Expanding the Subscriber Base

Kcell seeks to maintain its market-leading position in terms of revenue and number of subscribers by offering products and services at competitive prices and by expanding its range of products, providing a high quality network, and increasing the value of its brands. In 2012, the Company’s subscriber base increased by 24.1% and reached 13.5 million users.

Subscriber Base

Kcell is the leading provider of mobile services in Kazakhstan in terms of the market share based on revenues and number of subscribers. In 2012, the Company’s customer base increased by 2,612,737 subscribers to 13.5 million users.

In 2012, Kcell’s market share by number of subscribers was 46.9% (calculated by the Company based on the number of subscribers who use the Company’s services not less than once a month). Market share in total number of subscribers fell by 1.4% due to increased competition in comparison with 2011. The Company took measures to reduce tariffs in response to competitive pressures.

Due to its advantageous position in the mass segment and corporate segment, average revenue per user (ARPU) is high. The Company’s market share in terms of revenue was higher than its market share in terms of subscribers. Kcell’s market share in terms of revenue was 54.5% in 2012 (according to data on revenue provided by each of the operators).

Kcell’s market-leading position is supported by its customer-centric approach, strong local brands, extensive distribution network and high quality networks. The Company develops services and tariff plans according to subscribers’ needs and preferences. Kcell’s Customer Relations Department seeks to maintain long-term relationships with subscribers and dealers by providing high quality customer service and providing individual support to subscribers via call-centers and walk-in centers, as well as self-service via the Internet and an interactive voice response menu. The Company monitors the quality of customer service on a regular basis.

Kcell was the first operator in Kazakhstan to introduce a decentralized regional management structure. The program to decentralize management of operations was launched in 2009 with the goal of improving efficiency and increasing Kcell’s market share in selected regions. As of December 31, 2012, the Company had 18 regional centers, each of which controlled day-to-day operations in the region and reported regularly to the Kcell management. The Company estimates that Kcell has the largest market share in terms of number of subscribers in 11 regions, and the second largest share in seven other regions.

Subscriber Groups

The Kcell marketing strategy focuses on maintaining and strengthening its leading position by using competitive tariff plans and a personal touch to the market, by improving the quality of its network and services, and through innovation and brand strengthening.

The Company forms its service packages based on characteristics and needs of its subscribers. Market research reveals customer preferences and current trends. The Company uses an internal model to classify subscribers into groups in order to tailor services to the needs of its clients.

Kcell tries to respond flexibly to subscribers’ changing needs and provides both pre-paid and post-paid service (including paid-in-advance). As of December 31, 2012, the Company had 13,35 million pre-paid and 0,11 million post-paid subscribers.

Brand Development

The Company sells products and services under the Kcell and Activ brands, which were established in 1999 and are now widely known in Kazakhstan. The Company's branding strategy envisages the development of Kcell as a premium brand and Activ as a brand for the mass market. Clients associate these brands with local roots, user-friendly products and services, and the high quality of their network and customer service standards.

The Kcell is targeted at corporate clients and high net worth individual subscribers. Kcell’s subscribers are predominantly aged 23 to 50 and have an above-average income. In 2012, the Kcell brand’s share of the Company’s subscriber base was 12.9%.

Since 2011, the Kcell brand was further synchronized with a common concept created by TeliaSonera for its affiliated companies. The rebranding featured a new common logo and color scheme, and also reshaping of some brand values to align with the values of TeliaSonera. At the core of Kcell’s updated values were innovation, reliability, efficiency, sustainability and personal approach.

The Activ brand is targeted primarily at the mass market. Activ’s subscribers are predominantly 17 to 35 years of age, with average or below-average incomes. In 2012, Activ’s share of the Company’s subscribers was approximately 87.0%.

Activ is marketed as a creative brand that provides its subscribers with a variety of tariff plans and value for money. The Company plans to re-brand Activ in the near future. The Company expects to develop and implement the rebranding campaign in close collaboration with TeliaSonera.