to incur further
costs in connection with overall restructuring of our operations in 2003.

60

Our equity investee, MCT, is in default on a loan note that originally
became due on September 29, 2001. In December 2001, MCT signed a forbearance
agreement whereby the holder of the note agreed to forbear from selling the note
or exercising its rights under the original debt agreements and to extend the
terms of repayment until January 31, 2002. MCT did not make payment on the note
prior to January 31, 2002 and during April 2002 the holder of the loan note
foreclosed on the collateral related to the note and subsequently sold it to a
third-party, resulting in a substantial loss to MCT. We recorded a write-off of
an amount corresponding to our equity in MCT's losses during the second quarter
of 2002. The write-off did not exceed the carrying value of our investment in
MCT. Total equity in losses recognized by us related to our MCT investment were
$3.9 million and $5.1 million for the years ended December 31, 2001 and 2002,
respectively. We have no further commitments to provide financial support to
MCT.

RECENT ACQUISITIONS

In August 2002, we completed the purchase of the remaining approximately 31%
of GTU and now own 100% of GTU and have full operational and management control
over the Ukrainian operations.

In September 2002, we completed the purchase of the remaining 50% of EDN
Sovintel LLC ("Sovintel") previously held by Open Joint Stock Company
Rostelecom, bringing our ownership in Sovintel to 100%. The acquisition of the
remaining 50% of Sovintel will further strengthen our position in the key Moscow
and St. Petersburg communications markets, position us to realize future
operating and cost synergies, and allow us to offer a full suite of
telecommunication services across broad geographical markets in Russia and the
CIS. Sovintel provides worldwide communications services, principally to major
hotels, business offices and mobile communication companies through its
telecommunications network in Russia.

CRITICAL ACCOUNTING POLICIES

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

Revenue recognition policies; we recognize operating revenues as services
are rendered or as products are delivered to customers. Certain revenues, such
as connection fees, are deferred in accordance with Staff Accounting Bulletin
("SAB") No. 101. In connection with recording revenue, estimates and assumptions
are required in determining the expected conversion of the revenue streams to
cash collected. In line with guidance in SAB No. 101, we also defer direct
incremental costs related to connection fees, not exceeding the revenue
deferred. Deferred revenues are subsequently recognized over the estimated
average customer lives, which are periodically reassessed by us, and such
reassessment may impact our future operating results.

Allowance for doubtful accounts policies; the allowance estimation process
requires management to make assumptions based on historical results, future
expectations, the economic and competitive environment, changes in the
creditworthiness of our

61

customers, and other relevant factors. Changes in the underlying assumptions may
have a significant impact on the results of our operations. In particular, we
have certain amounts due to and from subsidiaries of KPNQwest who are currently
subject to bankruptcy proceedings. The ultimate resolution of this matter will
be affected by a number of factors including the determination of legal
obligations of each party, the course of the bankruptcy proceedings, and the
enforceability of any determinations. We have recognized provisions based on our
preliminary estimate of net exposure in the resolution of these receivables and
payables. If our assessment proves to be incorrect we may have to recognize an
additional provision of up to $1.6 million, net of tax, although management
believes that the possibility of such an adverse outcome is remote.

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

Goodwill and assessment of impairment; Commencing from the adoption of SFAS
No. 142, "Goodwill and Other Intangible Assets", on January 1, 2002, we will
perform a goodwill impairment testing annually or whenever impairment indicators
exist. This test requires a significant degree of judgment about the future
events and it includes determination of the reporting units, allocation of
goodwill to the reporting units and comparison of the fair value with the
carrying amount of each reporting unit. Based on the discounted cash flow
valuations performed in 2002, we concluded that for all reporting units the fair
value is in excess of the respective carrying amounts.

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

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 141, "Business
Combinations", and No. 142, "Goodwill and Other Intangible Assets", effective
for fiscal years beginning after December 15, 2001. Under the new rules,
goodwill and intangible assets deemed to have indefinite lives are no longer
amortized but are subject to annual impairment tests in accordance with SFAS No.
142. Other intangible assets continue to be amortized over their useful lives.
Impairment losses that arise due to the initial application of this standard are
reported as a cumulative effect of a change in accounting principle. We adopted
SFAS No. 141, "Business Combinations" which was effective for business
combinations consummated after June 30, 2001. We adopted SFAS No. 142, "Goodwill
and Other Intangible Assets" on January 1, 2002 and discontinued amortization of
goodwill as of such date.

We completed the transitional impairment test for existing goodwill as of
January 1, 2002 during the second quarter of 2002. Based on comparison of the
carrying amounts of our reporting units with their fair values, it was
determined that no goodwill was impaired as of that date. Fair values of the
reporting units were established using the discounted cash flow method.

Upon the adoption of SFAS No. 142, we recorded a cumulative effect of a
change in accounting principle for negative goodwill (deferred credit) arising
on our equity method investments in the amount of $1.0 million. The impact of
non-amortization of goodwill on our net income for the twelve months ended
December 31, 2002 was an approximate $15.0 million

62

increase, or $0.62 per share of common stock - basic. We also reclassified to
other intangible assets approximately $1.3 million previously classified as
goodwill. Amortization expense for goodwill for the twelve months ended December
31, 2001 was $13.8 million.

Amortization expense for intangible assets for the twelve months ended
December 31, 2002 was $6.4 million. Amortization expense for the succeeding five
years is expected to be as follows: 2003 - $10.2 million, 2004 - $9.2 million,
2005 - $8.2 million, 2006 - $7.3 million, and 2007 - $6.4 million. The pro forma
impact on net loss and net loss per share for the twelve months ended December
31, 2001 compared to actual results for the twelve months ended December 31,
2002 is as follows:

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement deals with the costs of closing
facilities and removing assets. SFAS No. 143 requires entities to record the
fair value of a legal liability for an asset retirement obligation in the period
it is incurred. This cost is initially capitalized and amortized over the
remaining life of the asset. Once the obligation is ultimately settled, any
difference between the final cost and the recorded liability is recognized as a
gain or loss on disposition. SFAS No. 143 is effective for years beginning after
June 15, 2002. The adoption of SFAS No. 143 will not have an impact on the
Company's consolidated financial position or results of operations.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,"
for the disposal of a segment of a business (as previously defined in that
opinion). This statement also amends Accounting Research Bulletin No. 51,
"Consolidated Financial Statements", to eliminate the exception to consolidation
for a

63

subsidiary for which control is likely to be temporary. The provisions of the
statement became effective for financial statements issued for fiscal years
beginning after December 15, 2001. We adopted this new standard from January 1,
2002. The adoption of the pronouncement did not have an effect on our results of
operations or financial position.

During the year ended December 31, 2002, the FASB issued several new
accounting standards including, SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections",
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities". In November 2002 the FASB also issued Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". These standards are not expected
to have a material impact on the financial position or results of operations.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. This statement nullifies Emerging Issues Task Force No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring),"
which required that a liability for an exit cost be recognized upon the entity's
commitment to an exit plan. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The adoption of the
provisions of SFAS No. 146 is not expected to have a material impact on our
results of operations, financial position or cash flow.

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that upon
issuance of a guarantee, the guarantor must recognize a liability for the fair
value of the obligation it assumes under that guarantee. The disclosure
provisions of FIN 45 are effective for financial statements of annual periods
that end after December 15, 2002. The provisions for initial recognition and
measurement are effective on a prospective basis for guarantees that are issued
or modified after December 31, 2002.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," which amends SFAS No. 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition to SFAS No. 123's fair value method of accounting for stock-based
employee compensation. SFAS No. 148 also amends the disclosure provisions of
SFAS No. 123 and APB No. 28, "Interim Financial Reporting", to require
disclosure in the summary of significant accounting policies of the effects of
an entity's accounting policy with respect to stock-based employee compensation
on reported net income and earrings per share in annual and interim financial
statements. While the Statement does not amend SFAS No. 123 to require companies
to account for employee stock options using the fair value method, the
disclosure provisions of SFAS No. 148 are applicable to all companies with
stock-based employee compensation, regardless of whether they account for that
compensation using the fair value method of SFAS No. 123 or the intrinsic value
method of APB No. 25. SFAS No. 148 disclosure provisions are effective for years
ending after December 15, 2002. We have adopted the amendments to SFAS No. 123
disclosure provisions required under SFAS No. 148 but we will continue to use
the intrinsic value method under APB No. 25 to account for stock-based
compensation. As such, the adoption of SFAS No. 148 will not have a significant
impact on our consolidated financial position or results of operations.

We apply the provisions of APB No. 25 in accounting for our stock options
incentive plans. The effect of applying SFAS No. 123 on the net income (loss) as
reported is not representative of the effects on reported net income (loss) in
future years due to the vesting period of the stock options and the fair value
of additional stock options in future years.

Consolidation of Variable Interest Entities

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities". FIN No. 46 defines the concept of "variable interests" and
requires existing unconsolidated variable interest entities to be consolidated
into the financial statements of their primary beneficiaries if the variable
interest entities do not effectively disperse risks among the parties involved.
FIN No. 46 applies immediately to variable interest entities created after
January 31, 2003. It applies in the first fiscal year or interim period
beginning after June 15, 2003, to variable interest entities in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
If it is reasonably possible that an enterprise will consolidate or disclose
information about a variable interest entity when FIN No. 46 becomes effective,
the enterprise must disclose information about those entities in all financial
statements issued after January 31, 2003. The interpretation may be applied
prospectively with a cumulative-effect adjustment as of the date on which it is
first applied or by restating previously issued financial statements for one or
more years, with a cumulative-effect adjustment as of the beginning of the first
year restated. We do not expect that the adoption of the provisions of FIN No.
46 will have a material impact on our future results of operations, financial
position or cash flow.

64

RESULTS OF OPERATIONS

GTI is a leading facilities-based provider of integrated telecommunications
and Internet services to businesses and other high-usage customers and
telecommunications operators in Moscow, Kiev, St. Petersburg, Nizhny Novgorod
and other major population centers throughout Russia and other countries of the
Commonwealth of Independent States. The results of our four business groups from
the operations of both our consolidated entities combined with the
non-consolidated entities where we are actively involved in the day-to-day
management, are shown in footnote 13 "Segment Information - Line of Business
Data" to our consolidated financial statements.

Our functional currency is the US dollar, as the majority of our cash flows
are indexed to, or denominated in US dollars. Through December 31, 2002, Russia
has been considered to be a highly inflationary environment. From January 1,
2003, Russia will cease to be considered as a highly inflationary economy. As
we currently believe our functional currency is the US dollar, we do not expect
this change to have a material impact on our results of operations or financial
position.

The discussion of our results of operations is organized as follows:

o Consolidated Results. Consolidated Results of Operations for the Year
Ended December 31, 2002 compared to the Consolidated Results of
Operations for the Year Ended December 31, 2001.

o Consolidated Financial Position. Consolidated Financial Position at
December 31, 2002 compared to Consolidated Significant Financial
Position accounts at December 31, 2001

o Consolidated Results. Consolidated Results of Operations for the Year
Ended December 31, 2001 compared to the Consolidated Results of
Operations for the Year Ended December 31, 2000

CONSOLIDATED RESULTS -- CONSOLIDATED RESULTS OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 2002 COMPARED TO THE CONSOLIDATED RESULTS OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 2001

REVENUE

Our revenue increased by 42% to $198.7 million for the year ended December
31, 2002 from $140.0 million for the year ended December 31, 2001. The breakdown
of revenue by business group was as follows:

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CLEC Services. Revenue from CLEC Services increased by 103% to $91.5 million
for the year ended December 31, 2002 from $45.1 million for the year ended
December 31, 2001.

The CLEC Services division of TeleRoss revenue increased by 10% to $30.7
million for the year ended December 31, 2002 from $27.8 million for the year
ended December 31, 2001. This is mainly due to increases in monthly recurring
charges and traffic revenue due to an increase in numbering capacity in active
service, partly offset by pricing concessions made to its largest customer and a
decrease in equipment sales.

The CLEC Services division of Golden Telecom BTS revenue decreased by 18% to
$13.3 million for the year ended December 31, 2002 from $16.2 million for the
year ended December 31, 2001. The decrease in revenue was due to the suspension
of the termination of certain incoming traffic from the beginning of the fourth
quarter of 2001 that continued throughout 2002, partly offset by an increase in
other recurring revenues.

For ADS, acquired in September 2001, revenue from CLEC Services was $3.9
million and $1.1 million for the years ended December 31, 2002 and 2001,
respectively.

The acquisition of the remaining 50% ownership interest in Sovintel was
completed in the third quarter of 2002. We began consolidating Sovintel into our
results of operations from September 17, 2002. As a result of consolidating
Sovintel, revenue from CLEC Services increased by $42.1 million for the year
ended December 31, 2002.

Sovintel's revenue increased by 29% to $149.2 million for the year ended
December 31, 2002 from $115.7 million for the year ended December 31, 2001.
Increases in traffic volumes, particularly incoming international traffic, more
than offset reductions in tariffs. Also, increases in recurring fees, equipment
sales and other service offerings contributed to the increase.

Data and Internet Services. Revenue from Data and Internet Services
increased by 25% to $78.9 million for the year ended December 31, 2002 from
$63.2 million for the year ended December 31, 2001. The increase is largely the
result of increases in Internet revenue from both dial-up and dedicated Internet
subscribers, increases in Internet traffic and other Internet related revenues.
Our dial-up Internet subscribers grew 30% from 185,628 at December 31, 2001 to
242,155 at December 31, 2002. Internet revenues have increased by the
acquisition of Cityline and Uralrelcom on June 1, 2001, however, Cityline's
subscribers were absorbed into TeleRoss operations during 2002 so we are not
able to identify the incremental impact of this acquisition on the year ended
December 31, 2002. Uralrelcom's revenue was $2.5 million for the year ended
December 31, 2002 as compared to $1.0 million for the year ended December 31,
2001.

Long Distance Services. Revenue from Long Distance Services increased by 2%
to $18.7 million for the year ended December 31, 2002 from $18.4 million for the
year ended December 31, 2001. The increase is largely the result of increases in
recurring fees and traffic revenues due to an increasing end-user customer base
in Moscow and in many Russian regions, which more that offset tariff reductions.
The increase is partly offset by a decline in equipment sales in the year ended
December 31, 2002, as compared to the year ended December 31, 2001, due to a
large contract that was installed in the first half of 2001.

Mobile Services. Revenue from Mobile Services decreased by 10% to $13.0
million for the year ended December 31, 2002 from $14.4 million for the year
ended December 31, 2001. Active subscribers declined approximately 13% and the
average revenue per subscriber has declined by 8% to approximately $28.54 per
month.

66

EXPENSES

The following table shows our principal expenses for the year ended December 31,
2002 and December 31, 2001:

Cost of Revenue

Our cost of revenue increased by 43% to $91.2 million for the year ended
December 31, 2002 from $63.7 million for the year ended December 31, 2001.

CLEC Services. Cost of revenue from CLEC Services increased to $41.3
million, or 45% of revenue, for the year ended December 31, 2002 from $17.4
million, or 39% of revenue, for the year ended December 31, 2001.

The CLEC Services division of TeleRoss' cost of revenue increased by 25% to
$10.6 million, or 35% of revenue, for the year ended December 31, 2002 from $8.5
million, or 31% of revenue, for the year ended December 31, 2001. The increase
as a percentage of revenue resulted from settlements to other operators not
decreasing in line with the pricing concessions to customers.

The CLEC Services division of Golden Telecom BTS cost of revenue decreased
by 28% to $6.1 million, or 46% of revenue, for the year ended December 31, 2002
and was $8.5 million, or 52% of revenue, for the year ended December 31, 2001.
Cost of revenue decreased as a percentage of revenue due to the suspension of
certain lower margin incoming traffic.

For ADS, acquired in September 2001, cost of revenue from CLEC Services was
$2.6 million and $0.4 million for the year ended December 31, 2002 and 2001,
respectively.

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The acquisition of the remaining 50% ownership interest in Sovintel was
completed in the third quarter of 2002. We began consolidating Sovintel into our
results of operations from September 17, 2002. As a result of consolidating
Sovintel, cost of revenue from CLEC Services increased by $20.2 million for the
year ended December 31, 2002.

Sovintel's cost of revenue increased by 28% to $81.9 million, or 55% of
revenue, for the year ended December 31, 2002 from $63.9 million, or 55% of
revenue, for the year ended December 31, 2001. The increase in cost of revenue
of 28% is primarily a result of increases in operator settlements as a result of
increases in traffic related revenue.

Data and Internet Services. Cost of revenue from Data and Internet Services
increased by 22% to $36.8 million, or 47% of revenue, for the year ended
December 31, 2002 from $30.2 million, or 48% of revenue, for the year ended
December 31, 2001. The decrease as a percentage of revenue was mainly due to the
operational improvements in terms of efficient use of available network
resources.

Long Distance Services. Cost of revenue from Long Distance Services remained
unchanged at $13.5 million, or 72% of revenue, for the year ended December 31,
2002 and was 73% of revenue, for the year ended December 31, 2001. The
improvement in cost of revenue as a percentage of revenue is partly due to an
increase in end-users in the long distance traffic mix and the decrease in lower
margin equipment sales partly offset by additional satellite transponder costs
and higher settlement costs to other operators.

Mobile Services. Cost of revenue from Mobile Services decreased by 19% to
$3.0 million, or 23% of revenue, for the year ended December 31, 2002 from $3.7
million, or 26% of revenue, for the year ended December 31, 2001. The cost of
revenue decreased as a percentage of revenue, mainly as a result of cost
controls and a change in the revenue mix from handset sales to traffic revenue.

Selling, General and Administrative

Our selling, general and administrative expenses decreased by 6% to $46.1
million, or 23% of revenue, for the year ended December 31, 2002 from $48.9
million, or 35% of revenue, for the year ended December 31, 2001. This decrease
in selling, general and administrative expenses was mainly due to reductions in
employee related costs, advertising, and other selling, general and
administrative expenses partially offset by increase in revenue related taxes.
The acquisition of the remaining 50% of Sovintel and subsequent consolidation
contributed $5.1 million for the year ended December 31, 2002 to selling,
general and administrative expenses.

Sovintel's selling, general and administrative expenses increased by 31% to
$17.0 million, or 11% of revenue for the year ended December 31, 2002 from $13.0
million, or 11% of revenue for the year ended December 31, 2001. The increase
was largely due to a increases in employee related costs, increases in revenue
related taxes, and increases in sales and marketing expenses.

Depreciation and Amortization

Our depreciation and amortization expenses decreased by 28% to $30.0 million
for the year ended December 31, 2002 from $41.4 million for the year ended
December 31, 2001. The decrease is in part due to the adoption of SFAS No. 142
which requires that goodwill no longer be amortized effective from January 1,
2002 and which reduced our amortization expense by

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approximately $11.8 million for the year ended December 31, 2002 and also as a
result of the impairment charges recorded in the fourth quarter of 2001, which
in turn reduced the level of depreciation and amortization recorded for the year
ended December 31, 2002 by $7.2 million. These reductions were, in part, offset
by depreciation on continuing capital expenditures of the consolidated entities.
The acquisition of the remaining 50% of Sovintel and subsequent consolidation of
Sovintel as of September 17, 2002 into our results of operations contributed
$3.9 million for the year ended December 31, 2002 to depreciation and
amortization.

Impairment Charge

In the fourth quarter of 2001 we recorded impairment charges totaling $31.3
million covering two aspects of our business. Severely reduced expectations in
demand for Internet advertising in Russia, as throughout western markets, had
impacted the value of our Internet portal assets and as a result we recorded an
impairment charge of $20.9 million. Operating difficulties had impacted our
mobile business in Ukraine and as a result we recorded an impairment charge of
$10.4 million. For further details of these charges, refer to Note 15 of the
Notes to the Consolidated Financial Statements. No impairment charge was
recorded for the year ended December 31, 2002.

Equity in Earnings of Ventures

The earnings after interest and tax charges from our investments in
non-consolidated ventures were $4.4 million for the year ended December 31, 2002
down from earnings of $8.2 million for the year ended December 31, 2001. We
recognized earnings at Sovintel of $9.6 million for the period from January 1 to
September 16, 2002, which more than offset our recognized losses in MCT of $5.1
million. For the year ended December 31, 2001, our recognized earnings at
Sovintel were $10.7 million, which more than offset our recognized losses in
MCT.

Interest Income

Our interest income was $1.6 million for the year ended December 31, 2002
down from $3.1 million for the year ended December 31, 2001. The decrease in
interest income mainly reflects lower interest rates earned on our cash and cash
equivalents.

Interest Expense

Our interest expense was $2.2 million for the year ended December 31, 2002
down from $2.4 million for the year ended December 31, 2001. Interest expense
mainly reflects the effect of higher average balances of debt, including capital
leases offset by lower interest rates. Debt, excluding capital lease
obligations, at December 31, 2002 was $33.1 million, of this $30.0 million was
added in December 2002, compared to $13.2 million at December 31, 2001.

Foreign Currency Loss

Our foreign currency loss was $1.2 million for the year ended December 31,
2002, compared to a $0.6 million loss for the year ended December 31, 2001. The
increase in foreign currency loss is due to a combination of movements in
exchange rates and changes in the amount of net monetary assets that we have
denominated in foreign currencies. The acquisition of the remaining 50% of
Sovintel and subsequent consolidation of Sovintel from September 17, 2002 into
our results of operations contributed $0.3 million for the year ended December
31, 2002 to foreign currency losses.

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Provision for Income Taxes

Our charge for income taxes was $4.6 million for the year ended December 31,
2002 compared to $1.9 million for the year ended December 31, 2001. The
acquisition of the remaining 50% of Sovintel and subsequent consolidation of
Sovintel from September 17, 2002 into our results of operations contributed $3.6
million for the year ended December 31, 2002 to income taxes. There were
increased levels of taxable profits being incurred in our Russian and Ukrainian
subsidiaries and a reduction in the income tax rates for the year ended December
31, 2002 as compared to the year ended December 31, 2001. There was a reduction
of deferred tax asset valuation reserves of $2.8 million relating to tax loss
carryforwards at TeleRoss and we recognized $0.8 million of current deferred tax
assets at GTU.

Cumulative effect of a change in accounting principle

We adopted SFAS No. 142 "Accounting for Goodwill," effective from January 1,
2002. As a result, we recorded a cumulative effect of a change in accounting
principle for negative goodwill (deferred credit) arising on our equity method
investments in the amount of $1.0 million for the year ended December 31, 2002.

Net Income (Loss) and Net Income (Loss) per Share

Our net income for the year ended December 31, 2002 was $29.8 million,
compared to a net loss of $39.0 million for the year ended December 31, 2001.

Our net income per share of common stock increased to $1.24 for the year
ended December 31, 2002, compared to a net loss per share of $1.65 for the year
ended December 31, 2001. The increase in net income per share of common stock
was due to the increase in net income and offset by an increase in the number of
weighted average shares to 24,101,943 at December 31, 2002, compared to
23,604,914 at December 31, 2001.

Our net income per share of common stock on a fully diluted basis increased
to $1.21 for the year ended December 31, 2002, compared to a net loss per common
share of $1.65 in the year ended December 31, 2001. The increase in net income
per share of common stock on a fully diluted basis was due to the increase in
net income and offset by an increase in the number of weighted average shares
assuming dilution to 24,516,803 in the year ended December 31, 2002, compared to
23,604,914 in the year ended December 31, 2001.

CONSOLIDATED FINANCIAL POSITION -- CONSOLIDATED FINANCIAL POSITION AT DECEMBER
31, 2002 COMPARED TO CONSOLIDATED FINANCIAL POSITION AT DECEMBER 31, 2001

On September 17, 2002, we completed the acquisition of the remaining 50% of
Sovintel previously held by Rostelecom and began consolidating the results of
operations and financial position of Sovintel. Significant fluctuations in
certain balance sheet items as of December 31, 2002 as compared to December 31,
2001, were mainly due to the consolidation of Sovintel into our financial
position. The most significant fluctuations of certain balance sheet items
include accounts receivable, property and equipment, goodwill and intangible
assets, investments in and advances to ventures, accounts payable and accrued
expenses,

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deferred tax liabilities and shareholders' equity. Other significant changes in
balance sheet items, excluding the effect of consolidating Sovintel are
discussed below.

Allowance for Doubtful Accounts

In addition to the effect of the consolidation of Sovintel, our allowance
for doubtful accounts increased from December 31, 2001 as compared to December
31, 2002 mainly due to provisions we made with respect to our preliminary
estimate of exposure relating to the bankruptcy of KPNQwest.

Debt Obligations

Our debt position increased from December 31, 2001 as compared to December
31, 2002 mainly due to ROL Holdings drawing upon the Citibank Credit Facility in
the fourth quarter of 2002 to retire $30.0 million of the $46.0 million
non-interest bearing promissory note issued to Rostelecom in connection with the
acquisition of the remaining 50% ownership interest in Sovintel previously held
by Rostelecom offset by a repayment of the $6.3 million of debt to GTS and
partial repayment of vendor financing to Motorola and Siemens.

Minority Interest

The decrease in minority interest from December 31, 2001 as compared to
December 31, 2002 primarily reflects our acquisition of the remaining 31%
minority interest of Golden Telecom (Ukraine) in August 2002.

Stockholders' Equity

In addition to the increase in shareholders' equity resulting from shares
issued to acquire Sovintel, shareholders' equity also increased from December
31, 2001 to 2002 as a result of our net income of $29.8 million and proceeds of
approximately $5.9 million received from the exercise of stock options.

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CONSOLIDATED RESULTS -- CONSOLIDATED RESULTS OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 2001 COMPARED TO THE CONSOLIDATED RESULTS OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 2000

REVENUE

Our revenue increased by 24% to $140.0 million for the year ended December
31, 2001 from $113.1 million for the year ended December 31, 2000. The breakdown
of revenue by business group was as follows:

CLEC Services. Revenue from CLEC Services increased by 7% to $45.1 million
for the year ended December 31, 2001 from $42.0 million for the year ended
December 31, 2000.

The CLEC Services division of TeleRoss revenue increased by 9% to $27.8
million for the year ended December 31, 2001 from $25.5 million for the year
ended December 31, 2000. This is mainly due to increases in monthly recurring
and traffic revenue due to an increase in numbering capacity in active service.

The CLEC Services division of Golden Telecom BTS revenue decreased by 2% to
$16.2 million for the year ended December 31, 2001 from $16.5 million for the
year ended December 31, 2000. The decrease in revenue was mainly due to a $1.6
million decrease in revenue in the fourth quarter of 2001, from the termination
of incoming international traffic from other carriers, partially offset by
increases in recurring revenues from an increased end user customer base.

As a result of the acquisition of ADS in the third quarter of 2001, revenue
from CLEC Services increased in 2001 by $1.1 million.

Sovintel's revenue increased by 23% to $115.7 million for the year ended
December 31, 2001 from $93.9 million, for the year ended December 31, 2000.
Increases in traffic volumes, particularly incoming traffic, more than offset
reductions in tariffs. Also, increases in recurring fees, equipment sales and
other service offerings contributed to the increase in revenue.

Data and Internet Services. Revenue from Data and Internet Services
increased by 52% to $63.2 million for the year ended December 31, 2001 from
$41.5 million for the year ended December 31, 2000. The increase is largely the
result of increases in Internet revenue from both dial-up and dedicated Internet
subscribers, increases in private line channel revenue, increases in Internet
traffic and other Internet related revenues. Dial-up Internet revenues increased
by $4.0 million as a result of our acquisitions of Cityline and Uralrelcom in
2001. We acquired KIS in the second quarter of 2000.

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Long Distance Services. Revenue from Long Distance Services increased by 24%
to $18.4 million for the year ended December 31, 2001 from $14.8 million for the
year ended December 31, 2000. Recurring fees and traffic revenues increased due
to an expanding end-user customer base in Moscow and our acquisition of
controlling interests in some of the TeleRoss regional ventures. Tariffs for
end-user long distance traffic were mainly flat during 2001, with traffic
increasing. These increases offset a decline in equipment sales.

Mobile Services. Revenue from Mobile Services decreased by 18% to $14.4
million for the year ended December 31, 2001 from $17.5 million for the year
ended December 31, 2000. Despite an increase of approximately 9% in the number
of active subscribers at Golden Telecom GSM, pricing competition in Ukraine has
reduced average revenue per active subscriber by 29% to approximately $31 per
month. Additionally, $0.9 million of the decrease was attributable to Vostok
Mobile Novgorod no longer being consolidated in 2001 as a result of the MCT
transaction.

EXPENSES

The following table shows our principal expenses for the year ended December 31,
2001 and December 31, 2000:

Cost of Revenue

Our cost of revenue increased by 25% to $63.7 million for the year ended
December 31, 2001 from $51.0 million for the year ended December 31, 2000.

CLEC Services. Cost of revenue from CLEC Services increased to $17.4
million, or 39% of revenue, for the year ended December 31, 2001 from $15.4
million, or 37% of revenue, for the year ended December 31, 2000.

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The CLEC Services division of TeleRoss' cost of revenue increased by 13% to
$8.5 million, or 31% of revenue, for the year ended December 31, 2001 from $7.5
million, or 29% of revenue, for the year ended December 31, 2000. The increase
as a percentage of revenue resulted from settlements to other operators not
decreasing in line with the pricing concessions to customers.

The CLEC Services division of Golden Telecom BTS cost of revenue increased
by 8% to $8.5 million, or 52% of revenue, for the year ended December 31, 2001
and was $7.9 million, or 48% of revenue, for the year ended December 31, 2000.
Cost of revenue increased as a percentage of revenue due to settlements to other
operators not decreasing in line with pricing concessions to customers and a
lower margin on the carrier traffic carried.

Sovintel's cost of revenue increased by 29% to $63.9 million for the year
ended December 31, 2001 from $49.7 million for the year ended December 31, 2000.
The increase to 55% from 53% of revenue was primarily the result of increases in
lower margin traffic in the revenue mix.

Data and Internet Services. Cost of revenue from Data and Internet Services
increased by 38% to $30.2 million, or 48% of revenue, for the year ended
December 31, 2001 from $21.9 million, or 53% of revenue, for the year ended
December 31, 2000. The decrease as a percentage of revenue was mainly due to the
operational improvements in terms of reduced cost for fiber capacity and the
integration of our Internet acquisitions.

Long Distance Services. Cost of revenue from Long Distance Services
increased by 10% to $13.5 million, or 73% of revenue, for the year ended
December 31, 2001 from $12.3 million, or 83% of revenue, for the year ended
December 31, 2000. The improvement in cost of revenue as a percentage of revenue
is partly due to an increase in end-users in the long distance traffic mix and
the decrease in low margin equipment sales.

Mobile Services. Cost of revenue from Mobile Services decreased by 10% to
$3.7 million, or 26% of revenue, for the year ended December 31, 2001 from $4.1
million, or 23% of revenue, for the year ended December 31, 2000. The cost of
revenue increased as a percentage of revenue due to increased competition, which
has in turn led to lower traffic and equipment margins.

Selling, General and Administrative

Our selling, general and administrative expenses increased by 8% to $48.9
million, or 35% of revenue, for the year ended December 31, 2001 from $45.4
million, or 40% of revenue, for the year ended December 31, 2000. There were
increases in employee related costs, largely due to acquisitions and bad debt
expense also increased, but the increases were partially offset by a reduction
in revenue related taxes.

Sovintel's selling, general and administrative expenses decreased by 23% to
$13.0 million, or 11% of revenue for the year ended December 31, 2001 from $16.8
million, or 18% of revenue for the year ended December 31, 2000. The decrease
was largely due to a reduction in the rate of revenue related taxes incurred,
also reductions in employee related costs and bad debt.

Depreciation and Amortization

Our depreciation and amortization expenses increased by 30% to $41.4 million
for the year ended December 31, 2001 from $31.9 million for the year ended
December 31, 2000. This increase is due to the continuing capital expenditures
of the

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consolidated entities and increased intangible assets and goodwill amortization
due to acquisitions.

Impairment Charge

In the fourth quarter of 2001 we recorded impairment charges totaling $31.3
million covering two aspects of our business. Severely reduced expectations in
demand for Internet advertising in Russia, as throughout western markets, had
impacted the value of our Internet portal assets and as a result we recorded an
impairment charge of $20.9 million. Operating difficulties had impacted our
mobile business in Ukraine and as a result we recorded an impairment charge of
$10.4 million. For further details of these charges, refer to Note 15 of the
Notes to the Consolidated Financial Statements.

Equity in Earnings/Losses of Ventures

The earnings after interest and tax charges from our investments in
non-consolidated ventures were $8.2 million for the year ended December 31,
2001, and losses after interest and tax charges from our investment in
non-consolidated ventures were $0.3 million for the year ended December 31,
2000. We recognized earnings at Sovintel of $10.7 million for the year ended
December 31, 2001, which more than offset our recognized losses in MCT. In the
year ended December 31, 2000, our recognized earnings at Sovintel were $5.1
million, which were more than offset by our recognized losses of $5.6 million
from our Russian mobile ventures.

Interest Income

Our interest income was $3.1 million for the year ended December 31, 2001
down from $10.4 million for the year ended December 31, 2000. The decrease in
interest income mainly reflects the reduced balance of cash, cash equivalents
and investments available for sale following the use of a significant part of
the proceeds from our IPO for acquisitions and capital expenditure and the
reduction in interest rates during 2001.

Interest Expense

Our interest expense was $2.4 million for the year ended December 31, 2001
down from $3.3 million for the year ended December 31, 2000. The decrease in
interest expense reflects the reduced level of debt in the company.

Foreign Currency Loss

Our foreign currency loss was $0.6 million for the year ended December 31,
2001, compared to a $0.4 million loss for the year ended December 31, 2000. The
increased loss, in part reflects the increased devaluation of the ruble, as
compared to the dollar, in the year ended December 31, 2001.

Provision for Income Taxes

Our charge for income taxes was $1.9 million for the year ended December 31,
2001 compared to $1.0 million for the year ended December 31, 2000. The overall
increase in the provision for income taxes was due to the increase in tax
incurred at Golden Telecom Ukraine, as its brought-forward tax losses had been
fully utilized, and the increasing profitability at TeleRoss operating company.
TeleRoss operating company's provision for income taxes was reduced by a
deferred tax benefit relating to loss

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carry-forwards that are expected to be utilized in 2002. Russia enacted a
reduction in the tax rate effective January 1, 2002, from 35% to 24%. There were
no deferred tax liabilities impacted by this reduction.

Net Loss and Net Loss per Share

Our net loss for the year ended December 31, 2001 was $39.0 million,
compared to $10.3 million for the year ended December 31, 2000. The significant
increase in our net loss was due to the impairment charge of $31.3 million,
together with the other items discussed above.

Our net loss per share of common stock was $1.65 in the year ended December
31, 2001, compared to $0.43 in the year ended December 31, 2000. The increase in
loss per share of common stock was due to the increase in net loss and a
decrease in the number of weighted average shares to 23,604,914 in the year
ended December 31, 2001, compared to 24,095,884 in the year ended December 31,
2000. The decrease in weighted average shares largely resulted from a buy-back
of 2,272,727 shares of our common stock in July, 2001.

INCOME TAXES

Our effective rate of income tax differs from the US statutory rate due to
the impact of the following factors (1) different income tax rates and
regulations apply in the countries where we operate; (2) amortization of
goodwill and certain acquired intangible assets is not deductible for income tax
purposes; and (3) in the year ended December 31, 2001 we recorded a $31.3
million impairment charge that was not deductible for income tax purposes. We
have not recorded a tax benefit in relation to our US net operating loss
carry-forward amount as our taxable US income is largely comprised of interest
income and dividends which we do not expect to continue over the longer term.
Prior to 2001 we have not recognized a tax benefit in relation to the deferred
tax assets of our Russian and Ukrainian entities due to uncertainty over the
application and future development of the tax regimes in the two countries.
However, in 2001 and 2002, as a result of our Russian and Ukrainian subsidiaries
profitability for Russian and Ukrainian statutory purposes and reasonable
certainty of future profits, we recorded deferred tax asset in the appropriate
Russian and Ukrainian subsidiaries. In respect of the impairment charge, this
created additional deferred tax assets, against which we recorded valuation
allowances as a result of the uncertainties concerning future realization of the
tax assets.

LIQUIDITY AND CAPITAL RESOURCES

Our cash, cash equivalents and investments available for sale were $59.6
million and $46.4 million as of December 31, 2002 and December 31, 2001,
respectively. Of these amounts, our cash and cash equivalents were $59.6 million
and $37.4 million as of December 31, 2002 and December 31, 2001, respectively.
We have invested funds in money market instruments with an original maturity
greater than three months which are classified as investments available for
sale. At December 31, 2002 and 2001 our investments available for sale were none
and $9.0 million, respectively.

Our total restricted cash was $1.5 million and $3.4 million as of December
31, 2002, and 2001, respectively. The restricted cash is maintained in
connection with certain of our debt obligations as described below.

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During the twelve months ended December 31, 2002, we had net cash inflows of
$50.6 million from our operating activities. During the twelve months ended
December 31, 2001, we had net cash inflows of $24.5 million from our operating
activities. This increase in net cash inflows from operating activities at
December 31, 2002 is mainly due to the achievement of net income, increased
revenues, reduction of our operating expenses, and the consolidation of Sovintel
into our results of operations and financial position from September 17, 2002.
We used cash of $52.2 million and $12.6 million for investing activities for the
twelve months ended December 31, 2002 and 2001, respectively, which were
principally attributable to building our telecommunications networks and
acquisitions. Network investing activities totaled $29.4 million for the twelve
months ended December 31, 2002 and included capital expenditures principally
attributable to building out our telecommunications network. Network investing
activities totaled $27.9 million for the twelve months ended December 31, 2001
and included additional fiber optic capacity between Moscow and Stockholm, fiber
optic capacity on major routes within Russia, and the GSM network build out in
Odessa, Ukraine. We used cash of $51.2 million for the year ended December 31,
2002 for acquisitions principally attributable to acquiring the remaining 50% of
Sovintel. For the year ended December 31, 2001, we used cash of $33.4 million of
acquisitions, principally attributable to the acquisitions of Cityline, PTK and
Uralrelcom. For the year ended December 31, 2002, we recovered funds from escrow
of $3.0 million in association with our acquisition of PTK in June 2001. For the
year ended December 31, 2001, we received net proceeds from investments
available for sale of $45.4 million and for the year ended December 31, 2002, we
received net proceeds from investments available for sale of $9.0 million.

We had working capital of $56.5 million as of December 31, 2002 and $36.0
million as of December 31, 2001. At December 31, 2002, we had total debt,
excluding capital lease obligations, of approximately $33.1 million, of which
$9.0 million were current maturities. At December 31, 2001, we had total debt,
excluding capital lease obligations, of approximately $13.2 million, of which
$9.9 million were current maturities. Total debt included amounts that were
fully collateralized by restricted cash. At December 31, 2001 $6.3 million of
our short-term debt was at fixed rates. At December 31, 2002 none of our debt
was at fixed rates.

In the first quarter of 2000, we entered into a lease for the right to use
fiber optic capacity, including facilities and maintenance, from Moscow to
Stockholm. The lease has an initial term of ten years with an option to renew
for an additional five years. The lease required full prepayments as the
capacity increased from an STM-1 to an STM-4 to full capacity of STM-16. Full
prepayments were made to the lessor in April 2000, August 2000 and February
2001. These prepayments have been offset against the lease obligation in the
financial statements of the Company. We will continue to make payments for
maintenance for the term of the lease.

In July 2001, we completed a buy-back of $25.0 million, or approximately 2.3
million shares, of our common stock at $11.00 per share, from a subsidiary of
Global TeleSystems Inc. ("GTS"). After this sale, GTS continued to own
approximately 0.6 million shares, or approximately 2.6 percent, of our
outstanding common stock. To effect the buy-back, we acted as designated
purchaser and exercised the options held by Alfa Group ("Alfa"), Capital
International Global Emerging Markets Private Equity Fund L.P. ("Capital"), and
investment funds managed by Barings Vostok Capital Partners ("Baring Vostok") to
acquire our common stock for $11.00 per share from GTS. Alfa, Capital, and
Baring Vostok acquired these options in conjunction with their acquisition of
$125.0 million in our common shares from GTS in May 2001. In October 2001, GTS
sold the remaining approximately 0.6 million shares of our common stock and is
no longer a stockholder in GTI. In the fourth quarter of 2002, we retired the
approximately 2.3 million shares of common stock held as treasury shares.

In September 2001, we entered into a five year lease for the right to use up
to VC-3 fiber optic capacity on major routes within Russia to support the
increase in our interregional traffic and regional expansion strategy. In
December 2001, we issued a

77

$9.1 million loan to the company that provided the capital lease. The loan has
payment terms of 56 months, starting in January 2002, and carries interest at
the rate of 7 percent per annum.

Some of our operating companies have received debt financing through direct
loans from affiliated companies. In addition, certain operating companies have
borrowed funds under a back-to-back, seven-year credit facility for up to $22.7
million from a Russian subsidiary of Citibank. Under this facility, we provide
full cash collateral, held in London, and recorded on our balance sheet as
restricted cash, for onshore loans made by the bank to our Russian registered
joint ventures. In a second, similar facility, we provide full cash collateral
for a short term back-to-back, revolving, credit facility for up to $10.0
million from the same bank for two of our larger Russian operating companies.
The funding level as of December 31, 2002 for all these facilities totaled $1.4
million, of which $0.6 million was funded to our consolidated subsidiaries and
$0.8 million was funded to our non-consolidated entities.

In order for us to compete successfully, we may require substantial capital
to continue to develop our networks and meet the funding requirements of our
operations and ventures, including possible losses from operations. We may also
require capital for our acquisition and business development initiatives. The
net proceeds from our IPO and our private placement have been applied to these
funding requirements. We also expect to fund these requirements through our cash
flow from operations, proceeds from additional equity and debt offerings that we
may conduct, and debt financing facilities.

In September 2002, TeleRoss LLC ("TeleRoss"), a wholly-owned Russian
subsidiary, issued a three month $46.0 million non-interest bearing note payable
to Rostelecom in partial settlement for the acquisition of the remaining 50%
ownership interest in Sovintel previously held by Rostelecom. The note issued by
TeleRoss was settled in full in December 2002.

In September 2002, ROL Holdings Limited ("ROLH"), a wholly-owned Cypriot
subsidiary, entered into a secured $30.0 million credit facility with ZAO
Citibank. ROLH drew upon the Citibank credit facility in the fourth quarter of
2002 and loaned the funds to TeleRoss to enable TeleRoss to retire $30.0 million
of the $46.0 million non-interest bearing promissory note issued to Rostelecom
in connection with the acquisition of the remaining 50% ownership interest in
Sovintel previously held by Rostelecom. ROLH is required to make four quarterly
payments of $7.5 million each plus accrued interest beginning in December 2003.
The Citibank credit facility carries interest at a rate equal to the three
month USD LIBOR plus 4.35%. At the drawdown of the Citibank Credit Facility, GTI
and certain affiliates executed a number of agreements to secure repayment of
the Citibank Credit Facility, including a payment guarantee from GTI and
Sovintel, pledge of the 50% ownership interest in Sovintel the Company owned
prior to the purchase of the remaining 50% ownership interest in Sovintel,
pledge of a 58% ownership interest in TeleRoss, commitments of TeleRoss to route
at least 90% of TeleRoss' cash flows via accounts at ZAO Citibank, commitments
of Sovintel to route at least 60% of Sovintel's cash flows via accounts at ZAO
Citibank, and assignment of accounts receivable by TeleRoss and Sovintel.

In the ordinary course of business, we may enter into arrangements with
operators and vendors principally for access to telecommunication network and
equipment. In September 2002, we entered into a purchase commitment for
satellite transmission capacity. The agreement requires 60 monthly payments of
$0.1 million each.

In the future, we may execute especially large or numerous acquisitions,
which may require us to raise additional funds through a dilutive equity
issuance, through additional borrowings with collateralization and through the
divestment of non-core assets, or combinations of the above. In the case
especially large or numerous acquisitions do not materialize, we expect our
current sources of funding to finance our capital requirements for the next 12
to 18 months. The actual amount and timing of our

78

future capital requirements may differ materially from our current estimates
because of changes or fluctuations in our anticipated acquisitions, investments,
revenue, operating costs and network expansion plans and access to alternative
sources of financing on favorable terms. Further, in order for us to compete
successfully, we may require substantial capital to continue to develop our
networks and meet the funding requirements of our operations and ventures,
including losses from operations. We will also require capital for other
acquisition and business development initiatives. We expect to fund these
requirements through our cash on hand, cash flow from operations, proceeds from
additional equity and debt offerings that we may conduct, and debt financing
facilities.

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

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

As of December 31, 2002, we had the following contractual obligations,
including short- and long-term debt arrangements commitments for future payments
under non-cancelable lease arrangements and purchase obligations:

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK AND TREASURY
AND CURRENCY EXPOSURE MANAGEMENT

Our treasury function has managed our funding, liquidity and exposure to
interest rate and foreign currency exchange rate risks. Our investment treasury
operations are conducted within guidelines that have been established and
authorized by our audit committee. In accordance with our policy, we do not
enter into any treasury management transactions of a speculative nature.

The ruble and the hryvna are generally non-convertible outside Russia and
Ukraine, respectively, so our ability to hedge against further devaluation by
converting to other currencies is significantly limited. Further, our ability to
convert rubles and hryvna into other currencies in Russia and Ukraine,
respectively, is subject to rules that restrict the purposes for which
conversion and the payment of foreign currencies are allowed.

79

Given that much of our operating costs are indexed to or denominated in US
dollars, including employee compensation expense, capital expenditure and
interest expense, we have taken specific steps to minimize our exposure to
fluctuations in the appropriate foreign currency. Although local currency
control regulations require us to collect virtually all of our revenue in local
currency, certain ventures generally either price or invoice in US dollars or
index their invoices and collections to the applicable dollar exchange rate.
Customer contracts may include clauses allowing additional invoicing if the
applicable exchange rate changes significantly between the invoice date and the
date of payment, favorable terms for early or pre-payments and heavy penalty
clauses for overdue payments. Maintaining the dollar value of our revenue
subjects us to additional tax on exchange gains.

Although we are attempting to match revenue, costs, borrowing and repayments
in terms of their respective currencies, we may experience economic loss and a
negative impact on earnings as a result of foreign currency exchange rate
fluctuations.

Our cash and cash equivalents are held largely in interest bearing accounts,
in US Dollars, however we do have bank accounts denominated in Russian rubles
and Ukrainian hryvna. Book value as at December 31, 2002 and 2001 approximates
fair value.

Cash in excess of our immediate operating needs is invested in US money
market instruments. In accordance with our investment policy, we maintain a
diversified portfolio of low risk, fully liquid securities. Our investments
available for sale were none and $9.0 million as of December 31, 2002 and 2001,
respectively, stated at fair value.

We are exposed to market risk from changes in interest rates on our
obligations and we also face exposure to adverse movements in foreign currency
exchange rates. We have developed risk management policies that establish
guidelines for managing foreign currency exchange rate risk and we also
periodically evaluate the materiality of foreign currency exchange exposures and
the financial instruments available to mitigate this exposure.

The following table provides information (in thousands) about our cash
equivalents, investments available for sale, convertible loan, and debt
obligations that are sensitive to changes in interest rates.

80

The following table provides information about our financial instruments by
local currency and where applicable, presents such information in US dollar
equivalents (in thousands). The table summarizes information on instruments that
are sensitive to foreign currency exchange rates, including foreign currency
denominated debt obligations.

Our interest income and expense are most sensitive to changes in the general
level of U.S. interest rates. In this regard, changes in U.S. interest rates
affect the interest earned on our cash equivalents and short-term investments as
well as interest paid on debt.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other parts of this document,
including, without limitation, those concerning (i) future acquisitions and
capital expenditures (ii) projected traffic volumes and other growth indicators;
(iii) anticipated revenues and expenses; (iv) the Company's competitive
environment and our stated intention to be the largest independent
communications operator in the markets where we offer our services; (v) the
future performance of consolidated and equity method investments; (vi) our
ability to successfully merge TeleRoss and Sovintel; and (vii) the political,
regulatory and financial situation in the markets in which we operate, are

81

forward-looking and concern the Company's projected operations, economic
performance and financial condition. These forward-looking statements are made
pursuant to the safe harbor provisions of the Securities Litigation Reform Act
of 1995. It is important to note that such statements involve risks and
uncertainties and that actual results may differ materially from those expressed
or implied by such forward-looking statements. Among the key factors that have a
direct bearing on the Company's results of operations, economic performance and
financial condition are the commercial and execution risks associated with
implementing the Company's business plan, our ability to successfully merge
Sovintel and TeleRoss, the political, economic and legal environment in the
markets in which the Company operates, increasing competitiveness in the
telecommunications and Internet-related businesses that may limit growth
opportunities, and increased and intense downward price pressures on some of the
services that we offer. These and other factors are discussed herein under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Report.

Additional information concerning factors that could cause results to differ
materially from those in the forward-looking statements are contained in this
Form 10-K.

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

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

82

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION FOR THE
COMPANY.

INDEX TO FINANCIAL STATEMENTS

83

AUDITED FINANCIAL STATEMENTS

GOLDEN TELECOM, INC.
YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
WITH REPORT OF INDEPENDENT AUDITORS

84

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Golden Telecom, Inc.

We have audited the accompanying consolidated balance sheets of Golden
Telecom, Inc. as of December 31, 2001 and 2002, and the related consolidated
statements of operations, cash flows, and shareholders' equity for each of the
three years in the period ended December 31, 2002. Our audits also included the
financial statement schedule listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Golden Telecom,
Inc. at December 31, 2001 and 2002, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

As discussed in Note 2 to the financial statements, in 2002 the Company
changed its method of accounting for goodwill.

/s/ ERNST & YOUNG (CIS) LIMITED

Moscow, Russia
March 6, 2003

85

GOLDEN TELECOM, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF US$, EXCEPT SHARE DATA)

The accompanying notes are an integral part of these financial statements.

86

GOLDEN TELECOM, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF US$, EXCEPT SHARE DATA)

The accompanying notes are an integral part of these financial statements.

87

GOLDEN TELECOM, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF US$, EXCEPT PER SHARE DATA)

The accompanying notes are an integral part of these financial statements.

88

GOLDEN TELECOM, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF US$)

The accompanying notes are an integral part of these financial statements.

89

GOLDEN TELECOM, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001, AND 2002
(IN THOUSANDS OF US$)

The accompanying notes are an integral part of these financial statements.

90

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: NATURE OF BUSINESS OPERATIONS

Golden Telecom, Inc. ("GTI", "Golden Telecom" or the "Company") is a
provider of a broad range of telecommunication services to businesses, other
telecommunications service providers and consumers. The Company provides these
services through its operation of voice, Internet and data networks,
international gateways, local access and various value-added services in the
Commonwealth of Independent States ("CIS"), primarily in Russia, and through its
fixed line and mobile operation in Ukraine. Golden Telecom was incorporated in
Delaware on June 10, 1999 for the purpose of acting as a holding company for
Global TeleSystems, Inc.'s ("GTS") operating entities within the CIS and
supporting non-CIS holding companies (the "CIS Entities"). On September 29,
1999, GTS transferred its ownership rights in the CIS Entities to the Company in
anticipation of the Company's initial pubic offering which closed on October 5,
1999.

The CIS Entities were subsidiaries of GTS prior to the transfer of ownership
rights of the CIS Entities to the Company, and after the IPO, GTS retained an
approximately 67% interest in the Company. On May 11, 2001, GTS completed the
sale of approximately 12.2 million shares, or approximately 50%, of GTI's common
stock to a group of investors led by Alfa Group, a leading Russia-based
financial and industrial concern ("Alfa"), and two of the Company's previously
existing major shareholders, Capital International Global Emerging Markets
Private Equity Fund L.P. ("Capital") and investment funds managed by Barings
Vostok Capital Partners ("Baring Vostok").

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING
PRONOUNCEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

Wholly owned subsidiaries and majority owned ventures where the Company has
operating and financial control are consolidated. Those ventures where the
Company exercises significant influence, but does not exercise operating and
financial control are accounted for by the equity method. The Company had
certain majority-owned ventures that were accounted for by the equity method as
a result of minority shareholders possessing substantive participating rights
that prevented the Company from obtaining control of the ventures, but these
ventures were acquired by MCT Corp. ("MCT") in December 2000. All significant
inter-company accounts and transactions are eliminated upon consolidation.

The Company recognizes profits and losses in accordance with its underlying
ownership percentage or allocation percentage as specified in the agreements
with its partners; however, the Company recognizes 100% of the losses in
ventures and majority owned subsidiaries where the Company bears all of the
financial risk. When such ventures and subsidiaries become profitable, the
Company recognizes 100% of the profits until such time as the excess losses
previously recognized have been recovered. The results of operations of the
abandoned cellular ventures are excluded from GTI's results of operations from
August 31, 1999, the date of abandonment, through to disposition in December
2000.

Results of subsidiaries acquired and accounted for by the purchase method
have been included in operations from the relevant date of acquisition.

91

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Foreign Currency Translation

The Company's functional currency is the US dollar because the majority of
its revenues, costs, property and equipment purchased, and debt and trade
liabilities are either priced, incurred, payable or otherwise measured in US
dollars. Each of the legal entities domiciled in the CIS maintains its records
and prepares its financial statements in the local currency (principally either
Russian rubles or Ukrainian hryvna) in accordance with the requirements of
domestic accounting and tax legislation. The accompanying financial statements
differ from the financial statements used for statutory purposes in the CIS and
other non-US jurisdictions in that they reflect certain adjustments, recorded on
the entities' books, which are appropriate to present the financial position,
results of operations and cash flows in accordance with accounting principles
generally accepted in the United States of America ("US GAAP"). The principal
adjustments are related to revenue recognition, foreign currency translation,
deferred taxation, consolidation, and depreciation and valuation of property and
equipment and intangible assets.

The Company follows a translation policy in accordance with Statement of
Financial Accounting Standard ("SFAS") No. 52, "Foreign Currency Translation,"
(as amended by SFAS No. 130, "Reporting Comprehensive Income"). The temporal
method for translating assets and liabilities is used for translation of the
Company's legal entities domiciled in the CIS and other non-US jurisdictions.
Accordingly, monetary assets and liabilities are translated at current exchange
rates while non-monetary assets and liabilities are translated at their
historical rates. Income and expense accounts are translated at average monthly
rates of exchange. The resultant translation adjustments are included in the
operations of the subsidiaries and ventures. Generally, the ruble is not
convertible outside of Russia. The official exchange rate which is established
by the Central Bank of Russia is a reasonable approximation of market rate. The
official exchange rates which are used for translation in the accompanying
financial statements were 30.14 and 31.78 rubles per US dollar as of December
31, 2001 and 2002, respectively.

All foreign currency gains and losses recognized in the operations of
consolidated subsidiaries are included in the Company's statement of operations
as "foreign currency losses." The Company's proportionate share of all foreign
currency gains and losses recognized in the operations of ventures accounted for
by the equity method of accounting are recognized in the Company's statement of
operations as "equity in earnings of ventures".

The translation of local currency denominated assets and liabilities into US
dollars for the purpose of these financial statements does not indicate that the
Company could realize or settle in US dollars the reported values of the assets
and liabilities. Likewise, it does not indicate that the Company could return or
distribute the reported US dollar value of capital to its shareholders.

Cash and Cash Equivalents and Restricted Cash

The Company classifies cash on hand and deposits in banks, including
commercial paper, money market accounts, and any other investments with an
original maturity of three months or less from the date of purchase, that the
Company may hold from time to time, as cash and cash equivalents. Restricted
cash is primarily related to cash held in escrow at a financial institution for
the collateralization of debt obligations that certain of the Company's
consolidated subsidiaries and equity ventures have borrowed from such financial
institution.

92

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Investments Available for Sale

The Company classifies its investments in debt securities, which do not
qualify as cash equivalents due to their extended maturities, as investments
available for sale. Investments available for sale consisted of money market
instruments such as certificates of deposit and commercial paper, and the
contractual maturity of the entire balance was less than one year at December
31, 2001. Investments available for sale are stated at fair value which
approximates cost plus accrued interest income. Accordingly, there are no
unrecognized gains or losses as of December 31, 2001 and 2002.

Accounts Receivable, Net

Accounts receivable are shown at their net realizable value which
approximates their fair value.

Inventories

Inventories, which are classified as other current assets, are stated at the
lower of cost or market. Cost is computed on either a specific identification
basis or a weighted average basis.

Property and Equipment

Property and equipment is stated at cost. Depreciation is calculated on a
straight-line basis over the lesser of the estimated lives, ranging from five to
ten years for telecommunications equipment and three to five years for
furniture, fixtures and equipment and other property, or their contractual term.
Construction in process reflects amounts incurred for the configuration and
build-out of telecommunications equipment not yet placed into service.
Maintenance and repairs are charged to expense as incurred. The Company has
included in property and equipment, capitalized leases in the amount of $23.5
million at December 31, 2001 and 2002, with associated accumulated depreciation
of $2.6 million and $5.9 million as of December 31, 2001 and 2002, respectively.
Amortization of assets recorded under capital leases is included with
depreciation expense for the year ended December 31, 2001 and 2002.

Goodwill and Intangible Assets

Goodwill represents the excess of acquisition costs over the fair value of
the net assets of acquired businesses, and was amortized on a straight-line
basis over its estimated useful life, five years until December 31, 2001.
Intangible assets, which are stated at cost, consists principally
telecommunications service contracts, licenses, software and content are
amortized on a straight-line basis over the lesser of their estimated useful
lives, generally five to seven years, or their contractual term. In accordance
with Accounting Principles Board ("APB") Opinion No. 17, "Intangible Assets" and
SFAS No. 142 "Goodwill and Other Intangible Assets", the Company continues to
evaluate the amortization period to determine whether events or circumstances
warrant revised amortization periods. Additionally, the Company considers
whether the carrying value of such assets should be reduced based on the future
benefits of its intangible assets.

93

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations", and No. 142, "Goodwill and Other Intangible
Assets", effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill and intangible assets deemed to have indefinite lives are no
longer amortized but are subject to annual impairment tests in accordance with
SFAS No. 142. Other intangible assets continue to be amortized over their useful
lives. Impairment losses that arise due to the initial application of this
standard are reported as a cumulative effect of a change in accounting
principle. The Company has adopted SFAS No. 141, "Business Combinations" which
was effective for business combinations consummated after June 30, 2001. The
Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets" on January
1, 2002 and discontinued amortization of goodwill as of such date.

The Company completed the transitional impairment test for existing goodwill
as of January 1, 2002 during the second quarter of 2002. Based on comparison of
the carrying amounts of the Company's reporting units with the fair values of
the reporting units, the Company determined that no goodwill was impaired as of
that date. Fair values of the reporting units were established using the
discounted cash flow method.

Upon the adoption of SFAS No. 142, the Company recorded a cumulative effect
of a change in accounting principle for negative goodwill (deferred credit)
arising on the Company's equity method investments in the amount of $1.0
million. The impact of non-amortization of goodwill on the Company's net income
for the twelve months ended December 31, 2002 was approximately $15.0 million
increase, or $0.62 per share of common stock - basic. The Company also
reclassified to other intangible assets approximately $1.3 million previously
classified as goodwill. Amortization expense for goodwill for the twelve months
ended December 31, 2001 was $13.8 million.

Amortization expense for intangible assets for the twelve months ended
December 31, 2002 was $6.4 million. Amortization expense for the succeeding five
years is expected to be as follows: 2003 - $10.2 million, 2004 - $9.2 million,
2005 - $8.2 million, 2006 - $7.3 million, and 2007 - $6.4 million. The total
gross carrying value and accumulated amortization of the Company's intangible
assets by major intangible asset class is as follows:

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

94

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The changes on the carrying amount of goodwill for the year ended December
31, 2002, are as follows:

The pro forma impact of the change in accounting method for goodwill on net
loss and net loss per share for the twelve months ended December 31, 2001
compared to actual results for the twelve months ended December 31, 2002 is as
follows:

95

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Goodwill Impairment Assessment

Goodwill is reviewed annually for impairment or whenever it is determined
that impairment indicators exits. The Company determines whether an impairment
has occurred by assigning goodwill to the reporting units identified in
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets", and
comparing the carrying amount of the reporting unit to the fair value of the
reporting unit. If a goodwill impairment has occurred, the Company recognizes a
loss for the difference between the carrying amount and the implied fair value
of goodwill.

Long-Lived Assets

Long-lived assets to be held and used by the Company are reviewed to
determine whether an event or change in circumstances indicates that the
carrying amount of the asset may not be recoverable. For long-lived assets to be
held and used, the Company bases its evaluation on such impairment indicators as
the nature of the assets, the future economic benefit of the assets, any
historical or future profitability measurements, as well as other external
market conditions or factors that may be present. If such impairment indicators
are present or other factors exist that indicate that the carrying amount of the
asset may not be recoverable, the Company determines whether an impairment has
occurred through the use of an undiscounted cash flows analysis of assets at the
lowest level for which identifiable cash flows exist. If impairment has
occurred, the Company recognizes a loss for the difference between the carrying
amount and the fair value of the asset. The fair value of the asset is measured
using discounted cash flow analysis or other valuation techniques.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,"
for the disposal of a segment of a business (as previously defined in that
opinion). This statement also amends Accounting Research Bulletin No. 51,
"Consolidated Financial Statements", to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. The provisions of
the statement became effective for financial statements issued for fiscal years
beginning after December 15, 2001. The Company adopted this new standard from
January 1, 2002. The adoption of the pronouncement did not have an effect on the
Company's results of operations or financial position.

Income Taxes

The Company uses the liability method of accounting for income taxes.
Deferred income taxes result from temporary differences between the tax bases of
assets and liabilities and the bases as reported in the consolidated financial
statements. The Company does not provide for deferred taxes on the undistributed
earnings of its foreign subsidiaries, as such earnings are generally intended to
be reinvested in those operations permanently. In the case of non-consolidated
entities where our partner requests that a dividend be paid, the amounts are not
expected to have a material impact on the Company's income tax liability. It is
not practical to determine the amount of unrecognized deferred tax liability for
such reinvested earnings.

96

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Revenue Recognition

The Company records as revenue the amount of telecommunications and Internet
services rendered, as measured primarily by the minutes of traffic processed,
after deducting an estimate of the traffic that are partial minutes and test
traffic which will be neither billed nor collected, and the time spent online.
Revenue from service contracts is accounted for when the services are provided.
Billings received in advance of service being performed are deferred and
recognized as revenue as the service is performed. Revenues are stated net of
any value-added taxes ("VAT") charged to customers. Certain other taxes that are
based on revenues earned were incurred at a rate of 4% during 2000 and 1% during
2001 and 2002, and have been included in operating expenses since these taxes
are incidental to the revenue cycle.

In accordance with the provisions of the Securities and Exchange Commission
Staff Accounting Bulletin No. 101, the Company has deferred telecommunication
connection fees and capitalized direct incremental costs related to connection
fees, not exceeding the revenue deferred. The deferral of revenue and
capitalization of cost of revenue will be recognized over the estimated life of
the customer. The total amount of deferred revenue was $5.9 million and $11.3
million as of December 31, 2001 and 2002, respectively. The total amount of
deferred cost of revenue was $2.7 million and $4.4 million as of December 31,
2001 and 2002, respectively.

In the fourth quarter of 2002, the Company re-assessed the average life of
the customer and concluded that the average life of the customer increased from
three to five years except for GTU which remained at two years for customers in
the CLEC Services and Data and Internet Services Division's and eighteen months
for customers in the Mobile Services division. The impact of increasing the
average life of the customer from three to five years was approximately $0.7
million reduction in revenue and $0.4 million decrease in cost of revenue in the
fourth quarter of 2002. The impact of this change in customer life was $0.3
million reduction on net income and $0.01 per common share -basic for the year
ended December 31, 2002.

The Company recognizes revenue from equipment sales when title to the
equipment passes to the customer. The Company defers the revenue on installed
equipment until installation and testing are completed and accepted by the
customer.

Advertising

The Company expenses the cost of advertising as incurred. Advertising
expenses for the year ended December 31, 2000, 2001 and 2002 were $5.0 million,
$4.6 million and $3.7 million, respectively.

Net Income (Loss) Per Share

The Company's net loss per share calculation (basic and diluted) at December
31, 2001 is based upon the Company's weighted average common shares outstanding.
There are no reconciling items in the numerator or denominator of the Company's
net loss per share calculation at December 31, 2001 and 2002. Warrants and stock
options have been excluded from the net loss per share calculation at December
31, 2001 because their effect would have been antidilutive.

97

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Basic earnings per share at December 31, 2002 is computed on the basis of
the weighted average number of common shares outstanding. Diluted earnings per
share at December 31, 2002 is computed on the basis of the weighted average
number of common shares outstanding plus the effect of outstanding employee
stock options using the "treasury stock" method. The number of stock options
excluded from the diluted earnings per share computation, because their effect
was antidilutive in 2002 was 352,261 stock options.

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

Government Pension Funds

The Company contributes to the Russian and Ukrainian state pension funds and
social funds, on behalf of all its Russian and Ukrainian employees. In Russia,
starting from January 1, 2001 all social contributions (including contributions
to the Pension fund) were substituted with a unified social tax ("UST")
calculated by the application of a regressive rate from 35.6% to 5% to the
annual gross remuneration of each employee. The company allocates UST to three
social funds (including the Pension fund) where the rate of contributions to the
Pension fund vary from 28% to 5% respectively depending on the annual gross
salary of each employee. The contributions are expensed as incurred.

98

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Fair Value of Financial Instruments

The carrying amounts for cash and cash equivalents, investments held for
sale, accounts receivable, accounts payable, accrued liabilities, and short-term
debt approximate their fair value. The fair value of debt to GTS was $6.5
million at December 31, 2001 and was paid in May 2002. The fair value of notes
receivable, including the long-term portion was $9.1 million and $7.6 million at
December 31, 2001 and 2002, respectively. The fair value of debt to Citibank
approximates the carrying value of $30.0 million at December 31, 2002. At
December 31, 2002, the Company held no debt at fixed rates.

Comprehensive Income

Comprehensive income is defined as the change in equity of a business
enterprise during a period from non-owner sources. For the years ended December
31, 2000, 2001 and 2002, comprehensive income for the Company is equal to net
income (loss).

Off Balance Sheet Risk and Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of cash, cash equivalents, investments held for
sale and accounts and notes receivable. Of the $37.4 million of cash and cash
equivalents and $9.0 million of investments available for sale held at December
31, 2001 and the $59.6 million of cash and cash equivalents held at December 31,
2002, $38.3 million and $45.8 million was held in US money market instruments in
US financial institutions at December 31, 2001 and 2002, respectively. The
remaining balance is being maintained in US-owned and, to a lesser extent, local
financial institutions within the CIS. The Company extends credit to various
customers, principally in Russia and Ukraine, and establishes an allowance for
doubtful accounts for specific customers that it determines to have significant
credit risk. The Company generally does not require collateral to extend credit
to its customers. In 2001, the Company granted an unsecured loan to a party in a
lease agreement, as disclosed in Note 6.

Stock-Based Compensation

The Company follows the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," for its Equity Participation Plan. SFAS No. 123
establishes a fair value method of accounting for employee stock options and
similar equity instruments. The fair value method requires compensation cost to
be measured at the grant date based on the value of the award and to be
recognized over the service period. SFAS No. 123 generally allows companies to
either account for stock-based compensation under the fair value method of SFAS
No. 123 or under the intrinsic value method of Accounting Principles Board
("APB") No. 25, "Accounting for Stock Issued to Employees." The Company has
elected to account for its stock-based compensation in accordance with the
provisions of APB No. 25 and present pro forma disclosures of results of
operations as if the fair value method had been adopted. The Company recognizes
compensation expense for stock options granted to employees of its equity method
investees based on the fair value of options, as determined using the
Black-Sholes valuation model, over the respective option vesting period.

99

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," which amends SFAS No. 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition to SFAS No. 123's fair value method of accounting for stock-based
employee compensation. SFAS No. 148 also amends the disclosure provisions of
SFAS No. 123 and APB No. 28, "Interim Financial Reporting", to require
disclosure in the summary of significant accounting policies of the effects of
an entity's accounting policy with respect to stock-based employee compensation
on reported net income and earrings per share in annual and interim financial
statements. While the Statement does not amend SFAS No. 123 to require companies
to account for employee stock options using the fair value method, the
disclosure provisions of SFAS No. 148 are applicable to all companies with
stock-based employee compensation, regardless of whether they account for that
compensation using the fair value method of SFAS No. 123 or the intrinsic value
method of APB No. 25. SFAS No. 148 disclosure provisions are effective for years
ending after December 15, 2002. The Company has adopted the amendments to SFAS
No. 123 disclosure provisions required under SFAS No. 148 but will continue to
use the intrinsic value method under APB No. 25 to account for stock-based
compensation. As such, the adoption of SFAS No. 148 will not have a significant
impact of the Company's consolidated financial position or results of
operations.

The Company applies the provisions of APB No. 25 in accounting for its stock
options incentive plans. The effect of applying SFAS No. 123 on the net income
(loss) as reported is not representative of the effects on reported net income
(loss) in future years due to the vesting period of the stock options and the
fair value of additional stock options in future years.

Use of Estimates in Preparation of Financial Statements

The preparation of these consolidated financial statements, in conformity
with US generally accepted accounting principles, requires management to make
estimates and assumptions that affect amounts in the financial statements and
accompanying notes and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Asset Retirement Obligations

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement deals with the costs of closing
facilities and removing assets. SFAS No. 143 requires entities to record the
fair value of a legal liability for an asset retirement obligation in the period
it is incurred. This cost is initially capitalized and amortized over the
remaining life of the asset. Once the obligation is ultimately settled, any
difference between the final cost and the recorded liability is recognized as a
gain or loss on disposition. SFAS No. 143 is effective for years beginning after
June 15, 2002. The adoption of SFAS No. 143 will not have an impact on the
Company's consolidated financial position or results of operations.

100

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Rescission and amendments of certain FASB statements

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement rescinds SFAS No. 4, "Reporting Gains and Losses
from Extinguishments of Debt," and an amendment of that Statement, SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." This
statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers." This statement amends SFAS No. 13, "Accounting for Leases", to
eliminate an inconsistency between the required accounting for sale-lease-back
transactions. This statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The provisions of this
statement became effective for financial statements issued on or after May 15,
2002. The Company adopted this new standard from May 15, 2002. The adoption of
the pronouncement did not have an effect on the Company's results of operations
or financial position.

Exit or Disposal Activities

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. This statement nullifies Emerging Issues Task Force No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring),"
which required that a liability for an exit cost be recognized upon the entity's
commitment to an exit plan. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The adoption of the
provisions of SFAS No. 146 is not expected to have a material impact on the
Company's results of operations, financial position or cash flow.

Financial Guarantees

In November 2002, the FASB issued FASB Interpretation No. 45,"Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that upon
issuance of a guarantee, the guarantor must recognize a liability for the fair
value of the obligation it assumes under that guarantee. The disclosure
provisions of FIN 45 are effective for financial statements of annual periods
that end after December 15, 2002. The provisions for initial recognition and
measurement are effective on a prospective basis for guarantees that are issued
or modified after December 31, 2002.

Consolidation of Variable Interest Entities

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities". FIN No. 46 defines the concept of "variable interests" and
requires existing unconsolidated variable interest entities to be consolidated
into the financial statements of their primary beneficiaries if the variable
interest entities do not effectively disperse risks among the parties involved.
FIN No. 46 applies immediately to variable interest entities created after
January 31, 2003. It applies in the first fiscal year or interim period
beginning after June 15, 2003, to variable interest entities in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
If it is reasonably possible that an enterprise will consolidate or disclose
information about a variable interest entity when FIN No. 46 becomes effective,
the enterprise must disclose information about those entities in all financial
statements issued after January 31, 2003. The interpretation may be applied
prospectively with a cumulative-effect adjustment as of the date on which it is
first applied or by restating previously issued financial statements for one or
more years, with a cumulative-effect adjustment as of the beginning of the first
year restated. The Company does not expect that the adoption of the provisions
of FIN No. 46 will have a material impact on the Company's future results of
operations, financial position or cash flow.

Comparative Figures

Certain 2000 and 2001 amounts have been reclassified to conform to
presentation adopted in the current year.

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GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 3: BUSINESS COMBINATIONS AND VENTURE TRANSACTIONS

The Company has continually increased its ownership interest in several of
its previously existing ventures by either buying all or part of the minority
shareholders' interest in these ventures. These transactions have enabled the
Company to consolidate certain ventures that were previously accounted for
following the equity method of accounting. The Company has executed these
transactions by paying cash and has accounted for these transactions under the
purchase method of accounting, and as such, any purchase price paid over net
tangible and intangible assets acquired has been reflected as goodwill, which
was amortized on a straight-line basis for a period of five years prior to
December 31, 2001.

ACQUISITIONS IN 2000

In February 2000, Golden Telecom Ukraine, a majority owned subsidiary,
acquired 99% of Sovam Teleport Ukraine, including a 51% interest previously held
by third parties. Sovam Teleport Ukraine is a provider of data and Internet
services to Ukraine-based business. In March 2000, the Company acquired the
assets of Referat.ru and Absolute Games, two leading vertical Internet portals
in the education and computer gaming categories of the Russian Internet. In
April 2000, the Company acquired the assets of Fintek, a prominent Moscow-based
Web design studio and 51% of Commercial Information Networks ("KIS"), the
largest Internet service provider in Nizhny Novgorod. In September 2000,
SFMT-Rusnet, Inc., a wholly-owned subsidiary, acquired 25% of SA Telcom LLP, a
telecommunications and data services provider in Kazakhstan, bringing its
ownership interest in this company up to 100%. The combined purchase price was
less than $3.0 million in cash.

In October 2000, the Company acquired the assets of IT INFOART STARS
("InfoArt"), a leading horizontal Russian and English language Internet portal,
for approximately $8.3 million in cash. InfoArt provides Internet users with a
wide variety of content from leading Russian news agencies and publications.

In December 2000, the Company acquired Agama Limited ("Agama") that owns the
Agama family of web properties for approximately $13.1 million in cash and the
issuance of 399,872 shares of the Company's common stock valued at $3.8 million,
including 79,974 shares that were subject to a holdback and were placed in
escrow relating to personnel retention and payment of potential liability. These
shares were released from escrow in December 2001. The Agama family of Russian
web properties include Aport, Atrus ("@Rus"), and Omen.

The Company has executed the above transactions by paying cash and issuing
shares of the Company's common stock. These transactions have been accounted
under the purchase method of accounting, and as such, any purchase price paid
over net tangible and intangible assets acquired has been reflected as goodwill.
No adjustments have been made to the assets and liabilities acquired, since
their carrying values approximated their fair market values on the date of the
transactions.

102

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

In December 2000, the Company acquired an ownership interest in MCT in
exchange for the Company's 100% ownership of Vostok Mobile B.V., a Netherlands
registered private limited holding company that owned the Company's Russian
mobile operations. Initially, the Company acquired approximately 24% of the
outstanding common stock of MCT and the Company expected to be diluted to not
less than 18% as a result of equity offerings planned by MCT. As part of the
transaction, the Company also acquired $9.0 million of MCT debt convertible into
equity securities for cash, which was fully repaid in November 2001.

The Company accounted for the exchange of the subsidiary Vostok Mobile B.V.
for an equity interest of approximately 24% in MCT at book value since the
related fair values were not readily determinable, accordingly, no gain or loss
was recognized on the exchange. Concurrent with the exchange of ownership
interests, certain assets and rights to certain obligations of the Company's
Russian mobile ventures were assigned to MCT. Prior to the transaction, the book
value of the Company's interest was adjusted for the effect of these concurrent
transactions and the remaining portion of the abandonment and restructuring
reserve (see Note 15). At December 31, 2002, the Company's equity interest in
MCT was approximately 23%.

ACQUISITIONS IN 2001

In June 2001, the Company acquired ISP ZAO Cityline ("Cityline"), 51% of ISP
OOO Uralrelcom ("Uralrelcom") and infrastructure company ZAO First
Telecommunications Company ("PTK") for cash consideration of approximately $29.0
million, including $6.0 million that was held in escrow. At the time of
acquisition, local access capacity to be delivered by a third party to PTK was
not yet operational nor placed in service. The purchase and sale agreement
provided that until such capacity became fully operational, $6.0 million of
purchase consideration would be held in escrow. The Company's interim financial
statements reflected the preliminary purchase price allocation, principally
assigning such costs to intangible assets. In the fourth quarter of 2001, the
Company became aware that such original local access capacity would not become
available. As a result, the Company negotiated a full recovery of the funds held
in escrow and the Company received alternative local access capacity pursuant to
the original terms of the PTK third-party contract. Accordingly, as of December
31, 2001, the recovery of the funds held in escrow of $6.0 million was recorded
as a reduction in the carrying amount of the acquired intangible assets. In
addition, the Company incurred approximately $0.9 million in consulting fees
related to these investment transactions from an affiliate of Alfa, a
shareholder of the Company.

The following unaudited pro forma combined results of operations for the
Company give effect to the Cityline, Uralrelcom and PTK business combinations as
if they had occurred at the beginning of 2001, along with pro forma comparable
results for 2000. For the twelve months ended December 31, 2000 and 2001, pro
forma revenue would have been approximately $118.3 million and $142.9 million,
respectively. The pro forma net loss would have been approximately $11.9
million, or $0.49 per common share for the twelve months ended December 31, 2000
and approximately $40.9 million, or $1.73 per common share, for the twelve
months ended December 31, 2001. These pro forma amounts are provided for
informational purposes only and do not purport to present the results of
operations of the Company had the transactions assumed therein occurred on or as
of the date indicated, nor is it necessarily indicative of the results of
operations which may be achieved in the future.

103

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

In September 2001, the Company acquired 51% of ADS, a CLEC operating
primarily in Nizhny Novgorod, for cash consideration of approximately $2.9
million. The impact of this acquisition on the operating results of the Company
for 2000 and 2001, if presented on a pro-forma basis, would not have been
material.

The following is a condensed balance sheet of ADS as of the acquisition
date, reflecting purchase price accounting adjustments to the net assets
acquired:

The results of operations of Cityline, Uralrelcom and PTK have been included
in the Company's consolidated operations since June 1, 2001. The results of
operations of ADS have been included in the Company's consolidated operations
since September 1, 2001.

ACQUISITIONS IN 2002

In August 2002, the Company acquired approximately 31% of Golden Telecom
(Ukraine) ("GTU") for cash consideration of approximately $5.2 million,
including $3.7 million recorded as a liability, net of $0.3 million discount
(determined at the rate of 6.11%). The Company now owns 100% of GTU. The
acquisition was accounted for as a purchase business combination under US GAAP.
The Company's financial statements reflect the preliminary allocation of the
purchase price, and as such, the Company has recorded approximately $1.8 million
of contract-based customer relationship intangible assets that will be amortized
over a period of approximately 5 years. There was no goodwill recorded as a
result of this transaction.

104

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

In September 2002, subsidiaries of the Company completed the acquisition of
50% of EDN Sovintel LLC ("Sovintel") that the Company did not own from Open
Joint Stock Company Rostelecom ("Rostelecom"), pursuant to an Ownership Interest
Purchase Agreement, dated March 13, 2002, by and among subsidiaries of the
Company and Rostelecom, bringing the Company's ownership in Sovintel to 100%.
The total purchase price of approximately $113.1 million consisted of
approximately $50.7 million in GTI's common stock, representing 4,024,067
shares, $10.0 million in cash consideration, $46.0 million in promissory note
consideration (see discussion below), and direct transaction costs of
approximately $7.1 million, including an investment banking fee of approximately
$3.3 million paid to an affiliate of Alfa Telecom Limited, a shareholder of the
Company. The value of the common stock which was issued on August 28, 2002 was
determined based on the closing price of the Company's common stock on September
3, 2002. The acquisition of the remaining 50% of Sovintel will further
strengthen the Company's position in the key Moscow and St. Petersburg
communications markets, position the Company to realize future operating and
cost synergies, and allow GTI to offer a full suite of telecommunication
services across broad geographical markets in Russia and the CIS. Sovintel
provides worldwide communications services, principally to major hotels,
business offices and mobile communication companies through its
telecommunications network in Russia. The Company intends to use the assets of
Sovintel in the manner in which they were previously used. The Company began
consolidating the results of operations of Sovintel on September 17, 2002.

In September 2002, TeleRoss LLC ("TeleRoss"), a wholly-owned Russian
subsidiary of the Company, issued a three month $46.0 million non-interest
bearing note payable to Rostelecom in partial settlement of the acquisition of
the remaining 50% ownership interest in Sovintel previously held by Rostelecom.
TeleRoss was required to and settled the note, in full, in December 2002. This
non-interest bearing note payable was recorded net of $0.7 million discount
representing imputed interest.

The acquisition of the remaining 50% of Sovintel was accounted for as a
purchase business combination in accordance with US GAAP. As the transaction
reflected acquisition of the remaining 50% interest in Sovintel which was not
previously owned by the Company, the Company has recorded the net assets
acquired at 50% of estimated fair value and 50% of historical US GAAP carrying
values. The following is a condensed balance sheet of Sovintel as of the
acquisition date, reflecting purchase accounting adjustments to the net assets
acquired:

105

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The Company's financial statements reflect the allocation of the purchase
price to assets acquired and liabilities assumed based on their fair values, and
as such, the Company has assigned approximately $14.7 million to
telecommunications service contracts intangible assets which will be amortized
over a weighted average of approximately 9 years, approximately $6.4 million to
contract based customer relationship intangible assets which will amortized over
a weighted average of approximately 5 years, approximately $0.6 million to
licenses which will be amortized over a weighted average of 5 years, and
approximately $0.3 million to other identified intangible assets which will
amortized over 5 years. Property and equipment was adjusted to fair value using
a net current replacement cost valuation method. The excess purchase price over
the fair value of the net tangible and intangible assets acquired of
approximately $54.3 million has been assigned to goodwill and is not deductible
for tax purposes. This goodwill has been assigned to the CLEC Services business
segment. In accordance with SFAS No. 141, "Business Combinations" and SFAS No.
142 "Goodwill and Other Intangible Assets", the Company will not amortize the
goodwill recorded in connection with the acquisition of the remaining 50% of
Sovintel. The goodwill will be tested for impairment at least annually.

106

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following unaudited pro forma combined results of operations for the
Company give effect to the Sovintel business combination as if it had occurred
at the beginning of 2001 and 2002. These pro forma amounts are provided for
informational purposes only and do not purport to present the results of
operations of the Company had the transactions assumed therein occurred on or as
of the date indicated, nor is it necessarily indicative of the results of
operations which may be achieved in the future.

NOTE 4: INVESTMENTS IN AND ADVANCES TO VENTURES

The Company has various investments in ventures that are accounted for by
the equity method. The Company's ownership percentages in its equity method
investments, in the periods shown, range from approximately 23% to 50%.

107

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The components of the Company's investments in and advances to ventures are
as follows:

The Company has financed the operating and investing cash flow requirements
of several of the Company's ventures in the form of cash advances. The Company
aggregates all of the receivable and payable balances with the ventures in the
Company's investments in and cash advances to the ventures.

108

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The changes in the investments in and advances to ventures are as follows:

For all periods presented through December 31, 2002, the significant
investments accounted for under the equity method and the percentage interest
owned consist of the following:

TeleRoss Nizhny Novgorod, TeleRoss Ufa, TeleRoss Arkhangelsk, TeleRoss Komi,
TeleRoss Khabarovsk, TeleRoss Samara and EDN Sovintel are all accounted for
using the consolidation method subsequent to the dates indicated above.

109

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following table presents summarized income statement and balance sheet
information from the Company's significant equity investee, Sovintel, for the
year ended December 31, 2001 and the period January 1, 2002 to September 16,
2002. Effective September 17, 2002, the company began consolidating the results
of operations of Sovintel as a result of the acquisition of the 50% interest not
controlled previously.

The Company's equity investee, MCT, is in default on a loan note that
originally became due on September 29, 2001. In December 2001, MCT signed a
forbearance agreement whereby the holder of the note agreed to forbear from
selling the note or exercising its rights under the original debt agreements and
to extend the terms of repayment until January 31, 2002. MCT did not make
payment on the note prior to January 31, 2002 and during April 2002 the holder
of the loan note foreclosed on the collateral related to the note and
subsequently sold it to a third-party, resulting in a substantial loss to MCT.
The Company recognized the corresponding amount of the Company's equity in MCT's
losses during the second quarter of 2002, not exceeding the carrying value of
the Company's investment in MCT. Total equity in losses recognized by the
Company related to our MCT investment were $3.9 million and $5.1 million for the
years ended December 31, 2001 and 2002, respectively. The Company has no further
commitments to provide financial support to MCT.

110

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 5: SUPPLEMENTAL BALANCE SHEET INFORMATION

NOTE 6: DEBT OBLIGATIONS AND CAPITAL LEASES

Company debt consists of:

111

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Aggregate maturities of debt, as of December 31, 2002, are as follows: 2003
- -- $9.0 million, 2004 -- $23.6 million, 2005 -- none, 2006 -- $0.2 million, 2007
- -- $0.3 million, and thereafter -- none.

The Company paid interest of $2.9 million, $2.2 million and $4.8 million in
2000, 2001, and 2002, respectively.

Some of the Company's operating companies have received debt financing
through direct loans from affiliated companies. In addition, certain operating
companies have borrowed funds under a $22.7 million back-to-back, seven-year
credit facility from a Russian subsidiary of Citibank. Under this facility, the
Company provides full cash collateral, held in London and recorded on our
balance sheet as restricted cash, for onshore loans made by the bank to the
Company's Russian registered joint ventures. In a second, similar facility, the
Company provides full cash collateral for a $10.0 million short term
back-to-back, revolving, credit facility from the same bank for two of the
Company's larger Russian operating companies. The funding level as of December
31, 2002 for all these facilities totaled $1.4 million, of which $0.6 million
was funded to the Company's consolidated subsidiaries and $0.8 million was
funded to the Company's affiliates. The loan facilities carry interest at a rate
equal to the three-month London Inter-Bank Offering Rate ("LIBOR") plus 1.0
percent per annum (equivalent to approximately 3.39%, on average for loans
outstanding, at December 31, 2002) and mature between December 2006 and January
2007.

In June 1996, Golden Telecom (Ukraine) entered into an agreement with
Motorola Corporation (the "Motorola equipment agreement") whereby Golden Telecom
(Ukraine) could purchase up to $20.0 million of certain equipment from Motorola.
Through December 31, 2002, the Company had purchased $13.7 million of equipment
under this agreement. Golden Telecom (Ukraine) is required to make 15 semiannual
payments plus accrued interest beginning six months after completion of
installation of such equipment, starting on June 25, 1997. Amounts outstanding
under this agreement totaled $0.8 million at December 31, 2002. The agreement
carries interest at a rate equal to the USD LIBOR rate plus 3.0 percent per
annum (equivalent to 5.40% at December 31, 2002). Amounts outstanding under the
agreement have been covered by the GTS Parent Guarantee. At present, the GTS
Parent Guarantee is being transferred to GTI.

In October 2000, Golden Telecom (Ukraine) entered into a four year supplier
loan agreement with Siemens AG (the "Siemens Loan Agreement") whereby Siemens AG
provided to Golden Telecom (Ukraine) a loan of $3.4 million for the purchase
from Siemens AG of network equipment and services for use in the GSM 1800
network in Odessa, Ukraine, deployed in the third quarter of 2000. In accordance
with the terms of the Siemens Loan Agreement, Golden Telecom (Ukraine) is
required to make eight semi-annual payments plus accrued interest beginning May
15, 2001. Principal outstanding under this agreement totaled $1.7 million at
December 31, 2002. The agreement carries interest at a rate equal to the six
month USD LIBOR plus 4.9% (equivalent to 6.96% at December 31, 2002). The
Siemens Loan Agreement became effective with the execution of a payment
guarantee by Golden Telecom, Inc.

112

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The sale by GTS of approximately 12.2 million, or approximately 50%, of the
Company's common stock, in May 2001, triggered an acceleration of $6.0 million,
including accrued interest, of our long-term debt, under change of control
provisions in promissory notes. In July 2001, this long-term debt was paid to
the vendor of telecommunications equipment in full in final settlement of the
Vendor Settlement Agreement. As part of the GTS transaction, an additional $6.3
million of pre-existing long-term debt due from GTI to GTS became payable in May
2002. The long-term debt, plus accrued interest was paid to GTS in May 2002. For
other third party debt agreements, held at the subsidiary level, the lenders
have agreed that this transaction will not affect the terms of those agreements,
other than transfer of guarantees.

In the first quarter of 2000, the Company entered into a lease for fiber
capacity, including facilities and maintenance, from Moscow to Stockholm. The
lease has a term of ten years with an option to renew for an additional five
years. Prepayments were made to the lessor in April 2000, August 2000 and
February 2001. These prepayments have been offset in the balance sheet against
the capital lease obligation.

In September 2001, the Company entered into a five year lease for the right
to use up to VC-3 fiber optic capacity on major routes within Russia to support
the increase in the Company's interregional traffic and regional expansion
strategy. The lease is classified as a capital lease in the balance sheet. In
December 2001, GTI issued a $9.1 million loan to the same company that has
provided the lease. The loan has payment terms of 56 months, which started in
January 2002, and carries interest at the rate of 7 percent per annum. The
following table presents minimum lease payments under the capital lease:

113

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

In September 2002, ROL Holdings Limited ("ROLH"), a wholly-owned Cypriot
subsidiary of the Company, entered into a secured $30.0 million credit facility
with ZAO Citibank ("Citibank Credit Facility"). ROLH drew upon the Citibank
Credit Facility in the fourth quarter of 2002 to fund the repayment of $30.0
million of the $46.0 million non-interest bearing promissory note issued to
Rostelecom by TeleRoss in connection with the acquisition of the remaining 50%
ownership interest in Sovintel previously held by Rostelecom. ROLH is required
to make four quarterly payments of $7.5 million each plus accrued interest
beginning December 2003. The Citibank Credit facility carries interest at a rate
equal to the three month USD LIBOR plus 4.35% (equivalent to 5.75% at December
31, 2002). At the drawdown of the Citibank Credit Facility, GTI and certain
affiliates executed a number of agreements to secure repayment of the Citibank
Credit Facility, including a payment guarantee from GTI and Sovintel, pledge of
the 50% ownership interest in Sovintel the Company owned prior to the purchase
of the remaining 50% ownership interest in Sovintel, pledge of a 58% ownership
interest in TeleRoss, commitments of TeleRoss to route at least 90% of TeleRoss'
cash flows via accounts at ZAO Citibank, commitments of Sovintel to route at
least 60% of Sovintel's cash flows via accounts at ZAO Citibank, and assignment
of accounts receivable by TeleRoss and Sovintel. Among other covenants, the
Citibank Credit Facility contains certain financial covenants including limits
on capital expenditures, limits on investments, and limits on leverage and debt
service coverage.

NOTE 7: SHAREHOLDERS' EQUITY

Common Stock

On September 30, 1999, the Company issued 420,000 shares of $0.01 par common
stock to an affiliate of ING Barings as partial consideration for its ownership
interest in GTS-Ukrainian TeleSystems LLC. In accordance with the subscription
agreement filed with the SEC at the time of the Company's Initial Public
Offering, an additional 30,000 shares of the Company's common stock were issued
on March 1, 2000 to an affiliate of ING Baring's in full and final settlement
for its ownership interest in Golden Telecom Ukraine.

On May 17, 2000, the Company's shareholders approved an increased Company's
authorized common stock from 50 million to 100 million shares.

On June 30, 2000, the Company filed a Registration Statement on Form S-1
with the SEC to register 2,145,633 shares of Common Stock held by Capital
International Global Emerging Markets Private Equity Fund, L.P. and affiliates
of ING Barings.

114

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

In May 2001, GTS completed the transaction contemplated by the Share
Purchase Agreement (the "Share Purchase Agreement"), entered into in April 2001
with Alfa, Capital, and Baring Vostok, (collectively, the "Purchasers") with
respect to the sale to the Purchasers by GTS of approximately 12.2 million
shares of common stock, par value $0.01 per share of GTI. The aggregate purchase
price paid by the Purchasers for the common stock was $125.0 million. In
addition, as specified in the Share Purchase Agreement, at the time of the
consummation of the sale and purchase, the Purchasers entered into separate
stock option agreements with GTS which gave the Purchasers an option to purchase
up to approximately 2.3 million of the remaining approximately 2.9 million
shares of common stock beneficially owned by GTS at the purchase price of $11.00
per share during the 60-day period after the closing of the transaction. In
addition, if certain other conditions are met, during the twelve-month period
after the closing, the Purchasers had an option to purchase the remaining shares
of common stock beneficially owned by GTS at a purchase price equal to the
greater of $11.00 per share or 120% of the average closing share price for the
60-day period preceding the purchase date. As part of the transaction, the
Purchasers and the Company entered into a Standstill Agreement and a
Shareholders Agreement. Generally, the Standstill Agreement provides that for a
period of two years from the date of closing the transaction, neither Alfa nor
GTS may acquire over 49% of GTI's outstanding stock. The Shareholder Agreement
includes a voting arrangement between the Purchasers for the election of certain
nominees to the Company's Board of Directors, among other provisions.

In July 2001, the Company completed a buy-back of $25.0 million, or
approximately 2.3 million shares, of the Company's common stock at $11.00 per
share, from a subsidiary of GTS. After this sale, GTS continued to own
approximately 0.6 million shares, or approximately 2.6 percent, of GTI's
outstanding common stock. To effect the buy-back, GTI acted as designated
purchaser and exercised the options held by Alfa, Capital, and Baring Vostok to
acquire GTI common stock for $11.00 per share from GTS. In October 2001, GTS
sold the remaining approximately 0.6 million shares of GTI's common stock.
Accordingly, GTS is no longer an affiliate of the Company. In the fourth quarter
of 2002, the Company retired the approximately 2.3 million of the Company's
common stock held in treasury.

In September 1999, the Company issued certain warrants to a vendor of
telecommunications equipment as part of a Settlement Agreement to debt
restructuring. The terms of the warrants allowed the vendor to purchase 126,050
shares of the GTI's common stock at an exercise price of $0.10 per share. In
December 2001, the vendor exercised the warrants in a cashless transaction and
received 125,040 shares of GTI's common stock.

In March 2001, 141,961 restricted shares of the Company's common stock were
issued to senior management and employees to be held in escrow by the Company.
The restricted shares were issued in accordance with restricted stock agreements
dated October 1, 1999 concluded as part of the Company's IPO and were held in
escrow by the Company until such restriction lapsed on October 1, 2001.

In August 2002, the Company issued 4,024,067 shares of common stock to
Rostelecom in partial settlement of the purchase price for the acquisition of
the remaining 50% ownership interest in Sovintel, previously held by Rostelecom.

115

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The Company's outstanding shares of common stock increased by 43,100 shares
and 479,977 shares in the twelve months ended December 31, 2001 and 2002,
respectively issued in connection with the exercise of employee stock options.
The Company has reserved 3,654,962 shares of common stock for issuance to
certain employees and directors in connection with the 1999 Equity Participation
Plan.

Preferred Stock

On May 17, 2000, the Company's shareholders authorized the creation of 10
million shares of preferred stock, none of which have been issued.

NOTE 8: STOCK OPTION PLANS

Prior to the formation of the Company, certain employees participated in one
or more of the stock option plans of GTS. At the time of the IPO certain
employees that had been granted GTS options that would vest during the year
2000, surrendered those options and received restricted shares in Golden
Telecom, Inc., which vested on the second anniversary of the IPO. The maximum
number of restricted shares to be issued under this arrangement was 141,961. The
total cost of this restricted share program to the Company was $1.7 million
(grant date fair value) of which $0.9 million and $0.6 million was recorded in
the years ended December 31, 2000 and 2001, respectively.

The Company has established the 1999 Equity Participation Plan of Golden
Telecom, Inc., (the "Option Plan"). The Company has granted and intends to offer
stock options to key employees, members of the Board of Directors of the
Company, and employees of its equity method investees. No charge to operations
is expected to result from options issued under this plan except for options
issued to the employees of equity method investees. The Company recognized $0.3
million and $0.5 million in compensation expense in the years ended December 31,
2001 and 2002, respectively in connection with options granted to employees of
the Company's equity investees. The Company's sole shareholder, at that time,
and the board of directors approved the Option Plan on September 30, 1999. The
plan was ratified at the annual meeting of shareholders May 17, 2000. Under the
Option Plan not more than 4,023,551 shares of common stock (subject to
anti-dilution and other adjustment provisions) were authorized for issuance upon
exercise of options or upon vesting of restricted or deferred stock awards. On
July 17, 2000, the Company filed with the SEC a registration Statement on Form
S-8 to register the 4,023,551 Common Shares available under the Option Plan.
Options granted under the Option Plan vest over a three-year term from the date
of grant with one-third vesting after one year and one thirty-sixth vesting each
month thereafter and expire ten years from the date of grant.

When the Option Plan was adopted, the number of shares available for
issuance under the Option Plan was calculated as 15% of the issued and
outstanding shares on a fully diluted basis. In March 2001, the Compensation
Committee of the Board of Directors approved an increase in shares available for
issuance under the Equity Plan from 4,023,551 to 4,320,000 in order to preserve
the 15% ratio referenced above. The decision of the Compensation Committee of
the Board of Directors was ratified by GTI shareholders on June 26, 2001.

116

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

In March 2001, in connection with the finalization of the MCT Corp. ("MCT")
transaction, the Compensation Committee of the Board of Directors adopted a
resolution providing that the Stock Option Award Agreements executed by the
Company and certain terminated employees shall be amended to provide that the
term of the options held by the employees that transferred from GTI to MCT shall
be extended from ninety days after the employees termination date to one year
after the termination date of the employees or until their termination date with
MCT, whichever occurs earlier. The fair value of the options for employees
transferred to MCT was not material at the date of modification. In April 2001,
in accordance with the Equity Plan, the Compensation Committee of the Board of
Directors adopted a resolution whereby the Stock Option Award Agreements issued
by the Company to employees were amended to provide that the term of the options
held by the employees shall be extended from ninety days after the employees
termination date to eighteen months after the termination date. No expense was
recognized as a result of this modification since the intrinsic value of the
outstanding options was zero on the measurement date.

The Company applies the provisions of APB No. 25 in accounting for its stock
options incentive plans. The effect of applying SFAS No. 123 on the net income
(loss) as reported is not representative of the effects on reported net income
(loss) in future years due to the vesting period of the stock options and the
fair value of additional stock options in future years.

117

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The fair value of options granted under the GTI Option Plan in 2001 and
2002 are estimated to be between $7.31 and $8.89, and $8.77 per common share,
respectively, on the date of grant using the Black Scholes option pricing model
with the following assumptions:

Additional information with respect to stock options activity is summarized
as follows:

The following table summarizes information about stock options outstanding:

118

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 9: EMPLOYEE BENEFIT PLAN

Prior to the formation of the Company, certain employees participated in the
GTS 401(k) retirement savings plan (the "GTS Savings Plan") covering all US
citizen employees. The Company's expense under the GTS Savings Plan for the
Company's employees was approximately $0.04 million for the year ended December
31, 2000. Neither GTS nor the Company made any discretionary (non-matching)
contributions for the year ended December 31, 2000.

In November 2001, the Company implemented a 401(k) retirement savings plan
(the "GTI Savings Plan") covering all U.S. citizen employees. The Savings Plan
qualifies under section 401(k) of the Internal Revenue Code and as such,
participants may defer pretax income in accordance with federal income tax
limitations. The Company provides a 50% matching contribution on the amount
contributed by the employees. Both the matching and non-matching contributions
by the Company vest after three years of service. The Company's expense under
the GTI Savings Plan was approximately $0.1 million and $0.05 million for the
year ended December 31, 2001 and 2002, respectively.

NOTE 10: INCOME TAXES

The Company accounts for income taxes using the liability method required by
FASB Statement No. 109 "Accounting for Income Taxes".

The components of income (loss) before income taxes and minority interest
were as follows:

The following is the Company's significant components of the provision for
income taxes attributable to continuing operations:

The Company paid income taxes of $1.1 million, $2.7 million and $8.5 million
2000, 2001 and 2002, respectively.

119

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

United States ("US") taxable income or losses recorded are reported on the
Company's consolidated US income tax return. The Company was allocated its
proportionate share, $23.6 million, of GTS' US net operating loss carry-forwards
in 1999. A valuation allowance has been established by the Company for the
associated deferred tax asset, due to management's estimate of the future
benefits of these amounts that are not likely to be realized. Accordingly, there
was no impact in the accompanying financial statements.

As of December 31, 2002, the Company had net operating loss carry-forwards
for US federal income tax purposes of approximately $11.4 million expiring in
fiscal years 2010 through 2019. Because of the "change in ownership" provisions
of the Tax Reform Act of 1986, the utilization of the Company's net operating
loss carry-forwards are limited to a maximum of $7.5 million per year on a
cumulative basis. As a result, $11.4 million of cumulative net operating losses
are available for use during 2003.

The reconciliation of the US statutory federal tax rate of 35.0% to the
Company's effective tax rate is as follows:

120

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Deferred tax assets and liabilities are recorded based on temporary
differences between book bases of assets and liabilities and their bases for
income tax purposes. The following table summarizes major components of the
Company's deferred tax assets and liabilities:

The following table presents the Company's deferred tax assets and
liabilities as of December 31, 2001 and 2002 attributable to different tax
paying components in different tax jurisdictions:

121

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Certain of the Company's consolidated subsidiaries have foreign tax loss
carry-forwards in excess of $13.0 million. These tax loss carry-forwards are
typically denominated in the local currency, subject to annual limitations and
expire in fiscal years 2003 through 2009. In 2002, the Company has recorded a
deferred tax benefit in the amount of $2.8 million associated with the tax loss
carry-forwards.

GTS' investment in EDN Sovintel has historically been treated for US tax
purposes as a partnership and, therefore, GTS' share of EDN Sovintel's income
had flowed through to the GTS consolidated federal income tax return on a
current basis. However, as part of the formation of the Company and the transfer
of ownership rights in EDN Sovintel to the Company, the Company elected to treat
its ownership in EDN Sovintel as a corporation for US tax purposes. This had
been in effect until September 17, 2002 when the Company completed the
acquisition of the remaining 50% ownership interest in Sovintel previously held
by Rostelecom, increasing the Company's ownership in Sovintel to 100%.

NOTE 11: COMMITMENTS AND CONTINGENCIES

Leases

The Company has various cancelable and non-cancelable operating lease
agreements for equipment and office space with terms ranging from one to five
years. Rental expense for operating leases aggregated $3.3 million, $4.2
million, and $4.9 million for the years ended December 31, 2000, 2001 and 2002,
respectively.

Future minimum lease payments under non-cancelable operating leases with
terms of one year or more, as of December 31, 2002, are as follows: 2003 -- $1.8
million, 2004 -- $0.9 million, 2005 -- $0.6 million, 2006 -- $0.2 million, 2007
- -- $0.2 million, and thereafter -- none.

Other Commitments and Contingencies

The Company has future purchase commitments of $1.1 million and $8.4
million as of December 31, 2001 and 2002, respectively.

In the ordinary course of business, the Company has issued financial
guarantees on debt for the benefit of certain of its non-consolidated ventures,
which is all collateralized by cash as described in Note 6. The total amount
guaranteed at December 31, 2002 was $0.8 million. The Company expects that all
the collateralized debt will be repaid by the ventures.

Major Customers

The Company had one major customer in the CLEC reporting segment,
representing $18.4 million, or 16%, of total revenues in 2000, $18.9 million, or
14%, of total revenues in 2001 and $23.1 million, or 12%, of total revenue in
2002.

122

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Tax Matters

The Company's policy is to accrue for contingencies in the accounting period
in which a liability is deemed probable and the amount is reasonably
determinable. In this regard, because of the uncertainties associated with the
Commonwealth of Independent States Taxes ("CIS Taxes"), the Company's final CIS
Taxes may be in excess of the estimated amount expensed to date and accrued at
December 31, 2001 and 2002. It is the opinion of management that the ultimate
resolution of the Company's CIS Tax liability, to the extent not previously
provided for, will not have a material effect on the financial condition of the
Company. However, depending on the amount and timing of an unfavorable
resolution of any contingencies associated with CIS Taxes, it is possible that
the Company's future results of operations or cash flows could be materially
affected in a particular period.

Russian Environment and Current Economic Situation

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

Other Matters

During the past year, GTU was involved in a number of commercial disputes
with Ukrtelecom and Ukrainian regulatory authorities. The most significant
disputes include routing of traffic and GTU's lease rights of Ukrtelecom's
technical premises. In the second and third quarter of 2002, GTU resolved
several of these issues with Ukrtelecom. If the remaining disputes are not
resolved amicably in the near term, they may have an adverse impact on the
financial condition, results of operations and liquidity of the Company. The
risks of an adverse impact are assessed by management as possible but not
quantifiable.

On March 1, 2002, the Company became aware the Kiev City Prosecutor's Office
had initiated an investigation into the activities of the Company's management
in GTU. GTU received a letter dated July 17, 2002 from the General Prosecutor of
Ukraine stating that effective July 9, 2002 the Prosecutor's Office withdrew all
charges against management due to the absence of grounds on which to prosecute.
On October 7, 2002, the Kiev City Prosecutor's Office notified GTU that the
previous decision to close the investigation had been revoked. In subsequent
discussions with the Kiev City Prosecutor's Office, the investigators advised
the management of GTU that the Prosecutor's Office is reviewing internal
procedural requirements with the intent to close the investigation again.

123

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

In the ordinary course of business, the Company may be party to various
legal and tax proceedings, and subject to claims, certain of which relate to the
developing markets and evolving fiscal and regulatory environments in which the
Company operates. In the opinion of management, the Company's liability, if any,
in all pending litigation, other legal proceeding or other matters, will not
have a material effect upon the financial condition, results of operations or
liquidity of the Company.

NOTE 12: RELATED PARTY TRANSACTIONS

The Company entered into an administrative services agreement with GTS.
Pursuant to this agreement, GTS had provided the Company with certain
accounting, tax and financial management and budgeting services, legal and
regulatory services and human resources services. The amount paid under this
agreement in 2000 was $0.1 million. In 2000, this agreement was amended to
include only the legal and regulatory services and human resources services and
in 2001, this agreement was cancelled.

Transactions with the Company's equity investees, GTS, Alfa affiliates and
Rostelecom were as follows, for the years ended December 31:

The revenue and cost of revenue from GTS affiliates included in the income
statement represents revenue and cost of revenue through October 2001. GTS
ceased to be a shareholder of GTI after this date.

The revenue from Alfa affiliates included in the income statement represents
revenue and cost of revenue from May 2001, the date Alfa became a shareholder.

The revenue and cost of revenue from Rostelecom included in the income
statement represents revenue and cost of revenue from September 2002, the date
Rostelecom became a shareholder.

Included in Other Current Assets at December 31, 2001 and 2002 is $0.1
million and $0.3 million, respectively of intercompany accounts receivable from
Alfa affiliates.

The Company maintains bank accounts with Alfa, which act as a clearing agent
for the payroll of the Russian staff of the Company. The balances at these bank
accounts were minimal at December 31, 2001 and 2002. In addition, certain of the
Company's Russian subsidiaries maintain current accounts with Alfa. The amounts
on deposit were minimal at December 31, 2001 and approximately $0.7 million at
December 31, 2002.

The Company incurred approximately $0.9 million in consulting costs from an
affiliate of Alfa in relation to investment transactions in Cityline,
Uralrelcom, and PTK during 2001 and approximately $3.3 million in consulting
costs from an affiliate of Alfa in relation to the purchase of the remaining 50%
of Sovintel previously held by Rostelecom.

In September 2002, several Russian subsidiaries of the Company entered into
a one year agreement with OOO Alfa Insurance, an affiliate of Alfa, to provide
the Company's Russian employees with medical and dental insurance services. The
amount payable under this agreement is approximately $0.3 million per annum. In
December 2002, the Company entered into a one year agreement with OOO Alfa
Insurance, an affiliate of Alfa, to provide the Company with property and
equipment liability insurance. The amount payable under this agreement is
approximately $0.2 million per annum.

124

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 13: SEGMENT INFORMATION

LINE OF BUSINESS DATA

The Company operates in four segments within the telecommunications industry.
The four segments are: CLEC Services using our local access overlay networks in
Moscow, Kiev, St. Petersburg and Nizhny Novgorod; Long Distance Services using
our fiber optic and satellite-based network throughout the CIS; Data and
Internet Services using our fiber optic and satellite-based network; and Mobile
Services consisting of mobile networks in Kiev and Odessa, Ukraine. The
following table presents financial information for both consolidated ventures
and equity investee ventures, excluding MCT, segmented by the Company's lines of
businesses for the periods ended December 31, 2000, 2001, and 2002. Transfers
between lines of businesses are included in the adjustments to reconcile segment
to consolidated results. The Company evaluates performance based on the
operating income (loss) of each strategic business unit.

125

GEOGRAPHIC DATA

Revenues from external customers are based on the location of the operating
company providing the service.

The Company operated within two main geographic regions of the CIS: Russia
and Ukraine. Geographic information as of December 31, 2001 and 2002 is as
follows:

126

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 14: SUPPLEMENTAL CASH FLOW INFORMATION

The following table summarizes significant non-cash investing and financing
activities for the Company.

NOTE 15: OTHER TRANSACTIONS

Abandonment and restructuring

In December 2000, the Company acquired an ownership interest in MCT in
exchange for the Company's 100% ownership of Vostok Mobile B.V., a Netherlands
registered private limited holding company that owns the Company's Russian
mobile operations, including the abandoned ventures. Initially, the Company
acquired approximately 24% of the outstanding common stock of MCT and the
Company expected to be diluted to not less than 18% as a result of equity
offerings planned by MCT. At December 31, 2001 and 2002 the Company owned
approximately 23% of MCT.

The acquisition of the equity interest in MCT effectively completes a major
part of the Company's formal plan of restructuring, initiated when it abandoned
certain mobile business operations in Russia, as approved by the Board of
Directors of GTS in the third quarter of 1999. As part of this plan of
restructuring, the Company had been seeking to dispose of the ownership
interests in these operations and the intended not to provide any additional
financial assistance to such businesses, other than debts assumed.

The Company took a charge to earnings of $18.5 million in the third quarter
of 1999, of which approximately $8.3 million was recorded as a liability.
Additionally, in the third quarter of 1999, the Company recorded a charge and
liability of $1.3 million relating to the cancellation of certain network
capacity. There were no amounts charged against these liabilities in the year
ended December 31, 1999. In the year ended December 31, 2000, $5.6 million was
charged against these liabilities including, $4.0 million in relation to
collateral attached by a third-party lender, $1.1 million in cancellation of
certain network capacity and $0.5 million in disposition related costs.

127

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The Company accounted for the exchange of the subsidiary Vostok Mobile B.V.
for an equity interest of approximately 24% in MCT at book value since the fair
values were not readily determinable, accordingly, no gain or loss was
recognized. Concurrent with the exchange of ownership interests certain assets,
which were comprised of restricted cash held as collateral on a back-to-back
loan facility and intercompany debt and interest receivable, and rights to
certain obligations of the Russian mobile ventures owed by such ventures in
regard to a credit facility, were assigned to MCT. Prior to the transaction the
book value of the Company's interest was adjusted for the effect of the
concurrent transactions and the remaining portion of the abandonment and
restructuring reserve.

Impairment

In the fourth quarter of 2001, the Company recorded an impairment charge in
the amount of $10.4 million in association with the Company's mobile operations
in Ukraine. In 2001, the mobile operation in Ukraine became subject to strong
competitive and regulatory pressures, the Company's average revenue per user
("ARPU") declined significantly and the mobile operations business segment
recorded an operating loss for the first time. The undiscounted cash flow
analysis performed by the Company indicated that carrying value of the mobile
long-lived assets was not recoverable. The Company recognized the loss as an
impairment charge, calculated as the difference between the carrying amount and
the fair value of the assets. Fair value was assessed by discounting the future
cash flows associated with the assets. The components of the impairment charge
includes a write-down of net property, plant and equipment by $8.4 million, net
licenses by $1.5 million and net goodwill associated with the mobile operations
of $0.5 million.

In addition to the traditional voice and data service provision, GTI has
been actively pursuing a strategy of developing non-traditional telecom service
offerings including those related to the Internet, such as web hosting, web
design, and vertical and horizontal Internet portal development. To this end,
GTI acquired InfoArt Stars and the Agama family of Web properties to add to the
Russia-On-Line Internet portal, which also incorporates some of the other
acquisitions made in the year ended December 31, 2000, referat.ru, Absolute
Games and Fintek. In line with experience outside of Russia, the Company has not
seen the rapid development of Internet based services that was expected. During
2001, Internet based advertising and e-commerce revenues have not developed to
significant levels. The undiscounted cash flow analysis, based on the 5-year
business plan approved in the fourth quarter of 2001, performed by the Company
indicated that carrying value of the long-lived portal assets was impaired. The
Company recognized the loss as an impairment charge, calculated as the
difference between the carrying amount and the fair value of the assets. Fair
value was assessed by discounting the future cash flows associated with the
assets. As a result, GTI recorded an impairment charge of $20.9 million. The
impairment charge represents a write-down of Internet Content and Related
Software, which was classified as Other Intangible Assets in the balance sheet
and was included in the operating results of the Company's Data and Internet
business segment.

128

GOLDEN TELECOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 16: QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data is as follows:

(1) The sum of the earnings per share for the four quarters will generally not
equal earnings per share for the total year due to changes in the average
number of common shares outstanding.

129

AUDITED FINANCIAL STATEMENTS

EDN SOVINTEL LLC
YEARS ENDED DECEMBER 31, 2000 AND 2001 AND THE PERIOD FROM JANUARY 1 TO
SEPTEMBER 16, 2002 WITH REPORT OF INDEPENDENT AUDITORS

130

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
EDN Sovintel LLC

We have audited the accompanying balance sheet of EDN Sovintel LLC as of
December 31, 2001, and the related statements of income and cash flows for each
of the two years in the period ended December 31, 2001 and for the period from
January 1 to September 16, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of EDN Sovintel LLC at December
31, 2001, and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 2001 and for the period from January
1 to September 16, 2002, in conformity with accounting principles generally
accepted in the United States of America.

/s/ ERNST & YOUNG (CIS) LIMITED

Moscow, Russia
March 6, 2003

131

EDN SOVINTEL LLC

BALANCE SHEET

The accompanying notes are an integral part of these financial statements.

132

EDN SOVINTEL LLC

STATEMENTS OF INCOME

The accompanying notes are an integral part of these financial statements.

133

EDN SOVINTEL LLC

STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these financial statements.

134

EDN SOVINTEL LLC

NOTES TO FINANCIAL STATEMENTS
(US$ AMOUNTS EXPRESSED IN THOUSANDS)

NOTE 1. DESCRIPTION OF BUSINESS

EDN Sovintel LLC (the "Company", "Sovintel"), which became a wholly owned
subsidiary of Golden Telecom, Inc. ("GTI") on September 17, 2002, was created in
1990 to design, construct, and operate a telecommunications network in Moscow
and later expanded its operations to other regions of Russia, including St.
Petersburg, Pskov and Kaliningrad. This network provides worldwide
communications services, principally to major hotels, business offices and
mobile communication companies.

Effective September 17, 2002, subsidiaries of GTI completed the acquisition
of the remaining 50% of the Company previously held by Open Joint Stock Company
Rostelecom (Rostelecom"), pursuant to an Ownership Interest Purchase Agreement,
dated March 13, 2002, by and among subsidiaries of GTI and Rostelecom, bringing
GTI's ownership interest in the Company to 100%.

The accompanying financial statements are presented for purposes of
complying with the requirements of the U.S. Securities and Exchange Commission
for separate financial statements under Rule 3-09 of Regulation S-X. In that
regard, the statements of operations and cash flows for 2002 have been presented
for the period from January 1 to September 16, 2002.

NOTE 2. BASIS OF PRESENTATION

The Company maintains its records and prepares its financial statements in
Russian rubles in accordance with the requirements of Russian accounting and tax
legislation. The accompanying financial statements differ from the financial
statements used for statutory purposes in Russia in that they reflect certain
adjustments, not recorded on the Company's books, which are appropriate to
present the financial position, results of operations and cash flows in
accordance with generally accepted accounting principles in the United States of
America ("US GAAP"). The principal adjustments are related to revenue
recognition, certain accrued expenses, foreign currency translation, deferred
taxation, and depreciation and valuation of property and equipment.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements, in conformity with US GAAP,
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.

135

EDN SOVINTEL LLC

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

Foreign Currency Translation

The Company's functional currency is the US dollar because the majority of
its revenues, costs, property and equipment purchased, and debt and trade
liabilities are either priced, incurred, payable or otherwise measured in US
dollars. Accordingly, transactions and balances not already measured in US
dollars (primarily Russian rubles) have been re-measured into US dollars in
accordance with the relevant provisions of Statement of Financial Accounting
Standards ("SFAS") No. 52, "Foreign Currency Translation".

Under SFAS No. 52, revenues, costs, capital and non-monetary assets and
liabilities are translated at historical exchange rates prevailing on the
transaction dates. Monetary assets and liabilities are translated at exchange
rates prevailing on the balance sheet date. Exchange gains and losses arising
from re-measurement of monetary assets and liabilities that are not denominated
in US dollars are credited or charged to operations.

The ruble is not a convertible currency outside the territory of Russia.
Official exchange rates are determined daily by the Central Bank of Russia
("CBR") and were considered to be a reasonable approximation of market rates
until mid-August 1998. Since that date, liquidity in the CBR currency trading
and inter-bank trading has varied as have bid and offer exchange rates. As a
result, the market rates have fluctuated significantly and have diverged from
the CBR rate. Nonetheless, the various market-related rates are based on the CBR
rate. Accordingly, CBR rates have been used for translation purposes in these
financial statements. The translation of ruble denominated assets and
liabilities into US dollars for the purpose of these financial statements does
not indicate that the Company could realize or settle in US dollars the reported
values of the assets and liabilities. Likewise, it does not indicate that the
Company could return or distribute the reported US dollar values of capital and
retained earnings to its shareholders.

The official exchange rate as of December 31, 2001 and September 16, 2002
was 30.14 and 31.64 rubles per US dollar, respectively.

Accounts Receivable

Accounts receivable are shown at their estimated net realizable value which
approximates fair value. The Company generally does not require collateral to
extend credits to its customers.

Inventories

Inventories consist of telecommunication equipment held for resale and are
stated at the lower of cost or market. Cost is computed on a weighted average
basis. At December 31, 2001, the Company held no legal title to the $1,063
inventory consigned to others, recorded as such on the balance sheet.

136

EDN SOVINTEL LLC

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

Property and Equipment

Property and equipment are recorded at their historical cost. Depreciation
is provided on the straight-line method over the following estimated useful
lives:

Network equipment...................................... 10 years
Other property and equipment........................... 3-5 years

There is no depreciation charge for construction-in-progress. Depreciation
commences upon completion of the related project.

Revenue Recognition

The Company records as revenue the amount of telecommunications rendered, as
measured primarily by the minutes of traffic processed, after deducting an
estimate of the traffic that are partial minutes and test traffic which will be
neither billed nor collected. Revenue from service contracts is accounted for
when the services are provided. Billings received in advance of service being
performed are deferred and recognized as revenue as the service is performed.
Revenues are stated net of any value-added-taxes ("VAT") charged to customers.
Certain other taxes that are based on revenues earned were incurred at rates
ranging from 1.0% to 4.0% during 2000, 2001 and for the period from January 1 to
September 16, 2002, and amounted to $3,972, $1,131 and $1,016, respectively, and
are charged to selling, general and administrative expenses since these are
incidental to the revenue cycle.

In accordance with the provisions of the Securities and Exchange Commission
Staff Accounting Bulletin No. 101, the Company has deferred telecommunication
connection fees and capitalized direct incremental costs related to connection
fees, not exceeding the revenue deferred. The deferral of revenue and
capitalization of cost of revenue is recognized over the estimated life of the
customer, three years. The total amount of deferred revenue was $4,758 as of
December 31, 2001 and $6,648 as of September 16, 2002. The total amount of
deferred cost of revenue was $4,604 as of December 31, 2001 and $4,653 as of
September 16, 2002.

The Company recognizes revenue from equipment sales when title to the
equipment passes to the customer. The Company defers the revenue on installed
equipment until installation and testing are completed and accepted by the
customer.

Advertising

The Company expenses the cost of advertising as incurred. Advertising
expenses for the years ended December 31, 2000 and 2001 and for the period from
January 1 to September 16, 2002 were $870, $934 and $1,286, respectively, and
are included in selling, general and administrative expenses.

137

EDN SOVINTEL LLC

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

Income Taxes

The Company computes and records income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes."

Investment Incentive Deductions

Up to the end of the fiscal year ended December 31, 2001 Russian legislation
allowed for certain additional tax deduction related to new asset investments.
These deductions were accounted for in the accompanying statements of income for
the years ended December 31, 2000 and 2001 as a reduction to current income
taxes in the year in which they arose. The new asset related investment
deductions were abolished effective in the fiscal years starting after December
31, 2001.

Government Pension Funds

The Company contributes to the Russian Federation state pension fund, social
fund, medical insurance fund, unemployment fund and transport fund on behalf of
all its Russian employees. Contributions were 38.8% from base payroll for 2000
and were ranging from 35.6% to 5% regressive to the respective individual
employee's base payroll in 2001 and from 35.6% to 2% regressive to the
respective individual employee's base payroll for the period from January 1 to
September 16, 2002.

Fair Value of Financial Instruments

The fair value of financial instruments included in current assets and
liabilities approximates the carrying value.

Comprehensive Income

Comprehensive income is defined as the change in equity of a business
enterprise during a period from non-owner sources. For the years ended December
31, 2000 and 2001 and for the period from January 1 to September 16, 2002,
comprehensive income for the Company is equal to net income.

Business Segments

Effective January 1, 1998, the Company adopted the SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information". It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. Management believes the Company's operations comprise only
one segment and as such adoption of SFAS No. 131 did not impact the disclosures
made in the Company's financial statements.

138

EDN SOVINTEL LLC

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

Derivative Instruments and Hedging Activities

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
was amended in June 1999. The Company adopted the new statement effective
January 1, 2001. The statement requires the Company to recognize all derivatives
on the balance sheet at fair value. The adoption of this new statement did not
have an effect on the Company's results of operations or financial position.

Goodwill and Intangible Assets

In July 2001, the FASB issued SFAS's No. 141, "Business Combinations", and
No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives are no longer amortized but are subject
to annual impairment tests in accordance with the Statements. Other intangible
assets continue to be amortized over their useful lives. The Company adopted the
new rules on accounting for goodwill and other intangible assets beginning in
the first quarter of 2002. The adoption of the new statements had no effect on
the Company's results of operations or financial position.

Asset Retirement Obligations

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement deals with the costs of closing
facilities and removing assets. SFAS No. 143 requires entities to record the
fair value of a legal liability for an asset retirement obligation in the period
it is incurred. This cost is initially capitalized and amortized over the
remaining life of the asset. Once the obligation is ultimately settled, any
difference between the final cost and the recorded liability is recognized as a
gain or loss on disposition. SFAS No. 143 is effective for years beginning after
June 15, 2002. The adoption of SFAS No. 143 will not have an impact on the
Company's consolidated financial position or results of operations.

Long-Lived Assets

Long-lived assets to be held and used by the Company are reviewed to
determine whether an event or change in circumstances indicates that the
carrying amount of the asset may not be recoverable. For long-lived assets to be
held and used, the Company bases its evaluation on such impairment indicators as
the nature of the assets, the future economic benefit of the assets, any
historical or future profitability measurements, as well as other external
market conditions or factors that may be present. If such impairment indicators
are present or other factors exist that indicate that the carrying amount of the
asset may not be recoverable, the Company determines whether an impairment has
occurred through the use of an undiscounted cash flows analysis of assets at the
lowest level for which identifiable cash flows exist. During the years ended
December 31, 2000 and 2001 and the eight and a half months ended September 16,
2002, no impairment expense was recognized.

139

EDN SOVINTEL LLC

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement addresses financial
accounting and reporting for the impairment of disposal of long-lived assets and
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,"
for the disposal of a segment of a business (as previously defined in that
opinion). This statement also amends Accounting Research Bulletin No. 41,
"Consolidated Financial Statements", to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. The provisions of
the statement became effective for financial statements issued for fiscal years
beginning after December 15, 2001. The Company adopted this new standard on
January 1, 2002. The adoption of the new standard had no effect on the Company's
results of operation or financial position.

Rescission and amendments of certain FASB statements

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement rescinds SFAS No. 4, "Reporting Gains and Losses
from Extinguishments of Debt," and an amendment of that Statement, SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." This
statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers." This statement amends SFAS No. 13, "Accounting for Leases", to
eliminate an inconsistency between the required accounting for sale-lease-back
transactions. This statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The provisions of this
statement became effective for financial statements issued on or after May 15,
2002. The Company adopted this new standard from May 15, 2002. The adoption of
the pronouncement did not have an effect on the Company's results of operations
or financial position.

Exit or Disposal Activities

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. This statement nullifies Emerging Issues Task Force No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring," which
required that a liability for an exit cost be recognized upon the entity's
commitment to an exit plan. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The adoption of the
provisions of SFAS No. 146 is not expected to have a material impact on the
Company's results of operations, financial position or cash flow.

Consolidation of Variable Interest Entities

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities". FIN No. 46 defines the concept of "variable interests" and
requires existing unconsolidated variable interest entities to be consolidated
into the financial statements of their primary beneficiaries if the variable
interest entities do not effectively disperse risks among the parties involved.
FIN No. 46 applies immediately to variable interest entities created after
January 31, 2003. It applies in the first fiscal year or interim period
beginning after June 15, 2003, to variable interest entities in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
If it is reasonably possible that an enterprise will consolidate or disclose
information about a variable interest entity when FIN No. 46 becomes effective,
the enterprise must disclose information about those entities in all financial
statements issued after January 31, 2003. The interpretation may be applied
prospectively with a cumulative-effect adjustment as of the date on which it is
first applied or by restating previously issued financial statements for one or
more years, with a cumulative-effect adjustment as of the beginning of the first
year restated. The adoption of the provisions of FIN No. 46 will not have an
impact on the Company's financial statements.

140

EDN SOVINTEL LLC

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

NOTE 4. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31, 2001:

Network equipment ................. $ 81,686
Other property and equipment ...... 10,019
--------
91,705
Accumulated depreciation .......... (40,003)
Construction-in-progress .......... 8,423
--------
Net book value .................... $ 60,125
========

NOTE 5. INCOME TAXES

The Russian Federation was the only tax jurisdiction in which the Company's
income was taxed. The income tax expense reported in the accompanying statements
of income, for the years ended December 31, 2000 and 2001 and for the period
January 1 to September 16, 2002, represents the provision for current and
deferred taxes.

Significant components of the provision for income taxes for the years ended
December 31, 2000 and 2001 and for the period ended January 1 to September 16,
2002 are as follows:

A reconciliation between the statutory rate and the effective income tax
rate is as follows for the years ended December 31 2000 and 2001 and for the
period January 1 to September 16, 2002:

141

EDN SOVINTEL LLC

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

The deferred tax balances are calculated by applying the statutory tax rates
in effect at the respective balance sheet dates to the temporary differences
between the tax basis of assets and liabilities and the amount reported in the
accompanying financial statements, and consist of the following at December 31,
2001:

Deferred tax assets (liabilities):

Deferred revenue ............................... $ 1,400
Depreciation ................................... 785
Inventory write-downs and allowances ........... 96
Accrual of expenses ............................ 717
Reserve for bad debt ........................... 1,033
--------
Gross tax assets ................................. $ 4,031
========
Accrual of revenue ............................. (2,158)
Deferred cost of revenue ....................... (1,210)
--------
Gross tax liabilities ............................ $ (3,368)
========
Net deferred tax assets .......................... $ 663
========
Valuation allowance for deferred tax assets ...... (2,524)
--------
Net deferred tax liabilities ..................... $ (1,861)
========

For financial reporting purposes, a valuation allowance has been recognized
to reflect management's estimate of the deferred tax assets that are less likely
than not to be realized.

The Company paid Russian profits tax of $7,231, $4,572 for 2000 and 2001 and
$9,657 in for the period from January 1 to September 16, 2002, respectively.

NOTE 6. MEMBERS' EQUITY

The Company's capital structure as specified in the charter document is as
follows as of December 31:

As a Russian limited liability company, the Company has no capital stock;
rather, it has only contributed and registered capital in accordance with its
charter. As such, no earnings per share data are presented in these financial
statements.

Retained earnings available for distribution at December 31, 2001 amounted
to 948 million rubles or approximately $31,453 at applicable year-end exchange
rate.

142

EDN SOVINTEL LLC

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

NOTE 7. RELATED PARTY TRANSACTIONS

Transactions and balances with Rostelecom (one of the Company's members
prior to September 17, 2002) and its affiliates were as follows, as of and for
the years ended December 31, 2000 and 2001 and for the period from January 1 to
September 16, 2002:

Transactions and balances with GTI and its affiliates were as follows, as of
and for the years ended December 31, 2000 and 2001 and the eight and a half
months ended September 16, 2002:

The Company held a portion of cash and cash equivalents in Alfa Bank,
which is a major shareholder of GTI. The related amount of cash and cash
equivalents held at Alfa Bank at December 31, 2001 was $6,460.

In July 2002, the Company entered into a short-term loan agreement with
TeleRoss LLC ("TeleRoss"), a wholly owned subsidiary of GTI. Under this
agreement the Company provided TeleRoss with a working capital loan in the
amount of 315.5 million rubles (equal to approximately $9,970, at applicable
exchange rate at September 16, 2002) to be repaid by March 31, 2003. The Company
and TeleRoss have the right to prolong the term of the loan for one month and
the number of such prolongations is not limited. The loan bears an interest rate
of 21% per annum calculated based on the ruble denominated loan principle. The
interest is payable monthly starting October 2002. The Company included the
respective accrued interest income of $70 in the accompanying statement of
income for the period from January 1 to September 16, 2002.

143

EDN SOVINTEL LLC

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

NOTE 8. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of temporary cash deposits and trade accounts
receivable. The Company deposits the majority of its available cash with two
foreign-owned financial institutions in Russia and maintains certain balances
with several Russian financial institutions. The Company's sales and accounts
receivable are made to and due from a variety of international and Russian
business customers within Russia. As of December 31, 2001, one customer
accounted for 10% of revenues and 6% of accounts receivable and that same
customer accounted for 8% of revenue and 9% of accounts receivable September 16,
2002. The Company has no other significant concentrations of credit risk except
for transactions with related parties as discussed in Note 7.

NOTE 9. COMMITMENTS

The Company has several cancelable operating leases for office and warehouse
space and telecommunications lines with terms ranging from one to five years.

Total rent expense for 2000, 2001 and the period from January 1 to September
16, 2002 was $3,958, $2,860 and $2,549, respectively.

NOTE 10. CONTINGENCIES

The tax, legal and banking regulatory system continues to evolve in the
Russian Federation as the Russian government manages the transformation from a
command to a market-oriented economy. There were many new tax and foreign
currency laws and related regulations introduced during 2001, 2002 and previous
years which were not always clearly written and were, at times, conflicting. In
addition, their interpretation is subject to the opinions of a variety of local,
regional and federal tax inspectors, the Central Bank of Russia officials and
the Ministry of Finance. Instances of inconsistent opinions among and between
these authorities are not unusual.

The Company's policy is to accrue contingencies in the accounting period in
which a loss is deemed probable and the amount is reasonably determinable. In
this regard, because of the uncertainties associated with the Russian tax and
legal systems, the ultimate taxes as well as penalties and interest, if any,
assessed may be in excess of the amounts paid to date and accrued as of
September 16, 2002. Management believes, based upon its best estimates, that the
Company has paid or accrued all taxes that are applicable for the current and
prior years, and complied with all essential provisions of laws and regulations
of the Russian Federation. In management's opinion, the ultimate determination
of the Company's overall tax liability and potential loss contingencies, to the
extent not previously provided for, will not have a material effect on the
financial position of the Company.

144

EDN SOVINTEL LLC

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

The Company's operations and financial position will continue to be affected
by Russian political developments including the application of existing and
future legislation and tax regulations, which significantly impact the Russian
economy. The likelihood of such occurrences and their effect on the Company
could have a significant impact on the Company's current activity and its
overall ability to continue operations. The Company does not believe that these
contingencies, as related to its operations, are any more significant than those
of similar enterprises in Russia.

In the ordinary course of business, the Company may be party to various
legal and tax proceedings, and subject to claims, certain of which relate to the
developing markets and evolving fiscal and regulatory environments in which the
Company operates. In the opinion of the management, the Company's liability, if
any, in all pending litigation, other legal proceeding or other matter other
than what is discussed above, will not have a material effect upon the financial
condition, results of operations or liquidity of the Company.

145

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The information required by Item 10 is incorporated herein by reference to
the section entitled "Directors and Executive Officers of the Company" of our
proxy statement for our 2002 Annual Meeting of Shareholders that we will file by
April 30, 2003.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated herein by reference to
the section entitled "Executive Compensation" of our proxy statement for our
2003 Annual Meeting of Shareholders that we will file by April 30, 2003.

ITEM 12. SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 12 is incorporated herein by reference to
the section entitled "Security Ownership and Certain Beneficial Owners and
Management" of our proxy statement for our 2003 Annual Meeting of Shareholders
that we will file by April 30, 2003.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 is incorporated herein by reference to
the section entitled "Certain Relationships and Related Transactions" of our
proxy statement for our 2003 Annual Meeting of Shareholders that we will file by
April 30, 2003.

ITEM 14. CONTROLS AND PROCEDURES

Evaluation of Controls and Procedures

The Company maintains disclosure controls and procedures, which have been
designed to ensure that material information related to Golden Telecom,
including its consolidated and non-consolidated subsidiaries, is made known to
the disclosure committee on a regular basis. In response to recent legislation
and proposed regulations, the Company has reviewed the internal control
structure and disclosure controls and procedures pursuant to Rule 13a-14 and
15(d)-14(c) under the Securities and Exchange Act of 1934, as amended. Although
the Company believes that the pre-existing disclosure controls and procedures
were adequate to enable the Company to comply with the Company's disclosure
obligations, as a result of such review, the Company implemented minor changes,
primarily to formalize and document the procedures already in place. The Company
also established a disclosure committee comprised of certain members of the
Company's senior management.

146

After the formation of our disclosure committee and within 90 days prior to
the filing of this report, the disclosure committee carried out an evaluation,
under the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in causing material information to be recorded,
processed, summarized, and reported by management of the Company on a timely
basis and to ensure that the quality and timeliness of the Company's public
disclosures complies with the SEC disclosure requirements.

Changes in Controls and Procedures

There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these internal controls after the date
of our most recent evaluation.

147

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

a) The following documents are filed as part of this report:

1. Financial Statements

The following consolidated financial statements of the Company are included
as part of this document:

o Report of Independent Auditors

o Consolidated Balance Sheets as of December 31, 2001 and 2002

o Consolidated Statements of Operations for the years ended December 31,
2000, 2001 and 2002

o Consolidated Statements of Cash Flows for the years ended December 31,
2000, 2001 and 2002

o Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 2000, 2001 and 2002

o Notes to Consolidated Financial Statements

The following financial statements of our significant equity investee,
EDN Sovintel LLC, are included as part of this document:

o Report of Independent Auditors

o Balance Sheet as of December 31, 2001

o Statements of Income for the years ended December 31, 2000 and 2001
and the period from January 1 to September 16, 2002

o Statements of Cash Flows for the years ended December 31, 2000 and
2001 and the period from January 1 to September 16, 2002

o Notes to Financial Statements

2. Consolidated Financial Statement Schedules

We have furnished Schedule II - Valuation and Qualifying Accounts on Page
154.

148

All other schedules are omitted because they are not applicable or not
required, or because the required information is either incorporated herein
by reference or included in the financial statements or notes thereto
included in this report.

b.) Reports on Form 8-K

c) Exhibits

149

10.10**** Agreement No. 311299-TP, dated December 31, 1999, among
TeleRoss, KB-Impulse and VimpelCom.

10.11**** Form of Employment Agreement for the officers of Golden Telecom,
Inc.

10.12* List of officers of Golden Telecom, Inc. as of December 31, 2002
who have signed substantially the same Employment Agreement, re
Exhibit 10.11 above.

10.13********* Credit Agreement, including Schedules and Exhibits, dated as of
September 25, 2002, by and among ROL Holdings Limited
(wholly-owned subsidiary of Golden Telecom, Inc.) and ZAO
Citibank.

21.1* List of subsidiaries of Golden Telecom, Inc.

23.1* Consent of Ernst & Young (CIS) Limited, Independent Auditors
(Golden Telecom, Inc.).

23.2* Consent of Ernst & Young (CIS) Limited, Independent Auditors
(EDN Sovintel LLC).

24* Powers of Attorney (included on signature page).

99.1* Certification of CEO & CFO pursuant to Section 906.

- ----------

* Filed herewith.

** Incorporated by reference to the correspondingly numbered Exhibit to
the Company's registration statement on Form S-1 dated July 14, 1999
and amendments (Commission File No. 333-82791).

*** Incorporated by reference to the correspondingly numbered Exhibits to
Schedule 13D of Capital International Global Emerging Markets Private
Equity Fund L.P., dated December 27, 1999 (Commission File No.
005-56995).

**** Incorporated by reference to the correspondingly numbered Exhibit to
the Company's annual report on Form 10-K dated March 21, 2000
(Commission File No. 0-27423).

***** Incorporated by reference to the Company's definitive proxy statement
on Form DEF-14A dated April 25, 2000 (Commission File No. 0-27423).

****** Incorporated by reference to the Company's definitive proxy statement
on Form DEF-14A dated May 23, 2001 (Commission File No. 0-27423).

******* Incorporated by reference to the Company's current report on Form 8-K
dated May 11, 2001 (Commission File 0-27423).

******** Incorporated by reference to the Company's current report on Form 8-K
dated September 17, 2002 (Commission File 0-27423).

********* Incorporated by reference to the Company's current report on Form 8-K
dated September 25, 2002 (Commission File 0-27423).

150

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act 1934, as amended, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Moscow, Russian Federation, on this 28th day of March, 2003.

GOLDEN TELECOM, INC.
By: /s/ DAVID STEWART
-------------------------------------------
Name: David Stewart
Title: Chief Financial Officer and Treasurer
(Principal Financial Officer)

By: /s/ MICHAEL WILSON
-------------------------------------------
Name: Michael Wilson
Title: Corporate Controller
(Principal Accounting Officer)

We, the undersigned officers and directors of Golden Telecom, Inc. hereby
severally constitute and appoint, Jeffrey A. Riddell, and David Stewart and each
of them singly, as his true and lawful attorney-in-fact and agents with full
power of substitution and resubstitution, for him, and in his name, place and
stead, in any and all capacities to sign any and all amendments and supplements
to this annual report on Form 10-K and all amendments thereto, and to file the
same, with all exhibits thereto, and all other documents in connection
therewith, in each case, with our names and on our behalf in our capacities as
officers and directors to enable Golden Telecom, Inc. to comply with the
provisions of the Securities Exchange Act of 1934, as amended, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorney to said
annual report on Form 10-K and any and all amendments thereto.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities
indicated on the 28th day of March, 2003.

151

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Alexander Vinogradov, certify that:

1. I have reviewed this annual report on Form 10-K of Golden Telecom, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 28, 2003

/s/ ALEXANDER VINOGRADOV
- ------------------------
Alexander Vinogradov
President, Chief Executive Officer and
Director

152

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, David Stewart, certify that:

1. I have reviewed this annual report on Form 10-K of Golden Telecom, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 28, 2003

/s/ DAVID STEWART
- -----------------
David Stewart
Senior Vice President, Chief
Financial Officer and Treasurer

153

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

GOLDEN TELECOM, INC.

154

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------

2.1******** Ownership Interest Purchase Agreement dated as of March 13, 2002,
by and among SFMT-CIS, OOO TeleRoss (wholly-owned subsidiaries of
Golden Telecom, Inc.) and OAO Rostelecom.

3.1* Amended and Restated Certificate of Incorporation of Golden
Telecom, Inc.

3.2** Amended and Restated By-laws of Golden Telecom, Inc.

4.1** Specimen certificate representing shares of Common Stock.

10.1** Form of Registration Rights Agreement between Global TeleSystems
Group, Inc. and Golden Telecom, Inc.

10.3(a)** Form of Registration Rights Agreement with Baring Vostok Private
Equity Fund LP, Guernsey, and a second agreement with First NIS
Regional Fund SICAV and Golden Telecom, Inc.

10.3(b)******* Assignment and Amendment Agreement dated as of May 11, 2001
between Golden Telecom, Inc., Baring Vostok Private Equity Fund,
First NIS Regional Fund SICAV and Cavendish Nominees Limited
amending 10.3.

10.4(a)*** Form of Shareholders and Registration Rights Agreement between
Capital International Global Emerging Markets Private Equity
Fund L.P., Global TeleSystems Group, Inc., and Golden Telecom,
Inc.

10.4(b)******* Amendment to the Shareholders and Registration Rights Agreement
dated as of May 11, 2001 between Golden Telecom, Inc., Global
TeleSystems Europe Holdings B.V., and Capital International
Global Emerging Markets Private Equity Fund, L.P.

10.5******** Registration Rights Agreement dated as of September 5, 2002, by
and among, Golden Telecom, Inc. and OAO Rostelecom.

10.6******** Subscription Agreement dated as of September 5, 2002, by and
among, Golden Telecom, Inc. and OAO Rostelecom.

10.7******** Standstill Agreement dated as of September 5, 2002, by and among
Golden Telecom, Inc., OAO Rostelecom, Alfa Telecom Limited,
Capital International Global Emerging Markets Private Equity
Fund, L.P., Cavendish Nominees Limited, and First NIS Regional
Fund SICAV.

10.8******** Shareholders Agreement dated as of September 5, 2002, by and
among, Golden Telecom, Inc., OAO Rostelecom, Alfa Telecom
Limited, Capital International Global Emerging Markets Private
Equity Fund, L.P., Cavendish Nominees Limited, and First NIS
Regional Fund SICAV.

10.9(a)***** Golden Telecom, Inc. 1999 Equity Participation Plan.

10.9(b)****** Amendment to the Golden Telecom, Inc. 1999 Equity Participation
Plan.

10.10**** Agreement No. 311299-TP, dated December 31, 1999, among
TeleRoss, KB-Impulse and VimpelCom.

10.11**** Form of Employment Agreement for the officers of Golden Telecom,
Inc.

10.12* List of officers of Golden Telecom, Inc. as of December 31, 2002
who have signed substantially the same Employment Agreement, re
Exhibit 10.11 above.

10.13********* Credit Agreement, including Schedules and Exhibits, dated as of
September 25, 2002, by and among ROL Holdings Limited
(wholly-owned subsidiary of Golden Telecom, Inc.) and ZAO
Citibank.

21.1* List of subsidiaries of Golden Telecom, Inc.

23.1* Consent of Ernst & Young (CIS) Limited, Independent Auditors
(Golden Telecom, Inc.).

23.2* Consent of Ernst & Young (CIS) Limited, Independent Auditors
(EDN Sovintel LLC).

24* Powers of Attorney (included on signature page).

99.1* Certification of CEO & CFO pursuant to Section 906.

- ----------

* Filed herewith.

** Incorporated by reference to the correspondingly numbered Exhibit to the
Company's registration statement on Form S-1 dated July 14, 1999 and
amendments (Commission File No. 333-82791).

*** Incorporated by reference to the correspondingly numbered Exhibits to
Schedule 13D of Capital International Global Emerging Markets Private
Equity Fund L.P., dated December 27, 1999 (Commission File No.005-56995).

****Incorporated by reference to the correspondingly numbered Exhibit to the
Company's annual report on Form 10-K dated March 21, 2000 (Commission File
No. 0-27423).

***** Incorporated by reference to the Company's definitive proxy statement on
Form DEF-14A dated April 25, 2000 (Commission File No. 0-27423).

****** Incorporated by reference to the Company's definitive proxy statement on
Form DEF-14A dated May 23, 2001 (Commission File No. 0-27423).

******* Incorporated by reference to the Company's current report on Form 8-K
dated May 11, 2001 (Commission File 0-27423).

******** Incorporated by reference to the Company's current report on Form 8-K
dated September 17, 2002 (Commission File 0-27423).

********* Incorporated by reference to the Company's current report on Form 8-K
dated September 25, 2002 (Commission File 0-27423).