20-F 1 a2243090z20-f.htm 20-F

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PART III
TABLE OF CONTENTS

Table of Contents

 

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



Form 20-F




o

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ý

 

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

For the fiscal year ended December 31, 2020

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

o

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 333-12032

LOGO



MOBILE TELESYSTEMS PUBLIC JOINT STOCK COMPANY
(Exact name of Registrant as specified in its charter)



             RUSSIAN FEDERATION
(Jurisdiction of incorporation or organization)

4 Marksistskaya Street, Moscow 109147 Russian Federation
(Address of principal executive offices)

Polina V. Ugryumova
Director, Investor Relations
5 Vorontsovskaya Street, bldg. 2, 109147 Moscow Russian Federation
Phone: +7 495 223 20 25, E mail: ir@mts.ru

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class   Trading Symbol(s)   Name of Each Exchange on Which Registered
COMMON AMERICAN DEPOSITARY SHARES, EACH COMMON   MBT   NEW YORK STOCK EXCHANGE
ADS REPRESENTING TWO COMMON SHARES COMMON SHARES, PAR VALUE       NEW YORK STOCK EXCHANGE(1)
0.10 RUSSIAN RUBLES PER SHARE        

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None
(Title of Class)



             Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

             1,129,245,695 ordinary shares, par value 0.10 Russian rubles each and 391,398,362 American Depositary Shares as of December 31, 2020

             Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

             If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o    No ý

             Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

             Indicate by check mark whether the registrant (1) has 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) has been subject to such filing requirements for the past 90 days. Yes ý    No o

             Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

             Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of "large accelerated filer," "accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o   Emerging growth company o

             If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. o


The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

             Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP o   International Financial Reporting Standards as issued by   Other o
    the International Accounting Standards Board ý    

             If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 o    Item 18 o

             If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

   


(1)
Listed, not for trading or quotation purposes, but only in connection with the registration of common ADSs pursuant to the requirements of the Securities and Exchange Commission.

(2)
Listed, not for trading or quotation purposes, but only in connection with the registration of preferred ADSs pursuant to the requirements of the Securities and Exchange Commission.


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Table of Contents

SUMMARY RISK FACTORS

    1  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

    3  

Item 1.

 

Identity of Directors, Senior Management and Advisors

    5  

Item 2.

 

Offer Statistics and Expected Timetable

    5  

Item 3.

 

Key Information

    5  

A.

 

Selected Financial Data

    5  

B.

 

Capitalization and Indebtedness

    8  

C.

 

Reasons for the Offer and Use of Proceeds

    8  

D.

 

Risk Factors

    8  

Item 4.

 

Information on Our Company

    69  

A.

 

History and Development

    69  

B.

 

Business Overview

    74  

C.

 

Organizational Structure

    139  

D.

 

Property, Plant and Equipment

    139  

Item 4A.

 

Unresolved Staff Comments

    140  

Item 5.

 

Operating and Financial Review and Prospects

    140  

A.

 

Operating Results

    140  

B.

 

Liquidity and Capital Resources

    159  

C.

 

Research and Development, Patents and Licenses, etc.

    166  

D.

 

Trend Information

    166  

E.

 

Off-balance Sheet Arrangements

    168  

F.

 

Tabular Disclosure of Contractual Obligations

    168  

Item 6.

 

Directors, Senior Management and Employees

    169  

A.

 

Directors and Senior Management

    169  

B.

 

Compensation of Directors and Senior Management

    174  

C.

 

Board Practices

    175  

D.

 

Employees

    177  

E.

 

Share Ownership

    178  

Item 7.

 

Major Shareholders and Related Party Transactions

    179  

A.

 

Major Shareholders

    179  

B.

 

Related Party Transactions

    180  

C.

 

Interests of Experts and Counsel

    183  

Item 8.

 

Financial Information

    183  

A.

 

Consolidated Statements and Other Financial Information

    183  

B.

 

Significant Changes

    186  

Item 9.

 

Offer and Listing Details

    187  

A.

 

Market Price Information

    187  

Item 10.

 

Additional Information

    188  

A.

 

Share Capital

    188  

B.

 

Charter and Certain Requirements of Russian Legislation

    188  

C.

 

Material Contracts

    208  

D.

 

Exchange Controls

    208  

E.

 

Taxation

    208  

F.

 

Dividends and Paying Agents

    217  

G.

 

Statement by Experts

    217  

H.

 

Documents on Display

    217  

I.

 

Subsidiary Information

    218  

Item 11.

 

Quantitative and Qualitative Disclosures about Market Risk

    218  

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Item 12.

 

Description of Securities Other Than Equity Securities

    222  

D.

 

American Depositary Shares

    222  

Item 13.

 

Defaults, Dividend Arrearages and Delinquencies

    225  

Item 14.

 

Material Modifications to the Rights of Security Holders and Use of Proceeds

    225  

Item 15.

 

Controls and Procedures

    225  

Item 16A.

 

Audit Committee Financial Expert

    227  

Item 16B.

 

Code of Ethics

    227  

Item 16C.

 

Principal Accountant Fees and Services

    228  

Item 16D.

 

Exemption from the Listing Standards for Audit Committees

    229  

Item 16E.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

    229  

Item 16F.

 

Change in Registrant's Certifying Accountant

    231  

Item 16G.

 

Corporate Governance

    231  

Item 17.

 

Financial Statements

    233  

Item 18.

 

Financial Statements

    233  

Item 19.

 

Exhibits

    234  

        Unless otherwise indicated or unless the context requires otherwise, references in this document to (i) "MTS," "the Group," "the Company," "we," "us," or "our" refer to Mobile TeleSystems Public Joint Stock Company and its subsidiaries; (ii) "Vodafone Ukraine" and "VF Ukraine" are to Private Joint Stock Company "VF Ukraine"(formerly PJSC MTS Ukraine) which is our former subsidiary in Ukraine disposed of in December 2019; (iii) "Uzdunrobita" is to our former subsidiary in Uzbekistan, which was deconsolidated in 2013; (iv) "MTS-Turkmenistan" our Turkmenistan subsidiary and "BCTI" are to Barash Communication Technologies, Inc., our former Turkmenistan subsidiary; (v) "Comstar" or "Comstar-UTS" are to COMSTAR—United TeleSystems, our former fixed line subsidiary, which was merged into MTS PJSC in 2011; (vi) "MGTS" is to Public Joint Stock Company Moscow City Telephone Network, our Moscow public switched telephone network ("PSTN") fixed line subsidiary; and (vii) "MTS-Armenia," "K-Telecom" or "VivaCell-MTS" are to our Armenian subsidiary; and (viii) "MTS Bank" is to MTS Bank PJSC, our subsidiary which provides banking services; (ix) "UMS" is to Universal Mobile Systems LLC, our former subsidiary in Uzbekistan which was deconsolidated in 2016; (x) NVision is our subsidiary which provides integration services and (xi) "Sistema" is to Sistema Public Joint Stock Financial Corporation, our majority shareholder. We refer to Mobile TeleSystems LLC, our 49% owned equity investee in Belarus, as "MTS Belarus." As MTS Belarus is an equity investee, our revenues and subscriber data do not include MTS Belarus.

        In this document, references to "U.S. dollars," "dollars," "$" or "USD" are to the lawful currency of the United States, "Russian rubles," "rubles" or "RUB" are to the lawful currency of the Russian Federation, "hryvnias" are to the lawful currency of Ukraine, "soms" are to the lawful currency of Uzbekistan, "manats" are to the lawful currency of Turkmenistan, "dram" are to the lawful currency of Armenia and "€," "euro" or "EUR" are to the lawful currency of the member states of the European Union that adopted a single currency in accordance with the Treaty of Rome establishing the European Economic Community, as amended by the treaty on the European Union, signed at Maastricht on February 7, 1992. References in this document to "shares" or "ordinary shares" refers to our ordinary shares, "ADSs" refers to our American depositary shares, each of which represents two ordinary shares, and "ADRs" refers to the American depositary receipts that evidence our ADSs. Prior to May 3, 2010, each ADS represented five ordinary shares of our common stock. "CIS" refers to the Commonwealth of Independent States. "CBR" refers to the Central Bank of Russia.

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        The following tables show, for the periods indicated, certain information regarding the exchange rate between the ruble and the U.S. dollar, based on data published by the CBR. These rates may differ from the actual rates used in preparation of our financial statements and other financial information provided herein.

 
  Rubles per U.S. dollar  
Years ended December 31,
  High   Low   Average(1)   Period End  

2016

    83.59     60.27     67.03     60.66  

2017

    60.75     55.85     58.35     57.60  

2018

    69.97     55.67     62.71     69.47  

2019

    69.47     61.72     64.74     61.91  

2020

    80.88     60.95     72.15     73.88  

(1)
The average of the exchange rates on the last business day of each full month during the relevant period.
 
  Rubles per
U.S. dollar
 
 
  High   Low  

July 2020

    73.36     70.44  

August 2020

    75.54     72.97  

September 2020

    79.68     73.58  

October 2020

    79.33     76.44  

November 2020

    80.57     75.45  

December 2020

    76.32     72.93  

January 2021

    76.25     73.36  

February 2021

    76.25     73.29  

March 2021(1)

    76.17     72.96  

Source: CBR.

(1)
For the period from March 1, 2021 to March 29, 2021.

        The exchange rate between the ruble and the U.S. dollar quoted by the CBR for March 29, 2021 was 75.76 rubles per U.S. dollar.

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SUMMARY RISK FACTORS

        Our business is subject to a number of risks of which you should be aware of before making an investment decision. These risks are discussed more fully in the below "Risk Factors" section of this annual report. The following summarizes some, but not all, of the risks provided below:

Risks Relating to Business Operations in Emerging Markets

    Emerging markets such as the Russian Federation and other CIS countries are subject to greater risks than more developed markets, including significant legal, economic, social, regulatory, tax and political risks which could have a material adverse effect on our business and could cause the value of our shares and ADSs to fluctuate widely.

Risks Relating to Our Business including, among others, the following risks:

    The telecommunications and digital services market is characterized by rapid technological change, which could render our services obsolete or non-competitive and result in the loss of our market share and a decrease in our revenues.

    We are subject to anti-corruption laws in the jurisdictions in which we operate, including anti-corruption laws of Russia and the US Foreign Corrupt Practices Act (the "FCPA"), and we may be subject to the UK Bribery Act 2010 (the "UK Bribery Act"). Our failure to comply therewith could result in penalties which could harm our reputation and have a material adverse effect on our business, financial condition and results of operations.

    We have incurred and are continuing to incur costs and related management oversight obligations in connection with our obligations under the DPA and the SEC Order.

    We could be subject to criminal prosecution or civil sanction if we breach the DPA and the SEC Order, and we may face other potentially negative consequences relating to the investigations by, and agreements with, the DOJ and SEC and other authorities, including additional investigations and litigation.

    The outbreak of COVID-19 may have a material adverse effect on our business, financial condition, results of operations and prospects.

    If we cannot interconnect cost-effectively with other telecommunications operators, we may be unable to provide services at competitive prices, which may diminish our market share and result in a loss of revenues and margins.

    We may not realize the benefits we expect to receive from our investments in 4G and 5G wireless services and Internet of Things (IoT) technologies, which could have a material adverse effect on our business and results of operations.

    If we are unable to successfully develop and/or deploy 4G and 5G wireless services in the countries in which we operate, or if any operators in those markets obtain a significant technological and/or commercial advantage over us in 4G and 5G wireless services, it may have a material adverse effect on our business and results of operations in the long term.

    Failure to renew our licenses, or receive renewed or new licenses with similar terms to our existing licenses, could have a material adverse effect on our business and results of operations

    Failure to monitor, manage and prevent MTS Bank's operational and technological risks, could have a material adverse effect on our business, financial condition and results of operations.

    Changes to the rules and regulations involving roaming charges in Russia may adversely affect our financial condition and results of operations.

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Risks Relating to Our Financial Condition including, among others, the following risks:

    Continued turmoil in the credit markets could cause our business, financial condition, results of operations and the value of our shares and ADSs to suffer.

    Our inability to generate sufficient free cash flow to satisfy our debt service obligations or to refinance debt on commercially reasonable terms, could materially adversely affect our business, financial condition, results of operations and prospects.

    Ruble volatility and regulatory changes in foreign currency regulation could increase our costs, decrease our available funds or make it more difficult for us to comply with financial covenants and to repay our debts and would affect the value of dividends received by holders of ADSs.

    If we are unable to obtain adequate capital, we may have to limit our operations substantially, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Risks Relating to Our Countries of Operation including, among others, the following risks:

    Economic instability in the countries where we operate could adversely affect our business.

    Fluctuations in the global economy may materially adversely affect the economies of the countries where we operate and our business in these countries.

    A deterioration in relations between Russia and other former Soviet republics, as well as other politically related disagreements and allegations between Russia and other countries and sanctions imposed as a result thereof, could materially adversely affect our business, financial condition, results of operations, prospects and the value of our shares and ADSs.

    Failure to comply with existing laws and regulations as well as requirements of international and regional standards or to obtain all approvals, authorizations and permits required to transmit television channels or operate telecommunications equipment, or the findings of government inspections or increased governmental regulation of our operations, could result in a disruption in our business and substantial additional compliance costs and sanctions.

    Russian and foreign legislation on personal data and information security in information systems and communication networks may turn out to be hard to implement and require significant resources. Inability to comply with the requirements may lead to sanctions.

    The Russian taxation system is underdeveloped and any imposition of significant additional tax liabilities could have a material adverse effect on our business, financial condition or results of operations.

Risks Relating to Our Shares and ADSs and the Trading Market including, among others, the following risks:

    Government regulations may limit the ability of investors to deposit shares into our ADS facility.

    The market price of our ADSs has been and may continue to be volatile, making it difficult for investors to resell our ADSs at or above the price paid.

    Voting rights with respect to the shares represented by our ADSs are limited by the terms of the deposit agreement for our ADSs and relevant requirements of Russian law.

    ADS holders may be unable to benefit from the United States-Russia income tax treaty.

    Capital gain from the sale of shares and ADSs may be subject to Russian income tax.

    Foreign judgments may not be enforceable against us.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

        Matters discussed in this document may constitute forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933 (the "U.S. Securities Act"), and Section 21E of the U.S. Securities Exchange Act of 1934 (the "U.S. Exchange Act"). The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their businesses. Forward-looking statements include statements concerning plans, objectives, goals, strategies, risks and their assessment, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.

        MTS desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe harbor legislation and other relevant law. This document and any other written or oral statements made by us or on our behalf may include forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. The words "believe," "expect," "anticipate," "intend," "estimate," "forecast," "project," "predict," "plan," "may," "should," "could" and similar expressions identify forward-looking statements. Forward-looking statements appear in a number of places including, without limitation, "Item 3. Key Information—D. Risk Factors," "Item 4. Information on our Company—B. Business Overview," "Item 5. Operating and Financial Review and Prospects," and "Item 11. Quantitative and Qualitative Disclosures about Market Risk" and include statements regarding:

    our strategies, future plans, economic outlook, industry trends and potential for future growth;

    our liquidity, capital resources and capital expenditures;

    our payment of dividends;

    our capital structure, including our indebtedness amounts;

    our ability to generate sufficient cash flow to meet our debt service obligations;

    our ability to achieve the anticipated levels of profitability;

    our ability to timely develop and introduce new products and services;

    our ability to obtain and maintain interconnect agreements;

    our ability to secure the necessary spectrum and network infrastructure equipment;

    our ability to meet license requirements and to obtain and maintain licenses and regulatory approvals;

    our ability to maintain adequate customer care and to manage our churn rate; and

    our ability to manage our rapid growth and train additional personnel.

        The forward-looking statements in this document are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management's examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections. In addition to these important factors and matters

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discussed elsewhere herein, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include:

    growth in demand for our services;

    changes in consumer preferences or demand for our products;

    availability of external financing on commercially acceptable terms;

    the developments of our markets;

    the highly competitive nature of our industry and changes to our business resulting from increased competition;

    the impact of regulatory initiatives;

    the rapid technological changes in our industry;

    cost and synergy of our recent acquisitions;

    the acceptance of new products and services by customers;

    the condition of the economies of Russia, and certain other countries of the CIS;

    risks relating to legislation, regulation and taxation in Russia and certain other CIS countries, including laws, regulations, decrees and decisions governing each of the telecommunications industries in the countries where we operate, currency and exchange controls relating to entities in Russia and other countries where we operate and taxation legislation relating to entities in Russia and other countries where we operate, and their official interpretation by governmental and other regulatory bodies and by the courts of Russia and the CIS;

    political stability in Russia and certain other CIS countries; and

    the impact of general business and global economic conditions and other important factors described herein and from time to time in the reports filed by us with the U.S. Securities and Exchange Commission (the "SEC").

        All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. Readers are cautioned not to place undue reliance on these forward-looking statements. Except to the extent required by law, neither we, nor any of our respective agents, employees or advisors intends or has any duty or obligation to supplement, amend, update or revise any of the forward-looking statements contained or incorporated by reference in this document.

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PART I

Item 1.    Identity of Directors, Senior Management and Advisors

        Not applicable.

Item 2.    Offer Statistics and Expected Timetable

        Not applicable.

Item 3.    Key Information

A.    Selected Financial Data

        On January 1, 2018 we adopted three new IFRS standards—IFRS 9, "Financial Instruments," IFRS 15, "Revenue from Contracts with Customers," and IFRS 16 "Leases." Prior period comparatives were not restated.

        Our results of operations for the financial year ended December 31, 2018 were affected by acquisition of controlling stake in MTS Bank. In 2018, we increased effective ownership share in MTS Bank from 26.6% to 55.4% and obtained control over the entity. In 2019, we subsequently increased our effective ownership stake in MTS Bank to 99.9%. The acquisition was accounted for as a transaction with entities under common control directly in equity.

        In December 2019, we sold our business in Ukraine, VF Ukraine, the results of the sold business are reported as discontinued operations for all the reported periods presented in the table below. Ukraine was excluded from operating segments presentation as a result of disposal. The results of operations in Ukraine were reported as discontinued operations in accompanying consolidated statement of profit or loss for the years ended December 31, 2019. The consolidated statements of profit or loss for the years ended December 31, 2018, 2017 and 2016 were retrospectively restated to present operations in Ukraine as discontinued operations. See Note 12 to the consolidated financial statements.

        On October 30, 2020, the Group entered into a sale agreement with Sistema to dispose of 100% share in JSC "Nvision Group." Nvision was excluded from "Other" operating segment presentation as a result of this disposal. The results of operations with Nvision were reported as discontinued operations in accompanying consolidated statement of profit or loss for the years ended December 31, 2020. The consolidated statements of profit or loss for the years ended December 31, 2019, 2018, 2017 and 2016 were retrospectively restated to present operations with Nvision as discontinued operations. See Note 12 to the consolidated financial statements.

        The selected financial data presented below as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 was derived from the audited consolidated financial statements of the Company, included in this document, "Item 3. Key Information—D. Risk Factors" and "Item 5. Operating and Financial Review and Prospects." The selected financial data presented below as of December 31, 2018, 2017, and 2016 and for the years ended December 31, 2017 and 2016 was derived from the audited consolidated financial statements of the Company restated on effect of

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VF Ukraine and NVision Group disposals, which are not included herein. Certain industry and operating data are also provided below.

 
  Years Ended December 31,  
 
  2020   2019   2018   2017   2016  
 
  Amounts in millions of Russian rubles,
except share and per share amounts,
industry and operating data and ratios

 

Consolidated statements of profit or loss data:

                               

Services revenue

    425,448     406,478     382,387     365,593     359,032  

Sales of goods

    69,478     64,127     63,851     49,696     48,195  

Total operating revenues

    494,926     470,605     446,238     415,289     407,227  

Operating expenses:

                               

Cost of services

    121,943     114,057     104,143     114,854     118,023  

Cost of goods

    63,482     58,872     58,669     42,889     44,589  

Selling, general and administrative expenses

    87,983     89,933     82,482     89,661     87,492  

Depreciation and amortization

    100,234     96,195     95,316     73,905     75,295  

Operating share of the profit of associates and joint ventures

    (5,048 )   (4,583 )   (3,799 )   (3,210 )   (3,115 )

Impairment of non-current assets

    2,023     (148 )   149     3,775      

Impairment of financial assets

    11,912     7,723     3,671          

Other operating expenses / (income)(1)

    (496 )   (7,021 )   (4,637 )   1,825     (22 )

Operating profit

    112,893     115,577     110,244     91,591     84,965  

Finance income

    (3,437 )   (4,352 )   (5,579 )   (5,254 )   (4,731 )

Finance costs

    42,084     47,366     36,985     26,010     27,082  

Non-operating share of the loss of associates and joint ventures

    (273 )   (3,496 )   909     436     1,288  

Other non-operating expenses/(income), net(2)

    (3,064 )   7,821     (425 )   89     553  

Profit before tax

    77,583     68,238     78,354     70,309     60,773  

Income tax expense

    16,126     15,667     15,345     17,918     14,410  

Profit for the period from continuing operations

    61,457     52,571     63,009     52,391     46,363  

(Profit)/Loss from discontinued operations, net of tax

    (616 )   (2,528 )   55,177     (4,197 )   (2,089 )

Profit for the period

    62,073     55,099     7,832     56,588     48,452  

Attributable to:

                           

Owners of the company

    61,412     54,241     6,848     56,040     48,476  

Non-controlling interests

    661     858     984     548     (24 )

Dividends declared(3)

    58,948     83,751     51,958     51,958     51,958  

Earnings per share, basic, RUB

    34.88     30.46     3.65     28.69     24.37  

Earnings per share, diluted, RUB

    34.86     30.41     3.65     28.66     24.35  

Earnings per share from continuing operations, basic, RUB

    34.53     29.04     33.10     26.53     23.32  

Earnings per share from continuing operations, diluted, RUB

    34.51     28.99     33.07     26.51     23.30  

Earnings per share from discontinued operations, basic, RUB

    0.35     1.42     (29.45 )   2.15     1.05  

Earnings per share from discontinued operations, diluted, RUB

    0.35     1.42     (29.42 )   2.15     1.05  

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  Years Ended December 31,  
 
  2020   2019   2018   2017   2016  
 
  Amounts in millions of Russian rubles,
except share and per share amounts,
industry and operating data and ratios

 

Annual Dividends declared per share, RUB

    20.57     41.91     26.00     26.00     25.99  

Semi-annual Dividends declared per share, RUB

    8.93     8.68     2.6     10.4     11.99  

Special Dividends declared per share, RUB

    13.25                  

Number of common shares outstanding

    1,726,902,169     1,772,834,153     1,830,742,676     1,912,042,419     1,986,899,529  

Weighted average number of common shares outstanding—basic

    1,760,467,519     1,780,935,238     1,873,562,676     1,953,778,999     1,989,281,930  

Weighted average number of common shares outstanding—diluted

    1,761,777,635     1,783,617,103     1,875,720,966     1,955,558,196     1,990,693,983  

Consolidated statement of cash flows data:

                               

Cash provided by operating activities

    155,507     106,652     154,390     144,640     130,565  

Cash used in investing activities

    (81,133 )   (29,554 )   (78,389 )   (81,510 )   (57,302 )

(of which capital expenditures)(4)

    (97,838 )   (91,736 )   (99,568 )   (76,431 )   (86,149 )

Cash used in financing activities

    (27,360 )   (120,448 )   (25,924 )   (50,445 )   (83,038 )

Consolidated statement of financial position (end of period):

                               

Cash, cash equivalents and short-term investments

    108,839     63,688     131,938     81,343     27,127  

Property, plant and equipment and investment property, net

    286,693     268,465     278,620     263,470     272,841  

Right-of-use assets

    130,503     138,817     149,007          

Total assets

    919,203     823,910     915,993     551,070     544,470  

Total debt (long-term and short-term)(5)

    429,268     343,319     368,135     291,713     273,274  

Total shareholders' equity

    32,690     36,394     77,565     124,205     143,948  

Common stock less treasury stock

    (74,790 )   (59,548 )   (44,608 )   (22,444 )   (548 )

Financial ratios (end of period):

                               

Total debt/total capitalization(6)

    92.9 %   90.4 %   82.5 %   70.1 %   65.4 %

Mobile industry and operating data:(7)

                               

Mobile penetration in Russia (end of period)

    172 %   178 %   174 %   174 %   179 %

Mobile subscribers in Russia (end of period, thousands)(8)

    78,467     79,072     78,011     78,291     80,032  

Overall market share in Russia (end of period)

    31 %   30 %   31 %   31 %   31 %

(1)
"Other operating expenses/(income)" consist mainly of allowance for doubtful accounts, gain/losses on disposal of property, plant and equipment and intangible assets as well as any gain/losses resulting from stock-taking.

(2)
"Other non-operating expenses/(income), net" consist mainly of net forex exchange (gains)/losses and net (gains)/losses arising on financial instruments.

(3)
Dividends declared in each of the years ended December 31, 2020, 2019, 2018, 2017, 2016 consisted of dividends in respect of the prior fiscal year (i.e., in respect of each of the years ended December 31, 2019, 2018, 2017, 2016, respectively), semiannual dividends in respect of the current fiscal year (RUB 17,842 million, RUB 17,345 million, RUB 5,196 million, RUB 20,783 million and RUB 23,961 million, respectively) and special dividends related to sale of Ukraine business in 2019 (RUB 26,478 million). Amounts include dividends on treasury shares RUB 6,935 million, RUB 9,449 million, RUB 3,037 million, RUB 1,337 million and RUB 220 million, in respect of the years ended December 31, 2020. 2019, 2018, 2017 and 2016 and, respectively.

(4)
Capital expenditures are the amounts of property, plant and equipment and intangible assets acquired during respective year.

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(5)
Includes notes, payable bank loans and other debt.

(6)
Calculated as book value of total debt divided by the sum of the book values of total shareholders' equity and total debt at the end of the relevant period. See footnote 4 above for the definition of "total debt."

(7)
Source: AC&M-Consulting and GSMA Intelligence. Operating data is presented for mobile operations only. None of this data is derived from our audited consolidated financial statements.

(8)
We define a subscriber as an organization or individual, whose SIM-card shows traffic-generating activity or accrues a balance for services rendered or is replenished of topped off over the course of any three-month period, inclusive within the reporting period, and was not blocked at the end of the period.

B.    Capitalization and Indebtedness

        Not applicable.

C.    Reasons for the Offer and Use of Proceeds

        Not applicable.

D.    Risk Factors

        An investment in our securities involves a certain degree of risk. You should carefully consider the following information about these risks, together with other information contained in this document, before you decide to buy our securities. If any of the following risks actually occur, our business, prospects, financial condition or results of operations could be materially adversely affected. In that case, the value of our securities could also decline and you could lose all or part of your investment. In addition, please read "Cautionary Statement Regarding Forward-Looking Statements" where we describe additional uncertainties associated with our business and the forward looking statements included in this document.

Risks Relating to Business Operations in Emerging Markets

Emerging markets such as the Russian Federation and other CIS countries are subject to greater risks than more developed markets, including significant legal, economic, social, regulatory, tax and political risks.

        Investors in emerging markets such as the Russian Federation, Armenia, Belarus and other CIS countries should be aware that these markets are subject to greater risk than more developed markets, including in some cases, significant legal, economic, social, regulatory, tax and political risks. Investors should also note that emerging economies such as the economies of the Russian Federation and other CIS countries are subject to rapid change and that the information set out herein may become outdated relatively quickly.

        When conducting business in different CIS countries, we may face risks similar to those (and sometime even more substantial) we have in Russia.

        There is a number of risks associated with investing in emerging markets, including the following:

    instability of emerging markets (for more information, see "—Risks Relating to Economic Risks in Our Countries of Operation" and "—Legal Risks and Uncertainties");

    high volatility of national currencies (for more information, see "—Risks Relating to our Financial Condition");

    possible geopolitical disputes (for more information, see "—Political and Social Risks"); and

    possible liquidity constraints (for more information, see "—Risks Relating to Economic Risks in Our Countries of Operation" and "—Risks Relating to our Financial Condition").

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        For example, in September 2020, martial law was declared in Armenia due to escalation of the conflict in Nagorno-Karabakh. Continued tensions or further escalation of the conflict could have a negative effect on the Armenian economy as well as our business, financial position and results of operations.

        Accordingly, investors should exercise particular care in evaluating the risks involved and must decide for themselves whether, in light of those risks, their investment is appropriate. Generally, investment in emerging markets is suitable for sophisticated investors who fully appreciate the significance of the risks involved and investors are urged to consult with their own legal and financial advisors before making an investment in our securities.

Risks Relating to Our Business

The telecommunications and digital services market is characterized by rapid technological change, which could render our services obsolete or non-competitive and result in the loss of our market share and a decrease in our revenues.

        The telecommunications industry as well as digital services sector are subject to rapid and significant changes in technology and are characterized by the continuous introduction of new products and services. The mobile telecommunications and digital services industries in Russia are also experiencing significant technological change, as evidenced by the constant technological evolution of standards for radio telecommunications, such as Wi-Fi, Enhanced Data Rates for Global Evolution ("EDGE"), Universal Mobile Telecommunications System ("UMTS"), and Long Term Evolution ("LTE"), 5G, as well as ongoing improvements in the capacity and quality of communications, shorter development cycles for new products and enhancements and changes in customer requirements and preferences. Such continuing technological advances make it difficult to predict the extent of the future competition we may face and it is possible that existing, proposed or as yet undeveloped technologies will become dominant in the future and render the technologies we use less profitable or even obsolete. New products and services that are more commercially effective than our products and services may also be developed. Furthermore, we may not be successful in responding in a timely and cost-effective way to keep up with these developments. Changing our products or services in response to market demand may require the adoption of new technologies that could render many of the technologies that we are currently implementing less competitive or obsolete. To respond successfully to technological advances and emerging industry standards, we may require substantial capital expenditure and access to related or enabling technologies in order to integrate the new technology with our existing technology.

We face increasing competition in the markets where we operate, which may result in reduced operating margins and loss of market share, as well as different pricing, service or marketing policies.

        The telecommunication services markets (including the largest for MTS mobile communications market) and digital services markets where we operate, are highly competitive, particularly in Russia.

        Competition is generally based on price, product functionality, range of service offerings and customer service.

        Generally, increased levels of competition, including potential entry of new companies particularly new mobile operators, government-backed operators, mobile virtual network operators, operators of satellite TV and alternative fixed line operators in the markets where we operate, as well as the strengthening of existing companies, increased use of Internet protocol telephony and other services, provided via the internet, may adversely affect our ability to keep the level of revenue which we receive from our operations on the telecom and other digital markets. This in turn could result in reduced operating margins and a loss of market share, as well as necessitating different pricing, service or marketing policies, which may have a material adverse effect on our business, financial condition and results of our operations.

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Competition in the Russian market

        Our principal wireless competitors in Russia are Public Joint Stock Company "Vimpel-Communications" ("VimpelCom"), Public Joint Stock Company MegaFon ("MegaFon"), as well as the federal cellular operator established in 2014 by the combination of Tele2 Russia and the mobile assets of Public Joint Stock Company Long-Distance and International Telecommunications "Rostelecom" ("Rostelecom"). We also face competition from several regional operators.

        In addition, we face competition in the fixed line telecommunications business, in particular from Rostelecom. Mass media reported that Rostelecom was determined by the Governmental Decree to be the only provider of Internet services for state and commercial medical institutions. It was also reported that Rostelecom may be the only provider of telecommunications services except mobile communications services for federal state institutions. Implementation of these Decrees requirements could have a material adverse effect on our business and results of operations.

        In November 2019, the Board of Directors of Rostelecom approved a transaction to consolidate 100% of LLC "T2 RTK Holding", which may result in increasing competition.

        See also "—If we cannot interconnect cost-effectively with other telecommunications operators, we may be unable to provide services at competitive prices, which may diminish our market share and result in a loss of revenues and margins" below.

Competition in the foreign markets of our operation

        In Belarus, our associate, MTS Belarus, while maintaining its leadership in the market in 2020, faces increasing competition and aggressive pricing from the main competitors—Best CJSC, a subsidiary of System Capital Management and Turkcell Iletisim Hizmetleri A.S. ("Turkcell"), which operates in Belarus under the "life:)" brand and A1 (a subsidiary of A1 Telekom Austria Group) which actively promotes convergent services. Additionally, in 2011, the government of the Republic of Belarus announced its intention to hold a public tender to privatize a 51% stake in MTS Belarus with an opening price of approximately USD 1 billion. The public tender was scheduled to be held on December 23, 2011 but was cancelled due to a lack of bidders. The latest attempt to find an investor for the 51% stake in MTS Belarus took place in February 2014. However, it was unsuccessful for the same reason. A date for the next tender has not yet been specified. The terms of the share disposal have not yet been determined, although it may be conducted either through a public tender or by entering into a direct contract with a prospective purchaser. If we are unable to acquire this ownership interest at a commercially reasonable price, or if it is acquired by one of our competitors, it may impact our competitive position and results of operations in Belarus.

        We also face competition in Armenia. In October 2020, Veon telecommunications holding (Beeline trademark) reached an agreement to sell its business in Armenia to the local telecommunications company Team LLC. These changes could potentially lead to increased competition on the Armenian market and have negative effect on our business, financial situation and results of our activities in Armenia.

We are subject to anti-corruption laws in the jurisdictions in which we operate, including anti-corruption laws of Russia and the US Foreign Corrupt Practices Act (the "FCPA"), and we may be subject to the UK Bribery Act 2010 (the "UK Bribery Act"). Our failure to comply therewith could result in penalties which could harm our reputation and have a material adverse effect on our business, financial condition and results of operations.

        We are subject to the FCPA, which generally prohibits companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business and/or other benefits, along with various other anti-corruption laws. We may also be subject to the UK Bribery

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Act. The UK Bribery Act is broader in scope than the FCPA in that it directly addresses commercial bribery in addition to bribery of public officials and it does not recognize certain exceptions, notably facilitation payments that are permitted by the FCPA.

        We operate primarily in Russia and other countries of the former Soviet Union, many of which pose elevated risks of corruption violations. We and certain of our subsidiaries are in frequent contact with persons who may be considered "foreign public officials" under the FCPA and UK Bribery Act, and therefore, are subject to an increased risk of potential FCPA and UK Bribery Act violations. If we or any third party acting on our behalf or in our interests are not in compliance with the FCPA, the UK Bribery Act and other laws governing the conduct of business with government entities (including local laws), we may be subject to criminal and civil penalties and other remedial measures, which could have an adverse impact on our business, results of operations, financial condition and liquidity.

        As disclosed in our public filings, in March 2014, we received requests for the provision of information from the United States Securities and Exchange Commission and the United States Department of Justice relating to an investigation of the Group's former subsidiary in Uzbekistan. See also Note 35 to our audited consolidated financial statements. In February 2019, the Group reached a resolution with the SEC and the United States Department of Justice ("DOJ") relating to the previously disclosed investigation of our former subsidiary in Uzbekistan.

        We consented to the entry of an administrative cease-and-desist order (the "Order") by the SEC.

        The United States District Court for the Southern District of New York approved a deferred prosecution agreement ("DPA") entered by the Group and a plea agreement entered into by our subsidiary in Uzbekistan. Under the agreements with the DOJ, we agreed to pay a total criminal penalty of USD 850 million (RUB 59.1 billion as of December 31, 2018) to the United States. We provided a provision of USD 850 million (RUB 55.8 billion as of the date of accrual), which was recognized as a part of discontinued operations in the consolidated statement of profit or loss for the year ended December 31, 2018.

        See also "—We have incurred and are continuing to incur costs and related management oversight obligations in connection with our obligations under the DPA and the SEC Order," "—We could be subject to criminal prosecution or civil sanction if we breach the DPA and the SEC Order, and we may face other potentially negative consequences relating to the investigations by, and agreements with, the DOJ and SEC and other authorities, including additional investigations and litigation" and "Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—7. Litigation—Uzbekistan."

We have incurred and are continuing to incur costs and related management oversight obligations in connection with our obligations under the DPA and the SEC Order.

        We are subject to the DPA with the DOJ and the SEC Order. See "Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—7. Litigation—Uzbekistan" and Note 35 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 20-F. In conjunction with the DPA and pursuant to the SEC Order, we are required to retain, at our own expense, an independent compliance monitor. Pursuant to the DPA and the SEC Order, the monitorship will continue for a period of three years from the date of appointment and the term of the monitorship may be terminated early or extended depending on certain circumstances, as ultimately determined and approved by the DOJ and the SEC. The monitor assesses and monitors our compliance with the terms of the DPA and the SEC Order as well as reviews and evaluates the effectiveness of our policies, procedures, practices, internal accounting controls, record keeping and financial reporting as they relate to our current and ongoing compliance with the anti-bribery, books and records and internal accounting controls provisions of the FCPA and other applicable anti-corruption laws, and makes recommendations reasonably designed to improve the

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effectiveness of our internal accounting controls and FCPA corporate compliance. See also "—We are subject to anti-corruption laws in the jurisdictions in which we operate, including anti-corruption laws of Russia and the US Foreign Corrupt Practices Act (the "FCPA"), and we may be subject to the UK Bribery Act. Our failure to comply therewith could result in penalties which could harm our reputation and have a material adverse effect on our business, financial condition and results of operations."

        We have incurred significant costs in connection with the disposition of the matters covered in the DPA and SEC order, including retention of legal counsel and other advisors and other costs related to the investigations undertaken in connection with these matters. We currently cannot estimate additional costs that we are likely to incur in connection with compliance with the DPA and the SEC Order, including the ongoing obligations relating to the monitorship, our obligations to cooperate with the agencies regarding their investigations of other parties, and the costs of implementing the changes, if any, to our internal controls, policies and procedures required by the monitor. However, such costs could be significant. See also "—We could be subject to criminal prosecution or civil sanction if we breach the DPA and the SEC Order, and we may face other potentially negative consequences relating to the investigations by, and agreements with, the DOJ and SEC and other authorities, including additional investigations and litigation."

We could be subject to criminal prosecution or civil sanction if we breach the DPA and the SEC Order, and we may face other potentially negative consequences relating to the investigations by, and agreements with, the DOJ and SEC and other authorities, including additional investigations and litigation.

        Failure to comply with the terms of the DPA, whether such failure relates to alleged improper payments, internal controls failures, or other non-compliance, could result in criminal prosecution by the DOJ, including for the matters addressed in the DPA. Under such circumstance, the DOJ would be permitted to rely upon the admissions and the waiver of certain defenses we made in the DPA. Similarly, breach of the SEC Order could result in additional penalties against the Company.

        Criminal prosecution by the DOJ as a result of a breach of the DPA or penalties imposed as a result of noncompliance with the SEC Order could subject us to penalties and other costs and could have a material adverse effect on our business, financial condition, results of operations, cash flows or prospects.

        We may also face other potentially negative consequences relating to the investigations by, and agreements with, the DOJ, SEC, and other authorities. None of the DPA and the SEC Order prevents these or any other authorities from carrying out certain additional investigations with respect to the facts not covered in the agreements or in other jurisdictions, or prevents authorities in other jurisdictions from carrying out investigations related or unrelated to the matters which being investigated. Additionally, on March 19, 2019, a proposed class action complaint, captioned Salim v. Mobile TeleSystems PJSC et al., case number 1:19-cv-01589, was filed in the United States District Court for the Eastern District of New York against us and certain of our managers. The complaint was filed by an individual securities holder on behalf of himself and all similarly situated securities holders alleging violations of Sections 10(b) and 20(a) and Rule 10b-5 of the Exchange Act with respect to certain public disclosures made by us regarding our former business in Uzbekistan and investigations carried out by the SEC and DOJ related thereto. The complaint further alleged that such disclosure omissions led to a decline in the market value of our securities resulting in losses and damages to the plaintiff and other securities holders. The plaintiff was seeking damages in an unspecified amount, prejudgment and post-judgment interest and attorneys' fees, expert fees and other costs and other and further relief. On March 1, 2021 the United States District Court of Eastern District of New York granted MTS's motion to dismiss with prejudice and dismissed the complaint in full.

        Any collateral investigations, litigation or other government or third party actions resulting from these, or other, matters could have a material adverse effect on our business, financial condition,

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results of operations, cash flows or prospects. In addition, any ongoing media and governmental interest in the investigations, the agreements and claims could impact the perception of us and result in reputational harm.

The outbreak of COVID -19 may have a material adverse effect on our business, financial condition, results of operations and prospects

        A novel strain of the coronavirus, COVID-19, was discovered in Wuhan, China in December 2019 and on 11 March 2020, was declared by the World Health Organization to be a global pandemic. It has adversely affected and continues to affect the economies and financial markets of many countries, including Russia and CIS and has resulted in a series of measures implemented by governments around the world aimed at mitigating the further spread of the virus. These measures include restrictions on travel, closure of national borders, imposition of quarantines, introduction of import restrictions, prolonged closures of workplaces and curfews or other social distancing measures. Since September 2020, Russia and many other countries across the world have been facing the second wave of the COVID-19 pandemic, as evidenced by a significant rise in the numbers of COVID-19 cases and deaths. There is still significant uncertainty regarding the impacts and duration of the COVID-19 pandemic. If the spread of COVID-19 persists for a significant period of time or the infection rates stagnate or increase, this could lead to renewed nationwide lockdowns, which could have a material negative impact on the global and Russian economies.

        The COVID-19 outbreak has so far had a limited impact on the Group. However, due to the uncertainty of the duration and impact of the COVID-19 pandemic, we are continually evaluating variety of scenarios with the financial impacts across the Group. We have also carried out risk assessments for each of our business units, considering potential strategic, operational and regulatory related impacts. We have incorporated COVID-19 commentary below, which gives an overview of the related uncertainties and potential impacts on the Group.

Clients and counterparties

        Global economic downturn caused by the novel coronavirus pandemic could affect customer spending habits, which could lead to a decreased demand on our products and services, as well as affect financial condition of our counterparties and their ability to fulfill their obligations. In addition, travel restrictions imposed by a number of countries and voluntarily travel limitation may lead to a decrease in roaming services provided and our roaming revenue from our subscribers. See also "—We may be adversely affected by the current economic environment."

Development of Our Network Infrastructure

        The lack or limited access to residential buildings, for example, due to COVID-19 impact, may affect these projects on construction and modernization of fixed-line network. For more information, see "—We may be required to make significant investments beyond those that are currently planned to preserve our competitive advantage in response to the rapid evolution of fixed network technology."

Financial Stability of Our Subsidiaries, including MTS Bank

        Uncertainty on the international financial market amid COVID-19 pandemic may have material adverse effect on the financial condition of MTS Bank and its customers, in particular, it may result in an increase of non-performing loans and loan provision charges, loan losses and write-offs, an increase in exchange rate risk and losses and etc. For more information, see "—MTS Bank's business entails regulatory and operational risks."

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Personnel

        If the COVID-19 pandemic adversely affects our businesses and liquidity in the future, we may fail to retain employees and attract suitable talents to the company. The productivity of our employees may be negatively impacted due to isolated remote working from home. See also "—Our competitive position and future prospects depend on our senior managers and other key personnel and our inability to attract, retain and motivate qualified key personnel could have a material adverse effect on our business, financial condition and results of operations."

        Moreover, due to stricter safety standards, our cost of compliance with COVID-19 related safety requirements may increase.

IT Technology and Cyber Security

        Despite the fast development of the pandemic and the extremely rapid transfer of our personnel to distant work, we managed to fully maintain operation of our information security units and ensure continuous monitoring of compliance with local regulations on information security. However, no assurance can be given that these measure will be sufficient in the future and no new challenges will emerge. If we are required to develop any additional measures to protect the company and its business processes, it may result in the significant increase in operating costs. See also "—Breach of information confidentiality, integrity and availability may lead to interruption of business critical processes, a loss of market share, and claims from subscribers, regulators, and partners, which could materially adversely affect our reputation, business, financial condition, results of operations and prospects."

The controlling shareholder has a possibility to determine certain decisions of our governing bodies.

        Sistema, which is a public company, owns a controlling stake in MTS. According to the applicable Russian legislation, Sistema has a possibility to exercise its controlling rights, which may become decisive during consideration of a number of issues by our General Meeting of Shareholders, including, but not limited to (i) making decisions on the issues, requiring simple majority of votes our shareholders participating at the General Meeting, for example, in case of making decisions on dividends payment or approval of the our annual reports; (ii) appointment of the majority or dismissal of all members of our Board of Directors members and other matters. Sistema can take actions that may conflict with the interests of other security holders. Furthermore, our international, credit, investment and other ratings, which determine, inter alia, peculiarities of our operations, terms of raising debt financing and our other activity can be affected by our controlling shareholder's activity and (or) its ratings. See also "—Risks Relating to our Financial Condition—A change in control could have a material adverse effect on our financial condition and results of operations."

        Controlling shareholder as well as other our shareholders has a right to receive dividends at the amount proportionate to the number of our shares belonging to a respective shareholder. For information about dividends see "Item 5—Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital Requirements." The indentures relating to our outstanding notes and other debt do not restrict our ability to pay dividends. As a result of paying dividends, our reliance on external sources of financing may increase, our credit rating may decrease, and our cash flow and ability to repay our debt obligations, or make capital expenditure, investments and acquisitions could be materially adversely affected.

Difficulties with operational management of the acquired businesses could hamper our continued growth and profitability.

        Our continued growth depends, in part, on our ability to identify attractive opportunities in markets that will grow and on our ability to manage the operations of acquired or newly established businesses. Our acquisitions may occur in countries and regions that represent new operating

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environments for us. We therefore may have less control over their activities. We may also face uncertainties with respect to the operational and financial needs of those businesses and may, in the course of our acquisitions, incur additional debt to finance the acquisitions and/or take on substantial existing debt of the acquired companies. In addition, it is possible that our activities in the countries of our current presence and counties into which we may expand may be associated with greater political, economic, social and legal risks.

        For example, see "—Legal Risks and Uncertainties—An outcome of the proceedings relating to sustaining operations of our subsidiary in Turkmenistan is unpredictable" and "—The inability of our subsidiaries in the countries in which we are present to maintain control over their operations and assets may adversely affect our business, financial condition and results of operations." Our failure to identify attractive opportunities for expansion into new markets and to manage the operations of acquired or newly established businesses in these markets could hamper our continued growth and profitability, and have a material adverse effect on our financial condition, results of operations and prospects.

Acquisitions and mergers may pose significant risks to our business.

        We have expanded our business through a number of acquisitions. We will continue to evaluate opportunities to acquire, invest in or merge with other existing operators or license holders, as well as other complementary businesses. In 2017-2020, our acquisitions focused on various segments, including communication and software development companies, providers of cloud services, as well as management investment and other non-telecom companies.

        These and other business combinations entail a number of risks that could materially and adversely affect our business, financial condition, results of operations and prospects, including the following:

    assumption of the acquired target's liabilities and contingencies;

    failure to realize any of the anticipated benefits or synergies from any acquisitions or investments we complete;

    problems connected with integrating the acquired businesses, technologies or products into our operations;

    incurrence of debt to finance acquisitions and higher debt service costs related thereto;

    difficulties in retaining business relationships with suppliers and customers of the acquired companies;

    risks associated with businesses and markets in which we lack experience, including political, economic, social, legal and regulatory risks and uncertainties;

    competition risks;

    potentially incorrect assessment of the value of any acquired target resulting from the facts we could not have known at the time of evaluation (subsequently discovered facts);

    more onerous government regulation;

    potential loss of key assets of the acquired company;

    potential loss of key employees of the acquired company;

    potential write-offs of acquired assets; and

    lawsuits arising out of disputes over ownership of acquired assets and/or the enforcement of indemnities relating to the title to such assets.

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        See also "—Legal Risks and Uncertainties—The inability of our subsidiaries in the countries in which we are present to maintain control over their operations and assets may adversely affect our business, financial condition and results of operations" and "—Risks Relating to our Financial Condition—We may be adversely affected by the current economic environment."

        In addition, companies that we acquire may not have internal policies, including accounting policies and internal control procedures that are compatible, compliant or easily integrated with ours.

        If any of our future business combinations is structured as a merger with another company, or we merge with or absorb a company subsequent to its acquisition by us, such a merger would be considered a corporate reorganization under Russian law. This would entitle our creditors to file a claim seeking to accelerate their claims or terminate the respective obligations and seek damages. The creditors would need to prove in court that we will not perform our obligations in due course and the amount of damages suffered. Secured creditors would also be required to prove that the security provided by our shareholders, any third parties or us is not sufficient to secure our obligations. Creditors whose claims are secured by pledges do not have the right to claim additional security.

        As of December 31, 2017, we held a 26.61% stake in MTS Bank. In 2018, we acquired a 28.63% stake in MTS Bank from Sistema for RUB 8.27 billion, thus increasing our effective ownership in MTS Bank to 55.4%. In February 2019, we acquired a 39.48% stake in MTS Bank for RUB 11.4 billion, as a result of which our effective ownership in MTS Bank reached 94.97%. In December 2019, we increased our stake in MTS Bank up to 99.9% by acquiring it from Sistema. The increase of our share in MTS Bank is in line with our strategy to diversify the business, achieve synergies and develop innovative financial services.

        In September 2018, we acquired 100% in the share capital of Avantage LLC for RUB 8.9 billion (including net debt) from a group of private investors. Avantage LLC owns the Avantage data processing center project in Lytkarino, Moscow region, one of the largest data centers in Russia by number of racks.

        In September 2018, we acquired a 13.7% stake in Youdo Web Technologies Limited (Cyprus), the owner of YouDo, one of the largest Russian online service providers matching freelance labor demand and supply for everyday and business tasks for USD 12 million.

        In December 2018, we acquired 100% in the share capital of IT-Grad 1 Cloud LLC, one of the largest cloud providers on the Russian Infrastructure-as-a-Service market. The company, which holds all IT-Grad group's cloud assets, was bought through our Dutch subsidiary Vostok Mobile B.V. from a group of private investors for a total of RUB 2,491 million, including net debt.

        In 2019-2020, we also acquired certain companies such as United Russian Studios JSC, JUST AI Limited, Zelenaya Tochka Group and others. See "Item 4—Information on Our Company—A. History and Development" for further information.

        These acquisitions have allowed us to diversify our business. However, additional risks relating to acquired companies' liabilities and non-achievement of initial financial and operational targets may arise in connection with these acquisitions. See also Note 5 to our audited consolidated financial statements.

        We may also be involved in various litigation to protect our title or other rights related to acquired businesses and incur loss.

        In addition, a merger or any corporate reorganization or business combination that constitutes a "major transaction" under Russian law would trigger the right of our shareholders who abstain from voting on or vote against such reorganization or transaction to sell, and our obligation to buy, their shares in an amount representing up to 10% of our net assets as calculated under Russian Accounting Standards. See "—Legal Risks and Uncertainties—Shareholder rights provisions under Russian law

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could impose additional obligations and costs on us, which could have a material adverse effect on our business, financial condition, results of operations and prospects."

If we cannot successfully develop our network or integrate the acquired companies, we will be unable to expand our subscriber base and maintain our profitability.

        Our ability to increase our subscriber base depends upon the success of our network expansion (including fixed-line networks).

        We have expended considerable amounts of resources to enable both organic expansion and expansion through acquisitions, and we plan to continue to do so. Limited information regarding the markets into which we have or are considering expanding, through either acquisitions or new licenses, complicates accurate forecasts of future revenues from those regions, increasing the risk that we may overestimate these revenues. In addition, we may not be able to integrate previous or future acquisitions successfully or operate them profitably. Any difficulties encountered in the transition and integration process and in the operation of acquired companies could have a material adverse effect on our results of operations.

        The build-out of our network is also subject to risks and uncertainties, which could delay the introduction of services in some areas and increase the cost of network construction, including difficulties in obtaining base station sites on commercially attractive terms. Further, telecommunications equipment used in Russia and other CIS countries is subject to governmental certification and periodic renewals of the same. We are also required to obtain permits and governmental certification for the operation of telecommunications equipment and/or permission for the import and export of certain network equipment, which can result in procurement delays and slower network development. The failure of any equipment we use to receive timely certification or re-certification, as applicable, could hinder our expansion plans. See also "—Risks Relating to our Financial Condition—If we are unable to obtain adequate capital, we may have to limit our operations substantially, which could have a material adverse effect on our business, financial condition, results of operations and prospects." In particular, in 2019 considerable changes to the Federal law No. 412 "On Accreditation in the National Accreditation System" dated December 28, 2013, which increased powers (authority) of Rosaccreditation relating to control over unfairly accredited persons, came into force. These changes introduced stricter requirements to accredited persons' activities and accreditation experts and provide for additional basis for suspension and termination of accreditation. As a result, these changes may lead to an increased cost of certification services and increase time needed for acquiring certifications, which may affect delivery time of certified equipment in Russia.

        For example, the import and export of products containing cryptographic hardware is subject to special documentation requirements and approvals. As telecommunications networks comprise various components with cryptographic hardware, we must comply with these requirements in order to import such components. Moreover, where imported equipment does not contain cryptographic hardware, the federal customs service requires manufacturers to provide written confirmation regarding the absence of such hardware. The range of goods requiring the provision of such "certificates of conformance" by suppliers and manufactures prior to their import into Russia has also been expanded to cover most of our key network components, and imported radioelectronic equipment is required to be licensed by the Russian Ministry of Industry and Trade.

Our inability to develop additional sources of revenue and competitive services could have a material adverse effect on our business, financial condition, results of operations and prospects.

        Until recently, customer growth has been our principal source of revenue growth. Currently, however, increasing competition, market saturation and technological development lead to the increased importance of data services in the markets in which we operate. As a result, data services

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became the key driver of our revenue growth and we will therefore need to continue to develop new competitive services, including value-added, 3G, LTE, and others, and to consider vertical integration opportunities through the development or acquisition of dealers in order to provide us with sources of revenue in addition to standard voice services. We invest in new businesses, such as artificial intelligence, financial technologies, Big Data, IoT (in particular, we participate in realization of national program "Digital Economy of the Russian Federation"), cloud services and others. Decrease or absence of demand for new services, as well as competition increase on current markets, or new companies' entries may lead to revenue decrease and necessity to revise our strategy regarding new businesses, which may require additional investments. Our inability to develop additional sources of revenue could have a material adverse effect on our business, financial condition, results of operations and prospects.

If we cannot interconnect cost-effectively with other telecommunications operators, we may be unable to provide services at competitive prices, which may diminish our market share and result in a loss of revenues and margins.

        Our ability to provide commercially viable services depends on our ability to continue to interconnect cost-effectively with zonal, intercity and international fixed-line and mobile operators in Russia and other countries in which we operate. Interconnect fees are established by agreements with network operators and vary depending on the network used, the nature of the call and the call destination.

        Although Russian legislation requires that operators of public switched telephone networks that are deemed to be "substantial position operators" cannot refuse to provide interconnect services or discriminate against one operator over another, we believe that, in practice, some operators attempt to impede wireless operators by delaying interconnect applications and establishing technical conditions for interconnecting that can be met only by certain operators.

        Any difficulties or delays in interconnecting cost-effectively with other networks could hinder our ability to provide services at competitive prices, or at all, causing us to lose our market share and revenues, which would have a material adverse effect on our business and results of operations. See also "—If we or any of our mobile network operator subsidiaries operating in Russia are identified as an operator occupying a "substantial position," the regulator may reduce our interconnect tariffs which, in turn, may have a material adverse effect on our financial condition and results of operations."

        In addition, as part of the restructuring of Svyazinvest, a fourth national mobile operator in Russia was established by the combination of "Tele2 Russia" and the mobile assets of Rostelecom in 2014, which started its operations in 2015 under the "Tele2" brand. As Svyazinvest controlled regional fixed-line operators in all regions of Russia (other than Moscow), a mobile operator established as part of the Svyazinvest group (mobile assets were consolidated into LLC "T2 RTK Holding") may receive preferential terms for interconnecting with these operators, which would allow it greater flexibility in setting tariffs and could put us at a competitive disadvantage. See also "—We face increasing competition in the markets where we operate, which may result in reduced operating margins and loss of market share, as well as different pricing, service or marketing policies."

We may not realize the benefits we expect to receive from our investments in 4G and 5G wireless services and Internet of Things (IoT) technologies, which could have a material adverse effect on our business and results of operations.

        In July 2012, the Federal Service for Supervision in the Area of Communications and Mass Media awarded MegaFon, VimpelCom, Rostelecom (under Tele2 brand) and us a license to provide 4G services in the Russian Federation.

        In December 2017, the State Commission for Radio Frequencies issued a decision allowing the use of frequency bands previously allocated for LTE mobile communications for NB-IoT technology. In the

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second half of 2018 and March 2020, the State Commission for Radio Frequencies awarded additional frequencies and determined the procedure for the use of radio electronic means, operating in the range of 800 MHz under LPWAN group of standards (Low-power Wide-area Network) relating to IoT technology. In March 2020, the State Commission for Radio Frequencies allowed indefinite range of persons and entities to use the 24.25-24.65 GHz frequency band under the 5G standard for radio electronic means. This decision allows the construction of local communication networks under the 5G/IMT-2020 standard, which could lead to increased competition in our certain business areas. In July 2020, we received the first license to provide 5G-based services in this frequency band. In November 2020, the State Commission for Radio frequencies clarified the terms regarding mandatory use of Russian-produced equipment in the 24.25-24.65 GHz frequency band, which may affect the possibility of using these frequencies.

        The 4G wireless services provide faster, higher quality data transfer and/or streaming capabilities, as compared to 2G and 3G, and 5G wireless services pose a similar advantage over 4G. Historically, mobile operators that are developing 4G networks experienced various difficulties and challenges, including a limited supply of compatible handsets, limited international roaming capabilities, as well as various software and network related problems. We may experience similar problems or encounter new difficulties when developing our 4G and 5G networks (including NB-IoT) and may be unable to fully resolve them. For example, we cannot be certain that:

    we will be able to build-out our 4G (including NB-IoT) and 5G networks in a timely manner or within the time frame stipulated by the license terms;

    our 4G (including NB-IoT) and 5G networks will deliver the quality and level of service that our customers demand or expect;

    we will be able to provide all contemplated 4G services (including NB-IoT) and 5G at reasonable prices and within a reasonable timeframe;

    manufacturers and content providers will develop and offer new marketable products and services for our 4G and 5G networks (including NB-IoT) on a timely basis;

    demand for our 4G services (including NB-IoT) will not be lower than expected;

    our 4G and 5G networks will be commercially viable in all of the locations we are required to operate pursuant to our licenses;

    our competitors will not offer similar services at lower prices; and

    changes in governmental policies, rules, regulations or practices will not affect our network rollout or our business operations.

        See also "—If we cannot successfully develop our network or integrate the acquired companies, we will be unable to expand our subscriber base and maintain our profitability."

        In addition, Russian military and other authorities also use frequencies in the 4G and 5G spectrum, which may limit the availability of 4G and 5G frequencies for commercial use in certain areas. During the construction of our networks, there is also a risk that the frequencies assigned to us for commercial use may overlap with those used by the Russian military and other authorities. For example, conflicts over the availability of frequency reserved for military use in Moscow caused delay in the commercial launch of 3G services by all 3G license-holders in Moscow, despite the fact that some of these frequencies were cleared for commercial use in 2009. If a similar conflict were to occur, it could cause problems or delays in the development and operation of our 3G and 4G networks in Russia.

        Potential competition from other 4Gand LPWAN providers, together with any problems relating to the rollout of our 4G and 5G networks and provision of 4G and 5G services in the future, could materially adversely affect our business, financial condition and results of operations.

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        In December 2013, July 2014 and in July 2017, the State Commission for Radio Frequencies introduced several modifications to the conditions of using the frequency band for mobile radio communication networks. These changes resulted in the implementation of the principle of technological neutrality for frequency bands 900 MHz (UMTS and LTE), 1800 MHz (LTE) and 2100 MHz (LTE), and included the imposition of certain additional obligations on network operators. Pursuant to these modifications, in case of using frequencies on the terms of technological neutrality principle, we are, inter alia, obliged to provide network coverage to settlements with lower subscriber numbers, where the commercial rationale for doing so may otherwise be limited. Such changes lead to additional costs for the construction of our 3G and 4G wireless networks and may therefore adversely affect our business, financial condition and results of operations. Moreover, the rules on the Russian-produced telecommunication equipment usage, which require to operate only equipment included in the Unified Register of the Russian Radio-Electronic Products, could affect implementation of the Internet of things (IoT) technology and 5G networks deployment.

If we are unable to successfully develop and/or deploy 4G and 5G wireless services in the countries in which we operate, or if any operators in those markets obtain a significant technological and/or commercial advantage over us in 4G and 5G wireless services, it may have a material adverse effect on our business and results of operations in the long term.

        The next step in the development of telecommunications in the countries where we operate is the evolution of 4G/LTE mobile telecommunication technology. The cost of 4G/LTE network deployment and quality of services (including data speed and quality of radio coverage) depends on the band and the width of frequency range given to an operator.

        In 2012 outside of the auction process, the State Commission for Radio Frequencies granted Scartel (operating the "Yota" retail brand) a paired range of LTE frequencies (2x30 MHz) in the 2.5 2.7 GHz band for use in the entire territory of Russia. The remaining frequencies, 40 MHz of the 2.5 2.7 GHz band, were allocated evenly during the auction among four major market participants (VimpelCom, MegaFon, Rostelecom and us). Initially, it was planned that all operators would receive equal access to the Scartel infrastructure, which would allow each operator to reduce its 4G/LTE network development costs.

        On October 1, 2013, MegaFon acquired Maxiten Co Limited, which had acquired 100% of shares in Scartel and Yota Ltd. from Garsdale. The transaction was approved by a general shareholders' meeting of MegaFon and by the Federal Antimonopoly Service (the "FAS"). As a result of this transaction, MegaFon obtained a competitive advantage in terms of LTE network development costs and may also obtain an advantage in LTE network performance. In addition, as a result of this deal, MegaFon consolidated the financial and operational indicators of Scartel/Yota, which increased its formal market share in the mobile communications market.

        Significant material resources for the introduction of such technologies may be required, which could have a material adverse effect on our business and results of operations. Furthermore, the limited number of available frequencies may prevent us from realizing the full benefits we expect to receive from the development of a 4G network, because our network capacity would be constrained and our ability to expand limited.

        In 2019, Rosletelcom PJSC received a LTE frequency in the 2.3-2.4 GHz band outside of the auction process. In July 2020, the State Commission for Radio Frequencies allowed Rostelecom PJSC to share this frequency band with T2 Mobile LLC (Tele2), which gave an advantage to these operators. However, in December 2020, the State Commission for Radio Frequencies changed its decision relating to permission for the commercial use of this range. These developments reflect ongoing discussions on allocation frequencies in order to construct 5G network in Russia, deployment of which has been actively negotiated by operators and regulators since 2017. The greater part of frequency spectrum

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suitable for 5G network in Russia, is partially or fully occupied by other users (for example, satellite communication companies use the most suitable frequencies for 5G in 3.5 GHz band), including state-owned companies. Significant expenses and time may be required to clear frequencies, however the frequency conversion mechanism has not been fully defined yet and if it will be realized, there is no assurance that sufficient frequencies optimal for 5G deployment will be cleared in low-band spectrum ("sub-6").

        As a solution, the regulator is considering creation of a Single Infrastructure Operator, which will be assigned with the 5G frequencies, and, as one of the discussed variants, will construct a single 5G network in Russia mainly using equipment produced in Russia and will maintain this network. It is planned that the Single Infrastructure Operator will operate as a technological platform based on which independent market players will develop and provide a wide range of services to clients. According to market players and certain industry experts, this solution has variety of advantages as well as some disadvantages and risks as compared to traditional network deployment by operators on a free and non-discriminatory basis.

        Final regulator decision on frequency allocation for 5G will significantly affect process of mobile communication market development and may lead to occurrence of certain difficulties, including extension of time needed for putting 5G network into operation, increase in capital and operating expenditures, failure to realize all 5G technological advantages caused by separation of 5G and earlier generation network infrastructure, realization of market advantages by certain players due to non-equal frequency allocation or obtaining of other technological advantages connected with frequency allocation. All of these factors may affect our ability to develop 5G network, which in turn may have a material adverse effect on our business.

        Moreover, if we cannot develop a commercially viable 4G network, and one of our competitors does, that competitor would have an advantage over us, which in turn may have a material adverse effect on our business.

Disruptions on our networks and information systems could lead to a loss of subscribers, damage to our reputation, violations of the terms of our licenses and subscriber contracts, penalties and have material adverse effect on our business and financial condition.

        We are able to maintain our operations only to the extent that our network infrastructure, information systems and data processed therein is protected from unlawful actions, including hacker and targeted attacks, technical malfunctions, power failures and natural disasters. Any failure, accident or network or information systems security breach, that causes interruptions in our operations could impair our ability to provide services to our customers or may influence other business processes, any of which could materially adversely affect our reputation, business and results of operations.

        In addition, to the extent that any disruption or network or elements of information systems security breach results in a loss of or damage to customers' personal data, or inappropriate disclosure of confidential information, we may incur liability as a result, including costs to remedy the damage caused by these business-interruptions or elements of information systems security breaches.

        While we maintain backup systems for our telecommunications and infrastructure equipment, network and data management, operations and maintenance systems, these systems may not ensure recovery in the event of a network or information systems failures. In particular, in the event of extensive software and/or hardware failures, significant disruptions to our systems could occur, leading to our inability to provide services in full. The quality of our services in roaming (including roaming between networks) also depends, inter alia, on the network quality of our roaming partners, which is out of our control. Disruptions in our provision of services could lead to a loss of subscribers, damage to our reputation, violations of the terms of our licenses and subscriber contracts and penalties.

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        Our computer and communications hardware is protected through technical and software safeguards. However, it is still vulnerable to fire, storm, flood, loss of power, telecommunications failures, physical or software break-ins, viruses and similar events. Although our computer and communications hardware is insured against fire, storm and flood, we do not have business interruption insurance to protect us in the event of a catastrophe, even though such an event could have a material adverse effect on our business.

Failure to fulfill the terms of our licenses could result in their suspension or termination, which could have a material adverse effect on our business and results of operations.

        Each of our mobile licenses requires service to be offered by a specific date and some contain further requirements as to territorial coverage to be reached by specified dates.

        In addition, all of our mobile licenses require us to comply with various telecommunications regulations relating to the use of radio frequencies and numbering capacity allocated to us, network construction, interconnect rules and technical requirements relating to compliance with law enforcement authorities' requests, among others. If we fail to comply with the requirements of Russian or other applicable legislation or meet any terms of our licenses, our licenses and other authorizations necessary for our operations may be suspended or terminated, which could significantly limit our operations. In addition to the impact on our operations, the suspension or loss of certain licenses could also constitute an event of default under certain of our debt obligations and cause certain of our debt to be accelerated.

        Moreover, applicable licensing requirements are subject to constant changes. For example, the Russian government enacted Decree No. 2385 dated December 30, 2020, which came into force starting from January 1, 2021 and which revised the regulation on licensing activities in communication services sector including mandatory licensing requirements and grounds for license termination.

        A suspension or termination of our licenses or other necessary governmental authorizations could therefore have a material adverse effect on our business and results of operations.

Failure to renew our licenses, or receive renewed or new licenses with similar terms to our existing licenses, could have a material adverse effect on our business and results of operations.

        Our telecommunications licenses have their expiration dates in various years. For a list of the telecommunications licenses held by us, see "Item 4. Information on Our Company—B. Business Overview—Licenses."

        These licenses may be renewed upon application to the relevant governmental authorities. Government officials in Russia and the other countries in which we operate consider the compliance with license requirements and the conditions of using the allocated frequency range when deciding whether to renew a license.

        Additionally, new mandatory conditions, which relate to the need for further development of the communication network in order to provide licensed communication services for potential users of the communication service in sparsely populated residential areas, may be introduced when deciding whether to renew a license. These new conditions will require additional investment. Moreover, we may be subject to penalties or our licenses may be suspended or terminated for non-compliance with any such new license requirements. The suspension or loss of certain licenses could significantly limit our operations and cause certain of our debt to be accelerated.

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If frequencies currently assigned to us are revoked, or if we fail to obtain renewals of our frequency allocations, our network capacity will be constrained and our ability to expand limited, resulting in a loss of market share and revenues.

        There is a limited radio frequency spectrum available for wireless operators in each of the regions in which we operate or hold licenses to operate. We are dependent on access to adequate spectrum allocation in each market in which we operate in order to maintain and expand our subscriber base. If frequencies are not allocated to us in the future in the required quantities, with the geographic span and for time periods that would allow us to provide wireless services on a commercially feasible basis throughout all of our license areas, our business, financial condition, results of operations and prospects may be materially adversely affected.

        According to the decision of the State Commission for Radio Frequencies No. 13-22-01 dated December 11, 2013, the terms of radio frequency bands usage by radio electronic facilities for mobile communication were supplemented with a requirement to provide the settlements of over 1,000 people with communication services within seven years (depending on the used frequency range and radio technology). If we are not able to fulfill these requirements, our authorizations for the use of radio frequency spectrum might be either terminated or not prolonged in extrajudicial procedure.

        A loss of allocated spectrum, which is not replaced by other adequate allocations, could also have a substantial adverse impact on our network capacity. In addition, frequency allocations are often issued for periods that are shorter than the terms of the licenses, and such allocations may not be renewed in a timely manner, or at all. If our frequencies are revoked, or if we are unable to renew our frequency allocations, our network capacity would be constrained and our ability to expand limited, resulting in a loss of market share and revenues.

An increase in the fees for frequency spectrum usage could have a negative effect on our financial results.

        The Russian and the CIS legislation requires us to make payments for frequency spectrum usage. A number of projects implemented by MTS in 2016 - 2018, as well as a number of normative acts previously adopted by the Ministry of Communications, resulted in expansion of the range of frequencies that have to be paid for.

        The fees for frequency spectrum usage are calculated based on the total frequency band allocated to each operator in each region with such frequency spectrum usage determined with reference to the decision of the State Commission for Radio Frequencies, frequency allocation decisions or to the license conditions.

        Fees are directly calculated according to the "Methodology of calculation of a single fee and annual fee for the use of the radio spectrum of the Russian Federation" approved by the order of the Ministry of Communications dated June 30, 2011 No. 164. The rates and coefficients of the aforementioned Methodology are subject to revision at least once every two years. For example, in December 2017 the State Duma approved the Law on federal budget for 2018 and the planned period of 2019 and 2020, which resulted in the increase in rent payments for the radio spectrum usage both in the third quarter of 2018 and in the fourth quarter of 2018. In 2019 the rates turned back to the level of the beginning of 2018. In July 2019, the Ministry of Communications developed and circulated for discussion a draft order "On Amendments to the Methodology for establishing of single fee and annual fee for the use of radio frequency spectrum in the Russian Federation". The order provides for, inter alia, imposition of payment for radio frequency spectrum usage for 5G technology. Currently, key coefficients, which define the payment amount for using 5G technology, have not been approved. Any increase in payments for the radio spectrum will likely increase our costs and may adversely affect our results of operations.

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        Any significant increase in the fees payable for the frequency channels that we use or additional frequency channels that we need in Russia or the CIS could have a negative effect on our financial results.

If we are unable to maintain our favorable brand image, we may be unable to attract new subscribers and retain existing subscribers, which may lead to a loss of market share and revenues.

        Developing and maintaining awareness of our brands is critical to informing and educating the public about our current and future services and is an important element in attracting new subscribers.

        We believe that the importance of brand recognition is increasing as our markets become more competitive. Successful promotion of our brands will depend largely on the effectiveness of our marketing efforts and on our ability to provide reliable and useful products and services at competitive prices. Brand promotion activities may not yield increased operating revenues and, even if they do, such operating revenues may not offset the operating expenses we incur in building our brands.

        Furthermore, our ability to attract new subscribers and retain existing subscribers depends, in part, on our ability to maintain what we believe to be our favorable brand image. Negative publicity or rumors regarding our company, our shareholders and affiliates or our services could negatively affect our brand image, which could lead to a loss of market share and revenues. Failure to successfully and efficiently promote and maintain our brands may limit our ability to attract new subscribers and retain our existing subscribers and materially adversely affect our business and results of operations.

MTS Bank's business entails regulatory and operational risks.

        MTS Bank's operations are subject to regulation by various government and banking authorities in connection with obtaining and renewing various licenses and permits, as well as with ongoing compliance with existing laws and regulations and with the terms and conditions of MTS Bank's licenses and permits. MTS Bank has the required license in connection with its banking activities issued by the CBR.

        Requirements imposed by regulators, including capital adequacy requirements, which are designed to ensure the integrity of the financial markets and to protect customers and other third parties with whom MTS Bank deals, may limit MTS Bank's activities, including its lending, and may increase MTS Bank's costs of doing business, or require MTS Bank to seek additional capital in order to maintain CBR capital adequacy requirements or different varieties of funding to satisfy the CBR's liquidity requirements. The CBR may also amend the capital adequacy requirements and increase the capital adequacy ratios applicable to Russian banks at any time and, in such circumstances, MTS Bank may be forced to seek additional capital or alternative sources of financing to comply with these requirements. Such additional capital or alternative sources of financing may not be available or may only be available on commercially unacceptable terms.

        If MTS Bank's capital position were to decline below the minimum statutorily required levels of capital adequacy, its banking licenses could be suspended or revoked and it could encounter difficulties in continuing to operate its business and obtaining funding, which could materially adversely affect its business, financial condition, results of operations and prospects. MTS Bank's capital adequacy level may decrease organically with the growth of business or the payment of dividends. In addition, any breach of regulatory requirements in the Russian Federation could expose MTS Bank to potential liability and other sanctions, including the loss of general banking license. If the CBR were to suspend or revoke MTS Bank's general banking license, then this would render MTS Bank unable to perform any banking operations and/or would lead to winding-up of its business. Our shareholding in MTS Bank may require us to make subsequent investments in the share capital of the bank in order to sustain growth of MTS Bank's business as well as to comply with the capital adequacy requirements and relevant banking regulations.

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        Uncertainty in the international financial markets, further tightening in credit conditions and contraction of the global economy and markets in which MTS Bank operates (including the impact of COVID-19 outbreak), has adversely impacted, and could adversely impact, should the market conditions continue to worsen, MTS Bank's business and operating results due to:

    decreases in MTS Bank's net interest income;

    decreases in the demand for MTS Bank's credit products as a result of higher interest rates;

    significantly increased non-performing loans and loan provision charges, loan losses and write-offs;

    decreases in the business activity of Russian companies and the credit-worthiness of Russian companies and individuals;

    increases in borrowing costs and reduced, or zero, access to the capital markets due to unfavourable market conditions;

    currency volatility;

    liquidity constraints;

    outflows of deposits from accounts;

    significant declines in the market values of securities held in MTS Bank's trading and available for sale portfolios; and

    deterioration of capital adequacy.

        Any of the factors discussed in the preceding paragraphs could adversely affect the financial condition of MTS Bank and its customers and may result, among other things, in a reduction in MTS Bank's capital adequacy ratios and profits, pressure on credit risk concentration levels, an increase in exchange rate risk and losses, higher funding costs, a change in the strategy of MTS Bank or curtailment of some business operations due to increased risks. Moreover, any of these factors may cause a decrease in customer funds, a reduction in the demand for loans, foreign currency, investment and other banking transaction services that customers carry out with MTS Bank, as well as a general deterioration in the quality of MTS Bank's loan book and/or a reduction in the market values of securities or other assets held on MTS Bank's balance sheet, leading to possible defaults of such loans and/or the need for increased loan provisions. Should any of this take place, this could materially adversely affect our business, financial condition and results of operations.

Failure to monitor, manage and prevent MTS Bank's operational and technological risks, could have a material adverse effect on our business, financial condition and results of operations.

        MTS Bank is exposed to technological risks as banking business requires the development of sufficient communication channels and software, the creation of large automated systems and considerable computer capacity located throughout the Russian Federation. MTS Bank invests considerable time and money in order to upgrade its technologies in a timely manner, centralize its information systems, create appropriate reserves and duplicate capacities, develop internal audit functions and control the operation of its hardware and software, however MTS Bank's IT systems are significantly less developed in certain respects than those of banks in more developed countries. The lack of immediately available consolidated financial and operating data may hinder the ability of MTS Bank's management to make decisions, to react promptly to changes in market conditions and to detect fraud and non-compliance with internal procedures. In addition, insufficient integration of the IT system increases MTS Bank's operational risks and the costs of further business development.

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        MTS Bank's ability to operate its business depends on its ability to protect the computer systems and databases which MTS Bank operates and uses from the intrusion of third parties who may attempt to gain access to MTS Bank's computer systems, networks or databases through the Internet or otherwise. In addition, MTS Bank is exposed to risk of fraud by employees or outsiders, mismanagement, unauthorized transactions by employees and operational errors, including clerical or record keeping errors or errors resulting from faulty computer or telecommunications systems. Given MTS Bank's high volume of transactions, errors may be repeated or compounded before they are discovered or rectified. In addition, a number of transactions at MTS Bank are processed manually, which may further increase the risk that human error or employee tampering or manipulation will result in losses that are difficult to detect. There can be no assurance that MTS Bank will be able at all times to successfully monitor, prevent and manage its operational and technological risks in the future. Any failure to do so could materially adversely affect our business, financial condition and results of operations.

MTS is a part of the Sistema group and may potentially enter into agreements with other members of the group (i.e. related parties transactions) on terms, which are different from those that would be obtainable on an arm's length basis.

        We have purchased interests in the following companies from Sistema: United Russian Film Studios JSC and MTS Bank. We are entering into agreements with other companies within the Sistema group for supply of switching and subscriber network equipment, power supply devices, medical services, license agreements, agreements on providing access to the infrastructure for installation of communication equipment, leasing of non-residential real-estate, rent of cloud services and other services. According to the applicable Russian legislation and notwithstanding MTS' effective control procedures in respect of related parties transactions, such as verification whether such transactions comply with the terms on a market, including mandatory procedures with respect to consideration of related parties transactions with the companies within the Sistema group by the Audit Committee, a number of transactions with the companies within the Sistema group may potentially be concluded on terms, which are different from those that would be obtainable on an arm's length basis.

        See "Item 7—Major Shareholders and Related Party Transactions—B. Related Party Transactions" and Note 32 to our audited consolidated financial statements.

In the event that our past or future interested party transactions are successfully challenged, our business, financial condition, results of operations and prospects could be materially adversely affected.

        We own less than 100% of the equity interests in some of our subsidiaries. In addition, certain of our wholly owned subsidiaries have had other shareholders in the past. We and our subsidiaries in the past have entered into, and continue to enter into, transactions that may be considered to be "interested party transactions" for the purposes of Russian law, requiring in some cases consent or approval by disinterested directors, disinterested independent directors, disinterested shareholders or owners of voting shares, depending on the nature of the transaction and parties involved. The provisions of Russian law No. 208 "On Joint-Stock Companies" dated December 26, 1995, as amended (the "Joint Stock Companies Law") relating to "interested party transactions" was amended in 2016 and may be subject to different interpretations taking into account, inter alia, the insufficiency of court practice in respect of the new amendments. As a result, it is possible that our and our subsidiaries' interpretation and application of these provisions could be subject to challenge. Any such challenge, if successful, could result in the invalidation of transactions, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

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In the event that our minority shareholders or the minority shareholders of our subsidiaries do not consent to or approve certain transactions or other matters requiring their consent or approval we could be limited in our operational flexibility, and our business, financial condition, results of operations and prospects could be materially adversely affected.

        Russian law requires a three-quarters majority vote of the holders of voting stock present at a shareholders' meeting to consent to or approve certain transactions and other matters, including, for example, charter amendments, major transactions involving assets in excess of 50% of the total assets of the company, purchase of offered shares by the company and certain share issuances. In addition, a 95% or a unanimous vote is required to approve certain matters, for example, certain charter amendments regarding shareholders' rights. A majority of disinterested shareholders participating in the voting is required to consent to or approve an "interested party transaction" in certain cases. In the event that our minority shareholders or minority shareholders of our subsidiaries do not consent to or approve such transactions or other matters requiring their consent or approval, we could be limited in our operational flexibility, and our business, financial condition, results of operations and prospects could be materially adversely affected.

Our competitive position and future prospects depend on our senior managers and other key personnel and our inability to attract, retain and motivate qualified key personnel could have a material adverse effect on our business, financial condition and results of operations.

        Our ability to maintain our competitive position and to implement our business strategy is dependent to a large degree on the services of our senior management team and other key personnel.

        Moreover, competition in Russia and in the other countries where we operate for personnel with relevant expertise is intense due to the relatively small number of qualified individuals. The loss of any our senior management team members or an inability to attract, retain and motivate qualified key personnel could have a material adverse effect on our business, financial condition and results of operations. We structure our compensation packages in a manner consistent with the evolving standards of the labor markets in these countries. We are not insured against the detrimental effects to our business resulting from the loss, dismissal, or unavailability of our key personnel, resulting from a number of reasons, including but not limited to COVID-19 outbreak (for more information see "—The outbreak of COVID-19 may have a material adverse effect on our business, financial condition, results of operations and prospects "). In addition, it is not common practice in Russia and the other countries where we operate to purchase key-man insurance policies, and we do not carry such policies for our senior management and other key personnel.

The entry of mobile virtual network operators into the Russian mobile communications market could increase competition and subscriber churn, resulting in a possible loss of our market share and decreased revenue.

        On December 29, 2008, the Ministry of Communications and Mass Media adopted an order establishing the requirements for mobile virtual network operators ("MVNOs"). In 2017, new requirements relating to services of mobile radio communication and telephone communications while using business models of mobile radio communication and telephone communications virtual networks were adopted. MVNOs are companies that provide mobile communications services but do not own the radio frequencies and, in some cases, the network infrastructure required to do so. According to the order, MVNOs in Russia must be licensed, and their use of frequencies and infrastructure and rendering of services is to be done pursuant to agreements entered into between MVNOs and existing frequency holders. However, existing frequency holders are under no obligation to enter into such agreements with the MVNOs.

        By introducing this regime, the Ministry aims to increase competition in the Russian mobile services market, which is currently dominated by MTS, VimpelCom and MegaFon. The existing

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frequency holders, including us, may receive revenues from MVNOs for the use of our frequencies and network infrastructure. However, in the event we lose either subscribers to MVNOs that lease their frequencies and infrastructure from other operators or MVNOs that lease their frequencies and infrastructure from us, we will be deprived of the revenue streams from both the subscribers and the MVNOs. The MVNOs may also establish aggressive tariffs, which could result in increased subscriber churn and/or driving down the tariffs of all mobile operators.

        For example, Skartel (under the "Yota" brand), Rostelecom, Tinkoff Bank operate as MVNOs in the Russian mobile communications market.

        It is currently unclear how the emergence of new MVNOs in the market or any of the foregoing trends might affect market competition and subscriber churn, but this could have a material adverse effect on our business, financial condition, results of operations and prospects.

A finding by the FAS that we have acted in contravention of antimonopoly legislation could have a material adverse effect on our business, financial condition and results of operations.

        Our businesses have grown substantially through the acquisition and formation of companies, many of which required the prior approval of, or subsequent notification to, the FAS or its predecessor agencies.

        In part, relevant legislation in certain cases restricts the acquisition or formation of companies by groups of companies or individuals acting in concert without such prior the FAS approval. While we believe that we have complied with the applicable legislation for our acquisitions and formation of new companies, this legislation is sometimes vague and subject to varying interpretations. If the FAS were to conclude that our acquisition or formation of a new company was done in contravention of applicable legislation, or find prescriptions of the FAS, issued as part of the transaction approval, not fulfilled, it could impose administrative sanctions and require the divestiture of such company or other assets, which could have a material adverse effect on our business, financial condition and results of operations.

        In recent years, the FAS has been investigating mobile operators, including MTS, for suspected violations of antimonopoly laws. For example, see "Item 8—Financial Information—A. Consolidated Statements and Other Financial Information—7. Litigation—Antimonopoly Proceedings" and "—Changes to the rules and regulations involving roaming charges in Russia may adversely affect our financial condition and results of operations."

        If the FAS finds that we have violated or otherwise acted in contravention of antimonopoly legislation, this could have a material adverse effect on our business, financial condition, results of operations and prospects.

If we are found to have a dominant position in the markets where we operate and are determined to have abused this position, the FAS may be entitled to regulate our subscriber tariffs and impose certain restrictions on our operations.

        Under Russian legislation, a company controlling over 35% of a market may be found by the FAS to hold a dominant position in such market. In case of collective dominance of legal entities and in certain instances provided by law, a company could be also categorized by the FAS as dominant under certain conditions even if its share of the corresponding market is less than 35%, but equals to or is higher than 8%. Current Russian legislation does not clearly define "market" in terms of the types of services or the geographic area. In 2016, as a result of certain amendments to the Federal Law No. 135 "On the Protection of Competition," the register of business entities having more than 35% of a certain commodity market or otherwise occupying a dominant position in the markets in which they operate, which previously listed MTS as occupying a dominant position in certain markets, was

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repealed. At the same time, the FAS continues to conduct market analysis in order to identify entities holding a dominant position in the markets in which they operate.

        Companies recognized as natural monopolies are also considered to have a dominant position in their respective markets. One of our subsidiaries, MGTS, is categorized as a natural monopoly in the Moscow telecommunications market. As a result, MGTS' tariffs are now subject to regulation by the FAS. In addition, as a natural monopoly, MGTS is obliged to comply with the rules of non-discriminatory third party access to its infrastructure. See also "—Change of regulated tariffs may lag behind MGTS' real expenses growth, which may negatively impact profitability of our business."

        In the event that we are found in the future to have a dominant position in the markets where we operate and are either determined to have abused the dominant position or found to have committed concerted actions in the market and/or concluded anti-competitive agreements, the FAS will have a right to impose certain restrictions on our operations in such markets. See "Item 4—Information on Our Company—B. Business Overview—Regulation of Telecommunications in the Russian Federation—Regulation in the Russian Federation—Competition, Interconnect and Pricing" for additional information.

        If we are found to have violated antimonopoly legislation, an order requiring us to transfer any illegally obtained revenue to the federal budget may be issued in relation to such violations.

        According to the Code of Administrative Offences of the Russian Federation, a company may be subject to either fixed penalty fine up to RUB 1 million or fine based on total turnover in the market where the violation is conducted, depending on the nature of violation of antimonopoly legislation. The level of fine ranges from 3% to 15% of revenue in the market where the violation is conducted for cartel agreements, from 1% to 15% of revenue for abuse of dominant position, from 1% to 5% of revenue for other anticompetitive agreements and from 1% to 3% of revenue for coordinated actions. Moreover, if the FAS finds actions of a company insufficient to rectify past violations of antimonopoly laws, it could file a claim for liquidation of this company or its reorganization in the form of division or separation.

        If we or any of our subsidiaries were found by the competition authority to be business entities occupying a dominant market position, the competition authority would have a power to impose certain restrictions on our or our subsidiaries' businesses. In particular, the authorities may impose on us tariffs at levels that could be competitively disadvantageous. If we or any of our subsidiaries were found by the FAS to be business entities occupying a dominant market position with a market share exceeding 70% and determined to abuse such dominant position, the Russian government would have a right to determine the rules of non-discriminatory access to goods or services offered by us. Additionally, geographic restrictions on our expansion could reduce our subscriber base and prevent us from fully implementing our business strategy, which may materially adversely affect our business, financial condition, results of operations and prospects.

If we or any of our mobile network operator subsidiaries operating in Russia are identified as an operator occupying a "substantial position," the regulator may reduce our interconnect tariffs which, in turn, may have a material adverse effect on our financial condition and results of operations.

        In addition to the regulation of dominant operators by the FAS, the Federal Law on Communications provides for the special regulation of telecommunications operators occupying a "substantial position" (i.e., operators which, together with their affiliates, have 25% or more of installed capacity or capacity to carry out transmission of not less than 25% of traffic in a geographically defined zone within the Russian Federation). These regulations provide for governmental regulation of the key terms of such operators' interconnect agreements, including the interconnect tariffs. In addition, such operators are required to develop standard key terms of interconnect agreements and publish them as a public offer made to all operators who intend to interconnect to the networks of those operators.

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Refusal of such operators to conduct an interconnect agreement is prohibited, except in cases where such agreement would contradict the terms of their license or other regulatory acts in respect of the unified communications network in the Russian Federation.

        For additional information, see "Item 4—Information on Our Company—B. Business Overview—Regulation of Telecommunications in the Russian Federation—Regulation in the Russian Federation."

        At present, the foregoing regulations apply only to fixed-line operators in Russia, including our fixed-line business. Draft legislation was introduced in 2008 that would extend the law to apply to mobile operators. Although the proposed law was not adopted, the risk that similar legislation will be proposed and adopted in the future remains. If any legislation that extends the foregoing regulations to mobile operators is adopted, and we and any of our mobile network operator subsidiaries operating in Russia are identified as operators occupying a "substantial position," regulators may reduce our interconnect tariffs which, in turn, may have a material adverse effect on our revenues, financial condition and results of operations.

        In addition, MGTS is categorized as fixed-line operator occupying a substantial position in the Moscow telecommunications market and its interconnect tariffs are therefore subject to state regulation. In February 2013, Comstar-UTS was removed from the list of "substantial operators" in Moscow and MTS was not included therein. There is however a possibility that we could be categorized as fixed-line operator occupying a "substantial position" in Moscow due to our affiliation with MGTS and because of our integration with Comstar-UTS. As a result of the state regulation of the relevant interconnect rates, we, as "substantial operators," may be unable to increase these in line with economic developments or any increases of our relevant costs, resulting in a material adverse effect on our financial condition and results of operations. See also "—Change of regulated tariffs may lag behind MGTS' real expenses growth, which may negatively impact profitability of our business."

Change of regulated tariffs may lag behind MGTS' real expenses growth, which may negatively impact profitability of our business.

        In addition to holding a "substantial position" in the Moscow telecommunications market, MGTS is included in the register of natural monopolies in the telecommunications market. Consequently, tariffs for basic services rendered to public switched telephone networks subscribers (fees for providing access to a local telecommunications network, monthly fees for granting subscriber line in a constant use and monthly fees for providing a local telephone connection) are subject to regulation.

        Although MGTS is permitted to petition the FAS for increases in tariffs based on such criteria as inflation, increased costs and the need for network investments, it is possible that future requested increases may not be granted or that the FAS may not adequately take such factors into account in setting tariffs. If the permissible tariffs applicable to MGTS do not adequately compensate MGTS for the costs of providing services, our business and results of operations could be materially adversely affected. See also "—If we or any of our mobile network operator subsidiaries operating in Russia are identified as an operator occupying a "substantial position," the regulator may reduce our interconnect tariffs which, in turn, may have a material adverse effect on our financial condition and results of operations."

Changes to the rules and regulations involving roaming charges in Russia may adversely affect our financial condition and results of operations.

        In September 2018, the Board of sectoral ministries of communications of the Russian Federation and the Republic of Belarus approved a Roadmap aimed at reducing roaming charges between two countries. In December 2018, the Russian party drafted a new project of the Roadmap aimed at cancellation of international roaming in the territory of the Union State in 2019. Later, as a result of negotiations between Russia and Belarus a new project of Roadmap, which assumes cancellation of

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roaming charges in the territory of the Union State in 2020, was developed. In December 2019, a new version of Roadmap was approved, according to which, cancellation of roaming charges in the territory of the Union State will take place in September 2020. In order to implement the Roadmap, we significantly reduced roaming charges in November 2020. This affected our revenues from roaming charges in Belarus.

        In July 2017, the FAS sent a warning to mobile operators, in which it demanded to cancel intra-network roaming. In March 2018, the FAS opened an antimonopoly case against VimpelCom, MTS and MegaFon (in connection with the non-fulfilment of the warning). In August 2018, the FAS found MTS, VimpelCom and MegaFon to have violated the antimonopoly legislation. In December 2018, the FAS imposed a fine in the amount of RUB 737,500 on each of MTS, VimpelCom and MegaFon. As of September 30, 2018 MTS changed charging principles for communication services outside "home" region for all subscribers.

        In August 2017, the FAS opened an antimonopoly case against VimpelCom, MTS, MegaFon and T2 Mobile LLC on the grounds of establishing and maintenance of monopolistically high prices for communication services in national roaming and inter-operator roaming agreements. On February 22, 2018 the FAS rendered a decision and found MTS responsible for establishing monopolistically high prices for subscribers for communication services in national roaming. VimpelCom, MegaFon and T2 Mobile were also found guilty for establishing monopolistically high prices for subscribers for communication services in national roaming. In September 2018, following the examination of the case, the FAS imposed administrative fines in respect of each of the operators. The case related to inter-operator roaming agreements against MTS was canceled due to the fact that there had been no violation. See also "—A finding by the FAS that we have acted in contravention of antimonopoly legislation could have a material adverse effect on our business, financial condition and results of operations."

        On December 27, 2018, the Federal Law No. 527 was adopted, under which the intra-network roaming is cancelled, and MTS is obliged to provide subscribers with communication services on its network under the same conditions, regardless of whether a subscriber is in or outside the bounds of his "home network" when moving across the country. In addition, this law excludes the possibility of charging subscribers for incoming calls in intra-network and national roaming. The law came into force on June 1, 2019 and affected our revenue from intra-network and national roaming charges. Any similar regulatory changes which could limit our ability to charge fees for the services provided could have material adverse effect on our business and financial condition.

        Any material fines imposed on us or changes to the roaming charges may adversely affect our financial condition and result of operations.

Compliance with the new regulations on IMEI numbers may present us with technical difficulties and may lead to the expenditure of significant resources.

        A draft law that provides obligatory registration of a user terminal on an International Mobile Equipment Identity ("IMEI") numbers database was rejected.

        If similar initiatives are proposed in the future, we may be required to develop a system to monitor IMEI numbers and may need to establish and maintain a database of IMEI numbers, which would necessitate the expenditure of significant technical and financial resources.

        However, the Federal Law No. 533 dated December 30, 2020, which will come into force starting from June 1, 2021, introduced amendments to the Law "On Communications", including the IMEI concept. According to the law, the subscriber has a right to add information on his number and/or the IMEI in the Integrated Identification and Authentication System (IIAS). If the subscriber lost his device, he may report this to the operator through the IIAS. Subject to the confirmation of an IMEI number, the operator should stop providing services for such device.

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        Currently, there are no requirements for an IMEI number, including its uniqueness, criteria and a verification process. In addition, the procedure of entering the identifier in the IIAS and binding it with a subscriber number as well as verification of the identifier uniqueness by an operator or an authorized body is still unclear. There is a risk that these gaps in regulation would not be eliminated by the effective date of the amendments.

        It is currently unclear how these amendments might affect our activities, but this could have a material adverse effect on our business, financial condition and results of operations.

The accession of Russia to the World Trade Organization (the "WTO") may lead to legislative and business changes.

        On August 22, 2012, the Russian Federation became a member of the WTO. This may lead to potentially significant changes in Russian legislation including, among others, regulation of foreign investments in Russian companies, competition laws, telecommunications laws, changes in the taxation system and customs regulations in Russia. In addition, the implementation of the WTO rules may lead to increased competition in the markets where we operate. During the period of 2012 to 2020, Russia adopted certain changes to its legislation related to the accession to the WTO, for example, regarding intellectual property laws, tax legislation; however, it is still unclear if, and when, all necessary legislative changes related to the WTO accession will take place. If further new legislation is implemented in Russia as a result of its accession to the WTO, this could have a material adverse effect on our financial condition and results of operations.

We may be required to make significant investments beyond those that are currently planned to preserve our competitive advantage in response to the rapid evolution of fixed network technology.

        One of our subsidiaries, MGTS, has devised a number of projects aimed at developing communications networks and expanding availability of telecommunications services for customers. The likely shortage of free cash flow during the current economic downturn could halt such investment programs for the development of new products and services, and possibly lead to a decrease in the number of projects and cutbacks in development programs in the New Moscow and Moscow regions.

        The company completed its project on connection of its subscribers to broadband optical networks employing the Gigabit-capable Passive Optical Network ("GPON") technology in Moscow, however, the network development still continues in Moscow and Moscow region. In addition, transition to a single converged network and BRAS (Broadband Remote Access Server) expansion are being performed. See "Item 4—Information on Our Company—A. History and Development—Capital Expenditure" for further information. The lack or limited access to residential buildings, for example, due to COVID-19 impact, may affect these projects on construction and modernization of fixed-line network. For more information see "—The outbreak of COVID-19 may have a material adverse effect on our business, financial condition, results of operations and prospects."

        We attract contractors for the construction and upgrade of our network. Due to the currently unfavorable market conditions, some of our contractors may face a lack of own current assets and/or external finance sources, as well as other reasons, which may lead to the contractor's inability to fulfill contract obligations or, in some cases, lead to bankruptcy. This may negatively affect the terms of our projects' implementation and lead to higher costs. If we are not able to expand and upgrade our network infrastructure in a timely manner and offer new services, or if it is required to make significant investments beyond those that are currently planned, our business, financial condition, results of operations and prospects could be materially adversely affected.

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Our intellectual property rights are costly and difficult to protect.

        We regard our copyrights, trademarks, patents and similar intellectual property rights, including our rights to certain domain names, as essential to our continued success. We rely upon legislation on intellectual property, trade secret protection laws, as well as confidentiality and/or license agreements or contracts with our employees, customers, partners and others, to protect our proprietary rights. Nonetheless, intellectual property rights are particularly difficult to protect in the markets where we operate. In these markets, the regulatory agencies responsible for the protection of intellectual property rights are inadequately funded, legislation is underdeveloped, piracy and infringement are commonplace, and enforcement of court decisions is problematic.

        Litigation may be necessary to enforce our intellectual property rights, to determine the validity and scope of rights of others, or to defend against claims of infringement. Any such litigation may result in substantial costs and diversion of resources and, if decided unfavorably to us, could have a material adverse effect on our business. We also may incur substantial acquisition or settlement costs to the extent that it would strengthen or expand our intellectual property rights or limit our exposure to intellectual property claims of third parties.

Breach of information confidentiality, integrity and availability may lead to interruption of business critical processes, a loss of market share and claims from subscribers, regulators, and partners which could materially adversely affect our reputation, business, financial condition, results of operations and prospects.

        We ensure the security of restricted information processing in corporate information systems, including when working remotely (for example, distant work period). However, unauthorized actions of our employees and partners that violate information security policy, as well as illegal actions of third parties may lead to breach of information confidentiality, integrity and availability, including subscriber data leakage, and, as a result, to interruption of business-critical processes, a loss of market share, claims from subscribers, regulators, and partners what could materially adversely affect our reputation, business, financial condition, results of operations and prospects.

        For example, in January 2003, part of our database of subscribers, containing private subscriber information, was illegally copied and stolen. In addition, in May 2003, certain subscriber databases of several operators in the North-West Region, including those of MTS, MegaFon, Delta Telecom and two other operators, were stolen. In each case, the stolen databases were thereafter available for sale in Russia. Despite the measures taken, we cannot completely exclude the possibility of such incidents occurring in the future. See also "—Legal Risks and Uncertainties—Russian and foreign legislation on personal data and information security in information systems and communication networks may turn out to be hard to implement and require significant resources. Inability to comply with the requirements may lead to sanctions."

Alleged medical risks of cellular technology may subject us to negative publicity or risk of litigation, decrease our access to base station sites, diminish subscriber usage and hinder access to additional financing.

        Electromagnetic emissions from transmitter masts and mobile handsets may harm the health of individuals exposed for long periods of time to such emissions. The actual or perceived health risks of transmitter masts and mobile handsets could materially adversely affect us or our subsidiaries by reducing subscriber growth, reducing usage per subscriber, increasing the number of product liability lawsuits, increasing the difficulty of obtaining or maintaining sites for base stations and/or reducing the financing available to the wireless communications industry. Each of these potential risks may adversely affect our business, financial condition, results of operations and prospects.

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Risks Relating to our Financial Condition

We may be adversely affected by the current economic environment.

        As a result of the macroeconomic challenges, resulting from a number of reasons, including but not limited to, COVID-19 outbreak, credit market crisis (including uncertainties with respect to financial institutions and the global capital markets), decreased prices for major export commodities (including oil and metals) and other factors currently affecting many of the markets in which we operate, our clients' disposable incomes and our vendors' cash flows may be adversely impacted. See also "—Ruble volatility and regulatory changes in foreign currency regulation could increase our costs, decrease our available funds or make it more difficult for us to comply with financial covenants and to repay our debts and would affect the value of dividends received by holders of ADSs".

        Consequently, customers may modify or decrease their usage of our services and products or fail to pay the outstanding balances on their accounts, and vendors may significantly increase their prices, eliminate vendor financing, reduce their output or fail to supply equipment, subscriber devices and services on a timely basis.

        We may also experience increases in accounts receivable and bad debt among corporate subscribers, some of whom may face liquidity problems and potential bankruptcy, as well as the potential bankruptcy of our corporate partners. The deterioration of economies in the countries of our operation may lead, inter alia, to insolvency of financial institutions, which in turn may impact our business and financial condition.

        A decline in subscriber usage, an increase in bad debts, material changes in equipment pricing or financing terms or the potential bankruptcy of our corporate subscribers or partners may have a material adverse effect on our business, financial condition, results of operations and prospects.

        In addition, a further deterioration in macroeconomic conditions could require us to reassess the value of goodwill on certain of our assets, recorded as a difference between the fair value of the assets of business acquired and its purchase price. This goodwill is subject to impairment tests on an ongoing basis. The weakening macroeconomic conditions in the countries in which we operate and/or a significant difference between the performance of an acquired company and the business case assumed at the time of acquisition could require us to write down the value of the goodwill or portion of such value. Future write-downs relating to the value of the goodwill or portion of such value could have a material adverse effect on our financial condition and results of operations.

Continued turmoil in the credit markets could cause our business, financial condition, results of operations and the value of our shares and ADSs to suffer.

        Sanctions introduced by the United States and the European Union with respect to the Russian Federation coupled with an economic downturn and decline in global oil prices caused a significant capital outflow, ruble depreciation, a rise of credit rates in the domestic market and a lack of available financing.

        For example, certain Russian banks have in the past experienced difficulties that have caused them to become insolvent and have their licenses revoked, such as Bank Yugra, or to recognize large loan impairment provision losses that required steps to replenish their capital, as in the case of the Promsvyazbank, Bin Bank and Otkritie Bank.

        During the period from 2016 and 2017 the cost of funding was decreasing, as the Central Bank of Russia periodically cut the key rate. However, in 2018, the rate cut cycle ended taking into account the dynamics of inflation and inflation expectations, as well as risks posed by external conditions and the reaction of financial markets. In September 2018 (for the first time since 2014), the Board of Directors of the Central Bank of Russia decided to raise the key rate by 0.25 p.p. (up to 7.5%). In December

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2018, the key rate was further raised up to 7.75%. In June 2019 the Central Bank of Russia has decided to decrease the key rate by 0.25 p.p. (down to 7.5%), and taking into account decrease of inflation rate key rate decrease continued and in July 2020 reached 4.25%. In March 2021 the key rate grew up to 4.5%. Should the key rate grow in the future, this may negatively affect the cost of funding. A continuation or repetition of the downturn in the global financial markets as well as a toughening or extension of international sanctions against Russia and the resulting volatility of the trading price of our shares and ADSs may negatively impact our ability to obtain financing on commercially reasonable terms, either domestically or overseas, and could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our inability to generate sufficient free cash flow to satisfy our debt service obligations or to refinance debt on commercially reasonable terms, could materially adversely affect our business, financial condition, results of operations and prospects.

        We have an amount of outstanding indebtedness, primarily consisting of the obligations we entered into in connection with our notes and bank loans. For information about our debt and finance cost, see "Item 5—Operating and Financial Review and Prospects—A. Operating Results."

        Our ability to service, repay and refinance our indebtedness and to fund planned capital expenditure will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments, we may default under the terms of our financial indebtedness, and the holders of our indebtedness would be able to accelerate the maturity of such indebtedness, potentially causing cross-defaults under and acceleration of our other indebtedness. The existing debt servicing is becoming more difficult due to our dependence on floating interest rates in the financial markets.

        We may not be able to generate sufficient cash flow or access domestic or international capital markets, or incur additional loans to enable us to service or repay our indebtedness or to fund our other liquidity needs. We may be required to refinance all or a portion of our indebtedness on or before maturity for a number of reasons. For example, the terms of some of our loan agreements may require us to prepay the loan in certain circumstances, such as a deterioration in our credit rating, a delisting of our shares or a drop in our retained earnings below a certain level. This, in turn, may force us to sell assets, reduce or delay capital expenditure or seek additional capital. Refinancing or additional financing may not be available on commercially reasonable terms or at all, and we may not be able to sell our assets or, if sold, the proceeds therefrom may not be sufficient to meet our debt service obligations. Our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance debt on commercially reasonable terms, would materially adversely affect our business, financial condition, results of operations and prospects. See "Item 5—Operating and Financial Review and Prospects—B. Liquidity and Capital Resources."

Ruble volatility and regulatory changes in foreign currency regulation could increase our costs, decrease our available funds or make it more difficult for us to comply with financial covenants and to repay our debts and would affect the value of dividends received by holders of ADSs.

        The ruble has weakened significantly against the U.S. dollar during the period of 2014 to 2016, which can be explained by external geopolitical factors, limited financial markets, decrease in oil prices, international ratings agencies' downgrades of Russia's sovereign rating, reduction in internal consumption and other factors.

        The ruble remained under pressure in 2018, against the backdrop of geopolitical tensions as well as investors outflow from the emerging markets. As of December 31, 2018, ruble amounted to 69.47

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per one U.S. dollar. As of December 31, 2019, ruble amounted to 61.91 per one U.S. dollar. The ruble suffered steep drop in the beginning of 2020 from 61.91 rubles per U.S. dollar as at January 1, 2020 to 80.88 rubles per U.S. dollar as at March 24, 2020 as a result of the COVID-19 outbreak and drop in oil prices with Brent Crude oil price reaching a low of $22.76 per barrel on March 30, 2020. As of December 31, 2020, the ruble exchange rate was RUB 73.88 per 1 US dollar. See also "—Fluctuations in the global economy may materially adversely affect the economies of the countries where we operate and our business in these countries."

        See also "—Changes in the exchange rate of local currencies in the countries where we operate against the Russian ruble, as well as changes in the exchange rate of the Russian ruble and local currencies against the U.S. dollar and/or euro could adversely impact our financial results."

        The stability of the ruble will depend on many political and economic factors. These include the ability of the government to finance the deficit of the state budget without recourse to monetary emissions and to control the level of interest rates and inflation. Furthermore, changes in foreign currency regulation may affect our ability to fund payments denominated in foreign currency and result in us entering into supplementary agreements with our foreign counterparts.

        A significant portion of our capital expenditure and liabilities and borrowings are either denominated in or tightly linked to the U.S. dollar. Conversely, a majority of our revenues are denominated in rubles. As a result, devaluation of the ruble against the U.S. dollar can adversely affect us by increasing our costs in rubles, both in absolute terms and relative to our revenues, and make it more difficult to comply with the financial ratios contained in our various loan agreements or fund cash payments on our indebtedness on time. It also reduces the U.S. dollar value of tax savings arising from tax incentives for capital investment and the depreciation of our property, plant and equipment, since their basis for tax purposes is denominated in rubles at the time of the investment. Increased tax liability would also increase total expenses, which would have an adverse impact on our results.

        We also anticipate that any dividends we may pay in the future on the shares represented by the ADSs will be declared and paid to the depositary in rubles and will be converted into U.S. dollars by the depositary and distributed to holders of the ADSs. Accordingly, the value of dividends received by holders of ADSs will be subject to fluctuations in the exchange rate between the ruble and the U.S. dollar. Any further depreciation of the ruble against the U.S. dollar could therefore materially adversely affect our financial condition, results of operations and prospects and the value of our ADSs. See also "Item 11—Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency Risk."

Changes in the exchange rate of local currencies in the countries where we operate against the Russian ruble, as well as changes in the exchange rate of the Russian ruble and local currencies against the U.S. dollar and/or euro could adversely impact our financial results.

        A significant portion of our expenditure and liabilities, including capital expenditure and borrowings (including our U.S. dollar denominated notes), are either denominated in, or closely linked to, the U.S. dollar and/or euro, while substantially all of our revenues are denominated in local currencies of the countries where we operate. If the local currencies of the countries where we operate decline against the U.S. dollar and/or euro and our costs increase so that we cannot keep pace, we could have difficulty repaying or refinancing our U.S. dollar and/or euro-denominated indebtedness, including our U.S. dollar denominated notes. At the same time, the devaluation of local currencies against the Russian ruble can adversely affect our revenues reported in Russian rubles and increase our costs in terms of local currencies. In addition, local regulatory restrictions on the purchase of hard currency in the majority of countries where we operate may delay our ability to purchase equipment and services necessary for network expansion which, in turn, may cause difficulty in expanding our subscriber base in those countries. Further, a portion of our cash balances is held in jurisdictions

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outside Russia, and as a result of currency exchange controls in those jurisdictions, these cash balances may not always be readily available for our use.

        On July 1, 2016, Belarus redenominated its currency on a scale of 10,000:1. As of December 31, 2018 and December 31, 2019, the official exchange rate published by the National Bank of the Republic of Belarus amounted to 2.16 and 2.10 Belarusian rubles per one U.S. dollar, respectively. The possible devaluation of the Belarusian ruble in the future may adversely affect our revenues from this market. As of December 31, 2020, the official exchange rate was 2.58 Belarusian rubles per 1 U.S. dollar.

        See also "—Inflation could increase our costs and adversely affect our results of operations" and "Item 11—Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency Risk."

If we are unable to obtain adequate capital, we may have to limit our operations substantially, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

        We have to make significant capital expenditure, particularly in connection with the development, construction and maintenance of, and the purchasing of necessary software for, our mobile and fixed-line networks. For information about our capital expenditures, see "Item 4—Information on Our Company—A. History and Development—Capital Expenditure." Further, the acquisition of 3G and 4G licenses and frequency allocations and the build-out of our 3G, 4G and broadband Internet networks will require additional capital expenditure.

        However, future financings and cash flow from our operations may not be sufficient to meet our planned needs in the event of various unanticipated potential developments, including the following:

    a lack of external financing sources;

    changes in the terms of existing financing arrangements;

    construction of the wireless networks at a faster rate or higher capital cost than anticipated;

    pursuit of new business opportunities or investing in existing businesses that require significant investment;

    acquisitions or development of any additional wireless licenses;

    slower than anticipated subscriber growth;

    slower than anticipated revenue growth;

    regulatory developments;

    changes in existing interconnect arrangements; or

    a deterioration in the economies of the countries where we operate.

        During the period from 2014 to 2020, the United States and the European Union announced sanctions applying to a number of Russian and Ukrainian individuals and associated institutions. The sanctions may be extended and our ability to gain external funding may be affected. See also "—Political and Social Risks—A deterioration in relations between Russia and other former Soviet republics as well as other politically related disagreements and allegations between Russia and other countries and sanctions imposed as a result thereof, could materially adversely affect our business, financial condition, results of operations, prospects and the value of our shares and ADSs."

        Our indebtedness and the limits imposed by covenants in our debt obligations could limit our ability to obtain additional financing and thereby constrain our ability to invest in our business and place us at a possible competitive disadvantage. In addition, we are currently unable to raise equity financing through newly issued depositary receipts, such as ADSs, due to Russian securities regulations

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providing that no more than 25% of a Russian company's shares may be circulated abroad through sponsored depositary receipt programs. Prior to December 31, 2005 and at the time of our initial public offering, this threshold was 40% and our current ADSs program is near its full capacity. If we cannot obtain adequate funds to satisfy our capital requirements, we may need to limit our operations significantly, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Inflation could increase our costs and adversely affect our results of operations.

        The Russian economy has been characterized by high rates of inflation, which over the past few years have been mainly driven by weakening of national currencies, restrictions on foreign trade and acceleration in food prices.

        In 2014, the Bank of Russia implemented an inflation targeting program. As a result of this, inflation in Russia reached 4.3% in 2018, 3.0% in 2019 and 4.9% in 2020. The Bank of Russia plans to maintain inflation at the 4% target level in the long-term. To achieve this target, the Bank of Russia will more likely change main parameters of monetary policy. However, despite its plans to maintain inflation at the target level, there are risks of inflation increase due to the following factors:

    possible unfreezing of monopolies' tariffs. During last 10 years tariffs of infrastructure monopolies significantly affected inflation parameters, and contributed more than 40% to the total price volatility in certain years;

    import of inflation due to exchange rate of the Russian ruble. Cumulative effect of domestic prices change in response to change of exchange rate of the Russian ruble is defined as an effect of transferring dynamics of an exchange rate to prices, it has been salient during rubble depreciation in 2014 and 2015; and

    low monetization of the Russian economy. The degree of monetization of the Russian economy is lower than in developed countries and in countries of the Eastern Europe. Attempts to increase the monetization of the Russian economy by raising money supply will likely lead to an increase in inflation due to the lack of confidence on the part of residents and non-residents in the Russian banking system.

        In addition, a further decline in global oil prices coupled with capital outflow from growing markets and depreciation of national currencies might cause a rise in inflation. High inflation levels may lead, inter alia, to market instability, reductions in consumer purchasing power and an erosion of consumer confidence as well as increased marketing expenditure that could, in turn, affect our operating margins and profitability.

        At the end of 2018 and 2019, inflation in Belarus amounted to 5.6% and 4.7%, respectively. For the year ended 31 December 2020, the annual rise of consumer prices published by the National Bank of the Republic of Belarus amounted to 7.4%.

        High rates of inflation in Russia and other countries of our operation could increase our costs and decrease our operating margins. See also "Item 5—Operating and Financial Review and Prospects—A. Operating Results—Certain Factors Affecting our Financial Position and Results of Operations—Inflation."

        See also "—Changes in the exchange rate of local currencies in the countries where we operate against the Russian ruble, as well as changes in the exchange rate of the Russian ruble and local currencies against the U.S. dollar and/or euro could adversely impact our financial results" and "Item 11—Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency Risk."

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Indentures relating to some of our notes contain, and some of our loan agreements and Sistema's loan agreements contain, restrictive covenants, which limit our ability to incur debt and to engage in various activities.

        Covenants in the agreement relating to our Eurobonds due 2023 limit our ability to create liens on our properties, merge or consolidate with another person or convey our properties and assets to another person.

        Some of our loan agreements contain similar and other covenants, including, in relation to the incurrence of indebtedness, creation of liens and disposal of assets. We may also incur additional credit obligations providing for similar covenants. Failure to comply with these covenants may cause a default and result in the debt becoming immediately due and payable, which would materially adversely affect our business, financial condition and results of operations.

        In addition, Sistema, which owns a controlling stake in MTS and consolidates our results in its financial statements, is subject to various covenants in its credit facilities. These covenants impose restrictions on Sistema and its restricted subsidiaries (including us) with respect to, inter alia, incurrence of indebtedness, creation of liens and disposal of assets. In its indentures, Sistema undertakes that it will not, and will not permit its restricted subsidiaries (including us) to, incur indebtedness unless a certain indebtedness level / EBITDA ratio is met. In addition to us, Sistema has various other businesses that require capital and, therefore, the consolidated Sistema group's capacity to incur indebtedness otherwise available to us could be diverted to its other businesses. Sistema may also enter into other agreements in the future that may further restrict it and its subsidiaries (including us) from engaging in these and other activities. We expect Sistema to exercise control over us in order for Sistema, as a consolidated group, to meet its obligations under its current and future financings and other agreements, which could materially limit our ability to obtain additional financing required for the implementation of our business strategy. The inability to implement our business strategy may have a material adverse effect on our financial condition and results of operations.

A change in control could have a material adverse effect on our financial condition and results of operations.

        Under the terms of our outstanding notes, if a change in control occurs, our noteholders will have the right to require us to redeem notes not previously called for redemption. The price we will be required to pay upon such event will be 101% of the principal amount of the notes, plus interest accrued prior to the redemption date. A change in control will be deemed to have occurred in any of the following circumstances:

    with respect to the notes due 2023, any person acquires beneficial or legal ownership of, or control over, more than 50% of our issued shares, ownership of or control over more than 50% of the voting interests in our share capital or obtains the power to elect not less than half of our directors, provided that the following transactions would not be deemed to result in a change of control:

    any acquisition by Sistema or its subsidiaries that results in the 50% threshold being exceeded;

    any acquisition by us, our subsidiary or our employee benefit plan; and

    a contribution by Sistema of all or part of its ownership interest in us into a partnership, joint venture or other indirect holding vehicle as long as any other person who is an owner of or party interested in that partnership, joint venture or other indirect holding vehicle does not acquire beneficial ownership of or control over more than 50% of our issued shares, does not acquire ownership of or control over more than 50% of the voting interests in our share capital and does not obtain the power to elect not less than half of our directors.

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        Some of our loan agreements contain similar change of control provisions. If a change in control occurs, and our noteholders and other debt holders exercise their right to require us to redeem all of their notes or debt, such event could have a material adverse effect on our financial condition and results of operations.

        In addition, under certain of our debt agreements, an event of default may be deemed to have occurred and/or we may be required to make a prepayment if Sistema disposes of its stake in our company and a third party takes a controlling position in our company. The occurrence of any such event of default or failure to make any required prepayment, which leads to an event of default, could trigger cross default / cross acceleration provisions under certain of our other debt agreements. In such event, our obligations under one or more of these agreements could become immediately due and payable, which would have a material adverse effect on our business and our shareholders' equity. If Sistema were to dispose of its stake in us, our company may be deprived of the benefits and resources that it derives from Sistema, which could harm our business.

Risks Relating to Economic Risks in Our Countries of Operation

Economic instability in the countries where we operate could adversely affect our business.

        Since the dissolution of the Soviet Union in 1991, the economies of Russia and other countries where we operate have experienced periods of considerable instability. For example, GDP level significantly impacted basic commodity prices as was detected during the crisis in 2008 and 2009.

        In 2017, the GDP growth amounted to 1.8%, according to the Federal State Statistics Service. The Federal State Statistics Service estimated that the Russian economy grew by 2.5% in 2018 and by 1.3% in 2019. However, the Russian GDP decreased by 3.1% in 2020 due to COVID-19 outbreak as well as a drop in global demand for energy resources.

        Any future economic downturns in Russia or the other countries where we operate, could lead to a decrease in demand for our services and, consequently, in our revenues, and negatively affect our liquidity position and ability to obtain further debt financing, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

The Russian banking system remains underdeveloped, the number of creditworthy banks in Russia is limited and another banking crisis could place severe liquidity constraints on our business.

        Russia's banking and financial services systems are less developed or regulated as compared to other countries, and Russian legislation relating to banks and bank accounts is subject to varying interpretations and inconsistent application. The August 1998 financial crisis resulted in the bankruptcy and liquidation of many Russian banks and almost entirely eliminated the developing market for commercial bank loans at that time. Many Russian banks currently do not meet international banking standards, and the transparency of the Russian banking sector in some respects still lags far behind internationally accepted norms. Aided by inadequate supervision by the regulators, certain banks do not follow existing CBR regulations with respect to lending criteria, credit quality, loan loss reserves or diversification of exposure. Furthermore, in Russia, bank deposits made by corporate entities are generally not insured.

        In recent years, there has been a rapid increase in lending by Russian banks, which has been accompanied by a deterioration in the credit quality of the borrowers. In addition, a robust domestic corporate debt market is leading Russian banks (including the banks with which we conduct banking transactions) to hold increasingly large amounts of Russian corporate ruble bonds in their portfolios, which is further deteriorating the risk profile of Russian bank assets. The serious deficiencies in the Russian banking sector, combined with the deterioration in the credit portfolios of Russian banks, may result in the banking sector being more susceptible to market downturns or economic slowdowns,

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including due to Russian corporate defaults that may occur during any such market downturn or economic slowdown. In addition, the CBR has from time to time revoked the licenses of certain Russian banks, which resulted in market rumors about additional bank closures and many depositors withdrawing their savings. Recently, a number of banks and credit institutions have lost their licenses due to the deficiency of capital and failure to meet the CBR requirements. In 2014-2018, for instance, the CBR revoked the licenses of a number of Russian banks for reasons associated with implementing high-risk lending policies, loss of liquidity and non-compliance with anti-money laundering legislation. A combination of these factors may result in a significant deterioration in the financial fundamentals of Russian banks, notably liquidity, asset quality and profitability. In addition, the Russian banking sector may experience instability and weaker financial results due to the ongoing volatility in the global financial and commodity markets, as well as any decline in the Russian economy as a result of COVID-19 outbreak and the decline in oil prices.

        There is currently a limited number of sufficiently creditworthy Russian banks and few ruble denominated financial instruments in which we can invest our excess ruble cash. We hold the bulk of our excess ruble and foreign currency cash in Russian banks, including subsidiaries of foreign banks.

        In the event of a banking crisis, Russian companies may be subject to severe liquidity constraints due to the limited supply of domestic savings and the withdrawal of foreign funding sources that may occur during such crisis. Another banking crisis or the bankruptcy or insolvency of the banks from which we receive or with which we hold our funds could result in the loss of our deposits or affect our ability to complete banking transactions in Russia, which could have a material adverse effect on our business, financial condition and results of operations.

The physical infrastructure in Russia and the other countries where we operate is generally in poor condition, which could disrupt our normal business activities and adversely impact our results.

        The physical infrastructure in Russia and the other countries where we operate does not always meet modern technical requirements, has not been always funded and maintained over the past years.

        Particularly affected are the rail and road networks, power generation and transmission systems, communication systems and building stock. For example, in August 2009, a major accident occurred at Russia's largest power plant, the Sayano-Shushenskaya hydroelectric power station, resulting in flooding of the engine and turbine rooms and the death of 75 people. Power generation from the station ceased completely following the incident, which led to a major power outage in the nearby residential areas and at certain industrial facilities as well as pollution of the rivers and soil as a result of an oil spill from the transformer.

        In addition, the road conditions throughout our countries of operation may be poor with many roads not meeting minimum quality standards, causing disruptions and delays in the transportation of goods to and within these countries. The governments of the countries where we operate are actively considering plans to reorganize their national rail, electricity and communications systems. Any such reorganization may result in increased charges and tariffs while failing to generate the anticipated capital investment needed to repair, maintain and improve these systems. The deterioration or insufficient renewal of the physical infrastructure in the countries where we operate harms the national economies, adds costs to doing business in these countries and impedes companies to operate effectively. These difficulties can impact us directly; for example, we keep portable electrical generators to help us maintain base station operations in the event of power outages. Further deterioration of the physical infrastructure in Russia and the other countries where we operate could have a material adverse effect on our business, financial condition and results of operations. In addition, the increased charges and tariffs that may result from the government reorganization may also have a material adverse effect on our business, financial condition and results of operations.

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Fluctuations in the global economy may materially adversely affect the economies of the countries where we operate and our business in these countries.

        The economies of the countries where we operate are vulnerable to market downturns and economic slowdowns elsewhere in 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 the other countries where we operate, and businesses in these countries could consequently face severe liquidity constraints. Additionally, as Russia produces and exports large amounts of oil and gas, the Russian economy is especially vulnerable to the price of oil and gas on the world market and a decline in the price of oil and gas could negatively impact its economy. See also "—Ruble volatility and regulatory changes in foreign currency regulation could increase our costs, decrease our available funds or make it more difficult for us to comply with financial covenants and to repay our debts and would affect the value of dividends received by holders of ADSs". In addition, recent military conflicts and international terrorist activity have significantly impacted the oil and gas prices globally, and pose additional risks to the Russian economy. Russia is also a major producer and exporter of metal products and its economy is vulnerable to world commodity prices and the imposition of tariffs and/or anti-dumping measures by the United States, the European Union or other principal export markets.

        Although our results have not been materially affected by the pandemic to date, there can be no assurance that our business could be materially affected. For more information see "—The outbreak of COVID-19 may have a material adverse effect on our business, financial condition, results of operations and prospects ."

        The disruptions recently experienced in the domestic and international capital markets have led to reduced liquidity and increased credit risk premiums for certain market participants and have resulted in a reduction of available financing. Companies located in emerging markets, including us, may be particularly susceptible to these disruptions and reductions in the availability of credit or increases in financing costs. To the extent that the current market downturn continues or worsens, it may lead to constraints on our liquidity and ability to obtain debt financing, which may have a material adverse effect on our business, financial conditions and results of operations.

Political and Social Risks

Political and governmental instability in Russia and other countries of our operations could materially adversely affect our business, financial condition, results of operations and prospects and the value of our shares and ADSs.

        The political and economic situation in Russia has been negatively affected by the global financial crisis, the economic sanctions imposed by the United States and the European Union, the ongoing volatile economic conditions as well as the continuing impact of COVID-19 pandemic. Other countries where we operate may pose similar challenges. Current and possible future political changes in Russia and other countries where we operate, major policy shifts or a lack of consensus between the various branches of power and powerful economic groups could disrupt or reverse economic and regulatory reforms. This could, in turn, lead to further political instability or conflicts among powerful economic groups, which could have a material adverse effect on our business, financial condition, results of operations, prospects and the value of our shares and ADSs. For example, after the presidential elections, which took place on August 9, 2020, protests began in Belarus. Further destabilization of the political and social situation can negatively affect our business, financial position and operations. A deterioration of the socio-political situation in Russia could also trigger an event of default under some of our loan agreements.

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        On July 4, 2020, the Law of the Russian Federation on Amendment to the Constitution of the Russian Federation came into force which implemented a number of constitutional reforms aimed at altering the balance of power between the legislative, executive and judicial branches and introducing certain other changes to the Constitution of the Russian Federation. This Law, among other things, prioritizes the Constitution of the Russian Federation over international treaties and the decisions of international bodies, strengthens the Russian State Council as an advisory board to the Russian President and grants the Russian Federal Council with authority to terminate the powers of the judges of the Constitutional Court of Russia upon the recommendation of the Russian President. These amendments to the Constitution may have a significant impact on the Russian political landscape and regulatory environment and lead to other changes that are currently difficult to predict.

Potential conflict between central and regional authorities could create an uncertain operating environment hindering our long-term planning ability.

        The Russian Federation is a federation of units, consisting of republics, territories, regions, cities of federal importance and autonomous regions and districts. The delineation of authority and jurisdiction among the members of the Russian Federation and the federal government is, in many instances, unclear and remains contested. A lack of consensus between the federal government and local or regional authorities could result in the enactment of conflicting legislation at various levels and may lead to political instability. In particular, conflicting laws have been enacted in the areas of privatization, land legislation and licensing. Some of these laws, as well as governmental and administrative decisions implementing them and certain transactions consummated pursuant to them, have in the past been challenged in the courts, and such challenges may occur in the future. This lack of consensus may hinder our long-term planning efforts and create uncertainties in our operating environment, both of which may prevent us from effectively and efficiently implementing our business strategy.

        Additionally, ethnic, religious, historical and other divisions have, on occasion, given rise to tensions and, in certain cases, military conflict, which can halt normal economic activity and disrupt the economies of neighboring regions. The further intensification of violence, including terrorist attacks and suicide bombings, or its spread to other parts of Russia, could have significant political consequences, including the imposition of a state of emergency in some parts or the whole of Russia. Moreover, any terrorist attacks and the resulting heightened security measures are likely to cause disruptions to domestic commerce and exports from Russia. Any of these factors could materially adversely affect our business and the value of our shares and ADSs.

A deterioration in relations between Russia and other former Soviet republics, as well as other politically related disagreements and allegations between Russia and other countries and sanctions imposed as a result thereof, could materially adversely affect our business, financial condition, results of operations, prospects and the value of our shares and ADSs.

        Relations between Russia and certain other former Soviet republics are or have in the past been strained. For example, in August 2008, an armed conflict erupted between Russia and Georgia over the self-appointed republics South Ossetia and Abkhazia, culminating in Russia's recognition of their independence from Georgia. The political and economic relationships between Ukraine and Russia have also been strained in recent years. On March 16, 2014, a referendum in favor of joining the Russian Federation was held in Crimea with the consequent declaration of independence Crimea from Ukraine and the accession to the Russian Federation by the parliament of Crimea. The armed conflict in Eastern Ukraine that has taken place since April 2014 has destabilized the region. These events have resulted in heightened tensions between Ukraine and the Russian Federation and have strained relationships of the Russian Federation with the United States and the European Union, which may adversely impact our business.

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        The United States and the European Union have imposed sanctions on certain Russian and Ukrainian persons and entities. No individual or entity within our group has been designated with sanctions introduced by either the United States or the European Union. However, additional designations may be made, or additional categories of sanctions may be created, at any time, and we can give no assurance that any member of our group, or individuals holding positions within our group as well as our counterparties, will not be affected by future sanctions designations. There are multiple discussions relating to potential additional sanctions against the Russian Federation, Russian individuals and Russian enterprises, however it is currently unclear at which point, if at all, any of these sanctions could be introduced and what would be the scope of any new sanctions that may be imposed.

        Non-compliance with any potential sanctions could result in, among other things, the inability of the relevant group entities to contract with the governmental authorities of the United States or the decision-making and executive bodies of the European Union, or their agencies, potential civil or criminal liability for the sanctioned individuals and entities and their associates under the US and/or EU law, the imposition of significant fines and reputational damage.

        Further tensions between Russia and other countries and any escalation of the existing tensions, the imposition of further sanctions, or continued uncertainty regarding the scope thereof, could have a negative effect on the Russian economy, the financial condition of our partners and suppliers, the financial condition of partners and suppliers of our subsidiaries, our ability to conduct trade and financial transactions, our ability to obtain financing on commercially reasonable terms (or at all), and the level and volatility of the trading price of our shares and ADSs. See also "—Risks Relating to our Financial Condition—Changes in the exchange rate of local currencies in the countries where we operate against the Russian ruble, as well as changes in the exchange rate of the Russian ruble and local currencies against the U.S. dollar and/or euro could adversely impact our financial results."

Crime and corruption could disrupt our ability to conduct our business and thus materially adversely affect our operations.

        The political and economic changes in recent years in the countries where we operate have resulted in significant dislocations of authority. In addition, the local and international press have reported high levels of corruption, including the bribing of officials for the purpose of initiating investigations by government agencies. Press reports have also described instances in which government officials engaged in selective investigations and prosecutions to further the commercial interests of certain government officials or certain companies or individuals. Additionally, some members of the media in the countries we operate in regularly publish disparaging articles in return for payment. The depredations of organized or other crime or demands of dishonest officials could result in negative publicity, disrupt our ability to conduct our business and could thus materially adversely affect our business, financial condition, results of operations and prospects. Any actions which could result in a negative effect on investor confidence in Russia's business and legal environment could have a further material adverse effect on the Russian securities market and prices of Russian securities or securities issued or backed by Russian entities, including the shares.

        Actions of fraudsters aimed against subscribers cause additional risks for operators. Despite our efforts to detect and prevent fraud, some forms of rendering services (for example, offering payments via external Internet sources) might entail risks of fraudulent charge-offs from subscribers' personal accounts. Such fraud actions could negatively affect our reputation and lead to an increase in subscriber churn, which could materially adversely affect our business, financial condition, results of operations and prospects.

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Social instability could increase support for renewed centralized authority, nationalism or violence and thus materially adversely affect our operations.

        The failure of the government and many private enterprises to pay full salaries on a regular basis and the failure of salaries and benefits generally to keep pace with the rapidly increasing cost of living have led in the past, and could lead in the future, to labor and social unrest. Labor and social unrest may have political, social and economic consequences, such as increased support for a renewal of centralized authority; increased nationalism, including restrictions on foreign involvement in the economies of the countries where we have operations; and increased violence. An occurrence of any of the foregoing events could restrict our operations and lead to the loss of revenues, materially adversely affecting our operations.

Legal Risks and Uncertainties

Weaknesses relating to the legal system and legislation in the countries where we operate create an uncertain environment for investment and business activity, which could have a material adverse effect on the value of our shares and ADSs.

        Each of the countries we operate in is still developing the legal framework required to support the market economy. The following risk factors relating to these legal systems create uncertainties with respect to the legal and business decisions that we make, many of which do not exist in countries with more developed market economies:

    inconsistencies between and among the constitution, federal and regional laws and subordinate legislation (presidential decrees and governmental, ministerial and local orders, decisions and resolutions) and other acts;

    legislation ambiguities which do not allow to predict how these provisions should be followed and how an authorized body or a court will interpret these provisions;

    the lack of judicial and administrative guidance on interpreting certain legislation as well as conflicting interpretations of supreme general jurisdiction and arbitrazh courts;

    the lack of necessary legislation in the reality of digital economy and rapid developing of new technologies;

    the relative inexperience of judges and courts in interpreting certain aspects of legislation;

    the lack of an independent judiciary;

    a high degree of discretion on the part of governmental authorities, which could result in arbitrary actions such as suspension or termination of our licenses; and

    poorly developed bankruptcy and liquidation procedures and court practice that create possibilities of abuse.

        The recent nature of much of the legislation in the CIS countries, the lack of consensus about the scope, content and pace of economic and political reform and the rapid evolution of these legal systems in ways that may not always coincide with market developments place the enforceability and underlying constitutionality of laws in doubt and result in ambiguities, inconsistencies and anomalies. In addition, legislation in these countries often contemplates implementing regulations that have not yet been promulgated, leaving substantial gaps in the regulatory infrastructure. All of these weaknesses could affect our ability to enforce our rights under our licenses and contracts, or to defend ourselves against claims by others. Moreover, it is possible that regulators, judicial authorities or third parties may challenge our internal procedures and bylaws, as well as our compliance with applicable laws, decrees and regulations.

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The inability of our subsidiaries in the countries in which we are present to maintain control over their operations and assets may adversely affect our business, financial condition and results of operations.

        If we are unable to protect our business entities in the countries in which we operate from the withdrawal or suspension or regulatory scrutiny, this may adversely affect our business, financial condition and results of operations. For example, in June 2012, the authorities of the Republic of Uzbekistan began audits of the financial and operating activities of our wholly owned subsidiary, Uzdunrobita. Further various claims for violation of tax, antimonopoly and industry legislation were made against Uzdunrobita, which resulted in significant amounts of fines and penalties, revocation of all licenses and suspension of services. Total amount of damages was calculated and determined on the basis of all the aforementioned claims against Uzdunrobita and amounted to approximately RUB 18,375 million payable in equal installments over eight months.

        Uzdunrobita paid two scheduled installments in November and December 2012 totaling approximately RUB 4,583.4 million. On January 14, 2013, further to its partial payment of the third installment due in January 2013 totaling approximately RUB 481 million and constituting the remaining amount of cash held in its bank accounts, Uzdunrobita filed a petition for voluntary bankruptcy to the Tashkent Economic Court on the grounds of its inability to meet further obligations.

        On April 22, 2013, the Tashkent Economic Court declared Uzdunrobita bankrupt and initiated a liquidation process. Uzdunrobita was later liquidated. In 2012, we filed a claim against the Republic of Uzbekistan in the International Center for Settlement of Investment Disputes ("ICSID"), part of the World Bank Group, in Washington, D.C.

        On July 31, 2014, we and the Republic of Uzbekistan signed a settlement agreement (the "Settlement Agreement") and MTS agreed to reenter the Uzbekistan market through a joint enterprise with MTS holding a 50.01% in the charter capital of the joint enterprise, while the remaining 49.99% belongs to a state-owned unitary enterprise established and managed by the State Committee for Communications, Development of Information Systems and Telecommunications Technologies of the Republic of Uzbekistan. The Settlement Agreement is governed by English law and provides for the resolution of any disputes arising out of the Settlement Agreement in the International Court of Arbitration under International Chamber of Commerce in Paris.

        On September 24, 2014, in accordance with the Settlement Agreement, the authorities of the Republic of Uzbekistan granted the joint enterprise 2G, 3G and LTE licenses, provided necessary frequencies and numbering capacity, fostered entrance into lease agreements for communication channels and issued all permissions required to the joint enterprise so it could operate and offer full telecommunications services throughout Uzbekistan. The joint enterprise has also received guaranties for investment protection and return of investments in accordance with the laws of the Republic of Uzbekistan.

        In November 2014, ICSID discontinued international arbitration proceedings between MTS and the Republic of Uzbekistan following the submission of a joint application by both parties.

        On December 1, 2014, the joint enterprise, named UMS, launched sales of SIM cards through its proprietary network of 20 stores and through another 230 independent locations throughout Uzbekistan and started provision of 2G/3G telecommunications services on the entire territory of Uzbekistan. On August 5, 2016, we sold our 50.01% stake in UMS to the State Unitary Enterprise Centre of Radio Communication Radio Broadcasting and Television of the Ministry of Development of Information Technologies and Communications of the Republic of Uzbekistan. The loss on disposal of investment in Uzbekistan was recorded in the financial report for the third quarter of 2016.

        See also "—Political and Social Risks—A deterioration in relations between Russia and other former Soviet republics as well as other politically related disagreements and allegations between Russia and other countries and sanctions imposed as a result thereof, could materially adversely affect

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our business, financial condition, results of operations, prospects and the value of our shares and ADSs".

An outcome of the proceedings relating to sustaining operations of our subsidiary in Turkmenistan is unpredictable.

        In December 2010, the Group suspended its operations in Turkmenistan following notification by the Ministry of Communications of Turkmenistan of a decision to suspend licenses held by BCTI, the Group's wholly owned subsidiary in Turkmenistan, initially for a period of one month starting from December 21, 2010, and then permanently.

        On May 24, 2012, we concluded an agreement with the state-owned telecom operator Turkmentelekom relating to our terms of operations in Turkmenistan, which resulted from negotiations between the Turkmenistan government and ministries. The agreement had a five-year term and could be extended for the following five years, provided certain terms and conditions are satisfied. Under this agreement, we were obliged to pay Turkmentelekom a monthly amount calculated as 30% of our net profit in Turkmenistan based on accounting rules of Turkmenistan.

        On July 25, 2012, we, our subsidiary BCTI, the Republic of Turkmenistan, the Ministry of Communications of Turkmenistan, the state-owned company, Turkmentelecom, and a mobile operator, Altyn Asyr, signed a settlement agreement (which included the dismissal of all international lawsuits) concerning the suspension of our operations in Turkmenistan in December 2010.

        In August 2012, we restarted our mobile communication network in Turkmenistan and resumed providing services to subscribers who had not canceled their contracts. Since October 1, 2012 we resumed our operations in Turkmenistan entirely and started entering into contracts with new subscribers.

        MTS-Turkmenistan was compelled to suspend communication services in Turkmenistan from 00:00 September 29, 2017, due to the actions of the Government of Turkmenistan, the Ministry of Communications of Turkmenistan, the state-owned telecommunications company, Turkmentelekom, and its wholly-owned subsidiary, Altyn Asyr, the state owned mobile operator in Turkmenistan. These actions resulted in the disconnection of international and long-distance zonal communication services and Internet access.

        In July 2018, we filed a Request for Arbitration against the Sovereign State of Turkmenistan with the ICSID in order to protect its legal rights and investments in Turkmenistan. The Tribunal for these proceedings was constituted on December 18, 2018 and the Company subsequently filed its Memorial (statement of claim) with ICSID on March 29, 2019. See also Note 11 to our audited consolidated financial statements and "Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—7. Litigation—Turkmenistan.".

        Unless resolved to our satisfaction, we intend to vigorously pursue our claims in arbitration and seek all available remedies.

Russian companies can be forced into liquidation on the basis of formal non-compliance with certain legal requirements.

        Certain provisions of Russian law may allow government authorities to seek a court order for the liquidation of a Russian legal entity on the basis of its formal non-compliance with certain requirements during formation, reorganization or during its operation.

        For example, under Russian corporate law, if the net assets of a Russian joint stock company calculated on the basis of Russian accounting standards are lower than its charter capital as at the end of its third or any subsequent financial year, the company must either decrease its charter capital or be

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placed in liquidation. If the company fails to comply with these requirements, governmental or local authorities can seek the involuntary liquidation of such company in court, and the company's creditors will have the right to accelerate their claims or demand early performance of the company's obligations as well as demand compensation of any damages.

        The existence of negative assets may not accurately reflect the actual ability to pay debts as they fall due. Many Russian companies have negative net assets due to very low historical asset values reflected on their Russian accounting standards balance sheets; however, their solvency, i.e., their ability to pay debts as they fall due, is not otherwise adversely affected by such negative net assets. Some Russian courts, in deciding whether or not to order the liquidation of a company for having negative net assets, have looked beyond the fact that the company failed to fully comply with all applicable legal requirements and have taken into account other factors, such as the financial standing of the company and its ability to meet its tax obligations, as well as the economic and social consequences of its liquidation. Nonetheless, creditors have the right to accelerate claims, and file damages claims, and governmental or local authorities may seek the liquidation of a company with negative net assets.

        Courts have, on rare occasions, ordered the involuntary liquidation of a company for having net assets less than the minimum charter capital required by law, even if the company had continued to fulfill its obligations and had net assets in excess of the minimum charter capital at the time of liquidation.

        The amount of net assets in accordance with the local accounting standards of some of our subsidiaries is less than the minimum charter capital required by law. Although these subsidiaries continue to meet all of their obligations to creditors, there is a minimal risk of their liquidation while the net assets remain below the minimum legal requirements.

        There have also been cases in the past in which formal deficiencies in the establishment process of a Russian legal entity or non-compliance with provisions of Russian law have been used as a basis to seek the liquidation of a legal entity. Weaknesses in the Russian legal system create an uncertain legal environment, which makes the decisions of a Russian court or a governmental authority difficult, if not impossible, to predict. If involuntary liquidation were to occur, such liquidation could lead to significant negative consequences for our group.

Insufficient adherence to the independence and competitiveness of the judicial process, the difficulty of enforcing court decisions and governmental discretion in enforcing claims could prevent us or holders of our securities from obtaining effective redress in a court proceeding.

        The judicial bodies in the countries where we operate are not always completely independent or immune from economic and political influences, and are often understaffed and underfunded. Judges and courts are often inexperienced in the area of business, corporate and industry (telecommunications) law. Judicial precedents generally have no binding effect on subsequent decisions, and not all court decisions are readily available to the public or organized in a manner that facilitates understanding. The judicial systems in these countries can also be slow or unjustifiably swift.

        Enforcement of court orders can, in practice, be very difficult to achieve. All of these factors make judicial decisions in these countries difficult to predict and effective redress uncertain. Additionally, court claims are often used in furtherance of political and commercial aims or infighting. We may be subject to such claims and may not be able to receive a fair hearing. Additionally, court orders are not always enforced or followed by law enforcement agencies. Furthermore, recognition and enforcement of arbitral awards in countries where we operate is subject to compliance with corresponding rules of civil procedure and applicable laws, and courts in the countries where we operate may interpret applicable regulations in a manner which would result in denial of such recognition and enforcement.

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        These uncertainties also extend to property rights. For example, during Russia transformation from centrally planned economy to market economy, legislation has been enacted in the country to protect private property against uncompensated expropriation and nationalization.

        However, there is a risk that due to the lack of experience in enforcing these provisions and due to political factors, these protections would not be enforced in the event of an attempted expropriation or nationalization. Expropriation or nationalization of any of our entities, their assets or portions thereof, potentially without adequate compensation, would have a material adverse effect on our business, financial condition, results of operations and prospects.

Selective or arbitrary government action could have a material adverse effect on our business, financial condition, results of operations and prospects.

        Governmental authorities in the countries where we operate have a high degree of discretion and, at times, act selectively or arbitrarily, without hearing or prior notice, and sometimes in a manner that is inconsistent with legislation or influenced by political or commercial considerations.

        Selective or arbitrary governmental actions have reportedly included the denial or withdrawal of licenses, sudden and unexpected tax audits and claims, criminal prosecutions and civil actions. Federal and local government entities have also used ordinary defects in matters surrounding share issuances and registration as pretexts for court claims and other demands to invalidate such issuances and registrations or to void transactions. Moreover, the government also has the power in certain circumstances, by regulation or government acts, to interfere with the performance of, nullify or terminate contracts.

        In addition, the Russian tax authorities have brought tax evasion claims relating to Russian companies' use of tax-optimization schemes, and press reports have speculated that these enforcement actions have been selective. Selective or arbitrary government action, if directed at us, could have a material adverse effect on our business, financial condition, results of operations and prospects.

Failure to comply with existing laws and regulations as well as requirements of international and regional standards or to obtain all approvals, authorizations and permits required to transmit television channels or operate telecommunications equipment, or the findings of government inspections or increased governmental regulation of our operations, could result in a disruption in our business and substantial additional compliance costs and sanctions.

        Our operations and properties are subject to regulation by various government entities and agencies in connection with obtaining and renewing various licenses, approvals, authorizations and permits, as well as with ongoing compliance with existing laws, regulations and standards. Regulatory authorities exercise considerable discretion in matters of enforcement and interpretation of applicable laws, regulations and standards, the issuance and renewal of licenses, approvals, authorizations and permits and in monitoring licensees' compliance with the terms thereof. Russian authorities have the right to, and frequently do, conduct periodic inspections of our operations and properties throughout the year. Any such future inspections may conclude that we or our subsidiaries have violated laws, decrees or regulations, and we may be unable to refute such conclusions or remedy the violations. See also "—The regulatory environment for telecommunications in Russia and other countries where we operate or may operate in the future is uncertain and subject to political influence or manipulation, which may result in negative and arbitrary regulatory and other decisions against us on the basis of other than legal considerations and in preferential treatment for our competitors."

        Primarily due to delays in the issuance of permits, approvals and authorizations by regulatory authorities, it is frequently not possible to procure all of the permits for each of our base stations or other aspects of our network before we put the base stations into commercial operation or to amend or maintain all of the permits when we make changes to the location or technical specifications of our

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base stations. At times, there can be a significant number of base stations or other communications facilities and other aspects of our networks for which we do not have final permits to operate and there can be delays in obtaining the final permits, approvals and authorizations for particular base stations or other communications facilities and other aspects of our networks.

        We are constantly in the process of registration and re-registration of ownership over certain infrastructure facilities. For example, MGTS carries out measures aimed at registration of ownership rights to the cable line structures (CLS). At the same time, MGTS is not insured against the risks of challenging the ownership rights by third parties. MGTS performs legal registration of its ownership rights to minimize the risk. In case of receiving reasonable claims, MGTS reconciles cable line objects to distinguish the ownership rights. MGTS is ready to assert its rights to CLS in court when necessary.

        In addition, we may be unable to transmit certain television channels if entities that provide television content to us do not possess the requisite licenses. In case such providers of television content do not obtain the required licenses, or have their existing licenses suspended or terminated, our selection of potential television channels for transmission could be significantly limited. The Federal Law No. 257 "On Amending Federal Law "On Mass Media" and Federal Law "On Communications" dated July 13, 2015 introduced a number of amendments to the national mandatory free television channels list. Requirements on sequence of channels, sound and image quality and signal reception points of national mandatory free television channels were adopted in September 2015. In October 2020, the Ministry of Digital Development, Communications and Mass Media adopted its Order dated July 31, 2020 No. 369 "On Determining the Requirements for the Quality of Sound and (or) Image of Mandatory Public TV and (or) Radio Channels" which updated the existing quality requirements. The inability of operators to comply with such requirements may lead to suspension or termination of a license.

        Furthermore, we could be subject to fines and other penalties, including forced suspension of our cable network operators' activity for up to 90 days. In some cases of our service provision (for example, those employing GPON technology) power failures in subscribers' households may lead to non-compliance with rules regulating local telephony communication services. Any of these consequences could have a material adverse effect on our business, financial condition and results of operations.

        On June 1, 2018, Federal Law No. 245 "On Amendments to the Federal Law" On Communications" entered into force and is aimed at further aligning the process of entering into a contract for the provision of mobile radiotelephone communication services without appropriate identification of a subscriber (i.e., a user) of communication services. Operators may be subject to penalties and other sanctions, including the suspension of an operator's activity for up to 90 days, for non-compliance with the Law.

        Our failure to comply with existing laws and regulations of the countries where we operate as well as requirements of international and regional standards or to obtain all approvals, authorizations and permits required to operate telecommunications equipment, or the findings of government inspections including the State Labor Inspection Service may result in the imposition of fines or penalties or more severe sanctions including the suspension, amendment or termination of our licenses, approvals, authorizations and permits, or in requirements that we cease certain of our business activities, or in criminal and administrative penalties applicable to our officers. We have also engaged in certain disputes, which could require us to pay damages or settlements. We may incur expenses in defending these lawsuits. See "Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—7. Litigation".

        Moreover, an agreement or transaction entered into in violation of law may be invalidated and/or unwound by a court decision. Any such decisions, requirements or sanctions, or any increase in governmental regulation of our operations, could result in a disruption of our business and substantial

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additional compliance costs and could materially adversely affect our business, financial condition, results of operations and prospects. In addition, we may assume risks of potential claims from subscribers and regulating authorities regarding former activities of the acquired or merged businesses.

        Generally, communication networks are vulnerable to physical or software break-ins, viruses, unauthorized interferences and similar events. Should such events occur with respect to our network elements, we may become subject for additional inspection by the regulatory authorities. Although we obtain all necessary permissions and certificates for the operation of our equipment and provide measures to protect confidential information, our failure to fully comply with all legislation requirements could result in the imposition of fines or penalties, additional government regulations, substantial additional compliance costs, disruption of our business including its suspension or termination, and other adverse effects.

We provide certain common contractual protections to the purchaser under the VF Ukraine Sale Agreement and are subject to certain post-closing obligations.

        In December 2019, we sold our telecommunication business in Ukraine under an agreement entered into with Telco Solutions and Investments LLC, as purchaser, an entity affiliated with telecommunication company Bakcell LLC, which is a part of the NEQSOL Holding international group of companies (the "Sale Agreement"), see "Item 4—Information on our Company—A. History and Development" and Note 12 to our audited consolidated financial statements for details of the transaction. We provide certain common contractual protections to the purchaser and are subject to certain post-closing obligations under the Sale Agreement. Further, the Sale Agreement contains a post-completion price adjustment mechanism. As a result of applying this mechanism, the purchase price was adjusted in our favor so we were not required to pay any sum to the purchaser.

        Although we do not anticipate any further material price adjustments or other liability under the Sale Agreement, there can be no assurance that a liability will not emerge in the future, in which case it could have an adverse effect on our financial position and results of operations.

There is insufficient minority shareholder protection in Russia.

        Minority shareholder protection under Russian law principally derives from (a) supermajority shareholder approval requirements for certain corporate actions, (b) the ability of a shareholder to demand that the company purchase the shares held by that shareholder if that shareholder voted against or did not participate in voting on certain types of actions, (c) the ability of a shareholder to sell his shares at a fair price when the control is changed, the company is acquired at a price determined in accordance with the requirements of the current legislation, (d) shareholders' right to challenge decisions of the company's management bodies in certain circumstances, and (e) shareholders' right to challenge transactions which caused company's loss. Companies are also required under Russian law to obtain the approval of disinterested shareholders for certain transactions with interested parties. In practice, enforcement of these protections has not always been effective. Shareholders of some companies have suffered as a result of fraudulent bankruptcies initiated by hostile creditors.

        The supermajority shareholder approval requirement is met by a vote of 75% of all voting shares that are present at a shareholders' meeting. Thus, controlling shareholders owning slightly less than 75% of outstanding shares of a company may have a 75% or more voting power if certain minority shareholders are not present at the meeting. In situations where controlling shareholders effectively have 75% or more of the voting power at a shareholders' meeting, they are in a position to approve amendments to the charter of the company or significant transactions including asset transfers, which could be prejudicial to the interests of minority shareholders. It is possible that our controlling

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shareholder in the future may not operate us and our subsidiaries for the benefit of minority shareholders, and this could have a material adverse effect on the value of our shares and ADSs.

        While the Federal Law on Joint Stock Companies provides that shareholders owning not less than 1% of the company's outstanding common stock may bring an action for damages caused to a company by its CEO, member of the Board of Directors or its Management Board and certain other officials acting on behalf of the company, minority shareholders may have difficulties with proving such damages with the court and as a consequence their claims may be denied by the court. In 2009, legislation was adopted which contemplates class action litigation, in 2015 mechanism of class action regarding corporate disputes was introduced and in 2019 this mechanism was updated and specified. Although there have been several disputes in the past few years, Russian courts do not have a clear and consistent approach in regards to class action litigation. In addition, the issue of claims by shareholders against the company to compensate the shareholders for their losses is not clearly regulated by the current legislation.

        Accordingly, your ability to pursue legal redress against us may be limited, reducing the protections available to you as a holder of our shares and ADSs.

According to Russian legislation, shareholders/participants of Russian companies have an opportunity to demand either liquidation of a company in a judicial proceeding or exclusion of other shareholder/ participant (except for public joint stock companies) from the company.

        According to the amendments to the Civil Code of the Russian Federation, which came into effect on September 1, 2014, shareholders and participants of Russian companies have, inter alia, the following rights, which can be executed via judicial proceedings:

    to demand the liquidation of a company in case of failure to achieve a corporate purpose for which it was created, including a case when an operation of a company becomes impossible or is substantially hampered; and

    to demand exclusion of a shareholder or a participant (except for the public joint stock companies, including MTS) whose actions/inactivity either cause significant harm or hampers the company's operations.

        In this regard, we cannot rule out the possibility of such claims being filed against us. Should such claims be brought, this may have a negative impact on our business, financial condition and results of operations.

Shareholder liability under Russian legislation could cause us to become liable for both obligations of our subsidiaries and losses of the legal entities in which we have a practical possibility of determining actions.

        The Civil Code of the Russian Federation, the Joint Stock Companies Law and the Federal Law "On Limited Liability Companies" generally provide that shareholders in a Russian joint stock company or members of a limited liability company are not liable for the obligations of the company and bear only the risk of loss of their investment. This may not be the case, however, when one entity is capable of determining decisions made by another entity. The entity capable of determining such decisions is deemed an "effective parent." The entity whose decisions are capable of being so determined is deemed an "effective subsidiary." The effective parent bears joint and several liability for transactions concluded by the effective subsidiary in carrying out its decisions or decisions made with its consent. However, joint and several responsibility of the effective parent is excluded in case of voting of the effective parent on the approval of the transaction at a general shareholders' meeting of the effective subsidiary, as well as the approval of the transaction by the body of the effective parent, if the need for such approval is envisaged in the charter of the effective subsidiary and/or the effective parent. In addition, an effective parent is secondarily liable for an effective subsidiary's debts if an

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effective subsidiary becomes insolvent or bankrupt resulting from the action or failure to act of an effective parent. This is the case no matter how the effective parent's ability to determine decisions of the effective subsidiary arises.

        Accordingly, we could be liable in some cases for debts of our subsidiaries and losses of the legal entities to the extent that we had any power of determining such subsidiaries' actions that caused such losses. This liability could have a material adverse effect on our business, results of operations and financial condition.

Shareholder rights provisions under Russian law could impose additional obligations and costs on us, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

        Russian law provides that shareholders that vote against or did not participate in voting on certain matters have the right to sell their shares to the company at market value in accordance with Russian law. The decisions that trigger this right to sell shares include:

    decisions with respect to a reorganization;

    the approval by shareholders of a "major transaction," which involves property in excess of 50% of the balance sheet value of the company's assets calculated according to Russian accounting standards, regardless of whether the transaction is actually consummated (including those which are simultaneously interested-party transactions), except for transactions undertaken in the ordinary course of business;

    the amendment of our charter in a manner that limits shareholder rights;

    the amendment of our charter in a manner that excludes reference to the entity's public status, approved simultaneously with a decision on applying to the CBR on release from obligation to disclose information under the laws of the Russian Federation on securities; and

    a decision on applying for delisting of shares and convertible securities from a stock exchange.

        For example, during 2015-2020 we repurchased MTS ordinary shares, for more details see "Item 16E—Purchases of Equity Securities by the Issuer and Affiliated Purchasers." Our obligation to purchase shares in these circumstances, which is limited to 10% of the company's net assets calculated in accordance with Russian accounting standards at the time the matter at issue is voted upon, could have a material adverse effect on our business, financial condition, results of operations and prospects. Under Russian law, if we are unable to sell the repurchased shares at a price equal to or exceeding the market price within one year of the date of repurchase, we will have to reduce our charter capital accordingly.

The Strategic Foreign Investment Law imposes certain restrictions on us and our existing and potential foreign shareholders, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

        On May 7, 2008, the Federal Law "On the Procedure for Foreign Investment in Commercial Organizations of Strategic Importance for the Defense and Security of the State," or the Strategic Foreign Investment Law, came into force in Russia. This law sets forth certain restrictions relating to foreign investments in Russian companies of "strategic importance." Among others, companies with a dominant position in the Russian telecommunications market are considered to be strategically important and foreign investments in such companies are subject to regulations and restrictions to these companies set out by the Strategic Foreign Investment Law. For purposes of the Strategic Foreign Investment Law, a mobile telecommunications provider is deemed to be dominant if its market share in the Russian market exceeds 25%, as may be determined by the FAS. In addition, a company may be considered to be strategically important due to our offering of services involving the use of cryptographic technologies.

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        Starting from the effective date of the Strategic Foreign Investment Law, a foreign investor (including Russian citizens having foreign citizenship according to the amendments which came in force on July 1, 2017) seeking to obtain direct or indirect control over a strategically important company is required to have the respective transaction pre-approved by a special governmental commission on control of foreign investments. On December 6, 2014, the amendments to the Strategic Foreign Investment Law came into effect. The law stipulates that foreign investors are obliged to obtain prior approval of transactions envisaging the acquisition of right of ownership, possession or use of property classified as the fixed production assets of a strategic company and the value of which represents 25% or more of the balance sheet value of the assets of such company as of the last reporting date, according to accounts. In addition, foreign investors are required to notify this authorized governmental body about any transactions undertaken by them resulting in the acquisition of 5% or more of the charter capital of strategically important companies. Within 180 days from the effective date of the Strategic Foreign Investment Law, foreign investors having 5% or more of the charter capital of strategically important companies were required to notify the authorized governmental body about their current shareholding in such companies.

        Commencing December 6, 2014, a foreign investor is also obliged to notify the authorized governmental body about the fact of conducting the pre-approved transactions. With effect from July 1, 2017, according to the amendments, offshore companies (and companies under their control) are prohibited from obtaining control over a strategically important company and are obliged to have any acquisition of 25% or more of right of ownership of voting shares pre-approved. According to the amendments that came into force on July 1, 2017, certain sanctions may be imposed in respect of such transactions conducted without notification, for example, a deprivation of the foreign investor of any voting rights at a shareholders' meeting of strategically important companies through judicial proceedings brought by an authorized governmental body.

        As we are classified as a strategically important company, our current and future foreign investors are subject to the notification requirements described above and our current and potential investors may be limited in their ability to acquire a controlling stake in, or otherwise gain control over, us. Such increase in governmental control or limitation on foreign investment could impair the value of your investment and could hinder our access to additional capital.

Regulatory changes in Russia as well as regulatory changes at the international level may have a material adverse effect on our financial condition and results of operations.

        Following an amendment to the Federal Law on Communications, which became effective July 1, 2006, fixed-line operators began charging their subscribers for calls to mobile phone users and started to transfer a percentage of the charge to mobile operators terminating such calls. The percentage transferred to mobile operators is established by the regulator and is known as the "settlement rate."

        The Ministry of Communications and Mass Media is considering altering the approach to inter-carrier settlements in Russia and the subsequent lowering of the settlement rate. Any reduction of the settlement rate by the regulator could have a negative impact on our average monthly service revenues per subscriber and margins. Over the past few years the government authorities developed a number of new initiatives, which have not yet been implemented or were implemented recently and a lack of law enforcement practice may cause difficulties in interpreting these developments and lead to additional burden for telecommunications operators. In December 2018, the Ministry of Communications developed new initiatives relating to the reframing of interaction between operators. It is unclear yet how this proposal may be implemented, however it may potentially lead to a reduction in traffic transmission revenues and margin. The final decision on the implementation of this proposal has not been made yet. The agreement on the conditions of inter-carrier mutual settlements while delivering international communication services in CIS-countries was signed on the CIS Heads of Government Council meeting held in Dushanbe on October 30, 2015 (the "Agreement"). The enforcement of certain

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provisions of the Agreement may adversely affect our operation in terms of the execution of inter-carrier mutual settlements among CIS-operators. In order to be implemented, the corresponding provisions should be introduced to the Russian legislation. To date, the provisions have not been implemented yet.

        According to Government Regulation No. 1240 dated November 24, 2014, starting from January 1, 2015, federal public bodies were vested with a right to make decisions on using data transmission network of government bodies, which is a part of infrastructure ensuring information and technological interaction with the information systems used for rendering state and municipal electronic services for the purposes of exercising public functions. To date, the single operator of infrastructure of electronic state services is Rostelecom. Adoption of the Regulation may adversely affect our revenues with regard to the B2G market segment due to competitive disadvantage.

        With the entry into force of the Treaty on the Eurasian Economic Union (the "EEU") on January 1, 2015, a supra-national antimonopoly body empowered to control compliance with general competition rules on cross-border markets and to apply antitrust measures was established. Should violations with respect to companies operating on cross-border markets be identified, this might lead both, to imposition of fines in accordance with the legislation of the EEU and adoption of the decisions for compulsory execution.

        The amendments introduced to Article 5 of the Federal Law No. 115 "On Combating Legalization (Laundering) of Criminally Gained Income and Financing of Terrorism" dated August 7, 2001, entered into force on March 1, 2015. The list of organizations carrying out cash/other property operations, to whom the law requirements are applied, was expanded according to those amendments. In addition to telecommunications operators entitled to independently render mobile radio telecommunications services, the telecommunications operators occupying "substantial position" in public switched telephone networks entitled to independently provide data transmission services and render services on the basis of contracts with individual subscribers, have been also included in the list. A telecommunications operator which meets the specified criteria is obliged to provide the Federal Financial Monitoring Service with the information on cash/other property operations (that is subject to compulsory control or that seems suspicious while implementing the rules of internal control), as well as to take measures for freezing of cash assets / other property (in case there is an information on its involvement in extremist activities or terrorism). Lack of law enforcement practice may cause difficulties in interpreting the above-mentioned amendments and lead to additional burden for telecommunications operators.

        On July 8, 2017, the Federal Law No. 110 "On Amendments to Article 66 of the Federal Law "On Communications" and Article 35 of the Federal Law "On Mass Media" dated June 7, 2017 came into force, which requires operators to transmit warning signals to telecommunications services users or inform them about dangers arisen by threat of occurrence of emergencies or occurrence of emergencies. Expenditure related to the transmission of warning signals is not compensated to operators.

        On April 4, 2016, the Ministry of Communications of the Russian Federation adopted the order No. 135 "On the Approval of Requirements for Communication Networks Operation With Respect to the Use of Services Provided by Third Parties." The order came into force on July 26, 2017.

        According to the requirements, a telecommunications operator is obliged (on a quarterly basis) to provide authorities with data on foreign companies and foreign citizens that are engaged to provide works or services related to exploitation and management of its communication network. In addition, a telecommunications operator is obliged to store information concerning all actions on communication facilities executed by servicing staff or third parties engaged in exploitation and management of communication networks both from workplaces and with the use of a remote access.

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        The Federal Law No. 374 "On the Introduction of Amendments to Certain Legislative Acts of the Russian Federation with Respect to Setting up of Additional Counter-terrorism Measures and Public Security Enforcement" was adopted on July 6, 2016. Pursuant to that law, operators are obliged to store information on the facts of receiving, transferring, delivery and/or processing of voice information and text messages, as well as images, sounds, video- and other messages of telecommunications services users (for a three-year period) and the contents of such communications, including voice data, text messages, pictures, sounds, video or other communications (for up to six months). The requirement relating to the storage of messages contents entered into force on July 1, 2018. The Government regulation "On Rules, Terms and Volume of Voice Information, Text Messages, Images, Sounds, Video-and Other Messages of Telecommunications Services Users to be Stored" was adopted on April 12, 2018 (the "Rules on Storage"). According to this regulation, commencing July 1, 2018, communication operators that render intercity and international communication services (as well as personal radio call services, mobile radio services in a public communication network, mobile radiotelephone and satellite communication services, data transmission services for the purposes of transferring voice information, zonal and local telephone communication services) are required to store voice information and text messages, for a period of six months from the moment of the end of their receipt, transfer, delivery and/or processing. Starting from October 1, 2018, operators that render telematics services, as well as data transmission services (except for data transmission services for the purposes of transferring voice information) are obliged to store telecommunication messages by using data storage technical equipment in the volume of electronic communication messages sent and received by the operator's subscribers (the actual traffic) during 30 days before the commissioning date of the technical equipment. Moreover, the capacity of the data traffic storage system is required to be increased by 15% annually during 5 years from the date the data storage technical equipment was put into operation. Significant additional costs will be required in order to comply with these requirements.

        With effect from October 1, 2019 the Federal Law No. 191 "On Introduction of Changes to Certain Legislative Acts of the Russian Federation" dated July 18, 2019 came into force and assumes important changes to the procedural legislation regarding class actions in Russia. According to the law, consumers have a right to file class action lawsuits with the courts of general jurisdiction. Moreover, the law provides changes relating to class actions in arbitration proceeding, specifically, a "group" is defined as those having common or homogeneous rights. The law is aimed at harmonization of civil and arbitration proceedings as well as boosting the effectiveness of the Arbitration Procedure Code ("APC") clauses, therefore the changes are generally consistent with the Civil Procedure Code ("CPC") developments. These changes allow mass consumer claims in case the amount of each individual claim is small, but the total amount of all claims is significant, that could additionally motivate to initiate lawsuits, inter alia, by using litigation funding (investment) tools. The law expanded the list of persons who can advocate the interests of a group of persons. Claims might be filed by, inter alia, Rospotrebnadzor, FAS, Bank of Russia, stakeholders and other persons as well as by a group of consumers, whose interests are suffered as a result of violation of competition legislation. Any class actions filed against us could have a material adverse effect on our business, financial condition and results of operations.

        In November 2019, the Federal Law No. 90 "On certain amendments to the Federal Law "On communications" and the Federal Law "On information, information technologies and information protection" dated May 1, 2019 (the "Sovereign Internet Law") aimed at ensuring stable, secure and integral functioning of the Internet in the territory of the Russian Federation, came into force. Under the Sovereign Internet Law, operators may be required to, inter alia, install new equipment on their networks, which could adversely affect the networks' stability and the quality of provided communication services. The Sovereign Internet Law is broadly drafted, and although the Russian authorities have already adopted material implementing acts, practical issues may require further subordinate legislation to be adopted further clarifying the provisions of the law. Furthermore, additional costs for maintenance and operation of this equipment may be required from the operators.

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        On January 14, 2019, the Government of the Russian Federation published a list of instructions aimed at encouraging the procurement of telecommunication equipment of Russian origin. According to the document, ministries should prepare proposals by May 1, 2019, relating to an increase in the import customs duty rate to a level of up to 20% with respect to telecommunication equipment. Currently, there can be no certainty as to the form of the implementation of these initiatives; therefore, it is difficult to assess how such changes will affect the company's operations. Should the import customs duty rate increase in respect of the equipment we purchase, this may have a material adverse effect on our financial condition and results of operations.

        The Federal Law No. 533 dated December 30, 2020, which will come into effect from June 1, 2021, introduced amendments to the Law "On Communications" clarifying the contracting process with subscribers, including the following changes:

    the possibility to conclude contract with subscribers using a simple electronic signature obtained in operator's offices is excluded;

    a contract for devices with eSIM can be concluded via the Internet only using a unified biometric system and an advanced qualified electronic signature;

    rendering services for corporate clients is possible only if data on individuals using a subscriber's numbers is entered into the Integrated Identification and Authentication System (IIAS). Operators will have the obligation to check if such information is present in the IIAS starting from December 1, 2021 and stop providing services to clients in case the information is inaccurate;

    rendering telecommunication services to corporate clients for M2M devices is possible only if data on a subscriber's number, address of a corporate client or device location as well as other information is entered into the IIAS. This may affect the M2M services development, including IoT projects;

    Roskomnadzor is responsible for developing an information system for monitoring the contracting process between operators and their subscribers. An operator will have the obligation to report certain information via this system unilaterally. Modification of business processes and IT systems for connection to the monitoring system may be required from operators.

        According to the order of the Ministry of Communications No. 148 dated March 31, 2020, during the period from April 1, 2020 to July 1, 2020, an experiment was conducted to provide free access to socially significant internet services and web resources. The experiment period was further prolonged till the end of June 2021. List of significant internet services and web resources includes, amongst other, social networks, news and information agencies web resources, online shops, websites of banks and delivery services. Currently, there is no clarity about the consequences in connection with implementation of this order including possible costs required from operators; there can be no certainty as to the form of free access to socially significant information resources, how it will be implemented in the future and when this initiative will be adopted, however it could potentially have a material adverse effect on our business, financial condition and results of operations.

        Currently, the Russian Civil Code is undergoing the process of substantial revisions with new provisions being introduced relating to a number of sectors. At present, the potential interpretation of these amendments by state authorities (including the courts), along with their impact on our activities are unknown.

        A roadmap for 2018-2020, for the development of competition in economic sectors of the Russian Federation and the transition of particular sectors from the state of natural monopolies to the competitive market was approved by the Order of the Government of the Russian Federation

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No. 1697-r dated August 16, 2018. The roadmap provides for the adoption of a number of regulatory legal acts, inter alia, in the telecommunication sphere. Currently, it is difficult to assess how such changes and their interpretation by state bodies, particularly by courts, may affect our operation.

        Russian companies are obliged to pay various and significant taxes including income tax, VAT, real estate tax, excise tax, payroll tax and others. Along with tax liabilities there are different obligatory non-tax payments. These include payments into Universal Service Fund, which currently amounts to 1.2% of our annual revenue on telecommunications services. Furthermore, potential regulatory changes that may be enacted in the future, such as the introduction of new rules regulating MVNOs, new rules concerning our pricing policy and others, could weaken our competitive position in the mobile telecommunications market. Changes in tax laws and non-tax regulations may lead to the growth of our tax burden and increase of our costs and may, as a result, materially adversely affect our financial condition and results of operations.

The failure of our subsidiaries that are subject to regulations as natural monopolies to comply with the requirements of the Federal Law No. 223 "On Procurement Process," inter alia, in case of collective tendering can lead to application of certain liability measures with respect to our subsidiaries.

        One of our subsidiaries, MGTS, is categorized as a natural monopoly in the Moscow telecommunications market. According to the Federal Law No. 223 "On Procurement Process," natural monopolies are obliged to conduct the procurement process in accordance with the principles of transparency and non-discrimination and unjustified limitation of competition. If our subsidiaries that are under additional regulations as natural monopolies are found failing to comply with the law on procurement process, inter alia in case of collective tendering with us, our subsidiaries can be subject to certain liability measures, according to Russian legislation. See also "—Risks Relating to Our Business—If we are found to have a dominant position in the markets where we operate and are determined to have abused this position, the FAS may be entitled to regulate our subscriber tariffs and impose certain restrictions on our operations."

Russian and foreign legislation on personal data and information security in information systems and communication networks may turn out to be hard to implement and require significant resources. Inability to comply with the requirements may lead to sanctions.

        Communication operator activity in the sphere of information security in the Russian Federation is represented by the following legal acts: Federal laws "On Communication," "On Information, Information Technologies and Information Protection," "On Personal Data," "On Trade Secret," "On Electronic Signature," by-laws of the Government, FSTEC, FSS, Ministry of Communication and The Federal Service for Supervision of Communications, Information Technology and Mass Media of the Russian Federation, among others. Main risks, posed by organization of processing and providing security of personal data include the following factors:

    ambiguity of applicability of legislation on communication, personal data, trade secret, etc. to a single object of legal regulation. Data may be simultaneously attributed to different categories of limited access information, which fall under different information security requirements under different sections of the Russian legislation;

    responsibility of personal data operators for the actions of the third parties, processing personal data at the request of personal data operators;

    ambiguity of the criteria for determining personal data protection level during its processing in the information systems (for example, in case undocumented possibilities in system and/or applied software exist), set by Government Decree No. 1119, dated November 1, 2012;

    high level of requirements to the personal data protection;

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    significant costs on creation of information protection system and support of protection level;

    necessity to use the means of information protection, which have undergone a special conformity assessment procedure; replacement of the existing means of information protection with the ones, certified by FSTEC and FSS of Russia may require additional costs on certification of the existing means of information protection and later on certificates renewal (because of the limited period of certificates validity);

    in case of failure to comply with requirements for confirmation of licenses for the technical and cryptographic protection activity of confidential information by FSTEC of Russia or FSS of Russia, the company would not be able to provide the corresponding commercial services to the third parties; and

    ambiguity of the requirement of Federal law No. 152 to localize processing of the Russian citizens personal data on the territory of Russia, keeping the possibility of cross-border transfer of this data.

        In case of non-compliance with the Russian legislation on information security and personal data protection, the company cannot rule out the possibility of imposing sanctions by the regulatory bodies in the form of fines, confiscation of uncertified means of information protection, suspension of business processes for 90 days as well as suspension or withdrawal of the license, allowing to provide communication services, technical and cryptographic protection of confidential information.

        In addition, it is possible that subscribers will file legal claims, seeking to reimburse tangible and moral damage in connection with the violation of the legislation requirements.

        With effect from May 25, 2018, the General Data Protection Regulation came into force in the European Union. Our basic business processes and our subsidiaries were audited in order to determine applicability and compliance with the GDPR requirements. In addition, a control mechanism for determination of compliance with the specified requirements was proposed to be established for new business processes (if they are initiated). In case of launching services and products, to which the GDPR will apply, we must ensure these services and products comply with the GDPR requirements.

        Federal Law No. 519-FZ dated December 30, 2020, which came into force from March 1, 2021, established specific regulation for processing of personal data, permitted by the personal data subject for distribution. The Law established certain consent requirements for such personal data processing. For example, the consent should be obtained separately from other consents. An operator must provide the opportunity for the subject to determine the list of personal data for each personal data category specified in such consent. Lack of response or inaction of the personal data subject cannot be considered as consent to the processing of personal data, authorized by him for disclosing. The personal data subject has a right to request any personal data operator to remove his personal data from public access without additional proving the fact of illegal processing of his personal data.

        If the resources required to maintain, develop and implement data protection and information security systems meeting the legislation requirement are greater than expected, or we fail to comply with the data protection laws despite our best efforts to do so, our business, financial condition and results of operations could be materially adversely affected.

        The Ministry of Digital Development, Communications and Mass Media of the Russian Federation prepared draft amendments to the Federal Law No. 149-FZ "On Information, Information Technology and Data Protection" dated July 27, 2006 aimed at unifying the approach to big data processing. Currently there is no clarity as to the requirements to the big data processing and when the announced draft law and subordinate legislation may be adopted, hence we are not able to estimate their potential impact on the Group.

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The Russian taxation system is underdeveloped and any imposition of significant additional tax liabilities could have a material adverse effect on our business, financial condition or results of operations.

        The discussion below provides general information regarding the Russian tax regime and is not intended to be inclusive of all issues. Investors should seek advice from their own tax advisors as to these tax matters before investing in our shares and ADSs. See also "Item 10—Additional Information—E. Taxation."

        In general, taxes payable by Russian companies are substantial and numerous. These taxes include, among others, corporate income tax, value added tax, property taxes, excise duties, payroll-related taxes and other taxes.

        In addition, intercompany dividends are subject to a withholding tax of 0% or 13% (depending on whether the recipient of dividends qualifies for Russian participation exemption rules), if being distributed to Russian companies, and 15% (or lower, subject to benefits provided by relevant double tax treaties), if being distributed to foreign companies.

        Lately the Russian government has taken measures aimed at revising the existing structure and practice of applying agreements on avoidance of double taxation in order to limit the taxpayer's ability to apply reduced rate (exemptions) when paying dividends and interest in certain jurisdictions. The terms of the agreements are already being revised with a number of jurisdictions in order to increase tax rate on dividends and interest. Limitation of the taxpayer's ability to apply reduced rate (exemptions) might lead to higher tax rates, and thus increase our costs.

        The Russian tax authorities may take a more assertive position in their interpretation of the legislation and assessments, and it is possible that transactions and activities that have not been challenged in the past may nonetheless be subject to challenges in the future. The foregoing factors raise the risk of the imposition of arbitrary or onerous taxes on us, which could adversely affect the value of our shares and ADSs.

        Current Russian tax legislation is, in general, based upon the formal manner in which transactions are documented, looking to form rather than substance. However, the Russian tax authorities are increasingly taking a "substance and form" approach, which may cause additional tax exposures to arise in the future. Moreover, the Russian Tax Code was amended with direct provisions which prohibit tax benefits, if achieved without real business activities, or the main aim of the transaction was tax benefits. Additional tax exposures could have a material adverse effect on our business, financial condition, results of operations and prospects.

        It is expected that Russian tax legislation will become more sophisticated, which may result in the introduction of additional revenue raising measures. Although it is unclear how any new measures would operate, any such introduction may affect our overall tax efficiency and may result in significant additional taxes becoming payable. Additional tax exposures could have a material adverse effect on our business, financial condition, results of operations and prospects.

        In addition to the usual tax burden imposed on Russian taxpayers, these conditions complicate tax planning and related business decisions. For example, tax laws are unclear with respect to deductibility of certain expenses. This uncertainty could possibly expose us to significant fines and penalties and to enforcement measures, despite our best efforts at compliance, and could result in a greater than expected tax burden.

        See also "Item 8—Financial Information—A. Consolidated Statements and Other Financial Information—7. Litigation—Tax Audits and Claims."

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Lack of law enforcement practice of the Russian anti-offshore policy may have adverse impact on our business, financial condition and results of operations.

        In the past few years, the Russian Federation like a number of other countries in the world has been actively involved in a discussion of measures against tax evasion by the use of low tax jurisdictions as well as aggressive tax planning structures.

        The rules of controlled foreign companies (CFC) came into force on January 1, 2015. The rules oblige Russian taxpayers being controlling persons of a foreign company to submit to the tax authorities both standard notifications on participation in CFC and tax declarations in certain cases. Profit generated commencing in 2015, including retained earnings, is subject to taxation in the Russian Federation. The innovations could impose additional tax on the undistributed profits of any foreign entity controlled by us (in proportion to such controlling stake) at the rate of 20%. These innovations caused amendments to the Tax Code providing for liability in case of non-disclosure or incomplete disclosure of information on CFCs and the non-payment or underpayment of relevant tax.

        In addition, implementation of new concept of beneficial ownership, with regard to taxation of payment of passive income (dividends, royalty, interest, capital gain), may negatively affect possibility to apply benefits set by the double tax treaties, in case such payments pass through intermediary entities.

        This may potentially lead to increase of tax burden with regard to such payments.

        On November 4, 2014, the President of the Russian Federation signed the Federal law No. 325 "On Ratification of the Convention on Mutual Administrative Assistance in Tax Matters." Ratification of this Convention will enable the Russian Federation to receive tax information from all participating countries, which include a number of offshore jurisdictions.

        Lack of law enforcement practice may cause difficulties in interpreting the above-mentioned laws by the Russian tax authorities. It is also currently unclear how the enacted laws could affect our counterparties, which may be registered in off shore jurisdictions.

        In case the impact of legislative initiatives is significant for some of our counterparties it may also impact our results of operations.

Vaguely drafted Russian transfer pricing rules, and lack of reliable pricing information may impact our business and results of operations.

        Russian transfer pricing legislation became effective in the Russian Federation on January 1, 1999.

        This legislation allowed the tax authorities to make transfer pricing adjustments and impose additional tax liabilities with respect to all "controlled" transactions, provided that the transaction price differed from the market price by more than 20%. "Controlled" transactions included transactions with related parties, barter transactions, foreign trade transactions and transactions with significant price fluctuations (i.e., if the price with respect to such transactions differs from the prices on similar transactions conducted within a short period of time by more than 20%). Special transfer pricing provisions were established for operations with securities and derivatives. Russian transfer pricing rules were vaguely drafted, generally leaving wide scope for interpretation by Russian tax authorities and courts. There has been very little guidance (although some court practice is available) as to how these rules should be applied. These transfer pricing rules apply with respect to transactions that occurred before January 1, 2012.

        New transfer pricing rules became effective on January 1, 2012. The implementation of these new rules should help to align domestic rules with OECD principles. The new rules are expected to considerably toughen the previously effective law by, among other things, effectively shifting the burden of proving market prices from the tax authorities to the taxpayer and obliging the taxpayer to keep specific documentation.

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        If the Russian tax authorities were to impose significant additional tax liabilities through the introduction of transfer pricing adjustments, they could have a material adverse impact on our business, financial condition and results of operations. The adoption of the new transfer pricing rules may increase the risk of transfer pricing adjustments being made by the tax authorities. In addition to the usual tax risks and tax burden imposed on Russian taxpayers, the uncertainties of the new transfer pricing rules complicate tax planning and related business decisions. It will also require us to ensure compliance with the new transfer pricing documentation requirements proposed in such rules. Uncertainty of the new rules may also require us to expend significant additional time and material resources for implementation of our internal compliance procedures. Tax authorities could impose additional tax liability as well as 40% penalties on the underpaid tax in case the prices or profitability are outside the market range and if the required transfer pricing documentation has not been prepared, which could have a material adverse effect on our results of operations and financial condition.

The regulatory environment for telecommunications in Russia and other countries where we operate or may operate in the future is uncertain and subject to political influence or manipulation, which may result in negative and arbitrary regulatory and other decisions against us on the basis of other than legal considerations and in preferential treatment for our competitors.

        We operate in an uncertain regulatory environment. The legal framework with respect to the provision of telecommunications services in Russia and the other countries where we operate or may operate in the future is not well developed, and a number of conflicting laws, decrees and regulations apply to the telecommunications sector.

        Moreover, regulation is conducted largely through the issuance of licenses and instructions, and governmental officials have a high degree of discretion. In this environment, political influence or manipulation could be used to affect regulatory, tax and other decisions against us on the basis of other than legal considerations. In addition, some of our competitors may receive preferential treatment from the government, potentially giving them an advantage over us.

We are subject to currency control regulations.

        The Currency Control Law provides a framework and establishes general rules within which the government of Russia and the Bank of Russia are authorized to introduce certain measures of currency regulation, in connection with which there may be some uncertainty in the process of our implementation of foreign exchange operations when importing equipment.

        The change in the currency regulation may negatively affect our performance of obligations under contracts previously concluded with Russian and foreign counterparties, requiring us to make payments on them in foreign currency and necessitating the conclusion of additional agreements in relation to the relevant contracts. As a result, we are exposed to the risks of changes in the currency regulation and foreign exchange control in Russia.

The regulation of critical information infrastructure in the Russian Federation may lead to additional costs which could have a material adverse effect on our business, financial condition, results of operations and prospects.

        Federal Law No. 187 "On the Security of the Critical Information Infrastructure of the Russian Federation" which came into force on January 1, 2018 (the "Law on CII") provides for the creation of a register of significant critical information infrastructure (CII) objects, to which the communication networks elements may be assigned (after the classification of CII objects). Both state-owned and non-state-owned organizations are classified as subjects of the CII.

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        The law envisages criminal penalties if the security requirements in respect of such significant CII objects are not met and damage is incurred. CII subjects, including communication operators, are required to, among other things:

    categorize CII objects;

    sent the results of CII objects categorization with the authorized bodies;

    create a security system for significant CII objects and implement measures targeted at significant CII protection and protection of information, belonging to the corresponding category;

    set up and provide the operations of means for attacks search on the communication network with the transfer of management to the authorized body; and

    organize transfer of information about computer incidents on the CII to the authorized body.

        The by-laws envisage measures aimed at CII objects protection, which are difficult to implement, especially as regards the implementation of information protection measures that are not provided by such communication standards as 3GPP, ETSI, etc., which may lead to incompliance with the regulatory requirements. The implementation of these requirements will require additional costs to be incurred. Requirements of Federal Service for Technology and Export Control of the Russian Federation and the Ministry of Communications (orders No. 239 and No. 582) restrict remote access to CII objects, which may affect possibility to provide warranty and technical support of communication infrastructure by foreign vendor agents.

        Compliance with the requirements of the laws and regulations or introduction of similar regulations may require additional costs to be incurred by us or otherwise negatively affect us and could have a material adverse effect on our business, financial condition, results of operations and prospects.

Risks Relating to the Shares and ADSs and the Trading Market

Government regulations may limit the ability of investors to deposit shares into our ADS facility.

        The ability of investors to deposit shares into our ADS facility may be affected by current or future governmental regulations. For example, under Russian securities regulations, no more than 25% of a Russian company's shares may be circulated abroad through sponsored depositary receipt programs. Prior to December 31, 2005, and at the time of our initial public offering, this threshold was 40%. Although we believe that the new lower threshold does not apply to our ADSs, in the future, we may be required to reduce the size of our ADS program or amend the depositary agreement for the ADSs.

        Because our ADS program is regularly at or near capacity, purchasers of our shares may not be able to deposit these shares into our ADS facility, and ADS holders who withdraw the underlying shares from the facility may not be able to re-deposit their shares in the future. As a result, effective arbitrage between our ADSs and our shares may not always be possible. Our shares are listed and traded on the Moscow Exchange. Due to the limited public free float of our common stock, the public market for our shares is significantly less active and liquid than for our ADSs. The cumulative effect of these factors is that our shares may from time to time, and for extended periods of time, trade at a significant discount to our ADSs.

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Failure to comply with requirements on the disclosure of certain information on ADSs and ADS holders may restrict your ability to vote.

        Pursuant to the Russian securities laws, depositaries, and as a result, ADS holders are not able to vote in connection with the shares underlying ADSs on behalf of the ADS holders unless they provide certain information to the issuer. At a minimum, this information includes the identity of the holder of the ADSs, registration details including a state registration number (for legal entities), and the number of shares attributable to each ADS holder.

        Nevertheless, the legislation stipulates that the issuer, CBR, Russian courts and pretrial investigation agencies may request such lists of depositary receipt holders from the holder of depositary program depo account. The holder of depositary program depo account shall take all reasonable measures in order to provide such information. In case of non-compliance with the above requirements, the CBR may suspend, or impose limitations on, transactions with securities held in the relevant accounts of Russian custodians for a period of up to six months. As a result, the shares underlying the ADSs may be blocked and it may be impossible to deposit or withdraw the shares into or from the depositary program. In addition, uncertainties with respect to exercise of certain rights attaching to shares underlying ADS holders could complicate the exercise of right to, and the ability to derive benefits from, the shares represented by ADSs.

The market price of our ADSs has been and may continue to be volatile.

        The market price of our ADSs experienced, and may continue to experience, significant volatility.

        For information on the closing price of our ADSs on the New York Stock Exchange, see "Item 9—Offer and Listing Details—A.4. Market Price Information."

        Numerous factors, including many over which we have no control, may have a significant impact on the market price of our ADSs, including, among other things:

    periods of regional or global macroeconomic instability;

    announcements of technological or competitive developments;

    regulatory developments in our target markets affecting us, our customers or our competitors;

    actual or anticipated fluctuations in our quarterly operating results;

    changes in financial estimates or other material comments by securities analysts relating to us, our competitors or our industry in general;

    the value of local currencies in the markets where we operate compared to the US dollar;

    announcements by other companies in our industry relating to their operations, strategic initiatives, financial condition or financial performance or to our industry in general;

    announcements of acquisitions or consolidations involving industry competitors or industry suppliers;

    sales or perceived sales of additional ordinary shares or ADSs by us or our significant shareholders; and

    impact and development of any investigation or lawsuit, currently pending or threatened, or that may be instituted in the future.

        For example, market price of our ADSs experienced volatility in 2017 due to legal proceedings relating to Sistema, initiated by Rosneft, Bashneft and the Ministry of Land and Property Relations of Republic of Bashkortostan, and arrest of 31.76% of shares in our authorized capital held by Sistema, which was lifted as a result of execution of the settlement agreement.

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        In addition, the stock market in recent years has experienced extreme price and trading volume fluctuations that often have been unrelated or disproportionate to the operating performance of individual companies. These broad market fluctuations may adversely affect the price of our ADSs, regardless of our operating performance.

Voting rights with respect to the shares represented by our ADSs are limited by the terms of the deposit agreement for our ADSs and relevant requirements of Russian law.

        ADS holders will have no direct voting rights with respect to the shares represented by the ADSs.

        They are able to exercise voting rights with respect to the shares represented by ADSs only in accordance with the provisions of the deposit agreement relating to the ADSs and relevant requirements of Russian law. Therefore, there are practical limitations upon the ability of ADS holders to exercise their voting rights due to the additional procedural steps involved in communicating with them. For example, the Joint Stock Companies Law and our charter require us to notify shareholders no less than 30 days prior to the date of any meeting and at least 50 days prior to the date of an extraordinary meeting to elect our Board of Directors. Our ordinary shareholders will receive notice directly from us and will be able to exercise their voting rights by either attending the meeting in person or voting by power of attorney.

        ADS holders by comparison, will not receive notice directly from us. Rather, in accordance with the deposit agreement, we will provide the notice to the depositary. The depositary has undertaken, in turn, as soon as practicable thereafter, to mail to ADS holders the notice of such meeting, voting instruction forms and a statement as to the manner in which instructions may be given by ADS holders.

        To exercise their voting rights, ADS holders must then instruct the depositary how to vote the shares represented by the ADSs they hold. Because of this additional procedural step involving the depositary, the process for exercising voting rights may take longer for ADS holders than for holders of the shares and we cannot assure ADS holders that they will receive voting materials in time to enable them to return voting instructions to the depositary in a timely manner. ADSs for which the depositary does not receive timely voting instructions will not be voted.

        Given the above, we cannot provide any assurance that holders and beneficial owners of ADSs will (i) receive notice of shareholder meetings to enable the timely return of voting instructions to the depositary, (ii) receive notice to enable the timely cancellation of ADSs in respect of shareholder actions or (iii) be given the benefit of dissenting or minority shareholders' rights in respect of an event or action in which the holder or beneficial owner has voted against, abstained from voting or not given voting instructions.

        See also "—Failure to comply with requirements on the disclosure of certain information on ADSs and ADS holders may restrict your ability to vote."

ADS holders may be unable to repatriate distributions made on the shares and ADSs.

        We anticipate that any dividends we may pay in the future on the shares represented by the ADSs will be declared and paid to the depositary in rubles and will be converted into U.S. dollars by the depositary and distributed to holders of ADSs, net of the depositary's fees and expenses. The ability to convert rubles into U.S. dollars is subject to the availability of U.S. dollars in Russia's currency markets.

        Although there is an existing, albeit limited by size, market within Russia for the conversion of rubles into U.S. dollars, including the interbank currency exchange and over-the-counter and currency futures markets, the further development of this market is uncertain. At present, there is a limited market for the conversion of rubles into foreign currencies outside of Russia and limited market in which to hedge ruble and ruble-denominated investments.

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ADS holders may be subject to Russian regulatory restrictions.

        Prior to the amendments to the Russian securities laws introduced in 2011, a depositary bank could be considered the owner of the shares underlying the ADS, and as such could be subject to the mandatory public tender offer rules, anti-monopoly clearance rules, governmental consents or reporting requirements in respect of acquisition of shares and other limitations contemplated by Russian law. The amendments to the Russian securities laws introduced in 2011 provide that a depositary bank is not an owner of underlying shares, and as such, these requirements should apply to ADS holders.

ADS holders may be unable to benefit from the United States—Russia income tax treaty.

        Under Russian law, dividends paid to a non-resident holder of the shares generally will be subject to Russian withholding tax at a rate of 15%. The tax burden may be reduced to 5% or 10% under the United States—Russia income tax treaty for eligible U.S. holders; a 5% rate may potentially apply for U.S. holders who are legal entities owning 10% or more of the company's voting shares, and a 10% rate applies to dividends paid to eligible U.S. holders in other cases, including dividend payments to individuals and legal entities owning less than 10% of the company's voting shares. However, according to the recent amendments to the Russian Tax Code, U.S. holders will only be able to utilize the 5% reduced rate through tax reimbursement procedures, as the tax agent is required to use the baseline tax rate established by the code or the applicable tax treaty, whichever is appropriate. See also "Item 10—Additional Information—E. Taxation—Certain Russian Tax Consequences—United States—Russia Income Tax Treaty Procedures."

        The Russian tax rules in relation to ADS holders (that would affect U.S. holders) are characterized by significant uncertainties and limited interpretive guidance. Recent amendments to the tax rules have clarified the status of the ADS holders as beneficial owners of the income from the underlying shares by establishing that the custodian holding the depo account with the shares underlying the ADSs acting as the tax agent and determines amounts of the withholding tax based on the information about the ADS holders and their tax residency status as provided by the program depositary. However, the application of the baseline tax rate for ADS holders and any double tax treaty relief is available only if the tax treaty residence of the holder is provided to the custodian along with the other information prescribed by the Tax Code. In relation to ADS holders such information is to be provided by the ADS holders to the depositary, who relays it to the custodian, who acts as the tax agent and withholds the taxes when making transferring the dividends to the depositary. It is currently unclear how the depositary will collect the necessary information from ADS holders. Thus, while a U.S. holder may technically be entitled to benefit from the provisions of the United States—Russia income tax treaty, in practice such relief may be difficult or impossible to obtain. See also "Item 10—Additional Information—E. Taxation" for additional information.

Capital gain from the sale of shares and ADSs may be subject to Russian income tax.

        Income received by a foreign company from the sale, exchange or other disposal (assuming that such income is not related to a permanent establishment of a foreign company in Russia) of shares (participation interest) in an organization in which over 50% of the assets consist of immovable property located in Russia, as well as financial instruments derived from such shares, is treated as income derived from a source in the Russian Federation and is subject to withholding tax at a rate of 20%. However, gains arising from the disposition of the securities, which are traded on an organized stock exchange, are not treated as Russian-source income, and should not be subject to taxation in Russia.

        The amount of such income is typically determined as the sales price of shares (participation interest). However, if documentary support for the acquisition cost of the shares (participation interest) is available, the tax may instead be assessed on the basis of the difference between the sales price and

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the acquisition cost (including other related costs) if documentary evidence of such costs is submitted to the tax agent. The Russian Tax Code also establishes special rules for calculating the tax base for the purposes of transactions with securities. However, an exemption applies if immovable property located in Russia constitutes more than 50% of a company's assets and the securities are traded on a foreign stock exchange. The determination of whether more than 50% of our assets consist of immovable property located in Russia is inherently factual and is made on an on-going basis and the relevant Russian legislation and regulations in this respect are not entirely clear. Hence, there can be no assurance that immovable property owned by us and located in Russia does not currently and will not constitute more than 50% of our assets as at the date of the sale of ADSs by non-residents.

        Where the ADSs are sold by legal entities or organizations to persons other than a Russian company or a foreign company or an organization with a registered permanent establishment in Russia, even if the resulting capital gain is considered taxable in Russia, there is currently no mechanism under which the purchaser will be able to withhold the tax and remit it to the Russian budget.

        Under the United States / Russia income tax treaty, capital gains from the sale of shares and/or ADSs by eligible U.S. holders should be relieved from taxation in Russia, unless 50% or more of our assets (the term "fixed assets" is used in the Russian version of the treaty) were to consist of immovable property located in Russia.

        The taxation of income of non-resident individuals depends on whether this income is received from Russian or non-Russian sources. Russian tax law does not give a definition of how the "source of income" should be determined with respect to the sale of securities, other than that income from the sale of securities, which takes place "in Russia" should be considered as Russian source income. As there is no further definition of what should be considered to be a sale "in Russia," the Russian tax authorities have a certain amount of freedom to conclude what transactions take place in or outside Russia, including looking at the place of the transaction, the place of the issuer of the shares, the location of the registrar recording the transfer of legal title to the relevant securities or other similar criteria.

        Non-residents who are individuals are taxable on Russian-source income. Provided that gains arising from the disposition of the foregoing types of securities and derivatives outside of Russia by U.S. holders who are individuals not resident in Russia for tax purposes will not be considered Russian source income, then such income should not be taxable in Russia. However, gains arising from the disposition of the same securities and derivatives "in Russia" by U.S. holders who are individuals not resident in Russia for tax purposes may be subject to tax either at the source in Russia or based on an annual tax return, which they may be required to submit with the Russian tax authorities. See also "Item 10—Additional Information—E. Taxation."

The lack of a central and rigorously regulated share registration system in Russia may result in improper record ownership of our shares and ADSs.

        Ownership of Russian joint-stock company shares (or, if the shares are held through a nominee or custodian, then the holding of such nominee or custodian) is determined by entries in a share register and is evidenced by extracts from that register. Currently, there is no single central registration system in Russia. Share registers can be maintained only by licensed registrars located throughout Russia. Regulations have been adopted regarding the licensing conditions for such registrars, as well as the procedures to be followed by licensed registrars when performing the functions of registrar. In practice, however, these regulations have not been strictly enforced, and registrars generally have relatively low levels of capitalization and inadequate insurance coverage. Moreover, registrars are not necessarily subject to effective governmental supervision. Due to the lack of a central and rigorously regulated share registration system in Russia, transactions in respect of a company's shares could be improperly or inaccurately recorded, and share registration could be lost through fraud, negligence or oversight by

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registrars incapable of compensating shareholders for their misconduct. This creates risks of loss not normally associated with investments in other securities markets. Furthermore, the depositary, under the terms of the deposit agreements governing record keeping and custody of our ADSs, is not liable for the unavailability of shares or for the failure to make any distribution of cash or property with respect thereto due to the unavailability of the shares. See "Item 10. Additional Information—Charter and Certain Requirements of Russian Legislation—Registration and Transfer of Shares."

Foreign judgments may not be enforceable against us.

        Our presence outside the United States may limit your legal recourse against us. We are incorporated under the laws of the Russian Federation. Substantially all of our directors and executive officers named in this document reside outside the United States. All or a substantial portion of our assets and the assets of our officers and directors are located outside the United States. As a result, you may not be able to effect service of process within the United States on us or on our officers and directors. Similarly, you may not be able to obtain or enforce U.S. court judgments against us, our officers and directors, including actions based on the civil liability provisions of the U.S. securities laws.

        In addition, it may be difficult for you to enforce, in original actions brought in courts in jurisdictions outside the United States, liabilities predicated upon U.S. securities laws.

        There is no treaty between the United States and the Russian Federation providing for reciprocal recognition and enforcement of foreign court judgments in civil and commercial matters. These limitations may deprive you of effective legal recourse for claims related to your investment in our shares and ADSs. The deposit agreement provides for actions brought by any party thereto against us to be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, provided that any action under the U.S. federal securities laws or the rules or regulations promulgated thereunder may, but need not, be submitted to arbitration. The Russian Federation is a party to the United Nations (New York) Convention on the Recognition and Enforcement of Foreign Arbitral Awards, but it may be difficult to enforce arbitral awards in the Russian Federation due to a number of factors, including the inexperience of Russian courts in international commercial transactions, official and unofficial political resistance to enforcement of awards against Russian companies in favor of foreign investors and Russian courts' inability to enforce such orders and corruption.

Other Risks

We have not independently verified information we have sourced from third parties.

        We have sourced certain information contained in this document from third parties, including private companies and Russian government agencies, and we have relied on the accuracy of this information without independent verification. The official data published by Russian federal, regional and local governments may be substantially less complete or researched than those of more developed countries. Official statistics may also be produced on different bases than those used in Western countries. Any discussion of matters relating to Russia in this document must, therefore, be subject to uncertainty due to concerns about the completeness or reliability of available official and public information. In addition, the veracity of some official data released by the Russian government may be questionable.

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Because no standard definition of an average monthly service revenue per user ("ARPU"), average monthly usage per user ("MOU") or churn exists in the telecommunications industry, comparisons between certain operating data of different companies may be difficult to draw.

        The methodology for calculating subscriber numbers, ARPU, MOU and churn varies substantially in the telecommunications industry, resulting in variances in reported numbers from that which would result from the use of a uniform methodology. Therefore, comparisons of certain operating data between different telecommunications companies may be difficult to draw.

Factors over which we have little or no control may affect our revenues.

        Our business activities depend on a number of factors which are outside of our control, including natural disasters, imposition of a state of emergency in the countries of our operations, strikes and global and regional economic conditions. Any of these factors could result in deterioration of our revenues, which could have a material adverse effect on our results of operations, financial condition, prospects and the price of our ADSs.

Item 4.    Information on Our Company

A.    History and Development

        Mobile TeleSystems CJSC ("MTS CJSC"), our predecessor, was formed in 1993. The founding shareholders included MGTS and three other Russian telecommunications companies, which collectively held 53% of our original share capital, and two German companies, Siemens AG and T-Mobile Deutschland GmbH, an affiliate of Deutsche Telekom AG, which collectively held the remaining 47%. Sistema currently owns 43.23% of our share capital (50.02% excluding treasury shares). See "Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders."

        Our legal name is Mobile TeleSystems Public Joint Stock Company (MTS) and we are incorporated under the laws of the Russian Federation. Our head office is located at 5 Vorontsovskaya Street, Bldg. 2, Moscow 109147, Russian Federation, and the telephone number of our investor relations department is +7 495 223-2025. The address of our incorporation is 4 Marksistskaya Street, Moscow 109147, Russian Federation. We maintain a website at www.ir.mts.ru. The information on our website is not a part of this report. We have appointed Puglisi & Associates, 850 Library Avenue, Suite 204, Newark, Delaware 19711 as our authorized agent for service of process for any suit or proceeding arising out of or relating to our shares, ADSs or the deposit agreement.

        Mobile TeleSystems Public Joint Stock Company (MTS PJSC) is the new legal name of Mobile TeleSystems Open Joint Stock Company (MTS OJSC) registered on July 1, 2015 in order to comply with the regulations of Chapter 4 of the Civil Code of Russian Federation (as amended). MTS OJSC was created on March 1, 2000, through the merger of MTS CJSC and RTC CJSC, a wholly owned subsidiary. Our charter was registered with the State Registration Chamber on March 1, 2000, which is our date of incorporation, and with the Moscow Registration Chamber on March 22, 2000. Our initial share issuance was registered by the Russian Federal Commission on the Securities Market on April 28, 2000.

        We completed our initial public offering on July 6, 2000, and listed our shares of common stock, represented by ADSs on the New York Stock Exchange (the "NYSE") under the symbol "MBT." Each ADS represents two underlying shares of our common stock. Prior to May 3, 2010, each ADS represented five shares of our common stock.

        In September 2001, we won a tender held by the Telecommunications Ministry of the Belarus Republic to form a joint venture with a GSM 900/1800 license to operate in Belarus. On June 26, 2002, MTS Belarus received all of the governmental approvals and licenses required to commence operations in Belarus and it began operations on June 27, 2002.

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        In 2003 through a number of purchases we acquired a 100% stake in MTS Ukraine (now VF Ukraine) for RUB 11,872 million. Starting from 2007 until 2015, we operated under the MTS brand in Ukraine. In 2015, as part of our strategic partnership with Vodafone, we introduced Vodafone brand in Ukraine. In December 2019, our wholly owned subsidiary Allegretto Holding S.a.r.L (Lux) sold its 100% stake in its Dutch subsidiary Preludium B.V., the sole shareholder of VF Ukraine, for total consideration of USD 689 million (RUB 44,386 million) (including fair value of earn-out of USD 44 million). See Note 12 to the consolidated financial statements. This deal is in line with our revamped strategy focused on Russia and aimed to build innovative digital services on top of a strong telecoms foundation.

        We started operations in Uzbekistan, following the two step acquisition of 100% ownership interest in Uzdunrobita in 2004 and 2007. In July 2012, we suspended providing services in Uzbekistan per the order from the State Agency for Communications and Information ("SACI") of Uzbekistan on the temporary suspension of the operating license of Uzdunrobita for a period of 10 business days which was subsequently extended to three months. On April 22, 2013, the Tashkent Economic Court declared Uzdunrobita bankrupt and initiated liquidation procedures. As a result, we lost control over the subsidiary and deconsolidated Uzdunrobita. In July 2014 the disputes between us and Republic of Uzbekistan were resolved. The parties signed the Settlement Agreement and according to its terms all mutual claims were eliminated. Furthermore, a new mobile operator, UMS, was established by governmental authorities of Republic of Uzbekistan. On September 24, 2014, an ownership interest of 50.01% in UMS was transferred to us as an incentive for reentrance into the country by the State Unitary Enterprise "Center of Radio Communications, Radio Broadcasting and Television," the second shareholder of an operator, on behalf of the Republic of Uzbekistan. We started operations in Uzbekistan in December 2014. On August 5, 2016, we sold our 50.01% stake in UMS to the State Unitary Enterprise "Center of Radio Communications, Radio Broadcasting and Television."

        Please see "Item 3. Key Information—D. Risk Factors—Legal Risks and Uncertainties—The inability of our subsidiaries in the countries in which we are present to maintain control over their operations and assets may adversely affect our business, financial condition and results of operations" regarding recent suspension of our services in Uzbekistan and "Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—7. Litigation—Uzbekistan."

        In two separate purchases in June and November 2005, we acquired 100% of BCTI, the leading wireless operator in Turkmenistan, for $46.7 million (RUB 1,343 million) in cash. Since October 2006, we have operated under the MTS brand in Turkmenistan. On December 21, 2010, the Ministry of Communication of Turkmenistan suspended our primary operating license and we ceased providing mobile telecommunications services in Turkmenistan. In August 2012, we restarted our mobile communication operations in Turkmenistan via MTS-Turkmenistan and resumed providing services for subscribers who did not cancel their contracts. Since October 1, 2012, we resumed our operations in Turkmenistan entirely and started entering into contracts with new subscribers. On September 29, 2017, we stopped providing communication services in Turkmenistan due to the actions of the state-owned telecommunication company Turkmentelekom, which resulted in the disconnection of international and long-distance zonal communication services and internet access. See "Item 3. Key Information—D. Risk Factors—Legal Risks and Uncertainties—An outcome of the proceedings relating to sustaining operations of our subsidiary in Turkmenistan is unpredictable."

        In September 2007, we acquired an 80% stake in International Cell Holding Ltd., a 100% indirect owner of K-Telecom (now MTS-Armenia), the leading wireless operator in Armenia, for €260.0 million (RUB 9,142 million), and entered into a call and put option agreement initially valid until 2012 (and later extended until 2018) for the remaining 20%. Subsequently International Cell Holding Ltd. was substituted by Aramayo Investments Limited and further liquidated due to corporate restructuring. In August 2019 Allegretto Holdings S.a.r.L (Lux), our 100% subsidiary, that held 80% shares of Aramayo Investments Limited entered into a full and final settlement agreement, under which the value of 20%

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shares in MTS-Armenia was offset against the amount of loan issued to the minority shareholders and accrued interest ($99.1 million or RUB 6,618 million). Thus, as a result of the transaction, Allegretto accumulated 100% of indirect ownership over the asset. MTS-Armenia operates in the GSM-900/1800 standard, covering the entire territory of Armenia. It historically operated under the VivaCell brand, and was re-branded as VivaCell-MTS in September 2008.

        In October 2009, we acquired a 50.91% stake in Comstar, a leading fixed line operator in Russia, from Sistema, and subsequently increased our ownership interest to 61.97% (or 64.03% excluding treasury shares) in December 2009 and to 70.97% (or 73.33% excluding treasury shares) in September 2010 through a voluntary tender offer. On December 23, 2010, the extraordinary general meetings of shareholders of Comstar and MTS approved a merger, which was completed on April 1, 2011. As a result, Comstar ceased to exist as a separate legal entity and MTS became the legal successor of Comstar in respect of all its rights and obligations.

        Prior to April 1, 2011, Comstar operated in both the Moscow and other fixed line communications markets, offering voice telephony, broadband Internet and pay-TV, operator interconnect and other services to its subscribers. As of now we still continue to provide these services. One of Comstar subsidiaries was MGTS, Moscow's incumbent fixed line operator with "last mile" access (the final phase of delivering connectivity from a communications provider to a customer) to approximately 96% of the households in Moscow. In 2011, we completed the re-branding of Comstar with our main MTS brand. MGTS continues to provide services under its own brand.

        In 2009, we started to develop our sales and distribution network both organically and through the acquisition of several national and regional retail chains. We organized our retail operations under a wholly owned subsidiary, Russian Telephone Company ("RTC"). RTC handles all functions relating to our retail operations, including the management of points-of-sale, the purchase and sale of handsets and accessories and subscriber enrollment at our retail outlets.

        Between 2009 until now we acquired controlling stakes in various regional fixed line operators as we are determined to develop broadband Internet through regional expansion.

        In April 2013, we acquired a 25.095% stake in MTS Bank for 5.09 billion rubles through an additional share issuance by the bank. In July 2018, we acquired additional stake in MTS Bank for RUB 8.27 billion from Sistema and our ownership share increased to 55.4%, providing control over the bank. The acquisition allowed us to consolidate MTS business in the Russian FinTech market, simplify corporate and operational management, and accelerate the launch of new products. In February 2019 we acquired a 39.48% stake for RUB 11.4 billion and later in December 2019 we acquired an additional 4.46% stake for RUB 1.4 billion. As a result of these transactions, MTS' effective share in MTS Bank increased to 99.9% (including a 0.2% share in the bank held by our subsidiary MGTS and MTS Bank's ownership of its own treasury shares).

        In December 2014, we acquired controlling stakes in Penza-GSM, SMARTS-Ivanovo and SMARTS-Ufa, operating in Penza, Ivanovo and the Bashkortostan Republic, respectively. The acquired companies hold rights to use 900 and 1800 MHz radio frequencies within the regions mentioned. The acquisition enhanced our spectrum resources in the above mentioned regions. The purchase price comprised of cash consideration and a deferred payment, payable in 18 months after the acquisition date. These companies were subsequently merged with MTS.

        In April 2014, we acquired a 10.82% stake in OZON, a leading Russian e-commerce company, through the purchase of OZON Holdings Limited's additional share issuance for RUB 2,702 million. Cooperation with OZON created new distribution channels available to us through its extensive online retail platforms. As of December 31, 2017 our interest comprised 11.19% and was further increased to 18.69% as of December 31, 2018. In March 2019, we sold our stake in OZON to Sistema for RUB 7.9 billion. Following this date, we had no interest in OZON.

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        In December 2015, we have completed the acquisition of NVision Group ("NVision") and its subsidiaries for RUB 11.2 billion. Through this transaction, we have obtained proprietary rights over our billing systems which will allow us to reduce the time-to-market for new products and better manage billing and IT-related expenses. NVision is a system integrator and complex IT solutions provider in Russia. In November 2020 we sold our 100% stake in NVision Group JSC to Sistema PJSFC for RUB 369 million (including adjustment based on NVision's financial results as of the date of deal closure). Under the terms of the deal, we agreed to sell NVision's systems integration assets, excluding those utilized in the development of our product portfolio. We will also retain the FORIS BSS/OSS billing system that had earlier been part of NVision.

        In September 2016, we acquired controlling stake in Smarts-Yoshkar-Ola, a company, operating in the Republic of Mari El and holding rights to use 1800 MHz radio frequencies. The acquisition enhanced our spectrum resources in the Republic of Mari El.

        In July 2017, we acquired a 100% ownership interest in Bashkortostan Cellular Communication OJSC, a company which operates in the Republic of Bashkortostan and holds rights to use 450 MHz and 2,100 MHz radio frequencies. The acquisition enhanced our spectrum resources in the Republic of Bashkortostan.

        In October 2017, we acquired 50.82% of ownership interest in the Russian retail software developer Oblachny Retail LLC, operating under trademark LiteBox, with a call and put option arrangement existing over another 49.18% of shares. The deal allowed us to enter the cloud-based cash register market as a fully licensed fiscal data operator ("FDO") and a provider of integrated digital cash management solutions for B2B clients.

        In December 2017, we purchased a 100% stake in Praliss Enterprises, thus acquiring one of the world's leading eSport clubs—Gambit Esports. The acquisition was a part of our 3D strategy.

        In January 2018, we acquired a 78.2% stake of Cubichall Holdings Ltd (the owner of Kulturnaya Sluzhba LLC), operating under the trademark Ponominalu.ru, for RUB 321 million with a call and put option arrangement existing over another 21.8% of shares. Following exercise of options in May 2019 and July 2020 we increased our stake to 100%. In February 2018, we acquired a 100% ownership interest in Moskovskaia Direktciia Teatralno-Kontcertnyh i Sportivno-Zrelishchnyh Kass LLC, operating under the trademark Ticketland.ru, for RUB 3.19 billion. These acquisitions allowed us to enter the event ticket market, while broadening our suite of digital services, and integrate a key new product into existing loyalty program and mobile applications ecosystem.

        In August 2018, we purchased a 99% stake in Progressivniye Technologii CJSC, provider of fixed-line services in the cities of Zhukovskiy and Anapa, which allowed us to strengthen our position in the local markets and benefit from the expected synergies from the acquisition.

        In October 2018, we acquired Dekart property complex in full from Sistema. The property complex comprises office facilities, parking premises and engineering networks and is partly occupied by us and partly used as investment property.

        In December 2018, we acquired a 100% interest in IT-Grad 1 Cloud LLC, one of the largest cloud providers on the Russian IaaS (Infrastructure as a Service) market. This acquisition allowed the Group to strengthen its presence in the Russian cloud services market.

        In December 2018, we acquired Serebryaniy Bor property complex in full from Sistema. The property complex comprises administrative facilities, land and engineering networks and is partly occupied by us and partly designated as investment property. In December 2018, we also acquired Serebryaniy Bor administrative property complex from Sistema.

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        In April 2019, we acquired from Sistema a 100% interest in Joint Stock Company "United Russian Studios," a management company of a "Kinopolis" movie studio with its own movies production complex. The acquisition was a part of our 3D strategy.

        In June 2019, we acquired a 97.42% stake in JSC "RIKT," a regional provider of telecommunications services in Mezhdurechensk and Kemerovo Oblast. The acquisition was commenced through the voluntary tender offer procedure under Russian law. Later, in October 2019 we acquired the remaining 2.58% stake in JSC "RIKT" through obligatory squeeze-out procedure set out in Russian law. As a result of both procedures, MTS' share in JSC "RIKT" increased to 100%. This acquisition allowed the Group to strengthen its presence in the Russian broadband Internet regional market.

        In August 2019, we acquired Narodnoje property complex in full from Sistema. The property complex comprises office facilities and hostel premises, and is partly occupied by us and partly used as investment property.

        In November 2019, we acquired a 7.5% stake in JUST AI Limited, IT-company specialized in artificial intelligence technologies, machine learning and natural language processing. The acquisition was a part of our CLV 2.0 strategy (as described below).

        In December 2019, we acquired a 15.01% stake in SWIPGLOBAL Ltd, IT-company specialized in face recognition payments without using a smartphone or QR code. The acquisition was a part of our CLV 2.0 strategy.

        In February 2020, we acquired a 51% stake in Zelenaya Tochka Group, a provider of broadband and digital TV services in a number of Russian regions, and accounted for investment in joint venture, based on the provisions of the shareholders' agreement. The Zelenaya Tochka group of companies comprises 13 connectivity operators operating under multiple brands across 12 Russian cities: Stavropol, Mikhaylovsk, Nevinnomyssk, Elista, Tambov, Belgorod, Lipetsk, Ufa, Neftekamsk, Beloretsk, Tomsk, and Vladivostok. Under the terms of the agreement, we retain three-year call and put options to purchase the remaining 49% of Zelenaya Tochka's share capital.

        In June 2020, we acquired a 100% interest in Stopol Group, producer and supplier of car multifunctional multimedia devices / on-board computers. The acquisition is a part of our digital ecosystem strategy. The purchase price constituted a cash payment of RUB 312 million paid in July 2020 and a contingent consideration with the fair value of RUB 9 million at acquisition date.

        In September 2020 we announced an agreement to invest RUB 125 million in the developer of CoinKeeper, Russia's most popular personal finance app. The investment—which marks the first outlay by the MTS Venture Fund—is to be structured in multiple tranches, with the fund receiving a minority stake in the startup. As a first tranche we`ve invested RUB 85 m and have got 22.08% stake in Disrapp LLC. In January 2021, MTS announced a RUB 60 million investment by the MTS Venture Fund for an approximately 10% stake in the Russian startup Airo, a platform aggregator for on-demand household and dry cleaning services in Moscow and St. Petersburg with over 50,000 users.

Capital Expenditures

        We spent in total RUB 97,838 million in 2020 for network development in Russia and the other countries where we operate, which included RUB 66,685 million in cash expenditures on property, plant and equipment (including 429 million for acquisition of Avantage data center), and RUB 31,153 million for the purchase of intangible assets. We plan to spend up to RUB 100-110 billion (excluding potential capital expenditures for acquisition of frequency bands licenses) in 2021 for further network expansion, connection of socially significant objects to the network, special projects relating to the development of big data, b2b digital, media, artificial intelligence and ecosystem products, fixed network modernization, further construction of radio subsystem and additional storage, processing and

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indexing centers to comply with requirements of "Yarovaya-Ozerov bundle of laws," maintenance capital expenditures, construction of new sites and purchase of software for network managing in Armenia and other initiatives. Increase of expected capital expenditures in 2021 (expected amount of capital expenditures in 2020 was RUB 90 billion) is mainly driven by higher currency exchange rate, competitive environment and development of ecosystem and new business lines. We plan to finance our capital expenditures primarily through operating cash flows, and to the extent necessary, through additional external financing. The actual amount of our capital expenditures for 2021 may vary depending on subscriber growth, demand and network development, as well as currency volatility, vendor terms and the availability of external financing. The capital expenditure estimate for 2021 excludes expenditures that may be made in connection with acquisitions. A breakdown of our capital expenditures in 2020 by country is set forth below.

        We spent RUB 262 million, 2,052 million and 3,444 million in 2020, 2019 and 2018, respectively, for acquisitions of subsidiaries, net of cash acquired from third parties.

Russia

        We spent RUB 95,972 million in 2020 for network development in Russia, including RUB 65,491 million in cash expenditures on property, plant and equipment (including RUB 429 million for acquisition of Avantage data center), and RUB 30,481 million for the purchase of intangible assets.

Armenia

        We spent RUB 1,866 million in 2020 for network development in Armenia, including RUB 1,194 million in cash expenditures on property, plant and equipment, and RUB 672 million for the purchase of intangible assets.

Belarus

        MTS Belarus spent RUB 2,388 million in 2020 for network development, including RUB 1,424 million in cash expenditures on property, plant and equipment, and RUB 964 million for the purchase of intangible assets. We do not include the capital expenditures of MTS Belarus in our capital expenditures described above as its results are not consolidated in our financial statements.

B.    Business Overview

        We are a leading telecommunications provider in Russia and the CIS, providing a wide range of mobile and fixed line voice and data telecommunications services, including data transfer, broadband, pay-TV and various value-added services, including Big Data, IoT, cloud services, banking services, e-commerce, as well as selling equipment, accessories and software. According to AC&M Consulting, we are the largest provider of mobile cellular communications services in Russia. According to our own estimates, we are also the largest provider of mobile cellular communication services in Armenia in terms of mobile subscribers.

        As of December 31, 2020, we had a mobile subscriber base of approximately 80.6 million (78.5 million in Russia and 2.1 million in Armenia) which is a decrease of 0.8% compared to December 31, 2019. As of December 31, 2019, we had a mobile subscriber base of approximately 81.3 million (79.1 million in Russia and 2.2 million in Armenia) which is an increase of 1.4% compared to December 31, 2018. As of December 31, 2018, we had a mobile subscriber base of approximately 80.1 million (approximately 78.0 million in Russia and 2.1 million in Armenia) which is a decrease of 0.3% compared to December 31, 2017.

        We are also the largest operator in the Moscow residential broadband market in terms of subscribers, with a 38% market share as of December 31, 2020, based on TMT Consulting data. Our

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revenues for the year ended December 31, 2020, were RUB 494,926 million, representing 5.2% increase from the year ended December 31, 2019. Our revenues for the year ended December 31, 2019, were RUB 470,605 million, which is an increase of 5.5% from RUB 446,238 million for the year ended December 31, 2018. Our profit for the year ended December 31, 2020, was RUB 62,073 million, which is an increase of 12.7% from the year ended December 31, 2019. Our profit for the year ended December 31, 2019, was RUB 55,099 million, which is an increase of 603.5% from RUB 7,832 million for the year ended December 31, 2018.

        Russia is our principal market, both in terms of subscribers and revenues. For the year ended December 31, 2020 approximately 98.5% of our revenues came from operations in Russia and approximately 1.5% of our revenues came from operations in other countries, respectively.

        In July 2018 we acquired control over MTS Bank and started rendering banking services. MTS Bank is one of the 50 largest banks in the Russian Federation. MTS Bank was established in the Russian Federation as an open joint stock company in 1993. MTS Bank's primary business consists of commercial activities, trading with securities, foreign currencies and derivative instruments, originating loans and guarantees. MTS Bank is regulated by the CBR and conducts its business under general license number 2268 issued on December 17, 2014. In 2018, RAEX (Expert RA rating agency) assigned MTS Bank a credit rating of ruBBB+, and Fitch Ratings upgraded the bank's rating to BB–. In 2019, rating agencies affirmed the credit ratings of the financial institution. As of December 31, 2020, among Russian banks, MTS Bank ranked 29th in terms of the amount of household deposits and capital and 37th in terms of total assets, according to Banki.ru.

        Our strategy of MTS Bank development is building of a digital bank in cooperation with telecommunication business, resulting in positive synergies and fulfilling financial services area to create a single ecosystem of digital services for customers.

        Banking services revenue in 2020 was RUB 35,043 million, representing 7.1% of our total revenues for the year ended December 31, 2020. MTS Bank's net operating profit was positive and amounted to RUB 1,167 million. MTS Bank activities (financial assets and liabilities, management of liquidity risks connected with the activities) are described in Note 31 to the consolidated financial statements. Outstanding deposits and loans to customers as at December 31, 2020 came to RUB 116,668 million. Loans to legal entities made up 21.1% of that total, 76.4% were loans to individuals.

        Detailed segment information for MTS Bank is presented in Note 6 to the consolidated financial statements.

        As of December 31, 2020, approximately 97.4% of our mobile subscriber base was in Russia and approximately 2.6% was in other countries. According to AC&M-Consulting, as of December 31, 2020, we had a 31% market share of total mobile subscribers in Russia.

        The table below sets forth our total mobile subscribers as of the end of the last five years:

Period
  Subscribers(1)  
 
  (in million)
 

2016

    83.7 (2)

2017

    80.4 (3)

2018

    80.1 (3)

2019

    81.3 (3)

2020

    80.6 (3)

(1)
Excludes MTS Belarus subscribers as its results of operations are not consolidated in our financial statements. We define a subscriber as an organization or individual, whose SIM-card shows traffic-generating activity or accrues a balance for services rendered or is replenished of topped off over the course of any three- month period, inclusive within the reporting period, and was not blocked at the end of the period.

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(2)
Excludes Uzbekistan and Ukraine subscribers.

(3)
Excludes Turkmenistan and Ukraine subscribers.

        In August 2016, we ceased our operations in Uzbekistan. In September 2017, we suspended the provision of telecommunication services to our subscribers in Turkmenistan, due to the termination by Turkmen state-owned companies and state authorities of line rental, frequency allocation, interconnect, and other agreements necessary to servicing MTS clients. For more information, see "Item 3. Key Information—D. Risk Factors—An outcome of the proceedings relating to sustaining operations of our subsidiary in Turkmenistan is unpredictable."

        In November, 2019, the Group entered into a sale agreement to dispose of VF Ukraine. The disposal was effected in order to concentrate on development of the Group's core Russian market. The disposal was completed in December, 2019, and is reported in the current period and retrospectively restated in prior periods as a discontinued operation.

        In October, 2020, the Group entered into a sale agreement to dispose of JSC "Nvision Group", which provided integration services, as well as the sales of software, and constituted "System Integrator" operating segment. The disposal was completed in October 2020, and is reported in the current period and retrospectively restated in prior periods as a discontinued operation.

        For details on the sales, please see "Item 4—Information on our Company—A. History and Development" and Note 12 to the consolidated financial statements.

        According to AC&M Consulting, overall mobile cellular penetration in Russia was approximately 172% as at December 31, 2020, 178% as at December 31, 2019 and 174% as of December 31, 2018. According to our estimates, mobile cellular penetration in Armenia was approximately 123% as at December 31, 2020 and 127.6% as of December 31, 2019, as compared to approximately 125.5% as of December 31, 2018.

        Our consolidated mobile subscriber base changed insignificantly in the first three months of 2021. Specifically, according to our estimates as of March 29, 2021, we had approximately 80.5 million subscribers, including approximately 78.5 million in Russia and 2.1 million in Armenia.

        As of December 31, 2020, according to our estimates, MTS Belarus had approximately 5.7 million subscribers and a leading market share of 48.7%. As of December 31, 2019, according to our estimates, MTS Belarus had approximately 5.6 million subscribers and a leading market share of 46.9%. As of December 31, 2018, according to our estimates, MTS Belarus had approximately 5.5 million subscribers and a leading market share of 45.9%. Belarus, a country with a population of approximately 9.5 million, had a mobile cellular penetration rate of approximately 123.2% as of December 31, 2019, according to our estimates.

        As of December 31, 2020, we had mobile licenses to operate and commercial mobile operations throughout the entire territory of Russia with a population of approximately 146.2 million people and throughout the entire territory of Armenia with a population of approximately 3.0 million people. See "Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business—Failure to renew our licenses, or receive renewed or new licenses with similar terms to our existing licenses, could have a material adverse effect on our business and results of operations," and "—Failure to fulfill the terms of our licenses could result in their suspension or termination, which could have a material adverse effect on our business and results of operations."

        In 2020, we offer fixed line communications services in 56 regions across Russia, covering a population of about 25 million households.

        Our Moscow fixed line operations contemplate communications services provided through incumbent operator MGTS. Our Moscow fixed line operations included 2.5 million unique residential subscribers as of December 31, 2020. We are the largest operator in the Moscow residential broadband

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market, with a 38% market share. MGTS holds licenses and regulatory approvals to provide local telephony, DLD/ILD voice telephony, interconnect to other operators, Internet and data transmission and other services.

        Our fixed line operations in other cities include the following communications services: voice, data and Internet and pay-TV services for corporate and residential subscribers, as well as the provision of interconnect services to other communications operators and numbering capacity to their subscribers. As of December 31, 2020, we had 3.0 million unique residential subscribers according to our estimates. Fixed line services are also provided in Armenia with digital telephony communications services, data transmission, Internet access and the renting of channels.

        We have also continued to develop our proprietary sales and distribution network organically.

        To maintain and increase our market share and brand awareness, we use a combination of print media, radio, television, direct mail and outdoor advertising, focusing on brand and image advertising, as well as promotion of particular tariff plans.

Business Strategy

        In 2019, we have developed and adopted the new strategy called "Customer Lifetime Value 2.0" ("CLV 2.0") which is aimed to build substantial digital business on the top of our telecommunication business. The name of the strategy reiterate that we put Customers at the center of our value proposition. We plan to supply our customers with a wide range of digital services. Our strategy is focused on prolonging customers' Lifetime with our services by increasing emotional attachment to the brand together with level of satisfaction and loyalty. We focus on providing more Value for our clients and maximize their value to us in the long run. Reference to "2.0" stresses that we are shifting from single business line telecom centric ideology (which could be considered "1.0") to a multi-product digital services provider approach and which should enable us to maximize value across the whole product portfolio.

        We believe that shift from telecommunication into adjacent markets such as financial services and entertainment supported by digital capabilities like Big Data and AI will be a first step to our future convergence into multi service digital company. We intend not to rely on development of our own products portfolio solely, but rather build partnerships with independent services providers. Collaboration with such projects should enable us to offer more innovative, various and convenient services to our clients and bring more value to their life. In the nearest future we plan to increase the number of partnerships and boost our partnership capabilities and value proposition them in order to become ultimate preferred choice for our potential partners.

        Russian market of digital services is quite unique due to the fact that in most of the segments local projects retain leadership positions and compete successfully against the global players. This situation is due to multiple fundamental reasons ranging from customer's behavior and language specifics to regulatory requirements and structure of capital market. This allows major Russian business groups from banking, retail, high tech, and telecom sectors to aggressively develop multiple lines in digital businesses and adopt ecosystem approach in their business strategies. At the moment a number of big local companies from TMT, fintech and digital industries are moving this direction, expanding their businesses outside of their core sectors and entering the market with ecosystem propositions. In this respect we believe we are entering a period of new competition for customer spend and attention in Russia.

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        We believe that we are well positioned for this type of competition. Our strong brand and deep knowledge of our clients supported by powerful analytical capabilities (Big Data and AI based) will allow us to provide our clients with seamless, deeply customized and personalized digital experience for wide portfolio of different services. We have already experienced substantial synergies between telecommunication, banking and media services which allow us effectively utilize our online and offline marketing capabilities and deep customer knowledge. We clearly see that customers with a few different services from us bring higher value and have high level of brand loyalty and services satisfaction. We intend to increase the penetration of customers utilizing few different services provided by us in our customer base.

        We believe that developments in areas other than telecommunication will add significant grow in the business over time and make user more loyal to the company in all services. We see our telecom business not only as the main source of revenue and profits, but also as the platform for our digital expansion. We aim to keep this part of our business in a robust shape both in terms of quality of services and economical effectiveness. To achieve that we will keep spending at significant capital expenditure level to keep with expectation of our customer base and stay at par with competition on the Russian market.

        We understand that in order to provide customers with seamless and lifestyle-oriented ecosystem experience we need to develop specific tools, such as unified ID, common payment system and others, which will be unified across all our products and mobile apps. In 2020 we were focused on building these robust tools and have made significant progress. We intend to use different ways to involve clients into ecosystem:

    Flexible subscription with a defined budget in which clients can adjust amounts of consumption for each MTS product that they use.

    Premium subscription with a wide variety of products and services with significant discount for the whole package.

    Unified cashback system where points gained for consumption of products (including broad range of partners) can be spent within the MTS ecosystem.

        In 2021 we aim at significant growth of our ecosystem client base.

        Transition to the full scale operational model within CLV 2.0 concept will take some time. In 2020, we brought the overall business configuration in line with our updated strategic model. In the following years it should allow us to radically expand our digital services portfolio and substantially grow number of multi product clients. This should allow us to grow customer base and increase customer spending while driving up brand emotional attachment and loyalty.

        Implementation of the strategy is subject to a number of risks. See "Item 3. Key Information—D. Risk Factors" for a description of these and other risks we face.

Current Operations

        We are a provider of a wide range of mobile and fixed line voice and data telecommunications services, including data transfer, broadband, pay-TV and various value-added services, including Big Data, IoT, cloud services, banking services, e-commerce, as well as selling equipment, accessories and software.

Subsidiaries

        For a list of our major subsidiaries and our ownership percentages in these subsidiaries, see "Item 4. Information on our Company—C. Organizational Structure."

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Mobile Operations

Network Infrastructure—Mobile Core

        As of December 31, 2020 MTS Mobile core network in Russia includes the following nodes:

    Mobile switching centre-server (MSC-S): 129 nodes, servicing 62.4 million subscribers;

    Media gateway (MGW): 113 nodes, maximum capacity 3.3 million Erl.;

    Subscriber Data Management (SDM) includes 23 nodes (Home Location Register (HLR) / Home Subscriber Server (HSS));

    106 Serving GPRS Support Node/Mobility Management Entity (SGSN/MME) and Serving/Packet Data Network—Gateway (S/P-GW) nodes are used to handle packet data services;

    16 Signalling Relay Function (SRF) nodes deployed on network for handling Mobile Number Portability (MNP) services.

        The following network expansion and modernization projects were executed during the course of 2020:

    MSC-S/MGW and S/P-GW nodes were expanded as a result of voice and data traffic growth;

    Network upgrade completed legacy MS DX200 and MGW IPA2800 Nokia nodes were replaced by new MSS ATCA and MGW ATCA Nokia;

    SWAP PS Core Far-East macro-region: SGSN/MME Huawei nodes were replaced by new SGSN/MME ULTRA-M Cisco;

    Upgrade IMS Core Nokia launched VoLTE in 75 regions.

Services Offered

Network Access

        We primarily offer mobile cellular voice and data communication services to our subscribers on the basis of various tariff plans designed for different market segments. In general, most of our tariff plans combine voice and data usage for a fixed monthly charge. See "Item 4. Information on Our Company—B. Business Overview—Mobile Operations—Tariffs."

Automatic Roaming

        Roaming allows our customers, both subscribers and guest roamers, to receive and make international, local and long-distance calls while traveling outside of their home network. Roaming is provided through the agreements between us and other operators.

        As of December 31, 2020, we had bilateral roaming contracts with 862 wireless operators/networks in 232 countries, including 14 regional operators/networks in Russia. We continually seek to expand our roaming capability and are currently in negotiations with additional operators.

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Value-Added Services

        We offer various value-added services to our customers. These services may be included in the tariff plan selected by the subscriber or subscribers may pay additional monthly charges and, in some cases, usage charges for them. Some basic value-added services that we offer include:

Basic telephony   Customer care   Other services

Call Divert/Forwarding

 

Itemization of Monthly Bills

 

Ring Back Tone

Caller ID Display and anti-Caller ID Display

 

Information and Directory Service

 

Second Memory (Cloud storage)

Conference Calling

 

Automatic Customer Care System and Customer Care System via the Internet

 

Parental control for internet, calls, sms

   

My MTS service app

   

Voicemail

     

GEO services

Call Barring

     

Connected Car (IoT B2C)

Call Waiting

     

MTS Music

       

MTS Fitness

       

MTS Live

Missed Call Alert

     

MTS TV

Intelligent call assistant

     

MTS Library

       

VoD (Video on Demand)

Collect call

     

Location Based Service ("LBS")

Black List

     

Mobile banking

VoLTE/Wi-Fi Calling

     

Security and Privacy services for B2C

       

Branded App for calls and messaging

Messaging   Mobile internet    

SMS P2P, A2P

 

3G, 4G (LTE), 5G test zone

   

MMS

 

Data share plan

   

Application MTS Connect

 

Real IP

   
   

E shop

   
   

APN remote access point

   
   

Fixed Mobile Convergence

   
   

MTS Modem

   
   

MTS Tablet

   
   

Mobile Office

   
   

Wi-Fi

   

        We also provide many voice and SMS-based value-added services in cooperation with various content providers.

GPRS, EDGE services

        We launched our commercial 2G network in 1994 based on GSM-900 technology. From 1999, we significantly improved our 2G network capacity based on GSM-1800 technology. From 2001, we implemented wireless data communication services based on GPRS technology with download data rate of up to 85.6 Kbit/s. In 2005, we modernized our GSM network to support EDGE technology and tripled data services rates. Today we continue supporting and modernizing our 2G network and we put the prime focus at the development of our 3G and LTE networks in order to provide our subscribers

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with high-speed broadband wireless services. As of December 31, 2020, we provided GSM, GPRS and EDGE services with 59,861 2G BTS over the geographic area with more than 95% of population of Russia.

3G Technology

        In April 2007, we obtained a nationwide 3G/UMTS (Universal Mobile Telecommunications System) license in Russia. The license was valid till May 21, 2017 and covers the entire territory of Russia with frequencies 1950-1965 MHz and 2140-2155 MHz. In 2017 we prolonged the 3G/UMTS license till 2022. Currently we have commercial 3G networks launched in all regions of Russia. In addition, we use UMTS900 in Moscow region and Habarovskiy kray where we have 2100 MHz restrictions. As of December 31, 2020, we installed 51,022 3G base stations.

        In 2010, we started implementation of a high-speed technology known as HSPA+ on our 3G network. This supports up to 21 Mbit/s data transmission speed. In addition, we launched second and third 3G carriers to improve capacity and activated Dual Carrier technology, which supports up to 42 Mbit/s data transmission speed. We have already implemented Dual Carrier on more than 99% sites all over the Russia.

        Since 2011, we use 3G femtocell network. Femtocells are small low-power wireless base stations in the licensed 2100 MHz spectrum. They connect to a mobile operator's network using residential DSL or cable broadband connections and can support 3G/HSPA+ mobile devices. We use femtocells to deliver a 3G/HSPA+ services inside building for business clients. In 2016, we launched offer of femtocells for consumers at B2C market segment. In 2020, after 2 years of operation, femtocells in the Moscow metro were decommissioned due to the launch of a macro network at all sections of the Moscow metro. The total number of femtocells installed in Russia decreased to 7,824 by the end of 2020 as compared to 11,049 femtocells as of the end of 2019 due to the decommissioning of femtocells in the metro.

        MTS Armenia, our subsidiary in Armenia, have operated commercial 3G network since 2009. In 2011, MTS Armenia started to provide telecommunications services based on HSPA+ technology in Yerevan, six northern regions and in some southern regions of the country. At present HSPA+ technology with QAM64 and Dual Carrier features is available to almost 99% of the Armenian population. Also 2-pairs of RNCs in pool were put in operation in 2019 for increasing UMTS network capacity and reliability.

        In 2018, we launched a major network upgrade project in Armenia, which is expected to result in significant increase of 3G and 4G services coverage as well as of network capacity. It includes a re-farming of 900 MHz frequency band to UMTS and 1800 MHz band to LTE with implementation of Carrier Aggregation technology. New Core network nodes were put in operation in 2018, marking the end of a bigger CS and PS Core modernization project.

        At the end of 2020, MTS Armenia network has a total of 1,715 2G BTS, 2,517 3G base stations, and 1,805 4G sites.

LTE Technology

        In July 2012, we won Russian Ministry of Communications and Mass Media tender for nationwide LTE-FDD license: 720-727.5 / 761-768.5 MHz, 798.5-806 / 839.5-847 MHz and 2540-2550 / 2660-2670 MHz. In December 2011 we got LTE TDD license in 2595-2620 MHz for Moscow only. Since September 2012, we offer LTE-based commercial service in Moscow region, where we initially deployed more than 800 LTE TDD base stations. As of December 2020, we had 9,640 LTE TDD and 75,958 LTE FDD base stations in Moscow.

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        In December 2013, Russian regulator allowed re-farming existing 900 and 1800 MHz spectrum to UMTS-900 and LTE-1800. In 2014, we started DCS 1800 spectrum re-farming to LTE and rolled out LTE-1800 network, while expanding LTE 800/2600 coverage. In February 2016, MTS won Russian Ministry of Communications and Mass Media tender for nationwide LTE-TDD license and obtained LTE-TDD frequencies in following bands: 2595-2620 MHz for the whole territory of Russia, except Moscow region (obtained earlier). We are using LTE-TDD as a capacity layer to cope with increasing network utilization due to growing data traffic. In 2018, we started re-farming of existing 900 and 2100 MHz spectrum to LTE-900 and LTE-2100. As of December 2020, we had 85,134 LTE base stations in 83 regions of Russia.

        Our LTE network meets requirements of 3GPP Release 14 in line with available LTE customer equipment. We provide data services with download data rate up to 700 Mbit/s, and up to 75 Mbit/s in uplink direction with our LTE network.

        As of December 2020, we implemented Carrier Aggregation functionality at 45% of our LTE sites.

        We continue working on re-farming the 2100 MHz band in Saint Petersburg and Moscow, where test clusters have been already launched, and plan to roll out LTE-2100 to the rest of the network, Moscow and Central regions. Test clusters are planned to launch by the end of 2021.

        In 2018, we launched IoT services based on NB-IoT technology (Narrow Band IoT) in 20 largest Russian cities, including Moscow, Saint Petersburg, Novosibirsk, Kazan, Nizhny Novgorod, Vladivostok and others. MTS is IoT leader in Russian market, with large-scale narrow-band coverage provided by 36,905 base stations as at the end of 2020. We will continue NB-IoT rollout in the smaller regions of Russia in 2021.

        In May 2018, we launched a commercial broadband Gigabit Class LTE network with LAA technology. The network showed downlink user throughput of up to 979 Mbps thanks to the aggregation of licensed LTE spectrum in the 1800 MHz (4x4 MIMO, 256-QAM) and three 20 MHz carriers (2x2 MIMO, 256-QAM) in the 5 GHz unlicensed spectrum.

        In June 2018, at the FIFA 2018 World Cup MTS performed world's first commercial launch of massive MIMO technology at mass event of such scale and complexity. The technology was introduced in the LTE-TDD 2600 MHz band (B38) at more than 40 sites in seven out of the 11 tournament cities, including Moscow, Saint Petersburg, Kazan, Rostov-on-Don, Nizhny Novgorod, Ekaterinburg and Samara. The new technology allowed us to increase efficiently network capacity around the stadiums, at railway stations, at airports, in fan zones, and recreation areas. In 2019 we continued massive MIMO technology rollout in 23 cities.

        In 2019, we started to modernize our network to support LTE-Evolution technology and 5G-ready in 7 North-West regions. In 2020, the modernization of the network in Moscow and the Central Regions began, the estimated project implementation period is 3 years. We plan to start modernization of the network in the regions of the Far East in 2021.

        In September 2019, we launched two 5G pilot zones in Moscow and Saint Petersburg in 27GHz and 4.9GHz frequency bands. The pilot zone in Moscow is located at the VDNKh Exhibition Centre with tests to include Smart City applications for security, urban services management and transport systems. The pilot zone in Saint Petersburg is located in Kronshtadt. In October 2019, MTS StartUp Hub has unveiled the 5G Lab - an open incubation platform where startups and other companies can develop new 5G use cases using expertise, grants and other support from MTS. In 2020 5G test zones have been launched in the cities of Kazan, Ufa, Tomsk and Vladivostok. The number of 5G test zones in Moscow has also been expanded by 5.

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        Research work has begun with OpenRAN (LTE and 5G). At the end of 2020, we launched at VDNKh the OpenRAN laboratory for testing OpenRAN equipment and software, and collaborating with software developers and hardware vendors.

        We launched our first LTE base stations in MTS Armenia network in 2011 in 2600 MHz band and expanded the number of sites and coverage with new base stations installation every year. In 2018, after refarming in 1800 MHz band, LTE sites were activated in 1800 band with Carrier Aggregation technology. In 2019 MTS Armenia obtained the license to operate LTE network in 800 MHz band, as well as licenses for 1800 MHz band additional spectrum to increase L1800 network capacity. More than 230 new LTE base stations were launched in 2020. By the end of 2020 the number of L800/L1800/L2600 base stations in operation is more than 1800, providing LTE services all over Armenia. WiFi Calling and VoLTE services are also launched after Core network major modernization.

        The new project for LTE network expansion in all Armenia regions is planned for 2021. It reflects the need to increase network capacity due to the constant growth of packet traffic.

5G Technology

        Over the past few years, we launched agreements with leading global vendors to lay the foundation for cooperation on fifth-generation equipment and solutions.

        In August 2019, we together with Huawei launched Russia's first large-scale urban 5G coverage on Saint Petersburg's island of Kronshtadt, and made a 5G cell in Moscow near the Smart City pavilion in one of the city's most historic parks, VDNKh. In the early stages, the networks will be used for testing and to connect certain public facilities to the Internet, with plans for broader rollout to subscribers in the future. Coverage includes both 4.9GHz mid-band and 28GHz millimeter-wave frequencies.

        In addition, we tested a preproduction Samsung 5G smartphone. Tests were carried out in Moscow at the Nokia laboratory within the pilot MTS millimeter-wave network based on Nokia commercial equipment, using MTS SIM cards and the Samsung S10 5G pre-commercial smartphone based on the Snapdragon 855 platform with Snapdragon X50 modem.

        In October 2019, we opened a 5G Lab at the Moscow pilot zone that will provide a platform for startups to develop new products and solutions based on fifth-generation connectivity. Potential 5G applications include smart city solutions in transportation, as well as new use cases in IoT, cloud computing, telemedicine, autonomous vehicles, and virtual and augmented reality (VR/AR).

        In January 2020, we demoed private 5G network at the country's largest heavy truck manufacturing facility, the KAMAZ plant in Naberezhnye Chelny.

        In July 2020, MTS together with Motorola and Qualcomm Technologies, Inc. have successfully completed testing of the flagship motorola edge+ smartphone, which supports the specific mmWave frequencies that have been allocated for 5G in Russia.

        In November 2020, we announced the agreement with Polymetal International plc providing for Russia's first commercial 5G-ready private network—based on Ericsson's Dedicated Networks solution—to be deployed at the Nezhdaninskoye gold deposit in the Republic of Sakha (Yakutia).

        Currently, the MTS 5G Center has a strong lineup of startup residents as well as corporate partners, counting among its members Nokia, Sony, Samsung, Qualcomm, and Telit. We are looking forward to welcoming the next dozen residents as we move forward on charting the course for 5G in Russia.

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Artificial Intelligence

        In 2017, we created an artificial intelligence center, the main focus of which is the creation of innovative products and the addition of existing services to the company with new functions based on technologies for processing natural language, computer vision and speech recognition.

        The key focus of the center is the development of virtual assistants, as well as the development of products in the areas of customer service, medicine, law and other areas.

        In June 2019, we started selling customer service robots—automated dialogue systems that allow you to interact with a client without involving people. The solution, based on artificial intelligence technologies, processes any typical requests, for example, talks about products and services, answers popular questions, connects and disconnects services.

        In November 2019, we, together with Sberbank, Yandex, Mail.ru Group, Gazprom Neft and the Russian Direct Investment Fund (RDIF), established an artificial intelligence alliance that will develop AI technologies in Russia. To develop solutions based on speech technologies, we also opened a research center in Skolkovo. Center experts intend to create the largest voice database in Russian, collecting and marking more than 15,000 hours of Russian speech.

        In December 2019, we started selling a virtual lawyer-the automatic document management and life cycle management system Norma. The solution is based on artificial intelligence technologies such as natural language processing and computer vision.

        In September 2020, we launched SaaS version of Norma for small and medium businesses and individuals who want to draft a customize legal document for personal needs. We suppose that legal services could be affordable, user-friendly and quick.

        We have prepared a new strategy for 2021 focused on consolidation of AI properties such as competences, products and RnD. We are going to organize the board of directors and advisory board. Moreover, we will develop computer vision, natural language recognition and voice generation technologies in close collaboration with science community.

Banking Services

        In July 2018, we started rendering banking services made possible by the acquisition of control over MTS Bank. MTS Bank has accelerated the sale of its retail product with the help of MTS' Big Data capabilities and MTS' digital sales channels. The bank's financial products are complementary to our core business and fully integrating the services under the Group umbrella allows us to offer our customers new integrated services, unlocking new revenue streams and consolidating our brand in the wider consumer space.

        MTS Bank carries out its activities in the following areas:

    Retail business

        Serving individuals, including maintaining current accounts, receiving deposits, providing saving and investment products, custody services, servicing credit and debit cards, consumer and mortgage lending.

        Serving small and medium-sized businesses, including maintaining current accounts, accepting deposits, providing overdrafts and lending services.

    Corporate business

        Serving corporate clients, including cash settlement, maintaining current accounts, accepting deposits, lending, including overdrafts, providing documentary products, including guarantees, letters of credit.

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    Investment business

        Providing investment banking services, including trading in shares and bonds, precious metals and derivative financial instruments, placement of fixed income securities, issuing debt securities and attracting subordinated loans, operations with foreign currency.

Other Services

        In addition to cellular communication services, we offer corporate clients a number of telecommunications services such as design, construction and installation of local voice and data networks capable of interconnecting with fixed line operators, installation and maintenance of cellular payphones, lease of digital communication channels, access to open computer databases and data networks, including the Internet, and provision of fixed, local and long- distance telecommunications services, as well as video conferencing.

        We also developed our ecosystem to offer our customers quality services in related sectors such as Telecom, Media, Fintech.

Strategic Partnership with Vodafone

        In October 2008, we announced a strategic agreement with Vodafone aimed at drawing on Vodafone's expertise in building and developing 3G networks and mobile broadband products, working with leading global equipment providers and deploying innovative client relationship management ("CRM") practices to enhance quality and further improve the efficiency of our operations. In addition, the agreement allows us exclusive access to a range of products, services and devices from Vodafone for our markets of operation in Russia and Armenia.

        In 2020, the agreement with Vodafone was prolonged until December 31, 2023.

Sales and Marketing

Target Customers

        Our service model is based on the provision of services to customers to meet the needs of distinctive customer segments. We are not just a mobile operator. Our strategy is to build an umbrella brand which provides digital services and innovative products. We continued to work with youth audience keeping our focus on digital channels, such as social media, banners, pre-rolls and branded content.

        In 2020, we focused our efforts on the following:

    Increasing people's awareness about MTS as an ecosystem;

    Launching products outside the telecom scope, convergent and comprehensive services;

    Continuing to build knowledge about MTS as an innovative and technological company with state-of-the-art solutions, including in the main business—telecom;

    Promoting innovative V&D (voice & data) billing plans;

    Promoting devices with special operator offers;

    Promoting our services aimed at the youth audience; and

    Promoting the MTS CASHBACK virtual card from MTS Bank.

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Advertising and Marketing

        Our advertising and public relations initiatives include:

    Brand and image advertising and public relations to position us as a digital ecosystem encompassing different services and solutions;

    Category and loyalty campaigns to inform our current and potential customers of the advantages of the high quality and diversity of our services, and the extensive coverage we offer; and

    Product and billing plan-related advertising and promotions, pricing discounts for various target audiences to demonstrate value for money and cover specific needs.

        The key subjects for our advertising campaigns in 2020 included promotion of the MTS Premium innovative service, special offers on devices in our retail stores and new features of the My MTS application. In addition, in 2020, MTS switched from billing plan offers to subscriptions for communication and services included in the ecosystem.

        In order to build brand awareness and stimulate demand, we used a combination of various advertising formats, including television, outdoor, retail and radio. We also stepped up online advertising in desktop and mobile. In 2020, quarantine and lockdowns prevented us from hosting offline events, but we managed to host a number of large online concerts and festivals. We also coordinate the advertising policies of our dealers and partners, such as MTS Bank, to capitalize on the increased volume of joint advertising and preserve the integrity and high-quality image of the MTS brand.

        In line with our strategy to find new ways to communicate effectively, especially in the digital channel, we launched special activations with partner websites and several collaborations with popular Russian bloggers, trending Internet shows and other formats of online advertising (branded content, collaborations with bloggers; social media integrations, etc.) in 2020.

Promoting the innovative "Non-billing plan" ("Netarif") subscription

        In late 2020, we launched a new campaign with the message that MTS is shifting from the billing plan concept to a new approach which is called "Non-billing plan" ("Netarif") subscription. It gives subscribers the opportunity to pick only necessary services from the ecosystem created by MTS and its partners. These services include video and music streaming, unlimited access to social networks and the option to choose suitable gigabytes and minutes package.

The MTS Premium loyalty program

        The MTS Premium program covered all clients using our ecosystem. Participants have access to bonuses and discounts on MTS services, lower loan rates at the MTS Bank, discounts on devices at MTS stores, free access to a package of TV channels, movies and series on MTS TV and in other apps.

Image and quality

        In 2020, we launched 2 large-scale federal campaigns to promote technologies and unique settings available in our updated network. Both campaigns were brought together under the SMART NETWORK umbrella concept created to support our brand's innovative and high-tech image. The campaigns improved the perception of MTS communication services in terms of their quality—they emphasized the high-speed Internet connection available to mobile and home subscribers and high network performance which remained sustainable despite an increased load caused by mass transition to home offices during the pandemic.

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Ecosystem

        In 2020, we launched a federal advertising campaign to promote MTS ecosystem products as allowing people to live a fulfilled life even during the lockdown period.

        As part of the campaign, MTS adapted its products to new conditions and offered various benefits to its clients including increased cashback for those clients, who made purchases via the MTS Cashback app; an opportunity to obtain a virtual credit card from MTS Bank remotely, as well as access to free online concerts and useful services such as MTS Fitness, MTS Music, MTS Library and the MTS TV online cinema.

MTS TV

        In 2020, we also launched a federal advertising campaign to promote the Super subscription for 99 rubles in the MTS TV online cinema.

        This subscription includes 1,000 popular movies and series as well as 100 TV channels in high definition.

Brand

        In 2020, we started a comprehensive transition aimed at structuring the ecosystem's architecture, and later had the updated architecture approved. We also started developing a visual style for our ecosystem with different visual features for each category and product and building a common digital platform for the brand book and visual styles. In addition, we updated the creative framework to promote MTS as an innovative and high-tech umbrella brand.

Financial services

        In 2020, we launched an impressive advertising campaign promoting the MTS CASHBACK virtual card—an innovative product created by MTS Bank. Its main feature is a completely remote issuing process: a user can get the card in a few clicks using the MTS Bank app without visiting MTS Bank offices. The card allows the user to get an increased cashback at 5% on certain popular categories (such as clothes and food delivery), withdraw cash from ATMs with no commission and make free money transfers across Russia. The campaign pioneered our new creative framework and approach. The creative idea was to split into channels: TV, indoor, OLV, social networks, special projects, incl. integration into the "Musicality" online show.

GPON and Satellite TV

        To support our satellite TV, we launched two federal campaigns:

    a spring campaign that announced our special offer—the option to join satellite TV and unlimited mobile Internet for RUB 590 per month. The campaign was aimed at increasing the number of satellite TV and home Internet users. The creative idea included featuring the MTS company's main celebrity—Dmitry Nagiev—to improve both the product perception and the brand's image indicators. We used various distribution channels including TV, indoor, OLV and social networks; and

    a Christmas campaign for promotion of another special offer—satellite TV and unlimited mobile Internet access for RUB 490 per month. The campaign was also aimed at increasing the number of satellite TV and home Internet users. It was launched as part of the tactical objective for supporting the product in high season—winter holidays. The distribution channels included TV, indoor, OLV and social networks.

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Promoting convergent offers

        We launched WE MTS+, a new convergent billing plan for families, which includes home Internet, IP television, mobile TV and mobile communication in one billing plan for the whole family.

        To convey its features more efficiently, we produced two commercials about families consisting of Russia's best-known celebrities. The monitoring results showed that the commercials were successful in terms of their attractiveness and the motivating effect.

Devices

        In 2020, the majority of devices-related communication campaigns were targeted at supporting smartphone sales (of various price categories) in MTS retail, as well as supporting launches of global products (Apple).

        The main mechanics used in promotion (and communication) were: cashback, price offers, loans, as well as trading-in and package offers (device and phone accessory or billing plan).

Promoting our services specifically for teenage audience

        In 2020, we continued to promote our services for teenage audience. We participated in Spotify's launch in Russia and made a collaborative campaign with the offer "6 months of Spotify Premium for free for MTS users".

        In addition, we hosted 12 free online concerts (including 3 festivals) with relevant rap and rock artists. We launched MTS LIVE XR—the first interactive music festival in augmented reality.

        For the gaming audience, we promoted our WASD streaming service with 2 "League of streamers" campaigns.

        Furthermore, we continued supporting modern art and teamed up with the Multimedia Art Museum in Moscow.

B2B offers

        We continued developing services and products for entrepreneurs that help solve business issues and streamline processes.

        During the lockdown period, we launched a project aimed at supporting small-scale enterprises. We made an interactive map where any representative of small business could offer their goods or services with delivery with no commission.

        We continued supporting the SME segment with the "MTS Marketolog" platform, which helps companies to launch advertising campaigns without agencies. The product was mainly promoted in digital.

IoT

        In 2020, we continued promoting the following IoT products: Smart watches for kids, Smart watches for seniors, GPS trackers, Smart collars for pets. Over the year, we launched two campaigns to promote smart watches for kids with the special Go-Smart billing plan: "Back to School" campaign (TV) in August and "New Year" campaign (Non-TV) in December. To promote the campaigns, we used a wide range of channels: TV, digital, radio, MTS retail stores.

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Sales and Distribution

        We have historically enrolled the vast majority of our subscribers through a network of independent dealers that operate numerous points-of-sale in places with high consumer activity, such as supermarkets, shopping centers, transportation hubs and markets. In 2009, in response to changes in the independent retail market, we began to develop our own proprietary retail network to more effectively control sales of SIM-cards and provide a platform to sell handsets and accessories. We organized our retail operations under a wholly owned subsidiary, RTC. RTC handles all functions relating to our retail operations, including the management of points-of-sale, the purchase and sale of handsets and accessories and subscriber enrollment at our retail outlets. It also requires us to secure optimal locations for our points-of-sale and monitors the effectiveness of their operations.

        In 2017, sales in the Russian market reduced for the first time and continued reducing at a higher rate in 2018. Moreover, the churn rate also reduced, which confirmed the improvement of the mobile retail market.

        In 2018, our competitors VEON Ltd. and MegaFon agreed on the termination of their joint ownership of Euroset outlets. MegaFon purchased the brand and the business with VEON Ltd. purchasing 50% of points-of-sale.

        In 2018, VEON Ltd. rebranded points-of-sale and they began to work under the "Beeline" brand. MegaFon and SLV Group (Svyaznoy owner) have signed an agreement on merging Euroset and Svyaznoy into one retail network, which currently operates under Svyaznoy brand. These transactions marked the beginning of the transformation from the multibrand retail network to the monobrand retail network.

        In 2019, we signed a partnership agreement with Svyaznoy. Now Svyaznoy retail network consumers across the country can sign contracts and get information about our tariffs and services. Moreover, in 2019 we and M.Video-Eldorado group, which is the largest household appliance and electronics retail network in Russia, also signed a partnership agreement. We placed stands in large M.Video stores. In addition, joint retail electronic stores, where consumers can arrange our services, have been opened. Furthermore, in 2019, we launched a pilot project to sell smart watches in the largest children goods retailer Detsky Mir. Special zones with wearable devices were installed in several dozen stores, where customers can get acquainted with the watches models and get advice from our specialists.

        Such partnerships with market leaders allow us to optimize retail costs and reduce the planned number of own retail points-of-sale.

        In 2020, the outbreak of COVID-19 accelerated the trend of retail chain reduction, which concerned all telecommunication market players. Our proprietary distribution network, which consists of MTS branded franchise points of sale (third party dealers operating under the MTS brand) and MTS branded points of sale owned by us, has decreased by 435 points of sale year to year. As a result, as of December 31, 2020, MTS operated 5,240 points-of-sale, including 1,734 franchise points-of-sale and 3,506 points-of-sale owned by us, as compared to 5,674 points-of-sale, including 1,762 franchise points-of-sale and 3,912 points-of-sale owned by us in 2019.

        The decline in offline sales pushed the transition to online channels. In April 2020, MTS launched the mobile application for a SIM-card self-registration by a subscriber. This technology allowed launching distribution in new sales channels, for example, online stores, online platforms and aggregators, supermarkets, delivery services.

        In the future, we plan to increase the online sales share through the development of the mobile application and the number of services which are available for activation with help of the App.

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        We follow the digital solutions market leadership strategy. Development of own digital ecosystem is the base of digital leadership strategy. Connected sales are one of the points of our own ecosystem.

        In 2020, we focused on convergent offers of mobile connection, mobile Internet and satellite television. In the future, we plan to increase the share of convergent sales by launching new convergent products.

        For newly acquired mobile subscribers in Russia, we link commissions payable to a dealer on a monthly basis to the amount of revenues we receive during six- to 12-month period from the date a subscriber is activated by a dealer. In addition, we have established caps, or a maximum commission amount payable to our dealers. The dealer commissions in Russia currently range between RUB 80 and RUB 2,800 per subscription.

Competition

The Russian wireless telecommunications market

        Until 1998, mobile communications developed slowly, penetration was less than 0.5%. Further, as a result of explosive demand in 2006, the number of subscribers registered in networks exceeded the country's population. Three market leading operators, MTS, Beeline and Megafon, served 85% of the subscriber base. Over the past decade, the Russian market has stabilized; further growth is associated with the development of the IoT services market and M2M devices. As of December 31, 2020, overall wireless penetration in Russia was approximately 172%, or approximately 252 million subscribers.

        The following table sets forth key data on Russia's wireless telecommunications market as of the dates indicated:

 
  As of December 31,  
 
  2020   2019   2018  

Subscribers(1)

    252.2     260.7     255.7  

Subscriber penetration (%)

    172     178     174  

According to AC&M-Consulting.

(1)
Based on registered subscribers (SIM cards only) including MVNO networks. There is no uniform definition of active subscribers in the Russian wireless market.

        The primary mobile providers in Russia include us, MegaFon and VEON (VimpelCom), each of which has effective national coverage in Russia. Competition is based on network coverage and quality, the level of customer service provided, roaming and international tariffs, local tariff prices and the range of services offered. For a description of the risks we face from increasing competition, see "Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business—We face increasing competition in the markets where we operate, which may result in reduced operating margins and loss of market share, as well as different pricing, service or marketing policies."

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        The following table illustrates the number of wireless subscribers for each network operator in Russia as of December 31, 2020, 2019 and 2018:

 
  As of December 31,  
Operator
  2020   2019   2018  
 
  (amounts in millions)
 

MTS

    78.5     79.1     78.0  

MegaFon

    70.4     75.2     75.2  

VEON Ltd. (VimpelCom)

    49.9     54.6     55.3  

T2 RTK Holding (Tele2+Rostelecom)

    46.6     46.0     43.5  

Others & MVNO

    6.8     5.8     3.7  

    According to AC&M-Consulting and operators' press releases.

        MegaFon.    MegaFon, which operates GSM 900/1800, UMTS (3G) and LTE (4G) networks, is one of our primary competitors in Russia, and it is the second largest GSM wireless operator in Russia in terms of subscribers. The operator changed the method of calculating the subscriber base in the fourth quarter of 2020 and applied more stricter requirements for monitoring customer activity. MegaFon had a subscriber base of approximately 70.4 million subscribers in Russia, which represented a 28% market share as of December 31, 2020.

        VEON.    In addition to MegaFon, we also compete with VEON, which is the third largest GSM 900/1800/UMTS (3G)/LTE (4G) wireless operator in Russia in terms of subscribers.

        According to our estimates, VEON had a subscriber base of approximately 49.9 million in Russia at December 31, 2020. At December 31, 2020, VEON had a 20% market share of total wireless subscribers in Russia.

        T2 RTK Holding.    In February 2014, Tele2 and Rostelecom announced a merger which created a new federal wireless provider. The license portfolio of the new company covers all Russia which effectively permits the roll out of federal-scale networks. The most important event for operator was the launch of 3G/4G network in Moscow region in October 2015. The operator's services are now available on the territory where 97% of Moscow Region residents live. In 2018 - 2019, Tele2 have actively rolled out 3G and 4G networks, launched new tariffs, options and services which enabled to provide customers with services similar to those of the market leaders. In 2019, the operator launched a network in the Ivanovo and Yaroslavl regions in the 2G / 3G / 4G standard. By the end of 2020, Tele2 LTE networks were launched in all 68 regions.

        Tele2 had a subscriber base of approximately 46.6 million in Russia and 19% market share as at December 31, 2020.

        Other Operators.    The number of subscribers of other operators, including MVNO operators, which were not indicated above is about 6.8 million customers as of December 31, 2020. The number of MVNO subscribers on the Tele2 network amounted to 2.8 million according to the operator's publication.

The Armenian wireless telecommunications market

        As of December 31, 2020, overall wireless penetration in Armenia was around 122.85%—about 3.65 million active subscribers, according to the published figures of the operators and Socio-Demographic Data report published by Statistical Committee of RA (about 2.97 million population).

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        The following table illustrates number of active subscriber bases and the coverage area of MTS Armenia and competitors—Beeline (VEON Armenia) and Ucom, as of indicated dates.

 
  As of December 31,
Operator
  2020   2019   Coverage
Area
 
  (amounts in thousands)

MTS Armenia

    2,146.89     2,207.37   Nationwide

Beeline

    904.68     947.79   Nationwide

Ucom

    594.60     621.05   Nationwide

Sources: https://beeline.am; https://www.ucom.am; http://mts.am.

        As of December 31, 2020, MTS Armenia reported total 2.15 million 3-month active subscribers, reflecting decrease of 2.74%, y-o-y. Market share from 3-month active subscriber base was around 59% as of end of the reporting year.

Tariffs

        We customize our marketing efforts and pricing policies in each region of Russia and our other countries of operation by considering such factors as average income levels, the competitive environment and subscriber needs, all of which vary from region to region. Consistent with our marketing strategy, we have developed tariff plans to appeal to a broader market. The following table shows the mix between Prepaid and other subscribers, such as contract and corporate customers, for Russia for the periods indicated:

 
  As of December 31,  
 
  2020   2019   2018  

Russia

                   

Prepaid

    28 %   31 %   36 %

Contract and corporate

    72 %   69 %   64 %

        We currently have a unified system of tariff plans offered to subscribers throughout Russia. The unified system is aimed at achieving such benefits as clarity, simplicity and transparency for prospective subscribers by offering the same set of tariff categories throughout Russia. Under each tariff category, we offer different tariff plans with different connection fees, per minute call charges and a wide range of value-added services.

        By advertising on a national rather than regional or local level, we have been able to streamline and reduce our advertising and marketing expenses through unified advertising campaigns throughout Russia. Furthermore, we are able to convey to consumers a more uniform perception of our brand and services.

Tariff Plans in Russia

        Currently, each of our tariff plans in Russia combines per minute usage charges, value-added services in packages and different monthly network access fees (with the exception of the prepaid tariff plans) designed for different market segments. Our tariff plans are currently divided into several categories - "Prepaid," "Smart," "Premium," "Data," IoT, "Corporate" and "Convergent" - with each category designed to target specific segments as follows:

    Prepaid:  Prepaid tariff plans are geared towards consumers who use their mobile phones for personal communication. These plans do not have monthly subscription fees and the per-minute fee charges depend largely on the tariff plan chosen. We offer tariff plan "Super MTS" which varies depending on the region of the customer. Subscribers to our prepaid plans can reduce the

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      price of their calls by using tariff options which have a subscription fee. After our customers subscribe to a particular prepaid plan, they have the option of switching to a different prepaid plan by using the mobile app "My MTS" or sending an SMS message (USSD request) to a designated number.

    Smart:  "Smart" is the family of integrated voice and data tariff plans for customers with active mobile data usage, which we believe will remain the main offer for a long period of time. "Smart" has a monthly fee for a bundle of all-net minutes and Internet. For the most of tariff plans the on-net calls above the bundle are free. Versions of "Smart" ("Smart" "My Smart," "X" for Youth segment, "Tarifische" with large Internet bundle and "Our Smart") differ by amount of minutes and megabytes included in the bundle and the corresponding monthly fee. "My Smart" is a personal tariff plan, where each user can adjust the tariff for their needs and select the required package of minutes and Internet. It was replaced by new "NE Tariff "in December 2020. "NE Tariff" has the same logic as "My Smart" with some new possibilities to include VAS services into the monthly fee. "Tarifische" is the tariff with large Internet bundle and option to adjust the tariff for personal needs and select the required package of minutes and unlimited Internet as an opt-in service. We also have tariff plan "Our Smart" for family segment with opportunity to share bundle of all-net minutes and Internet with 5 devices.

    Premium:  "Premium" tariff plans are designed for heavy users who call primarily within their domestic region. Subscribers of unlimited tariff plans are provided an unlimited number of local minutes and access to personal customer care service. In the Moscow region, for those subscribers issued a local number, monthly fees start from RUB 2,833.6 and those using a federal number pay from 2,416.6 per month. The "Ultra" tariff plan includes unlimited calls to MTS numbers as long as the recipient and the caller are in the same region (defined as "home region"), free domestic calls from the MTS network to any number regardless of carrier up to a certain limit of minutes, no roaming charges within Russia, unlimited mobile Internet and 5000 SMS messages within the network.

    Data:  For active users of mobile Internet devices (e.g., 4G capable USB-modems and routers) we offer an unlimited tariff plan with limited speed 4Mbit/second after certain threshold.

    IoT:  For smart devices with special consumption needs we developed unique tariff plan "Smart device" with annual subscription fee. In addition, we provide special tariff free of charge. This free of charge tariff may apply forever if our customer buys certain models of smart watches for kids in MTS retail stores and online.

    Convergent:  "All MTS" and "MY (We) MTS" are the family of integrated mobile and fixed line services with digital or satellite television. The purpose of "All MTS" is to strengthen the user base and reduce customer churn. "All MTS" has a monthly fee for a bundle (mobile, fix Internet and TV). The price for this tariff varies by region and depends on the competitive situation in the market.

    Corporate:  We offer different tariff plans in each region targeted to meet the demands of our corporate clients, each plan allowing them to optimize their communication expenses in accordance with their individual consumption patterns. These plans feature specialized customer care, payment through our credit system and volume and tenure discounts. In addition, we provide customized pricing offers and technical solutions to our biggest clients.

        Our tariffs vary from plan to plan. The description of tariffs and charges are, in each case, exclusive of VAT. As of December 31, 2020, the per-minute tariff for local calls within the MTS network varied from zero per minute to RUB 2.08 per minute. Different rates apply to local calls to other networks and vary from RUB 0.78 per minute to RUB 3.5 per minute. Higher rates apply to domestic long distance calls and rates for international calls vary from RUB 1.25 per minute for calls to

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the China and South Korea to RUB 62.5 per minute for calls to other parts of the world. Periodically, we run various promotional campaigns, either on the federal or regional level, in which we provide temporary discounts to our regular prices.

Customer Payments and Billing

        We enroll new prepaid subscribers in an advance payment program. As of December 31, 2020, 73% of our consolidated subscriber base was enrolled in the advance payment program and 27% used a credit based system.

        Our advance payment system monitors each subscriber account and sends an advance warning on the subscriber's mobile telephone when the balance on the subscriber's account decreases below a certain threshold.

        Under the credit payment system, customers are billed monthly in arrears for their network access and usage. We limit the amount of credit extended to customers based on the customer's payment history, type of account and past usage. As of December 31, 2020, subscribers using the credit system of payment had credit limits of up to RUB 2.87 million for key corporate customers in Russia. When a credit limit is reached, we block the telephone number until the balance is settled. There are no credit limits established for certain exceptional, high loyalty customers.

        We provide "in full confidence" service, which allows our Prepaid customers who subscribe to this service to continue using services when the balance on the subscriber's account becomes negative. As of December 31, 2020, subscribers using the "in full confidence" service had a maximum credit limit of RUB 345.3 thousands. Customer service representatives can set individual credit limits for subscribers based on their payments and charge history (i.e., average balance usage) during the prior three months. When the credit limit is reached, our billing system blocks the phone number until the balance is settled. Similar to the credit payment system, the subscribers are billed monthly in arrears for usage. The invoice, which can be delivered to the customer by e-mail, fax, regular post and Internet, should be settled within 24 days. If the invoice is not paid five to seven days prior to the due date, the system sends an additional reminder. The telephone number is blocked on the 25th day if the invoice is not settled.

        In Russia, we offer our subscribers various ways to pay for our services, including cash or credit card, wire transfer, prepaid cards and express payment cards.

        We implemented Foris billing system in Russia in 2008. The Foris billing system allows us to offer all of our subscribers a uniform and consistently high level of service. It also supports the monitoring of account usage in real time. In addition, the system provides us with the ability to offer flexible tariff plans with various usage discounts and subscriber loyalty bonuses. Furthermore, we are able to provide our corporate subscribers with more sophisticated customized billing solutions. For example, our corporate subscribers who use multiple phone numbers in different regions of Russia now receive a single invoice, whereas our previous billing system could not support such a service.

        In Armenia, we use the "Eskadenia" billing system.

Customer Service

Russia

        In order to attract and retain customers, we must ensure a high level of service at all points of customer assistance, care and billing. In each region where we operate, we have contact centers that provide customer service 24 hours a day, seven days a week. Contact centers provide different services to our clients through various channels (telephone, email, chat). Customer service representatives respond to various issues such as phone lock due to lack of payment, handset operation, roaming

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capabilities, service coverage and billing. A particular group of customer service representatives handles customer complaints and helps those who want to change their service terms. We use automatic systems and independent analysis for monitoring availability and customer satisfaction level of service in our contact centers regularly. We conduct outbound campaigns with the assistance of our employees in the outbound contact center and the laboratory of the customer relationship management inasmuch as we need to improve customer loyalty and promote our services.

        In 2020, we changed our approach to new employees training. In particular, we focused on a digital training and application of acquired skills in practice. It allowed us to increase satisfaction of employees with trainings by 20%, as well as to enhance the Net Promote Score of the Call Center by 10%.

        Starting from April 2020, we launched a remote work regime for Call Center employees to keep a high performance of operators during the pandemic. By the end of 2020, 50% of the call center employees worked remotely keeping a high quality of service. The Net Promote Score of employees working remotely amounted to 58%.

        In 2020, we also launched customer service in WhatsApp and Apple business Chat in certain regions of Russia. In 2021, we are going to scale up the service for the whole Russia and connect additional messengers. It enables customers to communicate with MTS using a convenient platform.

        A mechanism of choosing an operator and call routing was developed on the basis of the previously received feedback from customers. It helped to increase the Net Promote Score for such customers by 8%.

        We also launched service for MTS ecosystem customers which allowed them to use mobile products and satellite TV with a single call. In 2021, the project will be scaled up for customers using fixed products (TV and home Internet).

        In addition, we launched a new Knowledge Management System which will enable us to significantly extend integration opportunities and unite the needs of certain units in one interface, as well as to enhance the service quality of MTS ecosystem products. We have plans for 2021 to launch the internal product completely, create a mobile version and integrate with other customer services systems.

        We also developed an intelligent Chat Bot that resolves certain issues and serves customers without a referral to the Call Center Chat. We implemented and extended mobile customer service scenarios, added a service of calls related to the fixed business, implemented handling of online communication quality complaints. In 2021, it is planned to continue developing the chat bot functionality, improve the training and analytics platform and integrate the service in relevant products of the company.

        In 2020, the first stage of a single ecosystem card implementation for MTS customers using telecom services and digital products was completed.

        We also managed to optimize our costs by 8% of the total number of mobile contact centers by robotization and automation of certain processes.

Network Infrastructure—Technology Strategy

        Our technology strategy is formed in accordance with overall company's business strategy and intended to support the existing business operations, as well as to introduce new technologies allowing to launch new services in the future. Our technology strategy considers world technology trends in telecommunications.

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        The main focus of the technology strategy is consequent development of the network meeting future technology requirements: higher throughputs, lower latencies and flexible network core as enabler of the new services.

        LTE has the main priority while deploying Radio Access Network (81% of the RAN deployment was LTE in 2020) and 2G/3G investments decrease gradually in accordance with changes in network UE penetration structure and traffic migration.

        According to Technology Strategy in 2020 we continued frequencies re-farming in 1800 MHz , 2100 MHz and 900 MHz bands from 2G/3G to most efficient technology—LTE. Besides, we use Carrier Aggregation, 256 QAM, high order MIMO and other cutting edge technologies to provide better user experience for our customers. In 2020 MTS became the first company in Russia which obtained a license for the 5G spectrum resource in 24 GHz band.

        We chose NB-IoT as a target technology for LPWA IoT segment in 2018, and as of December 31, 2020 we provided NB-IoT coverage in 71 regions of Russia mostly in 1800 MHz band.

        We continue using modular architecture for Data Centers construction and, in 2020, we launched a new data center in Leningrad region. In addition, we chose OpenStack solution supplier for alternative infrastructure ecosystems development.

        We consider network reliability as one of our strategic priorities, and in 2020 we successfully stress-tested it: despite traffic growth due to the COVID-19 restrictions our main Network Quality Indicators remained at the target level.

Network Infrastructure—Site Construction and Sharing

        In October 2014, MTS and VEON Ltd. (VimpelCom) has signed a contract about shared LTE networks deployment and operation. According to this contract one shared LTE network should be deployed for servicing subscribers of both companies in several regions of Russia.

        During 2015, 2016 and 2017 scope of the projects has expanded: shared networks are deployed in 42 of 85 regions of Russia.

        By the end of 2020 we had 8,076 LTE base stations shared with VEON Ltd. (VimpelCom) in 22 regions and VEON Ltd. (VimpelCom) had 6,831 LTE base stations shared with MTS in other 20 regions of Russia. Total amount of shared infrastructure nodes is 14,907 base stations servicing in 800 MHz, 1800 MHz and 2600 MHz bands FDD&TDD networks.

        In addition to network deployment investments and operational costs savings target architecture of the site sharing project includes frequency resources shared usage: by the end of 2019 networks in 32 regions of Russia run in shared 2600 band spectrum usage mode (MOCN concept). The project is being completed in 7 regions.

Network Infrastructure and Frequency Allocation

        We use switching and other network equipment supplied by Nokia Solutions and Networks, Ericsson, Huawei, Alcatel-Lucent, Samsung and other major network equipment manufacturers.

        In Moscow and Moscow region license area, we have been allocated frequencies spanning 2 × 12 MHz of spectrum in the 900 frequency band and 2 × 24.8 MHz of spectrum in the 1800 frequency band for operation of a dual GSM 900/1800 network and UMTS900 network, LTE900 and LTE1800 networks. In St. Petersburg and the Leningrad region, we have been allocated frequencies spanning 2 × 9.8 MHz of spectrum in the 900 frequency band (including 2 × 1.6 MHz in the E-GSM band) and 2 × 18.6 MHz of spectrum in the 1800 frequency band for operation of a dual GSM 900/1800 network, UMTS900 network, LTE900 and LTE1800 networks.

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        We have different amounts of spectrum in the 900 MHz band for GSM 900 and UMTS and LTE networks and in the 1800 MHz band for GSM and LTE networks in almost every region of the Russian Federation.

        We have been allocated frequencies 1950-1965 MHz, 2010-2015 MHz and 2140-2155 MHz for UMTS and LTE network deployment for the entire territory of the Russian Federation.

        In addition, we have been allocated frequencies 453-457,4 MHz/463-467,4 MHz for IMT-MC and LTE networks and 1920 - 1935 MHz/2110 - 2125 MHz for UMTS and LTE networks in Khanty-Mansi Autonomous Okrug and Republic of Bashkortostan.

        We have been allocated frequency bands 2540-2550 MHz and 2660-2670 MHz spanning 2 × 10 MHz and frequency bands 798. 5-806 MHz and 839.5-847 MHz spanning 2 × 7.5 MHz for LTE FDD network deployment for the entire territory of the Russian Federation. In addition, we have been allocated frequency band 2595-2620 MHz spanning 25 MHz for LTE TDD network deployment for the entire territory of the Russian Federation.

        We believe that we have been allocated adequate spectrum in each of our license areas.

Network Infrastructure—Virtual Infrastructure

        The following projects have been launched in 2020:

    EPC—prepared to initialization;

    UDR—prepared to initialization;

    SBC 2nd stage—prepared to initialization;

    TCP Optimization—prepared to initialization.

        The following projects were finished in 2020:

    UDC Novosibirsk;

    SBC 1 st stage;

    IMS (IP Multimedia Subsystem) 4 -d stage;

    U2020 in MR North West.

        Two new multi-purpose modules of data-center started operating in Saint Petersburg for deployment of virtual platforms for telecommunication services and cloud services in 2020. In addition, we started construction of a new data-center in Novosibirsk.

Network Infrastructure—Energy Infrastructure

        One of the main goals in Energy Infrastructure is to decrease operational costs for electric energy.

        According to legislative acts of Russian Federation electric energy payment categories were introduced in 2012. This payment category can be chosen by a consumer in case of introduction of the electric energy accounting system, which allows to hourly monitor an electric energy usage and to report this information to the power supply companies with an accepted procedure.

        Considering these conditions we decided to deploy Electric Energy Accounting Automatic System (EEAAS). According to this trial projects of different EEAAS solutions were executed in different regions of Russia (Moscow, Nizhny Novgorod, Vologda, Saint Petersburg, Novosibirsk, Ekaterinburg and Republic of Karelia) in 2014-2015.

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        EEAAS deployment projects were accepted in 2016 based on the analysis of those trials, System implementation started in 2016.

        Introduction of the EEAAS allowed to:

    Reduce the electricity payments and operational costs;

    Increase the level of precise accounting;

    Implement an energy usage management and to track energy usage dynamics.

        The project implementation leads to reduction of payments for the electric energy. The savings in regions where EEAAS was deployed reached the amount of RUB 353,691 million for the period from 2017 to 2019.

Development and maintenance of the network

        The process of obtaining appropriate sites requires that our personnel coordinate, among other things, site-specific requirements for engineering and design, leasing of the required space, obtaining all necessary governmental permits, construction of the facility and equipment installation. In Russia, we use special radio planning tools supplied by TEOCO Corporation and radio propagation models supplied by Siradel SAS to assess new sites so that the network design and site development are coordinated. This software can create digital cellular coverage maps of our licensed areas, taking into account the peculiarities of the urban landscape, including the reflection of radio waves from buildings and other obstacles and supports all necessary technologies, such as 2G, 3G, LTE and NB-IoT. In 2020, we started replacement of this TEOCO radioplanning tool by the new one, provided by Forsk. This new tool will allow us to make calculations of 5G networks and will have better performance. Replacement will be completed in 2021. To use these tools more effectively we purchase high quality 3D digital maps for more precise planning. Now we have new detail maps of 1010 cities in Russia. In addition we have implemented a new customized tool for investment planning to speed up the process of RAN development planning and make it more accurate. Used together, these software tools enable us to plan base station sites without the need for numerous field trips and on-site testing, saving us considerable time and money in our network build-out.

        Base station site contracts are essentially cooperation agreements that allow us to use space for our base stations and other network equipment. The terms of these agreements range from one to 49 years, with the term of the majority of these agreements being one to five years. Under these agreements, we have the right to use premises located in attics or on top floors of buildings for base stations and space on roofs for antennas. In areas where a suitable base station site is unavailable, we construct towers to accommodate base station antennas, mainly on leased plots of land. We anticipate that we will be able to continue to use our existing GSM 900 base station sites and to co-locate GSM 1800, UMTS 2100 and UMTS 900 base stations at some of the same sites. In 2018 we started the NB IoT technology During 2018-2020, NB IoT technology was implemented on 36,905 base stations of LTE.

Network Monitoring Equipment

        We constantly control and monitor the performance of our network, call completion rate and other major key technical performance indicators. We use monitoring systems to optimize our network and to locate and identify the cause of failures or problems, and also to analyze our network performance and obtain network statistics. We have agreements with different suppliers for technical support services that allow us to obtain their assistance in trouble shooting and correcting problems with our network within the warranty period.

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        To provide high quality service to our subscribers in Russia, we have a global network operation center ("GNOC") in Krasnodar and additionally a local operation and maintenance center in Voronezh which takes the form of outsourcing partnership with Nokia Solutions and Networks. The GNOC experts and a staff of the local operation and maintenance center have the technical ability to monitor network problems and unusual situations online in all regional branches of MTS in Russia around the clock. Our maintenance department, staffed 24 hours per day, performs daily network integrity checks and responds to reported problems. Our technicians inspect base stations and carry out preventative maintenance at least once every six months.

        The GNOC in Krasnodar allows us to centralize such functions as monitoring and controlling of equipment, network planning and optimization, and also helps to solve incidents related to service interruptions. The GNOC strengthens our network's reliability and safety, as well as creates the necessary conditions to launch and implement new technologies and network standards.

        In November 2015, a Global Fixed Network Operation Center ("GFNOC") was launched in Nizhny Novgorod, thus completing the centralization process of the MTS mobile and fixed network management. The GFNOC combined functions of monitoring and controlling the equipment in 54 regions of Russia where we offer broadband Internet access, TV and fixed line telephony services. For the subscribers connected to these services the GFNOC acts as a single entry point for technical support. Under the GFNOC project a centralized unit was also set up which is responsible for the quality of the services provided to corporate customers with bundled packages of mobile and fixed communications. Our subsidiary company MGTS performs these functions in Moscow region of Russia.

        With the Global Fixed Network Operation Center deployed, we put together all resources for management of the quality of provided mobile and fixed line voice services, data transmission via mobile and fixed networks, leased dedicated digital circuits and VPN channels and digital TV.

        In 2016, we also opened satellite TV operation and maintenance center in Moscow, which is used for monitoring head-end station and satellite TV services.

        Our networks in Armenia and Belarus are monitored by our local operation and maintenance centers in each country. In addition to the monitoring of network performance, those centers analyze network quality parameters, provide troubleshooting, regular and extraordinary reporting to the management and our headquarters.

        The handling of any significant network problems and outages is monitored and coordinated at our headquarters, where we also manage the cross- functional coordination of our networks in all countries of operation.

        Our principal suppliers are Huawei, Iskratel, Oracle - PSTN switching equipment and SBC; Ericsson, Harmonic, SumaVision, Cisco Systems - equipment of Digital TV station; Irdeto, Verimatrix - CAS TV systems; MediaKind, Huawei - Hybrid TV platform; Cisco Systems, Huawei, D-Link, Fibercom, EdgeCore - FTTB core and access; Juniper Networks, Huawei, ECI Telecom, Tellabs and Alcatel Lucent for transport network equipment.

        All of our equipment is supplied directly through authorized dealers.

Interconnect Arrangements and Telephone Numbering Capacity

        We operate various types of communications networks, including mobile cellular, DLD/ILD and local fixed line and zonal fixed line networks.

        Cellular operators must interconnect with fixed zonal, wireless, long distance and international telephone operators to obtain access to their networks and, via these operators, to the networks of other operators around the world. Cellular and fixed line operators must also obtain telephone numbering capacity to allocate to their subscribers. There are two categories of telephone numbers:

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"federal" 11-digit numbers (non-geographical numbering plan for cellular operators) and "local" seven-digit numbers (geographical numbering plan for fixed-line operators which can also be used as additional numbering capacity for mobile operators). In Moscow, both "federal" and "local" numbers have been used in the 11-digit format since the beginning of 2011. We have entered into various agreements for the provision of local telephone numbering capacity with several local telecommunications operators in Moscow and in other regions of Russia. We have also built our own local networks in certain cities within Russia (including Moscow) to provide local telephone numbering capacity to our subscribers. Telephone numbering capacity is allocated by the government and we provide interconnect services to other operators in all regions of Russia. Our fixed line zonal and local networks in Russia are interconnected with other operators. Zonal/local interconnect typically entails payment of a one-time connection fee per point of interconnect ("E1") and a usage charge based on minutes of traffic. Operators with a Substantial Market Power may also charge a guarantee monthly usage fee in case traffic is less than 30 kmin per E1.

        The Ministry of Communications and Mass Media has allocated special numbering codes for federal 11-digit telephone numbers on a non-geographical basis to all the cellular operators. We believe that sufficient numbering capacity has been allocated to us for the development of our network. However, a combination of regulatory, technological and financial factors has led to the limited availability of local 7-digit telephone numbering capacity in Moscow and the Moscow region. Moscow's "495" code and the Moscow region's "496" code have already reached numbering capacity limits. As a result, the new "499" code was introduced in order to increase the Moscow numbering capacity, the "498" code was introduced to increase Moscow region numbering capacity and since 2011 "local" numbers have been used in Moscow in 11-digit format.

        To meet subscriber's demand and provide for an adequate inventory of numbering capacity, we previously entered into contracts with local fixed line providers for allocation of numbering capacity to us. However, the Ministry of Communications and Mass Media subsequently took the view that numbering capacity assigned to one operator could not be rented to other operators. Accordingly, we have entered into arrangements whereby fixed line operators make their numbers available to our subscribers via agency contracts between the subscribers and us acting on behalf of such fixed line operators. Our right to use numbering capacity ranges for an unlimited period of time. As a result of our merger with Comstar, we have decreased the use of local numbering capacity of other operators. As of December 31, 2020, we had numbering capacity (federal and local) for approximately 34.68* million subscribers in the Moscow license area.

        To provide our subscribers in Russia with DLD/ILD services, we have interconnect agreements with national operators Rostelecom, MTT (an affiliate of Sistema until March 18, 2009), VEON Ltd. (VimpelCom) and other national transit operators. We have also built and operate our own DLD/ILD network, which allows us to interconnect directly to foreign operators and thereby decrease our interconnect costs. Most interconnect fees for connecting users of other operators' fixed line and wireless networks to our network are based on a one-time connection fee and usage by minute which varies depending on the destination called.

        Russian legislation provides that fixed line operators with a substantial market power cannot refuse to provide interconnect or discriminate against one operator in relation to another, and the interconnect rates of operators with a Substantial Market Power are regulated by the government. See "Item 4. Information on Our Company—B. Business Overview—Regulation of Telecommunications in the Russian Federation—Regulation in the Russian Federation—Competition, Interconnect and Pricing" and "Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business—If we cannot interconnect cost-effectively with other telecommunications operators, we may be unable to provide services at competitive prices, which may diminish our market share and result in a loss of revenues and margins."

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        Interconnect and traffic transit between the networks of mobile operators in Russia occurs through direct channels connecting the switches of the different mobile operators within the same city; through the network of transit long distance operators, which connect the networks of different mobile operators in different cities or through our own DLD/ILD network. For domestic long distance traffic transit we use our DLD/ILD network and networks of different national operators, including among others: MTT, Rostelecom and VEON Ltd. ("VimpelCom"). For ILD traffic transit we primarily use our DLD/ILD network which is interconnected with 52 international carriers. We also have an interconnect between the DLD/ILD MTS network and the ILD networks of our subsidiary, MTS Armenia, in order to provide transit for international traffic.

Handsets

        Nearly all of our handset sales consist of tri-band GSM 900/1800/1900 and dual-band UMTS 900/2100 handsets, except for certain models in the low cost segment. Those handsets, which function in the GSM 900, GSM 1800 and PCS-1900 standards, provide users with greater automatic roaming possibilities in Russia, Europe, the United States and Canada. All LTE handsets support bandwidth LTE-FDD 2100 MHz (band 1), LTE-FDD 1800 MHz (Band 3), 2600 MHz (Band 7), LTE-FDD 900 MHz (band 8), 800 MHz (Band 20) and LTE-TDD 2600 MHz (band 38), also there are smartphones in our sales with LTE Advanced support. In 2020, we continued the process of implementation Voice over LTE and Wi-Fi Calling functions.

        From 2009, RTC, our wholly-owned subsidiary, started handling all functions relating to our retail operations, including the purchase and sale of handsets and accessories and subscriber enrollment at our retail outlets. RTC has entered into arrangements with Apple, Samsung, Oppo, Vivo, Realme, Nokia, Alcatel, Xiaomi, Philips, Huawei, Honor, ZTE and others to purchase handsets. In 2020, we continued our cooperation with A-brand smartphone vendors. We also offer an array of mobile telephone accessories. Since 2009 we have been successfully selling MTS branded phones.

Fixed Line Services

        We offer fixed-line communications services in 56 regions across Russia, covering about 25 million households.

        Our other fixed line operations include the following communications services: voice, data and broadband Internet and pay TV services for corporate and residential subscribers, as well as the provision of interconnect services to other communications operators and numbering capacity to their subscribers. Based on TMT Consulting data, as of December 31, 2020, we were the largest operator in the Moscow residential broadband market in terms of subscribers, with a 38% market share. We also operate in Armenia, where we provide digital telephony communications services, data transmission, Internet access and the renting of channels.

        For a list of the telecommunications licenses held by us, see "Item 4. Information on Our Company—B. Business Overview—Licenses."

Customers and Services Offered—Moscow Fixed Line Operations

        We provide fixed line communications services through our subsidiary, MGTS, which is the incumbent fixed line PSTN operator in Moscow. MGTS owns Moscow's PSTN infrastructure, including switches, a transmission network, underground ducts, and owns or holds leases to properties housing its offices and equipment.

        As of December 31, 2020, MGTS had approximately 3.57 million active lines in service, a cable network of over 45,384 km, a fiber optic network of over 44,777 km and 1 841 payphones. Currently, MGTS has focused its efforts on the deployment of GPON, IP/MPLS technologies and an IMS core.

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The old SDH equipment is being removed which results in the decreased number of E1 streams, a reduction in the copper network and the respective extension of the fiber optic network. MGTS also develops new services for IP TV, and MVNO as the convergent service for mobile and fixed telephony.

        The total installed capacity of the telephone network reached 0.595 million numbers on the TDM area (Time Division Multiplexing) and 5.18 million numbers on the IMS area (IP Multimedia Subsystem) as of December 31, 2020.

        Moscow fixed line operations customers consist of the following subscribers:

Moscow fixed line operations
  December 31,
2020
  December 31,
2019
  December 31,
2018
 

Residential subscribers

    84 %   84 %   84 %

Corporate subscribers

    8 %   8 %   8 %

Public sector subscribers

    8 %   8 %   8 %

        MGTS holds licenses and regulatory approvals to provide, among others, the following services:

    local telephony;

    DLD/ILD voice telephony through licensed DLD/ILD operators, including us;

    interconnect to other operators;

    Internet and data transmission, including leased DLD/ILD services;

    IP TV for B2C and B2B subscribers;

    MVNO mobile telephony and Internet;

    inquiry and information, including telephone directories;

    local telephony with use of payphones;

    telematic communications services;

    telecommunications services associated with providing of communication channel;

    telecommunications services associated with voice data transmission;

    telecommunications services associated with cablecasting;

    movable radiotelephony services;

    measures and (or) services for the protection of State secrets;

    capital construction projects engineering.

        As the only licensed PSTN operator in Moscow, MGTS is considered a natural monopoly under Russian antimonopoly regulations. Consequently, substantial part of services provided by MGTS are subject to governmental regulation. The Federal Antimonopoly Service of the Russian Federation regulates MGTS' tariffs for voice telephony services provided to its PSTN subscribers, including monthly subscription fees, installation fees and local call charges. Revenues from regulated services are accounted for approximately 30% of service operating revenues of our Moscow fixed line operations in 2020, 33% in 2019 and 37% in 2018. The percentage decline is connected with gradual growth of operating revenues from non regulated services as a proportion of the overall operating revenues in 2020, 2019 and 2018. The Federal Antimonopoly Service of the Russian Federation sets the tariffs MGTS can charge taking into account cost of services, network investment and a certain profit margin, and the current tariffs fully compensate MGTS for the cost of services provided to residential and government subscribers. According to Russian legislation, MGTS is allowed to petition the Federal Antimonopoly Service of the Russian Federation for tariff increases upon certain conditions, such as

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inflation or increases in the cost of services. Historically, MGTS has petitioned the relevant Russian government agency for tariff increases once per year. The Federal Antimonopoly Service of the Russian Federation has permitted MGTS to increase its tariffs several times.

        MGTS also provides a number of unregulated services. According to Russian legislation, DLD/ILD services provided by licensed non monopoly operators, data transmission services, value added services and a number of other services are not subject to tariff regulation. Among others, MGTS provides the following unregulated services:

    various value-added services, including call forwarding, call waiting, call holding, caller ID, provision of second direct inward dialing (DID) number;

    Internet access for residential subscribers and corporates;

    IP TV for B2C and B2B subscribers;

    MVNO mobile telephony and Internet;

    alarm signaling;

    domestic maintenance services, including electric installation, sanitary engineering, cleaning, computer emergency, and consumer electronics installation;

    video-surveillance; and

    rent of space for telecommunications equipment of other operators connected to MGTS' network.

        MGTS does not have license to provide DLD/ILD communications services directly to its subscribers but must route such traffic through a licensed DLD/ILD operator. As a result, DLD/ILD traffic originated by MGTS subscribers is carried either by us, with these services included in MGTS' monthly bill, or by other providers of DLD/ILD services, who bill MGTS subscribers directly or pay MGTS an agency fee for processing their bills.

        The following table presents certain operating data for our Moscow fixed line operations as of and for the years ended December 31, 2020, 2019 and 2018.

Moscow fixed line operations
  December 31,
2020
  December 31,
2019
  December 31,
2018
 

Installed telephone lines on TDM (000s)(1)

    0,595     0,683     1,050  

Installed telephone lines on IMS (000s)(1)

    5,180     5,180     5,180  

Residential

                   

Number of subscribers (000s)

    2,545     2,684     2,686  

CPP traffic (millions of minutes)

    214     240     307  

Corporate(2)

                   

Number of active lines (000s)

    492     525     561  

Number of subscribers (000s)

    43     46     49  

CPP traffic (millions of minutes)

    185     205     248  

(1)
Telephone lines on TDM and IMS can be installed at one household.

(2)
Includes state-owned enterprises and government agencies.

        MGTS' subscriber segments and the services provided to each subscriber segment are further described below.

Residential and corporate subscribers

        MGTS provides basic regulated voice services to residential and corporate subscribers using its PSTN facilities and copper or optical "last mile" access.

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        In addition to basic voice services, MGTS provides its residential and corporate subscribers with digital telecommunications services, Internet, IP TV, MVNO mobile telephony and Internet and VPN deployment services, rental of high-speed communication channels, intelligent voice and various other services.

        The following table illustrates MGTS' regulated tariff development:

MGTS Regulated Tariffs
  March 1,
2021
  March 1,
2020
  March 1,
2019
 

Residential(1)

                   

Line rental

                   

RUB per month

    214     214     214  

Per minute tariff plan—local connection fee

                   

RUB per minute

    0.60     0.60     0.60  

Unlimited tariff plan—connection fee (unlimited connection)

                   

RUB per month

    513     299     294  

Combined tariff plan—fee for fixed amount of minutes(2)

                   

RUB per month

    438     224     224  

Combined tariff plan—fee for each additional minute

                   

RUB per minute

    0.58     0.58     0.58  

Combined tariff plan—fee for fixed amounts of minutes(3)

                   

RUB per month

    242     28      

Combined tariff plan-fee for each additional minute

                   

RUB per minute

    0.59     0.59      

Corporate (non-governmental)(1)

                   

Line rental

                   

RUB per month

    225     225     225  

Per minute tariff plan—local connection fee

                   

RUB per minute

    0.60     0.60     0.60  

Unlimited tariff plan—connection fee (unlimited connection)

                   

RUB per month

    641     416     416  

Combined tariff plan—fee for fixed amount of minutes(4)

                   

RUB per month

    804     224     224  

Combined tariff plan—fee for each additional minute

                   

RUB per minute

    0.58     0.58     0.58  

Corporate (governmental and state-funded organizations)(1)

                   

Line rental

                   

RUB per month

    225     215     215  

Per minute tariff plan—local connection fee

                   

RUB per minute

    0.60     0.60     0.60  

Unlimited tariff plan—connection fee (unlimited connection)

                   

RUB per month

    641     416     416  

Combined tariff plan—fee for fixed amount of minutes(4)

                   

RUB per month

    804     224     224  

Combined tariff plan—fee for each additional minute

                   

RUB per minute

    0.58     0.58     0.58  

(1)
Tariffs for residential subscribers are shown including VAT; tariffs for non-governmental corporate subscribers and governmental/state-funded organizations are shown excluding VAT.

(2)
The plan included 400 minutes per month.

(3)
This plan included 50 minutes per month.

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(4)
This plan included 300 minutes per month.

Operators

        MGTS provides interconnect, traffic transmission and leased line services to other communications operators. Interconnect is carried out on the local and zonal levels in accordance with terms and conditions that are publicly disclosed. MGTS also provides additional services to operators interconnecting to MGTS' network, including access to emergency service, information and customer care numbers.

        MGTS has also established an active presence in the data transmission market. Through its PDTN, MGTS can establish VPNs for other operators as well as provide other data network services. Operators can also rent space and utility systems from MGTS to house their network equipment.

        MGTS provides services for the design and construction of mobile and fixed-line networks for third-party Telecom operators.

Customers and Services Offered—Other Fixed Line Operations

        We provide fixed-line communications services to corporate, operator and residential subscribers in 56 regions throughout Russia. Specifically, we offer local voice, DLD/ILD voice, data and Internet and pay TV services to our subscribers. Some of the interconnect tariffs we charge other telecommunications operators for in Moscow and certain other cities are regulated by the Russian government. We believe our fixed-line subscribers typically evaluate our service and product offerings based on such factors as price, technology, security, reliability and customer service.

        The following table presents certain operating data for our other fixed line operations in Russia as of and for the years ended December 31, 2020 and 2019.

Other fixed line operations
  December 31,
2020
  December 31,
2019
 

Residential

             

Number of subscribers (000s)(1)

    6,044     5,940  

Corporate(2)

             

Number of subscribers (000s)

    119     96  

(1)
Subscribers to broadband Internet, pay-TV, Wi-Max, voice and other services.

(2)
Includes state-owned enterprises and government agencies.

Corporate subscribers

        We target corporate subscribers covering a range of industries, such as business centers, hotels, financial institutions, professional services firms, consumer goods companies, manufacturers and companies involved in extractive industries, among others. These subscribers vary in size, ranging from large multinational and Russian corporations with thousands of employees to small and medium sized enterprises with up to several hundred employees. As of December 31, 2020, we had approximately 27,000 voice and 92,000 Internet corporate subscribers.

        As further described below, we offer voice, data transmission and Internet and various value added services to our corporate subscribers.

        Voice Services. We provide a full range of other fixed line voice services to corporates in Moscow, the Moscow region and other selected regions of Russia, which include local, zonal, and DLD/ILD services using our transmission network and leased capacity between major Russian cities. We also

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provide integrated voice and data services, voice over frame relay and certain integrated services digital network ("ISDN") services.

        Data Transmission and Internet Services. We offer high quality data transmission services to corporates, which allow for data exchange between their various branches or offices located within Russia and internationally. For data transmission services, our network is capable of transferring data at speeds of up to 10 Gbps and utilizes various technologies, such as 10 GE, GE, ATM, TDM, VPN MPLS/VPLS, GPON, Microwave radio relay ("MRR"), xDSL, LTE and Wi-Fi to provide high quality solutions at a relatively low cost. We endeavor to ensure the reliability of network connections by utilizing a full reservation approach to back up all elements of the network.

        In addition, we offer a wide range of Internet services to corporates, including broadband Internet access, VoIP, VPNs and data center services using the following technologies: (1) NGN (up to 10 Gbps), (2) GPON (up to 1 Gbps), (3) xDSL (up to 100 Mbps), (4) radio Ethernet (up to 300 Mbps), (5) MRR (up to 1 Gbps), (6) Wi-Fi (up to 600 Mbps), and (7) LTE (up to 100 Mbps). We also provide continuous flexibility to upgrade their network capacity to handle additional Internet services. For example, we often integrate data transmission and Internet services for our clients as they expand their operations and need to interconnect and exchange data with newly opened offices and/or branches.

        SD-WAN from MTS—new generation technology for building wide area networks with intelligently network management capabilities that can support increasingly hybrid network architectures, the growing availability of next-generation fixed and mobile access technologies and different network types combinations such as public Internet and private VPNs. SD-WAN services provide much higher levels of manageability, flexibility and security for the customers networks and make MTS solutions easily scalably and cost effective.

        We also provide security services, such as Anti DDoS protection and various AntiVirus solutions.

        We offer a broad range of Internet packages that vary in terms of data transfer speeds and pricing, with higher tariffs for faster uploading and downloading capabilities. Corporates with GPON broadband Internet packages generally experience data transfer speeds between 1 Mbps and 1 Gbps. In addition, we offer a premium broadband Internet service over our NGN in which subscribers enjoy data transfer speeds between 1 Mbps and 10 Gbps. The NGN provides subscribers with the benefit of the same uploading and downloading data transfer speeds, whereas Internet subscribers using an xDSL/GPON connection upload at speeds that are much slower than the one at which they can download.

        We also utilize MGTS' PDTN to provide high speed reliable Internet services and create VPNs for our corporates.

        Leased Channels. We provide corporate clients with the ability to rent high speed data channels. These "leased channels" are dedicated lines of data transmission.

        Value Added Services. We provide corporates with several value added services, including Autosekretar and integrated solutions. The Autosekretar service is based on our proprietary IN and is designed to help our corporates manage the reception and servicing of a large volume of incoming calls. The unique multi channel telephone number assigned to customers will not change even if the customer moves to a different location in Moscow, and does not require the customer to install any equipment. In addition, this service allows all incoming calls to be transferred to other fixed or mobile telephone numbers in Russia or in other countries. The IN identifies a subscriber by phone number, phone card or password, which allows our customers to bill their subscribers for services and, if necessary, block access for subscribers who have a negative balance on their account.

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        In addition, we serve as general contractor for the provision of a full range of integrated solutions to subscribers wishing to establish a modern integrated communications infrastructure. Each solution is customized for subscriber specific needs. In developing these customized networks, we are able to offer the following range of services: site survey, cost analysis and optimum project planning, assistance with government related documentation, supply of equipment and operational, technical and maintenance support on an ongoing basis. Once the infrastructure is established or renovated, as the case may be, we typically provide digital voice communications, voice intelligent services, high speed Internet services, videoconferencing and other data transmission services. We intend to expand our service offerings to include customer premises management and network centric IT solutions.

        Fixed mobile convergence. Based on our fixed and mobile networks, we offer fixed to mobile convergence services to corporate clients providing use of their mobile phone as an extension of their private branch exchange ("PBX"). We also provide access to corporate IP networks from a mobile phone via GPRS/EDGE/3G/4G.

Operators

        We operate fixed line local and zonal networks in Moscow and other cities for provision of telephony services to fixed line subscribers and additional local numbers to mobile subscribers. In order to lower the costs of intercity and international traffic transition, we put into operation an intercity international network in December 2008.

        We had approximately 211 local fixed nodes in 64 regions of Russia, including Moscow, and 56 zonal fixed networks to provide telephony services to subscribers as of December 31, 2020. Our integrated intercity/international network is interconnected to more than 52 international operators.

        In the corporate subscriber segment, we generally compete on the basis of network quality, individual and bundled service offerings, customer service, installation time, geographical presence and pricing.

Residential subscribers

        We offer voice, Internet and pay TV services to residential subscribers.

        Voice Services. We provide voice services to residential and corporate subscribers. Like corporate subscribers, residential subscribers in each of regions of presence seek a full range of high quality voice services equivalent to those provided in Western Europe. In addition to "basic" voice telephony services, we provide a number of additional services, such as call forwarding, call transferring, call waiting, conference, voicemail and Caller ID, among others.

        Internet Services. We offer broadband Internet services to residential subscribers throughout Russia. As of December 31, 2020, we had 11% market share in the Russian Federation

        Pay TV. We operate a TV service based on IPTV service over ADSL and GPON technologies in Moscow. In addition, we offer pay TV services based on DVB C (digital television via cable connection), analog cable transmission and MMDS (wireless cable) technologies in most of the regions in which we are present. Since November 2013, we connect our subscribers only to the TV with digital quality and since 2017 we broadcast in 4K ultra HD quality. Special auxiliary equipment (set top box) allows pay TV subscribers to access more than 170 channels of digital quality, including channels of HD quality from a home television and channels of 4K ultra HD quality. International and Russian channels are included as part of the base services package.

        Our pricing structure is designed to appeal to large numbers of consumers with various interests and purchasing power, and varies significantly between regions. We charge a subscription fee between RUB 499 RUB 999 per month in Moscow and a subscription fee of between RUB 190 RUB 2000 in

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other regions of Russia, depending on the number of channels included in the package. We also offer bundled Internet, pay TV and Internet, Mobile, pay TV services for RUB 549 RUB 1,114 per month in Moscow and RUB 240 RUB 2,250 in certain other regions of Russia, depending on the speed of the Internet connection, the number of pay TV channels being provided and level of competition in a particular region. In 2020, convergent bundles, that included Internet, TV and mobile services, had been developed rapidly. As a result we have acquired more than 515 thousand unique customers and achieved overall growth of convergent subscriber base up to more than 980 thousand subscribers in 52 regions (excluding Moscow), as of December 31, 2020.

Sales and Marketing

Moscow fixed line operations

        In 2020, MGTS continued monetization of its own high tech fiber optic network GPON and developed combining different services in packages, including convergent packages of mobile and fix services and online cinemas subscriptions. Promotional packages were offered to clients and included basic services, online cinemas subscriptions and high-speed Internet access. In order to expand and consolidate its market share, MGTS continued to enter the Moscow Region market through the construction of its own network, as well as through acquisition of local Internet service providers.

        By the end of 2020, 2.4 million subscribers were transferred to GPON. In 2021, MGTS plans to develop and implement new services as part of the concept of Smart Home and Smart City, participate in the cloud solutions market more actively, develop partnerships with delivery services and become a partner of iconic city projects.

Other fixed line operations

        Our target customers include corporate, operator and residential subscribers.

        To promote our product and service offerings, we use various communication channels for advertising and marketing, including direct marketing, printed mass media, television, Internet, radio, directories, outdoor advertising, advertising in the subway, special promotions and cross promotions. Through these various advertising and marketing channels, we intend to further develop our brand recognition. Our marketing strategy is designed to create a unified brand for each of our various product and service offerings with the aim of becoming a single source for all of our subscribers' communications needs.

        We also actively promote our services to existing subscribers with special bundled product offerings aimed at servicing their communication requirements and enhancing subscriber loyalty. Our advertising and marketing materials are aimed primarily at the promotion of MTS brand. All fixed line products are offered and marketed under this brand. However, when we enter new markets and acquire companies, we have to use both brands in advertising MTS brand and the acquired brand. This is done to decrease churn as customers tend to express strong loyalty towards local brands. We then gradually decrease presence of the acquired brand and this allows us to make MTS a market leader in a given region in future. Our advertising and marketing efforts are designed to convey a positive image of us to the market as a leading communications operator focused on customer satisfaction.

Competition

        We compete with a number of fixed line telecommunications operators servicing Moscow, St. Petersburg and other major Russian cities. Moscow is the largest and most competitive of these markets. Our primary competitors include:

    Rostelecom, Russia's largest national fixed line telecommunications operator with presence in all Russian regions. We compete with Rostelecom in the corporate, operator and residential fixed

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      line telecommunications markets in all regions where we operate in Russia. We also compete with Rostelecom in the mobile telecommunications market.

    ER-Telecom, voice telephony, broadband and TV operator. We compete with ER-Telecom in the corporate and residential fixed line telecommunications market in St. Petersburg, Novosibirsk, Omsk, N.Novgorod, Ekaterinburg, Kazan, Novosibirsk, Chelyabinsk and other regions.

    VEON Ltd. (VimpelCom), which is also one of our primary competitors in the Russian mobile communications market, offers voice, data and Internet services to corporates, operators and residential subscribers in major cities throughout Russia, Ukraine, Kazakhstan and Uzbekistan. We compete with VEON Ltd. (VimpelCom) in the corporate, operator and residential fixed line telecommunications markets in Moscow and in certain other regions of Russia where we are present, including, among others, St. Petersburg, Rostov, Nizhny Novgorod, Ekaterinburg and Krasnodar.

    MegaFon, which acquired operators Synterra and Net by Net, and offers services in the operator, corporate and residential fixed line telecommunications markets in Moscow, St. Petersburg, and other regions.

    Akado Group, provider of pay TV, broadband Internet and digital telephony in Moscow. We compete with the Akado Group primarily in the residential fixed line telecommunications market of Moscow.

Corporate subscribers

        The following table sets forth the corporate subscriber market shares of the primary fixed line operators in Moscow as of December 31, 2020:

MTS

    24 %

VEON Ltd. (VimpelCom)

    17 %

Akado

    6 %

Rostelecom

    15 %

Other

    38 %

Total

    100 %

Source: TMT Consulting.

        In the corporate subscriber segment, we generally compete on the basis of network quality, individual and bundled service offerings, customer service, installation time, geographical presence and pricing.

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Residential subscribers

Voice services

        According to TMT Consulting, as of December 31, 2020, fixed-line voice services' penetration was 27% in Russia. The following table sets forth the market shares of the primary fixed line operators for voice services in Russia as of December 31, 2020:

Company
  Russia  

MTS

    18 %

Rostelecom

    74 %

Other

    8 %

Total

    100 %

Source: TMT Consulting.

Internet

        According to TMT Consulting, as of December 31, 2020, broadband Internet penetration of households was 61% in Russia. The following table sets forth the market shares of the primary operators in the residential broadband Internet market in Russia as of December 31, 2020:

Company
  Russia  

MTS

    11 %

VEON Ltd. (VimpelCom)

    8 %

ER-Telecom

    12 %

Rostelecom

    36 %

Other

    33 %

Total

    100 %

Source: TMT Consulting.

Pay-TV

        According to TMT Consulting, as of December 31, 2020, pay TV penetration was 81% in Russia. The following table sets forth the market shares of the primary operators in the TV market in Russia as of December 31, 2020:

Company
  Russia  

MTS

    9 %

Rostelecom

    23 %

Tricolor TV

    27 %

ER-Telecom

    8 %

Orion

    7 %

Other

    26 %

Total

    100 %

Source: TMT Consulting.

        In the TV market, we generally compete on the basis of pricing, channel selection and content, individual and bundled service offerings, customer service and installation time.

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Tariffs

        We establish prices for our unregulated services and different subscriber segments based on certain common considerations, policies and goals. For example, we generally seek to establish competitive prices based on market rates for the services we offer and below market prices when our lower than average costs or economies of scale allow us to do so. We also offer subscribers bundled service packages with several services offered together at a discount to the cost of ordering each individual service separately and to promote additional services to our existing subscribers. In addition, we often offer promotions to our various subscriber segments waiving or discounting installation fees in order to attract new subscribers or promote new services.

        With regard to corporates, we generally aim to derive the bulk of our operating revenues from monthly payments. Thus, depending on the scale and type of services ordered, we will often discount or waive installation fees.

        For services offered to other communications service providers, we aim to generate most of our operating revenues from monthly payments and by offering an array of value added services.

Network Infrastructure

Network Infrastructure—Transmission Networks

Backbone and Internet Networks

        Mobile, fixed and inter-carrier aggregated traffic increased in 2020: downlink (towards users) data throughput reached 7.06 Tbps (4.83 Tbps in 2019), uplink (from users) data throughput reached 2.27 Tbps (1.5 Tbps in 2019).

        The size of MTS fiber-optic networks increased by 9,004 km in 2020 and reached 249,712 km in total.

        The main factor affecting development of our backbone and internet networks in 2020 was the COVID-19 outbreak. The traffic of the backbone Internet network increased by 25% from 6 March 2020 through 2 April 2021. The backbone network successfully passed stress test.

        Development of the backbone network in 2020:

    we launched the route Vologda-Kotlas (new line);

    we launched the route Kotlas-Syktyvkar-Ukhta-Pechora-Vorkuta-Labytnangi-Salekhard (IRU).

Convergent network

        In accordance with our deployment plans, we completed the following projects in 2020:

    New MBH nodes were deployed: 1,883 ; replacement of obsoleted MBH equipment is ongoing.

    Micro wave links were deployed: 4,403.

    The size of fronthaul fiber-optic has been increases by 5226 km.

    More than 10 5G test zones were launched in different cities of Russia.

    We implemented NCE Huawei system and Cisco WAE.

        We are negotiating launch of the shared network deployment and links interchange projects with other operators and signed the memorandum of understanding with respect to the potential projects. Memorandum defines a list of directions (parts of fiber-optic communication links) which are mutually interesting for both participants. Summarized length of provided communication links is approximately equal on both sides.

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        We successfully completed testing of automated provisioning of new network elements. Request for proposal has been launched. We are planning to implement network automatisation in 2021 year. We have started developing automatic systems for our convergent network and reported first results on Layer123 World Congress.

        We plan to continue the rollout of SD-WAN in commercial usage in 2021.

        As a part of evolution of IPBB (IP Backbone) network equipment modernization is ongoing. The projects assume replacement of Cisco 7600 nodes for ASR9000 nodes due to an end of a support of 7600 nodes.

Satellite Network

        Optimized the existing SCPC backbone and VSAT networks.

        Preparation for work on the integration of new perspective satellite communication systems with 5G / LTE / IoT networks.

        New BTS has been mounted on the South Pole. There was build new satellite connections for a base stations on a Progress and Novolazarevskaya pole stations.

        MTS is part of a team of a new satellite systems.

Public Switching Telephone networks (PSTN)

        The network infrastructure we maintain in Moscow is substantially different to the infrastructures we use in the regions. In Moscow, primarily we have organic growth, while our regional development has largely been through the acquisition of companies with different business models and a focus on different services. As a result, the network infrastructures in the regions outside Moscow and the technologies used to support such infrastructures are different from the network infrastructure established in Moscow and which we currently own. Now telephone network in Moscow and Moscow region has a capacity of more than 1,086,455 telephone numbers.

        All of our PSTN switching centers (TDM and Soft switch) are connected to a digital transport network, which uses SDH and IP technology. The network ensures connectivity with a digital equipment of PSTNs of other operators.

        The SDH network will be operated to support existing clients, but we also provide the moving traffic and clients from SDH/TDM technology to IP.

        The management of the transport network and digital PSTN is carried out remotely from network operation centers.

        As of December 31, 2020, in Moscow and the Moscow region we had a wireless broadband network including 459 base and subscriber stations in the 5-6 GHz frequency band and also near 154 radio-relay lines in the 70-80 GHz frequency band.

        For the provision of Internet access, IP-telephony and other services, we have our own IP network, the core of which is constructed as IP MPLS rings with routers connected to each other by means of 10 GE channels. In addition, separate routers are used for inter-carrier connections and are connected to the core routers by means of 10 GE interfaces.

Russia

        As of December 31, 2020 we provided cable Internet access to about 10.6 million households and cable TV access to about 10.3 million households. The access equipment used are Ethernet switches, IP DSLAM and Optical Receivers. We mainly use FTTB technology for Internet (10.2 million households)

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and CATV access, which can provide speeds up to 1 Gb/s per building and up to 300 channels CATV (analog and digital). In 2011, we started to roll-out DVB-C technology for a cable TV service. Currently, we have digital TV service (DVB-C&DVB-S2) in approximately 200 cities and localities with 5,45 million of subscribers. In 2014, we started to roll-out an advanced hybrid TV service (DVBC/DVB-S2/IPTV+IP/VOD, CatchUp). By December 2020, we launched Hybrid TV platform with an IPTV commercial service in Moscow and more than 50 other regions, DVB-C/IP Hybrid commercial service in nearly 100 regional cities and DVB-S2/IP Hybrid commercial service all over Russia including 3 UHD channels using HEVC (H.265) format. Total number of connected hybrid TV users is about 0,52 million. During 2019 and 2020 MTS was executing migration from existing Hybrid TV platform to new unified TV platform.

        In September 2019 MTS has launched new unified TV platform and started sales in OTT (mobile) TV segment with TV applications for smartphones, pads, Smart TV, Android-based STBs and PC browsers. Migration process for fixed and segments (Hybrid IPTV, DVB-C, DVB-S) was started in the middle of 2020 with active phase completed in December 2020. During 1st half of 2021 migration in DVB-S and B2B segments is planned to be completed. Number of subscribers activated in OTT segment as of December 31, 2020 amounted to 4,15 million. In order to deliver video traffic to OTT users MTS launched 5 CDN point of presence (6th PoP will be launched in early 2021) with total bandwidth up to 170 Gbits/sec.

        In Moscow and regions as an Internet traffic supplier, we mainly use our own IP Backbone network.

        The acquisition of Comstar provided us with an opportunity to use MTS fiber optic lines for fixed network development. Optical network construction in cities is carried out on the basis of fixed and mobile business needs. When we modernize and construct new networks, we deploy fixed and mobile equipment on the basis of "collocation" method

Principal suppliers

        Our principal suppliers are: Huawei, Iskratel, Oracle-PSTN switching equipment and SBC; Ericsson, Harmonic, Summavision, Teleste, Lifestream—equipment of Digital TV station; Irdeto, Verimatrix—CAS TV systems; Huawei—Hybrid TV platform; Cisco Systems, Huawei, Juniper-FTTB core; Cisco Systems, Alcatel, Coreant, Huawei, FiberHome, D-Link-FTTB aggregation-access.

        All of our equipment is supplied directly through authorized dealers.

Seasonality

        Our results of operations are impacted by certain seasonal trends. Generally, revenue is higher during the second and third quarter due to increase in roaming revenues and guest roaming revenues during these quarters. Quarterly trends can also be influenced by a number of factors, including new marketing campaigns and promotions, and may not be consistent from year to year.

        In 2020, the measures for combating COVID-19 which included restrictions on movement had a significant impact on the seasonality of our roaming revenues and resulted in the reduction in international roaming of our subscribers and income from guest subscribers.

        The COVID-19 outbreak has had a significant impact on the development of the telecommunications industry and contributes to the development of digital services. We recorded an increase in the consumption of internet traffic in mobile and fixed networks as well as, an increase in the number of users of online services, TV users and others OTT applications.

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Regulation of Telecommunications in the Russian Federation

Regulation in the Russian Federation

        In the Russian Federation, the federal government regulates telecommunications services. The principal law regulating telecommunications in the Russian Federation is the Federal Law on Communications, which provides, among other elements, for the following:

    licensing of telecommunications services;

    requirements for obtaining a radio frequency allocation;

    equipment certification;

    equal rights for individuals and legal entities, including foreign individuals and legal entities, to offer telecommunications services;

    fair competition;

    freedom of pricing other than pricing by companies with a substantial position in public telecommunication networks; and

    liability for violations of Russian legislation on telecommunications.

        The Federal Law on Communications came into force on January 1, 2004. The Federal Law on Communications creates a framework in which government authorities may enact specific regulations. Regulations enacted under the legislative framework in place prior to the enactment of the Federal Law on Communications continue to be applied to the extent they do not conflict with the Federal Law on Communications.

        The Federal Law on Communications, which confers broad powers to the state to regulate the communications industry, including the allocation of frequencies, the establishment of fees for frequency use and the allocation and revocation of numbering capacity, significantly modifies the system of government regulation of the provision of communications services in Russia. In particular, licenses to provide communications services in territories where frequency and numbering capacity are limited may be issued only on the basis of a tender, whereas according to the Government Decree No. 480 dated May 24, 2014, licenses to provide communication services with frequency spectrum—only on auction basis. In addition, the Federal Law on Communications provides for the establishment of a "universal services reserve fund" which is funded by a levy imposed on all operators of public networks, including us.

Regulatory Authorities

        The Russian telecommunications industry is regulated by several governmental agencies. These agencies form a complex, multi-tier system of regulation that resulted, in part, from the implementation of the Federal Law on Communications, as well as from the large-scale restructuring of the Russian government in March 2004 and subsequent restructuring in May 2008. See also "Item 3. Key Information—D. Risk Factors—Risks Relating to Our Countries of Operation—Political and Social Risks—Political and governmental instability in Russia and other countries of our operations could materially adversely affect our business, financial condition, results of operations and prospects and the value of our shares and ADSs."

        The Ministry of Digital Development, Communications and Mass Media of the Russian Federation is the federal executive body that develops and supervises the implementation of governmental policy in the area of communications and coordinates and controls the activities of its subordinate agencies. The Ministry has the authority to issue certain regulations implementing the Federal Law on Communications and other federal laws.

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        The Federal Service for Supervision of Communications, Information Technology and Mass Media (Roskomnadzor) is a federal executive body that supervises and controls certain areas of communications and information technologies, including:

    the issuance of licenses and permissions in the area of communications and information technologies;

    the registration of radio-electronic and high-frequency equipment;

    the assignment of radio frequencies based on decisions taken by the State Commission For Radio Frequencies and registration of such assignments;

    the technical supervision of networks and network equipment throughout Russia;

    the monitoring of compliance by network operators with applicable regulations, terms of their licenses and terms of the use of frequencies allocated and assigned to them;

    the enforcement of equipment certification requirements;

    the examination of electromagnetic compatibility of equipment with existing civil radio-electronic equipment;

    the organization of tenders with respect to licenses in the sphere of communications;

    the control of activity in processing of personal data; and

    creation, building and maintenance of a unified automated information system Unified Register of Domain Names, Internet Website Page Locators and Network Addresses which Allow to Identify Internet Websites Containing Information Prohibited for Distribution in the Russian Federation.

        The Federal Agency of Communications is a federal executive body that implements governmental policy, manages state property and provides public services in the area of communications, including the allocation of numbering capacity and the certification of equipment for compliance with technical requirements.

        The State Commission For Radio Frequencies is an inter-agency coordination body acting under the Ministry of Digital Development, Communications and Mass Media of the Russian Federation which is responsible for the regulation of the radio frequency spectrum, develops long-term policy for frequency allocation in the Russian Federation and decides on the allocation of frequency bands.

        The Federal Antimonopoly Service (FAS) is a federal executive body that supervises competition regulations and enforces the Federal Law on Protection of Competition and the Federal Law on Natural Monopolies and the regulations enacted thereunder. The FAS controls certain activity of natural monopolies, including monitoring their execution of certain obligatory contracts, and can issue mandatory orders as provided for in the Federal Law on Natural Monopolies. In addition, the FAS regulates certain tariffs in the sphere of telecommunications, including the tariffs on the local, intra-zone and DLD calls by subscribers of public switched telephone networks and installation and subscription fees.

        Other regulatory authorities.    The Russian Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing (Rospotrebnadzor) is responsible for the enforcement of sanitary regulations, including some authority over the location of telecommunications equipment, and supervises the compliance of companies with the regulations relating to the protection of consumer rights. The Federal Service for State Registration, Cadastre and Cartography (Rosreestr) is responsible for registering certain telecommunications infrastructure that is considered real property in accordance with Government Decree No. 68 dated February 11, 2005. The Federal Financial Monitoring Service (Rosfinmonitoring) is a federal executive body responsible for countering money laundering and

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terrorism financing. Mobile operators are to comply with Federal Law No. 115-FZ dated August 7, 2001 "On Combating Money Laundering and Terrorist Financing."

Licensing of Telecommunications Services and Radio Frequency Allocation

        Telecommunications licenses are issued based on the Federal Law on Communications and Government Decree No. 480 dated May 24, 2014 on Bidding Process (Auctions, Tenders) for Receipt of Telecommunications License. Under these regulations, licenses may be issued and renewed for periods ranging from three to twenty-five years. Several different licenses to conduct different communication services may be issued to one entity. Provided the licensee has conducted its activities in accordance with the applicable law and terms of the license, renewals may be obtained upon application to the Federal Service for Supervision of Communications, Information Technology and Mass Media. Officials of the Federal Service for Supervision of Communications, Information Technology and Mass Media have broad discretion with respect to both issuance and renewal procedures.

        A company must complete a multi-stage process before the commercial launch of its communications network. A company must:

    receive a license from the Federal Service for Supervision of Communications, Information Technology and Mass Media to provide communications services;

    obtain approval to use specific frequencies within the specified band from the State Commission For Radio Frequencies if providing wireless telecommunications services; and

    obtain permission from the Federal Service for Supervision of Communications, Information Technology and Mass Media for network operations. To receive this permission, a wireless telecommunications services provider must develop a frequency assignment and site plan, which is then reviewed and certified by the Federal Service for Supervision of Communications, Information Technology and Mass Media for electromagnetic compatibility of the proposed cellular network with other radio equipment operating in the license area. The Federal Service for Supervision of Communications, Information Technology and Mass Media has discretion to modify this plan, if necessary, to ensure such compatibility. Effective January 1, 2004, licenses may be transferred in case of mergers or other reorganizations of the licensee upon application by a transferee as a new license holder. Additionally, the Ministry of Digital Development, Communications and Mass Media of the Russian Federation has declared that agreements on the provision of telecommunications services must be concluded and performed by the license holder.

        If the terms of a license are not fulfilled or the service provider violates applicable legislation, the license may be suspended or terminated. Licenses may be suspended for various reasons, including:

    detection of violations which may cause damage to rights, interests, life or health of individuals or to interests of government administration including, but not limited to, presidential and government telecommunication networks, defense, security and protection of legal order in the Russian Federation;

    annulment of a frequency allocation if it results in the inability to render communications services;

    failure in a timely requirements of the licensing authority, which commits to eliminate detected violations, including provisions that had been granted under reprimand to suspend the license.

        In addition, licenses may be terminated for various reasons by a court, including:

    failure to remedy in a timely manner a violation that led to the suspension of the license;

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    provision of inaccurate information in documents on the basis of which a license was issued; and

    failure to fulfill obligations undertaken in the process of a tender or auction.

        The license may also be terminated by the Federal Service for Supervision of Communications, Information Technology and Mass Media in a number of cases, including liquidation of a license holder. A suspension or termination of a license may be appealed in court.

        Frequencies are allocated for a maximum term of ten years, which may be extended upon the application of a frequency user. Under the Federal Law on Communications, frequency allocations may be changed for purposes of state management, defense, security and protection of legal order in the Russian Federation with the license holder to be compensated for related losses. Further, frequency allocations may be suspended or terminated for a number of reasons, including failure to comply with the conditions on which the frequency was allocated.

        The following one-time license fee is payable irrespective of the number of regions covered by the license: RUB 7,500 for services involving, among other things, the use of a frequency spectrum and the lease of communication channels. The license fee for a license received through a tender or auction is determined by the terms of such tender or auction. The official fee of RUB 750 is to be paid for renewing (re-issuing) the license.

        Furthermore, the Federal Law on Communications provides for the establishment of a "universal services reserve fund" for the purpose of supporting communications companies operating in less developed regions of Russia through the financing, construction and maintenance of telecommunications networks in low-profit and unprofitable sectors. This reserve fund is aimed at eliminating the practice of cross-subsidies by compensating operators for certain mandatory, loss-making local services in rural and sparsely populated areas. It is funded by a levy imposed on all operators of public networks, including us, in the amount of 1.2% of revenues from telecommunications services less the amount of taxes paid by subscribers. The universal service fund concept has been used in some developed countries and in Eastern Europe.

        The Federal Law on Communications empowers the Russian government to determine and annually review the list of licensing requirements applicable to various communication services being licensed. The list of licensing requirements was enacted by Government Decree No. 2385 dated December 30, 2020. Licenses also generally contain a number of other detailed conditions, including a date by which service must begin, technical standards and certain other terms and conditions. We have either commenced service by the applicable deadline or received an extension of the applicable deadline for all of our licenses.

Equipment Certification

        Government Decree No. 532 adopted on June 25, 2009, sets forth the types of communications equipment that is subject to mandatory certification. Communications equipment must be certified, or its compliance with the established requirements must be declared and proven in the interconnected communications network of the Russian Federation, which includes all fixed line and wireless networks open to the public. All our networks must be certified. The Federal Agency of Communications issues certificates of compliance with technical requirements to equipment suppliers based on the Agency's internal review. In addition, a Presidential decree requires that licenses and equipment certifications should be obtained from the Federal Security Service to design, produce, sell, use or import encryption devices. Some commonly used digital cellular telephones are designed with encryption capabilities and must be certified by the Federal Security Service.

        Further, certain high-frequency equipment, a list of which was approved by Government Decree No. 539 dated October 12, 2004 (as amended), manufactured or used in the Russian Federation, requires special permission from the Federal Service for Supervision of Communications, Information

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Technology and Mass Media. Failure to receive such certification could result in the mandatory cessation of the use of such equipment. In accordance to Government Decree No. 1252 dated November 27, 2014, the equipment can be shared by operators according to their agreement and certificate of the Federal Service for Supervision of Communications, Information Technology and Mass Media. In accordance with the Federal Law No. 204 dated June 23, 2016, the radio frequency spectrum can be shared by operators according to their agreement. In the case of shared-use of the radio frequency spectrum for the provision of telecommunications services each operator should have proper telecommunications services license.

Competition, Interconnect and Pricing

        The Federal Law on Communications requires federal regulatory agencies to encourage competition in the provision of communication services and prohibits the abuse of a dominant position to limit competition. The Federal Law on Communications provides that telecommunications tariffs may be regulated in cases provided for by legislation. The Federal Law on Communications and Presidential Decree No. 221, enacted on February 28, 1995, as amended, on Measures for Streamlining State Regulation of Prices (Tariffs) allow for regulation of tariffs and other commercial activities of telecommunications companies that are "natural monopolies." Government Decree No. 637, dated October 24, 2005 (as amended) authorized the FAS to set the following tariffs for the natural monopolies in the communications market, including:

    provision of access to a local telephone network;

    permanent use of a subscriber's line; and

    local, intra-zone and DLD calls.

        In addition, the Federal Law on Natural Monopolies No. 147 dated August 17, 1995 establishes the legal basis for federal regulation of natural monopolies, including those in the communications market, and provides for governmental control over tariffs and certain activities of the natural monopolies. The Federal Law on Natural Monopolies outlines the types of transactions for which a regulated entity must obtain prior FAS approval and establishes the general principle that regulated entities may not refuse to provide regulated services to certain types of consumers. Regulated entities are also subject to continuous reporting requirements, including submitting plans for capital investments.

        The FAS maintains a Register of Natural Monopolies whose tariffs are controlled and regulated by the state. A telecommunications operator may be included in this register upon a decision by the FAS based on analysis of the operator's activities and the market conditions.

        Our subsidiary, MGTS, was added to the Register of Natural Monopolies in 2000 and, therefore, is subject to the requirements of the Federal Law on Natural Monopolies including, inter alia, the following:

    the FAS regulates and controls tariffs for services provided by MGTS, including installation fees, monthly subscription fees (for subscribers to the unlimited tariff plan) and local call charges (for subscribers who do not use the unlimited tariff plan);

    MGTS must obtain prior FAS approval for any transaction involving the acquisition, disposal or lease of assets not related to the regulated activity, if the value of such assets exceeds 10% of MGTS' share capital, additional capital, retained profits and reserves;

    MGTS is required to maintain separate accounting records for each type of activity;

    MGTS is required to publicly disclose information on tariffs, products, material conditions of contracts with customers, capital expenditure programs and certain other information; and

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    MGTS is required to comply with Federal law No. 223-FZ dated July 18, 2011 "On Procurement of Goods, Works, Services by Certain Types of Legal Entities" while procurement of goods and services.

        It should also be noted that our subsidiary Comstar-Regions was added to the Register of Natural Monopolies in 2009, but on November 24, 2015 it was excluded therefrom and on December 5, 2015, it merged into MTS.

        In addition, companies which are found to have dominant position on relevant markets may be subject to certain FAS restrictions in conducting their business, including in relation to pricing, acquisitions, geographical expansion, and associations and agreements with competitors. On January 5, 2016, the new version of the Federal law No. 135-FZ "On Protection of the Competition" came into force and the regulations in relation to the register of companies holding market share excess 35% were repealed. Nowadays, dominant position should be on case-by-case basis. See also "Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business—If we are found to have a dominant position in the markets where we operate and are determined to have abused this position, the FAS may be entitled to regulate our subscriber tariffs and impose certain restrictions on our operations."

        The Federal Law on Communications also provides for the special regulation of telecommunications operators occupying a "substantial position," i.e., operators which together with their affiliates have, in the Russian Federation generally or in a geographically defined specific numerical zone, 25% or more of installed capacity or capacity to carry out transmission of not less than 25% of traffic. MGTS was added to the register of telecommunications operators occupying a substantial position and, therefore, is subject to the requirements of the Federal Law on Communications relating to operators occupying a substantial position in the public switched telephone networks including, inter alia, the following:

    MGTS must develop interconnect rules and procedures in accordance with the requirements set forth by the federal government;

    MGTS must ensure that interconnect agreements with operators who intend to interconnect to our networks are entered on the same terms and conditions as the agreements between MGTS, us and our affiliates; MGTS also cannot refuse to provide interconnect or discriminate against one operator over another;

    MGTS must comply with the mandatory orders of the Federal Service for Supervision of Communications, Information Technology and Mass Media issued if non-compliance with law was identified as a result of monitoring of MGTS' interconnect terms; and

    MGTS must comply with the tariffs for interconnect and traffic transit where determined by the Federal Agency of Communications.

        The Federal Law on Communications and implementation rules adopted by Government Decrees No. 161 dated March 28, 2005, and No. 627 dated October 19, 2005, also provides for government regulation of interconnect tariffs established by operators occupying a substantial position. In addition, such operators, including MGTS, are required to develop standard interconnect contracts and publish them as a public offer for all operators who intend to use such interconnect services.

        Notwithstanding the above, fixed line operators not considered to occupy a substantial position and not included in the Register of Natural Monopolies, as well as mobile operators, are free to set their own tariffs. Also see "Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business—If we or any of our mobile network operator subsidiaries operating in Russia are identified as an operator occupying a "substantial position," the regulator may reduce our interconnect tariffs which, in turn, may have a material adverse effect on our financial condition and results of operations."

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Calling Party Pays

        In March 2006, the Federal Law on Communications was amended to incorporate a "calling party pays" scheme effective as of July 1, 2006. Prior to the implementation of the "calling party pays" principle, subscribers of fixed line operators could initiate calls to mobile phone users free of charge. Under the current system, fixed line operators charge their subscribers for such calls and transfer a percentage of the charge to mobile operators terminating such calls. The percentage transferred to mobile operators is regulated by the Federal Service for Supervision of Communications, Information Technology and Mass Media and is known as the settlement rate.

Communications Services rules and Mobile Number Portability

        On December 15, 2014, Government Decree No. 1342 concerning fixed and mobile services rules was adopted. This act, inter alia, has changed rules and conditions of MNP process (retaining telephone number after switching from one mobile operator to another) of certain types of legal entities and state customers. The period of switching numbers for mentioned subscribers was decreased and the procedure was simplified.

        Introduction of renewed procedure on MNP in respect of particular legal entities and state customers affects the mobile services market in Russia and leads to intensification of competition.

Anti-terror law

        The Federal Law No. 374 dated July 6, 2016, amended some legislative acts and established additional measures to counter terrorism and to maintain public safety.

        In accordance with the abovementioned amendments to the Federal Law on Communications (came into force in July, 2018) the telecommunications operators have to store and to provide to the authorities upon request the information on the facts of receiving, transmitting, delivering and (or) processing of voice information, text messages, images, sounds, video, or other communications by their subscribers, as well as relevant messages themselves.

        The implementation of these amendments has a material effect on telecommunications operators' financials and performance, see also "Item 3. Key Information—D. Risk Factors."

Subscribers identification

        The Federal Law No 245 dated July 29, 2017, amended the Federal Law on Communications to prevent the conclusion of the contract on the provision of services of mobile communications without proper identification of the subscriber (user) of communication services.

        These amendments (came into force in June, 2018) have material effect on telecommunication operators since they are required to implement measures to organize the interaction with state resources for verification of information on subscribers.

Sovereign Internet

        The Federal Law No. 90 dated May 1, 2019, establishes the obligation of telecommunications operators to install equipment to counter threats to the stability, security and integrity of the Internet on the territory of the Russian Federation. Consequently, operators are likely to face additional costs for the maintenance and operation of this equipment. For more information on the law, see "Item 3. Key Information—Legal Risks and Uncertainties—Regulatory changes in Russia as well as regulatory changes at the international level may have a material adverse effect on our financial condition and results of operations."

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Personal data

        We are subject to laws and regulations regarding privacy and protection of the user data, including the Federal Law No. 152-FZ "On Personal Data" dated July 27, 2006 (the "Personal Data Law"). The notion of "personal data" under Russian law includes any data which relates (directly or indirectly) to an identified or identifiable individual. There is no closed list of information which denotes personal data and any data (or set of data) which identifies a specific individual is treated as personal data. Typically name and contact details are considered to be personal data. The amendments to the Personal Data Law implemented by the Federal Law No. 519 dated December 30, 2020 (which entered into force on March 1, 2021) set forth new rules on processing of a specific type of personal data, being personal data which are made available to the general public (the "Relevant Data").

        Russian law uses the term "data operator" to denote a person who determines the scope and purposes of the processing (this notion is equivalent to the notion of the "data controller" under the European Union General Data Protection Regulation). Russia also has a notion of "person involved into the data processing by the data operator" which is equivalent to the notion of "data processor" under the European Union General Data Protection Regulation.

        The Personal Data Law, among other things, requires, subject to a limited number of exceptions, that an individual provide specific, informed and conscious consent to any processing (i.e. any action or combination of actions performed on personal data, including the collection, recording, systematization, accumulation, storage, use, transfer (distributing, providing or authorizing access to), blocking, deleting and destroying) of his/her personal data. In respect of most types of data, the Personal Data Law does not require the consent to be in writing (under the Personal Data Law, "in writing" means hand-written or subject to qualified electronic signature) but requires that the consent be in a form that, from an evidential perspective, sufficiently attests to that the data subject.

        The consent must be in writing in certain cases, including: (i) where the processing relates to special categories of personal data (regarding the data subject's race, nationality, political views, religion, philosophical beliefs, health conditions or intimate information); (ii) where the processing of personal data relates to any biometrics; (iii) cross-border transfers to a state that does not provide adequate protection of rights of subjects (e.g. under Russian law, the United States is one of such states); and (iv) the certain types processing of an employee's personal data, etc. The written consent of subjects must meet a number of formal requirements and must be signed by holographic or electronic signature.

Procedure for concluding subscription contracts

        The Federal Law No 533-FZ dated December 30, 2020 (will come into force in June 1, 2021), amended the Federal Law on Communications to tighten the procedure for concluding subscription contracts, including:

    The Federal Law introduces the concept of "IMEI". Subscribers have the right to enter in their profile in the Integrated Identification and Authentication System (IIAS) information about the subscriber number and (or) IMEI used by them. If the subscriber's device is lost, he may report this to the operator through the IIAS. Subject to the confirmation of an IMEI number, telecommunications operators should stop providing telecommunications services for the lost device. The introduction of IMEI control in the presence of subscriber devices with the same IMEI, including bona fide owners (users), will lead to a violation of the rights of such bona fide owners.

    The possibility of remote conclusion of subscription contracts by means of a Simple Electronic Signature obtained during a personal visit to the office of the telecommunications operator will be excluded.

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    The conclusion of subscription contracts for devices with eSIM technology on the Internet will be possible only through the Unified Biometric System and the Enhanced Qualified Signature.

    Provision of telecommunications services to corporate clients will be possible only if information about their users is entered in the IIAS. Telecommunications operators will be required to check the availability of such information in the IIAS from December 1, 2021 and stop providing telecommunications services to users with unreliable personal data.

    Provision of telecommunications services to corporate clients for M2M devices will be possible only if information about the subscriber number, address of the corporate client or location of the device, and other information is entered in the IIAS which will create additional restrictions for the development of M2M services, including Internet of Things projects.

    Roskomnadzor will create an information system for monitoring to check the work of telecommunications operators. Telecommunications operators will need to refine their business processes and IT-systems to connect to the information system for monitoring.

Licenses

Mobile Services

        The following table shows, as of March 29, 2021, information with respect to the license areas in which we and our subsidiaries and affiliates provide or expect to provide GSM, LTE and UMTS services:

License Region
  License   Radio Access Networks Technologies   License
number
  Expiry date

Moscow License Area

               

Moscow

  MTS PJSC   GSM/UMTS-900, GSM/UMTS/LTE –1800   182375   April 28, 2023

Moscow region

  MTS PJSC   GSM/UMTS-900, GSM/UMTS/LTE –1800   182375   April 28, 2023

St. Petersburg License Area

               

St. Petersburg

  MTS PJSC   GSM/UMTS/LTE-900, GSM/LTE –1800   161213   April 28, 2023

Leningrad region

  MTS PJSC   GSM/UMTS/LTE-900, GSM/LTE –1800